Episode #430: Frank Giustra & Ian Telfer – The Bull Case for Gold – Meb Faber Research – Stock Market and Investing Blog

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Episode #430: Frank Giustra & Ian Telfer – The Bull Case for Gold

Guests: Frank Giustra & Ian Telfer are mining executives that built Goldcorp into a $50 billion business. Ian is the former Chairman of Goldcorp and Frank was a co-founder & Director of Goldcorp. Frank later founded Lionsgate entertainment.

Date Recorded: 7/12/2022     |     Run-Time: 52:36


Summary: In today’s episode, we’re talking all about gold with two of the most knowledgable in the space. The guys discuss why the set up today mirrors 2001, a time right before gold when on a big bull run. We also touch on how gold performed during the 1970’s and why they’re so bullish on gold today that they started another mining company, Aris.


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Links from the Episode:

  • 0:38 – Intro
  • 1:23 – Welcome to our guests, Frank Giustra & Ian Telfer
  • 2:12 – The number one olive oil in the world Domenica Fiore
  • 3:14 – Frank & Ian’s connection in the gold space with Goldcorp
  • 6:48 – How to think about gold today
  • 13:44 – The genesis of their new project, Aris
  • 16:31 – Ian’s philosophy for M&A
  • 26:34 – Is Gold’s sideways consolidation a good opportunity for buyers?
  • 32:24 – Global Asset Allocation
  • 37:58 – Twitter Poll: How many people say they own gold or miners?
  • 39:18 – Things they’re thinking about as they look out to the horizon
  • 45:12 – Their most memorable investments
  • 49:07 – Learn more about Frank and Ian: @Frank_Giustra

 

Transcript:  

Meb: Welcome to “The Meb Faber Show,” where the focus is on helping you grow and preserve your wealth. Join us as we discuss the craft of investing, and uncover new and profitable ideas, all to help you grow wealthier and wiser. Better investing starts here.

Disclaimer: Meb Faber is the co-founder and the chief investment officer of Cambria Investment Management. Due to industry regulations, he will not discuss any of Cambria’s funds on this podcast. All opinions expressed by podcast participants are solely their own opinions and do not reflect the opinion of Cambria Investment Management or its affiliates. For more information, visit cambriainvestments.com.

Meb: What’s up, my friends. We have an amazing show for you today. Our guests are Frank Giustra and Ian Telfer, two successful mining executives that built Goldcorp to a $50 billion company. Fun fact, Frank also started Lionsgate Entertainment. In today’s episode, we’re talking all about gold with two of the most knowledgeable and successful operators and executives in the space. The guys discuss why the macro set-up today mirrors 2001, a time right before gold went on a big bull run. We also touch on how gold performed during the 1970s and why they’re so bullish on gold today. They got the band back together and they started in another mining company, Aris Gold. Please enjoy this episode with Frank Giustra and Ian Telfer.

Meb: Frank and Ian, welcome to the show.

Frank: Thank you.

Ian: Thank you.

Meb: I was just remarking, this is a modern Zoom. So, fellas, tell us where you’re located today. I’m in Los Angeles. Frank, where are you?

Frank: I’m in France.

Meb: And Ian?

Ian: I’m in Ontario, about two hours north of Toronto.

Meb: Very cool. Well, guys, we’re going to talk about all things gold, macro, mining. But before we start, I got a question for Frank because I have a package in the mail. It’s not here yet, so I can’t do a live taste test, but I got some olive oil coming to my house from your farm or from your production company. Give me a little preview. What do I have to look forward to? What sort of uses? Is this salad sort of olive oil? Is this cooking olive oil? Give us a little background.

Ian: Well, thanks for the free commercial. It’s called Domenica Fiore, it’s named after my mother. I started making it about 12 years ago or so, and it’s made in Italy in a place called Orvieto in Umbria. It is rated the number one olive oil in the world. And that’s not me saying that, that’s all those international judges at almost every competition on the planet. Do not use it for cooking. Please don’t use my oil for cooking. It’s far too valuable. We call it finishing oil, so use it for salads, dipping your bread, finishing meats, pasta, soups, whatever. It’s finishing oil. It is exquisite.

Meb: I think I got the sampler. Do you have a favorite? I’m going to hold you to the fire.

Frank: The favorite is what we call the Novello Di Notte, which means it’s new oil made at nighttime. We’re the only producer in the world that harvest our oil very early in the season when it’s still really hot in Italy. And we harvest in the middle of the night, and it makes a world of difference. Just an incredible oil, and it’s a very unique, very limited edition, Novello Di Notte.

Meb: Very cool. Well, I look forward to it. Let’s start talking about all things mining and gold. You guys have worked together in the past, kind of bringing the band back together. So, Ian, I think I’ll direct this one to you. Give us a little origin story. You guys, what you’ve been up to, and then we can get into what you guys are doing now.

Ian: As you said, Frank and I go back quite a ways in the gold business with the starting up of Wheaton River 20-plus years ago. And our vision then was to build a new major gold mining company. Although a lot of people start off with that vision, we actually were able to accomplish it. We were excited about the timing, and we were excited about the opportunity, and we were very happy with how it all unfolded.

Meb: For the listeners who aren’t as familiar, so my non-Canadian Australians, give us a little background. They may have heard the name Wheaton River, but what does that mean? Tell us just a real quick overview of what that was.

