Bizarro World Podcast,
with Nick and Gerardo
Oct. 25, 2021
Table of Contents
2:00 How to Profit from the $88 Trillion Decarbonization
7:03 Tailwinds in the Commodity Space: Hannan Metals
13:05 Electrifying the Future: Lithium Americas
18:20 Next North American Copper Giant: Kutcho Copper
22:20 An Overlooked Resource Star: Aldebaran Resources
Nick Hodge: Welcome everybody, to Climate Goals and the Green Metal Inflation. It's a topic we've been writing about for some time. Personally, I wrote books about investing in renewable energy as far back as 2008. And it seems like it's been a whole decade since that flavor came back into favor, but here we are. This is my partner, Gerardo Del Real, who focuses on the natural resource sector, which oddly enough has become the focal point of the green revolution for all the inputs that are needed for the batteries, turbines, panels, transmission, et cetera. So that's going to be the point of this talk, which also happens to be episode 140 of Bizarro World. Together we own Digest Publishing. We went out on our own from the publisher we were with for a while last year and started Digest Publishing, where we each publish all of our letters now.
We have monthly letters. We have weeklies in my case and a trading service in Gerardo's case. And then we both have private placement services where we offer access to private placements to accredited investors. The free information at Daily Profit Cycle is the free editorial website where all our articles, podcasts, and reports are hosted, and then Resource Stock Digest is a sponsorship site where junior mining, junior resource companies sponsor the site for us to help tell their stories to the investing public. This is the logo for the podcast in case you ever want to check it out, Bizarro World. We've been doing it for like you just heard 140 weeks in a row. And as Gerardo says, we view it as our weekly therapy session so we don't have to pay-
Gerardo Del Real: Much cheaper.
How to Profit from the $88 Trillion Decarbonization
Nick Hodge: A therapist to talk about everything that's going on in the world. We're going to get into Climate Goals and the Green Metal Inflation. I'm not going to spend a lot of time on the goals. The goal is basically to decarbonize the atmosphere as fast as we can. I'm not going to talk about the merits of that. I'm just going to talk about the sheer value of that. So the UN is meeting this month to come up with their new climate goals. They're calling it a race to zero.
They're talking about $88 trillion, That's a T-T-T-T, $88 Trillion in assets to get this transition underway. And as it says there, 700-some cities, over 3,000 businesses committed to this. You can't go a day anymore without seeing ESG in the headlines, everyone's reducing their carbon footprint. Like I said, it's like bell bottoms or something. This was really popular in 2007 or 2008, and for reasons I'll talk about in a second, it's taken much longer to get to where we are now, to be forced on the one hand with climate events and also with being able to source the metals needed for this.
Like I said, I wrote this book 12 years ago, 13 years ago. In 2008, I was laying out the things that we were going to need, and a couple years after I wrote this book, I wrote Energy Investing for Dummies and was writing about Tesla and companies like China's BYD Auto, Build Your Dreams Auto that's since gone up, I don't know, 20-times-your-money in that amount of time. So this isn't a new thing I'm jumping on, I'm not a bandwagon jumper here. Where are the solar roads?
Gerardo Del Real: Solar roads.
Nicholas Hodge: You know, I remember when in 2005 and 6, we were going to have solar roads, man. We were going to have like aqueducts with solar panels over top of them. We were going to have wave turbines and we're going to get wave energy and all this stuff. And none of that shit has come to pan out, because it was all a pipe dream. You can't do that stuff without all the things you see listed here.
- Solar (silver, copper, silicon, aluminum, tin, rare earths)
- Wind (copper, steel, rare earths)
- Waves (copper)
- Nuclear (uranium)
- Efficiency (PGMs, aluminum)
- Batteries (lithium, nickel)
- Transmission (copper, silver)
I remember Elon Musk saying he was going to source all his lithium in North America. And I was writing articles like, no, you're not.
So we started funding lithium companies as far back as at 2015 that we made over 10 times our money on —12 to 15 times our money, in fact — that have been taken out. So this is not a new trend. This is something that's been going on for a number of years now. And as is typical, the mainstream is finally catching up. The technology wasn't developed yet, the efficiencies weren't there, so we never got solar roads and probably never will, because we need to focus on more practical solutions to decarbonize the atmosphere.
