thank you I'm Charlotte McLeod with the ambassading news network and here today with me is John Hanson he's a private investor who's been investing in the gold and silver mining industry for 21 years now Don thank you so much for joining me online once again it's great to have you back well it's great to be back really nice to be speaking with you and I'll just add some context for our viewers right now this is our third interview so far on your gold and silver stock analysis I


do recommend that people go back and watch those previous two interviews if they can because it has a lot of good information on your due diligence process and then actually for today we're going to follow up on our one of our previous conversations where you shared about the relationship between the gold price and gold mining stocks so I wondered if you could go over the data that we looked at before just briefly and explain why you decided to dig deeper into it okay I found uh about six weeks ago I think some information that


uh analyzed the relationship between the gold price and the xau index and it started with the time frame of 2000 to 2008 and the data indicated that during that time the xau price divided by the gold price that it was about 22 percent and it was pretty stable through that entire time frame and then between 2008 and 2016 there was a very tumultuous period and that ratio went from 22 percent all the way down to seven percent and then in 2016 to 22 that period was quite stable at about seven percent well


I I looked at that and I say well what the world is going on here I I had no idea that this that particular period of time was such a dramatic shift in what was going on and that started me on the path of researching all of that and so then what I did after that was try to break those periods down in detail so I went to the internet and I found the price histories for gold uh all from 2000 to 2022 also the um prices of the xau index and I used that one because it was the only one that dated all the way back to 2000 so I had


a complete coverage and that was what was in the data that I had just mentioned and um and so then when I also needed to know was the all the sustaining cost because that would give me the gross margin and I had to work hard to find that and if I got I think the best numbers I could I think they're they're okay and then I would take the gross margin from the gold price at that particular point in time and that gave me a gross margin and then I was comparing that to the xau's performance


what I've learned there was that yes the gold price in fact in uh 2000 2008 went from 300 to 800 the all the sustaining cost went from 150 to 400 gross margin 150 to 400 the xau from 60 to 160. so all of those actually increased about the same about 167 percent so that was consistent with that earlier data that said well yeah the xau divided by the gold is about 25 22 percent and it's consistent all the way through then we got to the 2008 to 2016 period and during that time uh gold went up 56


percent by my data and those are those are approximate numbers realizing I'm I'm looking at an individual year like 2000 and then looking at the price history and basically eyeballing one looks like an average so these numbers are approximately that's the best I could do and it it seems to fit most everything looks right so that the gold went up 56 but the xau went down 47. and the reason for that was that the all sustaining cost went from 400 to a thousand dollars so it went up 150


percent so obviously there was a really large increase in the cost of production during that period of time and then when we get to the next period 2016 to 22 we saw the gold price was up 44 and the xau was up 53 so again that that made sense in terms of then saying well yes the uh percent would seven percent would been stable because they were pretty close they tracked each other the thing that I did notice though also is of course the relationship between the gross margin and the xau profits and the share price ought to


track together and during that first period they did right right on and in the second period also the gross margin was down about 40 percent and the xau was down 47 so that made sense so the the numbers were adding up in terms of what you would expect to see then in the third period the thing that was strange to me was that the gold price went up 44 I said the xau went up 53 but the gross margin actually went up 140 in fact I I actually have a mistake on what I gave you the gross margin in 2022 was actually 600 not 500


but I I made a little mistake there but so anyway there's a big discrepancy at that point between the gross margin and the share price that doesn't make sense to me and I and I have yet to be able to to figure that one out the enormous increase in cost and all as a standing cost in the 2008-16 period I am attributing to a dramatic decline in the OR grade that's being mined by the mining industry I have no hard evidence for that nobody really keeps track of that particularly on an industry-wide basis and individual


companies do but that's really the only thing that could make that much of a difference because of course if a company is mining or at two grams per ton and it goes down one gram per ton well all the costs go up by a hundred percent and so you know that's an enormous issue and we're always seeing changes in terms of how many high-grade underground lines are operating how many open pit repletes that are much lower grade are operating and how they come and go and we also know that particularly when times are hard which


was the case in 2008 and 16 and what the companies would do was actually they would actually initially mine the highest grade or and then what's left is the lower grade and so you had that kind of thing going on as well so that's the best I can do at this point I've talked to a lot of people that everybody just looks at me well I don't know I didn't even know that happened so this is very interesting to see that but what it dramatized to me is the importance of investors if you're going to invest in


producers keeping track of what the costs are doing because it's a huge a huge deal yeah and so you basically went from you took that short-term data you expanded it to the long term mostly you've validated the conclusions that you talked about last time some questions remaining which as we were emailing about before this interview maybe somebody in our audience they could write in if they have some ideas about why these things are happening yeah so so this is really good and I think of course we'll have all the


