Gwen Preston on Resource Trends for 2024 | The CSE Podcast E1-S4

This week, host Anna Serin is joined by Gwen Preston, newsletter writer, and mining news blogger at #ResourceMaven to discuss recent developments and current trends in the mineral exploration and investment space.

Gwen shares her views on how rate hikes have impacted the mineral investment space, the new competition for speculative capital, and the impact of electrification on the global demand for mineral supplies.

Consider this your primer during mineral investing season at VRIC, RoundUp and PDAC!

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Transcript

Anna Serin (00:06):

Hi, my name's Anna Serin. I'm director of listings development with the Canadian Securities Exchange. You're joining us as the new year of 2024. And I'm joined today by the wonderful Gwen Preston, who is our Resource Maven. Gwen, thank you so much for joining us.

Gwen Preston (00:23):

Well, thank you for having me.

Anna Serin (00:25):

It is a brand new year. It is 2024. I also need to note that you are 10 years into being the Resource Maven. So congratulations on making it 10 years.

Gwen Preston (00:38):

Thank you. Yeah, it hasn't been the best 10 years in the resources space, the metals and mining space, I'm not going to lie. I wish there'd been a raging bull market in the middle of all that, but it's been really interesting. There's been lots of opportunities and I love helping people understand the risks and opportunities in the metals and mining landscape.

Anna Serin (00:59):

Well, as a letter writer, you're fairly unique in the sense that you are a young woman. So you have lots of time left, Gwen, to get that big bull market.

Gwen Preston (01:11):

Here's hoping.

Anna Serin (01:11):

[inaudible 00:01:12].

Gwen Preston (01:11):

[inaudible 00:01:13].

Anna Serin (01:15):

So you're joining us here as the CSEs podcast for entrepreneurs. Gwen is joining us in the beginning of 2024 and we're going to talk all things mining and resource. Of course, Q1 of every year tends to be the conference time for the mining sector. There's several conferences that happen globally and a bunch in Canada. And the ones in Canada are very well visited. There's lots of people that travel globally to come to our conferences to find out what's going on and connect with other mining professionals, to make deals happen, and hopefully celebrate some new discoveries.

(01:51):

So Gwen, I think the one thing I'd like to touch on just to get us going, can you tell us what happened last year?

Gwen Preston (02:02):

Yes. What was that, right?

Anna Serin (02:04):

What happened?

Gwen Preston (02:05):

So I feel like we started ... It's been a strange few years since COVID, right? And I think that context, I don't like blaming things on COVID, but it has been a very strange few years since COVID. And it is all because of everything that COVID created that we ended up with such a weird year because of course, we had a raging market out of COVID and then everyone had to stop and recalibrate to the new reality.

(02:34):

And that was a big part of what happened in 2022, was a recalibration to the new reality. And that's when inflation started to really ramp up. Oh, there actually are impacts when you inject that much money into the economy. Okay, we better figure out what to do about that.

(02:50):

So then the second half of 2022 and the first half of 2023 was all about rate hikes, right? It really was. It already seems like that was a long time ago because now that's not the conversation anymore, but it wasn't that long ago. Six months ago, that was still very much the mentality that we were in a rate hike, rate hike and we're going to need to keep them higher for longer because this inflation is insane and we have to get it under control. And that was true.

(03:18):

Of course, rising rates, they do two things. They directly work against the price of gold. The price of gold is negatively correlated to interest rates. So when interest rates are going up, the price of gold is generally going down. Now, gold actually didn't go down. Surprisingly, gold held very steady for two years in that mid 1,900s level, 1,850, 1,950, which is super impressive actually.

(03:46):

And it shows that there was a lot of buying happening, a lot of just sustained buying, not the ebb and flow of investment buying, but just the undercurrent of safe-haven buying. And that was mostly I think central banks around the world preparing themselves for the increasing reality of deglobalization and dedollarization.

(04:10):

There's a central gold buying chart that I love to show people. It shows how much more gold central banks have bought in the last few years relative to the years before. It's shot way up. The other cool thing that it shows is undisclosed. So the World Gold Council always knows who's doing the buying, but central banks can tell them whether, yes, you can say that it's the Bank of Taiwan or the bank of this or the bank of that, or they say, no, don't say who it is. And the ratio of undisclosed increased dramatically.

