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Welcome to Meren Dorg's Money, the podcast in which people who know the markets explain the markets.

I'm Maren Sumset Web.

This week we are spending the episode focused on one particular market, commodities.

It's been a while since we discussed the sector, so we have invited on two experts to join us in a conversation about everything metal and mining.

We talk about the commodities themselves, the minds they come from, and the relationship between those minds and the equities that represent them.

We talk about copper, we talk about gold, we talk about platinum, and we talk about silver.

So in our studio we have Nicky Shield's head of Metal Strategy at mks PAMP, a group that specializes in precious metals, and in our London studio we have Heavy Hamburg, who is one of the world's most influenced mining invested Evy is co manager of the black Rock World Mining Trust and global head of Thematic and Sector Investing at black Rock, as well as being head of the Natural Resources Equity team.

Nick and every Welcome to Merrin Talks Money.

So Everie, why don't I start with you and just tell me what it is that you think of when you talk about commodities.

What are we talking about here?

How is this sector different to the rest of the market.

You could go anywhere with that question.

I know I wanted.

I wanted to have fun by asking at the very beginning of bitcoins a commodity, but I'd have heard that.

Leave that's the end.

It's fascinating if you think about commodities and the fact that we all use them every day, and some of them are more visible to us than others.

So if you go to the petrol station then you fill up your car, you know what the price of fuel is and how that changes.

If you go shopping at the supermarket, you know what the cost of agricultural commodities are because you can see how the price changes.

But most of the commodities that we take for granted, you know, the metals and so on, have very very low levels of visibility in terms of how we consume them.

And I think that society as a whole is rather complacent about their supply and the invisibility of the price changes.

And I guess the fact that they're always there and we take them for granted means that we don't pay that much attention to them, and I think that's reflected in how people value the companies that produce them, and so to us, theres very very long term investors in this space.

It's quite disheartening to see how lower percentage of the kind of global market cap commodity producers represent relative to how essential they are both in everyday lives but also in sustaining living standards.

And it's only when you know, things go into kind of I don't know, panic mode around shortages, or you hit the front page of the media and so on, that people's interest levels rise and multiples expand or greed over where overtakes, you know, fear in terms of people wanting the exposure that the sector becomes front of mind for most financial investors, and you know, we're certainly seeing some early signs of that in the government space.

But to me, I find it very confusing that something that is so essential to everybody's daily life has such a low level of interest and low multiple that the companies tend to trade on in the market relative to the businesses that actually consume them.

I mean, you can't build a data center without commodities, Yet there the data center companies trade on infinite multiples.

Yeah, that is interesting.

We had we had a few months ago, we had ed Conway on talking about his book Material World and talking about this difference between the ethereal world and the material world, and the extent to which we've sort of forgotten that the material world is the foundation of everything, and without without the minds and without the really fealthy, grubby bit at the bottom of everything, we could all the other things that we like to talk about.

It.

It's just interesting how that's happened over the last couple of decades, that the foundation, the foundations of everything have been forgotten on the pyramid of need has been rather upturned.

Yeah, I think you're right.

I mean, it's a great book that I loved it, and I listened to it on one of the players audible.

It is amazing if you think about how society has moved on through time, where basic industries were such a core part of everything, and now services are the kind of the most core part of everything.

And it's just you know, usk how much value dis services really add?

Oh controversial or can I add anything without without the exactly?

That's what I mean.

Yeah, And I suppose the other interesting part of that that will come onto later as well is energy, And there's a whole justop oil excepter plava where everyone forgets that in fact, oil is part of absolutely everything they touch and everything they feel around them, everything they see.

Is that something to do with fossil fuels.

But nonetheless, we've moved so far away from the understanding of the materials sector.

There's a genuine belief out there that the world could continue.

Yeah, I mean that's my foundations.

I find a bad complacency.

You're beginning to see some kind of change.

I mean, I think ed Ed's book was a bit of a turning point for starters.

But also looking at the papers this morning, one of the headlines on the front of the FT Sorry competitor Alert was Chinese mining acquisitions globally at their highest level since twenty thirteen.

So somebody's getting it.

The Chinese are up there looking at everything, buying everything, beginning to monopolize as much as they can.

So let me just ask you, then, when you.

Look at the sector today, what are the parts that you find most interesting?

Where is it going to happen that we'll see these supply demand shocks that are going to wake people up to the importance of this area.

