Mark Madsen, CFA, MAcc is a Portfolio Manager of the Grandeur Peak Global Reach Fund (GPROX) and the Grandeur Peak Global Contrarian Fund (GPGCX), and Guardian Portfolio Manager of the Grandeur Peak International Opportunities Fund (GPIOX).
He is also a Sr. Research Analyst with a specialty focus on the industrials, energy and materials sectors globally.
Mr. Madsen joined Grandeur Peak in 2016 following four years working as a Senior Equity Analyst in a family office. Mr. Madsen has been a research analyst since 2004, when he began his career at Wasatch Advisors.
Mr. Madsen began as a junior analyst and was later promoted to a senior research analyst, working on the Wasatch Small Cap Value Fund (WMCVX). He developed an expertise in the energy, industrials and financial sectors.
After four years, Mr. Madsen left Wasatch to found Red Desert Capital in Las Vegas, Nevada. As Founder and Portfolio Manager, Mr. Madsen successfully launched a concentrated portfolio based on a bottom-up fundamental value investment strategy. He was later recruited by a client to manage a family office in St. George, Utah.
As the Chief Investment Officer, he developed an all-cap equity portfolio, managed an income portfolio and was responsible for tracking and evaluating third-party managed accounts.
In this 2,467 word interview, exclusively in the Wall Street Transcript, the Grandeur Peak portfolio manager puts his spin on stcok picking, with many in detail:
“The Global Contrarian Fund is more of a value-based fund, so we’re looking for high-quality companies that are trading at a really attractive valuation.
Oftentimes, they’re trading cheaply either because they’re undiscovered and nobody knows about them, or they’re undervalued because of current market conditions. And because they might have hit a bump in the road that’s either company specific, or related to more of a macro-based factor…
…We want to make bets on companies that are, again, high quality and have great long-term prospects. And we’re willing to be patient and own those companies even if in the current environment that business is not doing particularly well at the moment.
So we’re hoping to find companies that are trading at a cheap valuation. And we think that means that the market has missed something, and so we are willing to make a bet when perhaps somebody else isn’t.”
“One example of a company that we like is an IP and patent firm in Australia called QANTM Intellectual Property (ASX:QIP). And QANTM is the second largest player in the patent market in Australia. And it is a more recent name.
…Another one of the names we like that is listed in Hong Kong is Plover Bay (HKG:1523).
Plover Bay specializes in making hardware and software, in SD-WAN — products that enable customers to aggregate different sources of bandwidth into one stream of bandwidth — and that’s called SD-WAN technology.
We think the company has a bright future as 5G is rolled out globally. So there’ll be more and more uses for its products.
And we like that the company is 80% or 75% owned by its founder. It’s continuing to grow at a healthy rate, but also at the same time it pays out a really healthy dividend yield.
One of the companies that we’ve done really well with in Vietnam is called Hoa Phat Group (HOSE:HPG). Hoa Phat produces steel. They make a wide range of steel products. And there’s been a voracious appetite for steel within Vietnam.
So the company has built out new manufacturing centers and new infrastructure within the country. And Hoa Phat expanded its capacity over time, but that capacity has readily been absorbed by the market.
The stock has always traded at a really reasonable multiple and we also like that despite the fact that it’s growing really fast, it has done a good job of also paying a dividend and returning some cash to shareholders over time.”
Get the complete detail from Mark Madsen of Grandeur Peak for these and others by reading the entire 2,467 word interview, exclusively in the Wall Street Transcript.
Joshua R. Schachter, CFA, is a Senior Portfolio Manager of the Snow Capital Small Cap Value and the All Cap Value portfolios. He joined Snow Capital at the firm’s inception in 2001. Mr. Schachter’s duties include security research, selection and portfolio management.
In this 2,165 word interview, Mr. Schachter details the stock picking process at Snow Capital and highlights many top stock recommendations for 2021.
“Our investment philosophy is extremely unique. We believe there’s a behavioral finance component to investing that most people either fail to recognize or fail to incorporate into their investment process.
When Wall Street likes something, they give it a high p/e — price-to-earnings ratio. When they dislike it, they give it a low p/e. And in practice, when they dislike it, there’s something wrong.
And what’s happening is the discount rate is going up from some fear or uncertainty. And when that discount rate goes up, it contracts the net present value of the future cash flows and earnings and that’s what’s contracting the p/e.
So we go into those situations with a contracted p/e and look for a catalyst to change the market’s opinion of those future cash flows and earnings.
