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Oskar Lewnowski, Orion Resource Partners — The Man Behind an $8 Billion Mining Investment Firm (#60)

Resource Insider

Oskar Lewnowski, Orion Resource Partners — The Man Behind an $8 Billion Mining Investment Firm (#60)

This is the first long form interview with the man who built the world’s largest mining private equity firm: Oskar Lewnowski.

Over the last decade, Orion Resource Partners has gone from startup financier to the world’s dominant mining investment firm.

There is very little information about Orion publicly available, and Oskar has never done a podcast before. After meeting last year, he agreed to sit down with me for an interview and take us behind the curtain.

As public markets plunge into increased volatility, private equity investing is delivering some of the highest returns for the investors. Understanding the Orion strategy will be critical to any resource investor looking to capitalize on the commodity boom currently underway.

In this interview with Oskar, I’ll show you:

  • The Big Bet: The single commodity Oskar would invest in if he could only make one big bet.

  • The Orion Strategy: Inside Orion Resource Partners’ all-encompassing approach to delivering returns in the mining and metals sector.

  • The Magic of Accountability: The innovative financing model that ensures projects stay on track and management teams are incentivized to deliver for shareholders.

  • Leadership: Oskar’s hands-on leadership style and visionary strategies that put Orion at the forefront.

  • Mastering Risk: How Orion proactively manages risk and prevents issues from escalating.

  • The Future of Metals: Oskar’s view on the global trends shaping the mining industry and how Orion is taking advantage of it.

This interview offers a truly unique perspective. Don’t miss it.

Listen to the episode on Apple PodcastsSpotifyYouTube, SoundCloud, or on your favourite podcast platform.

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The transcript of this episode is included below.

Note: Transcripts may contain a few typos.

Transcript:

[00:00:00] Jamie: All right, Oscar, welcome to the podcast today.

[00:00:02] Oskar: Thank you for taking the time out to meet with me.

[00:00:06] Jamie: So, this is your first podcast.

[00:00:11] Oskar: It is.

[00:00:12] Jamie: And I appreciate you taking the time today. Obviously, I’ve had the chance over the last year or so to get to meet you, some of the members of your team. And I’ve been really fascinated by what you’ve built here at Orion. And I think for listeners at home now who might not be familiar with Orion, what it is, what you do. I’d love to just give a brief overview of where we are today. Cause you know, we’re sitting right across from Bryant Park in New York and Manhattan. We’re on the 25th floor of a beautiful office tower. You guys, as I understand, just celebrated your 10-year anniversary at Orion. And can you give us the 30,000 foot of like what Orion is today and what you guys do?

[00:01:10] Oskar: Sure, glad to. Orion seeks to be across various products investable in respect to any and all areas of the mining vertical So, should you like to look at mining from the lens of technology? We have a venture capital business. Should you like to look at mining purely in the form of public equities? We have a public equities product. Should you like to invest in the construction end of mining as the building of mines? We have a construction financing product, and so on, so on. So, we have a number of different investable products that all work jointly to try and give insight to people in the, across the entire mining vertical, from the ore production all the way through to futures hedging. That’s, that’s the goal of the organization, and hopefully we have, after 10 years now, achieved that successfully.

[00:02:06] Jamie: And who are your, your clients? What kind of investors do you service, your LPs?

[00:02:11] Oskar: So. Our, our biggest source of capital are U. S. pension plans and sovereign wealth funds. So, our investor base is actually more on the large ticket, small number side of things rather than, say, a lot of small endowments, foundations, those kinds of things. So, we have a very concentrated, large investor base.

[00:02:37] Jamie: Okay, so you can see I have a lot of notes here in front of me. I do want to get into everything you’re doing in detail today, but I’d like to actually sort of take a step back first. And so, you’re ten years in now. I’m in this sort of beautiful, gleaming office today. If you were to take us back sort of ten years from now, when Orion started, can you kind of lay the, can you paint the picture for what I would be looking at then and what you were What you were thinking at that time?

[00:03:05] Oskar: Sure. Well, 10 years ago which was actually last September, we spun out of another firm called Red Kite. And Red Kite was in its heyday I believe the largest metals trading hedge fund in the world. And at Red Kite, I was one of the three founding partners there. We decided that it would be very useful for our physical trading business to actually finance mines as a way to secure supply. And so, we built a mine finance product alongside the trading business. And then when the mine finance business sort of matured a little bit we decided as a group that it actually behooved us to separate the business and so we did. And Orion was born out of that, out of that separation.

[00:03:51] Jamie: And were you doing, you know, physical trading similar to like a Glencore or a Trafigura?

[00:03:56] Oskar: Yes, yes.

[00:03:57] Jamie: Not just derivatives?

[00:03:57] Oskar: Absolutely. Yes, correct. So, absolutely. We did in the day at Red Kite, we did a lot of physical trading, and we continue that tradition here at Orion. Our physical offtake business is a central core of what we do. It informs us on the mine supply side. It’s a really good real time catalyst to understand if there’s anything going wrong at the mine because it shows up very quickly in production. If there’s missteps at the line, it also helps us understand the flow of physical business. It acts as a natural long position, so it’s useful for hedging as well, for the commodities futures product. So, it is actually a core activity of the business. It’s something that is really central to us since we started the business.

[00:04:47] Jamie: Do you guys, and maybe at Red Kite it’s different than here at Orion, but do you actually facilitate physical transport of goods? Whether on a train or a ship or what have you?

[00:04:57] Oskar: Absolutely. So, we take sight of cargo, physical material at a port or at a mine gate. We transship it, we insure it, we deliver to customers, we pay to merge when we have to at port. Yeah. And we actually consign to rail cars and move material around the world.

[00:05:19] Jamie: So, have you ever read the book The World for Sale?

[00:05:22] Oskar: Yes.

[00:05:22] Jamie: Yeah. And so, in that book they talk about, and for those listening at home, this is a book by two great Bloomberg journalists that really dive into the history of the commodities trading businesses. And Glencore featured heavily in there. And they talk about how Glassenberg sort of saw the writing on the wall that the margins were kind of getting squeezed out of trading and that he wanted, and he needed to own the actual assets. And it sounds like you guys had a similar realization at Red Kite. Is that fair to say that?

[00:05:56] Oskar: Yeah, it’s fair to say. Yeah. I mean, we realize that the best way to control the margin of the physical trade is to actually own the supply, right? And you don’t need to necessarily own the mine to own the supply. What you really need to do is own a long term off take contract. Now, obviously, if you’re negotiating with yourself because you own the mine, that contract is a lot easier to sort out. But it’s not necessary. And the most successful trading houses have a mix of those things. They own assets that they control and that they run their off takes off of. In some cases, they actually provide the service to a third party and it’s the mixing and matching of those things that creates a great trading book.

[00:06:39] Jamie: Do you have much of a view on there’s like the traders that became miners, I think probably the Glencore is the best example of that.

[00:06:46] Oskar: Yeah, and the traffic rulers.

[00:06:47] Jamie: Yeah. And then there’s the miners that I presume more quietly built out their own trading houses like the BHPs or something like that. Do you have a view of whether it’s easier to go one way or the other?

[00:07:00] Oskar: It’s easier to be a trader and become a miner than be a miner and become a trader. They’re very different skill sets. Right. When you are a trader physical and otherwise, you are an LME person, and you go to the LME dinner. Yeah. If you are a mining guy, then you go to PAC, right?

[00:07:17] Jamie: CIM. Yeah. And CIM.

[00:07:19] Oskar: And you go to those meetings. You don’t see very many traders at the one meeting. You don’t see any mines at the other meeting. So, there are separate worlds and there are fewer than a handful of successful stories about merging those two skills.

[00:07:33] Jamie: Yeah. So, when you wake up in the morning, look at yourself in the mirror. Do you see a trader or a miner at heart?

[00:07:41] Oskar: I see a trader. I don’t like looking in the mirror in the morning. It’s not a pretty thing, but…

[00:07:46] Jamie: So, you’re at Red Kite. Red Kite, as I understand it, still exists.

[00:07:50] Oskar: I believe so, yeah.

[00:07:52] Jamie: You left and started Orion, as I understand it, focused on the mine finance business.

[00:07:58] Oskar: Correct.

[00:07:59] Jamie: So, most of the people listening to this podcast are investors in mining. But very different than the way you would invest in mine. They’re primarily retail investors. They buy equities mostly in the public markets. Can you give us the overview of what mine finance is and what stage you’re really looking at there?

[00:08:18] Oskar: Okay, so, development of a mine, which is really a development of a project. It’s typically not called a mine until it actually produces, right? Until then, it’s really a project. A project development has two general phases. One, exploration, and the second, execution. So, they’re differentiated by what the primary activity is. So, exploration is really, as you would expect, finding the rock, finding the ore body, determining what its size is, and getting an idea of, how economically viable it is, right? Execution is, I have a viable ore body, I have a good set of economics, now I actually have to construct the mine. So that’s a building exercise. And usually, roughly said that the amount of money spent to get to a production asset is about 20 percent exploration and about 80 percent construction. So, exploration is riskier because you may find nothing after spending a bunch of money. But execution is much bigger dollar signs, but much, generally much lower risk. We are firmly in the execution camp. We are not really finance, financiers of exploration. There’s a whole, as you can imagine, there’s a whole junior mining market out there. You know, Canadian based largely, but also Australia and other countries, and they fund exploration. Once you get to us and you need the really big checks written, then you have a mine plan, you have a budget, you have permits, and then you’re ready to actually pour cement, right? And that’s where our money comes in. And what we try to do is we try to make sure that the entirety of, in our view, the scope of work and the amount of money necessary to achieve that scope of work has to be spoken for, right? You don’t want to build 90 percent of a mine because then you have nothing, but lit cash on fire, right? So, you have to know that you have all the money necessary in your estimation or in Orion’s estimation to finish a mine. And that’s what we do. And so, what we’re essentially underwriting there is a project that’s unfinanced. It trades roughly in the market at about a 4 times NAV, whereas a cash flowing growth asset trades at north of one times NAV.

[00:10:34] Jamie: And so, you’re clipping that margin.

[00:10:36] Oskar: And you’re clipping that margin, right? One divided by 4 is a two and a half multiple, right? So that, that’s essentially what we’re underwriting.

[00:10:43] Jamie: And for people at home not familiar with NAV or NAV, that stands for Net Asset Value, which is a calculation of the underlying value of the assets, typically.

[00:10:52] Oskar: Correct.

[00:10:52] Jamie: Yep. So, okay, so, is it safe to say, you know, a lot of the, especially the junior mining speculators they’re looking to knock it out of the park, right? They’re looking for those 10x returns, you know, they’re willing to, to eat some losses along the way to search for that 10x. You’re looking at a much more structured product and deployment of capital.

[00:11:14] Oskar: Exactly. Early-stage exploration is, you know, venture capital for rocks, essentially. And that is, I’m going to write a couple of zeros, I’m going to maybe cover my face once or twice, and then hopefully the rest of the time I’ve got a 3x or 5-dagger or however you want to call it. And that’s a very VC model in a way. And that works for various people that like that kind of risk. To our thinking, that’s not really very institutional in nature. And we’re looking for, um, investors, and investors are looking for us to hit singles, doubles, triples, not grand slams, right?

[00:11:49] Jamie: So, when you were sort of devising this, and what you’re saying now is, it sounds pretty obvious, and you know, this exists in infrastructure, and basically every other industry in the world. But, and I’m not an expert on this, but when I look at all the other mining PE funds, private equity funds in the world, first of all, there aren’t that many that are around for the long run and there aren’t as many, I think, that sort of take the approach that you’re taking. There’s a lot more equity focused and a lot less sort of structured finance. So, did you come at that, like, did you understand the needs of the clients you wish to service or was this just sort of how you viewed the industry, and you were scratching your own itch there?

[00:12:39] Oskar: I like the scratching your own itch analogy. I think that’s kind of more appropriate actually. It doesn’t do anyone a favor to put something together that an investor likes, that’s a great story, but isn’t fit for purpose, right? So, what a lot of people have done over time is they’ve invested in PE structures that mimic what you’d call a retail investor approach, which is early-stage equity. Which leads you to a too concentrated position. No flexibility in your capital structure and passive exits, right? Yeah. To exit your equity position, you need somebody else to buy your equity position, which means you can’t really drive that success, because unless you have all the money together to actually build a mine, you don’t have any alternative path. You either, right, if you have, if you’re looking at this from a perspective of, I’ve just funded this exploration success story, either I build a mine and go public and exit that way, or I sell this discovery to, to a third party.

[00:13:45] Jamie: Yeah.

[00:13:46] Oskar: And if you can’t sell it, and you don’t have the money to build it, then the person that you’re selling it to knows you don’t have the money to build it. You have no leverage in that transaction.

