The Derivative - From Venezuelan Oil to Nuclear Frontiers: Navigating Resource Markets with Robert Mullin

Episode Date: January 22, 2026

This week on The Derivative, Jeff Malec is joined by seasoned resource investor Robert Mullin for a reality check on Venezuelan oil and the market narratives surrounding it. They dig into why headlines calling for cheap oil miss the point, what it actually takes to restart a broken energy system, and why “world’s largest reserves” isn’t the bullish mic drop many assume. Along the way, they unpack sanctions, shadow tanker fleets, Gulf Coast refinery hype, and where the real economic constraints lie. It’s a sharp, grounded conversation focused on market structure, logistics, and context, cutting through the noise without relying on forecasts or recommendations. SEND IT!Chapters:00:00-00:12= Intro00:13-12:25 = US Involvement in Venezuelan Oil & Challenges in Venezuelan Oil Production12:26-20:16= The Role of International Companies & The Shadow Fleet and Sanctions20:16-28:15= Commodity Cycles and Market Dynamics & Investment Strategies in Resource Equities28:16-43:27= Investment Strategies in Resource Equities& Navigating the Resource Sector's Challenges43:28-49:52= Gold & Precious Metals: Investment Strategies, Central Bank Moves, and Market Dynamics49:53-59:42= From Base Metals to Nuclear: Equity Strategies and the Future of Resource Investing59:43-01:07:55= Nuclear Frontiers, Geopolitical Shifts, and the Changing Role of Resources in Global MarketsFrom the episode:About those Higher Interest Rates (Lower Bond Prices) - RCM Alternatives Blog postFollow along with Robert on LinkedIn and check out Marathon's website marathonresourceadvisors.com for more informationDon't forget to subscribe to⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠The Derivative⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠, follow us on Twitter at⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠@rcmAlts⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ and our host Jeff at⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠@AttainCap2⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠, or⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠LinkedIn⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ , and⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠Facebook⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠, and⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠sign-up for our blog digest⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠.Disclaimer: This podcast is provided for informational purposes only and should not be relied upon as legal, business, or tax advice. All opinions expressed by podcast participants are solely their own opinions and do not necessarily reflect the opinions of RCM Alternatives, their affiliates, or companies featured. Due to industry regulations, participants on this podcast are instructed not to make specific trade recommendations, nor reference past or potential profits. And listeners are reminded that managed futures, commodity trading, and other alternative investments are complex and carry a risk of substantial losses. As such, they are not suitable for all investors. For more information, visit⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠www.rcmalternatives.com/disclaimer⁠⁠⁠⁠

Welcome to the derivative by RCM Alternatives. Send it. All right. We're here with Robert Mullen. Thanks for having a nice, easy name I can pronounce easily. Hey, no problem, Jeff. Are you a Robert or a Bob or always been a Robert? What's the story there?

So I'm a Robert, but I am the son of a Bob and the father to a Bobby. So it just, you know, from keeping things straight, you know, Robert is the most functional one that I can use right now. I've got a good friend, Italian family, and the father's name, Dominic, my friend, the son's Dominic, and then his son's Dominic. And the mother has some way of, like, screaming, Dominic, and they know, she says the same thing, but they know by the intonation, which way. Yeah, exactly. A certain twang to it gets the attention of the proper Dominic. Love it.

So I wanted to have you on, talk the big news here to start the year of U.S. grabbing Venezuelan oil or. Or is that a smokeswomen? So we'll just dive in and kind of let us know your off-the-cuff thoughts. Did that knock you off your couch or you were sort of expecting it? Or what were your first thoughts? And then we'll kind of dive into what's going on there. Sure, sure. Look, well, I appreciate you having me on.

The idea of us leaning into what's going on in Venezuela has been pretty well telegraphed for a while. The swiftness with which it was achieved was, I think, surprising to a lot, myself included. That said, it was unbelievable the number of incredibly bad takes. that were on the sort of X Twitter sphere, et cetera, and even in some of the mainstream financial press about the likely impacts on the energy markets. So there are a few things that I think the world got right, right? You know, and I think the people calling on Saturday and Sunday for oil to go straight to 40 bucks a barrel, you know, clearly the market looked right through that and said, you know, it kind of opened flat, which you would think with a, you know, big, you know, big,

change of hands of what is being touted as the world's largest energy reserves, which has kind of story off to it all about itself. It's actually really not. Yeah, we'll stick a pen and come back to that. Yeah, exactly. But so it got that right. So, you know, the oil price kind of being flat, I think was right. Some of the way the energy equities reacted, I thought were pretty reasonable, if not maybe a little bit overdone. Because I think the big beneficiary is, at least in the early phases of this will be the companies that help, you know, in theory, rebuild the infrastructure. Once you stabilize the country, once you actually go and pay back all the people that Venezuela and Petta Vesa, their national oil company owe money to, but the first beneficiaries are going to be the

people who help to rebuild it. The take that I kind of, the two takes that I kind of disagree with. One is that Gulf Coast, U.S. Gulf Coast refineries are going to be immediate beneficiaries from that. I think that is a, at this point, kind of a ridiculous stick. The idea that we have this new flood of heavier crudes that benefit the Gulf Coast refineries at the U.S. that are geared to run these heavier crudes. And real quick, are they even set up to accept oil from the sea, right? Yeah, oh yeah. They're set up to accept it from pipeline. No, but the Gulf Coast refineries can take it by ocean, too.

And Venezuela has historically been a big provider of both course crudes. The refiners were built there to accept Mexican, Maya crudes, other things from the, and the refining network in the Caribbean was to take these sort of South American crudes and kind of pump them into the U.S. refining system before we had enough of our own crude production to be able to fill them. So they're right technically in that they're geared to run it. But the fact of the matter is, I think the likelihood of incremental barrels coming out of Venezuela in the next 12 to 24 months is very, virtually zero. There's a huge series of things that have to go really right for Venezuelan production to rebound from where it currently is, which is about eight or nine hundred thousand barrels a day, you know, to even think about 1.3, 1.4, 1.5 million barrels a day. You've got to stabilize

the country. You've got to pay back all the people who are owed money. You have to convince energy companies that in an area where you have to invest for a life cycle that's going to take decade plus to get your capital back to you, you have to believe that there's enough stability there that it will outlive the, you know, three and a half years left of the Trump presidency. You know, this is not something that can be made on a political time frame. And you also, quite frankly, the break evens, you know, the way I look at it, you have to both rebuild the entire infrastructure, electrical roads, transportation, processing, diluance, all that sort of thing. It's going to be about three to five times more expensive to do that.

in Venezuela, then most companies have for prospects that are already on their books that they aren't doing. So it kind of just, if you think that much money's flowing down there, you got to believe that oil prices are $80 to $100 a barrel. So to take this as a crude prices should go down and massive flood of cheap, heavy barrels goes to the Gulf Coast refiners and it's going to be happy days for them, I think is, you know, it's kind of nonsense. You know, that's said, that's what the market has grasped on to. Lots to unpack there. I'll start with what.

