Title: Hunting for Value in Mining Stocks Amid Soaring Metals Prices | Freddy Brick | Muddy Waters Capital Show: Other People's Money — The Monetary Matters Network (host Max "Maxi" Wiethe) Guest: Freddy Brick — partner, Muddy Waters Capital (co-runs the Muddy Waters resources / junior-mining fund with Darren McLean) Date: 2026-09-13 URL: https://youtu.be/GmQ8Mq_pnAw Length: 1:00:09 Note: YouTube auto-transcript. Fillers (um/uh/you know/like as tics) and stutters removed; wording otherwise verbatim. Auto-caption garbles left as spoken in the text but mapped in the analysis: "a Senko" = Asanko Gold (now Galiano Gold), "Lundine" = Lundin family, "IM Gold" = most likely IAMGOLD, "post X" = post-Bre-X, "Kyle Bast" = Kyle Bass (as heard), "Oak Tree" = Oaktree, "Darren" = Darren McLean. Obvious caption mis-hearings corrected in place: ball/bare -> bull/bear, talk -> torque, minor -> miner, Bessant/basement -> Bessent/debasement, "nuke her on" -> "nuke Iran" (best reading), "bought in" -> "brought in", "proof of mind builder" -> "proven mine builder", peritting/notifable -> permitting/notable, IR -> IRR. The first two lines are the cold-open teaser (repeated later in the episode).
00:00 We actually don't have a huge view on metal prices, which everyone probably thinks is just insane given that we run a metals and mining fund. 2% down day on the S&P, a lot of Bloomberg going yellow pretty early and people are moving away from the screens. That's a pretty mild day in junior mining.
00:21 You regularly get a plus 5% move in any of the underlying commodities or the indices. The gratification is very rarely instant in the sector. Hello everyone. Welcome to Other People's Money. I am Maxi and I am joined today by Freddy Brick, partner at Muddywaters Capital. Freddy, thank you so much for joining me today. >> Max, really great to be here.
00:41 Thank you for having me on. >> It is a pleasure. Normally when I am talking to the people at Muddy Waters, I'm talking to your partner Carson, and we're talking about short selling. That's not what we're going to be doing today because you at Muddy Waters have been expanding into new markets, new strategies, and one in particular, resources, is extremely timely.
01:00 Obviously, gold was on an incredible run last year. It has been extremely choppy through 2026. And whenever that happens, the miners tend to give you that type of plus some. I know that's probably what excited you about the sector was all of that juicy V to trade around. But I want to just start out with the big question. Do you guys think the top is in for gold? How are you positioned aggressively in miners right now or are you hedging your risk? >> I'm going to massively disappoint here.
01:31 Despite being involved in the sector and having been involved in the sector now for about eight or nine years in various iterations, we actually don't have a huge view on metal prices, which everyone probably thinks is just insane given that we run a metals and mining fund.
01:53 We do have kind of a macro view, but we're quite focused on the junior mining sector. And so our macro view really coalesced around why a lot of assets in the junior mining sector were highly distressed and basically left dead. And so in terms of the way we position, look, there's no getting around it. Higher metal prices are better for the assets we own.
02:19 But we typically run the book about 50% net which allows us hopefully to accumulate more as things draw down. And the drawdowns in this sector are pretty vicious. I got to tell you, anyone who spends time in what I call real markets, 2% down day on the S&P, a lot of Bloomberg going yellow pretty early and people are moving away from the screens.
02:45 That's a pretty mild day in junior mining. You regularly get a plus 5% move in any of the underlying commodities or the indices. So yeah, you just got to live with that to a certain extent. But I got to think you have to have some view that metals prices are headed higher over time.
03:03 Maybe we could zoom out and say, what about the long-term macro view that you have for metals? And I think we should probably separate them from the industrial metals that I think a lot of people have heard some of the bull thesis there and then also the precious metals where the bull thesis seems ever-present. >> Yeah.
03:21 So all right, if we take base, we do a fair bit in copper. The copper bull thesis has been around since the last copper bull market. The reasons change. It was going to be EVs and how much copper went into every EV. I think it was six times the amount of copper for every EV as every ICE vehicle. Now it's AI.
03:42 Before that it was something else. I do believe the copper bull thesis makes sense. It's just I don't know at what point it actually is going to happen. I do believe that it is harder to find bulk assets in copper and I think if you look at the places we are discovering those assets, the hairier and hairier jurisdictions, and in the non-hairy jurisdictions you've had a ton of red tape.
04:10 Now granted some of that is being lifted but if you look from probably first drill hole in the ground to bringing a copper mine into production you're probably well north of 10 years. And if you look at the upscaling for some of the world's largest copper mines, it's not really coming through on time. So I am kind of a believer in that.
04:32 Now scrap can come in and take up some of the slack. China obviously, there's no real demand from housing anymore, but we in the West are building an insane amount of infrastructure and data centers. It's just really hard to work out at what point that works out. And so if you're investing purely based on the macro thesis that copper is going to go up a lot, you may as well just own the producers.
04:57 That's not what we spend a ton of time in. >> So you're not looking at the mines that are actively producing. You're looking more at assets in the ground or maybe even unproven assets. >> Correct. That's typically where we spend our time and where we think there's really the greatest amount of information asymmetry and alpha in the space.
