Deutsche Goldmesse Spring 2024: Panel 1

0:10 All right, everybody. Thank you so much. I hope everybody enjoyed their coffee break. When Kai reached out to me, which he does about twice a year, he's like, well, do you want to host another panel for Deutsche Goldmesse? Obviously, always happy to say yes. He's like, well, what do you want to talk about? And I said, Kai, you know, Something that's really been on the forefront of my mind is when we talk about cycles in the commodity space, we talk about it on the back of infrastructure. And it seems like for many decades, we've talked about the build out of infrastructure on the backs of Chinese stimulus. We know that the West is in dire need of a lot of infrastructure improvements and build outs.

0:56 But what's really been on top of my mind lately has been digital infrastructure. And I think this is a topic that is maybe overlooked and somewhat regards of in the world of AI in the world of chip manufacturing and just the digitization of everything And so I kind of went down a rabbit hole, and I'm gonna take a couple minutes and kind of set the topic up here before we get to our conversation with Pete and Eric. But in the digital age, data centers, so they serve as the backbone of the modern economy, supporting an array of services ranging from cloud computing to artificial intelligence. The exponential growth in data generation and consumption has led to a surge in demand in data center infrastructures worldwide.

1:44 One of the prominent trends in data center construction is the global expansion of major technology companies like Google, Microsoft, Facebook, they're all investing billions of dollars in building data centers across various continents to meet the growing demand for cloud services and artificial intelligence. So these facilities are located to ensure low latency and high availability to users worldwide. Additionally, there is a rising emphasis on location with data centers being built closer to end users to improve performance and comply with sovereignty regulations.

2:20 The proliferation of the Internet of Things devices, the need for real-time data processing have fueled the adoption of edge computing. Edge data centers, also known as micro data centers, are being deployed at the edge of the network to handle data processing closer to the source. This trend reduces latency and conserves bandwidth and enhances overall network efficiency. So there's another area of data centers. And there's more hyper-scale data centers, characterized by their massive scale and high-density infrastructures are becoming more prevalent to support growing demands in cloud computing and big data analytics. These data centers, which once used to be 1 story, are now quickly becoming 4, 5, and 6 stories high.

3:06 These facilities feature advanced networking, storage, and computing technologies to deliver both scalable, cost-effective solutions. The architectures that they leverage in distributed computer paradigms, such as containerization and serviceless computing. This construction is evolving to accommodate hyperscale designs. So what does this all mean for metals? I think you can kind of paint the picture yourself. The construction and operation of data centers require significant quantities of critical materials, including copper, tin, rare earth elements. Copper, obviously, we use electrical wiring, cooling systems, and infrastructure components due to its high conductivity and reliability. Copper consumption for data centers alone is estimated to jump from

3:57 197,000 tons from 2020 to 238,000 tons by 2030 to 293,000 tons in 2040. To put that in perspective, Microsoft's half a billion dollar data center in Chicago required 2,177 tons of copper just for its construction. So we'll also talk tin, right? We got to talk tin. Tin's essential for the soldering of electronic components and manufacturing the circuit boards. And obviously, a lot of tin also goes into these data centers. So with the growing demand of data center infrastructure, it has led to increased consumption of the materials, but also raising concerns about the availability and sustainability of where these metals are coming from and their use. So that's laying the foundation of what I'd like to chat about with our friends Eric and Pete. So Eric, I know you are a stock picker.

5:01 Pete, You are kind of more of a big picture supply demand guy as well. I mean, as I just kind of laid that out here,

5:11 what's your first reaction? Eric, let's go with you. As a stock picker, what's your first reaction as far as thinking long-term about the digital infrastructure of the world? Sure, I mean, I think, let's say, having an idea of, or being bullish on the macro sense, I mean, I look at that stuff too, and it's good actually to keep you in the game. Let's say gold, for example. I mean, how easy

5:37 it is to buy cheap during a correction unless you're bullish long-term on gold. So I kind of actually like to find confirmation bias that keeps me in the long game, for example. And I mean, in the case of copper, it's like, if I look at that from a risk-reward perspective, it feels like the base case is that we're going to need more copper,