(04:39):

This just shows that a whole bunch of central banks around the world are just quietly buying gold. We're just going to tuck this away. We don't know what's happening with all this dedollarization and deglobalization, but the thing that we can do amidst all that uncertainty is by gold. So that really supported the gold price even though rates were going way, way up. So that's one thing that rate hikes do.

(04:59):

I mean, rate hikes also put into question that near-term economic growth. The whole reason that you raise rates is to try and literally strangle growth. So that also made it very difficult for any kind of base metal excitement because base metals are an economic growth story. And if the central bank is trying to strangle growth, there's big questions about whether that will be.

(05:23):

And of course mixed into all of that or overlaying all of that is the recession question, was this strangling going to lead us into a recession? And there was at various times in 2023, people were very sure that it was and then not so sure and then very sure and all over the map on that.

(05:41):

So all the while, the US economy, the Canadian economy just chugged along, actually did pretty well. Yes, there's weaknesses, services aren't as strong and things are just sort of at even-steven, they're not growing strongly, but they're not falling apart. It just chugged along. It reacted surprisingly little despite all the consternation.

(06:03):

So the huge recession question was in our face, what will rate hikes do? We can't get excited about growth, therefore we can't buy base metals. Gold is holding up well, but it's not exciting. Sticking at the same price level is the opposite of exciting, so nobody's going to buy into that. And meanwhile, the broad markets just kept going up.

(06:21):

So what are investors going to do? They're just going to buy the Magnificent Seven tech stocks and not look anywhere else. And so that only amplified an ebbing of investor interest in the metals and mining space, which is something that's been going on for almost 10 years because there's been a proliferation of alternatives to the high speculative, the leverage kind of investing that metals and mining offer. When metals do well, metals and mining stocks usually do very well. And if you throw discovery into that, oh my goodness.

(06:55):

Metals and mining used to have more of a stranglehold on that speculative opportunity. In the last 10 years, there's been a proliferation of speculative opportunities. Talk about NFTs, meme stocks. You can talk about cannabis. You can talk about obviously crypto. There's been so many ways for investors to start playing the high risk gamble that metals and mining keep getting less and less attention.

(07:18):

So that's what happened in 2023. As we got to the end of the year, finally, it seems like, okay, inflation looks like it's being managed. It's not down as low as we want. The last report didn't show it continuing to fall quite as quickly as we wanted, but it's doing well. We're doing well on the inflation question.

(07:38):

The Federal Reserve at the end of last year specifically and clearly stated that they plan to cut rates this year. Very important statement, right? Really, really important statement. That gave traders the guts to just go and buy. Okay, well, the market's not super hot, the market's not super cold, but I'm not so worried about that strangling anymore. So I'm just going to go in.

(08:06):

So the markets did well and overall markets did well in December. Gold did really well because, oh my goodness, that rate hike cap that's been on gold for two years now was lifted. So that's our starting point. Where we go from here, there's all kinds of questions. Sorry, that was a very long answer.

Anna Serin (08:24):

No, I love it. I love that stuff. And I mean, the one thing I think to put into context as far as these rate hikes, I believe that there was seven rate hikes last year, if I remember correctly. They're expecting several rate reductions this year, but I think this generation probably hasn't seen a year with that many rate hikes. I mean, I don't know how long it's been, but it's probably been a very long time since the economy has seen that kind of correction. Would you say that's accurate?

Gwen Preston (08:55):

Yeah. I mean, a lot of people, a lot of investors, a lot of those who are in the midst of their business careers right now haven't seen strong inflation, like it was in the '70s. That was the last time we had this kind of rampant inflation that required severe rate hikes to get it under control. So yes, it was unfamiliar territory for a lot of people.

(09:18):

And also, you can go back and see what past actions and reactions there were. But we are in a slightly different scenario now where the global debt markets are so much bigger and the interconnectedness of things. So the historic situations are useful, but not perfect guides for all these people who didn't know how this kind of situation plays out.

