# Muddy Waters' Darren McLean on investing in the mining sector Yet Another Value Podcast · 2025-06-03 · 55 min · https://www.youtube.com/watch?v=MEDVB0_-hf4 ## Transcript Andrew Walker You're about to listen to the Yet Another Value podcast with your host, me, Andrew Walker. Today's podcast is a deep dive into investing in the mining sector with Darren McClean from Muddy Waters. It is a sector that I will be honest, I feel very very silly and dumb in. I feel like generalists get their face ripped off in it. Darren is an absolute expert. I think it's really interesting for him to hear about why he think there's so much potential expert potential alpha for people willing to do the work and really dive into the sector. It's really interesting to hear what that work is, how to do it and all that sort of stuff. Uh it also as a journalist, it makes me terrified and reaffirms my thought that if I invest in the sector without spending months and months and years getting up to speed, I will probably get my face off ripped off. So, it is a really interesting conversation. I hope you enjoy it. But before we get there, a quick word from our sponsors. This podcast is sponsored by FinTool. Look, those of you who have followed me on the blog on the podcast know that the two areas I've probably thought the most about over the past couple months is AI and corporate governance. And look, if you are not using AI, you are getting left behind. And let me just marry those two thoughts in one way. If you read through proxies, there's one thing that you know. Proxies contain a lot of information, but they suck. Companies are almost intentionally obsuscating and burying a lot of the interesting information here. Guess what? You can use AI to really cut through the noise there. So, FinTool just released a thing. You can go do uh a deep dive into every person in a company's executive roster. So, you know, if I'm looking at a company, I can go to the final people tool. I can look at their CFO and I can see, hey, here's exactly how much he's paid. Here's everything that he's done. Here's everything that's been included about him in the proxy for the past five years. Here's all those key incentives points summarized laid out. So that you know what used to take me a day of going through 12 different proxies and looking and matching saying was he on this board? When did he join this board? It takes 15 seconds. So look, go check out fintool. Start using AI. you are going to get left behind fast if you are not using AI as a fundamental investor. Uh finol the really interesting product and it continues to evolve. All right. Hello and welcome to the yet another value podcast. I'm your host Andrew Walker with me today. I'm happy to have on from muddy waters Darren McClean. Darren, how's it going? Darren McLean Good. Pleasure to be here. Andrew Walker Perfect. I appreciate you coming on. Darren, I’m super excited to have you on. You think of Muddy Waters and activist short selling, but you’re heading up a specialist investment strategy focused on hard metals and mining. You think of hard metals, junior miners, and miners, and you think, “Muddy Waters—it’s got to be activist shorts,” but it’s mainly focused on longs. I’d love to start with a quick overview. What’s so interesting about metals and mining and the funds you’re looking at? How are you viewing the world of investing in that? Darren McLean I could talk about that one ad nauseam. If I were to distill it down to any one thing, it’s that I don’t think there’s almost anybody else—or there are extremely few people on earth, from a money-management perspective—doing what I’m doing and trying to invest the way I’m trying to invest. Finance is—I always liken it to a professional sport, except there are 1,000 different positions you can find and play. Within mining, there are so many different ways you can play it, but specifically, the way we approach it—and this is something I learned very early on in my career—is that there’s so much data out there. The incremental marginal value of a data point is sometimes extremely high relative to the value of the company. You can see information come out that, in my mind, literally doubled the value of the company, and the stock doesn’t move. The marginal value of new, incremental information is extremely high. There are ways to discern it, but you have to be creative and willing to get your hands dirty through some unconventional means. When you get those data points and are able to piece together a mosaic, you know, as those incremental pieces bolt onto your core nucleus of the problem set you’ve solved, how much that moves the needle. Then you realize you can be almost certain there isn’t another person in the world who has that problem set built up the way you do and who understands the incremental value. You get massive alpha, and I’ve been hooked ever since I started. Andrew Walker You mentioned unconventional means for getting data. Can you give me some examples of unconventional means in mining? Darren McLean I would say I go back to the beginning. One of my first experiences was when I was working at my initial shop. There was a company I knew nothing about. There was a very illustrious person in Canadian finance, who is still one of the top figures in the mining sector, and he came into our office, which was a small boutique, and took a meeting with the company. I was starstruck at the time, and he walked out of the meeting thinking it was the best thing he had seen in a long time. Another individual in the firm, whom he was supporting through a small fund, said this should be an 80% allocation. I thought it was incredible what I was witnessing, but it was a thesis around how much gold was in the ground at the company. It was known to be true throughout the industry because the top analysts in the sector had decided this, and a bunch of others had agreed with him that there was a certain quantity of gold on the ground there. I thought, “Well, I should go make sure. How do I do that?” I went on their website, and there was a dataset of all their drill holes. This is a very common thing; this is how it starts. I get involved in the early stages of assets, predominantly when they’re being drilled out and discovered. I looked at the dataset and said, “Okay, how do I turn this into something I can break down?” I took the drill holes and built a little program that would plot them out for me into 2D pictures. I created slices all along the shape of the resource body. I thought, “Okay, well, to get that much tonnage at that much grade, for there to be that much gold, I would need to see, on average, this much surface area filled per section for that to be true.” I put a grid on it and did that, and