The Overlooked Way to Play the Commodity Cycle (Baza Capital)

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All right, my Manas, I've got a
special chat that I'm excited to

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do.
I'm here with the the founders

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of Baza Capital, Braden and
Will.

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Thanks for joining me guys.
G'day JD big fan of the pod, so

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great to be here.
Appreciate it.

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We've got a heaps to heaps to
talk about.

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I was pretty excited reading up
on your your funds history.

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So I kind of want to start there
and I want to start with you

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guys starting the fund January
ish of of 2020 and just getting

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absolutely smashed in the in the
first few months.

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What what was that kind of like?
Talk me through it.

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Yeah.
I mean, we've been moonlighting

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for a while.
So we've got the funds set up

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and the business set up.
But yes, we did indeed push the

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boat out in January 2020 and
that was in our Baselhack

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conviction emerging companies
funds.

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So right on the avant garde with
respect to small caps and you

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know, risk being off for a very
sharp period and and and a very

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sharp decline.
But you know, happy to say that

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we hadn't fully kind of put put
our cash to work at that point

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in time.
And we'd, you know, done a lot

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of work on their companies that
we, you know, put into.

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And so we didn't need to make
too many changes in the

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portfolio, even though it was,
you know, a pretty stark start

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to the fund.
And then of course you see what

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happened, the V shaped recovery
and it, it turned out to be a

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great time to start a fund
honestly 2020-2021 great period

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of outperformance for us and
small caps and junior mining,

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which are, you know, the things
that we focus on.

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So we're probably pretty lucky
in the end.

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So how long did it kind of take
to get fully invested in that

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fund?
You sort of get the cash on the

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door.
I'd imagine there's a lot of

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fundraising that goes on in in
the kind of year prior and then

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you ended up having a bit of
cash balance.

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Just sort of reading through
those, those monthly reports

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worked out well in in hindsight,
I guess.

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Yeah, it was I think rolling
back to that January, the market

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was relatively toppy I think was
the the feel.

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And then when we started
deploying, it did take a lot of

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time.
I'd say we were probably 3/4 of

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the way through when the initial
reports of what was this, you

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know, emerging pandemic coming
from China and and overseas.

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So, you know, we had I think we
all painted a pretty rosy

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picture of that initial days.
There were certainly some very

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dark, dark times, but a.
Couple of sleepless nights.

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Many, I think there was, you
know, genuine excitement with

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starting something and then
that, you know, goes in lots of

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different emotions in that first
few months.

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But I think the story of 2020
and then large part of 20/21 was

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1 of genuine excitement because
there was a lot of, you know,

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opportunities to deploy money,
obviously a lot of capital

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raisings from that, you know,
April, April, May, June period

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throughout 2020.
So it was, it was quite

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exciting.
I think the one investment that

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probably marked almost the
bottom of the market or

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certainly from our fund was that
Chalice initial hit, which was

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probably the towards the end of
March, March 23 and and.

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Had you owned Chalice before or
did you own it in there, or was

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that just something that that
stood out at the time?

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But very quickly then, we did.
Yeah.

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Awesome.
Would have worked out quite

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well.
It did, yeah.

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I think Chalice was one of the
better performers for us in

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2020.
Certainly it's been a a good

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holding for the fund at, at at
various points.

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We still have a small holding
in, in, in the fund at the

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moment with Chalice and I think
that broadened pretty quickly.

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At the time we were towards the,
I guess higher end of the metals

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and mining exposure, just to
clarify to generalist fund.

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So at the moment, we probably
would have 80% of the investment

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sitting in industrials,
healthcare, IT services and

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circuit, 20% within the mining
space at the moment.

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In 2020, I think it got up to a
high of about 40%, largely

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through price appreciation, but
also the opportunity set.

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So you looked at a good few
Goldies at the time as well as

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well as sort of having that that
cash buffer.

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So the the portfolio was pretty,
pretty stocked up with that

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weighted to your producers.
Did you sort of mix it or stay

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where you the area you kind of
know, know a bit better those

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developers and that end of town?
It was towards that end of town

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and clearly Gold had had a good
time of it in 2020.

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But I mean we try not to be too
macro or make particularly not

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make tactical decisions around
macro.

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And so Brandon and I are out of
mining finance for the majority

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of our career.
And so gold companies, analysing

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them, doing due diligence on
them, the personalities there,

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our network which can kind of
enrich that due diligence.

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It was just a comfortable place
for us to start our investment.

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And so, you know, probably a bit
of luck that that ended up being

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a great place to be investing at
the time.

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But yeah, we certainly added to
it as that, you know, gold

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environment was clearly opening
up for us.

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And then sort of just zooming
out on the on the history coming

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through 2021, that was a hell of
a year, especially in the sort

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of area you guys like to play, I
mean, for for most sort of

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sectors.
But what was that part of the

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roller coaster kind of like flat
out every day a bit more

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exciting, relaxing in a way, or
is it sort of different?

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Yeah.
I mean, it was great to start

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with the, you know, that initial
pretty difficult market because

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you're haunted by that and it
sticks with you and it and it

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gives you a discipline that
you're going to take through

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your career with you.
And actually in my career before

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this, I started in the year of
the GFC.

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So I had a had a very, very
similar kind of baptism by fire.

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Yeah, you really do need to keep
your head.

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There's plenty of everything has
a different more positive

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complexion when you know, things
are going up and to the right.

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And so we just needed to really
make sure that we're still

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investing on fundamentals.
You know, we weren't grabbing it

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every piece of candy at the in
the store.

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And yeah, we're really happy
with the portfolio we put

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together at that time, took good
advantage of the bull market.

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But yeah, have been able to
still, you know, have good

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returns.
Speaking of candy, have a look

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at this piece of eye candy, Paul
Natali from Grounded.

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What a good looking rooster as
I've alluded to before.

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And mate, the precursor to the
eye candy that is a grounded

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can.
Grounded village in

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construction.
That's candy.

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This out.
Wow.

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I'm seeing bloody diggers with
Grounded on them.

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I'm seeing bloody grounded signs
everywhere.

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Grounded you.
It's Grounded gear that is a

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full turnkey construction
solution for the mining

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industry.
JA trap far.

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Right camps look divine.
Divine mate, anything that sits

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above the ground on a bloody
mine site grounded can build it.

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All your non process
infrastructure, just get onto it

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right And and the best thing is
they're building they're

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bringing the building standards
from the greatest country in the

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world to Australia, the
motherland Sicily, right.

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Unfortunately, looking at that
photo before like Paul Mottoli

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is married.
So the closest thing you can get

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to Paul himself is a grounded
camp, so.

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Get yourself sorted.
So so why don't we talk a bit

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about the the fund, the initial
fund that was set up.

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The bars are high conviction.
How many companies do you like

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to hold?
What do you sort of classical

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holding periods if you like and
all these kind of broader

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details to start?
Yeah, we'll go through the one O

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1.
So as a high conviction, that

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initial fund that we launched in
the start of 2020, it's a

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traditional long only emerging
companies fund only invested on

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in the ASX as well.
There are probably three key

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differentiators to other
traditional small cap funds.

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The first being we take it
relatively concentrated

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portfolio.
Our top 10 holdings would

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probably comprise close to 7080%
of total fund.

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I think the total portfolio is
between 25 to 30 at the moment.

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That's largely due to our
approach of the mining tail

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running a commodity bucket as
opposed to an individual

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industrial business.
Has it has it been refined or

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was it always from the go that
many sort of companies that was

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the the way you guys wanted to
go about?

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It, it's probably shrunk over
time.

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We, we are an emerging fund
manager.

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We always are quite
introspective and wanting to I

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guess improve and reflect what
we have been doing.

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And I think some analysis that
we ran close to 18 months ago,

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it was quite obvious that the
largest holdings were

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disproportionately better
contributors to alpha, meaning

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that even accounting for their
waiting, they were generating

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larger returns for unit holders
than a tail that we were

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maintaining.
And it wasn't, we weren't

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holding 100 companies.
You may have instead of been

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holding 25 to 30, we could have
been holding 5040 to 50.

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And so a lot of that centres
around the reason for being more

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concentrated, having high
conviction in a name and really

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just keenness to keep things
simple was the overriding

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factor.
And we looked at each other and

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said, let's just build a
portfolio of, you know, really

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the core ideas.
And for that there wasn't too

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much changing within the
portfolio.

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A lot of it was just naturally
letting those larger businesses

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appreciate and probably taking a
more harsh view to the long tail

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that we were maintaining.
That's, that's really

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interesting what you say about
the, the return sort of being

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driven by those best peaks.
Do you do you put that down to

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putting more work, having more
conviction?

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Is that, is that a market
structure type thing where these

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guys go into the Atfs, they
attract more capital, more

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generalist funds.
Look at them.

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What, what does it kind of come
down to the the fact that a lot

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of these sort of markets are
subsets of markets end up

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accruing to to one, one sort of
powerful name, Yeah.

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I, I think it's, it's not so
much the size of the company,

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it's more the size of our
holdings.

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So actually one of our best
returners ever was only a kind

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of a forty, $50 million market
cap IT services company that

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ended up getting taken over and,
and that ended up being a, a

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fantastic win for us last year.
But it's, it's more so that I

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think, you know, it may even
sound obvious, but we have the

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conviction to to make these our
largest holdings and there are

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reasons for that.
It is the amount of work we've

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done, but it is clearly the
amount of attractiveness there

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is there.
And then these stocks that were

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more sitting around than maybe
1%, two percent, 3% of the

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portfolio.
Clearly we've got the foot in

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both camp because we're not
comfortable to put it 5% plus.

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And so it really makes sense, I
guess that what we found was the

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ones which we where we did have
that confidence were the ones

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that returned best.
So why not just cut out the the

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ones that we didn't have the
conviction on?

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Yeah.
Yeah, I'm, I'm keen to to hear

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how you find these names, how
you screen for these names.

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And I think we should talk about
the responsible investing or

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the, the mandate that you guys
operate with to, to kind of

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start with.
And I think one of the one of

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the questions to ask off the bat
is, is it kind of misunderstood

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the the reputation of this style
of investing has changed quite a

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bit over the the guys that you
that the period that you guys

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have been in kind of operations.
How do you think about

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responsible investing as a
broader sort of sector or

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thematic at the moment?
Yeah, I guess we don't think of

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it as a sector or a thematic.
We, we think of it as, you know,

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a philosophy, philosophy for
investment and probably wouldn't

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say it's misunderstood.
I think it probably just means

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different things to different
people.

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And for us, it's always been
really important that we invest

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in line with, you know, our
values and, and, and where we

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see the future heading.
And so it's no surprise that

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electrification and
decarbonisation is a big theme

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of what we do, both in terms of
what we don't invest in, but

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also in what we do invest in.
And then as an adjunct to that

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00:12:26,720 --> 00:12:28,800
and, and what's really
important, particularly on this

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00:12:28,800 --> 00:12:31,760
podcast is metals are such a big
part of that.

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00:12:31,960 --> 00:12:36,200
And so while we're responsible
investment, there wouldn't be

230
00:12:36,440 --> 00:12:39,000
many out there who are
responsible investors who are as

231
00:12:39,000 --> 00:12:43,040
comfortable as us to invest in
mining stocks and particularly

232
00:12:43,040 --> 00:12:45,000
those that are tied to
electrification.

233
00:12:45,000 --> 00:12:48,160
So it was really important to us
to be able to kind of bridge

234
00:12:48,280 --> 00:12:51,280
what's seen as, you know, kind
of these two different sets of

235
00:12:51,280 --> 00:12:55,040
investors, one that's, you know,
happy to invest in anything,

236
00:12:55,040 --> 00:12:58,160
just give me the risk return.
And then the others who are

237
00:12:58,160 --> 00:13:01,080
more, you know, I want to invest
in what's good for the world.

238
00:13:01,080 --> 00:13:04,680
I mean, we kind of see it as why
can't we do both?

