Transcription
Safi Costa, it's a pleasure to have you back on Bellisad cold radio here from the rules poseium. How are you today?
Good. How are you?
I'm doing good myself. Thanks for asking.
I would love to hear from your perspective. Where are you currently finding the most opportunity in such a weird time with war in the Middle East, gold, gold and silver prices trending down, copper at alltime highs. Where's the opportunity set?
It's interesting because the setting macro wise, if you think about it, the US is in a position where it can't really afford rate hikes or a costly war. So, if you think from those perspectives and understand that those are the drivers causing a lot of these assets selling off, I don't believe that's going to be a long-term issue. And so you're not going to have many opportunities in a secular bull market for gold to buy the asset gold down as much as it is 25 30%. And as much as it sold off in a short term. So as boring as it sounds, gold actually sounds like an outstanding investment for the next 6 to 12 months in my view.
You can also take the view that the miners today, producers, some of the best quality ones are down 40 to 50%. If you look at relative strength charts, all sorts of technical indicators, they're just as oversold as you can get. So, does it mean we know what's going to happen next day, next week? No. But I think that those taking those opportunities today will probably be in a better place 6 to 12 months. So producers great place all the the big ones are you know like theos of the world newmonts of the world those are all solid um operators that have multiple assets I don't think you're going to miss much there gold itself um silver is in that range a lot of people watching the 50 level I learned the hard way that you don't put a single price and say that's where I buy it because you can miss both ways It can frustrate you if you go to 45. It can frustrate you if it bottoms at 60 and and you missed it. Um, so I would be careful there, but I think we're in a accumulation phase of all these assets. And then you have a few others. Sorry to go long, but copper, notice how copper has been very resilient. I think that's an important uh tell as well. Once we come out of this issue, I think copper is going to shoot up again in a large way. So, I would be very um careful as well if you're not positioned that way. So, those are my thoughts overall.
No, I appreciate the details. So, please please feel free to go on tangent. So, it sounds like the secular bull market in your mind is very much still on for gold and silver and it sounds like there is an opportunity right now to buy quality potentially for a discount.
Yeah, I think there's plenty um ways of of finding quality right now. Um and you can go down deep into other commodities as well. Like if you look into even um agricultural commodities today, they're acting like oil was 8 n months ago. Oil was in a consolidation period. Basically charts went sideways for two to three years. If you look at most agricultural commodities as a basket, they've also been behaving that way. I would suspect that we're getting close to a breakout there as well. Um, but that's from a macro lenses on the mining aspect. I think you know it really comes I the funny thing is gold explorers for instance right now have been outperforming the seniors and that's that's a a sign that sticky money has come in and it's not selling right. This is retail tends to sell at panic. We're a panic now right now and a lot of people are selling just just for the wrong reasons in my view. But if you look institutionally those folks are staying in and it's why you're seeing that outperformance. But we're in a rare situation where a lot of the big names are actually very very steeply uh oversold and so I don't know they're very liquid and and I think it's a great way to sort of play this window of opportunity in my view.
Incredibly interesting. When we had a chat with Adrian Day just two days ago, he mentioned we recently hit 0% bullish on the bull bear scale for gold, which is a very interesting indicator. So oil and gas, you quickly touched based on that. How are you currently thinking about that space? Just talking about opportunities to go structurally long perhaps.
Yeah.
Is the worst still to come in the supply shortage?
