[00:02:55] Will Thomson: I escaped with my, like $5 left, but she wiped out a whole bunch of people at [00:03:00] that table . But in terms of thinking, probabilistically, I mean, as you said we hear from Charlie Munger, we hear from Warren Buffet, we hear from all the great investors that you should think probabilistically, but how do you actually execute that?

[00:03:11] Will Thomson: And so from our perspective, a lot of our valuation and our approach to investing starts with mining firms. And the reason it starts with mining firms is because that’s been the bread and butter of my fund. Massif Capital sort of investing and mining firms are kind of nice to approach and value because basically, What happens is a management team gives you the entire plan for the next 10, 15, 20 years in a formal document.

[00:03:40] Will Thomson: And so they give you all the capital allocation, everything. So you can run this beautiful DCF with all the detail you could ever possibly imagine. The challenge, of course, is that who the heck knows what the commodity price is going to be. You also don’t know if management is going to successfully execute on the plan.

[00:03:56] Will Thomson: So of course, we have two big questions. Are they going to successfully execute? [00:04:00] What is the price of the commodity going to be? But we do have this beautiful sort of net present value equation, if you will, that just sums to a perfect value. The way we like to approach thinking probabilistically, and we apply this across the board to every company in the portfolio, is by waiting scenarios.

[00:04:17] Will Thomson: Within a DCF structure, and then summing sort of a product sum, if you will, in Excel, those to a single probability weighted value. And so the thought process would be something like this. We don’t know where copper is going to be in five years, but we believe there’s a 50% chance subjective probability, 50% chance it’s going to be above $5, 25% chance it’s going to be 250 and there’s a 25% chance it’s going to be whatever, $8.

[00:04:47] Will Thomson: We can run our DCF at each of those different price points. And then we can sum that, those probability weighted values up to a final value. Now, what’s nice about that is that we [00:05:00] can sit down and we know that we don’t know what copper’s going to be. We also know that there’s a spread of possibilities, a spread of futures.

[00:05:09] Will Thomson: And so on that one value, now we’ve captured a spread. Of futures that could occur. And so our bet is on that sort of spread of outcome as opposed to a singular answer. The goal is not increased precision. It’s more of value that captures the entire strike zone of possibilities as opposed to pinpointing a single point.

[00:05:33] Will Thomson: Now, when you go beyond the mining firms, it starts to get a little more complicated, but in some regards, it becomes even more valuable. If we think about a company that is planning to do a bunch of CapEx and expand their business, whatever the business may be, there are questions, are they going to successfully execute? Will management successfully execute the project? Maybe yes, maybe no. Will they come in under budget or over budget? [00:06:00] Maybe yes, maybe no. Are they going to finance this with debt? You know, there are all these questions, and so when you build out your DCF, for example, you can build out scenarios where you make those changes.

[00:06:11] Will Thomson: No, they’re not going to be on time. It’s going to be an a year delay. So all the cash flows now get but backed up a year and we think there’s 25% chance that they fail to execute properly. Or you can start folding into your scenarios political risk. Maybe they lose their license and now they need to go back to a government and negotiate new permits.

[00:06:34] Will Thomson: And so again, cash flows get backed up. Maybe cash flows get pulled forward. There are all kinds of scenarios to sit down and creatively think about and build into your DCF, and then wait. And then in that waiting, you capture, you know, a much broader spread of the potential. Of the firm then say, picking a single discount rate, a single gold price, or in the case of a project, just sort of assuming management successfully executes, you want to build in sort of an outlook that takes into account all possible futures, or at least a representative selection of possible futures.

[00:07:10] Will Thomson: At least from our perspective. That sort of approach works quite nicely, obviously with commodity producers. It works exceedingly well with any project-based company. I can’t speak to say probably I, I can envision it working well with biotech only because biotech happens to have a lot of similarities to mining, which is sort of interesting when people don’t think about that.

[00:07:32] Will Thomson: But I don’t know how well or how to execute it in the case of, say, a Facebook. But usually if you can run a dcf, you can come up with scenarios and then you can probabilistically wait those scenarios. It’s a subjective probability built from your mosaic of information. But again, in terms of trying to capture the entirety of the strike zone, we find that method works quite nicely and it also forces you to think in terms of odds.

[00:08:00] Will Thomson: You know, again, it’s not just, is management going to successfully execute this capital allocation plan? What are the odds that they’re going to execute? And so it forces us to also ask all the questions in terms of odds and probabilities, and that is very helpful as well. 

[00:08:18] Trey Lockerbie: When we are saying we’re applying these probabilities to these outcomes or these scenarios, how does that flow through into actually affecting the free cash flow forecast?

[00:08:28] Trey Lockerbie: For example, you know you’re saying this management team will be 75% successful in executing on this plan. How does that roll down into the free cash flow? 

[00:08:37] Will Thomson: You want to do this after you’ve done the free cash flow. So you do your free cash flow and you assume that they fail some steel company, they want to build a steel mill.

[00:08:46] Will Thomson: The steel mill’s going to be done in 2025. They say, you say no, it’s going to be done in 2026. So you take their plan, what they propose it’s going to do, and you back it up a year. You figure out what that DCF value is and now you take [00:09:00] that single number and you apply 25% weighting to it and you take whatever your other scenario, you apply 50% weighting.

[00:09:07] Will Thomson: And so now you’ve got, and then you do another with 25%. So now you’ve got three MPVs and you’ve weighted each one multiplied and added, and you’ve come up with a singular net present value for the entire sort of scenario or portfolio, if you will, of prob of scenarios. 

[00:09:25] Trey Lockerbie: I’m kind of curious with that, do you have a rule of thumb or some maybe a conservative step that you apply to these outcomes?

[00:09:34] Trey Lockerbie: Because you know, like you said, you’re, it’s subjective and we’re kind of taking our best stab at these things. So do you know, what buffet would do is you’d set a margin of safety, right? So you’re like, I think they’re going to be 80% successful at this plan, but maybe I’ll just count that even further just to be extra conservative. Do you ever do apply any extra conservative steps? 

[00:09:53] Will Thomson: I mean, we usually apply. Again, it usually gets applied at the end into that subjective probability. If we just [00:10:00] don’t really buy management’s claims, you know, those bad, the bad scenarios if you will, are going to end up with a higher weight. But I think internal to the DCF, if you will, usually we don’t sort of wait it a first and then a second time because that those multiple weightings are compounding things in confusing ways.

[00:10:20] Will Thomson: We’re trying very hard, we always try very hard to be quite clear. About what questions we’re asking in each stage of the investment process, how we’re answering them and what’s implied or baked into those answers. And so I think applying it at multiple point outside of a discount rate, which we tend to use a WAC or a cost of equity depending on what we’re doing, that’s more calculated. We don’t tend to apply internal waitings to the scenarios. 

