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Algy's Investment Podcast
Evy Hambro: Governments Can't Stop Printing Money! Here's What That Means for Gold | #25
01:11:29
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- [00:00]
A
What is gold's role in the world today?
- [00:04]
B
Gold, gold, gold, gold, gold. Gold is still very compelling. Gold couldn't be more relevant today than it has been in many, many years. I think that people will never forget it. It's always, it's part of people's life. It's been written off more times than I can remember. The price of gold is probably up about eight times. Governments are carrying enormous amounts of debt, more debt than they've ever carried and it's not just a one country thing, it's a multi, multi country thing.
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A
Hambro, Evie is the co lead manager of the BlackRock World Mining Trust and has been involved in it since it was first formed or established back in 1993.
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B
Gordon Brown decided that it was the perfect time to sell the UK's gold because he really did ring the bell for the lowest possible price to be selling in nations. In the gold market they were always referred to this as the kind of Brown's bottom that gold that was sold back then was valued. Today, I think it would be more like 35 to 40 billion pounds. Yeah. AI, you know, is a massive trend. It's going to come along, it's going to change all of our lives. We have probably no idea to the extent that it's going to change our lives.
- [01:10]
A
What's the deepest you've been underground? Welcome to Algae's investment podcast and my guest today is Evie Hambrough. Evie is the co lead manager of the BlackRock World Mining Trust and has been involved in it since it was first formed or established back in 1993. Over that period of time the trust has generated a return in excess of 27 times your money. So this is a fascinating time to be talking about a really interesting asset class and I'm very, very glad that Evie's come and spent the time today to speak to me.
- [01:50]
B
Alji, thank you very much for having me along. It's great to be here. What is gold's role? I think gold's role is the same as it's always been. So gold has always been a means of exchange and going back for thousands of years it's effectively been money. And I love the fact that you have this thing that people always reach back to when it comes to uncertainty or geopolitics or inflation. It's had this role as a kind of a means of exchange and a store of wealth for an incredibly long time. And I can remember numerous articles just in my career, the famous FT1 when they referred to gold as the kind of barbarous relic of the past and had no role in the future. And we're sitting here today and gold couldn't be more relevant today than it has been in many, many years. So I think that people will never forget it. It's always, it's part of people's life. It's been written off more times than I can remember. Yeah. But it still keeps coming back. It still has a role. And I think that will be the case for many, many years to come.
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A
And why has the price of gold gone up so much recently?
- [03:01]
B
Yeah, so the price of gold has been kind of keeping pace with or lagging or accelerating ahead of the kind of decline of purchasing power in paper currencies. And when we look at the world today, we have a very tricky situation. Governments are carrying enormous amounts of debt, more debt than they've ever carried. It's not just a one country thing, it's a multi, multi country thing. The costs of running countries have accelerated to enormous levels and the rate of change of that is likely to continue to grow. So there's going to be a bigger bill for governments to have to pay. Tax receipts are not keeping pace with the costs that governments are having to carry. So there are bigger and bigger deficits. And when you have bigger deficits, you've got to pay for it with something. So you end up printing more. And as you increase the supply of paper currencies, it falls in purchasing power. And so what we've seen is more recently, I guess, two things. One, an awareness that this is taking place and that's increased awareness because people are seeing it, they're living it, they're breathing it. And I think the scale of the problem has kind of passed the tipping point. And when you get those two things happening together, you've had this pretty explosive move in the price of gold.
- [04:19]
A
And just to give us a sort of a marker in the sand, how much has the price of gold gone up, say since Lehman's went bust in September 2008?
- [04:30]
B
Since 2008, the price of gold is probably up about 8 times somewhere around there.
- [04:36]
A
Wow.
- [04:36]
B
Yeah. So it's interesting you mentioned that. I've actually bought along a piece of gold for you to look at, Altie. Oh. So you know, this is a, what's called a 10Toler bar. So this is 3.75 ounces roughly, plus or minus. And I remember buying this and whenever I go through, you know, Asian airports principally, this one was bought in Dubai International Airport. And you know, for many, many years, I would always think that gold was relatively cheap. And I managed to buy this one for less than £1,000 at the time. And it's. Obviously it's worth a bit more than that.
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A
Oh, it's very heavy, isn't it? Isn't that. Absolutely. Sure. So how much, how much is it worth today, do you say?
- [05:21]
B
It's worth about £15,000.
- [05:23]
A
Crikey. I know. I'll give that back to you. Thank you very much.
- [05:27]
B
Yeah.
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A
So how much gold is there in the world today? How many swimming pools could be full of gold if all the gold was melted down that's been mined?
- [05:37]
B
I don't know the exact number, but it's about 215,000 tons, plus or minus. And about 35, 36,000 tons of that is held by central banks. And the balance is in gold coins and, you know, it's in jewelry and it's at the bottom of the ocean with sunk shipwrecks and. And so on. And in terms of size, they say It's a cube, 22 meters across, 22 meters high and 22 meters deep. So it's pretty small.
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A
That is tiny, isn't?
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B
Yeah, yeah.
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A
Where is the largest gold bullion vault?
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B
Yeah, so it's a very hard question to answer that because I think for obvious reasons, people don't like to tell you how much gold is stored in specific locations. So I would guess that most people would say Fort Knox. But actually, if I was asked to guess, I would probably say the Federal Reserve building in New York. That would be. But the largest repository by country is the uk and it's not just the bank of England, it's vaults across many different locations around the City of London and elsewhere. So, you know, some of the big banks have their own vaults here and so on. And, you know, I visited one that was actually many, many years ago when they first launched the gold ETFs, the physically backed gold securities. And we visited one that was actually underneath the Thames because we wanted to make sure that the gold was really there when they were selling bits of paper. Yeah. So it was fascinating.
- [07:05]
A
Oh, my goodness, it must be like a James Bond film.
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B
Well, I think it would be if you wanted to try and break in because the water would come in after you. Quite difficult to get the gold out. Yeah.
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A
How much, how much does a gold bar cost today? You know, a proper, you know, standard ingot?
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B
Oh, my goodness. Well, it depends. I mean, it's. There are different sizes of ingots and stuff, but, you know, we're talking a lot of money. I mean, this is you know, this is 3.75 ounces and it's £15,000, so you've got to multiply that up. So we're talking, you know, you know, millions of dollars.
- [07:37]
A
Crikey. When I first started working in our industry, I remember being appalled that Gordon Brown was selling a large chunk of the UK's gold reserves. How much gold did he sell between 1999 and 2002? Have you any idea?
