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The Asset Class with George Chevely · Strictly Business

• 0:00
  You're listening to Strictly Business Podcast with Lindsay Williams.
• 0:05
  When the America's Mining Forum 2024 was held, the gold price, I suppose,
• 0:10
  was mucking around about $2,650 to $2,700 per ounce.
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  It's recently concluded, the 2025 version, of course, and the gold price has been
• 0:21
  above
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  $3,800 per ounce, albeit rather briefly.
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  With me now is somebody who has attended both events, and that's George Cheveley,
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  Portfolio Manager Resources at 91 in London. George,
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  the name's changed because it used to be the Denver Gold Forum.
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  I think it did anyway.
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  And the mood must have changed over the last few years because you've been an
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  attendee on several occasions.
• 0:47
  No, I've been going for a number of years, and certainly this was the best mood we've
• 0:52
  seen for a number of years.
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  And not surprisingly, because of the move in price and earnings for Gold Company.
• 0:57
  Yes, well, let's start with the moving price in US dollar terms.
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  First of all, why?
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  I hear so many reasons, but you've got to rank them, haven't you?
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  So number one reason, please.
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  I think people are worried about the US dollar and fiat currencies in general.
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  And that's not just individuals, that's governments as well.
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  And we've seen a major shift in the view of gold and it's seen as a safe haven and
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  a hard asset that
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  people can rely on.
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  when fiscal policies around the world have certainly been more risky and we've seen
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  governments spending too much money.
• 1:35
  The dollar bear market, so-called, some people say it's too early to call a dollar
• 1:38
  bear market.
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  Other people say, well, we're in the first stages of a full-blown structural dollar
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  bear market.
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  If it continues, has gold already anticipated it or will gold continue to
• 1:50
  follow?
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  Always very hard to say, but it certainly doesn't feel that the
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  Current move in gold prices is about to end.
• 1:59
  I mean, clearly, we will have cycles within it, we'll have, you know, some
• 2:05
  sell-offs at some point.
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  But certainly, when you talk to a lot of people, and when you see the buying
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  behaviour of people,
• 2:12
  there still seem to be a number of people willing to buy at this price.
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  And in fact, if anything, we've seen a lot of people, you know, who haven't
• 2:20
  participated yet.
• 2:22
  Yes, well, let's talk about the people that have participated.
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  A lot of talk of central banks buying gold, loading up.
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  Are they the number one buyers?
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  Since 22, they've been one of the major buyers.
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  And we've had record central bank buying in 22, 3 and 4,
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  and roughly double what we've ever seen since the 1950s. So they've bought over
• 2:46
  1,000 tonnes each year.
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  This year is actually, year to date, slightly lower.
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  partly, I think, because of the price moves.
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  But we certainly still see them participating.
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  What's interesting this year is we've also now seen the number of ounces in ETFs,
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  that's the gold ETFs, have started to increase substantially.
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  So a year ago, there were 80 million ounces or so.
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  Now we're up to 95 and rising.
• 3:14
  Yeah, well, you've got two different types of buyers there.
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  You've got the speculative buyers for the ETFs, and they can turn tail quite
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  quickly,
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  I believe.
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  Whereas the central banks tend to be strong holders.
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  I mean, they're not going to see it at, say, 4,200 and say, I bought it at 3,200.
• 3:32
  Let's ship this out and take a quick profit, are they?
• 3:36
  No.
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  And if you look at the history, central banks, if you go back 20 years or more,
• 3:42
  were sellers.
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  You know, in the
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  90s, they've been net buyers for the last 15 or more years now and look set to
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  continue.
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  Once they've decided, they tend to be very strong holders.
• 3:55
  Good.
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  Where else are we seeing demand?
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  Jewelry, not so much, I would imagine.
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  The last time we spoke this year,
• 4:02
  you talked about platinum group metals with me and you talked about the number of
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  jewellery
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  manufacturers that are switching to platinum.
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  So maybe that's to the detriment of the gold jewellery sector, that is.
