Speaker 1: Bloomberg Audio Studios, Podcasts, Radio News.
Speaker 2: Welcome to Meren Dorg's Money, the podcast in which people
Speaker 2: who know the markets explain the markets.
Speaker 3: I'm Maren Sumset Web.
Speaker 2: This week we are spending the episode focused on one
Speaker 2: particular market, commodities. It's been a while since we discussed
Speaker 2: the sector, so we have invited on two experts to
Speaker 2: join us in a conversation about everything metal and mining.
Speaker 2: We talk about the commodities themselves, the minds they come from,
Speaker 2: and the relationship between those minds and the equities that
Speaker 2: represent them. We talk about copper, we talk about gold,
Speaker 2: we talk about platinum, and we talk about silver. So
Speaker 2: in our studio we have Nicky Shield's head of Metal
Speaker 2: Strategy at mks PAMP, a group that specializes in precious metals,
Speaker 2: and in our London studio we have Heavy Hamburg, who
Speaker 2: is one of the world's most influenced mining invested Evy
Speaker 2: is co manager of the black Rock World Mining Trust
Speaker 2: and global head of Thematic and Sector Investing at black Rock,
Speaker 2: as well as being head of the Natural Resources Equity team.
Speaker 2: Nick and every Welcome to Merrin Talks Money. So Everie,
Speaker 2: why don't I start with you and just tell me
Speaker 2: what it is that you think of when you talk
Speaker 2: about commodities. What are we talking about here? How is
Speaker 2: this sector different to the rest of the market.
Speaker 4: You could go anywhere with that question.
Speaker 3: I know I wanted.
Speaker 2: I wanted to have fun by asking at the very
Speaker 2: beginning of bitcoins a commodity, but I'd have heard that.
Speaker 3: Leave that's the end.
Speaker 4: It's fascinating if you think about commodities and the fact
Speaker 4: that we all use them every day, and some of
Speaker 4: them are more visible to us than others. So if
Speaker 4: you go to the petrol station then you fill up
Speaker 4: your car, you know what the price of fuel is
Speaker 4: and how that changes. If you go shopping at the supermarket,
Speaker 4: you know what the cost of agricultural commodities are because
Speaker 4: you can see how the price changes. But most of
Speaker 4: the commodities that we take for granted, you know, the
Speaker 4: metals and so on, have very very low levels of
Speaker 4: visibility in terms of how we consume them. And I
Speaker 4: think that society as a whole is rather complacent about
Speaker 4: their supply and the invisibility of the price changes. And
Speaker 4: I guess the fact that they're always there and we
Speaker 4: take them for granted means that we don't pay that
Speaker 4: much attention to them, and I think that's reflected in
Speaker 4: how people value the companies that produce them, and so
Speaker 4: to us, theres very very long term investors in this space.
Speaker 4: It's quite disheartening to see how lower percentage of the
Speaker 4: kind of global market cap commodity producers represent relative to
Speaker 4: how essential they are both in everyday lives but also
Speaker 4: in sustaining living standards. And it's only when you know,
Speaker 4: things go into kind of I don't know, panic mode
Speaker 4: around shortages, or you hit the front page of the
Speaker 4: media and so on, that people's interest levels rise and
Speaker 4: multiples expand or greed over where overtakes, you know, fear
Speaker 4: in terms of people wanting the exposure that the sector
Speaker 4: becomes front of mind for most financial investors, and you know,
Speaker 4: we're certainly seeing some early signs of that in the
Speaker 4: government space. But to me, I find it very confusing
Speaker 4: that something that is so essential to everybody's daily life
Speaker 4: has such a low level of interest and low multiple
Speaker 4: that the companies tend to trade on in the market
Speaker 4: relative to the businesses that actually consume them. I mean,
Speaker 4: you can't build a data center without commodities, Yet there
Speaker 4: the data center companies trade on infinite multiples.
Speaker 3: Yeah, that is interesting.
Speaker 2: We had we had a few months ago, we had
Speaker 2: ed Conway on talking about his book Material World and
Speaker 2: talking about this difference between the ethereal world and the
Speaker 2: material world, and the extent to which we've sort of
Speaker 2: forgotten that the material world is the foundation of everything,
Speaker 2: and without without the minds and without the really fealthy,
Speaker 2: grubby bit at the bottom of everything, we could all
Speaker 2: the other things that we like to talk about.
Speaker 1: It.
Speaker 2: It's just interesting how that's happened over the last couple
Speaker 2: of decades, that the foundation, the foundations of everything have
Speaker 2: been forgotten on the pyramid of need has been rather upturned.
Speaker 4: Yeah, I think you're right. I mean, it's a great
Speaker 4: book that I loved it, and I listened to it
Speaker 4: on one of the players audible. It is amazing if
Speaker 4: you think about how society has moved on through time,
Speaker 4: where basic industries were such a core part of everything,
Speaker 4: and now services are the kind of the most core
Speaker 4: part of everything. And it's just you know, usk how
Speaker 4: much value dis services really add?
Speaker 2: Oh controversial or can I add anything without without the exactly?
Speaker 4: That's what I mean.
Speaker 2: Yeah, And I suppose the other interesting part of that
Speaker 2: that will come onto later as well is energy, And
Speaker 2: there's a whole justop oil excepter plava where everyone forgets
Speaker 2: that in fact, oil is part of absolutely everything they
Speaker 2: touch and everything they feel around them, everything they see.
Speaker 3: Is that something to do with fossil fuels.
Speaker 2: But nonetheless, we've moved so far away from the understanding
Speaker 2: of the materials sector. There's a genuine belief out there
Speaker 2: that the world could continue.
Speaker 4: Yeah, I mean that's my foundations. I find a bad complacency.
Speaker 2: You're beginning to see some kind of change. I mean,
Speaker 2: I think ed Ed's book was a bit of a
Speaker 2: turning point for starters. But also looking at the papers
Speaker 2: this morning, one of the headlines on the front of
Speaker 2: the FT Sorry competitor Alert was Chinese mining acquisitions globally
Speaker 2: at their highest level since twenty thirteen.
Speaker 3: So somebody's getting it.
Speaker 2: The Chinese are up there looking at everything, buying everything,
Speaker 2: beginning to monopolize as much as they can.
Speaker 3: So let me just ask you, then, when you.
