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Khing:
Hello and welcome, everyone. I'm Khing OEI, and this is the Alphaswap podcast. Every week, we'll be discussing a top investment idea from the platform and have an in-depth conversation with the user who posted the idea. You can learn more and join our community at Alphaswap.IO. So, this week we're talking to Simon Popple. Hi, Simon. Thank you for being with us today. Can you start off by giving us a quick introduction of yourself?
Simon Popple:
Yeah, sure. My background is, basically, investment banker and property. I've had my own company now for about 12 years. And I sort of left property in about 2008 to focus on commodities, predominately gold and silver. And I was asked to write a newsletter for MoneyWeek called Metals and Miners. And then when they were sold, I was asked to then write a newsletter for Agora, who used to own MoneyWeek. And I wrote Gold Speculation with [inaudible 00:01:16] for a few years. And recently I launched my own newsletter called the Brookville Capital Intelligence Report. And yeah, no, we've done very well. I invest in everything that I tell people about, and I've turned 165,000 into about 750,000 between March this year and now. And obviously hoping to increase that substantially over the next couple of years.
Khing:
Great. So can you share your investment style and philosophy with us?
Simon Popple:
Yeah, I mean, basically I like commodities. I mean, particularly gold and silver and precious metals because they're global assets. You can take gold, silver, platinum, and palladium anywhere in the world. And it's viewed as valuable. And if you look at a lot of our asset classes at the moment, they're viewed as slightly bubblish and I've heard people say in a bubble in search of a pin, and whilst obviously I've got a background in property as well, I like property and equities and bonds and other things. I think commodities are very much overlooked and with all the money printing going on, I like the idea of investing in something that's tangible that you can't print.
Khing:
Sure, makes sense. So, which stock are we going to talk about today? What's the trade? What's the upside, downside, anything interesting in terms of context?
Simon Popple:
Well, today I really want to talk about a company called Alexco Resources. It's a silver company in Canada and I'm a big bull on silver. I think silver's got a great future. And as this is a non-Mexican silver producer, I probably watch too much Netflix, which is slightly putting me off of investing in Mexico. I think it ticks a lot of boxes.
Khing:
Interesting. And can give a bit of detail on the company? What exactly does it do?
Simon Popple:
Right, I mean, it's just literally, just about to start production. It recently commissioned its mill. So it is actually, the mill is running, but next year they should be in sort of full production, producing silver. And it's quite a journey to go from an explorer to a producer. And Alexco, next year should be at the end of that journey and producing silver in what I think could be a very buoyant market for precious metals, in particular, silver.
Khing:
Gotcha. So why do you think the market is mispricing the stock and what are the catalysts for it to work out?
Simon Popple:
Well, I mean, I think that the market does not appreciate the potential for silver. I mean, that's the first point. If you look at the gold-silver ratio at the moment, I mean, it's well out of whack. I mean, silver is trading at around $24 an ounce. Gold is about, I think, it's around $1,800 an ounce, perhaps a bit more. But the gold-silver ratio is just massive. I mean, normally you'd expect it to be sort of around 60. And I think it's well over a hundred. So, it really is a bit of... Either the gold price has to come down or the silver price has to go up and even the likes of Goldman Sachs, they're predicting a higher gold price next year. So, to me that would suggest that for silver to get anything like back into the sort of ratio that we're more used to, that the silver price will have to improve.
So, that's the first point where I think it's undervalued. I think the silver price could improve. The second point is, they're exploring in the Yukon one of the most attractive areas for silver exploration. And I think that, they've got a mill, they're up and running. As I said earlier, that is no mean feat. And so, if they do find more silver in the area that they can put through the mill, the current mine life is about eight years and that could be significantly extended with some decent exploration results. And not only could it be extended, there's potential for them to actually put more through the mill over a shorter period. So yeah, no, I think there's a lot going for them.
Khing:
Great. So, maybe it's tough for an exploration company, but what are some of the financial metrics you look at and what are they?
Simon Popple:
Well, with companies, I mean, exploration is very difficult because the silver, gold, whatever it is, is in the ground. And you don't want to count your chickens before they hatch. So, you tend to look at what a company is looking to produce. With Alexco, they're talking about 3 million ounces a year or an average over a mine life around eight years. So if you then basically look at the silver price, which is around $24, US, and then deduct their all-in sustainable costs, which are just north of $12 an ounce, that gives you around $12 an ounce of margin. If you multiply that by their average production, that gives you about $27 US, million a year. Obviously you don't have to... Sorry, that gives you 37, but you don't have to deduct the silver stream that they've got with Silver Wheaton, which is about 25% of their production.
