The Current Commodity Supercycle (Paulo Macro)

My bigger take away was how unsynchronized the global economy seems to be now in terms of where we are in the cycle. Usually it's, you know, US catches the cold, the rest of the hill gets the flu, maybe with a lag. I don't know if that's true this time because Hong Kong and China seem to be reflecting off the lows. Alan Macro, thank you so much for for joining us again mate.

It's been a while since we last spoke and there has been heaps happening in the world of, of metals and mining and markets more broadly. One of the, one of the big themes that I'm keen to jump into first is your idea of the, the present super cycle we're in and how that kind of contrasts with the China bull market that we saw in the 2000s where you really sort of cut your teeth in.

So I'd love to kind of start right there and, and hear your, your evolution on thinking in this, this super cycle, the the rolling crack up thesis that you have and, and everything related. Oh wow, well, First off, thanks fellas for having me back. I guess it's, I can't believe a year has gone by. If I think it's been a year and

I, I, I, I'm sorry. I know you guys have been reaching out for for a while now to, to have me back and it's I've just been completely snowed as I think you'd always like to say, although it never snows in Australia. So I don't know why you guys say it, but you're taking me way back. This is kind of one of my first framework notes when I first moved to Substack.

So it's it's like really big picture how I think about the world and comparing today or more like comparing and contrasting today versus the 2000s. So happy to jump in right there. I think for me and starting out in the 2000s, especially with a commodity bent as a kind of a young bloke starting in the business and actually one of my first assignments was Australian equity. So I've got a very soft sweet spot in my heart for you boys down under and been there many times.

And in my 20s starting out, the cycle was just getting going. But there were a couple of key points that were different than versus today. For one, you had a very clear demand pull from the emerging China.

We all know that story. But that kind of measure of a rise, a rising tide lifting all boats did some interesting things to a space that had been mostly cast aside for, you know, the better part of 20 plus years going back all the way to the 70s, which was kind of our last big commodity secular bull.

In this case with China's coming out party after the WTO and the rise of China and Chinese demand hitting that kind of S curve of GDP per capita that a lot of people talk about when they think about global South India and Southeast Asia today. You had a situation where two things happened at once. You had that kind of general demand pull where the entire demand curve pushes out into the right.

And you also had an interesting exercise come out I believe around 2004 where McKinsey dropped a a a research note report arguing that if you took your typical equity in bond, fixed out fixed income allocation and added a passive commodity exposure via futures to those two, even around the edges, what they found was 2 amazing things. One, the returns from commodities historically were uncorrelated near 0 to either of those asset classes.

So it made sense as a bolt on to 6040 and more importantly that as all of these curves which naturally want to sit in contango. If you want to store a commodity, you need a contango where the near term price is cheaper to the farther dated price to pay for shipping, storage in particular storage and insurance. Then as you backwardate, which is the curves way of punishing stores and calling supplies out to the market, you passively

begin to collect the yield. So you were basically ringing the dinner bell for pension fund allocators who are looking for other options. And remember, this is in the early mid 2000s when hedge funds and alternatives were just starting to get going. So, you know, hedge funds were in an allocatable asset class the way private equity and credit is today among universities where 40% of their their billion dollar endowments are in in privates.

Back then, it was really stocks and bonds and a little around the edges and the David Swenson Yale University CI OS of the world were playing with alternatives around the edges. But the mass market kind of long dated saver insurance companies, pensions, what have you were only starting to wake up to

this. And this McKenzie report woke people up to the fact that you had non correlated A and positive ruled yield B. And if you basically tell somebody that you have an uncorrelated asset class that generates a positive yield in an environment like the early mid 2000s when the Fed had cut to 1% and basically kicked off the real estate bubble in the US, that was like ringing the dinner

bell for large allocators. And so commodities arose as an asset class and we saw $300 billion of AUM flood into the space during that boom in the 2000s, which all of course was, you know, miraculously crowned and ended with the demise of Lehman Brothers and the financial crisis in O8. There was a an echo boom coming out of that. But by 2011, that was the ultimate top of commodities in emerging markets and we were done.

The difference this time kind of setting the table with that is you don't have a very clear demand pull in one particular place per SE. The dollar has been gradually strengthening for 10 years, which has kind of been a boot on the neck of EM since 2011. As we know. More recently, Trump seems to want to change that. The debasement trade is underway. It's starting to catch fire as a longer term narrative. Weaker dollar will, you know, be a kick in the butt for emerging

market demand. That's all great. And maybe India owns the second-half of the Twenty 20s or the Twenty 30s. And some of these economies very large, are hitting their S curves now, you know, as they kick through 2500. Three, $1000 GDP per capita. But the real driver so far of commodities has been the supply constraint that followed the boom where basically the tide went out for 10 plus years via underinvestment.

And that underinvestment shifts the supply curve in as opposed to the China story which pushed the demand curve out. The outcome is the same. You get a general appreciation starting in the price level, but it reflects in the market in a different way. Whereas the backward dating curves driven by China is a rising tide that lifts pretty much all commodity boats at around the same time.

Here what we're seeing is different commodities run into the wall of shortage or, you know, a production crack up or a slip up at different points in time, which actually is Christmas for an active commodity manager or someone who wants to take a longer short, you know, active approach. And I, I call this also the forcing function in commodities. They seem to do nothing for a long time and then suddenly they'll work 50% out of nowhere over a few weeks or months.

And that forcing function in commodities is expressed because someone has a problem somewhere or needs delivery tomorrow. They're pricing sensitive and they need to pay that price. It's the opposite effect of what's happening in fixed income inequities where the forcing function for fixed income, for example, you know, nobody does fundamental work on rates anymore. I mean, they do, but they're

wasting their time. You talk to a rates guy or a credit guy who used to do this 20 years ago, he'll tell you he used to build fundamental models around rates, you know, growth, inflation, what have you. Today he spends almost all of his time wondering, what's the Fed going to do? What's the Treasury going to do with the TGA, the RRP at the Fed? The interplay of liquidity up, liquidity down. What does that do to bond

prices? The, the changing mix in coupons versus T-bills, how that changes bond prices. It's all flow in equities. You guys are well aware of the drive of passive, the buybacks that chew through the float and the more that you can quickly buy back stock, the more that momentum kicks in, puts you in the mega cap territory.

The inelasticity as these companies get bigger in terms of, you know, $1.00 moving their market caps, ten 20-30 bucks only makes them more big, which means that passive needs to buy more. Around and around we go in that kind of positive reflexivity of momentum and size that all argues in equities and fixed income for a passive approach because alpha or value just does not work in commodities.

It's the exact opposite. The forcing function that I described where this stuff goes nowhere and then suddenly it pops or it starts to trend and move, argues for the return of a commodity active manager as opposed to blindly allocating $300 billion to the space. Because the space in general, if you look at the Bloomberg Commodity Index, the Bcom or what have you, hasn't really done anything.

But individual commodities have been rock'n'roll over the last few years, including during this bear market and several things. By way of example, when the light bulb went off on these rolling crack UPS remain commodities. We saw European natural gas, the TTF contracts go nuts in the fall of 21 along with thermal coal. Then in February of 22 we saw that wildest shit Chinese guy get caught short on the LME in the nickel contract and nickel

went to 80,000. They had to bust trade so you don't even see some of the prints. And then within two weeks, oil moons because Russia invaded Ukraine. We went to 120 in 23. You saw uranium go nuts from, you know, the 50s up to north of 100 in 24. We've started to see, you know, kind of copper with fits and starts. Like there's there are things to do.

And I think part of it is that as we run into a temporary or structural supply constraint that manifests from, you know, several years of deficit finally showing up in price discovery, you see moves happen really big or trend for far longer than you can think possible. But the compression until it happens is very difficult to predict. You just kind of have to hold your nose and be there on some of this stuff. Like I know guys were pitching

platinum early last year. They had to wait over a year. And then when they got paid, they got paid 60% in the last three months, right? Four months. So it's it's Christmas for an, an active approach as opposed to what we see in fixed income inequities where the passive approach just does not seem to want to relent and doesn't stop rewarding the lazy or the lack of analysis. So that's kind of the light bulb going off for me on how this

super cycle is different. What's going to really be interesting and what I've been wrestling with more recently I haven't even written about yet because it's been hard for me to articulate all this is I'm starting to see signs that all commodities are starting to move together again, like the 2000s. I'm sure you noticed as well. You know, oil and tankers will work on the same day. That's not what the experience has been over the last few years.