Ian: Sure. Well, in 2000, Frank and I decided we should try to build a major gold mining company. And as we looked around for opportunities, we found this company called Wheaton River Minerals, and they had run out of ore, and they had a little bit of cash, and they’d run out of ideas. And so Frank and I took over the board of directors, put a little of our own money in, and then very aggressively went out and started acquiring assets to build a gold mining company. And over the next seven years, I guess we bought about nine gold mines. And the market cap went from $20 million CAD to its…at its height, it got to $50 billion USD. It was a great experience, and the market was excited about it, and they were very happy that we were there to create another vehicle for the investors. That was basically the story.

Frank: Well, most investors would recognize the company as Goldcorp. It changed, and as we did one of our reverse takeovers was with a company called Goldcorp, which was already existing. We renamed Wheaton River Goldcorp back in 2003 or ’04. And so if you were to look it up, it was Goldcorp.

Meb: What was really the main value driver? Because, I mean, that’s pretty dramatic…getting up to a $50 billion market cap is not chump change and that’s not an easy task.

Ian: There was a couple, one was the price of gold. Our timing turned out to be absolutely impeccable. When we started on the journey, the gold price was about $250. And then over the next s7 or 8years, it got up to almost $2000. So that, clearly, we had the wind at our back. But secondly, we were the most aggressive, sort of, agglomerator in the business, and the market loved that. And so we kept acquiring assets, a little bit like private equity, except we used equity, we didn’t use much debt. So, putting the two together, the gold price and the speed at which we were acting, that’s what really created all the value.

Frank: And we bought some great assets in the beginning. And going back to what Ian was saying, at the beginning, when no one believed in the gold price, there were very few of us. Actually, I wrote a thesis back in 2001 about what I expected gold to do next. And at that time, when I came up with that publication, very few people believed it. So when we were out there buying assets, we were buying incredibly good assets when fewer people wanted them. And so it was…the idea was we selected really great assets and we got them early on and that gave us a big leg up over everyone else that came in later as a gold price started to move.

Meb: So, here we are, fast forward. It’s now 2022, and we’ve done a few podcasts on gold and mining, but a lot on natural resources, in particular, farming in general, gold sitting somewhere in that $1,700 zone. This is mid July. Frank, maybe give us a little framework for how to think about gold. We did a Twitter poll the other day, or a few months ago, when we asked investors, “Do you have any exposure to real assets?” And so, meaning just all commodities, even REITs, TIPs, and most investors don’t, or if they do, they have very little in a world of whatever the inflation is today. That seems unwise, but give us maybe a little macro consideration about gold in general. Where do you think we are? The case for it, all that good stuff.

Frank: I think that the sentiment is not that dissimilar to 2001. We have very few people today that believe in the gold price. They see it stuck in a range between sort of $1,700 and $2,000, and not going anywhere, they’ve watched all the cryptocurrencies go through the roof, and the tech stocks go through the roof, and the beginnings of an inflationary period, and the fact that gold hasn’t moved. And I think that sentiment is everything in markets, and I think it’s very similar to how people felt back then. And the part that you need to focus on is, who are the real gold buyers in today’s marketplace? And there are several trends that you have to watch. And I’ve been writing about gold for over 20 years. I watch it very closely, I write a lot about macro trends and what’s going on in the global monetary system.

And you have to just pay attention to a couple of facts. First of all, physical gold is moving from West to East. So China, India, obviously, the two largest buyers of gold consistently buying gold over the decades and adding to their reserves, especially China. Russia, also. And while the west has been focused on paper gold, when they have any interest in gold, it’s just paper gold, which isn’t real gold, by the way. If you think you’re buying real gold, when you buy gold ETFs, you’re badly mistaken. So the physical stuff is moving from West to East. And I think that that’s one thing you have to pay a lot of attention to. Central banks…since 2010, central banks around the world have been on a gold-buying binge. They continue to add to the gold reserves. Their U.S. dollar exposure is slowly going down in terms of their reserves, and their gold is going up. So they see the writing on the wall.

I think if you were China today, with the way they look at making long-term decisions, they have very long-term plans. They’ve been adding to their gold reserves, and they will continue to add to their gold reserves, and for them to see the gold price staying where it is, is perfectly fine. I don’t think they’re having any trouble with that. The U.S., on the other hand, the Fed and others, other policymakers disparage gold. They don’t want you to own gold. They call it a barbaric relic, it’s not a currency. Well, in fact, it is a currency, and every central bank in the world knows it’s a currency. So I just watch what people do as opposed to what they say. And those are the two major things you have to watch. So I think that we are heading towards some sort of global monetary system reset. What that’s going to look like, who knows? It could play out many ways.

I wrote an article on this last week and I speculated that perhaps it could go in the direction of a partially backed gold currency use for settlement purposes by countries that want to avoid being sanctioned or expelled from the SWIFT system, U.S. SWIFT system. And so I think that there’s a good chance that gold could play a role in whatever the monetary system reset is, simply because all the central banks already own it, they’re acquiring more and more of it every year. The belief system in fiat currencies is falling apart, and it’s falling apart everywhere. If you look at what they’ve done, not just with the dollar, but the euro and the yuan, they’re destroying those currencies by printing trillions and trillions of this stuff. I think since 2006, central bank reserves in the five major central banks have gone up 500%. They’re just creating money out of thin air. And eventually, you can’t play that game forever. And that’s why I think the smart money, the long-term money has gold exposure, and especially the central banks.

