Joe Mazumdar | Expert Advice on Investing in Today’s Resource Markets

At the 2018 Beaver Creek Precious Metals Summit, Bill Powers interviewed Joe Mazumdar, resource analyst with Exploration Insights, regarding investing in today’s resource markets.  The Beaver Creek Precious Metals Summit provides a one-stop destination for institutional investors, sell-side representatives and corporate development executives from senior precious metals companies who want to be ahead of the pack in identifying the most prospective explorers and developers from around the globe. The Summit is by-invitation only and offers delegates the opportunity to attend corporate presentations, meet one-on-one with senior management and to network in an exclusive yet warm and relaxed atmosphere.

0:05 Introduction

0:59 Commentary on the 2018 Beaver Creek Precious Metal Summit

5:13 Reflections on the investor panel discussion Joe moderated

6:30 Discussing good commodities to invest in right now

9:19 Commentary on the uranium market

11:58 Commentary regarding vanadium

12:52 Is there a strong catalyst for a rising gold price?

16:58 How Joe & Brent Cook approach investing in resource stocks

22:20 Discussing mining jurisdictions


Bill: Welcome back, ladies and gentlemen. Thank you for tuning in to another Mining Stock Education expert interview. I’m joined in Beaver Creek, Colorado at the Beaver Creek Precious Metals Summit with Joe Mazumdar, the economic geologist and analyst with Exploration Insights. So, Joe, I appreciate you taken the time to join me today.

Joe: Thank you for having me.

Bill: Joe, you’ve been many of these conferences and you’ve been to Beaver Creek several times. How does this conference and the vibe that you’re picking up compare to previous years?

Joe: Well, Beaver Creek’s… I mean, you know, due to the person running it who used to run the Denver Gold Show, Jessica Levental, told us this show has just, based on its contact, the way it’s delivered, and what it offers has been a very successful show that’s been able to grow despite the market. What has changed is the participants. So, maybe earlier there was much more buy-side growth. There was more sell-side growth. Now, it’s seems like the sell side has sort of stabilized to come down. Buy-side has sort of, you know, maybe grown a bit, but not much.

But what we’ve seen is more industry coming in, you know, when we…they have been using these forms to look at potential investment themselves. M&A joint ventures, earn-in’s, talk about projects and stuff like that. So, I would say that anybody having a meeting that’s full-up, you know, it might be 50-50, that they’re talking to industry players and 50%, they’re talking to potential investors.

Bill: So, Jessica, last night at the panel which you moderated, she announced that the Precious Metals Summit has seen a 10% growth in attendance, over 1,000 attendees this year. What would you attribute that growth to?

Joe: Well, in part…because I mean, when there’s a lot of conferences and you have less money, you pick the ones you think give you more bang for buck. And it’s a tribute to her and her team to make this a prime venue for institutional equity for industry for whomever, analysts, to come to meet people. Everybody wants to come here. So, part of that success is probably less to do with the market than her own ability to make this a prime venue. And that’s my opinion.

So, people want to be here. And it’s that they have to mark their calendar for one event that they want to be in, in the precious metals. But she also has copper companies. She’s bought in I believe lithium and that. So, she understands the market, that you can’t just be one commodity. And she’s gone from having just exploration companies to now, producers want to be here. So, you know, she’s basically brought a venue where everybody wants to be here. And it’s a nice closed sort of venue, so not… Like, in Denver you can go anywhere. Here you’re…

Bill: You’re captive.

Joe: You’re captive. So, you’re always meeting. You’re always…and it’s very productive for people. So, they very much enjoy being here. She’s got a long waiting list. So, if she really…if this place was bigger, she could do better than that, I would think, in terms of company attendance. So part of it is that. And part of it is the fact that we’ve seen, I believe, more industry involvement. And a component of that is we’ve seen a lot more Australian companies come in and the Australian mid-tier producers. And over the last six months to a year or more, we’ve seen a lot more involvement, joint ventures, earn-in equity placements by Australian companies, producers in the Americas.