6:00 regardless of what theme really dominates. It's like the EV theme. We've seen projections, and that goes for nickel and all of that. Is that gonna happen? Who knows? I mean, some think it's a fraud, basically, that it's gonna crash. AI, which you said, I mean, I've seen Microsoft announce $100 billion plants, and Amazon, like you said, if it took 2,177 tons to produce data center that cost $500 million, that's like 600 times that amount. Is that gonna play out? I don't know. But it's like, I like the idea where it's like your base case is that we're gonna need more copper, and then you have a bunch of different optionality scenarios that's like we could go the, I don't know, increased EV plus the AI is not a bubble. It's actually here to stay and we see some kind of arms race so you should get a kind of a stacking effect and it takes everyone off guard. And I mean just looking at the BHP and now Glencore is joining the fight. It's like, I listened to a interview with, or a webcast with CEO of Glencore, and he got asked by a bunch of analysts, like when are you gonna bring on the, I think the deposit is called Mara or something, a big copper deposit.

7:18 And he was asked, when is it shovel ready? And he said, the question is when it's shovel worthy. That they're not gonna bring any copper, build something in front run, the bullish future that everybody says is gonna be there, they'll build it when the copper prices go higher. Still you see them maybe throw in, you know, to the BHP Anglo-American mix, but there you of course have an operating copper mine. So I mean, if you expect

7:44 the next 5 to 10 years or whatever to see that kind of supply crunch, I mean, if you're buying an operating mine, you get the full benefit of that, but you're not actually bringing on any extra supply. So I guess that's a long way of saying, copper is the one that, like Pierre Lassonde said, it's, I mean, to him, the only critical metal. Because it's the one that's gonna be used whatever path we as humanity take. Yeah. Pete, what's your first response to what Eric said? Great last comment, yeah. Yeah. Well, there are many ways to tackle this, but there's a long road between the narrative, which is easy and nice to explain, like electrification and AI is growing and we cannot stop that, and it will be for the better in some cases and some not. But how that trickles down to investing in junior mining, there's a whole,

8:37 let's say, a whole load in between there. And of course, first you're looking at the, let's say, the main producers of copper and materials, and then they trickle down in the mid-tires, and then eventually in the juniors, and like Stephen said before, it's now still very calm on the asset base level you can still buy things very cheaply of course hoping then that in the future that will that will let's say reevaluate as that supply chain is pulling that up in that level. If you mention different metals, rare earth metals are not rare. That's maybe the first thing to say. As a retail investor, I would say, for my opinion, stay away. It's very complex. It's very technical. So that's a hard one to follow as a non-professional investor or even a geo or a chemical engineer.

9:35 Another one you didn't mention is silica, which is most abundant in the world maybe, but it's also hard because you need the purity of the silica for making the ships. But I think the main theme everybody is playing or saying is copper, you need it for everything. Like Eric also mentioned, there is no real substitute for it at that price and that, let's say, specifications of copper.

10:00 So I think that's indeed one of the big ones. And AI, we're laughing a lot about it, like, yeah, it's making a lot of mistakes and it will take some time. But I already see, like Joanna said, it's coming probably also to exploration. My brother is a radiologist and they have so much data in patients. And what do you say, what's a good doctor? A guy with a lot of experience that saw everything. So they just put everything in those models and they already see that the models can predict better if cancer is there or not, just based on all those 1 million cases we had globally specifically for that cancer.

10:42 It will come in different sides of life and it will maybe be also very difficult for a lot of people in their job, but it will also help you in a lot of cases. So that's maybe away from metals, but it's a trend I think. I'm trying to follow as much as I can because I know it will come more and more and it will flood us and you need to be prepared and also on the metal side.

11:10 What about the energy side? Would you classify uranium as a critical metal to this point?

11:18 Well, it's probably more political. This isn't at this time who's going to say that we need that. I think if you think logically it's a no-brainer of energy density and waste in this world where everything needs to be green and electrified. So I think that's a no-brainer for narrative, but if that actually means we need to mine more uranium, we need to build

11:47 more nuclear facilities, That's a personal, let's say, personal opinion and that's up to politics to decide if we actually go that route or not. Eric, do you have an opinion? Yeah, what I think is interesting with nuclear is that, I mean, we have quite a few data centers in northern Sweden because we have, I think, Europe's cheapest power, thanks to our hydroelectric dams mostly.

12:11 And I mean, let's say, again, it's like, I don't know how AI is gonna play out, but it's like assuming that becomes highly strategic, like now, for example, there's gold price obviously gone up and China's hoarding commodities, and something that has to do with them kind of prepping for blowback if they do something at Taiwan, which obviously is like the main hub for semiconductors, if I'm not mistaken. And I'm just thinking like, okay, if you have these data centers with these AI machines, and it's like, I mean, the numbers, the required power and all of that is just humongous. Obviously you would want really cheap power right next to, I mean the facility and that actually becomes kind of a, not in a physical way in a war, but it's like really strategic.

