Argonaut launched a gold fund last year. What was the drive behind this?
The Argonaut Global Gold Fund launched in November 2022 and as at 31 August 2023, it had delivered a return of 16.4%. The fund is managed by Ben Clifford and is considered high conviction, with the portfolio holding between 10 and 25 positions. The mandate requires that at least 50% of capital is invested in globally listed gold producers. The remainder of the portfolio invests across developers, explorers, physical gold and precious metals trusts, and exchange traded funds.
Our view is that investment portfolios should have exposure to gold and precious metals due to three key factors:
- The world is entering a period of increased geopolitical risk;
- The surge in interest rates across much of the world has put pressure on asset prices and thereby added risk to the global financial system; and
- Central bank buying from countries such as China and Russia is likely to accelerate as they look to reduce their exposure to the US dollar.
Where do you see the price of gold heading to close out 2023?
Our investment philosophy is based around “observe, prepare, and then react” rather than “predict”.
Gold would normally be expected to decline in a period of interest rate increases — yet, despite the 10-year US treasury yield increasing by 21% (currently yielding 4.46%) over the past year, the gold price has risen by 17% and the silver price has increased by 24%.
Clearly, gold and silver have been remarkably resilient over the past year and with the factors mentioned above, we expect the precious metals prices to be well supported.
What excites you about ASX listed gold companies?
The ASX has established itself as the premier exchange for the global mining industry, with a large capital pool actively looking for good quality gold equities.
Gold projects domiciled in Australia are particularly attractive because of the stability of the political, legal and regulatory framework, the strong and growing commitment to ESG principles, the sophisticated capital markets, and the world leading mining sector expertise.
Argonaut also has a natural resources fund with a focus on battery metals. Do you have a preference in this space?
We see the energy transition as the key thematic for the resource sector over the next 10 to 20 years. Whilst iron ore, oil and gas, and coal have delivered excess returns over the past 20 years, we expect that the best investment returns going forward will be achieved by focusing on those companies that produce, or are looking to produce, the relatively small number of commodities that are needed to facilitate the transition away from fossil fuels.
The Argonaut Natural Resources Fund has been operating since January 2020 and has delivered an average annual return of 36% since inception. The fund invests across the resources space, but has consistently had between 40-70% of the portfolio invested in energy transition metals such as copper, nickel, lithium, rare earths, and uranium.
In the short term, we favour uranium and rare earths as commodities best placed to outperform. Longer term, we see copper and lithium as strong performers.
Where does Australia stand with regards to the energy transition? Are there areas that could use more focus?
Australia has a robust capital market with strong knowledge and expertise in the mining industry. For example, Australia produces about 50% of global lithium supply and is now exporting this expertise to aid in the development of the Canadian lithium sector.
Government energy policy continues to disappoint, with rhetoric not matched by action when compared to the incentives available in the US and the European Union. This may well see Australia miss out on the opportunity to add value to its raw material resources.
What’s your overall sentiment for the coming year in regard to the commodities space? Where do you see the big hits and misses in the commodities and junior mining space?
While the long-term demand for key commodities mentioned above seems assured, the shorter term is more clouded due to uncertainty surrounding the global economic outlook, with much of the Western world attempting to manage a soft landing whilst curbing excess inflation. China has avoided rampant inflation, but its economy has struggled to accelerate out of the COVID slump and the market awaits government policy initiatives to ignite economic growth.
We see increased focus on uranium as part of the global energy mix, given its ability to provide baseload power that could complement renewable energy sources such as wind and solar. With copper and lithium prices lowering, we also see the opportunity to build positions in quality producers at attractive prices.
When investing in the junior mining space, we have a checklist that we apply to manage investment risk. We focus on globally significant assets in mainstream commodities located in established mining provinces. We need to be comfortable with the management team and ideally the company has received external validation via a strategic shareholder or offtake arrangement. The company must also have sufficient cash resources to fund the business for at least 12 months.