05:18 >> So, if you hang out enough on mining Twitter, you're going to find all these little pockets. You talked about copper, you've got the tin corner, you have your silver barons. Which of these do you sort of buy into? And do you have maybe a weighting between base metals, precious metals that you think is sort of your standard? Obviously, as prices move, you guys are moving around with it.
05:41 How do you think about the weightings between all of those? >> Yeah. So the way we invest is honestly very bottom up. We're not really taking so much of a top down approach. We do tend to find that in theory copper and gold, the things that drive those things should quite possibly offset, although gold has clearly become much more of a momentumy risk-on trade than it previously was, which is somewhat strange.
06:08 That's historically something we've thought and looked about. Most of precious trades with a lot more correlation than it ever did. Silver is just frankly insane. I would love to know what really drives that. You can spend a lot of time on dark corners of the internet, places that would make zero hedge seem very vanilla, to get all kinds of interesting theories about silver, but typically we don't like to be massively overexposed to any particular metal.
06:34 And then within the book, we often find that we primarily are focused on things like iron or copper, gold, silver. We'll occasionally do something a little bit more nichey like uranium, but typically we want things with longer-term pricing curves where we can hedge and also observe that, well, at any commodity price observable within this metal in the last 10 years, the asset we're looking at probably works, assuming we're correct on the underlying analysis.
07:09 We're not looking at, oh well, if gold goes to 6,000, this has a ton of torque. That's just not really the way we've approached investing in the space. That's not to say that you can't invest like that. There are plenty of people who do invest like that and it's worked out really well for them. It's just not really the way we express it.
07:27 So, if you are trying to find assets that can produce at any price in the last 10 years, gold has obviously gone up so much in the last 10 years. Why are these assets sitting around at the prices that you called left for dead? If there was an asset that could produce gold profitably at a 10-year-old gold price, it's obviously hugely undervalued.
07:50 So, what is it about the sector that makes these opportunities available, do you think? >> So, to help get there, I'll explain a little bit how we ended up in the sector because it really had nothing to do with a macro view on metal prices or anything. There was a piece of research written on a Ghanaian asset, company was listed in Canada, called a Senko.
08:16 It's a really excellent deep dive piece of research explaining how this open pit mine was a fraud. And I read it and I was like, "Wow, this is one of the most interesting pieces of short activism research I've ever read." And up until this point, we'd very much been of the view that short activism in resources was very difficult because we would say, well, the gold isn't in the ground.
08:43 And the company would say, well, the gold is in the ground and we would wheel out our geologist and the company would wheel out their geologist and lo and behold, most people want to believe the company's geologists because we're evil short sellers. And so our view was it was kind of like trying to prove the existence of God.
09:02 And what this research report had done, really taken work from block modeling and then overlaid that over the actual mine as it was unfolding, and could basically show you that the places within the mine that rock was being removed from were lining up with places that the block model had been smeared. And so that for me was a real light bulb moment where I was like, "Wow, you can actually show people in real time how this is a fraud.
09:34 This is really, really interesting to me." >> You brought up two terms that I think we need to define for people. One is a block model and what is smearing. So block model is essentially, you put skewers in the ground to look for gold and then around that you build these sort of blocks which eventually you take out the ground and at a very high level that's how you build up your mine plan.
09:58 And then smearing is where you overemphasize. If you think about how you're putting holes in the ground, you might hit 6 m at 2 g per ton. That is my wedding ring in a massive room. It's just such a tiny, tiny amount of metal. And so if you hit 2 m at 2 g per ton, the inference you give in the model or the influence to that 2 m versus areas where you've hit less allows you to end up over a massive amount of earth.
10:42 That would allow you to basically show more metal content in the ground. And so if you're very disingenuous about it, and that's why you often find in these nuggety gold deposits that get mined, they often disappoint, is because if you turn up and down the sensitivity on the dials, that can make a deposit that's non-economic economic on paper, and lo and behold, when you come to mine it, you find out there was less metal in the ground than you thought.
11:10 That's kind of known as smearing. >> So you've read this report from somebody who showed that the block model was wrong. They had been smearing and you felt that the mine was overvalued. It made sense to you. Did it make sense to mining investors? Did it have the impact that you felt it should have had as an activist? >> No, that's why the opportunity existed.
11:35 The stock had moved. There was certainly some skepticism towards it, but there were also all these crazy rumors that, oh well, the guy who wrote this made it up because of this and was getting squeezed in the short and blah blah blah. All the usual poo-pooing around why short sellers are evil and you shouldn't listen to them.
11:59 I do know that I found out later, after the fact, that I think at one point there was an M&A process that was going on and probably the report was able to scupper the M&A process. But look, there was a lot of meat left on the bone and what really resonated for me, because even at that time, having read it, it was written in a very technical manner.
12:22 There were things that I didn't fully understand and appreciate. But what really resonated with me about this report was Darren, who now runs our mining fund, had laid out basically a pattern of where the company was saying one thing and then would come back 3 months later with an excuse, or come back 6 months later and say oh no no, we never told you that, we told you this. And so for me as a short seller, the thing I was actually able to feel very comfortable with was, okay, I'm able to understand that
12:49 that's a pattern of deception. There's no reason that these things should have changed month on month and quarter on quarter. And so we went, met with the author of the report, did a lot of our own work, validated it, and ended up publishing our own short report. And ultimately, it ended up being a very successful short for us as well.
