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Gold Weakness Is a Buying Opportunity | Rick Rule · Kitco MINING

• 0:00
  SPEAKER_01: Kitco Mining, Digging Deep with Paul Harris.
• 0:05
  SPEAKER_00: Hello and welcome back to Kitco Mining's Digging Deep with me, Paul Harris, in which we take a closer look at some of the most interesting news items in the mining space.
• 0:13
  SPEAKER_00: Today is Wednesday, May the 27th, and joining me is Rick Ruhr, a legendary mining investor.
• 0:19
  SPEAKER_00: Rick, welcome back to Kitco.
• 0:21
  SPEAKER_02: Thank you, Paul.
• 0:22
  SPEAKER_02: I'm delighted, as you know, I'm a Paul Harris fan and a Kitco fan, so it's nice to be here.
• 0:27
  SPEAKER_00: A good double whammy there.
• 0:29
  SPEAKER_00: Excellent.
• 0:29
  SPEAKER_00: But we're going to start with uh perhaps a bit of a sound note.
• 0:32
  SPEAKER_00: Gold, the gold price has fallen below 4,500 US dollars per ounce this morning for the first time since late March.
• 0:39
  SPEAKER_00: Let's start here, Rick.
• 0:40
  SPEAKER_00: Um, what, if anything, should we read into this price move?
• 0:44
  SPEAKER_00: Is this a key resistance level broken to the downside, or is this just uh another blip in the road?
• 0:50
  SPEAKER_02: Well, I think it depends on your point of view.
• 0:52
  SPEAKER_02: Uh from my own viewpoint, it's beneficial.
• 0:55
  SPEAKER_02: I'd like to own more gold.
• 0:56
  SPEAKER_02: Uh, I'm going to own more gold, and the fact that I can do so with less outlay of dollars uh is of benefit to me.
• 1:04
  SPEAKER_02: I continue to believe that over the five and ten year time frame, that the nominal price of gold, which is to say the U.S.
• 1:10
  SPEAKER_02: dollar quota price of gold, will be much higher.
• 1:12
  SPEAKER_02: And the consequence of that is that I would like to own more gold in my portfolio, and this price weakness is, for me at least, heaven sent.
• 1:21
  SPEAKER_02: Uh, I think the reason for the increase in the price of gold is pretty easy to uh nail down.
• 1:29
  SPEAKER_02: Uh, that is to say, uh rising U.S.
• 1:32
  SPEAKER_02: interest rates.
• 1:34
  SPEAKER_02: Rising U.S.
• 1:35
  SPEAKER_02: interest rates makes the long bond relatively more attractive compared to gold and increases the uh nominal price of the U.S.
• 1:43
  SPEAKER_02: dollar relative to other currencies.
• 1:45
  SPEAKER_02: Given that the gold, given that gold is priced in dollars, uh increasing dollar strength as a consequence of these higher interest rates depresses the price of gold.
• 1:54
  SPEAKER_02: As I say, from my own viewpoint, I'm delighted by this set of circumstances.
• 1:58
  SPEAKER_02: Some of your viewers with a shorter time frame uh may disagree with that.
• 2:03
  SPEAKER_00: Fair enough.
• 2:04
  SPEAKER_00: Now, um the U.S.
• 2:05
  SPEAKER_00: has a new U.S.
• 2:06
  SPEAKER_00: Federal Reserve chair in Mr.
• 2:08
  SPEAKER_00: Walsh.
• 2:09
  SPEAKER_00: President Trump wants interest rates to come down.
• 2:11
  SPEAKER_00: Um you mentioned that the interest rates continue to increase, that the treasury rate continues to increase.
• 2:17
  SPEAKER_00: What can we expect from the new Fed chair, do you think?
• 2:21
  SPEAKER_02: I suspect that the political class, and frankly, most of the voters, would prefer artificially lower interest rates.
• 2:28
  SPEAKER_02: Uh as the interest rate goes up, uh debt at all levels of society, consumer debt, corporate debt, state and local debt, but particularly federal debt, becomes uh increasingly difficult to service.
• 2:41
  SPEAKER_02: And uh the consequence of that is that politicians in particular, but voters too, are not blameless, wanting to kick the can down the road.
• 2:51
  SPEAKER_02: It's worthy to note, Paul, at least from my point of view, that uh these quote, high interest rates are hardly high if you compare them with the deterioration in the purchasing power of the U.S.
• 3:03
  SPEAKER_02: dollar.
• 3:05
  SPEAKER_02: Your government would have you believe, or not your government, Paul, my government would have me believe that the rate of deterioration of the U.S.
• 3:13
  SPEAKER_02: dollar is best measured by the CPI, uh, which for the record often doesn't include food or fuel and doesn't include taxation.
