I'll be wrong a lot in 2026 and a lot of the themes that will emerge in the year are unknown now. If you read some of my ideas for the year do your own diligence and evaluate your own risk tolerance.

OK, with that disclaimer let's get to it.

Less Commodity Exposure

The reason I love to invest in commodity stocks is that it's an inefficient market driven by wild excesses and poor judgement. So I'll always have some portion of my portfolio in commodity based stocks.

That said, I'm intentionally trying to lower that exposure and find non-commodity areas of the market to invest in. If you have a gold explorer/developer/miner/royalty company and gold is down 40% you can bet your company will be down too. No amount of good stock picking will overcome a commodity bear market.

A year or two ago there were good project that couldn't raise even tiny amounts of money to continue to advance their projects and plenty of well run producers struggling with cashflow issues. Now we see depleted low grade high cost mines reopening. Commodity prices could double or halve this year and my crystal ball is broken but in the end gravity of production costs drive prices over a long enough time horizon. Capital doesn't get paid as well here even if things go up as there is plenty of cash sloshing around in the industry.

Instability to Continue

The market will likely continue to have news driven rapid repricing. We are in year 1 of 4 of a president who starts a trade war with Canada and that whole thing with Venezuela. Regardless if you love or hate these policies it's pretty clear that nobody including his inner circle or even himself knows what's going to happen next.

I don't see any obvious themes for 2026, instead I think being able to have a good understanding of several sectors and an ability to move quickly in size to the right places as things change is the way to make money in 2026.

2-Sided Marketplace Companies

I love these kind of companies and those with slowed growth (or negative growth) are trading super cheap. I'm actively looking for more of these.  Are they value traps or resilient high return on capital businesses, I'm betting they are the later and not the former.

Currently holding Paypal $PYPL, Remitly $RELY, Bumble $BMBL, & Yelp $YELP. Re-visiting Camplify $CHL.AX.

Learning

Most of 2026 investment themes aren't obvious in January 2026. It's a year I'm going in blind, but here's a couple of areas I'm learning about now.

AI Beneficiaries

I think AI has a lot of parallels to the .com boom/bust. It's world changing but also there is over-investment in capital on a scale that isn't sustainable and can't generate a positive return. Much of that capital is circular and when the music stops a lot of people will be left without chairs.

That said, it's real and a lot of companies who use the technology will benefit. I'm on the lookout for those, though I haven't made any investments here yet.

Healthcare

Waymo is lowering car accidents 90+%, GLP-1 and related drugs are dramatically impacting obesity and related disease, AI is helping complex patients find answers, non-prescription continuous glucose monitors are helping people optimize and personalize their diets, smartwatches are getting more and more health monitoring sensors. It's clear we are in a time of massive change to healthcare.

When an entire industry gets disrupted some of the profit pools are going to shift. I'm looking for the new winners.

Variable Grid Beneficiaries

Solar and grid scale battery storage both continue to go down the cost learning curves. Wind also contributes to variable electrical production.

During ERCOT's past winter crisis Bitcoin miners were shutting down and re-selling their electricity contracts at a huge profit. Water desalinization plants can shut down a few hours or even days at a time when electric prices are high. I'm looking for companies that benefit from low electricity prices but also are able to shut down to reduce grid demand when things get off kilter.

Royalty

I continue to want a large exposure to the royalty model. I feel underexposed right now as I closed a lot of my acquiree targets; I will almost certainly add more royalty names I don't mention here. There are no longer precious metals royalty companies trading at a discount to NAV using conservative metal prices. But the business model works and I continue to want to be invested in it.

Franco Nevada $FNV - the best quality and I think Cobre Panama eventually gets reopened and that gives a stock price bump.

Royal Gold $RGLD - By my math the cheapest of the big 4. The market still overvalues current cashflow and undervalues royalties on projects that aren't cashflowing yet.  Royal has invested a lot in the future and I'm here for it.

Deterra $DRR.AX - The MAC royalty is great and I liked the Trident acquisition. Not a lot of iron ore royalty driven companies so here we are.

Viper VNOM - Oil and gas royalty companies don't usually have the same assymetric upside, but I still like them.

Watching: Summit, LunR, Versamet, Altius, & Evolve all look interesting here.

Project Generators

What happens when miners are running at a large profit and making major cashflow? They may give a little to shareholders in the form of dividends and buybacks, but mostly they are going to spend it. Mill expansions, new shafts, new mine builds, the works.

One of the things that profitable miners with cash in their pockets ramp up is exploration budget. If you've got a legitimately interesting project ready for the next stage of exploration there's a miner willing to option it and drill a few holes. The value creation for project generators is proportional to the amount of drilling going on on their properties.

I currently have two project generators and am looking to add more.

Kenorland $KLD.V is a long term position for me. They didn't have a lucky year on the discovery front, but they continue to execute well and with what they are doing I think it's only a matter of time before they make another major discovery. Top-tier management and I sleep well at night holding this one.

Latin Metals $LMS.V has a nice pipeline of project and are getting a lot of activity.

Pre-Production Sweet Spot

I just hope I have more of these opportunities in 2026.

Montage $MAU.TO has a ways to go but my others all got exited in 2025.

Producers Expanding

There are some existing miners who are building new mines that will expand their total production and the market doesn't give them as much credit as they deserve until the new production is online. This is often less of a move than the pre-production sweet spot but is the same underlying cause. Here you get to benefit from the cashflow from the current operations while you wait.

Warrior Met Coal $HCC - Blue Creek is progressing and their current mine is really great.

Minera Alamos $MAI.V - I get why people don't trust management right now after the shift in strategy. However, their new plan seems pretty reasonable.

Alphamin $AFM.V - OK, expanding is a stretch. They are doing some exploration drilling that looks likely to extend mine life. Mostly they are just too cheap for where tin prices are.

Pre-Discovery Explorers

I think this class of investment if you were to average the industry is value destroying, but the winners are huge returns. It's also nice that Canada has flow-through financing that lets juniors raise money at above market prices and a Critical Mineral Exploration Tax Credit that gives an additional 30% tax credit back.  There's also stable rule of law and a lot of mining companies that are willing to step up and invest early. More of my pre-discovery investments tend to be in Canada for these reasons.  These are still hugely risky so they tend to be very small position sizes.

If you can control yourself don't invest in pre-discovery explorers. As far as addictions go this one is probably worse for you than cigarettes.

Kingfisher $KFR.V - I like Dustin and they've managed to consolidate a handful of prospective projects into a single exploration area. Access to the area is getting better, though they still have to service drills via helicopter any future mine will be easier to access.

Metals Energy $MERG.V - Not even a drillhole yet and they got Centerra and Teck invested. I like Charlie and there's drillholes on both sides on trend of this property and a lot of geophysics and surface data.

Watching:

• King Copper $KCP.V - Too much hype for me but I have to admit it's interesting. With projects like this I'm more than willing to pay up after they hit and not take the risk that they don't.

Post-Discovery Explorers/Developers

If you believe the Lassonde Curves that are shared around this isn't the good part to invest in. Informally I've gone and looked at projects that became mines and they tend to generate value all along the curve. The reason for the average value destruction is that a lot of projects fall out for various reasons. Poor metallurgical results, trouble permitting, maybe the grade and scale come in short.

For these investments I'm asking myself what are the chances it's going to be a mine and what's the upside if I'm right. I'll miss some but hopefully I'm right enough that the gains on the winners to cover the losses.

Stock price moves in this category are particularly violent in both directions.

Q2 Metals $QTWO.V - This is a globally significant spodumene deposit near a highway. I know it seems in the depth of the lithium price bear market that no projects will ever get built again, but they will someday and I think this is likely to be one of them.

Andina Copper $ANDC.V - Colombia is no longer the worst country to be an explorer and their Argentina ore body has some value.

American Eagle $AE.V - The main high grade orebody is size constrained, but recent drilling is hinting at putting together some more scale.

Prospector $PPP.V - That's a huge hit, next season will see if they can follow it up.

Awalé $ARIC.V - Partner funded program at Charger, BBM initial resource coming, and a large amount of recently granted land you can screen through termite mound sampling.

Watching

• Hercules $BIG.V I think it's too deep but it's possible they find the next Resolution.

Specialty Finance

Royalty is a kind of specialty finance. Back in the day I invested in American Tower who acquired or built cellphone towers and leased out space on them. I like it when expertise can make capital productive.

Aercap $AER - A long term position that doesn't trade as cheap as it used to. Buys planes (and engines and helicopters post acquisition) and leases them to airlines. One of the best capital allocators out there.

Queens Road Capital $QRC.TO - I only have a starter position and there isn't a lot of liquidity, but they seem to have good judgement on their convertible debt investments. I hope to grow the size of this position if the market doesn't run away from me.

This is the best year I've had investing from a percentage return perspective at +81.85%. Yet as I write this the $GDXJ is +163.37% and has smoked me. Given last year I had -6.57% performance while the $GDXJ had something like +32% it's a double smoking. Yet, I think investing in the $GDXJ is long term a good way to go broke.

Gold is +65%, Copper +34%, Lithium +29%, Silver +130%, S&P500 +14%, Russell 2000 +12%. In this environment it's not hard to accidently make money. Still, if the market returns on average 8% a year making 8 years of returns in a single year feels pretty nice.

This is probably also the most activity I've had in a year, I was kind of shocked how many names have come through my portfolio. Volatility was a tailwind. Something that previously I'd wait a year or two to play out might move as much as I expected in a week or two instead. A lot of my most speculative investments had the biggest percentage gains.

I'll do a separate post with some more depth on what positions I'm carrying into 2026 and what thematics I'm looking at. I think the value in the market now is less obvious than it was in 2025.

Royalties

Every royalty position if I had bought sooner, sized larger, and never sold I would have made more money. Instead I just did OK by being active and limiting my risk.  One of the themes going in to the year was royalty acquisition targets but I was honestly all over the place.

Elemental was one of my high conviction pound the table investments and it paid off nicely. Some of the returns are muddled between this and EMX as I traded around the merger.  Taken together the pair was a huge win for me.

I sold $EMX in July. Then after the merger announcement there was an arb difference so I sold my $ELE.V and bought $EMX and sold it less than a month later.

Osisko was a catchup trade as it was undervalued relative to peers, I then sold in July. With all the precious royalties that I sold continuing to hold would have made more money, but I think this was a fine outcome.

Considering I only held Metalla for 4 months I think it worked pretty well. It's up a lot from where I sold.

Gold Royalty, not to be confused with Royal Gold, is not my favorite royalty company. I held them less than a month.

With Franco I paid up for quality and am happy to hold it going in to 2026.

Ecora is a mostly non-precious royalty company that has made a bunch of mistakes a long the way, but I bought at such a low price they just needed to stop lighting money on fire and it was going to work out. The royalty model is beautiful.

I finally got tired of being a minority investor alongside a government vehicle because I'm an idiot. I sold at $1.25 in March and it now trades at $2.30.

Lithium Royalty has been a ride. It started the year at $5.80 and prompty sank like a rock as a spot price got depresssingly low. I was adding in Feb and April at a 4 handle. I tendered a few shares in May at $5.70. The shares I still hold are trading at $7.38. I like this royalty company but am not thrilled about their biggest source of revenue Sigma temporarily shutting their mine due to plain incompetence.