But Nat gas is working too. Uranium is off the mat. You know, metals are starting to work. It kind of feels like on some days everything is going, you know, and then we chop wood in different kind of corners of the commodity space. I wonder if the rolling crack up story is kind of marrying and having a bastard child with India and these other places in the demand statement also coming

into its own here. Maybe it's a little early to say that, but now that I'm seeing on a more consistent basis where the entire asset class will move together, it's hard to parse whether what I'm seeing is a demand pull statement where that curve is moving on to the right in conjunction with the supply curve removing up and to the left, or if it's really just as simple as meh. Like it's debasement, bro. Like, you know, Trump is, you know, annihilating the dollar.

You know, we're speaking Portuguese. We look like, you know, I like to say this is Africa, you know, like the Leo DiCaprio gift from Blood Diamond. You know, maybe it's all three, you know, as Forrest Gump says, like maybe it's both. But it, it's a fascinating time to be involved in commodities, but you got to stay on your toes as well. It, it's a lot to track for me who was around in the 2000s where you, you know, especially because I was, I, I was passive back then like you.

You can make money buying almost anything. Being more active in your research and in your trading has, can yield a lot of results. But it's, it's not accessible for most people because you really got to commit time and energy to, to staying on top of everything, you know, Plus then you throw geopolitics in the mix and what to fade, what to go with. It's a, it's, it's a wild time. But yeah, that's the framework of how this time is different. It's a, it's a similar super cycle.

It'll eventually all work. But a more active approach I think is yielding much more interesting results and more alpha than the typical kind of blindly allocated to commodities as an asset class. And if anything, commodities are so small in relation to S&P and global fixed income markets, it's almost like there's no room in the space to handle.

Like if somebody wanted to send $300 billion the way they did into the S&P GSCI index in the early 2000s, the space can't accommodate it. It's like elephants through a keyhole. Inshallah that money comes, you know, then we can all retire together. But for now, that's kind of how I see it. Yeah, that that's, that's a wicked framework, Paolo. I'm not sure I see like the, the, yeah, all the commodities

moving together just yet. I think, I think like my, my observation so far is, is there's, there's a lot of fragmentation. There's there's froth which is correlated. And then there's other parts of the, of commodities markets which are, are getting no love.

But I totally, totally kind of agree with the characterization of their, their pockets of, of these of, of certain commodities where, where supply is the story and that supply looks incredibly tight and it doesn't take too much to really move the needle. Let's start with copper because this is this is this is a, a copper supply story right now. Sure. So copper I'm I'm very excited about I have been bullish for

the last few years. It's felt like just chopping wood in a wide range, but we've been we I I had the front row seat in the 2000s for when we re racked the copper price stack from you know kind of $0.40 on the bottom to $1.50 on the top for two decades. And then we moved, I believe it was in 2005 or 6 into that new range where we finally took out kind of 13150 and we reset a new range of kind of $1.50 to 4 bucks. And we've been working that range now for 20 years pretty much.

We've tested this kind of 11, you know, ten $11,000 level on the LME, you know, $5 a pound equivalent several times over the last few years. It has been kind of a fight. You know, you get excited. We're finally going to go. The industry all agrees if we're going to incentivize Greenfield investment, we need to see north of 10,000 bucks a ton and it needs to stick right That that importantly is what guys want to

see. And we've never quite gotten that sort of come to Jesus shortage moment where the curve firmly backward dates all the way through. We've had the farther dated curve sitting backwardation for a little while, but there's always a little hump in the front which tells you like it. It's almost like that.

I guess it I think it's Thomas Aquinas, you know, like give me, you know, chastity or whatever and but not yet the curve is playing with there is a structural issue, but in the fronts, you've always had a couple of months of contango where it's like, but there's no shortage right here.

So we're not going to price in a backwardation and and like really show the market that we need metal out of storage wherever it is. What's interesting is the drama and the kind of bifurcation, I guess is the word or the this the carving up of the world and this sort of supply chain crack up that started with COVID now rolling into a multi polar, you know, we hear that word a lot, multi polar kind of regime that Trump's kicked into high gear with, you know, the return of

this Monroe Doctrine. Like these are the Americas, Latin and North America, that's ours. China, you worry and you do you, you know, Europe, whatever. You guys are a museum anyway. But like, don't come into our backyard. Now we're flexing on Venezuela and just send aircraft carriers, right? Like just to make sure that everybody else in Latin gets the message. Like, you know, we don't play. This is our yard. You're just sitting in it.

And, you know, we'll fuss less about Taiwan and what have you while trying to keep Australia in the fold. It's interesting because this is having like real effects, like not all supply is created equal anymore and jurisdiction is mattering more than ever. And you're seeing even in the case of comics versus LME, where the premium on comics blew out in a huge way. And then Trump came out and backtracked on his tariffs and comics crashed and had its

biggest down day ever. Felt like, I guess like a buck in a session back this summer. But the premium is still there and it's still wide. And it makes you wonder like if tariffs are off the table, why is COMEX still trading at a premium, Especially when there's an ocean of metal now, like 2/3 of exchange metal for copper now sits on the COMEX.

And the comics used to be just a backwater rounding gear to LME in Shanghai, and yet 2/3 of visible inventory is sitting in the US. Like how is the COMEX not trading at a discount to LME? Right? And you know, I I wish I had easy answers. I'm sure metal guys do. Maybe it's just the optionality that Trump, you know, pivots again and says no tariffs are back on Like, I don't know. But it it's showing you that

there are mechanics at play. It's Christmas for physical traders, right, The Glencorbros of the world. They're, you know, they're minting it, but they're also, you know, they're also taking losses when they get it wrong in a big way. Like mistakes cost a lot of money in in metals trading now. But I don't know, man. Like for me, we're living in a new regime where not all jurisdictions are created equal. And it's not as simple as saying, oh, it's in Africa so it should trade it four times.

You know, Canada should trade in a premium. Like there are other things now in the mix. When you look at the equities, you look at what should be developed, what could become a mine versus like where the premiums are. And more interestingly, you guys asked me before we we started about my recent trip to Asia. The one thing that struck me that many things struck me going to Hong Kong and Shenzhen. But my bigger take away was how unsynchronized the global economy seems to be now in terms

of where we are in the cycle. Usually it's, you know, US catches a cold, the rest of the world gets the flu, right? Like maybe with a lag. I don't know if that's true this time because Hong Kong and China seem to be inflecting off the lows, even just at the margin. When I talk to the expats in Hong Kong, for instance, a lot of them haven't come back yet. But the ones who are there seem to suggest to me that like the vibes are getting better, things are improving, they're off the

lows, business has momentum. It feels like they're just kind of getting going into a cycle like kind of early ish mid cycle. Whereas in the US it feels really long in the tooth, right? And all hinges on fiscal and stimming and what have you. So we're on synchronized in Asia versus the West and who knows where Europe is. They just seem to be stuck in the mud forever.

But that's also playing into how metals demand flows through where if you think about post COVID, the dollar strengthened and a lot of commodities rallied with it. It was clear that it was a Western demand story driving the narrative around US consumption, goods consumption, some infrastructure investment, chips act, what have you. Now all the metal is here and the prices still trade in the premium. But something else is going on. Like the rest of the world is starting to feel a little

tighter. When I look at time spreads on LME, when I look at stocks remaining low on Shanghai and LME, this medal on comics is not going back out. So there's exciting stuff I think happening in copper that suggests to me we've we've tested this $5 a pound level enough or should I say LME, you know, ten, $11,000 mid 10s, thousands a ton. You know, an old buddy of mine used to say if you knock on a door enough times, eventually it

opens. Like we've been knocking on this level a lot over the last few years. And I think we go, and I think when we go, we're going to re rack to a new price tag in the same way that we re racked that price tag in the mid 2000s and never looked back. So what if, you know, a $4.00 ceiling for so many years now becomes like a $354 floor with A7 or $8 ceiling. You know, guys on Wall Street are already working with $5 long term copper, you know, $10,000 long term copper.

