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- [00:00]
Michael Batnik
Today's Animal Spirits talk. Your book is brought to you by vaneck. Go to vaneck.com to learn more about their Vaneck International Investors Gold Fund. That's I n I V x. Check out vaneck.com to learn more. Welcome to Animal Spirits, a show about markets, life and investing. Join Michael Batnik and Ben Carlson as they talk about what they're reading, writing and watching. All opinions expressed by Michael and Ben are solely their own opinion and do not reflect the opinion of Ritholz Wealth Management. This podcast is for informational purposes only and should not be relied upon for any investment decisions. Clients of Britholtz Wealth Management may maintain positions in the securities discussed in this podcast. Welcome to Animal Spirits with Michael and Ben. Michael, there's a lot of stuff that you and I don't know, and I think one of the platforms for learning sometimes is this podcast. We had an interview live at the Torrey Pines Lodge in San Diego with Vaneck and a room full of financial advisors. And we talked to Ema Casanova and she's a portfolio manager for a gold and precious metals fund. You were peppering her with questions about mining. Just like, how does this actually work? Right?
- [01:10]
Ben Carlson
Like, talk to me like I'm a golden retriever.
- [01:12]
Michael Batnik
Yeah. Like, what do they actually do to get extract these metals from the earth? And I definitely learned a lot. And it sounds like it's different kind of depending on what part of the earth you're taking it from. It's one of those things that happens and no one really thinks about, like, how do you get from this thing that's in the ground to the gold bar?
- [01:32]
Ben Carlson
One of the big takeaways for me after speaking with her was the quality of companies and the decision making by management is so different today than it was back in, let's say, the late aughts. Similar to homebuilders, they got burned. Gold coal miners got burned. And so I brought up a stat that seemed, if you were just looking at a vacuum, why would you own gold miners? Because when gold is up, they underperform. And when gold is down, they, they lose more than gold. Well, actually, that's, that's in the past. In 2025, as of May 19, GDX is up 39% year to date. Gold is up 23% year to date. Kind of a huge spread. And that is ahistorical because, you know, for reasons that we discuss in the show, but these companies are better informed, better managed. Capital allocation decisions seem to be better. So, yeah, maybe it is time to look at gold miners if you're a gold bug.
- [02:23]
Michael Batnik
Yeah. Maybe they actually learned their lesson because that was always the thing, is that the leadership for these companies, the management just constantly did the wrong thing at the wrong time. Right. Gold prices went up and they just all in.
- [02:33]
Ben Carlson
Yeah.
- [02:33]
Michael Batnik
They didn't take into account the cycles, that this stuff is cyclical. And it sounds like now they're. According to her, they're doing better at this.
- [02:41]
Ben Carlson
Yeah.
- [02:41]
Michael Batnik
Which is interesting. So anyway, we had a really fun time. This is a live show, Great audience. They were definitely more interested in asking her questions than us. Because she's more interesting than us. Right, George? But it was a lot of fun. And we thank Vaneck for bringing us out there for it because got to do it in a lovely, lovely venue.
- [03:00]
Ben Carlson
Absolutely.
- [03:02]
Michael Batnik
So here's our live talk from San Diego with Ima Casanova from Vaneck.
- [03:10]
Ben Carlson
Thank you to the whole Van Eck family for having us. We're excited to be here. Ben and I took a nice walk on the hills of Torrey Pines and. Anybody done that? No. Yeah. Careful of your neck. My neck is on fire right now. I was not prepared for that. We're going to be talking about gold miners today. When I think of gold miners, probably the first thing that comes to mind is tough investments. Been a tough couple of years, decade longer. But also I think of VanEck because GDX, of course, when I think of gold miners, I think of gdx. But Jan's father started the first gold mining fund in 1968. Unbelievable. A lot of history here. All right, so the first question I have for you, I mean, we're going to start very high level because I think as investors, sometimes we lose sight of the fact that we're actually investing in things beyond just like a ticker and shares and prices on the screen. These are actually businesses that we're putting our money behind. So my first question is, what is a gold mining company? What do these companies do?
