Yet Another Value Podcast - Muddy Waters' Darren McLean on investing in the mining sector

Episode Date: June 3, 2025

In this episode of Yet Another Value Podcast, host Andrew Walker speaks with Darren McLean of Muddy Waters about investing in the mining sector. Darren shares how informational edges and a deep understanding of data can yield outsized returns in a space often overlooked by generalists. They discuss the inefficiencies in mining markets, the value of unconventional data analysis, and why mining offers compelling alpha for those willing to do the work. Darren also explores the evolution of mining capital, the brain drain in the industry, and the outsized rewards of discovering and developing world-class assets. Tune in to uncover the realities of resource investing and how expertise can change the game. _________________________________________[00:00:00] Andrew introduces podcast and Darren McLean[00:03:15] Why Darren sees alpha in mining[00:04:50] Examples of unconventional data collection[00:07:46] Darren discovers major inefficiency firsthand[00:10:23] Lack of diligence in asset qualification[00:15:51] The post-China supercycle mining collapse[00:20:57] Why mining offers inevitable investment returns[00:24:03] The Bre-X scandal and manipulation[00:27:42] Why supermajors avoid early-stage projects[00:31:26] When site visits are essential[00:38:47] Brain drain and generational void in mining[00:39:18] Can generalists invest in mining successfully?[00:43:17] Montage Gold: A re-rate case study[00:46:17] Value of strong reputations and strategic entry[00:51:13] Darren’s track record and strategy success[00:53:36] Why mining gives clear investment feedbackLinks:Yet Another Value Blog: https://www.yetanothervalueblog.com See our legal disclaimer here: https://www.yetanothervalueblog.com/p/legal-and-disclaimer

You're about to listen to the yet another value podcast with your host, me, Andrew Walker. Today's podcast is a deep dive into investing in the mining sector with Darren McLean from Muddy Waters. It is a sector that I will be honest. I feel very, very silly and dumb in. I feel like generalists get their face ripped off in it. Darren is an absolute expert. I think it's really interesting for him to hear about why he thinks there's so much potential expert, potential alpha for people willing to do.

do the work and really dive into the sector. It's really interesting to hear what that work is, how to do it, and all that sort of stuff. It also, as a generalist, it makes me terrified and reaffirms my thought that if I invest in the sector without spending months and months and years getting up to speed, I will probably get my face off ripped off. So it is a really interesting conversation. I hope you enjoy it.

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value podcast. I'm your host, Andrew Walker. With me today, I'm happy to have on from Muddy Waters. Darren McLean, how's it going? Good. Good, pleasure to be here. Thank you. Perfect. I appreciate you coming on. Before we could start, a quick disclosure. Nothing on this podcast is investing advice, full disclosure all the way at the end of the podcast where you can find one in the show notes if you're looking on to it. Darren, I'm super excited to have you on. You know, you think

muddy waters and you think activist short selling and that sort of stuff, but you are heading up a specialist, you know, investing in hard metals mining, that type of stuff on. And, you know, you think hard metals, junior miners, miners, that type of stuff. Muddy Waters go, oh, it's got to be active shorts, but it's mainly focused on longs and everything. So excited to have you on to chat through investing in metals, investing in mining, all that type of stuff. So I'd love to just start quick over you. What's so interesting about metals and mining, the funds you're looking at, like, how are you kind of viewing the world of investing in that? Oh, I mean, I can talk about that one for ad nauseum. I would say if I was to distill it down to any one thing, it's that I don't

think there's almost anybody else or there's extremely few people on earth from money management perspective doing what I'm doing and trying to invest the way I'm trying to invest. And like, you know, finance is a, I was liking it to a professional sport, except there's like a thousand different positions you can find in play. And within mining, there's so many different ways you can play mining. But specifically the way we approach it, and this is something I learned very early on in my career was, you know, I didn't, there's so much. data out there. The incremental marginal value of a data point is so high sometimes relative to the value of the company. So you can see information come that, whoa, that literally doubled the value

of the company in my mind and the stock doesn't move. And you're like, so the marginal value of new incremental information is extremely high. There are ways to discern it, but you have to be creative and you have to be willing to kind of get your hands dirty in some unconventional means. But when you get those data points and you're able to piece together a mosaic, now you know what these incremental pieces as they bolt on to your core nucleus of, you know, the problem set you've solved, you know how much that moves the needle. And then you realize you can be almost certain there isn't another person in the world who has that problem set booted up the way you do and you understands the incremental value.

So you get massive alpha. And that's, I've been hooked ever since I started and I, that kind of dawned on me, I'd say. You mentioned unconventional means for getting data. Can you give me some examples of unconventional means and mining? Yeah, I would say I go back to the beginning. And, you know, one of my first experiences was when I was working at my initial shop, you know, there was a company I had, I knew nothing. There was a very illustrious person in Canadian finance who still is one of the top figures in the mining sector. And he came into our office, which was a small little boutique and took a meeting with a company.

and I was starstruck at the time and he walked out of the meeting and thought it was the best thing he had seen in a long time and another individual in the firm who he was supporting through a small fund, he said, this should be an 80% allocation. And I thought it was incredible what I was witnessing. But it was a thesis around how much gold

was in the ground in a company and it was known to be true amongst the industry because the top analysts in the sector had decided this and a bunch of others had agreed with him that there's a certain quantity of gold on the ground there. I was like, well, I should go make sure.

