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After the oil shock: Who's really making money? · The Money Puzzle

0:10
Speaker 1: Hello, and welcome to The Australian's Money Puzzle podcast. I'm
0:13
Speaker 1: James Kirkby. Welcome aboard everybody. Now, look, we really need
0:17
Speaker 1: to take a look at the share market and we
0:18
Speaker 1: need to assess as investors where we are just now.
0:21
Speaker 1: We don't know this crisis is over because of the
0:24
Speaker 1: Iran crisis. It's extending. But we do know for sure
0:28
Speaker 1: right that we've had an nord shock in inflation shock.
0:31
Speaker 1: So what does that actually mean for you as an investor?
0:35
Speaker 2: And how is it.
0:36
Speaker 1: Playing out in the market in reality, not how you
0:39
Speaker 1: might assume it's playing out, but how is it actually
0:41
Speaker 1: playing out? And also about the AI boom which was briefly,
0:46
Speaker 1: maybe only marginally interrupted by the crisis, where's that at
0:50
Speaker 1: and what's going to happen in our market for Australian investors.
0:55
Speaker 1: My guest today is Eric Johnson, business columnist on The Australian.
0:59
Speaker 1: He's been on the show before for a colleague of
1:00
Speaker 1: mind for a long time.
1:01
Speaker 2: How are you, Eric, Nice to be with you, James,
1:04
Speaker 2: great to.
1:04
Speaker 1: Have you on board. Now tell me I'm the thing
1:07
Speaker 1: that triggered us suppose this particular show. You did a
1:10
Speaker 1: piece recently about the oil crisis and the impact of
1:15
Speaker 1: it for investors, but it challenged perhaps assumptions about how
1:21
Speaker 1: that would work. For instance, folks, if you look at
1:24
Speaker 1: the market, you might think that the big oil users,
1:28
Speaker 1: and we might talk about them first, the big oil users, right,
1:30
Speaker 1: which are airlines, miners, that they would be knocked around
1:35
Speaker 1: by the oil crisis. But it's not quite as simple
1:37
Speaker 1: as that. And you discovered Eric that even though say
1:41
Speaker 1: a company like Rio uses, and this is worth hearing, folks,
1:46
Speaker 1: more than a billion, not a million, a billion leaders
1:50
Speaker 1: of diesel a year, most of it in the Pilborough,
1:53
Speaker 1: they're actually gaining in this crisis because of the economies
1:57
Speaker 1: of scale. Just take us back to what you were
2:00
Speaker 1: covering on that one, Eric.
2:01
Speaker 2: Yeah, I called it diesel economics, James. And like all things,
2:07
Speaker 2: there's a lot of moving parts to any story. Nothing
2:12
Speaker 2: is quite as simple as it seems. And that's right.
2:15
Speaker 2: Rio Tinto, like it's big rival BHP Reo quantified the
2:19
Speaker 2: amount of diesel they use in the pilbra so all
2:23
Speaker 2: up annually across its operations around the world, one point
2:27
Speaker 2: six billion liters of diesel, and two thirds of that
2:31
Speaker 2: comes from two thirds of that is used in the
2:34
Speaker 2: pilbra that's running generators and those big mighty haul trucks
2:40
Speaker 2: that you see running around the clock also trains freight
2:44
Speaker 2: everything to get that bone or out of the ground
2:48
Speaker 2: and onto the ship. So interestingly, so straight up, like
2:53
Speaker 2: all of us, we're seeing higher prices at the petrol pump,
2:56
Speaker 2: and so too, Rio Tinto's is seeing high prices, and
3:00
Speaker 2: it's as a big user of diesel. So it's straight
3:03
Speaker 2: up it's starting to feel these higher fuel, these high prices,
3:07
Speaker 2: and you.
3:08
Speaker 1: Would have thought their shared prices would You would have
3:10
Speaker 1: thought they were struggling, right, But it turns out they're not.
3:13
Speaker 2: So looking through this. So what actually happens is so
3:18
Speaker 2: for sure that adds to the cost of digging one
3:21
Speaker 2: ton of irony or out of the ground. All other
3:24
Speaker 2: users are also filling this cost. But the bigger players
3:28
Speaker 2: are benefiting James because they have bigger scale, more scale,
3:32
Speaker 2: so they can spread the cost over more units. And
3:36
Speaker 2: that's a real powerful till when it comes to business.
