Yes, I know that Frankfurt and “interesting” don’t typically match.
But this time it did. I attended the Deutsche Goldmesse / The German Gold Show.
The crowd was an interesting mix of mining analysts, fund managers, private investors as well as the CEOs of publicly listed mining companies.
The talk of the day was the price of gold which recently shot up to $2400 an ounce.
Those who have been following me for a few years know that from the very beginning I have been a proponent of owning physical gold. Not necessarily as a speculation, but as an insurance policy against our increasingly insane governments and their economic policies.
It turns out betting against governments has been a smart move with gold having done really well.
I used this opportunity to finally meet Lobo in person. I have subscribed to his newsletter for a few years now and get amazing value out of it. Personally, I pay for one of his premium offerings, but the free newsletter also offers great insight, though no information on specific stocks, which is what I am looking for.
He organized a special session for his subscribers, which lasted 4 hours. We had the opportunity to drill him with questions.
The next day I interviewed him for this channel, focusing on four questions from the night before I found interesting and insightful:
- Why are the gold miners lagging the price of gold?
- Is Mexico still investible for mining?
- Lobo’s view on Platinum as an investment
- Potential for China sanctions as a catalyst for Rare Earths
How to go about speculating in natural resources stocks?
Let’s be clear, this is very high risk. I have stocks that did 30x and others that went down to zero. It’s not for the faint of heart.
How can you mitigate risk?
By paying for expertise, which Lobo offers through his newsletter. My affiliate link is here.
and by having a broker which lets you invest in the US, Canadian and Australian stock exchanges where most of these stocks are listed . For this I use IB. My affiliate link is here.
To a World of Opportunities,
The Wandering Investor.
Subscribe to the PRIVATE LIST below to not miss out on future investment posts, and follow me on Instagram, X, LinkedIn, Telegram, Youtube, Facebook, and Rumble.
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If you want to discuss your internationalization and diversification plans, book a consulting session or send me an email.
Transcript of “Outlook for Gold miners, Platinum, Rare Earths and mining in Mexico – with Lobo”
LADISLAS MAURICE: Hello, everyone. Ladislas Maurice from thewanderinginvestor.com. Today, I’m in Frankfurt at the Deutsche Goldmesse, which is the German Gold Show, together with Lobo. Lobo, how are you?
LOBO: Good to see you in person, Ladislas.
LADISLAS MAURICE: Yeah, finally, after a few years of collaborating together.
LOBO: Yeah, yeah.
LADISLAS MAURICE: And I’ve been reading your newsletter for quite a few years, it’s good to see you in person.
LOBO: For what it’s worth, he comes across live like he does in the video, same guy. What you see is what you get.
LADISLAS MAURICE: [laughs] Thank you. Same with Lobo. But you like wine more than I thought you do.
LOBO: Well, I answered questions for four hours last night, I needed to keep my whistle wet.
LADISLAS MAURICE: [laughs] And it was really good. Last night, Lobo organized a session here, a separate session for people who subscribe to his newsletter. It was four hours long of just pure questions.
LOBO: Q&A, yeah.
LADISLAS MAURICE: Yeah, you really got drilled there.
LOBO: [laughs] It was good.
LADISLAS MAURICE: Cool. What we’re going to be doing, essentially, I’ll be asking four questions which I thought were really interesting last night, and which I believe that people can learn from. The first one will be related to the difference between gold and the gold miners that haven’t been doing well as opposed to the price of gold. Then we’ll be discussing whether Mexico is investable or not from a mining point of view. We’ll then be discussing the platinum and palladium market, whether it’s time to bottom feed or not. And then, finally, we’ll be discussing rare earths and potential sanctions on China, etc., what the impact could be there and if there’s a play to be made.
Why are the gold miners lagging the price of gold?
LADISLAS MAURICE: Lobo, first things first, gold shot up past–
LOBO: $2,400.
LADISLAS MAURICE: Yeah, $2,400, $2,300, but the miners are just not moving. What’s happening?
