The World Is Underestimating the Coming Copper Crisis | Will Thompson

0:07Chris Berry: Hey everybody, welcome back to Mining Stock Daily and this week's long-form episode. We've got something a little different for you today. We're actually going to share a recent episode of The Power Current, which was hosted by Chris Berry and produced right here on the Clear Commodity Network. It was recorded earlier in the week. Chris sits down with Will Thompson. Some of you will be familiar with Will. He's a founder and managing partner of Massive Capital. And they have a wide range of conversations about commodity investing, capital cycles, and the growing influence of political and geopolitical risk in resource markets.

0:44Chris Berry: So they get into the structural challenges facing not only copper supply, but the dynamics behind lithium and why identifying a good investment can sometimes be a whole lot easier than knowing when to sell it. So it's a very thoughtful conversation, one I thought we should expand to the MSD audience as well. If you're interested in this episode, you will probably enjoy all of Chris Berry's Power Current stuff. So just go hit that like and subscribe on the Power Current. You can find that on the Clear Commodity Network. Special thank you, as always, to Revival Gold, Integra Resources, Equinox Gold, and Visa Silver for their continued support, which helps us bring these conversations to you each and every week.

1:27Chris Berry: Also, big thank you to Tara Hutton for their support of the Clear Commodity Network, because one of the biggest challenges mining and exploration companies face is communicating what they have beneath the surface. because a great project can have strong geology, compelling drill results, and tremendous potential, but the story isn't always easy for investors to visualize. So Tara Hutton helps make the invisible investable. Go check him out over at tarahutton.io. All right, now here's Chris Berry with Will Thompson of Massive Capital on The Power Current. Enjoy the conversation. We will see you next week.

2:05Chris Berry: And happy Thanksgiving to everybody up in Canada. Be well.

2:30Chris Berry: Will Thompson, welcome to the podcast. Thanks for having me, Chris. Absolutely. So listen, I just want to jump right in. We went through a really, I think, deep background in the preamble here to the podcast. But just to jump in, you have a very diverse background. You worked in investment banking, political risk insurance. And one of the things that I thought was interesting and want to explore is that you were an advisor to NATO in Afghanistan. So given all of that diversity of experience, I mean, how did this path kind of lead you to where you are today to starting a fund focused on real assets?

3:06Will Thompson: Well, it wasn't a natural path per se. When I left, or I should say what prompted me to leave insurance actually was we had run a really clean book in insurance for about four years. and myself and the other guy who started up the political and credit risk insurance business in New York for Chaucer, the firm we were working for, we'd built it from zero to about$750 million in notional exposure. We'd only had two or three policies go wrong. The challenge with that kind of insurance is I might write a policy that puts me on the hook for$20 million a year if something goes wrong, but I'm going to get anywhere from two to 5 % per annum of that value.

4:01Will Thompson: So if you think about the sort of asymmetry there, when that policy goes wrong, it wipes out the premium for a lot of policies. And so because we'd written it so cleanly for so long, I sort of said, and dealing with all the companies I currently deal with, energy materials, industrials. Those are the consumers. Um, I, I, I went in a series of hedge funds, about four or five of them and went into the offices, explained to them what I did and said, why don't you give me a sleeve of money? Uh, and the risk side I've got managed and the upside will take care of itself. Um, and I got the same answer from four or five firms and it was no one ever, ever, ever makes money in mining.

4:43Will Thompson: That's just a bull's out. Um, oil and natural gas, everyone had just gotten burned. So that too was a, well, you know, no one really consistently makes money in this and you can't predict the price of oil. So why would we, why would we do that? And then industrials, we already got someone. Um, so the consistency of, of the first two, uh, responses across so many different firms just sort of prompted me to be like, well, geez, if, if nobody can make money in it, then God, there must be a lot of money to be made in it. Um, uh, so the contrarian in me kicked in and I couldn't help myself. How did you get involved with NATO?

5:25Um, well that, uh,

5:29Will Thompson: I wrote a series of papers in grad school that were published in weird, wonky, obscure journals, uh defense related wonky defense related journals um and uh never expected anything to come of it it was just sort of a professor said well you should see if you can have these published i was like okay fine um and one or more of them i never actually learned uh was read by um general by the last name McMasters. McMasters then went on to be national security advisor under Trump for a short period of time. And he gave me a call and said, I'm about to leave the position I'm currently in, but the general who's taken over for me could use some more assistance, explained to me sort of what the job would be.

6:25Will Thompson: And I was in the middle of midterms or something. I don't remember what it was. Um, and, uh, I said, you know, you got a job if you want it. And I think about four months later, I was on a C-130 flying into Bagram, um, air base. And so that, yeah, that's how I ended up in Afghanistan.

6:48Chris Berry: Wow. Wow. Listen, I, I had sort of a natural flow that I wanted to, to undertake with the pod, but you've just said so many interesting things that I want to take a little bit of a detour. And maybe just to start looking at political risk and maybe more broadly geopolitical risk and how you think about it, how you formed your view on how to price it and how to hedge against it. I mean, you know, you and I have both been involved in the metal space, obviously, for a while now. And recently, I've been doing a lot of work on tungsten, which is tiny market, you know, So no futures contracts, et cetera, et cetera.

7:23Chris Berry: Obviously, we have commonality and an interest in lithium as well, which that market has really evolved as well. So, you know, rather than going on and on, I mean, how is your background and even today as you're managing capital in hard assets, how do you think about pricing and hedging geopolitical and political risk when it seems like, you know, it's used to be maybe the eighth most important thing investors looked at. Now it's clearly, at least in my view, at or near the top. Yeah.