239
00:13:04,760 --> 00:13:09,760
And and so we invest with risk
return as our first and foremost

240
00:13:09,760 --> 00:13:12,600
and you know as as a North Star
as it should be for a fund

241
00:13:12,600 --> 00:13:17,440
manager, we do cut out things
and and we do add scale up our

242
00:13:17,440 --> 00:13:20,120
investments in in some positive
industries.

243
00:13:20,480 --> 00:13:23,800
But our opportunity set
operating in the ASX listed

244
00:13:23,800 --> 00:13:28,160
small cap space is such that we
can still invest in about 1012

245
00:13:28,160 --> 00:13:31,880
hundred companies.
And so we really don't feel like

246
00:13:31,880 --> 00:13:35,400
we're being stifled by the
things that we're cutting out.

247
00:13:35,920 --> 00:13:39,160
And so, yeah, we just see it as
a really positive way for us to

248
00:13:39,160 --> 00:13:42,280
invest.
We also and it's in this is

249
00:13:42,280 --> 00:13:46,160
important I think because of the
way we structure our responsible

250
00:13:46,160 --> 00:13:49,600
investment framework.
We tend towards industries with

251
00:13:49,640 --> 00:13:53,120
with long term tailwinds and you
know that is circulated being,

252
00:13:53,120 --> 00:13:55,800
you know good investment in our
view anyhow and and leading to

253
00:13:55,800 --> 00:13:59,480
good risk returns.
So yeah, I, I probably, yeah,

254
00:13:59,480 --> 00:14:03,080
hopefully that gives you a bit
of an insight into it maybe to

255
00:14:03,080 --> 00:14:06,040
add.
Yeah, I mean, just in practise

256
00:14:06,040 --> 00:14:10,040
maybe Braden, what that kind of
looked like, looks like because,

257
00:14:10,240 --> 00:14:12,640
well, you've spoken about the,
you know, there's no shortage of

258
00:14:12,640 --> 00:14:16,240
companies that 1200 is a lot to
kind of choose from.

259
00:14:16,240 --> 00:14:19,360
But setting up the fund like
this, I'd imagine there's a,

260
00:14:19,440 --> 00:14:22,400
there's a mandate and that sort
of plays into perhaps how you,

261
00:14:22,400 --> 00:14:25,320
how you screen for companies to
maybe on a a sort of day to day

262
00:14:25,320 --> 00:14:27,520
kind of basis.
I'd love to learn what that

263
00:14:27,520 --> 00:14:29,720
actually means, how you you pick
out opportunities.

264
00:14:31,760 --> 00:14:35,040
And maybe just to, so you get
deep a bit deeper into

265
00:14:35,040 --> 00:14:38,800
responsible investment.
I think some of the confusion,

266
00:14:39,120 --> 00:14:42,080
if there is, I think a lot of
you know, perhaps your listeners

267
00:14:42,080 --> 00:14:46,240
and and others would have a good
understanding of what is the

268
00:14:46,240 --> 00:14:48,480
core of responsible investment
or ESG.

269
00:14:49,360 --> 00:14:54,800
But the confusion maybe around
with how different funds and

270
00:14:54,800 --> 00:14:58,160
there are lots of different
methodologies and how that's

271
00:14:58,160 --> 00:15:01,120
actually then applied because
everyone has quite different

272
00:15:01,120 --> 00:15:02,880
processes.
We'll go through ours.

273
00:15:03,520 --> 00:15:07,040
There will be different
processes and people will apply

274
00:15:07,040 --> 00:15:09,880
in different ways with different
negative screens.

275
00:15:10,360 --> 00:15:14,680
Some funds will use the United
Nations Sustainable Development

276
00:15:14,680 --> 00:15:19,520
Goals, UNSDGS, some nation, some
funds will track carbon

277
00:15:19,520 --> 00:15:21,720
intensity and have that as a key
metric.

278
00:15:21,720 --> 00:15:25,920
There just hasn't been something
that centralises a lot of

279
00:15:25,920 --> 00:15:28,960
responsible investment reporting
and that's unfortunately where

280
00:15:28,960 --> 00:15:33,440
some of the confusion lies.
There's no joke code at the

281
00:15:33,440 --> 00:15:35,680
moment.
So you know, clearly setting out

282
00:15:35,680 --> 00:15:38,120
what's measured, what's
indicated, etcetera.

283
00:15:38,600 --> 00:15:40,920
That just hasn't come to the
industry as yet.

284
00:15:41,440 --> 00:15:44,600
We're clearly hoping it does
because it'd be great then have

285
00:15:44,600 --> 00:15:47,680
everyone reporting and then
allow whether it's prospective

286
00:15:47,680 --> 00:15:50,920
investors or particularly
companies that we meet with have

287
00:15:50,920 --> 00:15:54,320
a great idea about what's what's
is actually applied.

288
00:15:54,320 --> 00:15:58,160
So coming back to bars are
capital and the bars are high

289
00:15:58,160 --> 00:16:01,520
conviction fund just.
Before you get into just to keep

290
00:16:01,520 --> 00:16:03,440
going on the response best
because I think it is important,

291
00:16:03,440 --> 00:16:07,880
but I mean that's why what we
value most in our business is

292
00:16:07,880 --> 00:16:09,880
transparency.
So people can see on our

293
00:16:09,880 --> 00:16:12,440
website, you know, our
information memorandum on the

294
00:16:12,440 --> 00:16:15,160
back of our monthlies what we do
and don't invest in.

295
00:16:15,160 --> 00:16:17,920
And so the unit holder makes
their choice about whether

296
00:16:17,920 --> 00:16:20,320
that's something that they're
comfortable with as well.

297
00:16:20,320 --> 00:16:23,440
I mean, I think maybe people
start to have an issue with it

298
00:16:23,440 --> 00:16:26,400
when they feel it's been forced
on them or is, you know, lacks

299
00:16:26,400 --> 00:16:30,480
transparency and, and you know,
it's like someone's trying to

300
00:16:30,480 --> 00:16:33,920
force their values on onto them.
So we would have a unit holder

301
00:16:33,920 --> 00:16:37,200
set that some are very focused
on the responsible investment

302
00:16:37,200 --> 00:16:40,120
side of the business and you
know, probably maybe gravitated

303
00:16:40,120 --> 00:16:43,280
towards us because of that.
And then some that were probably

304
00:16:43,280 --> 00:16:44,800
a bit more ambivalent towards
it.

305
00:16:44,840 --> 00:16:48,200
And and they're just there, you
know, because they're they enjoy

306
00:16:48,240 --> 00:16:51,480
the risk return hopefully.
But yeah, to to get into

307
00:16:51,480 --> 00:16:52,840
actually how we build the
portfolio.

308
00:16:54,640 --> 00:16:59,520
So it comes on the outset.
So as we define our universe,

309
00:16:59,920 --> 00:17:03,440
we'll use what's called negative
screens within the industry.

310
00:17:03,440 --> 00:17:08,280
So they're typically on a
sector, gambling, tobacco are

311
00:17:08,400 --> 00:17:12,319
common negative screens.
And so you run through now

312
00:17:12,319 --> 00:17:16,440
mandate the ASX listed universe
and then we'll screen out.

313
00:17:16,440 --> 00:17:19,880
These are the companies that
would have primary operations

314
00:17:20,119 --> 00:17:24,319
that relate to gambling or
tobacco and there's some common

315
00:17:24,319 --> 00:17:28,000
negative screens that you run
through and we list ours all on

316
00:17:28,000 --> 00:17:31,960
our reporting website, keeping
it as transparent as we can.

317
00:17:32,640 --> 00:17:39,200
And so that then reduces our
investment universe and then as

318
00:17:39,560 --> 00:17:43,440
we progress through the
investment process, which is

319
00:17:43,440 --> 00:17:47,800
typically then risk and return
driven, engaging with management

320
00:17:47,800 --> 00:17:52,760
teams, going through financial
reports, the notes, collecting,

321
00:17:52,800 --> 00:17:56,640
you know, information, building
our financial models as we meet

322
00:17:56,640 --> 00:18:00,160
with the companies often within
also asking questions around

323
00:18:00,600 --> 00:18:04,960
what's your strategy for, you
know, introducing renewable

324
00:18:04,960 --> 00:18:09,760
energy to your project.
Do you have a strategy?

325
00:18:10,080 --> 00:18:13,000
If not, sometimes there's an
opportunity for us then to

326
00:18:13,360 --> 00:18:16,840
introduced to perhaps it's a
consultant that can help provide

327
00:18:16,840 --> 00:18:19,600
some initial feedback and and
that's, you know, something that

328
00:18:19,600 --> 00:18:23,000
we're really helpful to do.
But you know, ultimately the

329
00:18:23,000 --> 00:18:25,520
management teams and the
businesses obviously making

330
00:18:25,520 --> 00:18:28,840
their own decisions and there's
hundreds of thousands of other

331
00:18:28,840 --> 00:18:31,920
shareholders that have their say
in the business and how it

332
00:18:31,920 --> 00:18:33,560
operates.
So I'm.

333
00:18:33,560 --> 00:18:36,480
Keen to learn a bit more about
how the two of you kind of work

334
00:18:36,480 --> 00:18:39,320
together and then how that kind
of feeds into actually picking

335
00:18:39,560 --> 00:18:42,240
the companies that you
ultimately investing.

336
00:18:42,240 --> 00:18:46,360
Do do you find, you know, do
you, for instance, need full

337
00:18:46,360 --> 00:18:48,440
agreements on each name that
goes into the portfolio?

338
00:18:48,840 --> 00:18:51,560
Do you let one take the lead on
on a name if they've done a bit

339
00:18:51,560 --> 00:18:53,480
more work?
What's that sort of working

340
00:18:53,480 --> 00:18:54,840
relationship like?
Yeah, I.

341
00:18:54,840 --> 00:18:57,760
Think I can start by saying, I
highly recommend if anyone's

342
00:18:57,760 --> 00:19:00,400
going to start their own fund
that they do it with two people

343
00:19:00,400 --> 00:19:04,960
because, you know, particularly
in those early days, we were

344
00:19:04,960 --> 00:19:08,320
able to, you know, kind of take
a lot of confidence from the

345
00:19:08,320 --> 00:19:11,040
discussions that we'll about be
able to have with each other.

346
00:19:11,040 --> 00:19:13,880
And, you know, when one person
was emotional one day, the other

347
00:19:13,880 --> 00:19:17,240
person could, you know, pick up,
pick up the, the ball and, and,

348
00:19:17,240 --> 00:19:20,000
and vice versa.
But where, as it relates to

349
00:19:20,000 --> 00:19:23,680
Brayden and I, we've actually
worked together in two other

350
00:19:23,680 --> 00:19:27,120
places before this, so
investment bank UBS and, and

351
00:19:27,120 --> 00:19:29,520
then a boutique advisory called
Vesparum Capital.

352
00:19:29,520 --> 00:19:33,800
So before we started bars, we
had a really good idea for how

353
00:19:33,800 --> 00:19:36,840
we work together.
And I think over the years and

354
00:19:36,840 --> 00:19:38,680
you know, many years we've
worked together.

355
00:19:38,680 --> 00:19:41,880
Now we've probably built
somewhat of a fraternal bond,

356
00:19:41,880 --> 00:19:46,440
which is allows us to really
have quite robust discussions

357
00:19:46,480 --> 00:19:50,880
and really, you know, kind of
one person comes up with this

358
00:19:50,880 --> 00:19:54,360
idea, not just glad handed and
yeah, let's go.

359
00:19:54,560 --> 00:19:57,800
It's really why.
And you know who, you know where

360
00:19:57,800 --> 00:20:01,400
that idea come from?
What's the analysis you've done?

361
00:20:01,400 --> 00:20:03,720
I agree with that aspect, that
type of thing.

362
00:20:03,720 --> 00:20:08,000
So that's been.
Really positive for us and, and

363
00:20:08,000 --> 00:20:11,160
I think you know, we can, we've
we've always able to dust

364
00:20:11,160 --> 00:20:14,000
ourselves off after one of those
robust discussions and, and just

365
00:20:14,000 --> 00:20:16,320
get on with it as well.
So we kind of have that real

366
00:20:16,320 --> 00:20:20,040
understanding in terms of our
individual attributes.

