Latest / Kitco MINING / Gold Miners' Earnings Soar, but Valuations Stay Low | Kenny Zhu

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Gold Miners' Earnings Soar, but Valuations Stay Low | Kenny Zhu · Kitco MINING

• 0:06
  SPEAKER_01: Hello, welcome back to Kitco Mining with me, Paul Harris.
• 0:09
  SPEAKER_01: Today is Wednesday, October the 21st, and we're talking about gold and gold companies.
• 0:14
  SPEAKER_01: Joining me now is Kenny Zoo, Director of Research and Investment Strategy at Sprott Asset Management.
• 0:20
  SPEAKER_01: Kenny, welcome to Kitco.
• 0:22
  SPEAKER_00: Thanks for having me, Paul.
• 0:25
  SPEAKER_01: Well, thank you for being here.
• 0:26
  SPEAKER_01: You've just published a Sprot's quarterly gold miners report, which is an insightful read as always, and hopefully we'll be digging into some of your findings from that report.
• 0:37
  SPEAKER_01: Let's start at the top.
• 0:38
  SPEAKER_01: You mentioned that gold year-to-date performance is a tail of two markets.
• 0:42
  SPEAKER_01: The first driven by concerns about US dollar debasement and reserve diversification.
• 0:47
  SPEAKER_01: The second shaped by energy supply disruptions, inflation fears, and Federal Reserve interest rate expectations.
• 0:55
  SPEAKER_01: As we get in towards the end of the year, bond yields and interest rate narratives seem to be dominant today.
• 1:01
  SPEAKER_01: Kenny, what's your view there and how do you think this will play out?
• 1:06
  SPEAKER_00: Sure.
• 1:07
  SPEAKER_00: Yeah, that's that's uh it's a lot to cover.
• 1:09
  SPEAKER_00: So, in terms of the two markets narrative, right?
• 1:12
  SPEAKER_00: You're talking about essentially a market from the beginning of the year through around March.
• 1:17
  SPEAKER_00: And that was where we saw a continuation of 2025's overall gold rally.
• 1:23
  SPEAKER_00: And and that was a very strong period of return.
• 1:25
  SPEAKER_00: And you saw a little bit of a blow-off top in February.
• 1:28
  SPEAKER_00: Um, and really the thing that really changed the market dynamic was uh the outbreak of the war in Iran uh in early March.
• 1:36
  SPEAKER_00: And essentially that flipped the market on its head because what did that essentially usher in?
• 1:40
  SPEAKER_00: And it was a period of rising energy prices where inflation was actually on the downtrend before that war broke out.
• 1:48
  SPEAKER_00: Um, the energy-linked nature of that conflict between um the closure of the Strait or Hormuz, uh roughly 20% of global crude oil and refined fuels uh markets uh essentially coming to a standstill in terms of transport.
• 2:02
  SPEAKER_00: Um and what you get is uh ultimately a feedback loop where uh inflation concerns started jumping back into the picture.
• 2:10
  SPEAKER_00: And when it comes to inflation, uh when inflation starts to move up, the Fed starts to have to move, right?
• 2:15
  SPEAKER_00: And then that's really what changed the dynamics.
• 2:17
  SPEAKER_00: So uh usher in the second market, right?
• 2:19
  SPEAKER_00: Because we were talking about tail of two markets.
• 2:21
  SPEAKER_00: The second market was a period from March through roughly uh from through now, essentially, but I'd say that uh a lot of the downward trend uh occurred through March from uh from March to around mid-July.
• 2:33
  SPEAKER_00: And then we saw basically a broad drawdown in gold and uh precious metal markets overall.
• 2:39
  SPEAKER_00: The miners were uh no exception to that rule, and they actually saw a massive drawdown.
• 2:44
  SPEAKER_00: Um but essentially uh you know, fast forward to today, and uh we had a period in August where gold essentially jumped back in.
• 2:52
  SPEAKER_00: Um that was a period marked by debasement um currency concerns, um, generally speaking, rising bond yields on the long end, uh, and we continue to see those cross currents impact the market today.