charts up for everybody they can look at it um you also recently shared with me some data from CIBC covering p e ratios all in sustaining costs for gold producers I know that you also want to go into what you're seeing there so I'll let you start off down that path if you'd like to sure um my friend Doug ramshaw the president of minera Alamos who is a wonderful executive and my favorite uh junior producers by the way give him a plug he always he helps me a lot and it's been a good relationship he provided me with


bank data from CIBC bank I'm back on Canadian Bank I'm not familiar with it you probably are and and what I found there was the price earnings ratios for the uh a group of gold producers and what I was surprised at was that the p e ratios for them was in the low 20s and the interesting thing is that the current p e ratios for the S P 500 is about 24. so it wasn't that much different which tells me that the gold producers don't appear to be all that undervalued and and that I I don't


understand particularly in view of the number that I just mentioned to you about what the gross margin did in the 2016 to 22 period should have resulted in a much higher xau number but did not so I still haven't figured that out and I've also talked to Doug about that and he said I I don't know how to explain that either so we'll kind of keep digging to understand it um so there's something going on there one of the acts possible explanations of course is that all the sustaining costs


do not include GNA and taxes and the GNA of course is um accounting and marketing and all manner of things like that and of course taxes is what the government of the local where the member of the mines located is is taken out plus the income and everything like that so uh and that kind of thing has probably been going up in recent years um with mining companies trying to be better stewards and countries trying to get more money for the locals to buy their boats and whatever you know and so there's certainly some of that going on


how you quantify that I have no clue but I know that that's something that's happening out out there so uh anyway both I'll try to learn some more about that if anyone in the audience has any inklings regarding that that might explain why what I thought was going to happen with this share prices at the end there in the 2016-22 didn't materialize when I look at the PE ratios now realize they weren't a lot of companies in there but enough that it should because they were the representative ones but it


should have been made some more sense than it apparently did but there was some other things about the data that he sent me uh um oh also the um the piggy ratio on the royalties was 45 and that's not a surprise and I'll explain why when we get to discussing that but the other thing that's really good news in terms of cost is that the CIBC data confirmed what I had seen on corporate presentations that the cost of production the all the sustaining cost number is around twelve hundred dollars


per ounce right now and they expect that to be the case for 2023 and 24. so it costs pretty stable so that's that's wonderful news because that means if we get a good bump in the gold price then all that's going to go to the bottom line and so we're in gold and share investors should do very well if we get the kind of increase in the gold price that I think we could in the next year and a half or so I would see 24 an hour hundred dollars an ounce but in end of next year as a quite a likely occurrence


but we won't get into that that's all another subject of another interview yeah you know I was going to say as you're talking about this one thing that I thought is you know you can argue about whether the gold stocks are undervalued or not but they do still have that leverage and we have a whole another interview on that if people want to go learn about that but maybe that's a good takeaway that people should remember yes all right so you mentioned royalty companies and I know you've been doing a


lot of work among the royalty companies right now that has led to some interesting conclusions for you so I'm hoping we can pick up on that as well and learn about what your findings are there because this is going to be quite interesting for investors I think I would love to okay what I learned I wanted to know what the road companies did in relation to the gold price and so for the 2008-2016 period because I keep working I didn't go back because the royalty companies were operating in that


earlier decade okay so I started 2008 2016. gold was up 56 percent Franco Nevada was up 200 percent uh Royal gold was up 71 Wheaton precious metals 67 these are the big players that matter then 2016 to 2022 gold was up 44 percent Franco Nevada was up 133 Royal gold up 83 percent Wheaton precious metals 100 in other words they did not only well when the well shares were doing well in the in the um recent period here 2016-22 but in the 2008-2016 period when the producers shares were down 50 here you had Franco


Nevada up 200. Royal gold up 71 well reading president 67. I did not expect that I did not expect that and that told me a lot about the value of investing in the royalty companies and I also I'm reminded this because I've been investing a long enough time I remembered the reason why the royalty companies are capable of making outside gains on the gold price and that is when they do deals basically the royalty companies are banks they're investment Banks they lend money they don't have


factories they don't have fixed assets or anything and so they make a deal with a company that wants to build a mine to produce a hundred thousand houses a year and then they get a royalty that would be five percent of the revenue or five percent of the gold that they would then receive and then they would sell that and get sell the same thing you're tied to obviously the gold price but the way those deals work is that the royalty company gets the percentage of everything that's produced


at that mine site in the future so if you get you know the right company and they go from producing a hundred thousand ounces to 300 000 ounces they get fit five percent of the three hundred thousand and then the and that's true and infinitum as long as the Mind lasts you just think about that for a minute what a tremendous compounding that is and The Marvelous thing with the royalty companies is that their pre-tax profit is a percent of sales is it like 75 or 80 percent it's like software companies