3:40
Speaker 2: And so Rio Tinto and HP so while they're saying yes,
3:45
Speaker 2: bottom line cost of diesel is going up, in Rio's case,
3:49
Speaker 2: it would be annualized at about more than three hundred
3:52
Speaker 2: million dollars. That's US dollars. However, because smaller marginal players
3:58
Speaker 2: are pulling out of the mark and pulling back on production,
4:02
Speaker 2: the cost of vinyl has actually gone up so in
4:06
Speaker 2: that the spot market on iron ore, so they're actually
4:09
Speaker 2: making more money back than what they're paying out in
4:12
Speaker 2: high days.
4:12
Speaker 1: Of course, here they're making more money which actually if
4:15
Speaker 1: you look, folks, you'd see that they're really going very
4:18
Speaker 1: well just now. I mean, Free's up about twenty percent
4:20
Speaker 1: this year so far. This is against a flat market.
4:23
Speaker 1: So it's one of those it's one of those situations
4:26
Speaker 1: where you might assume as an investor certain repercussions of oil,
4:32
Speaker 1: but it doesn't actually work the way you might think.
4:35
Speaker 1: It's worth actually really digging in sometimes, like ericas here,
4:38
Speaker 1: and I think it's really interesting. It explains to some
4:41
Speaker 1: extent why BHP and why you're having such a very
4:44
Speaker 1: good year in the context of what is not a
4:47
Speaker 1: great year. Certainly on Thesex been going nowhere, ASEX is
4:50
Speaker 1: going nowhere, and the Wall Street is really starting to
4:54
Speaker 1: chug again. I mean, it's up about four percent this
4:56
Speaker 1: year so far, we're up about one percent. But behind
4:59
Speaker 1: those numbers, the recovery on Wall Street is quite amazing.
5:02
Speaker 1: We talk about that in a moment. I just want
5:03
Speaker 1: to get back to some of these issues that will
5:05
Speaker 1: challenge your assumptions, folks. Now, Eric also tell us about
5:09
Speaker 1: the airlines and how they've been dealing with the oshark
5:13
Speaker 1: and if there are winners and losers there. I know
5:16
Speaker 1: quantus is down, but don't about ten fifteen percent, isn't it?
5:19
Speaker 1: But who is managing it better? Would you think?
5:22
Speaker 2: Yeah, so look out of that in terms of managing
5:26
Speaker 2: it better again, no simple answer depends on how it
5:30
Speaker 2: plays out now in a real binary answer, Virgin for now,
5:36
Speaker 2: Virgin Airlines, a smaller one, is managing it better. Why
5:39
Speaker 2: Because it's a smaller airline. It's mostly domestic focused, so
5:44
Speaker 2: its planes can they don't have to trail those ultra
5:47
Speaker 2: long distances of getting people overseas. It has flexible pricing.
5:51
Speaker 2: But before it went to a float last year and
5:54
Speaker 2: an AX listing, it took in comprehensive fuel hedging strategies,
6:00
Speaker 2: so it's like taking out insurance. So it really doubled down.
6:04
Speaker 2: So not only it hedged against the Brent crude price,
6:08
Speaker 2: but it also hedged against the additional margin of the
6:12
Speaker 2: aviation fuel. Now that that's the really expensive.
6:16
Speaker 1: Stuff that's gone up, aviation fuel.
6:18
Speaker 2: So not only has Brent crude we've seen it's now
6:21
Speaker 2: tracking at about one hundred and twenty twenty dollars a barrel.
6:24
Speaker 2: That's US aviation fuel has actually almost doubled over that time.
6:31
Speaker 1: I see. So aviation fuel has gone up more than boil.
6:34
Speaker 2: Absolutely absolutely right, because the refining process of it is
6:39
Speaker 2: obviously costly, the demand process is quite large. So I
6:42
Speaker 2: also think about it like diesel has gone up much
6:45
Speaker 2: more than the regular petrol that we put in our cards.
6:48
Speaker 1: Okay, and hedging, could you explain to listeners who don't
6:51
Speaker 1: know about the hedging. It's I mean, it's a game, really,
6:54
Speaker 1: isn't it. They're forced to play this game, but they
6:56
Speaker 1: have to bet on the future of the oid price,
6:59
Speaker 1: and if they get it right, they win, and if
7:01
Speaker 1: they get it wrong, it can go horribly wrong, can't it.
7:04
Speaker 2: That's right? So currently Virgin is winning on the hedging. However,
7:07
Speaker 2: it's paid up big for that. And these hedge contracts
7:10
Speaker 2: they roll over constantly and they will run out eventually
7:15
Speaker 2: in a couple of months. Some of these really beneficial
7:18
Speaker 2: hedging contracts. If the crisis is over within one or
7:22
Speaker 2: two months, who knows absolutely, who knows, then Virgin comes
7:26
Speaker 2: out a winner on this. If not, then it feels
7:29
Speaker 2: the same extent. Now with hedging, it locks in a
7:33
Speaker 2: future price for fuel, long term price of fuel. Really interesting.
