Craig Hemke (00:00)
Hello again from Sprott Money at SprottMoney.com. It is January, middle of January, 2026. And as the new year gets rolling, it is time for your first Ask the Expert segment of 2026. I'm your host, Craig Hempke. Joining me this month, my old friend, Tavi Costa, late of Crescat Capital now venturing out on his own. I can't wait for him to tell you about that. He is very much an expert in macroeconomics, mining sector, precious metals, commodities, energy, go down the list. It's going to be great to pick his brain as 2026 begins. Tavi, my old friend, good to see you, brother.
Tavi Costa (00:38)
Thanks for having me, Craig, and looking forward to this interview.
Craig Hemke (00:41)
It's going to be fun to talk about stuff for sure. Uh, a reminder before we get started, Sprott Money, that's where you want to get your physical precious metal. They'll store it for you too. They will help you with your retirement plan. And I can't believe we're already back around tax season and everything else. SprottMoney.com 888-861-0775. Tavi, besides being a great follow on Twitter which I'd encourage everybody to follow you, because put great stuff on there every day. Please give everybody that handle and then give everybody an update about your new venture.
Tavi Costa (01:13)
Thank you. Yeah, it's still early stages, but I'm launching basically an investment firm that, and the idea is to, as you know well, I've done a lot of macro work and a lot of macro research and end up identifying a lot of ideas in investments that I want to follow for the longterm. I really was an exercise of thinking about, what do I do best and how do I...
How did I build my own wealth? And I think that the best way to put it is, believe that investing in the long-term in five to 10 years on a trend that I really believe will play out, unfold during that period and really establish yourself and finding the best opportunities and most asymmetric opportunities you can find. And a lot of times not being afraid of being against consensus and really embracing volatility looking for distress opportunities as well ⁓ is exactly where I think I, I don't know, I fit myself as an investor. And so that's really the goal is going to be an investment firm that will have ⁓ different investment strategies, different funds that are going to be very niche-y and specific in each one of those different ideas. And so ⁓ we'll start with the resource related and sort of move from there.
And yeah, I'm very excited to build this and I can't wait to really start putting to work a lot of the macro thoughts that I've had over the years and ⁓ start building something that I really, ⁓ you know, from the bottom. it's truly exciting to be in a position like this.
Craig Hemke (03:01)
Well, I'm excited for you, brother that branch out on your own. Got to leap of faith, but there's no reason why you shouldn't. know, your stuff and the world needs investment advisors that understand that this ain't like yesterday. ⁓ there's a lot going on in the world. And if you're just investing based off strategies from 20 years ago, might need some assistance. So Tavi, thank you for having the courage to step out and get started. can't wait to learn how, you know, follow, follow how it goes from here. ⁓ let's just dive right in.
Tavi Costa (03:15)
Yeah.
Craig Hemke (03:31)
⁓ We're off and running, we're about halfway into January and we're already seeing an extension out of last year ⁓ on some of the same macro issues that we've been following for a long time. So what is your opinion? What are the big macro themes for 2026?
Tavi Costa (03:52)
I think there are a few, one that I've been definitely talking more about, which is when you think from an asymmetry standpoint looks more more appealing, has to be energy. Energy is at a place where ⁓ emerging markets were maybe a year or two ago and where mining was four years ago. Nobody cares. ⁓ There's clearly a lot of reasons to be long energy. People have one of the most bearish positions they've had in history.
They also, if you looked at the number of drill rigs, ⁓ are declining substantially over the years in the US. Most of the production's been carried over from ⁓ Saudi Arabia, of which is highly dependent on revenues from oil and are highly likely to also reduce their production, influencing oil prices higher. I think there's a lot of focus on Venezuela, although Venezuela's ⁓ assets are very impaired and
and unlikely to be changing production or supply anytime soon. And lastly is my view about how commodities are so connected and you had gold miners move the way they did and then you saw copper miners move the way they did. And then you look at the chart of energy and they have been consolidating for the last two to three years. And what I view, you know, a perfect setup for an explosive move to the upside. So that's one thing that I'm paying attention from an asymmetry standpoint.