• 3:21
  SPEAKER_02: My belief is that the deterioration of the U.S.
• 3:24
  SPEAKER_02: dollar measured by the basket of goods and services that most people acquire is running between 8% and 10% a year.
• 3:32
  SPEAKER_02: If you compound, pardon me, if you uh compare that rate of deterioration with the interest rate paid on the long bond, but particularly the 10-year bond, what you'll see is that interest rates aren't high.
• 3:45
  SPEAKER_02: What they are is less low.
• 3:48
  SPEAKER_02: And from my experience, even these less low interest rates at the levels that they're at will lead likely to a slowdown in the economy and will certainly lead to more difficulty in servicing the aggregate federal debt.
• 4:04
  SPEAKER_02: And the consequence, I think, is that political pressure will ultimately cause the Fed to need to lower the interest rates.
• 4:13
  SPEAKER_02: I believe that if that happens, that the move that you will see in the gold price, perhaps not within a week, perhaps not within a two within two weeks, but certainly within a quarter, would be dramatic.
• 4:27
  SPEAKER_00: Okay, well, the US has midterm elections coming up later this year, and interest rate, CPI, there'll certainly be election topics, as will the conflict in Iran.
• 4:37
  SPEAKER_00: Um and the Iran conflict continues to hang over the commodities and global economy.
• 4:42
  SPEAKER_00: Um, I read a trader comment this morning that likened President Trump's peace talk efforts as akin to Charlie Baum trying to kick a football and Lucy always taking it away.
• 4:52
  SPEAKER_00: The football in this instance is simultaneously peace, the Strait of Hormuz, and enriched uranium.
• 4:58
  SPEAKER_00: Um Rick, it seems that any deal at best would return things to the status quo before strikes on Iran began on February the 28th, despite the US spending more than$27 billion on its attacks so far.
• 5:10
  SPEAKER_00: Um, but even that is looking like a tough ask, as there is pretty much uh you know a stalemate in things.
• 5:17
  SPEAKER_00: How do you think the world will be a different place once the Iran conflict is resolved?
• 5:23
  SPEAKER_02: With the caveat that I'm not a geopolitical analyst um or uh a war analyst, my suspicion is that two of the three parties to the conflict, which is to say Israel, who needs to be acknowledged as a participant, and Iran, view this as an existential conflict.
• 5:46
  SPEAKER_02: Uh for the United States, this is perhaps support for a historic ally, Israel, uh, but also an expression of U.S.
• 5:55
  SPEAKER_02: foreign policy preference.
• 5:56
  SPEAKER_02: But it's important to note uh that our ostensible uh opponent across the Straits of Hormuz, uh Iran, or at least the current political leadership in Iran, views this conflict as existential, uh, which means that their room to negotiate uh is very low.
• 6:14
  SPEAKER_02: Similarly, I suspect that from the Israelis' point of view, the continued existence of the regime in the Strait of Hormuz in Iran, pardon me, is also existential.
• 6:25
  SPEAKER_02: It's very difficult for me to see a way out.
• 6:27
  SPEAKER_02: Uh certainly for the U.S., this conflict is not existential, uh, which means that likely any room in the negotiation, any give in the negotiation, would have to be from us.
• 6:41
  SPEAKER_02: Uh it is arguable that, at least in terms of the overt conflict, that that was initiated by us.
• 6:49
  SPEAKER_02: Uh and I don't know the degree to which the compromises needed to reach accommodation in the Gulf, particularly uh accommodation to a regime that sees uh their very existence threatened.
• 7:09
  SPEAKER_02: Uh I'm not sure that there's political will on the United States side to accommodate the regime to the regime in Iran to the extent that they believe necessary.
• 7:22
  SPEAKER_02: Uh with the caveat, of course, that I'm not a geopolitical analyst, I'm a credit analyst.
• 7:28
  SPEAKER_02: But it's very difficult for me to understand how, given the competing needs of the three parties to the conflict, uh what accommodation might look like.
• 7:39
  SPEAKER_00: Yeah, that's a pretty tough one.
• 7:41
  SPEAKER_00: Um I'm listening at the moment to a very interesting history podcast about the Iranian Revolution and how the original Ayatollah came to power in early 1979.
• 7:51
  SPEAKER_00: And it does seem that um you know him and his party and his ideas are very, very dug in and difficult to change course there.
• 7:59
  SPEAKER_00: One certainty coming out of this is that the US will have to restock weapons, which is good news for project developers such as Perpetual Resources, which received a$2.9 billion senior secured term loan from the US Exim Bank for its Stibnite Golden Antimony project in Idaho this week.
• 8:16
  SPEAKER_00: The 13-year loan will bear interest at the applicable long-dated US Treasury bond rate plus 100 basis points.