- [08:01]
B
Yeah. So he sold most of the country's gold. And as people who are investing in this space, we were probably at the peak of central banks wanting to get rid of gold. So they stopped selling in 2010 and they'd been selling for over three decades consistently prior to that, and they'd been trashing the gold price. And it wasn't just a case of that. It was the signal that was sent to people about gold that these large owners of gold, the largest owners of gold, didn't want it. And so that was a very negative signal. It was a huge overhang in the market. It was done with incredible secrecy and uncertainty, again, which destabilized confidence in gold prices. And the other thing that was happening is that because you had this negative sentiment towards it, it encouraged the producers of gold. The gold mining companies were thinking that the revenue in the future was going to be lower, so they might as well forward, sell all of their production. So they would accelerate tomorrow's production to today and so they would add additional supply. So you had this uncertainty from the biggest owner. You had mining companies selling what they hadn't already produced. And so the market was on its knees. And at that low, Gordon Brown decided that it was the perfect time to sell the UK's gold. And so I think he didn't. I'm not sure he exactly ran the bottom, which was US$252 an ounce in 1999. But it was very, and I remember very clearly we had this moment, we were sitting in the offices and we were infuriated by this behavior. My boss at the time, who's a wonderful man called Graham Birch, was so angry that he decided to bid in the auction from the bank of England. And so for the Trust, we actually bought physical gold bullion from the bank of England sold by Gordon Brown. And it was in the gold market. They always refer to this as the kind of Brown's bottom in the gold market, because he really did ring the for the lowest possible price to be selling a nation's reserves. And if that gold that was sold back then was valued today, we're talking tens and tens of billions of pounds of opportunity cost.
- [10:22]
A
My goodness, good old Gorman.
- [10:24]
B
Tragic, tragic, tragic tragedy.
- [10:27]
A
Because I remember doing some maths on it a while back and I think it literally, I thought it was about $30 billion.
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B
Yeah, I think it'd be more than that today. I think it'd be more like 35 to 40 billion pounds.
- [10:42]
A
Oh my goodness. And the price of gold per ounce has gone up from 250.
- [10:47]
B
Yeah. It's not quite 20 times since that point. Yeah. So the low was 252 and we're above 5,000 today. But I think Gordon Brown averaged kind of between 275 and 300. So it's not far off 20 times.
- [10:58]
A
And does history tell us that gold is a very good hedge against inflation?
- [11:04]
B
Yes. And it is cyclical. You've got to always remind people of that. So if you think that a piece of gold is always going to buy you what it bought you yesterday, it should do through time. And that certainly the data suggests that. But there are points of time when it's out of fashion and there are points of time when it's in fashion. And so if you look at the kind of long term metrics and there was a wonderful man called Julian Baring who was the kind of the greatest gold investor ever and he always had this study that he did and he was a fantastic bon vivieur and one of the things he loved doing was having a good time. And so he did a study that how many people could you go to the Savoy and have the set menu and some wine for a sovereign? And he would do that study and because the menus were available going back 100 years or something, you could do a study. And he always used to say that at some point you'd be able to go there and you would turn up your sovereign and you'd be able to have two of the three courses and no wine because gold prices would be so low. And then other times you'd be able to go there and take your entire family and have lots of wine and everything else. And so it does go through these cycles. But on average it should preserve that purchasing power through time. And you can do those studies versus things like the cost of a suit, cost of a Ford F150 pickup truck or a Manhattan property and stuff. And if you do those measures, gold's been a pretty good store of value.
- [12:35]
A
He wouldn't have really ever looked at the McDonald's index, would he?
- [12:38]
B
No, but I think that I agree the McDonald's index is a fascinating one for currencies, but we've got to remember what's happened to McDonald's. McDonald's has been the beneficiary of enormous deflation in terms of food. And farmers don't make any money today. And so when you think about what they're selling their beef for and their wheat and everything else, there's very little margin in there. And so because we've had this enormous benefit of kind of scale, technology and so on, a McDonald's burger hasn't kept pace with people's living standards. So you're able to buy more of them just generally.
- [13:14]
A
And moving just back to when it's a good time to invest in gold and gold shares, what is the perfect environment for investing in precious metals and the miners behind them?
- [13:32]
B
Yeah. So what we always say to clients is that this is a volatile space. And so if you suddenly wake up one morning and you read an article or you watch a social media thing or something and it inspires you to make your purchase, don't do the whole purchase in one go, because more often than not you'll end up regretting it because it'll be an impulse purchase and you'll allocate your full allocation in one go. And then you will feel more often than not like you've made a mistake, because it'll probably go down straight afterwards because things move along and you'll be quite short term in your nature and you'll think, oh, God, I made this dreadful mistake, I shouldn't have done it. And you'll sell and then that'll be selling at exactly the wrong point. So what we always say to people is that it's a kind of it's a pain trade sometimes and you've got to be patient. And the key is to have a balanced allocation in your portfolio. So if you decide that for you as an individual, depending upon your risk, that the number is 3% or 5% or 10%, my number's a bit bigger than that for me and my family and my kids and then my wife. Then you just try to keep that percentage in your portfolio through time. So when it's done really, really well, you take a bit of profits, but you preserve your weighting. And when it's done badly, you've probably done really well in the rest of your portfolio. So you take a bit out of that and allocate it to gold as the insurance. And what we've seen over the last 30 years is the investors that have done that have done by far the best Rather than just going out and trying to trade it.
- [15:01]
A
That is absolutely fascinating. How many listed companies are there in the US equity market in the S&P 500 that are precious metal mining companies or bulk commodity mining companies?
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B
So there is one. There's one gold mining company in The S&P 500 and that company's been around for 100 years. Newmont Mining and. Yeah, just one. It's a sad state of affairs. And there's one copper company and that's it.
- [15:36]
A
So my next question, this is the killer question. Is AI affecting the precious metals and commodity prices today? Because the Mag 7 make up a huge percentage of the S and P, the miners make up a tiny percentage. Could AI be something which is really affecting those prices?
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B
Yeah, so there's lots of different ways to answer that question. The first thing I would say is that AI is a massive trend. It's going to come along, it's going to change all of our lives. And we have probably no idea to the extent that it's going to change our lives. There is a staggering amount of money being invested by the world's biggest tech companies into this space. And there seems to be a bit of a. A kind of race to be the dominant player. There's also a kind of government arms race for them not to be left behind. So there's kind of two layers of speed here. And that spend is very, very high level of consumption, growth of materials. So you need lots of stuff to build these data centers to rebuild the grid, to generate the power. So you need lots of copper and cement and steel and aluminium and rare earths and all of these different things. So from a kind of demand perspective, this spend around AI is incredibly positive for commodities as a whole. The flip side of this is I guess most people are starting to ask this question, is AI going to eat my lunch? Is my job at risk because of AI? And I think when you start to think about that, and we're on, I guess the beginning of that journey with some of the layoffs and redundancies that we're seeing around the world related to AI replacing placing roles. And I think that's creating uncertainty and some business models that have been incredibly successful for a long period of time, software, code writers, et cetera, it's pretty scary outlook and how much of those businesses really worth in the future if AI is going to come along and do a lot of that and what is the value of that code? So I think that's generating uncertainty. So we are starting to see in this early days. And I'm often asked the question, where are we in the cycle? We're starting to see this kind of rotation of capital out of where it's been overinvested for decades, back towards kind of old economy hard assets. And the reason for that is that there's probably a lower level of obsolescence in these industries. Their multiples tend to be a lot lower than some of the more attractive popular areas that have had this super high, high rate of growth. And these businesses are second order and third order beneficiaries of the spend. So they're attached to the same growth initiative, but with a lower level of AI eating their lunch. And if that's the case, and they can capture some of that economic rent from the spend and it's there at a relatively low multiple, that makes this whole kind of hard assets versus low obsolescence kind of capital rotation quite interesting for our space. And so to me that could be a major kind of theme or driver or mega force for the next few
- [19:10]
A
years that actually can extend the cycle for quite a few years.
