We Study Billionaires - The Investor’s Podcast Network - TIP216: Commodity Investing w/ Marin Katusa (Business Podcast)

Starting point is 00:00:00 You're listening to TIP. On today's show, I'm really excited to welcome our guest, Marne Katusa. Maron is an expert in commodities investing and has financed over a billion dollars worth of deals. He's a regular contributor on the Wall Street Journal, the New York Times, Bloomberg, and even CNBC. Maron has visited over 500 different natural resource projects around the world and has absolutely incredible insights into the commodity industry. If commodities are a sector that you want to learn more about, you truly couldn't find a smarter and better informed investor than Maher. So, without further delay, we bring you the insightful commodities investor, Mr. Maran Katusa.

Starting point is 00:00:41 You are listening to The Investor's Podcast, where we study the financial markets and read the books that influence self-made billionaires the most. We keep you informed and prepared for the unexpected. All right, welcome everyone to the Investors podcast. I'm your host, Preston Pish, and as usual, I'm accompanied by my co-host, Stig Broderson. And like we said in the introduction, we have Maureen with us to talk about commodities. So, Maureen, great to have you with us. That's my pleasure. So, Martin, let's just jump right into the first question here.

Starting point is 00:01:25 Because one of the reasons why we wanted to ask you to come on the show, we've seen the stock market slide here over the past few weeks. But it is still trading at a very high level historically. We know that many investors are looking for other asset classes to invest in. If you are a stock investor with very little knowledge about commodities, how should he or she think about the pros and cons diversifying into commodities? That's a great question. I think the key takeaways are anyone looking at the sector has to understand that this is a very cyclical sector, a very volatile sector.

Starting point is 00:02:02 It's a very cost-extensive sector, for example, the process of even before you get to drilling the early stage project, the time to get permits, you got to build roads, you got to do sampling and geophysics. And then even if you get lucky and you're part of the one out of three thousand exploration projects that ever becomes a mine, the process to build a mine is also a big, big runway, whether it's financing costs or permitting and the time to get there. So I think those are the key factors. understand your time frame and what phase of the sector are you getting involved in.

Starting point is 00:02:39 So, Marron, in the stock market, you have a ton of different sectors and types of securities to invest in. Can you help us understand the numerous different types of commodities that a person can invest in? Sure. The major commodities like oil and copper and gold, they trade on an exchange, and then you have a niche commodities such as uranium, vanadium, rare earth. They're not anywhere near as big as oil or copper or gold or met coal, for example, but they're also really interesting in, but they don't trade freely on an exchange. You really have to know what you're doing there. So then you look at inflationary markets when you're talking about, you know, the overall markets. Historically, gold has performed exceptionally well in an inflationary market,

Starting point is 00:03:26 as do most commodities. If you're in a deflationary market, well, then they would do less better than an inflationary market. Generally speaking, there's less dollars to go around. Therefore, the commodities would get less bid. There's less speculation. And then you also have to factor what price are these commodities traded in. And the reality is, is the U.S. dollars, the king of currencies presently. So you have to understand the cycle of the U.S. dollar and FX currencies with commodities. So in a strong U.S. dollar environment that if you believe, you believe, you know, the US dollar is going to get stronger, then you have to have a, you know, a specific outlook. So if you believe the U.S. dollar is going to get stronger the way I do, you know, as of

Starting point is 00:04:13 today, I think the next six months, U.S. dollar is going to do phenomenally well relative to other Fiat currencies, then you should expect a pullback in the commodities. Niche commodities are a little bit different. They're not as correlated to the U.S. dollar, like, for example, gold is. So there's so many factors that people have to understand. I've kind of highlighted the big ones there. Very interesting. And Maureen, I noticed that you expect the dollar to appreciate all the next, say, six months.