- [04:19]
Ima Casanova
Yeah. First of all, when you said tough, it resonates with me. I joined Vaneck in December of 2011. So gold had just peaked at that point, was the peak in 2011. And here we are. So I'm hoping this is it and this is the good cycle for gold stocks. But what are gold stocks? So I think it's good to start there because I think especially for investors, it's particularly tough to invest in a sector that they don't know. Well, when you ask the broader investor about gold companies, few of them can actually name a gold stock. So what are gold stocks? First of all, when we talk gold, we say we run, I run the gold, the active gold equity fund. So not just investing in the commodity, we do have some commodity exposure, but we invest in these miners. These are the companies that are getting the gold and some other products. So as they get gold, they might also extract silver or some base metals as byproducts. But these are the companies that are extracting the metal out of the ground. And that comes with a lot of risks and challenges, the way we classify them so that you can maybe start to talk. Some of the jargon is the large caps or majors, which is really a dozen companies. And then we go to the mid tiers, which produce less than a million and a half ounces of gold. And then we move to the juniors, which some are producing from a single mine, usually about less than 300,000 ounces of gold. And a group, a significant group, are the developers, which are the companies that don't have a mine yet in production, but are working on bringing a deposit into production, trying to make a deposit, a mine. And that's where it all starts for all of these companies.
- [06:19]
Michael Batnik
Of course, I have a very naive question. Yes, there are no junior health care companies. Is there a story behind how these smaller companies were called junior instead of small caps? Is there a reason for that? It's really good branding because think about it, there's no junior consumer discretionary stocks, no junior healthcare.
- [06:35]
Ima Casanova
They're just all small caps. Okay, maybe I haven't been in this sector long enough. It's been 20 years. But as long as I've been in the sector, we've referred to them as the juniors, small cap juniors. And so I agree it's a catchy name. Another important thing to remember about this company is that for investors, a very small universe. I think that's also very unique. Our investable universe. It's 400, maybe with the run up in price closer to 500 billion. That might be shocking for many of you because that's half the market cap of some of these mega stocks.
- [07:13]
Ben Carlson
Only one in the S and P?
- [07:14]
Ima Casanova
Yes, only Newmont Mining in the S and P, which also might be the one company that advisors know or investors know because it is in the S and P very small sector. So what's important to know about that as well? With such a small universe, a very small shift in demand for these investments can have very obviously very large ramifications for their stock prices. Once investors decide it's time to maybe rotate some money into gold Stocks, there's not that many to choose from.
- [07:52]
Ben Carlson
I was listening to Agnico Eagle. I was listening to one of their conference calls in preparation for this. What is the main job of the CEO of a gold mining company? And the reason why I asked is because some of the questions that kept coming up on the call, I listened to Newman as well. It was a lot about capital allocation. So these companies have mines. Are they always looking for new pockets of gold or are they looking for the way to most efficiently extract the metal from the mines that they have? What is the role of the C suite? And I asked because, well, you know what? I'm not going to say something. Well, I didn't say it. Mark Twain said, what's this line about miners? A mine is a hole in the ground at the bottom, something like that, or a fool. So I would imagine that the leadership of these companies have come a long way. This is obviously a lot different than it was back in the late 1800s where people were scamming people and raising money for mines. And so this is a horribly long winded question.
- [08:58]
Ima Casanova
I'm sorry, no, I think I won't take it back to the 1800s, but I think it is relevant to take it Back to the 2000s, the last gold bull market. And I think it's relevant because in a lot of investors that's still fresh. What happened in that period where gold prices were increasing rapidly and yet gold stocks didn't do quite what they were expected to do. Things worked for this first part of the cycle, but as gold continued to rise, the costs kept up with the gold price, basically. And these companies weren't generating the cash flows that they were supposed to generate. Number one, two, they were taking on debt to buy assets. They were desperately just wanting to get bigger. So at that time, the CEO's role apparently was just getting bigger for the sake of getting bigger. And what that meant is a lot of value was destroyed. They were buying assets they shouldn't have bought and they were taking on debt and issuing equity to finance that. They were hedged. The hedge books were large. So as the gold price is rising, you're not getting the full impact because half of your production is pegged at a certain number. It was bad, the new management. And to answer your question, what are these managers doing now? We've been talking now, I think for at least the past five years about a sector that has been transformed. Those guys learn their lessons, those CEOs, some of them. And you mentioned Agnico Eagle, Shen Boyd, who was the CEO, he just recently stepped down, still chairman. He's one of the few that survived that transformation because in many cases the transformation meant change of leadership and reset. And the big shift for CEOs, I think, in particular and for the leaders of these companies was to say, we don't want to just grow for the sake of growing. We don't want just more reserves and more production. We want to grow the right metrics, we want to grow per share valuation, we want to extend life of mines, we want to reduce costs, we want to increase our