Lawrence Lepard: Our Top Performer Returns

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1:24And now to the top analysis of today's markets. Our top performer, the investor who's had the highest returns by far, returns for a victory lap on Three Ideas.

1:41When we launched Three Ideas last year, our very first guest was investor Larry Lepard, who focuses on precious metals. We have a tracker that we share with Real Vision members that looks at each guest and charts their three ideas. And Larry's picks are by far and away the top picks. He has a return of 44%, nearly double his closest competitor on the show. So we invited Larry to come back, update us on his three ideas and take a victory lap. Though you might be surprised that he's quite reluctant to take that victory lap. We'll get to that in a second, Larry. Congratulations. But first, I'd just like you to walk us through an update of your global macro thesis in the context of how inflation has changed since we talked six months ago, the Fed moves.

2:28And of course, now we're in a crisis with the bank. So welcome back, Larry. Thanks for having me back, Samuel. And yeah, no victory lap yet. I haven't sold and it's not over yet. But also timing is everything. We were very fortunate. The time we did our last interview was September of last year. And that was almost the perfect bottom in a lot of the gold stock. So better lucky than smart. But to go to your issue of the macro, I mean, we all can see what's going on. And, you know, the world really just changed on, you know, the last couple of weeks. When Silicon Valley Bank had a run,$42 billion withdrawn, went cash negative, and the FDIC had to step in, and then the Treasury and the Fed had to step in with a new program, you know, the BTFP.

3:10you know, it's basically saying what I've been contending and others have been contending for a while, that is that the Fed is trapped and that the continuing tightening of monetary conditions to try and address the inflation problem was going to cause things in a highly leveraged financial world to break. And I think what we just saw was the beginning of that break. They haven't cut rates. In fact, they put them up 25 bps yesterday or two days ago. But, you know, you can see if you look at the futures, the Fed futures, you can see that there's a 90 percent chance that that was their last raise.

3:42At least that's what the marketplace is saying right now. So so the macro world has changed because financial conditions have really changed. And, of course, there's some contagion here, as you and I were talking about before the show started. It wasn't just Silicon Valley Bank. It then spread to Credit Suisse. And of course, now this morning, the CDS on Deutsche Bank are blowing out. So there's an issue here. And that issue will feed and drive my thesis, which is to say that they can never stop printing money. And they have to continually debase the currency. And therefore, in order to protect yourself from that debasement, you need to be in gold.

4:21And gold and silver mining sucks. I was just at a Real Vision meetup here in London. And you were on the tip of a lot of people's tongues as we were talking about your 44 % return. And they wanted to know, so what do you do for gold then? And I mean, we're going to get into some of your ideas. But broadly speaking, do you have, when people ask you, do you look at gold ETFs? Is it more going down the gold mining route like we're going to be talking about again in today's episode? So everybody should, you know, I can't give investment advice, right? Everybody's situation is different, as you know, and everyone should pick the risk reward that makes the most sense to them.

4:57I mean, at the core, what I recommend to my clients is that at a base core that they actually have some physical gold, whether it be coins or bullion, or trusted physical gold through a source like Bullion Vault or Gold Money or, you know, PHYS or PSLV, which are the two Sprott ETFs. you know, I think you start there because they will protect you against inflation, the inflation that's coming, in my opinion. Gold stocks, the rule of thumb on gold stocks is that they're much riskier. And of course, the upside in returns can be much higher, but of course, look in the downside. And so, you know, rule of thumb has always been if gold goes up 10%, the gold stocks will go up 30%.

5:36And so, you know, if you want to be more aggressive in your approach to this debasement bet, you buy gold stocks. And my fund, I sell my fund to my investors as, you know, I'm extremely aggressive. I'm trying to make high rates of return, and they should allocate money to it that they consider they can live with the volatility because it does go up and down, you know, quite a bit. But if we're right, and I believe we are about what's happening in debasement, you know, the gold price is going to go much higher, in my opinion, the next few years ahead. It was interesting. We've seen not closing prices, but for the first time since the Russia, the Russian war started, the Ukraine war started, we've seen gold over$2 ,000 an ounce.