Starting point is 00:04:42 What is your analysis behind that? Many, many reasons, actually. I've been publishing this since early January. The U.S. dollars performed exceptionally well in 2018. Tomorrow, actually, I'm publishing a, I think will be one of my most monumental research reports. And I'm calling it the Katusa's paradox, which. gets into all of the details of the U.S. dollar. It looks at interest rates, for example. You look at

Starting point is 00:05:08 the growth rates across the emerging markets versus the U.S. dollar. You look at the Eurozone and their export rates. And the reality of the matter is, as much as the U.S. dollar is hated, and it's the easiest currency for people to talk all the reasons why it won't perform well. So, would it be fair to say that it's the least bad? Currency, is that how you look at it? Why do you have that as your time horizon? Is that because that is just how far you can see? Because there are so many other factors that you just can't foresee?

Starting point is 00:05:45 Exactly. Exactly. Like, look, this world today with the information and the tweets and, you know, today's the election. So many things can change. If you're a real investor, you know, you have your inclinations, but you have to have the reality at hand and you have to make your investment decisions with the best available information at hand. Now, look, when I'm financing some of these large projects, you know, you have to look at your long-term trends. So if you're financing, do you hedge your currency? Do you hedge your production?

Starting point is 00:06:17 All these factors come in to take. But, you know, I don't know what the U.S. dollar is going to do on August 1, 2025. I do know that considering where the U.S. economy, where the U.S. governments at, where you look at the other economies in the emerging markets, and a betting man would say you're probably in the near term better to do with the U.S. dollar relative to the other fiat currencies. So, Maran, anyone who's ever invested in commodities, they know that they're extremely volatile and they typically require high fixed cost to set up, and the market conditions might easily have changed before the original investments start generating any kind of cash to get back as an investor.

Starting point is 00:07:02 So how can our audience take advantage of that uncertainty and volatility and commodities? After two decades, you kind of come to the realization to expect the unexpected. After traveling to over 100 countries and being involved in all sorts of developments, at this stage of my career where I think the market is going, I am avoiding what I call the AK-47 nations. It's very exciting and sexy to go somewhere and find a world-class deposit in an exotic part of the world. But here's the reality of it. You know, I've put on body armor before to go to projects.

Starting point is 00:07:37 And the reality is, by the time you deal with the governments take and the, you know, the high cost of electricity and infrastructure, you can make bigger scores closer to home. And I mean North America. I'm saying U.S. in Canada, where you have infrastructure, where you can bring modern technology to old past prune. You know, the best place to find a mine is in the shadows of an old mine shaft. For example, in 2006, I became the largest investor in an old copper mine that everybody forgot about. But yet in World War I, it produced 25% of the copper for Canada during the war effort. But yet everybody forgot about it. By bringing modern technology to the story, and within 10 years,

Starting point is 00:08:20 years, or actually within six years, it became the country's third largest copper producer. Another great example is understanding the history of the Balkans. A lot of people think of it as an AK-47 area, but yet, you know, what happened to Serbia and the former Yugoslavia, people forget that the five largest silver lead zinc mines during the 60s and 70s and 50s was in Yugoslavia. It was a mining country. It goes back to the Roman Empire days of Trajan. Time and again, if you're 18, you're 18, able to buy when nobody wants the story, what I call like the paradox moment. You can make a return that you can't make in any other sector. Take shale oil of the revolution.

Starting point is 00:09:02 It's not like people didn't know the oil was there. They've known about these oil deposits since the 50s and 60s. But the technology unlocked that ability. So billionaires were made there buying acreage. But you know, you have to be early to a trend and stick to it. and understanding the cyclicality of the industry. And again, the number one rule is investing with the right people. As much as it's about cycles and the commodity and, you know, developing a world-class asset,

Starting point is 00:09:35 I have found through my experience when you invest in the second line or, you know, the second string quarterback, you might get to the end zone, but he might fumble it just before. You want to invest in the top team, like franchise players. You want the Michael Jordan. Well, I'm really happy you said that. I know it's such a complex thing. You know, it's like saying, only trust a good management whenever you're investing in a stock. It's very hard to validate.

Starting point is 00:10:02 It's really hard to read between the lines, at least for stock investing. I am not as familiar with commodities as you are, clearly. How do you look at commodities and accessing the best team? Like, what do you look for? Number one is, you know, when the story's on the front page of the Wall Street Journal, you've missed it. You want to be investing where it's in the back where nobody's talking about it. It's in small font. There's no pictures.