- [19:17]
B
Yeah, well, I think if you think back to the China cycle of the early 2000s for commodities, that was a cycle that was born out of under investment into Minerals in the 1990s. And then you had this new demand engine that came along and the demand added a lot to demand growth on an annual basis and that surprised the market. You'll remember in 2001, 2002 and 3, these companies share prices were going up a lot, commodity prices were doing very well. And people thought, is this China demand sustainable? Are these margins going to be attractive for a long period of time? Even the company management teams couldn't decide whether to invest back in their businesses or not because they didn't know how long this was going to last for. So you put all of this together and there was this cycle that was born and it had tremendous legs. It lasted for another eight years or so. This one's really interesting as well. You've got again a new source of demand growth coming in, changing the demand numbers. You've got the same long period of underinvestment that's taken place in the sector. So there's a lot of kind of deja vu here about the space. And what's to me most startling is back then the companies had lots of debt and there's, I guess, nervousness around the cycle. The cycle was one dimensional because it was just China. Today the companies have minimal amounts of debt, so the risk is in our view, a much bit lower. From the financial side, and this is not just a one demand event. This is multitude of countries around the world all wanting to spend related to AI companies with gigantic cash flows with huge amounts of money being spent which you know is going to be there. You're not relying on millions of people in China buying a washing machine or an air conditioning unit, you know, and moving from the rural areas to the urban areas. This is, you know, the biggest companies in the world spending their cash flow for years to come on a trend that is important to them and to governments. And they need metals for this. It's exciting.
- [21:21]
A
You put that so well and it's what except excites me about your particular strategy, which is why I invited you today. So what was the catalyst for not only that happening but also central banks deciding they wanted to massively increase their gold reserves?
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B
Yeah, so central banks have been sellers of gold for three decades through to 2010 and then it all stopped. We went from a negative in terms of the central bank selling the gold to stopping selling and then we went positive in 2010 and we've been positive ever since. So We've now had 15 years of consecutive buying by central banks around the world. The quantity has gone up pretty much most years. So it had averaged about three or four hundred tonnes a year for the last four years. It's 1000 tonnes a year. So it's more than double what it used to run at. And that to me is a clear sign that they want gold in their reserves. Gold's returned, no longer viewed as old school and not necessary and zero returning. It's viewed as diversification. It's viewed as we don't like the other stuff. And what is the other stuff? Well, that's other central banks paper. Because they realize that other central banks probably have as many problems as they have, so they need to have something else. And so gold's role as this kind of reserve, asset, diversifier, store of wealth is very much back in people's minds. So to me that's one of the biggest drivers. And you've seen it's not just one bank, that's one central bank that's doing this, it's a multitude of central banks. You know, I mean the biggest buyer last year was Poland. You know, you probably would have guessed China or India.
- [22:58]
A
I wouldn't have guessed Poland.
- [23:00]
B
Exactly. So it's not just one country that's driving this. But the thing that's really caught my attention in this regard is the role of tether. And you know, I'm a Recent and I know nothing about this subject and it's when you know nothing and it's a dangerous thing to know so little. But reading about it and meeting the people behind it, it's incredible what they're doing and how much money they've got under management in their US dollar stablecoin. But the thing that's kind of beneath the hood is what they're doing in the gold market. So as was pointed out, I think it was in the FT Tether was the largest buyer of gold in the second half of last year, bigger than the central banks. I think they're buying at about two tonnes a week, so that's 100 and something tonnes a year. I think Poland was 90 odd tons. And you have to wonder if that's what they're doing, what else is going on in this space? You look at ETFs in the US and we've got this huge surge in physically backed gold ETFs in terms of their gold holdings. Yet the speculative positions on Comex are not suggesting the market's overbought at all. If anything, there's not that much exposure. So to me it's an area that's bubbling away in the background and we're seeing this kind of repricing and the gold price. It'd be very difficult to try and forecast the gold price, but I think the way to think about it is you need to think about gold price as an output of the problems that central banks are having and governments are having. So if those problems are going to get fixed and they're not going to have to print any more money anymore and they're suddenly going to go into surplus, then the gold price is going to be pretty bleak. But if the problems are going to get bigger, then the gold price is going to be a beneficiary of that.
- [24:45]
A
And is there a relationship between the price of gold and the price of silver?
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B
Historically, Great question. So when gold and silver were both money, both coin, then there was a much closer relationship than there is today. Each commodity, we always say, whether it's gold or copper or silver, has its own fundamentals of supply and demand. And silver is much more of an industrial metal than gold. So I remember starting out doing this job in the 1990s and, and you know, I would, you know, down the road from here there would be a boots and you'd go in there and you'd have your photographs that you'd taken at the weekend and you take your little canister and you'd hand it into the reception or the receptionist and you know, a few hours later you get your photographs back and you'd have a look through and most of them would be terrible and stuff. But that was silver. That was. Silver was used in the processing of photography and it was 30 to 40% of demand at that time. When was the last time you took a, a little bit of film to the chemist to go and have it turned into photographs? I mean, not for decades, not for 15 years or something. And since the launch of the iPhone really, and the camera within it. So that whole industry died. So silver had to reinvent its demand. And so the biggest use of silver today is solar panels.
- [26:00]
A
I was going to say.
- [26:01]
B
Yeah. And as we know, everywhere you look now there are solar panels being put up. So the demand is very strong.
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A
And what other metals are in a structural production deficit?