[00:10:48] Trey Lockerbie: How much weight do you put on the discount cash flow model itself? Right? Because I’ve spoken recently with Jim O’Shaughnessy and a few others who are kind of saying, like these d DCF things, you can almost throw them out the window because you know,  sometimes it’s garbage in, garbage out and we’re taking our best stab.

[00:11:02] Trey Lockerbie: But who really knows? But you’re track record speaks for itself and you’ve been incredibly successful using this, which makes me reengage a little bit with the idea. So I’m curious what you do outside of the DCF or how much it informs the decision process. 

[00:11:15] Will Thomson: So we always, and I think you know, Michael Mauboussin, who I know you’ve had on your show or who’s been on the channel a couple of times, and you know I think this comes from him, but he talks about the importance of triangulation, basically, you know, multiple approaches and then trying to actually figure out why some of these multiple approaches tell you different answers.

[00:11:34] Will Thomson: We do that quite a bit. And it’s more because, you know, look, we’re always looking for a mispricing and how and why a multiples evaluation or a relative pricing of a stock tells you a different answer than the dcf. Like, there’s something that is revealed in that difference. But what I would say, and I think again, Mauboussin would say this or I got it from him in, unless I misinterpreted any approach you take, you can then back into any other  approach.

[00:12:00] Will Thomson: So all the assumptions that, for instance, someone doesn’t want to make in a DCF. Well, if you assume some PE ratio in the future, you’ve assumed some earnings, which by definition means that all that comes above earnings has also been assumed, which is going to include, you know, various different margin assumptions, various different CapEx assumptions, and return on investment.

[00:12:22] Will Thomson: Assumptions. So all these valuations, I mean, in theory, should produce not only a, the same answer, they don’t, but that’s a separate issue. But they can all back be sort of backed up into alternate methods and we often do that. So we may run a D DCF and then say, oh, well geez, that DCF means that, you know, this company trades at 24 times earnings in, you know, three years from now.

[00:12:46] Will Thomson: Is that particularly likely? Maybe not. Maybe it is. I, you know, it depends. But what I would say is that we make all the same assumptions. The question is just whether we’re making them explicit or not. We tend to  favor making them explicit so that we can interrogate them. But there are absolutely times when, you know, for simplicity’s sake, we may not run a DCF and we may go a different route knowing.

[00:13:13] Will Thomson: You know the DCF. So for instance, we’re investing in a company called AEs, which is Utility AEs has got utility operations in the United States. They’ve got some in Europe, they’ve got some in South America. They’re all over the place. They’ve got a lot of assets, a lot of things going on. That’s a very hard, very messy DCF in any level of detail.

[00:13:31] Will Thomson: And so our DCF for that is a pretty simplistic sort of starts at ebit. It would basically, and goes from there. And one can envision how, you know, how complicated DCF that starts at EBIT actually is. It’s not that difficult, but it doesn’t tell us very much. Modeling it out in great detail would be very time consuming and wouldn’t help us with strike zone.

[00:13:50] Will Thomson: It would help us with precision. And so that’s not value added in our mind because the precision doesn’t, it just, once you’ve got the strike zone, it doesn’t add much value. I [00:14:00] think D C F is important. I think you want to triangulate by trying multiple different approaches and seeing what kind of answers it produces, and you should be able to tell a story that runs through all the answers in my opinion, and explains the differences between those answers as a result of how you’ve calculated.

[00:14:18] Trey Lockerbie: Yeah, there’s that Kanes quote right about it’s better to be directionally or roughly right than precisely wrong . 

[00:14:23] Will Thomson: And so we are strong believers in getting the right direction. 

[00:14:28] Trey Lockerbie: And for those curious about this kind of thing, we do have a probability function on our TIP Finance Tool which can go check out on our website.

[00:14:36] Trey Lockerbie: It’s got three probability bands that you can apply to the free cash flow, so you can kind of get to play around with this on some of the stocks you love and get a feel for it. So Will, I’m kind of curious, sticking on this subject of just general investing, I’ve seen you write about this idea of putting together a perfect portfolio, and I think we’re all in the pursuit of that, right?

[00:14:53] Trey Lockerbie: Whether we ever achieve it or not is a different story. But how would you think about starting to construct what you would call a [00:15:00] perfect portfolio? 

[00:15:01] Will Thomson: Yeah, so we, th this idea of a perfect portfolio actually came as a result of some challenges we had in, in the fourth quarter of 2018. We had a drawdown in the one quarter of 20%.

[00:15:15] Will Thomson: As a result of a couple of mistakes we made in portfolio construction, so we liked the positions, but a couple of the positions that went wrong, one of which was Diamond Offshore, another of which was Tiki offshore, and then a final one was graph Tech. All three of them sort of went wrong at the same time in that quarter.

[00:15:35] Will Thomson: There are a couple of different lessons from each of ’em that are different, but we had allowed each position to grow quite large. We had at the time been running a portfolio of 10 long positions and a mess of short positions without any real sort of boundaries around what position sizing would be without any real thought process in terms of how to size positions.

[00:15:56] Will Thomson: We are just doing it based on our own conviction [00:16:00] without any real understanding or ability to wrap our hands around what that conviction was and how to measure it versus sort of conviction in other positions. And so that challenge of understanding conviction. Approved a hurdle that we just couldn’t figure out how to overcome.

[00:16:16] Will Thomson: How do we measure our own conviction such that we can size positions correctly? And what we came up with and what we use, we apply this roughly, we don’t stick to it exactly as if it’s a rule, but we said, okay, how much time do we have in the day? This is my partner and I we’re doing, how much time do we have in the day to do research?

[00:16:35] Will Thomson: How many positions can we handle? How much volatility in those positions can we handle while remaining even keel so that we don’t let the behavioral side of things impact what we’re doing and what kind of returns are we looking for? And so for us, we came to, we’re looking for a NETA fees return to 12% for our investors, something they should be willing to pay for.

[00:16:55] Will Thomson: We wanted to tamp down a little bit on the volatility that we had experienced in that fourth quarter. That 2020 5% drawdown for us was fine for me in my personal account. But a lot of investors would have trouble stomaching that. So we expanded the number of positions, and so we came to 16 positions on the long side, all starting at 6% and 16 positions on the sort side starting at 3%.

[00:17:21] Will Thomson: Now the idea of the perfect portfolio is then to take it one step further and say, what is the individual perfect position within that portfolio look like? Because once you establish what that individual perfect position in the portfolio looks like, you can start to say, how does this new position I’m looking at stack up against that?

[00:17:39] Will Thomson: So for us, in the case of mining firms, let’s say we said, okay, in order for something to be a 6% mining position, we need to be able to get at least a hundred plus percent return over the next three years. Okay, so now we can immediately say, oh, well this company is not going to give us that. And we can say, benchmark it against the [00:18:00] perfection, which doesn’t really exist.