7:38
Speaker 2: Australian airlines have been really big on this, so Viewpeen
7:40
Speaker 2: Airlines and what it does. It allows them just to
7:44
Speaker 2: they usually do it as well as to remove volatility,
7:46
Speaker 2: but just to put in some predictability about their operations. Fuel,
7:51
Speaker 2: as we said, is their single biggest expense, so at
7:55
Speaker 2: lest they have some sort of predictability, it essentially buys
7:58
Speaker 2: some time. They can think, all right, we're going to
8:00
Speaker 2: have this much cost base in coming months, we can
8:03
Speaker 2: adjust our our ticket prices accordingly.
8:06
Speaker 1: Yeah. Actually, that's that's interesting. You know, there's something I
8:09
Speaker 1: must tell listeners. There's a great story about hedging for
8:12
Speaker 1: people who won't be familiar say with DFO, well that
8:15
Speaker 1: the people behind DFO, David Wheel and David Goldberger, this
8:19
Speaker 1: is the originals behind it. They soaked it in recent times.
8:22
Speaker 1: They were amazing operators and they were actually on the
8:25
Speaker 1: they've been on the rich Listelee and off over the years.
8:28
Speaker 1: But like a key source of their fortune. It was
8:31
Speaker 1: to do with oil hedging. And they had a company
8:33
Speaker 1: called Solo Oil way back like a million years ago
8:37
Speaker 1: in the oil crisis, and they had an hedging arrangement
8:40
Speaker 1: with one of the majors of the long term hedge
8:44
Speaker 1: and they had bought this oil really cheaply, like really cheaply.
8:48
Speaker 1: And the oil price it tripled in the seventies, you know.
8:51
Speaker 1: But these two guys had this arrangement and the oil
8:54
Speaker 1: major it never reneged on the price they they got,
8:58
Speaker 1: so they were able to sell oil much more cheaply
9:01
Speaker 1: than the big oil companies at the time and make
9:04
Speaker 1: a profit of it. It was like the origins of
9:06
Speaker 1: their of their fortunes. So it just shows you, doesn't it.
9:09
Speaker 1: You know, you can get it right, you can get
9:11
Speaker 1: it wrong, And there's stories all around the world the
9:13
Speaker 1: people who got it wrong, isn't there.
9:14
Speaker 2: Well, look, there's actually Australian corporate history. There's famously companies
9:18
Speaker 2: that have been on the wrong side of hedging contracts.
9:21
Speaker 2: So some of your listeners might remember a company called
9:23
Speaker 2: Pasminco aer.
9:26
Speaker 1: Pas Minko, what were they nickel, lead and zinc.
9:29
Speaker 2: Now that that collapsed in went into voluntary administration in
9:34
Speaker 2: two thousand and one. Now they they had all these
9:38
Speaker 2: hedging contracts in place, terribly out of the money on that,
9:42
Speaker 2: and so for everything that they were digging out, they're
9:44
Speaker 2: losing money digging out of the ground. They're losing money
9:47
Speaker 2: on the other one. Famously, New Crest was a gold
9:50
Speaker 2: miner and it went for it through a tough time
9:52
Speaker 2: for a long time, selling all these out of money
9:55
Speaker 2: hedging contracts. Gold price was sawing and New Crest just
9:58
Speaker 2: wasn't making money on.
9:59
Speaker 1: The back that. It's amazing. It's like you can have
10:03
Speaker 1: this company and they can do everything right, and they
10:06
Speaker 1: can everyone can work really hard and they can be
10:08
Speaker 1: excellent in every way, and if someone in the finance
10:11
Speaker 1: department gets the hedging wrong, they can blow the whole
10:13
Speaker 1: thing up, or they can do very well. So that's
10:17
Speaker 1: one of the stories I think that you should be
10:18
Speaker 1: aware of, folks, in terms of how the markets are
10:21
Speaker 1: going right now, how it really is happening, what's really
10:24
Speaker 1: panning out in relation to this oil crisis for our
10:27
Speaker 1: shares just more generally, Eric the US is tearing away again, really,
10:31
Speaker 1: isn't it? On Wall Street compared to our own market,
10:33
Speaker 1: even though they face more or less the same set
10:36
Speaker 1: of dynamics. That is, they have had a it's a
10:39
Speaker 1: global issue, right, the price of oil. How do you
10:42
Speaker 1: think this will pan out from here? Are we faited
10:44
Speaker 1: to watch the Wall Street sort of tear off again?