And the economics for a lot of projects, especially advanced exploration look OK at 4:00. They look really attractive at five. And Oh my God, they I mean, you start running five and a half six, like it's really exciting for a lot of stuff on the Comm. And there are shortage of projects out there as well that like are large scale, you know, higher, higher IRR. Sorry guys, it's late here.

I've been drinking it it, you know, things that the majors who have been sitting on their hands for 10 plus years doing buybacks and dividends and focused on capital returns can really sink sink their teeth into. So it's an exciting time.

And that kind of dovetails into another note I wrote recently when the tech Anglo tie up came out, I wrote a a note called the ultimate mining Contra. For me, Anglo is the ultimate mining Contra. And you know, I can point to buying Achy Batista's, achy Batista's iron ore assets in Brazil literally a month before Lehman, buying the beers in 2012 or 13 right when lab made diamonds were becoming a thing.

And you know, what a disaster that's been, you know, selling out of their Thungela, you know, South African coal assets literally right at the lows coming out of COVID. And now more recently selling out of, you know, platinum. We're spinning it off with platinum having coiled, you know, around 1000 bucks an ounce for, you know, got 15 years. It's the longest basing I've ever seen on on any commodity, I think. So these guys, their timing is

impeccable. And the fact that this deal is happening now would normally give me pause. Like, is that a top? And it's actually quite the opposite. It's the end of chapter one in the cycle. Usually you see the bigs try to rationalize in stage one of a mining cycle. Stage 2 is defined as guys starting to do targeted MNA of junior producers or even some advanced exploration plays that are ready to go with a view towards replenishing reserve

life. Because the price deck will eventually answer the reserve life question, right? If you're BHP and you're sitting on X number of years of reserve life at 4 bucks a pound and you take copper to 5 bucks a pound, voila, reserve life got extended just because the copper price went up because there's more copper in the ground. That's economic at that price point. But as long as the price tag hasn't firmly re racked into a

new range yet. Then once you kind of tapping into the edge of the range and you're starting to show signs of breaking out. You will see major start to bid on junior producers in the space so that they can just add production quickly at what's still perceived low multiple and accretive for these guys because they tend to trade at higher multiples than the junior producers anyway. We're just starting to see fits and starts of this.

I mean, there was the big the Kunia district deal where BHP and Lundeen teamed up to buy Jose Maria and Filo. Obviously, that's a blockbuster project kind of in its own category, but there's signs that these guys are starting to move on. Junior producers. And I think what we saw in 2005 and 6 was that cleaning out of the middle. There's almost no middle to speak up because very few people have risen into that stage. But back then it was Falcon Bridge, Inco, Phelps Dodge.

You know, those three names actually tried to get together in a three-way at one point. But there's like a whole nine month saga where, you know, it was bid, counter bid. Eventually Falcon Bridge went to Extrada, which is now Glencore Volley took Inco and the Boise Bay assets, Sudbury and I believe the last one, Phelps Dodge went to Freeport. And you don't really have these kind of large cap, you know, mid, large cap mids getting cleaned out.

So you're left with an Anglo trying to do their thing, but Anglo always the end. What the smart guys do in the beginning and doing a large cap merger is precisely the definition of the end of phase one for me. Like this is the sign that we're moving into Phase 2 and that's the cleaning out of whatever middle is left and dipping into advanced exploration plays where it's large long life, high CapEx, 50 year, you know, potential mine life, you know, the grandkids will be mining this stuff.

That's I think what is we're about to see over the next year is a wave of M&A and the names. You know, I'm not making recommendations, but I would be surprised if Taseko is still independent in 18 months. I'd be surprised if HUD Bay is still independent in 18 months. Like I'm talking about these kind of, you know, 1 to 8 billion market cap names that are already producing. Capstone, rally capstone.

I mean, yeah, there's exactly. And it's just get me the pounds, you know, they're already producing. I'll pay what's optically a premium, but it's going to look really smart if copper, you know, goes to five and a half six, you know what I'm saying? So I, I think that's what comes next now. And, and with that, I'm, I have a very high level of conviction that that's what we're looking at over the next kind of 18 months.

So, you know, call it, you know, it'll be fits and starts, but then there'll be a headline deal and you'll see like two or three all tip over within a year and they'll be names that we all know. To to wrap on on copper with a real specific one. Paolo, you have written and been thinking a lot about what's happened at Grasberg Free reports, you know, half odd owned Grasberg. How's your thinking evolved there?

So the moment that happened, I sat up because it's not every day that a block cave creates an underwater flood and kills miners. And it, you know, one of my favorite gifts to use on Twitter is that built that Biff Tannon back to the future to 1 where he's the old man in 2020, whatever. And he says there's something

very familiar about all this. The thing that was familiar for me was, you know, I, I worked in Latin markets for a while when Valley had the disaster at Mariana and then the really bad one at Brumaginho. The two, you know, mountains that collapse their tailings dams and, you know, volley is still billions and billions of fines on the hook and they'll be paying these fines forever. What was interesting then was, you know, tailings dams didn't regularly fail.

And suddenly you had two of them at scale fail in catastrophic fashion, including caught on video where you're seeing, you know, people driving those, you know, huge, you know, open pit sized mining trucks for their lives, like ahead of a, a, you know, a mountain just tumbling into a, you know, a river. And it's terrible to watch. And you, you realize like, OK, these guys are going to spend years just rehabilitating every tailing dam going back to the science.

Like, how did this happen? And nobody really cared when the first one happened. Not, not a lot of people died. With Mariana, it caused a lot of damage, but you know, people got over it quickly. Burma Junior was like a real bad one. And with Grasberg, you know, I, I, I can't say like, I have every blockade collapse tallied on a piece of paper, but I don't remember when I heard the last

one happening. And when it happened, the amount of silence in the immediate aftermath was very disconcerting because it suggests to you that they don't even have a handle on the scope of the problem. And then a few weeks later they dropped the presser before the open where they, you know, gave their official kind of first pass and they were still looking for seven disappeared and now presumed dead miners.

I believe they found their bodies and, and basically said, you know, 2026, we're hoping to start ramping back up and by 27, yeah, we'll be up and at them. Look, I'm, I'm not a block cave expert by any means. I'm a generalist that has, you know, just a background in commodities, but I've seen what this thing looks like underground. Imagine like, you know, the movie Resident, you know, the video game Resident Evil and the Hive underground where like the

tunnels go in every direction. Like this thing is a city underground with thousands of workers running for miles. And this is a wet climate. You know, a lot of us have read up on this, that people have commented on Twitter on this who are way smarter than I am. But that presser hit and the copper price was flat. And it kind of makes you wonder, like, is anybody doing any work in commodities anymore?

Are we all just passive? You know, NVIDIA rules the world, you know, in this marketplace where there's nobody left with any level of brain or expertise, you know, no one is paying attention. You have an 800,000 ton a year in call it 25,000,000 ton a year market, so 3% of global production. It's not all offline grant you, you know they're looking at two 250,000 still to produce, but you've just knocked call it half a million tons, 2% of global

production off in one wallop. You couldn't say that about Burma Junior Mariana with iron ore. You know these things were nowhere near as big of a percentage of global production as this is. This is also the largest gold mine in the world, by the way, in addition to being the second largest copper mine after Escondida. And they just told you that they're hoping to start ramping back up late in 26 to be back to full production in 27. But how do they know?

You know, like, a couple of weeks is nowhere near the amount of time to get in there. And then you also have significant risk around Indonesia. The fact that they had protests, there were several killings, deaths during the protests. The government has been shaky.

