We Study Billionaires - The Investor’s Podcast Network - TIP315: Gold and Gold Miners w/ Marin Katusa (Business Podcast)

Starting point is 00:00:00 You're listening to TIP. Hey everyone, welcome to this week's episode of the Investors podcast. Our guest is commodities expert, Maron Katusa, and this episode is a deep dive into gold and gold miners. As most of our listeners know, Maron comes with a wealth of experience having sat on boards of publicly traded companies and having arranged over a billion dollars in financing for various deals in the commodity sector. Marne is consistently featured on the Wall Street Journal, Bloomberg, CNBC, and he's the author

Starting point is 00:00:29 of the New York Times bestselling book, The Colder War. So with that, here's our interview with Mar and Katusa. You are listening to The Investors 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. Hey, everyone, welcome to the Investors Podcast. I'm your host, Preston Pish, and as always, I'm accompanied by my co-host, Stig Broderson. And today, we've got the one and only,

Starting point is 00:01:07 Marron Katusa back with us. Marne, welcome back to the show. My pleasure. So, Marne, let's go ahead and just dive into the topic at hand, which is gold. 2020 has just been a fantastic year for gold, especially when you compare it to the S&P 500. It's outperformed most companies, excluding the top 10, probably on the NASDAQ. But talk to us about where you see gold today, where you kind of see things going in the future. you've been very right every time we've had you on the show as to where you were seeing things

Starting point is 00:01:39 moving next. So I'm kind of curious where you see things moving now. You know with MMT, there's going to be more money printing, more digits. And we're just at the beginning of this. It doesn't matter who wins the U.S. election on November 3rd. You know that it's going to be stimulus like never seen before. And look, gold benefits from MMT. And it's been a great place to be. But I just want to caution people to be careful.

Starting point is 00:02:05 about where they're putting their money. You don't need to take crazy risks. Preston, the last time we talked, I think it was about six, seven months ago, I talked about Equinox gold, and look how it's rocked the markets, and I didn't have to take any risk. It's outperformed gold.

Starting point is 00:02:21 It's outperformed the sector. It's outperformed the GDX, every comparable index, by just sticking to what most will call a boring approach, but making money is fun. So stick to the game plan. Well, and I think what you're getting at is you're getting an equal or close to equal, or maybe even better in the case of Equinox return, but you're not risking the volatility

Starting point is 00:02:46 downside that's associated potentially with the stock market because of how all the units, and I love that you use the term units being added into the system. Am I characterizing and am I capturing your point with that comment? Mostly. And you can still be like, you know, this whole market saying that values, value investing isn't getting rewarded. That's not true at all. In the gold space, I'm just using Equinox as an example because we've used it for a year on your show. It's traded at a massive discount to NAV and it's still under NAV. And I'm not using 1900 and change gold. My numbers are

Starting point is 00:03:22 using $1,500 gold. And it's fully funded to get to a million ounces of gold. So by sticking to the fundamental value principles and sticking where your skin in the game is at the same price as the insiders and good management teams, you can be a value investor without taking the crazy geopolitical risks and the crazy mining is a tough sector. And you don't need to take abnormal risks to get abnormal returns. Marie, you previously mentioned that the gold miners are lacking the performance of the underlying price of gold. Could you please talk to us about that idea? You're not seeing the capital that we saw in the last cycle, from the big funds towards the more mature juniors or the mid-tieres. So the game has really changed.

Starting point is 00:04:10 So if you look at just from the flow of capital, since January 1st, 2019, about $25 million net positive has entered the GLD, which is the passive exposure to the gold medal. But yet, during that same time frame, we've seen an outflow of $2 billion out of the GDX. That's the exposure to the majors. Now, when you start peeling the onion back, and you ask yourself, okay, there's the GDX, there's the GDXJ, those are kind of like a ways for generalists and retail investors to get exposure to the miners without picking specific stocks. But what's interesting is GDXJ used to be for junior and mid-tier companies. About three years ago, they changed the rules that a million ounce gold producer is in

Starting point is 00:04:57 the junior index. So the whole rules changed for the whole sector. And by that definition, you've had such an incredible run-up and select few stocks that get into the GDXJ or GDX. And then once they're kind of bought up, they underperform the general index of whether, you know, people say, well, why did the sector underperform gold? Well, that's just why. Those individual stocks have had incredible runups. Then when they get into the index, they don't have that continuous run as a peer group. So my thesis was two years ago saying, like, this is what's going to happen. If you believe in the price of gold, stick to the best, lower. as cost producers. And again, if you want to use any of the companies as examples, as it gets into

