The Most Asymmetric Opportunity

The change in stance by the Fed back in early 2019 was what got me interested in silver.

Today, if you ask me, here is where I believe the most asymmetric opportunity lies ahead.

While metal prices are likely headed much higher:

I would rather buy silver or gold in the ground for literal pennies on the dollar.

This is how the billionaires in this industry made their wealth.

They invested in early-stage exploration projects that ended up becoming incredibly profitable reserves that ultimately turned into multi-billion-dollar mining businesses.

To briefly lay the foundation of the underlying thesis, the chronic period of underinvestments in commodity businesses has caused:

?- Extreme capital conservatism by mining companies

- Lack of new discoveries

- The inevitable need for major miners to replenish their reserves

So, where to invest?

Ideally, we look for early-stage businesses with a strong likelihood of discovering economically viable gold or silver deposits that are still priced as if they don't have anything substantial.

Even more interesting is if we can drastically improve the odds of finding/defining these reserves by adding our own expertise to help these companies design their exploration plans.

That is the main reason why we decided to partner with a world-renowned exploration geologist.

Given how cheap the market is, one is able to diversify across multiple companies in a variety of jurisdictions knowing that all it takes is one of them to be highly successful.

Yes, in a way, it's the venture capital approach.

The main difference, however:

Instead of chasing ridiculously expensive tech companies, the strategy is to focus on historically cheap mining exploration projects with a higher-than-average probability of becoming major natural resource discoveries.

No, I'm not here to tell you that this is an easy strategy to pursue by any means.

When deploying capital in this industry, the more early-stage the opportunity is, the more geologic knowledge it requires for investors to succeed.

And, just like the tech startup world, the majority of companies will fail.

Yes, I know what you are thinking...

One can also apply the same strategy to companies looking for battery metal deposits.

We love industrial metals too, but keep in mind:

Due to the recent excitement among lithium companies, the risk/reward is nowhere as attractive as resource projects involving copper, nickel, cobalt, manganese, tin, and others.

The main reason why this idea is so timely:

Most of these businesses today are already priced for failure -- at least in my humble opinion.

There is a tremendous amount of value to be unlocked in such an unloved and depressed part of the market where very few people have enough expertise to discern these opportunities.

Hope you enjoyed this short article.

Note that in this piece I didn't even elaborate on the macro case for precious metals and commodities.

If interested in reading about that, see our latest research piece here:

https://www.crescat.net/mining-industry-renaissance/

Have a great weekend,

-- Tavi Costa