Anna Serin (09:44):

Not the full picture, so to speak. One thing I noticed last year before we jump into what's going to happen next with your crystal ball. One thing I did notice though throughout the year is we had at the CSE, we had a lot of new issuers come to market via IPO in the mineral exploration space, and we saw lots of our issuers in the mineral exploration space also raise some reasonable capital. So is there a reason why you still see some of this percolating even in these market conditions?

Gwen Preston (10:17):

So I love to hear that and I think there's a few comments that are worth bringing up. So you saw some good financings and that's great. There were a lot of companies that did not finance that have stagnated and not done much. Now of course, the CSE doesn't really see that because, by definition, it's inactivity as opposed to activity and you see the activity.

(10:42):

There certainly are a lot of companies that struggled to raise money last year, and that's the reality. And that's just the grind of being a mineral explorer is that you're at the whims of these bear and bull markets. And the bear markets can last a long time and can be very difficult. And of course it's only gotten worse with this investor disinterest and all these other options. So, yeah.

(11:05):

At the same time though, like you say, there really have been a good number of new companies listing or private companies that have been slowly getting a project ready for the spotlight, deciding to step into the public space. And then it's kind of like the top tier of companies, the ones with the most exciting assets or the best management, a combination thereof, the most speculative potential, they can raise money. There is money out there. There's not a lot, but there is money out there.

(11:38):

So it is cool to see the ones that work. And of course, the ones that work are so important. And by work I mean deliver a discovery or do really well in terms of their share price because that's how we're going to attract investors back into our arena is through success stories.

(11:53):

And so, I mean, I invest in a lot of financings and I really reined in on those in the middle of 2023 because it was just chaos out there and the risk was overwhelming the opportunity. But I'm back in the market. I've bought a new few financings in the last few months and there are a lot of really cool, really good teams who, like I say, have been working quietly in the background for a long time and big picture wise, they love the outlook.

(12:21):

Now we talk about this, it feels like almost every year of a bear market, but gold looks like it's pretty well set up. We shall see how quickly these rate hikes actually happen. And it's not going to be tomorrow, I really don't think. But I think there is a good chance that gold will do well this year. I think it's not going to be right now, but I think it's going to be later this year. When rate cuts actually happen, gold has an opportunity to do well.

(12:45):

It could also just do well technically, like if there's a surge and it breaks up through 2,100 and then the algorithms are all like, hey, it happened, there could be things like that because it is just bumping up against this all-time high and it has a triple top on this all-time high now. So, we'll see. Gold certainly has potential.

(13:03):

Base metals, we'll see. I don't know if they're going to have a hot year this year, but copper is attracting a lot of attention. There's a lot of news stories right now about nickel and the shortages of nickel. Lithium prices are in the gutter, because that means that lithium mines are actually shutting down, because they're not economic. Well, all of these lithium deficit forecasts only get worse if you, well, turn mines off.

(13:29):

So there's awareness in the broad market that there's supply issues out there. And so these things can crop up as soon, in my estimation. These things come to the fore for investors just as soon as investors start to feel like we are back at growth, we have some comfort, some confidence that we are back into a growth environment. Then I'm going to buy into the things that are needed for growth, especially the things that we don't have enough of that are needed for growth, and metals are precisely that.

(14:05):

Now you can see exactly that happening in uranium right now. Uranium is at the fore of that. We don't have enough uranium right now, and the uranium price has doubled in the last eight months. It's gone crazy. So it can happen. So it's an interesting setup.

Anna Serin (14:25):

Can you touch a little bit on the supply issues that we're currently experiencing? I think this comes up a lot and maybe if you could just describe a little bit of the scenario that we currently find ourself in with supply issues in the commodity market.

Gwen Preston (14:40):

Yeah, so I mean, stepping back, the big picture is that we haven't had a metals bull market. The last time there was lots of money and excitement flooding into the metal space, into mining stocks, into exploration stocks was like 2011, long time ago, really long time ago. That was the last time there was lots of money. Back then, there were also lots of mistakes made. There was lots of money and lots of excitement and a bunch of that money was deployed poorly.

(15:08):

And so, as we turned into a bear market after that, three things really happened. First of all, management teams at mining companies, a lot of them got the boot for having deployed capital poorly. And the new management teams that came in, came in specifically to be conservative. They were to focus on making money, producing dividends.