• 4:17
  No, no.
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  And definitely there are price sensitive sectors of which jewellery is definitely
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  one of them.
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  And obviously we've seen demand slower in that area.
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  But I mean, frankly, ETF buying and central bank buying are very important.
• 4:33
  So, I mean, you know, central banks are buying roughly today a third of annual
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  mine production.
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  So, I mean, these are quite influential.
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  And on that note, that's a neat segue to production and to supply.
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  We've spoken about demand.
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  Mine production, is mine production keeping up?
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  Is it increasing?
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  Or is that not the case with gold?
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  It's just more or less a constant.
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  Mine supply, if you look over the last, you know, 10, 20 years, it averages around
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  1% growth per year.
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  So it is growing.
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  And definitely we are seeing companies now keen to grow.
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  We'll maybe see that accelerate a bit.
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  But it's very hard to grow it fast.
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  Permitting, you know, the cost of doing these projects, getting skilled people.
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  And you've got to remember gold mines generally, they're not as long life as
• 5:23
  copper or iron ore mines.
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  And so you're having to replace.
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  reserves and new mines all the time okay so one percent a year it may increase
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  given the price
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  sensitivity of production to a certain extent but what about hedging i mean some
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  of these mines are making
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  enormous margins at the moment there must be someone in the treasury department of
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  some of the mines that says
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  come on chaps we've got to lock in another 10 percent at these levels yeah we
• 5:52
  definitely that's the sort of discussion what's
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  interesting um You know, hedging companies used to hedge a huge amount 20 years ago,
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  and they got caught out when prices rose in the early
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  2000s, where the hedges actually ended up below the cost of production.
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  So since then, they've been much more wary and only hedge tactically.
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  What we've actually seen the last few years is companies hedging through what
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  are called zero premium
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  collars.
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  So they...
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  They sell a call at a higher price to buy a put at a lower price.
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  And if the price stays in that range, it costs them nothing.
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  Obviously, if it goes through the top, they lose the upside.
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  But it costs them nothing to put on the position.
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  What we're actually talking to companies this year is because their cash flows are
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  so much stronger,
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  more companies can now essentially afford to buy put options.
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  And that's straight away, you're just buying insurance.
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  So you're saying.
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  I'm buying protection.
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  If the price goes down 10%, I get that basic price.
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  I don't lose any more.
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  It obviously costs you money.
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  If the price doesn't go there, you spend the premium.
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  But with cash flows as they are, they can afford that.
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  So it's really just straight buying insurance against lower prices.
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  And we are seeing a number, particularly mid-cap companies, those with higher cost
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  operations,
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  doing that because it makes sense at this stage.
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  I'm looking at the gold price graph now.
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  If you go back 10 years, a little bit more than 10 years, George, it's essentially
• 7:24
  quadrupled.
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  So if you were long of it, if you're lucky to have been a long-term holder of gold,
• 7:29
  you're one of those gold bugs that can't bear to sell anything like Goldfinger in a
• 7:34
  James Bond film.
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  He just wants to accumulate all the time.
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  But you see this, you must be tempted at some stage.
• 7:40
  This giddy-making graph that I'm looking at now must take some sort of breather?
• 7:47
  No, no, clearly it does have to at some point.
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  It's very hard to say when.
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  And in a sense, myself as a gold fund manager, that's not my decision, really.
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  My job is to outperform my index by investing in gold equities.
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  My investors, obviously, they have to decide whether they want to be allocated
• 8:09
  to gold or other asset classes.
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  So frankly, that is not my issue, I would say.
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  My issue is to make sure I find the best companies to express that investment.
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  Let's talk about the best companies.
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  I spoke to one of your colleagues earlier this year, and he had bought South African
• 8:27
  gold mines,
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  and they had run very nicely.
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  But he put forward the argument that the international, as he called them, because
• 8:34
  they're outside of South Africa,
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  the international gold miners hadn't run as hard and were just getting started.
