Last week I interviewed resource investor and speaker Jayant Bhandari. Jayant is constantly traveling the world to look for investment opportunities, particularly in the natural resource sector.
He advises institutional investors about his finds and he was a Director on the board of Gold Canyon, a publicly-listed Canadian company, until its merger with another entity. Earlier, he worked for six years with US Global Investors (San Antonio, Texas), a boutique natural resource investment firm, and for one year with Casey Research. We talked about Gold, Uranium, and what he looks for in a junior mining stock.
Hi Jayant, welcome to The Next Bull Market Move. Tell us about your background within the markets. How did you start out and how did you end up in the resource space?
I have been writing on public policy for many years. After immigrating to Canada, I started to write for the Fraser Institute and the Mises Institute. Some of my articles caught the eyes of a well-known investor, Doug Casey. He liked what I had written and invited me for lunch. Those days I was in a bad shape financially. During the lunch, I very shamelessly asked him for a job. Not just in opening doors for me, Mr Casey has been one of the turning points in my life, particularly in terms of how I think, reason, and look at life.
After leaving Casey Research, I joined Frank Holmes’ US Global Investors. Mr Holmes hugely emphasised on training and learning. He spent a fortune sending me to mine-sites, around the world. That is my background in the resource space.
You specialise in analysing and finding junior mining stocks that hopefully offer outsized gains for investors. What do you look for in a junior mining stock? And how important is management when selecting your investments?
Junior mining is a very speculative sector. With small companies a lot can go wrong, but also they are exactly the companies that can offer you outsized upside. It pays to be mindful that as a sector, venture companies are wealth-destructive—the sectors returns less money back to the investors than it takes from them. One has to be very selective in how one picks them.
The management has got to be financially astute, to keep the value of a small company together and increase it on per share basis. There are no guarantees in life, but what we are looking for is a favorable risk-reward situation.
If the management is not financially astute, you can be assured that your investment will slowly and surely get frittered away. In fact, companies run by CEOs who do not understand money and wealth-creation often trade at a discount to their cash value.
Once I am reasonably sure of the quality of the management, I research for as much information as I can get, from companies’ websites, their legal documents, and stock exchange filings. I also read blogs on these companies, visit their project sites, understand the cultures of the societies where their projects are, and spend time talking with the managements. I want to make sure that the value that I can place on the projects of a company is more than its market capitalisation.
I never use hunches or rules of thumb to take my investment decision.
What are your views on Gold and Silver?
I am quite optimistic about the future of gold. Gold is a zero-yielding asset. People buy it when they expect social strife or economic stagnation—when investing offers negative returns on risk-adjusted basis.
The economic growth that the Third World enjoyed over the last 28 years is rapidly coming to an end. The reason is that, except for China, the economic growth of the Third World was a result of extraneous events, mostly related with the free-gifts of western technology that the internet opened up pipelines for. The low-hanging fruit have now been plucked.
Institutionally and socially, countries in Africa, the Middle East, South Asia and most of Latin America are in rapid decline. Institutional and social problems of the Third World combined with stagnant economies, while population growth continues along with increasing material expectation of the youth, is a dangerous cocktail.
The Third World is extremely fragile. Wealthy people from these countries—once they realize that the economic-growth party is over and social problems are increasing—will rapidly redeploy their wealth into gold and other assets (properties abroad, etc) that offer a better chance of protection. This of course will be a vicious cycle for the Third World, the reason why once the gold price takes off, it will take off nicely. That does not mean that I am necessarily expecting superlative performance, but this helps me see that my downside is well protected.
Most of the media will ignore the crisis developing the Third World until the very last moment. The reason is that they are very prone to virtue-signalling and political correctness. Discussions in modern organizations are such that no one can afford to say anything that can even remotely smack of racism.
As an investor in the resource space, what advice would you give to investors who are just entering the space?
A lot of people invest in the mining sector for leverage to commodity prices. This has consistently proven to be a wealth-destructive approach.
If people have expectations of higher gold price they should invest in gold. If they invest in gold mining companies, they should thoroughly analyse these companies. Such companies should offer you an upside at the current gold price. If gold price then increase, your upward performance in your stock investment will be the icing on the cake.
But the real focus as an investor must be the difference between the value he gets and the price he pays, with value always evaluated using the spot price or a pessimistic future price of commodities.
Do you have an opinion on Uranium, and is this a market that looks attractive to you?
I have not invested in Uranium mining for many years. It makes no sense to me. When it costs me more to produce than what I sell, on a risk-adjusted basis, I am by definition taking out-sized risks.
If I think Uranium will do well, under the current pricing environment, I should invest in it as a commodity, using vehicles like Uranium Participation Corporation, etc. Having said this, I am pessimistic about the future of Uranium price.
Uranium-based electricity generating projects are very expensive despite that governments in poor countries do not provide full legal protection and insurance to the locals—in the era of social-media this cannot continue for too long. Such projects are cheap to run, but the upfront costs—and hence the costs of capital—often make them uneconomical.
Governments around the world are facing a cash squeeze. The Third World will face this even more. Moreover, oil and gas today are very cheap, and solar and wind energy are increasingly offering competition to Uranium-based electricity projects.
There are layers of risks involved in investing in Uranium mining, and I see no commensurate reward possibility to offset the risks. In short, I am a pessimist when it comes to the future of the Uranium price and see no logical reason to invest in Uranium mining companies.
And finally, how can readers reach out to you for more information?
My website http://jayantbhandari.com provides links to my work in public policy, my travels, my speaking schedule, and subscription to my free investment newsletter, in which I offer the names of the stocks that my clients and I have just taken a position in or are still buying our last blocks of.
Many thanks Jayant
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Disclaimer - Interviews are conducted in the name of research and learning from the best. Only you can decide what makes a good speculation/investment.