[00:18:02] Will Thomson: And the result is, well, most, the most we could allocate to this within the context of this perfect portfolio and this perfect position is three or four. And we’re not going to take a three or 4% position. It’s gotta, it’s gotta at least be 6%. Right? And then we can look at something else and it may, it’s 200% return.

[00:18:20] Will Thomson: Okay, well that stacks up really well against a hundred percent return and the various different risk criteria. And so the perfect portfolio gives you this fictitious sort of, Idea that lets you benchmark your conviction against, and we at least have found it quite useful because position sizing is so very important and it is so very hard to do well.

[00:18:42] Will Thomson: And when to add to positions that have drawn down is such a difficult challenge. And a lot of it has to, again, do with how do you measure your own conviction in this position? And it just, it’s very hard. So with the perfect portfolio idea, you now have something you can benchmark against. 

[00:18:59] Trey Lockerbie: That’s  fascinating. It’s super, super helpful. So I believe that you would describe yourself as a value investor, much like Warren Buffett, for example. However, instead of a buy and hold forever strategy, like Buffett, you are aiming to buy and hold for only about three to five years with a focus on these cyclical stocks. So I’m curious, what is a profile, let’s say, of a stock that would appeal to you 

[00:19:21] Will Thomson: Within the mining industry, for example, which is what we’re best known for?

[00:19:25] Will Thomson: We look for opportunities to underwrite operations and due diligence as the catalyst for the company and it’s re-rate or it’s move higher. So we look for companies that are not producing C commodities, first of all, because once you become a commodity producer, you tend to trade with the commodity.

[00:19:44] Will Thomson: And so that becomes an opportunity where your edge in owning that stock is going to be in your forecast of the commodity price. We’re not really very good at forecasting commodities. I don’t really think anyone is, but we don’t want to make a bet where our edge has to be in the [00:20:00] forecasting of the commodity price.

[00:20:01] Will Thomson: So we look for junior miners that are starting to turn on a mine in the next 2, 3, 5 years. So that’s where a lot of the three to five years comes from. Within industrials though and my firm, mass Capital, invests in materials, energy, and industrials, what we call the real asset ecosystem. Because all these companies exist on sort of a, their own individual value chains, if you will, that run through each of those sectors.

[00:20:28] Will Thomson: The industrials, we look more for contracted cash flows, niche products, so, and sometimes moats. So I’d say within industrials it’s much more sort of buffet style value, if you will. And then energy runs the gambit. We tend to take more of a barbell approach of energy where we do actually look for some producers.

[00:20:49] Will Thomson: And part of that has to do with the volatility of the underlying commodity versus say, in mining. So you look at something like oil is about twice as volatile as copper is over any given period. And so if you think about your individual position and you say, how much commodity price risk can I stomach?

[00:21:11] Will Thomson: You have to stomach a lot with any oil company and so you probably want to decrease your operational risk. And so that’s what drives us to sort of invest more in established producers on the oil side. Whereas with mining firms, the commodity price volatility isn’t as severe in our opinion. And so we can afford to tolerate more of it.

[00:21:31] Will Thomson: And so we can afford to or, so it’s not as severe and so we can afford to handle more operational risk. So it all sort of depends on what we’re looking for. But most importantly I would say everything is sort of project related. There’s a specific project, there’s a specific management plan, and these plans all tend to resolve themselves in three to five years.

[00:21:55] Will Thomson: And so that within this real asset ecosystem, that’s sort of why we look [00:22:00] for investments to mature in that timeframe and get in and get out. Now you’d sort of mention Warren Buffet and this idea of buy and hold forever. I’m going to push back on that because I don’t think Warren, I mean he may have said it, I don’t remember.

[00:22:14] Will Thomson: He said a lot, but I don’t think anyone actually buys something to hold forever. And it’s not clear to me that concept even necessarily makes sense. And even more so if there’s no capital return component to the company. So if you are a minority shareholder who only has capital appreciation as your return mechanism, at some point you don’t want to hold the company anymore.

[00:22:39] Will Thomson: Not all companies can continue to grow returns on invested cash flow and margins and free cash flow. Nobody can grow it forever. At some point your, you know, again, what someone like Michael Mauboussin would call your competitive advantages period, or whatever you want to call it, is going to fade and you’re going to revert to doing what everybody else in the  industry does.

[00:23:01] Will Thomson: And so this idea of holding something forever, I’m not sure if it plays out that way. And I think. I think actually and I believe Warren Buffet has said this, you know, if you asked him about Coca-Cola, I think he said at some point recently that he wished he had sold Coca-Cola at some point.

[00:23:17] Will Thomson: Coca-Cola is often tried out as a buy and hold forever example. Right. Has that moat that just can’t be beat because everybody knows the symbol the little Coca-Cola circle. But even then, at some point it was a sale. So I’m not convinced that anything really exists that you want to hold forever.

[00:23:33] Will Thomson: I think we’re all in some regards, we’re all trading prices just on very different timelines. 

[00:23:40] Trey Lockerbie: Someone will fact check me on this, but I think his dividend payments annually are more than what he actually even paid for Coca-Cola at this point. 

[00:23:47] Will Thomson: Okay. Well, so maybe he wasn’t talking about Coca-Cola.

[00:23:50] Trey Lockerbie: He said that I could be wrong, but I, yeah, but I, no, I trust that he might have said it though, but it’s just it’s an interesting example of how buy and hold might actually pay off even if, you know, you’re subconsciously you’re thinking you don’t want to do it. 

[00:24:00] Will Thomson: Yeah. I mean if you can get a dividend that meets your hurdle, whatever it may be, for whatever reason, and you know, then, you know, maybe you do want to hold it forever.

[00:24:09] Will Thomson: But it that, whether you want to hold it or not, very much hinges there on how the capital return is going to accrue to you. Is it literally a capital return from the company or is it just capital appreciation? Cause those two things act differently and you as an investor should respond. 

[00:24:29] Trey Lockerbie: You’ve taken his ownership mindset.

[00:24:31] Trey Lockerbie: I feel like you’ve taken it so far in a way that is kind of circled back around. And what I mean is that you’ve been writing about stocks and calling them situational derivatives, essentially viewing a stock as a representative piece of paper, if I’m understanding this correctly, and maybe not so much like a, an actual stake in the company the way maybe Buffet would describe it.

[00:24:52] Will Thomson: You know, the challenge with looking at other investors, and this would apply to any of your listeners, you know, listening to What I have to [00:25:00] say too is that we all have constraints that preclude us from doing different things, and we all have incentives that impel us to do different things. And understanding the different constraints and incentives of famous investors like Warren Buffet or Howard Marks, or Seth Carmen, whoever it may be, is quite difficult.

[00:25:18] Will Thomson: What I would say is that, again, sitting here as someone who almost is always a minority, I don’t think I’ve ever been a strategic investor in anything I’ve touched, and I think most investors are always a minority. Your return is not a return from owning the stock. Your return comes from either dividends or capital appreciation.

