Adrian Day: Closing the Gap - Gold Prices, Mining Stocks and When that Disconnect Closes

Tom welcomes back Adrian Day, CEO of Adrian Day Asset Management to discuss the business aspects of the mining industry.

Adrian stresses the importance of understanding a company's financial situation beyond initial disappointments, using Barrick Gold as an example of a company with a history of optimistic production estimates leading to missed targets but effectively managing these issues. He emphasizes the significance of cost metrics like per ounce operating costs and all-in sustaining costs (AISC) for evaluating mining companies' profitability and efficiency.

The conversation touches upon the challenges faced by mining operations, such as equipment failure, geopolitical risks, maturing mines, and hurdles common to every operation. Fortuna is used as an example of a company whose significant zinc production should be considered in evaluating its revenue distribution among different metals.

Adrian discusses the disconnect between gold prices and mining stocks, attributing it to gold's strong performance amidst central banks and Chinese investors seeking safe havens and the broad stock market's strength. Despite potential risks, such as a pause or reduction in buying by central banks and a negative macroeconomic environment, Adrian highlights the opportunity presented by undervalued gold stocks.

The speaker also touches upon exploration expenditures and their importance in discovering new deposits despite the increasing difficulty of finding them. In his investment strategy, Adrian emphasizes investing in senior miners and major royalty companies during the current market cycle due to their undervalued status and likelihood to move first when the gold sector takes off.

The conversation concludes with a discussion on economic stress in financial systems caused by excessive debt accumulated during periods of ultra-low interest rates, with maturing low-interest loans causing strain for households and corporations between 2024 and 2026. Adrian emphasizes the undervaluation of gold mining companies considering gold prices and their margins.

Time Stamp References:
0:00 - Introduction
1:16 - Miners & Missed Targets
6:43 - All-In-Costs Metrics
9:47 - Production Misses
14:39 - Risks & Juridiction
18:50 - Valuing Poly Deposits
20:55 - Gold Price & Miners
26:17 - Closing The Gap?
30:19 - Mergers & Timing Cycles
33:16 - Companies & Exploration
36:12 - Portfolio Strategies
39:37 - Royalty & Streaming
42:16 - Low Premiums on Metals
46:20 - Silver & Sentiment
47:47 - OTC Purchases & Reports
50:28 - Consumers & Metrics
53:00 - Biggest Stress Points
57:30 - Long-Err-Term Bonds?
1:02:48 - Wrap Up

Talking Points From This Episode
- The financial situation of mining companies, even those with initial disappointments, should be thoroughly understood for long-term investment opportunities.
- Barrick Gold serves as an example of managing production misses effectively.
- Cost metrics like per ounce operating costs and all-in sustaining costs are crucial for evaluating mining companies' profitability and efficiency.
- Various factors that have led to a disconnect between gold prices and mining stocks, presenting opportunity for undervalued gold stocks.

Guest Links:
Website: https://adrianday.com/

Adrian Day is considered a pioneer in promoting the benefits of global investing in the United Kingdom. A native of London, after graduating with honors from the London School of Economics, Mr. Day spent many years as a financial investment writer, where he gained a large following for his expertise in searching out unusual investment opportunities around the world. He has also authored two books on the subject of global investing: International Investment Opportunities: How and Where to Invest Overseas Successfully and Investing Without Borders. His latest book, widely praised by readers, is Investing in Resources: How to Profit from the Outsized Potential and Avoid the Risks (Wiley, 2010). Mr. Day is a recognized authority in both global and resource investing. He is frequently interviewed by the press, domestically and abroad. He is a popular speaker and is frequently invited to lecture at financial conferences and seminars around the world. His pleasures include fine dining, reading (especially history), and the opera.