LOBO: Well, first, not all of them are not moving. And if you own a gold stock that is not moving with gold, you have a problem and you need to ask yourself some hard questions. I’ve been doing this. I have some underperformance and I need to ask myself, have I made a mistake? Is there something wrong? Is Mr. Market passing judgment? Because if gold goes up, and okay, we’ll get to the underperformance, but if gold goes up and your gold stock doesn’t move at all, something’s not right. Maybe the markets missed it, maybe I made a mistake. But you need to have an honest conversation with yourself about that. The thing is, okay, most of the better gold stocks, at least, or most gold stocks actually have responded to gold but not enough. If gold goes up and the gold stocks goes up proportionally, why would we own the stock?
With the stock, we have counterparty risk. The company could do everything right and this Mother Nature doesn’t deliver the discovery, or they do everything right and the government nationalizes their mine, so many things can go wrong. If the gold stock is just going to mirror gold, why bother with the company, right? Why not just buy the metal? It’s not good enough that the stocks have moved, they have to deliver the leverage or there’s no point. One answer is just, well, it’ll get there. In history, gold goes up 1% or 2%, the stocks go up 5% or 10%. That’s why we own them. But in this case, it’s just we have to face the fact. Look at it, those alligator jaws between gold and gold stocks continue opening. And, again, Mr. Market is telling us something.
Now, in this case, I don’t think the market is right. I think Mr. Market was telling us something. The market was telling us that gold had spiked, and it was going to go down, and the stocks were leading the metal. The smart money didn’t think that $2,000 plus or minus global was a real price or sustainable price in 2020. That was a spike, which looked kind of like 2010, ’11. And then after 2011, gold hit almost $2,000 and then it went into a five-year bear. That’s the recency bias. That’s what investors who even pay any attention to gold at all remember, was gold spiking and then going down for it in a long bear. Gold spikes in 2020. And I think the expectation has been that is the next big move was going to be down, and the stocks have been leading in that direction.
But they’re wrong. I think the alligator jaw is going to close, not with gold coming down to meet the stocks but with the stocks coming up to meet gold. That’s my main answer, is I think there’s been a widely held expectation that the gold thing was transitory, right, it was just a COVID thing and it’s gone now, right, and the whole sector is going south. But on top of that, there’s also something that our friend, Rick Rule, has talked about, and that’s that the companies have actually underperformed in the actual business of mining gold. And he likes to say that from 2001 to 2011, there was a seven-fold increase in the price of gold, but the free cash flow of the top miners was negative. And it takes real talent, is the famous Rick quote, to turn higher prices of your product into worse margins.
That’s another recency bias, if you will. The smart money that paid any attention to gold miners at all saw that they flubbed it last time and they didn’t make money the way they should have. This brings us to today, dear audience, is a very important thing happening right now, and that is this earning seasons we’re starting to see how the miners have done with record gold prices, or the gold-dollar exchange ratio at least at nominally higher levels. And the big three, Barrick, Newmont, and Agnico have all beaten on guidance. And we’re still not done with earnings but that’s, I think, a very encouraging sign. If gold had gone way up and the big boys in the space flubbed it again, their margins didn’t increase, they weren’t making any more money, well, it’d actually be rational to ask yourself, why the hell would I want to own these stocks?
I think it’s actually quite important what we’re seeing happening right now. And one quarter isn’t going to be enough to convince the Warren Buffetts of the world that gold is a good business, but a couple of quarters will do a lot to convince a lot of people. And it could be happening at a perfect time. If I’m right, my overall economic outlook is still for the hard landing. The new labor report out of the US shows surprising weakness, that that pillar of strength of the US economy, that labor consumer, if that’s starting to crack, I think that’s a big deal. It’s important not just to say, “Yay, gold, I think gold’s going up,” to your question, is a key question. We don’t just buy the metal, we speculate on the stocks. And if the stocks aren’t going to deliver for us, why bother?
What’s happening in the marketplace right now, I think, reaffirms my faith, if you will, that the gold stocks will outperform the metals. I’m personally betting a lot of money that that’s going to come true, and I think it’s going to happen this year, and I think we’re going to do very well.