10:47
Speaker 2: Yeah, Look, they've really broken away from Australia. But don't
10:50
Speaker 2: forget Australia is in the middle of not in the middle. Well,
10:54
Speaker 2: we're right in. We're right into a interest rate rise cycle.
11:00
Speaker 2: So that is putting a real dampner on our local market.
11:05
Speaker 2: There is a prospect of the rate rise in early May,
11:08
Speaker 2: the market is still penciling and potential for another one
11:11
Speaker 2: later this year, so that's a pretty aggressive move to
11:14
Speaker 2: as a central bank tries to stamp out inflation in
11:17
Speaker 2: the economy. The United States, on the other hand, they're
11:20
Speaker 2: in a rate halt cycle, so their cash rate is
11:26
Speaker 2: on hold. They're really reluctant to raise it. They're not
11:29
Speaker 2: seeing the same levels of inflation that Australia is. They
11:33
Speaker 2: have a little bit more capacity in the market, and
11:36
Speaker 2: if anything, they're still talking about lowering rates at the
11:38
Speaker 2: end of the year. So that's the difference. There's also
11:41
Speaker 2: the huge momentum around AI and investing for AI. So
11:47
Speaker 2: that's still driving fundamentally for the United States and markets, which.
11:52
Speaker 1: For what it's growth folks, betimes fifteen percent a year
11:55
Speaker 1: and we return known that's a decade long average, and
11:59
Speaker 1: I'm sorry to see that gap is probably going to
12:01
Speaker 1: be repeated this year. I don't know if it's going
12:03
Speaker 1: to be fifteen for them and nine for them, but
12:04
Speaker 1: I bet you, I bet you the gap will be similar. Okay,
12:07
Speaker 1: I really want to talk to you about AI. Take
12:08
Speaker 1: a short break. We'll be back in the moment. Hello,
12:20
Speaker 1: Welcome back to The Australian's Money Puzzle podcast. James Kirby
12:23
Speaker 1: here with Eric Johnson from The Australian. He's the business
12:27
Speaker 1: columnist on The Australian, former Business editor as well, and
12:30
Speaker 1: he's been on the show of course regularly over the years. Now, Eric,
12:34
Speaker 1: AI in the US it was until this Iran crisis
12:37
Speaker 1: broke out. It really was the overarching theme and drove
12:42
Speaker 1: the US share prices. Those very strong share prices that
12:45
Speaker 1: they've had and we haven't had sort of underpinned that rally.
12:49
Speaker 1: We up until now haven't had much of an AI sector.
12:53
Speaker 1: We have some proxies and the more than proxies. We
12:56
Speaker 1: have an XDC, but the AI we haven't really had
13:01
Speaker 1: that yet. Is there any evidence, like looking at the
13:05
Speaker 1: US market, for instance, the big players in video obviously
13:08
Speaker 1: the biggest player in the world. In AI, we've had
13:11
Speaker 1: next DC, And I've talked about NEXTDC on the show
13:14
Speaker 1: when I was quite a big fan of NEXTDC for
13:17
Speaker 1: a long time. I'm not a big fan anymore. For
13:19
Speaker 1: what it's worth, in that they did very well in
13:23
Speaker 1: the period that they went from about six seven dollars
13:25
Speaker 1: to fourteen dollars, and they seemed to be sitting there
13:27
Speaker 1: for a long time, and I wonder, I'm wondering openly,
13:31
Speaker 1: Eric as to what you think of NEXTDC. It seems
13:34
Speaker 1: to me if they are our sort of mascot in AI,
13:37
Speaker 1: they're a pretty weak one these days.
13:41
Speaker 2: They were. It's interesting. They were a very boring little
13:45
Speaker 2: data center company that no one really was interested in.
13:48
Speaker 2: Many years ago, people regarded them as a property play,
13:51
Speaker 2: so they're always lumped in with the property sector and
13:54
Speaker 2: commercial property building warehouses with computers in them. No one
13:57
Speaker 2: really took much notice of it. And then AI came
14:00
Speaker 2: along and suddenly they were the whole thing really interesting.
14:04
Speaker 2: They're in an expansion phase at the moment, so they're
14:08
Speaker 2: trying to capitalize on the demand for AI. These phenomenal
14:13
Speaker 2: demand computing power, the need for computing power, and that
14:19
Speaker 2: there is there is regarded as exponential growth behind that.