Sandstorm I exited in February and March.

Royal Gold is a new position in November setting up for next year.

With oil and gas I pay less attention so owning VNOM is an easy way to get some exposure to the commodity.

Project Generators

I didn't do as many investments in project generators this year. Hope to increase the allocation in 2026.

While I've trimmed and added around a core position Kenorland is largely a long term investment for me. Great team and great strategy.

Latin Metals was a newly established position in November & December as one of their partners gave back an optioned property.

Explorers/Developers

This category is full of sex and violence with huge returns and losses.  

Q2 I'm just holding until they sell or build the mine. It's a globally significant project.

Andina copper has gone way up while waiting for drilling to happen. There's some value in moving up an exchange and your jurisdiction becoming seen as less toxic.

American Eagle I took most of that loss in the first to weeks of the year in mid-January on disappointing results. I bought back in late July at basically the same price I exited with some positive developments on the project.

TDG Gold I thought they had a good chance to hit drilling an extension of their neighbors ore body, and I sold when it came in deeper and not as good as expected.  Considering I held less than 2 weeks I just wish I'd sized it up more.

Prospector I bought to set up next year's exploration season.

Metals Energy is a project that got vended into an existing shell. I was going to invest after they raised, but then they got Centera to come in for 9.9% and I invested a tiny starter position on the back of that, and then they got Teck to come in. That's way too much juice for a junior that hasn't drilled a single hole but I'm here for it.

I bought Minera Alamos when it looked depressingly cheap in early to mid August and sold in mid October when I thought it had run too much for basically no positive business development. Then they announced the acquisition of the Pan mine and I actually liked it and started a new position.

Koryx copper is developing a pretty average project but has a great team behind it. I probably sold a bit early but was looking to take some risk off my portfolio at the time.

Kingfisher is an interesting explorer. I bought in June and July as drilling got underway and then the market liked the drilling results in early September and I hated them. I ended up liking the potential for next season of their last hole and added again at much lower prices.

Hercules early drill results underperformed expctations, but as of this writing I'm still optimistic on the project.

I held Metals-X for less than 2 hours.

Pre Production Sweet Spot

The real lesson for the pre-production sweet spot investments is that I should consider sizing them a little larger.

Rio2 was one of my biggest winners for the year. It started the year at $0.64. I added at $1.50. I trimmed some at $2.01 when they announcement they were investing in another company, and I exited at $2.38 and $2.46 when they bought a copper mine.

Erdene was the classic investment for this class with no distrations.

Robex is getting close to first pour and I'll be ready to exit.

Selling half my Montage stake in April was one of the most obvious mistakes. Don't sell pre-production sweet spot companies until first pour. Really don't sell if it's a Lundin company.

Foran was a miss and I was happy to get out for a loss even though the stock later recovered. Exiting was the right choice.

Two Sided Network Marketplaces

The market still give rich multiples to hyper growth companies, but isn't giving much love to high margin marketplace companies whose growth have slowed (or in the case of Bumble turned negative). I expect I'll own even more of these in 2026 than I do now, while they were a drag on this year's peformance they seem set up nicely for the future.

Camplify is a residual position that has done so poorly it has become irrelevant to my portfolio. I've left it there as a reminder to do a post-mortem and evaluate if there's potential for a turnaround. Thankfully I've avoided the value trap mistake of adding on the way down.

Producer Expanding Production

I have owned Warrior for years and still own Warrior going in to 2026 as well. I may sell after Blue Creek is in full production, but if the market doesn't value it I could be happy to just hold forever and cash dividend checks.

Taseko mines I bought for their Florence project brining new US based copper intot he market, but I sold when I got nervous about that outcome and they got a settlement on an unrelated project. I sold at $3.03 and today it closed at $5.41, so I clearly sold too soon.

Lithium Argentina I bought and sold twice for small gains. This was in fact just stupid as I liked the company long term. Since I sold at $2.27 it is up to $4.80 and I should have held the entire time.

Miners

VALE was the end of a longer hold closed out in early Feb. The 2025 portion of the gain was small and the stock did well after I sold, probably because it's a good company trading at a cheap multiple.

Alphamin I bought and sold several times, mostly for a profit. However that profit was mostly wiped out by selling during the invasion of the DRC when the mine shut down.

Jupiter Mines was a leftover position from 2024 I exited in February. It was a good lesson in Manganese as a commodity where there is tons of low grade stockpiles that will crush any spot price rally.

Macro ETFs

MYLD I bought as I thought large cap were overvalued relative to small cap. I sold when I thought things looked bad for small business in the US. It went on to be +42% after I sold, proving I'm a bad macro forcaster.

I evened out my small cap call by also calling Europe being undervalued relative to the US. So I'm now a neutral macro forcaster. The foreign shareholder yield was also pretty neutral, keeping my macro forcasting record pretty neutral. I closed out Mexico in March for a small gain and it's gone on to be +38.8% since I sold so I maintain my macro forcasting skills are equivalent to a monkey throwing darts.

Random Trades

I held United Healthcare for 4 calendar days after the announcement of a DOJ criminal investigatio of Medicaire fraud. It probably would have made another 10% gain if I'd held it through the end of the year, but I'm not in the business of holding health insurance companies.

I like to buy physical silver ETFs when the gold:silver ratio hits 100. While I made a quick 32.4% I could have made another 50% on top of that if I'd held towards the end of the year. I think my process is correct on this one even if the outcome didn't capture the full move.

My record on trading options is abysmal. As far as annual reminders of that fact this was a cheap lesson.

I think I completely exited Sigma like 7 times during the year. The gain on the position is hard to calculate as they were different sized positions each time, but overall it was a very profitable set of trades for me. It ends the year much higher despite negative business developments as it largely trades as beta to lithium spot prices and not on actual operating cashflow. Currently their mine is shut down and they are in danger of running out of cash, but lithium prices are up so their stock has skyrocketed.

Aercap is less compelling at these valuations, the business isn't worth 41.7% more than it was at the start of the year, but it's a long term position in one of the best run capital allocators out there so I'm not in a rush to sell it.

The Queens Road Capital position is only a few days old. They invest in convertible debt and choose good projects. Trading at a discount to NAV

Year to date gold peaked a few days ago at +60% and today is still +56% on the year. If you take the average of the big 4 royalty companies it is +67% year to date, mostly in-line with the underlying metal.

However the $GDXJ was +160% (now +122%) and the $GDX was +148% (now +114%). That's double the gains of the underlying metal.

Today as I write this the $GDXJ is currently -10.70% on the day. Who knows where it will close.

I'm not a dummy the first 10 months because I got outperformed by the $GDXJ, nor am I a genius because I am not holding the $GDXJ today.

I follow my process where I think I have good risk adjusted chance at making good returns and I follow my process. The chips fall where they fall.

Current Gold Exposure

So, what am I doing in gold today?  For one I'm not panicking. I have lightened my overall exposure by exiting some positions prior to today. I am around 18-19% of my portfolio in gold related names, which is way down. I have too much cash and am increasing my exposure in other areas. More iron ore, lithium, met coal, tin, & copper in commodities. I'm adding more non-commodity stocks as well.

I'm still letting my pre-production sweet spot companies play out to first pour or declaration of commerical production. Rio2 $RIO.V, Montage $MAU.TO, & Robex $RBX.V.

I'm still holding project generators, currently only Kenorland $KLD.V which I have added to my position. Actively looking at others.

I have a half position in Franco $FNV as my only current precious royalty. If I'm going to overpay I'm going to overpay for quality, plus Cobre Panama seems like it will reopen someday. I'm looking at, but have no current position in, Royal Gold $RGLD who has lagged the other major royalty companies year to date but who now has a very nice development portfolio.

I've shifted most of my gold explorers to copper explorers, but still have a half position in Awale $ARIC.V.

There are some explorers, miners, and royalty companies that I have entry price targets on. If this pullback continues I'll be increasing my exposure to gold again. But it takes more than 10% to correct enough to want to back up the truck again.

Signs of a Bubble

Can you name a single gold development project that doesn't work at current commodity prices? I can't. Instead of I've seen projects that I think shouldn't become mines get funded.

I'm a gold bull for a lot of reasons, but if gold is +100% in 2 years and +60% year to date even I am wondering if it's gotten ahead of the fundamentals driving the increase.

Non-Commodity

Growth to Value (R1k Growth / R1k Value) are at all time highs. Large to small are near all time highs (S&P500 / Russell 2000). Tech is at all time highs (S&P500 tech sector / S&P500).

It's a time where stock pickers have extrordinary opportunity. Is Lululemon a fad that has pased or an enduring brand that hit a bump in the road? Is Delta an unprofitable airline or the owner of a valuable credit card loyalty program? Is Bumble going to be replaced by AI or benefit from it? Are Paypal and Remitly valuable payment networks or antiquated tech that is getting replaced by cryptocurrency? If you have an informed view on financial services companies or healthcare companies you can make a killing right now.

There's a lot of change happening and a lot of companies are being mispriced in both directions. It's a great time to be an active investor.

Pound the table - 10%+ portfolio allocation‌‌

Full position - roughly 5% portfolio allocation‌‌

Half position - roughly 2.5% portfolio allocation‌‌

Quarter position - roughly 1.25% portfolio allocation‌‌

All positions hard capped at 20% of portfolio at mark to market‌‌

If it's less than a quarter position I either exit or add.

‌‌Pre-Production Sweet Spot

This is pretty simple. Buy at fully financed and permitted, hold through construction, sell at first pour or declaration of commercial produciton.

$RIO.V - Rio2 a full position that has grown to be bigger. Plan to sell some at first pour but hold a good portion to declaration of commercial production. The big Fenix plan with more water is the real prize here so potential catalysts are not just going into production but signing water agreement and updated study on the bigger production.

$ERD.V - Erdene. Full position. I think there's a lot of upside here on exploration. I expect the mine plan to add a lot of ounces not just to extend mine life, but to sequence more higher grade earlier. Also good mill expansion opportunities.

$MAU.TO - Montage Half position. Lundin's taking a mine to production. Would be a full position but the Lundin name has already pushed the valuation up.

$RBX.V - Quarter position. Robex.

Royalty

I'm the lightest in royalty companies I have been in a very long time. I had been heavily exposed to mid-tier precious companies in anticipation of consolidation. Instead the valuation discounts closed. I exited a lot of them because at $3300/oz gold at P/NAVs often exceeding 1x the takeover premiums probably won't be large.

$ELE.V - Elemental. This went from a pound the table sized allocation to taking profits and reducing to a full sized position. Tether effectively took control by buying out the two largest shareholders. I still think there's value here, but it's more rationally priced than it used to be.

$FNV - Franco. Half position. The GOAT. Think Cobre Panama could re-start and if royalty valuations are going to be fully valued I'd rather pay up for quality.

$LIRC.TO - Lithium Royalty. Was a pound the table pre tender. I tendered roughly half my shares and now it's just a full position. Lithium isn't dead. Several key assets coming online or expanding production. Real upside is the Orion litigation settlement that is now expected late 2026, but good value even without that.

