Joe Mazumdar | Expert Analysis of the Mining Sector and the Best Investment Opportunities
In this interview, Joe Mazumdar provides his commentary on the current state of the mining sector and where resource investors can find the best investment opportunities. He specifically discusses how the recent wave of mergers between the major miners is affecting the industry and where investors can find the best investment opportunities as a result. Joe also shares why he is bullish on gold, copper, and lithium and offers his perspective on the United States and the Yukon as mining jurisdictions. He reveals his biggest investment winner and loser over the past year and much more in this interview.
Joe Mazumdar is co-editor and analyst at Exploration Insights. Joe has an extensive, multi-decade background in working for both mining companies and the financial institutions that cover and invest in mining equities. He possesses an excellent understanding of geology, the process of exploration and development, and what it takes to run and finance a mining company.
0:05 Introduction
2:14 Are we in a resource bull market?
4:29 Other than copper, what is your favorite EV metal and why?
11:12 Significance of recent mega-mergers and key takeaways
14:33 Commentary regarding mid-tier growth-oriented producers 1
16:25 What do you look for now in a late-stage development play in light of the coming divestiture of properties as a result of the mega-mergers?
19:45 What was your biggest winner and loser in the past year?
23:55 What are your thoughts on artificial intelligence in mineral exploration?
27:49 Commentary on the USA as a mining jurisdiction
29:58 Commentary on the Yukon as a mining jurisdiction
32:53 Stewarding influence as a newsletter writer
34:57 In what ways might the retail mining investor have an investing advantage over the professionals?
BEGIN TRANSCRIPT:
Bill: You are listening to Mining Stock Education and thanks for tuning in and welcome back ladies and gentlemen, I’m Bill Powers your host. Today I’m going to be speaking with Joe Mazumdar, the well-respected co-editor and analyst at Exploration Insights. Joe has an extensive multi-decade background in working for both mining companies and the financial institutions that cover and invest in mining equities. So he understands geology, the process of exploration and development and what it takes to run as well as finance a mining company. You can visit www.ExplorationInsights.com to learn more about his subscription service offered there as well to find many insightful and educational articles. Well, I last spoke with Joe about six months ago. That was in person at the Beaver Creek Precious Metals Summit in Colorado. He joins us again today to share his current insights on resource investing. So, Joe, welcome back to the show.
Joe: Thanks Bill. Thank you very much for having me.
Bill: Well, let’s jump into your macro analysis. I’ll start with the question: Are we in a resource bull market?
Joe: From the demand side, there is, depending on the commodity, because of potentially the slowdown in the Chinese growth model, there are some commodities that are being impacted by that. So even though it’s a lower percent growth, it’s off of a bigger base. So can China keep going like this? And how much is your commodity linked to the China story? I would prefer now if there was a commodity that we have that was not only dependent on China and so gold is a little bit more outside of just a Chinese thing. It’s more of a monetary thing. And gold works well in terms of the current environment of uncertainty with the global economy and potential recessions and various areas like in Europe, issues with Brexit. What’s happening also with China, potentially what’s going to happen in the US. So all of this works well with gold. And so that’s one we hold for that uncertainty. In terms of going forward with respect to demand into the electrical vehicle. We like copper for that. And we also like the fact that there’s not enough good copper assets out there. And problematically, there’s not a lot of juniors looking for copper because copper is harder, more expensive to explore than for gold. So you’ll see a lot of juniors like to explore for gold. But other commodities like copper, they may not. And so bigger companies tend to spend more on grassroots exploration for copper, than big companies spend for gold. So the juniors try to take the space up in the gold space, but not so much in the copper.
Bill: Other than copper, which you’ve been bullish on for a little bit as I’ve listened to interviews that you’ve done. What’s your favorite electrical vehicle metal, other than copper and why?
Joe: Okay. I mean, I would say for me it’s lithium because when I started looking into the electric vehicle growth a couple of years ago, I was getting into the near term bull I guess in the market and when I went on a site visit to a several lithium projects in northwest Argentina, it was the biggest site visit I’d ever been on. I think there was about 50 people on it, which was huge. So at that point I probably should have sold rather than bought, but what I saw was the underlying demand is hard to refute in terms of the growth in electrical vehicles. And it’s not just growth for growth’s sake. It’s being mandated by in Europe and in China. And so it’s not just a China story and we’re not even evoking the US yet in terms of the electric vehicle growth.