less asymmetric and I think would be more of a follow-up on themes would be, of course, I still think mining remains extremely undervalued relative to metal prices. I think that we haven't seen anything yet in terms of that. I mean, think metal prices have had a big run, but when you consider ⁓ what usually causes the peak of the cycle, we have not seen any of those red flags begin to rise, meaning
Capital spending remains extremely low relative to history. ⁓ &A mostly happened across the seniors. We haven't seen that fall down to the smaller companies. We have not seen discoveries. In fact, if you look at the last two years, it's the only time in history that we've seen zero discoveries that are major discoveries of over 2 million ounces ⁓ throughout history. We've never seen that. ⁓ Production is not likely to change anytime soon from a copper
gold and silver perspective that you can add other metals there too, just using the main ones. And so that continues to be very, very interesting for me, ⁓ particularly on the mining side, which remains priced in my view, as if metal prices were half of what they are currently. Lastly, Latin America. think Latin America is something I've been very focused on over the last few years and it's investing. And this is something I want to build on this new vehicle that I'm working on.
which would be a lot about investing is not, it's a Jim Grant, ⁓ I guess, ⁓ phrase that he said once that I thought was very interesting. might be not paraphrasing perfectly here, but it's basically investing is not all about ⁓ following the herd, meaning ⁓ that you're following the news. It's actually investing on something that will become the news ⁓ years from now.
It's remarkable to see now people talking about Latin America as a potential opportunity. How many people were talking about two, three years ago, right? And so that's sort of the mentality I want to have. And in some of those situations where you get it right two to three years ago and now everybody's talking about it, it doesn't mean necessarily it's the peak of that theme, right? I mean, there's an awareness phase, which I think is where mining and Latin America are going through.
And then there's also the sort of the smart money phase, which I think is where energy is right now. anyways, sorry for the long answer, but I would say those three themes are pretty solid themes in my view that are gonna play out in this year.
Craig Hemke (07:53)
Let's stick with that mining sector for a second. Tavi, I mean, you've been for a year or two now banging the table about this, free cash flow that these big miners are cranking out. And yet, there's just so little sector involvement from the, it seems, a generalist investor, the traditional financial advisors or hedge funds or institutions. You look at things like the GDX.
as we record this is maybe 10 % higher than it was at its October peak. Yet the price of gold in the fourth quarter is going to average at least 20 % higher than it was in the third quarter. And silver just can't even get started. What are you making it? Is it just this lack of investment in the sector? So we just don't have the classic inflation of too much money chasing too few goods and price just takes off. What do you think drives this?
At least through now, middle of January, kind of under-performance, I guess, maybe versus the metal.
Tavi Costa (08:55)
It's almost like the market is pricing in a backwardation for metal prices. They don't believe metal prices will stay where they are. don't believe, you know, that most people believe actually that we're going to see a mean reversion of silver prices and other things. I, my view on this is that the, the, the period and the phase
Craig Hemke (08:59)
Yeah.
Tavi Costa (09:14)
of low metal prices is behind us, most likely. And yes, we're going to see volatility, but who would have thought that we could bottom a $50 an ounce for silver? That was unthinkable not too long ago. so six months ago, people wouldn't believe that that would be case today. And so I do think that that would be the case because of those fundamentals have not changed. Silver is a great example. We've seen the prices ⁓ in some... ⁓
more than double recently and all of sudden you look at production and production and it's all like prices have been going up just now. Like they've been going up for a while here and you look at production for silver, which tends to lag. It hasn't changed at all. I mean, it's just, it's just, you know, and the reason for it, it's not because companies can't really just turn on and say, oh yeah, let's produce a lot more. Now the silver prices are higher. No, it's not how it works. First you need to find the mineral discovery and have enough scale.
in order and infrastructure to be able to do that. so, ⁓ you know, it's a weird perception that people have. And I also think that the mining industry is still in a place where ⁓ it is a very complex space, which requires a lot of knowledge, requires a lot of technical knowledge. And it will take a while for that knowledge to start coming into the industry again. In other words, you know, we've been through a ⁓ period where
people left the industry and went to either work in oil and gas or work in other industries like technology. And so the only and the best way of marketing an industry or a sector is making money. And now that these companies are starting to finally make money, think eventually as a lag, lagging effector, eventually these people, you the interest will come back and the interest is not just from the labor side, it's also institutional side. Institutions,
don't have a very deep knowledge about the space. So you're seeing them prop up most of the seniors mostly, and which still has a lot of inefficiencies when you look down the bottom, the development phase and also the exploration phase look very compelling still just by the fact that nobody is really participating in those markets. And so...