Meb: When we look at it, I think gold not performing lately is a bit of a surprise to a lot of people we talk to. And we say there’s kind of two big quant factors that really are positive for gold, one being negative real interest rates, which we certainly have, and the other being an inverted yield curve, which we have. And so, as we look out in the horizon, let’s say we do this another year, two, or three, and we say, “Okay, well, gold really started to bull.” If you could guess, and this is more of a happy hour/coffee question, so…but what sort of catalyst…Is there something that you would say is your most likely guess as to what…is it a bear market? Is it more crypto fraud? Is it some sort of geopolitical something? What do you think will cause this to actually shift into bull mode?

Frank: I think all of those things that you just mentioned will play a role, but I think the biggest, to me, will be when the Fed blanks again. And going back to pre-2008, I started writing about what the Fed would do after the crisis of 2008, they did exactly that. They took rates to zero, printed a lot of money. Then Bernanke came out and said, “Well, you know, no problem. We can normalize rates and we can unwind the balance sheet.” And I called BS on that in several articles. And then as they started to raise rates, I said, “They’re going to only get them so far, and then they will pause, blank, and reverse.” And I said that in 2016 and 2017, and that’s exactly what happened two years later. And I’m telling you, as we speak, my view of it is that there’s all this talk about normalizing rates right now because inflation is so high and they have to get it under control, but they can’t. Mathematically, it’s impossible.

Anybody with a simple calculator will tell you that there’s so much debt in the system, government, corporate, personal debt is globally at $300 trillion, they can’t normalize rates. And they know that, okay? So all this talk about these aggressive hikes, how it’s going to get this under control, I suspect by this fall…we’ll see, but my best guess is by sometime this fall, they will blank, and they will pause, and then they’ll reverse. And we’re going to go back to zero eventually. If the market continues to implode or we fall into a deep recession, there’s another geopolitical event, whatever it is, they’ll find an excuse for it. Last time was a pandemic. They’ll find an excuse for it, and they will pause. That’s, to me, going to be the catalyst that sets the gold price on fire because I would think by then, people are going to realize that they are in an inescapable trap. They cannot normalize rates. It’s mathematically impossible.

Meb: Let’s start to take a little walk forward to what y’all’s new ideas? What was the genesis of this idea? And give us an overview of what you guys are banding up for now.

Frank: As Ian mentioned, no, we got together…and I remember I used to run an investment bank back in the ’90s, and Ian was one of my big clients in the mining sector. And I remember the day I resigned from the firm, I wanted to step away from the industry and do something else. So I just walked away. But I still had lunch booked with Ian. We went to lunch anyway, and I said, “Ian, you know what? I don’t know what I’m going to do next. But if I ever come back to the mining industry…” this is back in 1996. I said, “If I ever come back in the mining industry, you’ll be my first call.” Scroll forward five years later, I thought…I came up with the idea that we needed to do something. I wasn’t quite sure what, but I had my thesis on gold, and when I wanted to create something, my first call was Ian. And we got together and we created Wheaton River, which eventually became two companies. So Wheaton River, which became Goldcorp, and the spinoff, which was Silver Wheaton, the precious metals streaming company, which is Wheaton Precious Metals today, which I think has about a $23 billion market cap. That was Ian’s genius of that spinoff, so that was an incredible success.

Then in 2009, right after the crisis and the printing of money started to take place, we created Endeavor Mining, which I did with a fellow named Neil Woodyer, who was one of our original board members on Wheaton River, by the way. And we created a mining company with mines in West Africa. Over the years, we built it up to about five different mines in four different countries, and it went up to about a $3 billion, $4 billion market cap. Then in 2016, we did another one, again with Neil, this time in Latin America, that was Leagold. That was merged with Equinox, another $2 billion or $3 billion company. And when we sold Lea to Equinox, I knew…this was at the time when the Fed blanked back in 2019, and they started to reverse course. I said, “Okay, we’re going to be in for a real gold market this time.” And this time they will not be able to pull it back.

And this is when I approached Ian and Neil again. So now this time, it’s Neil Woodyer, Ian Telfer, myself, and several others that have been in the gold mining business for a long, long time, and we decided to create Aris. And Aris is the current company with two projects, two very large projects. And again, it’s the beginnings of something. And the idea is no different than everything else we’ve done in the past. It’s a buy-and-build strategy. So, that means using our expertise in M&A, and our expertise with raising money in the capital markets, and our management expertise to know what assets to buy, what to pay for them, how to fix them if they have a problem, how to maximize value. That’s the Aris story, which I’m a special advisor to, Ian’s chairman, and Neil is CEO.

Meb: So Ian, how do you find these special assets to buy? Presumably, they’re not just sitting out there on a platter somewhere. What’s the process, and how do you guys kind of go about it? And tell us all your secrets.

Ian: Well, as Frank says, the company is loaded with people that have been in the industry for a long time. So we’re aware of a lot of what’s going on out there, we have knowledge of a lot of the assets, we have knowledge of who might be interested in exiting the business, and we have a lot of experience as to how to run these more efficiently. But to get back to your question, large, good, gold ore bodies are very rare. They are very rare. And Frank and I, we recognized that 20 years ago. Well, they’re rarer now. And so, searching for them is a challenge, and finding them is an issue, and competition for them is always around.