367
00:20:20,120 --> 00:20:24,480
And Brayden is just an absolute
efficiency machine, just

368
00:20:24,480 --> 00:20:27,920
crunches through data screening
analysis.

369
00:20:27,920 --> 00:20:31,920
And so that really helps us to
take that huge opportunity set

370
00:20:32,160 --> 00:20:34,400
down to a, a smaller opportunity
set.

371
00:20:35,040 --> 00:20:37,920
And probably where like I come
into it and we, we're going to

372
00:20:37,920 --> 00:20:40,640
meet in the middle is a very
OCD.

373
00:20:40,640 --> 00:20:44,040
I, I, I'm, I'm very focused on
our processes and our risk

374
00:20:44,040 --> 00:20:48,160
management and yeah, really keen
for us to make optimal

375
00:20:48,160 --> 00:20:50,960
decisions.
And so putting those together,

376
00:20:51,120 --> 00:20:53,440
we probably made in, you know,
where we're making the actual

377
00:20:53,440 --> 00:20:57,080
investment decisions.
I think what's interesting JD,

378
00:20:57,080 --> 00:21:00,400
and something that we certainly
learned a lot has been

379
00:21:01,200 --> 00:21:05,760
psychological aspects of
investing can at times be the

380
00:21:05,760 --> 00:21:09,280
most valuable or at least could
be on the other side the most

381
00:21:09,280 --> 00:21:13,000
detrimental.
And So what we do with each

382
00:21:13,000 --> 00:21:18,560
other as well is get to
understand someone's taken the

383
00:21:18,560 --> 00:21:22,000
stock through from, you know,
initial screening through to

384
00:21:22,000 --> 00:21:23,800
investment.
They're very, you know,

385
00:21:23,800 --> 00:21:27,760
confident, perhaps too much for,
you know, they have this.

386
00:21:28,000 --> 00:21:32,080
I've done so much work in this.
We need to step in and then, you

387
00:21:32,080 --> 00:21:36,120
know, check each other's biases
as well as sometimes someone can

388
00:21:36,120 --> 00:21:40,560
be too negative on a story.
It just helps to have that

389
00:21:40,800 --> 00:21:45,440
second brain personality, call
it that will be in a different

390
00:21:45,480 --> 00:21:49,360
head state as you in any given
day to then just check.

391
00:21:49,360 --> 00:21:53,720
And essentially the best thing
is to be, as you know, not

392
00:21:53,720 --> 00:21:56,920
dispassionate, but just to be as
level headed when you're making

393
00:21:56,920 --> 00:21:59,400
decisions.
And just having the two, two of

394
00:21:59,400 --> 00:22:03,240
us working together has helped
us, or at least that's that's

395
00:22:03,240 --> 00:22:05,120
really what we strive to do.
Do you?

396
00:22:05,120 --> 00:22:09,320
Find one of these more cynical.
I think we can.

397
00:22:09,320 --> 00:22:12,520
Be equally cynical.
And I think that's what helps.

398
00:22:12,600 --> 00:22:15,520
Yeah.
So it'll usually Mystic people.

399
00:22:15,520 --> 00:22:18,560
Oh, yes, we're gonna have to,
we're glass half full in

400
00:22:18,560 --> 00:22:21,360
general.
But I think when it comes to, we

401
00:22:22,680 --> 00:22:27,240
do play the good cop, bad cop
because it I think it helps to

402
00:22:27,240 --> 00:22:29,720
have the person who's got the
exuberance about a a particular

403
00:22:29,720 --> 00:22:32,880
story, probably because I've
done more work on it and and,

404
00:22:32,960 --> 00:22:35,720
you know, maybe fallen out of
love with it to some extent to

405
00:22:35,720 --> 00:22:38,440
have the person really challenge
that on the other side.

406
00:22:38,440 --> 00:22:40,440
I I think is, is highly
valuable.

407
00:22:41,400 --> 00:22:44,520
And so, yeah, I think we can
both play that role in yeah.

408
00:22:44,920 --> 00:22:47,920
But this, I mean, this does
obviously doesn't have to occur

409
00:22:47,920 --> 00:22:51,840
with, you know, going out and
joining, investing accounts and

410
00:22:51,840 --> 00:22:55,000
going out and doing everything
with a a partner side by side.

411
00:22:55,000 --> 00:22:58,880
I think just having a discussion
with someone who's either very

412
00:22:59,040 --> 00:23:01,400
cold or new to an idea could be
anything.

413
00:23:01,400 --> 00:23:05,160
You could be looking at, you
know, a new gold company that

414
00:23:05,160 --> 00:23:09,040
you've picked up and then to
have a cross check with someone,

415
00:23:09,440 --> 00:23:12,040
someone new and you take them
through essentially, you know,

416
00:23:12,120 --> 00:23:14,000
protocols in my investment
thesis.

417
00:23:14,000 --> 00:23:16,880
It could be one of your friends,
it could be, you know, a broker

418
00:23:16,880 --> 00:23:19,560
that you really respect that's
incredibly valuable.

419
00:23:19,880 --> 00:23:24,960
I think one of the key learnings
for me personally has been the

420
00:23:24,960 --> 00:23:28,760
real value of some of the
probably more the softer

421
00:23:28,760 --> 00:23:33,400
qualitative pieces of analysis
or, or, or skills or assessment.

422
00:23:33,720 --> 00:23:38,560
I think when we came in to funds
management, our backgrounds were

423
00:23:38,560 --> 00:23:42,760
quite analytical, like coming
from investment banking and,

424
00:23:42,800 --> 00:23:45,280
and, you know, really focused,
you know, OK, what's the

425
00:23:45,280 --> 00:23:49,440
numbers, what's the modelling
that's has been called the bread

426
00:23:49,440 --> 00:23:51,680
and butter.
But we feel most comfortable

427
00:23:52,040 --> 00:23:55,160
sitting in, you know, the notes
of an annual report and

428
00:23:55,160 --> 00:23:58,680
unpicking some of those insights
and building a financial model.

429
00:23:58,680 --> 00:24:03,800
But really value comes from
asking someone that's either in

430
00:24:03,800 --> 00:24:08,440
the industry and is working at a
competitor or I actually started

431
00:24:08,440 --> 00:24:13,160
civil engineering at, at uni 15
years ago and we were looking at

432
00:24:13,160 --> 00:24:14,920
an engineering consultancy
business.

433
00:24:14,920 --> 00:24:18,800
And a lot of my peers and, and
friends still are in the

434
00:24:18,800 --> 00:24:21,600
industry to be able to pick up
the phone and just ask some of

435
00:24:21,600 --> 00:24:25,280
those softer questions.
How hard has it been to hire

436
00:24:25,280 --> 00:24:27,120
people?
You know, what do you think of

437
00:24:27,120 --> 00:24:29,960
this competitor?
You know, have you come across

438
00:24:29,960 --> 00:24:33,160
them on, you know, other, other
transactions or other bids?

439
00:24:33,160 --> 00:24:37,400
This is the, the softer skills.
Sometimes you find that a

440
00:24:37,400 --> 00:24:42,360
conversation with, you know, a,
a research analyst may throw up

441
00:24:42,360 --> 00:24:47,040
a fatal flaw in your analysis
and saved you 1520 hours of

442
00:24:47,040 --> 00:24:49,960
work.
So some of the softer side of,

443
00:24:50,160 --> 00:24:53,800
you know, talking to either
friends or ex colleagues is

444
00:24:53,800 --> 00:24:56,400
being incredibly, incredibly
important.

445
00:24:56,760 --> 00:24:59,840
And I think from our initial
approach, which focused around

446
00:24:59,840 --> 00:25:03,600
analysis to then build that in,
we're probably finding we do

447
00:25:03,840 --> 00:25:07,760
more of that as we progress.
So going deeper on those sort of

448
00:25:07,760 --> 00:25:10,800
softer skills, you talk about
defined meeting management has

449
00:25:10,800 --> 00:25:14,160
become an absolute staple.
Or are there cases where you can

450
00:25:14,160 --> 00:25:17,560
sort of learn enough from from
the paper, from interviews or

451
00:25:17,560 --> 00:25:19,760
these sorts of things beforehand
that would?

452
00:25:19,760 --> 00:25:23,120
Be one of our rules effectively
have to meet management and

453
00:25:23,640 --> 00:25:26,680
given we're in small caps, even
though we're a relatively small

454
00:25:26,680 --> 00:25:29,520
fund at this point in time, our
access is really good.

455
00:25:29,520 --> 00:25:33,960
So we in general will be able to
meet anyone that that we wish to

456
00:25:33,960 --> 00:25:37,360
in, in, in terms of companies
that we would like to invest in

457
00:25:37,360 --> 00:25:40,240
and and we'll often do that
multiple times before making

458
00:25:40,240 --> 00:25:43,440
investment and then once we're
invested regular catch UPS.

459
00:25:44,400 --> 00:25:47,000
One more on just sort of
starting the fund who needed the

460
00:25:47,200 --> 00:25:50,360
the final push to to maybe leave
a job or get over the line or

461
00:25:50,360 --> 00:25:53,520
was it a an idea that had been
scheming for for quite some time

462
00:25:54,320 --> 00:25:56,120
I.
Reckon Brayden came up with the

463
00:25:56,120 --> 00:25:57,680
idea.
I remember the cafe we were

464
00:25:57,680 --> 00:25:59,920
sitting in when he approached me
on it.

465
00:26:00,480 --> 00:26:03,840
So probably me, but I don't
think I needed too much

466
00:26:03,840 --> 00:26:06,200
encouragement.
I, I think I talked to my wife

467
00:26:06,200 --> 00:26:09,560
about it that weekend and she
just, she, she knew I didn't

468
00:26:09,560 --> 00:26:13,120
love my, my previous job.
She said go for it.

469
00:26:13,480 --> 00:26:16,200
I think she had a lot of respect
for Brayden and, and what we

470
00:26:16,200 --> 00:26:19,680
might be able to achieve.
So I think once we decided to go

471
00:26:19,680 --> 00:26:22,560
for it, it just was pretty 1
directional.

472
00:26:22,640 --> 00:26:24,600
Yeah, awesome.
That's a great support too.

473
00:26:24,600 --> 00:26:28,400
Yeah, let's let's talk about
some mining related businesses.

474
00:26:28,400 --> 00:26:30,920
So we, we were chatting prior to
this and we thought we'd go

475
00:26:30,920 --> 00:26:32,920
about it a different way.
Obviously we love to talk about

476
00:26:33,040 --> 00:26:35,560
mining companies, but there's a
whole sort of subset of

477
00:26:35,560 --> 00:26:39,400
companies out there that can,
you know, ride the same sort of

478
00:26:39,400 --> 00:26:44,280
wave if, if you like, of a
commodity cycle or various

479
00:26:44,960 --> 00:26:48,040
commodities and their respective
cycles.

480
00:26:48,040 --> 00:26:52,760
So maybe it's a sort of picks
and shovel way, but as a broader

481
00:26:52,760 --> 00:26:55,360
sort of space, whether it be
sort of mining services and all

482
00:26:55,360 --> 00:26:57,600
these sort of other, other
companies that we we're going to

483
00:26:57,600 --> 00:27:01,520
chat about, they they have been
pretty unloved for for quite

484
00:27:01,520 --> 00:27:03,560
some time from from my
perspective.

485
00:27:03,560 --> 00:27:05,480
Is that something you guys would
agree with?

486
00:27:06,840 --> 00:27:10,360
Unloved from the perspective of
perhaps trade at lower

487
00:27:10,520 --> 00:27:12,280
valuation, is that what you're
getting at?

