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Gold... is this the pullback you've been waiting for? · The Money Puzzle

0:10
Speaker 1: Hello, Welcome to The Australian's Money Puzzle podcast. I'm James Kirby.
0:14
Speaker 1: Welcome aboard. Everybody. You know already of course that the
0:17
Speaker 1: single best investment mainstream investment last year was gold and
0:22
Speaker 1: for all we know, it could be the best investment
0:24
Speaker 1: of the decade really if some in the market have
0:27
Speaker 1: it right. It went up around sixty percent. That's Bulliant
0:30
Speaker 1: just went up around sixty percent in the last twelve months,
0:33
Speaker 1: and then gold miners as a group, as a category,
0:36
Speaker 1: as a sector roughly tripled. That is, the gold price
0:40
Speaker 1: they went up about one hundred and fifty percent, judging
0:42
Speaker 1: if we take that number from a from the gold
0:44
Speaker 1: mining ETFs.
0:45
Speaker 2: That are out there.
0:46
Speaker 1: So I think it's a crucial to our listens. I
0:48
Speaker 1: think that the fact that we have seen some very
0:51
Speaker 1: important people in financial advice saying that investors should have
0:55
Speaker 1: an allocation to gold. We have said in the past
0:58
Speaker 1: this extraordinary claim from Mike Wilson, the chief investment officer
1:03
Speaker 1: at Morgan Stanley, who suggests up to twenty percent should.
1:07
Speaker 2: Be held in gold.
1:08
Speaker 1: I don't know about that, but you should have gold
1:10
Speaker 1: in your portfolio. And some people conservative investors have been
1:14
Speaker 1: waiting for a pullback in this red hot rally in gold,
1:19
Speaker 1: and it's happened just this last few days. That is,
1:21
Speaker 1: I'm speaking to you on a Tuesday, and over the
1:23
Speaker 1: weekend gold had its sharpest for for many years, and
1:27
Speaker 1: it fell roughly ten percent on the market around the
1:31
Speaker 1: world over the weekend silver fell around thirty percent, which
1:34
Speaker 1: they tend to be a ratio between those two precious metals.
1:37
Speaker 1: So the pullback is here if you've been waiting for it.
1:41
Speaker 1: My guest today is right across gold. He's a specialist
1:45
Speaker 1: in gold. He runs a gold fund since twenty twenty
1:47
Speaker 1: to the r Gonut Goal Fund. He is a fund
1:51
Speaker 1: manager and co founder of a fund management group of
1:54
Speaker 1: part His name is David Franklin.
1:56
Speaker 2: Hi, David, how are you bid?
1:57
Speaker 3: James? Thanks for having me on.
1:59
Speaker 1: So we're all sort of led to the party. I'm
2:02
Speaker 1: sure we're black people who turn up at the betting
2:04
Speaker 1: office on Melbourne Copte asking how it all works and
2:08
Speaker 1: which horse should we pick. You've been, I mean in
2:10
Speaker 1: Paris first of all, and then in gold since twenty
2:13
Speaker 1: twenty two, So tell me in your own words what
2:17
Speaker 1: you think has happened in the last few months. Where
2:21
Speaker 1: we've had a stretch of a rally in the good
2:24
Speaker 1: price that we haven't seen since the nineteen eighties.
2:27
Speaker 2: What do you think is happening?
2:29
Speaker 4: So the big change has been in investment demand, and
2:32
Speaker 4: in particularly demand from ETF.
2:34
Speaker 3: So in twenty twenty four there was actually.
2:37
Speaker 4: An outflow from ETFs of about about three tons. In
2:42
Speaker 4: twenty twenty five there was an inflow of eight hundred
2:45
Speaker 4: and one tons, so a massive turnaround, and I think
2:49
Speaker 4: that's one where people are saying, look, the world's uncertain,
2:52
Speaker 4: I want to hold physical gold through through an ETF.
2:56
Speaker 4: But I also think what atfs really reflect to a
2:59
Speaker 4: large extent is fear and greed.
3:01
Speaker 3: Right.