(15:32):

They weren't to focus on more production. They weren't to focus on risk and speculation. They were to focus on making money, generating dividends, cashflow. So that means not building new mines unless you're really sure they're really good. So new management was conservative. Mine builds were not an important thing. If anything, shutting down mines was more of a thing. So management was one thing.

(15:55):

Investor interest just left, and so there wasn't money coming into this space. So that makes it really hard for the projects that aren't yet mines to move up towards being ready to become mines. So things weren't moving up the pipeline. Things weren't being built at the top end of the pipeline. And for those projects that were still trying to move up the pipeline, permitting only gets harder. Every year that we go by, permitting a mine gets harder and harder.

(16:22):

So we put those three things together, management teams weren't interested in building mines, investors weren't putting money into mining companies, and you couldn't permit a mine even if you managed to overcome those first two hurdles, and we just haven't built very many new mines or we haven't moved projects to the point where they're ready to become new mines for over a decade.

(16:43):

And I can't say we haven't done it. Obviously some projects have been built, but not that many, nowhere near the numbers that used to be moving up through that pipeline and used to get put into production on an annual basis. And that permitting thing doesn't go away even once you're in operation. Cobre Panama was one of the key copper projects that did get put into production over the last decade, and it's just been shuttered because of social protests against that mine. So permitting remains a very significant risk in our space.

(17:15):

And of course, in the meantime, while we keep not building mines, and so our production profile stays pretty good for a while because the mines that are producing keep producing, but then it really flattens, and then it starts to even tail off because the older mines start to run out of their best ore, or run out of ore altogether. So you start to tail off your production profile.

(17:38):

Meanwhile, demand for metals at a baseline grows with population. So usually, a lot of metals, 2% growth is just a baseline, annual, and then you throw in electrification, right [inaudible 00:17:52]-

Anna Serin (17:52):

I was just going to bring that up. What is electrification doing to our supply requirements?

Gwen Preston (17:57):

Exactly. So the nickel market is undergoing a paradigm shift. A decade ago, we only used nickel for stainless steel, only. I mean, a few other little things, but really it was a stainless steel market. Now, within the next, whatever, five years, half of the nickel market is going to be in batteries. So that means the nickel market is going to have to double in size. That's an insane thing to state.

(18:22):

Lithium, we didn't use lithium for anything other than making ceramics 15 years ago. Now it needs to be in every battery of everything that we ever do, right? It's crazy. Copper needs are through the roof. So production profile keeps flattening and then tailing down. Meanwhile, demands are rising.

(18:38):

And so because investors remain disinterested, these gaps haven't attracted a lot of attention yet. And I think they won't attract attention until they're right here. I think that's what's happened with uranium. Nobody paid attention to the supply gaps in uranium until utilities actually started fighting over pounds because there's just none out there. And then the uranium price has gone absolutely nuts.

(19:04):

And so that might be what it's going to take. We might need to actually run out of copper, nickel, lithium for people before the prices respond, but we're not that far away from that happening. I'm not going to say it's going to happen in 2024, but this is a medium-term thing. This is over the next few years. I feel like this has to play out. That's just what the numbers say.

Anna Serin (19:24):

And do you think that that creates an opportunity for investors to recognize that that supply is going to hit us in the base? And if you're positioned before that happens, there could be real potential opportunity or is that a bit of a risky game?

Gwen Preston (19:39):

I mean, my take is that its risk is only timeframe. We don't know whether it's going to happen this year or in 2025 or maybe not till 2026 because if we do enter into a recession, or there's a huge year of elections and who knows what that might make investors focus on. There's a lot of things that impact what investors focus on and how quickly electrification takes over versus other things.

(20:06):

So the risk in investing in base metals is timeframe. We are going to run out of them because we haven't been building enough mines. I just don't know whether it's going to happen in one year or three years. So that's the risk. I think the likelihood of getting very high returns from investing in base metals before that realization, before those supply gaps hit, I think that's very high. I just don't know exactly when it's going to happen. So, yeah.

Anna Serin (20:31):

Your crystal ball only tells you so much, right, Gwen?

Gwen Preston (20:33):

That's right, exactly. Timing is unfortunately significant and unknown.