Yeah.

I hope we don't have shocks for the wrong reason, because that would be pretty bad for the environment or for safety and life and stuff.

Slow surprises, let me go slow surprises.

Yeah.

I think it's hard to argue against the fact that the world's going to need more as life goes on.

That's pretty much a given.

That's definitely been the history and it's likely to continue to be the future.

I think the shape of what more is is what's interesting.

So when we think about the transition, I suppose you away from fossil fuels, that is a transition from fossil fuels to hard metals to industrial commodities, and the intensity of use of those commodities rises, you know, almost vertically, the more you move away from fossil fuels.

Up to some long.

Data can I Evie, do you mind if I just interrupt you briefly, because we always talk about the transition, and when we do, I think it's time we start making it clear that we're not really talking about a transition.

We're talking about an addition.

Correct, It's just the change of shape, And I think that's it.

Yeah.

Absolutely, We've never had an energy transition in history.

We've only ever had an addition that we don't use less cold than we did, we don't use less wood than we did, none of those things.

We just use another type of energy on top.

And that's what's happening.

I mean, we can't have the future that is being advertised to us so extensively without a net addition because everything that is being advertised, that data sent A and AI just use vast amounts of power and we can't solve that with fossil fuels alone.

It's got to be other things.

So the transition is the shape of those energy molecules in terms of where they come from, and through time, I'm sure we probably will get to a point where the shift away from fossil fuel starts to become dramatic, but that's probably quite long dated.

But in that transition period, as that part is evolving and becoming a bigger component of supply, more and more metals are going to be going to be needed.

And I think that's pretty obvious.

So I think the demand side is very hard to argue with.

I think the supply side is equally challenging, you know, we're seeing very very long dated timeframes, so the addition of new supply of industrial commodities, it's becoming harder and harder to develop these things for whether it's the environmental permitting or the regulations attached to it, the complexity where these all bodies are located.

They're not kind of shining out of the ground and easy to identify.

You've got to go deep underground or top of mountains, access to water and power and people, and it is just becoming more and more complex.

So the thing that we see that's coming back to your question that's so fascinating is how the industry finances the growth that is needed and are the incentives or the returns there today at today's commodity prices to justify those investments.

And when you look across the kind of spectrum, it's hard to see the returns for a number of the key commodities to justify that investment.

So the imbalance, the kind of shock that you talk about, is probably going to come from a long dated period of under investment into supply because the returns aren't there.

That coincides almost tectonically, you know, with that sudden, you know, appearance of demand that everybody identifies, and you then see a price response to reflect that imbalance, and that then triggers probably a long dated period of investment into new supply growth.

In that interim period, you've got governments running around, you know, saying that they're worried about security of supply, trying to incentivize investment.

You've got the US trying to unblock some of the red tape around investment of domestic resources, which might help.

We don't know.

It's a very very early days in that regard, but I still think that the challenges are very much going to be kind of dominating the headlines, and at some point there's going to be pressure and that hopefully will lead to improve returns for the companies that make the commodities today.

Yeah, I mean, the demand side will makes sense.

And I think everyone can see this.

Everyone can see rising demand from the energy transition edition, whatever we're going to call it now, from everyone, from this rising concern about security, from the idea that we should massively increase our spending on defense, increase our spending on reindustrialization, et cetera, et cetera.

But when it comes to the supply side, in the old days, we always used to saying that the alter to high prices is high prices, or the solution to high prices is high prices are shoot.

I mean, because then you get.

This massive burst of supply, but increasingly it becomes harder and harder to incre supply for all the reasons that you mentioned, but also for environmental reasons, getting permissioned to open new sites, getting permissions to explore, etc.

So is it the case that.

As this dynamic you've been talking about unfold, the cycle is very significantly longer than it might have been in the past.

So, for example, all the big companies will now say that it's very significant did you just go out and buy someone else's sites than it is to try and find another one, explore, get permissions and get going with production.

Yeah, I'd definitely agree with that latter point.

The valuations on existing production today are much lower than the cost of building stuff.

I mean, that's a sweeping commet but there are there's a lot of data to support that.

And it's not just the cost, it's the time and complexity as you mentioned about building new stuff.

So you might have a project that's ready to go, but it still takes many many years to construct.

There's still a lot of risk around how much it's truly going to cost.

