Jayant Bhandari: Why You Must Use Arbitrage In Your Investments

Video Length 00:31:49

Maurice Jackson:  Welcome to Proven & Probable. I’m your host, Maurice Jackson, and joining me today is an adviser to Institutional Investors on Investing in the junior mining companies. His name is Jayant Bhandari. Jayant, thank you for joining us today.

Jayant Bhandari:  Maurice, thank you very much for having me today.

Maurice Jackson:  Sir, you have a reputation of being one of the most respected names in the natural resource space. Would you mind sharing with the audience your background, please?

Jayant Bhandari:  Well, I grew up in India and the reason I left India was because I was sick and tired of the corruption in that country. I moved to Canada in 2003 and I lived in Canada for about 8 years. I started working in the junior mining sector as an analyst for a newsletter writer, Doug Casey, who still continues to be my philosophical mentor. Then I worked for about 6 years for then I worked for an institutional investor called US Global Investors, Frank Holmes’ company, for about 6 years.

And for both of these people, I did junior mining company analysis work. I travelled the world for these people. And since leaving Frank Holmes’ company, I have continued to do that on my own for the last 3 or 4 years now.

Maurice Jackson:  Yes. I’ve noticed her recently you were in Peru andVancouver. You’ve been quite busy in just the calendar year of 2016.

Jayant Bhandari:  I travel more than I ever did before and that is the necessary part of this job because you have to understand what is happening around the world. You have to go and look at these projects. You have to look at how these economies actually work. So, travelling is a necessary part of what I do.

Maurice Jackson:  You mentioned traveling around the world. Why is it paramount for investors to be aware of geopolitical events and demographics as it applies to supply and demand in the natural resource space? Because I always find it astounding when speaking to investors that most of their concerns are germane only to the United States and they don’t recognize that we live in a global economy. I think the ignorance of these factors and the lack of reasoning can have duplicitous effects on their portfolio. Would you agree?

Jayant Bhandari:  Absolutely. But, again, you have to understand that Americans are intellectually very honest people, so they accept that they as a society is very inward-looking. But absolutely every society in the world is very inward-looking and they are more inward-looking than people in America are. So, for example, in India, every foreigner is considered a person from London. When you go somewhere foreign, it’s synonymous with London to them. So, if you ask them where Washington was, they would not know. So, really, Americans are self-critical but this is a problem everywhere in the world.

However, if you want to do anything that requires an understanding of the future and you can’t really predict the future, but if you want to attempt projecting the future, trying to understand what might happen into the future when it comes to career opportunities or with investing, you have to really understand what’s happening around the world particularly when what might happen in other countries can affect what you are working on.

So if I am, let’s say, in copper space, I should try to understand what’s happening in Democratic Republic of Congo because that’s where some of the best copper projects are. If I’m in information technology, probably it does not really matter what happens in Democratic Republic of Congo because that country doesn’t really do much in IT sector.

So, understanding the world is an extremely important part of trying to understand what might happen into the future. You will still be wrong, but that’s the best you have got.

Maurice Jackson:  Absolutely. You know, you and I were talking offline earlier and you had mentioned iron ore as another example. Would you mind sharing that with the audience as well?

Jayant Bhandari:  Well, I was—you know, anyone who wants to invest in iron ore should, again, go to some of the major areas where iron ore is produced. And if you go to Pilbara area of Northwestern Australia, you understand that trying to mine iron ore, let’s say, in Canada or maybe in Ukraine might make absolutely no sense particularly if you are producing that iron ore for export purposes.

So one company in Canada, let’s say, might go into production at a cost of $60 per ton of iron ore. Now if Australia can produce the same iron ore for $20 a ton and if they can produce whatever volume the world wants, there is no way for you to compete with those people. So, it is very important to understand that while iron ore prices, let’s say, 7 or 8 years back were very high, but anyone who knew what was happening in Northwestern Australia could project that iron ore prices were not sustainable at $150 a ton. They knew that they would fall back to much lower than $100 per ton, a price at which many Canadian iron ore operations are not economical. So those projects should never have been financed.

Maurice Jackson:  And that sounds somewhat similar to what we’re experiencing right now in oil. Whereas, you know, the US’s ability to produce oil and now that we realize their cost really to sustain themselves is roughly between $60 to $80 and they won’t be able to sustain themselves more or less a year from now if the price of oil continues to remain low. So, I think what you’re saying is don’t listen to the salesmanship or the propaganda of a company, but just step back and take a 10,000-foot level and look at the fundamentals of something as you just mentioned here. Is that probably a good way to summarize what you just mentioned there?

Jayant Bhandari:  Absolutely. And companies do propaganda because they get away with it. The reason why they get away with that is because investors invest in something they don’t really understand. So the most important thing is that if you want to invest in something, spend time, try to understand what you’re doing; otherwise, it makes no sense to invest in that thing. You’re doing no better job than playing in a casino.

Maurice Jackson:  Point well-taken. Now, in your traveling when you’re looking at companies, you’re actually focusing more on the junior mining companies, correct?