So the Venezuelan oil is kind of in their bay there. I don't know what it's called, right? It's underwater or is it in the ground? So there's actually, they have both offshore and onshore production. And like the Orinoco Basin, which is where the majority of the reserves are located, that's reasonably inland. And you have to kind of produce that, get that to port. And so absolutely, port infrastructure and export capacity is going to be something they have to rebuild. First, you have to build the electrical grid, right?

I mean, this is a kind of. that has been in massive underfunding disrepair for the better part of 20 years. So stuff has been picked over and cannibalized, and it's the idea that you can go in and snap your fingers, and that there's a lot of oil behind the tap that's easy, low-hanging fruit, I think it's just a fallacy. It's wishful thinking for people who really want oil prices to go down for whatever reason. And why was that just the corrupt government and corruption there? no one was willing to invest?

Didn't we have U.S. companies and China was putting money into there? So how come that money never fixed the infrastructure? So it went in a long time ago. So Exxon has now had two rounds of confiscation of the assets that they've built down there. Chevron has been able to navigate relatively well. So they've still got, you know, I think roughly 300,000 barrels a day of production. But it's not, it's a smitch on what they do. And it's been really expensive and politically challenging to maintain because Trump just sank

in that stuff back in February. So they had to ramp production down before ramping it back up over the last three or four months. The Russians are there. The Chinese are there. That's another 200 to 300,000 barrels a day of the production. The rest of it is the pedavesa, which is the national oil company. It's like going back to something in the fias, but even worse because no one's been paying attention to it. What they said when Chavez came in and basically pedavesa nationalized and, you know,

took all these assets from everybody. They effectively fired everybody with a college education who worked at Petta Vesa. And the way I've had it described to me, and this is going back 15 years, is that you all of a sudden threw all the computers out the window and you started working with carbon paper. So it's literally stone age. And, and so it's going to take. On purpose to be like, this is ours. Here's how we run it. Exactly. Well, and to the extent that there was, they could not afford to reinvest it because they were taking all the money that Pedivasa produced to hand out in social programs to be able to, you know, to buy votes and to placate the masses and to make oil cheap and gasoline cheap for the masses.

And you can only do that for so long before the engine that fuels all that starts to seize up and doesn't work anymore. And that's prototypical socialism, right? Right. Interesting to me, like, this is more of an 18-hunt, like early-nards where governments were taking wealth or vice versa. So it seems like all the other plays in the last 100 years have been countries taking their stuff back, right? Egypt, Venezuela.

So, yeah, that was kind of a perverse inversion of that of like, no, we're giving it back to corporations instead of the state. Yeah. Yeah. So it's going to be an absolute quagmire for an extended period of time. I jotted down, too. You mentioned a couple times who these are people that are owed money or companies that are. What does that look like? Big national oil.

companies? Banks? Yeah, Conoco Phillips is owned about, yeah, Conoco Phillips is owned about $8 billion. That's been in court for a decade. Exxon mobiles, north of a billion, Schlombardier, Halliburton are both, you know, half a billion to a billion dollars. So that's, those are big checks for a country with no cash and a huge amount of debt to be able to figure out, you know, who's going to pay that back. So first you have to pay back the people who are owed money, because you've got to get them back in to actually develop it. Then you have to get, by my estimate, to get half a million to a million barrels a day in the next five years, you've got to spend somewhere between $60 and $100 billion.

In data center land, that may not seem like a lot of money. But everywhere else in the world, that's a huge amount of capital. And so where does that come from? So start giving me those answers and then we can talk. Sign it off, right? Like, hey, will government, we'll back all these debts, get back in there? Yeah. So if there is a point where the government does like they've done in some of the rare earth areas, where they guarantee returns and offtake and back, you know, maybe sub market interest debt, you know, then maybe you can start talking about doing it. But doing that in the midst. I mean, think about if they tried to do that in Afghanistan or in Iraq. I mean, think about what people would think about that. Just because Venezuela is closer to us doesn't mean. that it's easier to exert our will over an unstable sovereign nation.

Right, with 25 million people or so, right? Yeah, I mean, unless we're willing to put 50,000 troops on the ground, which, now look, we could do, but I think the public might not like that a whole lot. And what kind of companies that will build it? We're talking the big of the big. Like, you're not going to get some small regional operators from Texas down there or something. This would just be. Yeah, so it's interesting.

So I think the big money will be made by, you know, international oil companies and they'll have to be the U.S. ones because with Trump kind of, you know, exerting his influence there, it's not going to be the European majors. It's not going to be Shell. It's not going to be BP. So it'll be the U.S. focus major. Chevron will be probably at the front of that because they're currently there in operating. And it's just going to depend on, you know, what Exxon thinks that's even worthwhile to go back in there. Again, they've had stuff confiscated twice. So their long-term return on capital in Venezuela, has probably been the single worst investment in the long storied history of exit. So whether they even care to go back for half a million barrels a day over four or five years, I don't know if they would. The service companies, I think, are going to be the big winners, the guys who build the offshore projects and infrastructure. There's going to be some E&C companies that are involved with rebuilding the electrical grid, processing and transportation, and that kind of infrastructure. So those folks will be kind of on the first line of winners. I do think there may be some smaller companies that go back.

There's some really interesting. I wouldn't think it's like the shale producers who then all of a sudden port themselves down there to do it. There are some really good Latin American companies, many of whom are staffed by former Venezuela, Pedevasa related engineers who know the basin really well. So there are some independent oil companies, you know, in kind of down Latin America, South America, who I think will probably play a role in. this and I think are well suited to do so. But, you know, first things first, you got to stabilize things down there. You mentioned the world's largest reserves, ish? What's the what's the ish part of that? So, so Venezuela, so 300 billion barrels is what everybody cites. And that's what is the bigger number than Saudi Arabia. And so, you know, it's, they have the biggest oil reserves. If you look at

their evaluation of their own oil reserves, it went from about, I think, 30 billion barrels. to 300 billion barrels over the course of three or four years, according to their own reserve engineers. And that was in response to OPEC started setting OPEC quotas as a byproduct of, guess what? Your reserve. How big your reserves are. So it's, it's, there's, I think, an enormous amount of fudge factor in those numbers. Yes, at $400 oil, they probably have 300 million barrels of reserves. At $50, you know, WTI, you know, my guess is their reserves, you know, their economic reserves are, you know, a small fraction of that. And all of, I won't say all that, the vast majority of it is very technically complex.

It is both heavy, so it doesn't run very well. Some of this stuff, the moment you bring it to surface, it coagulates and hardens. You need to mix it with lighter crudes or natural gas to even let it flow through a pipeline. So there's a lot of infrastructure that has to go in, and it's super sour, which means it's got a very high sulfur content, which means you have to reduce that sulfur in it so it doesn't corrode everything that it comes into contact with. And that's kind of the nasty stuff that you don't want to end up and you're getting with your gasoline or your jet fuel or anything like that. So that's got to get stripped out. And so it's it's mostly very low quality stuff. So like almost the exact opposite of Middle East Saudi oil that's just coming out.