3:01
Speaker 4: So the last time it was a big inflows into
3:03
Speaker 4: gold was during COVID, where that was really what i'd
3:06
Speaker 4: call the fear trade, where people are trying, I'm worried
3:08
Speaker 4: what's having in the world here, I'm going to hold
3:10
Speaker 4: some gold. I think there's still a bit of that
3:13
Speaker 4: just given the geopolitical situations, but I think more recently
3:17
Speaker 4: it's been driven by greed, right, as people saying gold
3:20
Speaker 4: is where I want to be, Gold is where everyone
3:22
Speaker 4: else is making money, and I'm piling in and ETFs
3:25
Speaker 4: are an easy way to do it, and I think
3:27
Speaker 4: the issue with that ETF market is it can be
3:30
Speaker 4: pretty fickle. So after COVID, the money then flowed out
3:33
Speaker 4: for the next few years and it's only really in
3:35
Speaker 4: the last six months and it started to.
3:37
Speaker 3: Flow back in and it's flowed in a big way.
3:39
Speaker 4: And I think that's all well and good, but it
3:42
Speaker 4: can change, and it can change quickly. And I think
3:45
Speaker 4: that's what we've seen over the last month is there's
3:47
Speaker 4: been a turning point and people have said, Okay, I'm
3:49
Speaker 4: going to cash in now, and a bit of fear
3:51
Speaker 4: kicked in and they're out.
3:53
Speaker 1: So this value, at least this is a selloff that's
3:56
Speaker 1: happening might disturb people who are new to the game.
3:59
Speaker 1: Can you tell us what you think of the setoff?
4:02
Speaker 1: Just tell me what you think about it. Do you
4:03
Speaker 1: think it's serious? Do you think it is a change
4:06
Speaker 1: in direction for the gold price? Do you think it
4:08
Speaker 1: will recover?
4:09
Speaker 3: Well?
4:09
Speaker 4: I think the tailwinds for gold are still in place, right,
4:14
Speaker 4: So you look at what's happening globally, you go there's
4:17
Speaker 4: really a changing world order, and in particular the US's
4:21
Speaker 4: role in that. I think they've taken a view that
4:24
Speaker 4: we're a superpower and we're now going.
4:25
Speaker 3: To act like one. Right, We're not necessarily going to
4:27
Speaker 3: be the protector of the planet. We're going to be
4:30
Speaker 3: putting the US first. As part of that.
4:33
Speaker 4: Not Eeron now wants to hold US assets and so
4:35
Speaker 4: they're looking for alternative. So gold really is a store
4:38
Speaker 4: of value, which has been for thousands of years, is
4:41
Speaker 4: really coming back to the foe.
4:43
Speaker 3: You've got groups like Russia.
4:45
Speaker 4: You know, when Russia invade Ukraine and the US froze
4:48
Speaker 4: a lot of their assets are really highlighted that holding
4:51
Speaker 4: US assets is.
4:54
Speaker 3: A risk.
4:55
Speaker 4: And since then you've seen a lot of central bank
4:56
Speaker 4: buying from China, etc. So I think the tailwinds for
5:01
Speaker 4: gold are there and will continue. What I saw is
5:04
Speaker 4: it just got a bit overinflated at overhead and you've
5:06
Speaker 4: seen a pullback. But I think you'd expect that gold
5:09
Speaker 4: will continue to be sought and it should be part
5:13
Speaker 4: of people's portfolios.
5:15
Speaker 1: I know this is difficult, but from terms of bullion,
5:18
Speaker 1: so the big number was five thousand, that would it
5:20
Speaker 1: get to five thousands, and of course it got to
5:22
Speaker 1: five thousand frizte easily and it loaded above that number.
5:26
Speaker 1: A lot of the big banks of global investment banks
5:28
Speaker 1: are pitching that it will get to five five five
5:30
Speaker 1: six this year. It's currently has dropped fair bit. That
5:34
Speaker 1: pullback is real and stand around four to seven, that
5:36
Speaker 1: is four thousand and seven of the US for gold bullion.
5:40
Speaker 1: What is the point that you think would be a
5:43
Speaker 1: floor as such?
5:44
Speaker 3: Is?
5:44
Speaker 2: Do you have a number in mind?
