In this interview with Andrew Thake of Mines and Money Asia, I discuss gold, commodities, mining-sector speculation, emerging markets, China, India, cryptocurrencies, and the importance of management quality in junior mining.

The interview examines why optimism about commodity prices does not necessarily translate into profits for mining investors. In a sector with a long history of destroying capital, management quality, valuation, jurisdiction, and project economics matter far more than promotional excitement or commodity-price narratives.

Interview by Andrew Thake, originally published by Mines and Money Asia. 

Mines and Money: What is your outlook for the mining sector in the next 12 months?

Jayant Bhandari: I am very bullish on gold and commodity prices. The systemic—economic as well as political—risks of various sorts that exist around the world will push more people towards gold, as they try to protect their wealth from negative-yielding economies in many parts of the world, and from confiscatory governments hell-bent on increasing their control over people’s wealth through digitalization and other means, particularly in the Third World.

Also, commodities should do well, as China, which consumes 50% or more of all commodities, continues to grow and will likely do so in the foreseeable future.

However, optimism about commodity prices and gold will not necessarily translate into an improvement in the mining sector’s lot, which has a history of destroying wealth. Moreover, higher commodity prices also come with higher costs of extracting those commodities.

That said, those who can identify good management with good projects selling at discounts to their underlying values will profit—this is the lottery ticket that the mining sector offers to investors.

Mines and Money: What do you think are the hottest commodities right now?

Jayant Bhandari: At different times in the past, there has been bullishness about rare earths, graphite, oil, uranium, molybdenum, etc. None of that bullishness became a reality, certainly not in making investors rich.

To project a commodity’s future price, we have to understand not only the demand and supply situation but also how much of the “deficit” has already been priced in. While demand for cobalt will likely increase, its price has also skyrocketed amid expected supply constraints. I can benefit from investing in a commodity only if I know something that the market does not fully appreciate.

That brings me to gold.

We are in a very difficult era for fiat currencies. As governments around the world have given themselves free license to print currency and tax with abandon, there is a very legitimate fear among those who understand money, those who generate wealth, and those who like to save. This is partly behind the mania for cryptocurrencies. Some of this money is now already starting to overflow into gold.

Our unbacked, paper-based monetary system is broken. At some point, the larger society will recognize this and will take an increased interest in gold. The value of gold is not yet reflected in its price, which is why I am bullish about gold.

Mines and Money: Which emerging regions interest you?

Jayant Bhandari: China is the country I am most excited about. China continues to do the right thing in the social, political, and economic space. I am also a big fan of South Korea, Japan, Taiwan, Hong Kong, and Singapore. Vietnam is also continuing to do well.

Mines and Money: You’ve been a strong critic of the current Indian government. Have things got better or worse over the last 12 months?

Jayant Bhandari: The situation in India continues to deteriorate. The international media has recently started to recognize India’s economic problems. But India’s problems are much wider and deeper, and mostly unsalvageable.

Twelve million Indians enter the workforce every year, mostly with no hope of finding a job. Eighty percent of Indian engineers are unemployable. Manufacturing has failed in India. Still, Indian cities are among the most polluted in the world. Indian urban areas are unmitigated disasters, full of garbage and slums. The educational system is in tatters. On the one hand, there is high unemployment; on the other, companies cannot find skilled workers.

Even the IT industry of India is now under huge stress, with Indian companies losing business and Indians living in the U.S. having to return, as low-level software work is increasingly taken over by machines and Trump continues to restrict immigration. The male-to-female ratio continues to worsen, and population growth continues. These are issues that no democratic government is interested in facing head-on.

With or without democracy, India simply lacks the leadership to run the country. The institutions that the British left behind have continued to deteriorate over the last seventy years. Indians cannot maintain these institutions, let alone create them from the bottom up, once they are gone. As these institutions—and hence law and order—continue to fray, the underlying tribalism and associated conflicts of India are surfacing. Religious fanaticism, regionalism, linguistic chauvinism, etc., are continuing to become stronger.

It is in the continuous degradation of Indian institutions that the biggest risks exist, and I see absolutely no redeeming feature. Am I too pessimistic about India? Not enough. I watch India from the windows of my chauffeur-driven car. The reality as experienced on the other side is much worse than what my senses tell me.

Mines and Money: What do you look for in a prospective investment? Which juniors have projects that excite you?

Jayant Bhandari: I am always looking for the differential between the value that I get and the price I pay. A well-known company with strong management might trade at a premium to its value. Many people would continue to chase such a company if they focus solely on one part of the equation: the value. One must also look at the price.

I am happy to buy a company with bad, small, obscure projects if it is selling for less than its inherent value. Again, the key is the differential between the value and the price.

I prefer to buy companies whose managements I trust and respect. It is best to stay away from bad managements, for they almost invariably destroy value.

Novo Resources has an extremely interesting project in Australia. Irving Resources has exciting projects with strong speculative upside in Japan, which is emerging as a new exploration market. I am also very excited about the future of Fireweed Zinc and FPX Nickel. I like the management of all these companies.

Disclosure: I am a shareholder in all these companies.

Mines and Money: What do you think of the interest in cryptocurrencies?

Jayant Bhandari: Blockchain technology will revolutionize our transactions and record-keeping. But I do not know how to profit from it. I certainly see no inherent value in cryptocurrencies.

For me, money must be backed by something real. Cryptocurrencies have no backing, so I have no way of knowing whether Bitcoin is worth $0 or $1,000,000. A lot of people I have known have bought cryptocurrencies based solely on herd instinct. It makes me sad that, in this age of information, people fail to ground their decisions in reason and analysis.

Mines and Money: Finally, I remember you being one of the first people I met, in January 2016, who argued that Trump had a real chance of winning the U.S. presidential election. How well do you think he is doing?

Jayant Bhandari: I can think of no politician in the recent past who tried to do what he promised during his campaign. With time, I have gained increased respect for Trump.

Many people voted for Trump but could not speak about it, for they risked looking racist, given Trump’s interest in controlling immigration. Political correctness has become such a big religion in the West that anyone who has a view on an issue that can be labeled sexist or racist can have no hope of retaining their job or even friends.

Freedom of speech is the most basic ingredient of a free society. If nothing else, Trump is challenging political correctness. If the West is to be saved, it must give up political correctness and start to value freedom of speech and freedom of thought.

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