488
00:27:12,280 --> 00:27:14,800
Yeah, Yeah.
I mean, I think a lot of that

489
00:27:14,800 --> 00:27:20,480
comes to what's the market's
appetite for cyclical risk and

490
00:27:20,520 --> 00:27:24,880
you know, divergent views on the
commodity outlook, divergent

491
00:27:24,880 --> 00:27:28,520
views on where we are at the
like which point in the economic

492
00:27:28,520 --> 00:27:32,520
cycle are we at the moment.
But in terms of just general,

493
00:27:32,520 --> 00:27:36,920
you know, we look at mining
services, probably stretch it a

494
00:27:36,960 --> 00:27:40,560
little and say what are the
businesses and companies that

495
00:27:40,560 --> 00:27:43,560
stand to benefit from?
You know, we're pretty

496
00:27:43,560 --> 00:27:48,080
constructive on that mid to long
term outlook for commodities,

497
00:27:48,280 --> 00:27:52,120
whether it's tied through to
those commodities needed for

498
00:27:52,120 --> 00:27:56,520
electrification or through to,
you know, a growth in emerging

499
00:27:56,520 --> 00:28:01,120
markets in all the commodities
that'll be consumed as global

500
00:28:01,120 --> 00:28:05,560
GDP or GDP per capita increases.
So for us, what are the

501
00:28:05,560 --> 00:28:06,920
businesses that stand to
generate?

502
00:28:06,920 --> 00:28:10,000
And it isn't just businesses
that have, you know, the

503
00:28:10,000 --> 00:28:12,600
capability around drill and
blast, although the, you know,

504
00:28:12,880 --> 00:28:14,800
fantastically leveraged to that
thematic.

505
00:28:15,320 --> 00:28:18,240
But we look at, you know,
companies that in the WA

506
00:28:18,240 --> 00:28:21,160
economy.
I think if you're bullish on the

507
00:28:21,320 --> 00:28:24,520
outlook for commodities, you
probably are then going to be

508
00:28:24,600 --> 00:28:28,120
pretty bullish on the outlook
for the WA economy, which is

509
00:28:28,120 --> 00:28:31,280
already, you know, the jewel
within the Australian crown at

510
00:28:31,280 --> 00:28:33,560
the moment.
And we say that coming from we

511
00:28:33,560 --> 00:28:35,280
say that coming from Melbourne
right here.

512
00:28:35,280 --> 00:28:39,880
But essentially yours Hartley's
is a good example of a business

513
00:28:39,880 --> 00:28:44,600
that we've invested in a
fantastic balance sheet was

514
00:28:44,600 --> 00:28:49,880
really the key draw card for us.
But we believe that that will be

515
00:28:50,040 --> 00:28:54,520
a business that throughout the
cycle will have its moments.

516
00:28:54,520 --> 00:28:58,080
And we think that if you are
constructive 5 to 10 year

517
00:28:58,080 --> 00:29:00,760
outlook, it may not happen in
the next six months.

518
00:29:00,760 --> 00:29:04,200
It'd be great if it did, but
that's a great business that's

519
00:29:04,200 --> 00:29:08,000
really set up to whether if
there is, you know, whether the

520
00:29:08,000 --> 00:29:11,400
storm, if there is, you know,
continued softness in the

521
00:29:11,440 --> 00:29:13,160
particularly junior mining
space.

522
00:29:13,600 --> 00:29:17,360
But they've got great leverage
to a recovery in, you know,

523
00:29:17,520 --> 00:29:22,600
mining capital raising volumes,
you know, the general wealth of

524
00:29:22,600 --> 00:29:25,960
WA increasing.
They've got fantastic, you know,

525
00:29:26,040 --> 00:29:28,840
private, private client
advisors, wealth advisors that

526
00:29:29,280 --> 00:29:31,120
we work with over the years as
well.

527
00:29:31,120 --> 00:29:34,120
So that's an example of a
company that you wouldn't

528
00:29:34,120 --> 00:29:38,280
necessarily think is a directly
related to, you know mining

529
00:29:38,280 --> 00:29:42,720
services, but mining adjacent
businesses is how within our

530
00:29:42,720 --> 00:29:47,920
fund we'll also take that
thematic and and invest in not

531
00:29:47,920 --> 00:29:51,480
just the upstream mineral
producers, but then have a

532
00:29:51,480 --> 00:29:56,280
broader set of industrials or
financials that are tied to that

533
00:29:56,280 --> 00:29:59,600
mining growth.
That's such a fascinating way of

534
00:30:00,120 --> 00:30:03,840
playing the the resources space.
How do you think about valuing

535
00:30:03,840 --> 00:30:06,240
name like this?
Like you mentioned heaps of cash

536
00:30:06,240 --> 00:30:09,400
on the balance sheet, I'd
imagine it's the type of company

537
00:30:09,400 --> 00:30:12,800
that would just pay have a very
high payout ratio when it comes

538
00:30:12,800 --> 00:30:14,720
to it.
But in a in a time like this,

539
00:30:14,880 --> 00:30:17,320
how do you get there from a
valuation perspective?

540
00:30:17,840 --> 00:30:19,880
Yeah.
There's there's some great ways

541
00:30:19,880 --> 00:30:24,200
to look at it.
It's multifaceted, but just what

542
00:30:24,200 --> 00:30:27,560
draws to it and and Brayden
somewhat mentioned in this is

543
00:30:28,320 --> 00:30:32,480
currently 135 mil market cap
with $92 million of cash

544
00:30:32,480 --> 00:30:35,840
investments.
So you've got this really strong

545
00:30:35,840 --> 00:30:39,320
capital support to your entry
price and so that gives you a

546
00:30:39,320 --> 00:30:43,320
lot of DE risking.
Then you look at the history and

547
00:30:43,320 --> 00:30:46,840
in the 20 or so years that EUR
has been listed, they've paid

548
00:30:46,840 --> 00:30:51,480
345,000,000 bucks of dividends
and $40 million of capital

549
00:30:51,480 --> 00:30:54,480
returns on top of that.
So that's almost triple the

550
00:30:54,480 --> 00:30:56,320
market cap that you're currently
looking at.

551
00:30:56,320 --> 00:30:59,680
So it does show that they've had
a strong propensity to to pay

552
00:30:59,680 --> 00:31:03,120
out previously.
And they quite recently did a

553
00:31:03,120 --> 00:31:07,040
major payout to shareholders
when they they actually divested

554
00:31:07,040 --> 00:31:11,200
their funds management business.
So then you look at, OK, well

555
00:31:11,480 --> 00:31:13,800
what kind of profitability
metrics can these guys do,

556
00:31:13,800 --> 00:31:15,520
noting that it's highly
cyclical.

557
00:31:16,320 --> 00:31:20,800
You look at their history and in
the really tough times, they are

558
00:31:20,800 --> 00:31:24,920
generally able to stay break
even, maybe small losses here or

559
00:31:24,920 --> 00:31:28,560
there or or small profitability.
But then what you look at is in

560
00:31:28,760 --> 00:31:32,880
the good times, so 2021 probably
being the most recent example of

561
00:31:32,880 --> 00:31:36,880
that, they had a net profit of
over 50 million bucks.

562
00:31:36,880 --> 00:31:39,640
So at the top of the cycle,
you're buying something that

563
00:31:39,640 --> 00:31:42,880
could be on a three times PA as
well.

564
00:31:42,920 --> 00:31:46,720
All that capital backing as well
as all the tailwinds that we

565
00:31:46,720 --> 00:31:49,960
believe they have through this
multi decade boom ahead in in

566
00:31:49,960 --> 00:31:53,480
metals and and the strength of
the WA economy.

567
00:31:53,480 --> 00:31:57,800
And then on top of that, you've
got this strategic aspect of it.

568
00:31:57,800 --> 00:32:01,280
So we actually think EUR
Hartley's would be a fantastic

569
00:32:01,280 --> 00:32:04,720
entry to the WA market for
either a larger East Coast

570
00:32:04,720 --> 00:32:08,600
competitor or even potentially
an international organisation,

571
00:32:09,280 --> 00:32:13,200
even believing that WA has some
attributes that lend itself to a

572
00:32:13,200 --> 00:32:16,840
really strong location for
wealth management.

573
00:32:16,840 --> 00:32:18,560
You know, the amount of
billionaires, I think there's

574
00:32:18,560 --> 00:32:22,200
more 100 millionaires per capita
in WA than anywhere else on

575
00:32:22,200 --> 00:32:23,640
Earth.
And so you've got this real kind

576
00:32:23,640 --> 00:32:26,320
of Switzerland, Norway potential
even as well.

577
00:32:26,400 --> 00:32:29,320
Yeah, I think.
I saw Peppy Grove 2021 too.

578
00:32:29,320 --> 00:32:33,360
Was the highest earning suburb
or post code in in Australia.

579
00:32:33,560 --> 00:32:35,600
Yeah, fighting out the likes of
Melbourne and Sydney there.

580
00:32:35,640 --> 00:32:38,680
Yeah, there.
You go and we've operated with

581
00:32:38,680 --> 00:32:42,520
them for a long time at both
through bars and in previous

582
00:32:42,560 --> 00:32:45,320
careers.
There is a mark of quality to

583
00:32:45,320 --> 00:32:47,920
Euros Hartley's.
They've got a great, a lot, a

584
00:32:48,200 --> 00:32:51,480
lot of great personnel.
They're growing their business.

585
00:32:51,480 --> 00:32:53,760
They've got this new graduate
programme, which is kind of

586
00:32:53,760 --> 00:32:57,360
cultivating new, new talent.
And they've got a bit more of a

587
00:32:57,360 --> 00:33:00,040
focus on this more wealth
management side of the business,

588
00:33:00,040 --> 00:33:03,120
which is $4 billion under
management, which is another way

589
00:33:03,120 --> 00:33:05,600
that you could value them and,
and have a look at it from that

590
00:33:05,600 --> 00:33:09,760
perspective.
And that is, you know, truly a

591
00:33:09,920 --> 00:33:12,640
large amount of farming in the
context of the WA market.

592
00:33:14,320 --> 00:33:17,400
People don't.
Generally think of brokers as

593
00:33:17,400 --> 00:33:20,800
not looking after themselves to
to kind of put it bluntly, do

594
00:33:20,800 --> 00:33:24,440
you think there is enough inside
ownership in the business that

595
00:33:24,760 --> 00:33:27,400
shareholders are the ones that
get rewarded when when times are

596
00:33:27,400 --> 00:33:29,280
good?
That's the thing that gives us

597
00:33:29,280 --> 00:33:34,600
comfort is it is really highly
owned by the key decision makers

598
00:33:34,840 --> 00:33:38,720
as well as Hartley's got
purchased through your script.

599
00:33:38,720 --> 00:33:41,520
And so there's a lot of the
Hartley's people that came over

600
00:33:41,520 --> 00:33:44,440
and a lot of them are, are
really great, you know,

601
00:33:44,440 --> 00:33:46,760
executives and and other
personnel as well that are

602
00:33:47,440 --> 00:33:49,400
highly personally invested in
the business.

603
00:33:49,400 --> 00:33:53,560
So yeah, while people will have
their own P&L internally, you

604
00:33:53,560 --> 00:33:58,160
know, I, I, I imagine there is a
lot of drive to get shareholder

605
00:33:58,160 --> 00:34:00,800
returns.
Awesome, like a podium is

606
00:34:00,800 --> 00:34:04,400
another name you guys suggested
and it was pretty interesting

607
00:34:04,400 --> 00:34:06,680
digging into this.
So I think it's a name that'll

608
00:34:06,680 --> 00:34:09,440
be familiar to a lot of people
that follow the resources space.

609
00:34:09,440 --> 00:34:12,320
They you know, be with the
projects, these sorts of things.

610
00:34:12,320 --> 00:34:16,400
So it was quite interesting
digging into it. 90% weighted to

611
00:34:16,400 --> 00:34:19,800
the resources space with a bit
of other sort of infrastructure

612
00:34:20,120 --> 00:34:23,400
work and also quite a strong
weighting to African projects.

613
00:34:23,400 --> 00:34:26,280
I think it's all 60 odd percent
as well as gold.

614
00:34:26,360 --> 00:34:30,199
How do you think about the
diversification of projects

615
00:34:30,199 --> 00:34:31,679
within within the business
there?