5:46
Speaker 3: Yeah? Look, it's always difficult.
5:48
Speaker 4: So, I mean I spent a lot of time looking
5:50
Speaker 4: at commodities and markets and looking at forecasts, and the
5:55
Speaker 4: one thing I'm sure about is most of the forecast
5:57
Speaker 4: that you read about are wrong, right, So the view
6:00
Speaker 4: I try to take is rather than predict, I kind
6:03
Speaker 4: of observe and then sort of react. So, you know,
6:06
Speaker 4: I would have thought gold could pull back a little bit,
6:08
Speaker 4: but as I said, the catalysts there for gold remain
6:11
Speaker 4: in place. So I think what we'll probably see is
6:13
Speaker 4: some kind of stabilization. You so could see come back
6:16
Speaker 4: a little bit more. But in general, I think.
6:18
Speaker 3: In twelve months time it's going to be higher.
6:20
Speaker 4: Ideally it's going to be around sort of the five
6:21
Speaker 4: thousand dollars announce you wes, but you know they're not
6:25
Speaker 4: lifetime guarantees, right, So.
6:27
Speaker 1: No, of course understand and then bank most forecasts are
6:30
Speaker 1: hired the much you've said out there at this point
6:33
Speaker 1: from credible banks, I mean, from our own CBA and
6:36
Speaker 1: from gpmorgan et cetera. Okay, no one knows where it's
6:38
Speaker 1: going to go, but you're you'd obviously be confident that
6:40
Speaker 1: it's going to go higher running a fond. Now I
6:43
Speaker 1: want to ask you the points you made about gold
6:47
Speaker 1: and the reasons why it has strong structural drivers and
6:52
Speaker 1: there is a consensus that it will move higher from here.
6:56
Speaker 1: We don't know if it will be as good next
6:58
Speaker 1: to this twenty six is twenty five, but it has
7:00
Speaker 1: a lot going forward as an investment option. So let's
7:03
Speaker 1: assume the listener says, Okay, I am convinced of that,
7:07
Speaker 1: and in fact, I missed the first part of the
7:09
Speaker 1: gold rally, and I'm interested in getting in. Now you
7:12
Speaker 1: are in the business of actually choosing gold miners, so
7:16
Speaker 1: you're another step down the road if you like it.
7:19
Speaker 1: It's not a gold fund per se that it's not
7:21
Speaker 1: a bulliant fund. It is a gold miner's fund, and
7:25
Speaker 1: it's an active fund, so you are actively choosing the
7:28
Speaker 1: ones you think are best. So in the last year,
7:33
Speaker 1: gold went up about fifty six percent, And as I
7:36
Speaker 1: said in Bulliant ETFs, did you beat the ETFs? Did
7:39
Speaker 1: your fund as an active managed fund beat the ETFs
7:42
Speaker 1: that were buying gold miners.
7:44
Speaker 4: So we're about in line with the junior gold index
7:48
Speaker 4: at GDXJ we were beaten the producer gold index.
7:51
Speaker 3: But you know the fund was up approximately.
7:54
Speaker 4: One hundred and fifty percent in the last twelve months.
7:58
Speaker 1: Right, Okay, just tell us what your proposal is to
8:01
Speaker 1: the investor who says, look, I'm just going to buy
8:02
Speaker 1: an ETF, I'm just going to buy it. I'm going
8:04
Speaker 1: to buy gold bullion and I'm also going to buy
8:05
Speaker 1: gold miners ETF and I'm going to take the gamble
8:10
Speaker 1: basically that I might miss some spectacular returns. So what
8:15
Speaker 1: do you offer to the listener who's thinking like that.
8:19
Speaker 4: Yeah, Look, the problem with atfs is they're not the
8:23
Speaker 4: portfolio is not value driven. So you can have a
8:26
Speaker 4: very strongly year like you've had in the past year,
8:29
Speaker 4: and money is flowing in based on the market cap
8:32
Speaker 4: of companies rather than on the value proposition of those companies.
