Q1 2025 Conference Call
Edited Transcript of the 1st Quarter 2025 Conference Call with Dave Iben and Alissa Corcoran
April 24, 2025
4:15 pm ET
Mary Bracy: Good afternoon, everyone. I’m Mary Bracy, Kopernik’s Managing Editor of Investment Communications. We’re pleased to have you join us for our first quarter 2025 investor conference call. As a reminder, today’s call is being recorded. At any point during the presentation, please type any questions into the Q&A box, and we’ll be happy to answer those questions as a part of our Q&A session at the end of the call. Now I will turn the call over to Mr. Kassim Gaffar, who will provide a quick firm update.
Kassim Gaffar: Thank you, Mary. Welcome, everyone, to the first quarter 2025 conference call. With me is Dave Iben, our CIO and Lead Portfolio Manager for the Kopernik Global All-Cap Strategy and Co-PM for the International Strategy. Also, Alissa Corcoran, our Deputy CIO, Co-PM for the Global [All-Cap] Strategy and International Strategy, and Director of Research. Before I pass the call to Dave and Alissa, just a quick firm update. Overall, firm assets have grown since the beginning of the year, and we ended the first quarter with roughly assets of $6.4 billion under management. This is up from $5.3 billion at the end of 2024.
Many of you have known us for over two-plus decades, and generally speaking, such recent periods of market volatility bode well for our portfolios, as experienced during Q1. Also, during the first quarter, we won a large separate account mandate – north of a few hundred million dollars. This is a trend we have been seeing where many of our institutional and high-level clients and allocators are decreasing exposure to U.S. and growth while diversifying the manager lineup by adding exposure to value and to strategies that have exhibited low correlation to the market and to peers like ourselves.
Moving along on the personnel side, we started the year with 46 employees strong, and have had minimal turnover since inception of the firm nearly 12 years ago. That brings us to the end of the business update. Please note Dave and Alissa will be referring to the presentation, which can be found on our website, kopernikglobal.com, under the News & Views section. Also, also on the website, you can access Dave’s most recent commentary and several other thought pieces by the investment team, which have been received very well. With that, I’ll pass it over to Dave. Dave, please go ahead.
Dave Iben: Thanks, Kassim, and welcome to everybody. Another quite eventful quarter. People might have noticed a little bit of volatility in the market. I think the NASDAQ’s up 9.5% in the last three days, plus an hour. Gold’s doing nicely, even including the 300-point drop in 20-hour period earlier this week, so lots of volatility. It might make us all reach for the Maalox, but it also makes it a good time to be an active manager, and so I’ll come back later to talk about gold, but in the meantime, the important thing about why we shouldn’t fret volatility, why it’s actually a good thing, I’ll turn it over to Alissa.
Alissa Corcoran: Yes, as March and April showed, this business is anything but boring, and the world is also anything but predictable [slide 7]. Volatility is back, and it seems it might stay around for a while. Is this the end of the world? Is volatility a bad thing? Central banks certainly don’t want it [slide 8]. For years, volatility has been suppressed by central banks, and this calmness has led, this tranquility has led investors into trades that otherwise wouldn’t have been attractive [slide 9]. Shorting vol [volatility] strategies have become immensely popular. We liken this to picking up dimes in front of a steamroller.
These are very negatively convex strategies. You gain a little bit for a while, but then you stand to lose a huge amount when there’s a slight change in the status quo [slide 10]. Shorting vol is really the last place that you would want to be when things like one fake tweet can move the market 8%, and then two days later, when it turns out it wasn’t fake, the market rallies another 10% [slide 11]. April 9th’s gain, the daily gain, was the fourth largest since 1987. This isn’t just happening in the U.S [slide 12]. This is a global phenomenon. We got a taste of volatility in Asian markets in July of 2024 when the Nikkei fell 12%.
This month, Asian markets have been very volatile. The Hong Kong index down 13% when the U.S. was flat. These are really amazing numbers. We can blame it on the tariffs, but really, with or without the tariffs, prices in the market were and still are primed for volatility [slide 13]. Even after correcting, the Mag 7 [Magnificent 7] multiples are extreme when you look at price to sales on the left, price to earnings on the right. We love this quote from [Nassim] Taleb where the fragile wants tranquility. High-priced stocks are fragile. If history is a guide, the CAPE [Cyclically Adjusted Price-Earnings Ratio] ratios at these levels certainly did not spell tranquility [slide 14].
The cyclically adjusted PE [price-to-earnings] ratios are now at levels seen during market peaks. Now one could argue is cyclically adjusted PE the right one to use right now? Maybe not. It’s hard to know what the actual PE is anyway. We showed this quote during the last quarterly call, that shows that the NASDAQ ETF basically rounds all of the stocks with negative earnings. They’re assigned a PE of 40. Anything that has a PE above 40 is rounded to 40, which is basically putting a cap of PE on 40. Now, Horizon Kinetics simply added up the market caps divided by net earnings. Old-school method gets to a PE of close to 90.
We are unclear on how high the market price is, but we know it’s high [slide 15]. Inflationary government spending has not treated high prices well in the past. Federal expenditures are higher this year than last. I think DOGE [Department of Government Efficiency] is finding it very hard to cut spending. Deficits are stubbornly high, and the tariff plan isn’t going so well. Unfortunately for [Scott] Bessent [U.S. Treasury Secretary], the bond bull market ended in 2021 [slide 16]. Now, bond yields are higher than cyclically adjusted equities, but they are also likely still too low for investors [slide 17].
Without all the hedonic adjustments, like assuming chicken is the same as steak because they are all animal proteins, or using estimates for the cost of shelter, inflation has been running at high single digits for a very long time. Now, maybe since 2021, the bond market is starting to wake up [slide 18]. As Bob Dylan would say, the times, they are a-changing, which may mean that volatility is here to stay for a while. We’ve been taught in schools to fear volatility [slide 19]. We learned in school that volatility is risk.