• 8:23
  SPEAKER_00: Rick, reducing the cost of capital is an area where the US government is looking to level the critical minerals playing field with China.
• 8:32
  SPEAKER_00: Do loans like this achieve that?
• 8:37
  SPEAKER_02: Um certainly the mining industry uh looks to benefit from the newfound favor it is held in by the Trump administration.
• 8:48
  SPEAKER_02: The mining industry, as you've come to know, Paul, um loves nothing quite so much as dumb money.
• 8:54
  SPEAKER_02: And there's no money in the market that's quite as dumb as government money.
• 8:58
  SPEAKER_02: Uh philosophical statements aside, uh, I think that there are really two aspects about geopolitics currently, maybe three, that the mining industry must look at with favor.
• 9:12
  SPEAKER_02: The first is that as you s as you allude to, there are global uh geopolitical competition uh around mining assets.
• 9:22
  SPEAKER_02: The U.S.
• 9:23
  SPEAKER_02: subsidies are, at least ostensibly, in response to Chinese subsidies.
• 9:28
  SPEAKER_02: The Chinese government provides capital to its mining industry, people like China, Non-Ferris and Zijgin, at interest rates like three and a half or four.
• 9:36
  SPEAKER_02: And the United States, while it can't go that low, is beginning to compete by substituting the U.S.
• 9:42
  SPEAKER_02: Treasury balance sheet for the balance sheet of the borrowers.
• 9:46
  SPEAKER_02: From the mining industry's standpoint, that's a wonderful thing.
• 9:49
  SPEAKER_02: From the viewpoint of taxpayers in both China and the United States, of course, that's a catastrophe.
• 9:54
  SPEAKER_02: The mining industry, of course, cares less about that.
• 9:57
  SPEAKER_02: The second thing that the mining industry will benefit from, and I believe all society will benefit from, is a streamlining of the regulatory and permitting requirements in the United States.
• 10:08
  SPEAKER_02: That perpetuo deposit, uh, which is now being subsidized by the U.S.
• 10:12
  SPEAKER_02: taxpayer, was constrained by U.S.
• 10:14
  SPEAKER_02: regulators for 15 years.
• 10:16
  SPEAKER_02: I know because I've been involved in that uh deposit for 15 years.
• 10:21
  SPEAKER_02: Uh, and the removal of those regulatory constraints, while still subjecting uh the deposit to very rigorous environmental standards, note it's on the banks of the Salmon River, uh uh is an important thing.
• 10:36
  SPEAKER_02: Uh the United States needs to overhaul its regulatory regime.
• 10:41
  SPEAKER_02: One could point not to Perpetua, but rather to the uh uh resolution deposit uh in Arizona, which has now been held up in the regulatory morass for 28 years.
• 10:55
  SPEAKER_02: Separate and apart from the geopolitical constraints facing the United States, it would appear that there is increasing will on the part of the U.S.
• 11:05
  SPEAKER_02: taxpayer to be less overtly hostile to mining in the U.S.
• 11:09
  SPEAKER_02: And I think that that endures to the benefit of U.S.
• 11:13
  SPEAKER_02: project developers, separate and apart from the subsidies.
• 11:17
  SPEAKER_02: I expect that anybody who is looking for subsidies for the U.S.
• 11:21
  SPEAKER_02: mining industry better get approval before the midterm elections.
• 11:24
  SPEAKER_02: I don't expect a favorable outcome for the Trump administration in those elections.
• 11:30
  SPEAKER_00: Now, this is something that Pricewater Health Coopers or PWC mentioned in a report it put out or a note they put out this week, specifically talking about British Columbia and UConn.
• 11:39
  SPEAKER_00: It identified a very specific window of opportunity due to the critical minerals debate, both in terms of government uh being willing and able to cooperate and broader society.
• 11:50
  SPEAKER_00: So it identified this window of opportunity and suggested miners jump through it as quickly as they can.
• 11:56
  SPEAKER_00: It's not just the US government finding mining projects.
• 11:59
  SPEAKER_00: Vizla Silva entered into an unsecured credit agreement for$10 million of working capital facility with the Mexican government financial agency FIFOME to support its Panuco Silver Development Project in Sinaloa.
• 12:13
  SPEAKER_00: Rick, while the quantum here is not large, for Visla and Panuco to get government backing, how important is that for the project?
• 12:23
  SPEAKER_02: I think uh it is important.
• 12:25
  SPEAKER_02: Uh I don't think that the Mexican government has the ability to say to Viesla, we will provide sufficient security for you to operate in Sinaloa.
• 12:36
  SPEAKER_02: I think the Sinaloa cartel, I think the facts on the ground is that the competing members of the Sinaloa cartel uh are able, ironically, to provide larger forces at arms in Sinaloa than the Mexican government.
