Warren Irwin | Top Resource Fund Manager on Uranium, EV Commodities, Jurisdictions & More

Top-performing resource fund manager, Warren Irwin shares insights regarding uranium investing, top EV commodities, mining jurisdictions, companies to avoid and much more in this interview.  Bill Powers interviewed Warren while attending the 2018 Mines and Money Toronto conference.

Warren Irwin’s G-10 Special Situations Fund (US) LP earned the top position in 2016 among the 4,099 hedge funds tracked by BarclayHedge with a 156.32% annual return.  Other Rosseau funds also took the second and sixth spots with returns of 155.94% and 128.89% , respectively.

0:05 Introduction

1:58 Top commodities for the EV revolution

5:15 Cautionary advice for investors in Uranium juniors

8:28 Warren’s thoughts on the USA as a mining jurisdiction

10:40 Warren’s thoughts on British Columbia as a mining jurisdiction

11:40 What are some overlooked mining jurisdictions to pay attention to?

16:15 Warren’s thoughts on Garibaldi Resources (TSX-V: GGI)

19:59 Commentary on M&A activity in the mining sector & its significance

23:51 Commentary regarding mining finance today

26:45 Challenges of starting a resource hedge fund today


Bill: You are listening to Mining Stock Education. Thanks for tuning in. I’m your host, Bill Powers, and I’m back in Toronto for the Mines and Money Conference and I’m sitting down with top performing fund manager, Warren Irwin. When I interviewed Warren last at PDAC in March of this year, that was one of the interviews that got the most positive feedback. And so, Warren doesn’t do too many interviews, but I reached out to him again and asked him if he would sit down, take some of my questions and also answer some of the questions that some of you emailed in. So Warren, thanks for sitting down again.

Warren: Oh, no problem, Bill. I really enjoyed our last interview.

Bill: So did I. It was, like I said, very well received and there was a lot of online engagement regarding it. Let’s start off with this first question. As you look at the electrical vehicle revolution, what are your top commodities to play and are there any specific companies you’d like to mention?

Warren: Okay. Well, one thing I like when you take a look at electrical vehicles, you have to look at what’s gonna take to build them, what’s gonna take to build the grid to power them, and how are you gonna power them? Let’s start upstream a little bit with the power. I’m not a believer in solar or wind because there are dark nights, happens every day so solar doesn’t work at night. Also with respect to wind, I’m not a big fan of wind, right now, it’s heavily subsidized, and I’m not a fan of any of that stuff. And we basically need good long-term, steady-eddy power generation. The only way that’s being done is with hydro, and with uranium, and obviously coal. Coal is a non-starter going forward. Too many people are dying from the health effects of it. We’ve dammed up all the rivers and that’s obviously a shame, but hydroelectric power is a great source of power.

I’m a huge fan of nuclear, especially not only the ones that they’re building today in China and how they’re reducing their reliance on coal but really, I’m really excited about the future for nuclear, and especially the Gen IV nuclear reactors are modular. They’re fail-safe and they’re really…with the modular nature of it, it brings down the cost of it. And with respect to already being…the fuel being liquefied form, it eliminates meltdowns so it is a fail-safe. So I think it’s an exciting future in nuclear power. I think nuclear power will be the answer that everybody will eventually come to. So I’m a bit of a bull here on uranium. When you take a look at the grid and obviously, building the cars, you’re gonna wanna look at something as simple as copper. I’m a fan of copper obviously. All the major copper companies are looking for new copper assets, seeing what’s coming down the pipe.

When you take a look at specifics with respect to batteries, I’m not a big fan of lithium. I believe the current producers can produce all the lithium we need. There’s no shortage of lithium in the world. Whereas, you know, finding a big copper porphyry that’s…being able to mine profitably is quite difficult still. When you look at more specifics, let’s say cobalt and nickel.  Cobalt, there is substantial political risk in cobalt, given a lot of it or the majority of it is sourced in the Congo. So I think over time, the battery producers will substitute cobalt. And also with respect to nickel, nickel is a pretty tough one to find, but once the price goes up a bit higher, some of these laterites will be able to supply a lot of the nickel needed. So I’m a huge nickel sulfide fan, but those again are very, very rare beasts to find. So nickel sulfide, if you look in summary, what I like is nickel sulfide deposits, good quality copper porphyries in good jurisdictions. And I like uranium to power the whole system, and I think that’s sort of how I’m positioning myself.