So that’s why I was looking for more exposure to that electrical vehicle growth. And so with respect to that, looking at the different types of batteries, what I noticed that every type of battery had a different component of nickel or different cobalt or carbon or different metals. But lithium tended to be one that was in all of them. So that’s why I sort of pick lithium from the other various ones because some of the other ones are smaller component. And as the technology changes and the battery chemistry changes, if they cannot get a supply of a certain metal or it’s too expensive, they can basically try to engineer their way out of that metal in the battery. So that’s one concern I had because the car companies in the end have to pick a battery because they’re not producing just one car with one battery, they’ll be producing 50,000 cars or whatever with a certain battery.
And so they have to basically decide what kind of battery they’re going to use. And in terms of the batteries I saw, I saw that most of them or all of them had a certain component of lithium. And with respect to lithium I mean there’s a lot of lithium in the world. It’s not an uncommon metal. The issue with it is the amount of economic lithium out there, you have the brine component, then you have the hard rock component and these companies produce lithium carbonate equivalent with respect to battery quality or lithium hydroxide. Right now the hard rock is taking a bit of a hit with the issues at Nemaska Lithium where that one was, I believe almost $375 million underfunded at one point. So the issue in the end is that demand is there, but the supply is sort of meeting near term demand with the increase in production out of the Salar de Atacama with SQM.
But problematically, a lot of the development stories have, the issue that all of them tend to have is that they never meet their expectations. I’ve seen that in the copper market as well. When I worked as a copper market analyst, we’d always have these demand scenarios, but we would have this one project coming in almost every other year five years down the road and it never changed. So the problem is that they’re just not meeting their expectations. And so when you model something like this, you expect that this company is going to come on producing “X” and usually it comes on two or three years later producing “0.5 X”. And that’s the issue on lithium supply side. So right now when I look at a lithium play, it’s more about technically can it be done to produce something that’s battery quality on the brine side to de-risk that as much as possible. And then on the hard rock side, the real value-add is taking that lithium concentrate that lithium hydroxide, a 5% to 6% concentrate and actually producing lithium hydroxide. And that’s the biggest step. But that’s the biggest value-add as well.
Bill: Piedmont Lithium, I believe, is one of your current recommendations, is that right?
Joe: Yes. And again, we don’t recommend we actually just buy. So that one I bought a while ago we’re underwater on that. But I like where the company’s going. I liked the fact that because lithium concentrate as Nemaska can prove is you’re not concentrating very much. You’re taking something that’s 1.5% lithium oxide and making it 6%. It’s not like a copper mine where you’re taking something that’s 0.3% or 0.4% and making a 20% or a 22% concentrate. You’re not really reducing the size that much of that bulk product.
And so infrastructure is very important. And this part of the southeast United States in the Carolinas where this Carolina Tin-Spodumene belt is infrastructural I don’t think there is an equal for it. And so you’ve got the infrastructure, you’ve got an area that was a lithium producer, granted for ceramics before, and you’ve got some of the biggest lithium players in the States there. So their job is basically to show that there’s a resource out there that can support a 20-plus year mine life. And also that they could produce, metallurgically, a concentrate that’s 5.5%, 6% as well as end up producing in the long run of lithium hydroxide battery quality product. Those are the components that they’re working on right now. So I like what they’re doing. I like the management team and they’re funded to deliver this next phase four program, which should hopefully grow the resource.
Bill: Regarding this wave of mega-mergers that we’ve seen in the last months, what do you think the significance of this is and what are the key takeaways that investors should know from what’s occurring?
Joe: Well, for me the mega-mergers is for the companies in the gold sector is to be relevant because the gold sector is not very big even though we talk about it a lot. I mean, when I did my study last year around the Q3 results of these companies the combined market cap of, I think it was 25 North American-listed the companies, was basically $30 billion less than the market cap of BHP, which is just one diversified company. And so that’s around a hundred-ish billion dollars. And Apple lost $450 billion at one point over several weeks or almost a month or something like that. So in terms of relevance, the gold sector isn’t very relevant and what it’s competing against, more so potentially then itself and other companies, is the ETFs like the GDX or the GDXJ. And so when you get general investors, which is the growth in the investment component.