• 3:04
  SPEAKER_00: So, where are we in uh essentially mid-October now?
• 3:07
  SPEAKER_00: Well, uh there's currently ongoing rate volatility um and for a factor, uh, if you look at the negative side impacting gold, uh, it's been rising real rates.
• 3:18
  SPEAKER_00: And while everybody's aware that rising real rates weighs on gold performance, um we actually saw another uh piece of the puzzle jump into the market last week, um, and that was some concerns in terms of credit risks concerning uh the AI trade.
• 3:31
  SPEAKER_00: And when credit risks become a concern, that directly impacts economic growth, and that is, in our view, somewhat bullish for the gold narrative.
• 3:40
  SPEAKER_01: Thank you for that very succinct summary of uh nine hectic months there, uh Kenny.
• 3:45
  SPEAKER_01: We're in an interesting two-week period now because we have the US midterm elections coming up um in in November.
• 3:52
  SPEAKER_01: And inflation is uh is it has always been a key thing in the US uh presidential cycle, in the political cycle there.
• 4:00
  SPEAKER_01: Uh Donald Trump, US President Donald Trump is no different.
• 4:03
  SPEAKER_01: Inflation is the word that is bottom, and yet, as you pointed out, the the uh energy aspect of the straight off or moose crisis has really supercharged inflation this year, and one could perhaps argue that it's given uh the Iranians perhaps an unconventional weapon to uh uh pursue its case, its cause with the US.
• 4:22
  SPEAKER_01: What do you think is going to happen after the US midterms?
• 4:25
  SPEAKER_01: I'm not really sort of voting on who's gonna win most or not, but once the midterms have died down, will this inflation narrative die down?
• 4:33
  SPEAKER_01: Will the US president perhaps be able to get back to you know full-on conflict in the Middle East?
• 4:41
  SPEAKER_00: Yeah, I would say in terms of a geopolitical perspective, it's hard to make a market call.
• 4:46
  SPEAKER_00: But what I will do is try to set the essentially the framework for that discussion, right?
• 4:50
  SPEAKER_00: Because um really what you need to understand is essentially the uh dichotomy between economic growth and rising real rates, right?
• 4:59
  SPEAKER_00: Because those two things kind of go hand in hand.
• 5:01
  SPEAKER_00: Um and uh the other thing would be the actual impact of things like slowing growth as well as inflation expectations.
• 5:09
  SPEAKER_00: And you need to kind of hold those things independently of each other.
• 5:13
  SPEAKER_00: Um, for example, like when you see a market with rising rates, um, long end versus short end, uh, you think about uh last week's uh fears in the credit market, right?
• 5:24
  SPEAKER_00: It can get very messy and it's hard to tell what's actually driving gold at any given time.
• 5:28
  SPEAKER_00: But I think that's really the key takeaway, right?
• 5:30
  SPEAKER_00: Because what's been driving gold um for much of October, definitely for much of September, right?
• 5:35
  SPEAKER_00: And it's really been that negative bearish impact from the rising real rates.
• 5:39
  SPEAKER_00: And what's been driving real rates, um, if you look at some of the analyst uh essentially interviews out there, um many of them point to the fact that the rising real rates were uh 90%, 80 to 90 percent driven uh not by inflation concerns, but actually economic growth.
• 5:55
  SPEAKER_00: And the economic growth within the United States has been tremendous.
• 5:58
  SPEAKER_00: And if you look at the relative valuations of the US versus markets in Asia, Europe, um US has been uh this the essentially the point of stability uh where currency flows are flowing, and that's essentially made the dollar stronger, which has been net gold bearish.
• 6:14
  SPEAKER_00: Now, what's changed last week?
• 6:15
  SPEAKER_00: Uh, well, the AI trade has started to come into question again.
• 6:18
  SPEAKER_00: And uh, if you look at some of the the uh analysis out there, um AI spend within the United States is somewhat responsible for between as much as 0.25% to as much as a one-hole percent of GDP.