margins. And so that's the sector that we have now. And so it's time to forget. Not to forget, you never forget, but maybe forgive those mistakes and say this sector, now these CEOs, now this leadership, particularly a company like Agnico Eagle, is our top holding in the active fund. It's a company that is doing what they said they're going to do. You also brought up capital allocation. So I don't want to forget about that. And that's a big part of the story. What are these decisions? This company is at 3200. Yes. Going to gold is above 3200 again today. These companies are just generating incredible amount of cash. And then the capital allocation question comes. Now, I just told you, I don't want them to go buy anything. I don't want them to just go buy mines because they have all this cash. I mean, some companies are sitting with more cash than debt. So that's the other the debt part. The transformation involves very healthy balance sheets. In some cases no debt, in some cases cash in excess of debt with buybacks. I was just getting to that. So now we have all this cash that is coming in and that's what the market's been ignoring. We have all this cash coming in. What are these companies going to do? Yes, this is a growth business. I want them to go and put that cash to work. But then at the same time, I want them to do it in a disciplined manner. And given that perhaps they haven't been the greatest capital allocators in the past. Yes, I would love some back in the form of share buybacks and dividends. And these are the two forms that companies are now giving back. I'm glad you mentioned share buybacks because it is different from dividends. I think a dividend, you set it, you have to be able to maintain it. Investors are very unforgiving. Like, do not reduce my dividend after you give it. If yes, give me special dividends. I'll take those and so companies have to be careful with their framework and policies around dividend. It's a lot more flexible with buybacks. Okay, we're going to buy back X amount of shares in the next year very opportunistically when the price of the shares we can come in. And as a shareholder I'm being anti diluted, I'm still getting it back. So yes, those two strategies, buybacks. Pretty much every large cap and a lot of mid tiers have buybacks in program dividend deals for the larger caps, which used to be zero when I started in this business. Zero percent dividend, always going into the business. Now we're talking about 3% maybe at 4% with looks to increase it and with the special dividends. And then they're putting it to work, but they're putting it to work in a disciplined manner. And what does that mean when we meet with these companies obviously many times throughout the year and believe me when I tell you that as a shareholder I go in there and I pound the table on this discipline. So we say what are you looking to buy? Why are you buying something? Why? And the answer is we don't want to buy anything that lowers the quality of our portfolio.
- [14:25]
Michael Batnik
Is that harder to do when gold is continuously hitting all time highs? Because I was curious about the correlation there because one would think obviously when gold is up, the gold miners should be up too. But is there any sort of lag there? And then how does the price of gold impact the behavior? And with the gold price being so high, is that a big risk if they do get over their skis a little bit and they do overextend themselves?
- [14:49]
Ima Casanova
It is. And that's what happened last time, which is why companies are being a lot more careful. So what happens as the gold price increases? Yes, there is more cash and, and a lot of these. Obviously one of the major ways for especially larger companies to grow is to buy other companies. So these juniors that we're talking about become particularly attractive in this environment because the larger caps, the Newmans, the Agnicos, the Kinross and so on of the world, yes, they have deposits, you mentioned that in your comments too, that they obviously can expand and they, they can grow and develop. When you're producing a million 5 million ounces of gold, it's very tough to just do it organic to replace those ounces that you're mining annually organically. So they go to the juniors to acquire them. And obviously we're already seeing a pickup in that activity. So we're seeing several of the companies we own in our active portfolio have been taken out just even this year. As gold prices get higher, companies have more cash. When there is more cash, I say there can be a cash component to those acquisitions versus just equity. A lot of these are just share transactions, so I'll issue your share. If you're a shareholder of the target, you get shares of the acquirer. In this environment, because there is so much cash, we'll give you some cash and shares, which makes it a lot more attractive and obviously dilutes us if we're at the acquirer company less. And so your question was, what does this gold price do for that activity? The expectation, honestly, I think most of those of us that follow the market is that there would have been a lot more activity. And I think the fact that we're seeing sort of moderate levels of activity is a testament to the discipline that these companies are exercising.
- [16:40]
Ben Carlson
Getting back to the mines themselves, how much exploration is being done versus, like that's not how it works at all. Like, you don't just find gold versus, like how much are they able to harvest from the mines that they currently own?
- [16:58]
Ima Casanova
Okay, so it's both. And yes, you just. You do. You explore and you find gold. You know where to go. There are, you know, all sorts of different tools now where you can go and do that gets. It's a lot. There's a lot less of that. And in honestly, a lot of the places where there's a lot of unexplored areas so there's more opportunity to find stuff. It's in tricky places, you know, where investors like geopolitically. Geopolitically, where investors don't necessarily want to go.
- [17:27]
Ben Carlson
The life cycle of a mine is it like once you have a mine, you get 80% out of it in the first year. I'm making that up. Like, how does it.