7:50Will Thompson: So I think to start, one has to really differentiate between the two, geopolitical risk and political risk. I have a different definition of political risk than most. And when I explain it to, say, someone who's trying to build a mine in Africa or do something in some sort of frontier market, they immediately go sort of like, oh yeah, okay, yep, that's political risk. Everyone else sort of looks at me sort of funny. So political risk is what happens to specific companies, and it is about, it is a function of the relationship between the company and the government, the specific company and the government.

8:39Will Thompson: It's not a function of the country. It's not a function of the nature of the government. It's not a function of who's in charge of the government. It's about the relationship between the company and the government, specific company, specific government and their relationship. Geopolitical risk is something completely different. It impacts everyone. It might impact companies differently, but there's no hiding from it. So war in Iran impacts everyone in the oil industry. That's geopolitical risk. Political risk is about one company operating a mine in the DRC and their relationship to the government of the DRC.

9:26Will Thompson: So when you look at how you manage those risks, the geopolitical risk, there's no management of it. you are subject to it and your portfolio either withstands it, maybe it benefits from it, maybe it suffers because of it. Either way, you are subject to it and there's no real hedging it, right? Like there's no hedging a ramp. Some companies will benefit, some won't. So the only way to manage around geopolitical risk is position sizing. How much risk that might be subject to a geopolitical event are you willing to take or not? And mostly, to be perfectly frank, in my opinion, there's not really much you can do around geopolitical risk, even position sizing, right?

10:13Will Thompson: Like, am I going to change my position sizing because a president might invade a country? I mean, maybe, I don't know, but I haven't yet and I'm not likely going to, because it requires you to sort of forecast some future event that generally speaking, no one's really in a good position to forecast. Political risk is a whole different story. Political risk, admittedly, I don't think you can hedge political risk, but I do think you can understand how much you're exposed to based on in-depth sort of study and discussion with management about what their relationship with the government is and what it's like and who do they know who to call when something occurs.

11:02Will Thompson: And it's also the easy way to explain political risk, I find, is often to point to D.C. and to say, what do you think all the lobbyists in D.C. are doing? They are engaged in the most sophisticated, active political risk management of anywhere in the world, right? That is what lobbyists do. They engage in the management of political risk or the creation of political risk opportunities. Right. You know, risk is both sides. It's dangerous and it's potential. Right. So, you know, you can get a really keen understanding of the risks or opportunities you're exposed to as a result of politics by understanding the nature of the management team and its relationship to the government of whatever country it's operating in.

11:50Interesting.

11:51Chris Berry: So how do you think about, given where we are today, weighing political risks, geopolitical risks, I mean, how do you think, how do you characterize the overall market environment today? And, you know, I'd love to hear your thoughts on that. And then secondarily, maybe layering on a second question, which is given the gap between tech valuations and hard asset or real asset valuations.

12:17Will Thompson: As we see more countries and governments start to become active participants in their economies, which we've definitely, you know, look, governments have always participated in countries' economies, but it does go in waves. We definitely are seeing increasing industrial policy, things of that nature. As that continues, political risk is increasing the dispersion of outcomes for companies. And so there are absolutely going to be bigger winners and bigger losers and more losers and winners from political risk going forward, in my opinion. The governments are engaging with the economy and in their engagement, they end up maybe not explicitly picking winners and losers, but they definitely tilt the scales in favor of different winners and losers.

13:18Will Thompson: And so there's an increasing need, in my opinion, for investors to pay attention to policy out of governments as they invest.

13:29Chris Berry: Sorry, go ahead.

13:31Will Thompson: No, please.

13:32Chris Berry: Yeah, well, I wanted to follow up on that because I feel like the political risk question or the government sort of involvement in markets has really changed here in the U.S., obviously, right? Certainly since Trump 2.0 has come back in and you mentioned industrial policy and I want to explore your thoughts there. But, you know, the government setting price floors, the government taking equity stakes in companies, effectively picking winners. I mean, that's sort of the unsaid, I think, reality here. I mean, where do you think the United States stands in terms of political risk? Do you see the U.S.

14:09Chris Berry: as a riskier place to invest with respect to hard assets specifically versus cycles or years past? Or is this just, to your point, kind of a new reality and governments are always going to be involved and the U.S. is just catching up?

14:23Will Thompson: I guess actually I would be going back to you sort of directed the question before towards some of the bifurcation in tech and real asset valuation. I actually think that the U.S. might be a riskier place to operate for businesses and industries that previously may not have paid much attention to political risk. And that's one reason why I think you see all the tech guys in D.C. all the time now. I mean, what, 10 years ago, Mark Zuckerberg didn't know where D.C. was. Right. Now they're at state dinners.

15:07Chris Berry: Yeah.

15:08Will Thompson: Yeah. Now, every week. And so there's more political risk for industries that may previously have thought they were not exposed to a lot of political risk. um and that's that's going to create some interesting situations because the the cohort of investors who invest in those industries are not familiar with the issues at all and and probably still don't take them into account um for those of us on the real asset side uh engaged in mining, oil, natural gas, steel, utilities, big projects, infrastructure.