Anyone who's built a house knows that it tends to cost more than you think at the start, And it's the same with building your mind, except the numbers that just have many more eros.

When you think about that, if you're buying an asset today that's in production, you've got many many years of cash flow from that asset before the stuff you might be building from scratch actually starts producing cash if it starts on time and at the right cost and ramps up to full production successfully.

We've got a few examples recently where some of the world's biggest new copper mines have ended up costing fifty to one hundred percent more than originally planned and are still not at full capacity two or three years after having supposedly started, Whereas if you'd gone and bought somebody else's asset and paid full price for it, you would have had three or four years worth of cashlow to help reduce that cost by the time you know, the new one might have might have started.

So I think the kind of on a risk reward basis, the assets in the market are trading a lot cheaper for less risk than building some things from scratch, which obviously is one of the opportunities in the market that we see.

Okay, Nick, and we've talked a lot around qualities in general, about the different metals.

I know you've specialized particularly in precious metals, but in the world of metals overall, the any that you look at and you find particularly interesting.

We're not going to go straight to gold, by the way.

No, you talked about these not to build on this, and it's sort of punnintended there.

But you talk about the slow surprises, and.

When you look at commodities sort of uros pla manus demand, you kind of fudge for macro equals price, and gold is it's less of a commodity out of all of them.

But from my seat, basically what we're seeing is is platinum is really turning into a PGMs, turning into sort of that slow surprise we touch on again, it's your structural urrors of under investments in the sack.

So a couple of months ago, fifty percent of the fifty percent of your supply was underwater, and so you get then you sort of have this sort of you know, really low pricing regime a sort of painful period, and you then get a catalyst, which happens to actually be the ball price, because Chinese jewelry demand is basically down like thirty forty percent given high ball pricing, and so you got your Chinese judas really looking at re stocking and going into platform versus gold.

So that is the catalyst that has you know, seen almost forty percent three pricing in the last few weeks, which is pretty unprecedented.

So yes, eyes.

Are definitely on the PGM sector because again, I think that response when we talk about the supplier response and how quick that is, because when the mind does turn, it can swim pretty quickly.

And in metals it's it's either scrap or it's primary.

And if you just there's just no mind to bold, right there is it's just not there, and scrap for especially for PGMs, that's sitting in order cats and people are just hanging on to cars for longer because of high inflation because abound certain ty becaeuce of tariffs and that that material just isn't coming back.

So we're not really seeing that the supplier responsors you generally see across the metal space industrials and precious when you get a large price free rating.

Okay, well I'll tell you what I gave in and let's talk about gold.

You're I mean it's empting heavy.

You're your portfolio is what the thirty percent or in gold?

Gold?

Like please at the moment?

Right, And Nikki, I know you're something of a gold bull, right, Nika, why don't need talk us through the case.

I think gold sort of speaks for itself in terms of its three ratings through two thousand and it's it is putting commodities back on the map in the broader sense.

It hasn't burnt itself out like every other commodity price boom or bus.

So you've got investors coming back and saying, right, right, is this time really different?

And why?

And you've had a bunch of structural forces come together.

Deglobalization, de dollarization, which didn't start now it's this started Brexit, like this started Brexit Trump one point ero, accelerated with COVID, accelerated with Ukraine war, the weaponization of dollars, and then just sort of ongoing geo political tensions.

And I think you now have a world where.

Yeah, there is it's it's each protectionism is up and again a course for those strategic stockpiling of and central banks that have been that key game changer, that a key demand game changer for whether it's a sub two thousand dollars acid or or now three thousand dollars plus ASCID and the way they're accumulating just too as a dollar hedge, but also fits currency hedge and inflation hedge, energy political hedge is kind of unprecedented, and we don't see that falling away anytime soon.

You don't see it falling away anytime seeing the Chinese government, Chinese center back, for example, has been buying and buying and buying, and you see that continuing.

Mostly Yeah, so it's mostly emerging markets, central banks, a lot of Africa and a lot of Asian obviously China.

The interesting thing is, you know, World God Council do a great it's sort of great analysis and data on central bank buying, but it's it's official and a lot of it's unofficial.

And in a Trump era, who you know, Trump has actively come out he had comments overnight related to the sort of the brick summits.

But if you're actively seeing d dollarizing, which in the purest form is accumulating gold.

The threats of tariffs sort.

Of increases, So I think you're going to see a lot more It's it's going to become a lot more paid back to what we started off.