- [17:33]
Ima Casanova
Oh, the life cycle of mine is a very long cycle. So let's. I don't even want to call it a mine. And this is where the ginners come in. The life cycle is the mine is just what you said, some sort of unexplored tenement where there is indications that there might be a deposit. So you might spend five years just drilling that deposit to a level where you can say with some certainty that there is gold and at what concentration there is gold there. And obviously the more you drill, the more convinced you are of the. The quality of that deposit. But it's costly to drill. At some point you just have to get the density that the market has Recognized or experts as a certain level of confidence, then that's not even it. Then you're talking about getting permits to build a mine. You're talking about having to build a baseline of environmental data to design a plan that is going to mitigate any impact on the environment. That can take years and obviously varies with jurisdictions. Then you got to get your permits, then you got to build a thing. And actually that doesn't take. Actually building it is, if it's an open pit, you can have a mine up and running in 18 months, two years. If an underground you got to develop underground, clearly that's more complex. Then you get into production. And of course then it's a matter of how much more you can continue to add. Let's say it's 10 years. That's a perfectly reasonable period of time from discovery to first production. Sun Mines have been running for 100 years. Then your question of exploration comes to the line. Most companies are not going to define 30 years of production. It's very costly to prove that levels of research. What they do is once they have about 10 years, maybe 15 if you're lucky 20, you say OK, we're ready to build this thing with this economics. Then as they produce and generate cash, with that cash they can finance more exploration. And that mine, instead of running for 15 or 10 or 20 years, runs for 30 or 40 or 100. But they just keep replacing the reserves and adding. So exploration happens at the brownfield level. Brown by meaning we already have an operation there. You got the infrastructure, you got all the processing facilities. So every ounce that you discover in an existing mine is obviously a lot more valuable than a nuance in a greenfield deposit where you have to go to the beginning of that 10 year period. So yeah, it's a combination of both expanding your existing operations through exploration and going and finding new deposits.
- [20:17]
Michael Batnik
You mentioned that the opportunity set here is not that large. I'm curious if the concentration ends up looking like something like the mag 7 in the S and P where it's just, it's concentrated in a few names and then how you differentiate between those stocks that you're looking at.
- [20:32]
Ima Casanova
Yeah, I giggle because I don't see a Mag 7 situation for sure in gold. The nature of this business is that these assets are spread all over the world. So a company that operates in Latin America, they know how to operate in certain countries. They know the permitting framework, they know the labor culture, they have an edge in operating there. It's difficult for them to go then operate, acquire assets in West Africa or in Finland or even. We've seen frictions between Canadians acquiring or Australians acquiring Canadian assets and thinking they can integrate them. So I don't picture an environment where we just have four or five stocks or seven or ten. I think it is very fragmented and as shareholders we want more consolidation because what happens is when it's so fragmented, clearly the skills are in there. Every little company doesn't have the best teams. And so you get assets in the hands of the wrong teams, which can lead to trouble. As far as how we differentiate, for us, it's quality. We're in here in the active fund. We're in here for the long term. We're looking for companies to add value through that long process. And so what are the things we're looking for? Obviously we decide if jurisdictionally it's an area, a country, a region where we're comfortable, then we're looking obviously everything. It's, you know, grade is king is the same. Grade is how rich in gold your deposit is. Grams per ton. The deposit wins. We have to make sure that it's the right size, the right quality, the right technical, technically feasible and not overly risky or challenged. So the deposit is number one. Then we're looking at obviously what happens to the infrastructure? Is there infrastructure available? How are they going to power this thing? Communities, are they supportive or not? Governments, of course. And permitting, landscape, skilled labor, Is it available? Management, what's their track record? Are these companies one of those teams, one of those Agnica teams, one of those teams that we respect, one of those G men teams that know what they're doing and know how to bring a mine into production for us. I keep saying this. All of these companies, none of them have a 10 score. It's a spectrum. Our job as managers is to decide where they fall in that spectrum, in that risk spectrum and where those risks are justified by the current valuation. And so it for us is about management, track record, deposit quality and size. We're not going to invest in a company that is going to run a deposit for five years. People call us all the time. I have a mine, it's like, not for us. We need some sort of side and it needs to be in a place where we think miners can operate, which by the way is not always like places that you think there are some geopolitical troubles in social unrest and other problems in some areas where miners can operate. And so we need to be able to discern that.
- [24:13]
Ben Carlson
So last question for me on the mines before we start talking about the stocks and the investment case and all those things. All right, so they're digging for gold. They get the gold. What do they do with the gold? How do they make money? Where does it go?
- [24:30]
Michael Batnik
Michael wants to go into the mines.
