Why I'm Bullish on Gold and Silver | Michael Gentile and Jimmy Connor
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FREE Virtual Copper Conference June 6 at 8am ET Register https://bit.ly/4nV0LKe Michael Gentile, Senior Portfolio Manager at …
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Did you know that copper is up 12% on the year and trading at all-time highs? BHP, the world's largest copper producer, is up 35% on the year. Freeport Macaran, the largest producer in the US, is up 25% on the year. And these moves are being driven by this insatiable demand for copper, which is used in AI data centers, EVs, power grids, wind turbines, and so much more. If you would like to learn how to invest in copper, join us on June the 6th at 8:00 a.m. Eastern time for a free 3-hour master class on copper and how to invest in copper. And if you can't join us live, not a problem. You got a replay link once you register so you can check it out anytime, 24/7 at your convenience. Once again, that's June the 6th at 8:00 a.m. Eastern time. There's a registration below in the show notes. I hope to see you there. Michael, thank you very much for joining us today. You are a senior portfolio manager at Bastion Asset Management in Montreal. And for those who might not be familiar with your firm, what is the firm's investment mandate and also what is the firm's AUM? >> Yeah, so I wear two hats, James. Um, Basha Management, it's a firm I co-founded about four and a half years ago with two of my former partners from my previous life previous in the business. Uh, it's about 800 million uh in assets under management. Uh, focus is small cap equity. So my definition of small cap sort of 500 million to 10 billion market caps Canada US uh bottom up stock picking concentrated long short hedge fund. So we'll we'll have 30 to 50 longs 20 to 30 shorts uh where we do true work. We don't trade around quarters or news like most hedge funds do. to actually do the bottom up work, try to hold stocks for 12 to 24 months uh looking for real alpha, real outsized opportunities which as you probably know you can find in the small cap space which is ever more poorly researched as all the money goes to larger cap more liquid names. We see a lot of opportunity in the small cap space. Uh the other hat I wear is I've been investing commodities my whole career. Uh 2530 years now in the markets and uh I've started 2018 before I joined bashed asset management investing in micro cap junior resource equities like sub $50 million market cap really early stage trying to bring some professionalism and some rigorous research to a space that's typically very poorly researched more like a casino bringing that institutional rigor to a underfollowed underappreciated sector. So had a lot of success doing that. And so I invest my own capital there and then Bashion will be more kind of producers and generalist fund all sectors not just mining resources but a lot of other sectors as well. >> And when we're looking at Bastion what percent of its AUM would be allocated or invested in resources? >> Yeah. So the lead portfolio manager is Charles Hager. He runs that fund extremely well. Uh I support him there as a senior portfolio manager. Invest uh cover the commodity sector for the fund. Right now it's probably about 15% 15 but it could be zero. uh next week if Charles thinks the cycle's over. Doesn't see any opportunity in the space. Um but we're looking really for bottom up opportunities with big revaluation. We see a lot of upside potential in the gold names in particular right now. So we've been allocating capital there. But it's not a commodities fund. So uh you invest in the fund. We we look for the best opportunities globally, best sectors, best stocks, and we're we're very much flexible in our in our allocations. And so before we do a deeper dive on you and your investment style, I want to ask you, you said right now you're bullish on gold. And when we started this year in January, it was we had a very positive tone toward the precious metals. And at that time, everybody was expecting the consensus was lower interest rates out of the Fed. That was going to lead to a low lower US dollar and higher gold prices. But here we are like six months later and the tone has changed drastically. And I guess a large large part of that is because of the war when you look out to December, there's a 60% chance right now that interest rates are going to be actually going up. So what is it you're looking at right now? Why do you think gold or why are you positive on gold? >> Yeah. So I mean I got involved in gold in 2018 and and the crux of my thesis was that we have too much debt globally and there was going to be a devaluation of paper currencies to pay off the debt and that thesis has only accelerated through co through the two wars now in Russia and Ukraine and now in Iran. Uh that the debt projections the deficits have blown through my most bullish bullish being debt appreciation going up optimistic expectations I had in 2018. So you know James in in markets you get caught caught up in a lot of noise. So, I was I did a mining tour in Europe, um big five city tour with a bunch of my companies in October. I remember being on the road and high-fiving people cuz gold had crossed through $4,000 an ounce. And everybody said, "Oh, it's gold's through 4,000. It's got to be the end. Can you believe it's this high?" And then you fast forward to today and everyone's going, "Oh my gosh, the market's collapsed." And gold is $4,500 US about. It's been kind of turning around that level for a while. So, gold's up more than 10% from October. Less than, you know, six, seven months later, it's up 10%. But if you read the narrative, you watch interviews, people think the sky is falling and the world's falling apart. So what happened? You know, gold went parabolic in January and I was at VR in January. Gold was like 5,500 I think for a cup of coffee and silver was 125 bucks and the charts went from slow and steady to like straight hockey stick up. I never like when that happens. I think we got too far too fast. The too much speculative money came in the space and there was a big big wash out as you recall kind of in late January, early February where where the price corrected back down. that started the I guess the negative sentiment around gold. And then secondly, you accurately nailed it. The the war in Iran, oil price spiking, inflation spiking, interest rates spiking cause another, you know, wave of negativity around gold. And we can unpack why I think that's wrong and I think why it's actually an incredible opportunity. Um, but that's what's sort of the two the onetwo punch that kind of knock gold down. But just for some perspective for your viewers, gold is up 10 to 12% from October. You know, gold only cracked through four. So the the long-term trend in my view is still very much intact. This shakeout is extremely healthy in my view. You know, we took the we took bullishness from really really high to extremely low. So we've watched a lot of the speculative and the the excitement around the space which I like. And just how this the gold price in the market behaves, you know, James, I think there's a major macro driver. But every time there's any whiff of trouble, people sell gold stocks, people sell gold. That tells me we're still very early in the the cycle, right? bull markets and when everyone's uber bullish and every 2% pullback is viewed as a buying opportunity of the lifetime kind of like you see in tech right now, we don't see that all on gold. So, I think we're still very very early in the cycle. But those are the main two reasons why we've seen some volatility recently. >> And so, just to dive deeper into what you you just said. Okay. So, if we look at the scenario right now, let's just say gold's around 4,500 bucks. Um, interest rates, there's a good chance that interest rates will be going higher by year end, especially if oil stays up above $100 a barrel. Why do you think now is a good time to buy gold? And and what's going to be the catalyst to take gold higher, especially in this current environment? Did you know that copper is up 12% on the year and trading at all-time highs? BHP, the world's largest copper producer, is up 35% on the year. Freeport Macaran, the largest producer in the US, is up 25% on the year. And these moves are being driven by this insatiable demand for copper, which is used in AI data centers, EVs, power grids, wind turbines, and so much more. If you would like to learn how to invest in copper, join us on June the 6th at 8:00 a.m. Eastern time for a free 3-hour master class on copper and how to invest in copper. And if you can't join us live, not a problem. You got a replay link once you register so you can check it out anytime, 24/7 at your convenience. Once again, that's June the 6 at 8 am Eastern time. There's a registration below in the show notes. I hope to see you there. >> Yeah, I have a very contrary view to that. And I think I saw a headline today before we start interview. I think the the chance of a Fed hike by end of year. I just saw it hit my email like it's 100% now. So, the market's pricing at 100% chance of a Fed increase by the year end. I think that's totally wrong. They may hike rates. I think it'll be a massive mistake if they do. But the reality, the dirty secret for the Fed and for Donald Trump and a lot of these governments is they can't raise rates. And so I'll just run some simple numbers for you. We're at $39 trillion of debt in the US right now. The 10 years at 4 and a half foreign change. The 30-year bond crossed 5% recently hit as high of 5.15 a couple days ago. Um so we're we're now looking at $40 trillion of debt by the end of the year because they're adding about a trillion dollars of debt every six months. That's it's about $2 trillion a year in the US. You take $40 trillion of debt the fiscal year 2025 revenue September 25 September 24 total revenue of the US federal government is 5.3 trillion the interest that year was about 900 billion of debt so take simple numbers 10ear rates 4 1/2 30 year rates five plus if you'd assume that they roll all their debt in the next couple years and they have to refinance at 4.5 to 5% 5% * 40 trillion is $2 trillion a year of interest expense they already ran a $ 1.7 trillion deficit fiscal year September 2025 when interest rate was 900 billion. So you're adding on 1.1 trillion to 1.7 trillion of deficit. You're like 2.8 to3 trillion of deficits if you refinance at the current rates. The defense spending in 2025 was 900 billion. Donald Trump's asked for 1.5 trillion defense spending for whatever is going on in the world. So you attack another 500 billion for defense. So all things being equal, you're looking at 3 trillion to $3.5 trillion deficit on a $5 trillion revenue line. That's that's completely unsustainable. And $2 trillion a year interest expense is 40% of your revenues. If you and I are paying 40% of our our revenues on interest on our credit card every month, we bankrupt extremely quickly. That that's how tenuous the US situation is. So when oil price goes up or inflation picks up and you're like Fed's got to raise rates, the reality is they can't. They cannot raise rates or they've got to keep rates well below the rate of inflation. They got to run inflation at 8% and keep the rates at five. They need negative real rates. They need to monetize the debt. Those numbers are undisputable. They're hard math. And that's why every time the 10-year bond or the 30-year bond cracks above five, you see Trump waffling on Iran or, you know, cuz they can't afford the the war. They can't afford the deficits that they're running. They can't afford $120 oil because they can't raise rates. So that's been my overarching thesis. I started talking about this in 2019. You can pull up old interviews when rates were 0% in the co times. I was like, if rates go to 5%, the US is insolvent. And that's exactly where we are right now. The US is literally insolvent in real terms. So that is the bullish case for gold. It's not that gold's going to go up. It's that the US dollar is going to continue to devalue itself against hard assets. And there is no way out for the US government. There's no way out for them to