15:56Will Thompson: I've found it somewhat strange because where the money is going is not always clear to me that it makes a great deal of sense. And so you look at something like what we've done, I mean, the poster child for, say, metals and mining in the United States and what the U.S. is trying to do is sort of like MP materials. Right. And the challenge with extrapolating that out is that rare earth metals are very unique and very odd from an industry perspective. You know, it's very small. It's very nichey. It doesn't take a lot of material to change the dynamics of that industry dramatically. There are no futures.

16:51Will Thompson: And so setting price floors and things like that, again, for these nichey little material sectors, that might work and that might make sense, at least for some period of time, maybe. uh but like it's not going to work in the copper industry um or it's not going to work you know in the steel industry those those industries are are so much more mature in in their market sort of structure um so uh i found it a little odd um and i would also say that every once in a while, I'm seeing the government participate and the market not really... The market seems to respond positively sometimes when the government participates and not other times.

17:45Will Thompson: So we are an investor in a company called Blue Moon. Blue Moon has got tungsten copper assets. They've got germanium gallium assets. We've got copper asset in Europe, copper assets in the United States. They got a tungsten processing plant with an APT circuit. Processing, of course, is the big issue as opposed to the availability of metal. They entered a nice JV agreement recently, and part of it is government backing, and it's going to work out nicely for the firm, but the participation of the government has done nothing for the stock. That announcement popped the stock for a day and then it sold off.

18:30Will Thompson: So I don't necessarily think government involvement is going to be a boon for everyone. It's odd where it's been value added and where it hasn't been value added.

18:43Chris Berry: Yeah, I think the idea was to crowd in private capital. And I agree with you. I mean, in that in that instance and even in the np instance i haven't seen evidence of sort of dollar for dollar

18:54Will Thompson: matching um at least not yet yeah the the mp example there was some crowding in as they called it with apple and true a couple of people but definitely not not in a lot of other spaces i'm not, I'm not seeing it. Um, so, and, and I think some of that, yeah, I, I, I, I think some companies and some manage the, some private capital sort of said, we've got to pick a spot and, and play it up for the administration, um, and be a good sort of citizen, if you will. Um, but that's not something we're going to do broadly. This is something where we're going to, we're going to do it. we're going to be able to point to it, get everybody off our back, and then we'll get back to business.

19:42Will Thompson: But that's just my interpretation.

19:44Chris Berry: Sure. Sure. I want to talk a little bit. We didn't really get into, I mean, you talked about your background, but we haven't talked about what you're doing now, which is, of course, managing the funds. So a couple of questions here. And this really speaks to your process. So getting a little bit away from how you think about risk. And once Once you've assessed those risks, how do you actually invest and how do you think about cycles? So maybe question number one or question number one is talk a little bit about, you know, how the fund came to be and what the mandate sort of there is. And then secondly, just from looking at your website and reading things that you've written over the years, capital cycle analysis, it seems to be central to your process.

20:24Chris Berry: And so once you sort of talked a little bit about the fund and what you're trying to do over there, can you walk us through an example of how you identify where a specific commodity, maybe copper, maybe tungsten, maybe lithium sits in that cycle? And to you, as you think about this, which supply side signals really indicate to you that, hey, this is an opportunity?

20:47Will Thompson: I think earlier, I started the fund as a result of being told by several funds that what I was thinking about made no sense and was obviously a fool's errand. So I guess contrarianism is a bit in our blood as a firm. But we've been around since 2016, late 2016 is when I started the firm. Um, we launched the strategy that we run now, which is a long, short strategy focused on energy, materials, and industrials, infrastructure globally. Um, in 2019, uh, in addition to, to running sort of the core fund, we run, uh, some separately managed accounts for institutional investors. and every once in a while we launch a sort of a special purpose vehicle to invest in ideas or themes that we think are particularly interesting and worthy of their own investment.

21:44Will Thompson: Businesses, myself, an analyst, we're hiring another analyst and some business development people this year. So we continue to grow and the appetite for what we're doing continues to sort of increase as attention on business I guess resiliency, I think, continues to grow. So that's sort of the business in a nutshell. It's a concentrated portfolio of about 15 positions, of which 10 on the long side represent about 80 % of the portfolio. Average holding period is sort of two to three years. And we've got about a third of the portfolio in energy, a third in materials, and a third in industrials and infrastructure at any given time.

22:32Will Thompson: In terms of capital cycles, everything we do is cyclical. And so what I've observed at least is that people spend a lot of time on the demand question. and they don't spend nearly as much time on the supply question. And demand, with the caveat that there are metals, for example, like tungsten, where the demand set is a fairly tight consumer base and you can sort of think about the demand a little more thoughtfully, the demand for something like lithium, I mean, you might as well, you know, it's one of these things where you stick a finger in your air and hopefully the wind is blowing in the right direction that day.

23:23Will Thompson: But the supply side, on the other hand, is quite a bit different. The capex cycles are long. The construction periods are long.

23:38Will Thompson: The reinvestment that is required to continue to produce is quite trackable. Um, and so tracking the supply side and where, uh, where companies are in, in, in that cycle of replacing their, their ore or their oil or whatever it may be, uh, is quite a bit easier than the demand side. And so we tend to focus on that supply side purely because, you know, the demand side is sort of the two heart box in our opinion. And so we look at things like, you know, capex to depreciation ratios across the entire across entire industries. We look at permitting cycles in different countries and where that that puts different projects.