And my opinion on that is that, you know, the growth in Australia maybe a little bit more limited, a lot more competition. And so they’re looking farther afield. But farther afield right now is not Asia because potentially, they don’t want to be there anymore. Philippines is not looking good. Indonesia’s not looking good. And so, in terms of maintaining their geopolitical risk profile, which is stable in Australia, looking for other places to go, the Americas make sense.

And, you know, right now a lot of North American companies are not pulling the trigger on M&A. They’re doing joint ventures earning placements, but they’re not buying. What we’ve seen is some Australians come over. And, you know, they bought this gold mine, Pogo, in Alaska, which was very accretive for them, from Sumitomo. So, we may see more of that as these companies come here, open offices here, and basically establish themselves.

Bill: Last night, Jessica had you moderate a panel discussion. Could you share with listeners what that panel discussion was about? And from your perspective as a moderator and an expert in the industry, what stood out most to you?

Joe: Well, I mean for me it was…she did a great job of getting, like you said, an investor panel. But it wasn’t all the same perspective. So, you had people, three people with a lot of experience in doing investing in the mining sector from different perspectives. So, one perspective was institutional equity, which was Joe Foster, a portfolio manager from VanEck. But also what Joe Foster brings being connected to VanEck is VanEck not only runs an active fund, which he’s a manager of, it also runs one of the biggest passive funds.

And another issue that we’ve been seeing is the proportion of assets under management dedicated to precious metals. The amount that’s actually now dedicated to passive is much higher than active. And so, the buy side is sort of limited right now in terms of equity financing and doing what they can because there’s less money. So, not only has the pie shrunk in terms of assets under management, but also the slice of the pie for active has come down.

Bill: One of the people in the panel last night was Josh Parrill of Resource Capital Funds. He mentioned that their top four commodities are gold, copper, nickel, and zinc. What are your thoughts on that?

Joe: Well, first, I like Josh Parrill of Resource Capital Funds. So, that was another perspective, being the private equity. And it was interesting to see gold, copper, zinc, and nickel. We like gold. We like copper. We like zinc. We’re not…like, he’s using nickel as a proxy for getting leverage to the EV market.

Bill: EV revolution.

Joe: We’re doing lithium as supposed to nickel. It’s harder to find good nickel deposits in decent places. And they’re very capital intensive. Technically, lithium is not easy. But you have to look for assets that have people with the technical capacity of bringing it forward. You could go to brine, which is low cost or you could the hard rock, which is a little bit…it’s more expensive less technically problematic.

Bill: Do you like graphite for the EV revolution?

Joe: No. No. I mean it’s a little bit more problematic. I don’t understand that market, as well. What I like about lithium is there was this really good UBS report on lithium on the EV market. And one thing I noticed was the, you know, because the battery technology can change, fluctuate. Until they commit to building a million cars doing this battery, it could change, you know, look at markets differently. And so, until they design this is the battery for this many million cars, we don’t really know what it’s going to look like and what content it will have.

And so, what I noticed, like, when the content of the different types of the batteries that we’ve seen somewhat that we know of, and that could change, lithium is always a component, so I’m happy with that. I know there’s a lot of lithium resources around. But the mobility to actually take that lithium and create a final product for the battery market is really the constraint because there’s just really not that many people that can do it. So, you need to find that kind of…so, I think lithium went from being a leverage play that anybody with lithium…sort of, like, what’s happened with cobalt or something like that. Anything with cobalt…

Bill: There’s been a pullback.

Joe: Yeah, there’s been in pullback. But it’s gone from being a leverage thing to being more of, you know, so, a leverage like a beta play to being an alpha play. You’ve got to pick the right stock, the right asset, the right management, all that sort of stuff. Things we’re doing in gold that made… You know, we have to do it in almost all the sectors in all the commodities. There’s no real leverage right now because commodity prices are depressed. So, what we have to do is pick the ones that are cheap because they’re still really good and we want them because, you know, they can still work in this environment.

Bill: For those that follow the uranium market, we know we need at least $60 per pound. Uranium, right now, we’re hovering between $27 and $28 per pound. What are your thoughts on the uranium markets right now?