So you have to be creative, you have to take some risks. And so far, we’ve been very excited about what we’ve been able to do with Aris. Our ambitions are large. The market has indicated over, and over, and over again, they want some large companies to invest in out there. And whenever a Goldcorp disappears into Newmont, well, that creates a vacuum for someone else. And so that’s sort of the impetus for us. And as I say, we’ve done a couple of things so far, but we’re very ambitious and we’re very aggressive. And history tells us that the market will reward us for that.

Meb: Where have you guys started finding properties already? Are these in Canada, U.S., Africa, Latin America? Where are you guys finding opportunity?

Ian: Well, so far it’s been Latin America, and it’s been Columbia. So we’ve got two operations…one operation down there, and another mega project to be constructed over the next three years, but we’re looking at opportunities in other countries as well.

Meb: As we talk about the gold miners in general, would love to hear a little insight from you guys because there’s probably…if you were to ask me, there’s probably no other sub-sector or industry in my mind where management is more important than in y’all’s world. And I love the phrase “success leaves traces.” And so, gold mining as a sector, the stocks haven’t been doing a whole lot for a while, but what are some of the important drivers that the market, on a security level, really looks for? Is it simply production multiples? Is it stability? Is it…? Just talk to us a little bit about if we were to do this in 2, 3 years and we said, “Hey, you guys have 10X, 50Xed this company,” and we look back, like, what would be the kind of big drivers in the mining sector for you guys?

Frank: I think…Listen, it’s a combination of things, and I’m sure Ian will add to what I’m going to say, but management, really important, especially in the approach that we take, okay? Management is paramount because it’s all about experience, expertise, and knowledge. Mining, as you know, is a very tricky industry. You have to not only worry about the geology and capital markets, we have to worry about the security, you have to worry about politics, and all sorts of exchange rates, a million different things. And if you haven’t done it before, you’re going to…bound to run into surprises. So, experience is everything. In my opinion, and Ian probably can add a lot more to this, is there are only a handful of people in this world. It’s not a big industry per se. It’s not like, say, the tech industry or other industries. This is a very small industry where the successful ones, you can count ’em almost in one hand, maybe two. To me, management is everything.

And I think we’ve assembled…when you look at guys like Neil Woodyer, Ian Telfer, and we have Peter Marrone on the board, David Garofalo, Serafino Iacono. We have all these people that have done it all before in their own right and have come together to do it collectively. Everybody brings a whole load of experience to the table. And that, to me, that’s what allows me to sleep well is knowing that the company’s in good hands. We all know what we’re doing, we all know what our value is in creating this thing. So, Ian, do you have anything to add to that? I mean, that’s the way I see it.

Ian: I totally agree with that. And the other thing I think Frank and I understood back when we started with Wheaton River, and we understand now, we know how rare good ore bodies are, and we’re not afraid to go out and pay up to get them. And I think there are too many people in the gold industry looking for a deal or looking for a bargain. We’re never looking for a deal or a bargain, we’re looking for quality, and I’m looking for quantity. I think people underestimate how much size matters in the gold mining business. And if you want to get the attention of institutional investors, you better show them you’re on a path to grow to be a significant producer. And so Frank and I both understand that. And again, our experience with Wheaton River, we went out for major assets and had to do major financings, but we had major success. And so we’ll be doing the same thing over and over again here, but size is important.

Frank: That’s a good point. On that note, so the two projects that we currently have in Aris, our ownership that is to our accounts already get about 10 million ounces of gold that’s in the ground that needs to be extracted. That’s a lot of ounces of gold as a starter kit, per se. Okay. So, and the grade is good, it’s great grade, and it’s 10 million ounces that we hope to mine for our account. The objective, and when you say, when we look back, let’s say 3, 4, 5 years from now, what’s the objective? Where are we going? We need to create a company that produces at least a million ounces a year of gold. That will put you in the ranks of an important gold producer in the world where the institutions have to own you, you’re in the indexes, you’re in ETFs.

And that, again, we’ve done that several times and we’re well on our way to assembling the pieces, as we speak, to get us to that million ounces a year of production, where you’re generating great cash flow because your cost of production is cheap. And that, again, we have that in both of the operations. We know that the numbers work in that regard. So if you get 2 million ounces, and you have great profit margins, and then the third part is you get into a gold market, then that’s where you get your Wheaton River type story that goes from millions to billions very quickly.

Meb: Devil’s advocate challenge for you guys, someone who’s been there and been big, and then now doing a younger venture, when you go to chat with a project to be a buyer, how hard is it? I mean, in a world you mentioned earlier of low-interest rates and kind of accommodative conditions and easier money, how hard is it to negotiate with a project when you have maybe someone who’s much bigger also looking for similar projects? Do they price you guys out? I feel like this is almost like a VC pitching a startup. How are you able to convince some of these projects? Is it really sharp elbows or is it not so much? Give me an overview of how deal cycle transactions go about or close.