to grow their way out of this to productivity boom their way out of this. The debt the debt numbers are just so big. And the numbers they have to spend on defense, healthcare, social security are so hard to cut that you can't cut your way out of it. You can't grow your way out of it. So you got to print your way out of it or or yield curve control, whatever you want to call it. So I go I I take the under on that 100% chance of an increase. And if they are increasing rates, I'll take the over on inflation being way higher than people think. So whatever you choose, it's going to be I think very very bullish for hard assets. And and that's why I'm so bullish on gold. That's why I don't get overly worried when the gold price pulls back or people sell it off because rates are going higher because of war and Iran. I view all these things as positive to to my long-term macro thesis. >> And we also have a new Fed chair. He's going to be pressured to cut rates. So, we're it's going to be interesting to see how what he does here in the coming months. But, uh, I guess the other thing, so gold's consolidating around, let's just call it 4,500 bucks. Uh, where do you see it going under this scenario? >> It really depends on on how hot inflation is and how quickly they want to monetize the debt. I think it's going to go higher over time. And, you know, when I invest in a in a junior mining company, James, I'm looking at a 5 to 10 year horizon. So I would not be cutting checks right now and which I still am in the in the resource sector if I didn't see a good 5 to 10 year outlook for gold. I'm actually much more comfortable with goals going up 10 12 15% a year than I am seeing it go up like 30% in a quarter like we saw in January Q1 of this year, right? So I think the slow and steady ascent is better. But I also know as as the debt pile increases and those if those numbers are anywhere close to accurate that $3 trillion deficit that starts to go there, you're going to see a hyperbolic increase in inflation and a hyperbolic devaluation of the currency because you just overwhelm your your government with interest expenses. And so there is potential for it to go much much higher uh and faster than people think. But again, you're not going to get richer. Like you you buy gold to preserve your wealth. If gold is 10,000 because you know interest rates are cut to three, inflation 7, you know, everything you want to buy to survive is going to be getting way more expensive. So you you buy gold to preserve your wealth. You don't buy gold to appreciate. You buy it as a hedge. You know, a certain amount of gold in 1970 could have bought you a bungalow in Toronto or Montreal. That same amount of gold would buy you bungalow in Toronto, Montreal today. If you kept that in paper money, you couldn't buy a garage or a parking garage for your bicycle. So that that's what gold does. It holds your val holds the value of your wealth. And so the f the higher the gold goes, it means the more we devaluing the currency. All I know for sure is that the currency is going to continue to be devalued, I think, an ever faster rate going forward. So why don't we examine uh what you do outside of Bastion? And when it comes to investing in these junior resources, how would you describe your investment style? >> Yeah, so in 2018 when I left my old my old job for family reasons, gold was 1300. I was very bullish on gold. I'd always invested in producing gold assets, more institutional kind of blue chip money. And I'd never invested in micro caps before, but I said if gold is going to go up a lot, and I've been right about that, the the biggest leverage you have to rising gold price is not in the barracks or nuance of the world. in the micro cap exploration companies and resource stage companies that trade at pennies on the dollar for ounces in the ground. And so I started approaching the junior resource sector as an institutional investor would. And as you know, we have a long history in the institutional markets, James. Like most institutional investors don't go into micro cap mining stocks because they run too much money and they can't go down cap. There's not enough liquidity. It's not enough return available for them on a dollar basis to get serious about it. So I tried to take a institutional approach to the wild west of junior resource investing. And so what I tried to do is said is okay I've been investing in producing assets for 20 plus years as as a professional investor. What are the hallmarks of producing mines? What makes a producing mine a mine? And what makes a failed mine a failure and superimpose that on the 2,000 plus or 3,000 junior resource companies that are in Canada cuz most of those junior resource companies are never going to go anywhere. They're never going to be mine, never be producing assets. They're speculative vehicles either for exploration or for the benefit of the promoters. And so I started bringing that analysis. And so I tried to do is take a venture capital private equity style models investing in juniors. If you buy a $30 million market cap today in the resource sector, it's going to take 5 10 12 years if a company's very successful to go from discovery to a a producing asset or an asset a major mining company wants to acquire to put in production. So I bought patient sticky capital that has a long-term approach to a space that's very volatile and very short-term. So I have about 30 to 35 companies in my portfolio today. Um I try to acquire 5 to 20% ownership stakes very early in their development. I try to identify which one of those 2,000 companies I own 30 of them have the hallmarks to go all the way to a mine knowing full well that even with my level of knowledge and expertise and and due diligence that only a handful of those 30 to 35 companies will go all the way. And I'm looking when I make my first check for 20 to 50 times my initial investment if I'm right because those winners like in venture capital have to pay for the failures that are natural part of the process. And so that's what I look for. Been doing it for seven or eight years. I do five or six deals a year. I look at probably 500 deals a year. So I do like 1% of the deals I look at. And it's what's very gratifying so far uh to me is I'm now six, seven years into that process. I've had a few graduate from my school, so to speak. and they've been acquired by major mining companies because they've gone all the way from that discovery to a potential buildable mine to be acquired by major mining companies. So the process is working working very well and I continue to refine it over time but that that's my approach and not many people do that in the junior resource space you probably know from your time in institutional sales >> and what were the names that were acquired? >> Uh a bunch of them. So Northern Superior was recently acquired by by IM Gold. Uh Arizona Sonoran was recently acquired by Hudbay. Uh I owned a Roxmore is a company that was acquired by Fortuna Solar Mines and I own Battle North Gold. Those are just four recently in the last you know three four years that have been acquired. And if I'm doing my process right James I hope to have you know one or two or three takeouts every year as a companies kind of graduate through that process. But I'm constantly planting new seeds early stage and as they mature like a good wine they mature over time they become attractive for for major mining companies. >> And what are the hallmarks that you're looking for? >> It's a long list. I can refer your your viewers to some videos I've done me put them in the show notes. I do like a 20 30 minute presentation just on that alone. Um but it's all the attributes that go into a producing mine. So just on the geology side really quick, you know, grade grade is your margin. Um scale, you got to have enough volume of rock or gold or copper to to produce a mine. Uh jurisdiction extremely important. So is it a safe place to mine? Do you have security of title? Uh but more importantly also infrastructure. So what what current roads, power, mills, water, towns are in place because that could cost billions of dollars if you have to put in yourself. So I like to I prefer areas where there already a lot of infrastructure in place. It lowers the the bar. So that would be just very quickly the the geological structural setup and then it's all the soft stuff. You know, it's it's management, it's geological and financial expertise. I look at the cap table, the board directors, inside ownership, how they treat shareholders. Are they there to make money for their shareholders? they going to make money for themselves. Um, you know, what what is the the makeup, the opportunity, financing structure of the company, the cornerstone shareholders? There's a big matrix that goes into it cuz so much has to go right for a junior mining company to be successful that if you can eliminate some obvious red flags along the way, all you're doing is just raising your batting average, raising your odds of success. >> And what's the minimum market cap you look at for investing? >> It's more maximum, actually. So, I I like to make my first check maximum $50 million market cap, preferably lower. Uh, what I'm trying to do is own as much of that company as possible earlier on in its life cycle. And then I get very, very involved. I'm not a geologist. I'm not a mindbuilder. I'm not an engineer. I know what I don't know, but I get very involved in the corporate strategy of the company. So, I help them, you know, raise money, help them clean up their cap table, raise money from the right type of investors. I bring in other investors like me that have five 10 year horizons. So, you know, if if you're junior mining and you take the first money you can get and you do a financing on Monday and it used to be four month hold now these life deals you can sell the next day but let's say fourmonth hold and you're selling four months later if you raise $5 million on Monday and 4 months later all $5 million you raise is for sale in the market you got to find $5 million of buying in the market to replace that financing and then raise other $510 million to keep the company going for another year so I prefer to associate myself with investors that I know are going to be there with me for 5 to 10 years they're buying today they're not selling they're adding in future financings to the company and that gives a company a really good stable base shareholders that they can grow the business if they have success also lowers their cost of capital. So Nor Superior we sold recently I literally had two shareholders that own millions of shares of that company that had it in their sock drawer. They own certificates from four years ago. They never bothered depositing with their broker. They're they're successful wealthy entrepreneurs who believed in my process and like hey I'm with you for 5 10 years. I'm not going to trade it. I'll keep it there. when the company got sold, they had to finally deposit their shares in their account to get their shares of Ryan Gold. Those are the kind of shareholders you want to build a company around, not the renters that are there for for 10 20%. >> And so you're very involved in the capital raising aspect. Uh where do you find most of the money's coming from? Is it coming from Canada, the US or Europe? >> So up until this past year, as you probably know, the markets were very very tough. So I'd say a lot of the companies that I was heavily involved in as a either director or insider major shareholder 10 20% shareholder were literally raising money dialing for dollars like within my network you know friends high net worth entrepreneurs people trying to convince them that there was an opportunity in junior mining like the venture capital model they adopted so that was the brokerage community was was didn't have any pools of capital the major mining funds were seeing outflows there was no interest from generalist funds so a lot of that was hand-to-mouth uh and built and that was actually the best some of the best times to invest best opportunities. Uh these days there's a little bit more money available for the juniors so that the brokerage network has come alive again. So depending on the size of the deal, I can