Jayant Bhandari | Discussing Junior Mining and Commodities at PDAC 2018

by Bill Powers, Mining Stock Education

While at PDAC 2018 in Toronto, I met with Jayant Bhandari of Anarcho Capital Inc.  Jayant has many years of experience as both an analyst and an investor in the mining sector.  Previously, he worked for well-known natural resource investors Doug Casey and Frank Holmes.  Currently, he advises institutional investors regarding investing in the junior mining sector.  In this interview Jayant shared his insights regarding the following topics: current mining investor sentiment, the gold and commodities markets, niche metal investing, the best mining jurisdictions, and regarding current opportunities to profit from arbitrage in junior mining stocks.

Regarding the current sentiment of mining investors, Jayant observed that several conferences that he has attended in recent months “have been rather pessimistic places to go to.”  He noticed a lower attendance at PDAC this year, perhaps 20-30% lower than in the past from his vantage point.  In contrast, while he observed a higher attendance at the Cambridge show in Vancouver, he found that this “did not reflect in the marketplace during those days,” which indicates that “a lot of investors are staying away from the mining sector right now.”

When asked about uranium and gold sentiment, Jayant said, “I have no reason to invest in uranium projects.  Uranium is mostly trading at a price that is less than the cost of production of uranium.  So why should I at all invest in uranium companies when I am positioning myself to make a loss?  If I really believe in the future of uranium, I should actually buy uranium.  And there are companies like UPC [Uranium Participation Corporation] and some other companies via which I can position myself for uranium.”  But Jayant is not fully convinced of uranium’s future.  He stated, “Does uranium really have a future?  And I’m skeptical about it—and the reason is that new technologies are coming to the market, like solar energy or wind energy; and even gas is now very cheap.  Gas and oil are very cheap which makes that a lot of hydrocarbon-run, electricity-generating plants are actually quite financially efficient.  So I don’t really see much of a future for uranium projects.”

Concerning Jayant’s outlook on gold he shared: “I am very optimistic about the gold price and the reason is that the world is passing through a crisis.  The third world, in my view, is imploding—except for China.  There are massive, massive problems in the third world and the first world has its own problems.  So there are huge social and political problems that we should encounter in the near future, which means that people will be paying attention to gold.”  Jayant believes reasoning behind the movement into crypto-currencies will ultimately result in a movement into gold as a safe-haven asset: “Crypto-currencies are nothing but a way for them to protect their wealth.  Once they get a bit annoyed with how crypto-currencies are performing, I think they will come back to gold.”

Jayant shared his bullish outlook for commodities, which he sees directly linked to demand coming out of China: “I continue to be very bullish about commodities.  There is only one emerging market and that is China.  But China consumes anything between 50-75% of the world’s production of commodities.  And China continues to grow.  And I see things happening in China which gives me a feeling that China will continue to grow going forward which underpins demand for commodities.”

When asked about what commodity he is most bullish on, Jayant replied, “I have been in the industry for about 13-15 years and I have always seen that it is almost impossible to project deficits or surplus about any commodities.  People have all their fancy ideas about zinc today or lithium or cobalt.  The reality is that you have to really add up all the cobalt mines and total demand for the future and then understand where the commodity price is going.  It is extremely difficult.  The only element that I am interested in right now, that I feel really bullish about with confidence, is gold.”

Jayant also shared regarding the type of gold company he prefers to invest in: “I always invest in early-stage companies.  The reason is very simple: that as you go up the value chain, the market valuation of these companies starts getting overvalued.  Gold mining companies not only trade at their NPV [net present value], they trade at multiples of their NPV’s.  Now that makes absolutely no sense to me.  I have absolutely no reason to invest in any of these big mining companies because they are simply overvalued.”

Finding and profiting from arbitrage opportunities within the junior mining sector is one of Jayant’s specialties.  During the interview Jayant lifted up two current arbitrage opportunities that investors should be aware of.  The first opportunity is Red Eagle Mining’s (TSX:R) (BVL:R) (OTCQX:RDEMF) acquisition of Red Eagle Exploration (CVE:XR).  At the original acquisition announcement on March 2, 2018, Jayant said there was a 50% arbitrage profit potential.  The second opportunity is First Majestic Silver’s (TSX: FR) (NYSE: AG) acquisition of Primero (TSX:P).  As of March 5, 2018, the arbitrage profit potential was about 10%.

When asked to offer his advice to retail mining stock investors looking to investing in niche metals, Jayant stressed that retail investors must spend time researching these sectors and companies thoroughly before investing.  Otherwise, the retail investor should steer clear of the niche metals because specific knowledge is required to fully understand a particular niche metal’s market and make a good investment decision.  Jayant emphasized the importance of doing the hard job of researching these niche metal companies.  Without diligent research, he says that “you are only gambling.”  But he says, “If you can do some extra work relative to your peers who are investing in this [junior mining] sector, you position yourself to make that extra money.”

As we concluded our interview Jayant offered his thoughts on the best mining jurisdictions to invest in: “One of the best places to invest continues to be developed countries because they have the rule of law and property rights.” While many contrarian investors think that the so-called emerging markets have a good future, Jayant cautions, “Be careful about countries in Africa.  Be careful about Latin America.  I do invest in Latin America just because if I see value at a price which has discounted political risks, I would buy it.  However, be careful about the third-world countries.”

0:15 Introduction of Guest

0:29 Jayant’s perspective on current mining investor sentiment

1:32 Why Jayant sees no reason to invest in uranium stocks now

3:17 Why Jayant is bullish on gold

4:16 Discussing the crypto-currency market in India

5:33 Jayant’s thoughts on the commodities markets

8:07 The category of gold company Jayant invests in

9:09 Current arbitrage opportunities in junior mining stocks

11:13 Can a retail mining stock investor be successful investing in niche metals?

14:37 Jayant’s thoughts re: the best mining jurisdictions to invest in

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