Speaker 2: Look at the sector today, what are the parts that
Speaker 2: you find most interesting? Where is it going to happen
Speaker 2: that we'll see these supply demand shocks that are going
Speaker 2: to wake people up to the importance of this area. Yeah.
Speaker 4: I hope we don't have shocks for the wrong reason,
Speaker 4: because that would be pretty bad for the environment or
Speaker 4: for safety and life and stuff.
Speaker 3: Slow surprises, let me go slow surprises. Yeah.
Speaker 4: I think it's hard to argue against the fact that
Speaker 4: the world's going to need more as life goes on.
Speaker 4: That's pretty much a given. That's definitely been the history
Speaker 4: and it's likely to continue to be the future. I
Speaker 4: think the shape of what more is is what's interesting.
Speaker 4: So when we think about the transition, I suppose you
Speaker 4: away from fossil fuels, that is a transition from fossil
Speaker 4: fuels to hard metals to industrial commodities, and the intensity
Speaker 4: of use of those commodities rises, you know, almost vertically,
Speaker 4: the more you move away from fossil fuels. Up to
Speaker 4: some long.
Speaker 2: Data can I Evie, do you mind if I just
Speaker 2: interrupt you briefly, because we always talk about the transition,
Speaker 2: and when we do, I think it's time we start
Speaker 2: making it clear that we're not really talking about a transition.
Speaker 3: We're talking about an addition.
Speaker 4: Correct, It's just the change of shape, And I think
Speaker 4: that's it. Yeah.
Speaker 3: Absolutely, We've never had an energy transition in history.
Speaker 2: We've only ever had an addition that we don't use
Speaker 2: less cold than we did, we don't use less wood
Speaker 2: than we did, none of those things. We just use
Speaker 2: another type of energy on top. And that's what's happening.
Speaker 4: I mean, we can't have the future that is being
Speaker 4: advertised to us so extensively without a net addition because
Speaker 4: everything that is being advertised, that data sent A and
Speaker 4: AI just use vast amounts of power and we can't
Speaker 4: solve that with fossil fuels alone. It's got to be
Speaker 4: other things. So the transition is the shape of those
Speaker 4: energy molecules in terms of where they come from, and
Speaker 4: through time, I'm sure we probably will get to a
Speaker 4: point where the shift away from fossil fuel starts to
Speaker 4: become dramatic, but that's probably quite long dated. But in
Speaker 4: that transition period, as that part is evolving and becoming
Speaker 4: a bigger component of supply, more and more metals are
Speaker 4: going to be going to be needed. And I think
Speaker 4: that's pretty obvious. So I think the demand side is
Speaker 4: very hard to argue with. I think the supply side
Speaker 4: is equally challenging, you know, we're seeing very very long
Speaker 4: dated timeframes, so the addition of new supply of industrial commodities,
Speaker 4: it's becoming harder and harder to develop these things for
Speaker 4: whether it's the environmental permitting or the regulations attached to it,
Speaker 4: the complexity where these all bodies are located. They're not
Speaker 4: kind of shining out of the ground and easy to identify.
Speaker 4: You've got to go deep underground or top of mountains,
Speaker 4: access to water and power and people, and it is
Speaker 4: just becoming more and more complex. So the thing that
Speaker 4: we see that's coming back to your question that's so
Speaker 4: fascinating is how the industry finances the growth that is
Speaker 4: needed and are the incentives or the returns there today
Speaker 4: at today's commodity prices to justify those investments. And when
Speaker 4: you look across the kind of spectrum, it's hard to
Speaker 4: see the returns for a number of the key commodities
Speaker 4: to justify that investment. So the imbalance, the kind of
Speaker 4: shock that you talk about, is probably going to come
Speaker 4: from a long dated period of under investment into supply
Speaker 4: because the returns aren't there. That coincides almost tectonically, you know,
Speaker 4: with that sudden, you know, appearance of demand that everybody identifies,
Speaker 4: and you then see a price response to reflect that imbalance,
Speaker 4: and that then triggers probably a long dated period of
Speaker 4: investment into new supply growth. In that interim period, you've
Speaker 4: got governments running around, you know, saying that they're worried
Speaker 4: about security of supply, trying to incentivize investment. You've got
Speaker 4: the US trying to unblock some of the red tape
Speaker 4: around investment of domestic resources, which might help. We don't know.
Speaker 4: It's a very very early days in that regard, but
Speaker 4: I still think that the challenges are very much going
Speaker 4: to be kind of dominating the headlines, and at some
Speaker 4: point there's going to be pressure and that hopefully will
Speaker 4: lead to improve returns for the companies that make the
Speaker 4: commodities today.
Speaker 2: Yeah, I mean, the demand side will makes sense. And
Speaker 2: I think everyone can see this. Everyone can see rising
Speaker 2: demand from the energy transition edition, whatever we're going to
Speaker 2: call it now, from everyone, from this rising concern about security,
Speaker 2: from the idea that we should massively increase our spending
Speaker 2: on defense, increase our spending on reindustrialization, et cetera, et cetera.
Speaker 2: But when it comes to the supply side, in the
Speaker 2: old days, we always used to saying that the alter
Speaker 2: to high prices is high prices, or the solution to
Speaker 2: high prices is high prices are shoot.
Speaker 3: I mean, because then you get.
Speaker 2: This massive burst of supply, but increasingly it becomes harder
Speaker 2: and harder to incre supply for all the reasons that
Speaker 2: you mentioned, but also for environmental reasons, getting permissioned to
Speaker 2: open new sites, getting permissions to explore, etc.
Speaker 3: So is it the case that.
Speaker 2: As this dynamic you've been talking about unfold, the cycle
Speaker 2: is very significantly longer than it might have been in
Speaker 2: the past. So, for example, all the big companies will
Speaker 2: now say that it's very significant did you just go
Speaker 2: out and buy someone else's sites than it is to
Speaker 2: try and find another one, explore, get permissions and get
Speaker 2: going with production.
Speaker 4: Yeah, I'd definitely agree with that latter point. The valuations
Speaker 4: on existing production today are much lower than the cost
Speaker 4: of building stuff. I mean, that's a sweeping commet but
Speaker 4: there are there's a lot of data to support that.
Speaker 4: And it's not just the cost, it's the time and
Speaker 4: complexity as you mentioned about building new stuff. So you
Speaker 4: might have a project that's ready to go, but it
Speaker 4: still takes many many years to construct. There's still a
Speaker 4: lot of risk around how much it's truly going to cost.
