Right-o, money miners. We've got the God of Slow Mafia with us today. What a part of the investment mafia, you'd say. Mr Romano Salatena from Katana Asset Management. Back after a very, very well-received episode and chat he did with the boys about this time last year, funnily enough.
So he's come back to tell us a whole heap more, but a bit of a different story in markets. the year that's gone compared to when he previously chatted with us. But very good chat nonetheless. Right, mate. They start macro talking about the bloody passive super fund investing in Australia, gravitate towards the micro GC.
What stocks have we got? Minres, obviously. He's still punching for the $100 a share for Minres.
Good on you, Romano. What do they have? Whitehaven, they were Arcadium to Grave.
They've both been acquired. Coronado, South32, Boss Energy, WAF, West Farmers, Regis, Caroon. Mate, she's all going on.
Let's get into the boys'chat with Romano. Let's do it. Mate, we've got Romano sitting next to us.
Pretty pumped to pick his brain on all things markets-related, the state of the market, the dynamics of the market, the resources stocks that we're interested in. Romano, you joined us about a year ago, maybe slightly less than a year ago. Audience love the chat, lots of insight, lots of perspectives that I think maybe are sometimes a little bit unconventional or said in a different way. And we're keen to tease that out again because markets look a hell of a lot different to how they did 12 months ago. How's everything been at Katana?
Yeah. Next question. Is that the concise way of saying, yeah.
You know, it's a little bit distorted. It's been a challenging year, no doubt. We've been going for 19 years and we had our second worst year on record compared to the benchmark. We're really excited about the portfolios, how they're positioned, but the market doesn't seem as excited as we are at the moment. It's a weird market, right?
I mean, the big stocks get bigger. Valuations of... high growth tech stocks and in Australia of banks just seem to get higher and higher multiples, which if you do fundamental valuation work, seems to stop making sense at some point. Yeah, spot on.
So momentum, we see five investment styles and momentum's had its best year since we've got data, which is 2002 data started. So since 2002, I think it put on 33, 34% as a style in 2024 calendar year. So that's the best year on record. So momentum is just purely devoid of anything, EPS growth, valuation, quality, fundamentals.
It's purely price momentum. Stocks are going up. Therefore, they attract greater flows, which drives a price higher. As the price goes higher, it attracts greater flows, and the cycle continues until it doesn't. And at the moment, it's continuing.
It was a super interesting year, 2024. And you've outlined in your recent letter three of the big factors. behind your performance relative to the market's performance. I'm really interested to try and nail it down to start with the biggest sort of lesson you learned last year from the market. Oh, it probably didn't learn anything.
It probably reminded us that, you know, Mr. Market determines your short-term performance. You know, so we daily go through our portfolios and daily we criticize each other and critique each other and, you know. challenge each other about what we're investing in.
And the reality is, is, you know, we wrote a piece when ComBank was $117 a share. And we said, this is overvalued, but the chances are to go higher. This is about this time last year.
Now, what we also said that we're not going to invest in it because it doesn't meet, you know, a holistic approach to investing. It meets one of the criteria, which is momentum. But the problem with momentum is it can stop as quickly as it starts. And when it does, you've got no recourse.
Whereas if you invest in companies that are fundamentally sound, that are growing, that have good valuations, below book value, et cetera, if the price retraces, then you've got opportunities to sort of build and add to those positions. You spoke last year about not putting yourself in a box either. You're not a growth investor.
You're not a value investor. There was a whole bunch of different metrics you kind of spoke about, but you were pretty… agnostic to a bunch of them. And in conjunction with that, you would use a technical overlay as a part of your investment process.
Has that helped at all through this sort of year of momentum going from strength to strength, from stocks going from, you know, just strength to strength as well, everything just expanding whilst... earnings may be staying relatively flat. Were you able to pick up on any of that momentum or did the value hat that you have in the office pull you back from actually partaking in any of that? I think it's a really good question and it goes to the heart of what we do. And that is that we will never buy a stock purely on technicals.
So purely, if it's got price momentum, that's an important thing for us to look at. But in and of itself, it's not going to get us across the line to buy a company. So where we use our technicals is, for example, where it lines up, you know, maybe it's got earnings per share growth above the market. Maybe we've got a strong view about management, entrepreneurial capabilities, about some aspect of quality.
We can see some price triggers, right? Those things will then be the impetus to buy. But in terms of timing, that's when our technicals come into it. So if we've got something which, you know, and don't get me wrong, some of our technicals have kept us in some of these momentum trades, which we've been in for other reasons. And so by using a technical analysis overlay, we've been able to hold our position, and WiseTech's actually an example, much longer than we otherwise would have on any other grounds.
But in of itself, it won't drive a buy signal. Gotcha. So we can't really talk about momentum without talking about passive, active versus passive, and this massive debate. And to be honest, we haven't had it too often on the show, I don't think. But It is one of the foundational drivers, especially since we started the podcast of returns in the industry.
So I'm really keen to dive into it. This was one of the three big sort of talking points you had in your recent letter about 2024 and what you learned over that year. And you showed this sort of chart with the amount of capital that our super funds now have. They obviously play a big role.
They're not the kind of traditional passive that people might think of in the States, but. they spend a vast amount of that money on ASX stocks proportionate to what their size is. So how is that sort of thinking around passive versus active and the role of active in the market evolved in your mind over the year? I think you've really hit the nail on the head there.
I think that we have witnessed a paradigm shift, a structural shift in the investment landscape in Australia. And, you know, I think... It's been brewing for a while with ETFs and the like there, but I think what made it critical, what critical mass was the conglomeration of the Australian industry super funds.
So if you look at the top five industry super funds in Australia today, they have about $700 billion in assets. The top one Aussie super has got about over $300 billion alone. So just the top five super funds now control about $700 billion. Now. everyone's different, but if you take, say, a 40% as an average metric across that, that they're going to invest into Aussie equities, then Aussie super loan, 40% of 300, say 120 billion, that's going to invest in Aussie equities.
Now, what that means is that when it presses the button and says, right, I want to overweight Aussie equities, it now can't really invest in anything outside the top 20 or 50, because to get that sort of scale, it's just nonsensical. It can't be buying further down the eight. past the ASX 100, certainly. So we're seeing now that it's very concentric.
We're seeing because of this aggregation of funds, because the big have become bigger and that's continuing, we're seeing, you know, appraisers have put a bit of pressure on the underperforming industry funds to be taken over. They're just getting larger and larger. It means that for them to actually invest, they have to really focus on a real subset of the ASX now. So that momentum... um through passive trading or passive investing has hit critical mass and you know one of the learnings i said from our in our newsletter from 2024 is we have to recognize that like we can say it doesn't make sense we can say that it's it's going to revert or whatever but the reality is is we've had a structural change in the aussie landscape and it's government mandated as well first of all we have to put a portion of our salaries into these funds more or less and they have to invest a portion in the aussie market obviously The super funds have a bit of say in what that proportion is, but there's a barrier in which has to go in.