$VNOM - half position. I don't feel like I have any analytical advantage in oil and gas royalties, which don't have the same optionality upside. But I like having some oil and gas exposure to diversify my portfolio and to force me to try to figure out the sector.

$DRR.AX Deterra. Half position. Probably fairly valued on the iron ore royalty which is most of their current revenue, but I like the upside on the Thacker Pass royalty.

Project Generators

I'm down to one project generator, but am looking to add more.

$KLD.V Kenorland. Full position. This has in the past been a pound the table level position that worked out. Great management and great strategy and execution. Luck hasn't been good lately with the drill bit but this is one I'm happy to just hold long term.

Miners Expanding Production

$HCC - Warrior Met Coal. Full position. Someday Blue Creek will open. Until then they are still a low cost producer of met coal. It's a long term position for me.

$MAI.V - Minera Alamos. Half position. Current shareholders hate the new acquisition / reverse takeover. I actually think it's pretty perfect for this operational team to build a couple of mines in the US and have potential upside if the Mexico permitting ever gets unclogged. I also like deals where current shareholders capitulate as the new plan is very different than what they were invested for. Once some of the sequencing plans get more concrete I might increase this to a full position. Also worth noting they plan to seek a US listing and post deal closure their operating mine is in the US and their two next development projects are in the US, could cause a real liquidity bump.

Explorers

My record with explorers is mixed. But I think we are at a point in the gold cycle where explorers hitting gold can raise capital and get acquired for good premiums. I also think we are going to need new copper mines and not just adding more milling capacity and dropping cutoff grade at brownfields.  Expect a lot of turnover and small positions in my explorer investments, neither of which I find helpful in investing.

$QTWO.V - Q2 Metals. Full position. This is in my opinion going to be 200+ Mt at good grade and near a paved highway in a country that has a lot of incentives to develop critical minerals. If we see good DMS met work and the shares are roughly where they are now I'm going to pound the table, but waiting on DMS met work first.

$KFR.V - Kingfisher 3/4 position. They seem to have confirmed that historical drilling continues to depth and have developed other targets I consider highly prospective. Mostly I like management and porphyry copper targets.

$BIG.V - Hercules. Half position. I think there's a good chance they've figured out their targeting model and their current hits can be repeated at scale. Not in love with Barrick exiting the neighboring projects for next to nothing. Also not in love with potential permitting. But there aren't a lot of projects that I think have this potential for proving scale this season.

$ARIC.V - Awale. Half position. They've got a whole district with more permits getting granted. It's not rocket science expoloration either. Trace termite samples and soil samples and drill it with RC, put a few diamond holes if the RC hits. Repeat.

$ANDC.CA - Andina Copper (formerly Pampa Metals). Half position. I don't like Colombia as a jurisdiction, but I think they've got a real deposit there, and ultimately geology matters. Maybe they can flip the Argentina project to their neighbor as near surface starter material. Their Chile project seems to be a a good neighborhood. I also think there's an interesting liquidity angle as they look to potentially uplist to TSX-V and cross list to Australia.

$AE.V - American Eagle. 3/4 position. I like the management team and while I wasn't excited aboutt his season's exploration program because their existing deposit seemed pretty well constrained they seem to have a chance of 1) discovering a new system to the north and 2) expanding the southern shallow gold system. It's early days but I'll pay to see those assays.

$TDG.V - TDG Gold. 1/4 position. This is pretty simple. The deposit of their neighbors seems to have every indication of crossing to their side of the claim boundry. That alone is a big deal and I really like those odds. In baseball terms I think it's almost certain they get on base. A bigger deal would be if they can prove out the idea that similar targets occur at previously undrilled depths elsewhere on their property. In baseball terms they have a small chance of getting the next batter to hit a home run.

Misc Natural Resources

$SIVR physical silver ETF. Half positin. Thesis is simple here, buy at gold:silver ratio > 100:1 sell when it gets down to 80:1. It's at 87:1 now so close to exiting.

$KRY.V - Copper project developer. This is a bet on management. Its an OK project in an OK jurisdiction and I think we need more copper mines. But Heye Daun and the team around him are legit, and that's really the investment thesis. I'd love to increase this to a full position despite generally not investing in this stage of the lassonde curve.

Misc Non-Resource

$AER Aercap - full position. Best capital allocation out there, better business than people give them credit for. But no longer dirt cheap stock price relative to value.

Cash 11% - Was up above 20% as closed out positions, but have been finding places to put it. Feel like I'd like more cash as the market feels primed for major dislocations.

$FLYD - Cambria foreign shareholder yield ETF. Full position. $IEFA largely worked as it outperformed the US and had good returns and I have now largely rotated into foreign shareholder yield as I see US large cap and US growth as overvalued.  P/E is around 10, P/yield is around 10, P/cashflow is around 4.5.

$YELP - Half position. -20% year to date while my overall portfolio is +40% can turn a full position into a half position. I may increase back to a full position. They are quietly building a nice 2 sided marketplace for small business. Just need to think through the impact of AI on them.

$PYPL - full position. I've always loved the business. Two sided marketplace payment network. But I never loved the valuation. Well -18% year to date and -65% 5 year has fixed the valuation. An EV/EBIT of 10 is too cheap for such a quality business. I think the risk from crypto is overstated and while growth has hit some bumps I think there's a lot of potential growth ahead, even if growing at more modest rates.

$CHL.AX - Camplify. Quarter position. This has largely been a failed investment as their execution of integrating an acquisition has gone poorly. But I like the 2 sided marketplace so I either need to fish or cut bait here. I'm not sure which I'm likely to do.

Future

I'm not excited about my current portfolio and am looking for new themes and new individual ideas. Earlier in the year I felt like I was well positioned and the hardest part was just letting it play out and not being too active. Now I feel like many of my positions are tactical and I'm not as well positioned overall. I hope to close the year with a very different portfolio composition than the one I currently have.

First, the facts. Tether bought a big chunk of Elemental Royalty. Elemental is my largest single position in my portfolio.

Tether Investments Announces Acquisition of Securities of Elemental Altus Royalties Corp.

/CNW/ - Tether Investments S.A. de C.V. (“Tether Investments” or the “Acquiror”) today announces the acquisition of common shares (the “Common Shares”) of...

CNW GroupTether Investments S.A. de C.V.

Tether bought 33.7% of the shares in Elemental. They bought an option to acquire Alpha 1 shares which would bring their total to 47.7% if they exercise that option.

Maybe I'm overthinking. La Mancha invests in early stage mining investments, they aren't in the business of holding publicly traded mature companies long term. They realized their profits so they could recycle that money back into new investments. Probably a similar story with Alpha 1, who sold an option to acquire their Elemental shares as well.

Tether Background

Tether is the most successfull of the stable coin companies. Almost the entirety of their business is $USDT which they aim to trade at a 1:1 with the US dollar.

Overall it seems to work. They publish quarterly audits of their assets to build confidence that they could continue to actually give you a dollar per token if it came to that, but mostly people just trade them like dollars. If you live in a country like Argentina it's probably safer than hoarding US dollars under your mattress where someone could steal them more easily. And if you live somewhere like Argentina you probably don't have access to a bank that will safely store your dollars and give you interest.

Tether Profits

That's $130 million in PROFITS per employee. That's wild.  So how do they make their money?

There's currently $155,038,253,887.80 in $USDT and Tether charges 0.1% for issuing or redeeming tether to dollars with them. So right off they got $155 million just on issuance fees. But the more interesting part is that all of that circulating $ is actually theirs. They call it reserves, but it belongs to them.

They issue quarterly audited reports of their "reserves", also known as how much they own.  Here's a rough breakdown from the last one:

US Treasury Bills, Overnight Reserve Repurchase Agreements, Term Reverse Repurchase Agreements, Money Market Funds, Bank Desposits, Other country treasury bills, corporate bonds, precious metals, bitcoins, etc.

They are making money off the interest of the deposits. And it's a LOT.

Now they are expanding. Stablecoins for Euros, Ozzie Dollars, Yen, Mexican Pesos. And Gold. Which brings us to...

$XAUT

The diversification away from the US dollar to other currencies isn't just expanding market, it's protection against the US dollar loss of status as the world's reserve currency. Gold is one of those replacements as a reserve currency.

You can buy gold on exchange traded funds like $GLD or $GLDM today. The way that model works is that those companies have gold in trusted vaults in Switzerland or the US or Australia or somewhere. They make money by charging management fees. You can theoretically redeem your shares for gold, but it's almost always easier to sell the shares for dollars worth around the amount of the gold your shares have a claim on.

But that assumes you have access to a broker. It's also hard to use as a real currency. Putting gold on the blockchain is convenient.

How will $XAUT make money for tether? Well, there is a 0.25% fee if you buy or sell tether gold directly with the company and there are fees if you want to withdraw your $XAUT in the form of physical gold bars. But you can trade $XAUT on the secondary market and only pay network transaction fees (ie gas fees)/ But overall that's small potatoes. They don't (currently) charge an annual custodian fee like the gold ETFs.

I feel like Tether was kind of forced into this product that isn't very profitable. You can't earn interest on your gold sitting in a vault. But stablecoin gold is a threat to their $USDT cash cow, so they needed to have an offering.

Paxos GOld (PAXG), Perth Mint Gold TOken (PMGT), Digix Gold Token (DGX), Kinesis Gold (KAU), and Meld Gold all kind of forced Tether's hand.  They weren't going to be able to charge a custodian fee and be competitive.

So, how can they make money on gold, and how does buying Elemental fit into that?

Why Owning a Gold Royalty Company Could Help $XAUT

Most of what I write here will probably be wrong. But when you are at a potential paradigm shift it's worth exploring options.

Beyond The Vault

$USDT "reserves" include things that aren't physical dollars in a vault and nobody seems to mind. Corporate bonds for example are really claims on potential future dollars.  You need some ready cash for short term redemptions, but some amount of assets that people think will be worth more dollars in the future then they are accounted for now seem fine.

Franco Nevada has the concept in their asset handbook of "Royalty Ounces".
https://franco-nevada.relayto.com/e/2024-asset-handbook-hg395h8baqvft/JtvNF8MV4

If you have a 2% NSR on a producing mine with 2Moz of M&I then you have 40,000 M&I royalty oz. They break them down by proven and probable, measured and indicated, and inferred.

Franco has long argued that royalty oz are better than oz in a vault. Oz in a vault don't grow, while historicaly the mines Franco has royalties on not only have paid more than the royalty oz to Franco, they have at the same time grown the royalty oz.

Franco also has the concept of Gold Equivalent Oz (GEO) so you can figure out the similar impact of Silver or other metals that might be produced by your gold mine.

If tether is able to put gold royalty companies or just gold royalties in their "reserves" for their gold stable coin they now can make a profit off the "reserves" that they couldn't with gold bars in a vault. This is probably similar to corporate bonds or Treasury Bills backing part of their dollar stable coin.

Cheapest Way To Buy Gold

Let's say I tasked you with buying gold over the next 10 years to put in a vault in Switzerland. How would you go about it? Could you get a discount to just buying every day on the spot market?