To get what we call p/e expansion to some future normalized level, our competitive advantage is figuring out what that p/e should be in the future and figuring out the catalysts to make it get there.”
This unique Snow Capital method creates an interesting opportunity for their investors:
“CNO Financial is my favorite insurance company. It’s primarily a provider of annuities and life insurance serving the middle markets.
They do have some legacy long-term care insurance liabilities, in which they’ve done a very nice job of siloing the risk. They’ve done that through reinsurance contracts, price increases, and other mechanisms to minimize their liability to long-term care.
CNO, I believe, will be acquired in the future. But between now and then, they have a significant amount of free cash flow to be able to return to the shareholder in the form of buyback and dividend yield that is 2% currently.
Their buyback is a significant piece of the puzzle for investors; it could approach 10% a year for the company. So, this is a free cash flow machine.
They are growing their end markets through new distribution, direct to consumer, which has grown during the COVID pandemic. And it’s so cheap. It trades at 10 times earnings with that roughly 10% free cash flow yield because of the taints of the long-term care overhang, which I think is overblown.”
Another group of financial stocks are also top 2021 picks from Snow Capital:
“Thinking about the financial sector, you have two different categories in our portfolio. We have banks — and we have a number of banks that are in the midst of a transformation operationally that will really enhance earnings power.
Some of those banks that are noteworthy are First Horizon (NYSE:FHN), TCF Financial (NASDAQ:TCF), Umpqua (NASDAQ:UMPQ) and BankUnited (NYSE:BKU).
Those four banks are in the midst of redefining their leverage inside their income statement and really enhancing their efficiency and are very attractively priced based off of our normalized earnings power once they’re done with the changes.”
Get the complete picture on these and other top 2021 picks from Joshua Schachter at Snow Capital, exclusively in the Wall Street Transcript, by reading the entire 2,165 word interview.
Michael Nicolas has been a co-manager of the Oakmark Fund since 2020. He is also an investment analyst at Harris Associates and a VP of the Oakmark Funds. He started at Harris Associates in 2013 after serving as a managing director at Lakeview Investment Group. Prior to that, he was a senior analyst at Stratford Advisory Group.
In this extensive 4,036 word interview, Mr. Nicolas discusses the Oakmark Funds investing process and philosophy and illustrates with many detailed top stock picks.
“At Oakmark, we adhere to a proven, bottom-up investment process. We look to identify individual companies trading for meaningful discounts to our estimate of intrinsic value, and where we expect per-share value to grow over time.
Furthermore, we want to make sure that the management teams that run our companies are properly aligned with us, and that they think and act like owners of the business.
We spend an awful lot of time studying the track records and the capital allocation history of the management teams we’re considering investing with, which is critically important given our willingness and ability to own a company for a long time.
In terms of my own evolution relative to earlier in my career, I’ve gained a much greater appreciation for how important management quality can be in affecting investment outcomes.”
This leads to an idiosyncratic value based portfolio:
“…the way we define value is different than many of our peers. We don’t require a current or prospective portfolio company to trade for a low multiple of the earnings or book value they publish in their audited financial statements.
Our CIO–U.S. Equities, Bill Nygren, has written at length about the flaws of solely relying on generally accepted accounting principles — or GAAP — to determine how profitable or valuable a company is.
At Oakmark, we often go to painstaking lengths to recast a company’s financial statements in order to reflect what we believe its true economic earnings power to be, which can sometimes look quite different than how GAAP would define it.
For these reasons, you’ll see a mix of what I would call traditional value names in our portfolio, like many of our financial holdings, and non-traditional value names, like Alphabet (NASDAQ:GOOG)…”
Some recent picks also highlight the Oakmark Funds investment philosophy:
“The two most recent positions that we’ve added to the portfolio were CBRE Group (NYSE:CBRE) and Keurig Dr Pepper (NASDAQ:KDP).
CBRE is the largest commercial real estate services firm in the U.S. The company has significant scale across its various service lines and geographies, which enables it to consistently invest more than smaller peers into the research, tools and technology that customers value.
This industry-leading value proposition has driven consistent share gains for CBRE in recent years, as large clients have been attracted to the company’s differentiated capabilities and the best brokers have been attracted by the steady stream of clients.
We expect CBRE to continue to gain market share in the highly fragmented brokerage industry for many years to come while it further transitions away from transaction-driven commissions and toward more contractual fee revenues.
