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Interview of Adrian Day of Adrian Day Asset Management, at Sprott Natural Resource Symposium

on 8/6/2018

Adrain Day:                       My firm is a very personal enterprise. Those of you who have heard me speak at conferences and seminars across the country, over the past two decades, will know of my approach to investing: a dedication to value and global investing, as well as a keen belief in the worth of gold. What may be less familiar to you is the fact that I, together with a valued team whose members you will "meet" a little later, have been managing the assets of a select group of private investors since 1991. The approach of my firm, Adrian Day Asset Management, is described in these web pages. Three words summarize this approach - "Global", "Value" and "Resources"

Allen Alper jr.:                  This is Al Alper Jr. with Metals News. I'm sitting here, with Adrian Day the founder and CEO of Adrian Day Asset Management, at the Sprott Natural Resource Symposium in Vancouver, Canada. Adrian Day spoke here on Friday. So, Adrian, can you tell me what you talked about Friday?

Adrain Day:                       Yeah, we all know that the gold mining business is a very, very difficult one. That's what I talked about last year. We all know it's a very difficult business and it's been very difficult for investors. I talked about one of the best ways, the safest ways, the lowest risk ways for investors to participate in this market.

                                             And so I looked at royalty companies versus major mining companies. I looked at prospect generators versus traditional exploration companies. And I like the royalty model, I like the prospect generator model. They don't guarantee success, of course, but they're both low risk ways of participating.

Allen Alper jr.:                  Now, it seems to me that the market is a good buy right now.

Adrain Day:                       Absolutely. I agree with you completely. You know, something really weird has happened. The stocks crashed 70 to 90 percent since the top in 2011/12. And we've been having these sort of false rallies since, 15 every year. But it looked last year as though the market was beginning to base and beginning to move up. And in the last six to eight weeks we've had the market just collapse again.

                                             I think there're some incredible buys. As a value investor, I like it when I see a really good company selling at one, two, five, 10 year low prices. Sitting where we are now, the Company right across the aisle from us is Altius. That's a bigger company, 500 million market cap, lots of royalties. Its price is 12.50 or 12.60 Canadian, right now, as we speak. It hasn't been that low for a year. It's a great buy.

                                             Metalla Royalty & Streaming Ltd, is not low, but that's also a very strong buy in my view. It's a royalty company, based on the royalties they've bought over the last 12 months. Ravello Investment Group, two cents, two and a half cents. I mean, the market cap of that is about 3 million and yet they have a whole portfolio of very attractive prospects in Chile, both copper and gold, some of them joint ventured with other people.

                                             So the point I'm making is just sitting here, we look at three great companies selling at ridiculously low prices. And we could walk around the booths and find a lot more. So I'm terribly excited about the great companies selling at ridiculously low prices.

Allen Alper jr.:                  So what is your advice to the attendees at this show?

Adrain Day:                       Oh, the attendees at this show have a wonderful opportunity, not only to listen to some really great speakers. People like Paul Brink from Franco-Nevada, the guy that actually goes out and does the work on the royalties, they're going to buy. What an opportunity. And Robert Friedland, a mining entrepreneur, bar none, has built several fabulous companies, as well as one or two not so fabulous companies. So that's number one, an opportunity to listen to some great speakers. People like Grant Williams, who's speaking on Friday. People like Jim Grant. So that's number one.

                                             Number two, as you go around these booths, all of these companies, who have booths, have passed the Rick Rule hurdle test. So Rick Rule made clear, I'm not necessarily saying that all of the stocks are great buys at this price, but they're all companies that he endorses. They're all companies that have passed his vetting. What a great opportunity to go around to these companies, where you know one of the smartest people in the business has said these are okay companies, and talk to the presidents, talk to the management, talk to the exploration guys. You don't get that opportunity very often, and here you can spend time with them.

Allen Alper jr.:                  That's a great point. So why don't you tell us a bit more about yourself and Adrian Day Asset Management, and how people could get more information about your company?

Adrain Day:                       Well, thank you. We are an asset manager. We manage money, separately managed accounts, both in global markets and in resource markets. And our accounts are tailored. They're individual accounts so they can be tailored to clients. We have clients, for example, who say I want a conservative global account, but I want a little more gold than you would normally buy for people because I like gold. So they're individual. We're not heads up, we're not hung up on minimums. It's what makes sense for a client.

                                             To give an extreme case, we had a guy just out of college, got his first job. He said I want to give you $15,000, will you take it? But I promise to add money every year. Well, that made sense for that person. Now, if you're 70 years old and all you can afford to give me is 15,000, it doesn't make sense for you, right? So it's whatever makes sense for people we'll take. We'll tailor the account to your objectives. And we have independent custodians, of course. We don't have custody of funds so we can't run off with your money. We have custodians both in the US and overseas for people who want their money overseas.

                                             And, frankly, I think you know me well enough now. I'm not a person to brag, but I think we have a pretty good track record for people, particularly in the gold area. And, I mean, if you look at these, these are our accounts. Over 10 years we're up 19%. Not great. But the average gold fund is down 40% in the same period. So what I say to people is for the last five years, 10 years, gold has not been a great investment. No question. But if you want some exposure to gold, and I think now is a great time to invest, I think we have demonstrated over 25 years, frankly, but we have demonstrated that we can outperform the averages by a handy margin. And that's true of up markets as well as down markets. So I think this is a great time to position in gold, frankly.