This is why you don't have solar roads, because there's a looming copper shortage. And this is why you don't have them, because there's a magnesium shortage, and all the prices for all the metals are going up. Oh, there's also an aluminum shortage because it takes so much electricity now that they're shutting down smelters in the Netherlands and elsewhere. And if you didn't know, tin was also in a supply crunch. You need tin to solder almost everything. And nickel is also in a supply shortage, if you didn't know that. These are just Google news searches from the past week, for example. These are the reasons that we couldn't do all the things that we said we were going to do 12 or 13 years ago. Then my buddy sent me this article a couple of weeks ago and I almost fell out of my chair laughing, because Bloomberg is finally saying that there's a fortune to be made in the obscure metals that are going to power the green revolution. Thank you, Bloomberg.
I'm going to start to turn it over to Gerardo here now, because he's the guy that analyzes the companies. So we've picked a couple of our favorite companies that we own. We talk our own book. Gerardo will tell you that. We write checks into these companies. We help finance them and then our subscribers help finance them too, via the private placement letters that I described earlier. So without further ado, I'll let Gerardo get a word in. I'll chime in where I can and if you need anything, let me know.
Gerardo Del Real: Perfect, perfect. Well, thanks for coming first off, and a disclaimer. The podcast is not safe for work for most people. So just a heads up. Half of it's markets, the other half, mostly me ranting and raving and Nick opining intelligently most of the time. But look, the goal of our presentation is to hopefully present some ideas that can help make you money. At the end of the day, no one came here for a great laugh, although that's helpful. Or to drink, you can do that at home. You came to find some ideas that maybe aren't in the mainstream, that you're not hearing about in Bloomberg. And so whether it's copper, whether it's lithium, whether it's the precious metal space, there are a lot of ways to make money right now. You're being helped and aided and abetted, criminally it should be, by the central bankers all around the world.
Tailwinds in the Commodity Space: Hannan Metals
Our Fed is the most egregious one, simply because he carries a bigger stick. And so I say all that to say, we have tailwinds in the commodity space. It's not a coincidence that we're at record highs on most of the materials that are needed for this so-called green revolution, which is really a money revolution if you're able to position correctly. So with that being said, Hannan Metals (TSX-V: HAN)(OTC: HANNF) is a company that has a first-mover advantage in Peru. Now they are a top ten 10-year holder in Peru, with a market cap of roughly $28 to $29 million. The reason that's important is because they own and control an entire basin, not a deposit, not a kilometer, a basin. So when we're talking metals and we're talking silver and copper and gold, one discovery is great. It can take a market cap from $28 million to $200 million or $300 million. Two discoveries could be a company-maker, could take it from $28 million to half a billion.
A basin full of discoveries could be many company-makers, and I believe that at this entry point where Hannan is right now, I think 2022 Hannan is going to be one of the best-performing stocks in any exchange. So let's get into some of the reasons why they were able to secure this large-scale basin that now the majors are trying to compete by securing land around them. The thing that won't make the slide in the presentation deck and the corporate deck is that a lot of the land that was secured used to be used for coca fields, as in cocaine in the '90s. And so you may understand and appreciate why it probably wasn't ideal to go into the jungle, looking for copper outcrops. That is no longer the case. There's a community there and a government that supports that area of Peru.
The relations with the community are excellent. There's always going to be a disgruntled member or two because that's the nature of people. But for the most part, excellent, excellent relations. Management is a management team that Nick and I are very familiar with. The company is run by a gentleman named Michael Hudson, who has worked in Peru, knows Peru, knows how to get social license and has a history of discoveries. This isn't a company that is being led by somebody hoping to make a name for him or herself. It's somebody that already has. And so with that, they have a $35 million joint venture with JOGMEC, that is the Japanese oil and gas mining arm of the Japanese government. Hannan's got a market cap of $25 - $30 million, depending on the day. They have a commitment over the next five years for $35 million for one-third of that basin.
So $35 million of exploration is coming from JOGMEC, and Hannan sits here with the market cap of $28 million today. Now that doesn't include the other two-thirds of the basin, which is being completely explored by Hannan alone. And so the potential, when I say for multiple company-makers, it's not just for one deposit or two deposits, we're talking potentially 5, 10, 15 deposits, copper, gold, silver. All you need is one to get this one right. But you get a lottery ticket if you get a couple. So the recent work that Hannan spent the last year doing is getting out in the field, doing all the good work that geos do. I am not a geologist. Michael Hudson is and he's a very good one.