so they they lit they'd print money and then when they take all that cash flow they do New Deals they don't have to borrow any money because they've got so much of it and they pay dividends because they've got lots to share and they do all of that without being vulnerable to cost increases or all the other hazards and things that can happen to a gold producer so you have lower risk and yet a really good upside so I'm recommending that we advise investors have a significant position in in the in


the royalties which is Franken about a while gold and wheat infectious Metals they're they're the bigger ones they've been around longer but why it's good to buy the ones that are bigger and around longer is because they've been able to buy into deals and have those deals grow so that then they've got all this and whereas the newer ones then maybe they will but they're not going to have been able to take advantage of that and the situation for five ten years maybe so


it's uh it's really I think an interesting thing and I wasn't aware I knew the royalty companies were good and didn't know they were that good well and I think a lot of people might be in that same position of like oh yeah I've been told to look at royalty companies but maybe they find them a little bit boring but I think it's great to have the numbers like you've shown us because that that really kind of boring that every investor should offer I mean you can go in the excitement of the


Explorers but then you know you don't sleep well because you know you can lose all kinds of money you get diluted to Oblivion and whatever the royalty companies don't issue any stock they don't delude anybody and they pay a dividend for heaven's sakes so you know it's it's it's really a marvelous investment vehicle and um so when we get into later talking about recommendations for portfolio I want to share that and well as the fact that I personally have decided to allocate more


money to the royalties because well and I think yeah we could go into that because not only do you do all of this research which a lot of people don't have the time or maybe the patience to be doing you actually are willing to tell us what you're doing with your portfolio and how you've taken these numbers into into something actionable so maybe we could talk about that yes well I wanted to tell you about one more thing that I learned recently that I hadn't maybe talked about I've


been working with these indexes as a proxy for what the share prices of The Producers doing right and there's really four of them the GDX and the gdxj which are run by a company called vanic and then there's the xau and the Hui okay all four different ones well I naively assume up to now that they were all pretty much going along the same uh-uh that isn't true either that's just another aha in fact between 2016 and 2022 gdxj went up 17 during that six year gdxj was up 21 percent


xau was up 62 and the HEI was up 50. in other words two and a half times better I don't recommend people buy ETFs anyway but if you're going to you sure heck ought to look at the history of what they've done and now why there's such a huge difference between the first two and the other two I have no idea I just ran across that but again because I'm always interested in in digging in and seeing well asking myself questions and then seeing what I get that was another surprise I would have never I guessed


that either so just for anybody who's looking at ETFs you're gonna you're gonna get into it you you should take a serious look at what you're buying because they ate all the same yeah well and that's a great point because people are often told well if you're not really sure what to do maybe you go for an ETF but there are these differences as you said there are expenses so very interesting the other the other absolute disadvantage to the ETFs is that they have a wide swath of


companies they have the they're really good and the not so good and my feeling is I don't want to buy the not so good I'm going to be selective and do better and and yet with the ETFs you're stuck with everybody and so that's why I I never recommend them but for people is like it about that I would discourage them at the very least from um focusing on the GDX to ggxj yeah those are very interesting points and maybe that's a good way to go in the direction of what you are liking right


now so we know that you like the royalties don't like ETS what else is in the the pile of things that you're feeling positive about well let me let me give you a um portfolio that I would recommend for most people and I didn't send that to you I have I made one change to that sense and I'll tell you what that is but for the low risk gold silver portfolio for people I would recommend gold bullion 20 I own Canadian Maples those are my favorites and that's all I'm on in that and then silver bullion to


another 20 because you you want to be there you must believe that the gold and silver prices are going to go up you wouldn't be listening to this interview to begin with and so that's that's pretty much there for the royalty companies I would recommend 30 and that's a much higher than I had previously thought but as I look at more and more carefully particularly for our conservative investor who wants to get some profit from their belief in the Improvement in gold and silver prices


they should obviously be there and they're going to do better than the Boolean prices we already saw that from what's been happening historically and it should continue then um I'm having another category here that about producers which would be uh 30 of what remains and I'm going to change what I said to you in which I said major producers the truth is there was only one major in that group and that was agnico I think that's too big there are 25 billion dollar company It's a