LADISLAS MAURICE: Would you say the majors are the ones that are going to move or will the juniors also go wild?
LOBO: Well, the conventional wisdom is that when the market turns and interest comes in, the money goes, first, to the majors, the household names. When Barrick and Agnico reported, we knew but nobody else knew. When Newmont reported, it was headline news, because it’s the largest gold company in the world. And the stock went nuts on that day. I mean, mainstream financial media covered it. And it’s not because Newmont is the best mining company in the world, I don’t own it, but it’s because it’s the biggest, and its name caught attention. And you could look on Bloomberg in the sector, their [I 07:37] chart and so on, materials moved that day, and the big mover was Newmont, so they had to talk about it. They couldn’t even pronounce it, but they had to talk about it. [laughs]
Yeah, I think this is very important. I think we’re starting to see a delivery but no, it trickles down. And the past, if past is prologue to the future, no guarantee, but in the past, the money goes to the go-to’s, and then it trickles down the food chain. And yes, it does get to the juniors. But that’s sort of a vague thing. Like, why would it do that? There is a transmission mechanism, though, and that is something else that we were also seeing happening this year, and that’s M&A. And there’s been a lot of consolidation at the top, actually more than I thought. It’s surprising to me to see this BHP-Anglo deal going on right now. I’m not sure the industry needs that much consolidation. But there’s only so much consolidation at the top. Who else are you going to buy?
And mining is, by its nature, a self-depleting business. Every shovelful you take out of the ground is one less you have unless you find more. And when you’re doing belt-tightening, your exploration team is the first crew that you fire. Then they go off and start junior companies and the cycle perpetuates itself. What I’m saying is, if nothing else, the fact that mines deplete themselves forces the larger players to buy the successful discoverers. That does push the money down the food chain one way or the other. If the market ignores the juniors, the takeovers won’t, the companies in the business will have to.
If this becomes a flavor of the day, gold did make headlines, has been making headlines this year, gold at $2,400 got a lot of mainstream attention, if it resumes that climb, goes to $2,500, or JP Morgan is calling for $3,000 gold, not Lobo Tiggre, but if it goes there, the media attention will be phenomenal. And I do think greed is part of human nature. The needle swings from fear to greed. I’d like to say that only the best gold stocks will respond. I think they’ll respond the most of the best but probably the rising tide would lift almost all ships.
LADISLAS MAURICE: I mean, to your credit, when I last interviewed you a few months ago, your call for your favorite metal for 2024 was gold, and you’ve been pretty spot on with this.
LOBO: But to be clear, it’s not gold every year.
LADISLAS MAURICE: Yeah. Yeah.
LOBO: [laughs] I’m not the broken clock. I mean, right here, last year or for 2023, it was uranium, for this year, it was gold. Yeah. But I have to say, it’s not up for the reasons that I thought it would be. The reasons, the recession, and the money helicopters, all that stuff hasn’t happened yet. On the one hand, it makes me a little cautious because, $2,400, okay, we’ve pulled back from there, but we’ve already hit a level that I thought we might hit by the end of the year, $2,400, $2,500-ish. If I’m already paid in advance for that, then it makes me a little bit cautious. But if the reasons why I thought it would go up are still in play, and still ahead, and we’re going into that now from a higher level, we could end up with much higher gold by the end of this year than I thought we would. Kind of exciting times.
Is Mexico still investable for mining?
LADISLAS MAURICE: Cool. All right, let’s move on to the topic of Mexico. Mexico has passed a number of anti-mining laws in the past few years with AMLO in charge of the country. And it would appear that Claudia Sheinbaum is going to be elected as the president in Mexico.
LOBO: Next month.
LADISLAS MAURICE: Next month. She’s an environmental engineer. And apparently, she’s very anti-mining. Lobo, has Mexico become uninvestable from a mining point of view?