How do I do that? And you went on their website and there's a data set of all their drill holes. And this is a very common thing. This is how it starts. So I get involved in early stages and assets when they're being predominantly I do, when they're being drilled out and discovered

and looked at the dataset and said, okay, how do I turn this into something I can break down? And so I took the drill holes and I built a little program that would go and plot them out for me into 2D pictures and I created slices all along the you know the shape of the resource body and I'm like okay well to get that much tonnage at that much grade for there be that much gold I would need to see and I put a grid on it on average this much square

you know this much surface area filled per section for that to be true and I did that and then when I plotted through it I couldn't see it anywhere and I was like well that's fascinating Then I went and I basically hand drew out the entire thing, mapped it out. I mean, when resources are modeled, they're done with computers using algorithms that are trying to recreate human logic, basically. But you can do it with raw human logic, especially if you're good at it. And that's the kind of thing I'm good at. And I model the entire thing, and I realized that there was about a fifth of the gold there

that the market thought. And on that basis, the company was worthless. It was a $1.2 billion company at the time, which was back in 20, 11, that was a big deal. They had just raised $120 million in a bought deal at that valuation, and they were going to get taken out. They were the best thing on the board. And I was like, this is going to zero.

Oh, my God. And so I spent like a month or two just obsessing on this. Ironically, at the same time I was doing this, Carson was publishing on SinoForce. I remember the SinoForest published very well. Yeah, so I was sitting in the basement of, this guy's little boutique three people worked there one other kid myself who knew nothing and uh another individual who'd be in a money manager once upon a time on bay street and he was sitting there just being like oh my god this cyno forest thing is crazy and i was i asked him what was going on he explained it

i didn't know what short selling was like what's a short he explains it and i thought it was the coolest thing and then i watched carson be right and i was um i just thought it was uh what a way to make a name for yourself. What an amazing call. Like the most contrarian bet, sticking your name out there and risking it where you have to be right or your reputation is really on the line.

And then I saw this company and I thought, oh my God, this is going to collapse and go to zero. And it's a very well-backed and well-owned company. And so I spent about two months obsessing over this, just making sure I was right, talking to people, telling them,

getting guys off the bet. And then it came out that I was right. And the stock went to collapsed, almost straight to zero. And I budgeted. So with Sinophores, if I remember correctly, like Sinophores was just, and I don't use this term lightly, like blade and fraud, right? If I remember correctly, I remember John Hempton post

where it was like, hey, if you believe what they say, they've got more trees than like the entire surface area of North America or something, I can't remember, but it was broad. So what you're saying in this- Say again? This wasn't that. Yeah. So what you're saying is this company had pitched a story to Wall Street,

pitched a story to their investors. You went on, downloaded data, like, did it by hand and figured out, hey, based on the density I've seen in these drill holes and stuff, a fifth of what they're at max, a fifth of what they're projecting, which means the companies is zero because there's huge fixed costs, all this sort of stuff. I guess if I was just to pull away from this company, like that specific example,

Me as a generalist, and I want to talk a lot about generalist here, if you told me that, I'd be like, hey, I'm a little surprised. Like, I know there aren't a lot of mining guys left anymore, but I'm a little surprised that mining guys weren't like all over this. Like when I look at a biotech company, if I call a smart biotech friend, like every smart biotech shop has looked at this on college drug and everyone has a read on like how the trial is going, what they has analyzed the data. Why do you think there was this inefficiency? Was it just like the guy was such a good promoter? Do you think this is a across-the-board inefficiency where people aren't actually, like, downloaded the data? Because why didn't the company pick up that the data was this bad? Well, it goes back to what I initially said, and this was the, I guess, the takeaway. No one does this work.

And literally, that was my dawning realization. I took two things from that. And this was right at the start of my career, which was great. One was, if I ever see anything like that again, I'm making a name for myself. and I'm going for it I'm going to put my neck out publicly which ended up happening and that's how I met Carson ironically

and as well as his business partner there and now we all work closely together and two was oh my God all the data was there they weren't hiding it it was all there just no one had done any work on it and one person had reached

it's they don't do this work internally and they're just as yeah there's a lot of group think I think in this what I always say in the sector of mining and especially in the earlier stages or the smaller companies

assets really I'm focused in assets rather than companies is people don't really qualify assets analysts, bankers, investors in this sector that's not what they do they look for things that look like other things and they basically run a bunch of arbitrages. And honestly, that's what most investors do, I found. They look for arbitrages,

effectively. They're arbitrages. They run around, they say, well, this is EPS of 18, and this is an EPS of 16, and this one's cheaper, trading more expensive than, or sorry, this one here is actually trading at X, and this one's trading a Y, and they look the same to me. I found a cheap company. And in real companies, I always think that's a fallacy. Like, what really matters is you're trying to figure out the decision making of a company and you look at a team and it's like in a tangible example we understand a good team's going to crush a weak team in sports we understand that and finance it's all numbers and we just look at numbers and lots of guys just run arbitrages they don't realize that over the next 10,000 decisions these companies have to make neck and neck one that team will

just dominate and there's almost no world you can imagine where they won't continuously just pull a little farther ahead as they navigate every decision than the other guys. In mining, the arbitrages they're doing is they're saying, well, that produces a million ounces a year and this produces a million ounces a year. You know, that trades at that, that's the trades of this. And you think, okay, that's too rudimentary. There must be all these other layers. You would be flabbergasted at how shallow it gets. And the reality is there's so little in assets and mining that's real and transactable, and that happens to create value relative to the occurrences that destroy value over medium to long terms, that people, there isn't enough, there isn't enough breadth in the