CAPM [capital asset pricing model], the most commonly used formula, says the more risky the investment, as measured by volatility, the higher the expected return, which then feeds into the Sharpe ratio. We’ve been told that higher Sharpe ratios are better than lower since we get a higher excess return per unit of risk. The problem with all these very beautiful formulas is that the price paid is nowhere to be found, which is arguably the only reason why a negatively yielding bond could have attracted $17 trillion at the time [slide 20]. By the way, this is not just a thing of the past.
April 12th [2025], Swiss governments’ one- and two-year bonds went negative for the first time in years. Are these investments volatile? No. Risky? Yes. If price paid was in the equation, it’s hard to imagine these bonds would have caught a bid. What we ought to fear is high prices [slide 21]. There was a great Bloomberg quote today, which said that the first problem for all of us is not to learn but to unlearn. We think we need to unlearn what academics call risk.
Just to take a theoretical example, we can pretend we have a stock that trades at $30 stably for many, many years and then immediately drops to $10, a drop of two-thirds. Beta jumps since the drop happened quickly. Now, the academic definition of this would say that it’s more risky. Then they would say at $30 it was less risky because it wasn’t volatile. If loss of purchasing power is the true risk, now at $10, it’s actually less risky. Now you’re only paying eight times earnings. You’re getting a 5% dividend yield. Of course, volatility is risk [slide 22].
This is our perspective. Volatility can be risk to some investors but not to others. If you’re highly leveraged, volatility could lead to margin calls. It’s very risky. Today, margin debt as a percentage of GDP is at levels seen during other market peaks [slide 23]. If volatility is here to stay, might we see some forced selling, which could be an opportunity for us? Volatility is also risk to short-term investors, of which there are many today [slide 24]. It’s quite amazing to see that since 1999, the average U.S. equity holding period has been less than a year. For active, long-term, well-capitalized investors, volatility is a gift [slide 25].
We’ve shown this chart before, Claude Shannon is this polymath. He’s a brilliant mathematician. He’s the father of the information age. Without him, we wouldn’t have cell phones. We wouldn’t have this presentation that we’re talking to right now. We wouldn’t have internet. He also was a great investor, and he showed that even if a stock went nowhere, as long as it was volatile, investors could make a lot of money just by buying and trimming, and adding. Trimming when the stock went up, buying more when the stock went down.
As you can see, Shannon’s rebalance portfolio did much better than the buy-and-hold investor. Our own trims and adds have added value since our inception [slide 26]. Please note that these are just estimates. In volatile markets, you can make a lot of money, as Claude Shannon showed, just trimming and adding. Also, because of this definition of risk in academia, investors tend to avoid areas of the market that are highly volatile, such as emerging markets, materials, energy. These tend to be areas that provide great bargains.
Our energy names have been wonderfully volatile [slide 27]. As you can see, our total energy exposure has changed significantly, as has our mix shift. We owned our max position in energy in 2020, when the ESG movement was saying that oil was going to become obsolete in three years. Also, this was during COVID when everyone thought the economy was going to break down.
Uranium, you can see, we spent eight years building our position as uranium dropped from $137 a pound in 2007 down to $18 in 2017 [slide 28]. When it finally popped, we cut our position. We caught a lot of flak from people because uranium was such a popular trade when everybody thought that AI was going to need a huge amount of energy, and obviously, it still will need a lot of energy. Since then, the uranium stocks have dropped, and we’ve been buying back more. In oil, we barely owned oil at inception [slide 29]. It got to more than 6% of our portfolio in 2020 for the same reasons I explained earlier. Unlike uranium, we didn’t have to wait eight years. We quickly made some money, and our position dropped to 1% by 2022.
Natural gas, especially U.S. natural gas, has been a holding of ours [slide 30]. It’s been heavily traded. With Range Resources, we thought we were pretty smart by $94 to $14, that’s the point at which we bought it. Unfortunately, it dropped from $14 to $2. We bought as much as we could. It went up 18 times. Then we trimmed and then we bought more at $22. As you can see, we’re actively trimming and adding with these stocks and adding value. To go through the materials and some emerging markets, I will turn it over to Dave.
Dave: All right, thanks, Alissa. Again, thanks everybody for joining us. We’ve talked about a market that’s been mostly a one-way market for the last 15 years, but at least there’s been enough volatility to help us tread water during the tough times. If we are in fact, heading back to value doing well, we really look forward to what we saw, maybe the first decade of this millennium. Things are looking pretty good. A lot of questions coming in on gold. People tend to associate us with gold, and we have appreciated the value in gold. It does deserve some conversation [slide 31].
People have noticed that this year, a year to date, gold was up 33% earlier in the week. It’s still up 28%, I think. Over the last year, roughly 50% move in gold. Gold has doubled since November of ‘22. It’s tripled since January of ‘16. Since 2001, it’s up 13 times. Over that same period, the NASDAQ is only up nine times. It’s been a wonderful couple of decades for the NASDAQ. Gold’s done pretty well. What should we think of gold now? [slide 32].
Well, what do the bulls think? They think gold is money, period. We agree. Fiat currencies always fail. Yes, the system’s set up that way. They always must, and they will. Cryptos are unproven. I don’t think people would argue against that. Even the bulls. Financial systems are unraveling. It seems like most people are coming around to that. Money should be scarce, divisible, attractive, durable, acceptable, homogenic, affordable, non-counterfeitable. What’s not to like? The bears will come back and say, “Nah, it’s just an element. Atomic number 79.” Maybe it was money once, but now there’s fiat currency, there’s cryptocurrencies. Gold is passé. Digital versus carrying around a piece of metal in your pocket. Even as a commodity, it’s not that good. Other commodities, you eat them, you put them in the gas tank. Gold really is not good for much.