Bill: For investors that are looking at uranium equities or investing in them, some juniors have gone up five-fold, I’ve observed in about the last four months. What cautionary advice might you give some uranium junior investors right now?

Warren: Yeah. You know, I’ve watched a a few boom-busts here in the uranium cycle. The most important thing is at the end of the day, the vast majority of them…in fact, almost all of them will not become mines. So if you think you’re a long-term investor, you wanna be like Warren Buffet, you don’t wanna be like Warren Buffet in the uranium sector because a lot of these ones you think are the biggest and best and they’re the greatest, they will not be mines. And that’s why I’m sticking with a more conservative play and playing NexGen ($NXE). As you know, I was an early backer of NexGen when they made the discovery. I saw how big and rich it’s gonna be. It’s a tremendous discovery. And when you look at what they can produce, if you’re looking at a market where primary mine productions are 150 million pounds and you’re looking at one player that could generate one-fifth of that from its mine, you almost wonder if there’s much room for some of these juniors that are out there spending money finding uranium.

And the other question is, of course, is there a need for any of this uranium that they’re finding? And some of the cost structures of some of these junior uranium companies out there are absolutely crazy. Some of the permitting risks on some of them are totally, completely crazy so almost all of them will not be built and you need to stick with high-quality ones. Now, as far as making money on speculation, that’s another story. Many of your followers may recall the big boom back a number of years ago when uranium hit $150 a pound. Well, I saw people making tons and tons of money on the crappiest juniors in the world. And I think somebody had told me at one point there were 600 uranium juniors, and what, today we might have 15 or 30? You know, there are not that many.

So a lot of them got destroyed, and what happened then is…and the reason I called the destruction of the uranium market, especially the juniors back then, was I said, okay, there’s 600 juniors out there. Just say, their SG&A alone is $2 million a year. Well, that’s $1.2 billion just for SG&A, let alone exploration or anything else. So there’s no way that amount of money is gonna be jammed into the sector. So what’s gonna happen here is uranium is creeping up, it’s gone from $18 bucks to $27/lb, a really good move. Uranium is going higher because the current cost of production for many of the producers is higher than that. So if we’re gonna try and get to marginal increase in production, we’re gonna need higher prices and a lot of these juniors will benefit. In some instances, the crappiest juniors will do the very, very best, but don’t get led on to think they’ll actually be mines someday because they won’t be. They’ll be great speculation tools to make some money, but please treat them as trades because, at the end of the day, they’re zeros.

Bill: I’m an American and you are a Canadian. We’re here in your country, here in Toronto. What’s your perspective on my country as a mining jurisdiction?

Warren: Well, first of all, welcome to Canada.

Bill: Thank you.

Warren: Yeah, I’m not a super huge fan of the U.S. as a place for me to invest because I like to invest in big exploration wins and the U.S. has been in a lot of ways, well explored. And the other reason I don’t like it is sometimes your permitting issues, a lot of anti-mining groups, a lot of environmental groups hassling miners. It’s pretty well-populated country, so it’s difficult to find nice, quiet little places to build a mine where nobody cares. And the other thing too I found, which I really don’t like is a lot of the American Geos, they don’t like to leave the country and they like to stay in the U.S. And I’m not sure whether it’s just they like living in, you know, living in Elko, or Reno, or wherever they live in the U.S., but they don’t like to go further afield into tiny bit more risky places that have not been explored or do not have a strong mining heritage like the U.S. has. So, where are we gonna find the big discoveries that tomorrow will be in these hinterlands which are reasonably politically stable but are vastly unexplored? And those are the places you’re gonna find the big, big discoveries that excite the heck out of me.

For the Geo who doesn’t wanna leave Nevada, wants to, you know, wants to drive to the site and things like that. Those stories really don’t excite me that much because they’re playing on the periphery, and let’s say even in Nevada, the major mining companies have a lot of the ground locked up. And again, I’m a home run hitter, I’m after the big wins, I think the big wins will be found outside the U.S.