when I plotted through it, I couldn’t see it anywhere. I thought, “Well, that’s fascinating.” So then I basically hand-drew the entire thing and mapped it out. When resources are modeled, they’re done with computers using algorithms that are trying to recreate human logic, basically. You can do it with raw human logic, especially if you’re good at it, and that’s the kind of thing I’m good at. I modeled the entire thing and realized that there was about a fifth of the gold there that the market thought. On that basis, the company was worthless. It was a $1.2 billion company at the time, back in 2011. That was a big deal. They had just raised $120 million in a bought deal at that valuation, and they were going to get taken out. They were the best thing on the board, and I thought, “This is going to zero. Oh my God.” I spent about 2 months obsessing over this. Ironically, at the same time I was doing this, Carson was publishing on Sino-Forest. I was sitting in the basement of this guy’s little boutique, where 3 people worked: one other kid, myself, who knew nothing, and another individual who’d been a money manager once upon a time on Bay Street. He was sitting there saying, “Oh my God, this Sino-Forest thing is crazy.” I asked him what was going on. He explained it. I didn’t know what short selling was. I asked, “What’s a short?” He explained it, and I thought it was the coolest thing. Then I watched Carson be right, and I thought, “What a way to make a name for yourself. What an amazing call—the most contrarian bet, sticking your name out there and risking it, where you have to be right or your reputation’s really on the line.” Then I saw this company and thought, “Oh my God, this is going to collapse and go to zero.” It was a very well-backed and well-owned company. I spent about 2 months obsessing over this, just making sure I was right, talking to people, telling them, getting guys off the bet. Then it came out that I was right, and the stock collapsed almost straight to zero. Andrew Walker Yeah. With Sino-Forest, it was just—and I don’t use this term lightly—blatant fraud, right? If I remember correctly, I remember John Hempton’s post where it was like, “Hey, if you believe what they say, they’ve got more trees than the entire surface area of North America or something.” I can’t remember, but it was broad. What you’re saying, in this case, this wasn’t that. What you’re saying is this company had pitched a story to Wall Street and pitched a story to its investors. You went on, downloaded data, did it by hand, and figured out, “Hey, based on the density I’ve seen in these drill holes and stuff, at max, a fifth of what they’re projecting.” Which means the company’s a zero because there are huge fixed costs and all this sort of stuff. I guess, exactly. If I were just to pull away from that specific example as a generalist—I don’t want to talk a lot about generalists here—if you told me that, I’d be like, “Hey, I’m a little surprised.” I know there aren’t a lot of mining guys left anymore, but I’m a little surprised that mining guys weren’t all over this. When I look at a biotech company, if I call a smart biotech friend, every smart biotech shop has looked at this oncology drug, and everyone has a read on how the trial is going and what they’ve analyzed in the data. Why do you think there was this inefficiency? Was it just that the guy was such a good promoter? Do you think this is an across-the-board inefficiency where people aren’t actually downloading the data? And why didn’t the company pick up that the data was this bad? Darren McLean Well, it goes back to what I initially said, and this was, I guess, the takeaway. No one does this work, and literally that was my dawning realization. I took 2 things from that, and this was right at the start of my career, which was great. One was, if I ever see anything like that again, I’m making a name for myself and I’m going for it. I’m going to put my neck out publicly, which ended up happening. And that’s how I met Carson, ironically, as well as his business partner there, and now we all work closely together. The second was, “Oh my God, all the data was there.” They weren’t hiding it. It was all there; no one had done any work on it. They don’t do this work internally, and there’s a lot of groupthink, I think, in this sector of mining. What I always say in this sector of mining, and especially in the earlier stages or the smaller companies, is that people don’t really qualify assets. I’m focused on assets rather than companies. Analysts, bankers, investors in this sector—that’s not what they do. They look for things that look like other things, and they basically run a bunch of arbitrages. Honestly, that’s what most investors do, I’ve found. They look for arbitrages. Effectively, they’re arbitrageurs. They say, “Well, this has a P/E of 18 and this has a P/E of 16,” or, “This one here is actually trading at X and this one’s trading at Y, and they look the same to me. I found a cheap company.” In real companies, I always think that’s a fallacy. What really matters is that you’re trying to figure out the decision-making of a company, and you look at a team. In a tangible example we understand, a good team is going to crush a weak team. In sports, we understand that. In finance, it’s all numbers, and we just look at numbers, and lots of guys just run arbitrages. They don’t realize that over the next 10,000 decisions these companies have to make, neck and neck, one team will just dominate. There’s almost no world you can imagine where they won’t continuously pull a little farther ahead as they navigate every decision than the other guys. In mining, the arbitrages they’re doing are saying, “Well, that produces 1 million ounces a year and this produces 1 million ounces a year. That trades at this and this trades at that.” You think, “Okay, that’s too rudimentary. There must be all these other layers.” You would be flabbergasted at how shallow it gets. The reality is there’s so little in mining assets that’s real and transactable, and that happens to create value relative to the opportunities that destroy value over the medium to long term, that there isn’t enough breadth in the market for people to really just try to sit there and find deep value. There’s just not that much to go around. I truly don’t think there’s room for 20 to 30 people on Earth doing what I’m doing. Usually, there are a couple I’ll miss every year for various reasons. Sometimes I just don’t see it. Often, I just can’t get into the deal. The openings are small. Maybe there’s $20 million going into the deal before the market figures this out, the company doesn’t want you there, or you just can’t get in, or some other guy with a relationship elbows his