either back stop it myself or when it gets to be a 10, 20, $30 million deal, starting to have a pool of institutional investors that that know the work I do is quality and want to co-invest on deals and the brokers are starting to bring some you some quality family offices and institutional money that has inflows again that are able to invest in smaller companies. So the pool of capital is broadening which is positive because these companies can now move their projects faster, drill them quicker, move the studies faster and and you know graduate quicker to that you know sellable or buildable mind status. Uh but it's still it's still not redot yet in my view. There's still a a lot of apathy. Um people are still really distracted by tech and AI. Most journalists are still not caring about the space or allocating very small capital to it. So there's still a lot of room, but compared to the really dire days of three 3 four years ago, it feels feels a lot better right now. >> And we I didn't ask you about this earlier, but what's the breakdown in your current portfolio? And once again, we want to clarify this is your portfolio and not Bastion's, but what's the breakdown between gold, silver, and copper? >> Yeah. So my horizon has mentioned 5 to 10 years. So, I will not invest in a company that has a commodity that they're associated with that I view is going to be damn over the la next 5 to 10 years. So, I I learned the hard way early on in my career that you can be the best. I started oil and gas in 97. Uh I rode the boom from, you know, the 2000 all the way to 2008. Oil went from like 10 bucks to 140 bucks a barrel. Everyone feels pretty smart when that's happening. All the stocks are doing really well. when oil went from 140 to like 35, you could be the best stock picker in the world and you lost 75% of your money compared to the guy who wasn't the good stock picker who lost 90 or 95. So if the commodity is going down and you have a negative outlook on the commodity, you do not want to be investing in any stock in that sector. And so in 2018 was very bullish on gold. I concentrated most of my investments in gold and precious metals. I still am very very bullish on gold. Um and regardless what the economy does, I'm quite bullish on gold. So, I'd say about 70% of my portfolio is in precious metals right now. Um, several years ago when copper was like 3 350, I saw the supply demand dynamics changing quite nicely for copper. And so, I've got about 20% of my portfolio in copper because I think the next 5 10 years supply demand wise looks really good for copper with some hiccups along the way if we have recessions or issues because much more tied to the economy than than gold is. And then I have a few other ones like like a zinc project, a nickel project where I'm maybe not as, you know, wildly bullish on the outlook for the commodity, but I like the project a lot. I don't think the commodity is going down. I I prefer to have a buildable mine in a nickel asset or zinc asset than having a notable gold asset. But all things being equal to gold, copper, and then zinc, gold, silver, let's say, copper and zinc, nickel are probably the four area I'm focused on right now. >> And do you have a target for copper 5 years out? Um, I think it's got to go higher. I I've said, you know, I had a a really interesting dinner with a with a really accomplished mind builder two, three years ago when copper was like 350 and he told me, "Mike, copper's going to six bucks." Copper was 350. And I'm like, "Why is it going to six bucks?" He said, "Well," I said, "Yeah, there's lots of macro reasons for it. Supply looks weak, demand looks like, no, you don't understand." He said, "For every one of for every five of me, he was in his 50s mind builders, there's only one 30-something that knows how to build a mine." So we have a huge lack of human capital at the time where every government of the world is now waking up saying we got to build mines faster. We got to go like Canada. We got to move. We don't have the human capital. So it's like you have C or D mining teams on inexperienced mining teams trying to build assets that are lower grade you know higher cost more difficult operations to build. So his view was I don't care about the supply demand of copper. You you take care of that Michael. You're you're a finance guy. But on the oper on the execution side, it's going to be very very hard to apply the human capital to the business to bring supply on. So copper, we all seen the demand like electrification AI, we know demand is going. We know that supply takes a heck of a long time to come on and so most there's been no money for the space for 10 years. So most of these projects have been stalled for 10 years. And now when we say we got to go, we don't have the human capital we need to fully deliver these mines on time and on budget. So, I think there's a real, you know, train wreck, depending which way you're looking at it, or very, very bullish scenario for copper and other metals that are going to have a hard time keeping up with demand. So, that's why I'm bullish on copper. And I still think with inflation, we've seen $6 is not enough. Like, you need$8 or $10 copper, probably long term, at least to justify the risks of these mining companies putting in billions of dollars to build new projects. So, that's that's why I'm remain constructive on copper. But, you got to find the right project that actually can get built. And then even more importantly, do they have the right team to bring it on? Because the major mining companies in themselves, the big the super majors, only have a limited amount of capacity to build mines. They can't build five mines at a time. So, you got to have a team that can derisk the project, do it on this, do it on their own if necessary. And those teams are are few and far between. >> What about uranium or lithium? Any views? Um, lithium, I didn't want to touch it 2, three years ago cuz it was so hot and it was on such a hockey stick run that back to my view where if I think the commodity is going to be down versus up over the next 3 to 5 years, I don't want to invest in the sector. So, 2, three years ago, I would not pick up my phone at all on lithium. I just would hang up instantly. Um, now it's got to a level where I'd pick up the phone. Uh, it's had a bit of a rally recently. Um, you can make a case that it should hang in here or potentially go higher in the future. Um, it's not a core focus for me, but it's it's no longer in the no-fly zone in terms of I will not look at stuff, but it has it would have to be a very compelling project because I'm not yet convinced that lithium is going to go up 100% from here over time. Um, so it has to be a project that really works at lower lithium prices with a good team and infrastructure and all the things I look for from on the other side. Uh, uranium, it's been hard because I find uranium stories get valued very very quickly at very high valuations. So if I want to make 20 to 50 times my money, I find because the scarcity of uranium assets in the market and a lot of it's garbage will never get built, but the good ones end up being valued very very quickly. And so it's harder to find that that that multiple I'm looking for on my money. And uranium also they're very very long. Like you think it takes a long time to build a gold mine and uranium is even even longer in terms of permitting and and you know environmental work. So I have not been too active in the uranium space but I do think it's a good place to be. It's just harder to to find enough companies I find attractive to feel like money to work in. >> And when we go back to gold, I mean, we've had a pretty nice uh correction here in the last few months. And not just with the gold price, but with also the producers. What what price do you think the producers are factoring in right now? If you look at a new or did you know that copper is up 12% on the year and trading at all-time highs? BHP, the world's largest copper producer, is up 35% on the year. Freeport Macaran, the largest producer in the US, is up 25% on the year. And these moves are being driven by this insatiable demand for copper, which is used in AI data centers, EVs, power grids, wind turbines, and so much more. If you would like to learn how to invest in copper, join us on June the 6th at 8:00 a.m. Eastern time for a free 3-hour master class on copper and how to invest in copper. And if you can't join us live, not a problem. you the replay link once you register so you can check it out anytime 24/7 at your convenience. Once again, that's June the 6th at 8:00 a.m. Eastern time. There's a registration below in the show notes. I hope to see you there. >> It's a great question. So, if you look, there's a real interesting dichotomy that I've been looking at closely in the market the last several months. The copper producers, you look at the copper names, the the Hud Bays, the Lundines, the Capstones, the world bigger producers in Canada, they're all pricing in, look at their price to NAV or their cash flow estimates, they're all pricing in, let's say copper is 650 or six bucks, they're pricing in 650 or $7 to get to one times NAV at a discounted cash flow model. So the the generalist, you know, what's happened is the the generalist fund managers who have not yet invested in gold have adopted copper because they're all invested in AI and they all believe in AI. their bolts are full of tech stocks in their portfolio. They go, well, this is a a adjunct of AI, electrification, copper refules, the grid. And so they they understand it. So that money flowing in the space has pushed the valuations up to saying like as an in bottomup investor, it's hard to see me making money in these copper stocks unless copper goes higher. So you got to believe copper's going to 8 to 10 to own these stocks and because of generalist money, it's done that. The gold space is the opposite. The gold space is still the really bullish dedicated guys like myself who've been dedicating capital to the space and the dedicated gold funds that are getting a bit of inflows, but we haven't seen a massive wave of generalist money. So, the gold stocks today, if gold is $4,500 to pick a number, they're probably pricing in 35 to $3,800 gold. If you run gold companies at spot, they all have like 10 to 15% 20% free cash flow yield to many of these companies. If you run copper names at spot, they have like 2 3% free cash yield. just to give you an idea of where the market is. So, I see a huge opportunity in in the gold market because I believe gold is going higher, not lower over time. Once that generalist money comes into the space, you're going to see these gold names revalued to where the copper names are or even higher. You know, back in the day, gold names traded at premium to nav. Uh that's not at all the case today. I think that that day is coming once investors realize that $4,500 is more likely a floor long-term than than a ceiling. And that's happening in the copper space, not happening in the gold space. That's why I'm much more interested in deploying capital in the gold names in general than I am in the copper space right now. >> That's an interesting point because when you look at the big caps like BHP, Rio or Freeport, they're trading at or near all-time highs. So, uh, that's something I haven't considered before and I guess that's why. Yeah, there's definitely a lot a lot of generalist money, but what I like about the generalist money going in the copper space, at least they're educating themselves on mining. And so that for them to now roll into gold over time as they realize that the Fed maybe can't raise rates and that we're going to have another series of devaluation the currency going forward, they at least are educating themselves on mining shares. I think they if they look down the street at the gold, they'll see a heck of a lot more value there and a lot more opportunity. And as these companies generate free cash flow, they're buying back their shares. I saw a really interesting chart yesterday. Gold companies are buying back their stock like never before. Like never really happened in history where gold companies have bought back their shares. The amount of share buybacks, free cash