14:25
Speaker 2: That's what the narrative is. That's why everyone is spending
14:28
Speaker 2: so big on building all the infrastructure around it, not
14:33
Speaker 2: only the AUSSI companies, but also the US companies. Your Microsoft's,
14:36
Speaker 2: your Googles, your Facebook's, your Amazon's, everyone's.
14:39
Speaker 1: Spending They're even spending big money here, aren't they on
14:42
Speaker 1: their own account?
14:42
Speaker 2: That's right. Sacha Nadella was out here just a few
14:46
Speaker 2: weeks ago committing more than twenty billion dollars on building
14:49
Speaker 2: that's a huge investment.
14:52
Speaker 1: Extra US traditional Yeah, that's.
14:55
Speaker 2: That's the thing that beyond the ler G expansion. Just
14:58
Speaker 2: to put that in context to one of the single
15:01
Speaker 2: biggest investments outside of aler G investment of recent years.
15:06
Speaker 1: So actually it's in the way. I mean, you've got
15:08
Speaker 1: to say it's good news because there's big mutinationals. They
15:10
Speaker 1: never spent much in Australia. Yeah, I mean, they sought
15:12
Speaker 1: a lot and they've passed it off back to head
15:14
Speaker 1: office and transfer placing them. They never invested much, did that.
15:17
Speaker 2: That's right? You know, they were pretty capital light models
15:20
Speaker 2: down here. But just back on next DC. So they're
15:23
Speaker 2: now on an expansion phase and building out warehouses. That
15:29
Speaker 2: means that they're very they're going to be very capital hungary,
15:32
Speaker 2: and we've already seen examples of that. They're in the
15:35
Speaker 2: market at the moment. At the moment with raising and
15:38
Speaker 2: retail raising. They've just issued some some notes. Really interestingly,
15:42
Speaker 2: they've issued some hybrid notes. The are the things that
15:46
Speaker 2: retail investors love banks to issue. Little note around this
15:50
Speaker 2: is that the next DC ones are one hundred year notes,
15:54
Speaker 2: so they are redeemable in one hundred years.
15:57
Speaker 1: So who knows, Well, that's great to hear, really able
15:59
Speaker 1: one hundred years there. Yeah, mom and dad will really
16:01
Speaker 1: be keen on that one. So that's what institutional investors obviously.
16:05
Speaker 1: But they struggled with that, didn't they They have to search
16:07
Speaker 1: the world. I don't want to say, it would seem
16:10
Speaker 1: that they struggled and some of the obvious candidates did
16:13
Speaker 1: not come to the party on that, and eventually it
16:16
Speaker 1: was was it a French Canadian? Oh?
16:19
Speaker 2: It was a Canadian pension fund.
16:20
Speaker 1: Canadian pension fund comment.
16:22
Speaker 2: To come in and that's the concern. So it is
16:26
Speaker 2: going to be capital hungary. That being said, they have
16:29
Speaker 2: a business model, they build, They've got experience building these warehouses,
16:34
Speaker 2: many of them across Australia, so they have a trick
16:37
Speaker 2: c record, they've got expertise, they've got the management skills,
16:40
Speaker 2: so they know what they're doing. However, what investors would
16:44
Speaker 2: be needing to weigh up is the amount of capital
16:46
Speaker 2: that we're going to be putting into this and that
16:48
Speaker 2: they need for their expansion. Is that going to pay
16:52
Speaker 2: off one day? And that's you know, who knows what
16:54
Speaker 2: they is.
16:55
Speaker 1: So from the investor point of view, I suppose the
16:57
Speaker 1: thing is they're raising money yet again, they never stopped
16:59
Speaker 1: raising money. That's all fine, but in the US it
17:02
Speaker 1: seems to me when these AI companies raise money, their
17:04
Speaker 1: share price goes up. But here next you see has
17:07
Speaker 1: it priced target on it from the brokeners of about
17:10
Speaker 1: twenty bucks at the moment, But the stock isn't anywhere
17:13
Speaker 1: remotely near that and I don't see any particular catalysts
17:16
Speaker 1: which would lift it to those levels. That's just my opinion. Okay, now, Eric,
17:23
Speaker 1: you've got to tell people about Firmis and folks, if
17:25
Speaker 1: you haven't heard about Firmis fi r m us it's
17:29
Speaker 1: an unlisted AI company and if it and it is
17:35
Speaker 1: set to float later this year, Eric, is it going
17:38
Speaker 1: to be the biggest Is it the biggest float we'll
17:40
Speaker 1: have seen? If it floats at what it's supposed to
17:43
Speaker 1: do and all that, is it the biggest flow we've
17:44
Speaker 1: seen for a long time.