Let's imagine that there is a gold royalty for sale, but the buyer wants payment today in gold. The royalty has the expected royalty payments in the next 5 years:
year 1: 0.5 oz
year 2: 0.5 oz
year 3: 0.5 oz
year 4: 0.5 oz
year 5: 0.5 oz

What would you pay for that today on ounces of gold?  Well, there's some uncertainty so you probably wouldn't pay the full 2.5 oz and break even. You take all the risk and get no profit. You'd easily pay 0.5 oz as the chances you get at least 1 year of expected returns are high and you'd make 500% returns in just 5 years if everything goes to plan.  Maybe you'd pay 2 oz now and then in 5 years you'd get 2.5 oz total and that extra payoff is worth the risk.

Pretty quickly you've arrived at an interest rate where your expected returns compensate you for the risk you are taking and the capital your are tying up.

In this way royalties are a bit like a bond, but demoninated in gold instead of dollars. It's a bit different on the terms. If you close the mine you don't default, if the mine grows the amount you owe increases, etc.

If you can buy royalty ounces at a cost less than an ounce of gold now it make sense to buy the royalty ounces and then put the gold in a vault as it comes in.  It's cheaper than buying gold every year in the spot market.

What's Next?

Does tether buyout the rest of Elemental's shareholders? Do they start investing in other gold royalty companies, gold royalties directly, or gold miners? Do the other crypto companies start doing the same? Do gold denominated loans or gold demoninated smart contracts start to become common?

I don't know. What I do know is that a company with twelve digits of assets just decided to come play in my tiny sandbox. If you are playing Texas Holdem and a rich guy who made his money in oil and just learned to play poker shows up to the table you cancel whatever plans you made for later that night because it's time to make some money.

Welcome to my table Tether, let's deal the cards.

Lithium clays not named Thacker Pass are dead. I'm calling it.

This is one exestential threat I'm taking off my wall of worry for the lithium market.

Thacker Pass

Thacker Pass got $2.2 billion with a B in 0% spread to long dated treasuries, which is a big gift from the government. General Motors also committed crazy amounts of cash in a crazy spot market that nobody thinks will happen again with other projects.  Letters of credit, cash funding, equity.

Despite all of that every time I look at it I think there's really not much value there for equity holders.

I just don't think another lithium clay project is going to happen without similar massive subsidies, subsidies that simply aren't going to be there again.

Surge Battery Metals

Surge Delivers Preliminary Economic AssessmentFor High-Grade Nevada North Lithium Project; After-tax NPV8% US$9.21 Billion and After-tax IRR of 22.8%OPEX of US$5,097/tonne LCE – Surge Battery Metals

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It's in that context that I look at Surge Battery Metals PEA and I have to think spot lithium carbonate is $8,357.03 today and they used $24,000. How many spodumene projects have better modeled returns at equivalent prices, probably all of them.

When you look at these lithium clay deposits their opex is actually pretty reasonable. But it's the capex that's a killer. $5.3 billion with a B.

Ganfeng Sonora

I am betting that Ganfeng is now happy that Mexico nationalized the Sonora project so they didn't pour huge amounts of capex into a clay project that doesn't make sense in the new long term lithium price world.

All I do is win, win, win, no matter what.
Got money on my mind.I can never get enough.
And every time I step up in the building, everybody hands go up!
And they stay there.
And they say, "Yeah!"And they stay there.
Up down, up down, up down.'
Cause all I do is win, win, win.
And if you goin' in, put your hands in the air.
Make 'em stay there.

Imagine it's April 2022 and you are young upstart precious metals royalty company. You have a high cost of capital. To buy royalties you have to do private placements, selling your shares at a discount. You dilute your shareholders by 12% to acquire a gold stream in what investors view as the safe jurisdiction of Canada.

A year later the company you have the stream with goes bankrupt.  It's a company killer right? Turns out no, you can mess up this terribly and still come out ahead. If you are the company that owns the stream and not the miner that is.

I present to you Elemental Altus' press release from today.

Elemental Altus Receives US$9.6m Portfolio Payment - Elemental Altus Royalties Corp.

May 1, 2025 – Vancouver, BC: Elemental Altus Royalties Corp. (“Elemental Altus” or “the Company”) (TSX-V: ELE, OTCQX: ELEMF) announces that it has received a further US$9.6 million as a result of its secured creditor claim against Rambler Metals and Mining Canada Limited, a wholly owned subsidiary o…

Elemental Altus Royalties Corp.Fraser Craig

Since completion of the acquisition by FireFly, the Company has realised approximately US$12.2 million in cash with a final expected amount of US$0.1 million due. Including US$0.5 million in gold stream revenue, the Company has received a total of US$12.8 million from the Ming stream, compared to the original US$11 million acquisition in 2022.

That's about a 16% return in 3 years investing, which isn't blow the doors off good but beats putting money in Tbills. Considering the mine they invested in went bankrupt a year after they invested in it this is kind of amazing.

So what do their investments look like when the miner doesn't declare bankruptcy?

They are young, what do the great investments from the GOAT Franco Nevada look like?

Royalty companies do lose money on royalties sometimes. If the Ming mine hadn't been acquired in bankruptcy the stream could have been a zero. Some development royalties never get built and discovery royalties don't make a discovery. However, the vast majority of royalties and streams are heavily protected on the downside.

That downside protection lets royalty companies keep having cash to re-invest into the projects that can return 10x, 50x, or in the case of Goldstrike 500x.

What does silver do relative to gold in these markets?
How do the majors and juniors respond?
How does royalty do?

Here's a list of gold bull markets where gold went up more than 30%.

I'm going to do a series going through each of these, but let's see where we are in today's run, which is already up to 6th best all time and doesn't seem over yet.

Current Bull Run

Roughly from October 23, 2022 - today (April 17, 2025)

Gold and Silver

There is an undeniable relationship between gold and silver. Both have historically been used as money. Both have a lot of use in jewelry today.

If we were to zoom out a bit historically there has been a long term trend where the price ratio in dollars of gold to silver has gone up over time. It was 20 in 1970 and is 102 as I write this.  It is interesting that the ratio in crustal abundance is about 19:1, which is close to the 1970 ratio, making the long term trend interesting.

There are differences of course, silver is often produced as a by-product of base metal mining and has industrial uses largely due to it's being a better conductor of electricity than copper. I think the by-product production is why silver price tends to be more volatile, to increase production the primary silver mines are much more price sensitive. I also think the by-product nature of production is why the ratio has been increasing over time.

Silver has largely kept up until December after which it has wildly underperformed. I have started a long position in $SIVR as I think odds are the ratio goes back closer to 80:1 instead of 100:1.  That could happen with silver going down but gold going down more, or the ratio could continue to expand. Nobody knows the future. But I like the odds here.

Miners

The $GDXJ in purple at +114.84% and $GDX at +109.49% have outperformed the physical in this bull run. Some of that is justified as the price of energy inputs (oil, gas, electricity) hasn't really gone up. Labor costs haven't gone up much either. Other major costs like equipment, steel, etc haven't had enough time to move.

Over a long enough time period I expect the miners to underperform, and I don't think they are a good investment here on average, though some individual names could be interesting.  The real question is how long miners will have high price in gold and low costs in production inputs.

Silver miners as measured by $SIL have perfromed largely in-line with silver metal, though that's biased quite a bit by Silver Wheaton the royalty company having an outsized representation. $SILJ has lagged silver metal prices. While I think $SILJ is usually just for shorting it could have some leverage if it catches up to the change in silver metal prices, and even more leverage if simultaneously silver metal prices catch up to the change in gold prices.  Any investment in $SILJ is a short term trade and not a long term investment, but it looks interesting as a trade here. It also means silver miners might be a good place to go looking for individual names.

Major Royalty

If we add the performance of the 4 together and divide by 4 we get almost exactly the performance of physical gold. That's kind of nice.

Franco Nevada (the GOAT) has underperformed since Cobre Panama got shut down and has never recovered the stock price. It's started catchup up a little since rumors of resolution to re-opening Cobre Panama seem to be progressing, but has plenty of room to run if it actually re-opens.  Probably a good deal here.

Royal has basically matched gold.

Triple Flag has outperformed gold a little, largely due to it being relatively new near the beginning of the period and now being valued more in-line with the other major royalty companies.

Wheaton has largely outperformed Gold and while it's a great company I wonder if the stock price has gotten a bit ahead of the business performance.

Mid-Tier Royalty

Osisko Royalty went from having a board unaligned with shareholders to being run for the benefit of shareholders.  It's hard to say it's undervalued anymore, though it still may be a good acquisition target.  

Osiskso is the only mid-tier royalty company to outperform the commodity this bull market. The others may have underperformed due to higher cost of capital, more exposure to non-gold commodities like copper, or less stellar management. I'll offer an alternative, investors have overlooked them a bit. I think there is tremendous value in Elemental Altus $ELE.V, Sandstorm $SAND, EMX $EMX, and even Metalla $MTA. Vox $VOXR has similarly underperformed though I personally don't see as much value there.

Pre-Production Sweet Spot

For fun I looked at the performance of the three pre-production sweet spot companies I own that are in construction on gold mines. They all completely crushed gold during this period. They have done well for me, but I would be a lot wealthier if I had held them the entire gold bull market and not just after they were permitted and financed.

I think this will be a topic to revisit. The traditional wisdom that the development phase is not worth owning wasn't true for these 3 that went into construction during a commodity bull.  It's worth looking at what separates the development winners from the development losers.

Let's talk about Equinox Gold and Calibre Mining and what it means for the mining industry. First, here's a quick rundown of what happened: the two companies announced a no-premium merger and concurrently Calibre announced US$75 million of convertible debt ahead of the merger to fund their already fully funded Valentine project.

Equinox Gold and Calibre Mining Combine to Create a Major Americas-Focused Gold Producer

New Equinox Gold to Become the Second Largest Gold Producer in Canada Vancouver, British Columbia--(Newsfile Corp. - February 23, 2025) - Equinox G...

Junior Mining NetworkMr. Darren Hall reports:

This is a merger with no operational synergy. None of their mines can share costs or coordinate in any way.

Managment Thinking

Note this is what management thinks, not what I think.

Senior Producers Get Higher Multiple

Let's look at Equinox's pre-merger deck to see Management's assertions.  We'll then dive in and see what we think and if this can affect our investment strategy.

Management clearly thinks that there is a multiple re-rating for larger companies. Ross Beaty has said this before, for example here's him 2 months ago:

have some intermediate producer like like Equinox is going from one tier to another because as it grows and goes from one tier to another the valuations get better the price to net asset value gets better so so getting bigger is wealth creating by itself right so a senior producer trades for one times net asset value a junior producer 0.8 or 0.6 and a small producer 0.4 or 0.3 and as you get bigger you get you get that value Bump by itself so it's a strategy that works.

And from the merger deck we again see get bigger re-rate price to NAV ratio:

Higher Multiple is the Result of Passive

From the merger deck:

$GDXJ inclusion can start at US$150m market cap if you meet all the liquidity requirements. Alamos is the largest company on the $GDXJ at US$9.5b market cap. Calibre and Equinox were already in this club.

$GDX inclusion can start at US$750m market cap. Equinox was already in this club and so was Calibre. So there isn't any new forced buying.  They were already the 24th and 35th largest companies in that index.