• 6:31
  SPEAKER_00: And if you look at those figures, that's a fairly tremendous figure uh for a nation where GDP growth has uh trended towards maybe two and a half, two point three percent.
• 6:40
  SPEAKER_00: Um that's a major impact.
• 6:42
  SPEAKER_00: And if if the uh if there's any kind of fear that could detract that AI spend, right, that if to us is net gold positive because following economic growth is a market where gold actually stands to do well, right?
• 6:55
  SPEAKER_00: Because again, think about it in terms of that real rates.
• 6:58
  SPEAKER_00: Rising real rates raises the opportunity costs of owning gold.
• 7:02
  SPEAKER_00: If economic growth slows down, um you reduce that economic cost, um, that improves the outlook for precious metals.
• 7:09
  SPEAKER_00: Um now, just one last point to address your point on midterms.
• 7:13
  SPEAKER_00: We're not really uh in the business of forecasting those elections.
• 7:17
  SPEAKER_00: Uh, but what I will say is is historically uh midterm elections um have been generally uh equities bullish.
• 7:25
  SPEAKER_00: Um, and then the main reason for that has been uh if if there's a situation where potentially the Democrats gain the House, uh maybe the Senate becomes a toss-up.
• 7:34
  SPEAKER_00: That seems to be what a lot of political analysts are saying out there.
• 7:37
  SPEAKER_00: Um you have a possible situation where you have a hung government.
• 7:41
  SPEAKER_00: And that ergo would essentially decrease prospect for further fiscal spending.
• 7:47
  SPEAKER_00: Um that could actually bring long-term-term bonds yields down a little bit, weakening the dollar factor again, and that could also be gold bullish.
• 7:55
  SPEAKER_01: Thank you, Kenny.
• 7:56
  SPEAKER_01: Um let's move on to the gold miners themselves because uh your quarterly report included a lot of really good information and analysis there.
• 8:05
  SPEAKER_01: You said in the report that the market's current scepticism toward gold miners is based on an outdated view of the sector.
• 8:11
  SPEAKER_01: Uh, some reference points here.
• 8:12
  SPEAKER_01: Gold miners have had their strongest financial footing in decades, yet valuation multiples like Ford enterprise value by EDEBAR, EDABAR have compressed over the past decade to five times, seven times from a peak of 9.9 times in June 2014, suggesting valuations have not priced in improvements to underlying minor economics.
• 8:33
  SPEAKER_01: Valuations are not rewarding record earnings, healthier balance sheets, or improved improved capital discipline, it seems.
• 8:41
  SPEAKER_01: Uh, Kenny, what is the why does the market have this outdated view about the sector?
• 8:47
  SPEAKER_01: And what can be done to update that or change that?
• 8:51
  SPEAKER_00: Yeah, certainly.
• 8:52
  SPEAKER_00: So um I'll answer the question directly and then we can take this in whatever direction you want to choose.
• 8:57
  SPEAKER_00: Um, but first, uh essentially what happened was that investors uh have a long memory when it comes to gold miners, and frankly, they have a good reason to, right?
• 9:06
  SPEAKER_00: Because if you think about the last major cycle, and that was essentially the one that uh blew off in 2010 to 2012, that was characterized by uh uh a market or a gold mining sector uh that was prone to aggressive spending, debt-funded expansion, and value-destructive MA.
• 9:22
  SPEAKER_00: And that essentially drove free cash flows deep into the red and eradicated shareholder value over that time.
• 9:27
  SPEAKER_00: And we acknowledge that factor.
• 9:29
  SPEAKER_00: Uh, but when you look at the industry today, the fundamental fundamentals look remarkably different, right?
• 9:34
  SPEAKER_00: Because you have earnings that have been sharply rising on the back of uh rising gold prices.
• 9:39
  SPEAKER_00: Uh, but balance sheets that are actually now cash flow, are actually not only cash flow positive, um, but they're cash positive for the first time in decades.
• 9:46
  SPEAKER_00: And significantly more cash is being returned to shareholders.