From the conversation, I think central bank buying.

You're going to have a lot of unofficial or just estimated central bank buying and won't go through the official channels.

Okay, interesting, and is that what you see as well?

I think I'm more bullish than that.

You know, I agree with a lot of the comments I made, but I just think the scale is so much greater.

You know, you look at the size of government balance sheets today, and I think that the education, a painful education that many people have been through about the loss of purchasing power over many, many years.

Every year, you know, your paper currency buys you less than it did in the year before, and you know, cumulatively, it's very very expensive for paper assets.

And I think the scale of government balance sheets now that need to be continually refinanced.

People have learned a very very expensive lesson.

We did the study of a year ago or so.

I think the iPhone is now sixteen years old.

You know, when it was launched, it was five hundred bucks iPhone.

Now it's fifteen hundred bucks for an iPhone.

You know, if you use gold to buy your iPhone, you need thirty four percent less gold today to buy today's iPhone than you did when it was first launched.

That is the protection of purchasing power.

Real assets have held value much better than paper currencies over time, and we all know that.

And I think that people's people have started to become educated.

Central banks have certainly become educated on this.

And so my career is too long now, but you know, I when I started in the nineteen nineties, you know, everybody had an allocation to gold in an investment portfolio.

In the early two thousands, that allocation was ero.

Even the Swiss wealth managers had ero allocation to gold.

Now it's getting back to two three percent some cases.

More central banks have you know, stopped selling gold in the early two thousands, you know, having had whatever it was, four decades of net selling, you know, and they've been buying continuously, and they're buying at twice the average rate, or nearly three times the average rate over the last three to the last kind of seven or eight before that.

So we're at a kind of a pivoting moment in this where gold has really re established itself as a financial asset.

You make a really good point on a sort of the allocation to gold and sort of relative size I think of the gold market relative to other industries.

I think is underappreciated.

So yeah, it's just that idea that the gold space relative to the questioning of US treasuries, questioning of other assets is just it can't hold the amount of allocations if we simply just doubled investor allocations, or if Central anxious had to double their allocations to the sector.

So what percentage of an ordinary person's portfolio should being gold?

Micky, do you think we'll go can't?

I mean the numbers thrown around is about one to five percent.

I look at a very crude measure of just sort of known investor holdings, which is just simply ETF and your net COT numbers, and that's less than one percent as a percentage of equity.

Hohold.

But I do think specialists are somewhat involved.

This is what makes me extremely polished.

This isn't a gold rally that's firing on all cylinders.

Retail's pretty sluggish, both in Europe and in the US.

You've got central banks, you've got general investors, but I think it hasn't got.

To that Fomo their phoonmo level weight.

The new your taxicab is talking to me about hying gold, so really has been a sort of cold hearted like sort of allocation, very measured allocation to gold.

I'd go more than that, So I thought you mightn't anywhere there enough.

It's Oh.

I think there's two components to that answer.

The first one is that there are different ways to get exposure to gold, and to me, the optimum way is to have a mixture of exposure to physical and to gold producers.

And so you set yourself a target where you want that exposure to be, and you might go with five percent, you might go with ten.

I normally have anywhere between fifteen to twenty percent in my own personal portfolio, and you know, you manage the risk of those two positions.

So if gold outperforms gold equity producers, then you know, you take a few profits in the physical gold and put it into the gold producers and you just manage that exposure in time.

But you manage it as a number.

So you know, if you get too high because something is that performance.

So the gold shares are up three times the goal price this year, you know, you obviously be taking some profits and some of the gold producers and putting it back into physical if you think if they think they've gone too far.

You mentioned our exposure to goal equities in the portfolio today.

We went from an underweight position in gold producers at the beginning of twenty twenty four to a substantial overweight position in the gold producers, not because we had a different view on goal price.

We've been bullished throughout that period.

We just felt that given the move in the price, the companies were set to earn an extraordinary amount of cash flow and profits, and therefore we couldn't argue with that, and even the worst companies couldn't destroy the profitability that they were now getting.

And so therefore we adjusted the position because there was value in the producers over the gold price view.

And we're maintaining that we've got a very very healthy level of gold equity producer today because we think this quarter's earnings second quarter of twenty twenty five should be the evidence point.

A little bit like the homework being marked by the master.

You know, we will see whether the companies have been able to hold on to the price moves and convert that into cash, and the results over the next few months are going to be a real, real test for these companies.