[00:13:58] Jamie: And you see this a lot, these PE funds that get trapped, right? Exactly. It’s like they own all of it, or a large, or most of it. They list it. They raise some other money. They still own the money. 40 to 60 percent of this thing. There’s no way they can sell that stock in the open market. No one else wants to finance it if they won’t finance it.

[00:14:15] Oskar: Exactly.

[00:14:15] Jamie: And then they’re trapped.

[00:14:16] Oskar: They’re trapped. Exactly, exactly right. And that is been the bane of existence for many a person in this space because they know that there’s this overhang of paper that wants to be sold. And they’re not going to get in front of that because that sales process will crush the price, right? And if they know that you can’t sell it and then there’s no financing in place because you have no more money to follow your money to actually build it, you end up in this sort of you know, sort of impasse.

[00:14:47] Jamie: Yeah. So how do you guys do things differently? How do you avoid that trap?

[00:14:53] Oskar: Well, first of all, the best way to avoid that trap is not to walk down that road where the trap is, right? And that is, right? And the way to do that is not to get involved in those early stage, more middle stage exploration plays. There’s a famous sort of curve with many different names, the most common is the Lassonde Curve, right? And that’s very low value through exploration and all the hype gets told, the share price runs up, then the people realize, oh no, oh no. There’s nobody going to buy this, but we now need, you know, a billion dollars to build the asset. Where is that coming from? The share price comes back down. Construction finances raise. This finally happens. Then the share price runs up, and then you have a publicly traded cash flowing entity, right? What we want to do is we want to get in at that trough in the Lassonde Curve and we want to get out on the first day of commercial production.

[00:15:50] Jamie: And you’re using, in these scenarios, a combination of debt, a combination of royalties and off takes, a combination of equity. Is that fair to say?

[00:15:59] Oskar: Yeah, so, what we talked about at the beginning was that there’s no point in financing the first dollar of a mine construction if you don’t have the money to finance the completion of the mine construction, right? Ninety percent of a mine is just a big hole in the ground, right? So, you have to speak for all the money, and you certainly don’t want to take that check and write one big equity check for it, right? You certainly want leverage, and you certainly want to be, you know, clever in structuring how, you know, that mine package, mine financing package is built. And for that you need to have a lot of different options in your house to do that. Because every mine is different, every cash flow profile is different. You have to bespoke your package to the needs of the client, right? And that’s not possible if you don’t have the ability to do any and all of those different kinds of structural financial tools in your tool belt. And Orion is one of the few organizations that has enough experience, enough expertise. In all of these kinds of structuring options to really tailor properly the package to the, to the needs of the mine. Additionally, what a lot of people forget to do or do poorly, that we’ve, you know, sometimes through, you know, hard yards ourselves, have to be said, learned about, is how to milestone properly, right? So, if, if you have a billion dollars that you need to build a mine, the worst thing you can do is go to the mine manager and say here’s a billion dollars call me in three years and let me know I went right, so…

[00:17:30] Jamie: You have some nice dinners.

[00:17:32] Oskar: Yeah, that’s right. Yeah. Oh, that’s Ferrari. It’s new on the lot. How’s that happen? So, what we do is we don’t finance all the money up front. We have different stages different requirements both financial budgetary, personnel and operational readiness You to draw money from us. So, you have to meet every milestone for the next ticket to arrive.

[00:17:57] Jamie: So, you accomplish X, that unlocks Y amount of capital.

[00:18:00] Oskar: Exactly right.

[00:18:00] Jamie: So, I have a question here for later, I’m going to pull it forward. So, agree or disagree? So, mining as an industry massively overcompensates its managers and massively underperforms.

[00:18:14] Oskar: I don’t believe it massively overcompensates its managers. I believe that compensation schemes could be better tailored towards success. But if you compare mining executives to oil and gas executives, for example, they’re certainly not overpaid, right? But the incentive alignment could be improved. Only about 20 percent of mining projects get built on time and on budget. On time is within six months of original timeline, and on budget is within 15 percent of original budget. So, it’s an industry that is woefully inadequate as far as returning capital properly to its shareholders, because overruns lead to dilution, lead to delays, lead to worsening conditions for mining companies and lead to long term on an industry wide basis lead to people exiting their interest in investing in the space, right? And there’s many a paper been written about value destruction in mining and don’t need to belabor that. What we have to do is we have to find a way to do that more cleverly and that path exists.

[00:19:26] Jamie: And it’s the milestones part of that, right?

[00:19:27] Oskar: Milestones are certainly part of that proper structuring of covenants for, for debt facilities is part of that, balancing the debt facilities with structures around production linked financing so that the part of the financing package is linked to production so that the company feels more comfortable about its relative leverage is important. The ability to intervene rapidly, which is important. Mining companies that have things go wrong quite often don’t have the budget or the wherewithal to deal with the problem when it’s still minor and the problem escalates. And as you know, in any of these sort of construction projects, one small thing near a bottleneck or a critical path can have a cascade effect across the entire project. And by the time you get to figure out what the original problem was, it’s morphed into something much bigger, right? There, Orion is very happy to be hands on with folks. What we do quite often is understand there’s a problem, and because we’ve seen that problem in another asset that we’ve investigated or funded, we know how to solve the problem and who the person is that can solve that problem. So, nipping stuff in the butt is another big advantage that we have. Another big lesson that we learned over time to, to have open dialogue about what is going poorly and sorting it out quickly.

[00:20:53] Jamie: You know, when you get got into this career, did you start with like, you’re we’re in New York, not exactly a mining hub. I think you grew up here, if I understand.

[00:21:03] Oskar: I did, yeah.

[00:21:05] Jamie: Were you fascinated with mining or were you fascinated with finance early on?

[00:21:08] Oskar: I was actually fascinated with finance and fascinated with finance as a sort of an oxymoron. I mean, I don’t know how. You know, finance isn’t really that fascinating as a career, but it’s where I started, right? And I really got into mining quite a while ago almost by accident. I was, you know, busy being a general corporate banker, but I got sent out to Central Asia very early in my career.

[00:21:38] Jamie: Where specifically?

[00:21:39] Oskar: I was sent out to Kazakhstan, I was sent out to Azerbaijan and I worked on a lot of the sort of post-Soviet mining industry and oil and gas industry sort of restructuring.

[00:21:49] Jamie: So, this is taking these sorts of state run organizations and listing them on a

[00:21:54] Oskar: Exactly. Listing them, selling them, running privatization campaigns for, for people’s equity in these, in these businesses. So yeah, I did, I did a lot of that at Credit Suisse.

[00:22:06] Jamie: Ah, yeah. I mean, have you, I assume you may have read Bill Browder’s book and sort of his early career in, in doing something similar.

[00:22:14] Oskar: Yeah, he was more oil and gas and very much Russia focused, and I guess I was lucky enough not to be Russia focused. And more mining than oil and gas. But yeah, essentially this was the wild east back in the day and figuring out stuff that never had to be figured out before. And it’s a really steep learning curve but fun too.

[00:22:38] Jamie: And so, did you kind of fall in love with the sector and see the opportunity there?

[00:22:42] Oskar: I did actually, yeah, I kind of fell in love with it. I’d say mining for most of the people in mining is kind of a love hate relationship. You have to, you have to kind of love it, but it drives you crazy too. At times, right. Yeah. But it’s, you know, it’s kept me busy. And mostly out of trouble.

[00:22:58] Jamie: So, if we come to today, you guys have been doing this for ten years now, it’s a very different world today. Where do you see the opportunities in mining today? Where is Orion and yourself focused on in the future?

[00:23:16] Oskar: Well, a lot has been said in the press and a lot of other sort of public announcements have been made about the importance of decarbonizing the economy and sort of you know, removing fossil fuels from the energy systems and replacing them with, you know, renewable energy. A lot less has been said, although, you know, certainly some, something’s been said about how important mining is to that conversion, right? The amount of lithium, the amount of graphite, the amount of copper necessary for a successful transition is finally starting to be understood by people. And the need for upstream supply for downstream assets be they geothermal wellfields, solar panels wind farms is finally sort of being understood by the OEMs, by general industry, by the government. You know, belatedly, the U. S. government is, it’s sort of cottoned on to the fact that they need to do something about securing critical materials to the U. S. The EU has also initiated a program as well about a year ago now to try and secure supply. So that is obviously a very big thematic that’s, that’s a booster of demand. I think the other things that are probably a little bit less well understood, that are also big sources of incremental demand for metals are the use of a great deal of metal in military situation. So regional conflicts that we’re going through now are vast consumers of metal, right? So that has to be replaced as well. That’s another source. As of about 5 or 6 years ago now, the world has finally moved to being predominantly urban. So more than 50 percent of the world’s population lives in the cities. Cities are much bigger consumers of metals than the countryside is, right? You’re moving essentially from wood construction to cement and steel construction. So that’s another big source of demand. And then lastly, incremental sources of new energy requirement. Not just for transitions, but also the amount of data centers and AI data centers that are cropping up now that need energy and need infrastructure for that energy. That’s all incremental sources of demand. And now, the important word to understand there is that they’re incremental. Right? There’s still all the underlying historical needs for metals that always existed. Like you still need copper for tubing. Right? You still need all that kind of stuff. This is all new sources of demand.

[00:25:54] Jamie: Well, the stat I read from one of the banks, one of the research groups, is that it’s something like in the next 25 years there needs to be more copper mines than all of human history up to this date or something like that.

[00:26:08] Oskar: That’s a quote that a lot of people have made. I think most recently the CEO of Rio Tinto said that at a conference. And it’s true. We do need to mine more copper in the next 25 years if we’re going to meet our urbanization demographic requirements, we’re going to meet military requirements, we’re going to need to meet energy transition requirements data center, all that stuff means we need to produce more copper. Closer to 50 million pounds of copper versus about 25 million today.

[00:26:40] Jamie: And so, we’re seeing like today, the majors reacting to this in a big way, right? We like Anglo’s now in play. BHP put a bit in for them. Glencore is kind of going around that too. So, you can see the biggest mining companies in the world are making big steps to lock down supply. But they’re really only locking down existing supply, right?

[00:27:04] Oskar: Exactly. They’re changing the ownership of supply, not adding to it.

[00:27:07] Jamie: Even, I think, was it last week, we saw the UAE Sovereign Wealth Fund, they bought a big chunk of KCM, Vedanta’s Zambian copper mine, a billion dollars, I think, for 50 percent of it. So, that’s great, and it’s good to see money flowing into, sort of, consolidation and bringing these sorts of assets offline. We still need more mines, right? We need a lot more copper mines.

[00:27:33] Oskar: We need to do three things better. One, we need to incrementally improve recycling.

[00:27:39] Jamie: Okay.

[00:27:40] Oskar: Because that’s copper breathing air. That’s, is it, is it the highest, best use of copper? Or can you recycle that into, into A better use. That’s one thing. Second, you need to maximize out substitution or thrifting. Right? So, you need to say, do I really need zinc for this? Do I really need copper for this? Is there a way to use less to get the same result? Or substitute it out with something that’s not as constrained physically as this metal is, for example. Right. So, in battery chemistry, is there a way to run a battery chemistry without cobalt? If you can figure that out, and people are talking about how to do that. Then all of a sudden cobalt becomes less of a tight market, right, because you don’t need as much for what you’re using. And then the last thing, the last one is obviously primary new supply, which is the building of mines. You need all three of those working together to have any hope of meeting these demand size targets that people are talking about.

[00:28:41] Jamie: Okay. So, with respect to the primary supply, this is going to be kind of a hard question to answer, I think.

[00:28:50] Oskar: Oh, good.

[00:28:51] Jamie: What has to happen to incentivize miners, governments, the key players here, to actually go out and make that happen? To develop new mines, to explore aggressively for new mines? Is it simply metal prices need to rise to incentivize that? Is it regulations need to change? I mean, I don’t know. Certainly, you know, America and Canada and the Western world is a little, I think a little slow to the game. You know, the Chinese have been picking up critical assets in Africa, now aggressively in Latin America for years now. What has to happen for, let’s call it, North America and Western Europe to catch up there? Or can they? I think I asked you two different questions.

[00:29:38] Oskar: Yeah, it’s okay. A complex compound question. Okay. No. Suffice it to say that the West needs to catch up. It’s not a what if or do we need to or can we or should we. It’s almost an existential question for the West at this point. If they don’t get this together, they’re looking at a long-term slowdown and decay of the economy. Their way of life. You need to do this, right? It’s a nice to have type outcome for them. Not everybody realizes that. Not everybody buys into that. Not everybody is as fully convinced as I might be that that’s true, right? So, the first thing that needs to happen is education, right? And that’s where something like a podcast comes in because these people that have various sort of agendas and have various you know, issues that they have to contend with.