Let’s try to look at some of these things [slide 33]. Gold is money. Gold and the U.S. dollar have a lot of the same functions. The dollar’s a better medium of spending. In terms of store of value, this gives you an idea of what the supply of dollars has done in years relative to gold. If we were to go back to fully backing the money supply, which we won’t, but theoretically that would be $25,000, that would be quite a move from here.
Granted, even under Bretton Woods, it’s generally like a quarter-backed. That would be $6,500. Plenty of upside left in gold. That’s even if they don’t go back to printing a lot of dollars to pay for the huge deficits they continue to run. We continue to believe that in the contemporary world that’s increasingly unstable and no fiscal discipline really in any country, everybody should have gold in their portfolio.
Money is purchasing power [slide 34]. Should we be indifferent? Should we like gold equally at $255 and $3,500 that hit earlier this week? Price has to matter, doesn’t it? If gold is money, that’s great. We all like money. Money is a medium of purchasing. A strong dollar has been good for Americans. It’s allowed us to buy stuff. People have chosen to spend their money when it was overpriced. The higher gold gets, the more we’re able to buy with it. With regular money, people say Black Friday comes along, we can buy stuff 50% off, we will spend that money. If gold’s money, what should entice us to spend that on other things?
Let’s take a look [slide 35]. If one’s been hoarding gold, they can now buy five times as much of the UK stock exchange. Five times as many UK stocks as they could have a couple decades ago. That’s quite a sale. China, it’s almost infinite. You can buy a lot more China than you used to be able to. Japan, the time to buy that was in the 1970s when John Templeton was, but by the late ’80s, it was time to get out. Gold was cheap compared to Japan. Japan was outrageous. Then there was another opportunity back a dozen years ago. Right now, a reasonable time to want to buy Japan relative to hold gold. Korea, very enticing, not quite back to where it was in the early ’90s, late ’80s, but very interesting. We’ve put on here for the standard deviations, many of these things are two standard deviations, things that happen less than one-third the time, and we’re talking three standard deviations in some cases, so 95% sort of thing. These are the best 5% of times to be considering some of these things.
Outside of that, there’s wages [slide 36]. What people get paid in gold is very low, so goods, gold’s a nice time to pay for companies that provide services because wages are pretty low right now. Home prices, yes. Obviously, in 2006/2007, we had a big bubble. Housing was very expensive relative to gold, as you can see here, but later on, you had a colossal bust, and people that exchanged gold for housing did pretty well there. That was a three standard deviation thing. Things weren’t so attractive again a few years ago when real estate had that big run. But once again, gold has taken off, real estate not so much. We’re almost two standard deviations, so a good time to be considered, selective real estate versus gold.
Gold versus oil, not counting the COVID episode that really was a joke, oil selling at a negative price [slide 37]. Throwing that out, oil seems to be cheaper now than ever relative to gold. You can buy more barrels of oil with gold now than ever before. Alissa already talked about uranium, but you can see there were times here where it was time to exchange gold for uranium. That worked out very well in the late ’90s, and it worked out very well the turn of the century and then a few years back. Now we’re getting close to a very attractive time once again. Referring over the last year and a half or so, uranium’s corrected by a third, while gold has run up by a third. That matters, we think.
Copper wasn’t that long ago [slide 38]. We had a conference, and 95% of the people there said copper was better than every other metal on earth, including gold. Not so much anymore. People are sort of lukewarm on copper, liking gold. Iron, same thing. We’ll get back to it. Anyhow, there’s going to be a slide, it’ll pop up somewhere, comparing gold to gold underground. If we look at element atomic number 79 above the ground and we look at it below the ground, a big difference.
Gold stocks have had a nice year now, but over the last 15 years or so, gold’s up 70 odd percent, and gold miners by the GDXJ [VanEck Junior Gold Miners ETF] are down 60%. Same mineral above the ground, below the ground. I think people that own gold should consider exchanging some of that for gold miners and getting back three ounces for every ounce they’re giving up. Also, on the periodic table, atomic number 79 versus next door, 78. A big difference, 78 being platinum, which for many, many years traded a premium to gold. It’s scarcer than gold. It’s something people valued.
They have the American Express Gold Card and the platinum status on airlines. There’s a reason platinum was esteemed. No more. If the price of platinum were to triple, it would still not catch up to the price of gold. I think now is a time for people to consider doing that. Not only is it a scarce but equally interesting but more attractively priced commodity or metal, but it’s also now a monetary metal in its own right. We’ll see here that this is the U.S. mint, the American Eagles. There’s American Eagle gold and there’s silver and there’s platinum and there’s palladium.
The idea that these things could be monetized in the future, we don’t find it outrageous. That’s the chart I was looking for before [slide 40]. That shows gold relative to gold underground. Also shows gold relative to platinum. As far as scarcity, as we mentioned, all these metals have the great attributes of being attractive and divisible and non-corrosive and portable, and whatnot [slide 41]. Platinum, palladium, osmium, rhodium all put together are a little more abundant than gold. Platinum on its own, no, it’s actually scarcer than gold.
There’s no reason for platinum to trade at a discount to gold, or if so, certainly not this much of a discount. Silver deserves to trade at a big discount. There’s been times where it’s been 10 to 1 and for a long time 50 to 1. It’s more than 100 to 1 now. Silver very interesting relative to gold. That’s where we stand. We like gold a lot, but we like a lot of these other metals and other stock markets and whatnot better. Then, to combine that with what Alissa is talking about, we can take advantage of the relative attractiveness to some of these and throw that in with the volatility she was talking about [slide 42].