[00:25:39] Will Thomson: And capital appreciation isn’t solely a function of value. If we look at the price of a stock, we can sort of decompose it into fundamental value and then maybe macroeconomic issues. And then sentiment, we continues to divide those further. And so the question is, why is there a mispricing [00:26:00] and what is going to prompt that mispricing to close?

[00:26:02] Will Thomson: And in our case, it’s a three to five year period that we’re looking for something, some mispricing to close for some particular reason. And that reason tends to be derived from fundamentals. And those fundamentals can only be assessed from the perspective of an owner operator, but you as a shareholder.

[00:26:19] Will Thomson: Can’t sit back and think of yourself as an owner operator because you are not an owner operator, nor is your return going to accrue to you as a result of owner operator. It’s going to accrue to you for other reasons, especially if there’s no dividend. And sometimes fundamental value is what drives it.

[00:26:37] Will Thomson: But as we’ve seen in these markets, especially with changes in market structure associated with ETFs, where you have just a lot of price agnostic buying, it may not be value or fundamentals or owner operator issues that produce the return. So you take something like, we will take a railroad because Warren’s got obviously SF.

[00:26:57] Will Thomson: You take a railroad like UNP or CSX, and you look at who owns it, and you look at who’s buying it and the answer who owns it and who buys it is passive. People buying it automatically without any consideration for value whatsoever. So the movement on that, Price, not it’s value, it’s price, which is what you own.

[00:27:17] Will Thomson: You own the price and admittedly the pricing titles you to some theoretical ownership. But try to exercise it, right? Try show up at the meeting and say you’d like to make some changes. You’re not going to get very far. So you know, those other variables become critical to interrogate. Understanding why there is a mispricing and how the mispricing is going to close becomes the most critical question as opposed to thinking like an owner.

[00:27:41] Will Thomson: It’s in some regards a second step though, that you can only do after you assess the company as if you’re an owner. You don’t want to buy something that you yourself wouldn’t want to own and operate. Warren Buffet and I are like on the same page in that. But at the same time why we will realize a return in  the stock, which has more than just fundamental value at play, especially these days with the way the market and market action has changed, becomes critical.

[00:28:09] Will Thomson: And answering that question, what is the mispricing and how is it going to close becomes critical as opposed to just operator owner sort of viewpoint. 

[00:28:19] Trey Lockerbie: Got it. Very interesting. So let’s dive into a couple of actual asset classes and materials. One in particular I wanted to start with is uranium, because I’ve interviewed a number of people this year, especially earlier in the year, and uranium was being hyped up quite a bit.

[00:28:34] Trey Lockerbie: A lot of people saying it was very asymmetric. Lynn Alden, who we know and love was pretty bullish on. And I believe earlier in the year I interviewed Cuppy who put it, I think as one of his top positions. But it hasn’t really panned out so far, I think like many had hoped. So I’m curious if you have an opinion on where investors may have gone wrong and what the issues might be that are holding uranium back.

[00:28:55] Will Thomson: Yeah, so Uranium’s actually a good example for this sort of entire conversation, if you will. So I have watched uranium and made , one investment in my fund in a company called Kazatomprom, when it iPod in 2018, 2019. Blanking on exactly which year, but, so I’ve watched uranium for 10 to 12 years.

[00:29:17] Will Thomson: It’s the only time I’ve done anything. That was just recently, we bought it at 13 ish. We exited at 40 ish, and that was last year. The reason I watched it and did nothing was because when one looked at the industry, one saw two different buckets. There was Cameco and Kazatomprom producers, and then there were juniors.

[00:29:38] Will Thomson: Now juniors, as I’ve said, we tend to like junior minors. The difference though is that these juniors all had an asset on their balance sheet that had theoretical value, but they were not going to monetize it or attempt to monetize it until uranium prices had already crossed 65, thereabouts. That seems to be the price at which a lot of these firms like NextGen, which has the arrow deposit in the Athabasca Basin in Canada or any of these other sort of firms up there in that region, or there are several in Africa, $65 uranium seems like the price that they’re going to do it at, so, If you buy any of those juniors, doesn’t matter what they’ve got, doesn’t matter what they’re doing.

[00:30:18] Will Thomson: Your bet is that the price of uranium is going up. It’s not a bad bet. I don’t disagree with it, but I don’t know how long it’s going to take and I don’t know how high it’s going to go. All I know is where I’m starting at. That’s a hard equation, if you will, both to figure out what position to take, what position, size to apply, how long to give it before it works out or doesn’t work out.

[00:30:40] Will Thomson: It’s quite challenging. And so I think that this year what’s happened is that uranium prices have improved, but they haven’t improved enough for any of these juniors to say, yeah, we’re going to start to build a mine. And so none of the very few of the juniors have made that really strong move. They’ve made some initial small move.

[00:30:59] Will Thomson: Cameco’s made a reasonable move, but they’re a producer, so they benefit right off the bat. When we invested in Kazatomprom, the reason we invested in Kazatomprom was not because we thought uranium was going to rise. We had a thought that it might, but we didn’t really have strong feelings about it. To be perfectly frank.

[00:31:15] Will Thomson: What we had strong feelings about was that on a discounted cash flow across various various number of scenarios that the IPO price was at best half of what the company was worth at current uranium prices. And meanwhile, while we waited for it to appreciate, hopefully they were going to pay us, I think the dividends started at seven or 8%.

[00:31:37] Will Thomson: So a very healthy dividend. So we didn’t need uranium prices to move at all. I don’t want to make a bet on a commodity producer where everything hinges on the uran, on the commodity price moving. If that is the hinge upon which a bet is going to play out. Then I don’t really think that’s a great bet to make unless you are an expert at commodity  prices.

[00:32:00] Will Thomson: But if you’re an expert at commodity prices, my question would be, why aren’t you expressing your opinion in futures? Right? There are cash settle geranium futures. I don’t know how that market trades. But if you’re really predicting commodity prices and that’s the game you’re in, why execute it via equity?

[00:32:16] Will Thomson: Why not execute it via commodity futures? So I think that uranium, at least this year, hasn’t panned out because it’s all just a bet on the movement and the price of uranium, and it’s a highly opaque market. I think, you know, if you had someone, the real experts on the secondary market and the contracting cycles for utilities are capital, Adam Rodman.

[00:32:37] Will Thomson: Arthur Hyde, I think they tell you it’s highly opaque and that the utility contracting is only just getting started. So a really strong move in uranium prices has yet to occur because that’s really yet to feed back into the market. And when that does occur is anyone’s guess, there’s a lot of supply sitting on the sidelines in various different places.

[00:32:56] Will Thomson: There are hidden out of sight. The market doesn’t clear, [00:33:00] but somehow everyone still gets the uranium they need. So, you know, this is a highly opaque market that’s very hard to read. And so reading turning points in it are going to be really difficult. So I’m not sure why you’d want to just bet that prices are going up, which is essentially what the bet is.