616
00:34:33,440 --> 00:34:36,760
Yeah, like a podium has been a
holding for probably close to

617
00:34:36,760 --> 00:34:40,800
two years for the fund.
So we've initially like, again,

618
00:34:40,800 --> 00:34:43,880
it's it, it's not always the
case, but had a very strong

619
00:34:43,880 --> 00:34:48,400
balance sheet.
They have a real focus on not

620
00:34:48,400 --> 00:34:50,480
issuing shares and, and, and
EPS.

621
00:34:50,480 --> 00:34:54,960
I think they've held 39 million
shares for the last, you know,

622
00:34:54,960 --> 00:34:58,080
15 years.
And so it's yeah, it's, it's,

623
00:34:58,080 --> 00:35:00,240
it's rare to say and, and really
pleasure.

624
00:35:00,240 --> 00:35:04,880
And that was quite attractive.
When we spoke with Peter, the

625
00:35:04,880 --> 00:35:08,560
Managing director, we spend a
lot of time working through

626
00:35:08,560 --> 00:35:13,440
there was a period, I think it
was 2013, 2014, 2015 where, you

627
00:35:13,440 --> 00:35:16,040
know, there were a number of
probably projects that they had

628
00:35:16,040 --> 00:35:20,280
successfully delivered that
rolled off without that backlog

629
00:35:20,280 --> 00:35:23,560
of work to keep forward.
And and that's when you saw the

630
00:35:23,720 --> 00:35:27,000
profitability take a hit.
And just understanding the

631
00:35:27,000 --> 00:35:31,320
evolution of the business from
that period probably close to 10

632
00:35:31,320 --> 00:35:34,760
years ago to now.
And I think the the depth of the

633
00:35:34,760 --> 00:35:38,800
team this the spread of the
team, so different parts of the

634
00:35:39,680 --> 00:35:42,960
a mining project that would be
focused in on, I think there was

635
00:35:42,960 --> 00:35:47,800
a big focus on getting expertise
in many different commodities.

636
00:35:48,200 --> 00:35:54,520
So gold has been a key focus,
but copper and also lithium and

637
00:35:54,520 --> 00:35:57,280
you know, two commodities where
there's projects currently being

638
00:35:57,280 --> 00:35:59,600
delivered.
A lot of studies they're doing

639
00:35:59,800 --> 00:36:02,640
are really or delivering a
really big project, which is a

640
00:36:02,640 --> 00:36:05,760
real step.
You know, a huge step forward is

641
00:36:05,760 --> 00:36:10,320
the barracks project in
Pakistan, Rico Dix.

642
00:36:10,320 --> 00:36:13,320
That's that's an enormous
project that will take like a

643
00:36:13,320 --> 00:36:16,440
podium a number of years to
deliver and and obviously will

644
00:36:16,440 --> 00:36:19,440
have a positive impact on
earnings is our view.

645
00:36:19,920 --> 00:36:23,080
But they've been able to
diversify across multiple

646
00:36:23,080 --> 00:36:25,480
commodities.
They've got a great team.

647
00:36:25,680 --> 00:36:29,720
The biggest bottleneck to growth
has been finding staff and

648
00:36:29,720 --> 00:36:33,280
that's been probably a feature
of or rather engineering

649
00:36:33,280 --> 00:36:35,880
consultancies over the last two
or three years.

650
00:36:35,880 --> 00:36:39,000
And you know, when we spoke to
the management, there was a real

651
00:36:39,000 --> 00:36:42,240
focus on no, we just have to
make sure that we attract the

652
00:36:42,240 --> 00:36:45,760
right staff and they weren't
just on an expansion for the

653
00:36:45,760 --> 00:36:48,840
sake thereof.
So very measured, very, very

654
00:36:48,840 --> 00:36:52,800
disciplined and diversification
and, and, and managing that

655
00:36:52,800 --> 00:36:54,960
risk.
Part of that due to the balance

656
00:36:54,960 --> 00:36:58,480
sheet, part of that's due to
being able to deliver different

657
00:36:58,480 --> 00:37:02,280
projects and work at different
components of a of a mining

658
00:37:02,280 --> 00:37:04,520
project.
And also I think their

659
00:37:04,520 --> 00:37:09,440
industrials business delivering
projects for CSL, you know

660
00:37:09,480 --> 00:37:11,400
that's a, that was a project
that they delivered in

661
00:37:11,400 --> 00:37:13,760
Melbourne.
So there's there is a lot of

662
00:37:13,760 --> 00:37:17,960
diversification within the
business notwithstanding a key

663
00:37:17,960 --> 00:37:22,000
attraction to us is the outlook
for particularly copper and

664
00:37:22,160 --> 00:37:25,680
particularly, you know their
ability to deliver projects that

665
00:37:25,680 --> 00:37:29,040
probably require, you know a
high degree of technical

666
00:37:29,040 --> 00:37:32,960
expertise and being able to
navigate, you know, some tougher

667
00:37:32,960 --> 00:37:36,120
jurisdictions that they've just
shown time and time again they

668
00:37:36,120 --> 00:37:38,640
can deliver so.
One of the sort of challenges

669
00:37:38,640 --> 00:37:42,320
for a lot of similar type
companies was finding people.

670
00:37:42,360 --> 00:37:45,480
Like you mentioned is finding
people to build the things or

671
00:37:45,720 --> 00:37:51,280
work on like engineering
projects as well as in the in

672
00:37:51,280 --> 00:37:54,080
the offices as well the the
white collar sort of jobs.

673
00:37:54,440 --> 00:37:57,200
Do you think most of that at
least in Australia has kind of

674
00:37:57,520 --> 00:38:00,920
washed through and they
shouldn't have that sort of cost

675
00:38:00,920 --> 00:38:03,840
inflation that could be onerous
on on the margins of the

676
00:38:03,840 --> 00:38:05,280
business?
Yeah.

677
00:38:05,560 --> 00:38:07,560
Look, it's absolutely a key
question.

678
00:38:07,720 --> 00:38:10,480
I think we've, you know, we've
been asking and listening to,

679
00:38:10,480 --> 00:38:16,520
you know, Agms and, and the
financial reporting on how easy

680
00:38:16,520 --> 00:38:19,920
is it to, to retain labour.
We were catching up with

681
00:38:19,920 --> 00:38:23,400
actually a company recently that
was talking about, they just

682
00:38:23,400 --> 00:38:28,120
gave their staff an out of
cycle, you know, essentially a,

683
00:38:28,120 --> 00:38:31,440
a pay rise.
And they had a, at at the time

684
00:38:31,440 --> 00:38:34,120
that, you know, pretty heavy
blue collar workforce and they

685
00:38:34,120 --> 00:38:35,560
looked around and said, this is
fantastic.

686
00:38:35,560 --> 00:38:38,640
We weren't expecting this.
And so there is that, you know,

687
00:38:38,640 --> 00:38:41,360
still pressure from from from
wages.

688
00:38:41,360 --> 00:38:45,000
I think it's going to vary not
just state by state within

689
00:38:45,000 --> 00:38:47,280
Australia, but also the
disciplines.

690
00:38:47,600 --> 00:38:51,160
It'd probably start to find that
it's going to be much easier to

691
00:38:51,520 --> 00:38:55,120
find staff in the white collar
prior to blue collar.

692
00:38:55,120 --> 00:38:59,480
I think that's still, you know,
like if you are or, or, or you

693
00:38:59,480 --> 00:39:02,680
know someone in that industry,
it's certainly one where there's

694
00:39:02,680 --> 00:39:06,840
a lot of work still and actually
finding people who, you know,

695
00:39:07,080 --> 00:39:10,960
have the ability and, and, and
the resilience to work in tough

696
00:39:10,960 --> 00:39:14,960
environments is, is, is, is
obviously getting harder and

697
00:39:14,960 --> 00:39:17,280
harder.
So I think for workers that can

698
00:39:17,280 --> 00:39:19,680
do that deserve clearly to get
paid.

699
00:39:19,680 --> 00:39:23,240
Companies are having to pay up.
The white collar is softening.

700
00:39:23,240 --> 00:39:25,200
That's the feedback that we get
at the moment.

701
00:39:25,200 --> 00:39:28,560
That's for sure to.
Your comment on the the cycle is

702
00:39:28,560 --> 00:39:33,280
not lasting for forever.
What, what are the signals that

703
00:39:33,280 --> 00:39:37,960
you'd look for that it's not
quite working out or you know,

704
00:39:37,960 --> 00:39:40,720
that might be company specific,
it might be across the the whole

705
00:39:40,720 --> 00:39:44,760
space where we're talking about,
but how do you sort of catch

706
00:39:44,760 --> 00:39:46,800
that before it it kind of
happens?

707
00:39:49,120 --> 00:39:53,520
Oh look for different businesses
will be different inputs for one

708
00:39:53,520 --> 00:39:59,400
of our holdings that was
acquired 2023 was DDH and you

709
00:39:59,400 --> 00:40:02,560
know a key signal or leading
indicator was.

710
00:40:02,920 --> 00:40:06,880
ACM activity or looking at how
many, like what's the quantity

711
00:40:06,880 --> 00:40:12,120
of capital that's being raised
by smaller companies to go out

712
00:40:12,120 --> 00:40:15,000
and then commit to exploration
programmes.

713
00:40:15,000 --> 00:40:18,720
So that would be probably 1.
But like, I think at the moment,

714
00:40:18,720 --> 00:40:22,600
we're seeing that largely or
hopefully bottoming out at the

715
00:40:22,600 --> 00:40:26,320
moment and, and we'll see an
uptick of that, you know, junior

716
00:40:26,320 --> 00:40:29,960
minor capital raising activity.
But that would be 1 kind of

717
00:40:29,960 --> 00:40:33,840
leading indicator for the for
parts of the mining cycle

718
00:40:34,720 --> 00:40:38,360
utilisation where you can get
that data is fantastic for

719
00:40:38,360 --> 00:40:41,440
different businesses that are
probably more, you know, asset

720
00:40:41,440 --> 00:40:44,960
driven mining services.
So when you can get data on

721
00:40:44,960 --> 00:40:47,080
utilisation, starting to see
that turn.

722
00:40:47,520 --> 00:40:51,960
I think for us, we well
definitely is timing extremely

723
00:40:51,960 --> 00:40:57,680
important for mining services
just being prepared by managing

724
00:40:57,680 --> 00:41:01,920
risks wherever you can.
I think from our perspective,

725
00:41:02,400 --> 00:41:07,640
having debt and seeing that as a
key risk and a lot of the, the

726
00:41:07,640 --> 00:41:10,720
big issues with mining services
and when things can go South is

727
00:41:10,720 --> 00:41:14,600
when there's a very large debt
load or gearing within a

728
00:41:14,600 --> 00:41:18,800
business.
As a general rule, we will model

729
00:41:18,800 --> 00:41:22,240
out the debt and covenants.
But when you see in an investor

730
00:41:22,240 --> 00:41:25,520
presentation, you know, one or
two or three slides where they

731
00:41:25,520 --> 00:41:28,600
have to go and explain this is
our covenant ratio and this is

732
00:41:28,600 --> 00:41:31,840
where we see it in gearing.
That's probably the first orange

733
00:41:31,840 --> 00:41:34,400
flag.
And then from that you then have

734
00:41:34,400 --> 00:41:37,840
to go and do your own modelling
on to say, OK, I, I'd like to

735
00:41:37,840 --> 00:41:39,720
understand what the gearing
ratio is.

736
00:41:39,720 --> 00:41:42,280
I understand interest coverage
for this business and that's a

737
00:41:42,280 --> 00:41:46,720
risk that I'm confident on if
revenues drop 2030%.

738
00:41:47,520 --> 00:41:50,320
Yeah.
You know, where possible to find

739
00:41:50,320 --> 00:41:53,160
a business without debt is, is
is obviously key.

740
00:41:53,240 --> 00:41:57,360
Not with not to say that you
don't see material draw downs or

741
00:41:57,360 --> 00:42:00,560
you know, in, you know, balance
sheets being impacted when you

742
00:42:00,560 --> 00:42:04,840
do see the cycle reverse.
But it is, yeah, it is something

743
00:42:04,840 --> 00:42:08,160
that we try to manage as best we
can on the debt front.