Allen Alper jr.:                  Okay. Do you have anything else you'd like to add?

Adrain Day:                       Well, I appreciate you having me. I'm really excited, as you can probably tell. I'm really excited about the values because I'm a value investor and you don't often get good value in the gold mining business. There are some great values now.

Allen Alper jr.:                  So what do you think a person's strategy should be right now?

Adrain Day:                       In the gold space you mean?

Allen Alper jr.:                  Yeah.

Adrain Day:                       I think, First of all ask yourself why are you buying gold? Are you trying to maximize your returns because you've heard gold is a space where you can have five baggers, 10 baggers, and really make a lot of money? Is that your objective? Or is your objective to have a hedge on the rest of the portfolio in case the market turns down? Or is it somewhere in between?

                                             So depending on what your objective is really depends where you go. If you're looking for a hedge, frankly, you don't want to be buying a lot of these junior companies. You don't want to be buying exploration companies. You want to buy Franco-Nevada. You want to buy gold bullion or a gold ETF. You want to buy companies like that. If you're looking to maximize your returns, now just looking backwards, look at Evrim Resources Corp. 18 cents at the beginning of the year. Went as high as $1.50 earlier in the year. It's now $1.10. But $1.10 from 18 cents in six months is not bad. That's the kind of return that you can get in this sector and there's half a dozen companies that I think offer that potential over the next year or two.

Allen Alper jr.:                  Now, I was talking with Rick Rule. Sprott offers something that's an alternative to an ETF. What is that? It's for US investors that avoids some of the tax penalties.

Adrain Day:                       Yeah, Sprott has a couple of products that try to minimize the tax that you get on traditional ETFs like GLD which, have these excess taxes. Which, is not so bad if you're just buying a little bit and holding it forever. But if you're trying to trade it a little bit, are very deleterious to you. So they have something called the Sprott Physical Trust. They also have the Silver Trust and both of those are very good ways for individuals to invest in gold and silver.

Allen Alper jr.:                  As a hedge?

Adrain Day:                       As a hedge. Now, the good thing about their trusts, the ETFs will trade very, very, very close to net asset value, right? The trusts that Sprott has are more like closed end funds. So they will trade at discounts and premiums. So if you can invest now, you're buying the Physical Gold Trust. I don't know what the premium is, I'm sorry, but two weeks ago when I was buying some for clients the Silver Trust was trading at about a 15% discount. So you're just getting extra silver for your money. And then at some point when the market is hot, that discount evaporates and goes to a premium. So you have extra leverage, with the Sprott products as well.

Allen Alper jr.:                  And that's something that you could put them into if you were managing?

Adrain Day:                       The physical trust, the gold is PHYS and the silver is PSLV. Those are things that are very, very easy for anyone to buy. You can buy them at a discount broker. The advantage you have with a managed account with us, depending on your objective, we might buy a gold ETF or we might buy a silver ETF.                We were buying the silver ETF for clients just two weeks ago because the silver price had dropped. The discount to the NAV had widened. As a normal investor you wouldn't always be aware of when the discount had widened or factors like that. You can find it, but you might not have the time or desire to watch everything as closely as we do.

Allen Alper jr.:                  What else is interesting to you right now?

Adrain Day:                       I'm very keen on copper. And for me copper is a supply story more than a demand story, meaning demand doesn't have to go up at all. And as you know, there're a lot of people talking about the demand for copper going up a lot because of the copper that is used in electric vehicles. I find it somewhat ironic, but all these green things like windmills, wind farms and electric vehicles use more copper than the alternatives. But anyway, that's a different story.

                                             But you don't have to have any increase in demand. If you look at the supply picture for copper over the next five, 10 years, you can see that we are not going to have enough copper to meet the existing demand. And so I'm very attracted to companies that have copper deposits or are looking for copper. And I think over a three, five year period you'll do very well with those.

Allen Alper jr.:                  Is there anything else you'd like to add?

Adrain Day:                       I'm nervous about the broad market. Some of the sectors, particularly the ones that have been driving the market like social media, like Tesla are grossly overvalued in my mind. If you get a big drop in the price of Tesla or Facebook or some of the other social media companies, I think it's going to have an effect on the overall market. So I'm nervous about that.

                                             At the same time, there are some incredibly good value investments for long-term, patient investors. Things like Loews Corporation, for example. Not the houseware store but the conglomerate run by the Tisch family. That's trading at about a 30% discount to its net asset value. And most of its net asset value is comprised of publicly traded shares. They own 80% of CNA Insurance, they own 50% of Diamond Offshore Drilling. And so these are publicly traded shares. We know what they're worth. Well, we know what the market says they're worth. The stock is selling for less than the value of what they own. And they have $4.9 billion in cash. So to me, that is a great buy for a long-term, patient investor who's not going to get freaked out if the market drops and Loews goes down 10%.

                                             You look at some of the BDCs. Aries Capital yielding nine and a half percent. Super strong balance sheet. It's covering its dividend from earnings. It's the largest of the publicly traded BDCs, $6 billion market cap. Six, seven billion dollar market cap yielding 9.4, 9.5 percent. These things are ridiculous. If you want income and you're not going to freak out if the stock goes up or down a little bit, it's just a great buy. So there are some great buys out there and that's just in the US. We haven't even looked at Hong Kong yet.

Allen Alper jr.:                  Thank you very much for your insights.

Adrain Day:                       Thank you, Allen. Thank you.

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