Joe: Okay. So, we got into uranium way to early. A couple of years ago, what we failed to recognize was the overhang of inventory because there’s really nobody who’s got a really good idea of what that number is. It’s an estimate because not only does China hold stockpiles, plants hold stockpiles, it’s hard to gauge who’s got what. And they can hold inventory at different stages, as well.

So, the issue has been is that there’s seems to be a lot of inventory out there that prevents power plants from doing long-term contracts at those kind of prices that producers need to keep producing. So, until we get through that and we start seeing long-term contracts being triggered at the prices that these guys can make money, we’re in for these kind of prices for a while. I don’t know if that’s one year, two years, three years.

And then, the other thing is that people are…might say that, “Oh, you know, look at this growth in plant capacity, you know, in China.” And that’s gonna happen in ’20 whatever, you know, in 2025. I’m not sure. “And look at this spectacular growth.” And it’s a diversified growth. It’s not, like, they’re betting everything on nuclear. It’s just that, you know, diversified power portfolio and nuclear’s one of the options. And China is a big power-hungry country in the future. And it needs some. But the thing is that the Chinese are not sitting on their hands. They’re already acquiring assets.

They’re acquiring assets that might cost $60 to $70 incentive price. But they don’t care because they know who’s gonna buy it…Them. So, they would rather have the security of supply rather than paying a premium later for some asset. They’ll get it cheap right now. And they know where they gonna get it from. So, I think slowly they’re already buying up assets that will feed what they know because nobody knows better than them what they need.

So, I don’t think that…I don’t think anybody should think that these guys are…the Chinese nuclear industry is dim-witted to think that I’ll wake up one day in 2025 and have to need assets. They already know that. These people have 5 to 10-year plans without the issues of midterm elections, four-year presidential elections, and all those other stuff. They’ve already have their plans locked. And they know what they need to do. I mean, they have that kind ability.

Bill: If I could get your take on one more commodity, Vanadium. So, vanadium is often times mind with uranium. There’s the vanadium redox battery is very big and large for large-scale energy storage. What are your thoughts on vanadium?

Joe: Well, I mean, I don’t…yeah, I really don’t know much about it. But I do know that…or think I know, let’s say, about battery storage being a very important part of driving a lot of value into the future, not only for vanadium potentially, but for lithium. And once they can design something that can store that kind of power, it blows, like, the Green Revolution, as well in terms of storing power from solar, storing power from wind power, and all this other stuff, that they couldn’t do.

So, I know that’s a big deal. I just don’t know how to deal with it. I can deal with EVs because I can see it, touch it, know that it’s real and know it’s already mandated to happen and the technology exists. With the battery stuff to look at vanadium, I’m not there yet.

Bill: Last night in the panel discussion, there was a question from the audience. And it related to gold and the direction of the gold price. And the person asking the question brought up the Commitment of Traders Report, which signals historically we’re in a bullish place where the speculators are short and the commercials are long.

And it was asked regarding the direction of gold price, Joe Foster, who actively manages the VanEck Gold Fund, said that even though that’s a good trade for, like, short-term, we would need a longer, more strong catalyst to really be confident in a rising gold price. What are your thoughts on the direction of the gold price and where we’re at right now?

Joe: Yeah. He’s absolutely right. I mean, the thing is that if nothing happens the gold price will stay where it is. It needs something to turn the shorts. This is like any asset like an equity. If it doesn’t have any news flow, nothing’s really gonna happen. Will it go up by itself? I don’t know. Unless the underline commodities go up, but if nothing changes, nothing changes. If the market sentiment’s the same, it’s the same. But what it really needs to do is have that catalyst. And is that catalyst inflation? Is it…like, if the Chinese don’t adjust their currency that higher cost on the tariffs goes right through to the U.S. consumer.

So, you know, whatever that is, a 10%, 20% increase in goods that are imported from China. Can they handle that? In a environment where we’re increasing rates, you know, can we do that? And his other point was, you know, most cycles, when we’re trying to increase rates, capital expenditures goes down. Market sentiments starts going, expenditures, you know, and more people save. And so, that turns the equity market. And right now what gold’s competing with is a booming equity market. And if you look on the CNNMoney Fear & Greed index, it’s definitely still on greed. You know, it’s on fear. And the VIX is not as volatile to drive safe haven.