744
00:42:08,160 --> 00:42:10,680
And I, I think you've.
Seen from the two examples that

745
00:42:11,720 --> 00:42:15,160
we are comfortable to invest in
them because they have been good

746
00:42:15,160 --> 00:42:18,000
at managing the poor cycles for
themselves.

747
00:42:18,240 --> 00:42:21,440
And then when it's the good part
of the cycle, you know, it kind

748
00:42:21,440 --> 00:42:24,560
of takes care of care of itself.
But just as you need to have

749
00:42:24,560 --> 00:42:27,280
discipline when you're buying
and you know, hopefully you're

750
00:42:27,280 --> 00:42:29,280
getting towards the bottom of
the cycle for some of these

751
00:42:29,280 --> 00:42:31,960
names, you need to have
discipline in, in selling.

752
00:42:31,960 --> 00:42:34,640
And, and when you're investing
in cyclical businesses, it can

753
00:42:34,640 --> 00:42:38,320
be a bit more active in the way
you invest as opposed to, you

754
00:42:38,320 --> 00:42:40,800
know, more of a like kind of a
long term compound, a kind of

755
00:42:40,800 --> 00:42:44,200
classic industrials company
with, with, with steady growth.

756
00:42:44,200 --> 00:42:47,960
So you just need to recognise
that when times are good, that's

757
00:42:47,960 --> 00:42:50,200
not going to last forever.
And maybe it's time to manage

758
00:42:50,200 --> 00:42:52,800
some of your position.
And just as when times are not

759
00:42:52,800 --> 00:42:55,280
so good, maybe that's a good
time to be having a good look at

760
00:42:55,280 --> 00:42:57,880
it the the.
Last company I'm keen to chat

761
00:42:57,880 --> 00:43:00,240
about and I'll disclose that I
actually own a few of these ones

762
00:43:00,320 --> 00:43:02,800
Vysan.
So yeah, I'm pretty excited to

763
00:43:02,800 --> 00:43:06,440
to talk about this business and
get the perspective that you

764
00:43:06,440 --> 00:43:11,160
guys have to start with a couple
acquisitions in the the past

765
00:43:11,160 --> 00:43:16,200
quarter 11 bigger than the other
that CMP and wastewater

766
00:43:16,200 --> 00:43:18,120
services.
How did you kind of think about,

767
00:43:18,120 --> 00:43:20,680
you know, that this is a, a
company like we spoke about

768
00:43:20,680 --> 00:43:23,600
before that doesn't love to
issue paper unless they kind of

769
00:43:23,600 --> 00:43:27,560
need to and there's a, a, an
appropriate opportunity.

770
00:43:28,000 --> 00:43:30,800
And I saw in your, your recent
note that you guys chipped in

771
00:43:30,800 --> 00:43:33,320
having invested a year or so
ago.

772
00:43:33,560 --> 00:43:36,640
So how are you thinking about
those acquisitions in and the

773
00:43:36,680 --> 00:43:39,240
the business in a broader sense?
Yeah.

774
00:43:39,640 --> 00:43:43,960
So we talked with James Clement,
the MD of ISON, quite often.

775
00:43:43,960 --> 00:43:47,280
And I'll just start by saying he
he's probably one of the better

776
00:43:47,280 --> 00:43:49,960
managing directors that we've
come across in small cap space.

777
00:43:49,960 --> 00:43:53,360
And so we've got a lot of
confidence in what he's doing

778
00:43:53,360 --> 00:43:56,080
and then the team that he's been
able to build underneath him.

779
00:43:56,520 --> 00:43:59,320
And they have some very strict
criteria when it comes to

780
00:43:59,320 --> 00:44:02,920
acquisitions.
And they also see this giant

781
00:44:02,920 --> 00:44:07,120
opportunity in water
infrastructure on the East Coast

782
00:44:07,280 --> 00:44:11,080
when they already are quite, you
know, well covered in in WA.

783
00:44:11,080 --> 00:44:17,120
And so the acquisition of CMP
has materially diversified.

784
00:44:17,120 --> 00:44:21,280
Their client said, I think they
go from almost 100%, you know,

785
00:44:21,280 --> 00:44:26,280
mining in WA to, to down to 70%.
And that that 30% that comes

786
00:44:26,280 --> 00:44:31,040
from CMP is largely government
and, and water agencies on, on

787
00:44:31,040 --> 00:44:33,120
the East Coast.
There's going to be something

788
00:44:33,120 --> 00:44:37,320
like $60 billion spent on water
associated infrastructure in the

789
00:44:37,320 --> 00:44:39,440
East Coast over the next 5 to 10
years.

790
00:44:39,440 --> 00:44:43,880
And so James and his team made
the really strategic and clever

791
00:44:44,400 --> 00:44:47,520
approach to, to CMP and, and
have been able to absorb that

792
00:44:47,520 --> 00:44:50,560
into the business.
So that adds a new division for

793
00:44:50,560 --> 00:44:53,320
them and a new geographical
location.

794
00:44:53,320 --> 00:44:57,240
And then the wastewater services
also EPS accretive and also

795
00:44:57,240 --> 00:45:00,440
makes a lot of sense.
It's still in WA, but it does

796
00:45:00,440 --> 00:45:04,600
provide them with a new division
to their their water service

797
00:45:04,600 --> 00:45:06,600
offering.
And really what they're trying

798
00:45:06,600 --> 00:45:11,440
to do is be a vertically
integrated water services

799
00:45:11,640 --> 00:45:15,720
provider across consulting,
engineering, design,

800
00:45:15,720 --> 00:45:20,880
implementation and of course,
and, and maybe you're like

801
00:45:20,880 --> 00:45:24,120
you're about to ask about this,
but they have this blue sky of

802
00:45:24,120 --> 00:45:26,640
this water asset management
that's that's coming over the

803
00:45:26,640 --> 00:45:29,120
top.
And so, yeah, yeah.

804
00:45:29,200 --> 00:45:32,520
Came to unpack that more and
what that could sort of mean to

805
00:45:32,520 --> 00:45:37,240
the the valuation of the
business and the potential

806
00:45:37,240 --> 00:45:40,320
competitors that might come into
the arena if if you know that

807
00:45:40,320 --> 00:45:42,240
they seem to be the first mover
in in that one.

808
00:45:42,240 --> 00:45:46,240
But you know these things in in
capitalism attract opponents.

809
00:45:46,240 --> 00:45:47,640
So how are you thinking about
that?

810
00:45:47,680 --> 00:45:51,400
Yeah, so.
I mean, if you look at the the

811
00:45:51,400 --> 00:45:55,440
current business and take the
acquisitions into account,

812
00:45:55,760 --> 00:45:58,520
you've got the company business
trading on, you know, somewhere

813
00:45:58,520 --> 00:46:03,160
between the 15 to 20 times PA
multiple which given the growth

814
00:46:03,160 --> 00:46:06,720
and execution that they've been
able to show that's quite

815
00:46:06,720 --> 00:46:08,440
comfortable.
It's not you know, you're not,

816
00:46:08,440 --> 00:46:10,120
you're not getting a super
cheap, but it's quite

817
00:46:10,120 --> 00:46:13,040
comfortable.
But then there's not really any

818
00:46:13,040 --> 00:46:15,320
value for the water asset
management in that.

819
00:46:15,360 --> 00:46:21,240
And that aspect is hard to value
for now until we really see some

820
00:46:21,240 --> 00:46:24,360
nuts and bolts put around it.
But just for the listeners who

821
00:46:24,360 --> 00:46:29,280
who aren't as as O5 with vice on
what they've done is they've

822
00:46:29,280 --> 00:46:32,960
collected a bunch of water
titles in WA and they've done

823
00:46:32,960 --> 00:46:35,800
that in a really clever fashion.
And, and some of the most

824
00:46:36,000 --> 00:46:41,080
compelling water titles, they've
also, and this is just

825
00:46:41,240 --> 00:46:43,840
fantastic, what they've been
able to do is they've entered

826
00:46:43,840 --> 00:46:47,040
into joint ventures with
traditional owners and they will

827
00:46:47,040 --> 00:46:49,840
share the economics on a, on a
5050 basis.

828
00:46:49,840 --> 00:46:54,280
And so they've they've really
ensconced themselves well in

829
00:46:54,280 --> 00:46:58,320
being able to be a a strong
operator and and obviously get

830
00:46:58,320 --> 00:47:02,640
the good regulatory outcomes on
the water, water services that

831
00:47:02,640 --> 00:47:06,920
they're providing.
And what the grand plan is in,

832
00:47:06,920 --> 00:47:12,360
you know, the vast spaces of WA,
there is some areas that have a

833
00:47:12,360 --> 00:47:15,040
lot more water than is required
and some areas which have a lot

834
00:47:15,040 --> 00:47:17,160
less than they're required.
And there's a lot of mining

835
00:47:17,160 --> 00:47:21,680
projects, infrastructure
projects, agriculture, energy

836
00:47:21,680 --> 00:47:25,480
projects that require water that
are currently, you know, if not

837
00:47:25,480 --> 00:47:28,080
stranded, but you know, paying
more than they would like to be

838
00:47:28,080 --> 00:47:30,040
or, you know, or struggling for
water.

839
00:47:30,040 --> 00:47:33,360
And so the idea for the team
with the vice on water asset

840
00:47:33,360 --> 00:47:37,960
management business is to
transport water from the, you

841
00:47:37,960 --> 00:47:41,000
know, where they're able to find
big aquifers on, on, on native

842
00:47:41,000 --> 00:47:44,760
title land to the places where
it was where it is required.

843
00:47:44,760 --> 00:47:48,080
And so that's going to require a
huge amount of infrastructure in

844
00:47:48,080 --> 00:47:52,160
terms of pipelines and the like.
And their idea is to partner

845
00:47:52,320 --> 00:47:55,600
externally for the funding and,
and potentially, you know,

846
00:47:55,840 --> 00:47:58,760
management to some extent of
that with, you know, more

847
00:47:58,760 --> 00:48:02,800
established and, and larger
major infrastructure providers.

848
00:48:03,000 --> 00:48:07,560
And they've brought in Richard
Lowry, who is an ex investment

849
00:48:07,560 --> 00:48:10,920
banker, but also water
infrastructure kind of

850
00:48:11,520 --> 00:48:15,600
experienced guy and he is
leading that operation.

851
00:48:15,600 --> 00:48:18,240
And our understanding is there's
going to be, you know, a lot

852
00:48:18,240 --> 00:48:20,720
more information on this coming
out over the next kind of three

853
00:48:20,720 --> 00:48:23,240
to six months.
And what sort of timeline do you

854
00:48:23,240 --> 00:48:26,200
think about that, that business?
Is that something that comes

855
00:48:26,200 --> 00:48:29,960
into effect?
I'm sort of thinking 3-4 years

856
00:48:29,960 --> 00:48:32,920
it it could be.
Obviously it's a journey to get

857
00:48:32,920 --> 00:48:35,080
there and things need to to get
built.

858
00:48:35,080 --> 00:48:37,960
But if you're if you were to
look at the blue skies, that how

859
00:48:37,960 --> 00:48:39,600
you kind of think about it.
Yeah.

860
00:48:39,600 --> 00:48:40,600
What?
Do you think from a timing

861
00:48:40,600 --> 00:48:42,960
perspective, yeah.
I think three to four years is

862
00:48:42,960 --> 00:48:46,720
probably right before you start
to see the projects really get

863
00:48:46,720 --> 00:48:48,920
going.
In saying that, I think we

864
00:48:48,920 --> 00:48:53,000
probably start to get a better
handle on the economics or

865
00:48:53,000 --> 00:48:56,800
whether that starts with just
the sizing of the water resource

866
00:48:56,800 --> 00:49:01,280
and and and how they would go
about structuring or tolling

867
00:49:01,280 --> 00:49:05,080
what's the toll fees etcetera
over the coming 6 to 12 months.