way in. And so you’ve got to be on it. You’ve got to fight your way in. There aren’t that many companies, and the breadth of openings and opportunities isn’t big either. If 99% of the market activity in this sector isn’t oriented around things like what I look for, then the behavior mimics most of the market activity. How do you make money? Well, you make money on a lot more schmoozy, event-driven, wink-wink, nudge-nudge kind of activity, I think, that a lot of the sector does, and they run around. Now, it becomes a self-fulfilling prophecy. Things go up when X happens. If enough people believe that, it tends to be true. I’m talking very intangibly, but what I can say is that people are sitting there ripping apart assets, trying to figure out what they’re worth before they come to full fruition, trying to map out the if-then sequences. “Okay, if you drill here and you get another X tonnage here, I think I can build this. I can manage the fixed costs. It’ll cost me this much to get power and water to site. I’m going to have to deal with this. The permitting is going to cost me this. The timeline’s here.” “I can’t overachieve that with this much metal. I need at least this much. It’s sitting just beneath that, which makes it kind of worthless.” But then they hit something, and suddenly that pushes it over the threshold, and you’re like, “Oh my God, that just repaid everything.” This went from being a meager thing to something that might be worth 5 times as much now, because once you cross that critical threshold, you explode in value. There are just very, very few people doing that. They wait until it’s told. Andrew Walker Do you think that’s a function of just today’s markets? I know I talk to some of my friends, and they’re like, “Look, before kind of 2016 or 2017, there used to be a lot more mining, but because things got washed out so hard, a lot of them are just gone.” Do you think the sector is just, because it’s fallen out of favor, less populated by people doing what you’re doing, or do you think it’s always been that way? Darren McLean Well, I can tell you what’s happened since I walked in the door, and I can tell you very loosely what happened before, why that’s interesting, and how it’s led to what you see now. I walked in the door in 2011, and then I watched the global metals complex—which had been in a wild bender for, I don’t know, the better part of a decade during the China supercycle and all the excess money printing—shockingly, people lost their way. When the party ended with a thud, the reputation of the sector got trashed: billions upon billions in companies that were wiped out, companies that maybe wiped out half their value or 75% of their value, companies like Barrick and others, some of the big names. Then I watched the entire metals complex collapse. I joined a uranium-focused firm just after Fukushima. I watched iron ore collapse down to $35, I think, from being in the hundreds. I watched these assets that companies were putting billions of dollars into expansions in just collapse and go to zero. I watched copper collapse. Gold held on a little longer, and then in 2 big legs down, it just collapsed down to 12,300. It lay on the mat until, I don’t know, the late—maybe 2018, 2019, 2020. It started to perk back up again. In that period of time, something else happened. It was the driest decade for discovery in the sector, I think, ever, meaning we found less metal than we had ever found. In mining, you’re constantly devouring yourself. You’re consuming your company, which is funny because people apply free-cash-flow multiples to mining companies. You’re consuming your company. There’s no terminal value here. Oil and gas, same thing. Anyways, we stopped discovering. It got harder and harder to discover things. Copper porphyries, which feed the world, if they’re exposed at surface, give off massive signatures. You cover them with a little bit of dirt, you don’t pick them up anymore. A lot of the low-hanging fruit that chugged and powered the world forever is starting to come to the end of its life, and it’s just a lot harder to find stuff. The markets had crashed. There’s less capital. Companies were pulling back on their capital programs to try to manage them and tighten their belts, and spending money on exploration, which wasn’t likely to yield any near-term results, didn’t seem like the best allocation. So drilling slowed down, plus the difficulty went up. It’s a compound impact, which means we just—the world really shut down in discovering metal. At the same time, there’s a big brain drain. Fewer people come into the sector. There aren’t as many opportunities. Mining engineering, which was already kind of the engineering degree you went into when you didn’t get into mechanical—mining was a little easier, and maybe if you did well for a year, you could backdoor into mechanical or aerospace or something like that—I mean, it fell even more out of favor. And so we saw fewer people coming into the sector. The people who did come into the sector—when there’s less demand, the quality drops, but on top of that, there are fewer jobs for them or fewer roles. The ones who do come in get fewer reps. They get qualified on fewer reps. I was talking to a friend of mine who’s about the same age, one of the top engineers at one of the top engineering companies in mining. He’s overseen 4 different mine builds. I was talking to him, thinking through what his experience was worth, and said, “How many people on Earth are there your age who can say that, do you think?” He thought maybe 4 or 5. I said, “Exactly: 4 or 5.” The supply elasticity of people is remarkable. How long did it take for you to get an education where you could feel confident that you could go and execute on a mine? Ten years? Ten, 15 years? You’ve got 4 or 5 people your age who have been qualified with that experience. How long is it going to take for the next crop to come in, given that he came in at the end of the last cycle? Again, there are just so few people on Earth with relevant experience sets in certain areas. Sorry, you go ahead, and then I’ll touch on one other thing. Andrew Walker So what you’re doing is, basically, companies are coming to you with this data, presenting it to you, and you’re doing hard-data analysis of the mines, the assets, and everything, and investing in them. I’m obsessed with game selection, right? What you described to me is almost like looking for a golden needle in a really negative-EV haystack. Like, hey, yes, we’re going to a massive industry. Is that even worth it? Can that be a sustainable strategy? Darren McLean Yes, absolutely. The world needs metal. This is where it comes from. Mining is one of the lowest allocations in the world for active