[00:33:14] Will Thomson: Prices are just going to go off. They have to really, why 

[00:33:17] Trey Lockerbie: I was going to jump in there and say, it kind of ties into the, I guess the thesis is around climate change to a degree where there has been this shortage and a number of cases, oil, et cetera, from the wars going on. And I think there is a new appreciation perhaps on nuclear.

[00:33:33] Trey Lockerbie: You, you see China investing in 150 new reactors I think over the next 15 or so years. And so I think a lot of people are thinking, okay, the uranium supply, it’s going to need to increase. Right. To keep up with some of Thebans may be coming onto the market, but I’m curious if that’s enough of a thesis, right? For uranium in particular. 

[00:33:51] Will Thomson: Yeah. Look I don’t remember the difference when we own Kazatomprom, we had our own supply curve that we ran in-house and [00:34:00] it’s pretty easy for uranium because there just aren’t that many mines. Right? The oftentimes these cost curves are hard to put together because they’re a lot.

[00:34:07] Will Thomson: Lot of inputs. Uranium, there aren’t that many mines, so it’s not that hard to put together the cost curve. You put together the cost curve, the market never clears. There is not enough uranium produced to meet demand. It’s made up in this secondary market, which has got uranium from all sorts of different places.

[00:34:21] Will Thomson: So the idea that a growth in demand is going to spur price movement within the context of that cost curve does make sense, no doubt about it. But again, we come back to this question of timing and we come back to this question of, well, again, mostly just a sort of a question of timing. The market can stay irrational far longer than we can all stay solvent.

[00:34:44] Will Thomson: And so, you know we at least really want to make bets where we have an understanding of how long we’re going to be involved in this for and what our return profile looks like, let’s say, because the story with uranium has been the same for 10 years. That basically what you said is that the supply demand doesn’t balance and that there’s more demand than there is supply.

[00:35:02] Will Thomson: That’s the same story that’s been for 10 years. All you’ve added in is further growth, which is fine, but if you had bought it 10 years ago, you’d still be waiting now. Now, if you know what your return profile looks like, that 10 year weight is perfectly acceptable, right? Like if you know that you’re going to somehow get out of that with a CAGR of 14, 15, 20, whatever it is, you demand waiting 10 years is fine.

[00:35:28] Will Thomson: Or at least if you have some inkling of it, but you, again, you don’t know how high it’s going to. And not only do you not know how high Uranium’s going to go, but you’re actually dealing in a derivative of uranium. You’re dealing in a company, you don’t know how high it’s going to go, and you don’t know how long it’s going to take.

[00:35:42] Will Thomson: How much do you allocate to that? And if you’ve got multiple bets like that in your portfolio, how do you think through that? How do you allocate to multiple bets like that across a portfolio? It becomes quite hard and quite challenging to effectively manage a portfolio comprised of that kind of bet, at least in our opinion.

[00:36:01] Trey Lockerbie: Very interesting. I’d like to dig in a little bit more on the opportunities that there might be with the sustainable energy future, knowing that, you know, a lot of your investments are kind of counter to, to this thesis to a degree, but I’m curious, what would be the inhibitors for the US to achieve energy independence through sustainable efforts, in your opinion, that’s presenting opportunities for folks like you.

[00:36:23] Will Thomson: Well, so first I think it’s important to clarify. We believe in climate change. We believe the science is quite sound. I don’t think there’s a lot to argue about with the science. Now what is open is how do we address this problem? Now we seem to have decided upon somehow a almost singular solution, and the singular solution is wind, solar, and EVs.

[00:36:47] Will Thomson: Now, let’s put aside the fact that if we make all those changes change the way we generate electricity and change automobiles, we only really address, we don’t even address half the emissions problems. So let’s put  aside the fact that solution doesn’t address all the problems. I think more importantly, the fact.

[00:37:05] Will Thomson: Those solutions only address 40 ish percent of the problem. How you create that solution where you get the copper from for the EVs, where you get the poly silicone for the solar panels, where you get all the various inputs becomes a significant challenge, not only environmentally but economically. And then you layer on top of that the fact that in order to make a transition using those tools, you really need to be quite clever and thoughtful about your sequencing.

[00:37:35] Will Thomson: And this is what we’re seeing or where we’re seeing issues in Europe at the moment. Sure, there are parts of economies and different places that can be run on renewables, but in order to get there, everyone around them has an impact. And that sequence of how you phase out hydrocarbon powers becomes critical.

[00:37:55] Will Thomson: And it’s a very subtle game that you have to play because of course, power, for example, [00:38:00] always needs to balance supply and demand, always need to be exact. Otherwise we run into an issue collapsing the grid. So that solution set not only falls short of addressing the entirety of the challenge, but also creates all kinds of challenges of its own that we needed to start to address probably 15 years ago or 20 years ago.

[00:38:21] Will Thomson: If we want to hit this target of 2050. Copper mine. If you discover a copper asset today, you will be lucky to turn that mine on in 15 years. So the copper that we need in 2030, someone needed to figure out where it was in 2015. Now that investment, those investments in mining that will facilitate this have not occurred.

[00:38:44] Will Thomson: So, You’ve got all these bottlenecks that are building up on top of that, within renewables, in particular wind and solar, you have a nasty issue where everyone is laser focused on driving the cost of electricity down.  Yet the OEMs, the original equipment manufacturers for wind and solar all mostly don’t make money.

[00:39:06] Will Thomson: Vestis has a net income margin of 5%, 4%. Sometimes it goes negative. A Siemens game, Mesa, which we own a small piece of via our investment in Siemens energy, is a basket case. I mean, it’s is a bit of a nightmare. The Chinese, who knows what’s going on with wind, their wind turb manufacturers, they make poly silicon quite cheaply that we all use.

[00:39:28] Will Thomson: But despite the fact that they make poly silicon from subsidized coal, their poly silicon producers mostly don’t make any money. So there are a lot of opportunities on the short side because there’s a lot of enthusiasm about these things that the valuations don’t justify. There’s a lot of opportunity on the long side, but one has to keep in mind what the timeline’s going to be and what is going to happen in the meantime.

[00:39:55] Will Thomson: So I am a strong believer that wind and solar have a time and place [00:40:00] wind in the North Sea makes all the sense in the world it’s quite profitable. Solar in Arizona makes all the sense in the world and can be quite profitable. So the question is, can you buy some of these OEMs and some of these actual operators at prices now or in the near term that allow you to hold it for probably the five to 10 year period’s going to take before this sort of cycle here, where we’re in quite a messy way trying to figure out the energy system works itself out.

[00:40:30] Will Thomson: And so if you want to buy energy now and hold for a while, there are opportunities in the OEMs if you want to buy and hold for return, sorry, a capital return via a dividend or something like that. There are some operators of wind and natural resources or wind and solar that play quite nicely in a lot of portfolios.