There’ve been some outsized fears around “work from home” that have caused the company to sell for less than 13 times our estimate of mid-cycle earnings. We think this is an attractive price for a high-quality and well-managed business like CBRE.
The other name that we recently acquired was Keurig Dr Pepper. Keurig Dr Pepper is one of North America’s leading beverage companies and commands a strong market position in single-serve coffee and flavored sodas.
Keurig’s competitive advantages are many. It has a low-cost production footprint, the largest installed base of brewers and exclusive brand partnerships, which allow it to collect a toll on most pods sold in America today.
We believe Keurig’s brands should deliver steady growth, consistent market share gains and significant excess cash flow. It’s an above-average business trading at a meaningful discount to the market, its beverage peers and historical private market transactions.”
To get more detail on these and many other stock picks, read the entire 4,036 word interview with Michael Nicolas of Oakmark Funds, exclusively in the Wall Street Transcript.
Larry Mendelson has been HEICO Corporation’s Chairman of the board since December 1990 and has been Chief Executive Officer since February 1990. He had been President from September 1991 through September 2009.
Mr. Mendelson has been a member of the board of governors of the Aerospace Industries Association — AIA — in Washington, D.C., of which HEICO is a member. He is the former Chairman of the board of trustees, former Chairman of the executive committee and a current member of the Society of Mount Sinai Founders of Mount Sinai Medical Center in Miami Beach, Florida.
In addition, Mr. Mendelson is a trustee emeritus of Columbia University in the city of New York, where he previously was trustee and Chairman of the trustees’ audit committee. Mr. Mendelson is a certified public accountant.
In this 3,672 word interview, Mr. Mendelson explains his company’s performance and future value creation for investors.
“We focus on high margins, products with high margins, protected markets, really arcane products, products where we have a leg up on competition, either that we have the technical know-how that is very, very difficult to duplicate by a competitor.
And we do not want to sell a complete system. We like to sell parts that go into large systems. For example, we supply aircraft parts; we supply aircraft engine parts.
And in addition to that, we supply parts that we manufacture, design, develop all over the aircraft, in the avionics, the landing gear, in the cabin, you name it, and you’ll find our individual parts, but we normally do not make the entire system.
In addition, we make lots of electronic components, uplinks, downlinks to satellite systems.
As a matter of fact, these satellites that go to Mars, Jupiter, Pluto, that land on comets, so many of their electronic components are made by HEICO’s subsidiaries.
And in addition, we do work for the defense industry. Our business is composed of two divisions, electronic technologies and flight support.
Flight support is primarily commercial aviation. And in the electronic technologies, close to half of our business is related to the defense sector.”
Larry Mendelson emphasizes the quality of earnings for HEICO:
“…More important than earnings per share is cash flow generation because it’s very possible, and many companies do have capex expenditures or other expenditures, where earnings per share is one thing, but the cash flow from the earnings per share is considerably less than the earnings per share.
So it might be 75% of reported earnings per share is really cash. In our case, over the years, the cash flow is generally 140%, sometimes as high as 180%, of reported earnings per share.
And the name of the game, business is cash flow. You cannot buy groceries in your local supermarket with earnings per share.
You can’t grow a company just with earnings per share; you need cash. So sophisticated investors look at HEICO as a cash flow generator. And that is what we’ve groomed the company to be. And that is what investors like. We call that the quality of earnings, that the earnings produce cash, not just a paper profit.”
Mr. Mendelson emphasizes that the quality of the company’s cash flow is matched by the quality of HEICO’s products:
“…We make very, very sophisticated electronics for satellites. For us, it doesn’t matter if Lockheed has the order or Boeing has the order for the satellite.
Either one will probably come to us for that particular electronic need that they specify. We will be there, and our history of successful and very high-quality products assures repeat business.
In the space business, if you supply a $5,000 or a $10,000 part, which we do, and it doesn’t function, the result is that somebody, who’s got $200 million, $300 million, $400 million of space junk floating around the Earth, doesn’t accomplish its mission.
They have to be very, very certain of high quality. And they’re not very anxious to save a few thousand dollars and go try somebody new, which they’ve never tried before, and find out that, “Oh, my goodness, that product really didn’t last. It should have lasted, but it didn’t. It doesn’t function, and now our space satellite is in trouble.” So they will go back to sources where they have long experience on extremely high quality.
And that’s what our subsidiaries do.”
Get the complete 3,672 word interview with CEO Larry Mendelson, exclusively in the Wall Street Transcript.