- [24:32]
Ima Casanova
I think I'll take you. I go to them all the time. They move a lot of rock. I think that's important to understand. Gold is very diluted, and they have to move the rock that is economic. And they also have to move the rock that is waste. Depending at 3200, a lot of that waste. I was telling other advisors, some of that waste becomes ore. They process it. That can be very complex. Sometimes the gold is tied up in there and you have to apply pressure and heat to unlock it. Sometimes you just grind it and it falls with gravity. You process it. A lot of companies produce dore on site, so unrefined bars of gold. And then they're sent to refineries and they get paid. Others might produce a concentrate. So if you hear the word concentrate is like a slurry. And usually when it's a concentrate, it contains other stuff. Copper or silver or other metals. And they ship that to a smelter that will produce the bar of gold. But the miners get paid in US Dollars. Gold is traded in US Dollars, and they get paid and cash in the bank.
- [25:46]
Ben Carlson
I would imagine the costs are relatively stable through time.
- [25:49]
Ima Casanova
No.
- [25:50]
Ben Carlson
Why not?
- [25:51]
Ima Casanova
They haven't been. That was part of the problem. In the last cycle, costs just kept increasing. There's a variety of reasons why costs go up and down the grade that you're mining. If gold is at 3,000, a mine that makes a mine and certain portions of a mine economic, that wouldn't be economic at 1800. So what happens is, as the gold price increases, as a company, you're still going to make money, but your margin might be smaller, which means the cost of getting out of the ground goes up. You're still going to make more revenue, but your costs creep up. So grades and gold price do. 10 can increase the gold price. And then there's, of course, just regular inflation like we had recently. Grade is probably the main reason. The lower the grade, the more material you have to move to get it out of the ground, which means costs go up. But there is instances where in a commodity boom where it's not just gold, but other metals are also being are in demand. Then there's a lot of projects and a lot of mines. And these companies, these gold miners, are competing for talent, for equipment, for tires, for all sorts of consumables with other miners that might also drive up industry costs. So a variety of reasons. And right now we're in an environment where we think costs are contained, meaning, yeah, they might increase 3, 4, 5% this year, maybe a little more, but we don't expect them to explode like they did in the last cycle as the gold price increases. And so all things considered, if you're mining the same deposit, you'll have variations depending what portion of your deposit you're mining. So cost for a mine for sure will vary, and for the industry as an average will also vary.
- [27:40]
Michael Batnik
They get paid in US dollars. And I was looking at this recently. If you look at just the price of gold, in years when the dollar is up, gold is like, on average, it's flat. And years when the dollar is down, it's up huge. It's like 25% annualized or something. So when the dollar is down, that tends to be good for gold as a macro factor, is that also good for the miners if the dollar is down, or does it all kind of wash out in other stuff?
- [28:04]
Ima Casanova
So for the miners, there is obviously there's a very strong negative correlation historically between the US dollar and gold.
- [28:11]
Michael Batnik
Is that one of the headwinds that we've seen for the last whatever decade plus the dollar has been so strong?
- [28:16]
Ima Casanova
That's definitely been for one of the reasons gold hasn't performed as well for the miners. In specific, the currencies do have an impact. You said they get paid in US Dollars, but their costs are denominated in local currencies. Not all of them, but a big chunk of their costs. If you have a mine in Mexico, labor is about 40% of your cost base. That's all going to be in pesos and so forth, depending in Canada or Australia where you're operating. So obviously what happens to those foreign currency has an impact on the cost side. Lower depreciation of the currencies is good. Lower local costs, higher margins and vice versa. So that's how they get impacted. And then obviously there is a dynamics that if you're a commodity country, the dollar's up, There is all those dynamics so very much impacted by that. But at the end of the day, gold, they collect revenues and dollars.
- [29:17]
Michael Batnik
Do you have any hard and fast macro rules for gold itself? Some people think, well, it's an inflation hedge and it's been proven that sometimes that's not true. And sometimes people think, well, it's deficits and government spending and chaos. Or do you think, no, it's strictly supply and Demand. And that's all I care about. Do you have any hard and fast rules for the price of gold?
- [29:36]
Ima Casanova
Oh, yeah. The number one rule is not supply and demand in the traditional way. There are some demand centers that are historically have been drivers of the gold price. But if you try to do supply and demand analysis on the entire gold market, you will never figure it out. So deficit or surplus, no correlation. Historically, the main driver of gold higher gold prices have been investment demand. We can track it. If investment demand goes up, gold price goes up, otherwise it goes down. That relationship broke down in 2022 where the gold price started to rally and investment demand kept declining. The reason was that somebody, another participant, another center of demand took that role and it was central banks. Central banks decided that they needed to start buying gold at record levers, doubling the trend of the previous 10 years. So 22, 23 and 24 central banks as a group, but 1,000 tons versus an average of 500 tons in the previous 10 years. That is now becoming a driver of gold prices.
- [31:02]
Michael Batnik
And that was the Russian sanctions, that kind of.
- [31:03]
Ima Casanova
I think so, yeah.
- [31:04]
Ben Carlson
Are they buying futures contracts and. Or taking delivery like.