And then the second element of that test is what they do with the money.

Do they waste it, which is off too often a track record of management teams, or do they give it back to shareholders with higher dividends.

A lot of them are embarking on share buybacks.

Most of them have paid down their debts, so there's a lot more choice about what they can do because they're not restricted with debt covenants and so on.

So we actually think we're on the cusp of quite a material changing goal producer valuations if they can deliver.

And when you look at the valuations relative to the past, they're trading way below their own historic levels, so there is a lot of room for them to move despite the year to date returns that they've been able to mark up.

And then coming back to that question about the allocation, gold is also a risk tool but also an insurance policy.

Take Nicky's number of five percent, the other ninety five percent goes really really well.

It takes some profits out of that and add back to the gold to keep it at that five percent number, and you will be absolutely thrilled when the ninety five percent has that unexpected fall that that five percent over delivers view and acts like an insurance policy.

And I think that's how you measure it.

You don't chase gold because that is the big mistake.

If you're chasing it because you think it's going to go perpetually higher, you're probably going to be disappointed and probably buying at the wrong point.

But if you're managing it as part of an asset allocation in your overall portfolio, that is the sensible and smartest way to do it.

Yeah.

Can I ask you what the top gold holdings in your portfolio are with what of your favorite miners producers?

Well, we move those around so we don't necessarily have a particular favorite name.

What we do is we try and build that kind of basket of exposure.

So because not every company can offer to us what we want, so some of them we own for cash flow productions, some of them we own for expiration potential, so they're going to discover more Others for growth in production, others for stability.

You know, you've got to build your house on strong foundations and so on.

So it's getting that mixture right.

It's like baking a cake.

If you're only interested in the flower, the cake's not going to taste very nice.

But if you want to mix it with the right ingredients, then you're going to end up with a good outcome.

So we think that kind of blended approach works well.

It also softens the risk.

So if you have all of your exposure in one particular name, then you can tend to be disappointed by that nicky.

What about silver, silver, it's miss along the lines with platinum.

I think, like I said, Goalput has put precious metals back on the map as a sort of general debasement trade, and I think silver and platinum, or obviously coming into that fors are kind of the second iteration of that general debasement trade.

We had it a thirty two thirty five dollar range.

It's now moved up.

It's still relatively cheap.

If you're talking about gold consistently hitting all time highs.

The dual part, right, you've got industrial demand which is so super super strong, A lot of it is PV but again as electronics it plays a part in the transition economy, and then as well it's got that investment side.

So to me, silver, if you think we are right now sort of at a macro inflection point where we're going to get sort of a series of trade deals, the FED is going to join the G ten rate cutting party.

The US dollar has appreciated a ton, but it's still in his early endings of a sort of structural decline.

Then your high beta.

More industrial precious metals such as platinum and silver definitely have more upside than gold.

So in terms of you know, it's just we're not really in that full on fear mode where where havens are being overbought, and I think I think there's there's a rotation out of sort of your pure havens into some of these alternatives.

Ever's nodding away like either completely agrees or has something to appen.

I think the I find silver fascinating.

I started my job and take some photographs, take the camera film to the chemists and get it developed.

And that was silver.

Silver was foury odd percent of demand with photography.

And when was the last time you took a film to the chemist to get it developed, so if you can find one that would do it.

So you know, silver has that amazing ability to kind of reinvent itself with regards to demand, and today it's attached to that really really fast growing part of the market, which is solar cells, and it's the biggest part of consumption.

So as that grows and the world uses more, it's great great for silver.

Silver also has this other characteristic where there aren't very many pure silver mines, so it tends to be a byproduct of production of other commodities.

So you have a copper mine that might produce some gold and silver at the same time, and so the kind of cost of production element doesn't apply as kind of neatly in relation to other commodities, or price falls below the cost of production production shuts.

Same with copper and other things.

Silver doesn't necessarily have that same extent because of that byproduct nature, and so the kind of supply side support on price from a kind of cost curve isn't really there to the same degree.

So we actually are very positive on silver.

We think the silver equities have been left behind and we think there is room for a more material move in the price of silver.

We're actually surprised that it hasn't broken out.

It's had a couple of attempts recently in that kind of mid thirties range, as NICKI mentioned, but we haven't seen that kind of big bump move yet, so we're kind of anticipating that.