• 9:50
  SPEAKER_00: You're seeing uh share buybacks and dividend distributions to levels uh arguably never seen before.
• 9:55
  SPEAKER_00: And what hasn't required uh recovered over that time period is uh the minor valuations, and those look cheap regardless of how you slice it, whether it's price to cash flow, price to equity, uh price to earnings, or price to uh EV to EBITA, uh those price multiples have essentially been rendered cheaper by spikes in those denominators, and that's been the rise in cash flows and earnings.
• 10:14
  SPEAKER_00: And expected earnings and free cash flows are now higher than they've ever been.
• 10:18
  SPEAKER_00: To us, that suggests uh investors are still valuing gold miners based on the mistakes of the past cycle.
• 10:24
  SPEAKER_00: We believe that it's it might be time to look at them again, uh especially given some many of the practices uh that drove the last cycle have essentially flipped uh and are marginal, are uh vastly different today.
• 10:38
  SPEAKER_01: Thank you, Kenny.
• 10:39
  SPEAKER_01: Um I'm gonna be a bit uh cute here.
• 10:41
  SPEAKER_01: Um miners were always asking out for new investors.
• 10:44
  SPEAKER_01: Is that why new investors don't have any memory at all?
• 10:47
  SPEAKER_01: Not the long memories you're you're saying existing investors have.
• 10:53
  SPEAKER_00: Um yeah, I mean, if you look at the previous cycle, right, it was really about maximizing the number of ounces produced.
• 10:59
  SPEAKER_00: And the current cycle is different, right?
• 11:01
  SPEAKER_00: Because the current cycle focuses on maximizing the return of every ounce produced.
• 11:05
  SPEAKER_00: And it would be an understatement.
• 11:07
  SPEAKER_00: Again, I'll just I'll do another history lesson, right?
• 11:09
  SPEAKER_00: It would be an understatement if you called gold miners poor stewards of capital back in 2011, right?
• 11:14
  SPEAKER_00: Because the period was rife with capital destruction.
• 11:16
  SPEAKER_00: I'll throw some numbers out there, right?
• 11:18
  SPEAKER_00: Essentially, miners spent every cent that they received and then some.
• 11:22
  SPEAKER_00: Um, and that led to high rates of leverage that sent debt levels for the industry skyrocketing.
• 11:27
  SPEAKER_00: On the second hand, uh, they also grew for the sake of growing, and that led to unsustainable levels of capex.
• 11:32
  SPEAKER_00: And if you look at the free cash flow levels, they saw negative free cash flow for the industry in nearly every year between 2004 and 2014.
• 11:41
  SPEAKER_00: And that also saw a period of ruinous MA.
• 11:43
  SPEAKER_00: Um, if you look at the estimates, um, somewhere between$85 billion to$114 billion of shareholder value was essentially written down uh because of uh overpriced Ms MA cycles, uh, and that lasted between 2010 and 2018.
• 11:58
  SPEAKER_00: And uh while I will say a wave of firings in the mid-2010s uh ended up clearing out those management teams from the last cycle, uh again, let's draw that parallel to today, right?
• 12:08
  SPEAKER_00: Because 2026 is markedly different.
• 12:11
  SPEAKER_00: Um, what's changed?
• 12:12
  SPEAKER_00: Uh over the past decade, investors are now demanding capital discipline, and management teams have responded in kind.
• 12:18
  SPEAKER_00: Rather than growing on uncertain prospects, miners are actually focused today on what they can control.
• 12:24
  SPEAKER_00: And that's been cutting costs from 2014 to around 2020.
• 12:28
  SPEAKER_00: And today, miners have sharply cut down on capex, and the majority of the capex that is ongoing remains sustaining capital.
• 12:34
  SPEAKER_00: Firms are leaner today uh with healthier balance sheets than ever.
• 12:38
  SPEAKER_00: And rather than running up debt, miners have actually been paying them down.