Speaker 4: Anyone who's built a house knows that it tends to
Speaker 4: cost more than you think at the start, And it's
Speaker 4: the same with building your mind, except the numbers that
Speaker 4: just have many more zeros. When you think about that,
Speaker 4: if you're buying an asset today that's in production, you've
Speaker 4: got many many years of cash flow from that asset
Speaker 4: before the stuff you might be building from scratch actually
Speaker 4: starts producing cash if it starts on time and at
Speaker 4: the right cost and ramps up to full production successfully.
Speaker 4: We've got a few examples recently where some of the
Speaker 4: world's biggest new copper mines have ended up costing fifty
Speaker 4: to one hundred percent more than originally planned and are
Speaker 4: still not at full capacity two or three years after
Speaker 4: having supposedly started, Whereas if you'd gone and bought somebody
Speaker 4: else's asset and paid full price for it, you would
Speaker 4: have had three or four years worth of cashlow to
Speaker 4: help reduce that cost by the time you know, the
Speaker 4: new one might have might have started. So I think
Speaker 4: the kind of on a risk reward basis, the assets
Speaker 4: in the market are trading a lot cheaper for less
Speaker 4: risk than building some things from scratch, which obviously is
Speaker 4: one of the opportunities in the market that we see.
Speaker 2: Okay, Nick, and we've talked a lot around qualities in general,
Speaker 2: about the different metals. I know you've specialized particularly in
Speaker 2: precious metals, but in the world of metals overall, the
Speaker 2: any that you look at and you find particularly interesting.
Speaker 2: We're not going to go straight to gold, by the way.
Speaker 1: No, you talked about these not to build on this,
Speaker 1: and it's sort of punnintended there.
Speaker 3: But you talk about the slow surprises, and.
Speaker 1: When you look at commodities sort of uros pla manus demand,
Speaker 1: you kind of fudge for macro equals price, and gold
Speaker 1: is it's less of a commodity out of all of them.
Speaker 1: But from my seat, basically what we're seeing is is
Speaker 1: platinum is really turning into a PGMs, turning into sort
Speaker 1: of that slow surprise we touch on again, it's your
Speaker 1: structural urrors of under investments in the sack. So a
Speaker 1: couple of months ago, fifty percent of the fifty percent
Speaker 1: of your supply was underwater, and so you get then
Speaker 1: you sort of have this sort of you know, really
Speaker 1: low pricing regime a sort of painful period, and you
Speaker 1: then get a catalyst, which happens to actually be the
Speaker 1: ball price, because Chinese jewelry demand is basically down like
Speaker 1: thirty forty percent given high ball pricing, and so you
Speaker 1: got your Chinese judas really looking at re stocking and
Speaker 1: going into platform versus gold. So that is the catalyst
Speaker 1: that has you know, seen almost forty percent three pricing
Speaker 1: in the last few weeks, which is pretty unprecedented.
Speaker 3: So yes, eyes.
Speaker 1: Are definitely on the PGM sector because again, I think
Speaker 1: that response when we talk about the supplier response and
Speaker 1: how quick that is, because when the mind does turn,
Speaker 1: it can swim pretty quickly. And in metals it's it's
Speaker 1: either scrap or it's primary. And if you just there's
Speaker 1: just no mind to bold, right there is it's just
Speaker 1: not there, and scrap for especially for PGMs, that's sitting
Speaker 1: in order cats and people are just hanging on to
Speaker 1: cars for longer because of high inflation because abound certain
Speaker 1: ty becaeuce of tariffs and that that material just isn't
Speaker 1: coming back. So we're not really seeing that the supplier
Speaker 1: responsors you generally see across the metal space industrials and
Speaker 1: precious when you get a large price free rating.
Speaker 5: Okay, well I'll tell you what I gave in and
Speaker 5: let's talk about gold. You're I mean it's empting heavy.
Speaker 5: You're your portfolio is what the thirty percent or in gold?
Speaker 3: Gold? Like please at the moment?
Speaker 2: Right, And Nikki, I know you're something of a gold bull, right, Nika,
Speaker 2: why don't need talk us through the case.
Speaker 1: I think gold sort of speaks for itself in terms
Speaker 1: of its three ratings through two thousand and it's it
Speaker 1: is putting commodities back on the map in the broader sense.
Speaker 1: It hasn't burnt itself out like every other commodity price
Speaker 1: boom or bus. So you've got investors coming back and saying, right, right,
Speaker 1: is this time really different?
Speaker 3: And why?
Speaker 1: And you've had a bunch of structural forces come together. Deglobalization,
Speaker 1: de dollarization, which didn't start now it's this started Brexit,
Speaker 1: like this started Brexit Trump one point zero, accelerated with COVID,
Speaker 1: accelerated with Ukraine war, the weaponization of dollars, and then
Speaker 1: just sort of ongoing geo political tensions.
Speaker 3: And I think you now have a world where.
Speaker 1: Yeah, there is it's it's each protectionism is up and
Speaker 1: again a course for those strategic stockpiling of and central
Speaker 1: banks that have been that key game changer, that a
Speaker 1: key demand game changer for whether it's a sub two
Speaker 1: thousand dollars acid or or now three thousand dollars plus
Speaker 1: ASCID and the way they're accumulating just too as a
Speaker 1: dollar hedge, but also fits currency hedge and inflation hedge,
Speaker 1: energy political hedge is kind of unprecedented, and we don't
Speaker 1: see that falling away anytime soon.
Speaker 2: You don't see it falling away anytime seeing the Chinese government,
Speaker 2: Chinese center back, for example, has been buying and buying
Speaker 2: and buying, and you see that continuing.
Speaker 1: Mostly Yeah, so it's mostly emerging markets, central banks, a
Speaker 1: lot of Africa and a lot of Asian obviously China.
Speaker 1: The interesting thing is, you know, World God Council do
Speaker 1: a great it's sort of great analysis and data on
Speaker 1: central bank buying, but it's it's official and a lot
Speaker 1: of it's unofficial. And in a Trump era, who you know,
Speaker 1: Trump has actively come out he had comments overnight related
Speaker 1: to the sort of the brick summits. But if you're
Speaker 1: actively seeing d dollarizing, which in the purest form is
Speaker 1: accumulating gold.
Speaker 3: The threats of tariffs sort.