Prabowo is Subianto. The president had to shuffle out his security minister, his finance minister, because in August the the Congress, the parliament decided to give themselves a raise and people went crazy and a taxi driver was run over by a police car and was killed. And so there were mass protests across the country. Nobody cared, obviously, like nobody, nobody watches this stuff. But this was a thing in August. It kind of quieted it down by October.

But now you have this and then you start to read between the lines, right? And for for one, specifically to Grasberg, look again, I can't, I don't speak for the company. I'm not short the stock. If anything, it's kind of like Kamiko when Cigar Lake flooded in the 2000's.

The stock's going to work anyway, even though it's their problem because this is going to tighten the market and they'll make more money on the rest of their production than they do leaving money on the table through lack thereof. But there's a point of vulnerability here where like this is, this is an emerging market, man. Like Volley's lucky that some of these assets were nationalized in Brazil. They're just going to tax the

hell out of them and find them. But Indonesia has a history, especially recently of keeping production in country. So they, you know, have prohibited Freeport from exporting concentrate in the past, encouraged them and forced them to build, you know, treatment and refining in country so that they're shipping finished metal. They started cracking down big time on illegal tin mining this

year. In fact, they outright confiscated several smelters and tin elite like 1000 illegal tin mines and threw those assets to PT Tema, the national company. Like nationalization is a non 0 risk here. I'm not saying it's a base case for me, far from it. But like it's a left tail affair, right where the, the country like, you know, just gets out of control or something comes out about this. Like what if, right Freeport cut corners on gravity testing 'cause this thing is soaked in

water, right? It's in the tropics. You got to test the ore body for for water. What if they missed something and the block cave collapsed and flooded everything and killed some locals and the country? The company's at fault. There's an independent investigation. The unions are asking to be involved in that. What if something untoward comes out and these guys are shown to be at fault and it wasn't just an accident? They, you know, they're, they're

liable. You know, what if that leads to in the context of them going after the tin industry, you know, they decide to just tax the hell out of this entity or, you know, force a 30% ownership stake for the, you know, additional stake for the state at Freeport's expense to pay for, you know, the, the environmental clean up. And, you know, as a fine or what? I, I have no idea. I just know that this is, this

isn't a developed market. You know, this is an unpredictable emerging market where things change. And I don't know, man, I, it's just for me, it's, it's, it was invisible. Nobody cared. Even on the day off after I read the press room, like, how's copper flat? I immediately bought futures started to rally and we haven't looked back from there.

You know, we kind of gradually tightening the market and the sell side then goes on a conference call with management recently and just buys this hook, line and sinker guidance for management that this is all going to come back online, that they've got their arms around the problem. I'm sorry, like I, I just, I just don't believe it's going to be that easy. I would be skeptical and nobody is right. That leads me to other trades as well, some of which I haven't written about.

So I'll kind of keep them to myself. But this is a this is a potential problem that is now tightening the market in the way that even Cobra Panama and and it it's it's it almost seems like 1 after another, right? Like this is kind of maybe the Cigar Lake equivalent, not in scale, obviously, but in sort of shock value eventually for this cycle in copper. You know, you had Kumo, Kukula, had that earthquake, they were offline for months, The Cobra

Panama issue last year. There are a lot of misses and significant assets in a market that's already kind of tight. I don't know, like it. It feels like to me like if ever there was a moment where we finally say goodbye to a $4.00 copper, the stars are kind of aligned and I just want to be

there. And the way I express it mostly is in that junior producer in advanced exploration area because the reaction function of the majors will be to add pounds quickly through M&A as that price tag finally reacts. By the time we air this, it might actually be another update out by, by Freeport. My, my, my Intel. I've been asking around, just trying to introduce what what reality looks like with, with Grasberg.

And what I've heard is Freeport's likely to come out saying that they can ramp volumes from the non block cave areas. But the actual, yeah, the the block cave area itself, there's like between 7:00 and 9:00 kilometers of rehab that needs to be done. Yeah, I think risk is certainly to the downside on your ability to to, to, to ramp volumes from the block cave. This will that's a really good point.

They will pull levers wherever they can to try to manage the guidance because the last thing they want is, you know, Freeport's the only copper producer in the S&P 500 that suits them, right? In the same way in uranium, like Chemico's the only super liquid name.

And no matter what the multiple is, if people are hot for uranium, that's where the pod shops and hedge funds and real money will go to buy first because that's where the liquidity is. But it's it's kind of a not dissimilar case with what's happening with Camaco and MacArthur River cutting their guidance. You know, they've been slow walking this problem since the second quarter result where they first whispered that mining is hard. MacArthur River, you know, clay

in this new zones. This might take some time. And then a month later in August, I guess it was they dropped the bomb that it's not going to be 18,000,000 lbs. It's 14 to 15. But just like you said, you know, we're going to try to flex Cigar Lake and we can do £1,000,000 from that. So there's no crisis here. And it's like this isn't like when the uranium mill broke two years ago and you needed parts and some labor in a few months.

It was back up. Like this sounds, this sounds like geology to me. Like this sounds like there's an issue here that may take longer to play. And what it like what is the guidance for 26? Oh, you know that we always release that in February. OK, but so you know, the the cigar Lake like we can flex here

thing. I I get it a lot like it's you know, it makes sense to me that Freeport's going to do what they can around the different ore bodies there to they don't want to be in force majeure for years, right like the these guys are in the business of mining copper. I'm just saying that like this story is just getting started.

There were rumors also recently within the last week that there are kind of press reports or articles on the Comm that the situation there is a lot more serious than Freeport so far as let on. But hey, it's just smoke for now. We'll see what they actually say and what happens. I just, this is a point of vulnerability that the market can't can't just dismiss and it like geopolitics and fading Iran and Israel and all this other

stuff in the oil market. We're so immune now to supply disruptions that the market didn't even react when they issued a press report saying this thing might be offline for a year. You know, because Komo Kukula had their issue didn't seem to affect the market. Calgary, Panama had their issue, didn't seem to affect the market. Cheese tech guiding down at, you know, QB 2 like that was a big one. Didn't seem to tighten the but like, again, like nobody's

paying attention. And yeah, I guess like what we're going to need is the forcing function. And suddenly somebody's going to miss a big shipment and go into the spot market or like, you know, take 200,000 tons out of LME and not be able to get it. And then people realize, oh shit, the market's tight and you know, here we go. It's, it's often the smallest thing that's you know, it's a snowflake that sets off the avalanche. This was a big snowflake. I'm waiting for the little one

that nobody sees coming. And then we know we got it. It's such a, it's such an enticing market, the, the copper market. And yeah, it does feel like we're, we're kind of closer than ever. I'm, I'm keen to touch on a few other commodities as well, Paulo, uranium being one of them that you've spoken a bunch about. And I know you've got a, a, a long history with, with uranium and you've thought about it

pretty deeply. You wrote a piece three or four months ago, I think it was titled Uranium in the 20s is what silver was in. In the 2000s and you know, that kind of sets the scene. But I, I actually want to ask quite a specific one about how you're thinking around next Gen. has changed to start, because when we did last speak, you were, you were more on the bearish end that that arrow gets gets developed or gets developed in any kind of orderly time

frame. But lately you've written more to the point that you've been accumulating and, and building that position again. So how, how has your your thinking changed in, you know, what is the most meaningful asset in the development space in uranium right now? Yeah, that's a a bit of a loaded question for me because I got I view next Gen. on paper. You know, if I were a broker, I could pitch this all day. You know, it's a liquid name in terms of investability from a liquidity perspective.