You're perfect. So a lot of Saudi stuff is good, but like the Iraqis, and Iran and Iraq both have significant kind of heavy sulfur barrels as well coming out of there. And so what is, do you know, off top of your head, I didn't prep you for that of what that price to, you know, cost of production is to get it out of the ground down there? Yeah. I mean, you know, it's hard, it's hard to say because. Assuming all the infrastructure was in place. Yeah. Yeah.

I think, I think op costs down there have got to be, you know, north of 30. dollars a barrel. And it depends on how much you fully loaded with the infrastructure. So that is sort of wellhead, you know, tieback pipeline. But then what people will really have to spend is all the money to build out the rest of the infrastructure. As I said, the electrical grid, because you can't run all of this stuff without an electrical grid to pump the pipelines. You know, you can't run it with, you know, without the ability to be able to turn on the lights in processing and desulfurization facilities. So all of that is if you load that on, so the metric that I use is a good heavy oil project around the world costs about $30,000 a flowing barrel to be able to get online. So that's capital costs, not operating costs.

I think Venezuela is going to be two to three times. 30,000 a daily flowing barrel. And so what you want to see from that, that gives you an idea of, you know, look, if I think the number for Venezuela, let's use round numbers, is more like if you're fully. loading it for all of the infrastructure that you have to do, and it's $100,000 a daily flowing barrel. You know, to get a million barrels a day, you got to spend a billion dollars. So it's, it's, it's, sorry, a hundred billion dollars. So it's, it's just, it's going to be, it's going to be really hard. You mentioned the tankers. We did a podcast to finish last year with a, uh, professor of maritime professor. We're talking shipping and tankers and like massive underinvestment there as well, right?

So that's another piece of this of like how are we going to, even if we can get it out, how are we going to get it to where it needs to go? Yeah. But do they have their own fleet of tankers, Venezuela, no? Are those super? Yeah, Venezuela has some of their own flank tankers. They use what's generally referred to as the shadow fleet, which is typically a lot older tankers that are flagged in Cyprus or some kind of offshore place that. I think that was something out of Star Wars, the shadow. The shadow fleet.

Exactly. Non-compliant tankers that can't port in. respectable jurisdictions. And so that's a big, actually a big part of the global tanker fleet is what we call this shadow fleet. It's old boats that I would, I would say are generally characterized by being held together with duct tape and bailing wire. But their reason for being is that, you know, we've had sanctions, you know, sanctions on Iran, but you still see Iranian barrels going to India, sanctions on Russia and Venezuela, but you still see those barrels going to China. And it's because we've had sanctions, but we haven't been enforcing the sanctions. So it has facilitated the rise of the shadow fleet, which is about 10,

there's about 1,000 VLCCs, very large crude carriers on the water right now. And about a hundred of them, a little bit more, are what is called this shadow fleet. So it's boats that if you did not have a sanction market where they're operating in the shadows, moving crude, that the rest of the world is saying you shouldn't be doing that, these boats would have been retired and scrapped, you know, sometime over the last three to five years. So that's the interesting dynamic to me. I think there's both the fact that there's going to be more barrels going around, but I think you've got a big portion of the tanker fleet, which has been a byproduct of a sanctioned environment that can go one of two ways, one of which is you decide to actually enforce the sanctions,

which is what the U.S. is doing now and actually boarding tankers and confiscating them. Or you have peace in Ukraine, peace in Russia. You stop having. the sanctions. So there's no reason to have this shadow fleet anymore and people won't use them because they're really dangerous, quite frankly. And they charge more than normal tanker fleet because they're doing things on the dark market. So it's got a lot of dynamics, but I like the fact of being long tankers because it hedges one of, if I'm long energy stocks too, one of the risks that I have is that OPEC increases production. And that was played out very well last year. So if you were long energy stocks in 2025, it was kind of a tough year. But if one of your vulnerabilities was

more barrels coming from OPEC, which is what we got. That was really good for the tanker companies. So it's kind of like a long that hedges along. I'm thinking of the shadow fleet of like Dennis Hopper's tanker in Waterworld, remember, turned it into the evil base. And then did you see this story where they were trying to get that Venezuelan tanker and they painted the Russian flag on the side of it real quick? Yeah, no, this is a Russian vessel.

Yeah. Crazy. How does that even work? Are they just making them man the tanker by gunpoint or are their U.S. Navy guys that then are operating the tanker? Yeah, I think they're stretching the limits of your knowledge. Exactly. They, you know, the attempt is you go in, you board it, and they're not going to put up a fight. You know, they know that the U.S. military take them out and, you know, in a heartbeat.

So they all stand on deck with their hands up. We board them, you know, either by boat or by, you know, fast helicopter. And they go on. you bring on a pilot and boom, you say we're going to drive this to the Gulf of Mexico or Gulf of America, as we now call it, I guess? And these are our barrels now. And guess what? We're probably going to keep the boat. And it's, you know, it's probably a piece of junk. So we'll just drive it to the shipyard ourselves. And we'll get 20 million bucks to scrap it. We're proper pirates now. Sir Francis Drake, we're like authorized by the government, authorized pirate. So you're not even, this is the part where I'll tell everyone, you're not even really an oil guy, right? So actually, energy is a decent part of what I do. I'm a broader resource guy.

And I'm not a trained geologist or anything like that. I've just been kicking around on the investment side of the natural resource sector for 35 years now. So I was originally at the Franklin Templeton Group, left there in the late 90s or mid-90s, and have been kind of running resource-focused investment deals, mostly hedge funds, long, short equity funds for, you know, the better part of, you know, 35 years. at Franklin Templeton, you were equity guy, but that was your focus. Yeah, I ran the natural resource fund there. I covered energy as well as a couple of other non-resource sectors, consumer products and cable and things like that. But energy and the resource sector were what kind of captured my imagination.

And my family history is my mom grew up on a cattle ranch in West Texas. And so I've always kind of been close to the idea of real assets and tangible commodity. D. Our Sam has a whole ag unit that does a lot of hedging and working with the farmers' dry land cotton in West Texas. Yeah. Which is a seems like a brutal business. Yeah. Well, I mean, look, the entire history of options goes back.

I was actually driving my son down the peninsula, who's a very bright senior in high school right now. And just I was telling him about the podcast that I was doing. And he out of the blue said, yeah, do you know that the first options were on an olive press, you know, back in ancient Egypt? I was like, nice, really? I didn't have a chance to do diligence it, but it was effectively someone who was like,

wanted to secure the right to use an olive press going into the season that apparently, at least in one YouTube video, is the original option that was written. I love it. I always tell people, they're like, what are futures? What do you do?