And, yeah, it's good to kind of have those supports. If you're on that side of momentum, it's a good one to be playing. Super funds will be lining up to get a piece of MMS, I reckon, GC, if they could tip some cash in.
Out the door. That passive money will be flying in. I remember when bloody Ben Cleary talking about Berkshire Hathaway lining up to get a piece of Glencore.
That's pretty much equivalent to what Aussie Super will want to get out of MMS. I think imagine getting a piece of the most vertically integrated and sophisticated open pit mining contractor in WA. Mate, they don't. That's a good opportunity. They don't just move rocks, GC.
They have the tech services arm behind the open pit contracting arm that designs and schedules the movement of those rocks. Very important part. Speaking of rocks, the bloody, the new CEO, Rob Ryan, he left rocks to come to MMS.
To move more rocks. To move more rocks. There is rocks going everywhere for MMS. bloody machine ready and tech ready for an open pit mining contract. Hit them up.
Yeah. Go MMS. You really picked at the changes in multiples touching on the PE ratio that a lot of these companies trade at and honing in and really identifying that it is an earnings growth. These companies haven't become better companies. Not that they're bad companies to start, but it's just they're getting valued that much more for the dollar in earnings.
they have. Can you flesh that out a bit more for us? You're spot on.
I mean, it's PR expansion, price-settings ratio expansion. So at Commonwealth Bank, for example, it hasn't had earnings growth. The PR has just expanded from, say, 13 times, which is where it was through the cycle, to now be trading on 26 times.
Now, who's to say that 13 times is wrong or right, and who's to say 26 times is wrong or right? You just have to recognise that there has been this structural paradigm shift in the landscape, and that if the weight of money... is is being bought on on um on passive metrics and com off bank say makes up 10 cents or 10 percent of the index 10 cents and a dollar of passive money is going to get a com bank i think the other thing is you know accentuated the move with com bank is the fact that you have got a fairly large retail base they are fairly sticky a because they're probably just you know they're blindly following com bank because it's been so good to them but also because of cgt issues you know if you You've got ComBank at a very low price.
You're not going to sell at $160 a share even though it's heavily overvalued because of tax implications and reinvesting that money. So you've got these whole lot of different factors working together and driving it. And then that becomes self-perpetuating because if passive money is driving share prices and those share prices are outperforming, suddenly you get this weird situation where passive money on mass is outperforming active money. And so the weight of money that tracks performance will actually start to flow in a passive as well, which will then give it another kick and become further self-perpetuating.
So, you know, we're in a very, we're part, we're a good way through it, but we're in a very interesting dynamic now where, you know, certainly the first time in my 30 years, passive money is performing better on mass than active. And we're seeing it driving inflows. based on performance.
Is it a structural shift though if, you know, why would people buy CommBank today? Well, you're not going to buy CommBank today if you're buying it for the dividend yield because the dividend yield is less than the risk-free rate of return if you just bought government bonds. So you must be, the only rationale to buy CommBank stock today is an expectation of further capital gains in the share price.
So you can only possibly buy that for further. multiple expansion, but you don't have earnings growth to support that further multiple expansion. It's like what we talked about before we started recording. That's got to be some form of greater full theory.
It can't be a paradigm shift. That's simply just, this time isn't different, surely. Well, it's different if the weight of money that's sustaining that move is sustainably different. And I would argue that it is, unfortunately. I'd argue that now we've seen, yes, we're seeing...
momentum on steroids. But I think moving forward, you're going to see the fact that passive flows will be a larger proportion of the market increasing over time. And therefore, you have to understand how passive flows run. There's a great chart just recently, which showed that every major institution and retail investor in Australia en masse had been net sellers of ComBank over the last 12 months.
and it was purely the industry funds which had driven that price. The same dynamic, the passive dynamic, which supports buying irrespective of the valuation, works in reverse as well. And we're recording this today on the 28th of Jan.
NVIDIA overnight has just come off 17%. That, to me, is an example of where, yeah, the sharp volatility. uh can can work in reverse if you're suddenly a rapidly smaller proportion of of some index well guess what there's indiscriminate buying irrespective of the price as well which can lead to a reversal of this paradigm shift from a multiple perspective. Yeah, absolutely spot on. So in our newsletter, we did highlight the fact that, you know, momentum is the most dangerous of styles because it doesn't have a fundamental backdrop.
And so I wouldn't, I'd be careful to try and pick out individual stocks. I mean, obviously in the case of Nvidia, you know, with that market capitalisation and valuation is quite ludicrous, on banks 26 times and it's still paying 3% yield. But I would say that on, you know, on, if you looked at it across the spectrum, I think that momentum and passive investing will have a sustainably bigger impact on our market moving forward from this point. So you made the comment, Romano, who's to say 13 times or 26 times is right, but funds get marked against the market's performance and you've made a decision not to buy in this case and not to hone in specifically on...
of CBA, because I'm sure the same could be said for a bunch of similar names out there. But how do you think this ends? Do you think we sort of stay at this level of heightened valuation?
Do you anticipate everything sort of going up in smoke? What do you kind of think is going to happen in the medium term? Look, that's a question that occupies a lot of our mind space.
I think there's a number of scenarios. One scenario is that the large passive flows. for whatever reason, it'll start with a trickle, then on a mass decide to pivot into, say, materials.
So I think if you start to see a sustainable recovery in commodity prices or if you get confidence in the China rhetoric changing, I think the industry funds will suddenly say, right, we now need to up our weighting in materials. And that's really interesting because we've been doing a lot of work about saying, well, okay, probably this time around when we think that moment happens. then we have to be a little bit dumber than usual and just say, we'll buy BHP, we'll buy Rio, we'll buy FMG, we'll buy Woodside, we'll buy the top five resource plays because if the super funds, if the industry funds are now the ones driving the flows and they've got scale as an issue again, they're not going to get down and be as discerning as, you know, we would have seen in past cycles.
They're not going to be looking at the EPS growth on, I don't know, a company like Sandfire or... or whatever you know they're going to be really just sticking to the top end because it's going to be size that that's going to be most critical to them so i think what that means is moving forward we have to you know really focus on the top end again unless there's a more compelling reason to step outside of that i think other ways it ends is you know if you do start to see and we have started to see in a bit of it in the media if the media really starts to get a hold of industry super funds or just buying commonwealth bank as an example but at some point someone's going to say right it's now the easiest way to protect my position Protect my butt is actually not by Commonwealth Bank. You can protect your exploration butt by getting K-Drill to start.
Punching some arse in diamond holes in GC. Absolutely. Mate, Westcold are protecting their butt by K-Drill now drilling holes for them, the pending 400,000-ounce producer. Yeah, right-o.