Starting point is 00:05:40 the GDXJ, you have incredible run-up in the share price. And then at that point, you and I as, you know, retail investors or you're a fund manager, you've got to predict where the puck is going. So as these massive passive funds start buying that stock and you're sitting on a four, 500% gain, there's nothing wrong selling 20% taking a free ride and sticking for the long run, because I do believe these things are going a lot higher, but there's nothing better from a true portfolio managed standpoint. If I can just reduce my position by 20%, recap all my cash, cover my taxes, and have 80% to still go long, how could anyone attack that thesis? I think it's smart that you're talking about the tax implications too, especially when you're

Starting point is 00:06:25 dealing with inexperienced traders. They've got these great ideas and they're stepping into the market and they're making these decisions, but they're failing to think of, did I hold this for a year? Did I step into a different tax bracket consideration and then account for the risk of me even being right to put on that subsequent trade? And it's such an important consideration. But that's a really interesting point. And the way you outline it in your report is in a significant amount of depth. I was thoroughly impressed with the level of detail that you went into of how to do this in a methodical way. and which ones are in the index, which ones aren't in the index, and then thinking of it in value terms as far as strong management, their operations, how efficient are their operations? All those kind of things are such important metrics if you're going to try to outperform some of these indexes and definitely outperform some of the stock indexes here in 2020. Let's move on to something else that I read in your recent report, which was about rare earth metals. Why do you think that this sector is important? And I guess,

Starting point is 00:07:29 I would ask you, because I think most people are really interested in gold right now for obvious reasons. Everyone's familiar with the monetary policy type stuff. Maybe not the nuances, but they're familiar with the printing that's taking place. Compare and contrast the arguments that we were just talking about with gold to this rare earth elements. So before I was doing building copper mines or what I'm doing with gold companies, I started out in tungsten and rare earth. So now I'm seeing this whole, you've seen the transition period where 40 years ago, America was a major supplier of these rarest. Today, you got very little going on.

Starting point is 00:08:08 And it's not just from a production standpoint. It's in the refinement and manufacturing and the fabrication of this. So I took a very interesting approach about three years ago where we bought all of the available refined rare earth of two. One was a lanthanite series where it's a light rare earth and one was a heavy rare earth. everything that's outside of China refined. So we kind of bought everything that was available through the traders, and we store it at the docks, and it's in the U.S.

Starting point is 00:08:39 So that was the first step that my re-entrance into the rare earth game. Think of it as holding actual all of the, there's 17 rareers, and we bought two of all of them available outside of China. People will think that they can buy it from China. good luck getting it out of China. And then when you run your assays, good luck getting what you actually bought. Buyer beware. So you have that aspect.

Starting point is 00:09:07 Number two is with what's going on moving forward, regardless if the Democrats or Republicans win, you know no one's going to argue that there's going to be massive stimulation coming from digit printing, right? So this is going to result in massive projects. And yet, when it comes to many of the magnets, there's not a facility in the U.S. that can fabricate these requirements with what's needed to build these factories and do what the stimulation will need. And with these digits, that will be built. So you got cheap power, you got robotics innovation coming in, and now the infrastructure will be there. It was once there, then it got sent off to China because it was cheaper. and you're seeing this de-globalization or a re-creation of the supply chains, and America's going to start

Starting point is 00:09:55 refabricating these things here. So that said, what I try to emphasize, I've been to so many of these projects, and you've got this management team thinking that they're going to do a flow sheet and they're going to create a mine. The rare earths are very niche, and it's not just about, you know, you pour gold at a mine, you send it to a refinery or a smelter, and then you're going to get a check back. Copper is a bit different with concentrates, whether you've got impurity levels and all that, but with rarers, it's very, very different. It's much more complicated than what I just mentioned with the copper cons. So what you're going to have to get is the fabrication process. And that takes many years, even if you build your mine and you get it permitted, which takes many years to

Starting point is 00:10:36 get things permitted. Then you have to have your offtake agreements and it's going to take them two, three years to put that through their own testing within their supply chain. So you really need to know what you're doing. And that's kind of what I was trying to really get down, show 17 years of being active in the sector and saying, you know what? Again, you don't need to take crazy risks to do really well in the rarest sector. It's a sector that very few people are talking about. And when you look at the big generalist funds and the money coming, it's not going to flow to the early stage guys. It's going to go to the permitted more advanced stories.

Starting point is 00:11:13 Let's talk about this from a supply chain standpoint. How do things look upstream and downstream for the rare earth element product? Is the infrastructure in place? In the U.S., not yet. So right now we have a lot of a one specific rare earth in Europe. And ironically, there's no fabrication of that in the U.S. even though they're a major importer of it. And that will come.