- [26:15]
B
Yeah, so I think most metals today, with a couple of exceptions, are in deficit. And that's not necessarily specific to the metals themselves. It's just that the return that's been available from investing in new supply hasn't been high enough to justify the investment. And so post the kind of China cycle boom and then bust in the early part of the previous decade, the industry went through this kind of cleansing moment from 2011 to 2015 where they stopped spending money. They continued to spend on projects that were in construction, but effectively they ran off their construction spend and then they used free cash flow to repair balance sheets. And so you went through a kind of runoff in capex, a recapitalization event. And that kind of 10, 15 year period meant that most businesses didn't invest enough into new supply, which was great for shareholders. It was exactly the right thing to do because there had been ill discipline in the past and lots of waste. And then there was this kind of rebuilding of confidence phase that the industry's been through. But the consequence of that underinvestment meant that not enough new supply has been added. And because it's a long period of time, any industry or commodity that had excess supply demand is now caught up with that and overtaken. And so we've kind of moved into these deficits. And to me, when I look across the kind of spectrum of the commodity space, most commodities are very finely balanced, if not in deficit.
- [27:51]
A
That's a fascinating time for them to be looked at by yourself. And what about the volatility is always a subject that's fascinating me. How much more volatile is precious metals share prices than the physical?
- [28:08]
B
Dramatically more volatile. And for the simple reason that if we make the maths easy on this. Say the price of gold is $1000 an ounce and the cost of producing it is 500. So you've got a profit margin of 500. If the gold price goes up by 50% to 1500, your margin, everything else being equal, doubles. And so the share price will respond to that because it has a relationship where you've seen a doubling in profitability, whereas the gold price might have gone up by 50%, but your profitability will have gone up by double. And so that will be reflected in the share price and the opposite is also true. So you'll see more volatility in the shares because effectively they're priced on their profit margin and their long term value. And as that goes up or down, that'll be be more in terms of impact on the share than the change in the gold price itself. So typically we've always said that at a low point in the cycle there'll be a very, very high relationship. Many, many multiples, three, four, five, six times when the company's not making any money because a small change in price has a big impact on profitability. And when they're making high margins, small moves in the gold price will have a smaller impact on the profitability because they're already so profitable.
- [29:26]
A
So I remember Charlie Munger saying once that over a period of 100 years, investors should expect at some point in time for the market to fall 50%. What sort of downside volatility would a portfolio of gold shares have historically? Just to give me an idea for what investors need to be able to suck up when, when you get those downdrafts.
- [29:53]
B
Yeah. So there's two answers to that. So I've seen two episodes of that in my career. So 2008 financial crisis, between kind of whatever it was, July, August through to November, the sector fell by 65, 70% in three months. And one of the biggest mistakes that we made as a team was thinking that it had ended a month before it actually ended. So we went all in and we had another month of down 30%. It was, was just horrendous and we felt like idiots for ages. By February we were back in the money in a big way. So we just got our timing a little bit wrong on calling it. So you do have to be aware that these things do come along and you've got to be able to have enough resilience in your portfolio to be able to cope with it. But you've also got to be brave because those moments, that's like Going to the shops after Christmas and everything's on sale. It's 90% reduction of value. And you've got to be so confident in buying value at that time to take advantage of that, despite all of the noise around you saying that the world's going to end. So you do have to that. And then the second thing I'd say is you should never have so much exposure to this area in your portfolio that you have sleepless nights. So the volatility is high. You do have to be an investor through the cycle and relatively patient. But if you've got so much in there that you go to bed worrying that if it's down 5 or 10%, you know that's the end of the world, then you've got too much, but you should have enough to make a difference from the risk that you're taking.
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A
And actually what is the advantage for investors to be in an investment trust wrapper as opposed to a unit trust wrapper?
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B
Yeah, well, I love investment trusts. It's not that I don't love the rest of the stuff that I do, but investment trusts have a kind of, I don't know, a passion inside me and maybe that's because I was an intern at Mercury when we launched in December 15, I mean the 15th of December 1993. And it was just such an exciting time and, you know, it was just amazing. It was the biggest investment trust launched in the UK at the time, £426 million. And it was just a passionate team and Mercury was an amazing business with incredible individuals and to be there then was special. And so it's probably kind of like a kind of. I've been branded the investment trust as something special, but I just love the flexibility that they give you. I love the fact that with an investment trust you can use gearing, you can use options, you can have private investments in there. We have royalties inside our investment trust, which are fantastic instruments. You have patient capital. So when you have an open ended fund and everybody wants to redeem because the market's fallen, it's exactly the time that you should be leaning in. And because you have the gearing capacity, if you're brave enough, you can take advantage of that. And then weirdly, one of the things I actually love about an investment trust is the board meetings. I love being held to account by the directors. And so we've always had on the mining trust a mixture of people from the mining industry and a mixture of people from kind of finance and financial management space. And those board meetings are fantastic. Because it's like seeing your client half a dozen times a year and every decision you make is available to them and they can ask you about it and they share their experience and wisdom with you. So that's additive to our investment process. And then I love the questions that we get at the agm. You know, we have loads of questions at the AGM from a whole range of different topics. So maybe that's a weird thing about me, but I just, I love the investment trust. Yeah.
- [33:31]
A
And you've got a strong board.
- [33:32]
B
We've got a very strong board. We've got Chip Goodyear, who's my chairman, who is the former CEO of BHP and he's a hard taskmaster.
- [33:40]
A
Talking about bhp. I'm glad here is a hard taskmaster. But talking about bhp, I think it's still one of the trust's largest holdings. Is it cheap or expensive?
- [33:52]
B
Right now it's hard for me to say on individual stocks whether they're cheap or expensive. But what I would say when I look across the industry right now, you've got a situation as we talked about earlier, where we've got this demand growth for commodities that's running at a higher rate than it has done historically. A supply situation that's constrained by the cost of building new capacity, the complexity of building new capacity, all of the challenges around declining grades at mines. And so it's becoming more expensive, more difficult and more costly to be able to add supply. And so the outlook therefore is promising for commodity prices. And then you kind of, you wrap all that together and you think that's a pretty good commodity price outlook. And then you look at the companies and the valuations are very, very low, much lower than they've been historically of their own history and continue to be at a massive discount to world markets. Yet they've never been more relevant from a kind of Capex spend beneficiary point of view and never more relevant than they are today geopolitically. So I find this arbitrage fascinating. Between the financial market, market cap irrelevance of the resources space, yet their incredible relevance from a GDP point of view, from a geopolitical point of view. Critical minerals. How many times we've read about critical minerals on the front page of a newspaper in the last few years. Governments are worried about where they're going to get the stuff from.
- [35:17]
A
So Evi, could you give me your investment philosophy behind the blackrock World Mining Investment Trust?