Yeah, mate. That could be as transformational as the Karora acquisition itself, having K-Drill on their site. Love it.
You know the drillers and the off-siders are safe because you've got the Ryan, the Sergeant O'Sullivan. He bloody takes that shit freaking seriously. And the RC sample management as well.
Very serious stuff. Yeah, buddy. Decades and decades of experience. Got loads of goldfields knowledge. Now getting a bit of Murchison knowledge.
Mate, go seek some knowledge from Sergeant Ryan and the team at K-Drill. Not Private Ryan. Sergeant Ryan. Sergeant Ryan. Well done, Rhino.
Go, Cajal. I'm going to look pretty stupid if that does start to turn down. So it's really going to be, it's a psychological sentiment thing. I don't think valuations play into this in the current cycle.
I can feel all of Perth get more excited. As you say, hundreds of billions of dollars might get allocated. To materials, but not the speccy stuff.
That's the scary thing. Large cap. So, yeah, but I think there's opportunity if you go down the curve a little bit because so much capital. is focused on concentrated names. There might be occasional valuation that is super compelling at the smaller end where you've got protected downside, healthy balance sheet.
You can see a pathway to buybacks and, heck, there's your bidder of the stock. Those sorts of opportunities can pop up too. So you touched on China there. What are you kind of thinking on that front?
Obviously a huge factor in how everyone does here in in perth are you bearish bullish medium outlook oh look we try and be a realist um and i think at the moment it's still too early to call like you know it was always about what Trump did with the tariffs. And so we're waiting for the inauguration, 20 Jan, that's coming past. You know, Trump's doing what Trump does, which is, you know, barking very loudly and then his bite tends to be, you know, substantially less. I think we need to see, you know, I think Xi Jinping's pretty smart.
He's waiting for the actual nuts and bolts of Trump's policies. I think once we see them, then I think we'll see how China responds. But, you know, people have to understand as much as we hope that it would be different, the reality is that it's not going to be an infrastructure-led stimulus.
You know, they now need to pull on different strings to get their economy going. Like there's only so much surplus housing you can build. There's only so many roads and railways and anything else you can build.
I think people have to really understand that when China does stimulate, it'll be in a different manner to what we've seen in the past cycles. I think the flip side, though, is that India now is really... where we've thought it would be the last 10, 15 years.
India now is really a great chart in Indian oil consumption just recently. So India is at the level where it is starting to have a meaningful impact on marginal buying. So you've probably got to have a close look at, well, where's India, what's India deficient versus what's China deficient in, and probably start to look more at those commodities. The cheap oil from Russia has been pretty handy to the Indian economy of late. Yeah, they've certainly been quite happy to get $60 a barrel US oil when everyone else is paying $75.
Yeah. The India narrative is one that people have touched on for ages. I mean, you go back and look at a Rio FMG, a BHB presentation from 2005, and China's the thing, and then the growth on top of the growth story is that India is the second wave. coming.
What makes you think it's a real wave that's going to lift up? I'm sure you're hinting at Metco names and other sort of names out there, right, in the more immediate future. Yeah, I think now because the economy, you can just look at the GDP numbers and the economy's of a size where 6% GDP or 7% GDP growth now does mean something.
When it's two-fifths of nothing, then no, it was irrelevant. But we're now seeing quite a substantial economy. and one that's growing at quite a good clip. So put those two together and we're starting to get the China effect. Now, we're still not where China was at its peak, but we are now starting to get to the stage where India is meaningful.
And you can throw in Southeast Asia. I mean, there's some really smart, good economies there that are already starting to grow at quite a clip too. So all that kind of said, getting to the third factor in your 2024 reflective note. was an over-allocation to materials and essentially it was more money in miners versus banks or materials versus financials, as they kind of call it.
What kind of went wrong here? Was this more anticipating at the beginning of the year that China would come in a bit earlier? How did that kind of end up playing out versus your expectations one year ago? Oh, it's a hard, really hard now, Jay.
Well, I think it's two things. Firstly, is that we didn't want to be in banks, right? So if you look at the banks and materials make up 51% of the ASX. So you can't be underweight both banks and materials. You've got to make a choice, which one you're going to, which way you're going to play it.
We chose to be underweight banks because we had 13 interest rate rises in, was it 15 months or something? It was the quickest and the biggest percentage rate rise on record in Australia. So we were of the view that you're going to see some slowdown in credit growth. You're going to see some... distress in mortgages and repayments and bad and doubtful debts and whatever else is picking up.
How did we get that wrong? We got that wrong because net migration, despite all the rhetoric, was at a record level. And a lot of these people coming in were buying houses and the property market stayed very, very robust. And so we still had that growth come through and we still had that, for instance, instead of bad and doubtful debts picking up, when you got 20% growth on Perth property price, about 21% in the last 12 months. So, you know, even if you're bought really badly and you can't cover your mortgage, guess what, you sell it, you've got some equity left and the bank doesn't lose.
So I think that was the first thing. And the second thing, I think, you know, on the materials side, it was only really the back end of 24 that the whole China piece became important. Like prior to that, no one was really talking about China. It was, you know, and then all of a sudden this is that we started to see some of the data points come through and it got quite dramatic there.
But by that stage, you're already seeing. resource stocks, material stocks trading at depressed levels. So the damage had already been done. Like, you know, we tend to...
Jump early if we're going to jump, and if we miss it, then we'll just be in there for the ride. And we're a company that, you know, I've got high free cash flows, really good monopoly positions. I mean, you're not building another Metco mine in Australia in the next little while, right?
Effectively, Metco mines have moved into the oligopoly status in my mind. It's a wonderful transition to your portfolio of stocks, Romano. And one of them that, you know, we talked about last year and probably prompted me to read.
rethink my critique of him was Whitehaven. The deal kind of looks as good as ever. Metco prices have moderated, but the share price has been underwhelming given all of those factors.
How do you look at their outlook today? Yeah, so that's still in our top holdings, Whitehaven, and it's there on a bottom-up perspective. You just have to look at that deal they did with Blackwater and Dornier. I mean, it's an exceptional deal.
What has... throwing them off in the short to medium term is number one has been, you know, the Metcold price has retraced back from sort of 240 US a ton. It's sort of sitting at 190 at the moment spot. So, you know, and people don't quite understand, but with the increase in royalties and other things that happened, they really became marginal. So, you know, it's like a high-cost marginal gold producer, right?
It breaks even a certain level, but then as the gold price goes, it really starts to rip because it's got lots of ounces and... you know leverage there same with now with sorry talk yeah so with white haven right why isn't exactly that there's a 30 30 something million tons per annum now so every dollar increase in the price has a really pronounced impact up and down and there's not a lot of additional cost except you know with royalties so that's a threat or second thing was they did have you know we did see this massive escalation you would have been well across this in terms of wage inflation And that at a time when they were trying to consolidate some mines, so they really did have a blowout in their cost short term. We think that's voluntarily under control.