6:17And that's a very important level, Samuel, because, you know, in 2011, it hit 1900 briefly. And then in 2020 on the COVID thing, it got over 2000 briefly. And then when the war broke out, it got over 2000 briefly. And after each of those, it's come back and corrected pretty severely down to 1 ,700 in some cases, even lower a little bit in one case. And now it's back knocking on an all-time high of 2 ,000. It's been there three times. And as you know, in the investing world, when things make new all-time highs, that attracts a lot of attention. And so I sincerely think that what's going to happen here is at some point, we're going to break through that 2 ,000 with authority and gold is going to squirt up to 2 ,500 or 3 ,000.

6:57If that occurs, the stuff I own is going to go bananas. I mean, these companies are making pretty good money at$1 ,900 gold. They're going to make even more money at$2 ,500 gold. Well, let's jump into some of the stuff you hold. And just to be clear, full disclaimer, you do own this and your fund has stakes in some of the names that we're about to discuss. So I want to jump into the first one. That's Equinox Gold traded on the NYSE. We were talking the last time and it had peaked in April of last year around$8.90 USD. In September, it went down to$3.56. That's when you and I spoke, and it's gone up to$4.65 around the time that we're talking.

7:43So that's a great return. But it was funny when you and I did our pre-call where we chat before we come on, you weren't using the body language of a guy who was the top performer. You were a reluctant champion. So walk us through with a stock like this, why you're not taking the victory lap? Well, I mean, I'm not taking the victory lap on this whole area because I know how difficult this area is. I know how unpredictable it is. And I mean, as an example, if the US decides to put in a 100 % tax on capital gains or 90 % tax on capital gains on gold and gold stocks, we're about to get hurt very badly.

8:20And so there's risk in the gold bet. You're betting against the government, you're betting against the Fed, and they're trying to defend the system they've got. But, you know, I don't believe that it's likely that what I just described will happen. And so I'm always just a little bit cautious. And, you know, you have to be, I think, if you've been in this industry a long time, I've been doing it for 20 plus years. And so I've seen, you know, what happens. And that's why I think I'm a little more cautious on it. But moving to Equinox for just a moment. I mean, this is still, there's really nothing that's changed here.

8:51This is a great story. You know, the Greenstone project is the big upside growth. And they're at kind of the 500 ,000 ounce run rate. They did 532 ,000 ounces last year of production. They've guided for roughly 600 ,000 ounces this year. And, you know, their big project is this Greenstone project, which they expect to open up in the first half of next year. And ultimately, this company is going to grow its production, they say, to about a million ounces. I think it could be slightly less than that. But the point is that even if they weren't growing, they're cheap. And then when you add the growth in, in my opinion, they can go beyond that.

9:29Ross Beatty, who was a brilliant multi-hundred millionaire and made through gold mining stocks, is the largest shareholder here. I believe he's also the chairman of the board. He was until recently. And so I think it's just a very good situation. And it's somewhat undervalued for a variety of reasons. One is because they have a mine in Mexico, Los Felos, which is in Guerrero, which is a difficult area, which from time to time, their work stoppage is there, but they generally get them resolved by, you know, paying the locals more money. And so there are issues, obviously, but the Greenstone project that they're building up in Ontario is extremely safe.

10:05And, you know, it's going to be a very, very, you know, profitable and productive mine. And, you know, they're trading it kind of eight times EBITDA right now. And that EBITDA number will go up substantially when they get Greenstone open. And I also think the EBITDA. The other thing about this company is in general, it's funny. I mean, you would think, well, if I'm buying gold stocks, I want to buy low-cost producers. I want to buy people who have really low cost pulling outside of the ground. And that is generally speaking true. However, in a gold bull market, when your ASIC cost, that's the average cost to pull a gold outside of the ground, is relatively high and you get the gold price going up, you've got a lot more operating leverage.