Andrew Spodek is the Chief Executive Officer of Postal Realty Trust and is a member of the board of directors. Mr. Spodek is the Founder and CEO of the predecessor entity, Nationwide Postal Management, Inc. NPM, founded in 2004, was the largest manager of USPS-leased properties in the United States.
Mr. Spodek has over 20 years of experience exclusively focused on investing in and managing post office properties.
Prior to founding NPM, Mr. Spodek led acquisitions and property management for his family’s private real estate investment activities. Mr. Spodek sits on the board of directors of the Association of United States Postal Lessors.
Mr. Spodek earned a M.S. in real estate from New York University and a BBA in finance and international management from Boston University.
In this 2,643 word interview, exclusively in the Wall Street Transcript, Andrew Spodek explains how his company is building a portfolio of post office real estate.
“My father — who had been in the real estate industry for his entire career — had been brought an opportunity to purchase a portfolio of postal properties in the early 1980s. Before this, he didn’t know that the Postal Service even leased their buildings. After doing some diligence, he ended up purchasing them and loved the assets, and he continued to buy them from there on out.
In the early 2000s, my father semi-retired, and I created a management company to operate his portfolio, and I began to buy postal properties on my own.
What I didn’t realize at that time, but what I realize now in retrospect, is that we were one of the only institutional owners and operators of postal properties. As we continued to acquire, we established ourselves as the largest owner of postal properties.
A few years ago, we started exploring the idea of creating a REIT around our portfolio.”
Mr. Spodek has further developed his postal portfolio into a more attactive financial package:
“What I also realized was how fragmented the market was and that even though we may have been the largest owner of postal properties, we were very small relative to the market. If you think about postal real estate in general, you have roughly 23,000 postal properties throughout the country.
Those 23,000 postal properties represent about $1 billion in gross annual rent. Of the 23,000 postal properties, 16,000 are owned by single-asset owners. That’s 16,000 people owning 16,000 postal property assets — that’s how fragmented this market is.
As a result, we decided to pursue this public market opportunity and completed our IPO in May of 2019.”
The assets are very attractive from a real estate perspective:
“Number one is the Postal Service pays their rent during good times and bad, whether it is during a government shutdown or the current pandemic that we’re dealing with.
Number two is the Postal Service very rarely moves.
Over the past 11 years, we’ve maintained a 98% retention rate. The Postal Service, in general, is very committed to the towns and communities that they’re based in. They have significant capital invested in the buildings they occupy, and they have very strong ties to their local communities. Additionally, these postal properties are part of a distribution network; removing one of the stops on the network is disruptive to the overall network in general. For all of those reasons and more, the Postal Service very rarely moves.
The third important consideration is that we’re able to operate hundreds of these buildings all over the country from our office on Long Island without the need to have any employees on-site at the properties.”
The value of the USPS is the value of the properties:
“It seems logical that the Postal Service that sees millions of Americans every day would be the most effective way of getting these packages to the American people. I believe the Postal Service’s last-mile distribution network is their competitive advantage in the package delivery industry.
It’s important to also understand that the Postal Service is a government agency and is the second-largest employer in the country. The Postal Service provides a critical need to the communities and American people that it serves.
In a situation like we are all living in today — with shelter-in-place due to COVID-19 — the value and need of the Postal Service is more relevant and important than it ever was.
The people that live throughout this country that need to collect their Social Security checks, medicine or any other resources look to the Postal Service. The Postal Service is there to provide uninterrupted delivery. And if the Postal Service were a private company, the chances of them being there and operating reliably at this size and scale and at this pace during a time like this is highly unlikely.”
Mr. Spodek emphasizes the quality of the management for the Postal Realty Trust:
“So first and foremost, I think it’s important that everybody understands that we’re internally managed by a team that’s been in this space for decades. We have very deep and long-lasting experience owning and operating and dealing with this particular tenant. I think that that’s key to everything.
It translates into the management and operation. It translates into acquisitions. It translates into the relationships that we have all over the country. Those relationships are with vendors and owners and intermediaries and brokers and the Postal Service.
It’s important to recognize when you’re investing in a company like ours, it’s not just about the tenant and their credit but also to understand that being diversified geographically is an advantage as well.
We currently own 549 properties in 45 states. Having that type of geographical diversification is very beneficial. Understanding that these postal properties are well-located in the towns they operate in is also important.”