Frank: I might be giving away trade secrets, but every situation is different, okay? And so all I can say is let’s look at the last one we just did, our most recent acquisition, okay? We were uniquely positioned…in that scenario, we were uniquely positioned to be the right buyer for that asset to make it happen because of our country experience in that specific country. And so, had another company come in like a larger, say, Newmont, whatever, they wouldn’t have had the same local ability to work with communities, work with government, to make things happen in that country. They wouldn’t have had the same knowledge as our management team did. So in every scenario, we don’t go into bidding processes. There’s an asset that goes up for sale, and it’s going through a process through investment banks, we stay clear of that. Ian and I hate that because that’s not the game we play. We find very specific assets that no one else can get their head around why or how you’re going to get it, and we do those instead. I don’t think we’ve ever been in a process, have we, Ian, where we were buying something on someone else?

Ian: No, no. We…

Frank: It’s not our game.

Ian: We were in a couple of bidding situations at Wheaton River, but sometimes, we didn’t know we were bidding against someone else. We were dealing directly with the seller and we put up our offer, and then afterwards, we found out we outbid somebody by a penny, but we had no idea. But yeah, we don’t look for those situations at all. The other thing that happens is because of our experience and our track record, when we say we’ll raise money, we raise it. When we say we’ll close, we close. We get a lot of opportunities because of that. People know that we’re serious, and if we agree on something, it’s going to happen. And that’s meant that we get calls more than most people about assets that may be available because people know they can deal with it.

The other thing, we’re incredibly good at keeping things quiet. And that, again, people appreciate that, that they can deal with us, and one of the companies that Wheaton bought was Glamis. That was an $8 billion acquisition back at that point in time. And everyone was watching the gold space as carefully as they do, all the analysts, all the investment bankers. No one had a clue until we announced it. And then when we did the takeover of Placer with Barrick, again, huge Canadian mining event, not a whisper in the market until it was announced. So we’re very proud of those things that we’d deliver, and we can keep a secret.

Meb: One of the challenges, but also opportunities through natural resource companies is the cycle. There’s boom times, there’s dark times, there’s in-between times. And kind of it seems, and you guys can illuminate me more because I’m not as in touch with this, but gold and the miners have kind of been oscillating sort of sideways. Is this a sort of opportunistic, rich environment? Like, are there a lot of distressed properties or people looking to sell mines, or what is the overview of sort of the mining sector for a potential buyer or seller today?

Frank: I wouldn’t say that it’s a distressed environment. I’ll just say it quickly here, and then Ian can chime in, but I wouldn’t say it’s a distressed environment by any means. I would more classify it as a disinterest environment. It’s very quiet, very inactive. The people that own assets are sitting on them, there’s not a lot of capital investment going in by the ones that own. Again, it reminds me of some 20 years ago when it just seems like no one cares at the moment, which for us is great.

Ian: Yeah. No, I’d agree with that. It’s a disinterested market. And the other thing about gold stocks, the only people that own gold stocks are people that think the price is going to go up. No one buys a gold stock for the dividend, or even for a store of value. They buy gold stocks because they think the price of gold is going to go up, and therefore the stock will go up. And so, even when the price of gold is down, and there’s no excitement about the equity markets, they’re still never cheap. They are never cheap. They’re fully priced to today’s gold price. And so, you have to really have conviction either that it’s going to get bigger or conviction that the price of gold is actually going to go up, to get in there and do a deal.

And that’s why, in my view, you see so many of the mid-tier producers that just sort of doddle along decade after decade and don’t do much, their stock doesn’t do much, no one’s excited about it because I’d say they don’t have conviction about what they could buy or what the price will do. And so that’s where we’re a little bit different. But there’s never bargains in the gold business ever, ever, ever. Frank and I haven’t found one yet.

Frank: Not yet.

Meb: Reminds me of local real estate here in Los Angeles.

Ian: Yeah.

Meb: I’m a cheap bastard, and so looking for bargains in real estate near the surf breaks has been an exercise in futility. So, we got a lot of both institutional and individual investors that listen to this show. Talk to us a little bit about how to think about putting money to work in the miners. Was it something where like, “Hey, just go buy an ETF and be done with it,” or if you’re actually going to get into the stock selection, what should you avoid? What should you look for when you’re kind of starting to pick some security selection names in this? A lot of people can get burned with stock selection in any sector, but gold mining was one that I feel like is fraught with places to avoid. Give us a little guidance for those looking to deploy some cash here.

Frank: I’ll go first here. I think you have to start with your macro view of your portfolio. I believe that, first and foremost, you have to be diversified. So, that means not putting all your eggs in one sector. Your mining portfolio is going to be part of your overall portfolio. Within that…By the way, I also believe we’re in a hard asset environment right now where your overall portfolio should be skewed towards hard assets, which obviously means mining companies. And not just gold companies, mining companies in general. This is the way I do it. Then I look at my mining sector portfolio and I think, “Well, what’s in there?” Well, obviously you’re not going to put everything into risk assets, you know? That’s dumb. So you’re going to buy…there’s some incredible opportunities right now with the large international miners. The Rio Tintos, the DHVs, the Valleys, the Anglos, the dividends that they’re paying at current metal prices are 10%, 12%, 13%, 14% dividends.