10:46So your profits are going to grow much more rapidly as a result. And so in my opinion, you know, we are going to$2 ,500 or$3 ,000 gold within the next couple of years. And if we do that, this company is going to make just a ton of money. You know, a million ounces of gold at that kind of a level would probably, you know, produce, you know, close to a billion dollars of earnings. So, and we've got a market cap here of 1.46 US dollars. So I'm sorry, I'm wrong. We got a market cap at one point. One point, what was it? Let me just make sure I got this right. Cause I always get tripped up on the difference between that.

11:24Yeah, this is the, yeah, I'm sorry. 1.46. That's right. U S I sometimes like confuse the Canadian dollar and the U S dollar. Yeah. So, I mean, a company that has that kind of future earnings power and is trading at 1.46 billion. I mean, to me, it's, it's kind of a no brainer. So I really like this company a lot. And even though you missed the first 30 or 40%, if you didn't buy it in September, you know, you can't always get the absolute low. And I think, you know, when I look at these things, Samuel, I'm generally not even interested if I don't think I can double my money. And, you know, I kind of pencil this out.

11:56It kept 4X, 4 to 5X my money over three or four years. You know, and that's assuming a gold bull market. From the point where you got in or if people were to get in on this opportunity? Even today, even today, say Forex from today. You know, now that's assuming gold prices continue to go up. I mean, if gold prices don't continue to go up, that's not realistic. I think it'll be a decent investment and make money and grow in value because they're going to open up this new mine that's going to improve their earnings. But, you know, what you want to have happening is you want to have the real sweet spot on all these companies, you want to have growing production.

12:29You want to have growing, you know, gold prices, which then make the margins bigger, and you want to have growing multiples of cash flow. And so if you start, you know, if you find companies that are going to grow their production, they're going to mine more in the future, find companies that are, you know, have a high enough price for cost per ounce to mine that when the price of the metal goes up, you get a real pop in the earnings, and then you get multiple expansion. That's a really great way to, you know, make money in these stocks. And you know, my favorite question is, what would make you rethink this?

13:01I mean, you highlighted some of the issues that they see in Mexico. So obviously that's on your radar. Look, if Mexico grabbed Los Felos, that would be really bad. I mean, you and I have talked, and I know you have a background in Mexico and are fluent. You know the situation there. I mean, it's, you know, Mexico is, it's generally safe, but not perfectly safe, right? I mean, and, you know, all of Latin America, there are leftists. I mean, you know, the government, the president right now is a leftist, although he's going to be term limited out in about a year. And, you know, the risk of taxation or confiscation always exists.

13:36The other mines are safe. The Brazilian mines in particular, I don't worry as much about Brazil as I do about Mexico. And the mines in California are very safe. And obviously the mine in Toronto and Canada is very safe. So Mexico is probably the biggest risk here in my view. And that's a meaningful part of their production. So, but as I say, I mean, the positive on Mexico, I think we talked about this in our last conversation, is Mexico gets a huge, huge amount of tax and royalty income out of these mining companies. It is the biggest business in Mexico by far. And, you know, they don't want to mess that up.

14:13And so, you know, I think a lot of these politicians, some of them will talk anti-mining, but they don't really act anti-mining because they like the money that comes out of the mining business. Yeah, and to your point, you have those one term, six years only, and that's it for Mexican presidents. So the people on the right will certainly be celebrating their opportunities at the very least. Let's jump into your second idea. That's Osisko Mining. This is a development story. You've called this Canadian Mining Royalty, the folks behind this. We take a step back. We look at the charts. We see it peaked around$3.82 Canadian in February of last year, then$2.60 Canadian when you and I talked, when you discussed this idea.

14:59And now we're trading around$3.84 Canadian. So update us on this company. And are you taking a victory lap here? We're going to take a quick break and be right back with more of the day's top analysis on the Real Vision daily briefing.