regeneration, dividends in the gold space will start to attract generalist investors in my view as well. >> And uh I want to talk about the oil price now because let's just say oil's trading at $100 a barrel give or take. Uh that's having a big impact on both the gas price and also diesel prices. A lot of mines, especially the ones that are located in um off the grid, they're they're run on uh diesel fuel. So, what is this higher diesel price going to do to the all-in sustaining cost of these gold producers? >> Do you think the margins are going to be squeezed here in the coming months or quarters? >> There was a lot of concern when the oil price spiked uh as to it's going to hit the margins. Um put this in context. So, your average, just pick a number, your average gold producer all in allin cost. You throw everything in the kitchen sink about $2,000 an ounce. Gold price $4,500 an ounce. They're making $2,500 per margin. So the oil price spiked, oh my gosh, they're going to they're going to crush their margins. On a bunch of conference calls this Q1 reporting season on average, these are round numbers, but a $10 move in oil, which is like a 10% move in oil, increases the ASIC of most gold producers, all sustaining cost by about 20 bucks. So it's it's not as dramatic as you think. Labor is actually a much bigger input on the costs of oil. Now, if you have a big open pit all running on diesel trucks and you have probably a little bit more sensitivity, but with $2,500 margins, oil goes up 40 bucks. You're talking about 80 to $100 an ounce in your cost structure. When you have $2,500 an ounce margins doesn't feel that tough to me. So, I haven't been that worried about oil prices, you know, and if oil goes to 200, I think the whole economy is going to go into a recession. That's a whole different different issue. And probably gold will be a good place to be in that case longer term as well. Um the real issue has been more availability of oil. So some some mining projects if you're poorly located or you only have access from Moran or the Straits of Hermuz fueling your your diesel or your oil demand is there going to be shortages of oil? That was probably a major risk because that means if you don't have oil, you got to shut down your mine. That's a huge cost to your to your shareholders. Uh but most companies navigated that pretty well as well. So I think it's less of an issue than people made it out to be. And give you some perspective. I mean, in 2020, the margins of gold mining companies when gold price spiked to $2,000 an ounce was about three4 $300 to $400 an ounce. We're talking $2,500 an ounce today. Like these are really wildly profitable businesses. So, there's a bit of room for for some cost pressure there and still having, you know, record-breaking margins every quarter. >> One of the big themes we have seen in the first half of the year is M&A. Elorado acquired Foran, which is a copper or will be a copper producer for 2.8 8 billion. Core acquired new gold for 7 billion. Equinox recently acquired Ora. Do you think this theme of M&A is going to continue in the back half of the year? >> Absolutely. I have I have been saying publicly for several months, I think you're going to see a a boom in M&A, a flurry of M&A transactions. And a few reasons. One, the mining companies are, like I said, record profits. So, every major mining company is now net cash positive, stacking cash on their balance sheet, paying dividends, and buying back stock. and still piling up cash in reserve. And so the narrative shifted from four or five years ago. These companies had debt. They had pretty skinny margins. They were punished for previous bad cycle. So if they talked about any growth at all, they'd be lashed by their shareholders and stocks would get crushed. Now they're paying back 50% of their cash flow and dividends and buybacks. Their balance sheets pristine. Investors are now turning to the reality in the junior mining in the business of mining is that if you don't replace your reserves and resources, 15 20 years from now, you have no business. And so a lot of these mining companies have not put any money in expiration, have put no money in new mine development, and they're now realizing that they don't invest in the future. Not even they're not going to grow, they might see declining production in the future. Uh so I think you're going to see a massive wave of M&A because they can do growth projects and acquire companies and still return a ton of capital to shareholders and still walk around with the net cash on their balance sheet. So that's why I've been predicting it. Why we haven't seen as much as I expected is because the gold price was going too fast. It's very hard to do an M&A deal when you start talking to company XYZ when gold is $3500 an ounce and four months later it's $5,500 an ounce. Your bid ask spread is is so wide that you can't get a deal done. The longer gold stays, you know, flat here, the better it is for M&A cuz then the buy the bid and ask will will come closer together and you'll see you'll see more and more M&A in the space. And the final point is that going way back to 2018 when I started my process is you think when the gold price goes up a lot the junior micro cap should do the best. they've actually underperformed wildly the producers. So the senior mining companies and the bigger mining companies stocks have actually gone up more and faster than the juniors who have more leverage to the space. So they have paper currency that they can use that's way higher value than what they're buying. So there's a lot of value. You can buy junior mining companies today still for $50 to $150 an ounce in the ground which is the same price you used to pay in 20 2011 or 2010 the last cycle when gold was $2,000 an ounce. But gold's two and a half times higher today. So there's real value in the space. It's way cheaper to buy it than it is to build it for a major mining company or find it themselves. And so a lot of the stars are lining for for I think a big a big M&A boom here. >> So before we wrap it up, I want to ask you uh a political question. You're based in Montreal. I am in Toronto. So I have to ask you about the current Liberal government. Uh, I think we would both agree under the Trudeau administration, they just did a a horrible job at running the country or or catering to resources. Uh, how do you think Carney is doing? Um, when it comes to resources, do you think there's an improvement? >> We can we can agree that, you know, when you're a resource powerhouse like Canada and your natural resources minister is an anti- anti- oil, anti- resource development uh activist, that's probably not a good recipe for success. So we'll agree the last 10 years on the resource side have been a disaster for Canada. Carney's come in. Um he's definitely saying the right things. You know what I see him talking about building major projects. I think what the reality is though is that the the 10 prior years have built a lot of obstacles to developing resources in Canada. We we've added a federal layer of permitting and review to projects that in my view is completely unnecessary. That's massively increased the complexity of permitting projects in Canada. We've rightfully engaged with the First Nations in our country to develop projects, but there's been a lack of clarity and a lack lack of standardization, a lack of what what is proper consultation and what what do we need to do to move forward as a country and involve our First Nations brothers and sisters in in resource development, creating wealth for the country. And so what I see Carney doing is lots of big announcements throwing lots of money at the sector. But I've a bit controversy. I've said this in public in Vancouver in January. I don't think the sector is not moving because of lack of money. The sector is not moving because it takes years and years and years to permit projects in Canada. There's no clarity on timelines. There's no clarity on on deliverables and and wait times for permits and and permission to build lines. And so what if I was carne, I would stop throwing money at it and I would throw all my human energy at removing the red tape bureaucracy and obstacles that prevent Canada from moving faster. If you look, say what you want about a neighbor to the south, but they are moving at warp speed. You know, removing barriers, bringing in permitting, speeding up timelines, fasttrack approvals, critical metals, silver, gold, that they're really pushing the timelines because you build a discounted cash flow model. If I tell you, hey, James, we just found a gold mine and we're going in production in 2050, you know, 25 years from today. That cash flow 25 years from now is not worth a heck of a lot to me and you if you build a model back today. If I tell you, hey, we found a gold mine today or production in five years, that gold mine's worth a heck of a lot. So, I don't think Canada needs more money in mining projects. We need to be smarter and we need to put real mining people with all due respect to bureaucrats and the government, people that have built mines, that have invested in mines, put them in positions of authority cuz this is this is our golden ticket. Like, Canada's in a lot of trouble. We have really big debt. All the things I said about the US is true in Canada and it's worse than Canada cuz we're not creating any wealth as a country. So we have ballooning debt and deficits without any wealth creation. At least the US creates wealth, but they spend like way more than they should. But that's a better position to be in when you're not creating wealth and adding debt. So to me, the one I'm biased, I'm in the resource sector, but as a Canadian, the only sector we can dominate globally. The the gift we've been received as a country is a massive endowment of resources. We have to do everything our power to move those sustainably in a safe way through the pipeline as possible. That's going to create the wealth to fund our social programs, our healthcare, universities, education. So long answer to your question. Carney is saying the right things. He's throwing money at it which I don't think we actually need. We need to focus on debottlenecking the process and he's saying the right things there. But it's very hard to dismantle a bureaucratic process once it's been installed. I wish him the best of luck. Uh but he needs to put all his energy into that because that to me is is a key uh issue for the next decade for Canadians whether we're going to have a good quality life or not. >> Yeah, I agree with everything you said 100%. Uh, I would remind our viewers that we did see the federal government approve a couple of new uranium mines in the province of Saskatchewan earlier this year, NextGen and Dennison. So hopefully that's the beginning of uh better things to come. And Michael, I want to thank you very much for spending time with us today. It's been a great discussion. I really appreciate your insights. If somebody would like to follow you online or learn more about you and your services, where can they go? >> Yeah, so I don't offer any um investment services. because I don't offer any advice or I don't invest people's money in the junior mining space. So, Bashion Asa management, they can they can go to our website and if they're if they're accredited investor, they could talk to our team there. On the junior mining side, if you want to follow what I'm doing, I have a weekly newsletter that's free. It comes out every Saturday morning around 7:00 a.m. If you go to Saturday morning mining.com, it's a website. Type in your information. Again, it's not investment advice, but I talk about macro views. I talk about what's going on in the metals and mining markets and I talk about any news that comes out on my 35 portfolio companies that week to update investors on just the factual information and what I think about it. And so if you want to follow what I'm investing in, what I'm thinking about the metals mining market, that's the best way to follow me. So Saturday morning.com, enter your email, you'll be automatically subscribed to that uh that service. >> I will include a link below in the show notes. Michael, once again, thank you and good luck in the markets. It >> was a lot of fun. Thank you.