- [35:23]
B
Yeah. So Olivia and I, who run the trust, our goal is to, is to try to generate A superior total return through the cycle. And what we mean by that is that every investor can go out there and go and buy an ETF of mining shares or more likely here in the UK they'll go and buy one of the big listed diversified mining companies. And our job is to be able to try and deliver a superior return to those alternatives. And if we can do that, we're doing our job. And how do we do that? Well, we think about the mining trust as we do with all of our funds as a kind of virtual mining companies. And so we think, say, well, how much exposure should we have to copper or to gold or to aluminium or to rare earths and so on. And so we build together this kind of picture in terms of the slices of the pie chart in terms of the commodity exposure that we'd like to, to have. And that's based on fundamental research around supply and demand analysis for each of those commodities. And we think, well, this is where we should be. And then we think, well, what companies can we buy to capture that commodity exposure? And if all of the companies are pricing in a future that's more optimistic than we see, despite having a positive view on the commodity, we probably won't go there because there's no value in those companies. And so we have to try and balance that kind of top down and bottom up approach in portfolio construction. And then there are other areas of the portfolio that we would love to have much more exposure to, but we just can't find the companies because there aren't that many listed. So Rare Earths would be a great example. So we have one pure rare earths company in the portfolio and another company that's building rare earths exposure. And we see the outlook for rare Earths as fascinating. It's controlled by China, it's geopolitically, staggeringly important with conflict and robots and data centers and it's all used, these magnets are used in these things. Yet China controls the supply. Yeah. And not through mining it, they control it on the intermediary step, the conversion of the mine product into the end product which is then used and made into a magnet. And so that control, that 90% market share gives them incredible geopolitical leverage. And so when you see things like, oh, we're going to put tariffs on China and China goes, okay, that's great, well you can't have any rare earths and suddenly they have to roll back the tariff threat. So it's very, very interesting. So we would love to have more exposure to that, but we can't, because China controls the market and there aren't that many listed plays. That's the key point here for us to put money into. So there are lots of areas we'd like to have pure exposure to some of the metals that nobody's ever heard of, like gallium and things like that, which would be great. But it's hard for us to get equity exposure through the stock market to be able to buy that for the trust.
- [38:20]
A
And how many companies have the DNA which you require to be on your bench of potential investments before you've done great deep analysis of the companies?
- [38:31]
B
Yeah, that is probably the most important question, because at the end of the day, a mining company is about geology. You know, if it's not economic to mine it, then you shouldn't be mining it. If you're in a location where you shouldn't be mining for geopolitical reasons, for taxation reasons, for environmental reasons, that's again another factor. But if you assume that the asset is economic and you assume that there's a decent return coming from the investment you make, the single biggest factor that we focus on is what does management do with the money? Because at the end of the day, if management decides to reinvest that money that they're making from doing the job badly, it will destroy future returns. And if they invest it well, that will compound future returns. And what we like to see is a balance between reinvestment back into the business, making sure that the balance sheet isn't too risky, so paying off debt when you're making the money to do so, and giving the money back to the investors. Because when we look at the history of the resources space, greater than 50% of the return comes from income.
- [39:37]
A
From dividends.
- [39:37]
B
Yeah, from dividends. And if people. Yeah. And if the companies are not paying the money back. Yeah. Then you need to ask why? Why are they not doing that now? They could have a fantastic investment opportunity. Well, that's great. But can we not just have a little bit, Just a little bit every year? And if we have that little bit every year after many, many years, that actually turns into quite a lot of money. And so we always want this little bit kind of of dividend coming back that to us, because we think it's a healthy thing for a company to do, to try and pay a dividend. It compensates the investors from a risky asset class, which is what we are, because our volatility is higher than most other equity sectors. So you get a little bit back for that risk that you're taking. And then it means that the company's methodology and thinking is that we've always got to pay something back to the shareholder. They always pay to the bank because that's interest on your debt. But why shouldn't they pay a bit to us? Because we're actually taking more risk because we rank behind the debt. So we actually need a bit as well. So I love dividends. I'm a huge fan of dividends. And so that's a kind of bit of a litmus test for us. Now we do have companies that don't pay dividends because they're at a certain stage of maturity and they're growing the business and doing expiration and stuff. But by and large companies have to pay dividends for us.
- [40:55]
A
And so what is the dividend yield on the World Mining Trust?
- [40:59]
B
So the share price has gone up a lot as you mentioned earlier on. So our dividend is historically relatively low right now. So it's about 2 and a half, 3%. But through time it's been kind of 4.5% to 5% through time. But we've had this big increase in share prices which has fed through to our own share price. And I think the dividends are now going to start to catch up. We've seen incredible announcements this year already from companies increasing their dividends 50 and 1, 150% this year with some of the gold companies. So I think the dividend growth in the trust will be lagged through the year as we start to kind of get dividends and it comes through. So we'll probably do a bit of catch up.
- [41:40]
A
And just jogging back to my first question. How many companies are out there that are worth your while analyzing and how many companies end up in the investment trust?
- [41:53]
B
Yes, we try to have a pretty concentrated portfolio. So our top 10 holdings will be 50ish percent of the portfolio. And then we'll have a range of other companies based upon the types of commodities we want, whether they're growth companies, exploration companies and so on. Right now the tail is a bit longer than normal because of the stage of the cycle we're in. So we think we're in the early stage of a cycle and that's when you want to have some of the kind of higher kind of Ferrari like investments in your portfolio, but those ones where you can get those really outstanding returns from small positions. So we've added a bit of that kind of excitement into the portfolio over the last year or so. So we're a bit more than we have been normally. But we have several hundred companies that we can look at globally that would be kind of of investment quality. And then we have many, many more than that, which are kind of interesting new ones that we do. So, for example, last year we made an investment in a company that had bought some gold assets or gold and silver assets in America. And the gold and silver assets they bought had historically gone bust. The technology they were using was uneconomic at the time at yesterday's gold price and silver price. And so we met the management team who we've backed before, and they were consistent money makers for us in the past. And they said, look, you've got to have a look at this business. And because we think it's, you know, we've got a new way of doing it and, and so on. So we spent some time on it and did some, you know, work and research into it and we thought, actually this is worth backing. They've got a good chance. And the commodity prices are very different today than when they first tried. So there's a bit more kind of wiggle room in terms of margin for them to be able to get out of these assets. And we put the Money in in Q4 of 2025, and the shares are up 8 times in only a handful of months because the markets now recognize this opportunity and the scale of change of the asset. So sometimes when you revisit old things, you decide, no, it's still. It went bust for a reason, and that's still the reason. Other times you look at it and say, actually if things have changed, there's a good chance we're going to get a return here. And everyone else is still a bit jaundiced and scarred from the previous experience. So it's always important to have a. Have a second look.
- [44:06]
A
Are you a good judge of people?
- [44:09]
B
Oh, I think everybody thinks that they are a good judge of people on first instincts. And I like to think that I'm not bad at it, but I wouldn't say I'm necessarily dramatically better than anybody else. But it's an important part of it must be the team, because this sector does have a reputation of some interesting characters, put it like that. And so you need to be a bit careful on people coming in and opening the folder and pulling out the treasure map and saying, there's something here. And you've got to just. Sometimes we have a joke that we need to have a cold shower after a few meetings. When you go in to meet the people who are known as fantastic salesmen, you know, we're just not allowed to even think about buying the shares for at least a week before we kind of calm down.