13:15 And then from there, Darren and I stayed in touch over the years, looked at a few other assets that ultimately actually didn't, we think, reach the level of profundity of that particular asset, and then ended up collaborating on the long side on an asset called GT Gold, which was a copper asset.
13:34 And to cut a long story short there, we thought it was a really good asset. Lots of reasons people didn't like it. All the reasons people didn't like it, we just went and looked and basically went with an open mind: is that true? Is the asset in too steep of a ravine that you can't put a pit there? No.
13:56 Will the First Nations band let you build a mine there? Yes. Is there infrastructure? Yes. These are a whole bunch of criticisms that the consensus mining investors, I don't want to say lazily, but this was the narrative that had built up around the assets, and one by one we just went and looked at them with a very open mind and ticked away: no, that's not true, that's not true, that's not true. And if you take away all these misconceptions around the asset, you were like, actually this is a really
14:26 attractive asset, and so we ended up building up about a 10% stake in the asset. There were some conversations with management. There ended up being some public letters aired and yeah, the asset ended up being acquired by a major for, I think, a price that to be honest the major probably feels really good at based on where today's metal prices are.
14:50 So we got to win and honestly, in the case of the M&A, the major got to win as well. And the reason I tell this story is, the whole time, whether it was on the short side or the long side, we were asking ourselves, if this is, I would say, obvious to us — we were guided by a really smart individual — but if this is sitting here and this individual has a reputation of getting things right in the market and we can take this work and we can validate it and we can do our own work to check there's nothing we're
15:22 missing, why aren't other participants doing this? And I think what we came to realize, and really what became more of our macro framework for thinking about junior mining, is if you look since 2011 when we really had the last super cycle, junior mining has just been decimated in terms of capital flows.
15:47 I don't know what the statistic is now, but I want to say two years ago, less than 1% of the S&P was in materials. And if you took out oil and gas, it's basically no metals and mining. If you look at the major players who used to finance junior miners, it was mutual funds and sector-specific mutual funds.
16:08 Both of those have had a really hard time in the last 15 years because of ETFs and frankly because of underperformance. It's really hard to expect a premium management fee when you underperform an ETF. Those have been things that have really sucked capital out of the space. Then if you look, for the last 15 years it's not been an attractive place to be a participant as a young person, right? If you're top of your class at Harvard, you can go and work for Ken Griffin or Silicon Valley or biotech or all these cool, exciting
16:42 things where you don't have to travel to butt nowhere where the best thing to eat is fried baloney. Genuinely, I did one mine tour where I think the best thing I ate all week was an orange rind. And so, and then you throw in the ESG, environmental social stuff, plus relative to other pretty cushy jobs, the pay hasn't been great.
17:09 So, you haven't had as much talent join. Really low metal prices have meant that fewer mines have been built, so fewer people have had essentially reps in doing successful stuff. And so when you throw all of that together and you have less drilling and less euphoria and excitement in the space, you ultimately end up with just less capital attracted to the space.
17:33 And then when you look at the marginal players in the space, so maybe hedge funds who do a little bit of investing or private capital groups or private equity, a lot of allocators got absolutely annihilated in '08 through '11. So even the guys who have the skills who want to be in the space are looking at it saying, well, I can't get allocators to give me money for the space because it's been such a graveyard for capital.
18:00 So all these things have meant that a lot of projects that are actually pretty good and are now really good at much higher metal prices have been somewhat discarded by the wayside. And then I think there's two other things that really play into the junior sector specifically. The liquidity in the sector is very limited.
18:20 And so the way we like to invest is to be very concentrated, few assets, and spend a lot of time on those few assets. Well, if you think about that from the perspective of an existing mutual fund, you can't have 10% of your assets in a single name. Even if you wanted to have 10% of your assets in a single name, you couldn't do that in something that traded 2 million bucks a day if you're of any decent size.
18:49 So that immediately, even if you want to, rules you out of investing in that. A lot of the really interesting assets that we think are listed are on the venture exchange. A lot of mutual funds or other participants can't invest in things until they get upgraded to the TSX. They can't invest in things that have less than a $5 share price.
19:10 So you might have an amazing asset that trades at 30 cents and the manager could legitimately think this is the best thing they've ever seen in their entire career and unless they do a share consolidation, they have to wait for the stock to go up 10x before they can even think about owning it.
19:27 So there's a lot of things that really structurally prevent people from being able to invest in the part of the sector that we like. >> And when you think about, you said you're doing 50% net. So when you came to that first long asset it sounded almost like people had written a bad short report about it and you know what a good short report looks like and you're like, well, this isn't very good and that's what we want to be long, and on the other side, the first asset that you wanted to get short was an asset where you're like, oh
19:58 man, we could help write this short report so much better. How much is the portfolio constructed in that way, where you've got assets that everybody else thinks is a short that you want to be long and assets that everybody else wants to be long that you think is a short? Is that what your portfolio is looking like? >> No, not so much.
20:18 We're certainly not out there trying to be contrarian for contrarian's sake. I will clarify, the first short report that we then wrote, it wasn't that it was a bad short report. It was very technical and it was written for a very technical audience. We do what I call "we Kyle Bast it," which is where you take something very complex and you put it in English that everyone can understand, and I mean that as a compliment.
20:46 It is very, very difficult to write really technical stuff in plain lay terms and I think he does such a brilliant job of that. So one day I hope someone refers to it as Freddying something. Probably not going to happen on my watch given my command of the English language. >> No, I don't think so. And I think it's more likely to be the Tom Green movie.