• 12:42
  SPEAKER_00: And if you look at the industry's balance sheet today uh on an on an index level, uh it's actually cash positive, and that's uh a rarity in uh in a mining sector like this.
• 12:51
  SPEAKER_00: On top of that, there's still CapEx and MA, we'll acknowledge that.
• 12:55
  SPEAKER_00: Uh, but again, as I said, it's mostly of the sustaining variety.
• 12:58
  SPEAKER_00: Exploration budgets also uh still intact.
• 13:01
  SPEAKER_00: Industry, uh, if you look at the actual uh where they're doing that exploration, however, um industry's been focusing on brownfield investments, and that's more high confidence uh projects, and that includes add-ons and regions adjacent to existing mines.
• 13:15
  SPEAKER_00: So you're not really taking as much risk as you would with uh something of an uncertain greenfield development.
• 13:21
  SPEAKER_00: On top of that, you have miners paying out dividends, buying back shares using record cash flows.
• 13:27
  SPEAKER_00: Um, and another number to throw on there is you know, you saw years of negative cash flow back in the 2010s.
• 13:33
  SPEAKER_00: Um, today we're uh we're on the 11th, maybe 12th straight year of positive free cash flows, and that goes back as far as 2015.
• 13:40
  SPEAKER_00: And the today's free cash flows are triple what they were just five years ago back in 2021.
• 13:46
  SPEAKER_00: And that trend started before the latest run-up and gold prices even kicked up.
• 13:49
  SPEAKER_00: The free cash flow per share on the index was$42 a share in 2021.
• 13:54
  SPEAKER_00: Uh now that's closer to$130 a share in 2026.
• 13:58
  SPEAKER_00: Um, and some have actually warned that gold miners are not investing enough in CapEx.
• 14:02
  SPEAKER_00: Now, while that warrant some of its own concerns, it's a vastly different problem than overspend.
• 14:08
  SPEAKER_01: Okay, there's uh a lot to unpack there, Kenny.
• 14:11
  SPEAKER_01: So hopefully we'll go through a few of those points in particular.
• 14:15
  SPEAKER_01: Uh, as you mentioned, as you detailed, there's been quite a fundamental in the behaviour and the comportment of the gold miners, which is why you believe that the market now has this outdated view.
• 14:26
  SPEAKER_01: But how does market the market have an outdated view given that miners have been uh responding to investor requirements?
• 14:33
  SPEAKER_01: Investors said, you know, capital discipline, exercise that, start generating cash flow, start generating net cash.
• 14:40
  SPEAKER_01: The miners are doing all these things and doing them very well, and they're now in the you know the rarefied position of uh perhaps having too much cash to know what to do with.
• 14:48
  SPEAKER_01: So they have been responding to the market, they have been responding to investors, but the valuations uh are still not there.
• 14:55
  SPEAKER_01: What gives you or them the confidence that valuations will increase or you know catch up for lost ground?
• 15:04
  SPEAKER_00: Yeah, certainly.
• 15:05
  SPEAKER_00: So essentially you see a divergence, right?
• 15:07
  SPEAKER_00: And a lot of it is because essentially the commodity price has outstripped um expectations to a large degree.
• 15:14
  SPEAKER_00: Um and we can think of two reasons why the valuations haven't really re-rated as it stands.
• 15:19
  SPEAKER_00: Um essentially, again, uh earnings per share are skyrocketing or have been.
• 15:23
  SPEAKER_00: Um they've essentially stabilized in the in the recent um essential correction in gold, uh, but essentially they are still near record levels.
• 15:32
  SPEAKER_00: And and the issue is that the valuations on EVE and a number of other metrics uh remain restrained, and they certainly seem actually cheaper because earnings have grown so quickly, um, and they now look cheaper relative to where they were a decade or even longer before.
• 15:47
  SPEAKER_00: And we can think of essentially two reasons why that might be, right?
• 15:50
  SPEAKER_00: The first is investors have either near have either uh either written the sector off, they've largely ignored it, or are unaware of the industry's new fundamentals.