Gold Equities Will Catch Up To Gold

Again, from Equinox's pre merger deck:

and

My Take- What I Agree With

Like any good fable, there's some truth there.

Liquidity Premium is Real To A Point

I do think there is a re-rating uplift for increased liquidity up to a point.

Getting included in the GDXJ and GDX gives you access to passive investors both directly and through shadow investments (GDX and GDXJ charge a 0.5% fee so some larger institutions would directly mirror or slant their weightings with factor overlays).

Having a dual listing gives access to more capital. Uplisting from the TSX-V to the TSX increases the number of institutions that can consider you. Adding a ASX or US listing really opens it up.

Projects Re-Rate As They Advance

The P/NAV of a PEA stage project is lower than the P/NAV of a producing mine. This goes without saying for most of the readers of this blog. That as projects advance and de-risk they close the gap between potential and reality.

Two of my main investing strategies in mining are built on this.  Pre-production sweet spot captures the de-risking re-rate of a in construction mine to a producing mine.  Producer expanding production captures a similar re-rate as new mines and increased revenue/profit comes online.

Diversification De-Risks

A company with no revenue is risker than a company with a producing mine. A company with two producing mines is less risky than a company with one producing mine. A company with 10 mines is less risky than a company with 2 mines. Mines sometimes get disrupted so it's nice to have other cashflow to fall back on.

My Take - What I Don't Agree With

Correlation is not Causation. The thing that comes out of the back of a horse isn't gold.

Change Of Control

Show me the incentives and I'll show you the outcome - Charlie Munger

Sometimes management's incentives and shareholder incentives aren't aligned. Shareholders get paid on a good takeover deal, management gets paid for any takeover deal.

Gold Can (Has) Outperform(ed) Gold Miners Forever

All the data basically says that in the gold space royalty companies outperform physical which outperforms large miners which outperform small miners. Yet, despite the overwhelming amount of data supporting this I again and again see miners saying that oh gold has outperformed them and they are due for a catchup. Reversion to the mean.

Here's me with some backtesting of some data, open source code.

Work On Your Golf Game

In this blog I often look at individual companies and do bottoms up analysis. I tell myself I’m looking for within sector alpha, and maybe I even find some from time to time. But mostly I do it because I’m a degenerate speculator (gambler) and enjoy it. This post will

Latin MinesJoel S

I'm just going to copy/paste this from my Pierre Lassone page.

Legends Abridged - Pierre Lassonde

Pierre Lassonde is in my opinion the best mining investor of all time. Much of that success came as a co-founder of Fraco Nevada. He also was President at Newmont, ran a mining fund, and has had a lot of success investing his own private fortune. I’m going to compile

Latin MinesJoel S

11:20 If you look at 2004 to 2011 when the gold price went from essentially $350 [per ounce] to $950 dollars [per ounce] a lot of people went into gold stocks. The Newmont of this world and whatnot thinking they are doing $100 [per ounce] margin at $350 [per ounce gold price].  They are going to be doing $700 [per ounce] margin at $900 [per ounce gold price] but that's not what happened.  Instead energy costs went from $30 a barrel to $150. Twenty-five percent of the mining cost is energy. The reality is that the margin did not change and the equities did not move at all.  The price of the Newmont shares were the same in 2011 as they were in 2004 and yet the gold price had gone from $300 [per ounce] to a thousand dollars [per ounce].

The point is amazing. Traditional wisdom says own the miners in a gold bull market.  If miners have costs of $250/oz at $350/oz gold prices and gold prices go to $950/oz they should be making $700/oz.  That's 7x or 700% of what they were making, so if their profits go up 700% then the stock should go up 700%.  But they don't!

$100/$250 = 40% profit margins.

$380/$950 = 40% profit margins.

So even if their profit per ounce improve A LOT (3.8x in this example) their profit margins can stay pretty flat.  And that's with profit per ounce almost quadrupling.

Over the long term the growth of the stock price will converge towards their return on capital minus their cost of capital.  Those relative margins matter more than the absolute margins.

Now imagine a royalty company had the same initial margin, they paid $150 per ounce and sold them at $250 per ounce.  But then the price of gold goes up.  Their costs stay at what they initially paid, $150 per ounce.

$100/$250 = 40% profit margin

$850/$950 = 89% profit margin

Liquidity Premium Isn't Infinite

Equinox and Calibre are already in the GDX and GDXJ. By combining there's no incremental index buying. All the big investors can already invest in them through the index or individually. They are plenty liquid and aren't more liquid together than separately.

Higher Multiples Go To Better Companies Not Bigger Companies

What we have here is a case of selection bias. In this recent post I backtested the companies in the GDXJ looking at a particular thing, but the interesting bit for this is that the companies in the GDXJ way outperformed the GDXJ itself.

Greedy Bad Assays

I’m writing this because one of my positions went down 23% compared to the previous day close. It got me thinking about what happens on these massive one day drawdowns not in this particular case, but overall. Should I be greedy when others are fearful of bad assays or mine

Latin MinesJoel S

Many of the senior gold miners got their market caps by executing well, investing capital at high rates of return and running mines profitably.

I've seen this in the royalty space. Small royalty companies see Franco's valuation multiple and instead of thinking they need to replicate Franco's history of turning a million dollars into a billion dollars several times think they can get the valuation by turning a billion dollars into a billion dollars several times.

We have a reversed causation here. Being bigger didn't cause companies to be better, being better caused them to get bigger. We just see that they are both bigger and better, but not which came first.

Raise Your P/NAV by Going Into Production

Equinox P/NAV was going to go up if they successfully ramped Greenstone and delivered their debt. It's not rocket science to think that a profitable producing mine gets a higher multiple than a development project. It's not rocket science to say that a company with less debt is valued higher than the same company with more debt. No merger necessary.

Same with Calibre. Want a P/NAV re-rate, put the NAV of Valentine into profitable production on time and on budget.

A lot of the P/NAV multiple differences can be explained by the percentage of NAV in production versus earlier stages.

Do Better

In the last 5 years Gold is +85.59%. What a run for physical gold.

The royalty companies are:
Wheaton: +142.61%
Royal: +56.74%
Franco: +30.47%
Average: +76.60%

Franco got their biggest asset Cobre Panama stolen by the government, but overall royalty did pretty well, almost keeping up with physical. Certainly the slight under-performance versus physical doesn't do anything to counter the narrative that it's the best through-cycle gold investment class.

Equinox: -0.67%
GDXJ: +40.74%
GDX: +56.39%
Lundin Gold: +292.69%

We have to take a hard look in the mirror and ask why do we keep doing what doesn't work? The big and small miners underpeformed gold. The poster child of creating a big liquidity vehicle lost investors money over the period (but look at the market cap growth!).

Meanwhile a gold company with a single mine in a shaky jurisdiction trounced everything else I've talked about. They didn't focus on stable jurisdictions like Canada, they didn't grow to be a major, they didn't diversify. As I go through a deck like Equinox's I like to think of Lundin Gold and how each slide would apply to them. I then went through Lundin Gold's deck. The main difference I see is that one is positioned as a market vehicle and one is positioned as a real business. Food for thought.

edit: maybe I should run spell check before hitting publish instead of after

Derisking Likely Outcomes

There are several strategies that come down to a likely but uncertain outcome actually happening and the stock reacting positively to the realized improved business.

Producer Expanding Production

In 2025 I invested in 5 miners, the only 2 with positive returns expanded production during the time I held them.  I'm going to graduate this to a strategy with it's own summary page on the site.

Part of this is the de-risking premium. Part of it is the market tends to project the present indefinitely; it's backwards looking and not forward looking.

Another part is that companies that can re-invest cashflow from earnings into things that have a high return on capital can compound returns.

I don't have perfect fits for this strategy now, but am looking.
$HCC Warrior Met Coal Blue Creek won't be in production in 2025, but I'm in early based on valuation.
$LAAC Lithium Argentina is in the ugly part of ramp after first pour but before they are hitting nameplate capacity, their expansion projects won't get financed in the current commodity environment.

Looking at but no position in Aura Minerals, Calibre Mining, & Silvercorp.

Pre-Production Sweet Spot

Financed and permitted.  Hold until first pour or maybe declaration of commercial production.

$MAU.V Montage
$ERD.TO Erdene
$RIO.V Rio2

I aim to have these be half positions and to try to ignore them as much as possible. I'm looking for more.

Post Discovery Explorers

I'm looking for projects that can be Tier 1. This strategy is super risky and requires a lot of time investment. Pretty common to have -75% returns, or +200%. But at least there is a there there.  Having drill results and sharing analysis with other investors you respect I think it's possible to increase the likelyhood of being right here so that the winners will outnumber the losers and the overall strategy can have positive expected returns.

In 2024 I hit on 2 of 3 of these, or 2 of 4 if you include lithium, and the third I think it's too early to say that was a miss.

Going into 2025 I have 2 positions here and have my ear to the ground looking for more.
$ARIC.V Awale
$QTWO.V Q2 Metals

Royalty

I thought in 2024 the mid-tier precious royalty companies would get taken out, and I was wrong. I still think it could happen in 2025. Even if they don't get bought out the valuations are more compelling for me than buying the big 4 ($FNV, $WPM, $RGLD, $TFPM). I own $ELE.V, $SAND, $OR, & $EMX, though an argument could be made that Elemental and EMX are becoming more and more non-precious. I'm starting to look at Metalla despite my previous reservations; their assets do look compelling here.

I'm also seeing value in pre-revenue royalties, which fits my de-risking likely outcomes as an investment strategy. I'm seeing the non-precious royalty companies trading at a discount and am starting to do more deep dives on them.

$LIRC.TO and $DRR.AX are in my portfolio. Ecora, Altius, Labrador Iron are getting some deeper dives on my shortlist. I'm also considering Franco due to possible resolution of Cobre Panama.

Project Generators

$KLD.V Kenorland is currently my only project generator position, this looks like a long term hold for me with good management just continuing to execute well. I'd like to have more project generators in my portfolio. I'm taking another look at previous holding Globex and find Mundoro intriguing.

Network Effects at Reasonable Valuations

$YELP
$CHL.AX

I like to hold network effects companies, especially two sided marketplaces. Ideally ones that haven't completely saturated their markets. Meta has saturated the market unless they can get virtual reality to take off. eBay saturated their markets. I also don't like to overpay, think single digit multiple to sales not double digit multiples to sales. I'm on the hunt for more of these.

One getting another look is Abaxx technologies.

Differentiated Specialty Finance

$AER - I wish I had a whole portfolio of companies like this. Just smart deployment of capital. Once a quarter I look at their quarterlies and other than that I don't spend any time on it. They are up 55% in the last 5 years, which included COVID shutting down all air travel causing a 70% drawdown in the stock price and Russia stealing a bunch of their planes when the war broke out.

The non-differentiated ones tend to be in real-estate. There are some real-estate ones that are differentiated. Cellphone tower companies are great businesses for example, but they are recognized as great and their stocks trade at astronomical valuations. Data center companies are pretty awesome, but trade at nosebleed valuations.

Regression To The Mean

I'm old enough that I was around for the dot com bubble and bust. I invested in eToys. It turns out this internet thing was real and did stick around, but many of those companies including eToys went bust. Even some that stayed around and were the business winners like Cisco never really regained their bubble highs.