- [45:04]
A
Okay, so this is fascinating because it brings me to my next, next question, which is how do you and Olivia maximize your individual strengths when you work together? Because everyone has different strengths.
- [45:16]
B
Yeah, it's really, it's really interesting. So I probably think about myself throughout my career as somebody who's probably seen more upside in things than most. And so when I worked with Graham Birch, I was probably a bit more of the kind of, let's go for it person based on kind of enthusiasm, glass half full, that kind of stuff. And Graham was a wonderful balance to me on that, a fantastic balance, because he would, you know, he would help me size the positions appropriately for the wrist. I would probably have charged in a bit deeper and made lots of mistakes. And so having that balance, that kind of yin and yang is a really, really great characteristic. And then I think the same is true with everybody I work with. So when I worked with my colleague Catherine Rohr, there was similar level of conservatism with Catherine. I think Olivia is, again, she's a great person to work with because she's got fantastic skills. And I think we work beautifully as a team with that mixture of, of risk. And then when I work with Tom Hole on the gold funds, it's again, it's a similar thing. I think if we were all turbo bulls, we'd make many, many more mistakes than we do. And if we were all terribly bearish, we'd never generate a return for our investors. So I think you've got to have some positives and negatives.
- [46:37]
A
So is Olivier more of a cynic?
- [46:39]
B
I wouldn't say a cynic. I'd just say Olivier brings a degree of analysis and work into, into the, into the decision making process that I might go with more of a gut feel. So I think she's brilliant at kind of making sure we do the right things in the fund. Yeah. And so I think it's. But I think it works both ways. You know, sometimes you've got to have a nudge. Yeah, exactly. And, you know, Olivia is very much leading the show in terms of many of the investments we're doing. And she's done an absolutely outstanding job.
- [47:12]
A
So what percentage of the companies in the investment trust are profitable as a sort of, as a sort of rough guess?
- [47:19]
B
Oh, well. So I would say there's two answers to that. So one, right now, at these commodity prices, there will be very few companies that are losing money. Yeah, that Are companies that are in production. Yes, actually producing stuff. Now obviously if you're just spending money like an exploration company, then you're not going to be making a profit because you're not selling anything. But for all the companies that are in production. Yeah. These commodity prices, most of them are profitable and some have probably never been more profitable than they are today. The other way we think about it is what percentage of the portfolio is paying us a dividend? Because if it's not contributing in terms of share price, it's got to contribute in another way. Because at the end of the day my shareholders of the investment trust, they need something to spend, they need something to pay the bills with. And so me paying a dividend to them is incredibly important. So I would say we've got a very, very high percentage right now, one of the highest percentages of companies paying dividends in terms of overall percentage weight in terms of that tail that I mentioned earlier on that tail is filled with companies that I don't think are going to pay a dividend in the near term, but they're providing a lot of excitement in their share prices.
- [48:30]
A
A lot of juice.
- [48:30]
B
A lot of juice, yeah.
- [48:32]
A
Does the investment just feel fresh at the moment?
- [48:34]
B
Very fresh. I think it's a. Again, it comes back to this point in the cycle. So we've been building towards this, the point of peak depression for us 2015, the sector was on its knees. I remember we bought a company's bonds, a mining company's bonds in 2015, in autumn 2015. And this is a company that's been going for, I would guess over 100 years. A family controlled company, very successful and they had bonds, they had loads of liquidity. We managed to buy the bonds for 30 cents in the dollar and 18 months later they were trading at 100. And so you get this mispricing from time to time. I remember our own shares were trading at a 35% discount to NAV and the NAV was artificially low because everything in the sector was trading way below replacement costs. So people were able to kind of double dip into the value opportunity.
- [49:34]
A
What's the discount at the moment?
- [49:37]
B
So our discount's been moving towards a very low number. So as of now it's probably less than 5%. And we've been trading at par and just above that for the last few years. And I think that's a function of the fact that we've been very disciplined about buying back shares. We've been strategically very disciplined on that front. And I guess the sectors are in a bit more of favor today.
- [50:00]
A
What's the most valuable resource that you have available to you at BlackRock?
- [50:07]
B
Time. Time is always the most valuable thing. BlackRock does a brilliant job of creating time for us as managers to do our job. So they support us in all of the functions that we need around making sure that there's no mistakes in the administration of the portfolios, the distribution, all of that stuff, the stuff technology systems that we have, that all gives us time back to think. And so I think if you were to do this on your own, you would spend a lot more of your time doing stuff that wasn't portfolio related.
- [50:40]
A
I do completely understand that actually. Will you ever invest in what I would call politically unstable countries?
- [50:48]
B
Yeah, so we have. So there's a difference between politically unstable countries and countries that you wouldn't invest in. So we have had a rule for many, many years and it's a little bit of a funny rule, but it's a good kind of common sense approach to this is you're not prepared to travel to a country, you definitely shouldn't be putting your client capital in it. And so there have been periods of time in the past where we have had investments in Russia and other countries around the world that are seen as politically unstable. But there are periods of time where they go through great opportunities, great returns and so on. But the key is to not get overexposed to them. You've got to always remember that there's a risk that something might go wrong. So you can put your capital in there, you can earn your rent and then you just make sure you're constantly sizing it so that there's always that kind of risk in the background. And so we do, at the end of the day we have to go where the geology is. And for us, you know, I remember not that long ago, 15 years ago, something like that maybe. Yeah. Somewhere around then, Australia. Australia wanted to change the rules with what's called the mineral resources rent tax. And so they, out of the blue, this thing arose where they were going to just massively change the rules of the game. They were going to increase taxation on resource assets for no reason. And there was rebellion in Australia, not just from the companies, but from the shareholders. You got to remember that the likes of a BHP has hundreds of thousands of voters that own those shares and they like their dividends. And if you're going to take those dividends away from them because you're going to be taxing the company at the source, then you're not going to be voting for the politician who put it in place. So it was stopped. So I guess resource nationalism is what we would call it can occur in any country. It doesn't have to be the ones that you're most scared of from going to.
- [52:37]
A
And so just to give me a feel for the component of the portfolio which might be a little bit less liquid, what percentage of the investment trust is invested in unprofitable early stage investments? Is it higher or lower than 5%?
- [52:57]
B
Yeah, it would be companies that are at a point of not generating revenue, it would be between 5 and 10%.
- [53:05]
A
So you've got a very liquid portfolio, very liquid product.
- [53:08]
B
We do have unlisted investments inside the trust, and that's a really exciting area for us.