8:35
Speaker 4: So what we would like to suggest is that you know,
8:38
Speaker 4: active management over time will deliver better returns if you're
8:42
Speaker 4: you know, if you're a quality manager, because sift through
8:46
Speaker 4: the value. You're not just buying a stock based on
8:48
Speaker 4: its market cap, you're buying it on its value.
8:51
Speaker 3: So that's really the proposition for a golfer.
8:54
Speaker 4: So typically we'll own between fifteen and twenty stocks, so
8:57
Speaker 4: we're very selective in sort of the quality.
9:00
Speaker 1: So digen or twenty stocks is tight, right, So I
9:03
Speaker 1: buy anity F it's got hundreds and hundreds of it.
9:05
Speaker 1: It's got your highs of rubbish and it's obviously pis
9:08
Speaker 1: of good stocks, and you're helping that. Basically the rubbish
9:10
Speaker 1: gets drowned and the overall momentum. But in a more
9:13
Speaker 1: selective active operation like yours, you are picking gold miners
9:20
Speaker 1: ten to twenty. You said, that's fairly high conviction. That's
9:23
Speaker 1: a fairly small pond. Why do you keep it so tight?
9:27
Speaker 4: Well, we just you know, we focus on quality. So
9:31
Speaker 4: what we're looking for is companies that have good production growth,
9:35
Speaker 4: low op X, low cap X, generally high grade, a
9:39
Speaker 4: real focus on free cash generation is long mind life.
9:42
Speaker 3: So you know the thing about resource.
9:44
Speaker 4: And gold companies is it's an asset that is in
9:48
Speaker 4: decline from the moment you start to produce. So what
9:52
Speaker 4: you want is to start with a big old body
9:53
Speaker 4: so that you can you.
9:54
Speaker 3: Have a mind life.
9:55
Speaker 4: And then it comes down to the more general factors,
9:58
Speaker 4: so you want to make sure the strong balance sheet,
9:59
Speaker 4: good management, and location is also really important.
10:02
Speaker 3: So what we're.
10:03
Speaker 4: Looking for is, at its core is really like any investment,
10:08
Speaker 4: we want to see the free cash flow than those
10:10
Speaker 4: companies generate. And what you're seeing with the gold price
10:12
Speaker 4: around five thousand all an ounce is gold companies aren't
10:15
Speaker 4: generating very good.
10:17
Speaker 1: Cash because it's very profitable because their costs are more
10:20
Speaker 1: or less set, but the price of the commodity is rising.
10:23
Speaker 2: Tell me. The theory, of course, is that when you.
10:26
Speaker 1: Have a gold rally or a gold rush as we're
10:29
Speaker 1: having now, bullion moves first and then there's the miners
10:33
Speaker 1: come after. So on that basis, the miner should have
10:37
Speaker 1: a better year than the bullion itself, which was the
10:40
Speaker 1: case last year. I'm assuming you backed that because you've
10:43
Speaker 1: got a gold fund, but could you explain that particular
10:45
Speaker 1: contention to listeners.
10:47
Speaker 4: Yeah, well, it's actually very true if you look at
10:49
Speaker 4: what's so Obviously, we track sort of the goal price
10:52
Speaker 4: versus gold equities, and if you look at the last
10:55
Speaker 4: two years, for most of that two year period, the
10:58
Speaker 4: gold price actually outperformed old equity and it takes a
11:01
Speaker 4: bit of time for the investment markets to kind of
11:04
Speaker 4: catch up. And then what you've seen in the last
11:06
Speaker 4: six months, in particular, gold equities dramatically outperformed, which is
11:11
Speaker 4: expected because, as you're saying, you know, costs of producing
11:15
Speaker 4: gold are relatively fixed. They do tend to go up
11:18
Speaker 4: as gold price goes up, and they don't go up
11:20
Speaker 4: at the same rate as gold. So your margins are
11:22
Speaker 4: expanding and therefore your profitability is increasing at a faster
11:26
Speaker 4: rate than the price of goals.
11:28
Speaker 1: And what you're saying is that actually only happened but
11:31
Speaker 1: last year.
11:32
Speaker 3: Yeah, yeah, it's really in the last six months.
11:35
Speaker 1: Okay, this is just starting to happen. Keep that in mind, folks.