As I think about AI it feels exactly the same. Lots of companies rushing to pour as much money as they can. Not clear that there are successful business models there yet, or who the winners will be. This AI push has propped up the S&P500 generally and the MAG7 specifically. You can see the last 2 years of the Mag7 in blue and the S&P500 in pink for 2024 and 2023:

Meanwhile what's been ignored are small, value, and foreign equities. Will 2025 be the year of regression to the mean, who knows; but that's the way I'm placing my bets.

Mexico

$EWW or $FLMX.  $FLMX has a 0.19% fee instead of 0.50% for $EWW but the bid/ask spread is 0.25% instead of 0.042%. I went with $EWW to not overthink it, but I bet $FLMX is more efficient if you only trade at open/close or plan to have a multi-year holding period.

At the end of the year it had a P/E of 11.46 and P/B of 1.67, which is pretty cheap. -30.46% in 2024, so the dispersion from the S&P500 is pretty stark.  -20%+ was from the Sheinbaum election and the rest from the Trump election. Sheinbaum is rolling back the 2013 energy reforms and Trump is threatening tarrifs, I'm betting neither will be as bad in practice as it seems.  $EWW since inception has returned 7.85% annualized but the 10 year is -0.35%.

Overall the composition is a lot of pretty stable high quality companies. Airports, Walmart Mexico, consumer staples, Cemex, Groupo Mexico, banks, cellphone providers. Not fast growing tech companies but companies with real businesses and wide moats.

Brazil

$EWZ was -35% in 2024. Some of this is company specific, VALE got hit by lower iron ore commodity prices. Petrobras has constantly been meddled with by the government. $EWZ has returned 5.29% since inception, but -0.35% over the last 5 years and 0.70% over the last 10 years.  It's currently trading at a P/E of 7.56 and a P/B of 1.44. Some of that is justified with more cyclicals in the index, but at some point cheap is cheap.

$EWZS avoids the commodity exposure of VALE and Petrobras, but the quality of Brazilian small caps brings it's own set of challenges.

Other Out of Favor ETFs

$VTWO Vanguard Russell 2000
$MYLD Cambria Micro & Small Shareholder Yield
$VWO Vanguard Emerging Markets
$IEFA iShares Core MSCI EAFE

These aren't as dramatically undervalued as Mexico and Brazil, but in a quick tilt away from US large cap growth these are some others I'm looking at. Diversification and rebalancing is a kind of free lunch.

You can see some of the historic .com level imbalances we have in large vs small, US vs foreign, and growth vs value in this awesome post:

2024: The Year in Charts

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Other

My idea cupbord is pretty bare. If you have some ideas share them with me on the former bird app, DMs are open.  https://x.com/latinmines

Summary

Arithmatic math is a liar, but some insights can still be gained.

After a massive drawdown of greater than 20% in a single day stocks that bounce back do so hard. If you can pick the survivors from the wreckage it could be a good opportunity.

Timing your entry point is an art and not a science, but the 3 day rule isn't supported by this data set. If you are looking to go long and see a big single day price drop as a buying opportunity I'd consider buying earlier in the day to get some of the bounce at close or buying at close that day.

Methodolgy and Warnings

You can drown crossing a river that is six inches deep on average.  These numbers are going to be misleading in ways, inaccurate in others, biased as well.

I went and downloaded the daily historical trading data for all of the current constituents of the $GDXJ. This is my universe for this study, a bunch of terrible companies, but a bunch of terrible companies that had a good enough run to get included in an index and not yet removed from it. The data in this universe outperformed the index itself, but it's what I could get without too much trouble.  

I looked at days that the low was at least 20% below the previous day close. I got more than 2000 of these days across the 80 stocks I could get data for.

I then filtered for trading volume in a day of $50,000 in whatever currency the exchange uses (Australian Dollars, Canadian Dollars, and US dollars mostly) to reduce the noise from when they were shell companies or similar.  This surpisingly halved the number of data points. The final number of data points was 1050, which seems large enough to make the results pretty smooth.

It's worth noting these numbers won't add up due to the nature of arithmatic vs geometric means. If a stock goes -50% one day and then +50% the next day that is an arithmatic average gain of 0%, but in reality the stock is still -25% from where it started.  But I don't know how to geometrically average across different stocks other than backtesting a trading strategy, which I'll leave for future work and a follow up post.  So consider this blog post an indiactor that this is a promising area to do more research, but please don't go out and lose a bunch of money trading this until you've done your own work on it.

The Day

In reality nobody is going to bottom tick the trade on a massive down day. But what if you could?  Or what if you waited for the end of trading that day?

How much can you lose on a stock that is -90% on the day? The answer is you can lose another 100%. Think Bre-X.

However, there is often a rebound for stocks that are down more than 20%. There's a rush for the exit door. During the selloff there aren't a lot of buyers lining up for the freefall, but there are a lot of shorts covering and investors selling on the news. I think some long term investors once things seem to have stopped freefall come in and see opportunity for a good entry price.

But there's a reason nobody gets 74,217% returns or is richer than Warren Buffet. Timing trading is very very very hard. You'll be up against math geniuses with super computers. But if you think it's a quality company and the market is overreacting to the news the data is on your side to jump in before the trading day is over, just know you can also get your face ripped off.  But you are investing in junior mining companies, you can get your face ripped off any random day of the week.

Week After

Days are in trading days

These numbers are all kinds of wrong. Nobody is making 35-38% investing in the $GDXJ. The time I did this also matters as the $GDXJ is +26.62% in the last year, and this is an index I'd typically short not be long. If you can pick companies that will go on to be in the $GDXJ and then not fall out of it and choose your endpoint as a big gold price rally you are already in an unachievable universe of stocks. Converting arithmatic average daily returns to annual returns is also sus.

But wow, I think it's pretty clear that among these 80 stocks you'd really want to go back in time and invest after a huge drawdown, even if your holding period was 1 day to 1 week.

Multi-Week After

Days are in trading days

0.7996 * 1.26359 = 1.01.

So among our universe of stocks that didn't die they are on average back to where they started a month later after a seriously bad day.

Do As I Say Not As I Do

For the company that inspired me to go write some code to test what happens during big single day drawdowns in mining stocks the logical thing according to the data in this study would have been to add during the day and trim a month later.

Instead, I exited completely during the day, crystalizing a gain overall but a big paper loss from the day before. It was down a little more at close from my exit and halfway through the next trading day is -8% from that close. It is not doing what the data says these stocks should do on average. It turns out these stocks represent real businesses with real business developments.

I'm not publishing the code for this one because it was quick and dirty and I'm embarrased for anyone to see it, but if you'd like a copy just dm me in the usual places and I'll tar up the .csv daily data and the source and send it to you.

Doing a portfolio review a few days early as of Dec 19th. My portfolio is -6.57% year to date, which is embarrassing. There's not really a point in being an active investor if you can't outperform passive ETFs. There's really no point if you are going to lose money. It's a very different review than last year where I was +34.48%. How much of last year's overperformance and this year's underperformance is due to skill or luck?  That's the eternal question.  

I'll do a separate post on how I'm positioned going into 2024.  Many of the names listed here have been closed already.  Without further adieu, me eating humble pie:

Lithium

OK, I got my butt handed to me by a single commodity. If I hadn't invested in lithium I would have had a good return in the rest of my portfolio, espeically if I include not just the direct losses but the opportunity cost.

The lesson here is in commodities cycle timing matters. I started in lithium after the price was down quite a ways, but the spot price was still above most of the cost curve. Mines hadn't started shutting down yet.  To stop the freefall in price supply has to come out. I thought this would be different due to the rapid growth in demand volume, that a slowdown in supply increase would be enough. That was wrong.  The four most dangerous words are "this time is different".

Amongst these companies are some great management teams and some pretty questionable managament teams. Everyone got destroyed. When your industry gets hit by a tsunami it doesn't matter if you are a good swimmer.

Royalty

If I included Lithium Royalty my royalty investments were net negative, so I didn't add a lot of alpha in a year when gold was way up and following my own advice of investing in the big 4 (Franco, Wheaton, Royal, & Triple Flag) and holding would have outperformed what I did.

My Deterra investment is new and hasn't had time to play out.

None of my royalty takeover target strategy companies got taken out (EMX, Elemental, Osisko, Sandstorm). Trident did get taken out, though if you include last year it probably is a net loss for me. I sold Trident after the offer pre-merge and bought Deterra at significantly lower prices than they were at merger time.

Overall this was fine, no complaints.  Sometimes to be a good fisherman you just have to fish in the right spot. You can be bad at casting and setting the hook and all the skill things, but throwing your lure into where there are fish and you'll catch fish. Royalty is a good place to fish.

Royalty Overview

If I could pick one investment strategy to pound the table on this is it. Royalty is King! BacktestingPast results don’t indicate future results, but it’s worth looking at the backtesting data. Junior gold miners on average lose money and are only valuable as a short. Gold historically has lower

Latin MinesJoel S

Non-Resource Stocks

Stitchfix and Solaredge were a lack of investment discipline, the others were investments I'd consider to be sound strategy and process. Sometimes it's important to focus on process and there will be years where outcome doesn't happen.

Aercap is a long term holding I hope to hold for decades. Sometimes it gets very cheap and I buy more and sometimes it gets fully valued and I trim, but I like to keep a full sized core position. People underestimate how good of a business it is.  I continue to look for additional specialty finance companies to invest in.

Camplify is a classic two sided marketplace company focued on letting people rent out their camper vans, motor homes, and the like. They had a bumpy year integrating another company PaulCamper, but their core markets are still strong and the business model is solid with a good take rate and robust network.

Yelp is a long term holding and another 2 sided marketplace. They are building more and more small business features that diversify their revenue away from traditional advertising.

Despite losses in Camplify and Yelp I continue to look for reasonably priced 2 sided market place companies to invest in.

Solaredge was a mistake. I have previously held this one and found them to have innovative differentiated products and top notch management. I thought I was buying in to a company built to weather a down market in residential solar in Europe. Instead the company was way over extended with many new products that weren't up to it's normal high standards.  There have been lots of management changes. As I get more disciplined companies like this shouldn't make the cut.

MDU was a special situation play on getting a re-rate on the splitting of the construction services and infrastructure owning parts of the company.

Some otherwise brilliant people can't quit smoking cigarrettes. Stitchfix is my cigarettes, it's bad for my health and yet here I am. Mostly I got lucky in some less terrible than expcted quarterly results caused a 45% single day short squeeze. Luck shouldn't be considered an investment strategy.

Project Generators

Midland was in the lithium section, I had high hopes for Elrond which turned out to be nothing and Galinee disappointed. Plus the backdrop of lithium. Salazar isn't a pure project generator but kind of fits here in a way.

Kenorland I bought on the way down and backed up the truck when it traded in the 50s and 60s and then trimmed on the way up. I continue to trade around a full sized core position that I hope to hold for many years. This management is top notch and the company is as close to ideally executing on the business model as I've seen.

Sable had a bunch of projects in Mexico that got crushed by the government there and their main JV did not have good drill results. But I think I was buying in when their market cap and cash were pretty similar levels. I got a little lucky in that some retail investors with a following gave it some mention and brought in some impatient investors that allowed me to provide liquidity both directions.