Why I'm Bullish on Gold and Silver | Michael Gentile and Jimmy Connor
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FREE Virtual Copper Conference June 6 at 8am ET Register https://bit.ly/4nV0LKe Michael Gentile, Senior Portfolio Manager at …Transcript
Did you know that copper is up 12% on the year and trading at all-time highs? BHP, the world's largest copper producer, is up 35% on the year. Freeport Macaran, the largest producer in the US, is up 25% on the year. And these moves are being driven by this insatiable demand for copper, which is used in AI data centers, EVs, power grids, wind turbines, and so much more. If you would like to learn how to invest in copper, join us on June the 6th at 8:00 a.m. Eastern time for a free 3-hour master class on copper and how to invest in copper. And if you can't join us live, not a problem. You got a replay link once you register so you can check it out anytime, 24/7 at your convenience. Once again, that's June the 6th at 8:00 a.m. Eastern time. There's a registration below in the show notes. I hope to see you there. Michael, thank you very much for joining us today. You are a senior portfolio manager at Bastion Asset Management in Montreal. And for those who might not be familiar with your firm, what is the firm's investment mandate and also what is the firm's AUM? >> Yeah, so I wear two hats, James. Um, Basha Management, it's a firm I co-founded about four and a half years ago with two of my former partners from my previous life previous in the business. Uh, it's about 800 million uh in assets under management. Uh, focus is small cap equity. So my definition of small cap sort of 500 million to 10 billion market caps Canada US uh bottom up stock picking concentrated long short hedge fund. So we'll we'll have 30 to 50 longs 20 to 30 shorts uh where we do true work. We don't trade around quarters or news like most hedge funds do. to actually do the bottom up work, try to hold stocks for 12 to 24 months uh looking for real alpha, real outsized opportunities which as you probably know you can find in the small cap space which is ever more poorly researched as all the money goes to larger cap more liquid names. We see a lot of opportunity in the small cap space. Uh the other hat I wear is I've been investing commodities my whole career. Uh 2530 years now in the markets and uh I've started 2018 before I joined bashed asset management investing in micro cap junior resource equities like sub $50 million market cap really early stage trying to bring some professionalism and some rigorous research to a space that's typically very poorly researched more like a casino bringing that institutional rigor to a underfollowed underappreciated sector. So had a lot of success doing that. And so I invest my own capital there and then Bashion will be more kind of producers and generalist fund all sectors not just mining resources but a lot of other sectors as well. >> And when we're looking at Bastion what percent of its AUM would be allocated or invested in resources? >> Yeah. So the lead portfolio manager is Charles Hager. He runs that fund extremely well. Uh I support him there as a senior portfolio manager. Invest uh cover the commodity sector for the fund. Right now it's probably about 15% 15 but it could be zero. uh next week if Charles thinks the cycle's over. Doesn't see any opportunity in the space. Um but we're looking really for bottom up opportunities with big revaluation. We see a lot of upside potential in the gold names in particular right now. So we've been allocating capital there. But it's not a commodities fund. So uh you invest in the fund. We we look for the best opportunities globally, best sectors, best stocks, and we're we're very much flexible in our in our allocations. And so before we do a deeper dive on you and your investment style, I want to ask you, you said right now you're bullish on gold. And when we started this year in January, it was we had a very positive tone toward the precious metals. And at that time, everybody was expecting the consensus was lower interest rates out of the Fed. That was going to lead to a low lower US dollar and higher gold prices. But here we are like six months later and the tone has changed drastically. And I guess a large large part of that is because of the war when you look out to December, there's a 60% chance right now that interest rates are going to be actually going up. So what is it you're looking at right now? Why do you think gold or why are you positive on gold? >> Yeah. So I mean I got involved in gold in 2018 and and the crux of my thesis was that we have too much debt globally and there was going to be a devaluation of paper currencies to pay off the debt and that thesis has only accelerated through co through the two wars now in Russia and Ukraine and now in Iran. Uh that the debt projections the deficits have blown through my most bullish bullish being debt appreciation going up optimistic expectations I had in 2018. So you know James in in markets you get caught caught up in a lot of noise. So, I was I did a mining tour in Europe, um big five city tour with a bunch of my companies in October. I remember being on the road and high-fiving people cuz gold had crossed through $4,000 an ounce. And everybody said, "Oh, it's gold's through 4,000. It's got to be the end. Can you believe it's this high?" And then you fast forward to today and everyone's going, "Oh my gosh, the market's collapsed." And gold is $4,500 US about. It's been kind of turning around that level for a while. So, gold's up more than 10% from October. Less than, you know, six, seven months later, it's up 10%. But if you read the narrative, you watch interviews, people think the sky is falling and the world's falling apart. So what happened? You know, gold went parabolic in January and I was at VR in January. Gold was like 5,500 I think for a cup of coffee and silver was 125 bucks and the charts went from slow and steady to like straight hockey stick up. I never like when that happens. I think we got too far too fast. The too much speculative money came in the space and there was a big big wash out as you recall kind of in late January, early February where where the price corrected back down. that started the I guess the negative sentiment around gold. And then secondly, you accurately nailed it. The the war in Iran, oil price spiking, inflation spiking, interest rates spiking cause another, you know, wave of negativity around gold. And we can unpack why I think that's wrong and I think why it's actually an incredible opportunity. Um, but that's what's sort of the two the onetwo punch that kind of knock gold down. But just for some perspective for your viewers, gold is up 10 to 12% from October. You know, gold only cracked through four. So the the long-term trend in my view is still very much intact. This shakeout is extremely healthy in my view. You know, we took the we took bullishness from really really high to extremely low. So we've watched a lot of the speculative and the the excitement around the space which I like. And just how this the gold price in the market behaves, you know, James, I think there's a major macro driver. But every time there's any whiff of trouble, people sell gold stocks, people sell gold. That tells me we're still very early in the the cycle, right? bull markets and when everyone's uber bullish and every 2% pullback is viewed as a buying opportunity of the lifetime kind of like you see in tech right now, we don't see that all on gold. So, I think we're still very very early in the cycle. But those are the main two reasons why we've seen some volatility recently. >> And so, just to dive deeper into what you you just said. Okay. So, if we look at the scenario right now, let's just say gold's around 4,500 bucks. Um, interest rates, there's a good chance that interest rates will be going higher by year end, especially if oil stays up above $100 a barrel. Why do you think now is a good time to buy gold? And and what's going to be the catalyst to take gold higher, especially in this current environment? Did you know that copper is up 12% on the year and trading at all-time highs? BHP, the world's largest copper producer, is up 35% on the year. Freeport Macaran, the largest producer in the US, is up 25% on the year. And these moves are being driven by this insatiable demand for copper, which is used in AI data centers, EVs, power grids, wind turbines, and so much more. If you would like to learn how to invest in copper, join us on June the 6th at 8:00 a.m. Eastern time for a free 3-hour master class on copper and how to invest in copper. And if you can't join us live, not a problem. You got a replay link once you register so you can check it out anytime, 24/7 at your convenience. Once again, that's June the 6 at 8 am Eastern time. There's a registration below in the show notes. I hope to see you there. >> Yeah, I have a very contrary view to that. And I think I saw a headline today before we start interview. I think the the chance of a Fed hike by end of year. I just saw it hit my email like it's 100% now. So, the market's pricing at 100% chance of a Fed increase by the year end. I think that's totally wrong. They may hike rates. I think it'll be a massive mistake if they do. But the reality, the dirty secret for the Fed and for Donald Trump and a lot of these governments is they can't raise rates. And so I'll just run some simple numbers for you. We're at $39 trillion of debt in the US right now. The 10 years at 4 and a half foreign change. The 30-year bond crossed 5% recently hit as high of 5.15 a couple days ago. Um so we're we're now looking at $40 trillion of debt by the end of the year because they're adding about a trillion dollars of debt every six months. That's it's about $2 trillion a year in the US. You take $40 trillion of debt the fiscal year 2025 revenue September 25 September 24 total revenue of the US federal government is 5.3 trillion the interest that year was about 900 billion of debt so take simple numbers 10ear rates 4 1/2 30 year rates five plus if you'd assume that they roll all their debt in the next couple years and they have to refinance at 4.5 to 5% 5% * 40 trillion is $2 trillion a year of interest expense they already ran a $ 1.7 trillion deficit fiscal year September 2025 when interest rate was 900 billion. So you're adding on 1.1 trillion to 1.7 trillion of deficit. You're like 2.8 to3 trillion of deficits if you refinance at the current rates. The defense spending in 2025 was 900 billion. Donald Trump's asked for 1.5 trillion defense spending for whatever is going on in the world. So you attack another 500 billion for defense. So all things being equal, you're looking at 3 trillion to $3.5 trillion deficit on a $5 trillion revenue line. That's that's completely unsustainable. And $2 trillion a year interest expense is 40% of your revenues. If you and I are paying 40% of our our revenues on interest on our credit card every month, we bankrupt extremely quickly. That that's how tenuous the US situation is. So when oil price goes up or inflation picks up and you're like Fed's got to raise rates, the reality is they can't. They cannot raise rates or they've got to keep rates well below the rate of inflation. They got to run inflation at 8% and keep the rates at five. They need negative real rates. They need to monetize the debt. Those numbers are undisputable. They're hard math. And that's why every time the 10-year bond or the 30-year bond cracks above five, you see Trump waffling on Iran or, you know, cuz they can't afford the the war. They can't afford the deficits that they're running. They can't afford $120 oil because they can't raise rates. So that's been my overarching thesis. I started talking about this in 2019. You can pull up old interviews when rates were 0% in the co times. I was like, if rates go to 5%, the US is insolvent. And that's exactly where we are right now. The US is literally insolvent in real terms. So that is the bullish case for gold. It's not that gold's going to go up. It's that the US dollar is going to continue to devalue itself against hard assets. And there is no way out for the US government. There's no way out for them to to grow their way