11:37
Speaker 1: We'll take a break. We'll be back in a month. Hello,
11:48
Speaker 1: Welcome back to the Australian's Money Positive podcast. James can't
11:50
Speaker 1: be here talking to David Franklin of the Argornaut Gold Fund.
11:54
Speaker 1: It's a fund which specializes an active managed fund which
11:59
Speaker 1: buy is ghost stocks, and obviously the contention is that
12:03
Speaker 1: they will pick the best ones and they will beat
12:04
Speaker 1: the index in the long term. David, these ghostocks you buy.
12:09
Speaker 1: One of the things comparing and contrasting we're talking about
12:11
Speaker 1: the ETF. Does ETF tend to be global that you
12:13
Speaker 1: can buy here rather than so I'm guessing that your
12:16
Speaker 1: concentration is on funded on gold miners that you actually know,
12:19
Speaker 1: you know the numbers, you actually know the people behind
12:22
Speaker 1: those companies. Is that part of what you do that
12:25
Speaker 1: you actually Yeah, the industry would have lots of characters
12:29
Speaker 1: that have been through a few cycles, and there's people
12:31
Speaker 1: to avoid and there's people to join.
12:34
Speaker 2: Is that part of your rationale and picking stocks?
12:37
Speaker 3: Yeah, exactly.
12:39
Speaker 4: The fund can invest globally, so typically we have a
12:42
Speaker 4: mix of international stocks and also domestic stocks, but the
12:45
Speaker 4: portfolio is weighted towards Australian based gold producers.
12:49
Speaker 3: And the positive, as you're kind of.
12:50
Speaker 4: Alluding to, is Australia has has a big goal sector.
12:55
Speaker 4: It's a big global gold producer and there's a big
12:58
Speaker 4: universe of gold stocks and it makes it easier and
13:01
Speaker 4: you know, often when you're investing in resources and gold
13:04
Speaker 4: in particular, where that project is located is really important.
13:08
Speaker 4: And the positive is Australia is a very good place
13:11
Speaker 4: to invest. Equally, Western Australia are very pro mining, the
13:14
Speaker 4: approvals processes that are relatively good, the infrastructure is very good.
13:18
Speaker 4: So you know, when you're investing in gold, you want
13:21
Speaker 4: to mitigate risk as much as you can. And by
13:24
Speaker 4: investing in a project based in Western Australia, for example,
13:26
Speaker 4: you're eliminating a lot of potential risks that you might
13:29
Speaker 4: get if you go to West Africa or parts of
13:31
Speaker 4: South America.
13:33
Speaker 1: Eliminating the regulatory risk as you see. Okay, one of
13:36
Speaker 1: the things I thought we were talking earlier was fascinating.
13:39
Speaker 1: I assumed two things that the gold sector they would
13:41
Speaker 1: all run off and start raising money, and that'd be
13:44
Speaker 1: a lot of leverage through that sector. And you were
13:46
Speaker 1: saying not quite, maybe not yet. But what you were
13:49
Speaker 1: telling me, which I didn't know, was there are many
13:52
Speaker 1: of them doing so well. They have a lot of cash,
13:55
Speaker 1: which that sounds good at best value, but there's a
13:57
Speaker 1: point where you don't want to have too much cash
13:58
Speaker 1: because it'll drag back your return. That's a real danger, now,
14:01
Speaker 1: is it. With many of the best jocks.
14:04
Speaker 3: Well, I think you're right.
14:05
Speaker 4: I mean, you know, we sort of just if you
14:07
Speaker 4: look at a peer group of say the thirteen or so,
14:11
Speaker 4: you know, leading Australian based producers and probably ignoring the
14:16
Speaker 4: bigger ones Evolution and all the star but the group
14:18
Speaker 4: below that thirteen companies net cash is about seven and
14:22
Speaker 4: a half billion dollars and most of that has been
14:25
Speaker 4: generated in the last couple of years, so it's it's enormous.
14:28
Speaker 4: It just shows the benefit of high goal prices, realtive
14:31
Speaker 4: fixed costs.
14:32
Speaker 3: And you're generating a lot of cash.