Starting point is 00:11:41 You know, the one thing never. bet against the market finding the solution to its needs because with this stimulus, they will not be able to be vulnerable to the games being played ahead that will happen with all of these sanctions and all these different things moving forward. So it will come. And that's why I'm telling people to be very aware of the risks moving forward. And your opinion is that regardless of who wins the election, it wouldn't really have an influence on how this plays out in the U.S. move forward. Exactly. I think regardless of who wins the election, massive stimulus is coming, more, let's spend to stimulate. And with that, the sector will realize, well, with the new

Starting point is 00:12:25 technologies and where the growth is, you don't want to be reliant on China, even though the Democrats will have a more friendlier version than what Trump will publicly show the Republicans, but the end result is the same. The companies are going to want to secure a stable supply, of the material and the refinement of it. So let's talk a little bit about the global economy. I've had some talks with Lynn Alden. I don't know if you're familiar with Lynn. She's kind of emerged on the scene as a major macro thinker this year.

Starting point is 00:12:55 And she seems to think that the liquidity that's provided via fiscal stimulus, not necessarily on the monetary side, but more on the fiscal side, is the key component to continue the drive in the overall market behavior. I'm kind of curious if you would agree with that or if you think there's some other components that are a key ingredient to this. I've been writing for since March that you know stimulus is going to come, whether fiscal or monetary, it's going to be coming. And it's definitely propped up. You look at the bond market, whether it's the U.S., Australia, look what's going on in Europe and

Starting point is 00:13:28 Japan. Without a doubt, it's propping it up. And what direction does the Fed or the government have? you're seeing in Canada, we're seeing all forms of both fiscal and monetary things that you would have thought were not possible two, three years ago. And the politicians have no choice but to do this because of the reality of the situation. Whether COVID gets worse or not, you know that the, you know, it's kind of like taxes. They say taxes will this will be a short term. I'll name me one tax that it was short term. The ship is sailed. It's going to continue.

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Starting point is 00:18:30 How do you see everything that's going on with oil right now? It comes from the industry itself. And I always state this, that because the bond market was there, these companies weren't going bankrupt. They mend, extend, and pretend that everything's okay. And let's take, for example, just two days ago, Canada's largest producer of oil came out and said, well, we're going to move forward with our second train. in the heavy oil sands. And you sit there and go,

Starting point is 00:18:57 and wow, their cost of production, their cash costs are higher than what they're selling it for, but they're making that long-term commitment for their agreements for market share. So they're taking the near-term pain on their balance sheet rather than taking the market share pain in the future.

Starting point is 00:19:14 And they're hoping to kill the strategy of wiping out your competitors. Now, this has happened many times before, and again, it comes with the consequences is because the money is there, the government stepped in to make sure that the jobs are there and management feel pretty comfortable that rather than laying off 22,000 people, they'll step in. And you see that across the board.

Starting point is 00:19:36 And with the oil, it's very specific. You look at there has been a significant improvement to the airline industry, which is a big catalyst for the demand. But still, it's going to be a few years before it gets back to where it is before people's comfort level. And business has changed. But the producers, there's no shortage of, oil, right? So that's what you're seeing, the fundamental supply and demand, and with the amend, extend, and

Starting point is 00:19:59 pretend that's where we're at with it. There's no reason to be excited about any catalysts in the oil producers moving forward in North America. Moving forward, if the Democrats win the federal election in November 3rd, you'll see a big stimulus check come in actual reclamation of, you know, what is there, like two and a half, three million wells drilled in the U.S. that have, not been reclaimed. So someone like a Halliburton who's made their history on drilling wells to produce oil, they're probably near-term catalyst is reclaiming the wells. And rather than getting paid by the producers who live off the international domestic price of oil, their customer is going to be the U.S. government, which is a much more stable budget planning for them. So the costs are

Starting point is 00:20:48 going to, from a Halliburton standpoint, or Schlumberger standpoint, you know, they're looking at doing things like that are ready for the budgets, and that's what they're preparing for. So the sector's definitely changed. And again, you don't need to take that insane risks that people were taking for 80 or $100 oil or $80 or $100 uranium. You don't need to do that in the sector because it's not going to change anytime soon. So, Martin, when you're saying this, and I think that's something that a lot of people in the market lose sight of is just how competitive the commodity sector gets, especially when there's blood in the water. It's like, Like, all right, well, let's add even more supply in here so that we can snuff out all of our competition.