So in our Golden General Fund, we've actually got an active weight to silver today.

That's pretty big because of that positive view.

God, I'm glad you that I've been holding that Golden General Fund for decades.

It's at an all time high now, mare, and so you should be pretty happy with the.

I know, yeah, there were there was some not so happy.

I totally agree that we've been through a bit of a roller coaster across all the commodity space, and the Golden General Fund has been one of those.

But I'm very pleased to see twenty two quid or whatever the unit price is today.

Yeah, me too, Me too, Nikka.

Outside precious metals, are there any any metals.

That you're particularly interested in?

I mean, obviously the big one there as copper, and I'll come back to you every on this a big part of your portfolio.

But is that interesting to you, NIGGI, Yes, I mean it's it's definitely interesting sort of fits.

That's that similar framework with platinum and with silver in terms of if you're looking for a reflation trade.

Again, these are metals that are generally constrained.

You have a strategic stockpiling globally occurring in critical metals and so yes, I think do you like corperate, constructive and positive to it, but yeah, probably add that in industrial metals, we like some of the opgms with thurniums is really a big part.

Again, there's no listed commodity that's very niche.

It's basically I call it the in video of the PGM sector, but it's a big part of sort of data centers and again the South African mining complex.

I mean, they can't mind these metals in isolation.

It's mined as a basket similar to what we're if it was referring to in in silver as in their byproducts.

So yeah, generally constructive.

Yeah, it's interesting.

I mean going back to going back to that, I mean, we read so much about the rare earth metals, which as we all now know, on't exactly rare but only minded particular places.

How does it reacha out of us to get exposure to the.

Rare earth metal story.

There are a handful of listed companies around the world that you can get exposure to.

The quality of the assets is very variable.

The challenge with the rerror space is, you know, there are lots of different elements to the supply chain, so it's not necessarily the mine.

It's downstream from that.

It's the processing and conversion of that of those products into usable items, and it's that element that China controls.

So China controls that intermediary step between the raw production and then conversion into something that's usable, and then the sale of those into other formats, whether it goes into magnets or other applications.

And that's the kind of huge strategic win that China's had over the years.

They've realized that if they can dominate the control of the supply of that, they don't need to own the minds as such.

They just need to own that intermediary step and that gives them that long term power base.

So you've got to think about where is the margin made.

Is the margin made in digging the stuff out of the ground, or is the margin made in converting into something that's usable, And that's where you need to think about your exposure.

So we do have exposure to rare US across our portfolios.

Some of them are in the mining companies.

We have two pure play exposures, both listed in Australia, where the one is exclusively a rare US producer and the other one is building out a rare US facility both downstream processing and the mining of the product, and that will come into production in the next kind of year and a half.

So those two companies are kind of ways of playing it.

We haven't gone into the kind of more exotic ways of doing it because it's just a bit of a challenge that some of those companies, but that's how we're doing it.

But you should see an awful lot more of the mining and the processing of all these commodities coming back into Western countries, right and that would make sense if everyone is concerned about energy security.

In particular, we're going have to mine and process on our own land, which is a grubby thing to do, and we don't like doing these things because they're all dirty, and we prefer to outsource all the dirty work to China in particular, but we're going to have to bring it back on Shore.

Yeah, there's definitely that, and I agree with what you've said.

The challenge is the price.

You know, at the moment, the prices of these things are not high enough to justify the investment to build that onshoring of capacity.

I mean, nowhere near high enough.

If you look at the share prices of some of the rare producers, they have not been good performers at all.

In fact, they've been completely the opposite, and that's because China doesn't want that supply built.

They like the fact that they control the industry, and so the last thing they want is to lose that kind of ad plus percent market share position.

So it will require some incredibly low cost capital or huge grants and subsidies or whatever from Western world countries to be able to build that, plus you know, some changes around the regulation I suppose in terms of the processing capacity, because it isn't the cleanest of industries, it will take some change and that change will take a lot of time.

So I think the supply side response is relatively inelastic in the near term.

Yeah, although I suppose it is possible.

And we've talked a lot on the part of the last couple of months about the mooted rise in defense spending and if you're going to be spending five percent of your GDP on defense, body you're actually talking about And the answer, of course, is that you're not really going to spend five percent of your GDP on tanks.

You're going to spend it on exactly that, providing locust capital or very large grants to securing your supply of the metals and minerals that you need for energy security as well as physical security.