13:01 You obviously would want to have local supply of that power because otherwise somebody could cut off a barge or whatever coming from Africa with uranium. You're risking the whole AI machinery, for example.

13:16 I just think that's a... Compared to Bitcoin, they're having mining rigs that use geothermal power in like El Salvador. It's like, would you want to invest $10 billion in like highly strategic data center in El Salvador, just because they have cheap power, I wouldn't think so. So I think maybe, again, it's like nobody knows, but I think it can be a interesting future where you have that, I mean, You have a lot of concentrated supply and

13:49 refinery in the east. And then you have maybe the rise of strategic AI and all of that in the west. And it's like, if that becomes really, really important, then it's like everything up to that point becomes like a strategic interest for the West, I would think. So it's like, because I remember I read an article by a geologist, I think, who used to work at Sudbury during the Cold War. And he described it as consensus at the camp that if the Cold War became hot, Sudbury would be the first place that the Russians dropped a nuke, simply because that provided 98% of nickel for the war effort, I think. So that's where I'm, you know, I think that's a, cause obviously, I mean, they didn't need to sink the ships, they just

14:38 needed to cut off the supply of the next ship, let's say, so if, who knows, maybe AI and data centers become so important that it's like you have to onshore everything tying up to that. And of course, since they take so much energy and electricity, it's like what's more warranted than nuclear? Yes, hydroelectric dams, of course, but you can't scale that in the same sense. You can't make the waterfall twice as high. Right. You did mention a little bit of geopolitics in here, and you mentioned, you said the Cold War. I mean, we could argue that we're in kind of a Cold War 2.0 right now, the East and the West, probably Europe and America, Canada, part of that.

15:29 The United States President Obama once said, the United States cannot win a supply chain driven war. And I tend to agree with him given to where the US sits right now with its supply chains, especially with the metals. How is these geopolitics supply chain issues, we've seen them evolve since COVID over the last 2 or 3 years. How has that kind of, has that changed at all in your thesis for investing? You know, it was really heightened, that supply chain, nearshoring, reshoring type of thesis was really heightened in 2021, 2022.

16:11 Where does that sit now? Yeah, so it's funny, because I've been following that for Europe in the last few years and there's a lot of talk by the politics side, of course, in beefing up our supply chains. In the end, what is the goal that they're aiming for is more mines, but it's not coming because they don't want to have it in their backyard and the permitting is not really changing. Besides Adriatic metals, there's no new mines coming in the last few years. They're stressing mainly that we have to have very good supply chain agreements with countries that have those deposits. So with Latin America, again, more with Africa. And like you mentioned, all the processing facilities at the moment are almost all in the last few decades all built in China. So they have all the, let's say the bottleneck, the last step before you have your final product or before you use it in electronics or where you will use that. So I don't think we're open yet in Europe or even in America to say, okay, we also want that slab processing.

17:23 So this will always be a give and take situation on that regard. If there's a war, then That's one of the key things that they hold, the cards. You see that China is running over China for a few years now, even longer, getting all their assets or at least their hand in some of those deals. So for Europe side, I don't see much happening in the last few years. A lot of talk, but not a lot of actions. What's good for America is, of course, the ERA deal that they did and bringing back production, but that's not really what we are here about the metals, it's more about the production of cars and other things.

18:13 So yeah, that's gonna be interesting, it's gonna be only worse and more difficult in the future. Do you have anything to follow up? Well, it's like, what I think is interesting with geopolitics, for example, it's like, regardless of what we're gonna, let's say, produce at home anytime soon, or in the West. I mean, what I really like is, for example, the kind of free optionality that, yes, now the nickel prices are absolutely depressed because Indonesia is supplying 60%. And that's in China's backyard, kinda, and it's like Chinese capital. So I mean, is there a scenario where something happens there from a geopolitical reason? I mean, 1 day they're gonna run out anyway. I mean, they can't mine the whole island.

