Maurice Jackson: Joining us is Jayant Bhandari, the host of the highly acclaimed "Capitalism and Morality" seminar and a prominent, sought-out advisor to institutional investors. Today, we will discuss the mining industry in India and arbitrage opportunities.
Let's begin our discussion in India. There are some new reform laws taking place in the mining industry that could really have a significant impact on India. For those that may not be familiar with India and its natural resources, can you share what India produces and how it has been extracting those resources historically?
Jayant Bhandari: India produces about 40,000 ounces of gold and should be able to produce a lot more ounces of gold in that country, but the problem is no one cares to explore for gold in that country. This is mostly because the land rights are not properly defined, and the bureaucratic procedure to get from reconnaissance permit to mining permit is virtually impossible. It takes a huge amount of time, and at every step in the process the bureaucrat has the right to take away the project from you. So you might invest hundreds of millions of dollars on these projects, but at the end of the day, the government might just take that project away from you. That is the very reason why the Indian mining industry is extremely backward.
Coal mining is a monopoly run by the government of India. Iron mining takes place in a very confined space in that country in which private operators operate iron mining as a part of the steel industry. In virtually every case, these companies are in bed with the government in a corrupt way, and they are in bed with the mafia. When you have corrupt regulations, you also empower mafia kind of organizations to come in and exist, who then exploit the local people.
So Indian mining industry is almost an impossible industry. You might be able to operate that as a mafia-run industry, but even then Indian companies prefer to own coal mines and iron mines in Brazil, Africa, Indonesia, Papua New Guinea or Australia. They prefer not to operate in India not only because of the cost, but also because the bureaucratic regulations are very difficult or impossible, plus land rights are very difficult obtain, and on top of that, costs of making mining happen in that country is extraordinarily high.
Maurice: For someone not familiar with India, are the mines there nationalized, and if so, what changes is India trying to implement to change this course?
Jayant: Coal India is a nationalized company. It is run by the government of India. It is listed on the stock exchange, but the majority of the shares are owned by the government, which means that the government runs the company based on what looks beneficial to the government.
The government of India has made many attempts to liberalize coal mining. The problem is that India has among the highest and the largest reserves of coal mining in the world. However, Indian coal-powered electricity generating stations must import a huge amount of coal from Brazil and Australia and Indonesia because Coal India is an extraordinarily corrupt organization, which means that it cannot supply the required coal to the electricity generating power stations, and when it does supply coal to the power stations, it is mixed with a huge amount of waste, which creates a massive amount of efficiency problems at the power stations.
This means that people and electric generating companies find it much easier to import coal from outside of India than buy it domestically. That is how difficult mining has been in India. Mostly because there's no rule of law in that country, and mostly because these bureaucrats who have zero experience of real life assume that they must be trusted by companies and citizens, and they reserve the right to steal your property when they wish to take it away for the so-called greater good of the society and that so-called greater good of the society always translates into more bribes and more corruption in that country.
Maurice: Sounds as if there's a number of inefficiencies within the industry. As a champion of liberty, I assume you're in favor of the privatization of the mining industry in India, but is there a catch on India's initiatives on this legislation?
Jayant: Nothing will change because of the new law. The government of India is trying to liberalize the coal production in that country, and again the reason is very simple. It will make some superficial changes as it has consistently made over the last 30 years, but nothing significant, nothing material will change to make it attractive for outsiders to invest in that country. In fact, not much will change for even Indian companies to invest a lot more money in that country. As I said earlier, even Indian companies prefer to invest their capital in Africa or Papua New Guinea or Indonesia, which are by themselves very difficult jurisdictions. But India is such a tough jurisdiction that no one really cares to invest in mining in that country.
Maurice: Jayant, if India is not a good place to put our capital, do you have any names and/or arbitrage opportunities that have your attention at the moment?
Jayant: Well, there's certainly one Indian company, a mining company, that I follow. I don't invest in that company. However, it is run by some good people. The name of the company is Australian/Indian Resources and its sister company is Deccan Gold Mines. Deccan Gold Mines is listed on the Bombay Stock Exchange. Again, it is run by people I like, but I don't necessarily think this will lead to a profitable investment.
However, I can talk with you about other investment opportunities that I see right now. One company is Nevsun Resources, a company that I have talked with you about in the past when it was trading for almost half as much as it is trading now. It is currently trading at $4.50 Canadian, and there is a hostile takeover offer, which is priced at $5.00 Canadian. So from a hostile takeover perspective, you already have about 10%–12% upside in owning Nevsun Resources, but also I think the offer will likely get increased significantly over a period of time. My guess is that with very limited downside risk by investing in Nevsun, I might position myself to make about 25%–50% upside in investing in Nevsun.