• 15:59
  SPEAKER_00: And uh again, conversations like this on the show today, right, are essentially uh our attempt to uh educate investors on that market.
• 16:06
  SPEAKER_00: Now, the second answer that we uh we can think of is that investors may not even uh may not believe that the current trending earnings is sustainable.
• 16:13
  SPEAKER_00: Uh and while we point out to the fact that commodity prices are subject to macro forces, uh, I think it's important to distinguish between what miners can control and what they can't within that context.
• 16:23
  SPEAKER_00: Now, if you think about what they can't control, right, and why why we are actually confident on the longer-term structural growth rate uh for gold, right?
• 16:32
  SPEAKER_00: Uh you look at the market back in 2011 versus today again.
• 16:35
  SPEAKER_00: Unlike 2011, today we have central banks driving demand.
• 16:39
  SPEAKER_00: And since 2022, annual gold purchases have essentially exceeded 1,000 tons per year.
• 16:44
  SPEAKER_00: And that's nearly twice the rate of central bank purchases of the previous decade.
• 16:48
  SPEAKER_00: And those were the direct result of U.S.
• 16:51
  SPEAKER_00: sanctions on Russia.
• 16:52
  SPEAKER_00: Now, the second, and this has been in the media cycle recently, is that government debts are reaching levels where they may actually force governments to make uncomfortable decisions.
• 17:00
  SPEAKER_00: And at some levels, those are those expenses begin to spiral if they're not managed well.
• 17:06
  SPEAKER_00: Uh, for example, within the United States, you had interest expense uh for the government debt actually rising 12% year over year.
• 17:13
  SPEAKER_00: Net interest payments in the United States are now the third largest category for federal spending after Medicare and Social Security.
• 17:20
  SPEAKER_00: And we pay more servicing our debt here than we do on national defense.
• 17:24
  SPEAKER_00: Now, the only solutions to that debt load are either you need the political willpower to make the hard decisions and Intel is primarily cutting spending or raising taxes.
• 17:32
  SPEAKER_00: But option number three is the status quo.
• 17:34
  SPEAKER_00: And to us, that means continued currency debasement, which gold is is uh the direct hedge to in our view.
• 17:40
  SPEAKER_00: Uh now, on top of that, you tack on last week's burgeoning credit fears in the AI corporate debt issuance.
• 17:45
  SPEAKER_00: That might impact a key pillar of US GDP growth, and we see all the ingredients uh might be coming together for potentially weakened dollar.
• 17:53
  SPEAKER_00: In terms of a strong fundamental setup for factors you can control, I'd say this is one that is fairly constructive.
• 17:58
  SPEAKER_00: Now, let's kind of die a dovetail back to what they can control from a mining perspective.
• 18:03
  SPEAKER_00: I point again to you all the fundamental arguments I made before on gold miners and their balance sheets, and that includes capital discipline, healthy balance sheets, disciplined capex, and measured accretive MA.
• 18:14
  SPEAKER_00: Uh now the industry's focus has been on cost cutting for the past decade, and that has led to positive cash positions, a rarity in this sector.
• 18:22
  SPEAKER_00: Uh, and CapEx again remains largely sustaining.
• 18:25
  SPEAKER_00: All of this is to show that the industry, on average, is taking a conservative approach to capital deployment.
• 18:31
  SPEAKER_00: And uh, as long as earnings continue to maintain their trajectory, um we are certainly uh constructive on the trajectory for gold prices.
• 18:38
  SPEAKER_00: Um, at some point, in our view, uh the uh the valuations with this within this sector um are likely to essentially uh potentially compress that divergence.
• 18:52
  SPEAKER_01: Okay, Kenny, um is there a possibility that too much capital discipline ends up being a value trap?
• 18:59
  SPEAKER_01: Um and that you know miners have shown they can be disciplined, but perhaps now's the time to loosen up a little bit.
• 19:08
  SPEAKER_00: Yeah, and I think this kind of dovetails to the third point that we made, right, which is about the uh declining ore grades, um essentially the industry's uh difficulty in replacing those lost ores, right?