You know, I mentioned Camico's like Freeport. That's where the big money will go to play first. But if big money needs a second name to rotate into that can torque and has a narrative to it, next Gen. is it. You know, next Gen. reminds me a lot of Twiggy and Fortescue in the early 2000s. I met Twiggy before he had a mine. He, you know, he was years removed from Anaconda Nickel and he was pitching his project in New York and the name of the presentation deck was the 4th

force in iron ore. And I loved it 'cause it was, you know, iron ore was volley BHP in Rio. It they had just switched over from annual contract negotiations to a spot market and Japan was, you know, flipping to the Chinese in terms of the demand driver and who was driving the negotiations. And uranium kind of reminds me a little bit of that now, not in the sense that it'll go from

term to spot. That's not going to happen because as much as we would love that kind of level of price discovery in action simply because of the, the lead time on the product for the natural commercial end buyer, the decisions to take a core loading start years before, you know, the, the uranium that goes into the core loading is mined several years before the fuel is loaded.

So because of that just lag in the cycle of of production, you're you're always going to be predominantly a turn market. But yeah, as opposed to, you know, iron ore, put it on mine it, put it on a boat, put it in a blast furnace, ship steel, couple of months, right. It's a short cycle product. In this case though, like NextGen is sitting on a deposit that will wildly move the needle and they're kind of he's kind. He is a little bit of scorpion versus the frog too.

Like Twiggy, you know, he's like the disruptor in the space. Here's like Stodgy Tim and Grand over at Kamiko. Like nobody wants to admit we over contracted and got eager in 21 and 22 and we look stupid when uranium goes north of 100 because we're realizing prices at 60. But we've been conservative bringing, you know, production back online and our contracting strategy, yadda, yadda, yadda. It's like, OK, at least you survived without going bankrupt.

Like I'll give you that over the last 10 years. But on the flip side, you know, Lee is the kind of Twiggy, sharp elbows, you know, sort of character. You know, he's out there like, oh, yeah, I'm sponsoring Formula One in the Canucks because, like, that's what the Saudis want to see, you know, and like, I want them to buy the pounds. They were like, you know, anchor my next raise. Like whatever, you know, he's he's living.

He's living the life. But the more I've kind of honed in on this guy and it is it is loaded for me as well because I wrote this kind of comparison to Fortescue last April or or so. And that was right when uranium was coming off the boil north of 100 on spot. And then he popped that convert and that raise where he, you know, with MMM cap where he took a couple £1,000,000 and just, but like, kudos to him. Like he raised like right there at the top.

And that was the end of the uranium cycle for a while, right? So his timing was impeccable. The more I kind of looked at the asset look, I the asset still has problems. It is nowhere as easy. It's like 25,000,000 lbs is not a shoe in. I, I get the pitch. This is an ISR, it's not as complicated. A lot of this is still under a lake. Like, it's not going to be easy, but I'm starting to see hints that there's like some madness to the seeming throwing money about.

I like the fact that he's been trying to keep a low profile recently because he wants the federal permits to go through without an issue. I I questioned, for example, when he popped the $600 million raise he did two months ago. It was like, God damn it, Lee, again, like you just did this last May. You don't need the money now. Wait for 120 bucks a pound with the stock at 12. Then pop the raising. Like make one raising higher than the last. You know what I mean?

Like do it the right way and stair step that thing up over the cycle. But. I think it came close to a billion Australian, yeah. Over. I was, I was saying 600 US. Yeah, yeah, yeah. So it's 300 there and 300 in Canada. US and anchors in both. I mean, it's kind of an open secret who anchored the Australia line, but let's just say yeah. Hancock Prospecting. So supposedly of the 300, she put her hand up for two more than.

Half 150. It was like it was, I heard it was 200 and another super man, I got to check my notes. A major super also put their hand up for 100 and the book was basically spoken for. So they had to upsize to kind of fit people in. There was an anchor also on the US side who I don't know who it is.

It's a very big, very real name. So what that suggests to me is that the Canadians who are all holders of this thing, all the top guys in Kamico and you know, there's crossover with next Gen. holders got barely a starter and there's more buying to do in the coming weeks and months for them to actually get a position. But also Kamico has done so well over the last nine months. Imagine being a Toronto based asset manager with $100 million position in Kamico that went to 300.

Like the case is pretty easy to then say, let me take 50 or 100 million out of Kamiko and throw it to NextGen just to kind of spread the bet, especially since Nextgen's the one with actual production growth. Meanwhile, like Kamiko, to their credit, despite the fact that they're, you know, kind of over contracted on the on the look back and having problems with MacArthur River and knock on wood, like I, I, I don't know this for any kind of there's a points of vulnerability at Cigar

Lake and I'll leave it at that. But production there's been fine, their pivot. And and I underplayed this at the time because I thought the acquisition was kind of silly, but the Westinghouse thing clearly paid dividends. And now what I think you're going to see very successfully is Kamiko pivots from being a mining company to being a vertically integrated company that's actually an engineering construction firm and a developer of nukes.

That's Trump adjacent, yada yada, yada, through Westinghouse. When you run unit economics on what an AP1000 is, you know, numbers 1.2 billion revenue, you know, 2 to 50 million EBITDA per, you know, put ten of these together, you're talking, I don't know, 2 1/2 three billion of EBITDA obviously stretched over time, but and that's attributable to them. Man, like you slap like a, you know, 15 EBITDA multiple, like like a top end engineering

multiple on something like that. Suddenly you're at thirty $35 billion. Like that's almost the market cap of Cameco like so they can pivot their story away from low multiple mining is hard. We missed again or like we screwed up, you know, to actually being a downstream company. And and mind you, the more successful there ENC is right there AP 1000 is the more their mining company looks better, right, Because their production

needs to feed those things. So they can also, you know, have line of sight from this construction in this development track to filling that pipeline with, you know, MacArthur River expansion, Rabbit Lake coming out of care and maintenance and other things that they need to track. Eventually, the deal that needs to happen here over time is going to be Kamiko Byangaro, right? Because Lee doesn't have a track record of actual mind

development in production. It makes sense for this thing to be developed by Kamiko Orano. But Kamiko and Next Gen. like, there's no love lost there. You know, the guys at Kamiko, they can't even be on the same panel at a conference as Lee. You know, it's old school versus, you know, hot action these two. I mean, they'll make an offer for next Gen. if Lee stubs his toe and his stock is on his knees, but like it won't happen otherwise.

What's fascinating for me is I still think next gen's asset has problems, but I see another strategy taking hold here also because it started drone on about this. But there's so much to think about. You know, Lee is actually pretty sharp guy as his conference call also this week was pretty interesting to listen to. I encourage people to to have a listen because it's clear that he's kind of one O 1 ING what next Gen. is and kind of simplifying it for people to understand.

But there's so many interesting directions this thing can go. For example, he could decide to do the 1st 10,000,000 lbs first, right? For a few years. You know, everybody's got 25,000,000 lbs penciled in for 2031, but you know, he could make it OK. So he's got £5,000,000 or whatever of offtake 6,000,000

lbs, something like that. He can bring on £10,000,000 in the first few years and just squeeze the market, or you can say I'm going to do £15,000,000 to start but I'm going to sequester 5. I've got access to Saudi money. You know. Sprott clearly doesn't. Do you know the best job And yellow cake in the UK is completely grossly incompetent and destroys value.

Why they're not buying back stock with the premium down 10%, the discount of 10% today after dilutively adding 50 million bucks to the last race to pay for the Kaz Adam Brown pounds is beyond me. Sorry to be passionate, but like I've multiple guys into YC as management like use the excess money to go buy back stock and show that you can manage this discount because Sprott can't do that. You can actually make a name for yourself as a real product in

the space. So that guys are an orphan on an exit. Down 10% in a uranium price that's actually showing signs of starting to like with fits and starts to work. Anyway, back to next Gen., like Leah's talked about over the last two years about doing a sequester vehicle himself. You know he lives in Adelaide,

right? What if he were to do one in Australia now the locals down where you are and superfunds could buy uranium yellow cake a la Spat without having going to Canada or the UK. What if he seeds that and then spins that out, right? Like, I don't have any Intel on this, I'm just speculating, but I've read some of his public statements and I hear how he talks kind of bottom line.