21:09 >> So true. That is literally the only thing anyone thinks of with Freddy. >> Yeah. Freddying it. That's where I think people's head is going to go. >> Yep. So, okay, in terms of portfolio construction and where we see opportunities, mining does suffer from a bit of a bright shiny object.
21:31 I think the market really understands high-grade open pit. I think that's pretty obvious in precious, that if you have a high-grade open pit, that's a good project. I think the market generally does less well with bulk projects and with what I call the unspectacular but not hairy. So where we often find the best opportunities are assets that are decent.
22:02 They're not absolutely spectacular. So the grade isn't off the charts. The size of the asset often in these precious assets is not 19 million ounces kind of thing. It's maybe a lot smaller. It might be something that's 2 million ounces, but has a pathway probably to growing to 3 to 4 million ounces.
22:28 And you can get that 2 million ounces into production with not a ton of capex, with reasonable view to permitting, with reasonable local buy-in from government and other stakeholders. And so part of what we spend a lot of time looking at is, if the economics really work in the project, what are the things that would kill this? Is it the best project in the world, but it's near a one-of-one salmon fishery? Well, it's very unlikely anyone is ever going to let you permit that mine. So, it
23:05 doesn't matter if it trades at a fraction of any theoretical valuation, it is very unlikely you are ever going to be able to unlock that. And so that wouldn't really work for us. If it is in a really hairy jurisdiction, it is quite likely that at some point the mine will either be stolen from you or the economics will be recut.
23:27 So however cheap that asset looks, you don't really want to spend 3 to 5 years of your life trying to push forward a value proposition only for it at the last minute to get taken away from you. So, we often spend a lot of time looking at these sort of unspectacular projects. And what you also find in these projects is, because they're not the bright shiny new object that's raising money every 6 months that's showing up with a flashy drill hole,
23:56 maybe it isn't run by the most spectacular promoter. And I'll touch on that again in a minute, but maybe it's run by somebody who's very operationally focused and they really care about share count and they're just getting their head down and developing the asset and they're not as capital-markets savvy. You often have an asset in those cases where it might actually be getting incrementally better and better and better, and so it might take it from the category of, yeah, this is kind of marginal, this is probably a mine two, to, oh
24:26 wow, this actually, in the two or three years that no one was really focusing on it, did some really cool things and knocked down some really cool milestones. And while no one has paid any attention to it, the probability of this becoming a mine has actually significantly increased while the share price hasn't.
24:46 That becomes a much better expected value bet for me than the bright shiny new object that's hit six drill holes with really spectacular grades because they've basically gone at the same structure six different ways and pulled the same drill hole out of the ground. So that's the sort of stuff that we really like to look for, because we often find that that's a better asymmetric risk-reward for us.
25:12 >> How much of it is like biotech, where it's highly binary what the outcome is? When you have a cash flowing business, with these juniors, right, they're just not; they're burning capital until everybody agrees that this is going to be economic.
25:32 How much similarity is there? >> Look, I think it's a lot like venture. The key difference, look, I can't speak to biotech. Generally everything we've done in biotech on the short side has been a disaster. It's either been bought out and then someone's written it off, or we shorted something and lost money on it and then the thing went down 90% and people ping me, great job, and I'm like, oh, we covered it and lost money.
26:04 So it's a lot like venture. I think the key difference is, and I've never done anything really to speak of in venture, my perception of venture is it's all very forward-looking and you've got some 23-year-old from Stanford in front of you who's wowing you about what might or might not happen in the future.
26:26 We're typically looking at something and we're saying, look, these holes in the ground, which you can model, you can know with a pretty high degree of certainty what metal content is in the ground. Now you can't necessarily know what the recoveries will be.
26:43 You might not know what the timeline for permitting would be, but you can work out what it costs to mine the rock out of the ground, and you can't necessarily work out with absolute specificity what the capex will be, but you can probably get to comfortable ranges. So unlike venture, you can wrap some level of economics around what you think this could look like in the future.
27:10 So I think that is a very key differential. Now, you're not looking necessarily for 100x, or certainly in the stage we invest in. We're not thinking, well, oh, if we get really lucky and they hit a hole a mile down the road of 600 m at 2% copper, okay, well, obviously that changes a lot of things, but that's luck.
27:32 At least in the way we do it, there is no skill involved in that happening. I would say in a weird way, it's a little bit more like distressed investing with a venture-like payoff. You are looking at something and you're saying this might have a capital structure issue. It might have a people issue.
27:49 It might just be not well understood or marketed. There might be a narrative that's built up in the market around the difficulty of dealing with local stakeholders or the topography or the local nature and that might not actually be true and no one might ever have gone and looked at that. You can have things where sometimes a different process is tested on the metallurgy which massively increases recoveries, which in certain assets can be the difference between it being highly economic and non-economic.
28:21 So there are all these things that you can do that can create and add value. But the one place it is a lot like venture is you constantly need to raise capital. So generally the way we invest is we like to be invested in assets where there's strong backing from really proven, capable people. Case in point is, we owned Faraday copper at much lower prices than today.
28:48 We saw it was backed by the Lundine family. We knew the CEO because he was previously the CEO of an asset we were involved in and we think very highly of him, and the price we owned it at, the stock hadn't moved for about four or five years, or in a very narrow range. So, it's likely going to be backed on a go-forward basis by prominent investors in the space.
