TLDR;
Tavi Costa, CEO of Azuria Capital, discusses commodity market trends, investment strategies, and emerging opportunities. He highlights an inflection point in commodities, driven by gold's performance and potential catch-up in energy, agriculture, and copper. Costa emphasizes the importance of monitoring supply contractions, exploration budgets, and institutional interest in the resource sector. He also touches on the US dollar's depreciation, opportunities in Latin American markets, and specific commodity plays like energy, copper, and agriculture.
- Inflection point in commodities with gold leading the way.
- US dollar depreciation creating opportunities in emerging markets.
- Focus on underowned sectors like energy and agriculture.
Intro [0:00]
Charlotte Mloud from investingnews.com interviews Tavi Costa, the CEO of Azuria Capital, about his new venture focused on investing in mining, energy, and emerging markets, particularly in Latin America. The initial funding will be internal, with plans to later include external capital.
Inflection point reached [1:19]
Tavi Costa discusses the inflection point for commodities, noting that while gold prices have risen significantly, other commodity prices have not kept pace. He anticipates a major catch-up, especially in energy, agriculture, and copper. Mining companies' margins are exceptional at current metal prices, but their equity value has yet to be rerated accordingly.
Where is gold in cycle [3:04]
Tavi Costa addresses the perception that gold's price increases are unsustainable, arguing that structural demand from central banks, which currently hold 20-25% of their balance sheets in gold, has room to grow, historically reaching over 70%. The mining industry represents only 1% of global equity markets, a fraction of its relevance in previous eras when it was closer to 11%. He believes institutions are beginning to recognize the value of owning metals and resource companies, and the sector is poised for significant growth.
Lack of discoveries [7:10]
Tavi Costa points out the lack of new discoveries in gold, silver, and copper, despite high metal prices. Exploration budgets in Canada are at a four-year low, and major companies are cutting exploration staff. This lack of investment in early-stage exploration suggests a potential supply crunch in the coming years.
US dollar and economy [9:03]
Tavi Costa discusses the long-term decline of the US dollar, not only against hard assets but also against other fiat currencies. He notes that the US economy faces deficit problems on both the fiscal and trade balance sides, requiring lower interest rates and a weaker dollar to address these issues. This shift would create significant investment opportunities in emerging markets.
Latin America investing [11:33]
Tavi Costa highlights the investment opportunities in Latin America due to a weakening dollar and political shifts in countries like Argentina, Paraguay, and potentially Brazil and Colombia. He suggests reallocating capital from US-based assets to emerging markets, particularly Latin America, which represents only 7% of the emerging markets index. He also notes that Brazil's GDP has stagnated due to a strong dollar and high interest rates, which could be unlocked by lower US interest rates.
Energy opportunities [13:55]
Tavi Costa identifies energy as an underowned sector with contracting drilling activity and heavily shorted positions in the futures market. He sees potential for explosive growth, with energy companies lagging behind gold and copper miners. He suggests investing in mid-cap and large-cap energy companies, derivatives, oil and gas, refineries, and energy companies in emerging markets.
Copper and agriculture [17:25]
Tavi Costa suggests that copper could experience an explosive move similar to silver's recent performance. He also highlights agricultural commodities as laggers with significant potential, as they tend to turn when energy prices rise. He mentions potash, phosphate, and corn as potential investment opportunities.
How to invest $10,000 [21:04]
Tavi Costa advises a young investor with $10,000 to allocate $3,000 to $4,000 to agricultural commodities, $3,000 to $4,000 to energy, and the remainder to copper miners. He believes agriculture offers the most asymmetric potential in the next two years, while mining is attractive for the long term. He also discusses investing in exploration, emphasizing that even with mistakes, one successful investment can offset the losses. He also likes call options on long-term treasuries, Chinese equities, and German banks, viewing them as exceptionally cheap and asymmetric opportunities.
Outro [25:51]
Tavi Costa summarizes his investment views, emphasizing the importance of focusing on the three big trends and the potential benefits from a weakening dollar and falling interest rates.