LOBO: Basically, yes, sorry to say. If I didn’t have any exposure to Mexico right now, I would absolutely not buy anything, not gold, not silver, not oil, nothing in mineral extraction in Mexico right now. I would not risk another dollar. I do have Mexico in my portfolio. I haven’t sold it all yet. But it’s all on hold, every single one of them. Doesn’t matter how well the company is doing, whether they’re discovering more with every drilled hole or that they’re mining more and making money, it doesn’t matter. They’re all on hold, I wouldn’t put another dollar at risk in Mexico until we see things improve.
As far as why haven’t I sold? Well, I just did some due diligence down there, my boots on the ground, man-on-the-street interviews and things, there is a chance for an upset. It’s not just that Claudia is the anointed successor of the current president, and the current president has enormous power to get their chosen successor into office. That is the tradition in Mexico for 100 years. It’s the way it has almost always gone. But it’s not just that. AMLO is a populist, and people with any business sense see him as an absolute disaster for Mexico. But that included giving pensions to people who had no income and other popular things that have cemented a fair amount of support.
The polls all show that Claudia has a 60/40 margin over the challenger, Xóchitl, but the scoop, such as it is, the sense is that in the same way the US has a liberal bias in the media, Mexico has that pro-AMLO. And so there’s a sense that the polls are wrong, that the polls are underestimating, and that the challenger, Xóchitl, could do something like Trump in 2016 and surprise all the pollsters, surprise the establishment, that there’d be a lot more support. And there is evidence for this. Xóchitl, the challenger, she has support from the so-called right wing party, the PAN, and the hard left party, the PRD. Both support Xóchitl over AMLO. He’s hated enough that such strange bedfellows would get together to support an opposition candidate. And that’s pretty striking. I mean, you couldn’t have more opposite people getting together in Mexico than the PAN and the PRD.
I’m not saying, “Therefore, it’s safe, and the underdog’s going to win, and buy now while prices are low.” I don’t know what’s going to happen. But there is potential here for a change, a surprise. And that’s one reason why I haven’t been in a rush to sell. But if Claudia wins, I will. And I’m thinking about how to best strategically implement sales and what I’m going to do with my own portfolio. But the key takeaway here is that it looks like the base case assumption here is that Claudia wins, and she’s bad for mining. And it’s not just her attitudes or whatever, AMLO has proposed a constitutional ban on open-pit mining. And Claudia has said she supports this.
And a constitutional ban, okay, you can say, well, it’s just open-pit mining. But well, A, it’s the most important kind of mining in Mexico, one of the big mines. But even if it’s just open-pit mining, it’s still such an aggressive move, and to actually get it enshrined in the Constitution would be such a big deal that I think the investors globally would just say, “That’s it.” And it doesn’t matter if your mine is underground, or you’re just exploring, it would be so harsh anti-mining that basically all Mexico plays would underperform. I wouldn’t want to get ahead of that harm, I would want to get out of harm’s way. I’m sorry I don’t have better news. I love Mexico. My mother’s from Mexico, so I’m not being anti-Mexican, but that’s the way I see it.
LADISLAS MAURICE: Do you have Mexican citizenship?
LOBO: Yeah, you would ask that, wouldn’t you?
LADISLAS MAURICE: [laughs] I have to.
LOBO: Yeah, right. It’s about Lobo.
LADISLAS MAURICE: Little known facts.
LOBO: It’s on the to-do list. I could. I should be able to do that, but the documentation necessary has proven difficult to pull together. It just hasn’t been enough of a priority for me to do that. But I really should, yeah.
LADISLAS MAURICE: Because I can help you with that, by the way.
LOBO: Okay. All right.
Lobo’s view on Platinum as an investment
LADISLAS MAURICE: Cool. Let’s move on. So be careful with Mexican mining companies for now, essentially, that’s the message. Cool. Let’s move on to platinum and palladium. When you look at platinum, on looking at various ratios, if you look at platinum miners–
LOBO: I’ll just jump in. Forget the ratios, forget all that stuff.