868
00:49:05,080 --> 00:49:08,720
But you know, that's that's our
hope and and for us it as Will

869
00:49:08,720 --> 00:49:13,240
said, you've got really the core
operating profitable business

870
00:49:13,640 --> 00:49:17,800
that's really underwriting a lot
of our attraction to vice on.

871
00:49:18,080 --> 00:49:21,360
And so as we get a lot more
information on the economics for

872
00:49:21,360 --> 00:49:24,080
the water asset management, it's
just going to add to that.

873
00:49:24,840 --> 00:49:28,120
And how do you think about the
company moving away from, I

874
00:49:28,160 --> 00:49:30,200
mean, I guess the against the
other companies who've spoken

875
00:49:30,200 --> 00:49:33,680
about the, the cyclicality of
the business, it sort of started

876
00:49:33,680 --> 00:49:38,080
as a business that is pretty
exposed now with the the rigs to

877
00:49:38,520 --> 00:49:42,560
the mining cycle.
But it seems to be on a on a

878
00:49:42,560 --> 00:49:45,680
journey to move itself away from
that.

879
00:49:45,680 --> 00:49:48,080
Where do you see them on that
journey right now?

880
00:49:49,320 --> 00:49:53,640
Yeah, like a lot of other mining
services companies, there is

881
00:49:53,640 --> 00:49:57,960
this big focus on diversifying
away from mining, which sounds

882
00:49:57,960 --> 00:50:00,280
funny, but also WA to some
extent.

883
00:50:00,280 --> 00:50:02,600
I mean, we're invested in
another electrical services

884
00:50:02,600 --> 00:50:05,520
provider that was traditionally
as a Southern Cross Electric

885
00:50:05,520 --> 00:50:09,120
traditionally 100% mining that
are now that's much less a part

886
00:50:09,120 --> 00:50:11,400
of what they're doing.
And and what they're really

887
00:50:11,400 --> 00:50:15,040
trying to do is de risk that
cyclical nature of mining with

888
00:50:15,040 --> 00:50:18,760
vice on.
I mean, we see this as a natural

889
00:50:18,760 --> 00:50:23,080
expansion and they'll still get
great benefit from mining, but

890
00:50:23,400 --> 00:50:26,640
you know, to to grow and be able
to expand and be able to kind of

891
00:50:26,640 --> 00:50:29,600
smooth out some of their growth
trajectory by being on the East

892
00:50:29,600 --> 00:50:31,440
Coast.
That's really positive from our

893
00:50:31,440 --> 00:50:34,400
perspective.
Of course, this water asset

894
00:50:34,400 --> 00:50:37,960
management is going to be highly
leveraged to to mining.

895
00:50:38,240 --> 00:50:41,080
So they may actually kind of
increase their exposure as they

896
00:50:41,080 --> 00:50:44,760
go through, but that should be
more of an infrastructure style

897
00:50:44,960 --> 00:50:46,680
kind of steady income style
risk.

898
00:50:46,680 --> 00:50:48,920
So I mean it is it is multi
tinged.

899
00:50:48,920 --> 00:50:52,160
They've got the cyclical mining,
the more steady, you know, kind

900
00:50:52,160 --> 00:50:54,200
of water consulting to
governments and the like, which

901
00:50:54,200 --> 00:50:56,760
they're building out and then
hopefully an infrastructure

902
00:50:56,760 --> 00:50:59,080
style play.
So altogether it should make for

903
00:50:59,080 --> 00:51:01,160
some quite, you know, rich risk
return.

904
00:51:02,720 --> 00:51:04,000
Yeah.
I think at the moment they're

905
00:51:04,000 --> 00:51:09,760
probably seventy 8090% would be,
you know, outside in guessing

906
00:51:10,120 --> 00:51:12,440
percent of the way through the
diversification that they want

907
00:51:12,440 --> 00:51:15,880
to achieve.
I think FY24 there was still you

908
00:51:15,880 --> 00:51:19,440
know, I think they had some rigs
in a nickel project that they

909
00:51:19,440 --> 00:51:22,480
had to you know, push elsewhere
within the portfolio.

910
00:51:22,480 --> 00:51:25,800
So I think there's there, there
has been some of that of recent

911
00:51:25,800 --> 00:51:30,120
times drag, but with the
acquisition and particularly of

912
00:51:30,120 --> 00:51:33,600
the East Coast consulting
business, we see them as really

913
00:51:33,600 --> 00:51:37,840
well and truly on the way to
getting that diversification and

914
00:51:38,000 --> 00:51:41,800
you know, giving themselves some
immunity to to that, you know,

915
00:51:41,800 --> 00:51:45,160
harsh cyclicality of the mining
so of, of mining services.

916
00:51:45,680 --> 00:51:48,480
So we've, we've talked around
the mining industry for quite

917
00:51:48,480 --> 00:51:50,720
some time, but you guys are
pretty tapped into the, the

918
00:51:50,720 --> 00:51:54,160
capital raising cycle, in
particular with the, with the

919
00:51:54,160 --> 00:51:56,320
juniors.
And it's been pretty, pretty

920
00:51:56,320 --> 00:51:58,520
active.
Even even today I saw a, a good

921
00:51:58,560 --> 00:52:01,520
few coming through.
And I saw in your quarterly you

922
00:52:01,520 --> 00:52:03,880
mentioned you're looking at 3:00
to 6:00 opportunities a day,

923
00:52:03,880 --> 00:52:06,480
which I'm sure keeps you kind of
busy.

924
00:52:06,680 --> 00:52:09,120
How, how do you look at these
opportunities?

925
00:52:09,120 --> 00:52:11,720
Are you, I'd imagine you're
familiar with most of the

926
00:52:11,720 --> 00:52:15,120
companies beforehand.
Is it a, is it a quick answer

927
00:52:15,200 --> 00:52:18,080
once you know the sort of to see
the term sheet, you know the the

928
00:52:18,080 --> 00:52:19,840
details or what's that process
like?

929
00:52:20,800 --> 00:52:24,960
Yeah.
So you have to be able to say no

930
00:52:24,960 --> 00:52:29,360
quickly and a lot because of
just the the huge amount of

931
00:52:29,360 --> 00:52:33,120
opportunities that come through.
But I mean we're talking about

932
00:52:33,120 --> 00:52:35,840
cycles a lot.
But cap arising's in mining

933
00:52:35,840 --> 00:52:39,360
companies come in to come in
quite sharp waves.

934
00:52:39,360 --> 00:52:43,240
And so where there's been
probably a year or two of quite

935
00:52:43,240 --> 00:52:49,000
subdued kind of activity in that
space, we are we have seen a

936
00:52:49,000 --> 00:52:52,160
ramp up in the last two months,
not to say we haven't seen you

937
00:52:52,160 --> 00:52:54,960
know ramp UPS over over that
last two year period.

938
00:52:54,960 --> 00:52:58,880
So we're still just working out
how sustainable it is at this

939
00:52:58,880 --> 00:53:03,080
point in time.
But what you do say at the start

940
00:53:03,080 --> 00:53:06,880
of the wave of a kind of a cat
raising cycle for Genia Mining

941
00:53:06,880 --> 00:53:13,120
is the more quality names are
coming to market 1st or, and, or

942
00:53:13,440 --> 00:53:17,080
you're getting better terms on
the, the things that do get to

943
00:53:17,080 --> 00:53:19,760
market.
And so it is really important to

944
00:53:19,760 --> 00:53:23,120
make sure you're on top of that
and, and, and really able to

945
00:53:23,120 --> 00:53:26,400
participate, You know, if you've
got the spare capacity and, and

946
00:53:26,400 --> 00:53:28,640
if you've got a good
understanding of the

947
00:53:28,640 --> 00:53:31,240
fundamentals of, of particular
companies.

948
00:53:31,800 --> 00:53:34,800
But what happens is that then
builds, you know, the

949
00:53:34,800 --> 00:53:38,320
aftermarkets get better, you
know, the FOMO trade starts to

950
00:53:38,320 --> 00:53:43,680
kick in and then you start to
see worse terms on, on, on the

951
00:53:43,680 --> 00:53:46,760
equity raisings and probably
poorer companies being able to

952
00:53:46,760 --> 00:53:48,840
get to market.
And that's where you really need

953
00:53:48,840 --> 00:53:52,160
to keep your wits about you and
and say no even even more than

954
00:53:52,480 --> 00:53:55,520
you had been before.
The sort of timing there is is

955
00:53:55,520 --> 00:53:58,320
super fascinating.
How do you think also as it ties

956
00:53:58,320 --> 00:54:02,520
in with positioning yourself in
a company?

957
00:54:02,520 --> 00:54:05,240
I know there's certain funds
obviously is very size

958
00:54:05,240 --> 00:54:08,280
dependent, but they will wait
for the the raisings because it

959
00:54:08,280 --> 00:54:11,040
gives them an opportunity as
opposed to being on the market

960
00:54:11,040 --> 00:54:13,840
and buying day after day.
Does that play into your

961
00:54:13,840 --> 00:54:16,000
thinking a lot it.
Definitely does.

962
00:54:16,320 --> 00:54:19,400
I mean mining companies are, are
always raising equity.

963
00:54:19,400 --> 00:54:21,720
I mean, and, and you just have
to be aware of that if you're

964
00:54:21,720 --> 00:54:24,080
investing in mining.
I mean, if they're an explorer,

965
00:54:24,080 --> 00:54:27,640
they don't have any revenue and
and they need to raise equity in

966
00:54:27,640 --> 00:54:29,760
order to explore.
And it's very hard and and

967
00:54:29,760 --> 00:54:33,000
probably not recommended to take
on any debt at that point in

968
00:54:33,000 --> 00:54:36,160
time for developers.
Maybe they've got a more

969
00:54:36,160 --> 00:54:38,480
established project, maybe
they're able to raise more

970
00:54:38,480 --> 00:54:43,480
money, but it is almost always
like still quite high proportion

971
00:54:43,480 --> 00:54:45,560
of equity.
And then, you know, you look at

972
00:54:45,560 --> 00:54:49,480
some Barbara today raising $100
million, their producer and you

973
00:54:49,480 --> 00:54:50,880
know, they need to raise equity
as well.

974
00:54:50,880 --> 00:54:55,120
And that can be expansion CapEx,
it can be covenant issues, it,

975
00:54:55,160 --> 00:54:57,920
you know, it can be acquiring
another company.

976
00:54:57,920 --> 00:55:00,960
So there's always lots of
reasons for minors to raise

977
00:55:00,960 --> 00:55:05,240
equity in order for us to enter
a position.

978
00:55:05,760 --> 00:55:07,520
We will.
One of the first things we'll

979
00:55:07,520 --> 00:55:09,520
look at is the cash balance and
the cash burn.

980
00:55:09,840 --> 00:55:13,480
And so we need to see how much
of A runway this company has

981
00:55:13,480 --> 00:55:15,280
before it does need to raise
equity.

982
00:55:15,520 --> 00:55:19,120
And if that's an uncomfortable
runway, then it doesn't matter

983
00:55:19,120 --> 00:55:21,920
how much we love the commodity,
the project, the team, you know,

984
00:55:22,080 --> 00:55:25,320
etcetera.
You're probably going to be more

985
00:55:25,320 --> 00:55:28,200
so waiting for the equity
raising to come around.

986
00:55:28,400 --> 00:55:30,960
And then what you've got to take
the view on is that, that

987
00:55:30,960 --> 00:55:34,160
management team is a type of
management team that can add

988
00:55:34,160 --> 00:55:37,160
value with that capital so that
the next time they need to raise

989
00:55:37,160 --> 00:55:39,920
equity, it's it's at a high
price and and you're not seeing

990
00:55:39,920 --> 00:55:45,240
dilution for shareholders.
Will you guys ever encourage a

991
00:55:45,240 --> 00:55:50,760
company that you've already
invested in to you know, go to

992
00:55:50,760 --> 00:55:53,680
the market, you know, now you
know, this week you'd say for

993
00:55:53,680 --> 00:55:56,680
for gold companies it's a good
time that there seems to be

994
00:55:56,680 --> 00:55:58,760
demand.
Obviously every every case is

995
00:55:58,760 --> 00:56:00,760
kind of different, but how do
you think about that?