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  Would you agree with that?
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  Yeah, I mean, look, we've seen it.
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  We've had a very strong two months now.
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  And certainly we've seen some catch up.
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  I think when I last spoke to you, even though miners had run hard this year, my
• 8:55
  point was they were up 50%
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  and their margins have more than doubled.
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  Now, obviously, your average, you know, the index is now more than doubled this
• 9:03
  year.
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  But actually, if you look at current prices, their margins on average are
• 9:10
  probably three times what they were a year ago.
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  So you could still make an argument that there's still more to go if prices hold.
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  And, you know, that's the way we look at it.
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  So, you know, yeah, we've seen mining companies basically do three times the
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  gold price this year,
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  displaying that leverage they have via margins.
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  But, you know, arguably, if prices stay up here, not go higher, just stay here,
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  you can argue there's still more upside in these companies.
• 9:40
  Yes.
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  And on that note, how are you positioned?
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  What is your strategy at the moment at 91 in London?
• 9:46
  Well, obviously running a gold fund, I'm exposed to those miners.
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  And we have added some juniors where we see more growth because a lot of the
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  seniors don't have much growth.
• 10:01
  They are reducing costs, but they don't have a lot of growth.
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  So we've increased the number of holdings we've had and added some smaller ones.
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  In our more general resources fund, we remain overweight precious metals.
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  And I say precious metals because that's overweight gold, platinum.
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  and silver within the fund.
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  Though, you know, that has been, we've moderated that slightly this month after a
• 10:25
  very strong run.
• 10:27
  Okay, so everything set fair for gold, seemingly.
• 10:30
  And copper, I just quickly want to talk about copper because of where you've
• 10:37
  recently been for that gathering.
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  And it's had a nice few weeks, actually.
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  It's gone from the sort of 4.4...
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  $4.4 per pound level up to around about close to $4.80
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  per pound.
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  So a nice steady move and everyone's quite excited about it.
• 10:56
  Are you as excited as they are?
• 10:59
  Yeah, we've been excited actually for two or three months on copper.
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  And in fact, there was very big news yesterday because Freeport, who have a
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  large mine, the second largest copper mine,
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  it's in Indonesia called Grasberg.
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  Yes.
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  They've had a major incident.
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  They had a major flow of mud, basically, into one of their mines.
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  Sadly, two people died, five are still missing.
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  But that happened two weeks ago, but they came out yesterday and they've reduced
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  their production for this year by
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  250,000 tonnes, roughly, and next year as well,
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  because it's going to take a long time to sort this out.
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  And that's a major...
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  Supply disruption on top of several we've already had this year with problems in
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  Congo, problems in Chile and several mines.
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  So that's why we've seen copper jump in the last day.
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  Frankly, I think it hasn't done enough.
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  I think, you know, we have a very tight supply demand balance now,
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  particularly over the next six months when that mine will produce very little.
• 12:04
  And stocks of copper outside of the US are quite low because most of the copper was
• 12:11
  moved to
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  the US.
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  in anticipation of tariffs, which didn't arrive.
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  Given the fundamentals that you've just sketched out and also the potential for a
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  dollar bear market to
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  continue, could copper be the new gold in the future, in future years?
• 12:27
  I think particularly in the short term, copper looks, you know, very exciting.
• 12:32
  We always, we felt the market was tightening and we felt that we needed an
• 12:38
  overweight,
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  not that we knew it was going up.
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  but the risks were much higher.
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  It could end up higher than lower.
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  Clearly, the news yesterday is encouraging that.
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  And I think over the next few months, if demand holds up, and that is an if,
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  I think we can see copper push higher from here.
• 12:56
  George, thank you very much for your time.
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  George Cheeverly is a portfolio manager, resources at 91 in London.
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  The views and opinions expressed in these podcasts are those of Lindsay Williams and
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• 13:15
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• 13:17
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• 13:19
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• 13:26
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• 13:28
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• 13:33
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• 13:35
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• 13:35
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