Jayant Bhandari | Mining Projects Must Have At Least 20% IRR At Current Spot Prices To Be Viable
Jayant Bhandari is the President of Anarcho Capital and is constantly traveling the world to look for investment opportunities, particularly in the natural resource sector. He advises institutional investors about his finds. At the 2018 Beaver Creek Precious Metals Summit, Bill Powers interviewed Jayant regarding his thoughts on the Summit and the junior resource sector.
The Beaver Creek Precious Metals Summit provides a one-stop destination for institutional investors, sell-side representatives and corporate development executives from senior precious metals companies who want to be ahead of the pack in identifying the most prospective explorers and developers from around the globe. The Summit is by-invitation only and offers delegates the opportunity to attend corporate presentations, meet one-on-one with senior management and to network in an exclusive yet warm and relaxed atmosphere.
0:05 Introduction
1:30 Jayant’s reflections on the 2018 Beaver Creek Precious Metals Summit
2:29 Companies that caught Jayant’s attention at Beaver Creek
3:55 Discussing mining jurisdictions
5:40 What Jayant looks for in a late-stage development company
7:01 Where is the price of gold headed?
8:45 Current junior resource arbitrage opportunities
11:02 Jayant’s commentary regarding the base metals
12:58 Concluding advice
BEGIN TRANSCRIPT:
Bill: Welcome back, ladies and gentlemen. Thank you for tuning in to another “Mining Stock Education” expert interview. This is actually an on-site interview. This is the last day, the concluding hours of the Beaver Creek Precious Metals Summit in Beaver Creek, Colorado, and I’m catching up with Jayant Bhandari, a previous guest on this podcast. And Jayant is the President of Anarcho Capital, and he advises institutions on investing in the resource sector. Did I get that correct, Jayant?
Jayant: That’s absolutely correct, Bill. Thanks for having me here.
Bill: Well, thank you for joining me. And I’d like to get your reflections and your thoughts on the conference as it concludes.
Jayant: Well, I have come to almost every single conference at Beaver Creek, and Jessica and Karen do an absolutely fabulous job organizing this conference. They bring in among the best companies in the junior mining sector as a great setup to meet and talk with these companies and fellow investors.
Bill: How many companies did you meet with?
Jayant: I met about 20 companies during the last two and a half days. It has been actually among the best conferences I have been to in terms of the value I got out of the conference. So thanks to Jessica and other organizers at Beaver Creek.
Bill: I agree. This is one of the best organized…and I told Jessica this in person, this is one of the best organized conferences I’ve been to, whether it’s mining sector or a different type of conference, well organized, and your time is not wasted at all.
Jayant: That’s absolutely true. Yeah.
Bill: So as you met with these CEOs through these interviews, any companies that caught your attention that you’d like to share with listeners?
Jayant: There are two completely new companies that I got to know about. I still have to do a fair bit of work on those companies but, actually, three companies. One is Shanta Gold. It is in Tanzania, and I have been extremely negative about Tanzania, and I think I will continue to be negative about Tanzania. But I was very impressed with the management of Shanta Gold, and I think what these guys have achieved is that not only they have technical skills, but they have the skills to understand the local culture and wage their way around the problems of Tanzania. These people have suddenly turned cash positive, and it seems that they will continue to make a positive cash flow which will be comparable with their market capitalization. So if this is all true, Shanta Gold could be a very good company to look at. People should look at this company, I think. I have no details on it though, but that’s one good company. Another very early stage company that I found very interesting is Camino Minerals and the ticker is COR (TSX-V). It’s an early stage copper play in Peru. I quite like their management. I was very impressed with their technical competencies and the business risk that they bring on board. So these are the two companies I was very happy listening to.
Bill: And you’re comfortable with Peru as a mining jurisdiction?
Jayant: Absolutely. I’m comfortable with even Tanzania and Zimbabwe as long as the price I pay is already discounted for the political risks that I take in these countries. Remember, in my view, Africa is a hellhole. There is not really a decent place in Africa. I don’t…but I’m investing in Africa. I’m not living in Africa. As long as my money gets a decent return adjusted for the political risks I’m taking, I’m very happy investing in these countries.
Bill: You like Japan. I know last year or maybe earlier this year you wrote about how you like Japan as a jurisdiction. Are there any other jurisdictions in Asia that you have your eye on?
Jayant: Well, East Asia is the future of humanity. Japan is the future of the Western society. Japan and South Korea continue to grow. They are very stable societies and they are very creative societies. The international media mostly ignores so much positive things that are happening in South Korea, and Japan, and Taiwan, Hong Kong, and Singapore and all, now being copied in China. So in my view, the future of humanity is in East Asia because these people are doing the right things. Now you and I can pick out some of the bad things about these societies, for example, lack of democracy in China or lack of birth rate in Japan and Korea. But we can pick and choose, cherry-pick bad things about these societies to bitch about them, but overall East Asia is truly the best part of the world in my view.
Bill: I met with a lot of late-stage development gold and silver developers. Many of them have multi, multi-million ounces…deposits of gold but they have extreme Capex needed to bring them into production. What’s your perspective on a company like that considering where gold and silver is now?
Jayant: What you have to really do is to make sure any project that you invest in makes money at a discount rate of 20%, that is using the spot price.
Bill: Nobody does that in your PEA, you know, 20% discount rate.