Starting point is 00:21:29 From your just wealth of experience, which sectors do you see that competitiveness to be the fiercest? I'm just kind of curious. Well, the smaller the sector, the easier to execute the cut to kill strategy. Now, I coined that the cut to kill strategy. And a couple of years ago, I wrote about what the former Soviet states, you know, whether you want to look at Russia, Kazakhstan, Uzbekistan, we're trying to do in the uranium market through the full vertical integration from production to refinement and a building of the nuke. So you see it in Rerrers, you see it in the uranium sector. In local areas, you do see it from

Starting point is 00:22:08 the takeaway capacity in the pipelines and who it's owned by. You just got to trace who the owners of the MLPs are and the different rates that come in for takeaway capacity. But the bigger the sector it comes, like for example, if you look at the gold sector, even though when you compare it to the tech sector, it's small, you look at there's something like 765 operating gold mines in the world, and you have over 300 owners of it. So it's a lot harder to apply that cut-the-kill strategy in the gold sector. So where you see deflationary pressures in certain areas in the resource sector, what I love about gold is you're going to continue to see inflationary pressure, because why would gold have a sell-off? Now, it might have a near-term correction,

Starting point is 00:22:52 but I'm yet to see an argument that brings gold to 11, 12, 1,300, that is truly fathomable. The costs, the risks, you look at the governments locally are increasing taxes, the wages. It's only going to be harder to bring on new production to replace the previous ounces that have been depleted from these mines. And gold is just getting in the way. and we're going to see over $2,000 prices here. And when you look at the generalist funds, they still haven't bought the price of gold. They think that it's a near-term corrections

Starting point is 00:23:22 because you've seen the management teams overspend, overcapitalize, overpay for M&A to replace those reserves. This round, you see the leaders of the industry, whether it's Baric or Agnico Eagle. They're staying very, very disciplined. You see what Ross Bedia is saying publicly. We're not going to pay for,

Starting point is 00:23:43 market prices for spots. So you're seeing a much more disciplined approach because everyone remembers what happened between 2007, 2012 of CAPEX projects going from a billion three to five billion. That's incredible CAPEX inflation. Now the companies are doing much more prudent approaches and that's where you see the sector moving forward. So another reason to be very cognizant of the risks in the sector because so many guys think, hey, I've got this a million ounce gold deposit in the middle of nowhere with no infrastructure and I'm going to get the permits, but there's never been a permit issued in that country. Who's going to develop that or who's going to buy out that deposit? And that's where the sectors really changed from even just 10 years ago.

Starting point is 00:24:28 You know, for people that aren't familiar with the technical side of the price chart on gold, they might not realize how explosive this could get as it goes back through the 2000 and all-time high level because you don't have any type of resistance above this. And to be honest with you, I like when I'm looking at momentum. I really like to look at the MACD on a daily or weekly kind of level. And right now it's looking like this consolidation is starting to get ready for a move again to the upside. So when you think about the potential upside for gold in this coming year and the coming 12 months, I mean, what's the range that you're looking at? I actually look at it very different. Now, that's a great question you bring, but, you know, I'm using, let's use

Starting point is 00:25:14 Equinox as an example. It's profitable under $1,100 U.S. gold per ounce. And that's what I talk about value investing. Like, hey, if 2100 or 23, I don't know, I don't pretend to be one of these gurus that know where it's going to go. I just base my stuff off of valuations and cash flow models looking at it and going, why would I take any risks that need to get exciting at 22, $200 gold or $1,800 gold, but I've got something that is exciting at $1,200. And you've seen the performance of it. And I know the market, especially the financial Twitter world and the YouTube world, and $2,000 gold, $2,200 goal is kind of irrelevant to me.

Starting point is 00:25:58 It's fantastic. Don't get me wrong. It's great. But it actually causes me a bit more difficulty with the companies because as the price gets higher, you're going to have a lot more fly-by-nighters come in that don't really know the sector and are going to offer wider premiums to these companies. And that became as a competitive, now I have more competitors for these financing of these companies. So in a way, I kind of like gold just here where it is because it's not bringing in the New York vampires of the financial

Starting point is 00:26:30 world that I got to compete with, whereas I know all these guys. They know my style. We're able to get full warrants on both of these companies, whether as Equinox or Artemis, we got warrants out of it. And it's a total value play backing management teams in Tier 1 jurisdictions that you don't have crazy geopolitical risks. Now, there's still incredible risks in mining. You can have pit walls, you can have accidents, all sorts of stuff happens. Specifically with COVID, you see how COVID spread in a few mines and how mine shut down because of COVID. So it's a very risky business. So why stack the odds against you? You don't need to own 30 gold companies. That's another mistake a lot of people do. Just pick the five or six, maybe 10 best companies and stick with