996
00:56:02,240 --> 00:56:05,360
There's there's certainly an
element of if this going's good,

997
00:56:05,680 --> 00:56:09,440
you know, grab some capital
while you can, because those

998
00:56:09,440 --> 00:56:12,440
that hold out, you know, for
high prices or catalysts or what

999
00:56:12,440 --> 00:56:14,200
have you, things can go against
them.

1000
00:56:14,200 --> 00:56:17,760
And and maybe you, you get more
dilution than than you were

1001
00:56:17,760 --> 00:56:21,640
expecting or hoping for or maybe
have to hold on for longer and

1002
00:56:21,640 --> 00:56:24,280
not able to do all the capital
works that you're after.

1003
00:56:24,280 --> 00:56:28,600
So we certainly ask a lot of
questions and, and, and get

1004
00:56:28,600 --> 00:56:31,200
involved with companies with
respect to their capital

1005
00:56:31,200 --> 00:56:33,360
requirements.
And, you know, coming from a

1006
00:56:33,360 --> 00:56:36,480
mining finance background, you
know, we do have some

1007
00:56:36,480 --> 00:56:39,240
understanding of that and so
hopefully can provide some, you

1008
00:56:39,240 --> 00:56:42,560
know, I don't know, informative
discussions with with mining

1009
00:56:42,560 --> 00:56:46,160
companies on that.
So yeah, we absolutely keep in

1010
00:56:46,160 --> 00:56:50,640
touch with companies on it and
yeah, try to lend a hand when we

1011
00:56:50,640 --> 00:56:53,560
can.
Couple last ones to to wrap up

1012
00:56:53,560 --> 00:56:57,520
guys, what are you most excited
about looking out the the market

1013
00:56:57,840 --> 00:57:00,880
right now, I think.
The money miners will be happy

1014
00:57:00,880 --> 00:57:02,400
to hear that it is junior
mining.

1015
00:57:02,600 --> 00:57:04,360
We're really excited about
junior to hear it.

1016
00:57:04,520 --> 00:57:07,000
Yeah, exactly.
So, I mean, we're seeing some

1017
00:57:07,000 --> 00:57:09,960
green shoots in gold, silver,
antimony.

1018
00:57:10,080 --> 00:57:13,800
I had to look up how to look up
how to pronounce that today.

1019
00:57:14,120 --> 00:57:19,560
Yeah, but what what we've really
seen is a long time in the

1020
00:57:19,560 --> 00:57:22,200
wilderness for a lot of these
junior mining companies.

1021
00:57:22,320 --> 00:57:24,200
We know where we need to get to
with a bunch of these

1022
00:57:24,200 --> 00:57:26,760
commodities from a down demand
supply perspective.

1023
00:57:27,120 --> 00:57:29,440
There's lots of interesting
projects out there.

1024
00:57:30,200 --> 00:57:32,360
You know, something's got to
give and and we will have a

1025
00:57:32,360 --> 00:57:35,160
really good time in junior
mining hopefully in the not too

1026
00:57:35,160 --> 00:57:36,960
distant future.
I can't say exactly when that

1027
00:57:36,960 --> 00:57:39,680
will be, but we're, we're
certainly very excited by that.

1028
00:57:40,360 --> 00:57:44,080
You know, we're exposed to it.
And yeah, we're, we're always

1029
00:57:44,360 --> 00:57:46,200
there watching and.
Knock on wood.

1030
00:57:46,200 --> 00:57:49,320
And lastly, any sort of
contrarian picks, you've you've

1031
00:57:49,320 --> 00:57:52,000
got going against the grain a
bit, yeah.

1032
00:57:52,000 --> 00:57:55,320
We thought we'd, we thought we'd
go with mining on this front as

1033
00:57:55,320 --> 00:57:58,800
well.
So rare earths, such a tough

1034
00:57:58,800 --> 00:58:00,160
one, right?
I mean, you've got all the

1035
00:58:00,160 --> 00:58:03,920
different mineralisation types,
you've got the market seemingly

1036
00:58:04,320 --> 00:58:08,360
changing it's views on which
mineralisation style will win,

1037
00:58:08,760 --> 00:58:12,640
you know, on a weekly basis.
But there's one the way like

1038
00:58:12,640 --> 00:58:17,480
called Veritas Mining.
So they're a Brazilian rarest,

1039
00:58:17,800 --> 00:58:20,280
you know, hopeful developer,
hopeful producer.

1040
00:58:20,920 --> 00:58:23,400
They're in the same region as
Meteoric.

1041
00:58:23,880 --> 00:58:25,600
So they've got the caldera
project.

1042
00:58:26,120 --> 00:58:28,000
Veritas has the Colossus
project.

1043
00:58:28,800 --> 00:58:33,120
As far as we can see, the
Veritas project is rather

1044
00:58:33,120 --> 00:58:37,120
analogous to Meteorics project.
Veritas has got a slightly

1045
00:58:37,120 --> 00:58:40,440
smaller resource at this point
in time with you know two 200

1046
00:58:40,880 --> 00:58:43,720
odd million tonnes at at a
similar grade which is around

1047
00:58:43,720 --> 00:58:48,040
that 2600 parts per million
TREO.

1048
00:58:48,040 --> 00:58:50,480
And then they've actually got
quite a high proportion of

1049
00:58:50,480 --> 00:58:52,920
magnetic rare earths at about
26%.

1050
00:58:53,560 --> 00:58:59,000
So you compare those two side by
side, Meteoric probably, you

1051
00:58:59,000 --> 00:59:02,080
know, anywhere between 3:00 to
12:00 months ahead.

1052
00:59:02,800 --> 00:59:04,960
You know, some would argue
longer than that, some would

1053
00:59:05,120 --> 00:59:07,680
argue shorter.
They've released a scoping

1054
00:59:07,680 --> 00:59:11,600
study.
They're a 220 mil market cap and

1055
00:59:11,600 --> 00:59:14,280
you've got Veritas at at a 35
mil market cap.

1056
00:59:14,280 --> 00:59:18,240
So it's, it's something like a
Meteoric is trading at 7 times

1057
00:59:18,240 --> 00:59:20,600
what Veritas is.
So there's a bit of buffer there

1058
00:59:20,600 --> 00:59:23,120
that we think is quite
interesting just in terms of how

1059
00:59:23,120 --> 00:59:27,320
similar their projects are, but
also just we recognise the

1060
00:59:27,320 --> 00:59:28,880
risks.
You know, people are worried

1061
00:59:28,880 --> 00:59:32,760
about the processing of these
ionic clays that hasn't hasn't

1062
00:59:32,760 --> 00:59:35,640
been done at scale, you know, in
this area.

1063
00:59:35,640 --> 00:59:38,440
And so, you know, there's always
going to be risks in in the ramp

1064
00:59:38,440 --> 00:59:41,040
up the metallurgy.
While they have done a lot of,

1065
00:59:41,040 --> 00:59:43,240
you know, testing on that, it
still hasn't been done at, you

1066
00:59:43,240 --> 00:59:45,880
know, at great scale.
And then, you know, Brazil is

1067
00:59:45,880 --> 00:59:49,240
still somewhat of an uncertain
jurisdiction for some.

1068
00:59:49,240 --> 00:59:53,160
But on the flip side of that at
the current, you know, market

1069
00:59:53,160 --> 00:59:56,160
cap with the resource that they
have and, and A and a great

1070
00:59:56,160 --> 00:59:58,600
management team in place and,
and pretty strong capital

1071
00:59:58,600 --> 01:00:01,920
markets following, we actually
see Brazil as quite a positive

1072
01:00:01,920 --> 01:00:04,280
jurisdiction.
They're, they're permitting is,

1073
01:00:04,280 --> 01:00:07,400
is almost world leading now in,
in terms of electrification

1074
01:00:07,400 --> 01:00:08,840
minerals.
You certainly saw what happened

1075
01:00:08,840 --> 01:00:12,280
with Sigma.
Yeah, exactly.

1076
01:00:12,280 --> 01:00:15,480
Latin resources were really
confident on on how quick their

1077
01:00:15,480 --> 01:00:17,840
permitting is going to be.
There's been some focus on

1078
01:00:17,840 --> 01:00:21,080
meteoric and and various with
the respect to permitting.

1079
01:00:21,800 --> 01:00:24,760
These are huge resources.
They're high grade by, you know,

1080
01:00:24,760 --> 01:00:30,840
clay and ionic clay standards.
And we believe just the, you

1081
01:00:30,840 --> 01:00:34,440
know, the kind of the risk is,
is, is in the favour of, of this

1082
01:00:34,440 --> 01:00:36,360
company at at this point in
time.

1083
01:00:36,360 --> 01:00:40,400
And that, you know, just to give
you a sound by we believe this

1084
01:00:40,400 --> 01:00:43,760
could be, you know, the Pilbara
of Rarest where they are in

1085
01:00:43,760 --> 01:00:45,800
Brazil.
And I'm saying it's definitely

1086
01:00:45,800 --> 01:00:48,080
going to happen.
But as as far as you know,

1087
01:00:48,120 --> 01:00:52,440
having a plan on Rarest goes, we
we believe Rudis is a really

1088
01:00:52,440 --> 01:00:53,920
good exposure.
Yeah, awesome.

1089
01:00:53,920 --> 01:00:57,320
The the clays are a fascinating
1 to watch and the the rarest

1090
01:00:57,320 --> 01:01:02,200
market is is so complex and
opaque, but fascinating at the

1091
01:01:02,200 --> 01:01:04,480
same time.
Will and Braden, thanks for

1092
01:01:04,480 --> 01:01:06,600
making the time.
It's been awesome to chat and

1093
01:01:06,680 --> 01:01:07,840
learn about Bazaar.
Thank you.

1094
01:01:08,120 --> 01:01:08,960
Yeah.
Cheers, JD.

1095
01:01:08,960 --> 01:01:09,920
Thanks.
Thanks, JD.

1096
01:01:10,320 --> 01:01:12,520
Thank you.
John, it's Benedict Dawling and

1097
01:01:12,520 --> 01:01:14,760
the bloody lads from Bazaar
capital.

1098
01:01:15,240 --> 01:01:16,520
That was sensational.
Bloody.

1099
01:01:16,520 --> 01:01:18,400
That's a good night.
He's.

1100
01:01:18,960 --> 01:01:19,240
A.
He's a.

1101
01:01:19,520 --> 01:01:22,720
He's a.
Such an Aussie sounding fund

1102
01:01:22,920 --> 01:01:24,880
manager name isn't it?
I don't think you could get a A.

1103
01:01:25,400 --> 01:01:27,600
European or an American Baza,
right?

1104
01:01:27,600 --> 01:01:29,200
I'm gonna start.
Sharon Capital.

1105
01:01:30,160 --> 01:01:31,040
Sharon.
I got some.

1106
01:01:31,040 --> 01:01:33,600
More more names.
I like guys mineral mining

1107
01:01:33,600 --> 01:01:36,080
services.
I like grounded cross boundary

1108
01:01:36,080 --> 01:01:38,720
energy sands at ground support
CRE insurance K.

1109
01:01:38,720 --> 01:01:41,160
Drill dates that go Australia
go.

1110
01:01:41,240 --> 01:01:44,960
Australia Australia The
information contained in this

1111
01:01:44,960 --> 01:01:47,720
episode of Money of Mine is of
general nature only and does not

1112
01:01:47,720 --> 01:01:50,320
take into account the
objectives, financial situation

1113
01:01:50,400 --> 01:01:52,400
or needs of any particular
person.

1114
01:01:52,720 --> 01:01:55,760
Before making any investment
decision, you should consult

1115
01:01:55,760 --> 01:01:58,800
with your financial advisor and
consider how appropriate the

1116
01:01:58,800 --> 01:02:02,480
advice is to your objectives,
financial situation and needs.