LADISLAS MAURICE: [laughs]
LOBO: Platinum and palladium are industrial metals. I’m still on Team Hard Landing. And you don’t buy industrial minerals ahead of a recession. Now, if you think I’m wrong, if you think Biden and Powell kiss the booboo and everything’s going to be fine, there’s going to be no landing, just straight off to happy days, off to the races, okay, well, then there’s a case for both platinum and palladium as industrial metals. We call them precious, it doesn’t matter how expensive they are, they’re not monetary metals, they’re not going to respond to inflation the way gold and silver do. But my case, my base case, and I think the latest data supports me, we’ve just been talking about cracks in the labor market. That’s a huge deal in the United States.
I still expect the hard landing. And the fact that platinum is so much cheaper than gold, and it shouldn’t be because it’s more rare doesn’t matter. It’s an industrial metal, if we’re going into recession, it’s going down. And that it’s already cheap, or too cheap, or stupid cheap doesn’t matter. Recession’s coming, they’re going down. That’s my lead.
LADISLAS MAURICE: And what about the, it would appear that a lot of EV sales are not quite making their targets and some people seem to be reverting to traditional ICE vehicles.
LOBO: Yes, right.
LADISLAS MAURICE: Is this a potential catalyst or is it overblown?
LOBO: It’s overblown. First, it’s just overblown. Like, yes, you’ve got to change, and you get these exciting headlines, but the EVs are still there, they’re not going away. Okay, Tesla sold fewer than they wanted to. But they still sold a ton of them. And BYD sold fewer than they wanted to, but they still sold twice as many as last year. The EV adoption has not stopped. The fact that it’s gone from this to this, it’s still increasing. And the other thing, we talked about this last night, is that in a recessionary environment, auto sales are one of those things that takes a big hit. It’s the sort of thing that if you don’t have to buy a new car, you don’t. And if the old clunker can go for a few more years, well, you make it go for a few more years. And these days what people consider a clunker is the paint’s faded.
Here’s the thing, I think that if we have a recession, not if, I expect the recession to become undeniable in United States, and I expect the instant response to be for the money helicopters to fly again. It won’t be a typical recession, which they usually last a couple of years. I think this one, the fiscal response, if not the monetary response, or both, instantly tries to paper that over. But that doesn’t make people comfortable to go out and make a major purchase like a new car. There’s a chance here that even if the money helicopters fly and inflation goes up and commodities go, auto demand still remains weak for a year or two, and that keeps platinum and palladium under pressure even if oil, and copper, and other things are going up.
You could say that I hate platinum and I’m reasonably bearish on PGMs, but I just think it’s very dangerous to bet otherwise. And let’s say I’m wrong, I missed the boat. It’s okay, you can’t kiss all the girls. I’d rather miss this boat than gamble on an industrial metal in front of what I see is coming. I think what I think, right? I think we’re heading for recession, they’re industrial metals, and sorry, but to the EV adoption question, there’s a case to be made here that, okay, EV adoption slows, but it’s still growing and growing and growing. The Chinese have a $10,000-EV that they’re bringing to market now, not some-when, not someday, not Elon Musk promising a cheap car forever. They have a $10,000-EV now. And okay, the US might ban it, or tax it, or tariff the heck out of it or whatever, but the rest of the world is going to buy these things. This is going to impact the purchases of internal combustion engines.
And there’s an argument to be made here that if people put off car-buying decisions for a couple of years, that’s enough that by the time a couple of years from now, and they start buying cars again, the EV options for them, Elon might finally have his $20,000-Tesla by then. And at that point, you might not buy an ICE engine. I’m not saying that platinum and palladium will never come back, but there is a scenario, a recession-based scenario in which they never come back. That could happen, so buyer beware.
LADISLAS MAURICE: Thank you. Let’s move on to–
LOBO: That was such an enthusiastic “thank you”. Do you own a lot of platinum?
LADISLAS MAURICE: [laughs] I don’t. I don’t.
LOBO: [laughs] Okay.
LADISLAS MAURICE: A little bit. A little bit, but not a lot.
LOBO: All right.