Anna Serin (20:39):

Okay, so to finish off, what are your big thoughts about 2024? Do you have anything that you think will stand out or do you think there'll be any shifts? What does your crystal ball tell you about 2024 that we can anticipate?

Gwen Preston (20:54):

So I think it's important to notice how strong gold has been through the rate hike cycle and to therefore be aware that it is likely to do well once rate cuts come. I mean, it seems like that's got to be because it stayed incredibly strong despite an unprecedented rate hike cycle in terms of speed and scale. And so, I mean, you'd think it's got to respond.

(21:27):

And on almost every metric, gold miners are undervalued relative to historic norms based on what the gold price is now, let alone if it goes higher. That's all because gold, despite bumping up against its all-time highs is still boring as a chart goes because it's still been pretty flat. But if that can become a little bit more exciting and investors come in, I think there's an opportunity for gold in 2024.

(21:52):

Uranium, I know that the uranium price has already doubled, and in fact, uranium equities after not responding to price gains in November and December very much have really started to respond again in the last few days. And that's because of some really important things that have happened with production from Kazakhstan not coming through the way it was going to and support for a nuclear fuel processing build out in the United States, details.

(22:13):

But there's room left in this uranium run. I know that sounds like I've drunk too much Kool-Aid, but there is no supply and there's utilities in America that kept putting off buying because they were like, "Oh, the price is rising. I'm going to wait. I'm sure it's going to come down." They need pounds.

(22:35):

This price is not rising because of speculation. The uranium price is reported as an average of the actual transacted price, four pounds on a given day, and there's bodies where you have to report uranium transactions. And so this is based on real transactions because utilities are paying this much to buy uranium because they don't have a choice.

(22:55):

And there's no new pounds. The ramped up operations are starting to produce down the road. They still won't meet demand. This uranium price has got more room to run for sure. So if you're not positioned in uranium, I still think there's great opportunity to do well in uranium in 2024. So those are my two that I feel most confident in. I'm happy to own some base metal stocks because I don't know that timing, but I'm not going to say that it's a 2024 play.

(23:27):

And then of course, discoveries work whenever they happen. So if you find a junior explorer where you really have a lot of confidence in the potential of their target and in the team and the ability to raise capital and the ability to drill the target, then discoveries can fly no matter what's happening to the metals market. So that's always a game that's on the table.

Anna Serin (23:54):

And like you just said, it's a game that's always on the table. I mean, I think as an investor in exploration, whatever the market is, those are always foundational elements to how you're picking your explorers, right?

Gwen Preston (24:07):

Yeah, for sure. And when they work, of course they're just super fun because-

Anna Serin (24:12):

Very fun.

Gwen Preston (24:12):

... it's literally creating value from nothing, right? It was seen as moose pasture and now it is seen as a gold deposit.

Anna Serin (24:19):

Absolutely.

Gwen Preston (24:20):

It's a really fun thing to be part of.

Anna Serin (24:22):

Okay, listen, Gwen, where can I and our listeners learn more about what you're doing and what you're thinking about things? Where do they get all things Resource Maven?

Gwen Preston (24:32):

Well, the central hub is certainly the website, which is resourcemaven.ca. But then I'm also, I'm all over Instagram. I'm all over YouTube. I make short videos to help investors see what's going on, what's interesting in the metals and mining space. So yeah, you can find all of those handles at resourcemaven.ca, probably the easiest way to do it.

Anna Serin (24:54):

As I mentioned earlier, I spent my morning going through your Instagram account. I do highly suggest that people go and check out her Instagram account because the one thing that you really make important element of your little clips is that people get the ability to ask you direct questions that you will answer online and that you check the comments. So having that kind of access I think is so valuable to all of us who want to invest in this space, and thank you for making yourself available to all of us. So utilize those as ways to educate yourself when you want to invest.

(25:28):

I also know that you speak at a lot of the conference train. So if you want to hear Gwen speak, make sure that you check out some of the conferences and go and listen to her speak. I always love chatting with you, Gwen, and thank you so much. Hopefully we can have a chat in a few months and see where we're at.

Gwen Preston (25:44):

Sounds good. Thanks so much for having me. It was lovely to chat again.

Anna Serin (25:48):

Thank you, Gwen. And for our listeners, thank you for joining us for the CSE podcast for entrepreneurs.