[00:40:51] Will Thomson: The other opportunities are, of course, in the assets that people have sort of given up on oil and natural gas being the most obvious one. But we would suggest that oil and natural gas is quite tricky at the current prices. So we got out of most of our oil and natural gas in March and April of this year and have yet to go back in.

[00:41:11] Will Thomson: And the challenge from our perspective is that everything looks to be priced at a perfect 65, $70 barrel of oil right now. And. We can’t come up with that scenario, those scenarios, those probability weighted scenarios where we’re dropping, let’s say a $40 oil case, right? So sure oil and natural gas supply and demand are outta whack, but oil has fallen as much as 40 or 50%, something like eight times over the last decade.

[00:41:42] Will Thomson: I’d have to go back and look at the actual math that it could happen again, is perfectly reasonable. And to just dismiss that case we think is shortsighted. And of course when you drop in a, you know, 25% chance or something, or 10% chance of $40 barrel of oil, your  DCFS on a lot of oil companies, you know, the price goes down quite.

[00:42:05] Trey Lockerbie: That March, April timeframe is very interesting to me because that’s right around the time I believe Buffet was going heavy handed on Occidental. I think, I believe he was purchasing a lot of that position from Carl iCONN. So perhaps you’re more in the Carl Icon Camp than the Buffett camp in this particular example.

[00:42:21] Trey Lockerbie: I’m kind of curious about the other materials you mentioned, copper. A lot of people have had this thesis around getting into battery materials, lithium and some other metals. Elon recently was stating that lithium is kind of all over the world, right? And so it’s pretty abundant and the detriment to the environment on mining these materials might, I don’t know if it offsets the benefits, but it’s certainly a consideration.

[00:42:42] Trey Lockerbie: So what is your opinion on those metals in particular and how you weigh it against the overall net benefit? 

[00:42:49] Will Thomson: So we think batteries definitely have some life. These are definitely going to happen, and utility scale storage of some kind is definitely going to happen. We are not a hundred  percent certain what chemistry is going to work.

[00:43:02] Will Thomson: So lithium batteries have lots of different chemistries. Some of them are nickel based, some of them are iron based. All of these different chemistries have different qualities around them. Some make them ideal for utility scale storage. Some make them ideal for a car, and different chemistries require different metals to be mined.

[00:43:21] Will Thomson: The. Negative environmental impact of mining basically can’t be mitigated. You either want to mine stuff or you don’t. Either way you’re digging a giant hole in the ground, pulling up a lot of stuff. And then more importantly, from an environmental perspective, processing it, that processing component is really where the sort of negative environmental impact for mining comes from.

[00:43:44] Will Thomson: You know, look you, you dig a big open pit that creates a scar, but once that pit is then filled back in, within a decade or so, you can’t even tell it was there unless it was right in the middle of the rainforest. In Brazil, it’s going to take a little longer, but most of the time you can’t.  It’s the processing element that’s quite nasty.

[00:44:02] Will Thomson: And so we spend a lot of time focused on looking at different mining firms that are developing alternative processing methodologies or are just very sort of conscious of how they’re processing the metal and the material. And I think that is going to become increasingly important going forward.

[00:44:19] Will Thomson: What I would also say is that I think someone like Ellan Musk is spot on when he says a lot of these metals, there is no the battery metals, for some of them, specifically lithium, there is no shortage of lithium. What there is a shortage of is a operating mines, and this goes back to the sequencing issue, right?

[00:44:37] Will Thomson: Turning on a lithium asset requires five to 10 years, depending on what kind of asset it is. So there’s that sequencing issue. You know, we, we’ve primed the pump, if you will, for EVs. Has that also primed the pump for mining it? Hasn. So there are dislocations that are occurring through the value chain, but this also speaks to the importance of viewing these industries within.

[00:45:00] Will Thomson: Again, this concept of a real asset ecosystem, because mining it is not where it ends. You mine it, you process it, you put it into a new sort of form, then they put it into a battery sell, then the cell goes into a pack and the pack goes into a car. And so along each of these, each step there is a different company involved and a different opportunity.

[00:45:20] Will Thomson: And those opportunities occur at different points in the economic cycle. So we are invested presently in a company called Lithium Americas. Lithium Americas is producing lithium from a mine in South America called Kochari and they’re building an asset called Karpas in Nevada. This is all very interesting, great stuff.

[00:45:38] Will Thomson: They’re bringing on lithium. They’re going to go from being a no one to a major in the industry in about 10 years. Great. By about 20. 28, 20, 30 second half of this decade. We don’t think that the opportunity is going to be in lithium mining. It’s going to be in processing, and it’s going to be in sort of that second step, basically the chemical step, if [00:46:00] you will, of the battery industry where you turn a raw material into a useful material because no one, you know, you don’t pull out of the ground, 99.9% pure battery grade, lithium, you pull a concentrate out of the ground.

[00:46:14] Will Thomson: And so that processing step is where the opportunity is going to lie. And so that’s why we think it’s really important to, you know, think about these things in terms of cycles and value chains. Because once you learn stuff about batteries and mining, you know that information, the knowledge, you don’t want to lose it, you want to compound on it.

[00:46:30] Will Thomson: And that means shifting around on the value chain. So there are a lot of metal. That are going to be important in the battery transition, but picking your spots and where in that value chain you would choose to invest depending on where we are in the cycle, is going to be critical. 

[00:46:46] Trey Lockerbie: Fascinating. Now, I’ve heard you say that mining companies are easy to value.

[00:46:51] Trey Lockerbie: Why do you hold that opinion? I’m curious what some considerations are might be win value, valuing a mining company. 

[00:46:58] Will Thomson: So I guess probably want to soften [00:47:00] that statement a little bit. Nothing is easy to value, but I think one would say that from a technical perspective, mines tend to be relatively straightforward and that has to do with the fact that mining companies are all project companies and that project due to historical frauds requires the publication of your plan.

[00:47:21] Will Thomson: So there were a lot of frauds back in the day and still to this day, there are frauds in the mining industry just like any other industry. But there was a, the example that, that’s most well known as Bre-X, where the mining firm actually took their assays, took their samples to get assay, determine how much gold was in them, and on the route to the place where the assay was going to occur.

[00:47:44] Will Thomson: They sprinkled some extra gold in there, basically boosting the grade as a result of that. There’s now, in the case of Canada, a document that must be published called a 43,101 South America. It’s called something else in Australia, it’s called something else. And in the United States we’ve done nothing but anyone, any mining firm operating in the United States, basically abides by Canadian rules.

[00:48:06] Will Thomson: In that document, the entire plan for the mine is laid out with all the assumptions management has made. And so oftentimes management actually hands you a pre-done d, cf. Now it’s their assumptions, the DCF is done. So all you need to do is assess, you know, is management viable. Do you really think that they can execute on this operation?