out of this to productivity boom their way out of this. The debt the debt numbers are just so big. And the numbers they have to spend on defense, healthcare, social security are so hard to cut that you can't cut your way out of it. You can't grow your way out of it. So you got to print your way out of it or or yield curve control, whatever you want to call it. So I go I I take the under on that 100% chance of an increase. And if they are increasing rates, I'll take the over on inflation being way higher than people think. So whatever you choose, it's going to be I think very very bullish for hard assets. And and that's why I'm so bullish on gold. That's why I don't get overly worried when the gold price pulls back or people sell it off because rates are going higher because of war and Iran. I view all these things as positive to to my long-term macro thesis. >> And we also have a new Fed chair. He's going to be pressured to cut rates. So, we're it's going to be interesting to see how what he does here in the coming months. But, uh, I guess the other thing, so gold's consolidating around, let's just call it 4,500 bucks. Uh, where do you see it going under this scenario? >> It really depends on on how hot inflation is and how quickly they want to monetize the debt. I think it's going to go higher over time. And, you know, when I invest in a in a junior mining company, James, I'm looking at a 5 to 10 year horizon. So I would not be cutting checks right now and which I still am in the in the resource sector if I didn't see a good 5 to 10 year outlook for gold. I'm actually much more comfortable with goals going up 10 12 15% a year than I am seeing it go up like 30% in a quarter like we saw in January Q1 of this year, right? So I think the slow and steady ascent is better. But I also know as as the debt pile increases and those if those numbers are anywhere close to accurate that $3 trillion deficit that starts to go there, you're going to see a hyperbolic increase in inflation and a hyperbolic devaluation of the currency because you just overwhelm your your government with interest expenses. And so there is potential for it to go much much higher uh and faster than people think. But again, you're not going to get richer. Like you you buy gold to preserve your wealth. If gold is 10,000 because you know interest rates are cut to three, inflation 7, you know, everything you want to buy to survive is going to be getting way more expensive. So you you buy gold to preserve your wealth. You don't buy gold to appreciate. You buy it as a hedge. You know, a certain amount of gold in 1970 could have bought you a bungalow in Toronto or Montreal. That same amount of gold would buy you bungalow in Toronto, Montreal today. If you kept that in paper money, you couldn't buy a garage or a parking garage for your bicycle. So that that's what gold does. It holds your val holds the value of your wealth. And so the f the higher the gold goes, it means the more we devaluing the currency. All I know for sure is that the currency is going to continue to be devalued, I think, an ever faster rate going forward. So why don't we examine uh what you do outside of Bastion? And when it comes to investing in these junior resources, how would you describe your investment style? >> Yeah, so in 2018 when I left my old my old job for family reasons, gold was 1300. I was very bullish on gold. I'd always invested in producing gold assets, more institutional kind of blue chip money. And I'd never invested in micro caps before, but I said if gold is going to go up a lot, and I've been right about that, the the biggest leverage you have to rising gold price is not in the barracks or nuance of the world. in the micro cap exploration companies and resource stage companies that trade at pennies on the dollar for ounces in the ground. And so I started approaching the junior resource sector as an institutional investor would. And as you know, we have a long history in the institutional markets, James. Like most institutional investors don't go into micro cap mining stocks because they run too much money and they can't go down cap. There's not enough liquidity. It's not enough return available for them on a dollar basis to get serious about it. So I tried to take a institutional approach to the wild west of junior resource investing. And so what I tried to do is said is okay I've been investing in producing assets for 20 plus years as as a professional investor. What are the hallmarks of producing mines? What makes a producing mine a mine? And what makes a failed mine a failure and superimpose that on the 2,000 plus or 3,000 junior resource companies that are in Canada cuz most of those junior resource companies are never going to go anywhere. They're never going to be mine, never be producing assets. They're speculative vehicles either for exploration or for the benefit of the promoters. And so I started bringing that analysis. And so I tried to do is take a venture capital private equity style models investing in juniors. If you buy a $30 million market cap today in the resource sector, it's going to take 5 10 12 years if a company's very successful to go from discovery to a a producing asset or an asset a major mining company wants to acquire to put in production. So I bought patient sticky capital that has a long-term approach to a space that's very volatile and very short-term. So I have about 30 to 35 companies in my portfolio today. Um I try to acquire 5 to 20% ownership stakes very early in their development. I try to identify which one of those 2,000 companies I own 30 of them have the hallmarks to go all the way to a mine knowing full well that even with my level of knowledge and expertise and and due diligence that only a handful of those 30 to 35 companies will go all the way. And I'm looking when I make my first check for 20 to 50 times my initial investment if I'm right because those winners like in venture capital have to pay for the failures that are natural part of the process. And so that's what I look for. Been doing it for seven or eight years. I do five or six deals a year. I look at probably 500 deals a year. So I do like 1% of the deals I look at. And it's what's very gratifying so far uh to me is I'm now six, seven years into that process. I've had a few graduate from my school, so to speak. and they've been acquired by major mining companies because they've gone all the way from that discovery to a potential buildable mine to be acquired by major mining companies. So the process is working working very well and I continue to refine it over time but that that's my approach and not many people do that in the junior resource space you probably know from your time in institutional sales >> and what were the names that were acquired? >> Uh a bunch of them. So Northern Superior was recently acquired by by IM Gold. Uh Arizona Sonoran was recently acquired by Hudbay. Uh I owned a Roxmore is a company that was acquired by Fortuna Solar Mines and I own Battle North Gold. Those are just four recently in the last you know three four years that have been acquired. And if I'm doing my process right James I hope to have you know one or two or three takeouts every year as a companies kind of graduate through that process. But I'm constantly planting new seeds early stage and as they mature like a good wine they mature over time they become attractive for for major mining companies. >> And what are the hallmarks that you're looking for? >> It's a long list. I can refer your your viewers to some videos I've done me put them in the show notes. I do like a 20 30 minute presentation just on that alone. Um but it's all the attributes that go into a producing mine. So just on the geology side really quick, you know, grade grade is your margin. Um scale, you got to have enough volume of rock or gold or copper to to produce a mine. Uh jurisdiction extremely important. So is it a safe place to mine? Do you have security of title? Uh but more importantly also infrastructure. So what what current roads, power, mills, water, towns are in place because that could cost billions of dollars if you have to put in yourself. So I like to I prefer areas where there already a lot of infrastructure in place. It lowers the the bar. So that would be just very quickly the the geological structural setup and then it's all the soft stuff. You know, it's it's management, it's geological and financial expertise. I look at the cap table, the board directors, inside ownership, how they treat shareholders. Are they there to make money for their shareholders? they going to make money for themselves. Um, you know, what what is the the makeup, the opportunity, financing structure of the company, the cornerstone shareholders? There's a big matrix that goes into it cuz so much has to go right for a junior mining company to be successful that if you can eliminate some obvious red flags along the way, all you're doing is just raising your batting average, raising your odds of success. >> And what's the minimum market cap you look at for investing? >> It's more maximum, actually. So, I I like to make my first check maximum $50 million market cap, preferably lower. Uh, what I'm trying to do is own as much of that company as possible earlier on in its life cycle. And then I get very, very involved. I'm not a geologist. I'm not a mindbuilder. I'm not an engineer. I know what I don't know, but I get very involved in the corporate strategy of the company. So, I help them, you know, raise money, help them clean up their cap table, raise money from the right type of investors. I bring in other investors like me that have five 10 year horizons. So, you know, if if you're junior mining and you take the first money you can get and you do a financing on Monday and it used to be four month hold now these life deals you can sell the next day but let's say fourmonth hold and you're selling four months later if you raise $5 million on Monday and 4 months later all $5 million you raise is for sale in the market you got to find $5 million of buying in the market to replace that financing and then raise other $510 million to keep the company going for another year so I prefer to associate myself with investors that I know are going to be there with me for 5 to 10 years they're buying today they're not selling they're adding in future financings to the company and that gives a company a really good stable base shareholders that they can grow the business if they have success also lowers their cost of capital. So Nor Superior we sold recently I literally had two shareholders that own millions of shares of that company that had it in their sock drawer. They own certificates from four years ago. They never bothered depositing with their broker. They're they're successful wealthy entrepreneurs who believed in my process and like hey I'm with you for 5 10 years. I'm not going to trade it. I'll keep it there. when the company got sold, they had to finally deposit their shares in their account to get their shares of Ryan Gold. Those are the kind of shareholders you want to build a company around, not the renters that are there for for 10 20%. >> And so you're very involved in the capital raising aspect. Uh where do you find most of the money's coming from? Is it coming from Canada, the US or Europe? >> So up until this past year, as you probably know, the markets were very very tough. So I'd say a lot of the companies that I was heavily involved in as a either director or insider major shareholder 10 20% shareholder were literally raising money dialing for dollars like within my network you know friends high net worth entrepreneurs people trying to convince them that there was an opportunity in junior mining like the venture capital model they adopted so that was the brokerage community was was didn't have any pools of capital the major mining funds were seeing outflows there was no interest from generalist funds so a lot of that was hand-to-mouth uh and built and that was actually the best some of the best times to invest best opportunities. Uh these days there's a little bit more money available for the juniors so that the brokerage network has come alive again. So depending on the size of the deal, I can either back stop it