I could see many ways where he uses this kind of, yeah, I said fourth force and iron ore, the third force in uranium right after Cap and Kamico where he says, listen, if I don't get 125 or 150 bucks a pound for Arrow production, I'll sequester it. And you know, he's got the dual listing for the stock in Australia as well. But you always bugged me like, why are you raising in Australia? Like who cares? Like it trades by appointment

anyway. It's not like institutional Aussie money's really trading there, right? It's kind of a it's a planted flag, right? Like it never made sense from a capital efficiency and allocation perspective. But like, you know, he has talked about launching a sequester in the past and nobody has one in ounces. So what if he were to do 1 and spin that out and like, you know, next Gen. has a stake in

the spun out sequester, right? And if he doesn't like the pricing and the term contracting he's getting from utilities, he just sells to the sequester and says, OK, like, you know, I'll wait, right? But he's doing it in a, in a, in a way that I, I didn't give him enough credit for his like ability to read how to piece this market together and squeeze it to motivate utilities to see the problem that Brownfield's overcommitted. Mining is hard.

The guys who, you know, restarted, contracted at the wrong price. Utilities don't want to pay up. What's worse is they didn't want to do anything last year because of the election. Now they haven't wanted to do anything this year. And that we're well below replacement rate contracting for 25 because they're waiting for

Trump to do his thing. And if they screw up and there's not enough uranium and or it's late and, you know, we have a problem, we'll just point the finger at evil speculators and plead with Trump for, you know, for salvation or something, you know, like just go to the government and make it their problem. Utility should be moving.

There only seem to be one or two guys in at least in the US who have their own independent research that all pointed in the same direction that we need higher pricing in uranium to incentivize Greenfield, nevermind future brownfield or bring stuff out of care maintenance. And as with everything, I think it just comes in waves.

And we've chewed through the rat and mice production over the last two years of consolidation after we had that first big run in kind of 21 and then 23. And the third wave is now upon us. Volume and contracting will be get price discovery on the top side. It's not going to discover to the downside, the noise and spot where traders bank it down like this move just recently in the last two weeks from 82 down to 77, almost no pounds traded.

This is a highly opaque market that's just clamoring for price discovery. And unfortunately, unlike iron ore in the early 2000s, it's not going to get it with some transformation from term to spot. It's going to take, you know, adults in the room or my kind of conspiracy theory getting into the beauty that is Trump. You probably heard me talking right about like stay Trump adjacent. The guy is clearly pointing the fire hose at critical minerals. We all know this.

I got this joke early in July, August after he did the mountain pass deal. He was just like, who's next, who's next, who's next? And it's all started to roof come off the boil recently. Big crashes and a lot of names doesn't matter. There are points of contact here where Trump is clearly going to throw money. Chris Wright in Vienna six weeks ago. We are going to do a strategic uranium reserve. Amir Adnani from UEC teams up with Goldman Sachs. They initiate on his stock in August.

He pops the following, does his first real conference call after the result a month ago. The guy sounded on the conference call like he had the cat had just eaten the Canary, talking about how things are imminent with the government. And then we got the federal shutdown. Commerce Department's been closed. They've been doing deals, but it's all been DoD, right? Like awards to critical minerals from Department of Defense because they're open for business.

As soon as Lutnick is back in the chair and the DOC is open, we will see a plethora of deals. Guess what? The federal shutdown is set to end either tomorrow or Thursday, according to Polymarket. So I think we've got a lot of pent up action in the Department of Commerce handing out and

signing contracts. I think we're about to hear either the announcement of a strategic uranium reserve, which will is basically the announcement of 1/3 sequester on the playing field, only one who has unlimited ammo or I should say and or a minimum floor price like they did with Mountain Pass and Niodymium and some of the rare earths in the first deal where they say we want to incentivize US based uranium production. We used to do 10s of millions of

pounds a year 50 years ago. Now we do like a couple of £1,000,000. We are a £50 million a year market. We are wholly dependent on foreign supply. We need to 10X production. Now there are a handful of players that can do this and they need, they tell us that they need, I don't know, 100 and 10120, a $130.00 a pound, let's call it 125 a pound. We will buy unlimited if you produce in the US at 125 a

pound. I am high delta that either of those announcements are coming in the next few months and it feels to me with the federal shutdown ending that it could be weeks rather than months. I don't want to say days because who the hell knows. I'm not in the business of trading 0 DTE options, but weeks, months, definitely the stuff is in the crosshairs. And if it's a focus on US production, will that help the Canadians?

Can't hurt. I mean, Gina already owns Next Gen. We know she anchored the Rays. Gina got a membership to the Mar A Lago resort so that she can hang out there and try to get an audience with Trump. And she's down there like all the time from what I did, right? And she she's, you know, very right wing leaning. So she's simpatico to the message. And Next Gen. is the horse that she's chosen to back. And we know that she loves to have a seat at the table when it

comes to talking M&A. You know, once Carney and Trump finally figured their end out and Trump stops beating up on the 51st state and decides to do the deal, I think he's waiting for Canada to do them last, right? Because they're the easiest to do with because, you know, they're they're our neighbor. But we need everything they they have, right? Like, you know, what are we beating them up for? Like, we need heavy crudes.

We really going to get it from Venezuela, I guess like we're going to try now, you know, and knock out Maduro and get into jungle guerrilla warfare for 10 freaking years. I'm sure it'll all work out with the Orinoco. But Canada's easy, you know, he's just waiting to do them last. So yeah, I see a a special spot

for next Gen. and all of this. You know, it's got it's got room and with $120.00 price deck, Yeah, I know it's not cheap and it's a big asset, you know, that's five plus years away from production. But I mean, UEC at 7 1/2 billion market cap. Jesus. Yeah. That, that doesn't quite make sense to me. But that starts to make sense too, with a triple digit price tag and A and a floor price from the US and maybe like a sprinkling of, you know,

strategic uranium reserve. Like, why don't we have one? It doesn't make sense. Like, as with everything Trump, there's a kernel of truth wrapped in the giant cartoon of noise. And you know what? What is it called? A flooding the zone but like the kernel of truth is like we need a strategic uranium reserve. We need a floor price above the market to incentivize domestic production. Like why aren't we doing this? So I'm here for it. And yeah, uranium, I'm I'm size.

Yeah, yeah, time to do homework on a lot of those American based names was was many months ago and you know, no time like the present to to get underway. I'll close another one I've got to ask you about though, Paolo, Like just just crazy what what has happened. And I think in the last month

it's off 40 odd percent. But it's, it's so interesting in the uranium world because it it's a big part of a few of those Atfs that a lot of people kind of play in, which is it says, you know, something that just makes, makes me think about what correlation turns to when when people run away from these things. But yeah, there's, there's, there's a lot of kind of moving parts to it, isn't there?

I'm sure with OCLO for one, because I, you know, I wasn't involved in, hey, if it's going to go up 10X like I want to be there, I don't care if it's a Ponzi. But yeah, it's also hard because it is in the URA, which is largest ETF. You know that OCLO is, you're going to crap when you hear this. OCLO is the largest weight in the Russell 2000 value index

value. It's also it's it's a top, you know, it's a key weight top ten, I think in the Russell 2000 full stop, top 20. I have to double check there. But in the Russell 2000 value, it's the largest constituent like we really need that, you know these, you know, it's like when you talk about broadening out and getting in the small cap like you just can't take this this stuff seriously anymore. It. Was half a size of.

Yeah, And, and this isn't going to be a product for years, if at all, but I guess we're going to throw billions at it and we're going to make it work. You know, where there's a where there's a will, there's a way, especially when you throw billions at it. But the problem is that like this pollutes this space needs money, but it needs money like where it matters, right, Enrichment, conversion and especially U3O8 that matters, pie in the sky technology that

maybe works. And listen, I don't want to speak bad and like really crap all over it because there are hitters there and, you know, the management team like they're no dummies. Like this stuff could work. It's just like it feels like we're skipping a step, you know, and AP1000 works just fine. And the Chinese equivalent, they build these things for $2 billion.