market for people to really just try to sit there and find deep value. Because, A, there's just not that much to go around. I truly don't think there's room for 20 to 30 people on Earth doing what I'm doing. Like usually the circumstances, there's a couple of misses every year. There's a couple I'll miss for various reasons. Sometimes I just don't see it. Not usually. Often I just can't get into the deal. You know, the openings are small. Maybe there's like $20 million going into the deal that before the market figures this out, the company doesn't want you there. Or you just can't get in or some other guy with the relationship, elbows his way in. And so you've got to be on it. You've got to fight your way in. There's not that many companies and the breadth of openings and opportunities isn't

big either. And so, like, if 99% of the market activity in the sector is not oriented around things like what I look for, then the behavior mimics most of the market activity. How do you make money? Well, you make money on a lot more schmoozy, event-driveny, kind of wink-wink, nudge-y. I think a lot of the sector does activity. And they run around. Now, it becomes a self-fulfilling prophecy. Things go up when X happens. If enough people believe that, it tends to be true. You know, I'm talking very intangibly, but what I can say is people sitting there ripping apart assets, trying to figure out what they're worth before they come to full fruition, trying to map out the if-then sequences. Okay, if you drill here and you get another X tonnage here,

I think I can build this. I can manage the fixed costs. They'll have to, you know, it'll cost me this much to get power, water to site. I'm going to have to deal with this. The perm is going to cost me this. The timeline's here. I can't overachieve that with this much metal. I need at least this much. It's sitting just beneath that, which makes it kind of worthless.

But then they hit something, and suddenly that pushes it over the threshold. And you're like, oh, my God, that just repaid everything. This went from being like a meager thing to something that might be worth five times as much now. Because once you cross that critical threshold, you explode in value. There's just very, very few people doing that. They wait until it's told. Do you think that's a function of just today's markets? Because I know I talked to some of my friends, and they're like, look, before, kind of like

2016, 2017, they say they're used to just be a lot more mining, but because things got washed out so hard, a lot of them are just gone. Do you think the sector is just like, because it's fallen out of favor, there's less people doing what you're doing? Or do you think it's always been that way? Well, I can tell you what's happened since I walked into the door. And I can tell you very loosely what happened before and why that's interesting. and how it's led to what you see now.

I walked in the door in 2011. And then I watched the Global Metals Complex, which had had a wild, you know, being in a wild bender for, I don't know, the better part of a decade in the China super cycle. And in all the excess in money printing, shockingly, people lost their way. And when did the party end, it ended with a thud.

And the reputation of the sector got trashed. like billions upon billions in companies that were wiped out within companies that maybe that wiped out half their value, 75% of their value in companies like Barrick and others, some of the big names. And then I watched the entire metals complex that seemed collapse. I joined a uranium focus firm just after Fukushima. I watched iron ore collapse down to $35, I think, from being in the hundreds. I watched these assets.

the companies were putting billions of dollars into expansions, just collapse and go to zero, watched copper collapse, gold held on a little longer than in two big legs down. It just collapsed down to 12, 1,300, and it laid on the mat until, like, I don't know, the late, like, maybe like 2018, 2019, 2020, maybe it started to perk back up again.

And in that period of time, something else happened. It was the driest decade, or discovery in the sector, I think ever. Meaning, like, we found less metal than we'd ever found. And so in mining, you're constantly devouring yourself. You're consuming your company, which is funny, because people apply like free cash flow multiples to mining companies. Like, you're consuming your company.

There's no terminal value here. Oh, yeah. But, um, anyways, the, uh, we stopped to, discovering. It got harder and harder to discover things. It's like copper porphyres, which feed the world. If they're exposed to surface, they give off massive signatures, you cover them with a little bit of dirt, you don't pick them up anymore. And so a lot of the low-hanging fruit, you know, chugged and powered the world forever. We're starting to come to the end of its life, and it's just a lot harder to find stuff. And the markets had crashed. There's less capital. You know,

companies were pulling back on their capital programs to try to manage them, tighten their belts, and spending money on expiration, which wasn't likely to yield any near-term results, it didn't seem like the best allocation. So drills slowed down, plus the difficulty went up. It's a compound impact, which means, you know, with just the world really shut down in discovering metal. Now, at the same time, there's a big brain drain. Less people come into the sector.

It's not as many opportunities. And so mining engineering, which was already kind of the engineering degree when you didn't get into mechanical, but mine. was a little easier than maybe if you did well for a year, you could backdoor into mechanical or aerospace or something like that. I mean, it fell even more out of favor. And so we saw less people coming into the sector. And the people that did come into the sector still now, there's less demand, the quality drops. But on top of that, there's less jobs for them or less roles. But the ones that do come in get fewer reps. They get qualified on fewer reps. And like I was

talking to a friend of mine who's about the same age, one of the top engineers and one of the top engineering companies and mining, he's overseen like four different mine builds. And I was talking to him and I'm like, well, thinking of, you know, explaining what his experience that was worth. I'm like, how many people on earth are there your age you can say that, do you think? He thought maybe like four or five. I'm like exactly four or five. Now, the supply and elasticity of people's remarkable. I'm like, how long did it take for you to get an education where you could feel confident you can go and execute on a mind? well 10 years 10 15 years

like great you got four or five people your age you've been qualified with that experience how long is going to take for the next crop to come in you know given he came in on the end of the last cycle when but again like there's just so few people on earth

with relevant experience sets in certain areas and I think the world ever saw how they sorry you go ahead and then I'll touch on one other thing Let me go back to, so what you're doing is, you know, basically companies are coming, they've got these data, they're presenting to you, you're doing hard data analysis of the mines, the assets and everything's, and you're investing them.