• 12:46
  SPEAKER_02: So the Mexican government has been forced to show support in other ways, to suggest to the Canadian government, to suggest to the mining industry, that to the extent that they can provide support for uh efforts uh in Sinaloa, that they do so.
• 13:04
  SPEAKER_02: Uh my preference, rather than subsidy, would be for the Mexican government to provide security.
• 13:09
  SPEAKER_02: The Mexican government has proven rather conclusively over the last three decades that they can't provide security in Sinaloa.
• 13:15
  SPEAKER_02: And so they're doing, from their point of view, the next best thing.
• 13:19
  SPEAKER_02: I understand from good friends of mine who are active in Mexico for a very long time that the current regime in Mexico, which started off being extremely anti-mining, uh, is aware now of the popular support that mining enjoys in rural parts of Mexico and understands something about the the impact that support for mining will have on the rural vote in Mexic in Mexican elections throughout West Mexico.
• 13:52
  SPEAKER_02: And I've been told to expect that the permitting log jam uh around foreign-owned deposits in Mexico, at least those deposits which enjoy and can demonstrate strong local support, uh, will ease up substantially in 2026.
• 14:09
  SPEAKER_02: Uh that recent effort by the Mexican government to show support for Visla with this extended credit suggests that mining is enjoying increasing favor, uh at least political favor, among this administration in Mexico, which is welcome.
• 14:26
  SPEAKER_00: Yes, that's definitely a positive, Rick.
• 14:27
  SPEAKER_00: And a bit of the backdrop to this, uh Bisla experienced a security incident in January where several of its team were kidnapped and murdered.
• 14:35
  SPEAKER_00: Um Rick, with this finance, in your opinion, you said this the Mexican government acknowledges that it's perhaps not able to provide the levels of security that foreign investors would want.
• 14:48
  SPEAKER_00: Um will this investment potentially make VISLA a, let's say, a state-related entity and therefore become even more of a target for the illegal armed groups?
• 15:01
  SPEAKER_02: This is pure speculation on my part.
• 15:03
  SPEAKER_02: I've done business in the state of Sinaloa for 35 years.
• 15:08
  SPEAKER_02: And one of the great unsung secrets, if you will, about the mining industry is that very often, given the fact that the mining industry is engaged in local activities in rural parts of Sinaloa, and given that the Sinaloa cartels are a de facto government, uh informal arrangements between the cartels uh and the companies uh generally are what accompanies successful exploration throughout, frankly, the Sierra Madre Occidental.
• 15:39
  SPEAKER_02: And if I had to guess, and you'll never see a press release to this effect, uh, I believe that what Viesla will need to do is outweight uh the current unrest uh involving the Sinaloa cartel.
• 15:53
  SPEAKER_02: Uh students of history in Sinaloa will recall that for 30 years rural Sinaloa was in control of the Guzman uh faction of the Sinaloa cartel.
• 16:05
  SPEAKER_02: When the uh founder of that cartel was captured by Mexican authorities and extradited to the U.S., the central pillar of control in that cartel fractured.
• 16:18
  SPEAKER_02: Uh and my understanding is that there's currently a war for control of the cartel, uh, with one faction being uh Guzman's son, and the other faction being, for want of a better phrase, former henchman uh of Guzman, uh, with bodies dropping literally all over the state.
• 16:38
  SPEAKER_02: Uh my belief is likely that there were fewer informal parties to make informal arrangements with.
• 16:50
  SPEAKER_02: Uh and I suspect that the entire mining industry, but in particular Viesla, will have to wait out this conflict in the cartel before the old informal arrangements can be reinstated.
• 17:03
  SPEAKER_02: Of course, neither Viesla nor any other public issuer uh active in West Mexico can uh uh acknowledge what I just said.
• 17:13
  SPEAKER_02: But I think speculators need to understand the way that business is done uh in the Sierra Madre.
• 17:23
  SPEAKER_00: Fair enough.
• 17:24
  SPEAKER_00: Um, and just to recapitulate or recap, uh this is a symbolic investment or financing by the Mexican government because I understand Vizla Silva was fully financed to develop their project, so um a lot of symbolism in this announcement.
• 17:37
  SPEAKER_00: Let's move to a safer jurisdiction, at least physically.
• 17:40
  SPEAKER_00: Challenger Gold announced a pre-feasibility study this week for an open-pit mine development at its Wii Angold project in San Juan, in Argentina, to produce 135,000 ounces a year for 14 years following a capital investment of about$232 million.
• 17:56
  SPEAKER_00: Challenger also said that Peter Moroni, chair and chief executive of Allied Gold, will join the company as non-executive chair after Allied completes its$4 billion sale to Xizi Mining, which is anticipated at the end of this month.
• 18:10
  SPEAKER_00: Um, Rick, after leading two producers, this could be a nice change of pace for Peter Moroni.