[00:48:29] Will Thomson: So basically what they’ve done is they’ve taken all the quantitative workout and you’re left with just the qualitative work. Now, admittedly, the qualitative work is actually the hardest component. So saying valuing a mine is easy is a bit of a misnomer, but they’ve done a lot of the heavy lifting for you in some regards.

[00:48:46] Will Thomson: And so we like that. We appreciate that because we basically get this document that says, this is what, what’s going to happen over the next five to 10 years in the most detail you could possibly imagine. And then you get to, to sort of work with that data. It’d be  as if Facebook had given you the entire plan for the metaverse.

[00:49:04] Will Thomson: That would be the sort of equivalent. So that makes mining sort of easier to approach. But on the qualitative side, you want to think about things like permitting risk and funding risk. Those would be sort of the two first issues we think about when we look at a pre-production. Mine, whether you are a developer or a producer, matters.

[00:49:22] Will Thomson: If you’re a producer, someone who’s already producing gold, copper, et cetera, odds are you’re mostly going to trade with the commodity price. So about once every five to 10 years, we would say that you can buy a company like that. And usually that occurs when you know the commodity is so bombed out that nobody’s interested.

[00:49:39] Will Thomson: So for example, we bought Barack Gold at $10 a share because everyone was like, Barrack might go bankrupt, da duh. But you do the d dcf and that’s just not the case. Operational diversification can be quite important for mining firms. It determines how much political risk you have to accept or not.

[00:49:56] Will Thomson: Geographical exposure is tied in there. [00:50:00] Liquidity risk is a big risk for mining firms. Most of your listeners, presumably, and me most of the time as a smaller fund, don’t have to worry about the liquidity risk as much. We don’t deal in anything less than 200 million, but they’re definitely junior miners that get quite small and trade basically by appointment only.

[00:50:17] Will Thomson: So I think those important variables to consider, again, you know, sort of liquidity risk, geographic exposure, operational diversification, producer versus developer, funding permitting, those would be the big risks. Note that geology was not one of those risks. Now geology is a risk, but if you’re dealing in developers that a lot of that geological risk has already been dealt with and taken care of and validated.

[00:50:45] Will Thomson: So your job is then to assess whether the validation was accurate, and that oftentimes is a question of who did the sort of audit. And who’s committing capital to the project can tell you a lot about the geology, but we ourselves are not geologists.  Geology is important, but it doesn’t need to be the be all and end all only variable, especially when considering either a developer or a producer.

[00:51:08] Will Thomson: If you’re looking at pre-production, pre-development, it’s a whole nother story. But there’s this stage in mining firms, and this is why I said, they’re often like biotech firms, where when a biotech firm first discovers a drug, you get this big pop and then everyone’s like, oh, we gotta go through the FDA pipeline, sell us down.

[00:51:25] Will Thomson: Of course, while it’s in that pipeline, that f FDA pipeline, it’s technically de-risking. Oftentimes it’s de-risking and trading down. That’s a really great scenario. And then they get approved and it popped. Mining firm is the same way. You got that same curve. There’s a sweet spot right here where you’re de-risking and trading down or trading side.

[00:51:43] Will Thomson: That’s where you want to be. So it’s more about finding the right companies than necessarily having an understanding that copper’s going to five or gold’s going to 2000 or whatever. 

[00:51:54] Trey Lockerbie: So you mentioned the qualitative is the hardest piece of the diligence and finding the right company is [00:52:00] the hardest. And if, as I understand it, and I don’t know if you’re still invested in this, but you invested in a 10 mine in the Congo, so all kinds of questions come up from that.

[00:52:08] Trey Lockerbie: For one. How do you find a business like that’s so off the beaten path, and then going to those risks you highlighted, how critical is it to be boots on the ground in the area of these minds to actually inform yourselves of those risks and how severe they might be? 

[00:52:24] Will Thomson: So you’re referring to a company called Alphamin.

[00:52:27] Will Thomson: We are still invested in Alphamin, took a little off the table at one point, so we don’t have our full position on, but we are still invested in it. Alphamin is the highest grade tin mine in the world, and Kin is a. Critical metal for all electronics. It’s basically the they talk about it as the glue that keeps electronics together.

[00:52:49] Will Thomson: You flip over say a motherboard and you see all those little dots. Those are all tin. Tin is also important in various different other, mostly electric related sort of things.  Robots, the grid, et cetera. We came across that basically we follow a lot of niche metals and we just sort of watch the metals and when interesting things happen in niche metals, we start looking at the different companies.

[00:53:15] Will Thomson: And oftentimes for niche metals like tin, there just aren’t that many businesses. And so that in some regards makes our job a little. What also makes our job easier in the case of some of these niche metals and tin sort of straddles the line because you know, I may say tin to you and you may say, wow, that sounds really nichey.

[00:53:33] Will Thomson: But tin actually trades on the LME. It’s actually a major metal in the grand scheme of things, especially when compared to say the volume of, you know, weird rare earth metals that are sometimes needed. So, but when interesting things start to happen in the commodity price of these niche metals that we track, we start to look for companies and there are very few mines oftentimes, and so that makes the job of understanding the entire universe much easier in regards to the boots on the ground.

[00:54:03] Will Thomson: I would say we don’t get to every mine we invest in, but we try to, sometimes we get to the mine and we learn something that’s really valuable and really important. Sometimes though. You don’t learn much. That’s critical to the investment. You always learn a lot about mining that it, again, informs that mosaic of understanding, but you don’t always learn a lot necessarily.

[00:54:26] Will Thomson: That impacts the investment itself. When you do though, it’s usually critical. And the examples I would give would be, I mean, something like Alpha Men learning about and following the trail, if you will, of the tin, the route out of country in Africa learned a lot about the process and whether it was going to be viable going forward.

[00:54:46] Will Thomson: You know, it could be done in a four wheel drive vehicle. The answer is, it was yes. And so it could be done also with a semi-truck. Yes. Did it go through war zones? In the case of Alpha in, it’s in the drc, it’s in what’s called the Lakes region,  which is just serve a notorious region for a lot of insurgencies and terrorists and things of that nature.

[00:55:06] Will Thomson: So what’s the environment around the mine like? Specifically in regards to security, actually going to site and seeing, okay, look, we’re in the middle of the jungle. There’s nobody around, there’s no one around for hundreds of miles. You know, maybe a security issue might come up, but security issues going to come up in the same way.

[00:55:21] Will Thomson: It could come up anywhere that’s hundreds of miles from the nearest civilization. So you learn a lot about risks that in some regards are risks. You either have to choose to accept or not. You don’t learn as much about, you know, say, I don’t know, the finances and stuff like that in the business. So it’s quite critical in emerging and developing markets to go see the asset.

[00:55:42] Will Thomson: It’s quite critical to spend a lot of time with management. That’s actually what I derive the most value from when I go to these sites. You’re always with management and so you get to spend like three or four days just chatting with management. How often do you really get to do that? Just endless conversations about not only the business, but you  know, what’s your family life?