capital. It’s amazing, but the inevitability of it is extreme. We still haven’t figured out how to drill a hole from the surface 1,000 m deep any cheaper. It’s the same mechanism, powered from the surface. All the horsepower is at the surface, turning a rotational drill into the earth 1,000 m deep. We haven’t found a way to do that more cheaply. If you could put the power in the drill bit—like what Elon Musk is trying to do with a boring machine—and somehow integrate XRF technology, where they can scan the mineralogy as it goes down the hole, you would change the entire supply of metals on Earth. Yet very little allocation of technology has been thrown at that, and no one has solved it. Mining is so resistant and slow to change. I couldn’t tell you why; that’s not where I live. But obviously, it’s very, very difficult. The way the world gets its metal and the difficulty of finding it haven’t changed. The world needs more and more metal constantly; that hasn’t changed either. It’s kind of like a population-growth bet. If you believe the world’s going to expand, the world’s going to need more metal, and prices are going to go up. The supply elasticity of talent and assets isn’t really there, so there’s a huge degree of inevitability to the sector. Is it sustainable? Yes. I’ve never gone a year where I didn’t see something that made me fall off my chair—an incredible opportunity. But there’s something to that, too. What I wanted to say quickly, without taking too much time, is that the brain drain, the lack of exploration, and all these things coalesced at the same time. When the whole metals complex collapses—and we’ll just focus on gold mines for a second—almost nothing was discovered in copper over the last 10 years. When the whole metals complex collapses, promoters don’t stop promoting. All that happens is that real assets that are in the money stop going forward, because there’s nothing real. Everything that worked was either built or is now out of the money because the gold price had collapsed from $1,900 down to $1,200. When that happens, projects don’t stop getting pushed forward. It’s just that the only projects that get pushed forward are scams. Why is that? Because gold deposits, more often than not, happen in nuggety distributions. So it’s really, really hard to find an economic gold deposit. It’s not hard at all to turn the knob a little on an extremely sensitive algorithm and blow the gold out everywhere. So we watched it happen. Everyone knows the Bre-X story. What I always say is that they’re the dumbest promoters on Earth because they did it physically. You don’t physically salt the gold. Andrew Walker I don’t know this story. I’m just a stupid generalist, but I’d love to hear the story. Darren McLean There’s a movie on it you can watch called Gold, with Matthew McConaughey. I forget the country, actually, but it was a massive gold discovery with a market cap of billions and billions of dollars. The whole market was centered around it. It was going to be a massive takeover—one of the greatest discoveries ever. And it turned out there was nothing there. Someone had been salting the assays, adding gold to the assay samples, and just faked the entire deposit. To this day, there’s a lot of debate over whether the geologist was pushed out of a helicopter or fell out of a helicopter, as the government claimed afterward, or whether he paid off someone and disappeared. No one knows. But people still do that. It’s everywhere. They just do it with algorithms. When you do it with algorithms, it’s not on you. There’s a whole chain of how you can cook these things. But the most important thing is this: It’s very easy to crank the resource on a gold project—extremely easy. In fact, usually when I go in and look at a gold block model, it’s off or it’s wrong. I’ve never seen it too conservative. So very often, they’re off by 100% or more. The only projects we saw go forward in that period were scams, I thought—most of them. And they blew up. Or, when mines don’t work, people almost never understand why. There’s always a story: “Well, it was just—we needed more equipment, and we needed more development, and the shafts just weren’t working properly underground.” And it’s like, no, you needed to blow open the underground because you went down a drive, thought you could get 2 stopes, and found there weren’t any stopes. You panicked. You needed to realize you were having a hard time finding stopes. You needed a ton of drills and a ton more access to run around gophering everywhere, trying to find stopes. Meanwhile, you’re not telling the market that what the evidence is showing you is that there’s only a third of the stopes there, and your mine plan is completely cooked. And you’re like, “Well, let’s not tell them that. Let’s just try to find a way to get stopes. Say we’re getting stopes. See, it’s fine. Drag it out. If the price goes up, maybe we can finance, buy something else, do a deal.” In the shuffle, no one ever knows what happened. Because of that, there’s very rarely a high-IQ postmortem on why these things fail. The market developed this mentality that building mines is stupid. They always fail. Don’t do it. But really, the answer is that building a mine is pretty much the most value-creative thing you can do in the sector. Execution has the highest rate by far—far more than M&A. Stupid people just shouldn’t build stupid mines. Andrew Walker Let’s say I agree with all that. I do wonder: There are a handful of supermajors in the mining and metals sector, right? I guess one question I would have is, why should the next great mine be funded by you and me, or by a handful of wildcatters raising private money for $50 million or $100 million and then hopefully hitting success and selling? Why shouldn’t Freeport-McMoRan be out there doing all this geological work and funding it themselves with their much lower cost of capital, with superb execution from day 1? Why isn’t it just the supermajors? When I think about oil, today, the giant oil fields—it’s different now, but the supermajors are the ones finding, discovering, and managing all these giant oil fields. Why shouldn’t it just be the supermajors doing the whole thing? Darren McLean The answer is, there are 2 answers. Let’s just pretend every project is a fit for a supermajor, which they aren’t, and that’s the other answer. But it’s because it’s not what they do, right? When I think of majors, a lot of them are just run by bankers. They’re kind of these bureaucratic machines. They don’t really discover anything. The majors are out there making the discoveries. The majors just go and buy other people’s discoveries. Even when they do that, they’re not usually there at 5 drill holes, being like, “I don’t