• 18:16
  SPEAKER_00: But having spoken with him several times over the years, and given that he has undertaken a lot of MA throughout that career, is this perhaps a sign that Challenger plans to build into a more substantial company?
• 18:28
  SPEAKER_02: Well, I I think it suggests that Challenger is looking at MA.
• 18:33
  SPEAKER_02: Uh Peter has been, through the time I've known him, which is three decades, uh equally adept buying things and selling things.
• 18:41
  SPEAKER_02: Uh and I think uh his appointment to the chair uh really points to the likelihood of greatly increased MA throughout the mining uh sector.
• 18:52
  SPEAKER_02: These uh increased commodity prices on the one hand, uh and increasing financial sophistication around mining and the political liberalization in Argentina suggests that the Challenger project, which is uh an attractive project uh if you look at net present value relative to capital intensity, uh I think they were wise to bring Peter on.
• 19:18
  SPEAKER_02: Whether uh Challenger is the acquire or or is acquired, uh Peter has experience both uh at Yamana and then more recently at Allied in building uh companies through acquisition and then in turn selling those companies on to bigger companies.
• 19:37
  SPEAKER_02: The theme here is not so much Challenger or even Argentina.
• 19:41
  SPEAKER_02: The theme, I think, is the increasing pace of merger and acquisition activity in the mining business.
• 19:49
  SPEAKER_02: And from a speculator's point of view, there's all kinds of good things about that.
• 19:53
  SPEAKER_02: Uh you can participate by buying the targets and enjoying the immediate premium.
• 20:00
  SPEAKER_02: You can participate too by owning the acquire ores if their uh acquisitions are uh accretive.
• 20:10
  SPEAKER_02: The larger companies enjoy greater trading liquidity and hence higher share prices.
• 20:15
  SPEAKER_02: And often you have a cer a circumstance in MA where three plus two equals six or seven as opposed to as opposed to five.
• 20:24
  SPEAKER_02: Uh and I think uh you have illustrated uh with Challenger and Peter Morone the increasing level of awareness uh that will come to MA and mining uh and in the near term over the next two years.
• 20:41
  SPEAKER_00: Well, let's dig into that a little bit more.
• 20:43
  SPEAKER_00: Um we must also remember that Peter Moroni is an investment banker at hard and he's still got that will for the deal.
• 20:50
  SPEAKER_00: Um but we're digging more into MA because um there are you know the companies we've talked about so far, they are MA candidates.
• 20:57
  SPEAKER_00: Um and you have a number of MA candidates participating in the 2026 Rule Symposium in July 6th to the 10th in Boca Raton, both producers who may be on the buying side as well as the developers that may be snapped up.
• 21:11
  SPEAKER_00: Um Rick, in many ways, the conditions for MA have never been better, with the majors having doubled their cash holdings in the past two years to almost 30 billion US dollars, while their production has flatlined and even stagnated.
• 21:24
  SPEAKER_00: In terms of valuation, as you mentioned, an ounce on the books of a major is worth much more than an ounce in the hands of a developer.
• 21:32
  SPEAKER_00: And that delta has increased in recent times with the run-up in the gold and silver prices, which better enables producers to pay a pretty premium for their acquisitions.
• 21:43
  SPEAKER_00: Uh, in that context, Rick, has it surprised you that the capital discipline mantra has lasted so long and that that not and more buying has not occurred?
• 21:55
  SPEAKER_02: It has surprised me.
• 21:57
  SPEAKER_02: Um the capital discipline mantra.
• 22:00
  SPEAKER_02: Mantra really is a consequence of the excesses that the mining industry exhibited in the 2000 to 2010 timeframe.
• 22:07
  SPEAKER_02: Institutional memories die hard.
• 22:10
  SPEAKER_02: And that was an incredible period of mismanagement where the gold price increased sevenfold and the free cash flow per share in the gold mining sector actually declined.
• 22:21
  SPEAKER_02: The consequence of that is that investors for the last 15 years have insisted on rigorous capital discipline, emphasizing, frankly, return to shareholders over adequate reinvestment.
• 22:34
  SPEAKER_02: That period's over.
• 22:36
  SPEAKER_02: We have a circumstance where the major mining companies in particular have no hope of maintaining their production from assets that are currently in a development pipeline.
• 22:46
  SPEAKER_02: And exploration takes too long in terms of maintaining production.
• 22:51
  SPEAKER_02: So you are going to see increasingly institutional investors look to companies, look to the big companies to maintain or increase their production rather than cannibalizing their balance sheet for the purposes of their income statement.
• 23:07
  SPEAKER_02: And the only way that these companies are going to be able to do this is through MA.
• 23:13
  SPEAKER_02: As you suggest, too, it won't be just big companies acquiring small companies.