Yeah, eventually, eventually, I think it drives the whole industry much higher just because of the &A that will be caused by the excess of cash being made by the seniors. And we're getting close to that. know the seniors are being more more pressured by the Wall Street ⁓ analysts and being penalized by the analysts, especially in investors, by the fact that they're not really presenting much of a growth ⁓ outlook for their reserves.
And that's not being perceived very well by investors in today's world. And so that's changing. That was a dynamic that a few years back, you would be ⁓ rewarded by being extremely conservative and paying dividends and paying down your debt. And now people are saying, no, I want growth. But wait a minute, we don't have reserves. So how do we grow? Well, we're to have to acquire somebody who has a
Craig Hemke (12:22)
Right.
Tavi Costa (12:28)
reserve and it's the only way to change that dynamic in the short term.
Craig Hemke (12:32)
you expect that next, Tavi? mean, all these big companies are going to bank another 500 million, a billion, more than a billion dollars just in the fourth quarter alone. ⁓ Would you expect some share buyback things to be announced? Some companies are already doing that, maybe increase a dividend. Or do you expect, yeah, we might as well pay up $500 million for said junior or said exploration company. Do you think we're finally on the cusp of that?
Tavi Costa (13:02)
Yeah, mean, it's happening in the private market and this is a good ⁓ gauge for eventually starting to come into the public market. Initially, I would say that some folks have rightly so spoken about this issue where you had, I think the Western societies have so much, paid most attention to cash flowing and how to discount those cash flows in the future.
into what it is supposedly an appropriate valuation. However, when you see other countries like China, for instance, taking a completely different approach and looking at these potential acquisitions from the lenses of securing metal, and when you look at an asset from a security standpoint, national security standpoint, the price is not a discounted free cash flow calculation. It's a much higher price.
And so you're starting to see that in the private world. I've been involved in a few things where ⁓ you lose a deal to Chinese parties and others. And so it is interesting that that's happening more and more in space. ⁓ And I think, I suspect, not only will continue to happen, but you're going to start seeing the US administration also do the same. They're going to start participating in different ways, not just by
having a stake on these companies, but allowing these companies to compete with a country that has sovereign wealth being deployed to acquire metals. mean, it took a while for some of these sovereign institutions to realize that the cheapest way to acquire metal is not buying in actual market. It's actually to buy a mine and then produce it. But that's
Craig Hemke (14:56)
Right,
right.
Tavi Costa (14:56)
That's
where the gap of valuations is today is the fact that metal prices are over here and then you have mining ⁓ costs and mining prices in terms of ⁓ the enterprises are very cheap. So I think that's next. And just to your point, you looked at a chart of free cashflow for the industry today. It looks like the chart of Nvidia. It's just like, it's insane. think about it.
Craig Hemke (15:21)
Yeah.
Tavi Costa (15:25)
What changes here? The companies I am involved personally, I looked at them and I'm not seeing the cost structure change here, like we're seeing metal prices change. I do think from a macro standpoint, we gotta be careful because this type of behavior in the metal space is very ⁓ aching of a hyperinflationary environment.
Growing up in Brazil, mean, I don't think this is normal to see silver prices acting this way and claiming that this is just a monetary debasement that doesn't cause inflation. mean, come on, like monetary debasement, losing purchasing power of the dollar eventually will drive as well goods and services much higher. And I'm not talking about five, 6 % higher. Like the price changes we're seeing in metals.
It's a bit scary. I don't know what world we're getting into here, but it would have shocked me seeing inflation getting out of hand here.
Craig Hemke (16:27)
And it's not just silver, platinum, palladium, copper, $13,000 a ton in London, all-time highs, ⁓ which I guess kind of leads me into my final question for you, Tavi. Again, I mentioned this great Twitter X account that you have. What's your Twitter handle again?