Starting point is 00:10:30 And it's unloved. So you have to be a contrary. That's given. Number two, you can find great people. But if their cost base is, you know, $1 per share and the share price is at $10 per share, have the management team added 10 times more value to the story? or are you just paying a 10 times promo? And generally speaking, if you go back to all of the biggest wins in the sector,

Starting point is 00:10:56 you can find that paradox moment where you as a retail investor, during the paradox moment, you can buy stocks at a cheaper price than the guys who are the best in the business with serious skin in the game. So if their average cost base is a dollar, you can pick it up for 80 cents or 75 cents a share. That's what you want to start at. Ask yourself, you know, who are these guys? What are their past successes?

Starting point is 00:11:22 But secondly is, you know, just because someone was a successful developer of copper deposits and now he wants to develop, let's say, an open pit copper porphyry project in Canada, is he going to be successful developing a nickel project in Brazil? Well, it's a different country. It's a different commodity. You have different metallurgy, different processing. There's so many different factors. So that necessarily isn't the right school set.

Starting point is 00:11:47 So it's kind of like saying just because Tom Brady's an incredible quarterback doesn't necessarily mean he's going to be an incredible hockey player, right, or a basketball player. Let's take a quick break and hear from today's sponsors. All right. I want you guys to imagine spending three days in Oslo at the height of the summer. You've got long days of daylight, incredible food, floating saunas on the Oslo Fjord. And every conversation you have is with people who are actually shaping the future. That's what the Oslo Freedom Forum. is. From June 1st through the 3rd, 2026, the Oslo Freedom Forum is entering its 18th year,

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Starting point is 00:16:08 With something like natural resources, if you're too early, you can, really getting a whirl of pain, even if you eventually write about your investment thesis. So for your wealth of experience, what process can be used to enter and build the positions? So a number one rule, I don't want to come out here and try to pretend that, you know, I'm some guru or any of that. I'm in the trenches. So generally speaking, I have been early to trends. And that's okay. I go in knowing that. The irony of the business is you can buy something called a unit in a financing offering where you get a warrant also attached to it like a five year warrant. So I'm okay being two years early through a financing if I get a share and a

Starting point is 00:16:55 warrant. Secondly, I talked about buying entranches. So let's pretend you like this gold story and you think it's going up 10 times. Great. Let's just say you've done all your research. Never ever, ever buy all your stock at once. I call it buying, I call it the matrix or the tranches. So it's an educational process where you buy your first tranche and I break it up as 25%. Usually in a financing if you're early and then you build your position as the story develops because these stocks rarely go up the day or month after you buy it. These things take time.

Starting point is 00:17:34 They're very long lead as you suggested and takes time for dividends to come back. But if you buy in tranches, you never spend, you never invest money that you need. For example, don't speculate with, you know, your mortgage money, your students tuition money, rent money. The resource sector is very, very cyclical and volatile. And I'll give you a great example. I was one of the largest investors in the Tungsten sector in the early 2000s. And I've, again, learned the hard way. I was so convinced about this investment thesis, I went all in on three stocks.

Starting point is 00:18:12 And within 10 months, I was down 60%. Within 12 months of that point, each stock went up over 10 times. So, you know, that took a lot of strain and intellectual fortitude to stick with the story because I was so convinced on my research. That could have shaken out a lot of people. But if I bought in tranches, buying in tranches, starting with having understanding what private placements are and the financing advantage with the warrant, those are two key strategies to help you succeed in a very high risk sector.

Starting point is 00:18:46 Well, thank you for that elaboration, Maureen. I'm actually very curious to hear which commodity that's on your radar right now and also perhaps how you assess the intrinsic value of that undervalued commodity. Okay, so the first thing everyone has to understand when these companies, any publicly listed company wants to, you know, develop their project, they start with a PEA, a preliminary economic assessment, then a PFS preliminary financial study, and then a BFS, a bankable feasibility study. So as these stories develop, you know, you have to look at your inputs and they try to make

Starting point is 00:19:26 these technical studies look as positive as possible. After you visit hundreds and hundreds of projects, you start to figure out and know the engineers of these firms. So you have to understand that if the price of, let's say, gold is $1,200 an ounce and the economics of the study are based off of $1,500. Is that a good investment? No, right? Like, you want to be able to understand what is the thesis. Are they going to put that project into production or is this a leverage play to a future gold price? So understand what you're buying and why you're buying.