29:08 We trust the management team and we think the asset's getting better. It can be the best asset in the world, and if you need to raise in the hole and no one else will write the check, you're either going to write the whole check yourself or the project's not going to move forward. So a lot of people are highly critical of very promotional management teams.
29:30 While we try and avoid promotional management teams where there's no real substance behind it, people who can really effectively raise capital and do it at a higher and higher share price reduce the number of shares outstanding by the time the mine is built. That is actually something I've really come to appreciate is a real skill.
29:52 And if you can do that, you reduce your cost of capital very significantly. So while it always gets a really bad name because, yeah, there are unscrupulous promoters in the space, if you tie good operators with a good project with good capital markets know-how, ultimately the shareholders are better off for that.
30:10 >> I've never thought of it that way. The money has to be raised, right, to get something from greenfield to a purchasable asset. It's not going to be done for free. And every single time a junior miner goes to raise, it's almost universally bemoaned, right? When you see it, everybody goes, "I can't believe they're raising."
30:30 But it does have to happen at some point. So it is famous, you're talking about these promoters, the industry is famous for the overly promotional people. You're constantly dealing with that type of thing on the other side of your business. How much did that prepare you to try and suss out: is this somebody who is really good at promoting, who's raising capital for the right reasons, and somebody who's not? Is it just the analysis? >> Yeah, ultimately you just got to take what people tell you and go and
31:01 check it, whether that's because we're looking at something on the long side or the short side. Yeah, I'd say the one key difference in this part of our business versus short selling is often the way we come across shorts in this sector is someone will say, hey, you should look at this asset, it's really great, and it might screen really nicely relative to other producers or other assets in the space, and you dig into it a little bit actually thinking you might find a really interesting investment on the long side
31:31 and you start to see that, oh, these things really don't hold, and then you dig in a little bit further and you're like, "Oh, wow. There's really significant inconsistencies here and this has been missed by the market." That's quite different from our approach on the short side in our other businesses, where really we are screening for bad actors and highly problematic people and highly problematic companies or poorly aligned capital structures or incentive schemes. That just doesn't
32:02 really work to my mind in junior mining because, look, the other thing is you can have bad people and a good asset. That does happen from time to time. If you are sitting on an asset that might at one point have been very marginal and trading at a massively inflated market cap relative to the value of what's in the ground, and the company hits something that is transformationally value creative,
32:30 that might be a good asset and they might be scummy people and they might have done bad things in the past, but that actually really has no bearing on how valuable that asset might be because of that one drill hole. Now it's questionable whether the bad people would >> the drill hole is real. Yeah, >> the drill hole is real, and look, post X you have to log all your drill holes.
32:52 Now there's varying degrees of disclosure that people give with reference to certain things and they can certainly make it more and less complicated to look up on their website. But that is the really nice thing here. You have lots of observable data and if you're prepared to spend the time and really roll up your sleeves, you can model a lot of this and figure it out yourself.
33:15 But a lot of people don't because it's not economic to do it if you're trying to put together a portfolio of half a billion dollars of gold mining names or copper names or whatever. You just wouldn't want to spend time on the subsection that we spend time on. >> Understood. So it sounds like rather than looking for shorts, they are just abundant in the sector and they come to you as part of the process of turning over lots of rocks.
33:42 >> Yeah, pretty much. >> So, you've said you're not looking for a soaring metal price to get you into a sector. Does a depressed metals price get you into a sector as people leave these good assets behind just because they're not getting the type of beta-to-the-metal-price juice? >> So certainly I think the fact that you've had, historically, up until the last two, three years, very depressed metal prices has contributed to all the things, whether it's lack of talent, lack of drilling, lack of capital in the space,
34:16 that you have a lot of non-euphoric junior projects around. The other thing I think is interesting is I question how much of the sort of speculative debasement money that would have been in gold or silver or other things went into crypto a few years ago in search of the same volatility and sort of thesis around debasement.
34:39 What I find really interesting about the sector is, despite reasonably high historical metal prices, when you get a couple of months of stocks not going up and a gold price going from where it was in January all the way back down to where it was in June, July, the sentiment in the sector is just dead.
35:03 And if you step back and you say, well, wait a minute, gold prices, they were at 4,000. And that is a price that 3, 4 years ago you guys would have been high-fiving and imagining that champagne would be pouring from every fountain at every conference, and you speak to people and they are like, oh man, the market is so bad. Oh, we can't get any deals done.
35:25 The money's never coming back. And again, I just think that's a symptom of a really prolonged bear market and a lot of capital that has left the space and has honestly been pretty slow to come back to the space. So yeah, I look at the projects and the opportunities and I think the projects and the opportunities at the moment are amazing.
35:49 There were three or four assets we looked at about 3 years ago. I want to say maybe it was either two and a half, three years ago. We were at the Denver Gold show. Attendance was just absolutely miserable at the time and we looked at the Artemis project. We probably bumped into the guys at IM Gold and they walked us through the project, and we were a bit distracted with a couple things for another asset we were pretty heavily involved in.
36:18 And the teams ran us through this and Darren looked at me and he's like, "Oh man, these projects are just going to work. They're going to get built. They're going to work." And then the stocks are just going to be up massively, and you look back three years later, and I remember we spoke to other people about those assets.