care. This is like a pimple on our enterprise value, and the expected value of this is through the roof. We’re buying it now.” They don’t do that. They sit around and wait. They want you to drill it, advance it, and they’re just happy to wait until you get it right to the altar and everything’s done and dusted. Then they’re like, “Yeah, we’ll take it, we’ll execute it, and we’ll just build and run it.” You think they shouldn’t do that, but that’s just not how they work. That’s a much longer conversation than I want to go into. I’m happy to have it. What I would say is that majors have stopped discovering things. They generally aren’t—I don’t view them as competitors at all in what I do, looking for assets in early stages. They are people to sell to, and there are people to get financing checks from. They like to poke their fingers in lots of things. They're like, “Yeah, I'll take a 9.9% position there and sit and watch it.” But they seldom transact unless you bring it. They're the most boring when you think of investors—kind of like mutual fund money and stuff like that. I find they only buy things out of FOMO, or they only buy things in a deal or a financing when they think they're bottom-picking it. It's like, why don't you just buy on the board and make the bet early? The majors are the worst for that. They're the worst investors for being intrepid or entrepreneurial. They're kind of construction-engineering companies. Just view them as that. They're construction-engineering companies. That's what they are. Andrew Walker I'm just laughing because I've spent a lot of time in busted biotechs recently, and you'll find so many busted biotechs where they're looking for the cure for cancer. Pfizer writes a $500 million check for 10% of the company. So, $5 billion. Then the cure for cancer fails, and Pfizer is just like, “Whatever. You guys, we own 10% of you, but you guys go. We don't even care anymore.” Right. Now, if it had succeeded, they would have paid hundreds of billions of dollars. But it's like, hey, you threw a $500 million investment—you could try to recoup it, do something—and they're just like, “Not our problem anymore.” If it's not going to be the cure for cancer, all of it's gone, even if we could try to reclaim $250 million. Darren McLean Yeah. So, if your business strategy is, “We're going to sell this deposit,” you better understand the tier and the status you have to get it to in order to do so. The vast majority of people pursuing that strategy aren't going to succeed. The other reason they don't build projects and aren't doing this is, again, if you saw how deposits are discovered, you're talking about ragtag guys who want to go up somewhere where you have to fly somewhere, then take another flight, then take a bush plane, then go hike out into the woods, camp out in grizzly country, and walk around chip sampling and picking for rocks on a thesis that has a fractional-percentage chance of actually turning into anything. These are cowboys—complete characters. The prospectors who go out there and the geologists don't wear suits. Andrew Walker For what you do, do you find site visits useful, or is it really just analyzing the data and leaving the site visits to the cowboys? Darren McLean It depends. If you have an underground mine and it's in operation, and you're trying to figure out what's going wrong with it, I would say you have to do a site visit. I've done that a few times, and there's absolutely no way you can figure out what's going on from any reporting or any numbers unless you physically go see and examine it. You have to spend a lot of time there. For exploration properties, not really. The reality is, I've usually worked on Google Earth. I can go see—I can map it out, I can get terrain mapping and all that. You can figure out where there are streams, and then you can go pull records. Not really. The only real reason you ever do it is to get a lot of a person's time and pepper them with questions. That's the only benefit I get from it. In terms of smaller mines, majors don't build smaller mines. Largely, what majors have also been focused on—because they've been struggling to get people to buy their equities, because the sector has generally been in disrepute and is very underallocated for active capital—is getting bigger and running up index strategies. For the last 5–10 years, what I've seen them doing is devouring each other and getting bigger, so that people who would otherwise not discretionarily choose to buy their equities are now forced to because they're in more indexes and bigger ones. The joke of that strategy, and the fallacy in it that I always point out, is that the value in the sector is created in 2 places: 1 is distress, and 2 is the drill bit. All you do when you pursue your indexing strategy is get further and further away from the thing that actually adds value, because it just moves the needle less. The great discovery—say it turns into $5 billion—well, I mean, you just became a $70 billion company, and great discoveries happen once in a blue moon. So you're just sitting there thinking, “What's the point of trying to drill?” You think, “We need to focus on buying out Barrick and taking them out, becoming the biggest.” They just become bigger and more bureaucratic and further and further away from what the initial premise of your question was. That's what you're witnessing happen. It's part of why they have very little entrepreneurialism in the way they pursue things. Now, why should people like us build mines? Because it's an extraordinarily wealth-creating moment. I love mining. I love it. I wanted to build a mine from the early days of my career, not out of any weird summit-fever thing. I just see that when you do it and you build the right mine, the re-rate and the value creation are extraordinary. You build these little mini economies out of the ground. It's very cool. It's a very physical thing. You create tons of jobs in a region. You bring infrastructure to areas. That's all cool, but also, if you're a Canadian company, for example, you're in a tier-one jurisdiction, you're the owner of a gold mine, and you produce real free cash flow, you're not stupid. You don't constantly try to play some capital-markets game. You just pay off your debt, and you start to stack capital on your balance sheet. You trade at some insane multiple. The thing about mining is that it doesn't take place in nice countries. Sometimes it does, but often it's easier to drill and develop in really rough countries, and often you have better prospects. You discover something in a difficult country because you can actually sell to the Chinese there, and they'll pay a way bigger multiple than Western companies because, for them, it's a way