Speaker 1: Of increases, So I think you're going to see a
Speaker 1: lot more It's it's going to become a lot more
Speaker 1: paid back to what we started off. From the conversation,
Speaker 1: I think central bank buying. You're going to have a
Speaker 1: lot of unofficial or just estimated central bank buying and
Speaker 1: won't go through the official channels.
Speaker 3: Okay, interesting, and is that what you see as well?
Speaker 4: I think I'm more bullish than that. You know, I
Speaker 4: agree with a lot of the comments I made, but
Speaker 4: I just think the scale is so much greater. You know,
Speaker 4: you look at the size of government balance sheets today,
Speaker 4: and I think that the education, a painful education that
Speaker 4: many people have been through about the loss of purchasing
Speaker 4: power over many, many years. Every year, you know, your
Speaker 4: paper currency buys you less than it did in the
Speaker 4: year before, and you know, cumulatively, it's very very expensive
Speaker 4: for paper assets. And I think the scale of government
Speaker 4: balance sheets now that need to be continually refinanced. People
Speaker 4: have learned a very very expensive lesson. We did the
Speaker 4: study of a year ago or so. I think the
Speaker 4: iPhone is now sixteen years old. You know, when it
Speaker 4: was launched, it was five hundred bucks iPhone. Now it's
Speaker 4: fifteen hundred bucks for an iPhone. You know, if you
Speaker 4: use gold to buy your iPhone, you need thirty four
Speaker 4: percent less gold today to buy today's iPhone than you
Speaker 4: did when it was first launched. That is the protection
Speaker 4: of purchasing power. Real assets have held value much better
Speaker 4: than paper currencies over time, and we all know that.
Speaker 4: And I think that people's people have started to become educated.
Speaker 4: Central banks have certainly become educated on this. And so
Speaker 4: my career is too long now, but you know, I
Speaker 4: when I started in the nineteen nineties, you know, everybody
Speaker 4: had an allocation to gold in an investment portfolio. In
Speaker 4: the early two thousands, that allocation was zero. Even the
Speaker 4: Swiss wealth managers had zero allocation to gold. Now it's
Speaker 4: getting back to two three percent some cases. More central
Speaker 4: banks have you know, stopped selling gold in the early
Speaker 4: two thousands, you know, having had whatever it was, four
Speaker 4: decades of net selling, you know, and they've been buying continuously,
Speaker 4: and they're buying at twice the average rate, or nearly
Speaker 4: three times the average rate over the last three to
Speaker 4: the last kind of seven or eight before that. So
Speaker 4: we're at a kind of a pivoting moment in this
Speaker 4: where gold has really re established itself as a financial asset.
Speaker 1: You make a really good point on a sort of
Speaker 1: the allocation to gold and sort of relative size I
Speaker 1: think of the gold market relative to other industries. I
Speaker 1: think is underappreciated. So yeah, it's just that idea that
Speaker 1: the gold space relative to the questioning of US treasuries,
Speaker 1: questioning of other assets is just it can't hold the
Speaker 1: amount of allocations if we simply just doubled investor allocations,
Speaker 1: or if Central anxious had to double their allocations to
Speaker 1: the sector.
Speaker 2: So what percentage of an ordinary person's portfolio should being gold? Micky,
Speaker 2: do you think we'll go can't?
Speaker 1: I mean the numbers thrown around is about one to
Speaker 1: five percent. I look at a very crude measure of
Speaker 1: just sort of known investor holdings, which is just simply
Speaker 1: ETF and your net COT numbers, and that's less than
Speaker 1: one percent as a percentage of equity.
Speaker 2: Hohold.
Speaker 1: But I do think specialists are somewhat involved. This is
Speaker 1: what makes me extremely polished. This isn't a gold rally
Speaker 1: that's firing on all cylinders. Retail's pretty sluggish, both in
Speaker 1: Europe and in the US. You've got central banks, you've
Speaker 1: got general investors, but I think it hasn't got.
Speaker 3: To that Fomo their phoonmo level weight.
Speaker 1: The new your taxicab is talking to me about hying gold,
Speaker 1: so really has been a sort of cold hearted like
Speaker 1: sort of allocation, very measured allocation to gold.
Speaker 4: I'd go more than that, So I thought you mightn't
Speaker 4: anywhere there enough. It's Oh. I think there's two components
Speaker 4: to that answer. The first one is that there are
Speaker 4: different ways to get exposure to gold, and to me,
Speaker 4: the optimum way is to have a mixture of exposure
Speaker 4: to physical and to gold producers. And so you set
Speaker 4: yourself a target where you want that exposure to be,
Speaker 4: and you might go with five percent, you might go
Speaker 4: with ten. I normally have anywhere between fifteen to twenty
Speaker 4: percent in my own personal portfolio, and you know, you
Speaker 4: manage the risk of those two positions. So if gold
Speaker 4: outperforms gold equity producers, then you know, you take a
Speaker 4: few profits in the physical gold and put it into
Speaker 4: the gold producers and you just manage that exposure in time.
Speaker 4: But you manage it as a number. So you know,
Speaker 4: if you get too high because something is that performance.
Speaker 4: So the gold shares are up three times the goal
Speaker 4: price this year, you know, you obviously be taking some
Speaker 4: profits and some of the gold producers and putting it
Speaker 4: back into physical if you think if they think they've
Speaker 4: gone too far. You mentioned our exposure to goal equities
Speaker 4: in the portfolio today. We went from an underweight position
Speaker 4: in gold producers at the beginning of twenty twenty four
Speaker 4: to a substantial overweight position in the gold producers, not
Speaker 4: because we had a different view on goal price. We've
Speaker 4: been bullished throughout that period. We just felt that given
Speaker 4: the move in the price, the companies were set to
Speaker 4: earn an extraordinary amount of cash flow and profits, and
Speaker 4: therefore we couldn't argue with that, and even the worst
Speaker 4: companies couldn't destroy the profitability that they were now getting.
Speaker 4: And so therefore we adjusted the position because there was
Speaker 4: value in the producers over the gold price view. And
Speaker 4: we're maintaining that we've got a very very healthy level
Speaker 4: of gold equity producer today because we think this quarter's
Speaker 4: earnings second quarter of twenty twenty five should be the
Speaker 4: evidence point. A little bit like the homework being marked
Speaker 4: by the master. You know, we will see whether the
Speaker 4: companies have been able to hold on to the price
Speaker 4: moves and convert that into cash, and the results over
Speaker 4: the next few months are going to be a real,
Speaker 4: real test for these companies. And then the second element
Speaker 4: of that test is what they do with the money.