Starting point is 00:19:57 So when you talk about intrinsic value in the resource sector, it comes down to one thing. What is the cost to produce it? And no one mine is the same. Mother nature is very tricky. So what I look at to answer that question is I only focus on the lowest cost quartile of production assets to be a world-class asset. Secondly is, you know, do you really want to focus on a small project? No, because the time on working on something small is going to be the same as working on something. big and there's only small profits and small projects but you have all of the same

Starting point is 00:20:32 big headaches as a as a big project there's an old joke in the mining sector that the only way to cut costs on a small gold mine is to fire the mine manager but when you talk about big gold projects or whatever resource projects you know you got scalability you got multi-generational assets and more importantly who's gonna buy out the assets so you know I love gold I think it's a great place to be. But the companies that I'm investing in, I've been to the projects. I know the management. I'm one of the largest investors in the deals. But their cost, they're all in sustaining cost,

Starting point is 00:21:08 has to be 30 to 40 percent below the current spot prices. I won't invest in a producing gold mine that needs $1,400 to gold to break even when gold's at $1,200. I look at $6.750 per ounce cost production. And again, it has to be world class and it has to be able to move the needle of whoever's going to buy it out because that's what the big gains in the sector, you wanted to be part of a buyout because you get that big premium. So right now I'm very excited about gold. I'm very excited about uranium because it's so unloved. It's so beaten down. Not a single mine in America makes money at current spot prices in uranium. It's just such a perfect setup over the next few years.

Starting point is 00:21:54 Marne, talk to us a little bit more about this uranium position, specifically talk to us about how you think about the company that have the high fixed cost like we were talking about earlier and the low variability cost. And then how do some of those factors play into the way you assess a company's value? You know, there's two types of uranium mines. There's the hard rock mines where you go and dig up rock and you crush and you You extract the uranium from the rock, or there's something called ISR in situ recovery where you're basically, it's like a water process.

Starting point is 00:22:27 You have no big mining trucks, shovels, haul trucks. You don't have a crusher or a ball mill or any of those conveyors. And your mine is much lower electricity because it's essentially like a water plant or a dairy farm. So right off the bat there, so what you're talking about is you can't really reduce your your truck costs, your fixed costs go. And that's why we've seen the world's second largest uranium mine. It's also the highest grade mine, MacArthur River, owned by Camaco, shut down because of the costs are so high. But yet, an ISR mine, you can ramp it up by pushing more water through the system, or you can ramp it down. And you're not changing, there's no trucks, there's no

Starting point is 00:23:09 shovels. So you have to understand the sector you're in. And then also in the gold sector, you know, what type of ore is it? Is it hard rock? Is it a softer rock? Are you leaching? Are you crushing? So there's different factors here, open pit underground. But, you know, I'll take it even to the oil sector. I remember in 2009 and 10 in Iraq when we had to put on body armor. And you look at the costs of security and drilling costs. And everybody at that time assumed that Iraq was the holy grail of when it was opening up in Kurdistan, when you work backwards and count. your full cycle costs. Remember, there's a big difference between half cycle and full cycle. Full cycle includes all your exploration and development costs and your lifting and your operational

Starting point is 00:23:55 expenses. You know, I absolutely love your sponsor because, you know, it really reminds me of Warren Buffett. You know, we have an audience here in the investors podcast, and they're primarily old school value investors. And one of the methods that we talked about is the Scuttlebutt method. something he learned at very early age in terms of learning everything you can about a stock before you invest in it. It might be speaking to employees or speaking to suppliers or customers, whatever it might be. Just learn as much as you possibly can. Then I hear a story like you're telling here.

