What are some of the trends you’ve seen among mining companies on the TSX since the year began?
Since the summer and fall of 2020, the gold market has softened significantly and indiscriminately, from the majors, all the way down to single asset producers and developers and explorers. Stocks are down an average of 40% off their highs. During the same period, the gold price has only come off 12-15%. That disparity really just speaks to the lack of confidence that institutional investors have in the long-term price of gold. There is still not a lot of conviction out there. Maybe it will take a few more quarters of operation performance to really establish the sustainable margins that gold producers are able to generate at these gold prices before the next wave of investors move in.
What is it you look for when considering investing in an exploration or mining project? Please share some insights into your Science of Discovery© approach.
Some of the broad filters that we look at opportunities through are as follows: is it a project that can grow in size and scale? One of the best ways of answering that question is to focus on projects that have a lot of historical data to work with to see if growth opportunities can be identified by leveraging other people’s sunk costs. Secondly, is it located in a place in which we can actually work and operate? Jurisdictional risk is always changing, but in general we focus on first-world locations. Thirdly, and equally important is the cost of entry. How much is it to acquire and how much will it cost to get the project to the next several decision points? Historically we have done all of our asset acquisitions at or near the bottom of the market where the cost of entry is very low. The PureGold mine, Black Pine and Goldstrike Projects at Liberty, the Cordero project at Discovery, and the Stardust project at Northwest Copper area all great examples of that sort of fiscal discipline. Finally, what commodity price is needed for the project to work? Buying out of the money optionality is a strategy that has worked for some, but it isn’t our approach. We need to at least see a starter project that works in our current price environment (or lower). Our technical teams are as much a part of this initial screening process as they are in the subsequent multi-year follow-up work that leads to new discoveries and operating mines.
In terms of your investment strategy, one of your key areas of focus is critical materials. What have been some of the highlights for TSX-listed explorers and developers during the past year, particularly in the lithium and renewables space?
Our group of companies has plenty of exposure to gold and silver, which can, in their own way be considered critical materials, but we have been really under-exposed to copper. So recently we launched a new company called Northwest Copper, focused on high grade Cu-Au projects in British Columbia, Canada. Copper is one of those elements that is needed in almost every aspect of our daily lives, from electricity generation and transmission, to vehicles, circuit boards and plumbing. Over the past year we have seen all of the copper companies rally in a huge way. Companies like Teck for example are up almost 200% and smaller producers like Capstone are up almost 1,000%. With copper now touching US$4.25/pound and copper bulls calling for US$6.00/pound, I would anticipate the copper explorers and developers to rally as well.
At Oxygen Capital, what are some of your favourite investment jurisdictions, and why?
We have worked on projects around the world over the past 20 years. Places like Mexico, Africa, Turkey, Canada, and the U.S., and we’ve looked at hundreds more projects in dozens of different countries. Risk in the mining world is a complex series of variables, and geopolitical risk, in particular, is constantly shifting. Given that subterranean risk is the same no matter where you go, the only risk that really matters is above ground. Because of that, we have gravitated to working in developing or developed countries with good mining cultures and strong regulatory frameworks around permitting. I’d rather work with a well-established permitting roadmap that took a little a little longer, than a more ambiguous one that was faster. Because of that, we are very comfortable in Ontario, BC, Idaho, Nevada, Utah, and Mexico.
For many on the TSX, the focus is on gold, but there is also a lot of exploration and development for renewables. Which commodities do you think are going to do well over the next year?
I have to believe that gold and silver will continue to do well driven by the decrease in the purchasing power of the dollar due to massive increases in money supply. On the greener side of things, even though gold and silver are vital for technologies that improve our everyday lives, I have to put my bet on copper, longer term. It has to be a stand-out winner given the wholesale shift towards electrification and energy storage and away from fossil fuels. It has such an incredible and diverse range of applications, from electricity generation itself, to transmission infrastructure, electric vehicles, electronic circuitry, wind turbines, and anti-bacterial properties that prevent the spread of viruses, germs, and bacteria.
Are there any other insights or predictions you would like to share?
My only prediction is that our need for and reliance on metals will continue to grow as our world evolves. This will be particularly true for critical metals and those that are required in large quantities for technology and infrastructure. A consequence of this growing need is that society and governments need to work with and encourage supply chain companies from ground zero and acknowledge that they provide the essential ingredients for a modern, cleaner world. We are all transitioning to a low-carbon future. As a result, a new paradigm must emerge where it is not only possible but a top priority to protect the environment and minimize impacts, while benefiting host communities and society at large with supply chain projects and their commercial products. Societal values need to equilibrate with societal needs, and they will need to work closely and in harmony with industry in order for both to thrive together.