15:17Yeah, I mean, well, yes, I'll take a victory lap. I mean, I guess on all of them, you know, like I say, better lucky than smart. it. So the story on a Cisco is as it was before, with a little bit of a, you know, a little bit of slippage on cost and a little bit of slippage on timing, which is to be expected in the development story, right? The great risk when you've got a mining company that's trying to build a mine is that it takes longer than expected and it costs more than expected. And so, you know, the company has no cash flow because they're not mining yet. And so, you know, you're buying equity with, you know, there's no multiple that you're looking at.

15:52You're just looking at what will they earn in the future? And then you're applying a multiple to that and discounting it back. And obviously, the more years you have to wait for the cash flow to emerge, the less you're going to make. So the Windfall Project is really a fabulous project. John Brzezinski runs it is, you know, royalty in Canadian mining. You know, he built a Malarctic mine. He's kind of a superstar. And the company has updated, you know, their PEA and they have a full feasibility study out now. and it's really quite stunning. I mean, at$2 ,000 gold pre-tax, this mine is worth$2.8 billion, and sometimes mines trade at multiples of the NAV, like one and a half to two times NAV.

16:35So this could be worth a great deal of money. And right now, the market cap is$1.4 billion Canadian. You know, the reason I like this one so much is the nature of the deposit. It's a big deposit, and it's a high-grade deposit. There just aren't many of these. and it's safe. It's in Canada, which is a safe area. And it's being run by a world-class guy. So, you know, what they plan to do is they have to do their environmental impact study this quarter or this next coming quarter. They have to get the financing to build the mine, although they've done a couple of public offerings and raised$150 million.

17:13They have to get the debt to build the mine. It's not a big capex. For the size mine it is, capex is only 607 million dollars canadian i mean this is for a mine that will throw off you know 500 million of ebitda in a year or two when it when it really gets running assuming but to be clear the capex is more now than it was when you and i had spoken that's kind of and that threw you off a bit it threw me off not a lot more it went up by like 20 percent and you know and they and they you know the timing i mean they before they were saying you know production in late 2024, and now it's Q1 of 2025.

17:48And you know what, it probably would be to Q2 of 2025. But, you know, if you're looking at a future cash flow, and you get pushed out three to six months, it doesn't destroy, you know, that I mean, the mine's going to run for 15 plus years, throwing off this half million, half a billion dollars of cash. So, you know, you're paying kind of three times that future cash flow, but you got to wait for the rest of this year and all of 2024 to have that cash flow. And of course, the risk is something, you know, to go to your conclusion, what could go wrong here? You know, it could take longer and cost more.

18:19I mean, that's just as simple as it gets. And yet, again, you know, and I would kind of, I would budget for it where you've got enough margin of error that even if it takes 10 or 20 % longer, it costs 10 or 20 % more, you're still going to be fine on this investment. And I almost kind of expect that. I mean, it would be a catastrophic change, you know, like it's going to cost 40 % more and take three years longer. That would obviously destroy the value of this investment. But in my opinion, you know, you don't get a chance to buy assets like this as cheap as we bought it last September. Now, this one's run pretty hard.

18:55I mean, as you know, you know, it's up almost 50%. So I don't like it as much here as I did in September. but I'm not selling because I believe you still probably have a three-bagger from here. But, you know, you're, and again, it's not producing, so you're taking some risk. And some would say, well, is a three-bagger the appropriate return for something that, you know, that has the risk this has? And you could debate that. I mean, I, again, one of the things I try to remember is that I really like the thing longer term. And, you know, If you have a three to five year time frame, I think in our last conversation, I said this, if I had to pick a stock I'd put in my kids and my mother's portfolio, I could forget about it, knowing that someday it was going to be a multi-billion dollar company, like$5 billion in value, this would be it.