Wonderful company but it's really hard to grow two or three times near mark cap when you already started at 25 billion as in a mining business so I'm suggesting we focus on what I call the mid-tier producers and that's companies in the in the range of 1 billion to 10 billion dollar market cap okay there's a lot more in that lower range where you can they can grow three times and that is unusual expectation so I have two companies that I would recommend uh one of them is alabos gold and I'm


suggesting seven and a half percent for that one and then the other one is called K92 Mining and another seven and a half percent for that one those both have good uh um crows potential and little stability and they're very good then in the silver sector I recommend Aya gold and silver seven and a half percent and Silver Crest mines seven and a half percent and that makes a hundred percent for the basically low risk portfolio you know it's not often that we get such a clear breakdown of uh portfolio so I think


that should be very helpful for people they can model their own portfolio off that if they don't want to follow you exactly because everyone should do their own research of course but I think that's very helpful for everybody good yeah and subsequent interviews I can talk more about um what I would consider a more moderate risk portfolio and add some uh you know Junior producers that I like like manure Alamos as well as developers and explorers because I invest in that because I think I can be selective


enough that I won't end up losing money on the deal but the first what I've just suggested is for people who don't want to take the time or have the interest to dig in because if you're going to be selective that means you have to do some research and and really study it and and and then it's also a focus portfolio because the other thing I always advise people don't really have any more than 10 positions and and that is the exclusive of royalties royalties and bullion are in a


separate category that producers and explorers all that so that no more than 10 in that group because you can't really follow closely what they're doing and keep track of whether the reason why you bought them is actually being achieved and so you need to keep track of that and so that's why in investing in the producers I see that as a separate category but I don't want to see people getting too many because you end up basically not paying attention and stuff happens and all of a


sudden oh gee what happened there yeah I think it can be easy to get too enthusiastic by too many companies and then you lose track of them and it just gets messy so they're all marketing because these all these producers are competing with each other for the investment dollar and so you got to expect that they're going to try to sell you uh well you know that um lemons are lemonade and uh you have to be be selective you think that's very true and okay so I have a question maybe as we're just


wrapping up here about what's going on in the overall gold market right now because we've seen gold spend a good chunk of time this year above 2 000 per ounce I know you have a long-term view but we are below night or we're below 2000 again right now as we speak and I just thought you might have some advice for investors on how you stay calm and focus during these times when we might have pullbacks how do you do that well I think first of all I have lived long enough and seen enough


to realize that fundamentals always win fundamentals always win so then you have to have really a clear idea of what you believe the fundamentals are and what they're telling you and if you do that and you believe as I do that the macro economic scene is such that gold and silver are going to do very well because gold is inversely related to people's confidence in the financial system and we have a lot of things going on that are causing people because of debt levels and all sorts of other things that that argue you know


money printing debasement occurrencies that's all happening and and we know historically that we go through these cycles and we're in what the straussen hall called the fourth turning where we're in a period of upset and and all the debt that's been built up is is not going to be sustainable mainly because he can't service it at higher interest rates so all these problems occur so gold and silver the fundamentals are the most server is going to go up it's going to go up so as long as you


believe that then you look at what's going on day to day and say well you know what that's just noise that isn't it it's a Warren Buffett said that basically the the stock market is a voting machine but the value is a weighing machine it's what's really there and uh and so if you analyze your companies and your situation and you said you know the value is really there and the trend is my friend because I believe the fundamentals are what they are then you should sleep well I mean it's


just like with individual stocks they're even more volatile than the gold price but the thing that so many friends of mine get upset about is that oh my it went up or down 10 today then yeah but you think you ask yourself what was the trading volume because you know if the trading volume is well below average it's nothing the only time you want to be concerned is if the trading volume is way above the average and the Yahoo finance keeps track of that when you look at something you know it's got the average trading


volume you look at that and say well wait it's way up then what you know you start calling the IR Department of the company and you look at the you know start digging and so that's what you want to pay attention to something that you see shifting in particularly with your individual companies is watch the trading volume okay you make it sound very simple when you lay it out like that I know it can get tricky for people but if they go back to those words hopefully that can help sort them out I thought that we've


been through yeah the reality is that it's really important not to let your emotions guide your best decisions you you need you need to use your left brain on that and and just look at the numbers and examine why you did what you did and then say oh okay and and relax about it I know that's easy to say but that's also why I mentioned to you in the first interview that people should not get invested in this sector unless they have all their debts paid so they have no worries then so you know


you got all your debts paid and then you're much much less likely so I re-emphasize that and I hope people will take that to heart because that's one of the ways not to get emotional because you can get emotional if you've got lots of bills in a mortgage and car payments and blah blah blah blah and then you're going to invest in the gold and silver mining no not you shouldn't be doing that yeah that's a good reminder good to come back to that point is there anything else do you have on


your mind right now that you want to share with the audience well no I think I'm just going to keep asking questions and and uh and digging into things and I will be interested in sharing about some of the other companies that I own that are not in the Royal risk before you know and I can tell you about them and uh and that's uh I think something of interest um so yeah hopefully we can do it again I hope so I think definitely we should come back to that those other types of portfolios we've got the low risk one


for now but then we can look at your other options that you have for people that's really good so I think we'll we'll leave it there for now this was a nice I think wrap-up of the things that you're looking at right now thank you again so much for sharing oh it's my pleasure Charlotte thank you for having me really great to have you thank you for coming once again I'm Charlotte McLeod with the investing News Network and this is Don Hansen thank you foreign