[00:30:35] Jamie: And you hear that, Biden, are you listening right now?

[00:30:39] Oskar: I actually think, I think, I think, I think actually Joe is actually on board with this. I think the IRA is a really powerful piece of legislation in that direction. Right. I also, for what it’s worth, I think Donald Trump kind of sees this as one of the few bipartisan things he can actually agree with the Democrats on, so I think that that’s super helpful. But you’re right, I mean the Chinese Belt and Road Initiative has given them a pretty massive head start on this and we need to catch up, but if anybody can, it’ll be the sort of, the Western powers, pretty, you know, innovative, pretty fast at catching up. What has to happen is you need an incentive price of production. Where you asked about incentive prices. So, you need that to happen, right? Otherwise, there’s no economic benefit to the West and to the people that provide private capital to actually deploy it in this space, right? So, you know, you can, you can, you have a dollar, you can spend it on a lot of different ways to convince somebody to spend it on building a mine. Means that the mine has to return in something economic relative to its risk Versus other projects, right? And you know, is that a solar Panel is that a wind farm or is it a mine, right? The first initiative has always been for people to go downstream and fund green projects. But the returns there are, for infrastructure returns, are single digit returns now, right? The really interesting returns are now upstream, right? That’s starting to be recognized and money is moving in that direction. But you need incentive price of production. And you need certainty, and that certainty is really a question of permitting at this point, right? The last thing you want to do is spend all this money on a mine project, you know, we’re talking about hundreds of millions of dollars in some cases, only to be told that the mine is a no go because some permitting issue came up that you knew about, that other people knew about, but they just ignored, and they didn’t want to deal with it. And then they say no. And then you’re sitting there with all this money spent and nothing to show for it. That needs to change. You need certainty. You can certainly say no to a mine. You can say, I don’t like this mine. I don’t think this is in the right area. It shouldn’t be built. But, to say it’s okay and then wait till a lot of money has been spent and then say no is a problem.

[00:33:01] Jamie: So, in the lead up to this conversation, I’ve been trying to think about the problem and the solution here. I have a pet theory, but I want your feedback. So, the, you know, the problem with competing against, say, the Chinese, is You know, often they’re state sponsored. They don’t really need to make money on the acquisitions of the mines. From what I can see, you know, in the case of things like lithium, they’re just securing the feed for their downstream industries, right? And all the money is made in making the batteries or the solar panels or whatever, and they’re able to outbid almost everybody else in the world for assets. How does Because North America, you know, the Canadian, U. S., Australian mining industries compete with that when companies, private equity firms, et cetera, they actually need to make money on these investments? They have shareholders they answer to. So, I have two theories here. One is that there will need to be some form of public private partnership where the government is providing capital in order to secure assets for, for some form of national interest. Or two, that the only people that can maybe afford to compete here are the big tech companies whose cost of capital are so low who trade at such high multiples that, you know, the Teslas or the Microsofts or what have you, they’re able to actually go down and lock, lock down their feed of whatever minerals that is critical to them and not be concerned to the same degree about making money as obviously a mining company would be. What do you think?

[00:34:48] Oskar: I think you’ve identified certainly a key problem, right? Which is that the political situation in China and the SOEs that work for the Chinese state aren’t. always rational economic actors, right? They, they have a geopolitical element to them and they, they think very long term and they, they may be willing to lose money up front on something just to secure supply and to ensure the ability to bottleneck other geopolitical actors, right? And you’ve seen that in Rare Earths. You’ve seen that in a couple other situations recently. So, you’re right. That, that, you know, that’s not a level playing field from the perspective of the West, right? I’m not as deeply concerned by that, and I’ll tell you why. Making decisions on a non-rational basis, a non-economically rational basis will tend to cause problems for you in the long term too, right? So, you’ve seen a number of investments that the Chinese made under their Belt and Road Initiative in Africa go sideways really badly, right? So, there’s only so long that the, that the any kind of economy, even the Chinese economy, can tolerate abject negative returns, right? And you’ve seen that in a number of projects where they’ve overbid where they’ve constructed ports and railway systems in different countries and those railways are empty. You’ve seen, even in China itself, you’ve seen the Chinese build airports where there’s no, there’s no landing slots, right, for airplanes. So yes, you can be economically irrational, but eventually that’s going to end up costing you. And I think that is something that the West can avoid making as a mistake, that may be a mistake over time. That doesn’t solve your problem immediately, obviously. This is sort of more of a longer-term evolution of thinking. But nearby, you’re right. There’s got to be an ability for the West to compete on an economically rational basis against a, a player that’s not necessarily that and the way I think that works really ultimately is that you have a Western balanced price mechanism that, that essentially guarantees at least for some portion of the minds output, a floor price and then a floor price It looks like a price that provides a certain positive level of return to the investor and the mine and doesn’t allow a non-economic actor like the Chinese government to underbid the prices, right? Because that’s, that’s something else that happens, right, is you go in and you write yourself an economic case for an investment and then the Chinese come in and they underbid the price that you think you’re going to get for your output and then, you end up having to close your operation down, right? So interesting example today in cobalt, right? The Chinese have gone from producing China has always gone from producing 10,000 I think it’s tons maybe of cobalt to producing 100,000, right? And the whole market in the world for cobalt every year is 150,000 tons.

[00:38:01] Jamie: Okay, so they’ve just flooded the market.

[00:38:03] Oskar: They’ve just flooded the market, destroyed any ability in the West for anybody to make any money on cobalt. Everybody shuts and the West shuts down their cobalt production.

[00:38:10] Jamie: Then the Chinese can buy up all those mines if they want to as well.

[00:38:13] Oskar: Exactly right. So as long as you knew that there was going to be a guarantee from either an OEM, a tech company, or the government, or somebody that says we’re going to guarantee 40 percent of your productions at this price and with that you just about survive, then the Chinese can’t play that game with you, right? They can’t just, you know, take you out.

[00:38:33] Jamie: So, do you envision that happening kind of like on us or maybe North American based assets, or do you envision that happening for US companies on global assets that they’re involved? How, how does that might be?

[00:38:52] Oskar: I don’t know your realm? No, no. I just, I don’t, I, I don’t know how that happens. I’m just hypothesizing that that’s a path that, that people have talked about taking. To, you know, secure supply, because you don’t want to end up being completely dependent on the Chinese for sources of materials.

[00:39:11] Jamie: There’s a lot of discussion, obviously, today in terms of sort of on-shoring to America, right?

[00:39:19] Oskar: Yeah, or friend-shoring.

[00:39:21] Jamie: Yeah, probably chip manufacturing being the most prescient. But I think that there is a time when the actual deposits of onshoring for, you know, be it lithium or nickel or cobalt or what have you, there is going to be a focus on securing those in, in friendly countries in North America again. But I think, you know, to your point earlier, that means real, in a lot of places, overhauling of regulations, right? Or at least, or at least clarifying the regulatory environment. Do you think that happens?

[00:39:59] Oskar: I do believe that happens. I really just hope it’s not some kind of traumatic event.

[00:40:05] Jamie: Yeah.

[00:40:05] Oskar: That forces that to happen, right? You know, you want to, you want to take care of it before, you want to take care of those kind of problems before they become acute, right? And that’s a question of political will. And, and sometimes it takes, it takes something traumatic you know for, for the people to, to do that. I hope not, but, but who knows?

[00:40:27] Jamie: I think it probably will. You know, I think about even just Canada, right? Like it took a global pandemic for us to realize maybe we should be able to produce some vaccines within our own country. I hope you’re right. I have a hard time, seeing the politicians prioritizing that, or even being able to prioritize it if they wanted to without kind of everyday people feeling the pain of some sort of shortage of something that’s critical.

[00:40:54] Oskar: Yeah, but politicians hate when people feel pain.

[00:40:57] Jamie: Which is why they’ll try to, they’ll have the ability to solve it then.

[00:41:01] Oskar: But yeah, but this question is, if you could solve it with a band aid now, or general surgery a year from now, would you rather Fix it with a band aid. I would have thought so. But you’re right. Sometimes it takes a wound for it to work.

[00:41:15] Jamie: I would rather fix it with a band aid. I don’t know if, you know, in every country politicians even realize that band aid is necessary. So, I guess we’ll see.

[00:41:25] Oskar: We’ll see. I mean, the other thing to remember, right, is it isn’t just about permitting, right? It’s and or government acquiescence to allowing for a rebuilt mining industry in North America, right? It’s also about having the skill set to do that, right? The U. S. has had a, had a real issue with a mining workforce and a mine engineering workforce that’s aging rapidly and with very little in the form of next generation expertise being homegrown here, right? In order for the U. S. to actually build out a mining business again, it needs metallurgists, needs geologists, needs process engineering. All those guys that do that now or have done that for the in the U. S. for years are all in their late 50s early 60s at this point and the people beyond behind them are all chemical engineers or well electrical engineers are all computer coding you know they’re not learning how to do stuff that’s necessary and to make it even worse a lot of the more advanced kit that is necessary for mining these some of the equipment It’s made in China now. It’s not made in the United States anymore, right? I mean, okay, clearly, we still have Caterpillar, and we have, you know, some of the yellow kit that is necessary is made in the United States, but a lot of more specialized mining equipment, we exported all that production to China now.

[00:43:05] Jamie: Ball mills, et cetera, yeah.

[00:43:06] Oskar: Yeah, it’s not made here anymore.

[00:43:07] Jamie: I have that in my notes, actually. You know, what do you, how is Orion preparing for a talent gap? Because, you know, you’ve, you know, got a lot of money to deploy and, and support companies. And I look at myself, you know, I’m 38, I’m a mining engineer. Most people I know doing that job are, are in their 60s now. You know, there’s not a lot of people between me and the 60-year-old.

[00:43:33] Oskar: So that means you just get promoted faster.

[00:43:37] Jamie: Heaven forbid that mining company. But now how do you think about that? Right? Because you guys have been around 10 years. I assume you want to be around for a lot more, you know, how do you look for talent? Both in terms of who’s working for Orion and then who’s working at your portfolio company.

[00:43:56] Oskar: It’s a real challenge for us I mean, you know. Our technical team is based out in Colorado, right? You know, near the Colorado School of Mines. But most of the guys in our tech team are with one or two exceptions. They’re all in their late 50s, early 60s, right? And the people that we’re finding that have those skill sets are not Americans. They’re, in some cases, Canadians, and in some cases, Australians. But in a lot of cases, they’re Chileans, they’re Peruvian. You know, they’re not, and, you know, I don’t know. In inducing them to come, to move to, to the United States to do something is a challenge too. It’s a language challenge. It’s an education challenge. It’s an expense challenge. Right. It’s a visa challenge for, you know, certain you know as well. Yeah. So, we’re having to go to where they are as opposed to them coming to where we are in a lot of cases.

[00:44:48] Jamie: Does that mean, so as, so you have offices in the United States, Australia, London. Chile? Do I have that one right?

[00:44:57] Oskar: No, but we have Chilean expats working for us in those offices, for example.

[00:45:03] Jamie: Yeah, is that how you approach it? You set up an office, maybe set up a satellite office in the region?

[00:45:08] Oskar: Yeah, we are thinking of setting up a satellite office in the region. And in somewhere in the Middle East to get some of the talent there because there’s a quite a bit of talent over there We don’t know if we’re gonna do that, but we’re thinking about it But it’s you know, if you’re if you want to build a brand new mine somewhere in you know, Michigan Getting the right people there to build the mine effectively is not easy, right? It’s really challenging. And that’s another, I mean, that’s another problem that takes time to solve. You can’t just throw money at that.

[00:45:42] Jamie: If you think of the young engineers, right, they can go work at a mining company and make 150, 000 a year, or they can go become computer engineers and make 400, 000 a year in Silicon Valley.

[00:45:51] Oskar: That’s right. You can go to the office, have your dry cleaning done for you. Macchiato sent to your desk, or you can sit out in a base camp in the middle of Manitoba.

[00:46:01] Jamie: Yeah, so the case is that those jobs are not really being compensated properly to attract the talent. And for that you need higher metal prices.

[00:46:10] Oskar: There you go.

[00:46:13] Jamie: How do you guys, when you’re investing, think about teams versus assets? Because, you know, the best mining asset in the world is basically worthless without the right team to operate it and to extract it.

[00:46:29] Oskar: Yeah, but vice versa is also true. A really good mining team with an asset that shouldn’t be built is also a waste of time, right?

[00:46:37] Jamie: So how do these sort of sit in your evaluation process? Do they hold equal weight? How do you view that?