19:43Because the deposit's that good. I mean, you can't, you know, you just can't find, and this is a one, this is probably one of the top five deposits, undeveloped deposits in the world. And that's really, really rare. So you do have three other ideas, new ones that we're going to get to. But I just want to get to your third idea that we had the last time you were here. And that's Guanajuato silver in Mexico, of course, peaking at about 0.70 Canadian in May 2021. And it's come down somewhat since then. But when you and I talked back in September, we were closer to about 0.40 around there. And now we're talking somewhere in the range of about 0.52.

20:30So give us an update on this company and if any of your views have changed since the last time we chatted. No, if anything, my conviction on this has gotten stronger. They've made a ton of progress. It's a great story. The most important thing here is the quarter-on-quarter production just continues to grow. In the fourth quarter, they did 836 ,000 silver equivalent ounces. That's 3.2 million ounce run rate. They've guided this year that they're going to do 4.8 million ounces. You know, they've got four mines and three mills running. They got the Topia mill, which had been shut down, running again.

21:04So they've got real diversity in their deposit base. They've expanded their whole category ounces to 60 million. And, you know, I love the CEO. He's a great guy, and I love his chief operating officer who helped to build the first majestic mines. And so, you know, it's got a ton of operating leverage. I mean, it's, you know, their mining cost per ounce is in the$13,$14 an ounce range. So at$20, they make, say,$6 an ounce. But I think silver is going to$30. And as you can, you know, do the math, you can see that the earnings here will just explode. You know, a couple of things happened that also are meaningful since we last spoke.

21:50One, Great Panther, which is a company that was bankrupt, that they bought their last mine. They bought about$80 million worth of assets for$16 million from Great Panther. It was a brilliant move. They did it right before Great Panther went bankrupt. Great Panther had a big block of stock, and they placed it with a large institution in Boston. I wish I could say the name, but the institution said keep it quiet until it gets printed. But it's a really big, high-quality name that bought a big block of stock. It'll be very supportive for the stock. The other thing that happened is they got picked up into the SILJ, which is the Silver Junior ETF.

22:24And so SILJ went and bought 8 million shares. And that's a big deal because those ETFs are algorithmic. The stock keeps going up. They'll need to continue to add to their position. And that means they had done the work to determine that this was quality enough to be part of their ETF, which is a good thing. And then, you know, finally, the real underlying story here is they bought a bunch of assets really cheap, all of which were kind of somewhat broken or the company selling them were in financial distress. And so, you know, they've got what I view is a couple hundred million dollars worth of assets.

22:58And they paid, you know, for 30, 40 million total for those assets. So they really bought them on the cheap. And if you look at the current market cap of the company, you know, I've got them at roughly 168 million Canadian. So 74 % of that's like 120 million U.S. I mean, this is a company that will have earnings power. If they do, let's say they do 4.8 million shares. And let's say that even if silver doesn't go up that much, they'll, you know, say it goes to 24. For example, it's almost there now. That'll give them a$10 margin, 4.8 million ounces. That'll give them$48 million of EBITDA cash flow this year at the mine level.

23:40And, you know, the market cap is 3X that, which is very low. And I think two things will happen. I think silver will go higher. And I think, you know, the 4.8 will be on their way to 5 or 6 or 7 the following year because they're being very aggressive about the way they're exploring and growing their production. and they've got a lot of capacity left in the mills that they bought. So in my opinion, it's still quite rich, even though it's gone up. Since you and I last spoke, it's up 48%. Obviously, I liked it better back then, but I still think it's an easy 3 to 4x here. It kind of depends upon metal prices.

24:19I mean, they all depend upon metal prices. I think everybody looking at this area should fully understand that we need a bull market in the metal prices. And when you get those, these mining stocks go up multiples. But having said that, a bear market in the metal prices is just the opposite. These mining stocks do not do well if you don't believe in inflation, you don't believe metal prices are going higher. So that's really, to me, the macro risk is probably the biggest risk you take in this area. Although any company can fail. And if you pick good companies, you can somewhat diminish the risk if your company's failing, but even the best pickers make mistakes occasionally.