- [31:08]
Ima Casanova
No, they're buying physical gold. Physical gold from wherever they can get it. From wherever they can get it. I mean, obviously the large producers like China, it's probably all domestically sourced. But yeah, the central banks want gold, they want physical gold. It's one of the reasons I think gold stocks have lagged, because central banks don't buy gold equities, investors do. The perfect sample is this year we still have the central banks on board. The trend seems set for them to continue to de dollarize their reserves. And then we get investors, at least in the first part of this year, going okay, maybe we should own some gold and then by proxy some gold equities. And we see the response in the gold price. Probably the reason it's been so steep climb, because it's not just one player, it's two, it's central banks. And then your historical driver coming in and supporting that even further, your western investor. To me, that's what explains. Obviously we've had gold rallies, but from 2,700 to 3,500 in four months, that's a pretty strong rally. And I think it's the teaming up of two now very strong centers of demand. Well, one strong center of demand and a reemerging center of demand being investment demand.
- [32:36]
Ben Carlson
Is there a sweet spot for not necessarily the price of gold per se, but the behavior of the price of gold on the business of the miners, Is it a slow and steady uptrend? Is it a calm sideways market? If gold is up 40% in a year, is that necessarily good for the businesses or does that present problems because then they have, then they chase or whatever. What is the sweet spot for the price?
- [33:03]
Ima Casanova
Every dollar higher is amazing for the gold miners. The higher the gold price obviously the more. Now there is some discretion and this is where management comes in, that it is a cyclical, we know that it is a cyclical environment. And one of the key, I think challenges for these managers and these CEOs in the C suite is to demonstrate that these companies can operate through the cycles. They're not just making money. When goal is 3500, they can weather and clearly in this environment they can $2,000 goal. These companies don't need $3,500 goal. Their costs on average at around $1,600 for this year, anything about $1,600 on average makes money. So companies need to demonstrate that resilience through the cycles. But in general, higher gold prices is everything the companies need.
- [34:05]
Ben Carlson
So this is not cherry picking per se, but we looked at the returns since the inception of GDX in 2006 and a lot of the numbers in here are from the mismanagement during the 2010s.
- [34:18]
Ima Casanova
So it's cherry picked a little bit.
- [34:19]
Ben Carlson
So it's cherry picked a little bit. So in the years when gold is up, the miners lag by a little bit. Not a ton, a little bit. But in years when gold is down, the miners have gotten destroyed relative to gold.
- [34:30]
Ima Casanova
Okay, so historically, and yes, we can spend all afternoon here picking periods to make one point or the other, but in general, the miners are leveraged play on gold. When the gold price goes higher by a certain percentage, they're supposed to go up twice as much. Why? Because their margins are expanding much more relative to the expansion of the gold price.
- [34:58]
Ben Carlson
And this year they have, they're up 37% this year.
- [35:01]
Ima Casanova
So what happened? Investors can't ignore this. Over the past three years, up until the beginning of this year, really the miners hadn't been doing that. So gold is up, up, up, up 22, 23, 24. And the miners are up, but they're not outperforming gold. That's why investors go, wait a minute, why would I own and take all the risk that come with owning these miners if they're not going to deliver me that leveraged play on gold? And that's a perfectly good question. Now I kind of alluded to why I think that was the case because there was no demand for gold from investors and there was no demand for gold equities. Now 20, 25 comes in and that's exactly what you're seeing. Gold is up 20 something percent, stocks are up, our fund is up about 40% check that's what we need. And so to your question, and I did in one of my monthlies we put out a monthly blog. I did periods where gold is up and then the key factor for me was what's happening with investment demand. During those periods when gold was up and investment demand was up, the miners outperformed. When gold was up but investment demand was down, the miners underperformed. To me that means yes, in a normal environment where gold is being driven more normal, more historically normal environment where gold is being driven by investment demand, the equities should outperform and they are doing so this year.
- [36:36]
Ben Carlson
How do you measure investor demand? What are you looking at?
- [36:38]
Ima Casanova
Great question. We look at global gold bullion ETF holdings as a proxy for investment demand. It's been a pretty good one ever since I've been covering this sector. I use that as a proxy and if you plot gold price and Global Gold Bullion ETF you get a really strong correlation up until like 22 and now more recently that we've reestablished that correlation. With investors coming, is there any way.
- [37:10]
Ben Carlson
To like predict what demand would be or is that just only backwards looking? Because how would you possibly predict that?