14:33
Speaker 4: Now that's good and bad, right, because the question is
14:38
Speaker 4: what do you do with all that cash? And certainly
14:40
Speaker 4: the companies that we would focus on and really like
14:43
Speaker 4: are companies like Genesis and Capricorn and great Land and
14:47
Speaker 4: Romilius where they've got substantial amounts of cash, but they've
14:51
Speaker 4: got very clear growth program and they're developing projects and
14:55
Speaker 4: building out their operations, so you can kind of see, well,
14:58
Speaker 4: they're growing cash.
14:59
Speaker 3: But they've got a good place spend it. Then there's
15:01
Speaker 3: companies which have a lot of cash, and Regis is
15:04
Speaker 3: probably a good example.
15:05
Speaker 4: They've got a lot of cash, good core business their
15:08
Speaker 4: mind life is starting to run out and they need
15:11
Speaker 4: to do something. So the question is are they going
15:13
Speaker 4: to buy something? And in this kind of environment, it's
15:15
Speaker 4: a realty difficult time to buy something at values.
15:18
Speaker 3: So I wait and see.
15:19
Speaker 4: They do have development project that's held up by some
15:21
Speaker 4: regulatory approvals in New South Wales. It might come through,
15:24
Speaker 4: but that would be a concern. And so then you've
15:27
Speaker 4: got the bulk of other companies. What are they going
15:29
Speaker 4: to do with their cash if they don't have a
15:31
Speaker 4: meaningful project to spend the money on. And so you'd
15:34
Speaker 4: like to think maybe dividends or share buybacks. But I
15:37
Speaker 4: think what you'd suggest is that we're probably going to
15:40
Speaker 4: enter a period of increased mergers and acquisitions where people
15:44
Speaker 4: are using their balance sheets to grow.
15:48
Speaker 2: Rather than giving us special dividends.
15:50
Speaker 3: Yeah, hopefully it's a bit of a mix.
15:51
Speaker 4: I think some will do it, But the gold sector
15:54
Speaker 4: and the resources sector in particular, doesn't have a great
15:57
Speaker 4: record of returning capital.
16:00
Speaker 1: It's funny because we were saying, I was going to
16:02
Speaker 1: say one of the advantages of having a gold stock
16:04
Speaker 1: over billion is that bullion pays no income, and the
16:06
Speaker 1: gold stocks can. But dividend is not important really in
16:10
Speaker 1: your fond is it.
16:12
Speaker 3: We don't see it as a key driver.
16:14
Speaker 4: I mean, we would like to see become more of
16:16
Speaker 4: a more of an issue in that it's an issue
16:19
Speaker 4: that often doesn't face the gold producers, right. I think
16:22
Speaker 4: you know, to put it in context, that the margins
16:25
Speaker 4: of gold producers are making now is unusually high, and
16:29
Speaker 4: so the cash builder is unusually high, and so it's
16:32
Speaker 4: a challenge that they probably haven't had to deal with
16:34
Speaker 4: in having served with cash and what do we do
16:36
Speaker 4: with it?
16:37
Speaker 1: A nice problem to have. We're going to talk in
16:39
Speaker 1: a moment about actual stocks and a couple of stocks
16:41
Speaker 1: in particular. I'd like to just drow David on. We'll
16:44
Speaker 1: do that after the break. I want to ask you
16:45
Speaker 1: one question before the break, which I think is I
16:49
Speaker 1: haven't got an answer yet from anyone. The whole gold rally,
16:52
Speaker 1: right is premised on the basis that gold is an
16:56
Speaker 1: asset that investors seek times of uncertainty, and the theory
17:02
Speaker 1: being that gold goes up when stocks go down. But
17:06
Speaker 1: this there's a distinction in this gold rally to other
17:09
Speaker 1: rallies of great rallies off sa the eighties to prior to.
17:13
Speaker 2: Two o seven there's a distinction.
17:16
Speaker 1: It's that we're seeing gold go up and global staff
17:20
Speaker 1: prices go up at the same time. And what does
17:23
Speaker 1: that mean if we had a share market for what
17:25
Speaker 1: do you think would happen to gold sector?