36:32 Oh, well, this has got this problem and that blew out on capex and that's kind of difficult and whatever. And they were reasonably straightforward projects and they're run by very competent, good management teams and they built them and they rerated and now everyone thinks they're awesome. And it's just really funny having been there 2, 3 years ago and seen how the narrative has changed around these things.
36:57 And that's often how it happens. Very few people are there as the value is created and some of that, as I spoke to earlier, is due to liquidity, share price, accessibility on exchanges, and then as they move up and it becomes obvious the value is going to be created, lots of people get involved. >> When you find yourself back at these conferences in the near future, what do you think the attitude is going to be like? Cuz as you said, August has been pretty spectacular for the miners after what was a pretty terrible time. I
37:32 ran the numbers just while you were talking. GDXJ was down 41% from its January peak at one point in time. GDX, the big brother, was down 39% itself. But since then, that drawdown, if we just go forward to today's close, we're back, let's call it 15% off of the highs, 12% off of the highs in GDX and GDXJ.
37:58 Does it take retaking the highs for people to get back into euphoria mode, or when does the euphoria come back into the sector? >> It certainly feels like people are a little bit more excited. I don't know if it was Bessent's attempt to move the long end of the curve and people speculating on debasement.
38:18 I don't know if it's the way people are feeling about rates based on a few comments over the last couple of days. That obviously can all change next week if we nuke Iran or something. For us, we really just, we're looking at the dislocation between very cashed-up mid-tiers and majors, all of whom are producers.
38:40 Again, these companies are eating themselves from the inside. It is similar to drug companies and patent cliffs. They have to replace with new projects. And so if you look historically, the majors and the mid-tiers haven't done a brilliant job in discovering new projects because new discoveries are incredibly rare.
39:01 They have done a good job expanding the existing projects and the project life in many cases. So what I expect to see happen and really play out over the next couple of years is some sort of M&A wave where they look at the next available group of projects and they say, well, who is either permitted or moving towards construction or in construction, and what is available for me to buy, and ultimately what is available for me to buy is a function of, well, who during the two to three years when the market wasn't very active from an M&A
39:35 perspective was able to raise capital and push forward projects. So, that's what I expect to see play out. We've seen little bits of M&A here and there. Robert was acquired earlier this year. It's a really good project. I think there's a couple of other things. We've publicly talked about Snowline Gold, which we think is an asset up in the Yukon.
39:57 I think that's a no-brainer takeout for a whole number of players and could massively open up the district. But look, that's somewhat consensus. We think it's a great asset, really like the management team, but it's a longer lead project. It does need some infrastructure. Flip side is it's a world-class project and any mid-tier or major, probably needs to be a major that buys that, gets a real foothold and the ability to open up a whole district.
40:27 So we think that makes a lot of sense. It's one of these weird things where it probably needs the stock price to go higher, though, a major paying, not a premium that upsets anyone, but one that is reflective of the value that the management team have created. >> So, that's interesting what you said about a premium that doesn't upset people, because I have heard so many junior investors talk about how bad supposedly these majors are at timing their acquisitions, that they seem to pay prices and they say, "Well, you could have bought it at this price." But are
41:02 you saying that it's the junior mining investors who probably wouldn't even hand over the keys anyway at those depressed prices, who know what they own? Is there a two-sided issue here when it comes to these in-hindsight bad acquisitions? >> So, I think you have to go back to the last super cycle, right, where we had euphoric prices paid, massive premiums for projects that had these huge cost overruns, plus collapsing metal prices, and had to be written down.
41:35 And a number of CEOs lost their jobs because of this. So if you sit in the CEO chair at a major, you're looking at it and saying, "Well, I don't want to do that." And that rationally makes a lot of sense. And then you look at what that did to a lot of balance sheets, levered them up. Now you look at balance sheets, they're very clean.
41:57 A number of them are net cash, very low leverage. So, I actually think the M&A discipline is somewhat of a remnant on the acquirer side from what didn't work last time around. In terms of premiums paid, yeah, my understanding is there is a great deal of sensitivity to not wanting to look like you've massively overpaid with a huge premium.
42:23 And so yeah, there is probably in a few instances a dance between, well, we know what we have and we think it's valuable and we would like to push forward the asset, and unless you are going to pay me a premium that essentially accelerates my return several years, why would I wish to sell it? And so yeah, I think there is that dance a little bit.
42:43 I think the other thing is the majors and the mid-tiers, they look at what everyone else is doing and no one really wants to be the first one out to make a really large aggressive acquisition, because if gold prices turn down again or copper or whatever prices turn down again, you're obviously going to look like, oh look, they just did that again.
43:06 They paid top-of-cycle price and it didn't work. So yeah, I think there is, to be fair, a certain amount of inertia on both sides. >> There's got to be only so many seats at the top of production companies anyway. You make it to that spot, do you really want to find yourself drilling holes in the ground a few years later? Probably not.
43:25 >> Exactly. >> Yeah. So look, I know you said you don't have a view on the metals price. It's just been an incredibly volatile time. So much of the work that you've done on the short activism side is extremely fundamentally driven, but there's a huge amount of understanding positioning and trading and dealing with the volatility that comes with publishing market-moving research.
43:53 And so I have to look at the volatility in the space, and this is an area where you guys love to see that volatility. How much of the strategy is trading around the volatility that you get? >> The nice thing about the volatility is often, if we feel like something's run away from us, if you wait three or six or sometimes 12 months, you very well might get a chance to buy it back at that price, even if you think it's run away from you.