And if you believe, as I believe, that we’re in a multiyear cycle right now, where inflation will keep these metal prices elevated, then you have to own those. That’s your less risky side of the portfolio. Then you always have some money for…if you want to take the risk, you’ll look at companies like ours and say, “Okay, I want to buy a growth company.” With growth and ambition comes risk. So you have to weigh that too, but that is a portion of your portfolio. I always say that in those scenarios, you better be good at stock picking or be getting great advice from people that know what they’re doing because this industry’s just filled with lots and lots of people with big ideas and very low ability to deliver. And so there’s lots and lots of those out there telling great stories that don’t actually ever deliver but tell great stories. And so you have to be very careful. And so it’s all about management, and you really have to do your homework when you come to this end of the risk portion of your portfolio.

Ian: Well, the only thing I would also comment on, though, is you look at the track record of the management teams. Because what you do notice in the mining business is the same people seem to have success over, and over, and over again. And so if you’re looking at investing with a group of people, look at people that have done it before and it’s worked out well. Because look at, all these investments are tough, all these mining operations are difficult, but certain people just stick to it, and push hard, and get it done. And so in addition to, as Frank says, varying your portfolio, and looking at the assets, and looking at the political risk, and looking at the geological risk, put a lot of money on management.

Meb: It just reminded me, so I just posted a tweet real quick, because I love to poll my audience for sentiment and all sorts of things, and it’s a good point-in-time indicator on all sorts of not just market history, but how are you allocated? What are you doing? And the results are often surprising, and somewhat depressing. We asked a couple of highlights where we ask people, what was the biggest after-inflation drawdown in bonds that they thought happened in history? And most people thought it was 5%, 10%, and the answer to that is well over 50%, and other questions like that, but we’ll have to wait about 10 minutes for the results to come in, but I did a do you own gold or gold miners portfolio? So we’ll see what percentage comes out of my audience.

But it’s funny because we did a book called “Global Asset Allocation” where we looked at a lot of traditional asset allocation strategies, and as long as you own kind of all the main categories, you tend to do okay, but at one particular environment really stood out, and that was the 1970s. And you guys got a little grey hair. You may be more familiar with the ’70s, but many people investing today have not invested during that environment. It’s been a declining interest rate, lower inflation environment, and not a lot helped in the ’70s. You own a lot of traditional stuff, you got taken kind of to the woodshed, but gold, obviously, was one of the big standouts. Value stocks kind of helped better than the opposite, but it seems like you have these cycles in history where by the time that everyone has forgotten what sort of environment…they’ve only invested during a certain period, it predisposes them to an environment that didn’t exist. I don’t really have any question, but do you have any comment?

Frank: I think I know where you’re going with this. And this is one of my favorite talks, is this generation, the ones with the black hair like you guys, weren’t around in the ’70s. I started in this industry in ’78, Ian a few years before me. And…

Ian: Thank you.

Frank: …we know what it was like. And I’ll tell you what happened. Well, people forget about bear markets, which this generation has never, ever, ever seen a bear market. I don’t know if you remember the Nifty Fifties, the high-flying stocks of the 1960s. Well, that all ended in 1969. Actually, the peak was 1966. 1969, it came down real hard, and it didn’t hit the old high until 1982. Okay? So you had a 13-year bear market where things went like this, just sideways. And you had several recessions in there. The only things that went well were gold, oil, real estate, farmland, all that stuff.

And people forget that we’ve been accustomed, we’ve been conditioned to believe that you buy on the dips, that the Fed’s going to come to the rescue, all of these stupid things that work for long periods of time until they don’t work anymore. The 1929 crash, those stocks never hit their highs again until 1952, there were a lot of great rallies in between but forget about the old highs. And people don’t understand that when a bear market really sets in, and the conditions change, the entire environment has changed. Now you’ve had this huge debt bubble that has grown over the decades. You’ve had this easy money policy, which has spoiled everyone to death. Everyone’s had casino fever now for…since the pandemic started. It’s all coming to an end. This game is over. What comes next is anybody’s guess, but my guess is there’s a really good chance we’re going into a bear market where you have to be way more selective than you ever were. You have to look at the macro conditions. And the macro conditions have changed.

If we are in what I believe to be a stagflation period, then you have to pick certain stocks. You can’t buy what you were buying two years ago. And that’s what a lot of this generation, they don’t get it because they’ve never seen it. To them, it’s all stock market crashes in 2008, stock market crashes in 1999, it recovers two years later, and then the party’s on again. Well, I think that this time is different. This is my belief. I may be wrong, but I think we’re in for a bear market and a period of stagflation.

Meb: Ian, any additional insight? You know, it’s funny because I didn’t publish this, but I was looking at it the other day, about the length of time of what people assume the long run is, what they say it is, and then how they behave. They behave on sort of like that zero-to-three-year time horizon. They may say they have a longer-term time horizon, but they almost never do. But we often ask like, “How long do you think actually, like, stocks could go without hitting a new high in many decades?” I mean, in the U.S., if you take it back far enough into the 1800s, it’s like 50 years or something on a real basis. But if you go down a list, and listeners go try this, go take the 45-odd stock markets around the world, do it on a total return basis, so including dividends, but look how many have gone nowhere for 10 years to 20 years. Like, it is not an insignificant amount. I may have to go just do the actual writing, but there’s some that are the same place they were 10 years, 20 years ago, just not the U.S., market cap weighted. We’ll see how it plays out, but struggle is the norm, I think is an easier way to say it. Ian, any thoughts?