Starting point is 00:27:13 them. I'm really happy that you say that you look at this from a discounted cash flow basis and less on price patterns. Some of the lofty projections that you hear people talking about for gold, the margins that you will then see if they would materialize would just be, well, let's just call it quite extreme. However, as you said, that might be a potential upside, but that's not what we should be looking at. Really, just to summarize the essence here, we should take care of the downside first and invest in companies that are profitable if the price of gold is called at 11,200, 1,200,

Starting point is 00:27:47 and then let the upside run. When we first talked about Equinox, the market cap of the company, just two years, years ago was less than the cash they have in the bank today. In two years, the market cap of the company is less than the cash in the bank today. That's the type of things that you're going to see in the sector. And the scary part is people forget about the liquidity factor. So, you know, everyone's going to be speculating that this stock will get taken out or whatever. And you have to focus on, okay, you can always check into these stocks. Buying them is never going to be a problem. How do you get out of these things? Your allocation, how do you go about what?

Starting point is 00:28:24 buying these, how do you go about selling them? There's a whole process to it and you have to focus on the liquidity. And these are things that it's still early days for the new investors. If you just got in since, let's say, early this year because gold was, what was it, 1400 at the beginning of the year, now you're touching 1900 and change. That's been a good run. But until you start converting those shares to cash, you haven't really played the cycle yet. It's a very cyclical game and it just takes a few large holders that need out for whatever reason that could reduce a juniors, you know, one of these exploration companies market cap by half. I've seen it. It happens in all the markets. So just to give folks a little taste of what we're talking about here, so for Equinox,

Starting point is 00:29:08 Marne was talking about the last two years since he's been talking about it coming on the show. The S&P 500 since September of 2018 is up 17%. Equinox is up 170. 70% since two years ago. So pretty crazy performance. And I think what's even crazier is all signs are pointing to your exact point, which is it's got more to potentially run if the price of gold keeps going. And I have no base case argument of how it's not going to keep running based on our expectation for monetary policy. I agree with you 100%. Let's talk about monetary policy here a little bit. So J-Pow, in your August report, you had a whole section about this big announcement that J-Pow recently came out and talked about. Tell our audience the Marn-Katusa

Starting point is 00:30:00 point of view in your opinions on what's going on and the big announcement. It's very clear that what keeps him up at night is deflation and stuff that I wrote about a year ago. And they're going to do whatever they can. And he's openly stated, and he's creating the, call it the outline, if this was a new playing field, a new rule set for whoever wins the election in November 3rd, it's almost as if he's encouraging massive stimulus. He's kind of put the outer bounds around it and is facilitated that, look, this is what you're going to need. High rates of employment, so low unemployment rate does not correlate with inflation.

Starting point is 00:30:38 So they're going to jam this as much as they can. And fundamentally, you've got to look at it as from an MMT standpoint, they don't. don't view debt as debt the way you and I would look at it if you're running a business. They're looking at as an investment into the market. And a lot of people don't fundamentally understand that. And, you know, I've used different ways to try to educate people. Remember, my background used to be teaching. So I try to have fun with it and write it in a fun way. But it comes down to they're going to do whatever they can. And when people keep saying, oh, they're running out of tools in their toolkit, No, they're not. And I've been saying that for a long time. I've also said interest rates are going to go

Starting point is 00:31:17 lower for longer. And that was something I wrote a year and a half ago, which people were mocking me about. And I said, okay, well, look where we're going. And yes, everyone focuses on the stock market, but the bond market is where the true tea leaves are at because it's so much of a bigger market. And not to disrespect the equity guys in the stock market, but it's really the bond market where you want to focus on if you're trying to get a feeling of where it's moving forward. Just like in the mining sector, I've always focused on the debts in the sector and looking at the balance sheet, people focus so much on the equity market, but you look at the debt market. And yes, streaming and royalty is known also on the balance sheet. They are ahead of the equity guy. So,

Starting point is 00:31:57 you know, I always look at where that market is. It's so big and it's so misunderstood by the average investor. And I think that this is going to be just the beginning and the stimulus is going to come and that's all very supportive for goal. Please talk to us about the modern monetary theory, which we refer to as MMT here in the episode. Could you please first define what the intention is of MMT and then what you expect will play out over the next few years? So I think you have to look at Japan because, you know, they were really the first guinea pig of all this and some will argue that it works. Some will argue it wasn't. But you just look at