Get the entire picture of the Postal Realty Trust by reading the complete 2,643 word interview with Andrew Spodek, exclusively in the Wall Street Transcript.
Russell A. Colombo is President and Chief Executive Officer of Bank of Marin Bancorp. He is a lifelong resident of Marin County in the San Francisco Bay Area. He received a Bachelor of Science degree in agricultural economics and business management from the University of California, Davis and his Master of Business Administration in banking and finance from Golden Gate University.
Mr. Colombo joined Bank of Marin in 2004 as Executive Vice President and Branch Administrator after 29 years in banking at Comerica Bank, Security Pacific and Union Bank in San Francisco.
He was appointed Executive Vice President and Chief Operating Officer of Bank of Marin in 2005 and assumed the position of President and Chief Executive Officer in 2006.
In his current role, he leads the premier community and business bank in the Bay Area, with 22 branches, five commercial banking offices and one loan production office located across Marin, Sonoma, Napa, San Francisco, Contra Costa and Alameda counties.
Mr. Colombo is a board member of the California Bankers Association, Past Chairman of Western Independent Bankers Association and is a member of its executive committee and Chairman of the Citizens Oversight Committee of SMART — Sonoma Marin Area Rail Transit.
In this 1,474 word interview, exclusively in the Wall Street Transcript, Mr. Colombo details his COVID 19 crisis management.
“Small-business owners with up to $50 million in revenue. That’s our primary customer, and we do a lot of lending to real estate investors. With the small-business owners, we finance the business, and we likely would finance the building where they operate as well.
We also do a lot of commercial real estate where we are providing loans to investors to purchase commercial real estate. That’s a mixed bag in this pandemic environment, depending on what type of commercial real estate you’re financing.
We don’t have a lot of hospitality; we have a few hotels, and frankly, all of them are empty right now.
But in most cases, we have guarantors with liquidity.
Wine business is suffering certainly because people aren’t visiting wineries, but they are selling a lot of wine wholesale, in the grocery stores.
Overall, the loan portfolio is in solid shape, and while we are bound to see additional challenges, we expect to weather this storm just as we have past downturns.”
Mr. Colombo goes into more detail:
“Like everybody else, I’m worried about how quickly the economy can come back once we get through this crisis. And that’s going to impact everybody.
I think this will have a significant impact on commercial real estate values. We’re looking at our portfolio very carefully to see where there are potential issues in valuation.
I will say this, values have accelerated in the Bay Area, primarily driven by technology. We have been careful about not advancing into very high valuations, which we think are a little bit too high.
We have scaled back what were our advanced rates to adjust for that, because as I looked at our real estate portfolio, it’s in really good shape, and I’m confident we’ll get through this issue.
Like all banks, we put in programs for companies and real estate that we financed to go to interest-only or even for payment deferrals, and we’ve had approximately 17% of our portfolio do that, but none of which am I really tremendously worried about.
There’s no question the hospitality area is going to be the big challenge coming out of this. We don’t deal with a lot of restaurants today. We do have some hotels, not a huge number, but a few, and those are going to be challenging.
Now, the good news is, on most of them we either have low loan-to-value ratios or very strong guarantors, or in many cases both.
Overall, I will say, I’m optimistic, and the bank is in very good shape.”
Read the entire 1,474 word interview with Mr. Colombo to get the complete detail, exclusively in the Wall Street Transcript.
John A. McCluskey is the President and Chief Executive Officer and a Director of Alamos Gold Inc. and has held this position since 2003, when he co-founded the company with mining hall-of-famer Chester Millar. Mr. McCluskey is currently a director of the World Gold Council.
He was the recipient of the 2018 Murray Pezim Award for Perseverance and Success in Financing Mineral Exploration by the British Columbia Association for Mineral Exploration. This award recognized Mr. McCluskey’s role in the acquisition, financing and encouragement of successive discoveries at Mulatos, as well as his ongoing success as CEO of Alamos.
In this 3,534 word interview, Mr. McCluskey details his company’s prospects for investors.
“Alamos Gold is a diversified, North American, midtier gold producer. Going back about 17 years ago, we were in the permitting and construction phase of our founding operation, which is the Mulatos mine in Mexico.
That’s gone on to do very well; it’s produced nearly 2.5 million ounces of gold to date, it’s made close to $480 million in free cash flow for the company and its shareholders, and it really was the underpinning, the platform, for growth for the company.