And so this gets back to what we talked about at the Precious Metal Summit (Sept ’18), regarding the growth of investment by passive funds rather than active funds, the stock pickers, the ones that will help fund the companies. Active funds are having less assets under management and less influence on the sector. The ones that have more influence are the passive investors. But their influence is basically the generalists being attracted more to them. Why? Because they’re liquid. They give them anonymity and they can get in and out and they also provide them options, different ways to invest. They can short it they can long it and they can triple leverage themselves and they don’t take any specific company risk or operational risk because they’re buying 20 or 30 companies. And so that’s attractive to a generalist. And so for these mega-mergers, especially the gold space, the idea is to compete directly against the ETF.
You show that you’ve got a multi-jurisdictional, operational base such that they’re not exposed to any single asset. You show that you’ve got a lot of liquidity, that your financed, that you don’t have to go to the market for equity, that you can raise capital at good costs, but also that you issue dividends, which is something the ETF doesn’t. So your ability to constantly maintain sustainable dividends is very important as a way of showing to the generalist investment. Here is where I differ from the ETF that you’re interested in: “I will pay dividends.”
Bill: For investors that are listening to us now that are more than just a generalist investors, but they devote a significant amount of their investing eyes and resources to this sector. Would you say that focusing on mid-tier growth oriented producers, especially as a result of the expected coming divestiture of properties from the majors, that would be a key place to focus on?
Joe: It’ll be interesting to see because now as you look at it, it’s really those mid-tier juniors that will be looking at this $1 to $1.5 billion of divestments over the next 12 to 18 months for growth. And the important thing is that the probability of them actually taking part in this Disney world up of assets coming from the investment bankers is whether they have funding, whether they have enough cash. Because with these big companies their primary objective is to get cash. They don’t want a lot of equity in illiquid companies. They’d rather take cash. And so ability to pay cash for these companies, for these assets is important. So what we might see is a certain amount of companies, especially the Australians, have been generating a lot of cash and they’re coming over and buying assets with a significant cash component. And we just saw that a week or so ago with Newcrest, again coming in to North America and buying 70% of Red Chris for about US$800 million. So that’s spending real cash on assets, but there’s not a lot of North American companies that have that kind of balance sheet.
Bill: What do you look for right now in light of the fact that all these properties, these projects are going to be coming to market when you’re looking at a late stage development project in light of what’s occurring with the major minors, does that change what you’re looking for in a late-stage development project?
Joe: Yeah, it has to be beyond exceptional now because it’s competing directly against assets that are already operating that are already permitted then a manager wants to get rid of and if a mid-tier has an asset already in the area the synergies will make it easier for them to take that as opposed to a new greenfield site where they not only have to permit it, they have to understand how to operate in the area and all this other stuff. It’d be easier for them to take on an asset that’s already operating, already has a management team, already has a mine manager, already working. And maybe they could help out by maybe they know underground mining better, maybe this has been underfunded…Something with respect to those assets. It doesn’t always work out.
I’ve seen assets that had been purchased by companies from majors and basically they can never make it work. Other ones have done really well. I think of a Silver Standard, now SSRM, that with Miragold Mine, they took that off of Goldcorp and they’ve done quite well with that. That’s an open pit run-of-mine heap leach.
But I mean it really depends on the company that’s acquiring it. It’s not a panacea for companies just to get a lot of accretive assets. It really depends on the company’s ability to add value to that asset. The issue with that development story is that before we had a paucity of juniors with development projects, I mean that weren’t in the hands of majors. And so those, in terms of growth, would be what you would think that the majors would be looking for. But now the mid-tiers are the ones looking for growth and they may wait until these other ones come out of the portfolio of the Barricks and the Newmonts before actually acting on anything else.
Bill: When you look back over your own track record over the last year what was your biggest win and what was your biggest loser and did you lose from your loser?
Joe: Okay. So I would say let’s take the same example of the win and the negative. So last year, we made Evrim Resources a top pick. It is a prospect generator, we really liked the management team. They were well-valued based on their cash. They had a few joint ventures and so we said, okay, Evrim. But I wasn’t going for a specific asset saying this is one that’s going to kill it or anything like that. I just said, well, here’s a good management team. Well-valued, a lot of joint ventures, prospect generator, let’s put that one on. And before they actually got the result that they did on their wholly-owned project, which was Cuale, what looked at the time like a high-sulphidation epithermal system in Mexico, they had already doubled in share price just because of the valuation and what they were doing.
