Let’s start with a bit of background to your professional career and your role at MJG Capital.
Well, I’m managing partner of the fund which is based out of San Francisco. We have about 30 limited partners, and we’re focused exclusively on natural resource equities. We currently hold 17 positions, with a heavy skew to the junior end of the market. The median market cap of our investments is roughly C$40M as it stands. We only do equity investments, so no convertible debt or royalty purchases. Our positions are initiated either through the open market or through private placements, which is a very big part of what we do. And while my background is originally in finance, I’ve been at this for 13 years now and have certainly soaked up some geology and mining engineering along the way.
Can you talk more about the investment strategy at the firm and your current areas of focus?
I try to think about everything from a bottom-up basis and really de-emphasize the commodity of focus. I see a lot of new investors that come into the space get caught up in whatever the flavour of the month is, commodity-wise. And I think that’s a good way to lose money over time.
So, the first thing I look at is people. Are they highly incentivized? Are they qualified for the task at hand? Have they treated me or those in my network well in previous deals? Then I move on to the project. You want a promising project that, irrespective of its stage, has enough scale to really matter and works at the prevailing metal price. Then I look at the company’s financial structure to make sure that it’s serviceable from an investment perspective.
Next, I turn to the upcoming catalysts and see whether there are milestones in the calendar that have the potential to drive a rerate in share price should the unanswered question be answered to the affirmative. Then I consider the price to value proposition, or how the company is currently priced relative to fair or expected value. And if there’s a significant discrepancy, that could be an opportunity. And only then do I really look at the jurisdiction and commodity of focus. So, I do consider the commodity, but it’s one of the very last boxes that needs to be checked.
In terms of portfolio construction, we’re heavily weighted to the junior end of the market. Roughly 55% of the weighted portfolio is exposed to either prospect generators or explorers. Then, roughly 25% of the portfolio is exposed to development stage companies. And then we have a roughly 20% weighting to royalty and streaming names. So, we actually only have one producing miner within the portfolio. And the majority, if not vast majority, of the portfolio is pre-revenue companies.
Where are you seeing the most momentum and interesting investment patterns in the resources sector at the moment?
To start 2025, one thing that I’ve noted is that the producers are showing leverage to metal prices, particularly on the precious metal front. So, that’s a bit of a change from what we saw last year. The price of gold was up 27% over the course of 2024. If you look at the VanEck Gold Miners ETF (GDX) and the Junior Gold Miners ETF (GDXJ), they were up roughly 10% each, so there was significant underperformance relative to physical gold. At least to start this year, we have gold up 12 or 13%, while many of the larger producers are up 20% or more. So, I think that’s encouraging for the mining space at large, and we could be in the early stages of a trickle-down effect to the juniors.
Another key thematic at the moment are the military metals or defense metals, such as tungsten or antimony. We’re hearing
a lot of chatter in the halls of PDAC about those two metals in particular. And then in terms of a key trend that I think we’re going to see play out continually over the course of 2025, it’s gold M&A, plain and simple. I think there are multiple reasons for this, but a key one would be Newmont having just concluded its strategic sale process. Over the past 12 months, they’ve worked through six different assets, concluding with the sale of the Porcupine Complex to Discovery Silver Corp (TSX:DSV) in January.
And that’s important because for each and every one of those asset sales, they had 20, 30, in some cases 40 groups in the data room evaluating whether it’s a worthwhile deal. Mining companies are surprisingly constrained in terms of their due diligence capacity, so now these teams can be freed up and can look elsewhere within the space. I’d also argue that the fact that gold and silver aren’t being grouped into the broader critical minerals’ basket is important, because this allows Chinese parties to come in and make acquisitions as well.
We’ve seen Zijin be extremely active over the past year, with three or four different acquisitions. They’ve also done a couple of strategic investments with the Lundin Group, starting with Montage Gold (TSXV: MAU). That was in the spring of 2024. And then more recently, Zijin and Lundin have made a strategic investment into Predictive Discovery (ASX: PDI) and their Bankan project in Guinea. I would argue that, all else being equal, if those projects were focused on any metal other than gold, you wouldn’t see these two parties working together. So, I think a project being gold-focused opens up the playing field to a whole host of additional suitors.
Apart from this M&A in the gold space, there has been a significant amount of underinvestment in the market, especially amongst critical minerals. There has also been talk of this looming supply gap. So, what are some of the key risks and how do you think we bring that focus back?
We’re going on 12, 13 years now of severe underinvestment in the extractive industry. And I would argue it goes beyond just the extractives. Whether you look at agriculture, infrastructure, or manufacturing, it’s been a very long period of the new economy outshining the old economy. We saw some government response in the post-COVID period to incentivize investment in the old economy sphere. We saw a more cooperative approach under the Biden administration with the critical mineral partnerships and cooperation with allies. Now we’re seeing what I would describe as a more ham-handed approach in the early stages of the Trump administration, just slapping tariffs on anything and everything. But either way, we are seeing some reaction from western governments.
The issue now is in the private capital markets. Investors have been making money hand over fist for a long time investing in large cap US equities, investing in high-flying tech companies, investing in cryptocurrencies. And I would argue that until investors actually start losing significant sums of money in those spaces, we’re not going to see the private capital markets turn its eyes to the extractive industry or to some of these other old economy industries. And that’s going to have big, long-term implications for the Western world. And even if it started tomorrow, this 13-year wait is going to have implications on the inflationary front.
There’s going to be shortages of the critical minerals needed for the energy transition, for those that are worried about that. Right now, there’s an extreme reliance on foreign adversaries for the military hardware that’s necessary to defend the Western world. There’s been a lack of investment in the infrastructure that’s needed for sustainable economic growth in the West. There’s even the potential for food shortages. So, I think this is a very serious, slow-moving problem, but it’s going to take the private capital markets to turn their attention back to our industry before we start to see it addressed.
Finally, we’re here in Toronto at PDAC this week. There’s a load of Canadian and TSX-listed companies here too. Is there something that makes these companies stand out as opposed to other resources companies globally? What is the level of interest from your team?
I come to this conference with three main aims. The first is to catch up with existing holdings. There’s no better place to do this, with PDAC one of the two largest mining conferences in the world. By the time I board my return flight, I’ll have caught up with close to half of the portfolio. So, that’s a pretty good haul for any given conference. I will also sit down with like-minded investors, whether it’s over dinner or over drinks, to trade ideas, to trade industry gossip, and try to refine my framework for how I’m thinking about things. And there’s also many companies out there that may not be a current holding within the MJG portfolio, but they’re on my shortlist. And I could see one or two of these names being added to the portfolio at some point. So, this is a great opportunity to catch up with those teams, get a progress update and see if there’s an opportunity for us to add them to the portfolio. So, that’s what I ultimately come here to do.