What they've been able to do is discover a shale, a host rock, throughout this land package that is the host shale in Europe to some of the largest copper basins in the world. Now, this is important. This shale has the potential to stretch for over 600,000 square kilometers. That's not a theory. It already exists in Germany. And so when Hannan started to explore on the ground and started trenching two meters of 8% copper, one meter of 10% copper, it was early stage, not a lot to be excited because you could probably go anywhere in the southwest US and find outcrops.
What got really exciting to me was when they started stepping out a kilometer and the same results are happening, another kilometer, same results, 10 kilometers down, same results. That's not something that is typical in a junior company. It's not something, frankly, that's typical for a major company. At a $28 million market cap, I think it's one of the best copper, gold, silver speculations in the entire space. I could continue, but I know we're competing with the bar, so I'll let Nick opine and yeah, we'll get onto the next name here.
Nick Hodge: Yeah, we'll get on to the next name. Just quick on that shale, the shale that exists in Europe is called the Kupferschiefer, and it's the sixth-largest copper producer in the world and the largest silver producer in the world. That's through KPMG, the Polish national mining company. And so the band, as you can read there, is typically only 12 to 24 inches wide, this mineralized black shale, but as you also read there, it extends, like Gerardo just said, for 600,000 square kilometers.
So when they keep hitting this thing in Hannan, as Gerardo alluded to, it's a very serious analog to what they have there in Europe going on. Critical details for Hannan, if you want them, HAN on the Toronto Stock Exchange, HANNF over the counter and the shares on issue and the recent price in market cap, as Gerardo already told you about.
Gerardo Del Real: A quick point on every pick. We are biased for a reason because mostly we own most of these companies, we've helped finance a lot of these companies, the smaller ones from an earlier stage, the bigger ones we've either traded or mentioned to subscribers and have done really well with. And so if you hear a name come out of my mouth or Nick Hodge's mouth, you're absolutely right: We're biased. We're not journalists who write recommendations for the sake of writing recommendations. We like to write checks and we like to win alongside our subscribers. So that's my other disclosure outside of the Bizarro World Podcast foul language disclosure.
Electrifying the Future: Lithium Americas
Lithium Americas (TSX: LAC)(NYSE: LAC), I don't have to tell you about the supply-demand fundamentals for lithium. You can look outside, you can look in the news. If you've ever driven an electric car you know that that is likely the future, and it's accelerating. It's what Nick Hodge called in 2016, I believe, when he presented in the main hall, the electrification of everything, and it's happening at a rapid pace. It's happening at a time where we're having trouble sourcing the materials that we need in order for that green revolution to move forward and advance.
So that's why you're seeing record commodity prices across all nineteen components of that commodity index. Everything is inflating. Inflation is not transitory, but you can make some money from what he calls inflation profits. And so with Lithium Americas, they have two flagship assets. They have an asset in Argentina, the Cauchari-Olaroz construction project, that should be producing in mid-2022. The reason that's important is because you're going to get a lot of companies that are going to tell you how great their lithium project is and how much demand there is and how little supply there is.
And what they won't tell you is that by the time they get to building their projects, it probably will have balanced out and they won't hit the sweet spot of the profit cycle. It's why our website is called Daily Profit Cycle. You want to be in the sweet spot if you're going to make money as a shareholder and with Lithium Americas, they not only have production expected by mid-2022 out of Argentina, but they have the Thacker Pass project in Nevada, which is permitted. They'll have a final decision here in Q1, Q2 of 2022. Production there is expected over the next two years.
So you're going to have quality battery-grade lithium production from two very big scalable assets in jurisdictions that are absolutely top-notch for this type of mining. Again, it's very, very rare to find a company that has assets in safe jurisdictions, and it's why Elon is tweeting about cobalt batteries and nickel batteries, and he is trying to figure out where he is going to source all the different materials. He's a brilliant man. He'll figure it out. But in the meantime, there's going to have to be a lot of sourcing from areas and places and people that may not be the friendliest to him. And that's just a nature of the business.
Lithium Americas is beautifully positioned to deliver battery-grade lithium for over 47 years at the asset Argentina, in over 37 years the asset in Nevada. You want scale, you want capital markets experience, you want good jurisdictions, you want good management and you want the right trend. It makes it easier to make money. Lithium Americas checks all of those boxes, $120 million shares outstanding, market cap's approximately $3.2 billion. For context, one of their projects using today's lithium price would have a net present value larger than the market cap, and they have two of them.