Starting point is 00:32:35 the ownership of the government. assets, the balance sheet versus private ownership. And you look at it's almost been three decades of lost growth in a nation. Now, there's many reasons and arguments for whether you apply demographics and all sorts of things. But really, I think the playbook moving forward is to keep one eye on what Japan's done. You look at the euro. You see the whole Brexit issues and what they've attempted there, similar to a version of what Japan's trying to do with their concept. And Powell came out and said, this is what we're going to be doing too. So fundamentally, as we discussed, when you look at budget deficits and all these things, those are just now talking points. You're getting get into,

Starting point is 00:33:17 COVID was the excuse to execute it, but when COVID comes and passes, which one day it too shall pass, MMT will still be here. And they're going to continue with that process. And Powell said that even if we do get periods of overinflation, you're going to see, just like you saw in Japan, areas that have severe deflationary pressures and then pockets of inflationary pressures. And the number one key of this is to fight deflation because that is the worst thing from a Federal Reserve from a government standpoint because deflation brings out all of the nasty truths of the market. And the last thing the government want is, you know, imagine what would have happened if this

Starting point is 00:33:58 massive unemployment continues post-COVID, well, they're going to have a much bigger problem on their hand. So when we talked about digits, what we talked about that they don't look at it as debt that you're going to have to repay. They believe in investing into the markets in different forms. And of course, they're going to go down the food chain. We've seen what's going on. And they don't think through these processes where the stock market, the equity guys, they're having credible inflation in their share prices. And they're using these government guarantees to buy back stock to reward themselves. And eventually, the masses are going to have so much disdain there already is, but it's just going to continue to grow. And you're going to

Starting point is 00:34:38 have more of that through MMT, but they're going to throw the digits at it. And I don't see what's going to change that in the near term. I think this is going to be many decades of this. As crazy as that sounds, look at Japan and it hasn't changed. They're fighting that natural inflation and he said it himself. And that was a really important conference from Powell and it was the biggest shift in his strategy. Let's take a quick break and hear from today's sponsors. No, it's not your imagination.

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Starting point is 00:38:52 It takes ahead of everyone else. And whichever way you want to look at it in an inflationary market, while you fundamentally inflate the debt away because it doesn't matter at that point, but we're nowhere near that standpoint. And the demographics, you look at all of the facts moving forward. These are serious deflationary pressures that you're seeing. And there's such a software is eating the world and the companies weren't set up for it. And you look at here, I'm in Vancouver, Canada, and they just closed out all of the bars and saying, that's it.

Starting point is 00:39:21 We got to shut it down. We're not controlling COVID. And they just shut down. What happens to all of those employees of that sector? Now they're talking about, well, we may or may not have to shut down all the restaurants. Think about the impact of that. Is the government just going to keep fronting salaries, the mortgages, they've extended the grace period for mortgages for three months? What about all the reits, all of the rent, the residential?

Starting point is 00:39:45 rent market. The whole definition of cap rate is going to have to be rethought out here. So there's a lot of deflationary pressures. This just happened from March to where we are now. It seems like a long time, but from a cycle standpoint, it's still early days. And I think we are nowhere near to working this out and the impacts it's going to have in the economy. And again, that's very bullish for gold. Let's shift gears here, Maureen. In one of your Katuzzi research reports, you talk about free trading stocks. Could you please define what you mean by free trading stocks and what you expect to happen in the near future for these stocks?

Starting point is 00:40:24 Yeah, so let me explain what that was all about. So at the end of every year, you have something called tax loss season where people try to readjust their portfolio to position themselves to pay for taxes in the new year. And this has been such a strong year that you've had $4 billion come into financings to, whether it's private placement or prospective financings, a few IPOs, but really the main part of the business is PPs, private placements. So, $4 billion came in between roughly,

Starting point is 00:40:53 the majority of that came in from July to now. And then there's a four-month period. It's called the whole period of the exchange that that stock that has just been invested in is restricted. That means that they can't trade it. So because all this money came into the sector, people are seeing their share prices go up, but they haven't been allowed to sell the stock during the four-month period. So I've been warning everybody that when that paper comes free trading, when you calculate the mathematics of the volume that trades on these stocks versus how much new paper is coming to hit it, there's going to be a lot of selling pressure because people are going to take some money off the table, which is prudent. But there's no new buying power coming in to meet that selling pressure, right? Think of the bid-ask supply and demand for that paper. So you know that there's going to be more selling than buying.

Starting point is 00:41:44 Stocks are going down. So out of the 600 companies that did financing, we narrowed it down to six companies that I want to buy. And I said, these are the ones that we're going to watch during this period. And let's see where it goes. We may or may not get hit. That's exactly the kind of concept that I did in March before this crash. And I said, here are my five big caps. Now, when things sell off, you want to upgrade your portfolio.