This chart shows that those of you who have been with us know we were able to buy a lot of Impala [Platinum Holdings] back when people thought it was going to go bankrupt in 2018. Because we have Angloplats [Anglo American Platinum] on here, you really can’t appreciate the scale of just how much Implats [Impala] went up over this time. Big profits, we were able to sell most all of it and work out pretty well, and then buy it back after it fell. Then, Anglo that you can see used to sell at a big, big premium. It’s been viewed as the premier platinum company, and it’s not every day you can afford the premier companies. Now you see how much that’s come down, and so that’s now a large holding. Undervalued and volatility that gives us opportunity.
Within materials in general, this is a decent estimate of how our materials have done since inception [slide 43]. It’s not been a good time for materials. It’s been okay. The market’s up huge. The all-country world index materials is up 104%, and the gold and gold miners, they’re less than that. They have less than doubled in all these years, where we’ve been able to do better than three times. The volatility has helped….The stock selection, and volatility have been important.
We’ve talked about the stock selection in the past and where we think people are making a mistake. That all continues to bode very well for the future. With what you’ve heard, this should be expected [slide 44]. An area that’s volatile gives us opportunity. We’ve been pretty overweight. A quarter of the portfolio has been in mining all these years. The gold-shaded thing represents gold. The blue represents mostly gold with a lot of copper content. Those two lines put together show that we’ve fairly consistently had a quarter of the portfolio in gold.
Now you can see we’re still a quarter in mining, but our gold allocations have almost fallen in half. Rather than 25%, it’s closer to 13%. A lot of that’s been moved into platinum, palladium. Pretty similar. We think that might be where the gold stocks were a few years ago. The metal’s undervalued, and the stock’s driven way more undervalued than that. We’ve had opportunities to add to chemicals and lithium, and other things. Continue to love the commodity space. It’s misanalysed and undervalued, but we’re continuing to take advantage of volatility.
Those of you who remember, same thing happened in 2020. We had a lot of gold. Gold ran up as the virus hit. We trimmed a lot of gold. You can see a little bit of it in here. Moved it into copper and uranium, and other things. Then we’re able to reverse space. Maybe that’ll be the case again. We’re taking advantage of what the market is giving us.
A few more things on that [slide 45]. You can see here again, the scale’s pretty– we should have put this in two slides. The red line is Ivanhoe [Mines]. It’s hard to tell from here that it went up 10 times. It was a matter of taking advantage of good company with good assets that was misanalysed. Not like because of the areas they are in. That did very well for us. We got completely out of the stock. Since we got out, it’s now fallen in half. Turquoise Hill [Resources] run by the same people that ran Ivanhoe. You can see the volatility here. You can see that we were able to build big positions in that when that was cheap. That’s what we continue to do, buy what people are hating.
By now, you’re saying enough already on the metals. Let’s move on [slide 46]. Same sort of concept in utilities. Energy, we’re happy to buy oil. If it’s Petrobras [Petroleo Brasiliero SA], we’re happy to take energy that’s been turned into electrical form of energy. You guys have heard us say it again, but I’ll say it again. Eletrobras [Centrais Electricas Brasilieras SA] is something that it’s a good company, but for various reasons, the stock hasn’t done much, but it’s done it in a fantastically volatile manner. We were able to buy when Dilma Rousseff forced them to lose money, and the stock fell 90%. It quickly went up six or sevenfold. We were able to take advantage of that. You can see opportunities to buy in 2018. Again in 2020, and again in 2022, and again lately.
We’re happy to take advantage of these sort of things. Leaving businesses, going to just overall markets [slide 47], Japan was something that was one of the most overvalued markets in history in ‘89, but by a dozen years ago, it was trading for a song. That was a very important position for us. There’s a lot of stocks we’ve had that we highlight, Mitsui and Mitsubishi. One, because they were big holdings, and two, because we’ve talked a lot recently about conglomerates and how misvalued they are. You can see here the chances to buy and sell these same stocks at opportunistic times and to therefore be able to have returns that are almost three times as good as what we would get if we just held Japan.
We think China’s a bit like Japan once was [slide 48]. It’s gone from nothing to a big economy. It’s, people say a lot smaller than the U.S., but if you do purchasing power parity, then it’s not. Purchasing power parity has its advantages or disadvantages. Let’s just throw that out and look at some facts. China generates twice as much electricity, 12 times as much steel, 22 times as much cement. They have half of all the world’s ship output. They have produced three times as many vehicles as we do. They buy more vehicles. They have three times as many smartphones. This is a legitimate economy. It’s an economy that’s grown like crazy since 2007, and their stock market is now lower than it was in 2007. There’s been times 2020 and again, last fall, where people have decided China is uninvestable. Uninvestable has always been music to our ears.
There are things to love about China. There are things to give us great pause about China. Anybody that focuses only on the positives or only on the negatives is making a mistake and creating opportunities for the rest of us to buy really good businesses at opportune times.
Back to conglomerates and trading companies [slide 49]. We do think Korea, as well as China, might be where Japan once was. To have bought the Japanese companies at big discounts to book and sold them at a premium to book worked out quite well. Look at the discounts to tangible book value we’re getting on these companies. You combine that discount to asset value, throw in a nice earnings, and a nice dividend yield like this. We think that bodes out well. It’s been a stealth bear market in a lot of things, all covered up by the Mag 7. Since that’s been more volatile, people are starting to realize it’s tough out there as the stealth market grinds on and on and on and volatility picks up. This gives us opportunities to buy really good businesses and to buy them at a song [slide 50].
It’s no longer a market where we have to focus only on a few areas that are undervalued. It used to be a small amount of things were undervalued. First quarter alone, we bought companies that were in finance and technology and chemicals, electricity, agriculture, engineering and construction, conglomerates, oil, transport, pharma, auto parts, media, uranium, base metals, and retail. That’s something you haven’t heard us say in a dozen years, I think. This is creating lots of opportunity and we’re pretty excited. Notice gold was not mentioned. That’s more of something we’ve been trimming.