17:46
Speaker 2: For a long time years And there's a lot of
17:48
Speaker 2: caveats around it. So so look for those Where would
17:52
Speaker 2: you start? Where do we start? So a lot of
17:55
Speaker 2: excitement about this company, an Aussie slash Singapore based company.
18:00
Speaker 2: Two people behind it, Tim Rosenfeld and Oliver Curtis, and
18:06
Speaker 2: we some of your listeners may know Oliver Curtis through
18:10
Speaker 2: his through his partner Roxy Jasenko, quite a famous Sydney family.
18:15
Speaker 2: Oliver is doing his own things and he's very good
18:18
Speaker 2: at raising money and selling selling ideas. He's got together
18:23
Speaker 2: with Tim Rosenfeld on Firmous Technologies. This company initially and
18:30
Speaker 2: Curtis was on the ground floor. The company was initially
18:32
Speaker 2: a bitcoin minor. So and I know that you've spoken
18:37
Speaker 2: about that technology previously, but it just essentially churning around,
18:42
Speaker 2: using all these computers to churn around and mind bitcoins
18:45
Speaker 2: of really energy intensive and working the margin on that. However,
18:50
Speaker 2: in recent years, in the last eighteen months or so,
18:53
Speaker 2: it has pivoted in a very big way to become
18:57
Speaker 2: Australia's most ambitious data center provider and IT and cloud provider.
19:04
Speaker 2: Now they're I was thinking about this, I was doing
19:09
Speaker 2: some research arounds. It's a little bit like an Elon
19:12
Speaker 2: Musk approach. Just reach for the stars, just go for
19:16
Speaker 2: the stars, just go big and bigger. Their aim is
19:20
Speaker 2: to invest seventy three billion across Australia by twenty twenty
19:24
Speaker 2: eight building out data centers and network of data centers
19:27
Speaker 2: in what it calls Project Southgate. Now these data centers
19:32
Speaker 2: aren't ordinary ones. They're liquid cooled with the aim or
19:36
Speaker 2: using this technology with the aim of substantially lowering energy costs.
19:40
Speaker 2: Energy is a big factor in running a data center.
19:44
Speaker 1: Is this their key proposal that they've got something no
19:48
Speaker 1: one else has in data centers.
19:51
Speaker 2: They've got something that is at the start of it's
19:56
Speaker 2: at the front end of technology, so it's being trialed
20:02
Speaker 2: and being used a little bit around the world. It
20:04
Speaker 2: hasn't really been rolled out at scale. It's not to
20:07
Speaker 2: say the technology doesn't work, but it's a very complicated
20:11
Speaker 2: technology and it involves a lot of expertise around it.
20:15
Speaker 2: They've embraced it and they're building at the moment the
20:19
Speaker 2: first Megadata center, the first Hyperscala providing cloud technology and
20:24
Speaker 2: all things for AI computing down in Tasmania.
20:28
Speaker 1: And of course, I mean it would be remiss of
20:31
Speaker 1: us to mend and I'm sure some listening to the
20:33
Speaker 1: name rings the bell. Oliver Courrecters. He's one of the
20:35
Speaker 1: few people whoever in Australian corporate circles, was charged and
20:41
Speaker 1: geialed for insider trading Once upon a time. He served
20:44
Speaker 1: twelve months in jail for conspiring to commit inside of trading.
20:47
Speaker 1: That was back in two sixteen. You know, life is
20:52
Speaker 1: on and everyone deserves the second act here it comes
20:55
Speaker 1: this time around with this group firmus. One of the
20:58
Speaker 1: things that really is intriguing Eric is who's backing him.
21:04
Speaker 1: Where's masses is behind him? Who of course is a
21:08
Speaker 1: major rich lister and he's put a lot of money
21:12
Speaker 1: in there. We know that already. Admittedly he has contracts
21:16
Speaker 1: with that same company, so that might explain to some
21:18
Speaker 1: extent why he would go in there. James Packer has
21:21
Speaker 1: gone in there. As I understand. It's almost a race
21:24
Speaker 1: between the richest in Australia to get in on this
21:27
Speaker 1: IPO or would that be fair to say? Would you
21:31
Speaker 1: say that's fair?
21:32
Speaker 2: Yes, it is. It is in a way, But and
21:35
Speaker 2: we talk about that. They're in a pre IPO stage.
21:38
Speaker 2: They've talked about going to the market for an IPO
21:41
Speaker 2: this year. And i'd really encourage your listeners to speak
21:45
Speaker 2: to an advisor before going into this because there will
21:49
Speaker 2: be a lot of hype around this. There will be
21:51
Speaker 2: significant hype. Really do the sums and really put a
21:56
Speaker 2: real tough screen around it, and you know, stick to
21:59
Speaker 2: your rules around investing. So there are some big names
22:03
Speaker 2: in it. So yeah, Alliston is the fund behind there.