Speaker 4: Do they waste it, which is off too often a
Speaker 4: track record of management teams, or do they give it
Speaker 4: back to shareholders with higher dividends. A lot of them
Speaker 4: are embarking on share buybacks. Most of them have paid
Speaker 4: down their debts, so there's a lot more choice about
Speaker 4: what they can do because they're not restricted with debt
Speaker 4: covenants and so on. So we actually think we're on
Speaker 4: the cusp of quite a material changing goal producer valuations
Speaker 4: if they can deliver. And when you look at the
Speaker 4: valuations relative to the past, they're trading way below their
Speaker 4: own historic levels, so there is a lot of room
Speaker 4: for them to move despite the year to date returns
Speaker 4: that they've been able to mark up. And then coming
Speaker 4: back to that question about the allocation, gold is also
Speaker 4: a risk tool but also an insurance policy. Take Nicky's
Speaker 4: number of five percent, the other ninety five percent goes
Speaker 4: really really well. It takes some profits out of that
Speaker 4: and add back to the gold to keep it at
Speaker 4: that five percent number, and you will be absolutely thrilled
Speaker 4: when the ninety five percent has that unexpected fall that
Speaker 4: that five percent over delivers view and acts like an
Speaker 4: insurance policy. And I think that's how you measure it.
Speaker 4: You don't chase gold because that is the big mistake.
Speaker 4: If you're chasing it because you think it's going to
Speaker 4: go perpetually higher, you're probably going to be disappointed and
Speaker 4: probably buying at the wrong point. But if you're managing
Speaker 4: it as part of an asset allocation in your overall portfolio,
Speaker 4: that is the sensible and smartest way to do it.
Speaker 3: Yeah.
Speaker 2: Can I ask you what the top gold holdings in
Speaker 2: your portfolio are with what of your favorite miners producers?
Speaker 4: Well, we move those around so we don't necessarily have
Speaker 4: a particular favorite name. What we do is we try
Speaker 4: and build that kind of basket of exposure. So because
Speaker 4: not every company can offer to us what we want,
Speaker 4: so some of them we own for cash flow productions,
Speaker 4: some of them we own for expiration potential, so they're
Speaker 4: going to discover more Others for growth in production, others
Speaker 4: for stability. You know, you've got to build your house
Speaker 4: on strong foundations and so on. So it's getting that
Speaker 4: mixture right. It's like baking a cake. If you're only
Speaker 4: interested in the flower, the cake's not going to taste
Speaker 4: very nice. But if you want to mix it with
Speaker 4: the right ingredients, then you're going to end up with
Speaker 4: a good outcome. So we think that kind of blended
Speaker 4: approach works well. It also softens the risk. So if
Speaker 4: you have all of your exposure in one particular name,
Speaker 4: then you can tend to be disappointed by that nicky.
Speaker 1: What about silver, silver, it's miss along the lines with platinum.
Speaker 1: I think, like I said, Goalput has put precious metals
Speaker 1: back on the map as a sort of general debasement trade,
Speaker 1: and I think silver and platinum, or obviously coming into
Speaker 1: that fors are kind of the second iteration of that
Speaker 1: general debasement trade. We had it a thirty two thirty
Speaker 1: five dollar range. It's now moved up. It's still relatively cheap.
Speaker 1: If you're talking about gold consistently hitting all time highs.
Speaker 1: The dual part, right, you've got industrial demand which is
Speaker 1: so super super strong, A lot of it is PV
Speaker 1: but again as electronics it plays a part in the
Speaker 1: transition economy, and then as well it's got that investment side.
Speaker 1: So to me, silver, if you think we are right
Speaker 1: now sort of at a macro inflection point where we're
Speaker 1: going to get sort of a series of trade deals,
Speaker 1: the FED is going to join the G ten rate
Speaker 1: cutting party. The US dollar has appreciated a ton, but
Speaker 1: it's still in his early endings of a sort of
Speaker 1: structural decline.
Speaker 3: Then your high beta.
Speaker 1: More industrial precious metals such as platinum and silver definitely
Speaker 1: have more upside than gold. So in terms of you know,
Speaker 1: it's just we're not really in that full on fear
Speaker 1: mode where where havens are being overbought, and I think
Speaker 1: I think there's there's a rotation out of sort of
Speaker 1: your pure havens into some of these alternatives.
Speaker 2: Ever's nodding away like either completely agrees or has something
Speaker 2: to appen.
Speaker 4: I think the I find silver fascinating. I started my
Speaker 4: job and take some photographs, take the camera film to
Speaker 4: the chemists and get it developed. And that was silver.
Speaker 4: Silver was foury odd percent of demand with photography. And
Speaker 4: when was the last time you took a film to
Speaker 4: the chemist to get it developed, so if you can
Speaker 4: find one that would do it. So you know, silver
Speaker 4: has that amazing ability to kind of reinvent itself with
Speaker 4: regards to demand, and today it's attached to that really
Speaker 4: really fast growing part of the market, which is solar cells,
Speaker 4: and it's the biggest part of consumption. So as that
Speaker 4: grows and the world uses more, it's great great for silver.
Speaker 4: Silver also has this other characteristic where there aren't very
Speaker 4: many pure silver mines, so it tends to be a
Speaker 4: byproduct of production of other commodities. So you have a
Speaker 4: copper mine that might produce some gold and silver at
Speaker 4: the same time, and so the kind of cost of
Speaker 4: production element doesn't apply as kind of neatly in relation
Speaker 4: to other commodities, or price falls below the cost of
Speaker 4: production production shuts. Same with copper and other things. Silver
Speaker 4: doesn't necessarily have that same extent because of that byproduct nature,
Speaker 4: and so the kind of supply side support on price
Speaker 4: from a kind of cost curve isn't really there to
Speaker 4: the same degree. So we actually are very positive on silver.
Speaker 4: We think the silver equities have been left behind and
Speaker 4: we think there is room for a more material move
Speaker 4: in the price of silver. We're actually surprised that it
Speaker 4: hasn't broken out. It's had a couple of attempts recently
Speaker 4: in that kind of mid thirties range, as NICKI mentioned,
Speaker 4: but we haven't seen that kind of big bump move yet,
Speaker 4: so we're kind of anticipating that. So in our Golden
Speaker 4: General Fund, we've actually got an active weight to silver today.
