The HC Commodities Podcast: Equity Investing in Commodities with Matt Zabloski

Host: Paul Chapman (HC Group)
Guest: Matt Zabloski (Founder & CIO, Delbruck Capital Advisors)
Date: June 24, 2025

Episode Overview

In this engaging one-on-one, Paul Chapman welcomes Matt Zabloski, founder and CIO of Delbruck Capital Advisors, to dissect the intricacies of investing in commodity equities rather than direct commodities. Together, they explore themes like diversification, risk management, operational leverage, sector cyclicality, the shifting geopolitical environment, and the unique challenges and opportunities facing institutional investors. Matt also shares Delbruck’s thematic investing focuses, spanning precious and base metals through rare earths and energy transition minerals, concluding with actionable insights and performance reflections.

Key Discussion Points & Insights

1. Why Commodity Equities? Portfolio Diversification and Leverage

• Diversification Role: Commodities offer “definite diversification benefits” as their returns are often uncorrelated with broad equities or bonds ([01:48]).
  • Quote (Matt Zabloski, 02:54):
    “Historically, empirically you can show that commodities as an asset class or sub asset classes have a great diversification benefit just based on the correlation to things like bonds, fixed income and or equities.”
• Inflation Protection: Especially during macro shocks, certain commodities (e.g. gold) historically protect portfolios against inflation ([04:12]).
• Equities versus Direct Commodities: Matt prefers equities and operating companies for the “operating and financial leverage” they provide. Small price moves in the underlying commodity can have outsized impacts on cash flow and earnings for producers ([04:37]).
  • Quote (05:45):
    “We tend to like the operating leverage, the financial leverage within the companies that we follow.”

2. Hedging, Volatility, and Evolving Industry Practices

• Hedging Trend: More commodity-producing companies are embracing hedging strategies—once shunned by investors—in response to increased market volatility ([06:37]).
  • Zabloski notes the growing acceptance:
    “I think as we proceed in a much more volatile world, there’s an acceptability from investors that cash flows are robust. Potentially mitigating some of the volatility is a smart thing to do.” ([06:37])
• Investor Sentiment Shift: There’s now less stigma around trading and risk management within producers; risk control structures are recognized as signs of sectoral maturity ([08:40]).

3. Barriers for Generalists: Why Commodity Equities Are ‘Hard Mode’

• Complexity & Risks: Investment in commodity companies requires sector-specific expertise, from modelling operational volatility to navigating capital intensity ([10:01]).
  • Quote (10:01):
    “You’re just taking on a greater number of input risk in terms of building the models and understanding the inputs for the industry.”
• High Entry Bar: The sector’s hurdles and paucity of dedicated asset managers have hampered broad institutional allocations.

4. Sector Cyclicality: Supercycles, Crises, and Capital Lulls

• Historical Patterns: The 'super cycle' of the 2000s led many investors into commodity equities, but returns were often driven by raw beta exposure, not fundamentals. The 2008 financial crisis “put a big stain on the industry,” leading to underinvestment ([12:28]).
• Capital Discipline: Since the downturn, capital discipline and fundamental analysis have grown in importance, but the lack of investment since the supercycle now presents supply challenges and potential upside for those re-entering ([12:28]).

5. Geopolitical Uncertainties and Investment Decision-Making

• Rising Geopolitical Risks: The past six months have seen heightened global tensions that exacerbate volatility—making capital allocation (e.g., greenlighting $5B copper projects) even more complex ([16:59]).
  • Quote (16:59):
    “The world’s just become that much more complicated. But for us that’s where we find the opportunity.”
• Information Edge: The Delbruck team leverages global positioning and around-the-clock data monitoring to stay ahead of fast-moving political, macro, and market developments ([22:06]).

6. Current Investment Themes and Trends

• Dedollarization: The weakening US dollar and changing global reserve preferences are strong multi-year themes ([18:27]).
• Growth Caution: The team is planning for “slower economic growth in the United States” and monitoring Asian demand, especially out of China.
• Gold & Precious Metals: Despite gold’s price run, primary producers are still undervalued on cash flow—offering fundamental opportunity ([18:27]).
  • Quote (18:27):
    “Operating companies within the world that we follow for gold producers…are still very inexpensive on a cash flow basis and need to catch up to the commodity prices.”
• Copper and Market Bifurcation: Tariffs and geopolitics have created price splits between US and European copper markets, enabling relative-value plays ([18:27]).
• Minor Metals (e.g., Tin, Lithium): Tin’s importance in microchips/AI, and lithium’s collapse as a contrarian watchlist item ([42:43]).

7. Supply Chain Balkanization and Strategic Reshoring

• East/West Bifurcation: National security and geopolitics are splintering global commodity supply chains, increasing inefficiency and local price volatility ([23:07-24:11]).
  • On central banks & gold (26:01):
    “…central banks are and continue to be at the leading edge of seeing commodities as a central bank key holding.”

