In a recent Money Metals podcast episode, host Mike Maharrey interviewed Kai Hoffmann, the CEO of SOAR Financial Group, to discuss the junior mining industry, gold prices, and broader economic insights.
Kai Hoffmann, who has been active in the junior mining sector since 2008, shared his thoughts on the importance of mining, the disconnect between gold prices and mining stocks, and the potential of junior miners in today’s economy.
Hoffmann explained his entry into the resource investment space as "dumb luck," revealing that he initially started working in corporate finance in Germany, where he came into contact with the mining industry.
Despite not having a background in geology or engineering, Hoffmann was drawn to the community, forming strong relationships within the industry that have kept him engaged. He emphasized how international exposure and personal connections led him to stay in this niche area of finance.
Discrepancy Between Gold Prices and Mining Stocks
Maharrey pointed out the ongoing surge in gold prices, which have reached record highs, but noted that mining stocks have lagged behind. Hoffmann acknowledged this disconnect, admitting that he’s running out of excuses for why investors aren't flocking to miners.
However, he pointed out that indices like the GDX and GDXJ (measuring mining stock performance) have outperformed major stock indices like the S&P 500 and NASDAQ this year, with gains of 26-27% year-to-date.
Despite this, mining stocks typically offer much higher leverage to the price of gold, and Hoffmann suggested that there is still time to invest before this sector fully catches up to the rally in gold.
Why Mining Stocks are Underperforming
Hoffmann attributed the underperformance of mining stocks to several factors, including risky acquisitions made by miners in the past, the challenges of operating in difficult jurisdictions, and negative ESG (Environmental, Social, and Governance) perceptions surrounding the industry.
Despite these challenges, he believes the outlook for miners is positive, especially given the record profit margins they are currently enjoying, driven by stable oil prices and slowing inflation on labor costs.
Investing in Junior Miners and ETFs
For newcomers interested in branching out into mining investments, Hoffmann advised starting with ETFs like GDX or GDXJ for broad exposure without the need for stock picking. He also suggested looking at larger, established miners like Barrick, Newmont, and Agnico Eagle, whose Q3 financials he expects to be strong.
For those willing to take on more risk, junior exploration or development companies can offer significant upside potential but come with the risk of total loss. Hoffmann urged potential investors to educate themselves by following interviews and podcasts to learn about promising companies.
Gold, Copper, and the Future of Mining
The discussion then shifted to "peak gold," the concern that the world is running out of new gold discoveries. Hoffmann downplayed the impact of declining mine output on the gold price, stating that gold's price is more influenced by paper contracts and bullion delivery rather than physical mine production.
He also noted that while large gold discoveries are becoming rarer, companies are still finding new projects, such as AngloGold Ashanti's Silicon project in Nevada, which holds over 13 million ounces of gold in reserves.
Conversely, Hoffmann sees copper as a more pressing issue due to its growing demand, particularly driven by electrification and green energy technologies. He highlighted the lack of new copper mine discoveries and the widening supply gap, which he predicts will result in future price shocks.
Silver's Supply and Demand Dynamics
While Hoffmann also tracks the silver market, he sees the situation as less dire compared to copper. Silver mine output has remained relatively flat, and while there is currently a supply deficit (estimated at 250 million ounces), Hoffmann believes this shortfall can be addressed once new mines come online.
The Mainstream's Blind Spot: Mining and Energy
Wrapping up the interview, Hoffmann criticized the mainstream media's ignorance of the mining and energy sectors. He stressed the importance of mining for everyday products, lamenting the disconnect between society’s growing demand for clean energy and opposition to mining projects.
Hoffmann called out the hypocrisy of people protesting mining developments while enjoying the benefits of modern technology. He also voiced frustration over negative portrayals of gold in the media, arguing that many people fail to understand the true purpose of owning physical gold as a long-term store of value.
Conclusion
Hoffmann's insights provided a nuanced look into the junior mining industry and the broader market for precious metals. He remains optimistic about the future of mining stocks, particularly in the gold and copper sectors, and encourages investors to educate themselves on this often-overlooked area of finance.
For those willing to take on the risks, Hoffmann sees substantial opportunities in the next three to five years, especially as the global economy continues to shift toward electrification and renewable energy, driving demand for metals like copper and silver.
Key Questions & Answers
Here are the key questions and answers from the interview between Mike Maharrey and Kai Hoffmann:
Who was a memorable guest you've interviewed?
Simon Hunt, a geopolitical commentator, who provided a deep, uninterrupted discussion on geopolitics and the interconnectedness of global issues.
What is the mainstream narrative missing?
The mainstream is disconnected from the real economy. There’s a discrepancy between reported economic statistics, like wage growth, and the actual struggles people face.
Why are miners lagging behind despite record gold prices?
Mining stocks haven’t kept up with gold prices due to past bad acquisitions, higher risks in some jurisdictions, and not fitting into ESG profiles. However, the sector is poised for significant returns.
What’s causing the disconnect between mining stocks and the market?
Risk perception around miners, especially in high-risk jurisdictions and previous acquisitions, is responsible. Despite this, the mining sector offers strong future potential.
How should newcomers approach investing in junior miners?
Start with ETFs like GDX or GDXJ for broad exposure. For those with higher risk tolerance, explore junior mining stocks, but be cautious and do your research.
Is the idea of "Peak Gold" a real concern?
"Peak Gold" may be real, but it hasn’t affected gold prices significantly, which are more influenced by paper contracts and bullion delivery.
What’s the future for copper and silver?
Copper is in a critical situation due to rising demand and a lack of new discoveries. Silver is less concerning as it is often a byproduct of copper mining.
What is the mainstream media missing about mining?
The media fails to understand the fundamental role of mining in the economy, especially its importance for green energy and technology. There’s also hypocrisy in protesting mining while benefiting from its products.
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