• 23:19
  SPEAKER_02: Single asset producers sell a big discount to multiple asset producers.
• 23:23
  SPEAKER_02: You eliminate that discount immediately by combining two single asset producers or having a multi-asset producer acquire a single asset producer.
• 23:33
  SPEAKER_02: Strategic, or pardon me, non-strategic mergers, tactical mergers, like the merger between Equinox and Caliber, which didn't increase Equinox's ability for synergistic acquisition of close assets, but rather merely increased the size of Equinox yields benefit too.
• 23:56
  SPEAKER_02: Larger companies, by definition, almost, enjoy higher trading volumes, higher share prices, and a lower cost of capital.
• 24:06
  SPEAKER_02: And that's important, Paul, because what's really changed since the year 2000 has been the increasing influence of passive investors, ETFs and exchange traded funds.
• 24:17
  SPEAKER_02: And to the extent that companies are large enough to increase their weighting in these indexes, they have access to passive buying that flows into them every two weeks in effect from payroll deduction.
• 24:30
  SPEAKER_02: And the mining industry has noted that.
• 25:09
  SPEAKER_00: Yeah, I think one of the first lessons one learns in sport is to understand the rules of the game and be aware and recognize the game you're playing.
• 25:18
  SPEAKER_00: And that's very true in this space.
• 25:20
  SPEAKER_00: And to your comments there, Rick, about Equinox and Orla, it's moving up the value, sorry, Equinox and Caliber, it's moving up the valuation chain.
• 25:28
  SPEAKER_00: And now, of course, Equinox Gold is involved in a transaction with AULA mining, which will give it annualized production of 1.2 million ounces and a pathway to 1.9.
• 25:38
  SPEAKER_00: Importantly, that'll push it up the valuation chain with a much higher PNAV multiple, really playing into the game, as you mentioned, of passive investing and the indices.
• 25:50
  SPEAKER_00: Barrack Mining and Oceana Gold are two producers who have expressed their interest and desire to buy others.
• 25:57
  SPEAKER_00: Oceanna Gold is going to be a participant in your conference.
• 26:00
  SPEAKER_00: It will be interesting to see what they have to say there.
• 26:03
  SPEAKER_00: All things considered, Rick, if you could really wave the Rick Rule Magic Wand, what matchups would you like to see?
• 26:13
  SPEAKER_02: I'm uh actually less interested in that speculation.
• 26:17
  SPEAKER_02: I can tell you very generally that companies that are on the lower end uh of the PNAV range uh or um pre-EBIT range uh probably rank higher as acquisition targets.
• 26:31
  SPEAKER_02: They include Oceana Gold.
• 26:34
  SPEAKER_02: Umceana Gold, while they've expressed interest in being an acquire or uh would also be an attractive target given the lack of needs that they have for reinvestment and the extraordinary free cash flow that they exhibit at today's prices.
• 26:53
  SPEAKER_02: Similarly, I would say B2 as a consequence of the retirement of Clive Johnson and the very, very, very low uh PNAV multiple that they enjoy while they're developing their Canadian asset, uh, are likely a target.
• 27:10
  SPEAKER_02: The circumstance I'd love to see, but I don't think I will, would be the combination of Newmont and Berwick's North American assets into a freestanding company, um, which I think would probably be the most premium-priced gold producer uh on the planet.
• 27:27
  SPEAKER_02: Uh the likely acquirer, I think, after they digest uh their most recent acquisition, uh, will likely continue to be AgNico Eagle.
• 27:39
  SPEAKER_02: While they have an extraordinarily attractive development pipeline, they also have a very advanced acquisition strategy that involves totally strategic acquisitions, which is to say acquisitions that enhance the leverage that they enjoy from their existing assets.
• 27:59
  SPEAKER_02: So acquisitions as an example in the Abatibi Gold Belt, or acquisitions where they can enter at scale a new uh district where uh there are amalgamation activities will be important to them.
• 28:14
  SPEAKER_02: Amar Al-Jundi at our conference last year, Amar Aljundi being the CEO of Agniko Eagle sat down with me and our audience in a chat and talked in some detail uh about the changing landscape in mining uh and uh how the strategies at AgNico Eagle had changed to take advantage of that circumstance.
• 28:34
  SPEAKER_02: Uh I look forward to visiting with uh Omar Aljundi at this year's uh Data Resource Investment Symposium so that he can describe from a player's perspective uh how uh that circumstance has changed.
• 28:51
  SPEAKER_02: My suspicion, Paul, uh, is that while everybody in the world is looking at the acquisition of producing projects, things that are immediately accretive to free cash flow, that the surprise announcements will take place very will resemble the acquisition recently announced by AgNico Eagle in Finland, which is to say at these new commodity prices, uh development stage assets where the net asset value is three or four times higher than the projected capital cost to bringing these things on, uh I think that's where you're gonna see uh the surprises in the MA market.