- [37:18]
Ima Casanova
Well, I mean only in the sense that it'd be fair to predict that in the current environment investors are going to see a need to own gold in their portfolios. And so my prediction would be we should be seeing more and more investment demand given the uncertainties. The de dollar retail station theme. We've been talking about de dollarization for years. I really feel like we've hit an inflection point this year where it's becoming more real. I mean the banks have been on board, the central banks have been de dollarizing for years now. But investors haven't sort of jumped on that bandwagon. I think with what's happened this year, a trend to not just not by dollar but also not to invest in the US or walk away from investment in the US gold international stocks. That theme is going to support investors looking at gold to do what it has done through history, protect against inflation. That's a solid case. Gold offers protection during inflationary periods as a safe haven during types of crisis as that portfolio diversifier and risk adjusted return Enhancer.
- [38:37]
Michael Batnik
A lot of people have made the case and the narrative about something like bitcoin has changed a lot over the years. But some people think, well, digital gold is a pretty good fallback if it's not going to do some of the other things people think. Do you think that bitcoin poses a threat to investor demand in the decades ahead?
- [38:54]
Ima Casanova
Bitcoin as digital gold and gold can coexist. I think the question is, okay, nobody's going to buy gold because everybody's just going to find it easier to buy bitcoin. I think that. I don't see that. I see gold's role firmly established with a very, very long track record. It's culturally ingrained globally. Do I think given Rogo's properties and how it performs and the fact that bitcoin is also an alternative asset with some of the same qualities that they can benefit from both benefit from the de dollarization trend? Absolutely. Do I think that means that gold, you know, investment demand dries up now.
- [39:49]
Michael Batnik
So my favorite gold anecdote is that when Jesus walked the earth, you could buy a fine men's suit for an ounce of gold and you can do the same thing.
- [39:57]
Ima Casanova
I know, I love that. A client told me they wore suits back then.
- [40:00]
Michael Batnik
The robe, things with the tie.
- [40:03]
Ima Casanova
The guy took it to fine Italian suit. You know, with that coin, I have it at home. I would have bought it. Fine Italian suit. And I can still buy it today.
- [40:11]
Ben Carlson
So the ticker for the fund is inivx and credit to you. You have outperformed over basically every timeframe that I looked at. So when you're constructing the portfolio, what is the most important thing for you? Are you looking at the fundamentals of the businesses, the managers, the minds, the quality of the minds, versus how important, if at all, are things like traditional equity analysis stuff, whatever ratio you're looking at, what's more important to you?
- [40:46]
Ima Casanova
They're both important. Valuation is very important. And honestly, that's step one. I mean, we can run a lot of very quick screens when we see we're presented or pitched the company. And there could be one or two screens that say, okay, that one's out. We don't even need to build a model. But it does start with. We maintain over 100 models, and so we're doing our own assessments. We have the benefit of being engineers and geologists that can just not take estimates or guidance from the companies or punch in capital estimates or costs. But we understand how these deposits work, how this industry works. What are the cost pressures, the challenges the risk and build some of those sensitivities into our model. That's step one. How does this stack up relative to the other companies in our universe? It's Apple to Apples. We do everything at spot prices. We trim everything at 20 years. If you have a mine that runs for longer than 20, we're truncated. We don't think the market pays for that. Then once we have evaluation, our metric is free cash flow per ounce. It means of all this gold that you're telling me you're going to mine, how much free cash flow are you going to generate for every ounce of gold? Then we look at how they compare with their peers. Then comes the second part. It's okay. This company looks View Plot Agnica Eagle. It looks really expensive. And it looks expensive for good reasons because it operates in U.S. canada, Finland and Mexico, which are very safe jurisdiction because it has delivered against their targets consistently because it has a bunch of growth, organic growth coming in. And the list goes on. So then we layer all of the more qualitative aspects and say, is this stock trading at a premium for good reasons? If not, obviously it might be time to take some profits or exit.
- [42:50]
Ben Carlson
Premiums don't scare you? It sounds like Agnico is expensive or it gets a premium multiple because it's earned it.
- [42:56]
Ima Casanova
Exactly. The premiums do not scare us in the same way that very cheap valuations don't attract us. It's very easy to look at a stock. It's like it's trading at 0.3 times price to navs because this company's run for so long. Nav. It's a good metric, I think. I don't like pe, like what happens in the next year. Earnings. It's completely irrelevant. This company is going to operate for 100 years. And so we look at price to nav and it says, oh, stocks trading at 0.3 times. And then you do a quick check. Well, yeah, it's in Burkina. It still has to. It's had all kinds of social issues or the deposit. It's got this much complexity or whatever the reason might be. And you go, yeah, okay. It's cheap for.
- [43:41]
Ben Carlson
The market's not dumb. It doesn't just give away value.
- [43:44]
Ima Casanova
No. The market is acting pretty dumb though, right now, if you ask me in that.
- [43:49]
Ben Carlson
Which market?