And diversification is not something people…I mean, they should be diversified all the time. But when it doesn’t make sense, they’ll just sell gold and buy something else. And then, they’ll go back. So, yeah. It’s an issue, but if we could…if the catalyst happened when we have short positions, there’s a lot of room for gold to change. If we were very long and gold was still at $1,200/oz, it would be more of an issue. But if we’re short, and we’re not short a lot. It’s not like as short as it was long. But if there’s capacity and no speculators to take up more at this sort of, you know…and if there’s a catalyst at around $1,200/oz or $1,250/oz to take it up, there’s room there for people to come back in.

Bill: In the last few months I’ve heard people question if we’re really in a gold boom market that commenced in 2016. They said looking back to 2012 when gold really began to decline, maybe we’re still in a bear market in gold and we’re not two years into a new upward cycle in gold. What would be your response to that?

Joe: Yeah. I mean I think, you know, we got up to about $1,350/oz at one point and then we’ve come down. But I…yeah, I don’t know if we’re gonna go back to $1,060/oz, you know. But, you know, I started back when it was $250/oz. I remember buying gold when I was a kid at less than $100/oz. So, I mean, gold has definitely gone up. The issue right now for me looking at equity is what makes sense at whenever price I’m given. You know, if I’m looking a leverage story then, I need to know more about the overall market and when this catalyst is going come and how do I lever myself? That’s hard to know because gold is sort of like the last thing that comes out of the toothpaste. It reacts more to the economic environment. It doesn’t drive it.

Bill: So, when you and Brent, when you analyze a company and industry or a sector or a commodity, what factor, if you could break down into percentages, do you factor if you’re going to invest in a company? Is it 60% the fundamentals of the company and 40% the macroeconomics of the underlying commodity? How do you break that down in your assessment?

Joe: Well, I would say that we first figure out which ones we want to be in. Like Josh Parrill

Bill: So, you start with the commodity?

Joe: Yeah. First, we start, “Okay. Which ones do we like?” So we do a bit of research. Okay. We…I mean, our subscribers want gold exposure. So, there’s never going be a time we’re not exposed to gold. So, is it copper? Is it zinc? Is it lead? Is it lithium? Is it nickel? Is it whatever? Or uranium? We have to come off with an argument which ones. We can’t own everything. We have capital restraint just like everybody. But we have to, you know, focus. And we still like gold, copper, zinc, and lithium and that’s basically our major explorers.

But in terms of stage of development, that changes, depending on the commodity. So, if there’s a paucity of development assets and these guys are looking to acquire assets, let’s say in copper, then we might take on an asset that’s more advanced. But if we see that, “Hey, there’s not too much exploration going on in gold,” and we need more projects to work at lower gold prices and they don’t exist because nobody is doing grassroots, then we will emphasize grassroots stage exploration in gold. So…

Bill: So, you’re looking for opportunity?

Joe: Exactly. And then, in lithium, you know, I would like, you know, the resource, the development, to show me that this can go into production and then, you get acquired. I mean, our exit strategy is the same for all of that for it to get acquired, you know. But depending where we are in each commodity cycle, we might be more upstream or downstream. So, when we saw the gold price changing, we were more into producers. When the gold price sort of flattened and came down, we went back to exploration. But we take the financing risk because they’re obviously non-cash flowing. But if it’s the right company, they can still get financed in any environment because those people always see money.

Bill: What type of exploration company do you invest in? Would you ever put money in a company with good management and a strong thesis and some, you know, strong anomalies, but there’s no resource? They haven’t hit any spectacular holes. Would you ever put your money in the company like that?

Joe: We do that, you know, a lot. We do the prospect generator model…

Bill: A non-prospect generator.

Joe: Oh, a non-prospect…

Bill: A straight explorer just with a geologist with a map and crayon.

Joe: It’s hard to do that in the letter. Like, I might personally do that because those companies tend to be very illiquid. And it’s hard for me to put that into letter because if I say, “Buy this,” the stock is gonna triple maybe because of how it trades by appointment. So, it’s hard to give that. So, we need a certain amount of liquidity, so, you know, a 15 to 20 million market cap or a thing to go up. And maybe you can still get a double or more than that. But it’s hard to give them a one to two million market cap company.