And they have a royalty on our First Majestic’s Ermitano project which is something that’s growing. So I thought, well, okay, let’s do this. And then they came out with these results and 150 meters of a couple of grams on these trench results and it just made the stock rocket, I think the stock was up at one point about 500% or something ridiculous like that. We sold a bit at the top of that cycle because Brent Cook had a big position in them. I kept my holdings and so did the CEO and so most of its management team. But then when they drilled under it, and this is an important thing to remember actually, is that before they drilled, they had a lot of interest to finance. And so the CEO went, studied all the different forms of financing that he could get and decided that before he was going to drill it here’s the best form of non-dilutive financing: get a major in, they pay a bit of a premium and no warrants are issued and we get some cash in the bank.
And so they did that with Newmont who they have a relationship with and then they drilled under it. They didn’t hit anything. And so the stock went crashing down. And so I put a sell on it saying, okay, I’m going to sell. And so as I went to put it in my sell order, the stock had dropped, I don’t know, 60%. And so then I said, “well no, I’m not going to sell anymore, I’ll buy.” So I totally changed that just because of the valuation. But knowing that I trusted the management team, knowing that they had other joint ventures and knowing they had some royalties. And so the risk we took was on the drilling, which is a risk we’re very comfortable taking. Because that’s what it’s all about. We weren’t taking a risk on management because we knew them. We weren’t taking a risk on financing because they had intelligently raised money prior to the drilling, which some other companies I know did not do.
And so they did everything right. They just didn’t get the results, which is fine. That’s life…especially in the exploration world, but they still have a relationship Newmont and they have another alliance with them in northern Canada they’ve got an alliance with Yamana to look through all their data and potentially apply artificial intelligence to that data set. And they’re also looking at….They’ve got a joint venture in Mexico. So there’s a lot of things happening with them and their underlying valuation is their treasury and the royalty, a 2% NSR. And so I continue to hold it, but that’s probably the biggest hit and the biggest disappointment last year.
Bill: Joe, you mentioned artificial intelligence, AI. What do you think the role is of machine learning and artificial intelligence in exploration.
Joe: In mining or any other kind of sector, productivity is in a very important thing. I remember, I think it was in the 70s when solvent extraction electrowinning came around and there was a lot of low grade copper ore that was sitting there that couldn’t get processed. And so a process came where they could leach it and still make money. And that totally changed the copper industry and increase productivity and was a big win. Artificial intelligence is potentially directly applicable when you have a big database, that’s the whole thing you’re trying to do, is you got a big database, you’re trying to go through it quickly, apply some algorithms saying this is what I want to focus in on, but do it much quicker than a human could. The problem that artificial intelligence has is the limitations because it needs a lot of data.
And that’s really where is the comparative advantage. So on a grassroots exploration program where there’s not a lot of data, it’s hard to see the application unless it was a big dataset there that they can use. And I know there’s a company in Quebec that’s doing that on lake sediments. But you need that underlying database. And so you could take a mine that drills a lot of holes and apply it. If you understand the geology, I don’t think it takes geology out of the picture. It shouldn’t be a pure numbers game, but there should be a lot of input in terms of understanding what you’re trying to get to know what an anomaly is. Because the whole idea with productivity in exploration is being able to cull targets quickly and not spend money where in places where you’re not going to get results. So less false-positives but also you want to avoid the false-negatives where you might disregard in area which actually is still prospective. So that’s what you want to deal with and your ability to do that is not just about a computer doing it, but they will help you. But still it’s the people looking at the results and saying, “Okay, this is where I want to focus. This is what we want to discard.” And that productivity gain will only help exploration going forward.
Bill: One of the dynamics, just looking at it from a relationship systems theory perspective, CEO’s and management might have to deal with a little tension between what the machine suggests to target and what the physical human geologists say to target.