Speaker 4: That's pretty big because of that positive view.
Speaker 2: God, I'm glad you that I've been holding that Golden
Speaker 2: General Fund for decades.
Speaker 4: It's at an all time high now, mare, and so
Speaker 4: you should be pretty happy with the.
Speaker 3: I know, yeah, there were there was some not so happy.
Speaker 4: I totally agree that we've been through a bit of
Speaker 4: a roller coaster across all the commodity space, and the
Speaker 4: Golden General Fund has been one of those. But I'm
Speaker 4: very pleased to see twenty two quid or whatever the
Speaker 4: unit price is today.
Speaker 3: Yeah, me too, Me too, Nikka.
Speaker 2: Outside precious metals, are there any any metals.
Speaker 3: That you're particularly interested in?
Speaker 2: I mean, obviously the big one there as copper, and
Speaker 2: I'll come back to you every on this a big
Speaker 2: part of your portfolio.
Speaker 1: But is that interesting to you, NIGGI, Yes, I mean
Speaker 1: it's it's definitely interesting sort of fits. That's that similar
Speaker 1: framework with platinum and with silver in terms of if
Speaker 1: you're looking for a reflation trade. Again, these are metals
Speaker 1: that are generally constrained. You have a strategic stockpiling globally
Speaker 1: occurring in critical metals and so yes, I think do
Speaker 1: you like corperate, constructive and positive to it, but yeah,
Speaker 1: probably add that in industrial metals, we like some of
Speaker 1: the opgms with thurniums is really a big part. Again,
Speaker 1: there's no listed commodity that's very niche. It's basically I
Speaker 1: call it the in video of the PGM sector, but
Speaker 1: it's a big part of sort of data centers and
Speaker 1: again the South African mining complex. I mean, they can't
Speaker 1: mind these metals in isolation. It's mined as a basket
Speaker 1: similar to what we're if it was referring to in
Speaker 1: in silver as in their byproducts.
Speaker 3: So yeah, generally constructive. Yeah, it's interesting.
Speaker 2: I mean going back to going back to that, I mean,
Speaker 2: we read so much about the rare earth metals, which
Speaker 2: as we all now know, on't exactly rare but only
Speaker 2: minded particular places. How does it reacha out of us
Speaker 2: to get exposure to the.
Speaker 3: Rare earth metal story.
Speaker 4: There are a handful of listed companies around the world
Speaker 4: that you can get exposure to. The quality of the
Speaker 4: assets is very variable. The challenge with the rerror space is,
Speaker 4: you know, there are lots of different elements to the
Speaker 4: supply chain, so it's not necessarily the mine. It's downstream
Speaker 4: from that. It's the processing and conversion of that of
Speaker 4: those products into usable items, and it's that element that
Speaker 4: China controls. So China controls that intermediary step between the
Speaker 4: raw production and then conversion into something that's usable, and
Speaker 4: then the sale of those into other formats, whether it
Speaker 4: goes into magnets or other applications. And that's the kind
Speaker 4: of huge strategic win that China's had over the years.
Speaker 4: They've realized that if they can dominate the control of
Speaker 4: the supply of that, they don't need to own the
Speaker 4: minds as such. They just need to own that intermediary
Speaker 4: step and that gives them that long term power base.
Speaker 4: So you've got to think about where is the margin made.
Speaker 4: Is the margin made in digging the stuff out of
Speaker 4: the ground, or is the margin made in converting into
Speaker 4: something that's usable, And that's where you need to think
Speaker 4: about your exposure. So we do have exposure to rare
Speaker 4: US across our portfolios. Some of them are in the
Speaker 4: mining companies. We have two pure play exposures, both listed
Speaker 4: in Australia, where the one is exclusively a rare US
Speaker 4: producer and the other one is building out a rare
Speaker 4: US facility both downstream processing and the mining of the product,
Speaker 4: and that will come into production in the next kind
Speaker 4: of year and a half. So those two companies are
Speaker 4: kind of ways of playing it. We haven't gone into
Speaker 4: the kind of more exotic ways of doing it because
Speaker 4: it's just a bit of a challenge that some of
Speaker 4: those companies, but that's how we're doing it.
Speaker 2: But you should see an awful lot more of the
Speaker 2: mining and the processing of all these commodities coming back
Speaker 2: into Western countries, right and that would make sense if
Speaker 2: everyone is concerned about energy security. In particular, we're going
Speaker 2: have to mine and process on our own land, which
Speaker 2: is a grubby thing to do, and we don't like
Speaker 2: doing these things because they're all dirty, and we prefer
Speaker 2: to outsource all the dirty work to China in particular,
Speaker 2: but we're going to have to bring it back on Shore.
Speaker 4: Yeah, there's definitely that, and I agree with what you've said.
Speaker 4: The challenge is the price. You know, at the moment,
Speaker 4: the prices of these things are not high enough to
Speaker 4: justify the investment to build that onshoring of capacity. I mean,
Speaker 4: nowhere near high enough. If you look at the share
Speaker 4: prices of some of the rare producers, they have not
Speaker 4: been good performers at all. In fact, they've been completely
Speaker 4: the opposite, and that's because China doesn't want that supply built.
Speaker 4: They like the fact that they control the industry, and
Speaker 4: so the last thing they want is to lose that
Speaker 4: kind of ad plus percent market share position. So it
Speaker 4: will require some incredibly low cost capital or huge grants
Speaker 4: and subsidies or whatever from Western world countries to be
Speaker 4: able to build that, plus you know, some changes around
Speaker 4: the regulation I suppose in terms of the processing capacity,
Speaker 4: because it isn't the cleanest of industries, it will take
Speaker 4: some change and that change will take a lot of time.
Speaker 4: So I think the supply side response is relatively inelastic
Speaker 4: in the near term.
Speaker 3: Yeah, although I suppose it is possible.
Speaker 2: And we've talked a lot on the part of the
Speaker 2: last couple of months about the mooted rise in defense
Speaker 2: spending and if you're going to be spending five percent
Speaker 2: of your GDP on defense, body you're actually talking about
Speaker 2: And the answer, of course, is that you're not really
Speaker 2: going to spend five percent of your GDP on tanks.
Speaker 2: You're going to spend it on exactly that, providing locust
Speaker 2: capital or very large grants to securing your supply of
Speaker 2: the metals and minerals that you need for energy security
Speaker 2: as well as physical security.