[00:46:43] Oskar: Well, our view is actually, interestingly enough, a little bit of a combination, right? We tend to believe that really good assets attract really good mining teams. Right, one of the best ways to know if an asset’s worth looking at is to look at the management team that is running that asset. Because if they are good at what they do, they will have invested, investigated that asset itself, and decided whether or not it’s worth their time to be there. I mean, very few management teams want to take on a challenging asset if they don’t have to.

[00:47:17] Jamie: They have better options.

[00:47:17] Oskar: They have better options, right? So, a good management team and a good asset tend to sort of correlate with each other. And so, we think ultimately, it’s almost always easier to change some of the management team instead of changing the asset. Because the asset is what mother nature gave you. You have to deal with it as it comes. But by and large, and this is the benefit of being in this business for so long, is we kind of know everybody in the space. We know who’s good and who’s, you know, who’s the A team, who’s the B team. And so, A team assets and A team membership tends to correlate. And so, for us, the home run is, you know, not having to choose between the two. Let’s put it that way.

[00:47:59] Jamie: Are most of your investments made with sort of the very well-known entities? In the sector, you know, I know like the Robert Friedlands of the world, for example, or do you have a lot of sort of lesser-known teams that you guys have found to be very good and don’t maybe necessarily have quite the public image as some of, some of the better-known entrepreneurs in the space?

[00:48:23] Oskar: I think that the winning combination is a little bit of both of those, right? You want your sort of, you know, pedigree names, your sort of, you know, your Frank Giustra’s and, and Regents and, and Friedlands of the, of the world. But you also have to understand that those, those names attract decent valuations, right? And so, you’re going to necessarily have to work that much harder to return something that, that you want to. The smaller, less known teams don’t attract those. those high-end valuations, but you have to, you’re taking a bit more risk that they can actually accomplish what, what you, what you think they should be able to accomplish.

[00:49:07] Jamie: So, I’m really glad you said this, because there’s this ethos, especially in junior mining, of investing in the, you know, the rockstar mining entrepreneurs, the Ross Beatys or the Robert Fruins, guys that have had these repeat successes. And a lot of the finance types, what they say to people is, you know, bet on Ross Beaty, he’s done this, or, or whomever.

[00:49:29] Oskar: Yeah.

[00:49:29] Jamie: The problem is I have seen is the reputation is priced in by the time most people get to invest right? It’s a premium because they’ve had XYZ.

[00:49:39] Oskar: And they deserve it right? It’s not it’s not like it’s not like the premium is just sort of magical It’s earned right and all those names you mentioned are all people that we have invested with and in our in our view deserve the recognition that they’ve earned right and we’re happy to be alongside them.

[00:49:56] Jamie: Yeah.

[00:49:57] Oskar: But the really big home runs are going to be outside of that sphere because the step in valuation the purchase price is Just more reasonable in some ways, right?

[00:50:10] Jamie: And that’s what I was going to say. All the big wins I’ve ever made are from relatively unknown groups of people. That are not, they have a lot of experience doing, typically I look for technical roles, because that’s where I’m maybe most apt to evaluate someone, and then they’ve stepped into the, okay, this is their first time with their own company, but they’ve worked heavily, and that’s where I’ve always had the best success.

[00:50:32] Oskar: Yeah, I mean, that’s absolutely right. The risk you’re taking is that sometimes the entrepreneurial exploration mindset that these folks have, that have found this really, you know, this jewel, jewelry box or this sort of gem of a mind somewhere, you know, after 20 years of running around finding different things, right, is, are they capable of transitioning themselves from the entrepreneurial exploration, watch every dime mentality to, okay, oh my God, I’ve got a billion dollar kitty now and I actually have to construct this mine and I have to hire a whole group of other people that I don’t necessarily know that well because I’ve just been running around with an exploration hat on. But now I actually have to manage the permitting cycle, I have to manage legal. I have to manage accounting. I have to hire a thousand people. I need to negotiate contracts and long lead item equipment. I have all this stuff to do, and there’s no way that guy that ran a small exploration company can do all that. He needs to, or she needs to rely on a whole new set of people. And can that person work within that structure effectively is a big transitional challenge for people like that.

[00:51:47] Jamie: There’s not many people that have done it successfully, right? I would make the case that most mining companies, as they go from exploration development to production, need to rotate out management teams to some degree, right? You need to bring in different leaders.

[00:52:02] Oskar: Management teams and boards, too.

[00:52:04] Jamie: And boards, okay.

[00:52:05] Oskar: Right, because sometimes what you can do is if you’re a manager that has a particularly good focus on one thing, you can rely on board members that have expertise in other areas, to help you out, right? So, what you don’t want is your board to be the, your buddies from, you know, from Canadian Finishing School or McGill or wherever, right? That you like, you know, that you play tiddlywinks with on the weekend and they’re all, you’re on board and they’re all making thirty, forty thousand dollars a year for four board meetings and having a good time. You know, that, that kind of board, Is just a, a disaster, right? So, you need to amend your board as well.

[00:52:46] Jamie: Now the average person. listening to this podcast is not ever going to own enough shares in a company to make a real, have a real voice in terms of changing up a board or influencing a management team. How do you guys approach that? Saying, okay, well, maybe it’s time for certain people to, to graduate out of this role and bring in a specialized mine builder or operator or financier of some sort.

[00:53:14] Oskar: Again, that goes back to what we talked about earlier, which is the milestone, right? So, one of the milestones that we typically develop inside a process is, how many people have you hired for these jobs? Have you, how many people have you canvassed for the job of mine manager? Who’s your procurement manager? Who have you brought on board for your corporate relations, IR, you know, how, how are these people, let’s see their CVs, let’s understand who you’ve picked and why you’ve picked them. That tells us a lot about you as a person, as a, as the CEO, is if you’ve picked your buddy that lives three houses down or if you’ve picked somebody that, you know, has a, has a pedigree. That tells us a little bit about how you want to run your business and that, that’s important, right? So, we, we try and make sure that we understand management teams and particularly management team plans. Right?

[00:54:09] Jamie: Do you assist with that? I mean, if someone says, look, you know, I haven’t done this before, what do you think? Thanks for the money. Now what do I do?

[00:54:17] Oskar: No, absolutely. So, we strongly prefer when people that want our money are also open to listening to us, right? And that goes back to what we said earlier about if there’s a problem, the worst thing you can do is try and hide that problem or downplay that problem because it won’t work. You can’t hide it from us for very long and we’ll take our own assessment as to how serious the problem is. So, if people are open with us, willing to talk to us, take our advice then it’s much more of a partnership, much more collaborative and that makes us much more comfortable. And good management teams should know where their blind spots are. They should know, I don’t, I’ve not done this before. I can use help here. And there’s nothing wrong with that. Doesn’t make you worse of a CEO or president to, to know what you know and what you don’t know. That just means that you, that you’re working, you know, for the best interests of everybody that’s a shareholder.

[00:55:16] Jamie: You know, it seems to me like a lot of mining companies, it’s a never-ending series of solving problems that come up, unexpected problems that come up. How do you guys look at sort of setbacks and investments you’ve made, because I’m sure you’ve had them at one time or another. How do you look at solving those problems?

[00:55:34] Oskar: Yeah, I mean, I think of what you say is fair that there’s problems in any ramp up or any construction project. I think. There’s two classes of problems, right? There’s unforeseeable problems, right? You know, a washout on a road and you’re trying to get equipment up to the mine. That’s an unforeseeable problem. Okay, maybe you should know that there’s a rainy season, but you know, maybe you’ve constructed the road, and you think it’s okay. That’s an unforeseeable problem. Then it’s a matter of how do you deal with that emergency, right? A foreseeable problem is a different, you Like, you should have known that this was going to be an issue, right? That, that is a concern, and that is a sort of review of how things happen and why things happen, right? The worst, though, is a foreseeable problem that becomes a recurring problem. And that’s when changes need to happen, right? So, you’ve made this mistake, you’ve done this incorrectly, and you knew you did it incorrectly and you learned from it, and then you did it again. That means there’s something systematically incorrect here and needs to change, right? And, you know, you’re allowed to, you’re allowed to learn from your mistakes, but you’re not allowed to repeat your mistakes. And that, if there’s a pattern of that happening in management, then something needs to change. Is that a complicated answer to your question?

[00:57:05] Jamie: I think that’s a clear answer to my question. Subtle, but clear. When, you know, you said something earlier that, about, you know, it’s hard to be passionate about finance, right? Finance is, you know, stereotypically a very boring career path, but, you know, potentially a lucrative one. But when I look at what you guys have done compared to your peer group in the mining industry, I see a lot of creativity there, right? You have a private equity firm, you have a, a long equities fund, you have a VC fund, you have a royalty fund, you have a trade finance division. I think there’s a bunch of other things that I’m not even aware of. How do you, you know, I can’t think of a comparable in the mining space that does this. How do you think, how do you think about creativity in this world and coming up with that? Like what, I think you’ve been not formulating this question well, but like I think you’ve done a very good job of being creative here. And where do you think that comes from in a traditionally very dry industry?

[00:58:21] Oskar: I think it comes from sort of a, a need to, for continuous improvement, right? So, as I said, we started out in a, in a different organization as a hedge fund, and then we realized that in order to improve our returns, we needed to have a physical business. And then we realized in order to improve on our physical business, we needed to have access to mine supply. Then we realized that one of the most interesting forms of, of financing are royalties and streams, and that the royalties and streaming businesses were pretty anodyne and pretty vanilla, and there’s ways to make those more interesting, and so we made those more interesting. More of a royalty product around that. Then we realized that as, as you alluded to earlier, that more mining needs to happen in the next 25 years than happened in the last 250 years. Realized that doing that without trying to make it sustainable, is a non-starter, right? So, we have to find ways to make mining more sustainable. Technology is part of that solution. So, we’ve built a technology business around that, right? So, it’s a matter of everything we do, we say, hey, this could be done better. What’s a way to do that better? Let’s create a product that takes advantage of that. And then just that mindset is, yeah, it’s driven us to where we are now.

[00:59:34] Jamie: I mean, what you’re saying sounds very basic and obvious, but

[00:59:37] Oskar: I’m good at that basic and obvious stuff.

[00:59:39] Jamie: But no one, there’s very few groups that do it. Like, it is an outlier, I think, to have this sort of range of, of products and solutions, and yeah.

[00:59:49] Oskar: Long may it last. I don’t know that I’m going to stay an outlier. I found I guess one of the, that imitation is a serious form of flattery, and that quite a few of my peers have, over the years, looked at what we do and sort of Taking a page out of our book and trying to accomplish the same. So, and I have no objection to that. I think it’s actually good for the industry overall to have more investable options than they do now, you know, more power to them for doing that. And I think it’s good for mining overall. And my view is always what’s good for mining overall is good for Orion. So, you know. Welcome to the party, frankly.

[01:00:29] Jamie: Is there anyone or any group that you look up to or take inspiration from or learn from, whether in mining or other industries, historic, otherwise?

[01:00:41] Oskar: I wouldn’t say there’s another group in mining that I kind of look up to in that sense, but I would say that a lot of the innovative ideas that we see in mining actually come out of the oil and gas space. So, we always keep an eye on that you know, industry and get some ideas about how they do things. And I think that’s stood us in good stead. Examples on the, on the royalty side that we talked about before, the VVP structures that they have in oil and gas are much more flexible in some ways than what we do in streaming here in the mining space. So, borrowing some of those ideas is something that we took a look at and have implemented. So that, that’s an example of that. So, there’s a broader range of ideas to go after. Some of the stuff that we’re looking at in technology, we’ve borrowed some ideas from, from some of the other VC firms, you know, the Breakthrough Energy folks in this world. And so, they have some pretty good structures and some good ideas on how to deploy capital. So, you know, borrowed those ideas.

[01:01:47] Jamie: Do you think there’s ever a world where Orion diversifies the commodities you invest in? Do you do energy or agriculture or commodity adjacent, like infrastructure for commodities?

[01:01:58] Oskar: I would say if there is a place that we would go to, it’ll be in the last thing that you just mentioned, which is really infrastructure.

[01:02:06] Jamie: Terminals and storage.

[01:02:07] Oskar: Yeah, exactly. So, mining is the beginning of a processing supply chain that ends with finished goods, right? And there’s a world in there where there’s mines, there’s processing, refining. Right? And then there’s a little bit, you know, sort of end use, you know production. The Chinese have, as you know, built way too many smelters and processing plants now. But specialized processing plants I think are something that would be very interesting to get involved in.

[01:02:40] Jamie: Yeah. I’m always, I’ve always been fascinated by this story of Rockefeller controlling oil and gas by controlling the railways, right? Being able to, so no. And I recently invested in a frac sand terminal in North Dakota, and I’ve always been interested in those, those key choke points for assets and how, and this has been like a pet fascination for me for years, and saying, why don’t more mining companies, and the traders do an excellent job of this, but why don’t more mining companies try to own and control these key choke points, and I don’t know if all of them do and they find themselves exposed to that. So, I don’t know where I’m going with that, but I’m, I’m happy to sit here and say that.