• 19:19
  SPEAKER_00: Because um, again, compared to overspend, uh, underspend on capital is a vastly different problem, right?
• 19:26
  SPEAKER_00: And if if you think about the uh the uh the mining uh timelines uh going back a decade, right, this is likely going to be the next real test of the sector's prospects.
• 19:36
  SPEAKER_00: Now, to make the point, uh mines are essentially depleting assets.
• 19:40
  SPEAKER_00: And it doesn't matter if it's a gold mine, a copper mine, or a uranium mine, every ounce mine has to be eventually replaced uh on a company level.
• 19:47
  SPEAKER_00: And the industry is facing a real danger of longer-term depletion.
• 19:51
  SPEAKER_00: Um if you look at rise uh exploration budgets, as I cited in my report, um they've been rising since 1990.
• 19:58
  SPEAKER_00: Um, there's been ups and downs, but on a broader time frame, they've generally been rising.
• 20:02
  SPEAKER_00: Um and even despite the rising exploration budgets, major new mine discoveries have continued to decline.
• 20:08
  SPEAKER_00: Now, part of the reason for that, um, we believe may be the industry's preference for brown field expansion, and that means again, uh high confidence expansions into existing territories, um, and a focus on known jurisdiction uh rather than greenfield developments in unknown jurisdictions.
• 20:24
  SPEAKER_00: Um, this is a trend that essentially supersedes the cycle.
• 20:27
  SPEAKER_00: Uh, it's been a factor since 1990, so it's a it is not a new phenomenon.
• 20:31
  SPEAKER_00: Uh now, amidst the ongoing ore depletion, the results uh for the industry are essentially deeper wells, uh potentially unstable new jurisdictions, uh, and essentially more difficulty in costs in extracting new ores.
• 20:44
  SPEAKER_00: Now, if you think about the mine development type lines as well, uh you look at the SP report, and the average timeline from discovery to production for new mines is closer to 18 years.
• 20:54
  SPEAKER_00: And while this study actually focused across copper uh and a number of other metals as well, including gold, uh, we would highlight that the trajectory uh was directionally similar for all of the metals involved.
• 21:06
  SPEAKER_00: Uh and that's again uh closer to 18 years now for a new mine to development, uh, and that's up from about six and a half in 1999.
• 21:14
  SPEAKER_00: Uh you know, the story is even if we discover a grassberg for gold uh over the next few years, it would still be years before it would be fully operational.
• 21:22
  SPEAKER_00: And in the aggregate, in the aggregate, we believe these factors exert higher pressure on production costs, uh, but it also raises the required incentive price for each incremental ounce of gold uh produced.
• 21:34
  SPEAKER_00: And that ergo puts more upward pressure on gold prices, uh, to which we believe the mining industry overall would be a benefit factor.
• 21:43
  SPEAKER_01: Thank you.
• 21:44
  SPEAKER_01: Um you you make a very valid point about underinvestment often being as bad as overinvestment or poor investment decisions.
• 21:51
  SPEAKER_01: And regarding the future of the mining sector, i.e., the reserves and resources that have yet to be exploited, um reserves.
• 22:00
  SPEAKER_01: Is part of uh part of the reason that they're shrinking reserve base, is perhaps that the miners have not really increased their reserve cutoff prices to reflect the current gold price reality.
• 22:10
  SPEAKER_01: They're using historical information, and that uh historical information is at quite a delta to what current spot price is or where gold prices have been for the last you know 12 to 18 months.
• 22:21
  SPEAKER_01: Um one can speculate that if there was a meaningful increase in the reserve price, the number of reserves would increase dramatically.
• 22:28
  SPEAKER_01: Indeed, companies without strong pipelines may be forced to reprice their reserves higher to continue to have reserves.
• 22:36
  SPEAKER_01: What's your view there?
• 22:39
  SPEAKER_00: Well, if you think about reserves, right, essentially it's accessible amounts, right?
• 22:43
  SPEAKER_00: That does not mean it's being mined as of yet.