Starting point is 00:42:09 You don't need to go down the food chain of super early stage high risk stuff. But if there's a massive selloff, you want to go up the food chain because they're so discounted that if I can get a producer at like 0.5 nav and it's a quality asset that's a low cost producer and good management teams, I'm going to use that market inefficiency or market selloff to my advantage. So that was the concept that we kind of showed going, hey, in this next like 60 to 90 days, there's going to be $4 billion worth of original financings. That's worth about $7 billion that the market can't absorb. There's going to be massive sell-off. So let's figure

Starting point is 00:42:44 out where it's going on. And the good companies, those six that I highlighted, they've used that money to advance their production and enhance the value of the stock. So, Marne, a lot of people with our show specifically are familiar with Warren Buffett. And I think the dichotomy of decades of Warren Buffett saying that gold doesn't serve any purpose in the portfolio, this and that. And then all of a sudden we find out he's been buying Barrick's gold, not a huge position, but he has been buying a position. And I think everybody's eyebrows and the whole industry was like, say what? And so I guess this is my question for you because people who hear that don't even go and do the analysis. they say, well, if Warren Buffett's buying barracks, that's the one I'm going to go out and buy.

Starting point is 00:43:30 Why would this be a smart strategy versus a bad strategy? How else should a person look at this? We all know Warren has enormous capital. So maybe he's entering that specific company for a reason because he doesn't want to create issues for himself because of his market size and basically bidding himself out of a position. But talk to us about some of the specifics on how you would think about this news and maybe if you're a smaller investor, whether you should just follow his tracks or go looking somewhere else. A few things there. It wasn't actually Warren Buffett that did the analysis. It was one of the managers of it. So you have that aspect. It really is a small portion of his fund. And the size of his fund is so large that by default, Barrick or Newmont are the only

Starting point is 00:44:18 kind of companies that he could entertain other than playing maybe the GLD or something like the GDX or GDXJ, which he would still move the needle on. So he went with Bristow's company. Bristow is kind of the leader of the industry when it comes to preaching discipline. And I think that's the approach. And I think fundamentally it came down to the joint venture between Barrick and Newmont on the Nevada production. If they spun that company out, which is two-thirds, I think it's a little over two-thirds, Barrick, one-third, Newmont. That really is the industry's jewel. And it's a private company, obviously, owned by those two big boys.

Starting point is 00:44:57 And that was why Barrick wanted to buy out Newmont was for control of that. So I think Warren Buffett, everyone's thinking that he has this, hey, he's always been a supporter of Buy America. Now he's kind of reverting on that and he's going. No, he's just thinking that with that joint venture, it's the place to be. So that's my take on it. A lot of good points there, Maureen, and there has been a lot of confusion about Buffett buying into gold.

Starting point is 00:45:22 It almost sounds like he bought tons of mine gold and stored and evolved in Omaha. And obviously that's not the case. As you said, it's likely one of his portfolio managers, Ted or Todd, who built the position. And even so, for Berkshire, it's a minor investment into a company that is producing gold. the marginal cost for the company is around $900 per ounce of gold. Now, perhaps it wasn't the cheapest company to buy into in the first place on evaluation basis. But what would you say to investors who are investing with much smaller sum of money and have more flexibility of which company to invest in?

Starting point is 00:46:02 Neither of them pay an impressive dividend. And I think if you just do a little bit of work, you can get much better upside. with, in my opinion, equal risk because of the discounts to the nav that you're getting. Now, when you rip into Barrick, Warren Buffett talks about fundamental value and being a value investor. The Barrick investment was not a value investor. He's paying above nav. That's something that no one really talked about. So he's paying a premium for the production they have, the infrastructure and all that. But I'm not an above nav payer. I'm an under nav payer. And then as it gets above Nav, I take my profits. So that's my fundamental approach. If you want to just follow Warren,

Starting point is 00:46:45 I'm sure, you know, long term you'll do that. But I think in the gold space, he does not have an advantage. If anything, he has a disadvantage over everyone else because of the size that he needs to deploy to make it somewhat meaningful. So I think there's better options for the average investor than that approach. If you could say the thing that you just feel like the market is missing right now, But for you, you just see it as plain as day. What is that thing? I get more negative comments about what I'm going to say right now than anything else combined. I believe people are mispricing risk, the geopolitical risk big time.