Ian: I can’t add to Frank’s view. I agree with his view. Of course, I can’t remember the 1929 crash like Frank can, but I think we are in for a period of down stock prices in a bear market, and it will last longer than anyone expects. And so it’s going to be a different world than we’ve all had for the last 20 years, for sure.

Meb: All right. Who wants to make a guess? We only have 200 votes so far, but we’ll post the full. It usually will start to condense. It’s pretty close. What do you guys guess the percentage of Meb’s followers on Twitter that own gold or miners? So based in the U.S., a lot of professional investors, but also I tilt a little towards…

Frank: How many followers?

Meb: About a hundred and something thousand, 100,000, but there’s only been 200 votes this far.

Frank: Okay. My guess is 10% to 15%.

Meb: Okay.

Ian: I’d say the same, 15%.

Meb: You guys will be astonished as I am that 40% said they own gold or miners. I bet that comes down, and I bet maybe it’s just all the Canadians and Australians who are not on vacation right now or something, and they’re all voting because this seems way high relative to what I would expect. Because the weird part is, I did this same poll and I asked about real assets, and almost no one said they owned real assets. So there’s some sort of dislocation here. I don’t know what it is, but maybe everyone’s just saying because they own S&P Index, they end up owning a few gold miners in there. I don’t know, but something is amiss. It seems high.

All right. Well, we’re going to start to wind down, guys. We’ve only got probably 10 more minutes to chat with you. As we think about kind of the future and look out to the horizon, anything we haven’t chatted about in the investing world, in the mining world, has got you particularly curious, worried, excited, depressed, any broad emotion? Anything that you’re thinking about, anything that’s keeping you up at night, or putting you to sleep, that we haven’t talked about? Anything on the brain?

Frank: I wonder what this whole crypto collapse is going to mean for the rest of the market, the economy in general. I don’t think the washout is finished yet. It’s come off by two-thirds already, but I don’t think it’s over yet. It could do what the dot-com stocks did back in 1999. You know, by the time it was finished, they were down 90%. A lot went to zero. And so we haven’t had the complete washout of the crypto mania yet. And if it does come, I wonder…I’m just curious if there will be a knock-on effect, and if it really will have an impact on the rest of the housing market, stock market, the economy. That’s the question mark for me. I don’t know the answer, but that would worry me a bit.

Meb: Presumably, and this is hard to quantify, but thinking in terms of sort of the wind and the sails of precious metals, about how much attention, particularly with the younger crowd, has been diverted for those seeking sort of a safe haven mindset of two crypto type of vehicles that otherwise may have gone to precious metals. And so in many ways, I wonder if that could be a potential catalyst for a bull exposure to the miners, presuming they don’t also go down 80%, 90%, but seemingly that would be a positive. Man, the amount of fraud and scams and just terrible behavior we’ve witnessed in the last few years in the crypto space, certainly, if not one black eye, it’s two.

Frank: I’m just wondering whether they’re going to have any money left to invest in gold or anything else. That’s what worries me because I think that a lot of that crypto crowd, the hardcore guys are going down with the ship. They don’t care, they believe. And so it’s not like they went, “Oh, whoops. We made a mistake, and time to switch horses.” Obviously, the smart traders, and I had this debate about a year ago with someone on this, a very important debate on gold versus Bitcoin sort of thing. And I was being told by the person I was debating that all the hedge funds and the smart money was going into Bitcoin, blah, blah. And I said, “Guys, those are momentum players. The minute the momentum stops, they’re out and they’re going to be riding some other asset class. They’re not maxis. They don’t care as much as you. You guys…”

But there is a very large percentage of that crypto population that is holding on and going, “We don’t care. It’s going down, eventually, it’s going to go up and crypto’s going to save the world.” And those are the folks that are going to get completely, in my opinion, going to get completely wiped out, and they won’t have any money left to put it to something else. So I don’t know. This whole crypto thing is a really weird one and it’s…I don’t think we’ve ever seen anything like it in our lifetimes, and we’ll never see it again.

Meb: Ian, anything that’s on your brain lately?

Ian: Well, the only thing, and I don’t know very much about it, but I’m watching with fascination as the world tries to get off of carbon fuels and get more electrified and digitized. So therefore that should be incredibly good for copper, and you can read an article a day on how we’re going to run out of copper any minute, and yet over the past three weeks, the price of copper has collapsed. I just don’t know how the lithium, and the cobalt, and the copper are all going to do as we try to electrify the world. I have no idea how that’s going to get resolved, but there’s a gigantic disconnect in the market right now.

Meb: And the ag space too. I mean, you’ve seen, historically, some of the levels of the prices we’re at now, even though they’ve come down, create a lot of geopolitical unrest and you’re seeing that. So you have like a dual, both ag and energy, stressor. Obviously, a lot of it’s happening in Europe. Last go-round, it was certainly a lot of food insecurity in Africa, Middle East, Arab Spring. Hopefully, it resolves itself, but often that leads to toppling of governments and regimes and everything else. But we had a recent podcast guest, Peter Zion, on, who had a much bleaker view for the fall and kind of how that ag exposure may play out. So hopefully positive, but it’s certainly something that resources are a lot more front of mind than they were when oil was trading at negative future values a few years ago.