Bill: What’s your perspective on British Columbia as a jurisdiction?

Warren: You know, that’s an interesting one. It’s sort of developing situation. I live in British Columbia, although I work here in Toronto, but it’s kinda mixed. I don’t know how to deal with it. Of course, you have a lot of the First Nation’s issues because the treaties aren’t nailed down as quite as well as here and the rest of the country. You’ve got a lot of environmentalist groups and things like that. Like how they can’t even put a pipeline from Alberta to the coast, which is…one would think that it’s pretty easy thing to do is to build a stupid pipeline but they can’t seem to even get that through. So that kinda gives you the environment, you’re dealing with in BC, so it is tricky. So, you know, I wish the guys luck who operate in BC and I’m sure they’ll be able to get a few mines built, but it’s not the most pro-mining and the easiest place in the world to work. But I know some guys doing work there, there’s good work. There’s gonna be some good discoveries. There are some good discoveries there. Let’s hope they get permitted and built.

Bill: Next question comes in from a listener and he is interested if you could give a few specific examples of jurisdictions that you like or don’t like right now?  You mentioned the U.S. already. Please share both companies or regions, especially if you have examples of a country or company that’s either not followed by most people or in your opinion is a contrarian or opposite to the majority view and would surprise people.

Warren: Yeah. Well, yeah, there are a few of those out there. Let’s take a look at South America and these are again, my own personal biases having worked and lost money in South America and, you know, obviously made some money. You know, the first one off the list is Venezuela, not a hope there, not a hope for a very long time. I’ve invested in Columbia. I put two cents in Columbia again. I made some money with Continental Gold. I got out, fortunately, but the way people are being killed and kidnapped down there, I had a friend of mine kidnapped for 10 months recently and then there’s the 3 Continental Gold geologists killed. It just indicates it’s just…it’s not ready for mining.

Ecuador, you know, I’ve been involved in Ecuador for probably 15 years. It ebbs and flows. I hope the most recent positive attitudes towards mining continue, but there remains a risk that they’ll go back the old way they used to be under Correa back when we tried to get Fruta del Norte built their first time. Chile and Peru, some pretty decent jurisdictions. You have to watch Peru. The locals will be the issue there. You just wanna be away from villages and stuff. And then in Chile, the costs of operation are reasonably high, a lot of the land has been picked over pretty well, but there are probably some select opportunities from time to time if you get to correct ground. In Argentina, it’s very state specific. There’s a rule of thumb out there. It has to begin with an “S” or you don’t invest in it. So I’ve got an investment there that I think is tremendous, although, you know, I’ve been jammed a few times in Argentina.

I remember once we found a two million ounce gold deposit, well, sure enough the state goes and puts, as soon as they found out we’re gonna use cyanide, they immediately put a cyanide mining ban in the state so couldn’t mine that. Then right now in the formerly Aquiline’s Navidad silver property and now owned by Pan American Silver. It’s a tremendous deposit but as soon as we found that, the state put an open pit mining ban as soon as they found it was open pit, but it’s a miserable, terrible place and there’s nothing wrong with open pit mining. In fact, if there’s any place in the world there should be open pit mining, it’s right there because it’s just nobody lives there. It’s an awful place. It’s very arid. But that sort of thing happens in Argentina and I’m not sure why, whether, you know, we could talk about corruption and why they do that, but I can’t comment. It’s been a few years since I’ve owned the Navidad deposit, but we were quite concerned that there was some high-level corruption in the state and they were trying to do something with us, and I’m hoping that’s not the case nowadays. But there are other states that are much more pro-mining and I think so in Argentina, you need to look at the states, go to the pro-mining states where people are supportive of what you’re doing.

And then you look at Brazil, I’ve lost a pile of money in Brazil. The ability to work there, it’s quite difficult. Drilling costs are very high in my experience. It’s difficult to get good equipment in there, so you’re using, whether it be locally made or substandard drills, the drill crews do not have the work ethic or the experience that Canadian drillers would have. So it’s not as if you could plop a bunch of Canadian drillers in there and get their level of productivity and their level of economies of scale. We paid a ton of money for very poor productivity and it was a very tough place to operate in Brazil, I found. So, you know, just in summary, I think Argentina is a place to invest in, in certain states. Chile is good. Peru is good. The other thing too is I’ve had some experience in Guyana Goldfields. That was a positive experience and it appears that Guyana is a pretty good place to operate too, so.