I mentioned industries. Just in the first quarter alone, we bought or added to positions in the UK, China, Germany, Argentina, Korea, Hong Kong, Malaysia, Indonesia, France, Mexico, Australia, and the Philippines. This is a market that’s creating opportunities. We said this is a market for active managers. This is a market for value managers, we believe. These companies we have that tend to all be oligopolists and strong companies, dominant companies, still trading for less than tangible book value, pretty attractive on cashflow, on sales, you name it [slides 51. 52].
Same story you’ve been hearing. Continues to be concentrated in the areas that the market is not concentrated. The upper right, you’ll notice in the top seven names, there’s not a gold company [slide 53]. There are a couple of platinum companies. Then beyond that, telecom, uranium, that sort of thing. A lot of increased opportunities across the board. It’s allowed us to have an even more diversified portfolio that’s trading below book value and way below what we think they’re intrinsically worth [slide 54]. With that, put away this volatility. We may have some questions, why don’t we take questions?
Mary: All right, thank you, Dave and Alissa, for such a great presentation on such a really a timely topic. If you do have questions, please send them to the Q&A box, and we are more than happy to answer them. We are going to start though with a couple of questions that came in prior to the call. Let’s start with. Dave, you just went over all of the different places where we bought, found new opportunities during the quarter. Alissa, let me ask you though, with the fall in U.S. stock prices, are we finding opportunities within the U.S. at this point as a value investor?
Alissa: Even with the correction, we’re still only back to the level of July 2024. We thought the market was expensive in 2024. Now that doesn’t mean that we haven’t found some pockets. We bought a government service company when everybody was very concerned about DOGE cutting spending, called Amentum. For the most part, the opportunities are still in Asia, still in these areas where there’s been a very long bear market, and the attention is still just not there.
Dave: Yes, I can add, there’s been a lot of headfakes over the last 15 years. This might be yet another headfake, I don’t know. If it’s not, if this is the real transition into value, you do not want to buy U.S. growth stocks down 10% from the top. That was a disastrous thing to do in ’99, or in ’72, or in ’29, it’s, I think, much better to go for the incredible values we’re seeing elsewhere.
Mary: All right, thank you. The second question is about small and micro-cap stocks. We have significant exposure to those. Is that a sector where we are continuing to see opportunity? Maybe talk a little bit about that. Alissa, I’ll give that one to you as well.
Alissa: Yes, we’ve shown charts in the past that show large cap versus small cap. We don’t have them up here for this one, but it’s been 16 years where small caps have lost relative to large caps. Small caps continue to be a very large focus of ours. It’s still 29% of our portfolio. Yes, we are finding a lot of value there.
Mary: Right. Well, thank you, Dave and Alissa, for answering those questions. We’re going to move on to some questions that we have coming in live. I think, surprising nobody, we have quite a few on the main areas that we talked about today. Particularly, we have quite a few on energy. We’re going to start there. Let’s start with maybe a little bit more of uranium. We have a question. When do you think uranium sort of comes to life again? What factors might drive that? Dave, why don’t you take this one?
Dave: Yes, as you know, catalysts are not our thing. What might make it happen tomorrow? We don’t know. I think most of you are aware that as opposed to four or five years ago, almost everybody believes that nuclear is the future, if one wants low-carbon, pollution-free baseload power, almost every country outside of Germany and Spain, I think, are planning to build, or at least keep doing what they’re doing. That’s positive for uranium. Even if that wasn’t happening, the existing reactors use more uranium that’s being mined. Nobody’s been building mines for years, because for years the price was $20 or $30, it didn’t make any sense. It wasn’t at $100 for long enough to get a lot of things going. There’ll probably be a few mines coming on in Canada, but they might not come on as fast as the existing ones are running down.
Supply and demand would suggest that uranium should trade somewhere between where it is now and twice where it is now, so call it $90 or $100. As Alissa mentioned, we were trimming a lot when it was above $100, but at $60, we hope it goes to $100 tomorrow, but if we have to wait a few years, the math is pretty good. The fundamentals suggest it has to happen, and we’ve been fairly aggressively buying back things that we sold at roughly twice where they are now.
Alissa: We were just talking about this in our research meetings, and the floor on some of these contracts is $70, so it’s higher than the current spot price. Then we also heard that the Chinese don’t care about price, they just want the reliability of volumes, volumes, volumes. Another unique thing about uranium is that it can rise significantly, and it’s still only a very small percentage of the cost for a nuclear reactor, so they don’t have the same price elasticity as something like oil would.
Mary: All right, thanks. Just a reminder to everyone, we do get quite a few questions on similar topics as we get through these, so if there are similar questions, I am going to group them together thematically, but if you ever feel like your question was not answered, please feel free to reach out to us and we’re happy to follow up with you. We’re going to keep going, though, with energy, Range [Resources],and U.S. natural gas in general. What are our thoughts on that, maybe in a little bit more detail? Alissa.
Alissa: Yes, it’s interesting. That chart was the price of natural gas, and it came off significantly, but the stocks did not come off as significantly. We have reduced our exposure compared to what it was like during COVID, but we still really like it. U.S. gas is very cheap compared to Europe, very cheap compared to oil, very cheap compared to Asian natural gas. We think that there’s opportunity there. Also, it’s interesting, we’ve been reading that maybe the ability that these companies can grow supply is limited at this point.
Dave: It’s interesting all the things in the news that you’re all reading about U.S. efforts to onshore things and whether we can or cannot be competitive at semiconductors or automobiles or textiles or who knows. The U.S. is very competitive at natural gas. It’s something that we are very good at. We have abundant, cheap sources. It’s the one place now where we’ve been very happy to be invested in the U.S.
Mary: All right, continuing on our energy questions, it looks like we have a question on coal. Coal looks to have been a part of the portfolio, but relatively small recently compared to the other energy categories. Do you see opportunities here, specifically Peabody Energy? Dave.