So that's the opportunity, and that's the runway. That's the opportunity to profit there. Over $500 million in cash, $156 million in capital available from credit facilities, and the bulk of the Argentina project is already built, 85 to 90% of the CapEx that's needed to be spent already taken care of. This isn't a dream that will happen in 10 years. This is something that's happening right now. So Lithium Americas, excellent, excellent speculation on a liquid vehicle for lithium exposure.
Nick Hodge: Just a couple of things to add about lithium. We had a lithium run in 2016, 2017. It was in headlines everywhere. The stocks were running hard and the price of lithium carbonate had gone to something like, I don't know, $22,000 a ton. And that's back there now, if you look at a chart. It's getting ready to break out to new all-time highs, for example. And you can see that across the spectrum, not just lithium carbonate, but spodumene prices as well, coming out of Australia with the prices of auctions going up precipitously 50 to 75% month over month in some cases.
So there's nowhere near enough lithium to meet these goals to get enough batteries for the cars. That's the first point I think on lithium for me. And then the second point is not to get distracted. I was talking about solar roads earlier, and now you see articles coming out about, is this new battery going to displace lithium, whatever it is, iron, magnesium, dadada dadada. Put on your blinders because we're not switching battery technologies. This is already underway, the Ginga factories are built. All that stuff is just clickbait.
Gerardo Del Real: A lot of noise. It doesn't matter. Who cares? The bottom line is lithium is going to be a component that can make you a lot of money for the next 10 to 15 years. You can get ahead of that trend and participate in a meaningful way with a company like Lithium Americas. It's an excellent vehicle because although not as small as a company like Hannan, it doesn't have that 10, 20, 50 times your money potential. It's a liquid vehicle for wealthy investors, investors maybe that run family offices, institutions. That's not a situation where you're going to buy stock and not have a way to exit if you ever need to. And so Lithium Americas is excellent, excellent speculation.
Next North American Copper Giant: Kutcho Copper
Kutcho Copper (TSX-V: KC)(OTC: KCCFF). This is a company we've followed and helped finance for years. I screamed and kicked and pounded the table to my subscribers to buy it when it hit a low of, I think it was 12 cents or 13 cents. It has an established high-grade reserve base in BC, excellent management. I couldn't get anyone to listen to me when copper was $2.00 or $2.50. And now here the stock is trading at about 89 cents the last time that I checked. Despite that, it's got a project with robust, robust economics, and when I say economics, I mean a pre-feasibility study.
I'm not talking about made in PEA, where everything will change once you actually put metrics and go vet those metrics. It's a project that I believe will be rerated north of $400 million soon. It currently has a net present value of 265 million-
Nicholas Hodge: Market cap of $80 million.
Gerardo Del Real: Market cap of $80 million, so there's already a disconnect, even at the prices it used during the feasibility study, which if I'm not mistaken was $2.50 copper and $1.10 zinc, or $3.25 copper, and $1.10 zinc.
Nicholas Hodge: Bit higher than that now.
Gerardo Del Real: Or a little bit higher than that. So the rerating isn't just going to come from higher copper and zinc prices. It's also going to come from a new reserve base and the new feasibility study, excuse me, that's due anytime soon. Wheaton Precious Metals is the partner for Kutcho. So a lot of these projects in BC, the big danger that you have too, community relations, which Kutcho is excellent at. But the second usually is that these projects tend to be remote and they require large amounts of capital to be able to advance them.
The project has so much merit that Wheaton Precious Metals has committed up to $100 million to help move the project forward. And what's in it for Wheaton is they get a cut of the metals that they want. So capital structure, as I mentioned, Wheaton owns 7.4%. Capstone owns 10%. Management has decent skin in the game at 5%. I like to see that higher, but it's okay. We've done really well with it. Yeah, let's go on to the next slide, Nick. Yeah, there, that's the one. So with a 12-year mine life, that'll likely increase to between 15 and 18 years. So again, a mine life that's attractive to a major, which is why Wheaton is involved. A lot of smaller projects have a five-year mine life, a six-year mine life, and you better be really lucky with a five or six-year mine life because if you hit the cycle or the part of the cycle where prices are trending lower and not trending higher, you're done. Your investment goes to money heaven, as Rick Rule likes to say. So 12-year mine life, 84.7% copper recovery. That's excellent. Copper's worth nothing if you can't recover it. 75.7% zinc recovery and 97 cents a pound, all in sustaining cost per pound of copper. Again, we're quite a bit higher than 97 cents.