myself or when it gets to be a 10, 20, $30 million deal, starting to have a pool of institutional investors that that know the work I do is quality and want to co-invest on deals and the brokers are starting to bring some you some quality family offices and institutional money that has inflows again that are able to invest in smaller companies. So the pool of capital is broadening which is positive because these companies can now move their projects faster, drill them quicker, move the studies faster and and you know graduate quicker to that you know sellable or buildable mind status. Uh but it's still it's still not redot yet in my view. There's still a a lot of apathy. Um people are still really distracted by tech and AI. Most journalists are still not caring about the space or allocating very small capital to it. So there's still a lot of room, but compared to the really dire days of three 3 four years ago, it feels feels a lot better right now. >> And we I didn't ask you about this earlier, but what's the breakdown in your current portfolio? And once again, we want to clarify this is your portfolio and not Bastion's, but what's the breakdown between gold, silver, and copper? >> Yeah. So my horizon has mentioned 5 to 10 years. So, I will not invest in a company that has a commodity that they're associated with that I view is going to be damn over the la next 5 to 10 years. So, I I learned the hard way early on in my career that you can be the best. I started oil and gas in 97. Uh I rode the boom from, you know, the 2000 all the way to 2008. Oil went from like 10 bucks to 140 bucks a barrel. Everyone feels pretty smart when that's happening. All the stocks are doing really well. when oil went from 140 to like 35, you could be the best stock picker in the world and you lost 75% of your money compared to the guy who wasn't the good stock picker who lost 90 or 95. So if the commodity is going down and you have a negative outlook on the commodity, you do not want to be investing in any stock in that sector. And so in 2018 was very bullish on gold. I concentrated most of my investments in gold and precious metals. I still am very very bullish on gold. Um and regardless what the economy does, I'm quite bullish on gold. So, I'd say about 70% of my portfolio is in precious metals right now. Um, several years ago when copper was like 3 350, I saw the supply demand dynamics changing quite nicely for copper. And so, I've got about 20% of my portfolio in copper because I think the next 5 10 years supply demand wise looks really good for copper with some hiccups along the way if we have recessions or issues because much more tied to the economy than than gold is. And then I have a few other ones like like a zinc project, a nickel project where I'm maybe not as, you know, wildly bullish on the outlook for the commodity, but I like the project a lot. I don't think the commodity is going down. I I prefer to have a buildable mine in a nickel asset or zinc asset than having a notable gold asset. But all things being equal to gold, copper, and then zinc, gold, silver, let's say, copper and zinc, nickel are probably the four area I'm focused on right now. >> And do you have a target for copper 5 years out? Um, I think it's got to go higher. I I've said, you know, I had a a really interesting dinner with a with a really accomplished mind builder two, three years ago when copper was like 350 and he told me, "Mike, copper's going to six bucks." Copper was 350. And I'm like, "Why is it going to six bucks?" He said, "Well," I said, "Yeah, there's lots of macro reasons for it. Supply looks weak, demand looks like, no, you don't understand." He said, "For every one of for every five of me, he was in his 50s mind builders, there's only one 30-something that knows how to build a mine." So we have a huge lack of human capital at the time where every government of the world is now waking up saying we got to build mines faster. We got to go like Canada. We got to move. We don't have the human capital. So it's like you have C or D mining teams on inexperienced mining teams trying to build assets that are lower grade you know higher cost more difficult operations to build. So his view was I don't care about the supply demand of copper. You you take care of that Michael. You're you're a finance guy. But on the oper on the execution side, it's going to be very very hard to apply the human capital to the business to bring supply on. So copper, we all seen the demand like electrification AI, we know demand is going. We know that supply takes a heck of a long time to come on and so most there's been no money for the space for 10 years. So most of these projects have been stalled for 10 years. And now when we say we got to go, we don't have the human capital we need to fully deliver these mines on time and on budget. So, I think there's a real, you know, train wreck, depending which way you're looking at it, or very, very bullish scenario for copper and other metals that are going to have a hard time keeping up with demand. So, that's why I'm bullish on copper. And I still think with inflation, we've seen $6 is not enough. Like, you need$8 or $10 copper, probably long term, at least to justify the risks of these mining companies putting in billions of dollars to build new projects. So, that's that's why I'm remain constructive on copper. But, you got to find the right project that actually can get built. And then even more importantly, do they have the right team to bring it on? Because the major mining companies in themselves, the big the super majors, only have a limited amount of capacity to build mines. They can't build five mines at a time. So, you got to have a team that can derisk the project, do it on this, do it on their own if necessary. And those teams are are few and far between. >> What about uranium or lithium? Any views? Um, lithium, I didn't want to touch it 2, three years ago cuz it was so hot and it was on such a hockey stick run that back to my view where if I think the commodity is going to be down versus up over the next 3 to 5 years, I don't want to invest in the sector. So, 2, three years ago, I would not pick up my phone at all on lithium. I just would hang up instantly. Um, now it's got to a level where I'd pick up the phone. Uh, it's had a bit of a rally recently. Um, you can make a case that it should hang in here or potentially go higher in the future. Um, it's not a core focus for me, but it's it's no longer in the no-fly zone in terms of I will not look at stuff, but it has it would have to be a very compelling project because I'm not yet convinced that lithium is going to go up 100% from here over time. Um, so it has to be a project that really works at lower lithium prices with a good team and infrastructure and all the things I look for from on the other side. Uh, uranium, it's been hard because I find uranium stories get valued very very quickly at very high valuations. So if I want to make 20 to 50 times my money, I find because the scarcity of uranium assets in the market and a lot of it's garbage will never get built, but the good ones end up being valued very very quickly. And so it's harder to find that that that multiple I'm looking for on my money. And uranium also they're very very long. Like you think it takes a long time to build a gold mine and uranium is even even longer in terms of permitting and and you know environmental work. So I have not been too active in the uranium space but I do think it's a good place to be. It's just harder to to find enough companies I find attractive to feel like money to work in. >> And when we go back to gold, I mean, we've had a pretty nice uh correction here in the last few months. And not just with the gold price, but with also the producers. What what price do you think the producers are factoring in right now? If you look at a new or did you know that copper is up 12% on the year and trading at all-time highs? BHP, the world's largest copper producer, is up 35% on the year. Freeport Macaran, the largest producer in the US, is up 25% on the year. And these moves are being driven by this insatiable demand for copper, which is used in AI data centers, EVs, power grids, wind turbines, and so much more. If you would like to learn how to invest in copper, join us on June the 6th at 8:00 a.m. Eastern time for a free 3-hour master class on copper and how to invest in copper. And if you can't join us live, not a problem. you the replay link once you register so you can check it out anytime 24/7 at your convenience. Once again, that's June the 6th at 8:00 a.m. Eastern time. There's a registration below in the show notes. I hope to see you there. >> It's a great question. So, if you look, there's a real interesting dichotomy that I've been looking at closely in the market the last several months. The copper producers, you look at the copper names, the the Hud Bays, the Lundines, the Capstones, the world bigger producers in Canada, they're all pricing in, look at their price to NAV or their cash flow estimates, they're all pricing in, let's say copper is 650 or six bucks, they're pricing in 650 or $7 to get to one times NAV at a discounted cash flow model. So the the generalist, you know, what's happened is the the generalist fund managers who have not yet invested in gold have adopted copper because they're all invested in AI and they all believe in AI. their bolts are full of tech stocks in their portfolio. They go, well, this is a a adjunct of AI, electrification, copper refules, the grid. And so they they understand it. So that money flowing in the space has pushed the valuations up to saying like as an in bottomup investor, it's hard to see me making money in these copper stocks unless copper goes higher. So you got to believe copper's going to 8 to 10 to own these stocks and because of generalist money, it's done that. The gold space is the opposite. The gold space is still the really bullish dedicated guys like myself who've been dedicating capital to the space and the dedicated gold funds that are getting a bit of inflows, but we haven't seen a massive wave of generalist money. So, the gold stocks today, if gold is $4,500 to pick a number, they're probably pricing in 35 to $3,800 gold. If you run gold companies at spot, they all have like 10 to 15% 20% free cash flow yield to many of these companies. If you run copper names at spot, they have like 2 3% free cash yield. just to give you an idea of where the market is. So, I see a huge opportunity in in the gold market because I believe gold is going higher, not lower over time. Once that generalist money comes into the space, you're going to see these gold names revalued to where the copper names are or even higher. You know, back in the day, gold names traded at premium to nav. Uh that's not at all the case today. I think that that day is coming once investors realize that $4,500 is more likely a floor long-term than than a ceiling. And that's happening in the copper space, not happening in the gold space. That's why I'm much more interested in deploying capital in the gold names in general than I am in the copper space right now. >> That's an interesting point because when you look at the big caps like BHP, Rio or Freeport, they're trading at or near all-time highs. So, uh, that's something I haven't considered before and I guess that's why. Yeah, there's definitely a lot a lot of generalist money, but what I like about the generalist money going in the copper space, at least they're educating themselves on mining. And so that for them to now roll into gold over time as they realize that the Fed maybe can't raise rates and that we're going to have another series of devaluation the currency going forward, they at least are educating themselves on mining shares. I think they if they look down the street at the gold, they'll see a heck of a lot more value there and a lot more opportunity. And as these companies generate free cash flow, they're buying back their shares. I saw a really interesting chart yesterday. Gold companies are buying back their stock like never before. Like never really happened in history where gold companies have bought back their shares. The amount of share buybacks, free cash regeneration, dividends in the