On the Money with Dynamic Funds

PARTICIPANTS

Tom Dicker
Vice President and Senior Portfolio Manager

Robert Cohen
Vice President and Portfolio Manager

Mark Brisley: You're listening to On the Money with Dynamic Funds, the podcast series that delivers access, insights, and perspective from some of the industry's most respected active managers and thought leaders.

Tom Dicker: Welcome everybody, and welcome, Rob. Thanks for joining us today to talk about gold and gold equities and all things metals. Really excited to get into this subject with you today because gold's been exceptionally strong. Rob, let's get into it. Why has that been?

Robert Cohen: Effectively, with gold, it's a very simple bet. You're betting against the purchasing power of paper money. Your bet is, are we going to continue on with lousy monetary policy? Yes. Lousy fiscal policy? Yes. You basically want to own gold to protect your purchasing power of your currencies with all of the policies, not just in United States, around the world, very inflationary.

You're also looking at all-time high debt levels around the world, especially in the Western currencies. I think a lot of investors get caught up looking at a currency value versus other currency values. They forget to look at it against the gold and measuring stick, which is gold.

Tom: Government debt is at all-time highs. I know you look around the world, interest obligations are getting worse for governments. Fiscal and monetary policy are pretty strained, and certainly in a lot of countries, including the U.S. How does that impact the gold market?

Robert: You have, in the U.S., something like $100 trillion-plus of debt service payments that are all-time high. Even with lowering of interest rates, the debt is growing at such a rate that the debt service payments still actually go up. You have budget deficits in the United States, for example, probably not too different in Canada, like 6.5%, so they have to actually create that money to make up their budget deficits.

It's a very simple thesis. If you're a betting person, are you going to bet that everyone's going to take a smart pill and budgets are going to get balanced and debt levels are going to go down? The chances of that happening are so minuscule. It's a really good time to own gold. People have not even taken notice that gold is actually hitting all-time highs as we speak. It's had a nice steady march upwards.

People always focus on the USD gold price, but you can look at CAD because even in Canadian dollars, with the fall in the Canadian dollar, Canadian gold price, people aren't familiar with it. It's just under $4,100 an ounce Canadian. This is really good for the Canadian companies.

Tom: That's pretty remarkable. How have the gold equities performed relative to gold bullion?

Robert: Year-to-date, they're doing fairly good, but I think relative to bullion, there's a mathematical leverage on profit margins versus the underlying gold price. You should expect somewhere between 50% to 100% higher value in profit margin per percent change in the gold price. For every 1% change in the gold price, you'd expect the equities to go up 50% to 100% more depending on the company and its leverage.

That is probably facing a little bit of skepticism, but, listen, the fund's done very well. I think we were up something like 50-ish% last year, 20% year-to-date, rolling one year, something like 70% or 80%. It's doing well, but mathematically, it should be doing better.

Tom: I guess you could say 70% or 80% is doing pretty well. I won't dispute that with you. Gold hasn't been in the news as much as probably you would like, but it's been in the news more lately. What's been in the news even more has been tariffs. How do you think about the effect of the gold-- On the gold sector, what are the puts and takes for gold and gold equities in a world with tariffs?

Robert: I don't think the tariffs are, per se, affecting the gold price directly, but tariffs themselves are very inflationary. Even without tariffs, we have plenty of inflationary policies in Canada and in the U.S. anyway. I think the world is looking at this tariff situation as a very temporary thing, effectively Trump getting people a bit nervous, but I think it will resolve itself. It really makes no sense to put on tariffs on one country and then it makes even less sense for the retaliation. I think that Canada is making a mistake by retaliating.

Tom: Yes, that's definitely the opinion of many. It remains to be seen whether or not we need to retaliate, and if we do, what will happen. Rob, you were recently recognized as Fund Manager of the Year by Investment Executive. Can you talk a bit about how you do it? What's your process? Can you give us some examples of where you are able to use what we've seen to uncover an underappreciated opportunity out there in the market?

Robert: Yes, thanks. That's a good question, Tom. I think the gold sector is one of the trickiest sectors to invest in. It's one of those things that should have a disclosure, "Do not try this yourself at home." I think having a technical background in mining, having worked in the mining industry, and if you take me and my associate portfolio manager, Emily Griffiths, between the two of us, we have backgrounds in mining engineering, mineral process engineering, and geology.

When you combine that with our financial backgrounds, basically, we can check all the boxes that are necessary to analyze these companies. I think with any of those disciplines lacking, it would, at the margin, not be as good. I think that's where we start. When we're looking at opportunities, we're looking at a lot of things from the ground up. I think not a problem for us to understand the sector top down but when we're looking at the opportunities ground up.