Bill: A listener writes in and he says, “What are Warren’s thoughts on Garibaldi Resources ($GGI) and how have your thoughts changed over the past 12 months?”

Warren: Yeah, as I mentioned earlier, I’m a huge fan of nickel sulfide, so when I see the kinda grades that they were pulling out, you gotta be excited about it. You know, the grades are tremendous, so all they need is tonnage, right? So I took an investment in the company when it had a stupid market cap. It was definitely way, way overhyped but I got in, right, just in case. And then they started coming out with some of their geophysics work and it’s interesting, but geophysics is, I find this in my experience, geophysics works extraordinarily well with nickel sulfide deposit, especially some of the downhole stuff being done. I love the work, you know, Lamontagne did downhole geophysics for us when I was investing in FNX Mining up in Sudbury.

Also, I’ve had tremendous experience with VTEM. We were using VTEM up with another big nickel discovery up there that found that. So between those two techniques, you’re really able to zero in on the nickel. So I stuck my neck out, I paid too much for the Garibaldi shares with the hope that they could zero in pretty quickly on a decent sized pod. They put out presentations indicating that they’ve had these big, big structures picked up both in VTEM and downhole geophysics. And then, you know, this summer drill program, we just, we heard crickets all summer. And I’m going, “Okay, well, this is not good,” because the other thing about nickel is when you drill a hole through a big width of nickel, you see it, it’s in the core. You could take a good estimate of the grade. So I did not see this company, which is, I might add, one of the poorest companies with respect to disclosure that I’ve run across in the junior space, and also they’re very promotional. So if they had anything whatsoever to promote, they would have promoted it.

So when you hear crickets all summer and there’s nothing to promote, obviously, they’ve missed all summer. So as soon as my shares came off restriction at the end of the summer, I think it was September, sometime, I peeled out all my shares. And then again, of course, the company pulls a little promotional stunt, does a deal and does some sort of miniature deal on a Monday and they say, “Well, we’ve done this deal,” blah, blah, blah. And then we’re really excited about our results that are coming out in the next, within the next week. Well, guess what? The stock ran from like $2.20 to 3 bucks on that news. I’m going, “This is a great opportunity for me to get the hell off this stock.” So I sold the last remaining shares of Garibaldi. I said there’s absolutely no way they’re going to have good results because had they drilled anything significant all summer, they would have had to have disclosed it because it would have been completely visible to all the Geos, to the company.

It would have been clear what they had. And not only that, the drillers, you know, they talk, right, and they started lifting core boxes or super duper heavy with massive sulfides there would’ve been some scuttlebutt in rumors hitting the market. There was nothing all summer. And so without that disclosure, I was pretty convinced that they’d found nothing and I was…well, let’s put it this way, what the market was expecting and shortly after those results, the stock was cut in half. And even today at a $150 million market cap, it’s still very, very rich market cap given they don’t have an economic deposit yet.

Bill: What are your thoughts on the recent M&A activity that’s been occurring in the mining sector and its significance?

Warren: Yeah, well, you know, right now, I think people are realizing that good discoveries are rare and people are looking after is…looking out, especially as you’re seeing in the copper space, everybody is trying to position themselves with copper and I’m seeing that first hand. I’m one of the biggest shareholders in Cornerstone Resources and we’re involved with SolGold, and we own the Cascabel, big copper discovery in Ecuador. And you’re seeing here recently, both Newcrest and BHP are quietly gobbling up SolGold shares whenever they can and because they know that, you know, SolGold has a tremendous copper discovery, and they’re pretty rare so they get gobbled up.

On the gold front we really haven’t had an extraordinary super exciting gold discovery quite yet and we haven’t had one for many, many years. Like you know, the 10 to 20 million ounce of open pittable, you know, 1 to 1.5 grams in a good jurisdiction, that type of thing, we haven’t… I can’t think of one. We haven’t had a big discovery in quite a long time and like one that can really excite the market. The last one I could think of that was really exciting was the Aurelian’s discovery of Fruta del Norte, right? And we got bought out for a $1.3 or $1.4 billion by Kinross, right, that was pretty exciting times, and at some point we’re gonna get another discovery like that and those are the ones…that’s my job to try and find those again and try and find these big discoveries that the majors will salivate all over, you know?