Tavi Costa (16:44)
sorry, I didn't first said that. ⁓ I think it's Tavi Costa actually. Yeah, Ed Tavi Costa. Yeah.
Craig Hemke (16:45)
That's okay. Okay. All right.
That's easy enough. T-A-V-I-C-O-S-T-A. You post a lot. Very creative. ⁓ You often have charts in there and some of the longer term charts you've got about commodity indices versus the S &P, you know, showing a real kind of almost a secular change. You know, I get caught up, we all get caught up in the daily and the weekly and all that stuff, but you really caught.
Tavi Costa (16:52)
I was early enough I was able to get that handle.
Craig Hemke (17:15)
what looks to be some very long-term changes in for hard assets, commodities in general, which I'm sure is going to ⁓ affect your investment thesis going forward. ⁓ What can you talk about? can you tell us there about what you've seen again, from a long-term shift standpoint away from, know, where everyone's always going to have digital and paper assets and stocks and bonds and stuff, but more of an emphasis towards the more physical assets.
Tavi Costa (17:43)
Yeah. It's fascinating what's happening. We're in the midst, maybe early stages still of what seems to be a major rotation out of financial assets that have been so overvalued and into hard assets in a large way. I think a lot of people like yourself ⁓ and myself have been talking about this potential of that happening.
But those charts are very helpful to put also, you know, show to folks that this is the beginning. This is not the end of it. This is likely the beginning of a rotation. And, you know, you don't end the rotation with mining stocks being exceptionally cheap, historically speaking, particularly relative to metals. You also don't end a cycle like this with concentration of 80 % of global equities into U.S.
Craig Hemke (18:14)
for sure.
Tavi Costa (18:39)
equities. Okay. So there's lots of rotations yet to occur. I think people have been conditioned to think about the last 15 years or so that that will play out in the future. And, you know, the future can look very different given the constraints we have. I mean, we have a federal reserve that, you know, regardless of who's in power, Jay Powell, Trump, a new new a new fat chair, it doesn't matter.
We got to a point where monetary policy in terms of those policymakers, they become pretty much irrelevant. Their views about where inflation will go, where unemployment will go, just doesn't matter because the government has one mandate right now, which is lowering the cost of their debt burden.
Craig Hemke (19:29)
Yep.
Tavi Costa (19:30)
When you get to a world like that, when do you get to a world like that? That's an important question. It's usually when you get to that four to 6 % range of your GDP in payments of interest on your debt. And the US has been there for the last two years or so now, and it's only going up. And then you hear from Trump saying that they're gonna increase military spending by 50%. I mean, I don't know if you ever looked at the...
Craig Hemke (19:46)
Yep.
Tavi Costa (19:57)
military budget, but we've never seen a 50 % increase. if he's going to do that, it keeps adding to this equation. I just don't know, I don't know where it stops, to be quite honest. And so I think that the only way to cope with this issue is suppressing rates, literally financial repression. ⁓ And eventually that's what drives this long-term rotation into hard assets. And
Craig Hemke (20:04)
Right, where's that come from?
Tavi Costa (20:27)
So don't think we're far from over on this cycle in my view.
Craig Hemke (20:32)
And those charts lay it all out. mean, things are just breaking out after being a 15 year downtrend or more. Um, I mean, we're just getting started. I I'm excited for you because you're poised to take advantage of that and your clients will be as well. Uh, again, this is my old friend, Tavi Costa, money manager analyst, a great follow on X.
and a good friend that we always like to bring on from time to time and get his updates. Tavi, thank you so much for your time. I really appreciate it.
Tavi Costa (21:03)
Thanks for this interview, Craig. It's always great catching up with you, looking forward to the next ones.
Craig Hemke (21:08)
for sure. And on your way out, hit the like or subscribe button because we're only halfway through January. There's a lot more to come as we go through this month and through the first quarter. You don't want to miss any of it. So hit that subscribe button. You'll be notified every time something new comes out from Sprott Money at SprottMoney.com. Thanks for watching everybody. And we'll have more content for you as the month of January rolls along.
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