Nick Hodge: A couple of extra points on Kutcho is they have a streamlined permitting process. They don't have to go through the entire federal process to get permitted, just the provincial process, which makes it much easier to get a project permitted. And also, these are the 2017 pre-feasibility study numbers. They are due out with a full bankable feasibility study here very soon, like in the next couple of months.
So they've been working on the metallurgy, have put press releases out to the effect that they've increased the recovery since the PFS was put out. And so the market is starting to sniff that out. As Gerardo said, the shares are at 80 or 90 cents at 52-week highs, the market really anticipating that feasibility study coming, which could potentially be a rerating catalyst to get this project valued higher than the current $80, $90 million market cap it has and closer to that $200, $300 million dollar net present value.
An Overlooked Resource Star: Aldebaran Resources
Gerardo Del Real: Aldebaran Resources (TSX-V: ALDE)(OTC: ADBRF). I love finding names that people aren't familiar with. And when I tell you what Aldebaran has, you're going to think that I'm joking. It has 11.4 billion with a B pounds of copper, nearly four million ounces of gold, nearly 41 million ounces of silver, in a measured and indicated resource. It has an additional 1.8 billion pounds of copper in an inferred resource, 0.4 million ounces of gold and 5 million ounces of silver. The company has a market cap that is minuscule compared to it should be.
Now, the one knock on the project for the past several years is that there is a portion of the deposit that is high in arsenic, and that makes for complicated recoveries, and that can kill a project. They've done a brilliant job of isolating the smaller portion of the deposit that has the arsenic issues and are now focused on increasing the resource and the grade in other areas where the metal is clean, meaning it can be recovered better, more efficiently, which means better profits for the company that will eventually buy it out.
The company is led by a gentleman that we're both very familiar with, John Black. He's one of the top guys in the business. He's got a history of monetizing assets in South America. This project here was able to get it for a song. It's a project that way back in the days in 2011 was sold to Stillwater Mining for $487 million. That's US, nearly half a billion dollars. He was able to pick this up for a $15 million payment, a 20% equity position in the company, and then to earn 60%, they'll spend $30 million over five years during year two of that now with an aggressive drill program as we speak, and they'll earn into an additional 20% by incurring $25 million over three additional years. I suspect that this project will likely be bought out in the next 12 to 18 months. The company has four drill rigs that will be turning within the next week or two.
They recently hit a high meter gold and copper intercept, very far from where the current resource is, which means that resource is likely to get much, much bigger. And for a market cap of sub $100 million Canadian, $80.1 million, that's a lot of metal and it's the right metal. It's copper, it's gold, it's big, it's scalable, it's in a jurisdiction in Argentina that is very favorable to mining. And I know the company was quiet for a few months. I think that's really about to change and I think it presents an excellent opportunity for a copper gold speculation.
Nick Hodge: A couple extra points on Aldebaran, is he mentioned it was sold for almost half a billion dollars, and it's only being valued right now for $80 million, for the reasons he said about the arsenic. But also, this is a project that the majors want. It came from Sibanye-Stillwater, which is one of the largest producers of platinum group metals in the world and is moving into the battery metal space.
They continue to own 20% of the company and top up whenever they finance. And then important to note is Route1 owning 50% of the shares. If you know things about share structure, you know that the larger share positions that institutions hold, the lower the float is, and so the higher the stock can go with less buying. In this case, you have a major, major mining financier institution owning that 50% of the shares, so this is a company that can appreciate quite quickly because of that.
Gerardo Del Real: Say thank you, Nick. Let's open it up.
Nicholas Hodge: Yeah, we'll open it up for questions. That was Climate Goals and the Green Metal Inflation. All the prices are up. You can look those up. I talked about how much the metal prices inflated in my talk the other day. If you want to find us, DigestPublishing.com, DailyProfitCycle.com, ResourceStockDigest.com. I'm Nick Hodge.
Gerardo Del Real: Gerardo Del Real.
Nicholas Hodge: And this was episode 140 of Bizarro World.
This transcript is unedited. Please excuse grammatical errors and run-on sentences.