24:27Will Thompson: We do a lot of tracking of projects and where they are in their development cycles and where they think their supply is going to come online. And so that's really how we focus on capital cycles. And then, uh, you know, we choose to, to invest sort of counter cyclically, uh, when that demand site or when that, that, uh, capital cycle, um, is, is, is unfavorable. Um, when people are looking to get out, when people are not investing, uh, when companies are, uh, going bust because they over invested and now they have spare capacity, you know, those are the types of things we look for to start to get in.

25:16Okay.

25:17Chris Berry: I want to go into your thoughts on some of the metals here in a second, but I do want to just ask one last question about something you mentioned earlier, which is position sizing. So once you have assessed these risks, political, geopolitical, you've looked at the capital cycle, it's a contrarian opportunity. You can clearly see on the supply side that there's going to be a move, um, a need for capital. So once you have made the decision, okay, this is the metal, this is the company. How do you think about position sizing? Yeah.

25:51Will Thompson: Um, so, so we, uh, we have a very specific approach to position sizing. What we've done is we've sort of said how much in, in theory, we've come across the perfect investment. What does it look like? and how much would we invest on day one if this was the perfect investment priced perfectly. And for us, we decided that that was 8 % of the portfolio. If everything was perfect, day one, we'd invest 8 % of the portfolio. From there, we sort of draw a box around what 8 % looks like across about a dozen variables. Each new investment we look at, we sort of mark down each of those dozen or so variables and scale it linearly from what perfect looks like.

26:38Will Thompson: That's our approach. It's simple, it's straightforward, it's repeatable. And I think with position sizing, that's sort of the most important part. There's no perfect way to size a position. Everyone approaches it slightly differently. But that you have a process that can be analyzed and can be executed consistently is sort of the most important thing. Whatever that process is, that's what's important.

27:10Chris Berry: And maybe one more follow-up question. I'm sorry I keep coming back to this, but so we've talked about establishing a position and then sizing it appropriately. What are the signals to get out? In other words, how do you allocate capital from investment A to investment B? I'm sure there's a number of different reasons, but how do you think about getting out?

27:31Will Thompson: That one's a little trickier, I think. Selling I find more difficult than entering. And I think that commodity related companies are particularly challenging because there's sort of two variables. We've got the commodity price, and then we've got the operating business. And what we often find is that the stock price runs differently on these things. And so the commodity price variable, that one can produce outcomes that are well in advance from a valuation perspective of where the fundamentals are. Sure. And so we watch the two together. And when if something has moved dramatically on us and we look at it and it is now approaching what we think the value of the company is, and it has done so mostly on commodity prices, we are absolutely getting ready, if not already starting to exit.

28:46Will Thompson: if on the other hand it is doing it is approaching that price on the basis of fundamentals uh you know again we will we will probably be starting to exit uh but we will also do a reassessment and say where is this uh from a fundamental perspective where is the commodity price, is this approaching the valuation of the company, but at a different commodity price, a lower commodity price than we had priced it in? If so, maybe we just want to trim and continue to hold. So there's a couple of questions, but a lot of it depends on what we see the driver. And typically this is done via a factor model that we've built.

29:32Will Thompson: What is driving the returns here? Is it being driven by commodity or is it being driven by fundamentals? And, you know, which is likely to, uh, to, to be the primary driver for the foreseeable future.

29:50Chris Berry: So it's, it seems like part of it is just an emotional decision. And I don't mean an emotional decision that you yourself are making, but you're looking at the market and saying, Hey, look, we have a, I'll just make up a situation, a pre-revenue lithium play and lithium pricing is up 300 % and this stock is up 500%. Okay. There's clearly an issue here. We know, we know what's going to happen. And so let's jump ship before, you know, we're sort of left, uh, before the rest of the market realizes.

30:19Will Thompson: Absolutely. I think that, um, what's important, something that I think that people underestimate is, you know, oftentimes we talk about spot prices. Um, and the problem with talking about spot prices in the commodity world is that you're using a single price to try and sort of, um, carry a lot of water for, for what is in fact a range. Right. Um, and, and we spent a lot of time thinking about recently did a paper, uh, looking at the oil price range, um, and the floor and the ceiling. And when you have those situations like you described, that's a ceiling event where the commodity price is blowing through the ceiling.

31:05Will Thompson: They blow through the ceiling on emotion, on behavior, on perhaps event-driven, et cetera. But they don't stay up there. You never do. The variable that changes that creates a new price range is not the ceiling variable, it's the floor variable. That floor variable shifting is what we pay a great deal of attention to in regards to our underwriting and in regards to whether we are holding positions or not. But if we see the floor changing, that might require us to go back and re-underwrite, say, our price deck that we used for a commodity.

31:51Chris Berry: And how much of that floor, sorry, I didn't mean to interrupt you, but I totally understand what you're saying and I agree with it. And you talk about the floor and I guess my question is, how much of the floor is the China price? Because again, whether or not it's lithium or tungsten, these are all case studies in their own right. right? But when you think about the floor price, everybody talks about, you know, the Chinese cost of production and the China price. And even on the tungsten space right now, you can look at APT in Rotterdam and you can look at APT in China and they're, they're like$2 ,000 in MTU apart.

32:29Chris Berry: So it's almost like, is this the same market? I mean, are they selling the same product? So

32:34Will Thompson: this goes back to, I mean, this goes back to your sort of question about political risk and geopolitical risk. Um, and this is, there are, I guess, a couple of risks that end up being some sort of weird political slash geopolitical. Given the ever growing bifurcation of certain markets, the China price may or may not be the floor price. And it sort of depends a little bit on the government policy of the consumer countries. So we look at tungsten here in the United States. I'm not sure that the China price matters a great deal because the DOD wants US tungsten. And in my opinion, probably, you know, rightfully so.