19:06 But to have that kind of in your back pocket, that's one thing I like. But again, it's like I take it from, I want to have the macro to be mostly a benefit, positive optionality. It's like I don't think I own a single stock in any commodity just betting on the price of gold or silver or copper or whatever. Because if it's cheap just based on the base case today, and preferably if it's even a depressed environment, then I wouldn't mind to have that kind of optionality, or PGMs, like what happens if South Africa really turns worse, or they ban all the Russian PGM exports or whatever. I mean, they did something recently at the LME, for example. So it's like, I'd like to have that as a bonus kinda, and that's something that can happen anytime. There's no lead times really to like, when are you gonna build these mines in Europe if you're playing that angle. I mean, this is like global stuff that can just blow up at any point in time. And I mean, I think those would be like the most concentrated, I guess tin is very concentrated as well in terms where you're sourcing that. So if I don't need to pay up for it, I would be happy to take on reverse geopolitical risk, and geopolitical upside then.

20:27 Yeah. You know, you mentioned the nickel price back in the PDAC show in March, leading up to that. Like the 2 weeks leading up to that, I had done a number of interviews for the Mining Stock Daily podcast about the HPAL and the amount of supply of nickel coming online and pushing that price lower. And the mood on nickel was so bad and so dire. I was like, you gotta put your contrarian hat on and say, like, maybe it's time. Then when it's, it went into this buy. And so I took a little small position in a nickel company, just based on the sentiment alone. And we have seen some of those kind of move back up. And I'm not saying they're overvalued or anything, but we have seen a little bit of improvement and sentiment towards nickel equities.

21:23 A company like Magna Mining up in Sudbury have done a tremendous amount of jobs. Despite a terrible nickel environment, they continue to move a project forward with that Korean Hill and it's been pretty impressive. So I guess, do you gotta put that contrarian hat on when you start noticing like, oh man, everybody's down to the dumps on nickel or uranium or lithium, maybe lithium's that play. For nickel, I think it's also a technical evasion. So I'm not putting on there my hat for the nickel one. But for lithium, you see people are greedy and creative. So what China did, the prices were so high, They start importing the direct shipment or the DSO from Africa. Doesn't matter what it costs. Doesn't matter how environmental friendly it is.

22:08 So we'll always close that gap. For same for copper, and you saw the presentation from Defiance Silver, they do updates from the resource estimate because they will use higher prices because it's been that old of a presentation. But what will change is the cut-off grade. And a lot of these big, sorry for the word, the big copper mines in the world are 50 years old more, they're still using cut-off grades at where copper is 2 or 250. So I forgot the number but I think Rio's CEO said a few years ago if we just lift that to 350, what everybody is using, we can all the waste that we have here sitting, we can process that again because it's now valuable. So that's also part of, let's say, closing that gap and it's always slower than you think.

22:59 These deficits, it's because people are creative and greedy. Yeah. So it's never easy to- Pete, 2 years ago, you gave a presentation at this conference on tin. Yeah. And And then, C'est la vie, like your career was flourishing. You are the tin man, I guess we could say. And we've seen the tin price move up again meaningfully. Supply is still pretty tight. So I guess the question is, is it, should tin exploration stocks be back in the portfolio? Well, to wind back, it's the same story. The price ran pretty high.

23:45 What happens, artisanal miners, both also in the Congo and in Asia, start digging more for tin. Because they need to feed their family, they're going to dig for the most expensive metal they can find. Now the tin price went back down and then you see studies from UNICEF that in Congo they went back to mining cobalt. So it's a dynamic market and the artisanal side and the private sector is pretty big in tin. And it's not easy for a retail investor to know what's going on on the ground in these, let's say, more black box countries in the east. And it's such a niche metal that, let's say, not a few tons, but The imbalance is not that big. So once you start throwing around like 5% or 10% changes in outputs, you can quickly kill the market, what happens.

24:40 And then when actually what it always does is over swing. So the price went too high and then it went too low. Then a few of those mines stopped again. And of course, you have some related news with AI. We now have a bit of the wave catching, but I don't think the price has yet done any specific things. They went back to 30 or 32,000 US dollar per ton, which was when we were having the conversation 2 years ago. So there's not a lot of mines actually now making money on tin. I think the base level is 25, 27. So should it be in your portfolio? I'm not sure. If the III, let's say, boom is causing any effect on the tin price, I hope so.

