Tell us about Arcane Capital and your current investment focus.
Arcane Capital runs the Solar & Sustainable Energy Fund, a Luxembourg-based renewable energy fund that has been active since 2009.
Over these 15 years, we delivered 7% annual returns vs the S&P Clean Energy Index’s 0.4% returns, so we think that is a pretty good track record. The fund started being focused in the solar & wind sectors, before diversifying into renewable utilities, EV batteries, and their respective supply chains.
You recently launched Singapore’s first Green Metals fund. What was the drive behind this?
To give the punchline right away, we believe stock prices in this sector will double or treble over the next few years. Why? First, demand for the metals driving the energy transition (lithium, silver, copper, etc) is rising exponentially. We forecast lithium demand in 2030 to be 5x that of last year, to give the most extreme example. In all these markets, we see a long-term structural deficit from 2025 through 2030 and beyond, because the lead time for new mines is far longer than that of demand growth. The combination of rising demand and constrained long-term supply growth can only be resolved through (much!) higher metal prices. And metal miners are operationally leveraged to the metal price – a 50% increase in prices generally results in 100-200% stock returns.
Fund-wise, in Singapore, you can easily get renewable-theme funds, or base/precious-metals funds, but so far nobody is specialized in the green metals space. That’s our competitive advantage from having managed a renewable energy fund for 15 years with a track record to prove it.
Pardon the jargon – our sectors are also quite negatively-correlated with broad equity markets, this gives investors a diversification advantage from the rather pricey-looking markets right now.
Also, we are keeping the fund very small-sized. That’s because we want to be able to keep investing in the small-/mid-cap space where companies can easily grow from US$200M to US$800M market caps. This lower-liquidity space excludes the large funds and offers us a much wider pool of attractive investment options and much higher alpha potential.
Tell us a bit about your investment decision-making process.
We combine an obsessive bottom-up research process with a high-level sector narrative. For example, we track over 150 listed lithium companies. Of these, 88 have mines or mine plans. These 88 companies control the 110 lithium mines that are in production today, or will be in production by 2030. We track and forecast production for each of these 110 mines, every year, through 2030. That’s the bottom-up. Our high-level sector picture includes a global demand model that incorporates electric vehicles (penetration rates, battery sizes, etc., across cars, buses and trucks), grid storage and industrial demand, for every year through 2030. Putting the two together gives us a very clear picture of the growing global deficit from 2025 onwards.
In selecting investee companies, we believe in keeping things simple.
We invest in high-quality resources with high-quality management. The companies we buy into can deliver strong volume growth over three to five years, which can itself provide strong share-price returns even without metals price increasing. Our view that metals price will go up this decade is merely the icing on the cake, or the rocket fuel if you like!
The more difficult thing we do is staying the course. Investors tend to follow trends and jump in right when sectors are peaking. We like our bombed-out lithium sector very much – it’s a smorgasbord of deep-value high-growth plays even up to the multi-billion market cap companies. We take a longer three-to-five-year investment approach that generally produces far better returns than short-term trading.
You’ll be taking part in 121 Mining & Energy Investment Singapore in September. What are you looking for at this event?
The 121 Singapore event is always exciting for us. We are looking to meet company management (whether it’s the first or the fifth time) to hear their stories and updates, and often we get pleasantly surprised. We want to find the potential 3-to-10 baggers whose stories are not well-known and be the early investor into these companies.
If you’ve been following the sectors, it’s comically doom-and-gloom right now. Lithium is so completely bombed out that almost any high-quality company bought today and held for three years should produce above-average returns. Companies trade at FY26F EV/EBITDAs of 5x and below! The silver sector had a good run in Q1, as we expected, and now things are consolidating. It’s far from done! I expect there to be an incredible load of interesting content for my presentation in September.