Strategic Metals continues to lumber along but my hope of Broden going forward being a catalyst never happened.  Recycled money elsewhere.

Project Generators

This page compiles from previous blog articles on this well supported investment strategy, but those blog articles cover more depth than this page. Project Generators Over Pure ExplorersLess DilutionPure explorers raise the vast majority of their funds by issuing stock that dilutes existing equity h…

Latin MinesJoel S

Post Discovery Hole Explorers

I'm getting better at this style of investment, but it's a wild rollercoaster ride. I am also still learning.

I bought $NGEX.TO after the Lunahuasi discovery hole and sold at $10.35 when it looked like the main porphyry was going to be stupid deep under that cliff, it's now $13.18.  That high grade vein zone is awesome and I likely should have just kept holding. I've made that mistake before making small profits selling too early on their tier 1 projects.

$ARIC.V I bought on the mind blowing Charger hole. Charger is looking like it will be low tonnage, hence the stock price getting cut in half. However BBM looks huge and they have an entire district sized land package so I still have a position and following.

$AE.V I've traded around a core position trimming on runs unrelated to project development and adding on dips with lack of news. If the entire thing went to $0 today I'd walk away with a profit and I still have a full sized position. In the meantime we wait on assays on hole 35 to see if the north zone pans out.

Q2 Metals in the lithum section could also fall here and bring the totals down, though not too terribly.

The Miners

Repeat after me, miners are for trading, not buy and hold.  You may look at them and say wow they are earning a lot and are so cheap, I could hold these forever. Don't fall into the value trap.

Lithium Argentia could could as a miner in startup, but is in the lithum section.  Same with Sigma.

Alphamin and ERO completed expansion projects. Alphamin's returns also don't include an approx 10% dividend. Warrior is also doing an expansion with the building of Blue Creek, I think the lesson there is one I know theoretically but could repeat of: the market doesn't give credit for the expansion until it starts producing, until then it's just a drag on profitability.

Jupiter was a bet on Mangenese price going up when a typhoon took out the dock for a mine that produced 10% of the worldwide supply. Unfortunately I quickly learned there is an excess of low grade Manganese supply just sitting around in stockpiles and an apparent excess in refining capacity. There's a lesson here about being toursit capital in a commodity market you don't understand.

VALE has world class assets and infrastructure. I took a small loss as the iron market turned sour and I exited, then I recently re-entered a half position at a lower price. I also re-entered ERO at a lower price after exiting.

It's clear I have a lot to learn on trading miners.

Pre-Production Sweet Spot

Pre Production Sweet Spot

This page compiles from previous blog articles on this well supported investment strategy. IntroductionThe methodology is pretty simple. Buy at Construction Decision after financing and permits are in place. Sell at either First Pour (more reliable) or declaration of Commercial Production (some ad…

Latin MinesJoel S

Atlas was believed to be in this zone, but I violated the rule and bought before permitting. It's in the lithium section. Rio2 I had previously bought before permitting or financing and got burned on permitting, I'm only -12% after buying back in after permitting and financing. Lesson learned there, must have both permitting and financing.

These were established pretty late in the year and haven't had a chance to play out, so I'm not at all worried about the dip, if anything it's an opportunity to add.

Misc

Osino was a quick unhedged merger arb because sometimes I like to pick up nickels in front of steamrollers.

Salazar I could write a book on the saga that is Ecuador. This blog started to discuss the development in that country where you can walk up and hit undrilled porphyries with a hammer that looked to be opening up to outside investment. It's been a bumpy ride and exiting Salazar was the last investment I had in that country. The blog now discusses other mining investment topics that are with any luck a more productive use of time.

ZCCM & Red Hill. These were in my hidden royalties section. Red Hill re-rated as Onslow went into production and I decided to take the win and move on rather than hold the company long term. ZCCM continues to be an enigma wrapped in a riddle wrapped in a question.

Trilogy. Had I held this would have been one of my big winners as the Trump election renewed hope of permitting the road. Instead it was mostly wasted opportunity cost of the time and effort spent on it.

This article is going to look at the overlap of commodities that are down resulting in stocks that are down that set up end of year tax loss selling, which I may want to buy.

So let's look at catching some double falling knives and being someone else's exit liquidity. Caveat Emptor, buyer beware.  This is proper degen stuff that on average will lose you money.

Iron Ore

Despite iron ore being -22% year to date this has the subjective feel of being early. Slowing China demand and Simandou expected to start production in 2025 doesn't paint a bullish picture. Still, it's maybe the case that the pessimism has already worked it's way through the stock prices and it's worth looking at. While not jumping in with both feet at least dipping some toes in the water and starting some starter positions so you are ready to move when the market goes fullly despondant.

$DRR.AX Deterra Royalties is 24.81% year to date. They have a royalty on Mining Area C, a long life low cost mine run by a major. They also got beat up when they acquired Trident Royalties, a company we've written about previously who among other things have a royalty on the in construction Thacker Pass lithium mine. I've dipped my toe in the water and established a half position here.

$VALE has been absolutely killed here at -39.56% year to date. I really like their high grade low cost assets in Brazil and their potential in Vale Base Metals to expand into more copper, likely spinning those assets out into a seperate company at some point. I've owned the stock before at higher prices than this and am seriously consdering adding them to my portfolio again.

$CIA.TO Champion Iron are one of the best run non-majors. Being -27.61% year to date has put them back on the radar.  $LIF.TO Labrador Iron seems to have not noticed there is a rout on in iron, but I continue to monitor them as one of the quality names I'd like to buy if it ever does go on sale. $MIN.AX Minres is -50.37% year to date having gotten killed in lithium, having high cost iron assets, having some scandals, and being highly financially leveraged. Minres is one I'm not interested in as a long term hold, but that kind of price drop gets your attention.

Lithium

OK, I was early to lithium after a lot of commodity price drop, but before the pain was nearly as deep as it is now.  But now we have a lot of mines closing and a lot of companies delaying construction on new capacity. It feels like if you can survive at these spot prices you will survive.

Atlas Lithium $ATLX got their permits and built a plant in South Africa, but never released a study so they are -71.23%.  I held for part of that loss.

$PMET.TO Patriot Battery Metals just got crushed (-61.71% YTD) by low lithium prices making development projects less attractive. On my shortlist to watch and given the massive drop on a lot of people's end of year tax loss sell lists.  One of the largest spodumene resources in the world and with good DMS recoveries, good access to cheap electricity nearby, on the downside pretty remote for transportation.

$SGML Sigma Lithium -53.15%.  Profitable at these prices and got subsidized government debt for expansion, but poor corporate communication and low prices have hurt this one.  I held for part of that loss.

$LAAC Lithium Americas Argentina -50.24%. First quartile cost evaporation brine in Argentina JV with Ganfeng. Some slower startup than planned. I've traded around a full core position.

$PLS.AX Pilbara has in my opinion the second best operating spodumene mine in the world. -33.24% year to date. They also bought a decent development project in Brazil. I don't have a position but good asset plus good management often works out well for shareholders.

$LIRC.TO Lithium Royalty. -29.69% year to date. This is currently my largest position in my portfolio.

Copper

Copper is actually up for the year and down only slightly for the last 6 months.  But I'm still bullish on copper.

I started a half position in $ERO ERO Copper. They reported a sub-par operational quarter but the issues seem like delays and not permanant shifts. I had sold at higher prices after their new copper project hit first production. The stock is -22.48% in the last 6 months, and more than that from my exit price in September.

$HCH.AX $HCH.V Hot Chile is also one of the rare copper companies significantly down at present. It seems like a project with legs and the market for acquiring development projects seems to be heating up.

Gold

Sorry guys, if your gold stock it down its company specific and not commodity cycle related.  Maybe it's still worth a buy with tax loss selling, but probably not my game.

Share Yours

What are your stock ideas to buy cheap during tax loss season?  Post on X and tag @latinmines with your idea and your reasoning.

Return to Fundamentals

As we look at lithium we need to figure out if Lithium will be like Iron Ore & Copper. These commodities have average EBITDA that are high and the price rarely dips below the C1 cash cost of the middle of the cost curve. Or will lithium become more like Zinc and Aluminum with much lower average margins and price semi-regularly going below the middle of the cost C1 cash cost curve.

https://s-i-a.ch/wp-content/uploads/dlm_uploads/2019/09/03-Metals-and-Mining-Bernstein_Paul-Gait.pdf

There isn't much of an established cost curve, with many producers being new and countries like Chile completely re-negotiating the economics. We also don't have good data on the cost of Chinese lepidolite or Zimbabwe spodumene. So this exercise is a speculative one, but let's do it anyway.

West Supplying East Demand

India and China make up 35.17% of global population. They also have GDP per capita growing at a faster rate than the west, coming from poverty and playing catch-up to western levels of industrialization.

Meanwhile the companies we are investing in tend to be listed in Australia, Canada, USA, or England and don't have mines in China or India.

It's a small sample size with questionable data. China lepidolite ramped such that 13% is probably understating China's domestic lithium production for example.  However, the two highest domestic share in the list are also the two worst returns so there is some credibility to this theory. It's not the only factor however, as Iron and Zinc have very similar domestic share but Iron has been way more profitable than Zinc.  Also Iron and Copper domestic share are night and day but both have great profitability.

Recycling

Maybe it's the case that metals with high recycling rates have recycled metal suppressing that peak.

This data is all questionable. But overall it shows that Zinc has one of the lowest percentage of recycling and is still one of the least profitable metals.  If we look at the percentage of scrap recycled copper and iron come in at the lower end, especially copper.

So while recycling certainly impacts the price cycle it doesn't seem to be a major driver of raw material mining profitability.

Lead Times

If prices are high maybe new mines can be brought on faster in one commodity versus another?

Discovery to production averages 15.7 years for 127 mines

There is increasing global demand for minerals critical to the ongoing decarbonization revolution.

S&P Global

The differences here are pretty tiny, with copper and Zinc essentially the same lead times.

Flat Curves

If you look at the cost curve for iron ore like say this one from 2021:

Concern grows over Australia’s iron ore cash cow

Markets discounted a fall in iron ore prices for much of 2021 by refusing to lift the value of mining equities.

news.com.au — Australia’s leading news siteDavid Llewellyn-Smith

there are a few things that jump out at you. If you add up the biggset : Rio Pilbara, BHP Western Australia, & Vale you get about half the world's production and make up roughly the bottom half of the cost curve. If you add in China Coastal and FMG the top 5 biggest in the chart dominate. The high cost 1/3 are all small producers and the cost curve goes from flat to steep there.  The entire 4th quartile is steep and way above the mean cash cost.  The bottom of the cost curve to the top is like 5x.

If we look at Bauxite (Aluminum) costs it's gently sloping so that there are barely any really significantly higher cost producers. Also the bottom of of the cost curve to the top is like 2x.

https://wcsecure.weblink.com.au/pdf/MMI/02829156.pdf

Zinc is even more of a mess as the cost curve has so many producers they sometimes put the x axis of the cost curve graph on a log scale. Zinc usually is found with lead or copper, making the mines less sensative to the price of the individual metal.

