While Livewire was not able to make it to Kalgoorlie this year to attend the annual Diggers and Dealers Mining Forum, Ben Cleary, the portfolio manager of the listed investment company Tribeca Global Natural Resources Limited (ASX: TGF) certainly was – and with a brand new converted bus in tow.
Cleary has been busy meeting with the leaders of his portfolio companies and the fund’s investors, as well as watching some of the 70 corporate presentations the Forum has put on over the past week.
So what have been the major themes to come out of this year’s Diggers and Dealers? And which companies’ presentations have Cleary impressed? Glad you asked.
In this wire, Cleary outlines his outlook on the resources sector, the commodities (and companies) with the most upside from here, as well as the five best presentations from the Forum in 2022.
Plus, he shares the number one question he is hearing from the fund’s investors right now.
Note: This interview took place on Wednesday 3rd August 2022.
The main theme coming out of Diggers and Dealers in 2022
Despite the volatile movements of the share market, Cleary said the general mood of the Forum was upbeat. That’s because the sector is currently enjoying record cash flows.
“That’s despite all the challenges with COVID and labour availability and higher oil prices and mining consumables being in short order. Despite all those headwinds, the sector’s never made more cash flow,” he said.
“And on top of that, I think the delta of those challenges is improving.”
While labour shortages still remain a key issue, Cleary noted that the leaders of his portfolio companies have informed him that it’s starting to ease. Meanwhile, he doesn’t believe that oil prices will be sustained at the US$100 level – and predicts we could see some relief in that regard towards the end of the year.
The #1 question Cleary is being asked right now
Cleary and his team manage capital for around 200 private family offices around the world, on top of the investors of its listed investment company.
“Most of the questions we’re getting are around when to allocate more capital. And in June, we saw some pretty decent inflows into our unlisted funds,” he said.
“While the outlook is somewhat uncertain with Europe and its energy woes and potential recessions, I think generally it’s been a big pullback across all asset classes and there is some very heavy valuation support in the resources industry that is looking more and more attractive.”
Where we are in the commodities cycle
Cleary said he still is of the view that this is going to be a three to a five-year structural bull market for resources, particularly battery metals, despite what the naysayers might think.
“Whether it’s base metals or battery metals, the big supply-demand deficits kick in in 2025-2026,” he said.
Of course, there are some short-term headwinds to demand. After all, a war is ongoing in Europe, and energy policy in the region is still not looking good.
However, Cleary notes that we are already at the trough levels of the GFC and 2015, despite globally low inventories.
“Think Aluminium, which hit a 30-year low on the LME yesterday. Copper, nickel, iron ore, oil, all these commodities are in very short supply generally. So the markets are bearish to the point where stocks are trading at these very deeply depressed trough valuation levels, but inventory is low and demand is still strong,” he said.
“We’ve stress test demand, and even with a recession in Europe and a slowdown in the US, we’re still getting deficits.” (see below)
The commodities (and companies) with the most upside in the short and long term
In the short term, Cleary is “very bullish” on uranium and uranium stocks.
“Uranium correlates very well with other energy commodities, whether it’s gas or coal or oil – as it should do because it’s obviously competing as an alternative energy source.
“However, year to date, uranium equities are down materially and have completely decoupled with the other energy groups for no really good reason at all. In fact, they’ve been correlating more with cryptocurrencies and digital assets, for whatever reason.” (see below)
Over the next few months, Cleary believes that dislocation will mean revert, and fast. In fact, Cleary believes that most of the uranium stocks on the ASX have a 30% to 50% upside from here.
“The European Union has just approved uranium as an approved energy source. The American government are very supportive of nuclear generation. So is China,” he explained.
“So uranium has a really strong governmental backing as a baseload energy source given it produces lower carbon emissions versus other fossil fuels going forward.”
On a medium-term view, he points to copper as his favourite of the bunch and notes that copper will become “the biggest beneficiary of the world” as we shift towards an electrified (and greener) future.
“The decarbonisation story hasn’t gone away, it’s just been put on hold. And copper really is the biggest beneficiary of electric electrification and the world consuming more electricity going forward,” he said.
Like their uranium counterparts, copper stocks have absolutely tanked this year on the back of rising concerns around recessions globally, as well as China’s strict COVID policy. However, from a medium-term perspective, Cleary believes the fundamentals for copper have just got better.
“There is just not enough supply coming online to meet that demand growth,” he said.
He points to Boss Energy (ASX: BOE) as his favourite uranium play, and Develop Global (ASX: DVP) as his preferred copper stock.
A commodity that could come face the heat
It seems iron ore cannot catch a break at the moment, with Cleary, like many other fund managers at the moment, pointing to the commodity that could face some pressure in the coming months.
“The softer property market in China has impacted all things related to building materials, particularly on steel subsidiaries. But iron ore prices have held up pretty well,” he said.
“That is because, like a lot of these commodities, there’s been a number of supply issues. But if the Chinese property market remains soft, iron ore is going to face some headwinds.”
However, if we see a continuation of Chinese stimulus focusing on property measures and infrastructure, then iron ore would benefit, he explained.
“So I think in the short term, iron ore has some headwinds. But that could very quickly turn into a tailwind depending on the outcome of Chinese monetary policy into the year-end,” Cleary said.
The 5 best presentations from Diggers and Dealers in 2022
- Develop Global (ASX: DVP)
- Genesis Minerals (ASX: GMD)
- Capricorn Metals (ASX: CMM)
- Syrah Resources (ASX: SYR)
- Bellevue Gold (ASX: BGL)
What was the common thread through all these presentations? Well, Cleary explained that they are all well funded, boast impressive production growth, and are good bottom-up stories, which is to say, they’re not reliant on commodity prices.
“They going to make good margins regardless of whether commodity prices remain high,” he said.
“Another common thread through those five stories was that they are all at the bottom of their respective cost curves. And they all have been very focused on keeping their best people as labour is tight.
“As an aside, I’ve never heard so many presentations focus on people and retention and incentivizing workforces in their respective locations.”
Cleary and the team also met with a few gold companies that were “impressive”, however, he wouldn’t reveal the names as he wants to “buy those sorts of companies before I tell the world.”
And all about that bus
After more than 20 years of struggling to find meeting rooms and shivering in the cold winter air of Kalgoorlie’s cafes, the bus was a “no brainer”, Cleary said.
“Everyone’s always getting sick. It’s always too cold and windy at this time of year, and this year it’s worse,” he said.
“5000 people descend on this small town, so there are accommodation issues and there’s a lack of meeting rooms. So for us, it has been really good having your own meeting room effectively on site.
“We’ve been cycling through all of our portfolio investments and I think companies love getting out of the cold weather, getting onto the warm bus and having a cup of tea. It’s as simple as that.”
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