Starting point is 00:47:25 I get all of the reports from all of the institutions and from all of the analysts. And you cannot tell me that you're going to put a discount rate of something in the middle of Africa that is on diesel production that is so politically unstable. as a mine in Nevada. It just doesn't make sense. But the interesting thing about this cycle is where the analysts have come, first of all, a lot of the analysts have churned over because the performance was so horrible in 2012 and 13, just like the management teams of these big gold companies turned over. A lot of people failed to understand that a lot of analysts got churned over and a lot of

Starting point is 00:48:01 the consultants and engineers got turned over and the geologists in these firms. So there's been a huge turnover. and the analysts aren't the ones that make the money in the institutions. The bankers do. So if you got some experience and you figure the game out, you want to make dough. As you're learning it, you go in towards the analysis of the side. That's how these institutions work, right? So the point here I'm trying to make is you have a lot of analysts that haven't been

Starting point is 00:48:27 to these countries. They haven't lived through 15 or 20 years, 30 years cycles in the sector. and because they want to do a peer-to-peer analysis, the discount rates they're applying do not include a discount that you should be applying for the geopolitical risks. That to me is the biggest difference that I've seen from past cycles. I remember in early 2000s when I was one of the first guys to set up a company in the Balkans, and we were in Serbia and people were like, oh, my God, I got to apply a 20% discount rate for Serbia. And I'm like, what the hell are you talking about a 20% discount? And they're like, oh, it's risky. There was a war there.

Starting point is 00:49:04 I'm like, yeah, 10 years ago. But in the previous cycles, I had to deal with like the market at least somewhat understood and added whether it was right or wrong. Sometimes it was too much. Sometimes it was enough. But you had this discount rate somewhat approximating the project's jurisdictions and areas that were known. Now it's like carte blanche development project in Kazakhstan, gold, 5% discount.

Starting point is 00:49:29 sitting there going, are you serious? Like, have you been to Astana? Have you been to those projects? Do you really believe you're going to apply the same discount rate as something in Nevada that I can take my kids to? It's just understanding the engineering, the mathematics of it. And I don't need to go in the middle of a jungle that has no infrastructure and the people don't want you. You know, like, does the Amazon need another mine? And you know, like you ask yourself these questions. And I'm just not there. So I think that's the number one thing I think people are. are totally neglecting. And if you look at it, look where the money is going. Nobody wants to talk about it because of the institutions, the investment bankers make money from raising financing.

Starting point is 00:50:12 So they clip 10%. And they want to be able to sell product. Well, Marne, I can tell you, the research, the amount of depth that you get into on a monthly basis is exceptional. For anybody else that's listening to the show, give them a handoff where they can learn more about Katoosa's resource opportunities and everything that you do. You can go to my website, Kutusa Research.com. I've got lots of free material. My stuff's not for everyone. You know, if you're looking for a hot stock pick and a flyer, I'm not that guy. I'm a guy that if you want to get into financings at the same time, at the same price is what I'm doing. I'm always the lead investor in every financing I do.

Starting point is 00:50:56 Then you should look at what we're doing. Think of me as if you're to buy a gym pass, you actually have to go to the gym. My stuff is, you know, each report is somewhere between 30 to 40 pages long. We get into the analysis. I show the math. I try to make it as entertaining as possible, but you have to be disciplined to actually read the material to understand it. It's not copy.

Starting point is 00:51:18 It's not promotion. It's just flat out. This is the market. I will never write about something that I'm personally not going to invest in. And more importantly, when you invest with me, you get to sell your stock before I do. And that's a big difference between myself and anyone else. And it's completely independent. You can't buy your way onto our list.

Starting point is 00:51:37 If I'm willing to write a check at this price, you get in at the same time in price, and you get out before. Marin, I think I speak for everyone when I say it's always a pleasure to have you on our show. and what a time to be talking with you, given the financial markets and the opportunities ahead. You and your team have set up a deal for audience if they want to check out your newsletter. And our audience can find the offer at katusayorresearch.com slash tip. That is katusarresearch.com slash tip. And we will of course make sure to link to that in the show notes.

Starting point is 00:52:12 But, Maureen, as always, thank you for taking time out of your business schedule. We hope to bring you on soon again. It's my pleasure. Thank you. All right, guys. That was all the President and I had for this week's episode of the Amherstas podcast. We see each other again next week. Thank you for listening to TIP. To access our show notes, courses or forums, go to theinvestorspodcast.com.

Starting point is 00:52:38 This show is for entertainment purposes only. Before making any decisions, consult a professional. This show is copyrighted by the Investors Podcast Network. Written permissions must be granted before syndication or rebroadcasting. I don't know.

We Study Billionaires - The Investor’s Podcast Network - TIP315: Gold and Gold Miners w/ Marin Katusa (Business Podcast)

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