Um, look, I think there's a lot of things there um to unpack, but oil and gas to me is an absolutely critical piece of a portfolio construction when you're thinking about how much for instance focus and allocation I personally have in in metals and mining. I think it's probably the most efficient um and smart hedge you can have in a space. And so from many perspectives from the perspective of margins a lot of times you know if oil prices go up and you know you you may see margins compressed depending on the mining project you're looking at particularly open pit projects and others that have more diesel cost exposure. And so being buying if you're if if you're operating a mine and you're finding those moments where you can hedge diesel costs and energy costs, that's a great way. But as investors, we also need to be thinking that way. To me, you know, the further precious metals go up and the and and and the more energy falls, the more attractive energy becomes as a as a hedge in my portfolio. Obviously, today we're seeing exactly that. So the opposite of that where miners are falling and energy prices are going up. So it's a great sign that you know that hedge is still alive. And now I think that that's what we should do as as resource investors be looking at those smart hes. The allocation most people tend to think of energy as geopolitical and other things and it is it there's no doubt it is but it's also a misallocation of capital over the long term. I mean, you know, if you look at S&P 500, energy sector allocation is one of the lowest levels in history. Great businesses there. So, I don't know. I I'm personally is one of the pillars that I'm very focused on. I I usually say three pillars, metals and mining, energy, and Latin America. Those are the three things I'm I'm interested in.
Structurally long on. And on the oil and gas, by the way, I know I only asked for five minutes. We have time for a few more questions.
Yeah. Yeah. No, that's fine.
Excellent. Really appreciate that. So on the oil and gas side, there's still opportunities to find high dividend yield, high operating cash flow yields, high free cash flow yields. Is it still an interesting add to a portfolio today even though some of the prices have already started moving upwards?
Yeah, there's that there's there's yield opportunities, but also I would say you know like I you know I was I was involved in a in a acquisition of a silver mine when silver was was at I don't know 134 an ounce. Is it the same situation with energy? No. I I don't think we're at the same depressed situation we were with mining when we did that deal. However, I do think it's in a situation that is much more attractive to find private or restructuring deals than the mining space. And so I am definitely trying to play a few different things there that are more unique uh to where we are in that cycle. Um, but energy I think fits perfectly and for those that invest in precious metals and in this conference there's plenty of people that do that. Be very open-minded to to energy because it's going to be um in my view an important uh investment to reduce it sounds crazy but will reduce likely your volatility in your portfolio like days like today. You know I would rather be long energy than be short the equity market. I think it's an easier call. Um, and uh, they're great assets out there, you know, like I I I like the intersection of finding energy companies in South America that are high quality. I mean, that's another way to play this as well. Um, but, you know, natural gas is another one that very few people talk about and it's right now with the situation in in the Middle East and so forth has been taken away. But if you look at the structural demand coming from data centers and all what are we going to use for source of energy? It's natural gas. There's nothing around it. Like you can't get nuclear quickly. You won't probably get um uh wind, solar. I mean all these things the the only solution in the near term is going to be natural gas. So, you know, it's interesting when situations like the Middle East war kind of take the focus away from investors from the big the big, you know, solid structural demand that will be in place regardless of what happens. And so, I think that's going to be interesting as well.
And on the natural gas front, very interesting you brought that up. Of course, it's less geographically funible than than oil is. It's very hard to transport LG if possible, but it's more costly.
Yeah.
How important is the right geographical location and is North America gas heavy producers an interesting place to be looking?
Yeah, I think the the issue with natural gas usually is related to and and it gets mis misreported in my view on the media is that you have different prices for situations like lack of infrastructure where gas gets basically stuck on an area and you see negative prices. It doesn't mean you don't have enough demand. and it means that gas in that region is stuck. Um, so obviously you need to understand those mechanics. I think there's going to be lots of opportunities in the midstream side of business as well strategically looking at other areas outside of the US too. Um, so and we have to think about it you know even sorry to go back to Latan but it's relates to all this there's so much demand coming from data centers. um electrification um onshoring that people don't talk a lot about it the the the rebuilding of capabilities of manufacturing industrial capabilities and all sorts of things is going to also generate a lot of electricity demand and when you think about that Latin America is one of the few countries in the world that has excess of energy relative to how much they consume and so you're pro you're already seeing that a lot of companies in the US are trying to partner with countries in South America and Latin America uh looking for those uh types of investments to for the long term to tap that um source of energy that could be very useful. So, you know, I I'm personally very interested in that as well because I think that's going to be a a place of a lot of strategic um partnerships in the future between US companies and Latin America.
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I would also love to get your thoughts on critical minerals if that's all right. Tungsten, of course, is one of them has been on absolute tear in in recent times.