Frank: To add to the ag problem, you’ve got all this climate change stuff that’s happening, which is really affecting agriculture around the world. I wrote an article on this last year on the effects of climate change on agriculture and agricultural output in behemoth countries like Brazil, you know? Whether they’re extreme heats, droughts, floods…I mean, they’re happening places where these things shouldn’t be happening, and they’re really killing…It’s weighing heavily on agricultural output. Now you’ve added this whole Ukraine war situation, which as we know, the wheat supplies from Ukraine and Russia count for about 40% of world supplies. And where’s that…who’s going to suffer most? Countries in Africa, the Middle East, those that have been reliant on those exports.

And I agree with you. I think that’s something to be very worried about because, as I wrote recently, we can all go into a severe recession. I can take away your iPhone and your car, you’ll live. But I take away your food, you’re going to behave differently. You’re going to do things that you wouldn’t otherwise do. And that’s where societies fall apart. That’s where you get the Arab Springs and other situations. So I’d be very worried about that too. And I just hope it doesn’t happen because it would be very tragic.

Meb: Gentlemen, last question for you both. You can have a second to think about it, but it’s a question we ask all of our guests, and it can be good or bad, but the question is framed, what is your most memorable investment?

Frank: I have one, and this is a very valuable lesson in timing markets or the failure to time markets. And when the dot-com bubble was happening, I was looking around and I was telling everybody who listened to me that this was insanity, that there was no basis for the valuations of these tech stocks, and that it eventually would implode. And so I shorted, and I can’t remember why I shorted this particular tech stock that was trading on the NASDAQ, but I read what it was, and it was nothing. It was based on some future potential, maybe this will happen or that’ll happen, Venus will align with Mars, and all these things that to me were mumbo-jumbo.

And you had these large investment banks, Wall Street investment banks, writing reports with these crazy projections, going, “This…” So I started shorting it and I kept going up, and I kept getting margin calls. And I was going, “Okay, I can’t go for it.” So I kept putting up margin, putting up margin. The stock went from $12 to $30 to $40 to $80. And I was going, “This can’t go on forever.” I eventually bailed. And I think I couldn’t…Anyways, I lost so much money…I can’t remember. I mean, it was $110, $120 a share. It went to $200, and then it went to zero. And I still lost a lot of money.

Meb: Shorting is so hard. Markets can go bananas. I mean, the recent examples last year was with, and still ongoing, but some of these meme stocks that took down very large short sellers. The timing on shorting is rough, but it’s a good lesson, and you don’t forget that one. I’ve had my experience there. Ian, what do you got?

Ian: My most memorable was at one point in the early ’90s, Robert Friedman was trying to hire me and I wasn’t sure, and I was hesitant. And so he just started throwing opportunities my way. I finally agreed to go and join him. And as part of that, he said, “Well, I’ll make you a director of diamond fields.” And I’d never heard of diamond fields. And so I got stock in diamond fields at 15 cents, I got options at 18 cents. And so that was great. So the stock made it to $5, and I thought I was a genius. So of course I sold it. I made enough money to build a waterfront house in Vancouver, but then the stock went to $150. So that’s one of my most memorable investments.

Meb: We did a post on this. I’m trying to think when it was and the name of it, but it’s essentially talking about how to plan for investment outcomes. And the one that most people think about is, okay, what happens if this stock starts to go down, or at what point do I sell if things go poorly? But we often tell people, we say, “You have to…” and this is obviously a much better problem to have. “You have to mentally prepare for how are you going to handle an investment that is the opposite, that does really well?” So a 5-bagger, a 10-bagger, a 100-bagger. And most people never had those because what happens is they sell after the 1-bagger. They, “Oh my God, I bought this, it doubled. I bought Aris, it doubled. I’m going to go buy a new car. I’m going to go on vacation, yadda, yadda.”

But the power laws of investing where you make some really massive wealth is every stock that becomes a 10-bagger or a 100-bagger was once a 1-bagger. And so there’s a lot of ways to think about that. I think people don’t like to think in the binary terms of…they like to think in terms of in or out, but maybe just selling a little could be one solution to avoid the emotional pain of regret minimization there on the actual big winner. That’s great, guys.

Well, look, fellas. I would love to keep you all day, but we all need to move on. We’d love to have you back and watch what you guys are doing in the future. If people want to kind of keep up with your company, what your thoughts, your writings, your farming products you’re putting out, where do they go? What are the best places to keep up with you guys?

Frank: I’ve got a blog, frankgiustra.com, I write for the Toronto star every couple of weeks, I write a column on usually macro issues and other things, and you can follow me on Twitter. That’s usually where you’ll get my messaging.

Ian: For me. I’m not on social media, I don’t write a column for anybody. You’ll have to just keep an eye on announcements for the various companies I’m involved in to see what I’m up to.

Meb: Go hike around the Canadian wilderness, find you in a cabin. Perfect.

Ian: Exactly right.

Meb: Gentlemen, it’s been a pleasure. Thank you for taking the time to join us today.

Frank: Meb, that was great. Great interview. Thank you.

Ian: Yeah, Meb, thank you very much.

Meb: Podcast listeners, we’ll post show notes to today’s conversation at mebfaber.com/podcast. If you love the show, if you hate it, shoot us feedback at themebfabershow.com. We love to read the reviews. Please review us on iTunes and subscribe to the show anywhere good podcasts are found. Thanks for listening, friends, and good investing.



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