to own more infrastructure and own the country. These companies build these market caps, these enterprise values. I mean, the whole world is kind of a prison yard in terms of its organization. We live in these wonderful, nice areas, but mining takes place in scuzzy areas. You've got a company that's in a very volatile place; there's always some area rolling over. Recently, Mali has been completely rolling over. It wasn't very long ago that I was told Mali was secure because they had 5 good years, the coups hadn't reached the southwest of the country, and the French were there. Well, now the French are gone, the Russians have displaced them, and now all bets are off. Now a junta government is in, and now everyone's in trouble in Mali. In mining, you can't pack up your mine and leave when the government comes for you. You can't say, “Well, I'm Apple. I'm just going to move my manufacturing to India.” No, you can't pack up your mine and go. So you can move faster, build faster, and execute faster in rough jurisdictions. When 5 years go by—because people have this huge recency bias—and nothing bad happens, people are like, “Oh, maybe I am comfortable building my home on top of this fault line. It seems to be pretty good.” Lo and behold, another earthquake happens, and suddenly you have companies that, for whatever reason, trade at huge premium multiples to what their assets are truly worth. They've got paper value, and they're trying to run from the mob somewhere in the world or some bad government, using their paper to buy a Canadian, U.S., or other clean-jurisdiction asset. They pay huge premiums for it. I've never seen a Canadian producer that made real money that didn't either trade at a massive premium or get taken out at a massive premium to its true net asset value for that reason. So there are huge re-rates. Even if you just execute—not even in that jurisdiction—that's another layer on top, like the re-rate, because people are so cynical about mines and they don't understand the value. They don't understand the real NAVs, and they kind of wait until things are borne out and proven out. That alone—I mean, I don't even know if I can tell you the number of times I've seen someone execute on a mine build and not triple. There's a whole other conversation about capital in mining and why that happens, too. Capital in mining has changed immensely in my time as well. It used to be driven by funds; funds were way more active. Mutual funds have just died. They're still there, but the managers are mostly gone. There's a few left over, but they've gone up-cap. They have minimum liquidity requirements. They've got minimum share-price requirements, and they've kind of turned themselves into index funds for large-cap companies. They're not allowed to invest in small things. They have minimum diversification requirements. They have minimum deployment requirements. They're just procyclical vehicles that they've shoved up-cap, and most of the money in mining is just looking for parking lots where they feel safe. So, you get a good asset in a safe jurisdiction, and it will trade at a premium, but it will always be a great parking lot. “I'm in.” The guys who were actually driving mines and projects forward have never been the majors. It's always been individuals. It's not funds either. These were guys like Robert Friedland and Lukas Lundin, guys like that. These guys are just killers. They would go to the hardest places on Earth and unlock these assets, discover them, and drive them forward. Like, Robert discovered... He makes the most miraculous discovery out of the ground, like Kamoa-Kakula in the middle of the Congo—the toughest place on earth—and gets that thing into production. These are feats achieved by brilliant, brilliant, intrepid men. Then there are people who are in another tier, in the billionaire category. They're very good at capital markets, but not quite as great as Lukas and Robert were. The greatest discovery of my career was made by Lukas Lundin up in Vicuña, at the border of Argentina and Chile, where you need oxygen assistance. He saw it from a plane and went up there on horseback. It's just epic stuff. Andrew Walker Sounds like a good vacation. Darren McLean Mining companies don't do that. Great men and women do that. Their average age has gone from 50 or 60 when I walked in to 75 to 85 now. Because of that brain drain, there just hasn't been a cadre of new developers in the sector, and there hasn't been a replacement mechanism for them, either. There's a huge opening and vacuum in the sector right now, but at the same time, the world's probably growing and developing the fastest. It's an incredible moment. Andrew Walker This is a strange question. One of the reasons I historically haven't done any mining on the podcast, or personally or professionally, is that people like you exist, right, who are analyzing this data. I would have no clue if I went to any company's website, downloaded the data on their mine, and tried to analyze it. Is mining investable for generalists, or is it only people who are completely 100% focused on it who can look at this, discover it, and do any work on it? Darren McLean Okay, my gut reaction to that question is no. It is not investable for generalists. If you're going to make a hobby out of it and do it all the time, I would say no, don't do it. Andrew Walker Are there specific situations? Darren McLean Yeah, I think you'll get your face ripped off. You probably will. It's just knowing the nature of human beings. The ground's always shaking, and money gets created and explodes fast. It just destabilizes human logic. This is part of why it can be very addictive. I don't see many people come in from the outside and do well. With that being said, if you understand people and share structure well, and capital flows—say you've been in it and you've had an education in money and people and how money flows and how things happen in finance—you could probably do it if you're shrewd and savvy and you watch companies. The reality is that most of the money in this sector right now is follower capital. That's been a huge phenomenon over the last 5 years, I'd say. This was one of my initial core theses that we were going to go into when I was talking to Freddy and Carson at Muddy Waters many years ago: this is where the industry is headed, and we're kind of heading there. We're talking about the brain-drain setup and the expanding needs of the world. You're not seeing the West catch up from the beginning, either, so the problem's going to get bigger. All the stuff I talked about is happening, but the capital itself is dying as a consequence. Most of the capital that is there is follower capital. People don't want to write checks into