Dave: Let’s go with coal. It used to be the major form of electricity. It’s on the way up, but not all the way up. Especially with trade wars, countries like China, for sure, and India and other places that might have considered giving up their coal – no longer view they can trust other countries to provide what they need. They said, “We’re going to keep our coal going.” Coal is not going away. However, all of us, I think, would prefer less polluting things. If there are ups and downs in the businesses, coal should be the loser. If there’s big improvements in technologies, coal should be the loser.
That’s all a long way of saying we put a pretty heavy discount on coal. Our margin of safety is really big, which is why we don’t own it that much. If you look at what to own, we’ve owned probably the highest quality in the world with China Shenhua [Energy]. There’s massive high-quality coal. Every time that gets cheap enough, we own it. We’ve been doing things with these conglomerates in Southeast Asia that actually own coal. It’s a really cheap way to play with coal. We have a little bit of coal there that is less obvious.
As far as Peabody, it’s one of the biggest hits we’ve taken as a firm. It’s fine. We’ve lost on other things that are our fault. That one, people might remember, our analysis said we think the market will turn in the next few years, and they have enough cash to get them through the next couple of years. Sure enough, six months later, the market turned. The coal stocks were starting to scream. A hedge fund convinced Peabody to miss their bond payment, even though they had $2 billion sitting there. Filed for bankruptcy. The hedge fund took them over, gave management 10% of the stock.
People ask us all the time how we get comfortable with the geopolitical race in other countries. We always suggest we’re getting paid for that risk there. In the U.S., we don’t always get paid for the risk that’s there. It would have to be very, very cheap before we would give money to that management team again. Whether that’s the right thing to say, that’s our view.
Mary: Some other energy company-specific questions. We have MEG Energy in the portfolio. We have a specific question on what we find appealing about that. Alissa?
Alissa: MEG has a massive amounts of reserves. That’s primarily the thing we like most about it. It is a higher-cost producer, so it tends to get less expensive when oil prices fall. It has a lot of leverage to the oil price, and so we’ve tended to buy it. It’s one of the first oil stocks we buy when the oil price comes off.
Dave: That could be one, too, that we do a chart on. We did volatility and how it’s worked out for us. We owned it at $10, and somebody had a block for sale at $5 something. We bought it, and it went right back to $10. We sold some, and then somebody tried to buy it out at $18, and we sold a lot. It plunged to single-digit during COVID. We bought it and sold it in the $20s. No, volatility is a good thing.
Mary: Continuing on, we have several materials-specific questions, but only one about gold. I’m going to ask that one first. If more questions on gold come in, I might regret this in my categorizations. Do we see more opportunity in physical gold or in gold miners?
Alissa: I can start. As our charts show, if you compare it versus the dollar or money, yes, gold, we think, has more upside, but it’s hard to say. It’s 25% back to the right number. Thankfully, we don’t have to make that decision. We own gold miners where, relative to gold, they’re one of the cheapest they’ve been. The gold miners that we have been selling have been more of the higher-quality producers.
We’ve sold Wheaton Precious [Metals] and Royal Gold, and we’ve been trimming Newmont and Barrick [Gold], those sorts of companies. The companies that continue to lag are the companies like Seabridge [Gold] or Northern Dynasty [Minerals] or International Tower Hill [Mines], which have these big deposits, but aren’t producing it. It is opposite of what happened with uranium, where those companies that had the uranium deposits, those went up first, and those went up huge, whereas Cameco didn’t do as well. In this case, those non-producers have not kept up as much as the producers have.
Dave: Yes, you look at the massive underperformance with gold up big and gold stocks down big, and I’m talking over a dozen years or 15 years, not this year. Why did it underperform? Let’s say halfway deserved and halfway not deserved. Deserved because the countries want bigger royalties and high grading of mines leaves lower grades, harder to mine, higher costs. Those things are continuing.
Other things, though, cyclical businesses, management destroyed wealth by buying at the top. Now they’re adding to future wealth for the buyers, not for themselves, by selling at the bottom. The big companies, this week you might have seen a few companies announcing they’re selling reserves for too low a price, in our opinion. As people are selling at the bottom, that sows the seeds for those that aren’t selling at the bottom. As Alissa suggests, we’re buying the ones that are high optionality. We’re not so much owning the ones that are selling, we want the ones that are buying.
Geopolitics, gold, copper, you name it, the U.S., you talk to miners, they view it as sort of a hostile place. Some won’t even invest here. Things might be changing there. You’ve seen maybe in recent weeks, lists going out of critical metals and even gold mines that the government wants to see built. That’s a big change. I think that’s important. You see different Supreme Court rulings and other things happening that are very good.
The last year or two, there’s been good news, we think, for Northern Dynasty. There’s been recent news that we were a part of involving NovaGold [Resources] that you might’ve seen. I think the environment’s getting better and things are good for people that are able to provide capital and be involved in these things.
Mary: All right. Continuing on our precious metals materials theme. I’m just going to read this question straight because I love how it’s phrased. “For those of us that didn’t pay enough attention in our science and minerals class, what is the primary use of palladium, how rare is it, and in what areas is it mined?” Alissa, do you want to start?
Alissa: Yes, palladium is mostly used in catalytic converters for cars. It catalyzes reactions. It basically allows a reaction to happen without that catalyst, there’s not enough energy for the reaction to happen. That is the primary use. However, as Dave pointed out, it has same characteristics as money. For various reasons, but mostly because palladium and platinum are very difficult to work with in terms of, you need a certain amount of heat to mold these metals. For a long time, they weren’t money because it was more difficult to heat. In early 1900s, we started to see platinum being used as money.
Platinum has a longer history than palladium, but as we showed, there are palladium coins out there, and it’s as scarce or scarcer than gold. Actually, it was traded at a premium to gold more recently than platinum did. There’s a possibility that both palladium and platinum traded a premium to gold.