We essentially built up a very strong treasury through our earlier operating years at Mulatos — 2008 through 2013 — and by 2014 the market had gone into a deep correction. We saw that as the opportunity to start pursuing the next leg of our growth, and we were quite focused on Canada.”
The current plan is to further extend existing operations:
“…We have a phase three expansion underway at Island Gold. We’ve expanded it from a 900-ton-per-day operation since we acquired it. Step one was to take it to 1,100 tons a day and step two to 1,200 tons a day, which is pretty much the maximum we can mine under the current permit. With all the success we’ve been having in exploration, it’s pretty clear we have to think about developing that mine and sizing it in a way that can maximize the profitability of the operation going forward. With that in mind, we’re going to expand it to a 2,000-ton-per-day operation.
Right now, it operates from a ramp. There’s a big advantage to changing it to a shaft operation because a lot of the material that we’re finding is quite a bit deeper. It gets ever more expensive to try to access that through a ramp system; it’s far more efficient and far safer to mine the deeper levels of the deposit with a shaft operation. So that’s a pretty big undertaking for us.
It’s about a $500 million investment between now and 2025. While this is approximately $300 million more in growth capital than continuing with the existing ramp system, this will be more than offset by savings of more than $500 million through lower ongoing capital and operating costs over the mine life. So effectively, we’re well ahead by sinking the shaft as opposed to just continuing with a ramp operation.
On top of that, like I said, it’s a safer way to go; it’s a greener way to go because, rather than rely on more diesel trucks, we’ll be operating with a shaft, which is run from power off the grid, and it also gives us a lot of optionality because as time goes on we’re finding more and more gold to depth, and a shaft operation will allow us to more directly access the new resources that we’re finding.”
The COVID 19 global pandemic affected operations but the company kept it from a long term impact:
“At our Island Gold operation in Canada, we were in a situation where we bring in about 150 people from around the provinces of Ontario and Quebec into a relatively small community where our camp facilities are located. There was some risk of spreading the virus inadvertently by bringing people in from outside, and we wanted to avoid any chance of that.
Of course in March, nobody really knew the full extent of how the virus was spreading. So out of an abundance of caution, we flew out the shift that was already in place at the time when it ended on the 25th of March and we didn’t bring in the new one.
We kept the mine closed effectively from the last part of March right through the end of April. We got it back up and running again in May.
So we didn’t see production coming from two of our best operations, and that certainly impacted our guidance for 2020. We revised guidance and we kept those mines shut down until we were absolutely certain that we could bring them back online again in a very safe manner that was not only safe for our workers but also safe for the communities — and that’s in effect what happened.
The Island Gold mine, we’ve been very fortunate there in that to date we haven’t had a single case of the COVID virus among our workforce, nor among the community.
In Mexico, we have had quite a number of cases. We’ve detected about 100 cases, but we’ve been doing testing in Mexico since we brought our operations back online, and we’ve been managing to catch people testing positive before they go out to the mine site, which is about a seven-hour drive from the city of Hermosillo.
By catching it before people go to the mine, we’ve been able to keep the virus out of the operation altogether. And by the way, of the 100 or so people that have tested positive, they’ve all effectively recovered by now and they’re back to work. So that’s more or less the approach that we’ve been taking.
We’re doing this at Island Gold as well, where we’re testing people for the virus before they start their period of time at the mine.”
Get the complete picture for Alamos Gold and its prospects for 2021 and beyond by reading the entire 3,534 word interview, exclusively in the Wall Street Transcript.
Stefan Ioannou, Ph.D., is an Analyst covering mining for Cormark Securities Inc.’s institutional equity research team. Dr. Ioannou is a mining engineer and holds a Ph.D. in economic geology from the University of Toronto.
He joined Cormark in December 2016, working in equity research for 13 years with Haywood Securities as a base metals analyst since 2006. Prior to that, Dr. Ioannou worked as an exploration geologist in Nevada and throughout the Canadian Shield.
In this 1,913 word interview, exclusively with the Wall Street Transcript, Dr. Ioannou explores how investors can profit from mining stocks.
“A lot of it comes down to your time horizon as an investor. For investors with patience, I think we’re still in the early innings of what could turn out to be a much higher metal pricing environment. And so when we think copper, nickel or even zinc, the longer-term prospect of significantly higher prices is fairly widely accepted.
The trick is, investors will still have to navigate potential short-term volatility to realize those gains over the longer term. Last year’s U.S.-China trade war narrative and this year’s COVID considerations being cases in point.”