22:06
Speaker 2: We've got Regal Archibold Capital. But don't forget the sums
22:12
Speaker 2: that some of these organizations are investing. They're like they're
22:16
Speaker 2: like us buying a lotto ticket on the way home.
22:18
Speaker 2: They're not going to move the dial. But for some
22:21
Speaker 2: retail investors, and if it does go to market, it
22:24
Speaker 2: will be it will be quite a big quite a
22:27
Speaker 2: big ask and there are going to be big sums.
22:29
Speaker 1: Okay, So I mean, as you said, the nature with
22:32
Speaker 1: highly hyped floats is that they can go highly wrong.
22:37
Speaker 1: And we know that, and we all know that anyone
22:38
Speaker 1: who's been around wouldn't know that. One last thing, eric
22:41
Speaker 1: on from us, When are they do to float? Yeah?
22:45
Speaker 2: So they have talked about mid twenty twenty six as
22:49
Speaker 2: a date. Now, I we don't have a much more
22:55
Speaker 2: indication beyond that they're what they're doing. They're going round
22:58
Speaker 2: at the moment and testing support among big investors in
23:02
Speaker 2: Australia whether it is viable. It's said that if the
23:06
Speaker 2: valuation would be about eight billion dollars if it lists.
23:09
Speaker 2: So this company that barely existed a few years ago
23:12
Speaker 2: is already sort of traveling around eight billion dollar mark.
23:16
Speaker 1: It's an no known company that went from who knows
23:18
Speaker 1: where to eight billion and this is what is coming
23:23
Speaker 1: through and should float on the market. That's the total
23:26
Speaker 1: value of this company as we know it today is Yeah.
23:30
Speaker 2: The key thing when you do see if we do
23:32
Speaker 2: see a perspectives if it does fly, obviously, customers who
23:35
Speaker 2: are their customers? How are they customers? What are the
23:37
Speaker 2: long term contracts. Questions like that that's the big that's
23:41
Speaker 2: a big thing.
23:41
Speaker 1: Okay. And as you say, the energy too, where you
23:44
Speaker 1: know what's the energy and how will it be powered? Okay?
23:48
Speaker 1: Very interesting. We'll hear a lot more. We will hear
23:51
Speaker 1: a lot more about firmus. I expect in the weeks
23:55
Speaker 1: ahead after the budget. Probably if I was there, i'd
23:58
Speaker 1: be listing June or July. But hey, who knows. Okay,
24:03
Speaker 1: I've got some interesting questions I've kept for Eric. We'll
24:05
Speaker 1: be back in a minute. Hello, Welcome back to The
24:15
Speaker 1: Australian's Money Puzzle podcast. James Kirby here with Eric Johnson
24:20
Speaker 1: from The Australian. Now, Eric, just two quick questions I've
24:23
Speaker 1: kept for you. Once from Peter. He says, surely there's
24:26
Speaker 1: another side of the trade and high volumes where people
24:31
Speaker 1: are selling, there must be people buying the same amount
24:35
Speaker 1: on the other side. Is there any evidence that retail
24:38
Speaker 1: investors outperform either the index or professional investment managers? Yes, Peter,
24:45
Speaker 1: there is. There's good evidence from institutional investors that they
24:49
Speaker 1: are better investors, and there's good evidence from retail investors
24:52
Speaker 1: that they are better investors. Don't you know. The nearest
24:54
Speaker 1: thing I can think of is the Self Managed super
24:56
Speaker 1: Funds Association issues something from i'd lead which shows that
25:01
Speaker 1: self managed super fund investors are better than institutional investors,
25:05
Speaker 1: for instance, year by year. But don't you know that
25:08
Speaker 1: work is commissioned by the Self Managed super Fund Association,
25:10
Speaker 1: just saying so, I think the answer would be it
25:14
Speaker 1: depends on who you are. There's some pretty hopeless institutional investors.
25:18
Speaker 1: Eric isn't there.
25:21
Speaker 2: But look, I think that the challenge of that is
25:22
Speaker 2: is a measurement of it. So we know how to
25:26
Speaker 2: measure institutional investors, we know how to measure atfs, but
25:30
Speaker 2: measuring the myriad of strategies among retail investors is a
25:34
Speaker 2: really hard thing to measure.
25:36
Speaker 1: It's very difficult, Yeah, because it's everyone's different, right, Every
25:40
Speaker 1: single investor is a different story.