Bill: So, you’d kind of already touched on this, but I’ll ask this question just so you can further give insights. Investors made money in 2018 primarily via discoveries and M&A. Where are you looking right now to find the best opportunities?

Joe: Yeah. I mean, the thing is that we’re always looking for a discovery on the exploration side and those drill holes. So, what we want to see is people funded to deliver the drilling programs that find something that can get acquired. You know, how they get acquired is really the strategy we want to understand. We have an idea, but we’re not investment bankers.

We wanted to know if their ideas align with what we think. And if they don’t, we will think about what time we should sell because if they say they want to do this, this, this, and then all the way to the feasibility and say, “Hey, I wanna build it,” and you’re looking at the management team as if, “You’ve never built anything in your life.” So, I want to sell around the time that you put out the resource. And then, after that, I don’t want anything to do with this because I think that’s when it’s going to peak. So, we could still…if the management team is iffy, but it’s a great asset and we know it’ll get acquired, we have to be a lot more conscious about the sell.

So, when we talk to our subscribers we say, “Here’s the investment thesis. Here’s the risk. Here’s what we’re talking about.” So, if we see this then, we’re out.” And then, sometimes we’ll talk about, “Hey, I like this company, but it’s overvalued.” If it comes down to this level, we might be in. So, we try to give them a bit of warning, you know, up or down what we’re thinking. But consistently, whenever a news item comes out on a company we hold or they ask us about, well, mostly at what we hold, we provide an investment thesis.

And then, what does that news do to your investment thesis? Make it better? Make it worst? Does it change it? And then, are they doing something different? Should we be worried about a financing? You know. Are they gonna blow the share structure? Things like that is what…because there’s a lot of things to think about. And if we own it, we have to make sure not only we’re aware of it, but we convey that to our subscribers.

Bill: You’ve traveled the world over your decades in the industry. As you look around the world right now, what mining jurisdictions are on the rise that maybe investors aren’t paying enough attention to?

Joe: Let’s see. Like, I would say right now, like, we’ve seen…like, I would go to the areas that would have quality assets that you think people want to be in. So, like for me personally, to want to be somewhere is not as important as the acquirer buying that asset. I myself might not think that’s a great place to be. But it doesn’t matter what I think. I’m not gonna buy the company. They are. So, if they wanna be in a country I don’t personally think is great, but they’re okay with it, then I’m okay with it.

But there are places like, you know, the DRC right now, and some parts in Africa like Tanzania that it is hard, very hard to work in those kind of environments, you know. And there’s a lot of geopolitically risky places out there that it will be hard for them to raise money. Yes, it might be great. But I might have to be privately funded. It might have to go into private equity, you know, because the market can’t handle it. And everything we do is public. Okay. We don’t do private equity in terms of the letter. So, we’re not exposed to that and we don’t expose subscribers for that.

Bill: Ecuador as a mining jurisdiction…I met with a developer in Ecuador yesterday. What are your thoughts on Ecuador as a rising mining jurisdiction?

Joe: Okay. So, I worked in Ecuador in 1999, 2000. And Ecuador always seemed like a very highly prospective area, a lot of potential. But the problem was it was Ecuador. And, you know, a social license to operate is a big deal. Their environmental concerns are huge. And usually when the oil price is high, they care less about mining and because for them, oil makes a less of a footprint than mining.

You know, it’s hard to do open pits, you know, things like that. Water is a big issue. So, it’s not an easy place to work. I mean, they’ve created a framework now which they’re working on. And everybody is watching how that framework applies to this project, Fruta del Norte, which Lundin Gold is building. That’s really the litmus test for everybody. I know people…

Bill: Because they shut that down years ago.

Joe: Well, they put an agreement there, exactly, that made Kinross leave because they can never renegotiate that agreement. And so, Lundin came in and renegotiated it. The issue is that some of the… you know if you look at the project Fruta del Norte which is, an amazing underground, high-grade gold mine, problematic. This is one probably one of the best developing assets in the world right now. But, really the last time I look at the IOR, it was around 13% to 14%, you know, maybe up to 15%. I don’t remember.