Speaker 4: Yeah, that's definitely going to form a large part of that.
Speaker 4: As you say, you're not going to be necessarily building
Speaker 4: the tanks, you're going to be building the drones. And
Speaker 4: you know the drones will not use that much steel,
Speaker 4: but they will use a hell of a lot of
Speaker 4: magnets and chips and so on, and then you've obviously
Speaker 4: got the explosives and everything else that goes with it.
Speaker 4: So the shape of spend is going to be different
Speaker 4: to the past in defense.
Speaker 2: Do you hold any renewables equities or is that outside you're.
Speaker 4: In there that we've got a large renewables listed equity
Speaker 4: business on the team, and that's actually going through a
Speaker 4: bit of a renaissance right now. I think everything that
Speaker 4: was talked about in the context of sustainability, you know,
Speaker 4: has been through a bit of a downturn over the
Speaker 4: last few years, and you know, it's kind of reached
Speaker 4: that kind of low point where things are starting to change. Obviously,
Speaker 4: the shift and the backwards and forwards in the US
Speaker 4: with regards to regulation there looks as though it's reaching
Speaker 4: a point where it's going to be less bad and
Speaker 4: the equities are starting to kind of reflect that. So
Speaker 4: our exposure there is really starting to improve. And I
Speaker 4: think when you look at the valuation of those businesses,
Speaker 4: they've been so heavily penalized now for the last three
Speaker 4: or four years, it's kind of hard to see them
Speaker 4: go any lower. So I think that's actually a very
Speaker 4: good opportunity in that space.
Speaker 3: Hard to Stephen goingilwer is not the same as being
Speaker 3: able Stephen going out.
Speaker 4: No, No, I think I think they've gone so low
Speaker 4: that the next move is up. And I think it
Speaker 4: goes back to that question we were talking about earlier
Speaker 4: on all the other topic around the energy transition. The
Speaker 4: only way to fill the energy needs in the near term,
Speaker 4: you know, in terms of extra molecules, is by adding
Speaker 4: renewable capacity, and so the growth that's going to come
Speaker 4: through from the deployment of money into building out the
Speaker 4: renewables is going to be the solution. I mean, try
Speaker 4: and get a gas turbine and how long you know
Speaker 4: it takes to get hold of that. It's super super hard.
Speaker 4: Reactivating the nuclear which we are very optimistic on, you know,
Speaker 4: for the outlook for the uranium is definitely coming, but boy,
Speaker 4: it's going to take a long time. And so unless
Speaker 4: you're going to build a whole bunch.
Speaker 3: Of it, does it have to take a long time.
Speaker 2: I mean, we have talked about this quite a lot
Speaker 2: on the pot about that about uranium, and I've loved
Speaker 2: for Nicky's opinion on uranium.
Speaker 3: In a minute.
Speaker 2: And with that, you know, we talk about the energy
Speaker 2: mix endlessly.
Speaker 3: We must have this mix of different sources, et cetera.
Speaker 3: But do we really really need.
Speaker 2: An energy mix if we actually went full on with nuclear,
Speaker 2: if we really focused on SMRs, if we put out
Speaker 2: new nuclear blands at the same speeders as South Koreans,
Speaker 2: for example, which is very significantly cheaper than the way
Speaker 2: we do it in the UK, and you can get
Speaker 2: them up in five years. If we did that, we
Speaker 2: could solve all our problems in it relatively short amount
Speaker 2: of times. It's not that it's not possible, it's just
Speaker 2: that we won't do it.
Speaker 4: I agree with you, and you mentioned the UK, and
Speaker 4: obviously the disaster of Hinkley Point in terms of its
Speaker 4: costs brings us immediately to mind. But you also said
Speaker 4: five years. You know you can build a hell of
Speaker 4: a lot of data centers in five years, you know,
Speaker 4: much quicker than you can build the nuclear Even at
Speaker 4: the SMRs.
Speaker 2: It takes you five years to put up a great
Speaker 2: wind farm, takes you five years to get planning permission
Speaker 2: for a solar farm. Values is nothing in the world
Speaker 2: of the UK's planning permission. If you decided to solve
Speaker 2: your problem, you could solve your problem very fast. Like
Speaker 2: everything in the UK, the problems are easily solvable by
Speaker 2: policy changes. I'm so, I'm way off into politics now.
Speaker 2: All of our problems are solvable with fast, sensible, data
Speaker 2: driven policy change, which is not matter anyway, but they'll
Speaker 2: be that isn't me.
Speaker 3: You must have exposure to uranium in their portfolio.
Speaker 4: We do have exposures to uranium in the portfolio, and
Speaker 4: the uranium side is really interesting. You know, if you
Speaker 4: talk about a commodity that's had zero investment in for
Speaker 4: an incredibly long time, some of the world's biggest minds
Speaker 4: were kind of put on care and maintenance because the
Speaker 4: demand was just so bad, and they're now being reactivated
Speaker 4: because the demand is coming through. The restocking cycle is very,
Speaker 4: very long dated. And what's interesting is, I think it
Speaker 4: was two years ago now that we attended a conference
Speaker 4: here in the UK for the uranium companies and it
Speaker 4: was the kind of a little bit like the kind
Speaker 4: of mating season where the uranium companies meet the utilities
Speaker 4: and they work out what their needs are and so on.
Speaker 4: What was fascinating is meeting with the uranium producers who
Speaker 4: were now having requests for supply coming from technology companies.
Speaker 4: Because the technology companies had worked out that one of
Speaker 4: the challenges was power and if they needed to solve
Speaker 4: the power, they needed to solve it with long dated,
Speaker 4: low carbon, reliable base load power and nuclear as the solution.
Speaker 4: So they were actually pitching direct to the uranium producers
Speaker 4: for access to units of supply to be able to
Speaker 4: meet their future needs. And then two weeks later we
Speaker 4: saw the announcements about the reactivation of capacity in the US,
Speaker 4: and so this is absolutely moving forward and it wouldn't
Speaker 4: surprise me that we see more growth coming out there,
Speaker 4: but again it's going to take time.
Speaker 3: So we should all hold chemic coal.
Speaker 4: We do have that in the portfolio. Absolutely.
Speaker 2: We let me ask you about the future. So we're
Speaker 2: going to have a lot of mining companies out there.