People got worried about the debt, but I think once they settle the sale of 30% stake, I think we'll see the debt pretty much go to zero. And then they're in a position for capital management. And then probably other overlay was sentiment.
No one was buying materials, the materials sector, that whole sentiment piece was negative. So as we sit here today looking forward, We're very optimistic about Whitehaven. What we can't do is say when the market's going to decide to re-rate it. That's the hard piece. I wish we could, but we've just got to know that fundamentally on a very cheap company, broker last week initiated research coverage for the first time and the valuation's over 50% above current stock price.
So we know we're on a very good, we've got a great model on it. Is that Schultz? It's Argonaut.
Yeah, Schultz. So, you know, we've just got to accept that, you know, short to medium term, the market's a voting machine. Medium term, it's a weighing machine.
And how do you think about capital returns in the future? They've done this big deal. It looks pretty awesome in hindsight.
You're happy for them to not look at anything ever again on the shopping front and just distribute buybacks, these sorts of things, as far as the eye can kind of see, you know, with the... the optionality that you speak to in the met coal price? Yeah, definitely. I mean, and it's, you know, a lot of gold stocks, you know, you've got five, six, seven, eight years reserve life, so you've just got to keep the drill bit going and keep having it, right?
But these mines, you know, one's 40-plus year reserves and one's 20 years with a mine that got undeveloped next door to it. So, you know, they've got a long runway in terms of reserves. They don't need to go out and drill.
They don't need to go out and buy something. And to be, in fact... Since they bought those two mines from BMA, we've actually seen that the competition for other Metco mines has been quite fierce.
And so I don't think they'd buy other mines at evaluation grounds anyway. But yeah, absolutely. One of the things that first attracted us to Whitehaven a number of years ago was they did probably the single most aggressive share buyback out of any company we've seen.
And we love the fact that they were prepared to really put their money back into buying back and cancelling shares. So we'd love to see the whole suite of capital management initiatives. That was remarkable just that, yeah, the buyback just saw the stock price go north without any downside volatility. It was, yeah, I mean, that was following a period of just phenomenal met coal prices.
What's changed now is Mongolia's export. capability back into China, which obviously removes seaborne tons from the market. Do you continue to see that as a risk for further downside in met coal prices? I do.
I do see that as the main risk. It's interesting if you go back in the state of the history over time of China's bulk production and bulk import. So iron ore is a great example. I mean, China had a lot of iron ore, and it's still got a lot of iron ore, but now the mines are so deep that the marginal cost of production is getting up there at 90-plus US a ton. China's importing, I think it's still producing about...
200 million tonnes per annum of iron ore. But you go back a number of years ago and it was double, triple that easily. But you're seeing the same with coal, right? So in thermal coal, China's currently producing about four and a half billion tonnes and importing about half a billion tonnes.
Now, as, and they are, their marginal cost of production really determines your marginal spot price. As we start to see... a number of those mines go deeper and get more expensive and logistic bottlenecks and whatever else there, you're going to see just incrementally a few more of those tons getting imported. I think the big surprise in the last six months was the fact that the thermal coal imports actually increased to China, whereas everyone was calling it India.
So China, they're such a large beast, even though they're such a large producer, it doesn't take a lot for them to need a few more tons. and for them to actually arbitrage on the seaborne market. Now, in met coal, it's a much different story there. And we were well and truly relying on India, who is deficient in met coal.
That hasn't come through yet. And we're still trying to work out why. Like, you know, for four months here, every research I'd read said, you know, the post-monsoonal Indian met coal demand is about to arrive.
Well, that was since November. It hasn't arrived yet, so not sure what's going on there, but we'll keep looking. So another one of the names you hold in the coal space while we're on the theme is Coronado. They, I would say, are substantially less loved than Whitehaven were. They had a tough time of late.
How are you kind of seeing things now where we're at, given the cash and what they've done on the debt front over the past six months or so? Yeah, they're much less loved for good reason. Look, we've been trading that stock very aggressively. So we did trade out pretty much our whole holding around the $1.30 mark and then got really clever and started buying back at the $1 mark and now it's at $0.65. But, you know, we see deep value there.
There's a lot of really nice drivers in. I've just opened up Mammoth, which is the first underground mine in Australia. So, yeah, that's going to take some of the weather impact out of it and reduce costs and the like. You know, I've got...
some good expansion projects going in the US there, with Buchanan and Logan. So, you know, they're going to be a bigger producer, lower cost. I get the feeling the new CEO actually, I was on the conference call with him one or two days ago, and it wouldn't have been two days ago, it would have been Sunday, wouldn't it?
It would have been a bit weird. So we'll go with it on the Friday or Monday when they have their quarterly call. And I just get the sense that he's very operationally focused, like he's actually, you know, talking specifics. at a level that you want to see a CEO across. So I get the feeling new CEOs, much more operationally driven.
There's some really big drivers, apart from the two I mentioned with Mammoth and Logan expansion and so forth, have also got the fact that the horrible, horrible Stanwell coal royalty rolls off beginning end of next year. And that could be worth about $100 million a year to them straight away just in reduced costs and the like. So there's a lot of good things to like there. It is not for the faint-hearted. It is the high-risk, high-leverage play.
But at $0.65, I think Mr. Salatena is going to be getting some of them too soon. Yeah, it's one of the hated stock in a subset of hated stocks, that one. Yeah, you've got to be contrarian for Coronado, that's for sure. South 32 is an interesting one. They had a pretty volatile year, kind of all things considered.
Good Island, you know, aluminium market and aluminum market were kind of, you know, oversupplied early in the year and then it got really tight all of a sudden. Orsley, right downs. Yeah, big right down and then a win late.
Yeah, talk about volatility. Is that a name that you've been adding to lately or trimming? And if so, why? I like you guys.
You've picked two in a row that have got kind of right. So we've got a ladder, South 32, 370. November, December last year, and I can't see ourselves going back any time soon. Like you might have to edit about these next comments because I'm not overly fond of management, and I dare say I'm probably not going to be on the Christmas card list. I don't think management will be there for too much longer.
Well, we've thought that for a little while. They did do a global search to find the best CEO and decided that the current CEO is the best CEO. That was my word on the decline is Graeme's wanted to retire for a long time.
Right. Yeah, about 18 months now. 10 years in the gig now.
Look, go and look at the EPS 10 years ago or go and look at EBITDA 10 years ago and look at EBITDA now. There's not a lot of difference, right? Now, they've done a couple of things right, I grant you, but in 10 years they haven't really added any growth.
arms to that business. Wait, you're saying Hamosa? Hamosa's not growth?