Obviously they make some money on that, but let's be pretty brutal and take all of that off. That takes you down to about 27 million US. Convert that into Canadian, takes you into sort of around 30. Let me just give you a more precise number. That takes you to... Hang on, sorry. About 38, I think it is. And then 38 Canadian. And then what you need to do is just look at their market value and divide that by your cash flow. So, they're trading on about eight times cash flow, which is kind of what you would expect. So, mine life around eight years, trading on their annual cashflow times eight.
But as I was saying to you earlier, I think, if the silver price goes up, then you would expect the market value to go up because the cashflow should go up. And similarly, if they find more silver, which means they can increase the mine life, then again, that should be a catalyst for an improvement in the price. And I don't think the market's giving them any benefit for the potential there. It's sort of valuing them very much on a sort of as is basis, which I think is making them very attractive.
Khing:
Gotcha. So, you're buying that sort of almost free option. So, what do you think is then the potential upside in percentage terms on the stock right now?
Simon Popple:
Well, I mean, I would hope it can go up a lot. When I say a lot, I mean, I'm kind of hoping that it doubles at least in value because I think the silver price could double in value. I mean, the silver price at the moment 24. All-time high, I think, is around 55. Gold's already gone past the all-time highs. Obviously it's come back a bit, but there's no reason why silver shouldn't. So, if the silver price, let's say, goes up by 10, 20 bucks and they find more silver, that should take you to a kind of double. And beyond that, I don't really want to speculate, but I think compared to some stocks out there, it could perform incredibly well.
Khing:
Gotcha. So what are the risks on this trade and any other mitigants?
Simon Popple:
Well, the main risks obviously are the two, which are already are the drivers for the improvement in price. The first risk is the silver price goes down, not up. And then the second risk is they don't find any more silver and they found all the silver that is in the region. As I say, I personally believe the silver price will go up. And it's very difficult to speculate what they'll find, but they've got the right address. So hopefully, I think there's certainly a good chance of finding more silver. But those are really the two key risks.
Smaller risks, which are still very valid is that they can have problems with the plant, with production. If the plant gets closed down, obviously they can't produce silver. But, I would hope that if it does get closed down, it doesn't get closed down for very long. Similarly, with things like COVID, plants do get closed down because of the virus. So, if any of the employees in the plant do test positive for COVID, then they could well have to close the plant down.
But what I like about this is the gold and silver and precious metals, they're in the ground. So, even if a plant gets closed down, in this case, it's silver, but the silver's still there. It just means that it will be mined later on. And providing they haven't made some catastrophic error and the grade is as they expect, et cetera, I think the market will be reasonably forgiving if they do have to cease production for a period of time as they sort things out.
Khing:
Sounds great. Absolutely. So finally, thanks for that, Simon. Finally, we'd love to get a couple of general investment insights from you, three really. One is, which resources do you use for your research? Two is, what's your favorite investment book? And three is, what's the most important investment lesson you want to share with our audience.
Simon Popple:
Right. Okay. Well, I like to speak to the management in terms of finding out about the company. So it's how I tend to pick up the phone to the CEO or we email each other. I find that's a good way of kind of, not only finding out about the company, but finding out about the people behind the company. Yeah. Some of them I know well, some of them I don't know so well. But for example, if someone goes and buys himself a nice big yacht or a big house, generally, they're pretty confident about their future income. And, I can kind of read between the lines a bit there. Books. I actually enjoy books by Warren Buffet. Interestingly, and I found this fact out this year, but over 20 years, the gold price has actually outperformed Berkshire Hathaway, which I thought was stunning. Now, admittedly, that was I think, the period was the last 20 years going back to from, I think it was probably September this year, back 20 years. So, it didn't include Buffett when he made his sort of investments in the '80s and '90s. But, for a metal to outperform Warren Buffett, I think is fantastic.
Khing:
Extraordinary.
Simon Popple:
But I do enjoy his books. I like his philosophy. Now, the best lesson I've learned, now, I'm not sure if you said this, but there's a lot of truth in it, especially with junior mining investments. And that is, you can be lucky and you can be smart, but don't think you're smart when you're lucky. Now, I'll give you a classic example of this. Chalice went from 12 and a half cents up to $4.30 plus. The reason it went to that was nothing to do with the reason I actually recommended it in the first place. They've got what I view is some fantastic land around Fosterville, which is the world's most high-grade mine. And I'm very excited about that. I continue to be excited about that. But they actually found a precious metals deposit, called Julimar, which is in a completely different region. But yeah, that's a situation where I suppose I was smart enough for them to invest in it, with lots of different projects, but I was very lucky that one of the other projects came off. So yeah, just be careful.
Khing:
That's great. Simon, thanks very much for this very interesting trade, very interesting insights. For anyone listening, if you'd like to learn more about Simon's trade, clearly you can see it on Alphaswap.IO, where there's also lots of other trades. Thank you for listening and look forward to the next episodes.