gold space will start to attract generalist investors in my view as well. >> And uh I want to talk about the oil price now because let's just say oil's trading at $100 a barrel give or take. Uh that's having a big impact on both the gas price and also diesel prices. A lot of mines, especially the ones that are located in um off the grid, they're they're run on uh diesel fuel. So, what is this higher diesel price going to do to the all-in sustaining cost of these gold producers? >> Do you think the margins are going to be squeezed here in the coming months or quarters? >> There was a lot of concern when the oil price spiked uh as to it's going to hit the margins. Um put this in context. So, your average, just pick a number, your average gold producer all in allin cost. You throw everything in the kitchen sink about $2,000 an ounce. Gold price $4,500 an ounce. They're making $2,500 per margin. So the oil price spiked, oh my gosh, they're going to they're going to crush their margins. On a bunch of conference calls this Q1 reporting season on average, these are round numbers, but a $10 move in oil, which is like a 10% move in oil, increases the ASIC of most gold producers, all sustaining cost by about 20 bucks. So it's it's not as dramatic as you think. Labor is actually a much bigger input on the costs of oil. Now, if you have a big open pit all running on diesel trucks and you have probably a little bit more sensitivity, but with $2,500 margins, oil goes up 40 bucks. You're talking about 80 to $100 an ounce in your cost structure. When you have $2,500 an ounce margins doesn't feel that tough to me. So, I haven't been that worried about oil prices, you know, and if oil goes to 200, I think the whole economy is going to go into a recession. That's a whole different different issue. And probably gold will be a good place to be in that case longer term as well. Um the real issue has been more availability of oil. So some some mining projects if you're poorly located or you only have access from Moran or the Straits of Hermuz fueling your your diesel or your oil demand is there going to be shortages of oil? That was probably a major risk because that means if you don't have oil, you got to shut down your mine. That's a huge cost to your to your shareholders. Uh but most companies navigated that pretty well as well. So I think it's less of an issue than people made it out to be. And give you some perspective. I mean, in 2020, the margins of gold mining companies when gold price spiked to $2,000 an ounce was about three4 $300 to $400 an ounce. We're talking $2,500 an ounce today. Like these are really wildly profitable businesses. So, there's a bit of room for for some cost pressure there and still having, you know, record-breaking margins every quarter. >> One of the big themes we have seen in the first half of the year is M&A. Elorado acquired Foran, which is a copper or will be a copper producer for 2.8 8 billion. Core acquired new gold for 7 billion. Equinox recently acquired Ora. Do you think this theme of M&A is going to continue in the back half of the year? >> Absolutely. I have I have been saying publicly for several months, I think you're going to see a a boom in M&A, a flurry of M&A transactions. And a few reasons. One, the mining companies are, like I said, record profits. So, every major mining company is now net cash positive, stacking cash on their balance sheet, paying dividends, and buying back stock. and still piling up cash in reserve. And so the narrative shifted from four or five years ago. These companies had debt. They had pretty skinny margins. They were punished for previous bad cycle. So if they talked about any growth at all, they'd be lashed by their shareholders and stocks would get crushed. Now they're paying back 50% of their cash flow and dividends and buybacks. Their balance sheets pristine. Investors are now turning to the reality in the junior mining in the business of mining is that if you don't replace your reserves and resources, 15 20 years from now, you have no business. And so a lot of these mining companies have not put any money in expiration, have put no money in new mine development, and they're now realizing that they don't invest in the future. Not even they're not going to grow, they might see declining production in the future. Uh so I think you're going to see a massive wave of M&A because they can do growth projects and acquire companies and still return a ton of capital to shareholders and still walk around with the net cash on their balance sheet. So that's why I've been predicting it. Why we haven't seen as much as I expected is because the gold price was going too fast. It's very hard to do an M&A deal when you start talking to company XYZ when gold is $3500 an ounce and four months later it's $5,500 an ounce. Your bid ask spread is is so wide that you can't get a deal done. The longer gold stays, you know, flat here, the better it is for M&A cuz then the buy the bid and ask will will come closer together and you'll see you'll see more and more M&A in the space. And the final point is that going way back to 2018 when I started my process is you think when the gold price goes up a lot the junior micro cap should do the best. they've actually underperformed wildly the producers. So the senior mining companies and the bigger mining companies stocks have actually gone up more and faster than the juniors who have more leverage to the space. So they have paper currency that they can use that's way higher value than what they're buying. So there's a lot of value. You can buy junior mining companies today still for $50 to $150 an ounce in the ground which is the same price you used to pay in 20 2011 or 2010 the last cycle when gold was $2,000 an ounce. But gold's two and a half times higher today. So there's real value in the space. It's way cheaper to buy it than it is to build it for a major mining company or find it themselves. And so a lot of the stars are lining for for I think a big a big M&A boom here. >> So before we wrap it up, I want to ask you uh a political question. You're based in Montreal. I am in Toronto. So I have to ask you about the current Liberal government. Uh, I think we would both agree under the Trudeau administration, they just did a a horrible job at running the country or or catering to resources. Uh, how do you think Carney is doing? Um, when it comes to resources, do you think there's an improvement? >> We can we can agree that, you know, when you're a resource powerhouse like Canada and your natural resources minister is an anti- anti- oil, anti- resource development uh activist, that's probably not a good recipe for success. So we'll agree the last 10 years on the resource side have been a disaster for Canada. Carney's come in. Um he's definitely saying the right things. You know what I see him talking about building major projects. I think what the reality is though is that the the 10 prior years have built a lot of obstacles to developing resources in Canada. We we've added a federal layer of permitting and review to projects that in my view is completely unnecessary. That's massively increased the complexity of permitting projects in Canada. We've rightfully engaged with the First Nations in our country to develop projects, but there's been a lack of clarity and a lack lack of standardization, a lack of what what is proper consultation and what what do we need to do to move forward as a country and involve our First Nations brothers and sisters in in resource development, creating wealth for the country. And so what I see Carney doing is lots of big announcements throwing lots of money at the sector. But I've a bit controversy. I've said this in public in Vancouver in January. I don't think the sector is not moving because of lack of money. The sector is not moving because it takes years and years and years to permit projects in Canada. There's no clarity on timelines. There's no clarity on on deliverables and and wait times for permits and and permission to build lines. And so what if I was carne, I would stop throwing money at it and I would throw all my human energy at removing the red tape bureaucracy and obstacles that prevent Canada from moving faster. If you look, say what you want about a neighbor to the south, but they are moving at warp speed. You know, removing barriers, bringing in permitting, speeding up timelines, fasttrack approvals, critical metals, silver, gold, that they're really pushing the timelines because you build a discounted cash flow model. If I tell you, hey, James, we just found a gold mine and we're going in production in 2050, you know, 25 years from today. That cash flow 25 years from now is not worth a heck of a lot to me and you if you build a model back today. If I tell you, hey, we found a gold mine today or production in five years, that gold mine's worth a heck of a lot. So, I don't think Canada needs more money in mining projects. We need to be smarter and we need to put real mining people with all due respect to bureaucrats and the government, people that have built mines, that have invested in mines, put them in positions of authority cuz this is this is our golden ticket. Like, Canada's in a lot of trouble. We have really big debt. All the things I said about the US is true in Canada and it's worse than Canada cuz we're not creating any wealth as a country. So we have ballooning debt and deficits without any wealth creation. At least the US creates wealth, but they spend like way more than they should. But that's a better position to be in when you're not creating wealth and adding debt. So to me, the one I'm biased, I'm in the resource sector, but as a Canadian, the only sector we can dominate globally. The the gift we've been received as a country is a massive endowment of resources. We have to do everything our power to move those sustainably in a safe way through the pipeline as possible. That's going to create the wealth to fund our social programs, our healthcare, universities, education. So long answer to your question. Carney is saying the right things. He's throwing money at it which I don't think we actually need. We need to focus on debottlenecking the process and he's saying the right things there. But it's very hard to dismantle a bureaucratic process once it's been installed. I wish him the best of luck. Uh but he needs to put all his energy into that because that to me is is a key uh issue for the next decade for Canadians whether we're going to have a good quality life or not. >> Yeah, I agree with everything you said 100%. Uh, I would remind our viewers that we did see the federal government approve a couple of new uranium mines in the province of Saskatchewan earlier this year, NextGen and Dennison. So hopefully that's the beginning of uh better things to come. And Michael, I want to thank you very much for spending time with us today. It's been a great discussion. I really appreciate your insights. If somebody would like to follow you online or learn more about you and your services, where can they go? >> Yeah, so I don't offer any um investment services. because I don't offer any advice or I don't invest people's money in the junior mining space. So, Bashion Asa management, they can they can go to our website and if they're if they're accredited investor, they could talk to our team there. On the junior mining side, if you want to follow what I'm doing, I have a weekly newsletter that's free. It comes out every Saturday morning around 7:00 a.m. If you go to Saturday morning mining.com, it's a website. Type in your information. Again, it's not investment advice, but I talk about macro views. I talk about what's going on in the metals and mining markets and I talk about any news that comes out on my 35 portfolio companies that week to update investors on just the factual information and what I think about it. And so if you want to follow what I'm investing in, what I'm thinking about the metals mining market, that's the best way to follow me. So Saturday morning.com, enter your email, you'll be automatically subscribed to that uh that service. >> I will include a link below in the show notes. Michael, once again, thank you and good luck in the markets. It >> was a lot of fun. Thank you.