Like our, you know, Votel in Georgia cost 15 plus billion because we spent 1520 years building it and every two years they had to go back for new permits and redesign stuff and oh, the cement is wrong. We need to do that again. Like, you know, if you cookie cutter this and you say, and this is kind of why I like the Brookfield deal as well. The first few are going to be really expensive. But once the supply chain and the labor is retrained and set up like the first five to 10 are hard.

The economy, it's not even economies of scale. It's the experience of doing more than a few of these. You know, Georgia can't do 2 and then, you know, it all works out. But then you stop. Like you there, this needs a Marshall Plan where, you know, the first few are going to be carried by the government as a public loss because it's going to take a few of these to do economically. Then why?

Like just expect that, you know, the latest tech is going to be the answer, you know, like or. Yeah, I mean, it'd be even crazy if we were like, oh, we're going to make molten salt thorium work and then we're going to do it in three years.

OK, I guess. But like, isn't it just so much easier to take 50 year technology that's been wildly improved on the margin from a perspective of safety and efficiency and just learn how to do that all over again while you work on that other stuff for the next 10 years? Like it almost feels like it's kind of like what they're, you know, like in Africa where guys said, let's skip this step of building fixed line telephones because cell phones are so much

easier and more efficient. Like that I get, but like SMRS have aren't even a thing yet. You know, like let's let's focus on SMRS if they exist and they're cheaper and more efficient, have a proven case. But the problem is like it memed. It's now the largest constituent in the Russell 2000 value index. It is a top holding in URA, the

largest uranium index. So it's like the fire hose of passive as well as government money got pointed in a direction where the payback is going to be a lot harder and take longer. I'm like willing to be surprised, but like the payback is so much more immediate on the stuff that's proven. But I guess like it's kind of spaghetti against the wall. Like they're throwing it at everything. The Brookfield deal that made sense.

That sounds smart. A strategic uranium reserve and subsidizing or guaranteed pricing on US production. Like that makes sense to me. I I don't love the fact that government's getting involved in, you know, the economy like this, but you know, there are no atheists in foxholes. You know, where else are we going to get this stuff from? So sorry to drone on about it, but the OCLO cases pollute. You know, they have OCLO single name 2X ETFs now. So like they have Leverty ETFs just on OCLO.

They, you know, like NVIDIA, they, they have, you know, heavy weights and all these ETFs. The fire hose is pointed in the wrong direction. Like that's a point of frustration for me, compounded by the fact that, like, I should have known better. It's tech, it's AI adjacent. A lot of the guys own it who are in that AI world. So it's going to mean and retail's going to love it.

And then the leverage is going to pour in and the ETFs are going to buy it blindly and take it up waiting wise, blah, blah, blah, blah, blah. You know, could have, would have, should have. But it's, it's frustrating because it doesn't address the more acute issue at hand over the next five years, which is we need to invest in supply chain, we need enrichment. You know, we we certainly could use some more conversion and you know, we need more yellow cake.

Yeah, absolutely. And I think those, you know, the double and the triple levered products that you you mentioned there, I'm curious to see how they viewed upon 10 years, 20 years down, down the road. There's, there's one more commodity I've got to ask you about, Paolo. There's, you know, the, the copper narrative, uranium, what you've spoken to, they're all pretty tantalizing. But you made the comment a little while ago that oil is to 2026 what gold has been to to 2025.

I'm keen to to hear as much or as as little as you want to talk about this one because I I find it a super enticing space to play in. Yeah, I remember I went on a long diatribe about oil a year ago with you guys talking about like long oil sands, short Permian. And then of course, Trump beat the shit out of Canada. And, you know, kind of, well, sands have been coming off the

mat, I guess. But I I like the fact that oil has been so relentlessly kind of beat up every time a Prairie Dyson pokes its head up out of the ground that it's just, it's, it's not quite left for dead. It's just it can't possibly work because Trump doesn't want it to work. So if it rallies, he's just going to beat the hell out of it. And, you know, he wants lower oil prices by hook or crook. OK, I guess like the future of the world is totally in his hands.

But there there is a quote spring issue going on in the oil that I'll try to distill down in as few minutes as possible. And basically it's that with the Saudi or the OPEC cuts being unwound, a buddy of mine over at HFR Research who's a real barrel counter driven by the data, he always called it the Saudi cut as the Saudis unwounded. The first kind of couple 100,000 barrels earlier this year were easy because they were doing it in advance of the, you know, the cooling season in the summer

where it's 100 plus degrees. They, you know, have oil fired electricity for AC, what have you. And the rubber was always going to meet the road after the summer passes. And we are seeing builds. Generally speaking, how much of that has to do with demand not keeping up in the West versus Ukraine just bombing the hell out of Russian refinery capacity and products not getting to where they need to go? You're seeing crack spreads moon, right? Like we're at 30 refining stocks

are on a tear. The refining is actually, if you look at products right, diesel, gasoline, like crack spreads right now, just the spread looks like it's doing what it did in the lead up to the invasion in 22. Like those guys are have are reliving the same cycle where they're just mooning and it's never been more profitable.

But oil can't get off the mat. And we're in a window here where the equities have already started to sniff out of recovery and guys were selling oilfield services stocks like Weatherford that got to 135 two years ago, a year ago in the 30s, just six months ago, we're back at 7275. Schlumberger, same thing. Like we've seen even the offshore guys, you know, like Valeris was I think 20 handle now it's in the 50s. A lot of the stuff has already bounced.

Tidewater went to north of 100. So I don't know, 30s now in the 50s, equities always kind of smell at first because there's the optionality of a turn that's kind of being sniffed out. But what I think is interesting here is we are in kind of the last bringing on the available surplus capacity as exhibited by OPEC like we're down to I, I personally have believed and continue to believe that the Saudis don't have the wherewithal to take production above 10 and a half million

barrels a day. This is evidenced by the fact that they did it during COVID and the moment they got above that number 10 and a quarter 10 1/2, they started to draw above ground inventory. They have to, they, they're capable of doing more, but they have to invest for it.

Funny enough, they've started to send up players about bringing shallow Jack UPS back on. They're starting to tiptoe towards some CapEx in laying the groundwork for what I think they see two to three years out, which is we don't have a lot of runway left. You know, they've got, I think they're kind of mid nines now. So they have less than, you know, call it a million barrels of capacity to go. UAE has a bit of spare. Iraq is almost there. Key players are pretty much there.

Non OPEC, you know, Brazil, Guyana, there's not actually a surprising amount of room there. That's where the growth has been. There's not a ton of room there. I kind of shake out into like the maybe two to two and a half million barrels left, not even. And that's not a lot of room in the market doing 100 and 405 million barrels a day. And according to others, like we're doing more than that.

We just don't see it. And the biggest thought to me is China is the the best physical oil trader in the world because they have to be right. They've been building out new tanks and they've been filling them with oil. In the 60s. If they thought that we were going to see 40 or 50, they wouldn't be buying. And they've been waving it in. I don't know.

For me, I'm finally kind of seeing us get to a point where especially with a weak dollar debasement, Trump, what have you, the dollar rolls over again, you're going to have one hell of a demand push in emerging markets, which is where that S curve of 3030 five, $100 per capita GDP, you know, GDP per capita kicks in and the kick definitely shows in OpEx commodities like energy because the guy goes from taking a bicycle to buying a scooter, right?

Like that whole kind of step function where the intensity of energy consumption stairs stair steps higher. So to put a bow on it, the equities are clearly sniffing a turn. There's we're transitioning to a world where for decades OPEC always had millions of barrels of spare market would rally, you know they bring on production

market would fall. We're kind of getting to a world where there's got to be a lot of expenditure to bring on supply growth at a time where demand could go from that kind of steady Eddy million barrels of growth per year to a pop as you run into this S curve in the global South in the next two years, precipitated or helped along by a weak dollar that, you know, like the US doesn't really grow on the products front. Like we, we're, you know, GDP per capita here, like we're past

the S curve. The developed market is already consuming. It's, you know, 10121320 barrels per per capita annually. You know, China's doing 4. You know, we're, I think Korea does 13 US, Australia's at 20. I have to refresh my notes and again I'm a bottle of wine in, but there you know, India's at 1 1/2 a billion people. Like let's do maths. If India goes from 1 1/2 to 2 barrels of per capita consumption annually, just a half a barrel per capita, that's 5700 million barrels in a year

of growth dude. Divided by 365, that's 2 million barrels of incremental on one O 5 million barrels a day. So you go from one O 5 to one O 7. Maybe that happens over two or three years, but like India's growing man. So there's not an awful lot of spare to basically what I'm saying is we've got Hacienda

hedge in Mexico to do here. You know, between Thanksgiving and Christmas. We've got builds which nobody likes to see because we should, you know, you know, refineries have come out of turn around, right? We we should be seeing I guess we should, you know, we're going to be building into the winter months.