I'm like, well, I like to call them nows, right? Everyone thinks you're guessing the price in the future. It's like, no, some producer wants to get paid. now for what he's going to give you in the future. But I digress. So is resources even a market sector anymore? It seems like it just morphed all into energy, right? Is natural resources still a legit market sector? It's still a thing. Look, it's a lot smaller than it used to be, you know, back in, you know, the early 2000s, you know, the energy plus basic materials plus, you know, ag and all that sort of stuff was 16, 17% of the S&P, now it's less than five. So it's still a legit sector because,

quite frankly, none of the world works without it. But it's, it's gotten a lot less mind share from the investment world for quite a while. And I think augmenting that was the kind of ESG decarbonization movement that not only made it in many ways, it was, it was sort of out of mind, but you were punished for even thinking about being a contrarian and owning commodity stocks because you got bad ESG marks. So that pendulum seems to be coming back a little bit. And if you get a real commodity cycle, which I think we're in, you know, we can talk about that if you want. If we're in the midst of seeing that develop, then I think you're going to see a lot of people sort of forget that sort of strict interpretation of ESG and take a more pragmatic look. at how their portfolio should be allocated.

Well, do you ever bristle at a commodity cycle? I sometimes bristle at that because I'm like, well, what are we talking about? Like, energy could be going gangbusters. Grains could be at zero precious or base metals could be doing totally different things. Like to think that the whole commodity market is going to cycle at the same time, I kind of bristle with and don't always agree with. I totally agree with that. That's what makes it such a fun sector to be long and short.

Yeah, yeah. is that there are wonderful opportunities to be long-shed, even sometimes within the, you know, within the single sectors. But there's lots of different opportunities to develop over, I'd say, the short-term. If you look intermediate to long-term, commodity cycles do tend to line up a little bit. If you look at industrials versus precious versus energy versus, and you look at, you know, 150 years of history on those things, I think, you know, my buddy Rob at the Crude Chronicles and a couple of other places

have done some really good work on this. they do tend to move in relatively synchronized cycles. Sometimes it just takes two, three, four years for everything to kind of sink up. And I think that's where we are right now and that precious kind of led the way copper is following. That's pulling up some of the other metals along with it. And I think energy and eggs are kind of in the caboose and that the sort of path of least resistance over the next two, three, four, five years for those two sectors in particular, it's high. Yeah. My counter, my zag would be like the grains are just too, they're always going to be in the caboose. They're easily replaceable substituted. It seems like whenever we need more production, we just, someone comes up with a new technology or method to farm more, which I could also argue is the same. Right. Like we used to just drill down in the Gulf of Mexico. Now we can drill down a thousand feet and then sideways a thousand feet. So like the technology is almost outpaced the demand, right? Well, the tech, no question. The innovation and technology in the energy patch has gotten way better, absolutely. The peak productivity of that innovation was really kind of hit its zenith, you know, 20, 20, 21. And since then, incremental barrels are getting slightly more expensive.

And so the question is, the technology doesn't get any worse, but the ability to apply it to a resource base that not, is not universe like the entire U.S. is not that 10 counties in, you know, in U.S. shale land that are massively geologically fantastic and endowed to do exactly what we're doing. And, you know, the nature of any exploitation cycle is you go after the most profitable stuff first. You spend a bunch of years drilling in that and you figure out where is my highest ROI to drill today? And that's the stuff you drill first. And as you get further into that cycle, the technology benefits, are offset by deterioration in the underlying asset quality. You're going into what in the Permian, they would call kind of second tier and third tier rock. Technology can make the rock look a little bit

better over time, but it can't totally offset it. And if you read like the Dallas Fed notes that have a lot of individual quotes from oil and gas producers in the Texas. And they're all like, if you think we can drill at $50 oil and make money, you're smoking the rock, right? It's It's just not coming. It happens. Thus, the $30 Venezuelan oil. Exactly. Yeah.

My end game for that is always people like, oh, we're going to mine asteroids for these resources. I'm like, that's the ultimate in like, well, what does the price that stuff need to be in order to make it feasible to send a rocket into space, do mining and then get it back on the ground? To me, any time you move anywhere from sea level. So what is true in space is also true in going down into the ocean and those sorts of things. And they've been three or four generations of like, yeah, we're going to go out and, you know, pick out these great, you know, high, high grade pipes that are coming up from seafloor seismic or volcanic activity. It's like, it's just, it's the cost curve on that is ridiculously high. So yes, I think both of those, the exploitation of resources gets logarithmically more expensive, the more use. the more you move from C-level.

So have you always been equity-based? That's the majority of what I do. I do a little bit directly in the commodities. I do a lot in sort of the volatility space, and that's something where we've got kind of a constant long volatility book to offset either some of the broader market risk that we look at or some of the sector-specific risk that we see within our various energy ag, industrial metals, kind of verticals.

So I'm kind of a hunter for cheap ball and just kind of accumulate it and warehouse it. And it's not a big dollar amount of what we do, but it's a useful punch to have in your back pocket when markets get squarely, which I think they have periodically done over the last couple of decades. And I think they're likely to do more of that over the next three to five years. So that explains how Jason Buck introduced us if you're searching for cheap fall. Exactly. So what does that look like? you're buying options on individual companies. You're looking at sector ETFs. You're looking at commodity options. All the above. Individual equities, sector equities, commodities,

currencies, sometimes the cheapest way to express, you know, some sort of disruption to or a negative event potential in the market is via the currency markets because that's where where, you know, Vol gets compressed the most. So that's an area that we've been pretty active in. But, yes, it's in all of the above. And you were never tempted to be, hey, I'm just going to go start like a commodity fund and trade futures and do all that. You always thought you needed the equity piece?

My real skill set, I'd like to think, at least, is analyzing companies and trying to find ones where the market has misunderstood their ability to generate cash. and their sustainability. The way I term it, and this is something I originally talked to Jason about a number of years ago, I'm looking for

positive carry convexity, and that we focus on high dividend paying resource equities where you've got a huge amount of free cash flow, 10, 15, 20% free cash flow yields, 5, 10, 15% dividend yields. And if you buy companies like that

in periods of time where the valuations have been compressed, which is effectively what most of the last four or five years have been, then you get this constant, It, you know, our strategy delivers double-digit dividend meals from the portfolio as a whole. So we get paid to wait. And we're just waiting for the point where either idiosyncratic things relative to the company give it a better valuation or the sector as a whole gets positively re-rated. And with resource stocks trading at 125-year lows versus the broader market in terms of valuation, you know, I think we're in a pretty good spot that to potentially.

get a at least a modest mean reversion in math. I was just talking about this on our last pod. I'll bring it up again. I wrote a blog post once called, yeah, but the yield, right? I was talking about MLPs in 2014 when they just crashed. And a lot of investors were saying, but the yield, I'm getting 9%. Like, but it's down 80. Like, so how do you square that of like, yeah, cool, you're getting this.