• 29:39
  SPEAKER_02: That is where the big companies have the most operational and financial leverage, where they can buy deposits that are trading at big uh discounts to NAV because the market is concerned about the ability of the junior to raise the capital necessary to develop the project.
• 29:58
  SPEAKER_02: If you take that nervousness away, uh if you're able to attract financing, uh project financing on balance sheet uh at capital costs resembling prime, uh then you take away the consideration that causes the project to trade at large discounts to NAV.
• 30:18
  SPEAKER_02: And one of the things that we'll be trying to highlight in this year's Natural Resource Symposium is how you identify development stage assets with uh attractive metrics and identifiable challenges so that the majors or whoever buys those deposits knows to some degree of certainty their pathway to production.
• 30:38
  SPEAKER_02: I think that's going to be the sweet spot at MA.
• 30:41
  SPEAKER_00: Well, I'm looking forward to talking with uh Agneco-Eagle at your conference as well, Rick.
• 30:46
  SPEAKER_00: And I want to extend a couple of the points you made, uh, starting with Oceania.
• 30:49
  SPEAKER_00: They've got a lot of uh organic or internal growth at their hail mine in South Carolina, where I just did a Kitco site visit documentary, which should be coming online in the next few days.
• 31:00
  SPEAKER_00: Um, they've also got growth in New Zealand at their Wahi operation.
• 31:04
  SPEAKER_00: The company's also at the end of last year hedged, I think, about 90% of its diesel, so they're not getting slammed by the higher oil price as other companies are.
• 31:15
  SPEAKER_00: Uh, turning to your comments on AgNico, um, I think one very interesting thing there is Amar Al-Jundi this week.
• 31:23
  SPEAKER_00: He commented on the fact that AgNico has 20 years of experience operating in Arctic environments such as Hope Bay and Nunavut and in Finland.
• 31:32
  SPEAKER_00: Um, recently it signed a um not a joint venture agreement but a collaboration agreement with B2 Gold.
• 31:39
  SPEAKER_00: B2 Gold is obviously uh uh producing gold from its goose operation.
• 31:43
  SPEAKER_00: It's got a large district scale exploration potential there.
• 31:46
  SPEAKER_00: Could this be a prelude to AgNico and B2 Gold getting it on?
• 31:52
  SPEAKER_02: Uh that's highly speculative, but as you suggest, the challenge that has confronted B2 Gold, which is to say the challenges of uh constructing a mine in infrastructure-challenged parts of northern Canada, is precisely what AgNICO does well.
• 32:10
  SPEAKER_02: Uh and if one would allow oneself to fantasize, I guess, the ability of Agniko Eagle to do a transaction with B2 and sell off some of B-2's other uh assets, Fucola in particular, uh, in effect lowering Agniko's acquisition cost for the asset that they would really like to acquire, uh, I think is an intriguing possibility.
• 32:42
  SPEAKER_02: Uh I one of the things that you see when you acquire a company like B2 selling at an obvious discount to the value of the sum of the parts is the ability of an acquirer who is doing a strategic acquisition to lower the cost of the asset that they're actually trying to acquire by selling off the other assets in the company in the company into an already robust MA market.
• 33:12
  SPEAKER_02: There would be a lot, uh, I think of market interest uh in the various assets that uh B-2 controls.
• 33:21
  SPEAKER_02: As an example, the Philippine asset could be very synergistic with Oceana, uh, who also operates and is comfortable in the Philippines.
• 33:30
  SPEAKER_02: So this is a circumstance where the discount uh that B-2 enjoys, if that's the right phrase, in terms of its market cap relative to the value of the sum of the parts, makes it probably particularly attractive to an acquirer who longs for one or more of those assets and could reduce their cost by selling off the other assets.
• 33:51
  SPEAKER_00: I think that's a very interesting perception, Rick, and that uh reflects what Equinox Gold did after it acquired Calibre Mining.
• 33:58
  SPEAKER_00: It sold off its assets in Brazil to a Chinese company, preparing the way or paving the way for the merger or acquisition of all of mining.
• 34:06
  SPEAKER_00: And it also reflects what Barrack is going through, Barrack Mining is going through, separating its North American assets from its other assets.
• 34:14
  SPEAKER_00: Um let's uh end this week on some uh sort of very positive news uh in the form of Sunshine Silver Mining and Refining.
• 34:22
  SPEAKER_00: It's to IPO on the New York Stock Exchange under the ticker SSMR, which is not to be confused with SSR Mining's ticker SSRM.
• 34:31
  SPEAKER_00: Um somebody perhaps dropped the ball a little bit there.