33:28Will Thompson: It's pretty important to defense and things like that. So we got to be able to supply it ourselves. And we can only supply it at price X. And whatever price X is going to be uh it's going to be more than the china price but that's going to be what gets consumed um and we're probably not going to let a lot of tungsten from china into the country and i don't even think well germanium and gallium china's not exporting anymore is china's not exporting its tungsten either i don't think no um so so so the china price doesn't even matter right uh at least for the united states um it's not an option it's not an it's not an available floor for us uh so i i think it you know it's a case study as you sort of suggested each metal is its own case study and we can't draw um we can't paint them all with the same right a singular conclusion it's getting increasingly complicated so all right let's shift now i mentioned i wanted

34:27Chris Berry: to get your opinion on a few of these metals and i think copper is at the top of everyone's list I'd like to know where it is on your list but look it's wrapped up in the AI trade the data center trade the electrification thesis I mean for as long as I can remember there's been discussion there's been talk of a structural deficit in copper and it's just around the corner it's 2030 you know you can pick your base year but and I personally believe that but nevertheless I'd love to get your thoughts on copper do you think this structural deficit thesis is priced in or do you think the market still sort of underestimates the supply constraints that the market's facing that copper market is facing

35:13Will Thompson: excuse me yeah yeah i think the market has probably correctly identified the structural deficit thesis, but is probably still under or mispricing, however you want to think about it, a couple of different dimensions of it. So irreversible grade decline at some of the world's largest sort of copper mines or incumbent, you know, Chile, Peru, incumbent producers. I don't think they fully appreciate the significance of that. What I'd also say is that permitting timelines continue to increase. And so I think I saw recently that the average copper permitting timeline has crept up now globally. And whatever organization this was, Wood McKinsey or someone is now saying it's 17.8 years.

36:16Will Thompson: So 17.8 years means that the CapEx bump that we've seen in copper from this year and last year, it's probably irrelevant to 2028, 2032 period or supply window. So I think they're probably underappreciating that. And then, going back to the political risk concentration that's occurring, the jurisdictions where the remaining high-grade assets are, are increasingly complicated. And so, Argentina, the DRC, Zambia, there's a couple of other places here or there. I mean, Serbia said no to a lithium mine from Rio Tinto, but there's some copper there as well. So I don't think the market fully appreciates that.

37:16Will Thompson: And a mining company that's got African assets but trades in the West never gets its full valuation. um it just doesn't because there's a there's an africa discount now the africa discount is a naive discount it's got no substance to it it's got no backing behind it from an intellectual perspective other than to say oh africa looks scary um but uh uh that's going to make financing more challenging uh so you know we've got irreversible decline in grades uh underappreciated We got timelines underappreciated and we got political risk underappreciated. We've got some increasing M &A, but M &A is not a substitute for Greenfield.

38:11Will Thompson: It's more just sort of moving the deck chairs around. So, you know, I think the market understands it, but the potential severity of it is underappreciated. it. Um, yeah. So that's what I'd say about Coppola.

38:29Chris Berry: Do you, I mean, do you prefer given these constraints and, you know, you, I was going to ask you about NNA and what you thought on that. And it seems like it plugs a, you know, you're putting a finger in the, in the crack in the dam or whatever. Right. I mean, um, do you, I'm just trying to think about, uh, where to take that. That was, that was really good. I think, you know, one of the other things I wanted to mention was in your, you, you, you post your investment letters that I guess you write to your holders. And I was reading one in prep for this interview and you talked about wicked problems.

39:02Chris Berry: I think it was in January. So this is slightly dated, but I mean, would you consider this potential copper deficit a wicked problem? I mean, can you describe what you meant when you wrote about wicked problems and how you see them interacting here?

39:17Will Thompson: I've been waiting for this for 10 years. I've been writing about wicked problems. I think the concept of wicked problems is, I think it's a spectacular concept and the nuance of it is widely underappreciated.

39:32Chris Berry: Is that wicked like South Boston wicked or?

39:34Will Thompson: Yeah, it is. It is. Okay. But no one's ever asked me about it. So wicked problems are, there's a formal definition. You could like look it up on Wikipedia and whatnot. It's a, it's a academic concept, if you will. But to sort of put the long and short of it is that a wicked problem is a problem for which the application of the solution changes the nature of the problem. It doesn't solve the problem. per se. So the way to think about it would be, I don't know why I always think about healthcare when I think about wicked problems, but healthcare is a perfect example of a wicked problem. We rolled out Obamacare.

40:26Will Thompson: Did that solve the nature of the healthcare problem in the United States? No, it did not solve the nature of the problem. It changed the nature of the problem. You look at someplace like the UK who has universal healthcare. Did universal healthcare end their healthcare problems? No, it just changed the nature of the healthcare problems. So problems that really have no end, they just evolve from a better state to a worse state and back again to a better state. They're balancing between this is a better state and this is a worse state based on decisions made and balancing between the two without a definitive solution and an end rule.

41:05Will Thompson: They talk about wicked problems having no end rule, which is to say, no solution that just brings the problem to a full stop. And I think a lot of what we're confronted with in sort of this era, if you will, are wicked problems. And there's no doubt that some of the issues we face in terms of supply of materials are wicked problems that we're just going to have to deal with in different ways for a long time. We can definitely ramp production of copper in the United States, but just ramping the production of copper doesn't solve the whole problem. We'd need to ramp copper smelters. Well, if we ramp copper smelters, we're going to have all sorts of protests from people around the copper smelters, which is going to create another problem.