Bill: So I would take it you don’t get excited about when a company is taken over at a 40% premium at a 52 week low that we also have seen?

Warren: Yeah, that doesn’t excite me. The excitement I get is when you buy a stock for 50 cents and it goes to 20 bucks. That’s sort of where I’m trying to make the money to try and speculate on corporate takeovers, and M&A activity is quite difficult. I used to work in mergers and acquisitions early in my career and I was actually sitting in the meetings with every single piece of information on M&A transaction in front of me and I had no idea whether or not the deal will go through or not because you just never know. And people who feign interest in a company are really not interested and people who feign disinterest are really interested. So, you really never know so it’s pretty tough to figure out M&A, so what I try and do is I just buy the good quality companies that I believe the major companies would like to put into production. And my two biggest holdings are Cornerstone which has the interest in the Cascabel copper discovery, which is one of the biggest and richest copper discoveries in the world and I also have a big interest in NexGen which is the biggest undeveloped and one of the richest uranium discoveries in the world.

So those are two really amazing discoveries and I think the majors will want both of those, and when that happens, you never know, it may be tomorrow, might be two years from now, you never know. So I don’t try and speculate on that. The biggest money I make is generally as you write it from the discovery stage to the kinda stage where they’re at right now. For me to have these two investments on my books is, it’s quite conservative for me there because they’re very…they’re already pretty much drilled out and they’re just waiting to be picked off by the majors and when that happens, you know, you never know.

Bill: Do you hold any producing companies in your fund?

Warren: No, I don’t. No. They’re too blue chip for me, producers.

Bill: What’s your thoughts regarding mining finance and could you share specific insights that the average retail mining investor could appreciate and apply to their own investing?

Warren: Well, mining finance, I guess we’ll stick with just financing of exploration companies versus financing of companies going into production. Well, let me just comment on production. First of all, if I own a deposit that is really, really good and I’m a junior, I will not put that into production because if it’s so good, a major will buy you and they’ll put it into production. So when I see juniors putting stuff into production, it’s obviously stuff that the majors didn’t think was good enough or world class enough to do themselves. Like the number of projects that are world class, the creme de la creme, the kind I look for that are put into production is almost negligible, very, very small number, right? So that’s part of the reason I don’t own producers. If I don’t own a company that’s good enough to be bought up by a major, I don’t wanna own it.

Now on the financing side, on the junior front, there’s a tremendous amount of pitfalls out there. A lot of companies are way overhyped. You know, Novo, quite recently, I was very negative on that. They were way overhyped. Garibaldi was overhyped. And you know, it’s just…it’s funny how retail jumps all over a stock and pumps it like crazy and sometimes with the help of, you know, newsletters and other pumpers, and they just get to the points where there’s no chance you’d ever have of making any money because, you know, a Garibaldi at 300 million market cap without an economic deposit is pretty outrageous, right? And Novo, what did they get to? A billion and a half? And that’s pretty outrageous. What are you gonna sell it for? You may get to buy it for a billion and a half, you’re gonna sell it for what? Ten billion? Well, when’s the last time a $10 billion acquisition happened in the gold mining space?

So the important thing is…and there’s a lot of hypesters, a lot of fraudsters out there, a lot of, you know, a lot of lifestyle companies, so they’re…and these people are generally the ones that overhype their paper. They resort to a lot of very bad things to get their stock prices up, whereas there’s a whole group of mining companies out there which are trading at super duper cheap valuations for what they have and those are the ones I try and focus on. And for me to take a punt in Garibaldi is very out of character for me, but I just love nickel sulfide so much I couldn’t resist, but fortunately, I got out of that situation with my skin still attached to my body.

Bill: Could you talk about the challenges and opportunities of starting a resource focused hedge fund today compared to when you started yours a couple decades ago?