What did you make of the Illawarra sale last year? To be honest, I know that it was heading to a CapEx intensive phase, but I still think that was one of, if not their best asset, and gave them some really good diversification. Now, yes, supposedly get some ESG brownie points, but in the fullness of time, let's see if those ESG brownie points really amount to much. I think they've sold.
I think they've really downsized that business. They haven't added value. And you have to remember, resource projects are dwindling assets. It's not like you're building something which is adding value over time. You've got to keep finding more tons.
They've sold a lot of the cash generative assets because they've been transitioning their portfolio to become a future-facing portfolio. So they've added copper, sold the thermal coal, sold meg coal. But... They own capital-intensive assets, which, you know, you've got to reinvest them.
And some of those assets are old. They're old and tired and they're running out of tons. And I don't think, like, you know, they're getting a free kick at the moment from the Illumina price.
Let's be real, okay? And how long that stays where it is, I don't know. But we know long-term it's towards the top end of where it trades.
You take that out of the equation and they've got a big hole in their earnings. Yeah. If you could book in a bit of time with management there. What are the sort of directions you actually want to see them to get active in or, you know, commodities to exit and to, how would you kind of push them in the right direction? I think they've still got a BHP big company mentality and they're not a BHP anymore.
Like they have to get much more progressive and aggressive in terms of exploration. You know, when was the last time you heard them talk about exploration? I don't think ever, 10 years, you know. They pop up on some of these like, yeah, JVs.
junior copper companies, stuff like that. It'd end up going nowhere maybe, I'm not sure. But I just think they have to be a lot more hard at it and hands-on.
I think it's been this really big company mentality and they're not BHP. They don't have those tier one assets in tier one commodities. They may have some tier one assets in tier two commodities possibly, but even those, they haven't really, there hasn't been a lot of regeneration in that portfolio.
And I think that you look at the earnings profile on our model, the earnings profile falls away from here over the next couple of years. Yeah. So happy to be out of that one.
Look, there's a price for everything. You know, sub $3, it's got a pretty nice established trading range over if you're patient from $3 to $4. I know that's simplistic, but, you know, sub $3, we'll certainly dust off the file and have a look at it, but it doesn't make sense right here, right now.
How about Boss Energy? They've had a... A hell of a time. In the background, the uranium narrative, the nuclear narrative, until a couple of days ago when it sort of hit the brakes quite abruptly, was building and building and building, despite what the spot price had done.
And, you know, you might have looked at the ASX-listed uranium names and been a bit disheartened, but a lot of the news was very, very positive, and for a long-term shareholder, not too many reasons to get awfully... scared. So I don't know when you've sort of got into the name or if you're still sort of in it, but looking at it today, wherever it is, $2.53, how do you kind of think about the company?
Best of a bad bunch. I mean, we love the thematic. Uranium just makes a lot of sense at every level.
You know, AI is the latest driver, of course, but take that out of the mix, the long-term outlook for uranium. Because of the new technologies and the new module fours and what's going to come after that, the way it can modularise but also the safety issues around nuclear reactors now, I just think it's inevitable. So we love the thematic, love uranium, love the supply and demand profile when you look out a couple of years. We've had people understand how much enriched uranium we've had from weapons recycling. That's all finished now.
So there's a really good demand. supply profile. The problem is, is that it's very hard on the ASX to find quality uranium plays.
that makes sense on valuation. Boss is the best of a bad bunch. We're still there.
But, you know, are we sort of emphatic holders? No, but we've got to have some exposure because we like the overlying macro. Why not next gen?
Why not Paladin? Yes, the next gen is interesting. And don't get me wrong, we have looked very closely at next gen. You know, it is a very long-dated option. So, you know, it's 20, we think probably 2030 before you see the.
first pounds out of the ground there. And, you know, the uranium cycle could have come and gone by then. We also do believe that it will get taken over.
Like, you know, as they continue to tick off the regulatory milestones, one of the big players is just going to say, well, we can't, if for nothing else, we can't allow that many pounds to get on the market. So, you know, it will get taken over. But, you know, it hasn't been missed either.
It's not cheap. So, you know, but it is on our short list. The theme of... Yeah, quality projects getting taken over. There were two in the Katana portfolio last year that were acquired by major mining entities, namely De Grey in her backyard.
Yeah, one you're a big proponent of about 12 months ago. Northern Stars rocked up and, yeah, offering Scrip and a healthy premium to De Grey shareholders. What did you make of the bid?
Well, it surprises Northern Star a little bit, but... I think we actually wrote in a few of our media pieces, we actually said that it's inevitable that it will get taken over. And, you know, I mean, it's one of the few takeovers that we've actually called correctly.
And as I said, it was the most obvious takeover because you just don't have, you know, gold projects of that scale available in First World jurisdictions. So it was a question of when, not if. Like someone had to take it over.
Now, right here, right now, you know. Bit surprised Norman Starr's fired the first shot. Don't think it's the last shot. Huge. But, you know, I think that, as I said, you're just not going to get another asset like that, certainly not in the Pilbara.
My goodness, if you could get a gold deposit anywhere in the world, where would you want it to be? It'd probably be pretty much where it is. So, you know, there's a few players out there.
I mean, I think Newmont would be a logical buyer, but unfortunately I've got the hands full with the... you know divesting assets you think that now has run its course as of today but you know they've got a where they're going to saddle up for a um degree but you know they've got um um a pressure oxide deposit called lahir gold and uh which i know very well is one of the largest assets so pox to them is no issue um they'd be very happy to get an asset and it's in just on their scale five to seven thousand ounces per annum starting point so i think there'll be you know um an eco eagle another one that could come out of the top would be surprised if they looked at that so i don't think it's the last bid um but if it is you get a free option we're holding out what we've got left we're holding our position because you get a free option northern star which is a good company and good business and exposure gold price if someone does come over the top you're gonna have some upside from there yeah the the the other one was uh arcadium uh you guys were shareholders of react into obviously came Came along and, yeah, been a big part of their 2024 story is their venture into lithium-fired arcadiums business. Guessing this one didn't surprise you as much? Actually, that did surprise me. So the grey we're expecting, no, arcadium, we're just like, well, every soul can get a bit of luck, and that was our luck in all series.
Now Rio is, I think they're high-fiving themselves by saying, well, we've acted counter-cyclically. and they have to a degree, right? So pat on the back for not, you know, buying lithium assets at the top of the market.
But I don't think the outlook for lithium is what it's, what they're expecting it to be. I just think there's too many new sources of supply coming on. All the brine stuff in South America, all the, you know, hard rock spod through. Africa, the pyrrolite out of China.
I just don't think people understand that it's not going to be what it was thought to be. So now, having said that, there'll always be a price for everything because you'll come back to the cost curve, right? So whatever your cost curve is, you'll make a margin on that.
But it's not going to be the margin that it was expected to be. So I think, you know, what did Alan Bond say? Everyone?
Sorry, what did I say? Kerry? Everyone has that one on a bond board.