25:42
Speaker 2: Yeah, even self managed super funds. We just don't have
25:45
Speaker 2: a reliable index. We know how much money is going
25:47
Speaker 2: into self managed super funds, but we just don't have
25:50
Speaker 2: a rate of return on that.
25:52
Speaker 1: Yeah, we don't have that. We don't have those sort
25:54
Speaker 1: of hard numbers that the big funds can produce. I
25:58
Speaker 1: would think that the answer, Peter is, so you know,
26:01
Speaker 1: It literally depends on who you are. There's some damn
26:03
Speaker 1: good individual investors, there's some damn good institution investors, and
26:07
Speaker 1: vice versa. All right, none of this is advice of courses.
26:10
Speaker 1: Is information only. Final questions from Ray and sorry, Ray,
26:14
Speaker 1: I know this question has been in the tank for
26:16
Speaker 1: a while. It would be complacent for the leaders of
26:19
Speaker 1: big business to keep relying on the stability of the
26:22
Speaker 1: Middle East to keep their wheels turning, says Ray. What
26:26
Speaker 1: would a collective and sudden worldwide demand increase for evs
26:30
Speaker 1: of all sizes do to the already tight lithium market.
26:33
Speaker 1: It would make the last lithium boom seem like a
26:36
Speaker 1: small rally. Now, that's a great question. Evs are, Yeah,
26:41
Speaker 1: they are taking off, and we know the sales and
26:44
Speaker 1: secondhand sales and the lending to EV's just going through
26:46
Speaker 1: the roof of well basically since the year round crisis
26:50
Speaker 1: broke out. So you would think that would be good
26:52
Speaker 1: for lithium. And I do think they're turning a bit,
26:56
Speaker 1: are they? The lithium gang min raises that are proxy
26:59
Speaker 1: for lithium.
27:00
Speaker 2: So it's a great question, really good timing for it. So, yes,
27:04
Speaker 2: we've just been through a lithium winter a couple of years,
27:08
Speaker 2: and it's just where it's off. It's come off. It's
27:10
Speaker 2: absolutely boom when we're all getting excited about it, that
27:14
Speaker 2: never came to pass. So the price has come back,
27:17
Speaker 2: but there's nowhere near the heights that we once saw
27:21
Speaker 2: the peak time sort of early round about twenty eighteen,
27:25
Speaker 2: nineteen and so on. The reason being is because there's
27:28
Speaker 2: a lot more capacity in the market. There's a lot
27:31
Speaker 2: more production. When those big prices were up, everyone launched
27:34
Speaker 2: their own lithium mind and now all those minds are
27:36
Speaker 2: starting to ramp up and feeding into the market. So
27:41
Speaker 2: there is capacity in the market, and the market would
27:44
Speaker 2: be self adjusting in the way that some of the
27:47
Speaker 2: existing minds have capacity to increase if prices do go up,
27:51
Speaker 2: whereas previously the market just didn't have lithium when everyone's
27:54
Speaker 2: scrambling for it. The one thing, it's not only evs,
27:58
Speaker 2: but you've got to think about long term demand. If
28:00
Speaker 2: this thing was over tomorrow, would we still all run
28:03
Speaker 2: to EV's. I don't know, maybe we would, maybe we write,
28:06
Speaker 2: But that's one factor. One thing that is now the
28:10
Speaker 2: really underpinned before the Iran issue came up these big batteries.
28:14
Speaker 2: Utilities are deploying them all around the world, and they
28:17
Speaker 2: consume a lot of lithium and that's the thing that's
28:19
Speaker 2: actually been moving the dial I see.
28:22
Speaker 1: Well, yeah, so the EV's are part of it, but
28:25
Speaker 1: it's actually the batteries, of which of course our government
28:28
Speaker 1: is currently subsidizing like crazy so that they're doing their
28:32
Speaker 1: bit to push it along with their EV write offs.
28:34
Speaker 1: And you know, folks, I'm sure you're familiar with that
28:37
Speaker 1: one which is under threat in the budget. But we'll see, Okay,
28:41
Speaker 1: I might leave it there, Eric Kate, thank you very
28:42
Speaker 1: much for coming on the show. Great to talk to
28:44
Speaker 1: you again.
28:45
Speaker 2: Always good to be with you.
28:46
Speaker 1: James was Eric Johnson, Folks for business. Columbists from the
28:49
Speaker 1: Australian keep the correspondence roughly. There are very good questions today.
28:54
Speaker 1: The money puzzle at the Australian dot com dot au
28:59
Speaker 1: is the addressed O you S S S.