17:31
Speaker 3: Yeah, look, so my experience is what tends to happen.
17:35
Speaker 4: So if you think about some of the big market events,
17:38
Speaker 4: you know, GFC, COVID and Trump in April when he
17:42
Speaker 4: announced the tariffs, market fell, and typically what will happen
17:45
Speaker 4: is gold price will fall with the market, but it
17:49
Speaker 4: doesn't stay down long and then it rebound and then
17:52
Speaker 4: our performs. The dot com boom of around two thousand
17:56
Speaker 4: was a bit different, where the tech stocks fell, but
17:59
Speaker 4: gold went up and immediately. So I think it's very situational.
18:03
Speaker 4: A lot of reasons to suggest that, you know, like
18:06
Speaker 4: gold went up recently in the last few years when
18:09
Speaker 4: interest rates were going up, right, which is also very unusual.
18:12
Speaker 4: So I think with gold there's always very situational effect.
18:16
Speaker 4: And you know, as we alluded to it before, I
18:18
Speaker 4: think that the amount of investment demand in gold at
18:21
Speaker 4: the moment, and even the central bank buying, which has
18:24
Speaker 4: been a cornerstone over recent times, just means that you
18:27
Speaker 4: know the situation is.
18:29
Speaker 3: A little different.
18:30
Speaker 2: Very good.
18:31
Speaker 1: We'll take a break, folks and we'll talk about a
18:32
Speaker 1: couple of individual gold stops.
18:34
Speaker 2: Back in a moment.
18:41
Speaker 1: Hello, Welcome back to the Australian's Money Puzzitive podcast. James
18:44
Speaker 1: can't be here talking to David Franklin of the arg
18:46
Speaker 1: Ornaut Gold Fund. Thank you for coming on the show.
18:49
Speaker 1: And that's quite clear that you do. The first thing
18:51
Speaker 1: I want to ask you is the sale of New Crest.
18:55
Speaker 1: It would seem to me that was an absolute steal.
19:00
Speaker 2: A few years ago.
19:01
Speaker 4: Yeah, I think it's inarguable it was a steel It's interesting, right,
19:06
Speaker 4: so when the transaction happened, you probably thought this is
19:09
Speaker 4: a solid transaction.
19:11
Speaker 3: You know, they're paying a fair price. But what's happened
19:13
Speaker 3: is the gold price has.
19:14
Speaker 4: Risen significantly since then and now it looks like a bargain.
19:19
Speaker 3: And so I think you're right.
19:20
Speaker 4: I think Newmont did really well buying New Crest.
19:23
Speaker 1: That was Australia's I should have said, folks, that was
19:26
Speaker 1: Australia's biggest called Yeah minor at the time listed what's
19:30
Speaker 1: the biggest one now.
19:30
Speaker 4: David, Well, new Monk's listed here, so it's still a
19:35
Speaker 4: major contributor to the index, and then it comes down
19:38
Speaker 4: to Northern and Evolution are sort of the big two,
19:41
Speaker 4: and then it drops down a bit. But the point
19:43
Speaker 4: I would make on Newmont and New Crest is if
19:47
Speaker 4: there's a winner out of that transaction. It was actually
19:49
Speaker 4: Greatlan Gold which picked up the tel for Gold asset
19:54
Speaker 4: and have her On which was sold by Newmont once
19:57
Speaker 4: they got control of that. And it just shows that
19:59
Speaker 4: when those transactions happen, it can create other opportunities. So
20:02
Speaker 4: to put that in context, Greatland had a market value
20:06
Speaker 4: of about a billion dollars at the time it brought
20:08
Speaker 4: those assets for seven hundred and fifty mili and so
20:12
Speaker 4: say one point seventy five billion in total. Today that
20:15
Speaker 4: company is market cap of about nine billion dollars with
20:18
Speaker 4: another billion.
20:19
Speaker 3: Dollars in cash.
20:20
Speaker 4: So it's generated more cash from the assets that are
20:22
Speaker 4: bought than the pay price that paid within sort of.
20:26
Speaker 3: An eighteen month period.