Joe: Well, yeah, and then that’s sorta like Moneyball the movie or anything like that…”I liked this guy, blah blah blah, but the statistics tells me he’s got a better on-base percentage, whatever.” But you need that kind of data. You need a lot of that data and then you need to understand the results and that’s what we’ll see come out of that. It’s not because if it has a few failures doesn’t mean I would disregard the method. And if it has one win I don’t think it would be applicable to everything, it’s just a new tool and let’s see how it goes. But I’m sure in the end that it’s something that big companies are looking at and the fact that a junior company is using that as it compared to the advantage to help other companies, I think that’s a positive. The biggest problem they have actually is when they get the data, the amount of time it takes somebody to clean the data such that it’s usable.
Bill: Let’s talk jurisdiction for a little bit. I’d like to get your thoughts on two jurisdictions, the first of which is the United States. In general, what’s your thought on the United States as a mining jurisdiction? What do you like most? What do you like least about the US?
Joe: With the Trump administration, they had made permitting a lot easier. And that’s what companies in the States have told me…permitting for drilling, permitting for access that sort of thing has been made a lot easier, especially in places like Nevada. I don’t think that’s going to change how difficult it is to do things in certain states. Besides Nevada there’s some other states that are good, but they just take a while to permit and I don’t know if that’s ever going to change. Jurisdictionally the US is one of those countries that investors have no issues with.
But really like any jurisdiction, if you look at it from the sort of a country level that’s not a fine enough view. It’s too coarse. What you really need to do is look at each individual State at each level of government like you do in any country. Like if I was talking about Argentina and everybody go, well right now Argentina is pretty negative, but you can still permit things in certain jurisdictions in Argentina, in the northwest and Salta in Santa Cruz. But would I go to Mendoza? No. So that’s the same sort of thing you got to look at in the States, is which state it the better state to actually explore. And number one without doubt remains Nevada. And when we talk about the United States and how much exploration is being done and gold as a big component of it, most of it’s done in Nevada and that’s no question
Bill: What about the Yukon? We saw that Barrick terminated it’s option to acquire an interest in ATAC Resources Orion project. What are your current thoughts on the Yukon as a jurisdiction.
Joe: The Yukon it promotes the mining industry quite a bit, the exploration industry, because it brings a lot of money there. There are projects that have been found there, but infrastructure in the area is rather challenged for power, transportation and that depending on what you’re trying to actually deliver. So gold works better than base metals, let’s say. But there is a lot of prospectively there so for me I would say that the Yukon is prospective, but infrastructurally challenged. Works better for some commodities like gold, but potentially would need a more long-term cycle for things like copper and zinc. That’s more of a leverage play. The issue with ATAC is it is gold, but a lot of the sulfide mineralization there, because they’re evoking a Carlin type trend of mineralization, it would be refractory and therefore would need some kind of pre-oxidation of the ore before leaching it with cyanide.
Any kind of pre-oxidation autoclave, what have you, requires a lot of power. That power doesn’t exist right now in the Yukon. So if you look at a project like ATAC, you would have to look at a very long term cycle. And originally when Barrick made an investment that was a big positive for ATAC because it showed that a major was thinking in terms of this long term cycle. Barrick pulling out with the new management team is a focus on where they are already. So they’re not looking for a new Carlin Trend. Now they’re looking at the Carlin Trend and trying to extract as much as they can and the Newmont-Barrick joint venture and trying to execute that because there’s a lot of value right there near-term that has been there for a long time. When I worked for Newmont, we were looking at that as well and that was back in the late 90s. And so I think that was just a change in the management team saying that, “Okay, this is not what we’re going to focus in on. We’re going to try and get as much juice out of the stuff we’ve already got right now.”
Bill: Joe, prerecording, you and I had an extended conversation about using influence when you’re a newsletter writer when people take seriously what you say about certain companies and how that influence affects especially more illiquid junior companies. Can you share your general thoughts about how you use your influence as a well-respected newsletter writer?
Joe: Well, I try not to use my influence. I mean influence can be a bad thing. So when I worked as a sell side analyst, influence was huge. Like if you could put a buy recommendation or a sell recommendation, which is rare, or a discussion out there and it would actually move the stock, that was like great. That was like, “Look, people are reading me and they’re acting on my recommendations and the stock is moving.” That was very good. Unfortunately, it’s not that way for our model in terms of Exploration Insights because I’m buying and selling with our subscribers. So the influence we have on these illiquid stocks changes my ability to get the price I want when I’m actually buying a stock or being able to sell a stock before the liquidity dries up. So for me the influence, especially on the illiquid stocks is not a positive.