- [53:15]
A
And. What are the biggest and most painful lessons that you have learned in the early stages of your career that you avoid making? Now,
- [53:34]
B
Not doing enough work on an investment is without a doubt one of the most painful lessons, because if you don't do enough work, then the things that you haven't discovered often come to haunt you. And I can remember reviewing things where I thought this was a wonderful investment and so on. And this is pre Internet and so going to the Mercury Asset Management library and getting all the annual reports out and doing the things and trying to find the newspaper clippings on the, the acetate that we would go through on the magnifier and stuff, they were great. But the fact that I was working with people who'd had decades of experience, so when I bring an investment idea forward and they go, oh yeah, this all makes sense. But you do know the person whose CEO today was in jail and you're like, what? I had no idea. Well, this person, he was a great liar before he stole the money from the shareholders. And that experience that those individuals had, it just taught me so much that the experience is incredibly valuable. And you build up that knowledge and network to be able to, you look at an investment, you think, oh, this is really interesting. Who can I call? Oh, I know somebody. I met that person on that trip to visit a mine in Australia and they work next door to it. Let's find out what's going on. Or I'm hearing a rumor that this is something bad's happening here, or there's been some inappropriate behavior, or the technology is not working. So you can call someone and you can say, right, this is what I'm hearing. Are you hearing the same thing? That network of things? You're trying to gather information. It's information that you should Be allowed to have. You're not trying to get anything else but just trying to get a feel for what's going on. That's why we love going out and visiting minds. Going out and seeing a mine, you know, firsthand, meeting the people, kicking the tires, you know, that's just fantastic. You know, it's real, real work.
- [55:39]
A
What's the deepest you've been?
- [55:41]
B
Oh, crikey.
- [55:41]
A
Underground.
- [55:42]
B
Too deep. I probably wouldn't want to go there again, but you know, in South Africa, you know, you go very, very deep. Several kilometers underground. Yeah. And you're crawling through tiny spaces. I'm not best on that.
- [55:52]
A
This is not a great job for someone who's claustrophobic.
- [55:56]
B
Yeah, no, I think. Well, not all the mines are like that. Most of the mines are big open pit operations where there's huge trucks and things. And I guess one of the biggest changes in my career is just seeing the automation and the benefit of technology to these businesses. You go to Australia now and all of the big mines in the Pilbara and the iron ore space, they're all got automated trucks. There's no drivers anymore and it's fascinating. And they're now electrifying. So they're getting rid of the diesel. Yeah, it's changing, but that's I guess everything. Every industry is going through that and seeing the impact of technology, but it's really amazing to see it in the mining industry. I think the mining industry has been so far behind on use of technology attached to the data that they have. And so what we're now seeing, and we had an amazing meeting with a company just recently where they were talking about getting their data lake that they have and sending the AI agents into that. And they were talking just some incredible statistics about the productivity improvements and cost improvements that they were getting out of it. And they mentioned that they've got a very, very long rail line where they export their iron ore through. And the brilliant people who've been running it for years and sweating it hard and maximizing the capacity for the best efficiency and productivity, the AI came in and unlocked another 5% overnight, just doing it slightly differently. And you mentioned that to the people and they're like, oh, they hadn't thought about that because they didn't have the capacity to analyze the data to the same degree that AI had the ability to do that. So AI can see things because it can just absorb more. And I think that's the kind of impact we're having on the industry right now. There's going to be Some big unlocks. In terms of profitability.
- [57:49]
A
From a top down perspective, how much exposure do you tend to have in gold miners versus copper miners, iron ore miners?
- [58:01]
B
Yeah, so today we're at the most, we've been for a very long time. We probably peaked a bit last year but we're at 40 odd percent in gold exposure today. And it's been a big change for us this because gold was always kind of 15 to 20%, that kind of number. And although we'd had a positive view on the price of gold, the gold mining companies just had this perfect track record of destroying value. So every time the gold price went up, the costs would go up probably the same or more than the gold price and there'd be no margin expansion and they weren't good dividend payers and they just, just they weren't great at the kind of whole capital discipline, capital allocation process. And when you therefore looked at it versus other mining companies which had high margins, dividend discipline, capital allocation and so on for the last kind of decade, they just couldn't compete. So we had this debate constantly in the team. We like the outlook for gold but the gold companies are probably not the way to play it because they're not going to deliver what we want. But and so that changed in back half 24, second half 24 where we realized that actually most of the cost inflation was behind us. The companies were doing a much better job and if gold was to break out to a higher level, which it then did, we would get this fantastic margin expansion which would be reflected in the share prices. And so thankfully, and I have Olivia's credit to this. So she was the, I've got Tom on my team who's the turbo bull on gold and Olivia who is the one who kind of nudged us forward on the gold expos, whereas I was carrying the scars of bad gold mining company management for years. So in that case our roles were completely opposite. And so she took us into this very positive position on the gold equities and we've never looked back. It's been a fantastic decision and this
- [59:54]
A
question could be a hard question to answer, but what is the weighted average cost of production of an ounce of gold for your gold miners?
- [60:04]
B
Yes, It'd be about $2,000 an ounce or just under that kind of number. And that would be a cost that would be what they call the all in sustaining cost. So that's everything added together, but it would also be inclusive of the byproduct credits that the companies have. So often these gold Mines have a bit of gold plus copper plus silver and other things. So you take that revenue from those other commodities off your cost base to get to that lower number. But if you just did the gold on its own, it would be a number north of 2,500.
- [60:34]
A
And if you look back in history, the differential between the current gold price and that cost of extraction, is that as wide as it's ever been?
- [60:46]
B
Yeah. So we've just done the work on that, we did that last year. And so what we wanted to do is to see whether gold companies were over earning in terms of profitability relative to what they've done in the past. And when gold was $1,000 an ounce, costs were 600ish, that kind of number. When gold was 2,000, costs worth 1,000, say kind of 50 something percent margin, two and a half thousand dollars an ounce versus 5,000, it's a 50 odd percent margin. And these margins go through peaks and troughs, but it's not like it's dramatically higher. Now where they are earning much more is in dollars per ounce. So if you're doing a million ounces and earning 500 bucks an ounce, it's $500 million. But if you're doing a million ounces and earning, you're earning 2 and a half thousand, do an ounce, you're earning 2 and a Half billion. And that's what's flowed through into the gold equities. And so what we've got a really interesting situation now where you've had this substantial increase in the price of gold and you've got most investors are not allocated to this space and they're sitting on the sidelines saying it's gone up a lot, we've missed it, it's going to come back down, it's not sustainable. The companies are going to do a terrible job with the money they're making. These are all not irrational things to think. But the longer it stays at this level, the more confidence people will have in it not retreating. And as the companies do the right thing with the money and we just had the company results for the first quarter of this year and all of them are looking really, really positive in terms of dividend discipline, capital discipline, paying down debt, buying back shares, all of these kind of things. So you think it's just a matter of time before investors go, actually maybe I'm wrong here. Maybe my gut feel that things are going to come back down again is incorrect. And so people will kind of, and the companies will earn their way into the new price range. And then the multiples will then expand back to where they have historically been. But reflecting the high level of profitability,
- [62:46]
A
have you had huge flows into your open and closed ended or into your open ended funds over the past year or is the retail investor pretty much stayed on the touchline?