8. Political Risk and Geographic Selection

• Jurisdictional Due Diligence: Diminishing global reserves force investors to weigh political and legal risks with greater scrutiny ([28:42]).
  • Quote (28:42):
    “The remaining reserves globally are probably in less stable jurisdictions than they were 10 or 20 years ago…that risk assessment has become an increasingly more important part of the investment process.”
• Preferred Regions: Delbruck favors North/South America, West Africa (selectively), and Australia, while avoiding high-uncertainty locales like mainland China ([28:42]).

9. Rare Earths, Critical Minerals, and Processing Constraints

• China’s Dominance: Most rare earth extraction is currently only competitive in China due to labor/environmental cost advantages. Western focus is shifting to processing/refinement opportunities ([31:47]).
  • Quote (Matt Zabloski, 33:57):
    “…the real spot…to focus on…is within the processing and refinement, you know, the separation of materials, the refining into oxides…that’s where the great deal of margin is.”
• Policy & Investment Lag: Regulatory and infrastructure delays impede rapid changes in Western supply chains (“hundreds of billions of dollars” needed).

10. Uranium and Nuclear: Hype vs. Reality

• Waiting Game: While nuclear is attractive at a policy level, public resistance and regulatory drag mean this isn’t a near-term opportunity; the listed uranium equity universe is also tiny ([36:19]).
  • Quote (36:19):
    “It’s been one of these hurry up and wait opportunities. The idea that there’s a nuclear renaissance…and we need to be involved in all these uranium extraction companies…is very much a spin and a marketing ploy in our opinion.”

11. China’s Role and the Path Forward

• China: Watchful Caution: The team expects the Chinese government may stimulate domestic consumption soon, with implications for global commodities—though the playbook will focus more on consumer than infrastructure spending ([40:09]).

Notable Quotes & Memorable Moments

• On commodity equities’ amplified returns:
  “That [price move] gets amplified many, many times on an EBITDA basis in terms of cash flow generation for a producer.” — Matt Zabloski ([04:37])

• On investing in the sector:
  “It’s not for the faint of heart. It takes a great deal of expertise and a bit of an iron gut from time to time. But the rewards…can be very, very, very material.” — Matt Zabloski ([10:01])

• On post-supercycle capital discipline:
  “You had operating companies deploying capital in suboptimal ways. You had billion dollar copper mines being built…that didn’t have economics at the time but were forecasting higher copper prices to justify construction.” — Matt Zabloski ([12:28])

• On hedging and modern portfolio expectations:
  “Taking a proactive approach to hedging to get over that hurdle is a very thoughtful thing to do for creditors. And…equity holders.” — Matt Zabloski ([06:37])

• On rare earths in the West:
  “The ore extraction, you’re digging stuff out of the ground. It’s the processing where the IP really comes in, where…the great deal of margin is.” — Matt Zabloski ([34:24])

• On the uranium sector: “There’s less than, I can count the number of investable companies on one hand. So it’s a difficult place for capital to flow into efficiently.” — Matt Zabloski ([36:19])

Timestamps for Key Segments

| Timestamp | Segment Description | | -------------- | ---------------------------------------------------------- | | 01:08 - 04:12 | Why commodities in portfolios; diversification benefits | | 04:12 - 06:37 | Equities vs. physical investing; operating/financial leverage | | 06:37 - 09:27 | Hedging and risk management trends in commodity producers | | 10:01 - 12:28 | Challenges for generalist investors in commodity equities | | 12:28 - 16:59 | Supercycles, sector performance, and underinvestment | | 16:59 - 18:27 | Geopolitical volatility and capital decision-making | | 18:27 - 23:07 | Thematic focuses: de-dollarization, gold, copper, China | | 23:07 - 28:42 | Market bifurcation, supply chains, central banks & gold | | 28:42 - 31:47 | Political risk: jurisdictional selection for investing | | 31:47 - 36:19 | Rare earths, critical minerals, and processing bottlenecks | | 36:19 - 40:09 | Uranium/nuclear hype vs. realities in equities | | 40:09 - 42:43 | China’s outlook and EV market, risk themes for 3-5 years | | 42:43 - 44:11 | Minor metals (tin, lithium), sectoral dispersion | | 44:30 - End | About Delbruck Capital’s offering and returns |

Delbruck Capital Advisors – Quick Facts ([44:30])

• Based: Vancouver, Canada (Team of 6)
• Fund: Offshore master fund (launched 2018), high-teens compounded annual returns
• Approach: Global materials focus; long/short strategies with event-driven & relative value books
• Coverage: From steel and chemicals to metals, mining, and fertilizers

Key Takeaways for Investors

• Commodity equities offer amplified exposure—but require specialist analysis.
• Hedging and risk controls are no longer frowned upon, marking sector maturity.
• Geopolitical volatility is both a challenge and an opportunity for nimble funds.
• Critical minerals investing is shifting downstream; processing/refinement is the focus.
• China’s next moves on consumption will reverberate through global commodity markets.
• Sector investing is for those with strong nerves and specialized expertise—but offers notable returns for those who master it.

For more on Delbruck Capital, visit delbruckcapital.com.

For additional sector insights, visit HC Group.

[Ad segments, show intro/outro, and sponsor plugs have been omitted for clarity and conciseness.]