Yeah, that's definitely going to form a large part of that.

As you say, you're not going to be necessarily building the tanks, you're going to be building the drones.

And you know the drones will not use that much steel, but they will use a hell of a lot of magnets and chips and so on, and then you've obviously got the explosives and everything else that goes with it.

So the shape of spend is going to be different to the past in defense.

Do you hold any renewables equities or is that outside you're.

In there that we've got a large renewables listed equity business on the team, and that's actually going through a bit of a renaissance right now.

I think everything that was talked about in the context of sustainability, you know, has been through a bit of a downturn over the last few years, and you know, it's kind of reached that kind of low point where things are starting to change.

Obviously, the shift and the backwards and forwards in the US with regards to regulation there looks as though it's reaching a point where it's going to be less bad and the equities are starting to kind of reflect that.

So our exposure there is really starting to improve.

And I think when you look at the valuation of those businesses, they've been so heavily penalized now for the last three or four years, it's kind of hard to see them go any lower.

So I think that's actually a very good opportunity in that space.

Hard to Stephen goingilwer is not the same as being able Stephen going out.

No, No, I think I think they've gone so low that the next move is up.

And I think it goes back to that question we were talking about earlier on all the other topic around the energy transition.

The only way to fill the energy needs in the near term, you know, in terms of extra molecules, is by adding renewable capacity, and so the growth that's going to come through from the deployment of money into building out the renewables is going to be the solution.

I mean, try and get a gas turbine and how long you know it takes to get hold of that.

It's super super hard.

Reactivating the nuclear which we are very optimistic on, you know, for the outlook for the uranium is definitely coming, but boy, it's going to take a long time.

And so unless you're going to build a whole bunch.

Of it, does it have to take a long time.

I mean, we have talked about this quite a lot on the pot about that about uranium, and I've loved for Nicky's opinion on uranium.

In a minute.

And with that, you know, we talk about the energy mix endlessly.

We must have this mix of different sources, et cetera.

But do we really really need.

An energy mix if we actually went full on with nuclear, if we really focused on SMRs, if we put out new nuclear blands at the same speeders as South Koreans, for example, which is very significantly cheaper than the way we do it in the UK, and you can get them up in five years.

If we did that, we could solve all our problems in it relatively short amount of times.

It's not that it's not possible, it's just that we won't do it.

I agree with you, and you mentioned the UK, and obviously the disaster of Hinkley Point in terms of its costs brings us immediately to mind.

But you also said five years.

You know you can build a hell of a lot of data centers in five years, you know, much quicker than you can build the nuclear Even at the SMRs.

It takes you five years to put up a great wind farm, takes you five years to get planning permission for a solar farm.

Values is nothing in the world of the UK's planning permission.

If you decided to solve your problem, you could solve your problem very fast.

Like everything in the UK, the problems are easily solvable by policy changes.

I'm so, I'm way off into politics now.

All of our problems are solvable with fast, sensible, data driven policy change, which is not matter anyway, but they'll be that isn't me.

You must have exposure to uranium in their portfolio.

We do have exposures to uranium in the portfolio, and the uranium side is really interesting.

You know, if you talk about a commodity that's had ero investment in for an incredibly long time, some of the world's biggest minds were kind of put on care and maintenance because the demand was just so bad, and they're now being reactivated because the demand is coming through.

The restocking cycle is very, very long dated.

And what's interesting is, I think it was two years ago now that we attended a conference here in the UK for the uranium companies and it was the kind of a little bit like the kind of mating season where the uranium companies meet the utilities and they work out what their needs are and so on.

What was fascinating is meeting with the uranium producers who were now having requests for supply coming from technology companies.

Because the technology companies had worked out that one of the challenges was power and if they needed to solve the power, they needed to solve it with long dated, low carbon, reliable base load power and nuclear as the solution.

So they were actually pitching direct to the uranium producers for access to units of supply to be able to meet their future needs.

And then two weeks later we saw the announcements about the reactivation of capacity in the US, and so this is absolutely moving forward and it wouldn't surprise me that we see more growth coming out there, but again it's going to take time.

So we should all hold chemic coal.

We do have that in the portfolio.

Absolutely.

We let me ask you about the future.

So we're going to have a lot of mining companies out there.

We talked about gold companies in particular.

There's going to be a lot of cash piling into them.