• 34:34
  SPEAKER_00: Those tickers are very, very similar.
• 34:35
  SPEAKER_00: The company plans to sell 20 million shares at up to$16.50 per share to raise$330 million to restart the permitted Sunshine Silver Mine in Idaho's Quarter Lane district.
• 34:46
  SPEAKER_00: The Electrum Group will retain more than a 50% ownership there.
• 34:50
  SPEAKER_00: Rick, um Tom Kaplan has been planning this for some time.
• 34:54
  SPEAKER_00: Has he got his timing dead on?
• 34:57
  SPEAKER_02: I would suspect he does.
• 34:59
  SPEAKER_02: The market is very receptive to the silver story.
• 35:02
  SPEAKER_02: Uh one must look at what Tom Kaplan did in the context of what Ross Beattie just did uh with Lumina Metals, where Ross, who has been active in Poland for 20 years, uh is taking his Cooper Schaefer uh asset public, a$1.2 billion valuation, uh, and at that valuation uh three times oversubscribed.
• 35:24
  SPEAKER_02: Tom Kaplan uh consolidated what he could of the Court d'Alane Mining District probably 15 years ago and has been patiently upgrading those operations and acquiring where he could uh assets that were synergistic with his existing holdings.
• 35:43
  SPEAKER_02: And now, with the silver price up and coincidentally, or not coincidentally, with the capital market strong, uh Tom is taking advantage of that.
• 35:52
  SPEAKER_02: It's precisely what you would expect of a billionaire of Tom Kaplan's caliber.
• 35:58
  SPEAKER_00: Okay, now um the Ross Beady company you mentioned, that's Lumina Metals.
• 36:02
  SPEAKER_00: Um the this this IPO of Sunshine Silver, the valuation there is about, let's say,$7 per ounce of resource.
• 36:10
  SPEAKER_00: That puts the sunshine valuation head and shoulders above that of similar developers.
• 36:15
  SPEAKER_00: Are they being too aggressive?
• 36:17
  SPEAKER_00: Uh will this raise the valuation of other silver developers?
• 36:20
  SPEAKER_00: Or after IPOs, will it experience a sharp pullback?
• 36:25
  SPEAKER_02: I think what you need to do is look not so much at the in-sichu value per ounce, but rather uh the net asset or net present value.
• 36:36
  SPEAKER_02: Uh it is it has been argued by Tom Kaplan, I've not independently verified this, but Tom's a very bright guy, that his ounces are worth more in the sense that uh the infrastructure and the permitting allows him to access those ounces so that his all-in sustaining costs and his capital intensity would be lower.
• 36:58
  SPEAKER_02: Investors make a mistake, I think, to uh infer that all ounces are created equal, uh.
• 37:06
  SPEAKER_02: And that the in-CU value per ounce is a reliable gauge on value.
• 37:12
  SPEAKER_02: Rather, net present value and capital intensity are better gauges.
• 37:16
  SPEAKER_02: I haven't independently verified whether what Tom says about his ounces relative to other ounces is true.
• 37:23
  SPEAKER_02: But certainly, were he on this call answering this question, he would suggest to you that the historic infrastructure in the Sunshine District and the upgrades that he has made to that infrastructure, but also to the understanding of the resource, means that his ounces are selling for more because they're worth more.
• 37:43
  SPEAKER_00: That's fair enough.
• 37:44
  SPEAKER_00: Um, unfortunately, that's all for this week.
• 37:47
  SPEAKER_00: I'm gonna put a link to Rick's conference in the notes for this video.
• 37:51
  SPEAKER_00: Uh Rick, many thanks for joining me today.
• 37:55
  SPEAKER_02: Uh thank you, Paul.
• 37:56
  SPEAKER_02: And as an addendum to the notes, ladies and gentlemen, uh this upcoming conference uh has a feature that nobody else's conference has.
• 38:05
  SPEAKER_02: Whether you attend live uh or via live stream, our conference has an unconditional money-back guarantee.
• 38:13
  SPEAKER_02: We have enough confidence in the fact that our content can and will make you money that if for any reason whatsoever uh you think we didn't deliver, you'll email us and we'll give you your money back.
• 38:23
  SPEAKER_02: Uh no other conference sponsor in the world that I'm familiar with has an unconditional money-back guarantee, but we do.
• 38:31
  SPEAKER_00: Well, the conference is what, five or six weeks away.
• 38:34
  SPEAKER_00: I'll see you there.
• 38:35
  SPEAKER_00: I'm really looking forward to that.
• 38:36
  SPEAKER_00: In the meantime, if you like what you see, don't forget to hit that subscribe button.
• 38:41
  SPEAKER_00: I'm Paul Harris, digging deep for Kitco Mining.
• 38:44
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• 38:48
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