[01:03:23] Oskar: No, no. Look, it, it’s fair to say that mining companies are. generally, run by people that, that are engineering, geology focused engine, you know, sort of process guys. They’re not sure strategic thinkers. And for them, the big step out is to buy another mining company. Right. And you know, there’s very few of them that decide, okay, I’m going to own, you know, I’m going to own a part of the, from the mind gate to a port and put in the port and we control access through that. A little bit of that happens in Australia. I mean, there’s this sort of whole Fortescue rail situation, right? So, there’s a little bit of that, but by and large, I think mining companies have been, you know, asked to stick to their knitting on that front, and I think they take the view that mining is hard enough as it is. Not to add something that they don’t really understand to it. The potential answer, the direction might be the other way around, right? Where the OEMs and the end-users kind of migrate upstream to the mining areas, right? I mean, the U. S. had its history of that in the past, where Ford Motor Company vertically integrated all the way back to making steel for the cars that it, you know, so I don’t know if everything, you know, is all cyclical again and we end up going back to some kind of more vertical integration that way.

[01:04:37] Jamie: And this kind of gets me back to my point earlier. We’re like, at what point is, you know, Tesla’s cost of capital is going to be so low that they can just buy any and all lithium mines that they want in the United States or nickel or whatever it is they’re trying to control for, and the mining companies won’t be able to compete with them. Does that happen? I don’t know. But

[01:04:57] Oskar: I don’t know. I mean, it might. But would that, would that really be a problem? It wouldn’t be a problem. It’d be great. Yeah. Okay. I’m not, I’m not an object to that, you know.

[01:05:08] Jamie: So, we’re just over an hour now and you’ve been very generous of your time. So, I’m going to wrap it up, but I have. Three fun questions for you.

[01:05:16] Oskar: Oh, good.

[01:05:17] Jamie: Okay. So, alright. Picture this. Orion’s gone. You have a hundred million dollars. You’re allowed to invest in one commodity in the form of a stream or royalty. What do you do?

[01:05:30] Oskar: I invest in a tin stream.

[01:05:32] Jamie: Tin stream? Interesting.

[01:05:36] Oskar: You asked.

[01:05:36] Jamie: I asked. Can you elaborate?

[01:05:39] Oskar: Oh, it didn’t say I had to elaborate, but alright. I think tin is the forgotten commodity.

[01:05:43] Jamie: Yeah.

[01:05:44] Oskar: I think it’s super important for all electronics. I think it’s largely replacing or has replaced lead as a soldering agent. It’s super important in a couple of other pretty interesting technologies. It’s, you know, alongside copper, it’s important in brass for armaments and munitions. It’s also the bed that in which you make all flat glass is a molten tin bed.

[01:06:10] Jamie: And where does most tin come from? I know Indonesia is a big supplier.

[01:06:13] Oskar: Indonesia, Bolivia, is another big country.

[01:06:18] Jamie: So, no stable jurisdictions.

[01:06:20] Oskar: Yeah. And there’s no tin mines in the United States or anywhere near the United States. And yeah, and the Congo is the other big one DRC. And, and it’s important, it’s incredibly important metal and we don’t have enough of it and there are not that many new mines being built. It’s tough to find. So, I’d love a tin stream. Okay. Thank you very much.

[01:06:42] Jamie: Next question. We are currently sitting in New York City Why have you not moved to Florida like all the other financiers and in New York at this point? I thought that was the trend post COVID.

[01:06:54] Oskar: My wife won’t let me while the kids are in school. It’s the honest answer to that question.

[01:06:58] Jamie: Fair enough. Okay, two more then we’re done.

[01:07:03] Oskar: Okay.

[01:07:04] Jamie: There’s gonna be someone who’s listening to this podcast Who’s got a lot of money and says? You That Oskar guy seems pretty smart. How do I give him my money? What is the correct, can an individual invest in Orion or is this purely for institutions?

[01:07:20] Oskar: Purely for institutions.

[01:07:22] Jamie: Okay. So, for those of you who are thinking that you’re out of luck, sorry. And then the last question, if I’m a mining entrepreneur in my thirties, forties, twenties, what have you, and I think I’d really like to get some money out of those guys, what do I have to do to get that, for the project that I’m building or working on?

[01:07:42] Oskar: You need to have at least a pre-feasibility study, preferably a feasibility study. You need to have a techno economic model that goes with that feasibility study. You need to show us your permit application plan. And you need to give us access to all the data that you have in your data room on the geology of the mine that you’ve, you know, discovered what kind of processing plan you have, what kind of mind plan you have. That’s all part of the submission that you’ve made to us in the first place and the feasibility. We need to be able to assess your ESG credentials to some degree and then just contact us if you have most or all of that stuff.

[01:08:24] Jamie: Okay, so we have now eliminated 99.9 percent of Canadian companies. For that 0. 1 percent left.

[01:08:30] Oskar: No, you have not you don’t have to have everything fully baked, but you have to show us. That you’ve thought about it, that you have a plan to address it, and that you may need some budget to complete it. That’s generally enough. We will work with you. In some cases, we work with companies for several years to get them up and ready to construct. We’ve also been not known to buy mining companies outright. So, if you have something that you think is worthy of, of that kind of attention let us know.

[01:09:08] Jamie: All right, Oscar, thank you very much.

[01:09:11] Oskar: Thank you, sir.

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Jamie Keech

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Nick D'Onofrio

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A trade so obvious even the U.S. gov. can see it…

A trade so obvious even the U.S. gov. can see it…

When Russia turned the nat gas taps off things got ugly.

  • Europeans saw their energy bills go from €250/month to more than €2,500/month.

  • Energy costs skyrocketed from under €100 / MWh to +€1,000 / MWh in some EU countries.

  • Liquid Natural Gas (LNG) import prices shot up from €7 in 2021 to €70. 

Corporations, individuals, and utilities felt the pain.

To ensure that there would be enough natural gas to keep the lights on, many fertilizer companies were forced to cut production by 50%. The effect on crop yields are still to be seen. 

Then, there was relief.

It’s better to be lucky than smart… 

Europe got lucky, and had the second mildest winter on record – which brought energy prices down to pre-invasion levels. 

A blessing for European energy bills and an opportunity for savvy investors.

This wasn’t a stay of execution… just a delay. However, it has given the West more time to come up with solutions – one of which is U.S. LNG imports.

The Freeport LNG terminal, which was shut down due to a fire and explosion in June of 2022, is ready to come back online. This will be a major source of LNG exports heading to Europe. 

Added EU demand will put price pressure on U.S. natural gas. 

There is a high probability that a significant price move could occur in the North American natural gas markets over the next 12 months.

Last summer we saw U.S. natural gas prices break $7.00 / mcf for the first time in 14 years.

State of the (natural gas) Union.

We have been convinced that U.S. oil and gas production growth would stall and eventually turn negative, delivering a major hit to US energy supply. This thesis has been largely driven by the research of our friend Scott Lapierre – a world class petrophysicist that we had on the Ri Podcast 3 years ago. 

So far, things are playing out as we expected. 

Peak Oil

Today many analysts refer to peak oil demand, but originally peak oil referred to supply

The idea of a basin’s peak oil supply is associated with a controversial Royal Dutch Shell geologist from the 1950s named M. King Hubbert. He believed that an oil or gas field’s production resembles a bell-shaped curve.

Hubbert expected a field’s production to increase at an accelerating rate, level off / plateau, and then decline at a rate similar to its growth phase. 

In 1956 he predicted that U.S. crude oil production would peak in the 1970s at around 10 mm b/d. In 1970 when U.S. production did peak at 10 mm b/d, his work gained widespread attention. 

From 1970 until 2008 U.S. oil production declined, until a new type of basin came into the limelight…

U.S. Shale Oil & Gas

When hydraulic fracturing (aka: fracking) came on the scene, shale oil and gas became huge. In return, the U.S. became the largest producer of oil and gas in the world.

But, we believe the theory of a bell shaped production curve still holds true for fracked wells, just like it did for conventional oil and gas.

If we’re right… We’re running out of O&G. 

Our own controversial geologist, Scott Lapierre, has been pounding the table warning investors of declining shale production. 

Scott came to this conclusion independently of Hubbert’s ideas. Scott’s ideas arose from first principle calculations using the physical properties of oil, gas, and the rocks that trap it.

If both Scott’s science and Hubbert’s theories are correct, it could mean U.S. oil and gas production could fall as fast as it rose since the onset of fracking. 

The proof is in the pudding.

The two earliest shale basins, the Barnett and Fayetteville, saw peak production between 2011 and 2014. Since, they have each declined by 70%. 

Both of these early shale basins were gas fields. 

What does this mean?

The days of cheap natural gas in the U.S. are over. 

The next largest natural gas fields are the Marcellus and the Haynesville. 

The Marcellus is following Hubbert’s bell curve model, having reached its plateau in 2020. Over the last twelve months, the Marcellus declined by 300 mcf/d. Hubbert models suggest that the Haynesville could plateau as soon as next year. 

Exploration is dead.

Natural gas drilling in the U.S. is near all-time lows. 

The number of active natural gas rigs in the United States has declined by more than 75% since 2014, resulting in U.S. gas production declining by more than 10% in the same period. 

Because of low energy prices, and a move towards clean energy, the appetite for hydrocarbon exploration has been dead. 

This leaves the U.S. in a precarious position… And natural gas prices are vulnerable to a surge.

We’ve been watching the U.S. energy sector for 3-years, searching for the right deals to get energy exposure through natural gas.

On a trip to Texas earlier this year, we finalized one of our next deals…

Project Patriot

This is a natural gas development opportunity in East Texas with an all-star team. 

The company is led by a gentleman that was groomed at a multi-billion dollar oil and gas company before he left to run his own deals. After a string of success stories, he is putting together his forth deal. 

On the technical side, this company is led by the geologist that literally wrote the discovery paper for the Haynesville-Bossier shale basin, where this deal is located. With her protege, she’s successfully drilled over 100 wells in the basin. 

Now, they’re at it again.

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Nick D'Onofrio

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“There’s no easy mining left—not in Chile nor the rest of the world.”

“There’s no easy mining left—not in Chile nor the rest of the world.”

If I had to choose one metal to own it would be copper. It’s essential to nearly everything, but more importantly we’re running out…

There are two trends driving copper demand:

  • The energy revolution (AKA the electrification of energy)

  • The urbanization of underdeveloped countries (primarily Asia and Africa)

To meet demand we’re going to need to mine more copper over the next 27 years then we’ve mined in ALL of human history to date.

That would be a challenging task even IF we had the copper reserves… the problem is, we don’t.

Copper production is falling at the world’s biggest mines. 

Codelco, the Chilean government-owned copper miner, is the world’s largest copper producer. And, Chile is where most of the copper comes from. 

Things are not going well. 

Production is at its lowest in a quarter century, costs have surged, and profits have slumped – all at a time when the world’s need for copper is greater than ever. 

Codelco’s production fell more than 10% in 2022 and is set to fall another 7% this year, to 1.35 million metric tons. 

This is more than a 20% drop from six years ago.

But, it is not only Codelco, ore grade is deteriorating around the world as existing deposits are mined and new ones are more difficult and costly to develop. 

Codelco’s CEO said “There’s no easy mining left—not in Chile nor the rest of the world.”

Global production issues confirmed.

I came across an interesting Twitter thread looking at Q1 2023 financial statements from the biggest copper producers


Copper production from Q1 2023 to Q1 2022, production was down ~200kt. 

The biggest contributor to falling numbers is the fact that there is consistently less copper in every tonne of rock that comes out of the ground (Note: Percentage of copper per tonne of rock is known as grade.)

It is becoming more expensive to mine a pound of copper. Add to that the fact that energy and labor prices are skyrocketing. 

4 of the 8 copper companies that reported cash costs saw increases of more than 20% from last quarter…

Let that sink in.  20% increase in costs in 3-months. That is insane

All of this is to say one thing: the world’s future copper supply is seriously in trouble.

We need much higher copper prices to incentivize exploration and development. And remember, we can’t just turn on the taps and produce more Cu – It takes +10-years to bring a new copper mine online. 

Oh, BTW Inventories are running dry…

Below is a chart of global copper inventories over the past 10 years. The gray area is the high, and low range, the white line is the average, and the orange is the 2023 inventory level. 

This chart should scare you because it says one thing: the world has no copper inventories

In summary:

  1. Copper demand is stronger than ever.

  2. The world’s biggest copper miner is having major production issues. 

  3. Costs are up and production is down for the world’s top 10 biggest copper producers.

  4. Current copper inventories are lower than they have been in the past 10 years.

My takeaway is simple: Own copper or be poor.