Warren: Well, the biggest thing with starting a hedge fund in Canada anyways is the regulatory burden is just absolutely overwhelming. And the problem with the hedge fund too in the resource space is the volatility is so extreme that a lot of them who were my peers years ago are no longer in existence, and that’s the biggest risk. I’ve been in the business 20 years. I think of the people that started when I started, there’s only two people I could think of that are still in business. All the rest are gone. And those two people don’t do resource-only. Of all the resource-only, I’m the only guy. And over the last number of years, especially the last downturn a few years back, it pretty much wiped out everybody out of the business. So would I recommend you start a business in the resource business only in the hedge fund land? Probably not. The regulation is killer and it’s gotten way worse in the last 20 years, that’s for sure.

And just due to the cyclical nature of it, if you do do it, make sure your capital is stable because you don’t wanna get redeemed out as soon as things get really tough for you, you know? And if you’re taking money in the hedge fund space, let’s say from a fund to funds, they don’t have much patience for a two or three year downturn and they’ll yank your money right at the bottom, and next thing you know, you’re running no money or you’re being forced into a liquidation right when you shouldn’t be right at the bottom of the market. And that happened to a number of players in the market and I watched them blow themselves up over the last number of years and they were selling out everything at the bottom, and a number of instances, we capitalized on that and bought some of those shares from those distressed sellers because they were getting redemptions.

So I’m not sure that’s it’s the smartest thing in the world to do to start a hedge fund in the resource space. But fortunately, I was dumb enough 20 years ago and I’m still around and I’m old enough and wily enough that I probably learned a few lessons in 20 years doing this specific thing, and fortunately, I was able to survive the last downturn. You know, it was definitely really, really tough to do so though.

Bill: Did you survive it by keeping a large cash position or how exactly did you manage that?

Warren: Yeah, well, what I did was…again, I’ve been in the business 20 years, so what I did was, it was many, many years ago that I set the stage for it. First thing you need is you need stable investors because they yank their money if you don’t have a fund, right? So what I did was when my investors were up 3, 4, 5, 10, 15 times your money, I told them, I said, “Guys, take your original capital out, that way, you know, just let me run with the house’s money.” So they did that and a lot of people are just running. They’ve taken not only the original capital out but some profits out so the money I am running for them is sort of their fun money, right? And I make sure when I do take money from people, it’s their high-risk money so that they know that if they want a high-risk fund, I’m the guy to talk to. So the capital base I have is pretty robust, whereas, let’s say in ’08, I lost a significant amount of my assets that were being…that we had from fund to funds.

I think we had four or five fund to funds and I think we lost four out of the five fund to funds at the bottom of ’08. So that was great for my investors who are long-term with me and mostly high net worth guys and that we were able to consolidate many of our positions at super duper low prices. And this last downturn in the mining sector, what we’re able to do, we’re getting some redemption but not a massive amount, but what we’re able to do is focus on our absolutely best names and pick them up at super duper cheap prices. Like when we bought SolGold, we bought them super cheap and we bought NexGen, I think we bought 10% of the company, which is a large percentage to buy in the market mostly. We paid 50, 60 cent range on average for that and now it’s trading about $2.60, so we made a good pass on that. And with respect to SolGold, we paid hardly anything for SolGold back in the day when it was down note and it was a pretty good time to be buying some cheap paper, but you had to have the paper and you had to be in business to do it. Fortunately, we had good investors that stuck with us, so that’s why we’re still in business today.

Bill: Warren, thank you for your time. In light of everything we’ve talked about, is there anything else you’d like to share with the investors that are listening?

Warren: The mining industry is an exciting place to invest. There are a lot of good people in the business that could make a lot of money. Stay away from the scammers. If there’s any hint of dishonesty, stay away. Everybody has a history. Check their history up before you invest with them. And I think we’re on for a number of years of good times, fun times, and hopefully, we’ll have some big discoveries. And as many of my peers say, “do not invest thy whole wad.” Don’t believe anything you hear from these guys and be careful with your money. Investing in the mining business is a risky business. Don’t invest all your money in it. It’s always good if you have some bit of fun in it, but make sure you’re prepared to take your losses and lumps.

Bill: Excellent advice. Thank you very much, Warren.

Warren: All right. Thank you so much, Bill.

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