42:00Will Thompson: And it goes back and forth and back and forth. So I think it's an important concept.

42:04Chris Berry: So industrial policy could be a solution to the wicked problem of resource dependency here in the United States. Not a full solution to your point, but because to your point, there's mines that need to be built. There are smelters that need to be built. There's a whole supply chain here. And so that's part of the part of the wicked problem. One of the questions I wanted to ask about copper, and then I want to, I want to jump into lithium, but given everything you've talked about and your sort of views on the market and how you see the market missing certain things with respect to copper. I mean, do you prefer juniors?

42:39Chris Berry: Do you prefer pre-revenue plays given the dynamic? Or are you happy owning those guys that are down in Chile, down in Indonesia, making a lot of money right now, paying out dividends? How do you think about along the existing copper supply chain, juniors, developers, producers, where you want to be given where we are in the cycle?

43:00Will Thompson: I prefer great management teams with at the very least a decent project. Yeah. And I don't really differentiate between whether that project is in development, uh, going into production or in production. Um, that, that variable, uh, is dealt with sort of in the price, if you will. So oftentimes a producer can't be purchased cheap enough to address the risks associated with it. Oftentimes a developer can be purchased much cheaper than where it is in its life cycle. So admittedly, we do tend to gravitate towards developers only because they tend to be cheaper with more explosive upside. But what I will say is that right now, I would be looking for low-cost, long-reserve-life, pure-play copper producers with quality management teams.

44:10Will Thompson: And so those would be people like Lundin Mining, like Ivanhoe. And then on the other side, firms that are looking to, and I would sort of almost balance those a little bit with some firms that are looking for those types of assets. Not all firms, all firms, you know, might find those assets. You know, you stick a drill in the ground and you don't exactly know what's going to come up. But there are definitely firms that are hunting for elephants in sort of elephant hunting territory. Right. So look at companies like Midnight Sun. You look at companies like Corax. These guys are hunting for. Big copper deposits in big copper country.

45:00Will Thompson: Zambia, Niger, or Namibia, excuse me, or Lumina Copper up in Poland where there's some European sedimentary copper-hosted deposits. So look for people who are hunting for big copper deposits in the right places. Got it.

45:30Chris Berry: All right.

45:30Will Thompson: That's, that's excellent. I want to shift. And to our, sorry, and one for, and what's really important is making sure that wherever you are, whatever you're looking for, you've got the right management team for where the company is in its life cycle. Yeah. That's one I think people get wrong too frequently. um you could be hunting for elephants in elephant territory but be a mine operator if you're a mine operator you're probably not the right management team for a company that is developing if you're a developer and have never run a mine and now you're trying to run a mine you may not be the right team to be running the mine um project companies uh have very distinct linked life cycles.

46:20Will Thompson: And each stage of the life cycle requires something different from the management team.

46:25Chris Berry: Sure. So it's sort of the Lasson curve or the mystery history curve, as they call it, right? I mean, I totally agree with you, by the way. I mean, just like you have geologists that excel at drilling and operating mines or exploring, it's CEO acumen, I think, is very similar as well. All right. I want to jump to lithium, but again, I was reading your most recent investor letter, as I mentioned before, that's on your website. And there's a quote here that I just thought this was so perfectly worded. I wanted to read it back to you and then maybe have you explain it and discuss it in the context of commodities in general, but maybe shifting towards lithium.

47:05Chris Berry: And so I'm just going to put my glasses on. You write, macroeconomic uncertainty, geopolitical fragmentation, technological discontinuity, and policy experimentation together raise the probability that long-held assumptions about correlations, risk premia, and market structure no longer apply. I thought that was a terrific sentence because it really does bring together a lot of what I think investors, it doesn't matter if you're just starting out or if you've been in the game for 30 years, we're almost sort of watching a movie that we've never seen before, right? When you sort of balance industrial policy and what we're trying to do in this country and other countries.

47:43Chris Berry: And so given that sentence and how you think the market's kind of struggling to rationalize everything, let's maybe turn to lithium for a second. How do you think about looking at the lithium market, given its importance to electrification and given the challenges that you wrote about back in January?

48:02Will Thompson: Yeah, well, I think, so lithium is kind of an interesting example to look at because it's very much going, those variables I sort of mentioned, geopolitical risk, industrial policy, technological change, it's subject to all three of them at the moment. I think for most of say the 2000s and then into say the 2010s, you know lithium was a specialty chemical market with uh very niche use cases and admittedly some lithium ion batteries but you know definitely the bath burner um and it was very much controlled by you know a small oligopoly if you will um sqm albermar maybe livent tnq those guys it's a very small group um uh but you know that framing would be fundamentally wrong now um the 2010s and and i think probably the you know the chinese came in big in the 2015 2018 yeah cycle um with their lapidolite sort of production and then they really ramped that hard.

49:25Will Thompson: And then Australia came in with the hard rock miners, all of whom brought on capacity, you know, 18 to 36 months or something. So much quicker than say Brian Evaporation was brought online. So the market, you know, consistently underpriced the supply response because it consistently misunderstood the evolving nature of the product. So I think those risks are changing the, they very much change the supply and demand inputs, which in turn, you know, sort of impact dramatically the way the companies need to operate in those industries and some of the competitive risks that they face. Got it.