I don’t want to be poor, and neither do Ri Members. That’s why we’re about to launch our next Ri Deal: 

Project Patriot

We have one objective with this deal: BIG GAIN HUNTING.

Kazakhstan’s Chu-Sarysu is the world’s 3rd largest sediment-hosted copper basin. Yet, the region has been largely unexplored since the 1970s, but that is changing as we speak. 

In 2018, the government overhauled the mining code, unlocking exploration in Kazakhstan for the first time since the collapse of the Soviet Union.

The team locked down some of the most interesting assets in the region and are applying a fresh, modern approach to discovery. 

  • Big Data – compiled and digitized the largest privately-held exploration dataset for Central Asia.

  • Machine Learning – applying predictive machine learning to datasets, optimizing for the most prospective geology.

  • Major Partners – They have signed a joint venture agreement with one of the largest copper companies on the planet.

They are ready to drill multiple porphyry copper targets. These are the type of geological formations that have the potential to become monster deposits. 

These are the types of deposits that took Filo Mining (FIL.TO) from a $200 million market cap to a $2 billion market cap. 


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Jamie Keech

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The Case for Oil & Gas Royalties

The Case for Oil & Gas Royalties 

I recently invested into American Oil and Gas royalties

Here’s why:

  • Exposure to energy;

  • Exposure to the USA;  

  • Exposure to cash flow;

  • Exposure to assets NOT listed on capital markets;

Let’s dig in… 

The Case for Higher Oil

The investment case for oil and gas is pretty straight forward. It boils down to the this: 

Oil is cheap, but is about to get expensive.

We believe oil prices, compared to equity markets, will revert to the mean due to significant under investment in the sector.

We are now going to walk through the market conditions that got us to this conclusion.

FACT: Oil is Cheaper than ever.

We compare oil and natural gas prices to the S&P 500 because the ratio helps give us an understanding of the true cost of energy. 

When energy is “cheap” compared to the value of the S&P we can anticipate that over time this will correct. It will do so but either energy prices going up, or company valuations going down – either way you want to own energy in this environment as a means of protecting and/or growing your capital. The inverse is true when energy prices are “expensive” as we saw in the 80’s during the oil embargo. 

Theoretically energy should be priced so that investors and producers make enough money to justify operating and investing in new production. But, cheap enough that consumers are not gouged at the pump and can maintain a comfortable life. 

But markets do not exist in a state of equilibrium. The pendulum swings back and forth. 

Right now energy is objectively cheap. 

Nothing in life is certain but based on historic data we expect the pendulum is about to swing the other way. 

The chart below shows the price of oil compared to the S&P 500 since 1900. 

Today the price of oil is ~$75/bbl and natural gas is ~$3/mcf while the S&P 500 is trading at 4,000. 

Before 2020/the pandemic, oil and gas prices were the cheapest in recorded history when compared to the S&P 500. 

If the ratio swings back to 2008 levels at today’s S&P 500 levels then oil will be ~$240/bbl and gas ~$30/mcf.

If the ratio reaches 1918 or 1980 levels… then the world is in for a world of hurt. Oil prices will be ~$660/bbl and natural gas will be $84/mcf. 

Now, I think it is unlikely that oil prices will spike without a simultaneous pull back in the S&P – but even still I wouldn’t be surprised if we see oil prices above $150/barrel.

Even if oil prices don’t move at all (unlikely in my opinion), in the event of a major pull back in listed equities energy should act as a safe haven for capital. 

Why is Oil so Cheap?

Horizontal fracturing (AKA fracking) came on the scene in a big way in the mid 2000s. 

Between 2005 and 2010 the shale-gas industry in the United States grew by 45% a year. In 2005 shale gas production made up just 4% of the USAs overall gas production, by 2012 it accounted for 24%.

Meanwhile, oil prices were high. In 2008 oil price shot up to more than $140/bbl. Prices briefly crashed later that year, but quickly recovered and consistently traded around $100/bbl until 2014. 

From 2005-2014 the frackers were printing money – the likes of Harrold Hamm of Continental Resources (CLR) developed the Bakken, Tom Ward and Aubrey McClendon of Chesapeake Energy (CHK) built the 2nd largest natural gas producer through a levered land grab, Charif Souki of Cheniere Energy (NYSE: LNG) built the first U.S. LNG export terminal, and Scott Sheffield at Pioneer Natural Resources led the development of the world renowned Permian Basin. 

Horizontal wells came online with huge volumes of oil, but were expensive to drill.

Then the problems started.

Banks allowed the frackers to borrow against their estimated oil reserves, and so they did.

Frackers would drill, hitting oil nearly every time, but unknowingly (to most) they were significantly overestimating their reserves. 

The result?

Wells would “run dry” sooner than expected… There was a lot less accessible oil than anticipated. 

The above charts demonstrate well decline rates occurring far faster than anticipated. 

Which is not good when borrowing based on expected production. 

So what did they do?

Naturally, they drilled more wells to keep production high and meet debt payments. Inadvertently creating a pyramid scheme, with the revenue generated by new wells was required to pay off the debts on the old wells. 

They drilled to borrow, and borrowed to drill. 

Companies relied on rising oil prices to bail them out. But inevitably the sheer volume of oil that was being produced ensured that maintaining high prices was impossible. 

More Supply = Lower Prices.  

By 2018 the U.S. had grown to be the biggest oil and gas producer in the world. 

A Change of Heart

Executive bonuses were tied to production, not profitability. Which brings to mind one of Charlie Munger’s favorite sayings “show me the incentive and I will show you the outcome.”

During the Covid Crash, when oil prices went negative,this all changed and executive compensation was restructured. Today, compensation is driven by profitability. 

This means more disciplined balance sheets with less debt (aka less drilling). In turn, capital discipline will lead to less production, higher oil prices, and more profitable companies.

The Rusky Bailout

Then Russia invaded Ukraine and oil prices skyrocketed, saving many companies. 

They took this opportunity to pay down debt, hedge production at higher prices, and start telling a different narrative (closer to the truth) to the market. 

The truth is that they had  “high-graded” all of the U.S. shale plays. This means that they have drilled the best and most profitable shale locations trying to make ends meet. What’s left is lower quality acreage. 

This means that the U.S. shale production outlook is in bad shape. 

Speaking at a Goldman Sachs energy conference in Miami, Scott Sheffield, CEO U.S. shale giant Pioneer Natural Resources, said that the company has lowered its 2030 total Permian Basin oil production forecast from +8 million b/d to ~7 million b/d.

This indicates a significant slowdown in annual U.S. oil production.

Lower production means higher prices. 

Will drilling come back?

It is going to take time for drilling to come back in a big way. The world at large has mismanaged invested in the energy space for two main reasons:

  1. The Green Energy Transition

A willful blindness has infected the western world, with the claim that oil demand is somehow going to disappear in 5 or 10 years. 

This is highly unlikely. 

Two decades of aspirational policies and trillions of dollars in subsidies, most of it on solar, wind, and battery technologies, have yet to produce anything close to an energy transition that eliminates hydrocarbons.

Over the last 10 years $3.8 trillion has been poured into renewables, yet fossil fuel dependence has only been reduced by 1% (82% to 81% of the overall energy consumption).

The IEA (International Energy Agency) noted that an energy transition is “a shift from a fuel-intensive to a material-intensive energy system.” 

They estimate the world will need to increase the supply of minerals such as lithium, graphite, nickel, and rare earths by 4,200%, 2,500%, 1,900%, and 700%, respectively, by 2040. 

The world will need dozens of new world-class mines for all of these minerals, requiring tens of billions of dollars of investment to develop. 

On average, it takes 16 years to bring a mine from exploration to production. So, even if we had the technology (which we don’t) and the mineral reserves (which we don’t), it is nearly impossible to provide the materials required to replace hydrocarbons for energy demand in the next 10 years.

In the interest of time I’m not going to touch on the inefficiency and the intermittency issues of  renewable energies here… Instead just ask your German friends how it’s going. 

  1. Poor Returns

The frackers were so far off on production estimates that many investors watched their money get torched by aggressive  drill programs. 

Once upon a time any semi competent wildcatter with a half-baked idea could call up an energy PE fund and walk out with a $100m cheque. Today it is nearly impossible to find private equity money willing to drill new wells. Their mandates have been changed to buy production (where they can accurately calculate reserve estimates). 

To give you an idea of how far off historic reserve estimates were, today banks discount all future annual production by 10% then discount reserve estimates by 50% before calculating how much they are willing to lend. 

To incentivize this sort of investing again, oil prices are going to have to move MUCH higher. 

What about today?

The lost energy production resulting from the Russia/Ukraine war  is just the start. China’s reopening is about to shock the oil markets once again. 

Since China reopened, the International Energy Agency (IEA) increased its 2023 forecast for oil demand growth by nearly 200,000 bbls/day to 1.9m bbls/day. 

The IEA now expects 2023 total oil demand to average 101.7m barrels/day – setting new record highs.

We have already talked about that OPEC+ has been cutting production. But that’s just the tip of the iceberg…. 

Saudi Arabia is saying that they are maxed out on production – meaning, they don’t have the capacity to produce any more oil than they are currently producing. 

Why Now?

The Russians are off the board, the Arab world is tightening production, the Chinese are ramping up the economy all whilst oil demand is peaking and USA energy reserves are dwindling. 

This confluence of events has made me want to get long U.S. energy production. 

BUT I want to minimize risk so I’ll be using an investment instrument you’re all familiar with: royalties

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Jamie Keech

CIO; Editor

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Nick D'Onofrio

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BP & the 100 Year Showdown

BP & the 100 Year Showdown

In 1872 William Knox D’Arcy had the good sense to marry Elena Birkbeck of Rockhampton, the daughter of a successful mining engineer. After a decent legal career D’Arcy was launched into the world of  gold speculating.

In this, it turned out, he had a special talent.     

By 1889 he was worth £711,000,000 (in today’s money). Most decent Englishmen would retire to their country estate to drink gin and smoke cigars when they achieved filthy rich status… 

Turns out this was only D’Arcy’s opening act. 

Black Gold

In 1900 with the help of a few associates and the grand sum of £20,000 (worth ~US$2.9 million today) D’Arcy and crew locked down the oil rights to nearly the entirety of Iran (1,200,000 km2). In exchange D’Arcy promised Iran 50% equity ownership, including 16% of any future net profits.

 In 1908 he struck oil and the money started rolling in.

But, as Europe descended into World War oil became a strategic resource, prompting the British government to buy a controlling stake in D’Arcy’s venture, effectively nationalizing British oil production in Iran. In 1935 the company was renamed the “Anglo-Iranian Oil Company” (AIOC).

But…  All was not well.  

Throughout Iran discontent was brewing over the management of AIOC, seen as a tool of British imperialism.

The Brits didn’t do themselves any favors; refusing to allow the AIOC’s books to be audited they left the Iranian government with no way of knowing whether they were being paid what they were promised.

But that was about to change…

In 1951, Mohammad Mosaddegh was elected as the 35th Prime Minister of Iran. 

Mosaddegh wouldn’t take no for an answer. When the Brits refused to cooperate, the Iranian parliament voted to nationalize Iran’s oil industry, including the British-built Abadan oil refinery – the world’s largest refinery at the time.

The nationalization of AIOC meant the Iranian government took total control and ownership over the company and its assets.

Calling in the Kermit

This did not sit well with King & country back in the UK. 

Following the nationalization of AIOC, Britain instigated a global boycott of Iranian oil.The UK and US saw Mosaddegh as unreliable and potentially a communist.

Mosaddegh confirmed their fears by dissolving Parliament, giving himself complete control, whilst stripping the Shah (AKA the Iranian King) of any power. 

Mosaddegh granted himself total dictatorial power.

UK prime minister Winston Churchill and the Eisenhower administration now had the excuse they needed to overthrow Mosaddegh’s government and put AIOC back in the hands of Western business owners. The Shah (Reza Shah Pahlavi), who had been reluctant to support the CIA’s demand for a coup, finally agreed to support it. 

In 1953, Mosaddegh’s government was overthrown by MI6 and the CIA, in an operation led by Kermit Roosevelt Jr. (President Theodore Roosevelt’s grandson).

Following the coup, the Shah reigned as leader of Iran and implemented a series of economic, social, and political reforms. He was the founding father of modern Iran as he replaced Islamic law with western law, and forbade traditional Islamic clothing, separation of the sexes, and veiling of women (hijab).

Yes, yes, he was still a dictator, but he was OUR dictator! And most importantly he let the Brits keep their oil!

Oil & Policy

In 1954, Anglo-Iranian Oil Company was renamed once again; to the British Petroleum Company  or “BP.”