25:31 But it's like Eric mentioned, it's a nice extra, but it's not the first one I'll, why I would buy a junior. All right. Eric, are you shopping for tin equities? No, I don't know enough. I mean, again, it's like I would take that as a bonus. And I think there's a company everybody's talking about, Alphamin, that from what I can see, I mean, it's supposedly a very good company and probably cheap as well. So It's like, I mean, if it's cheap already, obviously no AI boom is priced in, or it's pricing in the current price, it's priced in, it's cheap based on where tin is trading. And then if you think there's a possibility that AI is gonna get it to ramp, for example, then I would get interested. But most of the time, it's like I try to stick to within my circle of competence. It's like, I mean, gold and silver took long enough to just figure out, you know? And then it's like I'm getting into copper, et cetera.

26:31 But those are main ones I'm sticking with. It's like lithium, for example, that's I think a really hard one because it's a chemistry factory or whatever they like to say. So it's gonna take months probably to really get a grip on that. And in that case, which we kind of have seen that, I mean, it could change, but the way I see it, it's like a 1 theme play that is like tied to the EV battery thing. And that's like it in a sense. And it's not even rare. And so, I mean, is that probably gonna go higher? Absolutely, we're still gonna need that. And I think some people think that we're gonna need a lot more lithium and it's like, there might be a bull market coming from here that's monumental whatever it's like just the fact that I think it's hard to understand and I think it's hard to know what you know happens because okay if the Chinese they start to import whatever it's like I just that's to 1 thematic for me to really get excited for. But again, it's like if you see stuff down 90% in any commodity, the next big move is gonna be up.

27:45 I mean, that's why Pierre Lassonde says that the gold sector is the easiest sector because it always crashes and always rallies. So as long as we're gonna be using lithium, there's gonna be bull legs again. We do have like 2 and a half minutes if anybody has any questions in the audience for these gentlemen. Oh, Tom? Top 3 stocks from birth. Ooh. In these metals? No, any metals. Well, I would say then maybe I would name AlphaMin. That's the thin end that's maybe the story today, which is it's a very good producer, very high margins. The main thing there is geopolitical risk, it's in the Congo. But for the rest, it's pretty nicely run.

28:34 They have no issues in the last 5 years, so for me the risk is a bit overstated. So I really like that one. They are expanding, I think, this week almost, they are expanding the mine, almost double the output, and starting the dividend to lower that risk for the investors. The other one would be maybe Patriot Battery Metals, which is a tier 1 discovery in lithium in Quebec. We have enough lithium, but to have find a good mine with all the good attributes like metallurgy, location, costs, size, and all these things, that's, And the price is way down now, so I think that's a fairly easy bet now in the coming years.

29:23 And then my top stock at the moment, but maybe it's already getting too expensive, is WA1. It's Naobian, which is also a critical metal, and that's also again a tier 1 discovery. Like Eric is saying, I don't try to play the medals itself, but more actually the discoveries and the people. So don't buy those 3, but it's no advice. But it's my top 3. Yeah, I would go with, I guess, first of all, Magna Mining, which we talked a bit about. I mean, partly because of those bonus things that they have, PGM and copper. So they're located in Sudbury. They have 2 pretty much permitted projects. They have the team that, many from the team that made up FNX Mining, which was 1, I think it was the best performing stock on the TSX-V back in like 2006, 2007, when they acquired a bunch of old Inco mines and started or got them into production. So they're basically doing the very same thing they've already done.

30:31 And in a time where it's like, I mean, when I look at, I prefer better jurisdictions now a day, but it's like in the West or in the tier 1 jurisdictions, the question is, if you get to mine it. If you get to mine it, you're going to probably keep it. But in, let's say, worse jurisdictions, it's like, yeah, you might be able to get it to, well, get the permits and mine it, but are you going to keep it? So in this case, I mean, they're pretty much fully permitted. They are starting a trial mining basically this year. I think it's cheap. You have Rick Rue likes it, that's also a bonus. And yeah, that's one of them. And another 1. 30 seconds, we're out of time. Okay, first Nordic metals, a Swedish gold play. It's kind of a new story.

31:18 They own 45% of the largest undervalued gold deposit in Sweden and has like 100 kilometers of strike in the gold line belt. I think they have margin of safety plus immense exploration upside. And then I would say inflection resources I guess to take a pure explorer I think they have a very nice approach they have a I know 23 target areas or something they're funded by Anglo gold I just think that's one of the most exciting high-risk high reward bets out there because they have so many bets that question is how. It's high-risk, but still if you get 23 kicks at the can. Yeah, those would be it. I'm very biased, don't buy these. All right, thanks everybody for your attention and for your time. Appreciate it.