I'm obsessed with game selection, right? And what you described to me, like, I know why so many investors look at mines on the short side, because it's a very promotional business. What you described to me, like, it's almost looking for a golden needle in a really negative EV hay stack, right? Like, hey, we're going to pass. Is that even worth it, though? Is that a sustainable strategy?

Yes, absolutely. The world needs metal. This is where it comes from. Like, the world, you know, mining is like one of the lowest allocations in the world for active capital. And so if it's amazing, but the inevitability of it is extreme. We still haven't, like, you look at all the things technology has come, and conquered and improved.

We still haven't figured out how to drill a drill hole from surface a thousand meters deep, any cheaper. It's the same mechanism powered from like a, you know, surface, all the horsepower of the surface turning a rotational drill into the earth's core a thousand meters deep. We haven't found out a way to do that cheaper.

It's, if you ever could, I may, if you could put the power in the drill bit, like, you know, what Elon Musk was trying to do on like a boring machine or something like that and somehow do it and integrate like XRF technology where they can scan the mineralogy as it goes down the hole, you would change the entire supply of metals on Earth. And yet, very little allocation of technology has been thrown to that and no one's solved. It. Mining is so resilient and slow for change. I couldn't tell you

why. That's not where I live. But obviously, it's very, very difficult. And so the way the world gets its metal, the difficulty of finding it hasn't changed. And the world needs more and more metal constantly. That hasn't changed either. So, I mean, it's kind of like a population growth bet. If you believe the world's going to expand, yeah, the world's going to need more metal. Prices are going to go up. The supply and elasticity of talent and assets isn't really there. So there's a huge degree of inevitability to the sector. Is a sustainable yes?

I've never gone a year where I didn't see something that made me fall off my chair. That was an incredible opportunity. But there's something to that too. And I guess what I wanted to say quickly in with our, taking too much time on the other things, the brain drain, the lack of expiration, all these things coalescing, at the same time, when all the metals collapsed, and we'll just focus on gold mines for a second, almost nothing was discovered in copper over the last 10 years. When the whole metals complex collapses, promoters don't stop promoting.

All that happens in just real assets that are in the money stop going forward, because there's nothing real, because everything that worked was either built or is now out of the money because price had collapsed from like 1900 down to 12. And so when that happens, projects don't stop getting pushed forward. It's just the only projects that get pushed forward are scams. Why is that? Because gold deposits more often than not happen in nuggety distributions. And so it's really, really hard to find an economic gold deposit.

It's not hard at all to just turn the knob a little on an extremely sensitive algorithm. and blow the gold out everywhere. And so we watched, you know, everyone knows the Brayek story. And what I always say is they're the dumbest promoters on Earth because they did it physically. You don't physically solve the gold samples. I don't know this story. I'm just a stupid generalist, but I'd love to hear the story.

Oh, yeah, I mean, there's a movie on it. You can watch called Gold with Matthew McConaughey. I forget the country, actually, but it was a massive gold discovery. Once a billions of billions of dollars market cap, Everyone was centered around it in the market. It was going to be a massive take. It was one of the greatest discoveries ever,

and it turned out there's nothing there. So someone had been salting the assays, so adding gold to the assay samples and just baked the entire deposit. And to this day, there's a lot of debate over whether the geologist actually was pushed out of a helicopter, or fell out of a helicopter as the government claims afterwards, or whether he paid off someone who disappeared. No one knows.

But people still do that. It's just, it's everywhere. They just do it with algorithms. And when you do it with algorithms, it's not on you. And there's a whole chain of how you can cook these things. But the most important thing is this. It's very easy to crank the resource on a gold project. Extremely easy.

In fact, usually when I look going and look in a gold block model, it's off or it's wrong. And I've never seen it too conservative. So very often they're off by 100% or more. And so the only projects we saw go forward in that period of time were scams, I thought, most of them. And they blew up. Or when minds don't work, people almost never understand why. There's always a story. Well, you know, it's just we needed more equipment.

And we had to, you know, you just needed more development. And the, you know, the shafts just weren't working properly underground. And it's like, no, you need it to blow. open the underground because you went down the drive thought you could get two stoops you found there weren't any stoops you panicked you needed to realize you're having a hard term finding stoops you needed a ton of drills and a ton more access

to run around gophering everywhere trying to find stoops meanwhile you're not telling the market that what the evidence is showing you is that there's only a third of the stoops there and your mind plan is completely cooked and you're like well let's not tell them that let's just try to find a way to get stoops say we're getting stoops see it's fine drag it out if the price goes up maybe we can finance buy something else do a deal. And in the shuffle, no one ever knows what happened. And because of that,

there's rarely ever a high IQ post-mortem and why these things fail. And so the market develops mentality that building minds is stupid. They always fail. Don't do it. But really, the answer is building a mind is pretty much the most value, creative thing you can do in the sector. Execution is the highest re-rate, far more than M&A. Just stupid people shouldn't build stupid mines. So getting back to our point on, so let's say I agree with all that. I do wonder, like, there are a handful of super majors in the mining metal sector and everything, right?

I guess one question I would have is, why should the next great mine be funded kind of by like you and me or by a handful of wildcatters raising kind of private money for 50 or 100 million and then, you know, hopefully hitting success in selling? Why shouldn't Freeport be out there and just like doing all this geological work and then funding it themselves with their much lower cost of capital, like kind of superb execution from day one? Why isn't it just supermajors? Because when I think about oil, like today, the giant oil fields, it's no longer, now oil is different. But, you know, the super majors are the one finding, discovering, managing all these giant oil fields. Yes, they are mainly off the, in offshore, which requires a lot more.