When the Shah took power, the British-led oil embargo ended and oil revenues ripped. 

The Anglo-Iranian Oil Company’s monopoly was replaced with a group of corporations that included British Petroleum and eight European and and American companies – called the Oil Consortium Agreement. 

Oil revenues increased from $34 million in 1954/55 to $181 million in 1956/57. 

Not bad for 24-months work. 

As might be expected Iran began to develop rapidly. Reforms resulted in decades of sustained economic growth that made it one of the fastest growing economies in the world. Growth that exceeded the United States, Britain, and France. All  while national income rose 423X. 

But… All good things come to an end.

Nobody likes a dictator… especially one whose reign has the look of a lavish orgy. Eventually the Shah’s total power led to resentment internally and externally. 

Crisis #1

Externally, The US stopped supporting the Shah when Iran supported OPEC’s (Organization of Petroleum Exporting Countries) 1973 oil embargo. This embargo caused the first oil crisis, causing  oil to jump from  $3/bbl to $12/bbl.

After the embargo in 1973, the Shah faced further tensions with the US after announcing he would not renew the consortium’s agreement, and planned to nationalize Iranian oil in 1979.

Internally, the Shah’s regime was seen as oppressive, brutal, corrupt, and lavish. The Shah was perceived by many as beholden to non-Muslim Western powers (i.e., the United States)… which makes sense, because he was. 

Out goes the money, in comes the zealots.

In 1975, oil prices dropped sharply and crushed Iran economically. Things deteriorated quickly due to high inflation and the country’s inability to pay back its debts (sound familiar?). 

Eventually, internal resentment led to the Iranian/Islamic Revolution in 1979 which replaced the Shah’s government with an Islamic anti-Western totalitarian theocracy under the rule of Ayatollah Khomeini. 

Crisis #2

This  led to the 1979/second oil crisis. During the second oil crisis, the fall of Iranian production led to a 4% drop in global oil production, which sent prices higher once again. Prices rose from $14/bbl to $39/bbl.

TODAY: A new wave of protests.

Protests in Iran have been going on for the past several weeks following the death of 22-year-old Mahsa Amini.

Amini was visiting family in Tehran, where she was arrested by Iran’s “Guidance Patrol” for wearing an “inappropriate” hijab. Amini was transferred to the “Moral Security” agency, which informed her brother she would be attending a “briefing class”, and released shortly after.

Amini never made it out.

Kasra Hospital announced Amini’s death after being in a coma for three days, saying she was brain dead on arrival. Police claim she died from a heart issue, but all evidence points to police brutality as the cause of death. 

Anger (rightfully) swept through Iran following Amini’s death, with people risking taking the streets in defiance.

Women burnt their hijabs, cut their hair and screamed “Women, life, freedom” and “Death to the dictator” .

Viva La Revolution!

This response is unprecedented for the last 40 years. The movement is quickly turningfrom protest to revolution

The current regime knows this and is responding with censorship and brutality. 

According to human rights groups, hundreds of protesters have been killed by government officials.

What comes next?

If Khameni’s regime survives, then the Joint Comprehensive Plan of Action (JCPOA), commonly known as the Iran nuclear deal, is almost certainly dead. The most recent discussions ended with German leaders saying that Iran’s nuclear deal with world powers “has no future and is not in line with reality”, also stating that they will not negotiate “with an inhuman regime that is completely rejected by its own people and has no legitimacy whatsoever.”

Khameni stated that “[The West] feel that the country [Iran] is progressing towards full-scale power and they can’t tolerate this.”

Under the JCPOA Iran agreed to dismantle much of its nuclear program and open its facilities to extensive international inspections in exchange for billions of dollars worth of sanctions relief. 

If the Iran nuclear deal dies, It is very possible Iran will charge full steam ahead towards building a nuclear bomb – strategically it will be their best insurance policy against invasion (think Russia and Ukrain). However, there is a very serious risk that Israel would launch a preemptive strike against Iran.

Crisis #3?

Beyond the very scary prospect of a brutal theocratic dictator having a nuke, a revolution in Iran would likely disrupt the global supply of oil for a third time. 

Russia’s invasion of Ukraine has thrown global energy supplies off balance, and a revolution in Iran has the potential to throw fuel on the fire. 

Russia and Iran are the world’s third and seventh largest oil producing countries; supply disruptions from either nation have major implications for energy markets. 

Spare capacity in global oil production has fallen to exceptionally low levels – meaning the world doesn’t have the ability to easily or quickly increase oil production in a meaningful way. 

Global spare production capacity has shrunk to just 1.5% of global consumption according to Saudi Aramco, leaving the market vulnerable to shocks from unexpectedly strong consumption/demand or any disruption to production/supply.

Where will new production come from?

Between 2010 – 2019 U.S. shale producers accounted for nearly the total increase in global crude production. Today these shale companies are opting to limit growth and enjoy higher profits from existing production. The majority of their land producing the cheapest oil has seemingly been drilled. 

Until there is an oil exploration boom, the world may be out of “cheap” oil. Leaving the future supply of oil and gas in a precarious state.

As Churchill said: “Never let a good crisis go to waste.” 

It’s time for investors, and ANYONE hoping to protect their hard earned capital, to start thinking seriously about their portfolios energy exposure.

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Jamie Keech

CIO; Editor

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Nick D'Onofrio

Head of Research

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Is the World Short Oil & Gas?

Is the World Short Oil & Gas

Energy markets are the talk of the town right now, and for good reason.

Here are some headlines:

  • Nord Stream 1 and 2 are down
  • US petroleum stocks are below the 5yr range
  • OPEC+ cuts production by 2million bbl/d

Nord Stream

The Nord Stream pipelines connect Russia to Germany via the Baltic Sea. Nord Stream 1 historically supplied the EU with ~35% of the total gas imported from Russia; Nord Stream 2 (which was on track to be operational in the first half of 2022) is equally as large.

Both Nord Stream 1 and 2 are down after suffering catastrophic losses of pressure. No one is exactly sure what happened to the pipelines, but the Swedish Security Service said that they found evidence of detonations and have high suspicions of “gross sabotage.”

No matter who attacked the pipelines, the results are clear: Europe is in for a very tough winter.

It’s estimated that it will take at least 20-25 weeks just to get all of the materials and equipment in place to repair the pipelines. Meaning that there is no way to repair the pipelines for at least 6 months… Probably much longer.

This leaves Europe very short on energy heat homes this winter. Protesters are claiming  they will be forced to choose between eating or heating their homes.

The damage to the pipelines means that Russia just lost substantial physical capacity to transport natural gas to Europe, even if current sanctions are removed. With the loss of the pipelines, also comes the loss of any leverage for Europe to bring Russia to a compromise over the Ukraine invasion… Which just made this war much more complicated. 

We should all be paying close attention to the pipelines connecting Russia to Europe via Ukraine. These pipelines just became essential to the EU. 

If Ukraine was looking for leverage to join the EU and/or Nato… They just got it.

US Petroleum Stocks

The US’s Energy Information Administration (EIA) releases a weekly inventory report – this week’s was quite telling. 

Two noteworthy items:

  • Gasoline demand increased
  • Total petroleum stocks fell below the 5-year low once again

In short, demand is strong and supply is struggling to keep up in a big way. Petroleum stocks haven’t been this low since 2004.

What made this particularly  important is that  a few hours later it was announced that…

OPEC+ Cuts Production

OPEC+ is a group of 23 oil-exporting countries that decide how much crude oil to sell on the global market.

At the core of this group are the 13 original members of OPEC (the Organization of Oil Exporting Countries), which consist of mostly Middle Eastern and African countries. OPEC was formed in 1960 as a cartel, with the aim of fixing the worldwide supply of oil and its price.

Today, OPEC+ nations produce around 40% of the world’s crude oil; the two biggest producers being Saudi Arabia and Russia.

Just a few weeks ago it was reported that Russian President Vladimir Putin met with Saudi Crown Prince Mohammed bin Salman (MBS) suggesting that OPEC+ cut production.

Those suggestions became a reality as OPEC+ agreed to cut production by 2 million barrels per day. 

Given the fact that OPEC+ has struggled to meet their production quotas, this cut will more likely look like a cut of ~900,000 barrels per day to the current supply.

Most of that production cut will come from nations that have a complicated history with the west: Saudi Arabia (48%), UAE (16%), Kuwait (15%), and Iraq (11%).

What drove the production cuts?

The United Arab Emirates’ (UAE) energy minister, Suhail Al Mazrouei, said that the group was solely focused on avoiding an oil price crash similar to 2008. 

Mazrouei said “In Europe they have their story, in Russia they have their own story. We can’t  be siding with this country or that country.” 

With a recession looming OPEC+ is most concerned about keeping a finger on the pulse of global oil supply and demand to maintain profitable prices.

The takeaway?

Oil and gas prices will likely head lower in the short term if the world heads into a recession, but they won’t be staying low for long. OPEC+ is determined to keep prices high even in the midst of a recessionary environment.

Remember, recessions massively impact oil and gas markets. Inventories rise when, and only when, the business cycle slows; this in turn leads to lower production capacity.

The world is short on energy supply and any reduction in production capacity will have a longstanding impact on the market. This will only be righted through significant investment in new production.

Unfortunately, the US is working hard to beat the EU in the global “idiodic energy policy competition”. 

Here’s a short summary of some of the current administration’s noteworthy policy decisions:

  • Kill Keystone XL pipeline on Day 1
  • Drain the Strategic Petroleum Reserves (SPR) before midterm elections
  • Tell oil and gas producers to lower prices at the pump…. Seriously WTF?!?!
  • Beg Saudi Arabia and Russia to produce more oil
  • Contemplate banning exports on refined products and gas
  • Lift Venezuelan sanctions to import more oil

If you’re not long oil, you might want to reconsider… 

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Jamie Keech

CIO; Editor

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Nick D'Onofrio

Head of Research

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Silent Warnings in Real Estate

Silent Warnings in Real Estate

We’re in the midst of stagflation with a recession looming and the Fed has been unrelenting in raising interest rates. 

Big Problems are Ahead for Real Estate Investors.

If you locked in a 30-year fixed mortgage rate on a $600,000 house at 2.6% interest rate in 2021 you have the same monthly mortgage payment as someone that just bought a $380,000 home at today’s 6.5% mortgage rate.

That’s ~37% reduction in home value based on monthly mortgage payment affordability, but that’s not the only problem lurking in the real estate market…

Bonds are back baby! 

US Treasury rates are now trading at 3.97% (6-month), 4.27% (2-year), and 3.83% (10-year).

US Treasury’s now generate nearly that same yield as buying and renting out a house in America (aka the cap rate).

Would you rather tie up capital in a home, take on the costs of ownership and deal with some asshole tenant you’re renting it out to… OR simply buy US Treasuries for the same return?

Exactly.  

This is going to translate to a massive real estate selloff, especially among the big wall street firms (like Blackstone) who have been buying up single family homes hand over fist. 

In markets like Dallas, Austin, Denver, Salt Lake City, Seattle, and Los Angeles US Treasury rates are already higher than average cap rates. 

Meaning there is very little incentive for investors to be invested in these markets. Especially if prices are going down.

Before 2010 institutional landlords essentially didn’t exist in the single-family-rental market. Now there are more than 30 multi-billion dollar institutional investment funds, such as Blackstone, focused on buying single family housing.

Next will be margin calls as banks order investors to sell off properties to deleverage their portfolio. 

Many wall street real estate investors have funded their strategy using floating rate credit facilities. So every time the Fed hikes rates, their cost of capital on their EXISTING portfolio gets more expensive.

Think of the crisis in adjustable rate mortgages from 2008, but this time instead of individual borrowers getting hit with higher rates and defaulting, it’s now big landlords who own thousands of units. Sometimes all in one city or neighborhood.

The “experiment” of Wall Street buying single-family homes was never meant to last. Wall Street piled in, earned their fees, and are now looking to exit as quickly (and quietly) as possible before the crash gets bad.

Thinking about buying a new home? Maybe give it a few minutes… 

Real Assets.

As the financialized world sits precariously on the edge of ruin, we must remember where there is value: commodities.

If you are a Ri Member, you understand the commodity trade, but sometimes it’s hard to remember why we are commodity investors when our portfolio is getting whacked.

This is a volatile game that isn’t for everybody, but for those willing to weather the storm and play the game to the final whistle, there can (and should!)  be big rewards. 

Right now the world is in a transitional period – realizing that the past 10-years of making big returns by investing in high growth overpriced tech names has come to an end. 

We’re now in a world in turmoil, short on commodity supply, and on the edge of a recession. As hard as it is to stomach, this is what a financial regime change looks like – hard times and volatile markets. 

We must not forget that on the other side of this trade there will eventually be institutional capital flows into commodities that will drive commodity valuations (multiples) higher.