But your price could decrease tremendously, right? Absolutely. You know, and that's why we're long short, but that's also why you got to be pretty selective. You know, if you go in and try and buy the highest dividend in the sector, you're looking for trouble. What I prefer to look for is where we see companies that are generating so much cash at current commodity prices that they can pay a dividend, pay down debt, grow organically all at the same time. And so that's, you know, this is a unique market where, as I said, the combination of, of resources becoming a lesser focus and less of interest to people as well as ESG and decarbonization weighing on the entire sector, that has given me an amazing opportunity set to be able to express

that in super cheap equities. They can do all of the above. And there, you know, if you believe the dividend is sustainable, and we've got a pretty good track record if what we focus on 100% is dividends, and I actually have been doing that for 17 years now, that is just the income side of resource equities, you get a pretty good handle over what are sustainable dividends and what aren't. So, like, some of those are high for a reason, price? Yeah. They're showing you how risky they are, essentially.

Exactly. But sometimes they're not. Sometimes they're just flying under the radar screen. I've got, you know, I've got some European E&P companies that have given me 40% dividend yields over the last couple of years that, you know, that stock prices flat with a 40% yield. What's EMP? Yeah, producing companies. Yeah, exploration and production companies.

Yeah. And why does it need to be resource company? Like, do you take your skills and be in tech? And I mean, they're not throwing off free cash flow. So that I answer to my own question there. But whatever, there are other areas where you could apply the same skills? You know, it's, I think it's hard to develop the skill set that, you know, that, that, that, gears me towards the resource sector. And a lot of it is just, is understanding, like being able to look at

the Venezuela situation and in 10 or 15 minutes go, okay, this is what I think it means. I don't know if I could, I really don't think I could transfer that to any other place. I've got 35 years of scar tissue that I've developed in the sector, trying to understand both the macro level of it and the micro level of it. I mean, if people are coming to me and pitching me, you know, various, you know, junior exploration companies in gold or copper, and it takes me five minutes to look at a map and say, oh, this was the project that they tried to do in 1997. But here are the reasons why it didn't work because it was too far away from infrastructure and there was, you know, too much of this in the deposit so you couldn't refine it properly. Or it's, you know, you've got a town right next door who you know is going to come and protest it. that's the sort of accumulated skill set. And when you've accumulated that in a sector

where most of the skill sets have dissipated and the people who do what I do has fallen by like 80 or 90 percent, you might as well, I'm the tallest pygmy in the space, so I don't feel like I can compete in that way in any other sector. Is that the PC way to say that quote now,

the tallest pygmy? Well, I think we're in a less PC world than we were a few years ago. So give me an example of some of these companies, of like what they're doing, how they can throw off that much cash flow. Yeah. So I'll mention one that. Yeah, you don't have to mention names, but just kind of what they're doing.

I've mentioned this publicly in that our biggest position coming into this year is Schlumberger. You know, oil field services company, great big global infrastructure company. It's a name that I mentioned when I was a speaker at the Sone Conference down in Australia in November. So this is a company that is this kind of perfect analogy. of positive care of Quebec cities. Over the last 25 years, the company's typically sold at kind of a par multiple with the S&P 500. Oftentimes it's been a 25% to 50% premium. It's now trading at a 60% discount.

It's, you know, at least at the end coming into this year, it was a 10%ish free cash flow yield. So they were doing about 3% to 4% in dividend and another 5% to 6% you share repurchase. And that's for a, you know, a 50% percent. $50 billion. There's very little left in the S&P, but like a big, easy to look at company. And this is a company that's going to be the biggest beneficiary of the movement of incremental oil production away from the U.S. and towards areas like Brazil, Guyana, and even the rebuilding of Venezuela or in Iran or something like that. That wasn't part of my direct thesis going through, but it's something that works for them. And that's just modernization. Like basically. all these countries are moving up the scale of modernizing and they're going to be producing more and refining more? Yeah, yeah. That's where the incremental barrels are coming from because that's

where people are finding the economic reserves. Growth in shale is not going to happen at $50 oil or $60 oil, maybe at $70 oil. But the nature of shale oil is that it declines very rapidly. And so when you don't apply capital to a production base that's declining very rapidly, the treadmill gets very, very steep, very, very fast. And so, you know, what you're hearing right now from U.S. companies is that, you know, shoot, we've got a president who we thought was going to be our guy in the White House. And all he seems to be trying to do is put a lid on oil prices down to $50 a barrel. And that doesn't make sense for any of them.

So as the U.S. barrels flatten out and start to decline, somewhere else in the world has to win. And the people who've been doing the work to develop those projects over the last five to seven years, Brazil, Guyana, the Middle East. And so that's Schlumberjay's bread and butter. Guyana. I don't hear Guyana. Guyana is an amazing story. It's actually the best GDP growth story in the entire planet because of the oil production that they've been ramping up over the next last three or four years. and that'll continue. So that's one of the few places where global oil production is accelerating.

They happen to be right and extort of Venezuela. So that's caused a little bit of geopolitical tension over the last few years. Is that basically the same reserves, the same base? No, it's actually,

it's, that is mostly offshore. Some of it's onshore, but it's actually mostly much lighter, better quality crude as opposed to what Venezuela is involved. And then the shale

has another problem, in my opinion, right? That the playbook's out. Like, as soon as they can start producing and making money, Russia and OPEC will just flood the market and drive the price back down to take them out. So I don't know how many times they can do that, but that was the playbook back in whatever that was, 18. And in theory, that's what OPEC has been doing now. You know, they brought an additional, what, almost two million barrels a day, maybe a little bit more,

back onto the market over the last six to eight months ahead of schedule. Some would say that that's been a little bit of cow towing to the U.S. administration who wants lower oil prices going into the midterm elections and, you know, happy consumers who don't pay a lot at the pump are much more likely to vote for the incumbent than they are to vote them out. That said, OPEC capacity, if they really are producing where they say they are producing, there's not a lot of that left. And so the surplus in the market has been wound down significantly. What people have been saying is, well, if they're coming back with two plus million barrels a day, there's going to be what they term a superglut. And, you know, these barrels should be piling up everywhere.

They're not. The matter is, they're not. And so I'm not going to argue that we're in an incredibly tight market right now. We're not. We're oversupplied, but not oversupplied by two or three million barrels a day. We may be oversupplied numbers and inventory that I look at, maybe half a million barrels a day or more. That can tighten up pretty quickly in a geopolitical world where if all of a sudden you get, for example, a fall in Iran or a fall in, you know, or a Venezuelan, you get one of the, you know, 275 generals decide that he wants to be in charge as opposed to the one that the U.S. decided was going to be the case. You know, you could see a million or more barrels go offline very quickly. So, exactly. So, so I think I like, I like kind of like where the crude market is at.