44:22 So, sitting on your hands and being patient is pretty well rewarded, and we structured the fund with a lock-up that allows us to do that. So that's a really important thing, aligning fund structure with the way we wish to invest. Hedging is really tough.
44:40 If you take a junior miner that's pretty disconnected from any major index, and actually the reason it might be disconnected is you have a mutual fund that previously owned the asset, you get a transformational drill hole, the mutual fund manager turns over and the new mutual fund manager has no idea what the asset is and just says, "I own 26 days' volume.
45:07 I'm just going to sell this every single day because it went up and it's not my position. I literally couldn't care less what this thing does," the stock is going to be held down. Well, if you're hedged with the GDXJ, which might be getting tons of inflows because gold's gone up, and that's the easiest way for a macro fund to express it with some leverage, well, you're going to have your short leg go up, and the long leg might actually go down.
45:32 And so it's really, really hard to find great ways to hedge. We really think about it a lot as: what is the risk of permanent capital impairment on the long side? Am I buying this at a price where I think the upside/downside is really attractive? What would make me change my view? If that event happens, we try not to be in these super binary events.
45:56 And if we are, they're sized appropriately and we think the skew is appropriate. We have one asset that we recently trimmed in the book, but there's a very binary event around a court case. It's an excellent asset that's not really in dispute, this binary event around a court case. We owned it at what we thought was a very cheap price.
46:19 It went up a lot on beta and we said, "Yeah, you know what? At this price, we've just gotten somewhat lucky on the beta. It's appreciated a lot and we'll wait for it to come back down to a lower price where that bet is again asymmetric and really interesting." Yeah, hedging is honestly very, very tricky. So we often express it through a combination of shorts on the index, perhaps the underlying metal, and then we'll often try and use option structures to give us some convexity on the downside if metal prices really take
46:49 a dive, because, much to your annoyance, we don't have a hugely strong view on where a metal price might be in 3, 6, 12 months. >> The other thing that I think you could obviously take over, goes somewhat to the origin story, is publishing research that you do. If you're doing this deep research, how many names in the book do you decide to come out with, whether it's long or short, some sort of opinion on? And on the long activism side there's an ability to lower the cost of capital for these
47:24 promoters in the case that you can help tell their story with them. Is that something that you guys have gotten into with this new fund? >> So we've done long activism twice in the space, one in more of a support role and one more fully where we led the activism. Despite, I think, people's impression,
47:47 it's actually not our preferred route. I think there's potentially a view out there that we like to go in and kick people out of seats and dump around whatever. We actually try really, really hard, if we're going to go in and we think it's a good asset, to work with people, and we're not right about everything all the time, but Darren, who runs the strategy, I think has a great amount of acumen across a number of technical and also capital market appreciation, and so if we are heavily invested we obviously do want to see the
48:20 best outcome, whether that's optimization of a drilling program, helping explain to the market the orientation of the asset and how the sequencing can work from capex build, engagement with local stakeholders. So yeah, we do sometimes want to offer a view, and again it comes from a place of wanting the fewest shares outstanding when the asset's built.
48:44 In the cases where we've done activism or a supporting activism role, we really tried to exhaust every possible which way, and our initial asks in both those cases were far, far less than we ended up with in terms of outcome. And so my hope is we can earn a reputation by real value creation in the space and you get to a point where people say, "Okay, I actually want to invest alongside those guys because they find interesting assets and what they're invested in is value creative and they're able to help with value creation," and hopefully our
49:19 money eventually, if we do this for long enough, well enough, becomes a signaling mechanism where you do reduce cost of capital. There are some really well-earned stewards in this industry that have done that over 10, 20 years and several assets, and rightly so. Their capital comes with a real premium, and I think to the benefit of assets they're involved in.
49:42 So yeah, while I think there's certainly some wariness around us, my hope would be that actually we can be in a position where, if next time we go in and we see something where we have a difference of opinion, it can be constructively listened to and people can understand that the reason we're voicing that is because we care and because we want to progress the asset and the best way forward for shareholders, not cuz we just have these huge egos and feel like we need to run companies, which is not
50:09 really what we think. >> You only did it twice. It sounds a bit like dropping the bomb. You drop it twice and then you never have to drop it again. >> That's the hope. That's the hope. >> Yes, indeed. Well, Freddy, I have to think, look, TSXV, anybody who's ever owned anything on the TSXV, this can't scale that much.
50:34 Why build a business around a strategy that isn't going to bring in so much scale? And then with all this information you have, what does the next leg look like? >> We're really good at building subscale businesses. As we found out, short selling doesn't scale a whole lot and activist short selling certainly doesn't.
50:57 Look, the way we thought about it was, the first vehicle we put together, we wanted to do something where we felt it was straight down the middle of what Darren has already done and is well within the wheelhouse of competency. As I spoke to, the issues around liquidity, having to align a lock-up that probably deters some investors,
51:20 I think those are key parts of the strategy. When we think, Emmy, myself and Carson, when we really think about building products and attracting people to the platform to work with us, the way we think about it is, look, is there insane edge here? And is there insane edge here because you're doing interesting research? And if that's the case, what can we wrap around that in terms of sensible scale that we think we can put to work, and we can backsolve, through
51:54 a fee structure, the way to make that economic for everyone. And so it's much more an approach of: can we deliver, or do we feel comfortable we can deliver, really good net returns to people, and all right, if it doesn't scale, it doesn't scale. That's not our god. Our view is we want to put up really good returns on our own capital and provide that for investors.