• 22:46
  SPEAKER_00: Um I think uh part of the reason, and this kind of goes back to your question on midterms, right, is that many of the miners have been essentially waiting to see where the market goes before they aggressively re-rate or essentially revise many of those figures.
• 22:59
  SPEAKER_00: Um, in our view, that again reflects the conservative nature of this industry.
• 23:03
  SPEAKER_00: Um, again, that kind of capital discipline that we were speaking to, right?
• 23:07
  SPEAKER_00: Because uh if they're uncertain about the outlook, right, you have uh two ongoing wars, major conflicts around the world right now.
• 23:14
  SPEAKER_00: You have midterm elections that might actually change that outlook.
• 23:17
  SPEAKER_00: Um, we think that the miners taking a conservative view to this and essentially maintaining those historical figures um rather than uh essentially revising them upward aggressively uh reflects that conservative approach.
• 23:30
  SPEAKER_01: Thank you.
• 23:31
  SPEAKER_01: Um I want to end on a on a on a different point.
• 23:34
  SPEAKER_01: You've you've touched on it, you've touched on the shareholder returns, buybacks are a key part of that.
• 23:38
  SPEAKER_01: Um a week or so ago, BlackRock's E.
• 23:41
  SPEAKER_01: V.
• 23:41
  SPEAKER_01: Hambros said that miners and their shareholders would be far better served by investing in new production.
• 23:46
  SPEAKER_01: With share buybacks going through the roof, Hambros said they amount to reckless capital allocation and that gold companies were approving these purchases without any real protest.
• 23:55
  SPEAKER_01: Worse, some critics suggest buybacks enable management to cook their performance KPIs by reducing shareholder counts rather than improving their businesses.
• 24:05
  SPEAKER_01: Um, Kenny, what is the share buyback playbook for most companies?
• 24:10
  SPEAKER_01: At what point do you think it will have achieved its objectives, its purposes, or are companies doing this because everybody else is and they can't think of anything better to do with their cash?
• 24:21
  SPEAKER_00: Well, uh first of all, I'll say that um, you know, it's it's kind of odd, right?
• 24:26
  SPEAKER_00: Because this is the first time where someone would get criticized for not spending too much money on uh new activities or new operations, right?
• 24:33
  SPEAKER_00: Um and that level of capital discipline um, again, has been exhibited by this industry.
• 24:38
  SPEAKER_00: But if you think about uh share buybacks, right, you think about the relative number of opportunities out there versus today, right?
• 24:44
  SPEAKER_00: And I just spoke to it, right?
• 24:45
  SPEAKER_00: There's uh uncertainty in this market, there's significant uncertainty, right?
• 24:49
  SPEAKER_00: Um that's not just on the macro side, that's geopolitical.
• 24:52
  SPEAKER_00: Um, that's something that the miners are taking into account.
• 24:55
  SPEAKER_00: Um and until uh you know we we run into a cycle where uh sustainably you see many of these macro trends uh assume uh sustained direction, whether that be uh essentially a resumption of the dollar weakness that we saw in 2025 or not, um, that essentially will allow them to debt repurpose some of that capital towards things like uh capital expenditures on uh new mines.
• 25:20
  SPEAKER_00: Um but for the time being, as long as that uncertainty remains, um, one of the more conservative uh angles that you can take as a mining company uh is essentially to dedicate that towards uh things like share buybacks or dividend increases.
• 25:33
  SPEAKER_00: And uh from a shareholder perspective, that's not necessarily a bad thing.
• 25:39
  SPEAKER_01: Okay, well, we perhaps won't pick that scab any further this time around.
• 25:43
  SPEAKER_01: Uh that's it for this week.
• 25:44
  SPEAKER_01: This has been wonderful.
• 25:45
  SPEAKER_01: Kenny Zoo, thank you very much for joining me today.
• 25:48
  SPEAKER_00: Thank you, sir.
• 25:49
  SPEAKER_01: Take care and I am Paul Harris, and this is Kitco Mining.