Dave: Yes, second part of that question, not your three most favorite places, South Africa, Russia, Zimbabwe. People might want to own physical platinum as well.
Alissa: Yes.
Mary: All right, moving on to rare earth metals. The question is, we’d love to hear about how important rare earth metals are in perspective to everything. Dave.
Dave: Robert Friedland keeps telling us that they’re neither rare or earths. [We] read all kinds of different things with all kinds of different places about what is or isn’t a rare earth. There’s not a whole lot of ways to play them per se. Yes, we think a lot of our companies certainly mine lots of different things and buy products and things. We haven’t put a lot of time on searching for specific rare earths or so many different opinions, but always on the radar.
Mary: I think frequently when we talk about our materials exposure, people assume we’re talking about precious metals or base metals, but we have quite a bit of chemical exposure, a significant amount of chemical exposures that mix-shift showed. Could you comment maybe a little bit on that chemical exposure and what we’ve got? Alissa.
Alissa: The majority is potash. I guess we included lithium in that too. Then we also have some chemical companies in Asia which have really been hammered, for good reason. The Chinese have brought on a ton of chemical supply. Is it economic? Probably not. There’s articles out there now saying that maybe those chemical plants are at risk without U.S. ethane.
There’s a potential that things get better for the Korean companies and the Thai chemical companies, but it’s an industry that’s pretty ugly. They’ve brought on a ton of supply and these companies are losing money. Because things look bad, now you can buy these companies for way below replacement costs. 30% of book value. As part of a diversified portfolio, it makes sense.
Dave: People always tell us we’re a deep value and we always say, “Not offended.” We take value where we can find it. There are times to play deep value, but we’ve said, over the last 10 years mostly, we haven’t been deep value. We’ve been buying market leaders, great companies, franchises, phone companies, and massive mine reserves, the best of the best in trading and you name it. These are deep value. It’s ugly, but they’re big companies and there’s a good chance they can turn things around. If they do, we make a lot of money. These are deep value.
Mary: That’s it in terms of materials-related questions, unless this new one that just came in. Do we look at commodity exchanges at all? That’s another question. Are you looking at commodity exchanges as a way to play a commodity boom?
Dave: No.
Alissa: No.
Mary: We’ve got a few other questions still. Again, if you have questions, please feel free to ask them in the Q&A box. Let’s talk about the put option. How have we been managing the S&P puts given the movements in the VIX [CBOE Volatility Index]?
Dave: Yes, as we always tell people, puts are the exact opposite of what we do elsewhere. It’s more like venture cap than it is public equity. Everything else we do, we’re trying to be right the vast majority of time and make decent money when we’re right. With the put, just like venture capital, you’re going to be wrong almost all the time. Then you’re going to be very right when you’re right. 2020, that’s how it worked out. When we were right, we got to make up years’ worth of losses and make money quickly.
Same thing here. We’ve been losing. We were able to make back a chunk of it last month. Three days ago, it was looking very good for this month. It’s not something where it doubles and you sell. It’s a matter where you lose and lose and lose. When you make your money, you make 10 times your money. The next three days or whatever, the market keeps rallying. We’re going to give back a lot of our profits. If it falls again, we’ll do better.
If and when the VIX plunges, it’s already fallen in half from where it was a few days ago, but it would have to more than fall in half again before it would be buying these puts again, because it’s never a bet on the market. We know the market falls sometimes and goes up most of the time. If it underprices a put, then we get to make good money when it falls. That’s what we’ve been doing. So far this year has been better than the last few years. We’ll see what the next few days, but this is probably it as of what, Tuesday or Wednesday, whenever the month ends. That’s probably it until things change quite a bit.
Mary: Question on our strategy regarding our Russian assets if there is a peace deal in Ukraine. Maybe, Dave, you want to take that one first?
Dave: Yes. A bunch of ifs. If there’s a peace deal, then if there’s a peace deal, what’s it look like? Does it seem stacked or not stacked? How does it open up? Does it free all our stocks or does it free some of our stocks or somehow it frees none of them? If it does free the stocks up, do they stay where they are, which is tremendously undervalued or does it instantly shoot up to something more reasonable? Does it overshoot and shoot too high beforehand? We don’t know.
Basically, the government changes its mind every few hours on things. Even on that, [Volodymyr] Zelenskyy went from, “I want peace” to “I absolutely don’t want peace,” which is what we’re not giving up Crimea. We don’t spend a lot of time thinking about it. We hope, mostly for the sake of the Ukrainian people, this war ends and there’s peace. If and when that works out for the portfolio, we will look at what the fundamentals and the price look like at that time.
Mary: We have three questions left. We’re going to start with or continue with our thoughts on Fairfax Financial, called a mini-Berkshire, up in Canada.
Dave: Tremendous respect. I was able to meet him a few months ago and a smart guy. Certainly, he’s backed the right gold companies. He’s done very well there. With hindsight, we certainly should have bought that stock a few years back, but it’s not overvalued now, but it’s, just like Berkshire, not undervalued either. No, tremendous respect.
Mary: We’re going to finish with a couple of questions on our process today. We have, actually, several come in. The first we’ll talk about cash. How are we thinking about our cash exposure? Which indicators are we tracking to decide whether or when to deploy it? I’ll stop asking and you all can answer.
Alissa: Yes, cash is just residual to the process. We never have a target, say, we want 10% cash. We like having cash because it’s optionality. When stocks get cheaper, we either buy to model and use some of that cash or we increase the model of our position and use even more cash. Then as the prices rise, we’re trimming and then our cash position builds. In up markets, you would see our cash position build. In 2020, we used all of our cash. If you saw a very large correction, you would see our cash position go down.