50:23Chris Berry: And so, so misjudging supply elasticity. I mean, where do you think we are in the lithium cycle today? we've seen$80 ,000 lithium in 2022, it collapsed to eight. We bumped to about 24 today, depending upon who you speak with, we're at, I don't know, 19 or 20 or something like that. I mean, where do you think we are in the, in the, in the lithium cycle?

50:47Will Thompson: It's kind of ambiguous, I would say. I know. At least for lithium, I think it's fairly ambiguous. I mean, on the bullish side, You know, you've got this, I guess this year is probably a deficit. Chemical inventories are pretty lean. Chinese producers, I think, again, TNQ and Gangfang, I think H1 was one of their strongest net income periods. This year's H1 first half was one of the strongest they've had in quite a while. and they were definitely all flagging sort of a tight market throughout the rest of the year. At the same time though, I'm starting to see some discussion around 2027 supply or surplus risk.

51:42Will Thompson: And so you might characterize it maybe as like a mid-cycle. we're going through a mid-cycle recovery that is very short, that is already perhaps rolling over. I mean, the lithium carbonate futures in China last month saw a fairly significant fall. I think they collapsed as much as like 25%. percent. So that is suggesting that, I mean, maybe. I will say that lithium futures in China are difficult to follow and difficult to track. But that might suggest that everyone's already trying to price in the 2027 sort of potential surplus risk. It's going to be a question of speed of supply response uh and lithium has consistently at least in my opinion demonstrated a faster than expected uh supply response yeah um probably best demonstrated i would say by uh the the growth in supply out of africa a couple years ago which if you had asked well i mean people did ask me before that happened i was like oh that's fair i forget it they're they're not bringing on that supply where they think they're going to bring on sure high cost like the light yeah exactly yeah but of course they did bring it on and and we're probably quite grateful uh for that because that dropped the price of batteries dramatically and now china has ramped up you know dramatic um uh battery electric storage um you know but the battery electric storage demand is probably sort of peaking a little bit.

53:33Um, so yeah, I'd say some sort of mid cycle recovery that is, you know,

53:39Will Thompson: maybe already rolling over, um, seems like a reasonable place to put us.

53:45Chris Berry: Got it. Okay. Makes sense. Um, one of the things that, you know, we alluded to earlier, I might've mentioned in one of my questions was the AI data center build out. And, you know, you're seeing pushback here in the United States, some moratoriums in places like Texas and New York. I'm curious to get your thoughts because I feel like a lot of the metals narrative, the bullish narrative is really tied into AI, right? And so let's assume that AI CapEx growth or just the CapEx role, it slows and slows sharply. I mean, which real asset businesses do you think are most exposed and and which had demand drivers that you think would stand on their own?

54:27Chris Berry: In other words, is copper insulated? It's AI as a nice little bump, but it's going to keep going. Or what do you think about which metals are at risk here if things do slow down?

54:38Will Thompson: I definitely don't think copper is insulated on this one. I think copper is probably the easiest metal to get wrapped up in sort of the tailwinds of this. so I would be surprised if copper didn't take a hit if AI fell out of bed

55:03Chris Berry: I feel like copper and lithium are the ones that everyone talks about I just didn't know

55:07Will Thompson: I would probably say that that there's there's some you know look you got to build a lot of data centers you build a lot of data centers that's a lot of steel that's a lot of concrete so steel and concrete probably take hits also. There's a whole bunch of weird niche industrial businesses. Those aren't commodities, admittedly, but weird niche industrial businesses producing product that would get caught up in it too. So a perfect example, last year, or for about, we exited the position last year, but I guess we entered the position the year before, a company called Organo out of Japan. Uh, organo manufacturers, the equipment used to produce what's called ultra pure water.

55:53Will Thompson: Um, ultra pure water is the type of water used by semiconductor manufacturers to clean, uh, semiconductor plates, you know, sort of, you see the big circles with the etching on it. Sure. Um, so there's, there's a lot of water used, uh, in the manufacturer of semiconductors because there's a lot of chemicals used. You've got to wash them on a continuous basis. And water, especially ultra-pure water, which is water that if you had an Olympic-sized swimming pool, there would be only about a thimble full of stuff that isn't H2O in the water. That, in fact, means that the water is a significant solvent.

56:42Will Thompson: um you don't actually want to drink ultra pure water it would it would actually uh my understanding is that it would kill you i mean not immediately but it's not you know water that clean is not something you want to drink it turns out um you know so that type of business uh they were sole source supplier for tm uh tsmc of all their water equipment so they they went on a nice little run they benefited a great deal uh but you know if if ai falls out of bed uh that's their only business is supplying water equipment to semiconductor manufacturers. They'll probably fall out of bed too. So I would actually look more towards some of the intermediate use cases or I mean, in the case of Organo, you know, it's in some regards, it's like a water refinery company or something, right?

57:34Will Thompson: Like a processor manufactures the equipment that processes commodities.

57:38Chris Berry: Yeah, you know, it's interesting. you mentioned sort of niche applications, or I don't want to call it side businesses, but to your point, I agree. And just coming back to tungsten for a second, in my research, I've been reading a lot about tungsten hexafluoride, which is utilized in the manufacture of semiconductors. And now there's sort of the push around, well, wait a second, to our point earlier, right? Like pricing is bifurcated. Now it's molybdenum. So you're sort of see a situation where if things really do slow down on the data center side, everything gets hit to a certain degree. But we're bumping up on time here.