52:17 Where we're thinking about resources, this is the first version of this, very happy with it being subscale. I think given the pickup of liquidity in the sector and just metal prices holding here versus the opportunities in the junior space, there is probably room to do something down the line,
52:40 maybe something more hybrid, some private, some public, or doing similar things to what we're already doing, but with more concentrated positions earlier, potentially with a longer lock, with a view that, okay, if your concern was not being able to get out if something didn't work, well, you can solve for that with a longer lock.
53:00 But I think the other constraint that you really got to think about here is building a team and bringing the talent on board. We don't believe in any of our businesses in just trying to backsolve for finding some credentials off the shelf. We want to work with people, get comfortable with them.
53:20 Frankly, you see them in positions where we're all a little bit stressed and see how people react and behave. And that I think is a better way to build a team. And certainly within resources, it's not like there's an abundance of brilliant engineers, brilliant metallurgists that are available, okay? Because those people have a very, very prized skill set and they're in very, very high demand.
53:45 So convincing them to come and work with you versus a very traditional path is tricky and you've got to really, over time, build those relationships and show them the value of doing something with us as opposed to going down a different path. So that takes time and you can't just throw money at that problem.
54:06 The interesting thing I found about the resource industry is people are not very narrowly monetarily interested. A lot of people are really motivated by the teams they're working on, vision for the project, being invested in something real. Engineers want to build things. They're not that interested in just turning up and presenting this and that if they know it's never going to be built. They want to get their hands dirty. They want to build things.
54:35 They want to do things. People who work in permitting, they want to work on driving real projects forward. And so you've got to be able to engage people like that who don't really just want to sit around behind a desk and tweak an Excel file that might or might not ever make it into production.
54:56 So yeah, part of it for us is also bringing additional skill sets, building out the team, and pushing that forward in order to feel comfortable that we can take the strategy from where it is and push it forward. >> My final question before I let you go is about alpha, where the alpha comes in the cycle for you and how you think about that, because as you said you're not looking to get into the torquiest thing and there's only so many companies out there, and you look at the benchmarks, they are full of some very torquey, high
55:31 beta stuff. So when you think about what point in the cycle does the value of your research and your stock picking really shine through, it's probably not going to be at the point of peak euphoria. So, how long does it take for the alpha to show itself and where does it really come through in the cycle? >> Most of the things we've done, it's taken, on the long side, somewhere in the range of 3 to 5 years, and it is, I got to tell you, pretty agonizing as you sit and you watch.
56:03 I'll give you an example. At the moment, this is all public, we own just shy of 20% of an asset called Mayfair Gold. We ran a proxy battle on that two years ago now. We've brought in an entire new management team that we're really, really happy with. Drew, the CEO, is a proven mine builder; brought in a CFO from a major who has done significantly more complex things than probably his day-to-day at Mayfair.
56:34 Great people on the permitting side. We've got what we think is a phenomenal project that's relatively straightforward with manageable capex. I'm really motivated by the shareholders that we've got on the register. Darren did a podcast and guys from Oak Tree, one of their hedge funds, reached out and wrote a check.
56:58 Some other notable family offices and what I at least consider pretty sharp investors in the space. And so I see all this happening, and from the press releases you can see we're very serious about building and permitting and moving the project forward, and the share price just is what it is, and I feel very comfortable that this is an incredibly asymmetric investment and has been for a very long time and it's just totally dislocated from the market, and my expectation is the only thing we can do is try and execute and knock down milestones
57:35 and push the project forward to the best of our ability with honesty and integrity and engage with all the stakeholders in a fair and honest manner. And at some point some other shareholders will wake up, or investors will wake up, and say, "Oh, that's actually a pretty interesting project. That's actually got some okay backing and wow, it's probably lower risk than some other things."
57:58 I really don't know when that will be. If we come back on the podcast in 2, 3 years or 5 years, I'm hoping to say, oh yeah, remember that thing I told you about? Well, it worked out in the end. It is really funny, the point at which the market catches on is often really surprising to me. If I knew better when it would be, the IRR on my trades would be much, much better than it currently is. So it's very slow and frustrating. That just speaks to why this bright shiny object thing, where everyone's looking for the thing that's
58:30 going up the most, the fastest, that seems to be the buzziest thing. It's a slow sector. Permitting takes years. Environmental work takes years. Engineering and design work takes years. So, you're often just sitting, not doing nothing, but you're sitting and re-checking your work and ingesting new data points, but there's nothing super shiny and exciting to really crystallize the value.
58:59 And then at some point, a few people get it. And if you're right, the share price tends to go up a lot. And it just kind of feels like it was easy at the time. But I can assure you, you spend years wondering if you are just the stupidest person involved, and why, are you missing something? So, the gratification is very rarely instant in the sector.
59:22 >> Yeah. Well, I can certainly appreciate that, having owned a few gold mining names, gotten frustrated with the share price not moving, and then I get a text from somebody who I haven't talked to in two years about it, and they go, "Can you believe it?" And I go, "I can't believe you still own that thing."
59:42 And they who sat and waited got paid and I who couldn't stomach it >> am left kicking myself. So >> certainly >> personally I have felt that pain. Well, Freddy, we will leave it right there. Thank you so much for coming back on Other People's Money. >> Thanks very much for having me, Max. Great to see you.