- [63:00]
B
Yeah, so I think for the funds that we run, we've moved into positive territory just recently in the last six months or so. And so it's not as if there's been a tsunami of money, which again is a really encouraging thing. The fact that we haven't had this huge allocation is encouraging because it means it's not over owned. And I think it comes back to the fact that what I said earlier is it went up quite quickly. And so people have been sitting on the sidelines worrying that the greater fool theory, it's do I buy now after this big increase? And then all they do is sit there worrying that they've made the wrong decision. Whereas actually if you were to have that exposure through time, then you'd be very comfortable with where you are right now.
- [63:44]
A
And is there any statistical analysis that's been done that has shown that owning a percentage in precious metal miners is a positive thing to do from a diversifying effect?
- [63:59]
B
There's the traditional capital asset pricing model where if you include gold into a portfolio and you get that efficient frontier in terms of portfolio construction, gold, because of its lack of correlation and diversification does deliver a superior outcome. And that number is a few single digits of percentage weighting. So what we've seen from our kind of, I guess you could call them most sophisticated or smartest investors, is that they tend to say, well that's the number that we should be having. But rather than just having it in physical gold, we're going to have it in physical gold and gold mining companies. And then they then say, right, if you make the number easy, say it's 5%, then they might have 2 1/2 in gold equities and 2 1/2 in gold itself. And then if the equities massively outperform the gold price, they'll take some profits from that and maybe put it into the gold side and they'll rebalance that 5% in that split within it. And so we see a lot of people doing that these days. And they do that because they want the equity upside, they want the dividends, they want the potential for growth that comes with these companies, M and A and exploration success and those kind of things which you don't get with the
- [65:07]
A
gold bar and is There any sort of valuation yardstick that you can give me for the trust at the moment?
- [65:17]
B
I would say, I would go back to the point I made earlier on is that when I look at the underlying fundamentals that we have as a sector today where we have this very exciting demand picture, constrained supply picture and therefore healthy levels of profitability and margins combined with low levels of balance sheet debt. So financial risk, when I look put all of that into the mix and I see the multiples that the companies are trading at right now, they're at a big discount to their own history and a big discount to the broader market multiples. So that on its own says to me that there's a lot of value in the sector and we would hope to be able to represent the sector in the trust. And then when you look at that and you say well the other thing that we're constantly debating is that kind of arbitrage I mentioned where you've got financial irrelevance of the mining sector, yet you've got a greater level of political and geopolitical relevance and GDP related relevance today. You can't have the growth in the world economy without commodities. You can't have the rising standard of living without commodities. You can't have the data centers and all of the power build out and the wind turbines and the solar panels and the robots and everything else without commodities. So this huge spend that we're seeing globally has to be positive for commodities demand and that's just not priced in at all because these are price ex growth, these companies.
- [66:44]
A
And what percentage does copper miners of the investment trust?
- [66:50]
B
Yeah, so what we, I mentioned earlier on that we think about ourselves as a virtual mining company in the trust. So we do two things. We look at our portfolio based upon classic, I guess classifications or traditional classifications of companies. So if they're a gold producer then they're classified as gold. If they're a diversified mining company, they're classified as diversified classified. And what I mean by that is they produce a range of different commodities that's not that helpful. So what we do is we split the businesses down into the percentage of their profits or EBITDA or revenue and see the see through commodity mix inside each company and then we add that together and then we publish that in our annual report and we show the kind of see through. So if you do the see through analysis, the virtual mining company analysis, then we're at about 35% or so in copper today, 30 to 35. It moves around a bit. 40 odd percent in gold and then there's a range of other commodities. Rare earths, iron ore, aluminium and platinum group metals and industrial minerals, lithium, et cetera. Lots of other things in there. And so that's the mix. And I guess one of the advantages we have as the virtual mining company is that if we want to adjust the commodity exposure, we just sell one set of companies and buy another. If you're a big mining company, it's much slower. You've got less liquidity of moving your commodity mix around. So if we can get our investment views correct in terms of the direction of a commodity price and then capture that in the companies that we put into the portfolio, that should give us an advantage. The disadvantage we have is that the only cash we get is the dividends, whereas they get access to all of the cash flow. And if they can use that cash flow well and compound their business through time, then we will only get a small share of that. So that's the disadvantage that we have of not getting access to the cash.
- [68:42]
A
And I'm going to touch on the outlook because everything we've covered so far has given a wonderful backdrop to the whole investment thesis behind the strategy that you run. But what time period do you think that investors need to be patient for to get the potential upside and a handsome return through investing in the investment trust?
- [69:10]
B
Yeah. So typically a resources cycle would last between four to six years. And that's from kind of the point where you can't even get a meeting with anybody to talk about it through everyone begging you from a meeting at the top of the cycle. And we're at the bottom. We're at the first innings of that right now. So we're out there seeing a few clients. There's a little bit of inbound, there's a little bit of flow coming in to our business. There's a lot of skeptic things gone up a lot. So I've missed it. I'm not going to get involved. So there's hesitation around allocating. And so there's a kind of, you know, these bull markets are born in periods of kind of caution and stuff. And then they kind of sneak up on you. And then you kind of, you know, you, you go to the proverbial dinner party and someone says, I've got a mining share. And everybody laughs. And then you go to the same dinner party a year later and someone says, have you still got that mining company? What's that called? And then you go to the dinner party in a year after that, and they're like, oh, my God, I wish I'd bought that mining company. It's done. And then you go to the last one. Everyone owns a mining company, and the person who had one at the start probably doesn't have it anymore. And so you've got to think a little bit countercyclical and unconventional in terms of this exposure. And again, the thing I always say to everybody is, don't have too much. You know, you've got to have enough to allow you to be able to sleep at night. But right now, I think we're in the first innings of the cycle.
- [70:39]
A
Evie, thank you so much for chatting to me today. It's been absolutely fascinating and just as a little plug for you, your LinkedIn account has got all sorts of interesting information on it, and anyone who's actually interested in looking up Evie's LinkedIn account, then please look at his handle in the description description below the podcast. Evi thank you very much. All content on the Algies Investment Podcast is for your general information and use only and is not intended to address your particular requirements. In particular, the content does not constitute any form of advice, recommendation, representation, endorsement or arrangement, and is not intended to be relied upon by users in making or refraining from making any specific investment or other decisions. Guests and presenters may have positions in any of the investments discussed.