So that says to me, “Here. If I took that asset and put it in Australia, I’d probably get a 30% return. Something is wrong here. And it’s probably the tax structure and all these other stuff.” So, if they can work out a better tax structure where the company and the shareholders can make more money, then more people would want to go there. And if it’s easier to permit there… Some people have been going in Ecuador for long time because it is very perspective but they’ve been bashing their heads.

The Lundin move and Lundin Gold and the Fruta del Norte is progressing. You know, let’s see if they generate free cash flow. Let’s see if they can keep it. Let’s see if these guys don’t change your royalties when they know that these guys are making money. That’s really the problem. The risk isn’t when you spend half a billion dollars to a billion dollars investing in something. Anybody will take your money.

But after, when you’re making money, do they continue to take your money? That’s really the issue, you know. And do they change the goal posts? And then sort of like you get two to three a year down the road and you’re in commercial production and you’re going steady state and then, you’re going, “Oh, they changed the rules.” And then as an investor you go, “Oh geez, I knew that was gonna happen.” So what do you do?

Bill: Well, Tahoe Resources feels that way, you know, regarding Guatemala right now. The Escobal mine there I believe is the third largest silver mine in the world and it’s shut down. What are your thoughts on that situation?

Joe: Well, I mean, you need that kind of a deposit to want to be in Guatemala. You can’t do a marginal deposit and be in Guatemala. It’s got to be an asset of the scale of Escobal to even want to be in Guatemala. Social license to operate there is a huge issue. And, you know, politically, it’s not the greatest place in the world to be. Hence, why big companies leave. So, if big companies leave an area, you’re the one that’s gonna build this.

So, you’re gonna take this one cradle to grave, unless something dramatically changes with the country because they are leaving. So, you’re not gonna be a takeover target. You just gonna have to generate cash flow. And in the end, if you generate enough cash flow, issue dividends because those dividends will be discounted less than the free cash flow you generated from that country. So, that’s what Nevsun did when they were operating in Eritrea because they were getting discounted heavily for the free cash flow that they generated at Bisha because they were in Eritrea, a pariah nation. Not so much now.

So, if you do that, dividends is the way you wanna go. But if you have still social license to operate issues, if you haven’t done your community relations well enough, or there’s still some outstanding issues that were never resolved, it’s harder. And then, the market sentiment gets more negative. I mean, just recently really sadly Continental Gold announced the deaths of three or four people, I believe.

Bill: I saw that.

Joe: And it was, you know, with members I believe. These are just criminal games, you know. And they went to an area that I guess you’re not supposed to. And that’s an unfortunate thing. And that unfortunate episode could easily change how people see Columbia. It might be constrained. It might limited. Oh, just don’t go there. But outside investor sentiment might be so negative.

And then, somebody like Newmont who’s taken a stake in Continental and also has taken a stake in companies around Buritica, which is the deposit that they want, it’s no way near the other area where the violence happened. But that situation could be, like, their shareholders are going, “You know what? I don’t think I want you to do this, you know, because can you protect your people?” And that would be what the CEO is asking. “Can we protect our people?”

And what the investor is gonna think is like, “Can you actually operate there?”  But the way they did it was good because they didn’t buy the company and find out this. They took an equity stake, looked at how they were redeveloping, did it slowly. And so now, if they do pull out…I’m not saying they will. But if they do pull out, then it’s less of a risk than spending, you know, $600, $700 million, acquiring the company, then spending another $600, $700 million developing it, and then finding out that they can work there. This is the less risky proposition in a country that is sort of on the borderline in terms of geopolitical risk.

Bill: Joe, I appreciate your insights and everything you shared with us today. Any concluding remarks you’d like to share with the listeners who will listen to this interview?

Joe: Yeah.  Well, thanks for listening. And I would say that if you’re interested in, you know, what we do, you know, is our website. And you can click on subscribe. But there’s a lot of free stuff as well for you to go just to check out what we do. And, you know, some of it may be of interest.

Bill: Okay. Thank you, Joe. It’s a very educational site. I can attest to that. And I appreciate your time today.

Joe: Okay. Thank you, sir.

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