58:17Chris Berry: And so I just want to finish up with a couple more questions. Really, really, and I'm glad you just mentioned one of the companies that you exited because this is sort of a two-parter. But, you know, in your tenure as a money manager, what's been your best investment and what's been your worst investments. And, you know, happy to hear about each of them, but I'm more interested in maybe one of the more challenging investments and what that taught you. What did you change about your process from that investment that, you know, didn't work out the way that you had hoped?

58:53Will Thompson: So from a pure return perspective, um my best investment uh was uh lithium americas um which we entered at buck 85 or something thereabouts uh and then rode to 40 ish dollars a share in 2021, was it maybe? And my most challenging investment and the one that was most painful was Lithium Americas as it proceeded to fall from 40 all the way back down to two. And I only exited some of the position at 40. And I will admit to having ridden some of it all the way the frick back down. Mm-hmm. Um, what was really challenging, and this is, this goes to why I find selling in our space or in the spaces we deal in so very difficult.

1:00:01Will Thompson: Um, you know, lithium Americas was way, at 40, it was way ahead of anything the fundamentals could justify. But it wasn't necessarily way ahead if lithium was actually going to be$40 ,000,$50 ,000 a ton. Those weren't even price scenarios that we took into account in our evaluation. I think our top price was$25 ,000 a ton or something for hydroxide. I don't remember what, but so it was really challenging to figure out, you know, have we got the market for this product completely wrong? Is the, you know, the supply and demand situation, have we just completely misread this? Is there a possibility that, you know, and the situation where the commodity and lithium is particularly difficult, but we're facing this with several commodities right now, I think, you know, where the use cases that were are no longer the primary driver.

1:01:14Will Thompson: Right. Or even if they're still the primary driver, they're not the primary concern, perhaps. And so I found it quite tricky to figure out how much to exit. of lithium and the answer was you should have exited the whole damn thing um uh but rather than it being one of those situations where we said well clearly this has overdone it dramatically and admittedly 80 000 it was clearly overdone dramatically but it suggested that perhaps 40 maybe wasn't overdoing it dramatically it overshot what was rational by so far that it made us question maybe what the real range should be. Well, it turns out that the real range was actually not that different, at least to date, was not that different from what we sort of suggested, which is what we valued 15 to 25 ,000 with a couple of scenarios in there.

1:02:18Will Thompson: Turns out that that probably was the real range. But when it hit 80, that's so far above the high end of our range that we had struggles trying to figure out whether or not that range had changed.

1:02:32Chris Berry: I remember those days, you know, and I remember it hit, I remember when it was on its way to 80. I remember lithium at 40 and 50 and thought, gosh, this is, like I said, we're watching a movie we haven't seen before, you know, and you just don't know how it's going to end. And I remember at 80 talking to somebody that was saying, you know, the whisper number, I'm using air quotes is for lithium is a hundred. It's going to go to a hundred dollars a kilogram. And you're like, I don't understand. I just, it was a lesson for me, right? Because as you know, like I've never seen a commodity. I don't, I'm putting aside the argument of what lithium is a commodity or especially chemical.

1:03:09Chris Berry: I've never seen a material where the entire cost curve is, you know, three X above or, or, or, you know, it's just, it's everything makes money hand over fist, right? Um, that's not rational and it doesn't last. And you just, like I said, you just, to your point, you know, you just don't know where it's, where it's going to end. Is everything reset? So anyways, I'm, I don't want to editorialize. I do want to, you know, thank you.

1:03:36Will Thompson: So we did, yeah. What I will say is that we, we did as a result sort of implement some stricter, wouldn't quite call them rules, but guardrails around accident. But you know, these things come with cost also because now with the guardrails that we've got we would have run we would have stuck with lithium americas from you know the buck 85 or so that we entered all the way to probably 25 or so dollars right um and then we would have gotten out um and that would have been a nice game yeah but gosh it then went on to go to 40 so yeah i know um it's it's uh you're always in some regards, damned if you do, damned if you don't, um, when you're selling.

1:04:22Chris Berry: I know, I know. I hear you. Listen, I want to thank you for your time. This has been terrific. I feel like we can do a part two just on investment process and your thinking there, and I'd love to do that one day. But again, I mentioned a couple of times your website for the fund and it really is a goldmine of sort of intellectual information about the markets, about the commodity markets in general. So, you know, anyone listening to this, how can they contact you? How can they get to the website?

1:04:50Will Thompson: Yeah, so our website is massivecap.com, M-A-S-S-I-F-C-A-P.com. Our letters are all up there with the exception of the current year's letters. So 2026 letters will go up next year. but every letter 2016 to 2025 is up there at the moment and then somewhere in the corner there on the website is a link to our sub stack and we publish sort of one long form report a month or thereabouts that does tend to go behind a paywall something's got to pay for all of this besides the fund. Although the fund pays for everything, really. The Substack doesn't really make a whole lot of money, but it is all behind a paywall.

1:05:46Will Thompson: But some of the reports are available. And if you're a potentially interested investor, please feel free to reach out on the website. And we're happy to share a lot of those reports.

1:05:58Chris Berry: Great. All right. Well, thank you very much for your time. Much appreciated. Absolutely. Thank you. The information presented should not be considered investment advice. Mining Stock Daily and its affiliates are not responsible for any loss arising from any investment decision in connection with the material presented herein. Please do your own research or speak with a licensed financial representative before making any investment decisions.