And I've had mine. Everyone has one we ate tinto. Yeah. So you think they're overpaid?
I don't think they overpay, but I just don't think lithium is what it's I think there's just too much of it out there and too much out there in the wrong jurisdictions, which will come to market cheaply and in an irrational manner. So how had you gone about picking up the stock then? Was that one you'd held for some time or you'd come into it purely on a valuation perspective thinking it's gotten Too cheap and how much did M&A factor into your thinking when you actually bought the thing? M&A didn't really factor into thinking at all. It was just purely on the basis of valuation, replacement value of assets and so forth.
In Rio's defence, I think even on the price they paid, on some metrics that was actually replacement costs for those assets, so build costs. So they certainly haven't overpaid. I'm just not sure they're going to get the return on those assets that they expect to.
And again, in Rio's defence, they've got some nice synergies up there with Rincon and the like there. So they've got some nice things they can bring together and it kind of makes sense for them, but I'm just not sure the lithium macro is what people think it is. So you hold West Farmers as well. How much, obviously, they've got a... a whole number of businesses, but how much does that lithium portion of their business play into your thinking behind holding them?
Approximately zero. The better question is. It's all about Bunnings for us farmers.
Yeah. The best retail experience in Australia. Yeah.
This is true. It's great. Yeah.
It's an amazing business, that one. Better question, though, is how much does it play into your shareholding in Minres? Well, yeah, so here we go.
Look, Minres. At one stage, it did have a substantial impact on our thinking there, no doubt. But the greater picture with Minres is someone starts to produce lithium and Minres really on their contracting margins, which is what they're being valued on, still make good money out of Wodgina and in due course they will make good money out of Marion and the like, even Bald Hill I think eventually.
If they can roll the Bald Hill into the Ganfang JV. Yeah. Well, I'm not sure.
about that but but certainly you know they'll make they'll make margin over time there and and it's also also sunken capex the real reason we love mineral resources is because probably the exact reason why we don't like south 32 it's just got an incredibly innovative entrepreneurial culture but they had the year from hell in 2024 you had lithium price collapse had the iron ore price collapse at the same time as their debt peaked or is about to peak and you also had you know, ESG corporate governance issues. So it really is a year from hell. But I do think that, you know, what people have missed is the debt for mineral resources has expanded so rapidly, not because they've had to cover any issues, but because they've built the largest project in the history of that company, Big Onslow. And, you know, June 2025, it's going to have a run rate at 35 million tonne per annum.
The entrepreneurial culture that you buy into there, do you have confidence that given the year from hell that that'll still be there? Like you don't lose a critical mass of people from all of the external and internal pressures that come with the year they've had? It might be a little bit of attrition.
And to be honest, yeah, we did need to see some additional guardrails. And I think they're now largely in place and we'll see, you know, succession on the chairman and the like. But, you know, that core entrepreneurial spirit, you know, that build FMG, that got Minreis where it is, that, you know, got Roy Hill up and running, you know, in the case of Gina. I think that's the thing that's missing in some of these big corporates. You know, Rio Tinto is an example, whether they are or they aren't, but the fact that, you know, that they're being rumoured to have been well, they've acknowledged that they've actually been meeting with Glencore in the past.
I mean, how does that add value to shareholders? I can't see it, right? But these smaller entrepreneurial companies that do develop projects, like if BNRES gets on Zalapa and running on budget on time and their proportion is, say, 23 million tonne per annum, they're making a phenomenal margin, even at US$90, US$80 a tonne. that money is going to be recycled back into further projects and further projects. And so you're genuinely building a business as opposed to sort of tracking sideways.
On the management front, again, do you think Chris Ellison still runs in two years'time? Still going to be there? I do, and I also hope he does. I think that there's probably been some gross misreporting about, you know, and some that's already been released to the ASX, but I think there's also, you know, there was really a bit of a firestorm around some of the issue issues there. I think that in the fullness of time, we'll get a bit more clarity on that.
I think that we'll start to understand that. You know, he's always had his shareholders'best interest at heart and we'll start to understand that, you know, he's added billions of dollars of value from what was a company that floated 90 cents a share even today at $35 a share, you know, and it hit $97 a share at one stage there. Now, I think, you know, in the fullness of time, we'll see that stock back through $100 a share and I don't think this conversation will be remembered or be relevant. With the lithium business, you know, probably not cash generative at this point in time, you know, net-net, even with the mining services contracts.
What do you think happens to that? Do you think it's... I think it is cash. I think Wadjan is cash generative on a cash cost basis, well and truly.
I mean, lithium hit $9.20 US a ton a few days ago. It's back just sort of under $900 now. But I think at $900 US...
a ton for your head grade 6% and obviously not getting that full price, I think they make a cash profit. Do you think they consider selling that part of the business? Would you guide them in that direction? It's been a chat years ago and the number they could have potentially got from it was a very eye-watering sort of number.
Spin it out on the… I think they wanted to spin it out. They spoke about spinning it out on the NLC. I think they were well advanced to do that. I think the lithium price has sort of robbed them of that opportunity.
I don't think they look to spin it out now. No, I think they're… They did the energy piece as well. Yeah, the counter-cyclical players, and I think now would be the wrong time to spin it out.
But I think always, Chris is opportunistic, but I think always what made sense there was all the supporting contracts. And in a boom time, we just had some super margins out of lithium. And you may get those because it's still a shallow market.
You can still get the spikes, right? You may still get those super prices for a short period of time from time to time. But I think it makes sense to have it in there unless the price is right from an external party and you're not going to get the right price at the moment.
Do you think about a... a long-term iron ore price as well? Is that the sort of way you, you know, chuck it, obviously you'd pick one and put it in your model, these sorts, or is it a bit more sort of qualitative in a sense with the management team and the track record and these types of things? I did think about long-term iron ore price for about 10 years, and after being wrong for 10 years, we sort of stopped thinking about one.
But I think if you could got any guide for a long-term iron ore price, it has to be a marginal cost of production out of China still. And then start doing the work which we're trying to do on India, trying to work out what the marginal cost is. Because they've got iron ore there.
A lot of it's just in the wrong spots and, you know, there's big bureaucracies and they can't just come in and say, right, we're going to take a couple hundred kilometres here to put a railway in because they'll have about 10,000 legal disputes. So, you know, I think you've got to work out what's your marginal cost of production, have a clear view on that. We think clearly it's US$90 and above now in China.
But you're only talking about another couple of million tonnes there. So as we see, you know, Simundu and others come on and replace some of those tonnes progressively, I think that's going to become less of an issue. But I still think we've got 12 to 18 months minimum of a robust iron ore price. If you consider 100 US a tonne robust, around 90 US a tonne.
And then I think just come back to your marginal cost of production. Are you confident in the Onzo iron ore project to deliver? healthy, sustainable margins at Nameplate?
