Will Thomson (Massif Capital): Clean Tech Royalties (CVW) and Commodity Exposure Deep Dive
Will Thomson discusses how geopolitical volatility affects natural resources investing, then analyzes CVW Sustainable Royalties' business model of financing clean tech companies in exchange for perpetual revenue royalties. He concludes by explaining his research on commodity purity index, which shows most commodity stocks are less correlated to underlying commodity prices than investors assume.
Summary
The conversation begins with Thomson reflecting on the challenges of managing a natural resources fund during heightened geopolitical tensions, particularly regarding Iran. He explains that while short-term volatility from geopolitical events should largely be ignored for long-term investors, he believes the era of commodity fungibility is fragmenting due to persistent geopolitical risks, which will likely create ongoing volatility in natural resource markets.
Thomson details his systematic approach to information management using AI tools like Claude Code and Obsidian to process research documents, create metadata, and generate weekly summaries of his reading patterns. This system helped him realize when he was spending too much time on geopolitical news versus company research.
The main investment discussion centers on CVW Sustainable Royalties, a company that provides financing to clean technology companies in exchange for perpetual revenue royalties. CVW has funded two projects: North Star Clean Technologies (processing asphalt shingles into reusable materials) and Relocalize (automated ice manufacturing machines). The company recently raised $100 million with participation from Fairfax Financial and has a $500 million pipeline of potential projects. CVW also owns oil sands tailings processing technology that could recover significant amounts of titanium and other materials.
Thomson then explains his research on commodity purity index, which measures how much of a stock's movement is actually explained by underlying commodity prices. His findings show that most commodity stocks have surprisingly low correlation to their underlying commodities over longer time periods due to high 'cancellation ratios' where daily volatility cancels out. Gold miners showed the highest commodity purity, while copper, oil, and nickel producers were much less correlated. The research also revealed that multi-jurisdictional mining companies tend to be value-destructive and that most commodity producers exhibit negative convexity.
Key Insights
- Thomson argues that commodity fungibility is fragmenting institutionally due to persistent geopolitical risks, requiring transport, processing, financing and legal permissions that are breaking apart
- Thomson found that most commodity stocks have much lower correlation to underlying commodity prices than the assumed 50%, with high 'cancellation ratios' where daily volatility cancels out over longer periods
- Thomson discovered that gold miners showed the highest commodity purity while copper, oil and nickel producers had much less correlation to their underlying commodities
- Thomson's research revealed that multi-jurisdictional mining companies tend to exhibit persistent negative residuals, suggesting they are value-destructive rather than value-additive
- Thomson found that most commodity producers have negative convexity, meaning they get 'slaughtered' when commodities go down but only do 'okay' when commodities go up
- Thomson argues that having more than 2-3 names in any single commodity actually reduces portfolio diversification because negative convexity aggregates rather than cancels out
- CVW Sustainable Royalties targets the 'valley of death' financing gap where proven technologies need to scale from pilot to industrial scale, rather than financing solar/wind farms directly
- Thomson estimates that industry-wide deployment of CVW's oil sands tailings technology could address 84% of US titanium demand and generate $5 billion in recoverable value annually
- Thomson believes European oil and gas producers offer better value than US names due to superior balance sheets, higher free cash flow, better dividends, with some paying 14-15% dividend yields
- Thomson has built an AI-powered research system using Claude Code and Obsidian that automatically processes documents, extracts metadata, creates summaries and generates weekly reports on research patterns
- Thomson discovered through portfolio analysis that he 'sells too early almost across the board' and that adding to losing positions generally provides positive returns
- Thomson argues that renewable energy financing isn't problematic for solar/wind farms, but sustainable industrial process companies face significant financing gaps that royalty structures can address
Topics
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