Starting point is 00:24:34 Whenever you visit the minds that you actually invest in, what do you gain from that other investors who are sitting behind their screen? not. So let's explain producing mines because it'll be much easier to explain this. So you look at how clean is the mill? For example, if there's garbage everywhere, if there's coffee cups hanging around, if material's not organized properly, and try to visualize big crushers, you know, 38 feet wide, all this equipment moving. And if it's messy, you know this isn't run properly. It ain't run like a streamlined business. Another thing I look at is what is the condition of equipment at the mine? You know, if this is all rusted out and as you look at the road

Starting point is 00:25:24 conditions within the mining operation, you know, bad road conditions mean they're going to chew through their tires and people don't know that tire costs make up almost 5% of the price of copper, believe it or not. So if I look at big rocks everywhere, those are going to cut into your tires, well, 5% is a big difference when if copper goes down to $2.25 a pound or not. Now, $4 copper, no one really cares, but I'm always looking at what is my worst case scenario. Another key factor that I always talk about, what's the safety record of the mine? Because a proper mine, a proper management care about their employees. But more importantly, if they care about their operation by caring for their people,

Starting point is 00:26:05 they'll be much more optimized. So if you see a lot of people getting injured, so I avoid any mind that has anything but the lowest quartile of injuries because something's wrong with the design or the management. And by going through there, I can see how much rock are they crushing. What is the stockpiles? If something happens, let's say a water storm, or electricity outage or whatever, something happens to the mine. How big is their stockpile? So all these things, by going to these sites, it gives you a picture of, by lifting up the hood of the engine, you can't really figure out what's wrong with the car unless you get inside the equipment. And that's the same for any of these operations.

Starting point is 00:26:49 Maureen, talk to us a little bit more about your process of conducting these site visits. I usually am, I go on these site visits alone because I organize with the management for the site visits I go to. So very rarely do I do big site visits because I call that the dog and pony show. When it's the dog and pony show, for example, the two I mentioned when I went through Iraq and the Middle East, that was by the big banks. So obviously management are going to polish and make everything look as good as it can. I like going to these sites when no one expects me to go. When it's just an average Wednesday in certain areas in Canada, I go to the First Nation reserves to talk to the people about what are the relationships. relationships between the First Nations or the indigenous people to the mining operations.

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Starting point is 00:30:58 All right. Back to the show. You know, Marin, I really like to talk about the oil price. This is, you know, the oil price is so complex and you hear all these rumors all the time. And you probably remember back in 2016, you know, we saw the oil price below $30. I think intraday was as low as $27. And at the time, many people thought it would stay down there as a result of the cheaper onshore reserves in a way they did not seem to be included in the market's original assessment.

Starting point is 00:31:32 We had this very volatile and bumpy ride. And today, here we're recording the 6th November, we have an oil price just above $60. But we even recently seen prices in the mid-70s. Where do you see all going these days? So again, I have to put a time frame on it where we're nearing the end of 2018, and I think oil in the near term over the next six to 12 months is going to go lower. Let me explain why. America has increased its market share better than any other oil producer.

Starting point is 00:32:05 The U.S. is the world's largest oil producer at 11.3 million barrels a day. A lot of people don't know that. The Russians are 11.2 million barrels a day. and then the Saudis are about 10.5 million barrels a day. So the point here is that a $60 oil is Bonanza for many of these nations. Now, the U.S. and Russian have very different type of production. So when I went to Kuwait, a Kuwaiti well can have its recovery of a new well within three months at $80 oil.

Starting point is 00:32:42 So at $50 oil, it'll be, say, eight weeks. That's an incredible return on investment. So why don't they just produce more wells? Well, it's about shipping infrastructure pipeline capacity. In the U.S., they're increasing the Permian pipeline capacity by over a million barrels a day over the next 18 months. So we will see the U.S. produce over 12 million barrels a day over the next few years. And I know that sounds crazy, but that's what the numbers are saying. How about the Russians?

Starting point is 00:33:13 The Russians have the benefit the opposite. So they're not even fracking yet. Now, the Russians have invested in a very different type of production. They're still conventional. So whether the price of oil is $25 a barrel or $80 a barrel, they've benefited from almost 20 years of increasing oil prices, that's not going to change. And then you have Saudi production of over half of that's within the Gujar district. And that's what we call swing production.