Absolutely, yeah. They control every step of the production process. You know, they're the only mining company in the world that controls it from the mine to it actually ship sailing off.
You know, even BHP and Rio and FMG, you know, have got issues around, you know, they don't control the ports, as an example. They've got dedicated berths and the like there, but, you know, they actually control... every step of that process. So it's within their control and they've shown themselves to be innovative. There'll be some hiccups along the way, no doubt, when you're going from zero to 35 million tonne per annum.
and using some revolutionary technologies like the trans-ocean shippers they're using, the way they're using them. So there'll be some hiccups, but I think over time, I think it'll be incredibly lucrative for them. And I think what it also does is, as Chris has come out and said, there's a couple of billion tons of stranded iron ore there.
And we saw FMG today move on Redhawk, which is interesting. I reckon Min's one of that. Sorry?
I reckon Min's one of that eventually. Yeah, look, quite possibly. But, you know, there's still a lot of stranded deposits there that...
Couldn't be opened up. Now that Onslow is up and running, you know, there's a pathway to go to 50 million tonne per annum and then from there beyond, I think, as they start to do deals with other juniors here. Yeah.
Yeah, I think part of their base case mine plan actually includes part of the API JV, which they currently don't have, you know, the full economic interest in, which kind of needs to be vended in. Yeah. There's that and, of course, there's some.
some other stuff further out. So we'll keep watching what happens there with great interest. It's sort of, yeah, a period of maximum pressure.
Yeah, absolutely. Debt's peaking right here right now at the same time as, you know, the Arnold price has been under a little bit of pressure. It's rebounded now. So, yeah, they've got to The Aussie dollars is well, intuitively you think it's very helpful, but then you remember their debts in the U.S.
Very good point. And the servicing costs are dead, correct. What a company. An interesting company.
Even a year ago, it was fascinating before all the, you know, the ESG, as you put it, kind of topics came to the fore. It's such an interesting business in different parts of the sector that we follow. So keen to keep following that one.
But let's talk about a couple of the goldies that you've spoken about in the past. And another one that's, another company that's building something is West African with Kyaka not too far away from. First gold.
How do you think about the market sort of changing its perspective of the business as it goes from 200-ish to 400-ish thousand ounces per annum? Well, some broker reports have a valuation of sort of north of 350 on, you know, West African straight, what, 160 odd, 155 today. It's all about the West Africa risk now.
And, you know, when I started out 30 years ago, Burkina Faso was just coming out of a civil war. And five years after that, Burkina Faso was... was a place that you wanted to invest.
And 10 years after that, it was the go-to place in West Africa. Now we're going full circle again and we're starting to have a lot of risk around it. I think you've got a former view on Mali and what happens there as to whether or not you invest in West Africa. We have trimmed our position in West Africa. We're holding our nerve on probably about 40% of our holding.
That's what it was. And we've trimmed our risk purely on the sovereign aspect. You cannot fault management. You cannot fault that asset. It is an absolute cracker.
The strip ratio is the operating cost. It is probably the best just about I've ever seen. So it is an absolutely cracking asset. So you've got a form of view to say, do things degenerate further? You've got Burkina Faso, Mali and Senegal, I think it is, who have got this sort of unofficial military pact there.
So you'd expect that what happens in one may flow through a little bit. I think actually what we're seeing now with Marley on Barrick is that they've probably poked the bear and they've probably realised that unlike Resolute where you can put the CEO and his staff under house arrest and they'll come back to Australia and they've got no choice but to pay what you've asked of them. I think Barrick has said, well, you're 70% of our production.
Yes, it's a big impact, but guess what? We have to call your bluff here because if we don't, guess what? Better happen next. to your neighbours and it's going to progress. And so I think that Barrick will call their bluff.
I think that Marley's probably overstepped the mark. And I think that in our assessment, and you can never say anything with certainty in West Africa or in Africa, but in our assessment, we think the pendulum is at its maximum point of fear and that things start to improve from here. We think that it goes a bit quiet and we start to see Marley steps back a bit from the edge and realise that they can't operate gold mines. it doesn't make sense to repatriate nationalised assets.
And, you know, it is a symbiotic relationship. We do need these guys here. And as that happens, I think, you know, you'll start to see the discount applied to companies such as West Africa start to narrow as well. So that's why we've kept a good portion of our holding, but we also have taken some good profit there because there's no doubt the sovereign risk has gone up.
On the construction side of things, ticking away is normal. Every year. Every announcement to date has indicated that there hasn't been any sort of concern on that front.
Do you think they just get there and, you know, ramp it within a sort of range of being pretty comfortable? Yeah, absolutely. I think if, you know, you've got to give management benefit out given their track record over the last six years or so. And it has been absolutely sensational.
And, you know, in operating Sembrada and so forth. So I think absolutely. I think, you know, I think they probably, if anything, a surprise on the upside in terms of timing. And in time when they're sort of generating cash, the capital has been spent.
What's your... What's your recommendation? Return that?
Would you encourage them to look at assets in neighbouring or, you know, I mean, I think they stay in Africa, but perhaps not so neighbouring, but countries in other parts of the continent. Is that what you'd kind of guide them to do, or how would you think about that? Yeah, I think they're going to have, that is so cash generative, they're going to have the opportunity to do both. You know, it's a 20-year mine life to start with, and I mentioned before about gold, you know, gold mines normally start at the 8 to 10-year.
mine life, this starts with a 20-year reserve life. Extraordinary. And there's a lot more drilling to be done there. So I don't think they need to it's not like other companies like even Perseus where they need to replace those assets.
They can opportunistically add to the portfolio, but there's no great the clock's not ticking on them. So I'd like to see some pretty strong capital management, question marks over what they can and can't do. We'll see in time. Why question marks? Getting it out of the country.
Getting it out of the country, just, you know. And I think, too, like, you know, I think if anything, and I hate to be always a sceptic, but Burkina Faso government, you know, they're not going to put pressure on West Africa as they're about to bring on a 20,000-ounce print of mine and they're spending hundreds of millions of dollars in the country. So I think post that, I think, you know, end of the year, there might be another.
you know, issue potentially arising about them trying to extract, the government trying to extract a bit more value from West Africa. But I think that's, you know, that's tomorrow's problem. Yeah. Yeah, it makes sense.
Capital management would be great. The Australian, West Australian gold producer that comes to mind, which you talked about a fair bit a year ago too, was Regis. It had been out of love with a, you know, hedge book overhang for a long time. Hedge book's gone. Stock's up.
It's printing cash. Yeah. What do you think of Regis today?
Yeah, so we were there because, well, we were there actually because we bought it much higher and so we were just there for the ride, really, but we did average a few down. And I think probably last time we chatted, I'm assuming the stock would have been well below $2 and it's at $3 odd today. So it's a different proposition there.