development companies or exploration companies right now. It's weird because gold's at $3,300, and the reason they don't want to do it is because they're scared that it could fall back on them. That check could get spent, and the company could come back and say, “Listen, to keep this investment going, to keep your investment from dying, we're going to need you to write another check,” and they don't want that to be on them. A lot of companies that don't have strong leads, irrespective of their asset quality, are stranded. Then you have a handful of companies being backed by groups like Pierre Lassonde or the Lundins. Actually, most of the successful companies in the sector are backed by one of those two parties. They're 2 of the more influential parties still playing with immense personal capital in the sector, and those companies are finding financing and incredible public support because investors feel safe tucking in behind them. They know that those individuals will keep driving the projects from the front. They will be capitalized. The assets will go forward. They'll make it across the desert to the other side, and we are safe to tuck in behind them. For other things, it's really going to be a very tough slog. As a consequence, if you understand that, you see people moving, you see share structure, and you see certain people cornering and getting involved, you can make money following that and being smart there. But if you're running around trying to look at comp sheets and say, “Well, that's got 1 million ounces. I think that's a buy,” no, no, it's not going to end well. Andrew Walker What would you be looking for if you were looking for the smart people cornering? Darren McLean Well, look at Montage Gold. That's something that we bought a lot of. The Lundins came in. Montage was a very difficult asset. It was a good asset: a gold project in Ivory Coast, West Africa. Ivory Coast has been one of the more stable West African jurisdictions in the sense that it hasn't had a coup in the last decade, although there was one just before that. It was one of the better jurisdictions. It was tough because it was a high-capex project. It needed to be built big, which meant your fixed costs had to be high; otherwise, you wouldn't be able to operate it. It needed to be built at scale, which meant spending over $1 billion just to build the thing. The payback on it was pretty slow. I think, just by the nature of the ore body, it was going to take you about 5 years to get your money back. When you're building mines, what I always liken it to is going for the summit in the Edmund Hillary days, when you don't have modern weather forecasting at Everest. You cozy up to the death zone, where you can't breathe without supplemental oxygen, and you sit right there. One day the skies are blue, and you're like, “Better go, Tenzing,” and you give it everything you've got. You try to get up and down as fast as you can, praying the storm doesn't roll in. When you build a mine, you do that. You take on all this debt, sink all this capital, and start building all this infrastructure, but you don't know what the world's going to do. You're operationally and financially leveraged to the most volatile variables. You cross your fingers, you pray, and you move as fast as you can. Where do you need to get to? Getting back below the death zone. That is when you get your debt capital repaid. Montage was going to be slow, but it had a lot of optionality, and it was in weak hands. It was just stuck there at around $100 million. I remember looking at the asset and thinking, “It's annoying, but if you can't muscle that forward, and I'm not strong enough in terms of my backing, the amount of capital I can access, or my wherewithal to be able to muster an asset like that forward, I can't invest in it, because that could fall on me.” I need to find things that I can manage, but the Lundin family can manage that. They had a huge advantage, and then they came in and did a financing. They basically said, “Okay, we'll take it from here.” I just looked at that and thought, “Great move. It's not fair.” If I could just come in and anoint things and say everything would be fine now, instantly the company's worth more. The greatest advantage—the greatest edge—you can have as an investor is when you change the value of the investment by virtue of walking in the door. They have that. I'm rereading The Snowball, and in the 1970s Buffett recaps GEICO when it's in distress. The moment he writes the check, the distress is gone and the stock's a 5-bagger. I'm like, “God dang, that would be nice.” It'd be nice to have that much money, but it'd also be nice to just be able to say, “Okay, I'm here, and the distress is gone. Everything's fine.” It's a beautiful thing. You have to earn the power and earn the reputation. You have to go for it and achieve amazing things early enough in your career so you can achieve that. That's honestly what I try to do, and that's my ultimate goal. Knock on wood, I hope I continue to be successful at it. Montage has been a massive success. However, the moment the Lundins moved in, it was like, “Buy that. Just buy that. The capital will follow that asset. I know what it is.” It was encumbered by the inefficiency—the disconnect—between the strength of the asset and the demands of the asset. They were completely incommensurate with the strength of the company. That was fixed. The stock didn't even move that much after they put in the money. It was like, “That doesn't just make it worth a bit more. That makes it worth orders of magnitude more.” You have time. It's not like the market goes boom and rerates instantly. You just watch that happen, and you're like, “Okay, you followed them there, and you made a ton of money.” That was the full depth of the thesis. Suddenly, that asset could be managed. It was trading at a fraction of its net asset value. It only went up a little bit, but that thing was probably going to trade at full net asset value. Lo and behold, it's been one of the best successes since that moment. There are things like that: if you understand why that asset was cheap and why it was weak even though the asset was strong, you just need strong hands. Strong hands came, it was safe, you were going to be fine, and the asset was going to do well. You could make money doing things like that. You've got to be savvy. You've got to understand people. But that's one way you could do it. At the same time, as I say that to your average generalist, the reality is that I guess I was a generalist when I walked in the door, and I didn't know anything. I didn't have any background or education in this stuff. I just started doing things by hand and trying to say, "Well, I don't think people