“The U.S. and Canada Are Brothers and Sisters”, says Stephen Stewart

Key Concepts

• Canada-US Relations and Mining: The discussion centers on the strong, long-term economic partnership between Canada and the US, particularly in the context of natural resources and critical minerals.
• Government Intervention and Floor Pricing: The role of government in securing critical mineral supply chains, including potential equity positions and the establishment of floor pricing, is highlighted as a crucial factor for developing North American projects.
• China's Dominance and Western Catch-up: China's long-term strategy in securing and processing critical minerals is contrasted with the West's need to implement similar, coordinated strategies to regain competitiveness.
• OR Group's Investment Thesis: The OR Group's contrarian, counter-cyclical investment philosophy, focusing on undervalued assets and long-term development, is explained.
• Canadian Resource Sector Underperformance: The transcript argues that Canada's resource extraction sector has underperformed over the last 15 years due to complacency from policymakers.
• Project Development and Commodity Focus: Specific projects and commodities (copper, uranium, nickel, gold, rare earth elements) are discussed, with a focus on their potential and the OR Group's involvement.
• Importance of People: The critical role of skilled and dedicated individuals in the success of mining ventures is emphasized.

Canada-US Relations and the Mining Industry

Steven Stewart, founder and chairman of OR Group, expresses optimism regarding the medium to long-term relationship between Canada and the US from a mining perspective. He views the two nations as "brothers and sisters" with a historically fruitful economic partnership that will naturally continue, especially in the realm of natural resources. Stewart believes that despite recent political "chest puffery" and negotiations, the US will continue to rely on Canada for essential resources.

Key Points:

• The US election in November is seen as having a significant impact on the industry, positively influencing metal prices and creating opportunities for junior miners.
• Canada's offerings to the US include energy (oil, coal, uranium, nuclear energy) and critical minerals such as copper, uranium, nickel, silver, and rare earth elements.
• Stewart posits that the US administration's actions, potentially including "calculated debasement" to address debt, are driving gold prices. He believes this government intervention, whether by central banks or other nations diversifying reserves, is a key factor.
• He anticipates similar government intervention policies from the West on copper and other critical minerals, citing the US administration taking equity positions in companies like MP Materials as an example.
• Floor pricing is identified as a critical element for developing North American projects, as the required capital is deterred by price uncertainty, especially for metals like rare earths where China controls production and pricing.
• A "hybrid equity plus price protection" model is seen as a game-changer, making previously unviable projects more attractive, particularly with government involvement.

China's Strategic Advantage and the West's Response

Stewart draws a parallel between China's long-term strategic planning and the West's need to adapt. He notes that China has been securing metal deposits and building extraction and processing infrastructure globally for the past 25-30 years, a skill set that has been largely lost in the West.

Key Arguments:

• China's economic model, influenced by leaders like Deng Xiaoping, has involved thinking in 50-100 year terms, securing resources and processing capabilities.
• The West's only way to catch up is to implement similar "single-party system strategies," which Stewart equates to government intervention.
• This implies a need for long-term commitment from whoever is in power, ensuring consistent policy and viability for projects that require 10 years of development and market access at a justifiable price.

OR Group's Investment Philosophy and Canadian Focus

The OR Group's long-term investment thesis is deeply intertwined with the integration of the North American market and the need for strategic resource development. Stewart explains that their thesis, while not knowing the exact path, recognized the West's lag behind China in resource strategy.

Key Points:

• OR Group has bet on Canada for the past 15-20 years, focusing their career, time, money, and energy there.
• Their philosophy is contrarian and counter-cyclical, aiming to acquire distressed or undervalued assets.
• They take long-term views, fix problems, and are patient in capital allocation and development.
• Stewart believes Canada's resource extraction sector has "underperformed" over the last 15 years, with policymakers being complacent in recognizing the industry's productivity, job creation, and contributions through royalties and taxes.
• He highlights Canada's vast land mass, mineral endowment, skilled workforce, and capital markets (TSX, CSE) as significant assets.
• The need to replace high-paying skilled jobs, potentially lost to AI or recessionary fears, makes the extractive industries a tailor-made solution for Canada.

Policy Consistency and Government Intervention

Stewart acknowledges his preference for free markets but recognizes the necessity of government intervention to compete with China. He is curious to see how this "new model" evolves.

Key Arguments:

• The current policy of government intervention is nascent, with the Trump administration leading the way.
• Stewart expects Canada and other nations to follow suit, albeit with potentially different policies, to remain competitive.
• He expresses concern about the cyclical nature of governments and their policies, but believes Canadian leadership has the "common sense" to adapt.
• The challenge lies in how to compete with China, as the "old model" has not been effective.

OR Group's Key Projects and Commodities

Stewart details several key projects and commodities that OR Group is involved with, showcasing their broad portfolio across Canada and one major project in West Africa.

Copper Projects:

• XXIX (29): Located in Quebec, this project is highlighted for its strong Preliminary Economic Assessment (PEA) with nearly 40% IRR at spot prices, low capex, quick payback, and existing infrastructure. It is described as one of the highest-grade open-pit copper deposits in Canada.
• Ontario Copper Resource: Within the same company as XXIX, OR Group holds the largest copper resource in Ontario, making them owners of two of the three largest copper resources in Eastern Quebec.
• Original Metals (Original AU): An earlier-stage company in the Shabamu district, focusing on the Roger project with a drill program planned for January based on a new interpretation.
• American Eagle (Knack Project): Located on the west coast, this copper-gold porphyry project has South32 and Tech as key investors. Stewart believes it will be the next copper-gold porphyry deposit to be built due to its surface proximity and flat topography.
• Metal Energy: A new acquisition in the copper-gold porphyry space, led by Charlie Gregg (formerly of GT Gold and involved with American Eagle). The project shows promising geophysics and geochemistry, indicating it's ready for drilling.

Other Commodities:

• Uranium Assets: Located in the Athabasca Basin.
• Nickel: Holdings in the Thompson Belt, with Stewart noting that nickel is currently overlooked but important long-term.
• Gold: Significant assets in the world-class Kirkland Lake Camp of Ontario, near Agnico Eagle's Macassa mine (one of the highest-grade gold mines globally) and their Upper Canada development project. OR Group is strategically positioned to benefit from new entrants like Pan-American Silver.

International Project:

• West Africa (Côte d'Ivoire): A major project outside Canada, supported by shareholders like Newmont. This is described as a mine that "looks wonderful."

The Importance of People and Delivering a Mine

Stewart concludes by emphasizing that the most important natural resource is people. He values working with individuals he enjoys and who possess the technical expertise to deliver a mine to the market.

Key Points:

• The OR Group has built a large portfolio of high-quality assets over 15 years by playing the cycles, being creative in acquisitions, and being attentive to the cost of capital and market reception.
• They invest and raise money when the market is receptive to share price performance for drill results.
• The core objective is not just making money, but delivering a mine to the market. Money is seen as a consequence of achieving this objective.
• The success of the group is underpinned by its people, who are described as serious technical professionals focused on delivering a mine.