I don't think it runs away to the upside, barring geopolitical volatility. But I think the focus on we're super oversupplied and we're likely to see 40 before we see 65, I would disagree there. Hmm. Back to your Schlumberjay example, for long short, are you specifically picking out a short to offset that long? Or it's more of like I'm picking out equally weak positions that I think aren't a good story and going short then. So truthfully, what I'm doing with that now is I'm long Schlumberjay, which is, as I said, historically depressed multiple with very positive catalyst going forward that I don't think the market is incorporating. There's a lot of other stuff that we didn't talk about. I think Schlumberger is about the most legitimate AI play out there. They have an entire section, Slumberjay digital, which if it were a standalone tech company would probably trade for something close to the entire market cap of Schlumberjay, and it's only 6% of their revenues. So there are a lot of other things that I like about Schlumberjay. Maybe when Dick Cheney died, it went on a discount?

Yeah, well, that was Halliburton. Oh, Halliburton guy. All right. But the flip side of that is, I think the Gulf Coast refiners are ridiculously expensive relative to the fundamentals. And they've been a favorite of the zeitgeist because clearly all this more Venezuelan and crude is going to come to market and be a benefit of these guys. I think that's two to three years out at best. And what you see from some of these Gulf Coast refiners is they're trading at the most expensive multiples that we've ever seen them at versus the oil service guys trading at the cheapest multiples we've ever seen at. And if you look at crack spreads, which is the best real-time indicator of their profitability, they've been going straight down for four or five months. Gas first oil is the crack spray?

Yeah. Yeah. It looks at the profitability, the theoretical profitability of running oil through a, through a refinery. in a certain ratio and selling that at current gasoline breaks. And so their leading indicators of profitability have been going straight down over the last two months. And yet the stocks, because of this theoretical benefit that I think is years away at best, the stocks are jamming and actually it looks like they want to break out to all-time highs. To me, that's the sector that I feel like is a pretty good short. So you're not necessarily trying to match up positions like a classic. like I'm going long, Coca-Cola short Pepsi, whatever the classic example is, it's more of a...

I do that some, but mostly it's in broader buckets. So I've got a lot of different ways that I can short within the energy bucket. So I view both of those as kind of energy things. So I'm long service, effectively kind of short refining. I can be long short within different sub-sectors. This just doesn't happen to be an example of that. I can't put you in a box. We've spent all this time on energy.

but that's only two-thirds of what you do. Roughly a third, actually, just a third. Only a third of what you do. So let's get into all the other stuff. So what else is resources in your book? So precious metals has been a focus for us for the last couple of years. You know, that's been a pretty fun place to hang out. Look, it was awful and we were early, you know, going into particularly kind of the tail end of 2024,

where the gold price was going higher. and the gold stocks were not. So, but that rectified itself last year, which was, which was great to the benefit of us and NRLPs. I do think, you know, I, people try and make the gold pieces really complicated. They're like, it's inflation, it's deflation, it's real interest rates, it's, it can be any one of his own. I think, I think the gold pieces is actually when you back away from it, it's pretty simple. Is it a useful diversifying asset?

And what I think got the central banks buying gold four or five years ago was the fact that gold was providing a significantly better offset to U.S. treasuries and other currencies and U.S. dollar assets than U.S. bonds were. And so at that time, the rest of the world was super overweight U.S. bonds. They still are overweight U.S. bonds because from 2000 to 2020, U.S. bonds were, U.S. bonds with perfect hedge, right? because the reaction function of central banks was every time there was a quake in the equity market, they would come in, cut rates and bonds would go higher. But if you look over 150 years of history, bonds and stocks are only anti-correlated in inflation environments of less than 2%. If you look at an inflation environment of, say, 3% or higher, which is, I think, more likely the environment that we're going to be in, equities and bonds are either uncorrelated or positively correlated. And that's what 2022 showed us, right?

and that bonds of stocks can go down at the same time. So the entire gold thesis being about some sort of death of the dollar or, you know, whatever else, it's not. It's just it's a really good portfolio allocation. The central banks figured that out first and started putting money to it for the better part of 2023, 2024, and even the early part of 2025, Western investors, both institutional in retail, were very happy to sell the central banks their gold. We were liquidating as they were buying. So that kind of kept a lid on gold prices. They were going up, but they weren't going up very quickly. The thing that changed in, you know, second, third quarter of 2025 was that the sellers

stopped selling and started buying a little bit. And when you have a market that was sort of positively biased but with people on both sides to now really positively biased and kind of everybody's just a buyer, that's what turned in the gold and then silver and then PGMs kind of move that we saw last year. And so I don't, that's a long way of saying the catalyst for gold doing well, I don't think changes unless you see an environment where we think we can sustainably get inflation back under 2% and where people trust the US dollar more than they did yesterday, which I think starting with the Russian confiscation of, or the US confiscation of or in the European confiscation of Russian foreign exchange reserves back in 22.

And I think even more accentuated by our willingness to sort of, you know, do these rifle-shot decapitations of various governments around the world. Yeah. I think that's a long shot. I'd say that's a, that's not a high probability event. So I think those dynamics stay in place. I would not expect the pace of precious metals appreciation to continue. I think we will get a volatile ride.

But I think over the next three to five years, it's still up into the right. it's just going to be maybe a little bit more boring and a little bit more choppy. Do you think Mexico's rushing to buy U.S. bonds or Denmark over? Everyone is being threatened right now. Like, let's maybe look at something else. If anything, it's the opposite, right? You know, and there's, I wrote a long piece right after the tariff tantrum back in April, where if you look at the VAR shock to foreign holders of U.S. assets,

they lost on a percentage basis in the, six weeks around the tariff tantrum. They lost twice as much in percentage terms. So I'm talking about foreign holders of U.S. assets, U.S. equities, U.S. bonds, U.S. government security, U.S. mortgage securities and things like that. They lost twice as much on a percentage basis and 10 times as much on an absolute basis in six weeks around the tariff tantrum than they did during a year and a half during the global financial crisis. Really? So if you're a European holder of U.S. assets, that was a, you know, quite frankly, an oh my God sort of moment. You had never built into your VAR models what that did. Now, what surprised me is I thought they would start selling U.S. equities to reduce exposure as well as bonds. They sold some bonds. They actually kept buying equities. What they did is they hedged their currency exposure. They had been holding U.S. assets unhed because the currency actually helped them in previous

times of market dislocations, but that was definitely not the case in April of last year, and it hasn't been the case for a while. So they started to hedge the currency exposure, and that's why the dollar has been relatively weak ever since then. It really hasn't done much in the way of reality, even though U.S. growth has been much better than the rest of the world. So I've been surprised that the rest of the world is willing to come back to the trough on this, but eventually maybe they don't. Well, and it seems they also were buying, especially in Europe, right? Like they were buying their own stocks. Exactly.