But doesn't, why shouldn't it just be super majors kind of doing the whole? thing well the answer is there's two answers let's just pretend every project is a fit for a super major which they are which is the other answer but um because it's not what they do when i think of like majors and a lot of them are just run by bankers they're kind of these bureaucratic machines they don't really discover anything the majors aren't out there making the discoveries the majors just go and buy other people's discoveries and even when they do that they're not usually there like they're not there like five drill holes in being like i don't care this is like a pimple on our enterprise value and has a high probability the expected value this is

through the roof we're buying it now they don't do that it's they sit around and they wait they want you to drill it and advance it and they're just happy to wait until you get it right to the altar and everything's done in dust and they're like yeah we'll take it and we'll execute it and we'll just build and run it and you think they shouldn't do that but that's just not how they work That's a much longer conversation I want to go into. I'm happy to have it, but what I would say is that

majors have stopped discovering things. They generally aren't. I don't view them as competitors at all in what I do looking for assets in early stages. There are people to sell to and there are people to get financing checks from them. They like to poke their fingers in lots of things. They're like, yeah, I'll take a 9.9 position there

and sit and watch it. but they've seldom transact unless you bring it they're like the most when you think of investors and kind of boring like mutual fund money and stuff like that and i just find people they only buy things out of phoma or they only buy things on a deal or a financing when they think they're bottom ticking it it's like they and you're like why don't you just buy on the board and make the betterly the majors are the worst for that they're like the worst investors for being intrepid or entrepreneurial they're kind of construction engineering companies.

Just view them as that. They're construction engineering companies. That's what they are. I'm just laughing because I've spent a lot of time in busted biotex recently, and you'll find so many busted biotechs where, you know, they're looking for the cure for cancer. Pfizer writes a $500 million check for 10% of the company, so $5 billion. Then the cure for cancer fails.

And Pfizer is just like, whatever. You know, you guys, we own 10% of you, but you guys go, we don't even care anymore, right? Now, if the debt succeeded, they would have paid hundreds of billions of dollars, but it's like, hey, you threw a $500 million investment, you could try to recoup it, do something, and they're just like, not our problem anymore. If it's not going to be the cure for the answer, all of it's gone, even if we could try to reclaim $250 million.

Yeah, so if you're a business strategy is we're going to sell this, we're going to sell this deposit. I mean, you better understand the tier and the status you have to get it to to be able to do so. The vast, vast majority of people are pursuing that strategy aren't going to succeed. And then the other reasons they don't build, projects and they are doing this is, again, if you saw how deposits are discovered,

like you're talking reg, tag guys, you want to go up somewhere where you've got to fly to somewhere, then take another flight, then take a bush plane, then go hike out into the woods, camp out in like grizzly country, walk around shipping, picking for rocks on a thesis, which has a fractional percentage chance of actually turning into anything. like these are cowboys like complete like the characters that are prospectors

who go out there and geologists like they're not they don't wear suits you know for what you do right do you find site visits useful or is it really just analyzing the data

and leaving that to leaving the site visits to the cowboys it depends if you have an underground mine and it's in operation and you're trying to figure what's going wrong with it, I would say you have to do a site visit. I've done that a few times,

and there's absolutely no way you can figure out what's going on from any reporting or any numbers unless you go physically examine it, and you got to spend a lot of time there for expiration properties. Not really. Not really. The reality is I've usually worked on Google Earth. I can go see, I can map out, I can get terrain mapping, and all that. You can figure out. You can see where there's streams, and then you can go pull records. So not really. The only real reason, you ever do it is just get a lot of a person's time and just pepper them with questions. Yeah. That's the only benefit I get of it.

But in terms of smaller minds, majors don't build smaller minds. Largely what majors also have been focused on because they've been struggling to get people to buy their equities because in the sector is just generally being in disrepute. And again, it's very under allocated for active capital. And so kind of what they've been doing for the last five, ten years that I've been seen is they've been focused on just kind of devouring each other and getting bigger and running up index strategy so that people that would otherwise not discretionarily choose to buy their equities are now forced to because they're in more indexes and bigger ones.

And the joke of that strategy, I always point out the fallacy in it is like the value in the sector is created in two places. One is distress and two is in the drill bit. And all you do when you do that and pursue your indexing strategy is you get further and further away from the thing that actually adds value because it just moves a needle less, a great discovery. Say it turns into $5 billion. dollars. Well, I mean, you just became a $70 billion company and great discoveries happen

once in a blue moon. And so you're just sitting there, you're like, well, what's the point of trying to drill? And we need to focus on buying out barrack and taking out them, becoming the biggest. And you're like, that's where. And so they just become bigger, more bureaucratic and further, further away from what the initial premise of your question was. And that's what you're witnessing happened. And it's part of why they don't, they have no very little entrepreneurialism in the way they pursue things. Now, why should people like us build mines? Because it's an extraordinarily wealth-creating moment. I love mining. I love it. I wanted to build a mine from the early days of my career. Not out of any weird summit fever thing. I just see that when you do it and you build

the right mine, the re-rate and the value creation is extraordinary. You build these little mini economies out of the ground. It's very cool. It's a very physical thing. You create tons of jobs in a region. You bring infrastructure to areas. That's all cool. But also just, like if you're a Canadian company, for example, you're in a tier one jurisdiction, you're of a gold mine, you produce real free cash flow. You're not stupid. You don't constantly trying to play some capital market game. You just pay off your debt. You're starting to stack capital on your balance sheet. You trade at some insane multiple. And the thing about mining is it doesn't take place in nice countries. Sometimes it does. But, you know, often it's easier to drill

develop in really rough countries. And often you have better prospects. You discover something in a difficult country because you can actually sell up a Chinese there and they'll pay a way bigger multiple than Western countries because for them it's a way to own more infrastructure and own the country.