Starting point is 00:33:40 And the Saudis have increased their production versus because of what's going on in Iran, and Iran's decreased their production. So where do I see all this going? There's no shortage of oil. And I didn't even mention Canada yet. And yet we could increase production by 50% today if Canada had the pipeline infrastructure. Things are very cyclical. Canada will build the pipelines.

Starting point is 00:34:04 And when they build the pipelines to the west to tap into the Asian markets and the east to tap into the European markets, Canada will increase its production also. So there's no shortage of oil, even at $40. So, Martin, when you look at oil and we try to understand where the price might move, there are countless amounts of variables that we could examine that are impacting the supply and demand. And I'm just kind of curious what your framework is for trying to understand something that's so complex. So my framework, I call it my framework, it's been developed over 20 years. It's by learning and, you know, every time and I'm still learning.

Starting point is 00:34:43 My framework is evolving and haven't figured it out perfectly. No one has. It changes daily. But, you know, thinking future. Like so, for example, Europe's largest shale company is a company called Quadrilla. The president of BP, Lord Brown, became the chairman of this company. Well, I was one of the founders of this company and the largest investor in 2006. So by learning these factors, when we started this company, we said, hey, fracking's the future.

Starting point is 00:35:14 Let's go to Europe and frack because we can get away from the, there's like the UK, Boland shales, have the potential to get away from the Russian imports. It was just a business economic solution that I saw. But when we started to do this, there were no frack sets that could actually frack and drill in Europe. It was all crappy old equipment through Romania or Bulgaria. or old Russian equipment because no one's ever done it before. And by talking to traders and investors and all the permitting stat, you figure out all of these different factors of the pipeline infrastructure

Starting point is 00:35:52 and the geopolitics of it all. And you just kind of, it's my life. As you do more and more reading and traveling and investing, you kind of add and evolve your investment framework. So, Marron, it's quite obvious that we've only covered just a tip of of the iceberg when it comes to your knowledge and expertise in the commodity sector. So I'm sure many people listening to the show would love to know more about you and some of your resources. So can you share some of those details with us? So I publish a weekly, it's free on my website.

Starting point is 00:36:25 It's Catusa Research, K-A-U-S-A-Research.com. And you can just go and see my style. And more importantly, if anyone was to truly understand where I think the resources is going and where I'm betting, I believe now is the time to educate yourself. You know, Warren Buffett will say, you know, just stick to your principles, your value investing, your framework. And I don't want to be making these grand newer statements. It's about hard work, investing in what you know and your framework. And if your thesis changes, you have to stay disciplined and sell. So that's what my style is. But it's where I'm betting my money because what I think is going to happen next is, is going to provide a once-in-a-generation value investor opportunity in the resource sector.

Starting point is 00:37:14 It's what I'm doing with my money, and that's why I'm calling it a paradox because no one's expecting it, and I think it's actually a likely outcome. And for your audience, I highly recommend going to Catusa Research forward slash TIP, which I've set up for your audience, to best understand where I think the resource sector opportunities will be. Marron, thanks so much for coming on the show and sharing your knowledge. We greatly appreciated this. I know I was learning a ton just listening to some of your responses. So for anyone listening, we have links in the show notes to all the resources that

Starting point is 00:37:48 Maron mentioned during the show. And we highly encourage everyone to check out those resources because you'd be hard pressed to find a better place and better information out there on this topic of commodities. Guys, that was all that Presta and I had for this week's episode of The Ammasters Podcast. We see each other again next week. Thanks for listening to TIP. To access the show notes, courses or forums, go to theinvestorspodcast.com. To get your questions played on the show, go to Asktheinvestors.com and win a free subscription

Starting point is 00:38:23 to any of our courses on TIP Academy. This show is for entertainment purposes only. Before making investment decisions, consult a business. professional. This show is copyrighted by the TIP network. Written permission must be granted before syndication or rebroadcasting.

We Study Billionaires - The Investor’s Podcast Network - TIP216: Commodity Investing w/ Marin Katusa (Business Podcast)

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