Exactly. My gangbos. Yeah. And that's, I mean, we've got a record portion of our fund is outside of North America. So we've got about 65% of our holdings are non-North American, which is unusual for us because there's a lot of resource options or sorry, resource companies in U.S. and Canada. But there are a lot of things about Europe and Australia and, you know, even parts of Africa and Middle East that quite frankly are just much more attractive right now.

So want to circle back something you said, 24 gold prices were rallying, gold companies weren't, right? Yeah. For me, as a futures commodities guy, I'm always telling people, like, avoid the companies. They've got warts, they've got the commodity exposure plus debt, plus management risk, plus yada, yada, yada, so how do you square that? What's your calculus there? Why you'd rather be in the company than the commodity?

Yeah. The companies provide a couple different things. they can provide, unlike investing directly in the commodities, they can provide an income stream, right? So if I'm choosing a dividend-related company, you know, I get a positive carry on that. And again, the second part they offer is convexity. You know, for a lot of these companies, the move from $2,500 gold to $3,500 gold, so gold went up 40%. A lot of these, that meant their earnings doubled or tripled. And so if you get into a market where people care about that, which historically they have,

In a good gold bull market with people paying attention, gold stocks will outperform gold three to five bucks on the upside. And so, look, it takes a lot of work to understand the idiosyncratic risks of individual resource securities. And it's not something that I recommend to your average individual investor. And it's even something to do, hard to do institutionally because quite frankly, the number of people who are following these companies who really know these markets has shrunk pretty dramatically. But that makes it the opportunities that it is to be able to find ways where, you know,

look, I can, you know, I was up, I had a couple of my gold stocks up two or three hundred percent last year. Gold was up 50. So that's the reason why. And that math, well, that can work both ways, but that math is simply, they have mostly a fixed cost, right? Like sure, it'll fluctuate a little bit, but if the thing I'm getting out of the ground now is twice as expensive, I can sell for twice as more, and I'm still paying basically the same cost to get it out. Yeah, so I can illustrate that in a vivid example in that I met with one of our key portfolio companies in September of 2020 at the Denver Gold Show. Sorry, September of 2024 at the Denver Gold Show. I think gold was roughly $2,500 an ounce.

And their project that they were bringing online was going to generate about $200 million in free cash flow in the first year production, which was 2027. And the market cap was $600 million. So it's trading about three times free cash flow. So look, that's good. Pretty cheap. Fast forward to a year, a year forward at that same conference. So September of 2025. Gold price is up by over a thousand bucks. The stock is up a couple hundred percent. But, you know, it's a instead of, so it's a one point, you know, call it a one point six, one point six, one point eight billion dollar market cap. But the free cash flow in the first year of production, it's like $8.50 million bucks. So it's actually. It's a cheaper stock, even though it's more than doubled. So we're actually more than tripled. So that's the kind of inherent operating leverage that you get. And look, there are a lot of crappy companies in this sector.

And so that is not the case universally. And I see, you know, if I'm looking structurally, like, I've got geologists that I keep on retainer and great contacts that I know through 35 plus years in the business to be able to figure out what are real deposits and what aren't. And if you, you know, gunned in my head, three quarters of this sector, I'd rather be short than long because the business models don't make sense. But when you find the good ones, man, and you get the tailwinds that we're starting to see and I think we'll continue to see for the next couple of years or longer, I'd much rather be in the equities than current commodities themselves. And that's why you look at it as a convexity play, basically. Like, hey, I can get this, I'm paying this premium or even I'm receiving a premium in a lot of cases. Yeah. And I have upside.

massive positive carry double digits a year. We've generated at a fund level 14% annualized yield from our underlying securities coupled with serious convexity. If you're right either for idiosyncratic reasons to the company or broader sector reasons that you get the commodity right. Were people back at Franklin Templeton or even in your early days of like, why is this guy talking option terms with resource stocks? Like, who is this guy? Have you bumped up against that? Like, most resource guys are like, oh, the deposits and the, right, they're talking a whole different language than you. Yeah. Geology versus finance.

Yeah. Yeah. I would say I wasn't talking in these terms, you know, 30 years ago at Franklin. But it's when you start, I find it, I think, very useful to think about all investing in terms of option terms. You know, what's your upside convexity? What is your theta? What is your, I mean, there's just all of the Greeks make sense in terms of part of a toolkit to be able to understand what you, what you're expected, you know, path function for returns are. But do you have trouble explaining that to investors in your, in your fund, right?

Are they like, what? I just want exposure to gold prices. Yeah, I write about it a lot, you know, the ones who care to comment actually get it. But there may be a lot who don't. You know, most of the folks I never hear from. So, you know, that's fine, too. So energy, precious metals, what else we got? What else is under your resources umbrella?

So we talked about tankers a little bit. That's a little bit kind of tangential to, you know, to the energy trade. Also, you know, look, we're involved in kind of base metals and infrastructure. I'm probably there. I think it's kind of more interesting. And I'm a little bit of a, I like the empty rooms. I'm more of a contrarian. So the laggard to me in the base metal complex has been nickel. So I think there are some kind of interesting opportunities there. We've got some niche rare earth exposure. But I think that the fundamental analysis in the rarer sector has gotten a little bit polluted from watching an administration who, while I think they're doing the right thing, this is an area that we should have been investing in and backing strategically for, you know, we should have been doing this 10 years ago. My, if I was to pick a fight with what.

they're doing, they seem to be doing it not with the best quality assets or the best quality people, but the ones that are closest to the administration, you know, fine. You know, that's the way the world works. So I think they're interesting opportunities. I think they're going to be fantastic short opportunities in the rarest in strategic metals over the next couple of years as government subsidies bring on more production than we probably need in the short term and the bloom will come off the rows in terms of the new. The valuations on the vast majority of them make no sense whatsoever. Do you put uranium inside of that, inside of rare earths or a separate deal?

That's a separate deal. And I like and always have liked the uranium story. Because for those who actually understand what the, you know, if you're looking for decarbonization or steady based on the power. Only answer. Yeah. Nuclear's been the right answer for 50 years, right? Yeah. You know, you compare France's CO2 output with Germany, and you see how incredibly self-immolating the, you know, the energy venda, you know, shut down your nukes to build a bunch of wind and solar at a place where it's not cold.

It's not, it's mostly dark and it's not windy. So it's just, it's, it's, it's lunacy. But yes, nuclear is a great answer. It's going to take time. I think traditional nuclear is much, a much better and more likely winner than. things like small module or nuclear. I think there's a lot of, I think there are a lot of technical challenges to that, and that's going to be a long time in coming. I like the uranium story in general. It's hard for me as an equity investor to express it because one of two things,

either the companies don't pay dividends because they're all kind of on the come, or the ones that do is like you can buy Kazatoprom, but you're taking on a very different geopolitical risk with that. And so from that standpoint, and look, as a value guy, the way I like to qualify it is gold investors on a scale of 1 to 10 in terms of their zealotry. Gold investors are probably a 7. Silver investors are definitely a 10. Uranium investors are turned it up to 11 or 12 in terms of their zealotry and willing to pay high multiples for potential returns.