That's fine. But there we better build a lot because if EM comes out in 26 with some punch and the Saudis unwind the rest of their cuts, like mid next year or later next year, oil is going to run into a situation where, you know, incremental 20,000 barrels, 50,000 barrels from private players is not going to move the needle. And the key players are not going to have the spare. Yeah. Plus, like, you know, Russia's.

Yeah, I I tend to think that people overdid it on the whole fear of the CapEx is all going to flee and their production is going to immediately tank. It didn't. But they're now three years into this, you know, five years of underinvestment in these fields. Like, yeah, you start to see it. So the equities are smelling a turn. The way I'm playing it personally, I'm in December 27th. So I've got like 2 years left on this stuff, $100 calls on WTI futures.

You know, for a buck, dude, like can oil and the curve is flat basically, right? Like in the 60s, can oil rally 50% to 100% in two years? Of course, like in the situation where we start to bump up against global capacity, Yeah, I could. I'm not saying it'll moon like 'cause you get demand destruction above like 1/25,

1:50. But dude, for a buck, like, yeah, I'll take let's let's skate to where the puck is going to be. The curve starts, the backward 8 gets tighter and tighter as we work through 26 in the 27 world's growing. They're running it hot. Everybody's running it hot. Everybody's in the fiscal, EMS are on fire. And now oil's 1:30. That's 30 to one man. It'd be in the money. And like, would that be so crazy? Like we were just at 125 three years ago.

It, it just, it seems like longer dated options are mispriced. But the way to do it for you, you know, for most people is some of these equities like you can two or three bag, right? Like for me, I just I like to tuck stuff in the back of the book that won't bleed on me

because I've got so much time. But the equities right now like have already smelled the turn and are telling you that we either like need a real serious globally synchronized recession to, you know, kind of preserve that buffer in in supply or, you know, the price tag is going to have to move as well. And I guess like for me, gold worked this year. The miners like felt like they should have worked a long time

ago. They've re rated with the gold price, but they're still kind of trading similar multiples like they're gushing cash free cash flow yields are high at 4000 an ounce. Like nothing's really changed except that they just kind of tracked and somewhat outperformed the gold price, but they had margin expansion because of cheap oil. But gold was invisible a year ago, despite the fact that the price was already running, you know, with post Israel, Hamas and and all that stuff.

Like we were already knocking on 2000 a year ago. Then suddenly the gold miners woke up in 25. I don't know what made people wake up. Like I guess people just saw that they were cheap. You know, oil equities are cheap. Like they're invisible. Like oil is invisible. Like it's not even contentious anymore. Just nobody gives a crap because it never works. You know, it's been in a slow bleed forever.

At some point it'll start to work and then the equities will look really cheap and suddenly like, I don't know. That's why I say like for me, the meme is oil is to 26 what gold was to 25. You know, you know, oily MP in oil in 26 is what gold was in 25. Changed my mind like that silly guy, like sitting on the campus with his little sign. So I I think that's not to impugn gold, but like doesn't it also fit like the gold oil ratio

is really something right now, right, Kind of like. 60 or 65 or. Yeah, Like are we really going to live in a world where it's 100? Like did we really get that good at drilling for oil? Like bravo to the industry. I get it longer laterals, bro. But like and that's the other thing also there is this debate, it shouldn't even be a debate that a lot of the Permian production which is plateaued, we had a pop guys are clearly harvesting a lot on the Iran hedges since June.

But now we're coming back down and we went from suddenly spiking about 14,000,000 barrels a day and IEA data for August and September to like now back to like mid thirteens on the weekly. And what's interesting about all this is like this was very clear in June on the Iran pop when when they bombed Iran that commercials were hedging like crazy. It's natural for them to do this. But those hedges are now like they're they're playing through and it's something that we see

in natural gas drilling as well. Like it's a free option to hedge for these guys in the Permian because and equivalently in the Haynesville for that gas. Think like let's say you do 100,000 barrels a day, you get a pop in the price, you go out and you hedge 100,000 barrels 6 months out. If the oil price is rallied, you go out because this is short

cycle stuff. You spud, you frack pad a ton of stuff real fast and you now do 200,000 barrels a day and you deliver 100,000 into the hedge and you sell your original 100,000 at the higher spot and your income statement looks amazing. If the price collapses and you hedged properly, you just deliver into the hedge, but you don't grow your production from 1 to 200,000. So hedging actually introduces optionality for the commercial

to flex. And that's clearly what happened after Iran in June. But like suddenly the numbers are reversing pretty fast. So it shows you that the hedges are, are running off and guys are not reinvesting in the patch. On top of that, you know, there's a lot of baking soda in the nose candy guys like the natural gas liquids that, you know, keep getting talked about. The I, the EIA is, is totally silent on this stuff.

They've been passed point blank. You are you misclassifying Ng LS as crude like I don't understand why they just won't come out and clear this up. But when I talk to guys who operate pipelines, they're seeing this content. They're seeing paraffin in a lot of the grades that they ship as well. You got to heat those pipelines to keep the oil moving. Their games being played to quote UN quote maximize volumes around the edges because tier one has been largely drilled out.

It's not just longer laterals and more efficiency. That was a lot of it. But now they're they're cutting the crack cocaine with crap to keep the product volume up. And that's a game that you can only play temporarily before refiners push back and you see the Ng LS come out of the process on the other side and they're not usable.

So the, I see enough here to suggest that the Permian is tapped out and we're going to need a higher price stack to make Tier 2 acreage, you know, gush the way Tier 1 acreage has gushed for the last, you know, eight years. But like in the context of the global supply picture, we talked about OPEC and how much spare they might have and the Permian and how much they can flex. I just don't see us going into

the 40s. And if demand gets a kick, there's not a lot of low hanging fruit to bring on to, to restrain a trend in a market that's been getting beat up for three years running now. So. Yeah, yeah, I'm, I'm with you there, pal. It's such a, it's such a hated space and that and that's why it's your hated oil, in your words, invisible. And that's why. It's invisible. I prefer invisible to hate it because hate it is contentious. Invisible like just nobody cares.

Nobody cares, Yeah. Nobody cares. I, I, I So nobody cared about gold a year ago. And Iran and Israel were already kind of kicking the shit out of each other and, and nobody cared. And you're sitting there and you're like, how's gold not mooning? And then we woke up to 2025 and here we are at 4000. Like suddenly it works. I can't explain it. I'm, I'm totally, totally with you there, Paulo. It's been, it's been great to, to chat again, to hear your thoughts and, and get up to date

with everything you're thinking. I'd, I'd highly encourage everyone listening to to check out your sub stack. We'll include it in the show notes that people can find it nice and easy. And yeah, thanks. Thanks once more for making time so late at night over your ways on the East Coast of America there. Yeah, I'm I I'm sorry to drone on. You know, I'm already guilty of talking too much, but you catch me at 9:30 at night, you know, a bottle of wine deep and an hour

turns into an hour and a half. And I apologize to your listeners for that, but that's just, that's just me. That's that's why we like having you on the show, Paolo. Much appreciated. Mate, thank you so much. Paolo, my pleasure. Good being with you guys again. We'll talk. Oh, it's great to get Paolo back on the show, mate. Flesh out in in sort of long form some some pretty big ideas, some things that you need to kind of think through in our space. Big stuff informs the little stuff, mate.

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