would probably go out of their way to do this." And I didn't. I just started trying to make sense of data, and I've made a good career in it just by doing that. If you're just completely dogheaded and you love digging for information and informational edges, of course you can come in. The door's wide open for you, and you can find extraordinary success in this sector. Andrew Walker Do you think the informational edge in the alpha for people willing to do the work is bigger in mining than—I'm not going to say every other sector—but do you think it's much larger than your average sector? Darren McLean Yes. Yeah, it's bizarre in that regard. I think that's because there just aren't a lot of people doing it. Most people are just, as you said—I'm not going to say "pot shot," but they're at the pod-shop model, right? They're saying, "Hey, that's got 100 million of gold, that's got 100 million of gold; one's at 80, one's at 120. Long, short, boom, done," and not actually doing the fundamental analysis. It's like poker. You want to be a professional poker player. Do you want to go every day and sit across—I mean, I don't know who the top poker players are. I played a ton when I was growing up. The best guy when I was growing up was a guy named Phil Ivey. I don't know if he's still around or not, but I think he's very much around. Did you want to go sit there and play against Phil Ivey heads-up? No. No. Why would you do that? You want to go find the table where people come in from Macau, who have more money than God, and losing $100,000 that night doesn't matter. They're just there for the thrill of sloshing it around. You sit at that table. That's where you want to sit. That's mining for me in capital markets. You want to go try to find an informational edge on something that you've got 30 highly capitalized U.S. hedge funds chasing? I don't know. That's not for me. Do I think I could do it? Sure. Do I think the amount of alpha I could squeak out would be less? Yeah, absolutely. Could you throw more capital at it? Probably. Yeah, you could put larger-sized bets at it from a capital-liquidity standpoint, but are your returns going to be as good? No. I'm driven by returns. The amazing, fascinating thing is that you can become a self-made billionaire trading mining stocks. You really can. I've watched guys do that multiple times over. It's hard to do that with large-cap and mid-cap U.S. equities. You're trying to grind out 5% alpha every year. Andrew Walker I know some people who may not be billionaires, but NVIDIA call options might have gotten close. They were the best. Okay. Yeah. Okay, I might need to clip out that self-made-billionaire line if you ever want to start a trading school on mining stocks. We're going to clip out that self-made-billionaire line because it's an interesting advertisement, but also a call to develop sector expertise in a pretty unloved sector. Darren McLean I ran an investment strategy at my previous hedge fund and basically turned approximately $25 million Canadian into close to a quarter-billion over that period of time. That doesn't include taxes, which never got accounted for, but just the pure reinvested profit. If I took 25 and it doubled and I had 50, I deployed 50, that kind of thing. That's how I managed the money there. It was a self-imposed restriction. Could I have turned $2.5 million of my own money at that time into $25 million doing the exact same thing? Yeah, absolutely. In fact, I could have done more because it was hard to move the needle with some of these events. Could I have taken $1 million, run that strategy, and turned that into a 20x doing the same things? Yeah, absolutely I could have over that period of time. I left K2 when I was in my early 30s. Run that again for a 5- or 6-year period. Do that again—look where you end up. You can do that. I've watched lots of people do that, and I know lots of people who have basically done that. It requires a certain skill set, but the alpha is enormous. It's the one area I believe in. In mining, if you are really on it, you track things. You make real, deep thesis bets on assets and technical theses, and you're right—you know it. You know if you're right or you're wrong. The price can move and the equity can perform for other reasons, but if you bet that a mine would yield a certain quantity of metal at a certain rate, by a certain period of time, at a certain cost profile, and it happens, you were right for the right reasons. You know it. You didn't go invest in some hedge fund where you had 60 positions and you made—you squeaked out 5% gross alpha—and you don't really know how it happened. You're not sure if all your bets are right for the right reason. It's kind of murky. In mining, you bet on very specific outcomes, and they're physical and tangible. You get to find out, so you get your answers. I love that about it. Andrew Walker I really like that because it is very frustrating investing when you make a bet on something and it happens, but then it doesn't work for some XYZ reason. In mining, it's so binary. As you're saying, you bet on the geology, and if it's right—if gold goes to $1,500 versus $1,800—it doesn't matter; you're probably going to get paid if you were right on the geology. Darren, this was fascinating, but we started a little late, and I'm coming up on a hard stop because I've got to go pick my daughter up from daycare. We've got a weird day today, but this has been awesome. I appreciate you coming on, Darren McLean. Darren McLean Yeah, no worries. Good chatting. We never explain why we're long at Muddy Waters, but the short answer is that it's equally as contrarian as everything else we do. And when you're right, it pays 5x. Andrew Walker You say you can 10x the money in 5 years. No, look, this has been a very different podcast from what I normally do, but it was fascinating. I don't know if it's inspired me to look at mining more deeply and spend all my time on it, or just continue my, "Oh my God, I will get my face ripped off if I ever look at anything." Darren McLean What I would say is this: We didn't really talk about any names today, but probably a good thing to do is, if anyone's interested, maybe on your side, I'll walk you through a thesis. I'll explain what it's worth, where it's trading, what the outcome looks like, and how to break it down. Andrew Walker Yeah, I had that on here, but we're almost at an hour already. So, yeah, cool, man. Thanks so much, man. Talk to you soon. Cheers, dude. Have a good one. A quick disclaimer. Nothing on this podcast should be considered investment advice. Guests or the hosts may have positions in any of the stocks mentioned during this podcast. Please do your own work and consult a financial adviser. Thanks.