Yeah.
Is there still an opportunity to go long on some of these critical minerals and and which ones would be catching your eye right now?
So, I'm very critical of critical minerals to be quite honest. I I think I think it's a bit of a disease in the industry in my view. Um there's a lot of misallocation happening in that space. A lot of people are putting a lot and I'm when I say a lot of people I mean institutional capital that should be coming into copper, gold and silver mostly cuz those I mean to me those are the main if you want to just simplify and I don't know why people want to make it complicated but if you just want to simplify investing in the mining space those three metals are is probably where you need to be. Uh they all have structural demands moving forward. They all have structural supply constraints moving forward as well. And people say, "What about platin? What about that's fine, you know, you can play those and and and that but if you just focus on those three ones, you're probably going to be okay for the next five to 10 years. If you find three quality assets across those three pillars, now let's go. I I think there's too much capital chasing things like rare earth, uh, tungsten, like those are small markets. We don't need I mean they're critical but they're not like it's not like we need billions and hundreds of billions of dollars coming into the space and I think we as investors are forgetting about not that they're just critical but are they great businesses that's the question we need to be asking ourselves and when I looked at the fundamentals of most of these companies that carry those assets I'm not very particularly interested in in what those economics look like and so init initutions are coming in and saying, "Oh, it's critical. I'm going to put money in. I don't care what it is." So, be careful out there because I think there's a lot of that right now. And I've seen this before and it happened with the lithium space recently in the middle of metals suffering. Lithium was going up like crazy. This is 3, four years ago if you recall that that came crashing down. And then, you know, I I I just, you know, I I don't play into that part of the market. I I I try to stay away from that.
Really appreciate the additional details. So on the copper side and I'll try to make
By no means I think that there are not opportunities in that space either. I'm just saying that generally it's unique to each each company but majority of times it's just the general investor that doesn't know anything about mining is just looking for critical minerals and anyways sorry.
No no well in the truth and of course if one mine comes line in a critical mineral it could crater price. So, I understand the caveat you want to make there.
I will try to make this my last question on on copper. Of course, the metal is at or very near to alltime highs. Are you structurally bullish copper still from here or is it more the copper developers and producers that you're bullish on?
Well, very very bullish both. And the reason for it is when you saw gold at around 2,000 level, we were hitting that wall. Once we broke that wall with authority, we double went to 4,000. Then we went to 55 5400 or so very quickly. Silver we were at 20 25 30 hit 40 50 160. Copper that hasn't done that yet. You know copper is kind of sort of like in that where silver was at 40. And I expect copper to go crazy here. So, it's almost like the best analogy I keep using is it's almost like a a beach ball being held up against inside of the water and you know eventually right now we're seeing that some I don't know a little kid just forcing it down but eventually that thing just keeps going and so operating leverage in the copper space has been priced much better than the gold space meaning the mining company's performance relative to the metal have been behaving better than in the in the gold space, but that doesn't take away that leverage itself and and how much it can actually perform if we do see copper going crazy. And so, yeah, I mean, if there is one thing where institutions should be throwing money at it is is copper mines in my view. And I don't get it why they're not. And I don't get it why they want to go to critical minerals rather than copper. that is plain si simple if you want to focus on one metal you know but again I love silver and co and gold as well I these are areas that I'm very focused because I I think that they're just as compelling but they're in different situations those two are more discounted in prices have seen very steep price declines where copper is still sort of hovering around as you said at that those levels those high levels and and yet to really like when you break out, you don't see a 5% move above the prior high. You you see double, you know, and so that's what I expect personally.
Ty Costa, tremendously appreciate it. I would love for you to talk about what you're currently up to and how anyone watching can best keep up with your work.
Yeah, I am in the process of launching uh a fund and um currently been sharing my views on Substack recently and um just more on the research side of things, but obviously my passion is is managing money. So I will go back to that here shortly and stay tuned. I'll probably have an announcement here soon.
Perfect. Really appreciate it.
Thank you. Appreciate it. Yeah.
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