And these countries build these market caps, these enterprise values after, I mean, the whole world is kind of a prison yard in terms of its organization. We live in these wonderful, nice areas, but money takes place in like scuzzy areas. We got a company that, you know, that's a very volatile place. There's always some area rolling over.

Like recently, Molly's been completely rolling over. It wasn't very long ago that I was told Molly was secure because they had five good years, you know, and the coups hadn't reached the southwest of the country. So it was safe, and the French were there. Well, now the French are gone. And now the Russians have displaced them. And now all bets are off.

Now Junta government's in. And now everyone's in trouble in Molly. And in mining, you can't pack up your bags and leave when the government comes for you. You can't say, well, I'm Apple. I'm just going to move my manufacturing to India. No, you can't pack up your mind and go. So you can move faster, you can build faster, you can execute faster in rough jurisdictions.

And when five years, because people have this huge recency bias goes by, nothing bad happens, people are like, oh, maybe I am comfortable building my home on top of this fault line. It seems to be pretty good. Lo and behold, another earthquake happens, and suddenly you have companies, and for whatever reason, they trade these huge premium multiples what their assets are truly worth, they've got paper value,

and they're trying to run from the mob somewhere in the world or some bad government and using their paper to buy a Canadian or another like US or other clean jurisdiction asset they pay huge premiums for. And so I've never seen a Canadian producer that made real money that didn't either trade at a massive premium or get taken out at a massive premium to its true net asset value for that reason.

so there's huge re-rates and even if you just execute not even in that jurisdiction that's another layer on top like the re-rate because people are so cynical about minds and they don't understand the value they don't understand the real navs and they kind of wait until things are born out and proven out that alone I mean in times I don't even know if I could tell you the number of times I've seen someone execute on a mind build and not triple it's just you know now there's a whole other conversation on the capital in mining and why that happens too, the capital in mining has changed immensely in my time as well. And it used to be driven by funds were way more active. Mutual funds have just died. They're still there. The managers are mostly gone. There's a few left over, but they've gone up cap. They have minimum liquidity requirements. They've got minimum share price requirements, and they kind of have turned them into index funds for large cap companies. They're not allowed to invest in small things. They've minimum diversity requirements. They have minimum deployment. requirements. They're just pro-cyclical vehicles that they've shoved up cap. And most of the money

and money is just looking for parking locks where they feel safe. And so you get a good asset, safe jurisdiction. We'll trade a premium, but always will, great parking lot. I'm in. And now, the guys who are actually driving forward minds and projects has never been majors. It's always been people, individuals, not funds either. And these were these like, you know, Robert Freeland, like Lucas Lundee, guys like that. Like, these guys are just killers, and they would go to the hardest places on Earth and unlock these assets and discover them and drive them forward. Like Robert discovered and, you know, out of the ground, like Como Kukula in the middle of

the Congo, like the toughest place on Earth makes the most miraculous discovery, gets that thing into production. And, you know, these are feats achieved by brilliant, brilliant, intrepid men. And then there's people who are in another tier in the billionaire category. They're very good at capital markets. That's not quite as great as Lucas and Robert were. Yeah, like the greatest discovery in my time was made by my career, made by Lucas Lundine up in the vicuna at the border of Argentina and Chile

where you need oxygen assistance. And he found it on like, saw it from a plane and went up there on horseback. I mean, it's just epic stuff. Sounds like a good vacation. Mining companies don't do that. You know, great men and women do that. And the average age of them has gone from being like, you know, 50, 60th when I walked into, you know, 75 to 85 now. And because of that brain drain that's happened, at the same time, there just has not been a cast in the dearth of new developments in the sector.

There hasn't been a replacement mechanism for them either. And so there's a huge opening and vacuum in the sector right now, but it's the time that the world's probably growing and developing the facets. And it's an incredible moment. So. Let me ask this is a strange question. one of the reasons it's yeah i historically haven't done any mining on the podcast or professionally is people like you exist right who are analyzing this data like i would have no clue if i went to any company's website downloaded the data on their mind i'd have just like no clue

to analyze it is mining investable for generalists or is it only people who are completely 100% focused on it who can look at this discover it do any work on it you know okay i would say my my gut reaction to that question is no it is not no as in it is not investable for generalists if you're going to make a hobby out of it and do it all the time and i would say no don't do it are there specific circumstances yeah i think you'll get your feast ripped off? You probably will. It's just knowing the nature of human beings, the ground's always shaking and

money, anxiety gets secreted, explodes fast, it just destabilizes human logic. This is part of why it's, and it can be very addictive. I don't see many people come in from the outside to do well. With that being said, if you understand people and share structure well in capital flows, like say you're being in it, you've had an education, and money and people and how money flows and how things happen in finance

and you could probably do it if you're shrewd and savvy and you watch companies the reality is like most of the money in this sector right now follows is follower capital and that's a huge phenomenon that's happened in the last like five years I'd say

and this is one of my initial core thesis that we were going to go into when I was talking to Brady and Carson at Muddy Waters many years ago and like this is where the industry's headed and we're kind of heading there is talking about the brain set up talking about you know expanding needs the world there's no you're not seeing the catching up from the beginning end so the problem's going to get bigger all the stuff I talked about but but the capital itself is dying as a consequence and most of the

capital that is there is follower capital people don't want to write checks into development companies into exploration companies right now weird because gold's at 3,300. And the reason they don't want to do is because they're scared that it could fall back on them. That check could get spent and the company could go back and say, listen, to keep this investment going to keep your company investment from dying, we're going to need you to write another check. And they don't want that to be on them. So a lot of companies that don't have strong leads are just irrespect of other asset quality are stranded. And then you have a handful of companies being backed by groups like Pira Lundon or the Lundian.