I mean, you know, it was clearly undervalued there. As a 400,000-ounce producer, you would take it. It was the cheapest in the marketplace by a mile. And, you know, the company was, people were so in love with management in the company that, You really couldn't buy a friend.
I think now we've seen a recovery. It is putting out good cash. We have trimmed our holding as well, but we are still holding at a chunk.
I think the bigger issue now is it's gone from being super overvalued to being still undervalued but not as dramatically undervalued. I think the big issue is what do I do with that cash, right? We personally would love to see capital management again there.
We'd love to see them sell off McFillamies. today I've just released saying they've got another plan they're looking at by July for McPhillomies. I'd like to see them sell that asset off and just keep going underground. Like, you know, they've just gone underground in Duketon, right? And people say, well, they've only got five years reserve life.
Well, most underground mines only have five years reserve life and you just keep drilling them out. It's not like, you know, Walia Depot, some of these mines where you've been going for 20 years and you're two kilometres underground. These mines are just getting started. So I think capital management, put what you need to back in the ground and keep it going, but the rest, put it back to shareholders. You make the comment that most underground mines kind of keep going, but most underground mines probably aren't as low grade as what their sort of broader underground plan is.
Do you have, I guess, a degree of confidence in their… their unit costs on a go-forward basis from transitioning to these low-grade underground mines? Yeah, I mean, you always need to look at ounces per vertical metre. So you can look at grades, one thing, but then you also look at uniformity and continuity, and I think that's where they do make up some of those points.
I think the bigger issue really is about management, about how hard at it they are and how they sweat those assets. And that's probably the question mark. I think they've had a bit more...
new focus they've had to on the assets. I think if they, you know, there's enough gold there, it's still a relatively new gold province. I think there's going to be a lot more ounces discovered over the next one, two, three decades here.
And, you know, they've already got, you know, three mines underground. There could be more underground mines here. And then over time, some of those start to link up, some of those deposits underground and you've got, you know, you get cheap exploration shafts and away you go. So, look, given how much gold was at surface and some of the incepts of... released so far we're pretty confident i've got many years ahead of them much more than their five-year reserve life any other mining companies out there we we haven't touched on catching your eye at the at the moment or past few quarters yeah i mean santos is one we haven't touched on there so we um you know santos we uh we do like um it's obviously well the oil and gas sector is out of favor there but we do think they're in an inflection point they've been developing two big assets They're about to go into cash-generative mode.
They've obviously pulled out of the Dorado well, not pulled out. They've deferred fit on Dorado with Carnarvon. Invest today was a big statement, though, late last year, right? Yeah.
Focus on capital returns to shareholders. Absolutely. We're going to abandon our growth-for-growth tax sort of strategy.
100%. And they've got enough assets coming on where they will have enough runway where they don't have to invest in a hurry, which you don't always have the luxury of being an oil and gas company because they are all those assets are short. production assets so we do like sanos um we've done a fair bit of work on west gold another call today with the ceo wayne bramble there um tempted honest well beyond temp we have actually bought a few okay just just in the last week or so um mainly because you've had such good run on the gold space with the gray and and uh regis chiedo before that um northern star and uh what other West Africa, yeah. Of course, yes. We've had such a good run.
We're sort of drawn back there, a bit like a moth to a flame, aren't we? So we've been working through the Bellevues and the West Golds, all the ones that have lagged but still have size, and we think West Gold is probably worth a bit of a play. So we've just started buying a handful. We're not going to go hard yet.
If he can turn it around, and he's got another strike with the last quarter, but... These next two quarters are big quarters for them. If they're going to be 400,000-ounce producer, there's not too many on the marketplace.
There's certainly not too many with a valuation of, what, two and a bit billion. So worth a bit of a punt, but it's not quite investment-grade yet, but certainly worth doing the work on. I mean, one of the obvious themes is that the gold price went from $1,300 a few years back, US dollar terms to something like double that.
If you could, would you just buy gold or is it always the companies and the talk you get with the companies that attracts you? Traditionally, it's always been the companies because they're leveraged, right? So in every dollar, gold price goes up, that's straight through the bottom line. So as a percentage of profit can be a bigger impact.
So in theory, you always have leverage through your gold price. It hasn't played out that way to date. It has with some stocks. You know, I mean, you have seen companies that are up more than 100%, which is what the gold price is up, as you say.
But on mass, we haven't seen it. And I think part of that is because there still hasn't been this acceptance that, A, the gold price is going to sustainably stay here, it's going to roll over, and, B, that gold companies are going to do the right thing with the capital. So I think as both those things start to sort of play out, I think we'll start to see an ongoing re-rating in stock prices.
I don't think stock prices where they should be for gold at $27.50 an ounce, especially in Aussie dollars where we've made a record high of $4,400 Aussie. That's an extraordinary price. FX is a big, big time. Extraordinary price, yeah. Yeah, big time.
To round out on the portfolio, you hold, I think, from the last report, 13% cash, which is relatively sizable. Is that just… pause given the earlier part of our conversation on where broad evaluations are at? That's actually good for us.
So we've traditionally held 15% to 35% cash and we've made a conscious effort to reduce it so that our new weightings will be sort of 10% to 20%. So 15% will sort of be our new benchmark. So we're market neutral for us is 15%.
So yeah, 13%, we're quite happy with that. Getting paid a good percentage on that, at least beating out inflation for the meantime. I think we're earning better on our cash than we have on some of our stocks this past four months. Let management know that.
It's just optionality too for when bargains are on. Yeah, absolutely. And being an open-ended fund, so we always have to allow for redemptions.
And so that's part of the mix. We have to pay distributions. So we have to pay out 5%, 6% each year in distributions and then build that back up. Fantastic.
This has been an awesome conversation, Romano. Appreciate you coming in, sharing your view of the world, macro, company-specific. So I hope we can do it again in a year's time. And, yeah, fingers crossed 2025 is a ripper. Yeah, thanks for your time.
Great to be here. Jeez, I really want to give me money to him. Like, he bloody knows his shit, Romano.
He's a very smart fella. That, like, look, I know, Mr Berridges, you've got a bit of cash tied up with him, but would you consider tipping a bit of the alley, GC? ETF into the Katana ETF.
I'd better do my homework. Love it. Oh, very good.
And thank you to all the partners that have made Romano coming on possible, technically. Otherwise, we wouldn't run the show because it just wouldn't make money. So we just wouldn't do it.
And that is due to Mineral Mining Services, MMS, Contract Ready, Grounded, Sandvik Ground Support, CRE Insurance, K-Drill, DASH SAC, Saltbush Contracting, and Get Wet Solutions. Oodaroo Money Miners. Oodaroo. The information contained in this episode of Money of Mine is of general nature only and does not take into account the objectives, financial situation or needs of any particular person. Before making any investment decision, you should consult with your financial advisor and consider how appropriate the advice is to your objectives, financial situation and needs.