So we're going to see a lot of companies in this sector, massive bounce of cash on their balance sheet.

What do you think they're going to do with it?

What I think is going to happen is different to what I would like to happen.

And I think what I would like to happen is that the company's are disciplined, they give returns to their shareholders who've invested in their businesses, and they manage those cash flows sensibly and an investment in the right way.

That's what I hope will happen.

What I think will happen is that the companies will repeat what they've done in the past.

Not every company, but I think we are seeing today a rise in capital expenditure across the industry with questionable returns, and I am worried that this is a trend that might come back to levels that we saw in previous cycles.

Why I'm worried about that is because a lot of money was destroyed when the companies were generating great margins because of poor thinking and capital allocation.

And I really hope we don't see a repeat of that.

It's a message we're trying to get through to the companies as frequently as possible.

Absolutely, there are companies out there that will not do that, and they will be disciplined and they will be great businesses.

And we're really happy shareholders in those companies.

And if the companies can be disciplined and return the money, then the shareholders will do very very well.

The host nations will do very well, the employees will do well, good taxes will be paid, and the shares should re rate.

The risk is that they don't and the opposite happens and.

We don't get those dividends we've been looking forward to.

Yeah, and the gold companies a great I mean, my old boss was a wonderful man called Julian Bearing, and he was absolutely table thumpingly strong on this topic.

He was the the great creator of this, of investing in this in the gold space, and he would always hold companies to ransom with regards to dividends, and because they are a fair way of sharing the spoils that the companies make.

And they're a great discipline too.

If you don't do a dividend because you badly invested the money you're making, then you owe your shareholders and apology.

And so a discipline around dividends is like handcuffs on management.

If you know the dividend is sacrosanct, then you've got to pay it.

Then that reduces the amount of free money that you have to reinvest, which means you can therefore only make smaller mistakes if you're going to make mistakes.

And so dividends are absolutely essential component of returns.

And if you look at the industry as a whole through time, the mining industry greater than fifty percent of the returns that the industry generates a dividends.

And if you're not paying the right amount, then you're really going to going to let yourself down.

Okay, we'll keep an eye on that.

Let me just ask you one last question both of you.

Nikki, do you see bitcoin as a competitor to precious metals?

We look it into you look at liquidity in the system like global but it is consistently reaching all time high.

There is there is a space.

This is a space where both can survive.

They basically complement each other, Bitcoin and goal.

They should be the same hip in terms of what they kind of stand for anti fear to sort of a verte against the system.

But one is extremely volatile, the other one is a bit of a more safe haven.

So I think in a portfolio there's enough space for both of them, depending on yours profile, depending on what you're looking at.

So I don't.

I don't really see it as a competitor in a world where there's a consistent search for US dollar hedges and it's just there's there's a of reliable US dollar hedges out there.

Yeah, okay, thank you.

And I think would you put it in I mean, you know, is it a commodity?

I mean you mind it right?

Yeah, I wouldn't.

I would say a minor would argue with that.

I think it's a word rather than an action.

Crypto as a whole is sold on the same basis as gold and bitcoin in particular, and as a result of that, there are characteristics that you could see in a similar light.

I think gold is the original.

Gold will be around for thousands of years, as it has already been around for thousands of years.

I think it's re earning its place in people's portfolios with the moves that it's had.

I look forward to the day where you are able to pull out your debit card and spend gold.

I think that's a really, really exciting time.

I know there are some companies that are doing that already, but it isn't mainstream in the same way that you pull out your your card and you can swipe on your phone to spend euros or dollars or pounds or whatever.

Why can't you swipe to spend gold.

I have the answer for you that I have the answer for you to that question, and the answer is capital gains liability.

Hell not, but not if your gold exposure is held via coins, because there's no CGT on gold coins.

Fair enough, fair enough, Seeing've got coins backing up your card.

This is too complicated.

We're going to leave it here.

We're going to leave it.

Yeah, Evy, Nikki, thank you so much for joining us today.

Hugely appreciate it.

Thanks for listening to this week's Marin Talks Money.

If you like us show, rate, review, and subscribe wherever you listen to podcasts, and keep sending your questions or commiments to Merin Money at Bloomberg dot net.

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This episode was hosted by me Maren Sumset Web.

It was produced by Someasadi, Moses Ander and Tala Amarari.

Sound designed by Blake Maples, Bestial Thacts, Sineky Shields and to Ev Hambroke