There are two more arbitrage opportunities, Maurice. One is U.S. Cobalt, the ticker is USCO in the venture exchange, and it's trading at $0.95 Canadian. The arbitrage upside is more than 20% if you buy it at less than $0.95 Canadian. And there's another company called ValGold Resources, the ticker is VAL, and it's trading at $0.11. If you invest in it at $0.11, you position yourself to make about 20% arbitrage upside.
There are two more companies that I want to mention, Maurice. One is Amarillo Gold and the other is Treasury Metals. Both are trading at prices lower than pure gold companies. AGC, Amarillo Gold, is trading at $0.25 and Treasury Metals is trading at $0.41. At these two prices, I like both the companies.
Maurice: You wrote a piece recently regarding uranium. Give us your thesis on uranium, please.
Jayant: I don't like investing in uranium for two reasons. First, uranium companies mostly produce uranium at a loss today. When you make something at a loss, this means that for investors to invest in uranium companies means that they position themselves for a loss. Now, yes, uranium prices can go up in the future, but if I think uranium prices can go up in the future, I must invest in uranium as a commodity, and you can do so by buying uranium futures and one mechanism is via uranium participation corporation. That way you not only buy uranium, you protect your downside risk because you are not consuming your capital waiting for uranium prices to go up.
But I'm not very optimistic about the future of the uranium price, and the reason is that the capital required for generating electricity from uranium is very high and not many jurisdictions have the capital to provide for uranium, infrastructure to produce electricity using uranium, and also uranium electricity is now increasingly competing with electricity generated from solar, solar cells and from raw energy. So I am actually not very keen on investing in uranium mining.
Maurice: What can you share with us about "Capitalism and Morality," which is the preeminent name for reason, argumentation and liberty?
Jayant: Tickets are still available. We have sold about 60%-70% seats already. The next seminar will be held on the 21st of July 2018 in downtown Vancouver. People like Rick Rule, Doug Casey, Adrian Day will be speaking at the seminar. Dr. Ian Plimer will fly in from Australia to speak. So there are a lot of very good speakers at the seminar. It is a philosophy, libertarian seminar.
It will be held immediately after the end of Sprott Natural Resource Symposium, and it is held at the Simon Fraser University's downtown campus in Vancouver, Canada.
Maurice: Last question, what did I forget to ask?
Jayant: As I have talked with you, Maurice, in the past, people should be paying a lot more attention to what is happening in the third world countries. The third world countries are glorified, romanticized in the media and by the World Bank and IMF. The third world is in a very bad shape, and it will continue to get into a worse shape as time goes by. People in the third world countries should try to protect their wealth, and while they try to start protecting their wealth more aggressively, my guess is gold price will start outperforming. That is one of the reasons why I like to invest in gold.
Maurice: Jayant, if someone listening wants to get more information about your work, please share the contact details.
Jayant: The website of mine is JayantBhandari.com and on that website, I post everything that I speak about or write. Also, there's a tab called "Capitalism and Morality" on my website that takes you to all the past video recordings of the seminars I have ever run. It also gives you links for registration for the next seminar.
Maurice: For our listeners, there is a link as well on our website to register for "Capitalism and Morality." Please look on the right hand corner. Last but not least, please visit our website www.provenandprobable.com where we interview the most respected names in the natural resource space. You may reach us at [email protected]
Jayant Bhandari, the host of "Capitalism and Morality," thank you for joining us today on Proven and Probable.
Jayant Bhandari has been an Asia-based institutional investor adviser for the last several years. Prior to that he worked for six years with U.S. Global Investors in the United States, a boutique natural resource investment firm, and for one year with Casey Research. Prior to his involvement in the investment industry he established and managed Indian subsidiary operations of two European companies. He received his Master of Business Administration from Manchester Business School (UK) and holds a Bachelor of Engineering from SGSITS (India). He frequently writes on cultural, political and social issues for several publications.
Maurice Jackson is the founder of Proven and Probable, a site that aims to enrich its subscribers through education in precious metals and junior mining companies that will enrich the world.
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1) Jayant Bhandari: I, or members of my immediate household or family, own shares of all the companies mentioned in his discussion on arbitrage. I personally am, or members of my immediate household or family are, paid by the following companies mentioned in this article: None.
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