And so I think what we all know is if you overpay for an option, you can be right and still be wrong. I'm like a 9 on that scale on the SMRs. The maritime guy, we were talking about putting small modular reactors on tankers. Yeah. And he was saying back in Seattle in the East or something, they were actually plugged an aircraft carrier into the grid in Seattle in the 80s at some time and were driving power to the grid. So it was like you could actually pull these tankers in, plug them into the grid. So that's interesting.

But then again, that's hugely expensive. Yeah. Like what's the tanker cost now? What's it cost with a nuclear reactor? Yeah, and look, the government counter to write that. And that's been true with, you know, the U.S. submarine fleet has been, you know, runoff next for a long time. So the technology's there. It's simply getting to the point where we're doing.

I'm like, we've been doing it for 60 years. Yeah. Yeah. It's the likelihood of accident or fallout is not a serious reason not to consider nuclear. Where does this all go next? The threats to Mexico, the threats to Greenland. Is that all a resources play, right? Greenland seems totally a resources play.

Or is that more air defense? Who knows? I actually, I would push back a little bit. The geologic potential of Greenland is reasonably high. But when you see these, you know, U.S. geological survey studies of, you know, in-situ values of minerals, it has nothing to do with economic recovery. So I don't think it's a potential rarest powerhouse. I think it's much more about a combination of shipping lanes, which when you control Alaska and Greenland, you got both sides. of the Arctic, you know, channel that go through there. And also, you know, if you look at the

places that the, you know, the Soviets would launch a, or sorry, Russians would launch any sort of attack our way. All of it goes over Greenland. So I think there are a lot of different parts of the mosaic that are valid. I would play down a little bit the resource angle. But I think it's all part of what I think has been consistent in what is developing in the current administration's geopolitical doctrine is they effectively want to control the Western Hemisphere. The Don Road doctrine. Top to bottom. And, you know, it would then surprise me if we go in and do the same thing that we're doing

in Venezuela to Iran. Ron may go that way. It's buy on its own. But so I think what it all highlights to me is that most commodities and U.S. equity markets are priced like geopolitical risk is a very low probability outlier event. I think, I think we're in an environment that could be much less stable than that. Because when you go in with a surgical administrative decapitation of a sovereign nation, I think there's a lot of the rest of the world that's feeling a little bit like a cornered animal. And cornered animals do

things that may in other environments not really make sense. And so I think we're, I think we're, we're in a period where you want to be long volatility, you want to be long what most of these countries are fighting over, which is raw materials. And I think paying record multiples for S&P 500 and in a de facto paying more than record multiples for tech at this point is, this is terribly self-serving. But I think that doesn't appear to me to be the best bet if we are in a heightened geopolitical risk environment. If you, I'll flip it on you. If they bring you in, they're like, hey, where should we take over next to get access to these resources? Guiana?

Besides Gianna, we already mentioned that. Yeah. And we're doing that from a nice, friendly handshake, you know, capitalist standpoint in that it's mostly U.S. oil companies that are partnered with the Guyana government. So we've got that and we don't have to fire a shot. You know, look, there's a lot of things that we could be doing here in the U.S. that, you know, in terms of actually exploiting, you know, rare earth and cobalt and things like that. There's a lot of that here. We don't have to go and take over the Congo to get it.

The problem that we have is that we're boxing ourselves in the corner in that if we want to be the world AI champion and we want to onshore the development and processing of many of these very critical materials, the U.S. grid can barely do one of those two things. It definitely can't do both. And the problem if the U.S. grid can't do it is that prices to consumers are going to go up and whoever's in office is going to get thrown out of office. It's not like I don't, there's a lot of people. We've already seen that near the data centers and whatnot, right?

Absolutely. And you're starting to see cancellations of kind of 2027, 2028, 2029 contracts for what people have thought would be data centers where people are like, I can't get the power for it. Never mind. Here's the keys back to you. So I think that's going to be, that's the point of tension is that we are resource and energy constrained. You know, and if we are resource and energy constrained, should all of me, materials and energy be 3.3% of the S&P 500.

Probably not. Probably not, right? So what'd you, what'd you say historically was 15%? Yeah, history, just energy alone was 50. So right now it's about 2.8% for the energy and call it, you know, 30, 50 basis points for the rest. You know, that, that was as high as like 18. I mean, if you go back into the late 70s, you know, so here's, you know, 70s, it was 35. maybe as much as 40%.

You go back in history when resources are really a thing, Schlumberger was the third largest market cap company in the world behind General Electric and IBM, actually fourth, General Electric, IBM, and AT&T. Schlombardier was number four in 1979 because it was a technology way

to play resources. So I think we're going back in the environment. We had to explore. We had to do all that. Exactly. Yeah. And I think I think we're going into an environment where it might look a lot more like that over the next three and five years. You mentioned your son.

I've got a junior in high school. We've been starting to look at colleges. Where's your son looking at schools? Oh, he's he's all over the place. Good news is he's done everything from a building his own resume standpoint to give him a lot of options. But, you know, we all know it's a crapshoot. He's mostly looking at East Coast. My wife grew up on the East Coast.

And so we've actually spent a lot of time back there. And, you know, as a Californian, I think they're both. I have an older daughter who's at school up in Maine right now. And all of my kids are interested in exploring other parts of the country. We love California, but, you know, I think I ended up doing time in Colorado and backpack around the world and, you know, did all kinds of stuff. And I think they've got that same inclination. You're not telling them. If you want to share notes on any college on the, you know, southeast and even some of the Midwest, we've got them.

So we can talk off one. Nice. Yeah. My wife thinks whoever sees the most colleges win. So we've been going all over. We were out in your neighborhood, saw Stanford and Santa Clara, which was super nice. I didn't know that was so nice right there in Silicon Valley. Yeah.

I think we're supporting GDP just on our application fees this year. A little tick up on the applications. Well, good luck to him. You weren't telling them Colorado School of Mines, like learn how to find all these resources. You know, he's really interested in kind of biomedicine. And so he's a very. he's a very stemmy kind of guy, and I'm going to encourage him to do that because he's really good at it. Amen.

Cure cancer for us. Yep, that's the plan. All right, Robert. We'll let everyone know how to get a hold of you in the show notes. So thanks for coming on, and we'll talk to you soon. Real pleasure, Jeff. Look forward to following up whenever you want to have me back on. For sure.

You're going to be my go-to energy guy now, even though you're only a third an energy guy. Pretty good for a third only. Yeah, I've been doing this a long time. So, you know, old dog, not sure I have many new tricks in me, but the old ones are working pretty well. You've been listening to The Deriviviviv. Links from this episode will be in the episode description of this channel. Follow us on Twitter at RCMaltz and visit our website to read our blog or subscribe to our newsletter at RCMaltz.com. If you liked our show, introduce a friend and show them how to subscribe.

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