It's worth noting that the cost curve is as much about the total level of global demand than it is about the supply. If we took that iron ore curve and had 50% as much production because there was 50% as much demand worldwide we'd see a very flat curve.

Lithium Curves

It's worth saying that a cost curve is at a given point in time at a given production volume. If you grow demand volume 15% a year you need to double production in 5 years. If you grow demand 25% per year you need to triple production in 5 years.

This chart includes spodumene and lepidolite. It's not clear that it adjusts properly for value of concentrate or ocean freight, but it's a good starting point to understand lithium costs.

Zimbabwe numbers are a bit opaque but Benchmark took a shot here putting estmates for Sabi Star, Zulu, & Bikita.  The Zimbabwe mines are producing spodumene concentrate that seems cost competitive with other spodumene mines worldwide.

Benchmark data puts all the Chinese lepidolite mines in the top quartile.  Also in that top quartile are several high cost spodumene mines. Core's Finiss has stopped mining. NAL have been bleeding cash.  If these numbers are correct Minres' Bald Hill and Liontown's Kathleen Valley have to be feeling a lot of pain.

What this hard rock concentrate cost curve doesn't take into account however is brine and vertical integration.

Here's a 5 year old cost curve comparison of brine and hard rock.

Lithium Sector: Production Costs Outlook | S&P Global Market Intelligence

Identify cost-efficient lithium mines on S&P Global Market Intelligence’s lithium cost curve. Request a demo to learn more.

S&P Global Market Intelligence

It's interesting that on a raw cash costs per lithium ion pulled out of the ground hard rock spodumene actually came in as lower cost than brine. Part of that is that in 2019 the brine was all in Chile with really high royalty costs. It also has really high reagent costs.  Chile has also required giving a majority (51%) stake to Codelco to renew leases and have active disputes over other taxes, further eating into Chilean brine profitability.

But then the next chart shows that the brine has higher margin.  How can it have higher margin if it has higher costs? Well, it's easier to have an integrated conversion facility to convert the lithium chloride concentrate into lithium carbonate on site. So if we look at the full costs from mining to lithium hydroxide/carbonate brine does really well.

S&P also is saying with the Greenbushes hydroxide numbers (which were theoretical as the conversion plants weren't build yet) that by avoiding shipping costs to China and capturing the conversion margin the total operations margin could be higher by vertically integrating.  Albermarle owns 49% of Greenbushes and has built the Kemerton lithium hydroxide conversion facility to produce from Greenbushes spodumene concentrate. Tianqui and IGO together built the Kwinana hydroxide conversion plant to also convert ore from Greenbushes. Both conversion plants have been challenged by delays and cost overruns.

Lepidolite is lower grade and thus on a standalone basis higher cost compared to spodumene.  However, many of the Chinese lepidolite mines are vertically integrated which allows saving on transport costs and gives a combined margin with the mining and conversion margin as one.

We also haven't mentioned sedimentary (clay) lithium like Thacker Pass or DLE brine projects like the Exxon and Standard in the Smackover or Erament in Centenario.

It's also worth keeping in mind that the cost curve from different research sources will come up with different numbers. Here's one from Citi for Western Australia hard rock producers.

Some of this depends on what you are measuring. Benchmark has Pilbara Pilgangoora around $600/t but it's not clear what costs are included in that, are you comparing apples and oranges?  Is that more comparable to Citi's production costs or should some of freight and royalties be included? I'll say the orange bars in Citi's cost curve seem more accurate to me than Benchmark's chart. Pilgangoora is a lower cost operation than Wodgina.

800 Pound Gorillas

In the middle of my writing this Rio Tinto made an acquisition bid for Arcadium.

Argentina Brine

Some have touted that the acquisition is all about the first quartile cost Agentinia Brine, including unblocking their own Rincon lithium project with either Fenix (Hombre Muerto) tech or ILiAD (where Arcadium has a stake) tech.  Those are indeed great assets.

With Chile's current tax, royalty, and mandatory Codelco JV scheme Argentina brine is going to be the globally lowest cost way to lithium carbonate.  Even if hybrid DLE is needed to deal with a high Mg/Li ratio.  I define hybrid DLE here as what Fenix (Hombre Muerto) does with evaporation ponds to pre-concentrate and remove some minerals before an adsorption resin and resin strip wash phase that gets further concentrated in evaporation ponds to remove some of the wash water before final processing.

Super good thread on that at

Quebec Spodumene

I want to add that Rio is also serious about the Quebec spodumene strategy as well. Here's a few items to support.

Critical Minerals Tax Credits

Rio has operations in Quebec and on both exploration and development there are a lot of tax credits available for lithium.  It's in Rio's interest to get those tax credits and those credits improve the economics.

IRA

In order to get the full $7,500 electric vehicle tax credit in the US the battery has to be made with qualifying materials. Materials from Quebec and processed in Canada or the US would qualify.  That means that you presumably could sell your spodumene concentrate, lithium carbonate, or lithium hydroxide for more here than you could sell the same product to China for.

RTEC partnerships

Before acquiring Arcadium Rio Tinto Exploration Canada (RTEC) was already partnering to explore for spodumene in Quebec. They have ongoing programs with at a minimum Midland Exploration, Azimut Exploration, and Saga Metals.

Jody Dahrouge runs Dahrouge consulting, a company actually running a lot spodumene exploration programs in Quebec.  His Twitter account is great.  I love his take.

Long History in Quebec

They already have operations for other metals (Iron/Titanium/Aluminum) in Quebec and have been in Quebec for 100 years, so it's a jurisdiction they are very comfortable with.

Hydroxide Diversification

While Brine may be the lowest cost path to lithium carbonate it's not as straighforward to lithium hydroxide. Spodumene has a more straightforward conversion path to hydroxide.  Hydroxide is still the preferred chemical for high performance high nickel batteries.

Cost Curve Future

A napkin ranking of where the cost curve may settle in rank order.

Integrated Argentina Evaporation Brine

On an operating basis it's pretty hard to beat evaporation ponds and producing lithium carbonate on-site. Argentina has reasonable royalties and taxes.  A lot of the ability to get capital in and out of the country at real exchange rates is also improving. I think these operations will eventually settle at the bottom of the cost curve on a total cost to carbonate/hydroxide. In no particular order in production or in construction projects:

• Lithium Argentina Cauchari-Olaroz
• Zijin Tres Quebradas
• Posco Sal de Oro (Hombre Muerto)
• Ganfeng Mariana

Development projects:

• Lithium Argentina / Ganfeng Pastos Grandes & Sal de la Puna

It's hard to get good data on Arcadium's Fenix (Hombre Muerto), which they call DLE but that also employs pre-concentration evaporation ponds ahead of the selective adsorption (SA) columns and further evaporation ponds to concentrate after the SA before the lithium carbonate plant. Eramet is also constructing a DLE plant at Centenario with little good information on operational costs. Will these have costs comparable to traditional evaporation pond operations or will their costs be significantly higher?

Chile Evaporation Brine

Chile has even higher lithium concentration and have more mature operations.  However the tax, royalty, lease, and required majority given to Codelco makes the overall costs higher.  Even with all that they are very cost competitive.  All hail the Atacama, king of brines, even if the operators only see a sliver of the economics.

Western Australia Behemoths

Open pit wide spodumene with massive scale.

• Greenbushes
• Pingangoora

Minas Gerais Brazil

Cheap hydro electricity, a mining culture, good DMS recoveries, open pittable spodumene.  Sigma has come in with CIF China costs below many existing Western Australia spodumene mines but due to high trucking costs to port and longer ocean shipping distances to China come in with total costs above Greenbushes and Pilgangoora.

• Sigma Lithium Groa do Cirilo (production)
• Atlas Lithium (construction)
• Latin Resources (development) being acquired by Pilbara
• Lithium Ionic (development)

Canada Development

Mostly Quebec in Canada and mostly James Bay in Quebec.

Quebec has predictable permitting, the grid electricity is mostly hydropower and is realiatively cheap.  There's a skilled mining workforce. There is a culture of mining. There are tax credits.

More importantly there are a number of >100Mt >1% resources being discovered and developed. Many of them are amenable to Dense Media Separation (DMS) met. Most of them are open pits. Some of them are near roads.

It's pretty easy to name several development projects in Canada that are likely better than several existing mines in Australia.

Zimbabwae

Several Chinese companies have come in and built mines quickly. Because they aren't publicly traded western companies the viability into the mines costs are poor.  They have long trucking distances to port with Zimbabwae being a landlocked country. But low labor costs and spodumene resources make them cost compeitive.

• Sabi Star
• Zulu
• Bikita

It's also worth saying that in Zimbabwae taxes, royalties, and export duties are a moving target so one profitable mine may find itself losing money just months later despite no changes in operations.

Western Australia Also-Rans

High labor costs and often remote but in a country with a good mining culture and rule of law.  These are starting to be in the top half of the cost curve, but not the top quartile.

• Wodinga
• Mt Holland
• Kathleen Valley

The Right (Wrong) Side of the Cost Curve

We are in a lower price environment, so where are the production cuts coming from, and what patterns start to emerge.

Shuttering Marginal Spodumene Mines

Core Finiss suspending mining and then after working through stockpiles suspended producing spodumene concentrate and went to care and maintenance. This is a swing producer that could start up at higher lithium prices but won't operate at lower lithium prices.

Core had several problems. Their open pit resource had narrow veins. Their recovery rates came in under plan. Their BA33 underground was fundamentally higher cost.

Informal Sector

There are a lot of small individual miners in places like Zimbabwae or Brazil that mine spodumene and sell it through a network of shady brokers. However, they rely on high spot prices to survive as they don't have scale to get low costs or to justify a spodumene concentrator.

Loss Making Spodumene Mines

Sayona NAL is a good example of the high cost of mining narrow vein spodumene that has to be processed through flotation. One of two things will happen eventually, the mine will be shuttered or the price of spodumene concentrate will be higher.

In the last quarterly reported unit operating costs, which don't include corporate overhead and other costs, were US$995/dmt and they sold each ton at US$604/dmt). That's a -39% operating margin.

Bald Hill goes here. Kathleen Valley could end up here.  Mt Catlin as it gets to end of open pit life and the strip ratio gets out of hand forcing them to go underground will end up here.

Lithium Tailings

Sigma as part of the dense media separation process had a fine tailings stream with 1.3% Li2O content. When prices were high they were able to put this on a ship for processing in China. As prices dropped these tailings were no longer able to be sold.  It's likely these aren't the only lithium rich tailings that were being sold on the market.

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Direct Ship Spodumene Ore (DSO)

Typically spodumene is mined and the head grade of the ore is 1%-1.5% LiO2 on average. It's then put through a concentrator and the concentrate has 5-6% LiO2.

Core Finiss started with Direct Ship Ore (DSO), Leo Lithium did the same, as did Liontown. As far I can can tell.

Petalite

Wishes it had the grade of spodumene.

Integrated Lepidolite

Vertical integration almost saves the grade and processing issues. But when I think swing producer this is it.

Non-Integrated Lepidolite

When I think of things that should never have been built, and only got built due to and unreasonable and unsustainable commodity price boom, this is it.