The relevance of these political developments loom large in Dr. Ioannou’s evaluations:
“When you’re thinking base metals, you need to be thinking about China. From a high level, China consumes well over half of the world’s base metals — north of 50% in the case of copper. And so really, when you want to think about the health of copper consumption, you have to think about the health of China’s economy.
Again, we’ve seen on the back of their initial COVID response a lot of stimulus go into that economy, building out new infrastructure while also replenishing depleted stockpiles, and so that’s helped metal pricing across the board.
Some other issues lingering in the background: Obviously, the U.S.-China trade war was never fully resolved ahead of COVID, so there still stands to be some follow-up from that to consider. We’re seeing a potential emergence of another trade war between China and Australia emerging now. Copper exports have been curtailed, coming from Australia into China. That stands to expand into other commodities as well.”
The Green New Deal may also pop global mining stocks:
“The one thing I would note in the copper space specifically, when you look at the incremental demand from electric vehicles over the next 10-plus years, it’s on the order of about 10% to 15% incremental new copper that is going to be required to satisfy that new demand. It’s a significant number — copper that we don’t see from existing mine supply or even forecast new mine supply — so it’s something that’s going to stress the market from a pricing point of view, which is good for producers and investors in general.
Having said that, I’d say don’t just focus on copper, think about some of the other key metals in the “green” industry. When we look at electric vehicle batteries themselves, we hear a lot about cobalt and lithium, but actually, one of the other metals you really want to pay attention to is nickel.
When you look at a lot of the electric vehicle battery chemistries out there right now, anywhere between 60% and 80% of those battery cathodes are actually nickel.
Take a step back and look at the incremental demand for nickel from the whole emerging EV space. Nickel right now is about a 2.1 million ton per annum market. The incremental demand for nickel on the back of the EV revolution could be on the order of another 2 million tons a year over the next 10 years, so basically a doubling of nickel demand in response to EV adoption.
That, obviously, has huge market implications for nickel supply/demand fundamentals and the nickel price itself going forward.”
Dr. Ioannou has specific recommendations:
“In the producer space, Hudbay Minerals (NYSE:HBM) has really turned a corner. The company had a few question marks pertaining to various parts of their portfolio over the last year or two.
However, new management has really helped to right the ship, and I would say all of Hudbay’s internal growth projects are firing on all cylinders again.
There’s a solid outlook for the company in terms of increased production out of Peru, which is where their flagship operation is, as well as in Manitoba with respect to additional gold production. We also expect to get better clarity pertaining to the outlook for a large development project in Arizona toward the end of next year. So a lot of good growth advancements underpinned by a sound production foundation.”
The recommendations continue:
“Moving down the food chain into the explorer world, a few names stand out to me. One is Filo Mining (OTCMKTS:FLMMF), an advanced-stage exploration project that straddles the Chilean and Argentinian border. Key there is the project was initially defined as a fairly robust near-surface oxide-copper-gold project, but deeper drilling over the last year or two has really unveiled that there could be significant sulfide porphyry potential at depth.
The latest field season just got underway and will be underpinned by deep drilling. And again, based on what we saw last season — 1,000-meter intercepts — this could be something that could easily turn into a world-class porphyry project very quickly.”
Get more picks and all of Stefan Ioannou’s detailed recommendations by reading the entire 1,913 word interview, exclusively with the Wall Street Transcript.
Jonathan Brandt is a Senior Equity Research Analyst covering GEMs ex-Asia Metals & Mining and LatAm Pulp & Paper at HSBC Securities (USA) Inc.
He joined HSBC Securities in February 2010 as an equity analyst covering the steel industry. In the previous six years, he was a buy-side analyst at a major U.S. investment firm covering metals and mining companies in Latin America, Europe, the Middle East and Africa.
He holds a bachelor’s degree in economics from Wesleyan University.
In this 3,157 word interview, exclusively in the Wall Street Transcript, Mr. Brandt demonstrates his understanding of where investors will find the best returns in 2021 for this sector.
“I would say that in iron ore, the concern has really been over the supply from Brazil and, in particular, Vale (NYSE:VALE). You will remember almost two years ago, in January of 2019, they had the Brumadinho incident. Production has really been hampered since then.
In 2018, they did about 385 million tons of production; that has been hovering around 300 million tons. So we lost a significant amount of capacity from them over the past couple of years, and that combined with strong demand has led to iron ore prices staying north of $100 for a while, and now we’re sitting at about $120.