We start out with being very particular about what we invest in. The portfolio is maybe about 30 names. We have probably the highest weighting in Australian stocks than any other competitor in Canada, maybe for that matter, globally, because after the TSX, the next most important market for gold stocks is Australia. By opening up our shopping ability to shop in both markets, we can really scrape off what we regard are the best opportunities.

I think also what drives us is just having those wins. Maybe if I can talk about a couple of examples and get our slides up there. Here's a company called Spartan Resources. That was a historic mine, open-pit mine. Wasn't that exciting. It actually pertinent bankrupted the previous company. New management comes in. They basically turn the drills around, point them the other way, and lo and behold, they start discovering a much higher-grade deposit that will be an underground mine off to the left of the old open pit that the previous operators.

I think they had hit one hole in there. That was fabulous. They never followed up on it because they were just so narrowly focused on just finding open-pitable material. They ignored what was now an extraordinary underground mine. When you're developing a mine, the more ounces per vertical meter you get, then you get the economies of scale.

We jumped on this as soon as they were starting to hit this. A year and a half ago when they were just starting to hit it, we were able to really jump on this opportunity to become a major shareholder of the company, bought a significant amount of the company at $0.40 a share. Today, it's around $1.50 a share. That's a really great return in, call it 18 months or so.

These are the type of wins that really drive us. This is what keeps us excited. It's a really exciting sector if you can pick the right stocks. The reward is incredible. That's our drug. That's what keeps us going is finding these opportunities. With our technical background, we can be a lot more sure when we're investing long before the rest of the market hones in on these ideas. That's where a lot of the drive comes from in what we do.

Tom: That's certainly not something you're going to get investing in passive or any sort of index. These are truly unique alpha-generating opportunities generated by someone going out there, rolling up their sleeves, to find things that other people aren't or can't look at. These aren't the Magnificent Seven or the top 10 of the SPVs. These are really unique, diversifying opportunities where the returns might be lumpy, but they can be quite extraordinary.

The returns in your fund have just been phenomenal. You're not just a gold guy, right? You don't just do precious metals. Looking at mining more broadly to the areas you've been watching closely, when we were talking about this, it was uranium and then antimony, which I had to look up on the periodic table to figure out what it was. Uranium's been topical as a source of power. Then antimony obviously got some other very element-specific issues. For anyone that doesn't remember that, where's your interest from right now?

Robert: You'll probably never catch me at any point in my career saying I hate copper. We're always going to own copper as a mainstay metal. I think as far as topical things, uranium, we're very hyper-focused on the opportunities in that market, particularly with discoveries coming from the Athabasca Basin here in Canada. It's probably one of the best places to explore for uranium globally. When you find an economic deposit in the Athabasca, if you pick the right one, it can be phenomenal.

We've owned something called NexGen Energy for quite a number of years. I think we started buying it when it was like a $0.30 stock. It's now close to $10 a share and been a real win for the portfolios. Now, we're involved in another junior exploration company that we think has another world-class discovery and basically off the radar. We just back up the truck, own a significant amount of the company, and grab a bag of popcorn, and off we go.

With regard to antimony, you're pronouncing it in, I think, the English and the Australian way, which is actually the way I should pronounce it. It became a metal of interest to us, particularly around a Chinese export ban that happened on September 15th. Now, why did the Chinese ban their exports? It is used as a primary component in detonators, in bomb-making. China, which produces 49% of the world refined supply, is going to be hoarding it for themselves, Russia, and all their other friends.

The West, particularly the U.S. Department of Defense, are actually in a state of panic. They are trying to push forward a project in Idaho called Perpetua. It's been around for years. It actually produced antimony for the U.S. military uses in World War II. Gold and antimony actually occur together. We can actually say, well, it's a gold mine and antimony mines both. While they're pushing this one forward, the head grade of this deposit is 0.06%. To me, that's not impressive.

Where we have found some opportunities are actually down in Australia. We've honed in on a past producer called Larvotto Resources. They can restart this mine, have it in production by 2026 with a head grade of 1.2%, 20 times higher than Perpetua, which has now garnered the better part of a $2 billion market cap. I have a project here with maybe one-quarter of the amount of tonnage but at such a much higher grade in the economics.

Then if you look at some of the companies with the surrounding land claims, we own one of the other ones that actually has some even higher grade. Those were a couple of examples. We have another Australian company working on a deposit in Alaska. What we're doing is outside of the box, doing our own thing. When these opportunities, as the stories unfold, they'll garner a lot of market attention. We're pretty excited about those.

Tom: Oh, it sounds like some really interesting opportunities, Rob. I really appreciate you taking the time to share with us today about gold and giving us a little insight into how you do what you do.

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