Speaker 2: We talked about gold companies in particular. There's going to
Speaker 2: be a lot of cash piling into them. So we're
Speaker 2: going to see a lot of companies in this sector,
Speaker 2: massive bounce of cash on their balance sheet.
Speaker 3: What do you think they're going to do with it?
Speaker 4: What I think is going to happen is different to
Speaker 4: what I would like to happen. And I think what
Speaker 4: I would like to happen is that the company's are disciplined,
Speaker 4: they give returns to their shareholders who've invested in their businesses,
Speaker 4: and they manage those cash flows sensibly and an investment
Speaker 4: in the right way. That's what I hope will happen.
Speaker 4: What I think will happen is that the companies will
Speaker 4: repeat what they've done in the past. Not every company,
Speaker 4: but I think we are seeing today a rise in
Speaker 4: capital expenditure across the industry with questionable returns, and I
Speaker 4: am worried that this is a trend that might come
Speaker 4: back to levels that we saw in previous cycles. Why
Speaker 4: I'm worried about that is because a lot of money
Speaker 4: was destroyed when the companies were generating great margins because
Speaker 4: of poor thinking and capital allocation. And I really hope
Speaker 4: we don't see a repeat of that. It's a message
Speaker 4: we're trying to get through to the companies as frequently
Speaker 4: as possible. Absolutely, there are companies out there that will
Speaker 4: not do that, and they will be disciplined and they
Speaker 4: will be great businesses. And we're really happy shareholders in
Speaker 4: those companies. And if the companies can be disciplined and
Speaker 4: return the money, then the shareholders will do very very well.
Speaker 4: The host nations will do very well, the employees will
Speaker 4: do well, good taxes will be paid, and the shares
Speaker 4: should re rate. The risk is that they don't and
Speaker 4: the opposite happens and.
Speaker 3: We don't get those dividends we've been looking forward to.
Speaker 4: Yeah, and the gold companies a great I mean, my
Speaker 4: old boss was a wonderful man called Julian Bearing, and
Speaker 4: he was absolutely table thumpingly strong on this topic. He
Speaker 4: was the the great creator of this, of investing in
Speaker 4: this in the gold space, and he would always hold
Speaker 4: companies to ransom with regards to dividends, and because they
Speaker 4: are a fair way of sharing the spoils that the
Speaker 4: companies make. And they're a great discipline too. If you
Speaker 4: don't do a dividend because you badly invested the money
Speaker 4: you're making, then you owe your shareholders and apology. And
Speaker 4: so a discipline around dividends is like handcuffs on management.
Speaker 4: If you know the dividend is sacrosanct, then you've got
Speaker 4: to pay it. Then that reduces the amount of free
Speaker 4: money that you have to reinvest, which means you can
Speaker 4: therefore only make smaller mistakes if you're going to make mistakes.
Speaker 4: And so dividends are absolutely essential component of returns. And
Speaker 4: if you look at the industry as a whole through time,
Speaker 4: the mining industry greater than fifty percent of the returns
Speaker 4: that the industry generates a dividends. And if you're not
Speaker 4: paying the right amount, then you're really going to going
Speaker 4: to let yourself down.
Speaker 2: Okay, we'll keep an eye on that. Let me just
Speaker 2: ask you one last question both of you. Nikki, do
Speaker 2: you see bitcoin as a competitor to precious metals?
Speaker 1: We look it into you look at liquidity in the
Speaker 1: system like global but it is consistently reaching all time high.
Speaker 1: There is there is a space. This is a space
Speaker 1: where both can survive. They basically complement each other, Bitcoin
Speaker 1: and goal. They should be the same hip in terms
Speaker 1: of what they kind of stand for anti fear to
Speaker 1: sort of a verte against the system. But one is
Speaker 1: extremely volatile, the other one is a bit of a
Speaker 1: more safe haven. So I think in a portfolio there's
Speaker 1: enough space for both of them, depending on yours profile,
Speaker 1: depending on what you're looking at.
Speaker 3: So I don't.
Speaker 1: I don't really see it as a competitor in a
Speaker 1: world where there's a consistent search for US dollar hedges
Speaker 1: and it's just there's there's a of reliable US dollar
Speaker 1: hedges out there.
Speaker 3: Yeah, okay, thank you. And I think would you put
Speaker 3: it in I mean, you know, is it a commodity?
Speaker 3: I mean you mind it right?
Speaker 4: Yeah, I wouldn't. I would say a minor would argue
Speaker 4: with that. I think it's a word rather than an action.
Speaker 4: Crypto as a whole is sold on the same basis
Speaker 4: as gold and bitcoin in particular, and as a result
Speaker 4: of that, there are characteristics that you could see in
Speaker 4: a similar light. I think gold is the original. Gold
Speaker 4: will be around for thousands of years, as it has
Speaker 4: already been around for thousands of years. I think it's
Speaker 4: re earning its place in people's portfolios with the moves
Speaker 4: that it's had. I look forward to the day where
Speaker 4: you are able to pull out your debit card and
Speaker 4: spend gold. I think that's a really, really exciting time.
Speaker 4: I know there are some companies that are doing that already,
Speaker 4: but it isn't mainstream in the same way that you
Speaker 4: pull out your your card and you can swipe on
Speaker 4: your phone to spend euros or dollars or pounds or whatever.
Speaker 4: Why can't you swipe to spend gold.
Speaker 2: I have the answer for you that I have the
Speaker 2: answer for you to that question, and the answer is
Speaker 2: capital gains liability.
Speaker 4: Hell not, but not if your gold exposure is held
Speaker 4: via coins, because there's no CGT on gold coins.
Speaker 2: Fair enough, fair enough, Seeing've got coins backing up your card.
Speaker 3: This is too complicated. We're going to leave it here.
Speaker 3: We're going to leave it.
Speaker 2: Yeah, Evy, Nikki, thank you so much for joining us today.
Speaker 3: Hugely appreciate it. Thanks for listening to this week's Marin
Speaker 3: Talks Money.
Speaker 2: If you like us show, rate, review, and subscribe wherever
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Speaker 2: commiments to Merin Money at Bloomberg dot net. You can
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Speaker 2: at Marinus w and John is John Underscore Steppe. This
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Speaker 2: produced by Someasadi, Moses Ander and Tala Amarari. Sound designed
Speaker 2: by Blake Maples, Bestial Thacts, Sineky Shields and to Ev
Speaker 2: Hambroke