Vale is desperately trying to get that production back. We think they will, but it’s a matter of time. Their capacity is about 400 million tons. What they’ve said is they should reach that run rate sometime in 2022.
We would expect them to be back up to full-year production — about 385 million tons, which is what they did in 2018. We would expect them to be back up there by 2022 or 2023. We are seeing better supply coming from Vale.”
Some more picks are also based in Latin America:
“The other ones we’ve been recommending have been Gerdau (NYSE:GGB), Ternium (NYSE:TX) and Grupo Mexico. I think of those, the ones that look more attractive are Ternium and Grupo Mexico.
Gerdau is still a fantastic story, it’s just starting to look a bit expensive, but it’s a nice play on potential Brazilian infrastructure. We’ve seen their economy has really improved since April and May, when they were really impacted by the pandemic.
We have historically low interest rates in Brazil — I think they are at the lowest they have ever been — and that has spurred all sorts of demand for real estate. We’ve seen significant real estate launches and construction starting, and that has obvious implications for long steel rebar and things like that. We think that demand for long steel continues until 2021 at least.
What we’re seeing from China in terms of their steel demand, that’s had an impact on pricing, and that pricing that we’ve seen in China has influenced prices positively in Brazil. So there are price hikes; there are volume growth and good demand.
We think Gerdau is a good way to play that, and if the U.S. government can put through an infrastructure stimulus program, Gerdau is the natural beneficiary of that, given their operations in North America.
Grupo Mexico is positively exposed to the copper price; 80% of their NAV is going to be copper through their subsidiary, Southern Copper.
They are one of the lowest-cost producers; they’re well into the first quartile of cash costs. Their C1 cash costs are $0.65, $0.70 per pound. You compare that to the $3.20 per pound that we have today for a price, and cash flow is really, really good.”
Get the complete picture on these and many other mining and metals stocks by reading the entire 3,157 word interview with Jonathan Brandt, exclusively in the Wall Street Transcript.
At the end of any year and certainly this one, the lucrative gold mine investment goes on the gift list. Fortunately, this issue of the Wall Street Transcript provides that opportunity for our readers with our Gold, Precious Metals, and Mining Report.
Stefan Ioannou, Ph.D., covers mining stocks for Cormark Securities institutional equity research team. Dr.Ioannou is a mining engineer and holds a Ph.D. in economic geology from the University of Toronto. He has been developing equity research for sell side banks for 14 years.
“China’s demand for metals picked up through the summer as the country addressed phase one concerns. Said demand has boded well for the global market given China is the world’s largest consumer of most metals.
Most base metal prices have now returned to healthy levels, backed by improved sentiment that stands to take them higher.”
Warren Rehn is CEO and President of Golden Minerals Company. Until 2012, Mr. Rehn held various positions at Barrick Gold Exploration, serving most recently as Chief Exploration Geologist for the Bald Mountain and Ruby Hill mining units.
Mr. Rehn holds a Master of Science degree in Geology from the Colorado School of Mines and a Bachelor of Science degree in Geological Engineering from the University of Idaho.
“The cost of bringing Rodeo into production is $1.5 million, and that’s almost insignificant compared to the potential profitability of that project going forward.
We put out some information in 43-101 reports on the projected economics of the project, and at $1,622 gold, it has a $25 million after-tax net cash flow over two, two-and-a-half years. It’s small, but it’s very critical to us as a money maker and the first step towards profitable production.”
Teo Dechev is the Chief Executive Officer, President, and Director of Mundoro Capital Inc.
Ms. Dechev’s capital markets experience includes positions at well-recognized bank-owned and independent investment banks in Canada and she spent more than three years with a mineral resources company managing their commodity and derivatives trading program for gold, copper and silver.
Ms. Dechev has an MBA from the Schulich School of Business at York University, a Bachelor of Applied Science and Engineering in Geological & Mineral Engineering from the University of Toronto, and is a licensed Professional Engineer in both British Columbia and Ontario.
“…We are focused as a company on the western portion of the Tethyan belt, which coincides with Eastern Europe. Primarily two countries are of focus for us today — Serbia and Bulgaria…We acquire assets directly from the Serbian and Bulgarian governments, primarily around well-known and established mining camps.”
The complete interviews describe the effects of the COVID 19 crisis and the potential economic recovery on these stocks and more in the 2021 market. Investors will want to familiarize themselves with the connection between the global economy and the value of these securities.