Mary: Okay. Oh, now we have another question that just came in. We’re going to backtrack for a minute because I love questions and you love questions and we’re all here to answer these questions. It’s such an honor to get these questions from our clients. Rationale for the Schroders’ investment that we did—the UK asset manager.
Dave: Yes. If you look at financials, we’ve not owned a lot in the past because there’s not a lot of barriers to entry and not a lot of – that’s not something we normally are going to invest in – we like companies that are pretty dominant, strong positions. When a whole industry gets hit the way our industry is, how interesting to see stock markets at all time highs and the people that manage stocks be in at multi-year lows is interesting. Then you look around and say at what price if these things tend to trade at 3% of assets over time and now you can get them for 1% of assets and less than 1% of assets.
Especially, we can all have our own opinions, but lots and lots of people we talk to respect Schroders. We’re getting one of the better ones at a value price. Not deep value. This is, I think, a good franchise at– no matter how you look at it, but we look at earnings, but we look at what value we really like. What are you paying for the assets you’re managing? This is a rare opportunity.
Mary: We’re getting more company-specific questions. Let’s ask about Northern Dynasty. Will the mine ever get built? That is the question.
Dave: Yes, to me, it’s when, not if. There’s lots of obstacles. It’s in the middle of nowhere and it’s not the highest grade. There was a very rich person at a lodge nearby that gave tens of millions of dollars to NGOs to fight this. In many ways, it could have been managed better than it has. But it is the largest undeveloped copper and gold mine in the world. It happens to be in the U.S. The U.S. all along, but especially now wants to make sure that we have no supply chain issues.
We have local supply of critical minerals, which we’ve decided copper is. You’ve had various things go from negative to positive. You had, I can never remember, the Supreme Court case on the water that went in their favor. There was the Chevron case that’s gone in their favor. There’s the state of Alaska suing the EPA for overstepping their bounds. Two local native groups have sued the EPA for overstepping their bounds. The EPA might be acknowledging that by asking for an abeyance. We’ll see where that leads, but that’s changed.
The economics of the mine, that $2 copper and $1,500 gold was not very compelling, but with $3,000-plus gold and $4 or $5 copper, you can spend a lot on a mine and you can give lots of economics to local communities and to the government and build state-of-the-art, environmentally friendly mines and still be left with lots of money. The prospects for this mine have gone from really tough to pretty promising in a lot of ways. It’s not to say the challenges aren’t still there, but it should be built, deserves to be built, and a lot of things are heading in its favor.
Alissa: We’ve talked to a lot of people over the years and everyone agrees the geology is amazing. It’s a political problem, not a geology problem.
Mary: Our last question has to do in this volatile market. Let’s bring it back to where we started. Our sell decision discipline. How do we make sell decisions? What do we base that on, particularly in volatile markets like this? Alissa, let me start with you.
Alissa: Normally it’s price. If something goes up, and now there’s less upside, we’re trimming, or if there’s no upside to our risk-adjusted values, then we’re completely out, as you saw with many of our uranium names. Sometimes, though, the fundamentals have changed and therefore we’re maybe wanting a larger margin of safety, and then suddenly the upside to our risk-adjusted values, again, not as much, and so we’re trimming or maybe even getting out completely. Those are the two big.
The last one, though, is, especially as you mentioned, volatile markets. We have industry limits, and so if we are maxed out in a position or industry, maybe we’ll sell some companies that have less upside and then rotate into others that have more upside.
Mary: Well, that does it for our questions. Dave, Alissa, do either of you have any closing thoughts?
Dave: Oh, no, it’s exciting times and it’s sure to be an exciting second quarter, so we look forward to talking to you again in three months. Thank you all.
Mary: Thank you all for joining us.
Kopernik reviews the audio recording of the quarterly calls before posting the transcript of the call to the Kopernik website. Kopernik, in its sole discretion, may revise or eliminate questions and answers if the audio of the call is unclear or inaccurate.
The commentary represents the opinion of Kopernik Global Investors, LLC as of April 24, 2025, and is subject to change based on market and other conditions. Dave Iben is the managing member, founder, and chairman of the Board of Directors of Kopernik Global Investors. He serves as chairman of the Investment Committee, lead portfolio manager of the Kopernik Global All-Cap and Kopernik Global Unconstrained strategies, and co-portfolio manager of the Kopernik Global Long-Term Opportunities strategy and the Kopernik International strategies. These materials are provided for informational purposes only. These opinions are not intended to be a forecast of future events, a guarantee of future results, or investment advice. These materials, Dave Iben’s and Alissa Corcoran’s commentaries, include references to other points in time throughout Dave’s over 43-year investment career (including predecessor firms) and does not always represent holdings of Kopernik portfolios since its July 1, 2013, inception. Information contained in this document has been obtained from sources believed to be reliable, but the accuracy of this information cannot be guaranteed. The views expressed herein may change at any time subsequent to the date of issue. The information provided is not to be construed as a recommendation or an offer to buy or sell or the solicitation of an offer to buy or sell any investment or security.
1The Global Industry Classification Standard (“GICS”) was developed by and is the exclusive property and a service mark of MSCI Inc. (“MSCI”) and Standard & Poor’s, a division of The McGraw-Hill Companies, Inc. (“S&P”) and is licensed for use by Kopernik Global Investors, LLC. Neither MSCI, S&P nor any third party involved in making or compiling the GICS or any GICS classifications makes any express or implied warranties or representations with respect to such standard or classification (or the results to be obtained by the use thereof), and all such parties hereby expressly disclaim all warranties of originality, accuracy, completeness, merchantability and fitness for a particular purpose with respect to any of such standard or classification. Without limiting any of the foregoing, in no event shall MSCI, S&P, any of their affiliates or any third party involved in making or compiling the GICS or any GICS classifications have any liability for any direct, indirect, special, punitive, consequential or any other damages (including lost profits) even if notified of the possibility of such damages.