actually most of the successful companies in the sector are backed by one of those two individuals and there are two of the more influential parties still playing with immense personal capital in the sector and those companies are finding financing an incredible public support because they feel safe tucking in behind them they know that those individuals keep driving the projects for and the lead from the front

they will be capitalized the assets will go forward they will make it across the desert to the other side we are safe to tuck in behind for other things yeah it's um it's really it's going to be a very tough slug and as a consequence if you understand that you see people moving you see share structure you see certain people cornering getting involved you can make money following that and being smart there but if you're running around trying to look at comp sheets and say well that's got a million ounces i think that's a buy no no it's not going to end well what would you looking for just if you were looking for the smart people

core, what would you be looking for? Well, I mean, like, hey, look at Montage Gold. There's something that we bought a lot of. The Lundings came. So Montage was a very, it was a difficult asset. It was a good asset. It was a gold project in Ivory Coast, West Africa.

Ivory Coast has been, you know, one of the more stable African drip. West African jurisdictions in the sense that it hasn't had a coup in the last decade. But, you know, and there was one little just before that, but one of the better ones. And it was a good project there. It was tough because it was a high-cap-ex project. It needed to be built big, which means your fixed costs have to be high. Otherwise, you won't be able to, so it need to be built at scale.

And it, which means you're going to be spending over a billion dollars U.S. just to build the thing. and the payback on it was pretty slow. Like I think just the nature of the ore body is going to take you like five years to get your money back off the table. And when you're building minds, what I always liken it to is you're going for the summit

in like the Edmund Hillary days where you don't have modern weather forecasting at Everest and you just kind of cozy up to the death line where you can't breathe without supplemental oxygen and you sit right there. And one day the skies are blue and you're like, better go, Tenzing, eh? And you know, and you just give her

and you try to get up and down as fast you can, praying the storm doesn't roll in. And when you build a mine, you do that, you take on all this debt, you sink all this capital, you start building all this infrastructure, and you don't know what the world's going to do. You're operationally and financially levered to the most volatile variables. You cross your fingers, you pray, and you move as fast as you can. And where do you need to get to?

We're getting back below the death line, and that is when you get your debt capital repaid, and the montage was going to be slow. But it had a lot of optionality, and it was in weak hands, and it was just stuck there like a hundred million bucks. And I remember looking at the ass and just thinking like, it's annoying. But if you can't muscle that forward, and I'm not strong enough in terms of my backing or amount of capital I can access or my wherewithal to be able to muster an acid like that forward, I can't invest in it because that could fall on me.

And so I need to find things that I can manage. But the Lundine family can manage that. And so they had a huge advantage. And then they came in and they did a financing and they basically said, okay, we'll take it from here. And I just looked at that, and I was almost like, great move. It's not fair. You know, if I could just come in and anoint things and say,

everything will be fine now. Instantly, the company is worth more. I mean, that's the greatest advantage. The greatest edge you can have as an investor is when you change the value of the investment by virtue of you walking in the door, and they have that. I'm rereading the snowball, and, you know, in the 70s, Buffett recaps Skyco. And he recaps them, they're in distress. And the moment he writes the check, their distress is gone.

And the stock's a five backer. And I'm like, God, dang, that would be nice to have that much money. But it would be nice to just be like, okay, I'm here. And the distress is gone. Everything's, yeah, it's just a beautiful thing. You got to earn the power and you got to earn the reputation. So you got to go for it. You got to achieve amazing things early enough in your career so you can achieve that.

And that's honestly what I try to do. And it's my ultimate goal. And knock on what, I hope I continue to be successful at it. But anyways, yeah, montage has been a massive success. However, at the moment, the Lundine's moved in. it was like buy that just by that the capital will follow that asset i know what it is it was encumbered by the the the inefficiency or the disconnect between the strength of the you know the strength of the asset the demands of the asset were completely non-commensurate with the strength

of the company that's fixed and the stock didn't even move that much after they put in the money it was like that doesn't like make it worth a bit more that makes it worth orders of magnitude more and you have time like it's not like the market goes boom and it really rates instantly. And so you just watch that happen and you're like, okay, just you followed down there, you made a ton of money. That was the, that was the full depth of the thesis. Suddenly that asset could be managed. It was trading out a fraction of its net asset value. It only went up a little bit. That thing's probably going to have trading at full net asset value. And lo and behold, it's been one of the best successes since that moment. So there's things

like that. If you understand things like that, you understood why that asset was cheap and why it was weak, even though the asset was strong. You just needed strong hands. Strong hands came. It was safe. You were going to be fine. And the asset was going to do well. Yeah. You could make money doing things like that.

You got to be savvy. You got to understand people. But that's one way you could do it. But at the same time as I say that, this is to your average journalist. The reality is I guess I was a generalist when I walked in the door and I didn't know anything. I didn't have any background or education in this stuff. And I just started, I just started doing things by hand and trying to say, well, I don't

think people would probably go to their way to do this. And, you know, I didn't, and I just started trying to make sense of data. And I don't know, I've made a good career in it just by doing that. So, yeah, if you're just completely dogged, you love. love digging for information and for informational edges, of course you can come in. The door's wide open. And you can find extraordinary success in this sector.