In terms of influence, what we’d like to do is be able to influence the sector, especially the junior sector, into doing the right things, into basically putting more geology into their press releases, especially for the grassroots and junior explorers to try and make their news releases less promotional and more fact that sort of thing. And if that’s the influence you’re talking about, I hope we have that influence and I hope that influence is the one that gets taken forward. The influence on the individual stocks, again, for me it’s more of a negative than a positive.
Bill: We’ve often covered on this podcast that outsiders, those that aren’t on the inside workings of the companies or financing junior mining companies, are at a disadvantage. But I have a question for you…where might the outsider, so to speak, retail investor have an edge, if any, over the professionals?
Joe: I would say that maybe five years ago when this what we were talking about is institutional equity had more of an influence with respect to assets under management was more like 90 plus percent of all the assets under management in the gold sector and had much more influence. Their influence is waning, especially for these junior companies that are non-cash flow and they don’t get a lot of money. They don’t get a lot of love from the sector, but they do now look more to retail. So now I would say that a lot of the brokerage analysts now look to retail to see how they’re influencing these companies because there would be some high net worth individuals in there or the retail crowd and what they’re looking at. Because they actually nowadays may have more influence on these junior non cash-flowing stocks, than the institutional equity. But they’re not a collective; it’s not just one smart name or something like that that somebody can follow. It’s a collective group that follows a few newsletters or a few individuals on chatlines or what have you.
Bill: Do you think of someone that’s non technically trained can succeed consistently at junior mining investing?
Joe: I think it’s hard technically or non-technically to succeed continuously because the underlying risk is geologic and it is what it is. And it’s hard for somebody to refine it such that they can take out geological risk which can be significant. Technically and non-technical sometimes with the short-term gains, if you’re looking at near term gains, somebody with no technical knowledge can do as well or better than somebody with technical knowledge. Because I noticed like when I look at something, I go, “Well, that’ll never work.” And so our whole thesis is that here’s a project that we think will work, that can be mined, that eventually can be taken out. And hence that would be our end game. Okay. But that’s not a trading, that’s more like, “Hey, this is a long-term thing. Let’s just watch how they drill because I think they might have something that somebody might want.”
But in the near-term somebody with no technical skill looks at a presentation goes, “Oh we’re going to re-drill this hole from this angle or we’re going to take a look at this. It’s very promotional. What you’re going to get.” They might buy it and the stock might double, triple what have you. And then in six months, might go back to where it was before. But in the interim, we didn’t do anything over that six months. We didn’t buy it, we didn’t sell it. But somebody who might have bought it when it was 10 cents before it went to a buck then sold it would make money. But the person that would have held that might not have made anything
Bill: In your process of due diligence, how do you, if you do it all, use mining stock chat rooms online?
Joe: I mean I don’t use them like in terms of what I do, I mean I don’t really use a lot of sources of information other than what the company has in terms of technical information, site visit knowledge. I’ve been going on the site and stuff like that. But third party, there’s not a lot of third party data I use. We do have a few individuals that we’ve known for a long time that have gone and seen a lot of assets as well that we’ll bounce things off of if they know the area. But other than that, I don’t really use any other third party data. With respect to the chat lines, the information I get out of occasionally going and looking at the chat lines is just to see what they’re talking about. Which companies are they talking about? Because that’s of interest to my subscribers. Sometimes when they ask me, Oh, why is this stock going up? And then I could follow that up. There’s a lot of chatter on this stock, so I’m not interested as much in the discussion as much as the volume of discussion.
Bill: Yeah, that makes sense. For those that are interested more about Joe’s insights, you can go to ExplorationInsights.com and Joe as we conclude, is there any final thoughts you’d like to share in light of what we’ve spoken about today?
Joe: Well, I would say going forward, we’ll continue to look for in the junior sector explorers that are looking for deposits we think majors or mid tiers would want. Acquisition is really our end game more so than a one hit wonder and that’s continually what we advocate.
Bill: Excellent advice. Well, Joe, I appreciate you taking the time to come on the podcast today and I look forward to seeing you again at Beaver Creek and let’s plan for another interview there.
Joe: Okay. Thank you very much sir.