This move will happen faster than anyone anticipates, leaving investors little time to reposition their portfolios, which is why it is essential to allocate capital while there is blood in the streets and deals are cheap.

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Jamie Keech

CIO; Editor

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Nick D'Onofrio

Head of Research

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Friendly Fire

Friendly Fire

Have you ever wondered why we no longer invade middle eastern countries?

I’ll give you a hint. It has nothing to do with Trump, Obama, or Biden spontaneously growing a conscience. 

It has nothing to do with a love for the troops. 

There  is one simple reason: ENERGY SECURITY

We don’t invade middle eastern countries because we don’t have to. The US shale revolution accomplished what pouring trillions of dollars and thousands of life into desert countries never could. It turned the USA into a net exporter of energy from a net importer. 

The ability to economically recover shale gas is perhaps one of greatest technological achievements of this generation and, although few know it, initiated the biggest shift in geopolitics of the last 30-years. Allowing US isolationism to thrive and giving Presidents the ability to turn the other cheek when their line in the sand is crossed. 

Because here is the reality: If your country does not have energy security it’s not really your country… You’re merely renting it from someone else. 

Just ask our friends in the EU…

Despite ample warnings from Trump and others they’ve managed to snatch defeat from the jaws of victory and leave an entire continent exposed to the imperial ambitions of a lunatic despot. 

But Jamie, that’s not fair you say? Europe can’t contend with North America’s vast geological resources. Just the luck of the draw!

Wrong!

Even though they don’t want you to know it, there is vast shale potential in Europe too. According to a 2011 study, Europe has 18 trillion cubic meters (tcm) of natural gas.

Europe has a long history of oil and gas production dating back to the mid 19th century, just like the US. The Polish Bobrka field was discovered in 1853, gas in Britain’s Weald Basin was discovered in 1875, and deep gas was discovered in Italy’s Po Valley in 1945. 

There is oil and gas in Europe.

But to put this fact into context first we must explore how shale revolutionized O&G estimates for US recoverable reserves. 

In the image below you’ll notice two things:

  1. Shale extraction exploded the US’s recoverable natural gas reserves
  2. When exploration starts reserves consistently increase (i.e. there is no short term lack of supply, only investment)

This next chart demonstrates more of the same. Basically if you invest in exploration and production (E&P) you tend to  find new reserves (shocker!).

Now, let’s look at a few European countries with shale potential – which have all been thwarted by bad policy. 

Below is a map showing several of the shale gas basins in Europe. It should also be noted that historically when large scale exploration programs have been launched they have found more hydrocarbons than expected.

European Shale Basins

Some of the most prospective shale gas fields are:

Poland: Estimated reserves of 5.3 tcm of shale gas with +1bcf/d of production possible by 2025 (~3% of the EU’s current gas demand) if development started today. 

But, because of a lack of support from the EU and local governments there has not been any natural gas production to date

UK: There are shale plays in the East and South along with remaining conventional reserves in the North Sea. There are estimates of more than 25 tcf of recoverable natural gas in Britain.

No commercial gas has been produced to date – British regulations stopped shale gas exploration in its tracks via a 2019 moratorium. Today, the tide is turning. Just a few days ago, new British Prime Minister Liz Truss removed the ban on fracking.

France: The infamous Paris Basin (discovered in 1923) has produced significant oil – 800 wells have been drilled producing more than 240 million barrels of oil. The Paris Basin is estimated to have more than 5.6 tcf of natural gas resource and 558 million barrels of oil. 

In 2017, led by French President Macron, parliament passed laws to become the first country in the world banning any new oil exploration licenses with immediate effect and all oil and gas extraction by 2040. 

Even in the midst of an energy crisis, the French are sticking by their green policies. 

The takeaway: the EU has hydrocarbon resources.

Energy independence?

There is a case to be made that within 3 years the EU could be approaching energy independence if they simply opened up the market to meaningful exploration; not just shale but offshore as well. 

In the US, we saw ~30% natural gas production growth in 2 years from 2017 to 2019. 

With the EU’s current high gas prices, the tailwind behind E&P growth could be much greater than what we saw in the US. 

We haven’t even talked about the Dutch Groningen gas field yet – one of the 10 largest gas fields globally. Just 5 years ago the field was producing 30bcm annually. Since then, the Dutch government has reduced production to sub 5bcm annually, but believes production could easily be ramped up to 25-30bcm (16% of Russian imports). 

Why did they reduce production? Because regulators believe that natural gas production out of certain regions of the Groningen gas field carry significant earthquake risk. 

Europe’s reliance on Russian gas is not geological destiny, but rather choice. A choice that continues to look increasingly dire as we approach winter. 

What do you think politicians’ appetite for O&G production will be after a winter of sleeping in their mittens?

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Jamie Keech

CIO; Editor

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Nick D'Onofrio

Head of Research

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Which do you want to be?

Democrats passed the Inflation Reduction Act and it magically made inflation vanish, even before the bill was signed into law. This is how good the bill is, it retroactively reduced inflation.

No, this is not Biden having a brain fart. This is the official messaging of the current administration. 

Now, this isn’t exactly a lie – the official inflation number increased 0% from June to July (month over month), but it did increased by 8.5% year over year.

The Market Responds

Inflation fell from 9.1% in June to 8.5% in July, and the market believes that the Fed is getting closer to hitting a homerun (AKA gradually cooling inflation without a recession). This bodes well for stocks and the USD, and the market is reacting accordingly. 

As we mentioned a few weeks ago, the US looks like a much more attractive home for capital at the moment than the rest of the world. For this reason, we’ve been predicting this rally in equity markets… But I wouldn’t get your hopes up as we don’t expect it to be long lived.

Industrial output peaked in 2Q 2022. What many investors got wrong was the assumption that following this peak would be an immediate recession. Before we see a recession, manufacturing jobs have to start contracting. In July, manufacturing jobs increased by 30,000. 

The 30,000 jobs created are half of what that number was in April, which establishes a slowdown, but not a contraction. 

Manufacturing jobs are a lagging indicator, but tend to be led by the ISM Manufacturing Employment Index by about 3 months. This is also yet to decline in a manner that would indicate we are in a recession.

ISM Manufacturing Employment Index

So, over the past 2 weeks the market has apparently decided that we’re not in a recession, the economy is strong, and inflation is declining… 

All this misses a few key points.

If inflation stays at 0% month over month for the remainder of the year, December’s inflation number will still land at 6.3% year over year. Which is still 3x higher than the Fed’s target of 2%. 

Meaning, the Fed isn’t going to pivot – they’ll likely be hiking rates into 2023.

Here are the major events leading up the September Fed meeting and the importance of each event:

  • Fed’s Jackson Hole Economic Symposium: end August (updated Fed guidance)
  • Monthly Jobs Report: Sept. 2 (indicator of economic growth)
  • September Inflation: Sept. 13 (will determine magnitude of rate hikes)
  • Fed Interest Rate Decision: Sept. 21 

The road to this imagined September pivot on rate hikes will be paved with pain as investors come to realize that the economy is neither in a growth or recessionary phase. We are in the midst of STAGFLATION – stagnant economic growth paired with high inflation.

Let me be as clear as possible. 

Inflation will not resolve itself, the Fed will have to slow the economy to contain inflation. The market will likely come to this realization when 2023 corporate earnings expectations are slashed.

Meaning, eventually the economy will roll over into a recession and only then will the Fed pivot on interest rate policy.

Tech jobs are getting slashed left and right. Many of my tech friends are telling me their companies are in the midst of laying off 30% of their workforce.

Housing is beginning to cool off as well – new homes for sale are handily outpacing new homes sold. In the last 50 years, this has always led to a recession, and usually an ugly one, as housing stats and GDP tend to be very closely correlated.

New Homes for Sale (Orange) vs. New Homes Sold (White)

The size of the gap between Housing Sales and Houses For Sale suggests a recession like 1974, which was pretty damn ugly. 

Which are you going to be?

The world has yet to come to terms with the fact that we are not going back to an environment supported by low inflation, globalization, and cheap energy. 

Out of control government spending continues to tip the debt/GDP scale in the wrong direction, which is wildly bullish for precious metals.

Meanwhile, destructive environmental and energy policies continue to drive capital out of the commodity sector and reduce supply. This has been the first commodity upcycle to end without any significant capex being spent.

Think about that, prices of commodities went up, and almost no money was spent increasing supply… thus offering no price relief.

Once we get through this bumpy patch, what is it going to take to actually bring more supply online? Commodities such as copper, oil, gas, uranium, lithium, etc will NEED to be much much more expensive. 

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Jamie Keech

CIO; Editor

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Nick D'Onofrio

Head of Research

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Rates & the Market

Rates & the Market

Recently we discussed how, as the Fed raises rates, we expect the dollar to continue its move higher, and a subsequent rally in broader equity markets. 

We are currently seeing this trade in full swing as the Fed raised the fed funds rate last week by 0.75% to 2.25% and the S&P 500 is trading at about 4,125 (up from 3,700 a few weeks ago!). Stocks are still following the playbook from the past decade, acting as though the Fed will soon ease interest rate policy. 

This rally will be short lived. 

Things are different in a post pandemic world – inflation, not deflation, is now public enemy number 1. Under the current economic conditions, the Fed will likely continue hiking rates into the fall  until inflation is under control. 

The only way inflation is going to slow is through a true recession, the kind where we see mass layoffs and real economic hardship. Only then will the Fed finally start slowing hikes or cutting rates.

This recession is coming faster than most believe.

It’s going to be painful BUT it will kick off the next bull market in precious metals. In the meantime, it is important to understand why markets are behaving the way they are.

The chart above compares the S&P 500 today (black) with the S&P 500 during the 2000 tech bubble (blue) and the 2008 housing bubble (green).

As you can see… It’s not looking good for our generalist friends.

Gas & Fertilizers

The green revolution tribe is quickly turning into a death cult. The hardcore greenies are pushing forward policies that are going to have very scary impacts on access to food and energy.

Prime Minister Justin Trudeau is pursuing the same climate policy that sparked mass protests in Europe.

The Trudeau government introduced a plan to reduce nitrogen emissions from fertilizer use similar to the Netherlands policy that sparked protests among thousands of farmers.

The plan to achieve emission targets set by the Canadian Federal government calls for reduction in fertilizer production by 30%.

Now… I’m no farmer, but I have been blessed by a bit of common sense, and it’s telling me:

Less fertilizer = Less food

Let’s take a look at our friends in Sri Lanka who decided to ban organic fertilizers which cut crop yields in half.

Turns out hungry citizens don’t make the best constituents… Conversely they do appear to have more energy to occupy Presidential Palaces.

While we’re on the topic of fertilizers…

Last Wednesday, Germany’s BASF (the world’s largest chemical company) cut ammonia production even further to preserve natural gas for electricity use. Germany’s first and fourth largest ammonia producers, SKW Piesteritz and Ineos also said they could not rule out production cuts as the country grapples with disruption to Russian gas supplies.

It’s looking like a long, cold and now hungry winter for Europe. 

Famines & Fertilizers.

Farmers rely on three key nutrients for fertilizer: nitrogen, phosphorus, and potassium. A combination of these elements is used to fertilize crops and maximize harvests. Natural gas, after being converted to ammonia, is the main feedstock for nitrogen based fertilizer.

Most of the world’s ammonia is used for making nitrogen fertilizers. 

Fertilizer shortages not only mean that prices have been rising, but many farmers are not even able to buy as much fertilizer as they need. This has led to farmers all over the world struggling to figure out how to keep crop yields up with as little fertilizer as possible.

This might sound like a distant problem, but less fertilizer is going to lead to food shortages. The world’s biggest soybean producer estimates that a 20% cut in potash (potassium) would result in a 14% drop in yields. The International Fertilizer Development Center is predicting that this year’s rice and corn harvest in West Africa will shrink by 30%.

Food shortages make food more expensive. Even in the best-case scenario, experts are calling for lower crop yields and higher grocery store prices across the board on everything from milk to beef to packaged foods. This could last for months or even years.

Food inflation causes people to eat more processed/unhealthy food and poor diet leads to a litany of health consequences.

Energy supply is life.

The takeaways.

There are a few important points to note:

  • We have not fully experienced the effects of the Russian invasion – markets are trying to price in expectations, but we haven’t seen supply/demand shortfalls fully play out yet.
  • The energy and fertilizer shortage is going to sustain inflationary pressures. 
  • The same inflationary pressures are likely to stir more and more civil unrest around the world. 

This wild ride is just getting started. Stay vigilant and diligent, there will be opportunities to make a few fortunes over the coming years for those paying attention.

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Jamie Keech

CIO; Editor

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Nick D'Onofrio

Head of Research

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