Let’s start with an introduction to Commodity Discovery Fund. What is the fund’s core focus?
We’re one of the few funds worldwide to have this very dedicated focus on world-class discoveries. We only invest in Tier One and Tier Two projects. How do you know if something is a Tier One project after only one or two holes? You don’t know, but we should be convinced that this could be a world-class discovery, or Tier Two discovery. And I think we’re one of the very few, out of approximately five funds worldwide, who have a focus on real discoveries.
I started the fund in 2008 as a private investor. I had quite a large retail following, because I used to be a journalist for national TV. And that’s how we had inflows every year since our inception, and that sets us apart from the peers. Because many of them have been suffering during the downturn, but we’ve been very lucky to have inflows every year, and we see inflows picking up now.
The current geopolitical environment is creating a lot of volatility around the markets. And it’s been expanding the discourse around deglobalization and the importance of critical minerals. What are some of the key impacts that you’re seeing on the commodities market?
That was the topic of a talk I had yesterday on de-globalization, and I was surprised how well attended it was, and how much interest people have on this topic. Even Deutsche Bank came out with a report this week saying that the status for the US dollar as a safe haven is no longer guaranteed. And that tells you that we’ve just entered an era where everything is starting to shift. We’re moving from this globalized world which emerged after the collapse of communism to a very de-globalized world. Maybe even a fragmented world, because even in the West you see the divide now between the US and Europe, which hasn’t happened since the Second World War.
I think this affects mining and commodities, because we were in this relatively stable world before where we relied on China to provide us all the metals and commodities we needed. And now, I think the West has turned China into an enemy. China is not our enemy. China doesn’t want to be our enemy, China just wants to trade. But we made China into an enemy, and that’s very dangerous because the Western countries, even the Netherlands, are now trying to secure their supplies for the future. But it’s very hard in the world of mining to build your own mines and refining capacity within a few years. It takes decades.
Looking at investment, are you seeing any exciting opportunities?
There are always exciting opportunities, but we’ve also entered an era of shortages. When I give a presentation, I always tell people who are interested in our fund that we have reached this perfect storm. You have currency debasement, you have high inflation, and you have geopolitical tensions.
But if you forget all the monetary and geopolitical reasons why you should be in commodities, or should be in gold, there’s one simple reason you should focus on commodities now. We’ve reached the era of shortages. Over the next 10, 15, 20 years, people will wake up to see shortages in many areas. We already see that in the critical minerals space.
So, if you make a discovery now in an era of shortages, every new discovery becomes valuable right away. Especially if you focus on metals like gold, silver, uranium, copper, and lithium.
Commodities are a very broad spectrum, you have energy, you have soft commodities, even things like orange juice. But we focus on the metals, the ones we think are very valuable, and also have a monetary aspect. Even copper could be seen as a store of value. Uranium is seen as store of value, especially now with the ETFs who are storing the physical commodities.
Discoveries create value. We made an awful lot of mistakes in our first 15 years. We understand this business now a bit better. And I think we cracked the code how to be successful investors in this space. We have C$150M under management. We expect the bull market to really pick up steam now, and we expect to grow towards a few hundred million easily.
We’re here in Toronto at PDAC, and I thought we could look at the TSX-listed companies or regional companies and opportunities you’re finding here. Is there anything that’s standing out about the Canadian listed juniors?
They’re cheap, especially if you look at the junior space. I’m like a kid in a candy store. I can’t believe what I can buy with my money. This week we’ve been buying NexGen Energy (TSX: NXE). We’ve been in the stock for 10 years, since they were US$20M in valuation. Now they reached a valuation of US$5B.
But there’s this very strong correction now within the uranium space. So they came down by almost 50%. We use option strategies, so we make a bit more money and if we are assigned, we get extra shares at a very low valuation. There are so many companies listed here in Toronto which are very cheap, but that also goes for the companies listed in London. Look at SolGold (LSE & TSX:SOLG), which came down to C$200M market cap. This is the largest undeveloped copper/gold project worldwide, who should be a C$2B company.
Why are they so cheap?
We started Commodity Discovery Fund at the top of the last cycle, which was in 2008. We’ve been in the bear market for 15 years, and only had two recovery years in the last 10. But that was a recovery of five months. And then we had a recovery during the post-Covid crash, and that was a recovery which only took six months.
Many investors think it’s normal to lose money when you are a speculator in the junior mining stocks, so most of them left the market. I also think there’s a broken market because of all the ways these companies are financed, with private placements and with brokers getting free shares or free warrants. And so, in a way, the model is broken, and many investors have simply left. They went into cannabis or crypto or tech. And that’s what you need to see at the bottom of the market, that nobody’s interested. Even larger companies like Newmont and Barrick are trading sub-10 times earnings, which is very cheap historically. 25 would be normal price.
And this is what happens during the bottom of a bear market. Everybody’s out, and then you get this very powerful rally where companies will show they can make a lot of money, and then slowly the investors return until it’s a full-blown mania again. We’re maybe five or 10 years out from that. Is that what it takes to get investment back into the industry?
It is a show-me-the-numbers or show-me-the-profits type of story. We just saw the numbers of Fresnillo (LSE: FRES), whose net profit jumped from US$100M to US$700M compared to last year. So these profits can go up 5X, 10X, maybe 20X, and dividends will increase. And then when you have larger institutional-style investors, they’ll look at what happens in other industries, like tech, which is overvalued and is starting a correction now.
Investors will look at the numbers coming out, the full year results, which we’ll get in April, and they’ll be shocked and think, well, there’s so much free cash flowing in the gold miners, in the commodity miners. We should move some of our money to that safe space. But these changes take years. It doesn’t happen overnight.
What would you say are the key opportunities or key challenges in the market? What should investors be on the lookout for in the coming year?
Well, I’m the author of The Big Reset: War on Gold and the Financial Endgame, which focuses on the monetary reset needed within the international monetary system. We know that the new Trump administration is working hard on this and are looking to build this crypto reserve. There’s some talk about auditing Fort Knox, maybe using a gold revaluation.
I also think gold and silver are in a very special situation, where there’s a lot of money to be made because the price is up and there are huge margins. We see peak gold production according to the World Gold Council. This will be the year where we’ll peak out in production worldwide. So it’ll be very hard, although we have high prices to keep growing production.
So gold is a very interesting field, and silver is connected to that. And I’m of the opinion that much more gold and silver has been sold on paper without any physical backing. So that could create a short squeeze. And I think we see the first phase of short squeeze, and that’s why gold is moving up so violently. You see these physical movements between the continents now. So that could get very, very interesting. And watch silver, that’s an explosive situation.
“Commodities are very broad spectrum, you have energy, you have soft commodities, even things like orange juice. But we focus on the metals, the ones we think are very valuable, and also have a monetary aspect.”
Willem Middelkoop, Founder, Commodity Discovery Fund