[00:56:01] Will Thomson: You, you got kids great, you got kid where, you know, where they go to school where, what do you do with them? You know you learn about them as people. And mining is, you know you’re very much betting jockeys quite frequently, and so getting that time is probably the most value added component.

[00:56:17] Will Thomson: I would suggest that anyone who’s interested in junior mining, you know you can call up these mining firms, they have trips, you’ll have to pay for it, but you know, you’re making an investment. It might be worth the additional cost of that research. 

[00:56:32] Trey Lockerbie: It’s super interesting. One other fun fact I wanted to throw out before we run outta time here was that you’re a longstanding member of the Value Investors Club and you know, that was founded by Joel Greenblatt, who we’ve had on the show a couple of times.

[00:56:43] Trey Lockerbie: I’ve been a outside observer of that club and it’s very prestigious. I’m kind of curious if you could share what stock got you in the door. 

[00:56:51] Will Thomson: Yeah, so it is kind of amusing. I think it’s amusing. I think I submitted three or four, made three or four ideas before the idea I submitted, got picked. I think every idea I submitted before made money.

[00:57:05] Will Thomson: The one I submitted that they were like, okay, yep, you’re good. Definitely was a loser. So it’s just kinda a, an amusing story. But I submitted a couple years ago, graph tech. Graph tech still exists, still publicly traded company, ticker symbol is E-A- F on the N -Y- S- E graph tech makes graphite electrodes for the e a f electric arc furnace steel industry.

[00:57:29] Will Thomson: Now, at the time of the investment, they had just gone not I don’t know when the idea I submitted the idea versus when I made the investment. I don’t remember the timeline on that. But when we made the investment, the company had made just recently gone re public again. They had filed for bankruptcy.

[00:57:49] Will Thomson: They had been taken outta bankruptcy and bought up by Brookfield Asset Management. And we invested at the time of the I P O. They had squared away what we thought were great long-term [00:58:00] contracts. At very high prices for their electrodes. And we thought that they were going to be able to continue those contracts.

[00:58:08] Will Thomson: And what turned out to be the case was twofold. One, they couldn’t continue the contracts. They didn’t manage to re-sign contracts at high prices. And two, we ended up being a minority for whom a majority shareholder Brookfield could care less about. And the result was that every time the stock went up, Brookfield sold down their position.

[00:58:31] Will Thomson: So we went into this thinking. We had a partner in Brookfield. That was a big mistake. We thought, private equity firm who said that we want to buy and own, we want to be owner operators of this business. We’re in this for the long haul. Our incentives were not aligned in any way whatsoever. And every time the stock went up, it got bat down again by them issuing stock.

[00:58:51] Will Thomson: And every time they bought back stock, they did a basically a bought deal with Brookfield. And so the stock just never moved. [00:59:00] And it turned into a bit of a disastrous investment. I think we were down 30% in it or something when we, by the time we got out second run in with Brookfield. We’ll never touch anything Brookfield does again.

[00:59:12] Trey Lockerbie: Interesting. Now, I might be reaching here, but if you were submitting to the Value Investors Club today, what would be your stock pick? 

[00:59:18] Will Thomson: Let’s see. That’s interesting. Well, we got a couple of interesting things in our portfolio. At the moment, in my opinion, we have a company called Piff. A ticker symbol is Piff, P- I -F trades in Canada.

[00:59:31] Will Thomson: It’s called Polaris. They just changed the name, so I don’t remember what they just changed the name to. But originally it was Polaris Infrastructure. They do, they run, operate renewable assets in South America exclusively. Run of River Hydro, a little solar and a little wind. It’s probably a double from here, I think.

[00:59:51] Will Thomson: Relatively low risk. The assets are mostly on the ground, operating assets already. They’re doing a little bit of development and growth, but  it’s paid for, funded, permitted, and the off takes are signed. So, you know, that’s a nice situation to be in as an independent power producer. Plus South America lends itself quite nicely to renewables.

[01:00:12] Will Thomson: Not only do they have a lot of wind, water, and sun, but given the geography of South America, it doesn’t necessarily lend itself as well to the sort of hub and spoke electrical system that we have in the United States where we have giant power plants that can power, you know, multiple cities. The geography is quite, everyone is quite separated and they’re separated by mountains and rainforests and whatnot.

[01:00:36] Will Thomson: And so building a grid through that is quite hard. So Piff operates in this sort of segment of assets that are. Anywhere from 10 megawatts to sort of like 300 megawatts, which is very small but ideal for sort of small communities of, you know, 10, 15, 20, a hundred thousand people. So it works quite nicely in South America.

[01:00:59] Will Thomson: That would be an interesting one to submit. It’s a little bit of political risk because they’re in Nicaragua and they’re, they’ve got exposure in the Dominican Republic and Ecuador and stuff. But it is, it’s an interesting opportunity, I think, and a great platform that the management team is building that they can continue to add to for the long term.

[01:01:20] Will Thomson: So this is an example of a company where, you know, we look for three to five years, but every year we reassess and every year that fifth year gets pushed out again. Right? We keep rolling our timeline. So when we say three to five, just as an aside, you know, that’s not a hard and fast thing. We reassess our timelines every year and some investments we end up holding.

[01:01:43] Will Thomson: We recently exited an investment after seven years, just because every year we reassessed and every year we thought there was more. 

[01:01:50] Trey Lockerbie: Well, this has been so fun. I really appreciate you sharing so many cool ideas and just a look inside a very fascinating investing strategy. So I would love to do this  again.

[01:02:00] Trey Lockerbie: And before I let you go, I want to make sure people can find out more about you. So if you have any handoffs to a website or any other resources you want to share, go ahead and let the audience know. 

[01:02:10] Will Thomson: So we publish a lot. We think our research is basically our marketing material, so we publish basically all of it.

[01:02:16] Will Thomson: It can mostly be found on our website, which is www.massifcap.com, M- A- S- I- F- C- A- P com. And then I’m on Twitter at @wmthomson22. I tweet a reasonable amount. And I’m about to start sort of a whole series of tweets and things about copper, really focused on copper at the moment, and inviting some copper traders and copper miners on for some Twitter spaces, assuming Twitter still exists. So if you’re interested in copper, you should follow. That’s where you can find us. 

[01:02:51] Trey Lockerbie: Fantastic. Well, thanks again

[01:02:54] Will Thomson: Absolutely. Anytime. Thanks, Trey. 

[01:02:57] Trey Lockerbie: All right, everybody, that’s all we had for you this week. If you’re loving the show, don’t forget to follow us on your favorite podcast app, and if you’d be so kind, please leave us a review. It really helps the show. If you want to reach out directly, you can find me on Twitter @TreyLockerbie. And don’t forget to check out all of the amazing resources we’ve built for you at theinvestorspodcast.com. You can also simply Google TIP Finance and it should pop right up. And with that, we’ll see you again next time.

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