- [43:50]
Ima Casanova
The broader market. I don't know what market you mean. The golden mankin. I mean the market. When I speak of the market, I don't talk of US Gold funds. But yeah, you're right. Something cheap. Usually it's for a reason. I just think when you compare the gold equities to the rest of the equities, the S and P and Nasdaq, they look really cheap. And yet this has been the case for many years now and nobody cares. And it's one of the reasons I think I agree markets are efficient and so these dislocations can't last forever. At some point we're going to have to recognize that these companies don't know what to do with cash and maybe that'll attract some investors.
- [44:37]
Michael Batnik
What does that mean then? They just return more cash to investors eventually, I think.
- [44:40]
Ima Casanova
As long as they can't find a good place to put it. Yes. And maybe that'll attract more dividend funds than other sort of.
- [44:46]
Ben Carlson
Maybe they start buying movie theaters.
- [44:48]
Ima Casanova
I want them to keep doing what they do, which means they have to put some of that money back in the business.
- [44:53]
Ben Carlson
What do you think is driving gold right now? Because gold is on a tear. It has investors attention. There's never like a sign where it's like, oh, this is why markets are moving. Like we could all speculate and we could form our own narratives, but what do you think it is?
- [45:07]
Ima Casanova
Well, you said it has investors attention and that's probably where I would leave it, attention. People are talking about, oh, the gold market is overcrowded. The gold trade is.
- [45:19]
Ben Carlson
Doesn't feel crowded at all.
- [45:20]
Ima Casanova
There's nobody in it. I mean Nobody owns gold. 1% of global financial assets are allocated to gold. What happened is, yes, it became very clear earlier in this year with everything that's been happening that maybe we should own some gold. And a few investors jumped on that. And that combined with the central bank support to gold higher. So what's driving it obviously in 2025 is fear, weak dollar and need to diversify. I need to protect. We think that will continue to drive gold from here and we think central banks will continue to provide support. We think every portfolio should have an asset allocation. If you own zero gold, to us that makes no sense. And if you own. If you put a question is, should I own it? Is it too late? It's not too late. This is actually gold pulling back, which we expected. Nothing goes up to 3,500.
- [46:11]
Ben Carlson
It's a baby pullback.
- [46:13]
Ima Casanova
Yeah, it might pull back to lower. I think 3000 is maybe a good range around that range. And you ask me about how gold trades or maybe what it means for the miners. And after very strong periods, price rallies, we do come to periods of sort of a pullback and Consolidation, I think that's happening at a much higher level right now. So 3,000 might be it. But if you don't own it, it's not too late to own it. You should own about 5%, some might argue as much as 10. And then you should not just own gold bullion, you should definitely consider the equities. And lastly, if you're going to consider the equities, please do not try to pick your own stocks. It's a really bad idea. Buy the index. Buy gdx. GDXJR Fund. What's the ticker in inivx inivx International Invest. Let us do the work. Believe me, it's very challenging to pick the stocks or just do an index approach. Do whatever, but do not buy individual stocks. I guess I would say if you're dead set and buying individual stocks, buy the royalty and streamers, which we didn't touch on.
- [47:21]
Ben Carlson
What's that?
- [47:22]
Ima Casanova
Should have put that in the basket. They're not gold producers, but they are companies that invest, that have interest in the minds of the gold producers. So let's say you're Barrick or one of those mines. I'm a royalty company and I own 2% of the production. Several of your mines, they have a portfolio of interests in mines at different stages. Some are producing, some are in stage of development. They're very much diversified. They don't have exposure to cost increases. I give you money, let's say I give you 100 million, you give me 2% of your future gold production and you're going to give me that gold production no matter what your costs are doing. So they're shielded from inflation. And it's a very broad, at least the big four, it's a broad portfolio of companies. So they look almost like a mutual fund. That's the only thing I would maybe recommend owning as a single stock. If you're set on picking a stock. Otherwise buy a basket.
- [48:23]
Michael Batnik
Do you ever own gold in your own fund or do you stick strictly to the miners?
- [48:27]
Ima Casanova
It's funny because, you know, I just said own 5% in gold. That's the exposure we have right around my. We can own bullion. You know, we decide based on the environment if we want to own more bullion or less. Right now about 4.5% of the active gold strategy is invested in bullion, which is basically the number I said everybody should own stuff. But of course, when the other 95% and the equities and maintain very little cash, it's all put to work in this environment.
- [48:57]
Michael Batnik
Okay. Thank you to Vaneck. We should say Jan Vaneck was there.
- [49:01]
Ben Carlson
Even, of course, legend.
- [49:03]
Michael Batnik
Check out vanek.com to learn more. Email us animalspiritsompoundnews.com.