Jayant: But you have to redo the spreadsheet by yourself and use a 20% discount rate. Remember if you don’t use 20% discount rate, it is not financeable. You can’t get debt from the banks to put that project into production. So a company has to be viable at the spot price, and it should offer me at least 20% return, at least 20% IRR before I even think about looking at it. And then the NPV that I get at 20% should be at least close to or higher than the market capitalization of that company before I think about investing in that company. But foremost I have to feel good about the management. They have to be financially literate and they have to be good people.
Bill: Regarding gold and silver, they’ve been trending down over the last months, which has hurt the junior mining sector in terms of share price. Some have even questioned, “Are we still in a prolonged bear market was 2016 an anomaly?” What’s your perspective on the future of gold and is there really a predictable strong catalyst that we’ll see over the next few years that will cause gold and consequently silver to rise?
Jayant: For now we have a new gold, and that is the U.S. dollar. And quite rightly because U.S. dollar is the most liquid money available in the market today. And for the last many years, people in the Third World and people with big chunks of money have been moving their wealth into U.S. dollar. Because despite the fact, Bill, that you and I might find a lot of bad things happening in the U.S., U.S. continues to be one of the best places in the world. It’s a very open-minded, open society and a place where the rule of law works. So that is the reason the world likes to buy U.S. dollar, buy houses in the United States and in Canada, and they like to invest in the U.S. But a time will come when the U.S. dollar will become too expensive, and the money will then start flowing into gold. That time might not come for the next couple of years because Trump, who, in my view, is doing the right things, can make U.S. dollar attractive for the next few years. But, eventually, gold will assert itself because U.S. dollar, after all, is paper currency, and we have to remember it is paper currency with inherent long-term value of zero.
Bill: That’s right. Jayant, you taught me about arbitrage opportunities in junior resource markets, and what to look for, and how to take advantage of it. In fact, that was our first interview together. So if there are some new listeners listening to this podcast, just scroll through to a year, year and a half ago, and that was my first interview with Jayant, and that’s all about how to invest in arbitrage opportunities. You keep the pulse and you look out for those. Any arbitrage opportunities that you’d like to share with listeners?
Jayant: Well, I can talk about two arbitrage opportunities I see right now. Both of these companies trade in Australia, and that one company is Nkwe Platinum. The first the name is spelled as N-K-W-E Platinum. They have a project in South Africa. I don’t like South Africa as a jurisdiction. The ticker is NKP, but this company is being acquired by Zijing Mining for 10 cents per share in cash, and that is what interests me. The share price of Nkwe Platinum, ticker, again, is NKP, is trading at about 0.088 cents, which means that I have about a 15% cash arbitrage upside in owning this company. I can make that 15% in about 6 weeks, which means that, while it might not look very attractive to some people, if you can roll your money at the rate of 15% growth every 6 weeks, you make more than 100% every year. And that is why, Bill, I’m still sitting here, very positive about the whole sector because bear market is a sector where people don’t pay much attention to these companies, and you can actually make money. Another company that I like is Kangaroo Resources. The ticker is KRL, again, in Australian Stock Exchange. They also have a cash offer of 15 cents Australian, and the share price of Kangaroo Resources, ticker KRL, is 12 cents, which means that you have a 25% arbitrage upside in this company, although there are some legal risks associated. So you take a bit more risk, but this is a very good upside for me to invest for.
Bill: What’s your thoughts on the base metals right now?
Jayant: I actually usually don’t speculate in commodity prices, but for the first time I have bought base metal futures. And the reason is that there has been a huge amount of fear associated with commodity prices and commodity demand going forward because of the possible trade war developing between the United States and China. The way I see this is that there will be a reconfiguration of trade between China and the U.S. that is going to happen, but these are two smart countries. They are not fanatic. They both want good for their own people and, eventually, this trade war from your and my perspective will end up as noise and nothing else. So because I’m not afraid of this trade war fear, I’m very happy investing in base metals because I think they will re-correct themselves to the upside in the very near future. Remember, many people had to unwind their speculative positions in the last few weeks because they were too speculative and too invested in these speculative positions in base metals. They had to unwind which resulted in fall of base metal prices, and I think they will revert back to their normal, which is another 10% or 15% upside in their prices.
Bill: So you bought base metals futures. Did you invest in any base metal companies over the last couple of months you’d like to share about?
Jayant: I’m going to look at Camino Minerals very soon. I think that could be an interesting opportunity to invest in. I can’t, off the top of my head, think of any base metal company that I have invested in in the recent past. But, yes, when I invest in base metal companies, they have to pass the test of 20% discount rate using the spot price.
Bill: Jayant, I appreciate this information, a dense conversation we’ve had over the last 12 minutes. What would be your concluding advice or insights you’d like to share with the listeners?
Jayant: Bill, one of the very interesting thing I have seen over the last 13, 14 years of my career in the investment business is that people like to invest when the bull market is in place. In reality, the best time to make money is during the bear market because that is when least amount of people are paying attention to these companies and that disappears. You can pick out value plays at a very cheap prices, and value plays devote back to their valuation very rapidly, even in the bear market. And that means that you can actually make good gains in the short-term in the bear market. So celebrate bear market while it lasts rather than wait for the bull market to arrive.
Bill: Excellent contrarian advice. And listeners you can find Jayant on the web at jayantbhandari.com. Is that correct, Jayant?
Jayant: That’s absolutely correct. Thank you very much for having me.
Bill: Yes. Thank you, Jayant. And listeners, do sign up for Jayant’s email list. He is very generous in sharing with you arbitrage opportunities that arise, as well as his political and philosophical thoughts. Thank you very much.
Jayant: Thank you.