So I don't want to hurt people. Do you think that the informational edge in the alpha for people willing to do work is bigger in mining than I'm not going to say every other sector, but do you think it's much larger than the average sector? Yes. Yes. It's bizarre in that regard. And that's why I love it so much.

Because there just aren't a lot of people doing it. Most people are just, as you said, like, I'm not going to say pot shop, but they're at the Podshop model, right? They're saying, hey, that's got $100 million, $100 million of gold, that's got $100 million of gold, $80,000, long, short, boom, done, and not actually doing the fundamental analysis. Yeah, it's like you want to play poker. You want to make you a professional poker player.

Do you want to go every day and sit across? I mean, I don't know who the top poker players. I played a ton when I was growing up. the best guy when I was growing up was a guy named Phil Ivy I don't know if he's still around or not but I think he is still very much around

yeah did you want to go sit there and play against Phil Ivy heads up no no why would you do that you want to go find the table that the people come in from Macau who have more money than God and losing 100 grand that night

doesn't matter they're just there for the thrill of sloshing it around you sit at that table that's where you want to sit at that's mining for me in capital markets you want to go try to find an informational edge on like something that you've got 30 high capitalized U.S. hedge funds chasing. I don't know.

That's not for me. Do I think I could do it? Sure. Do I think the amount of alpha-ycats week out would be less? Yeah, absolutely. Could you throw more capital at it? Probably. Yeah, you could put larger-sized bets at it from a capital liquidity standpoint.

But are your returns going to be as good? No, and I'm driven by returns. And so, like, the amazing thing, fascinating for a thing. Like, you can just become a self-made, made billionaire in mining, trading mining stocks. You really can. I watch guys do that multiple times over. Hard to do that on, like, large-cap, mid-cap U.S. equities. You know, you're like, you're trying to grind out like 5% alpha every year.

And it's... I know some people who, maybe not billionaires, but in many of a call options, might have gotten them in the best. Okay, yeah. I might need to clip out that self-made billionaire on, if you ever want to start a trading school on mining stocks, we're going to clip out that self-made billionaire because it's a really interesting, A, advertisement,

but be called to develop sector expertise in a pretty unloved sector. I ran an investment strategy at my previous hedge fund and basically turned approximately, approximately like, 25 million Canadian into close to a quarter billion over that period of time, not including taxes, you know, they never got accounted for it, but just the pure reinvested profit. Like, hey, if I took 25 and then made a double and I had out 50, okay, I'd complete 50 kind of thing. That's how I managed the money there. I ran it. It was a self-imposed kind of restriction. could I have turned 2.5 million of my own money at that time into 25 million doing the exact

same thing? Yeah, absolutely. Everything. In fact, it could have done more because some of those things got it's hard to move the needle with some of these events. Like, could I have taken a million dollars, run that strategy, and turn that into 20x doing the same thing? yeah absolutely I could have um over that period of time and then and okay I mean I left K2 and I was in my early 30s I mean like okay run that again for that was a six year five six year period do that again look where you end up like you can do that I've watched lots of people do that I know lots of people who have basically I've done that it requires a certain skill set but the alpha is enormous it's the one area that I believe

believed and in mining you know if you are really on it you track things you make like real deep thesis bets on assets and technical thesis and you're right you know it you know if you're right or you're wrong for the you know the price can move the equity can perform for other reasons but if you bet that mine would yield a certain quantity of metal at a certain rate by a certain period of time at a certain cost profile and it happens you were right for the right reasons you know it. You didn't go invest and have some like hedge fund where you had 60 positions and you made, you squeaked out, you know, 5% gross of alpha and you don't, you don't really know how it happened, you know, you're not sure if all your bets are right for the right reason. It's kind of murky.

No, but you know in mining. You know. You bet on very specific outcomes. They're physical, they're tangible. And you get to find out. So you get your answers. And I love that about it. No, I really like that because it is very frustrating investing when you make a bet on something and then it doesn't work for, you bet on something and that happens, but then it doesn't work for X, Y, Z reason. Like, in mining, it's so wide. Like, as you're saying, you bet on the geology. And if it's right, like, gold goes to $1,500 versus $1,800.

It doesn't matter. Like, you're probably going to get paid if you were right on that geology. Darren, this was fascinating, but we are, we started a little late, and I am coming up on a hot, hard stop because I've got to go pick my daughter up from daycare because we've got a weird day today.

But this has been awesome. I'll include a link. Everybody knows muddy waters at this point, but I'll include a link in the show notes. I appreciate you coming on. Derek McLean. Yeah, no worries. Good chatting.

And never explained why we're long at Muddy Waters things. But the short answer is it's equally as contrarian as everything else we do. And when you're right, it pays 5X, not 30%. Yeah, when you say you can 10x the money in five years. No, look, there's been a very different podcast than what I normally would do, but it was fascinating. I don't know if it's inspired me to look. at mining more deeper deeply and spend all my time on it or just continue my oh my god i will get

my face ripped off if i ever look at anything what i would say is this you know we didn't really talk about any names today but probably a good thing to do is if you're interested if anyone's interested maybe on your side um walk you through a thesis they'll explain what it's worth why it's trading where it's at, what the outcome looks like, and how to break it down. And, yeah, I had that on here, but we've, we're almost an hour already. So, yeah, it's cool. Thanks so much, man. Talks you soon.

Cheers, dude. Have a good one. A quick disclaimer. Nothing on this podcast should be considered investment advice. Guests or the hosts may have positions in any of the stocks mentioned during this podcast. Please do your own work and consult a financial advisor. Thanks.