Potential for China sanctions as a catalyst for Rare Earths
LADISLAS MAURICE: Let’s talk about rare earths, because a decade or a decade-and-a-half ago, there was a bit of a bull market in rare earths because China decided to restrict the export of some of these rare earths, and that’s when the world realized that, “Oh, we’re very dependent on China when it comes to rare earths.” We’re now in a situation where we have Western politicians in charge that are openly discussing sanctions on China. Isn’t there a very high likelihood that in the near future, or in the medium term, China will put export restrictions on rare earths to put Western supply chain in problems?
LOBO: Yeah, very clearly. Yeah. Is there a risk? Yes, there’s a risk. Is there a high probability? Well, it’s hard to say. If the US puts sanctions on China’s $10,000-EV, will they respond with a rare earth tit for tat, or will they do something else? They have a lot of different levers they can pull. And unfortunately, it doesn’t matter who wins the US election, both Biden and Trump are anti-China. It’s a popular thing with the voters. I think almost anybody who ran today would have to be tough on China. The US-China conflict heating up, I think that’s baked in the cake. It doesn’t matter who wins, what happens, that’s going to continue accelerating.
Now, will it make another round of rare earths going up? That’s an “if”, not a “when” question. But I have to say that the chances are pretty good. That is an important thing. And we’ve seen it already. I think it was in response to the chip restrictions to China. China put restrictions on gallium exports. It’s one of those metals that goes into your phone, and tanks, and military applications, a lot of stuff. They’ve already shown that they’re willing to pull this lever. They’ve done it before with rare earths. They’ve done it recently with gallium, so critical minerals. I think the odds look pretty good.
But then this comes to the other thing, is that rare earth is another misnomer. They’re not rare. They occur all over the place. Economic concentrations are more rare, but we have higher grade deposits, many of them in Canada, some in the United States, they exist around the world. When people say that China controls the rare earth market, well, they don’t control it because they have a chokehold on it, they control it because they have low prices. The reason why 90% of these things come from China is not because it can’t come from anywhere else, it’s because between low-cost Chinese labor in the past and some level of subsidies now, China is still the lowest cost producer. And they also have processing technology that, because they’ve been the low-cost producer, has been more advanced in China.
And that’s the harder thing to do. There are rare earths in other places, but the processing is not so easy to, at least, instantly build up. But the powers that be in the West are working on this. This is one of those things that if it happens, maybe even when it happens, there’s no knowing how long it will last. And the powers that be in the West are already gearing up for this. They’re already giving subsidies to companies in the West that are building not just mines but processing facilities. There are grants and subsidies. Canada is working on it, US is working on it, Europe’s working on it. Nobody wants to be dependent on China for these things.
How close are they? If China put a total ban on rare earth, never mind the raw products but the processed products, if they put a ban on that, or a really high tariff, or an export barrier on that, that would have an instant impact, prices would go up, the input cost, this would be very inflationary for almost everything, electronics, war machine. But I don’t know how long it will last. The takeaway from this is, if you want to speculate on rare earth, I haven’t done that myself yet, but if I did, then I would want something that has a very short fuse. I would not get into grassroots exploration.
I would want to look at something that, like, they’re building the mine now, or they’ve made this discovery and they’re trying to raise the money to build the mine, and all they need is the money. They have the permits, they have the feasibility study, they have everything, they just need the money. And if China slams the door shut, prices go up, then I think the money will be there. That would be the sort of thing where if I have a very short fuse in my speculation, and then as soon as it goes way up, I can get my initial investment back, and then whatever happens with China, whatever happens with the geopolitics doesn’t matter, I can’t lose, right? And then if it keeps going up, great, and if not, I take whatever profit I have and I move on to the next thing.
LADISLAS MAURICE: Cool. Clear. Thank you. Look, Lobo, thank you very much. I really recommend Lobo’s newsletter. He has a free newsletter with weekly macro updates and analysis. You send just like one email per week. Personally, I’ve subscribed to your paid newsletter for a few years now. I really recommend it. But you can just sign up to the free newsletter, there’s a lot of value there as well. There is a link below.
LOBO: All right, thank you very much.
LADISLAS MAURICE: Lobo, thank you very much. Always appreciate it.
LOBO: And good to meet you in person.