20:27
Speaker 1: So incredible, beautifully don So somebody did win out of
20:32
Speaker 1: the New Crest situation. So what about today? Tell me
20:34
Speaker 1: who stocks you mentioned? Service stocks by name for our listeners,
20:39
Speaker 1: are the stocks you could point to and say that
20:43
Speaker 1: this stock would seem to be very well situated for
20:46
Speaker 1: the point we're out in the gold cycle now.
20:49
Speaker 3: Yeah.
20:49
Speaker 4: Look, I think if there's a standout producer, it's Genesis.
20:53
Speaker 4: So Genesis western Australian based producer run by Raley Finlerson,
20:58
Speaker 4: who is probably recognized one of the leaders in the
21:01
Speaker 4: gold sector.
21:01
Speaker 3: I've been in the industry for a long period of time.
21:04
Speaker 4: The company has has been through a bit of a
21:06
Speaker 4: consolidation building up its production from two sort of production
21:10
Speaker 4: hubs in Western Australia. It's due to come out with
21:13
Speaker 4: a new five year production plan within the next couple
21:16
Speaker 4: of months and I think that'll give the market a
21:18
Speaker 4: bit of a kick.
21:19
Speaker 3: So that's one we really like. Another one is Capricorn. Again.
21:23
Speaker 4: You know, the consistency here is strong management, strong balance sheet,
21:27
Speaker 4: very identifiable growth projects, focus on keeping costs low and
21:31
Speaker 4: located in T one location.
21:33
Speaker 3: So you know Capricorn.
21:35
Speaker 4: It's got a relebly small mine in Western Australia at
21:37
Speaker 4: the moment called Color Window, producing about one hundred and
21:39
Speaker 4: twenty five thousand ounces. That'll go to one hundred and
21:41
Speaker 4: seventy five thousand ounces. But the hidden asset is really
21:44
Speaker 4: Mount Gibson, which will be one hundred and fifty to
21:47
Speaker 4: turn one thousand hours producer. We should come on in
21:49
Speaker 4: the next couple of years. So again, good growth and
21:52
Speaker 4: really what you're looking for is production growth, having a
21:55
Speaker 4: good handle on costs, and ultimately generating really good free
21:58
Speaker 4: cash flow without ideally without hedging, which can can be
22:01
Speaker 4: a bit of a burden in this kind of market.
22:04
Speaker 1: Yes, it's amazing how they can get it wrong. Gold miners,
22:08
Speaker 1: you say, oh, how could.
22:09
Speaker 2: They get it wrong?
22:10
Speaker 1: You know they can get it wrong, can't they They
22:12
Speaker 1: have they can get the hedging appallingly low, or if
22:14
Speaker 1: you've watched this for a long time, hedging can go
22:16
Speaker 1: terribly wrong. Operations can go terribly wrong, the weather can
22:20
Speaker 1: go wrong. All sorts of things can hit. But that's
22:21
Speaker 1: the risk you take, and if you get it right,
22:23
Speaker 1: you get it very right. Interestingly, I would say one
22:25
Speaker 1: thing about David. The two stocks mentioned by David there
22:27
Speaker 1: the first two Genesis and Capricorn. They were both mentioned
22:30
Speaker 1: by June Bailu when she did a handful of picks
22:33
Speaker 1: stock picks right across the sector in our opening show
22:36
Speaker 1: of the year, where we were looking at individual stock opportunities.
22:39
Speaker 2: For the year.
22:40
Speaker 1: Very good David Franklin, Argonaut, Goldfund. Lovely to talk to you.
22:44
Speaker 1: Thanks very much for coming on the show.
22:45
Speaker 3: Thanks James, it was a pleasure and all the best.
22:48
Speaker 1: Thank you David, and thank you folks for the correspondence.
22:51
Speaker 1: We will pick them up on Thursday and we will
22:53
Speaker 1: do some batch of questions that have come in and
22:56
Speaker 1: we did cover questions in Thursday's show as well.
22:58
Speaker 2: Keep the correspondence Rolling.
23:00
Speaker 1: Money Puzzle at the Australian dot com dot au Talk.
23:03
Speaker 1: Today's show was produced by Leah Samma Glue Talk you soon.