The Assay TV spoke to Guy Keller, Portfolio Manager & Commodities Analyst at Tribeca Investment Partners.
Guy has 20 years of global commodity trading experience having worked in London, Singapore and Sydney. He spent the last 15 years as a Director with Macquarie, most recently in Singapore as Head of the Asia Base Metals Trading desk. Guy has run trading strategies across Base Metals, Precious Metals and Iron Ore and has built up an extensive network of industry contacts: producers, consumers and physical traders as well as global commodity and macro hedge fund managers. Guy began his career in London with N.M Rothschild’s Bullion Division and then moved to Credit Suisse First Boston in the London Bullion Markets as a Precious Metals trader. He holds a Bachelor of Social Science majoring in Economics from UNSW and a Master of Applied Finance from Macquarie University, Sydney.
Let’s talk about Tribeca’s Nuclear Energy Opportunities Fund. Uranium has had a bit of an uptake in price this year, up to about $30 or so. Not quite back up to the highs of 60 that we saw in 2011, but on the right path. How has your fund been performing?
We launched the Tribeca Nuclear Energy Opportunities Fund over two years ago in response to some work we’d done around the different commodities. The market capitalization of the uranium mining space was a bit too small for us to get proper positioning in our flagship Global Natural Resources Fund. There have been a lot of reasons for uranium not to move – we saw it obviously stop moving in April this year, and it pushed through $30, settling just shy of $35.
After two years, our fund has responded extremely well. We’re up strongly after the first six months of the year. In fact, July looks like it’s probably run just over 30% return , and this comes at a time where we’ve had some uplift in the uranium sector, but the best is actually yet to come in our view.
How many companies do you have in the portfolio?
We aim to hold roughly between 10 to 15 positions. It sounds reasonably concentrated, but when you look at the listed opportunity set, the space is around 50 odd.
Do you look at producers only or do you look further down the curve towards the exploration end?
We look at the whole sector. Not only uranium miners, but service providers around the nuclear and uranium mining industry, as well as nuclear power generation. At Tribeca, our specialization, our wheelhouse, is more around the mining. We have a bit of a concentration at the moment towards proxies and brownfield projects that we feel will come on in the next wave of producers to come to market. But there is a tail of explorers and others that we do look at as well.
What’s driving the uptake in the uranium price at the moment?
I hate to say that COVID was a catalyst, but I think COVID has shone the spotlight on the concentration of supply to a handful of producers. When you had both Kazatomprom, the biggest producer in the world out of Kazakhstan, and Cameco, the biggest Canadian producer, both basically put everything into care and maintenance. That spotlighted a real problem where we had more than 50% of monthly supply suddenly offline.
China is building a lot of nuclear reactors. How is that program developing?
Over the last three years, I think China have connected 12 reactors to their grid successfully, and that was after a period of slow progress. As a result of the successful connection, they approved a whole bunch of new reactor builds in 2019. Our view was that those reactor builds approvals were delayed largely because the 12 reactors they connected were new technology and designs for Chinese reactor builders. Now that they’ve been able to prove that they can build these things on time, on budget, and safely connect them to the grid, they’re going to continue forward. They’ve been slow in announcing new builds this year due to COVID-19 and related disruptions. But our view is for them to keep with their current five year plan. We think they need to be approving six to eight reactor builds per year indefinitely
Where do you think the uranium price will go from here?
We’ve got to show our $35, and we haven’t seen any real activity from the buyers. Most of the activity we’ve seen in the markets to date has been Cameco covering some of their sales commitments because their shortfall, because they’re not producing, as well as traders covering short positions. In that scene, the uranium price moved from the mid-20s where it sat for a while, to just shy of 35. Seasonality kicks in for the end of the year when utilities start looking at their fuel buying programs, and so our view is that it should push through $35 fairly easily coming into the end of the year. What happens then is a function of how much material is actually available in the market.
Another sector that is obviously performing pretty well at the moment is gold. What is your take on where that price might go?
We had a bullish gold thesis as a result of COVID. This was a little bit defensive for us at the time but turned out to be the right move. We’ve seen the U.S. dollar rollover structure and that obviously helps gold. We remain bullish – we’ve dramatically increased our positioning in the Global Natural Resources Fund to a gold exposure, which has paid off well so far. A little bit of a wood to chop here at $2000 an ounce is to be expected I think. Whilst the dollar remains structurally bearish, while the yield is extremely hard to come by, and once there remains a lot of geopolitical and other reasons for owning gold, we think that it should move forward again, coming into the third and fourth quarter of this year.
What proportion of the Global Natural Resources Fund is dedicated to gold?
Over 30 percent of the fund now is precious metals exposure though it used to be higher. We thought that some of our old positions had run their course for the time being. So we turned them over as a bit of a trade. We are still out looking at stocks we like and accumulating a bit more on the dips there.
For the Global Natural Resources Fund, what size of company do you typically look at? What stage of development?
It started for us in the larger caps and our view there was that more generalist money would chase into those names that were looking for a little bit of defense or exposure. We’ve moved some of that money down into explorer space. This has been a busy period with respect to risings and activity and drilling in WA, a little bit down in Victoria, and some in Canada as well. There has been a huge amount of capital market activity there. We’ve been around these markets for plenty of years, we know a lot of these companies and the brokers who are doing the banking, and so we’ve taken full advantage of that as well.
In terms of inflows, how are your investors reacting to the positive news coming out of the mining space?
Obviously, it’s been tough to be an investor in the resources space over the last 18 months. There has been a huge amount of political interference with respect to trade wars and not just between the U.S and China, but between seemingly every country. You can see a correlation where almost every resource related investment goes up or down in lockstep. I think broadly across the space, there were net outflows. With COVID, you’re not seeing a huge amount of new money come back in to the space yet, but I think that’s more indicative of all investment spaces.
Our fund flows have been very sticky over the last quarter. The June quarter for the Global Natural Resources Fund has been one of our best quarters in about four or five years. So it’s indicative that when this sector turns and wants to perform how it should, you can very quickly capitalize on that.
You mentioned the current trade difficulties, with iron ore in Australia obviously very reliant on the trade with China. How are you seeing the iron ore space performing at the moment?
When it became clear that China had solved a lot of their COVID community transmission problems just as the rest of the world seemed to be catching COVID, we sort of focused on which commodities would benefit from just China. So it didn’t necessarily matter what was going on in the rest of the world. Iron ore was a clear outlier. If China was to produce an infrastructure stimulus measure, that would be beneficial for steel. Also, Brazil’s supply issues came front and center – with Vale reporting issues around their COVID management issues.
We were bullish on iron ore. I think the consensus has been to call the top on iron ore and yet the steel numbers out of China continue to impress. Last year everybody was looking for that turn in iron ore, yet the steel numbers were just extraordinarily and surprisingly strong. I think the latest steel numbers Out of China are annualizing well over a billion tons of steel. Which is a year on year improvement to last year, which was also strong year. So we remain constructive to the Australian iron ore producers – they are in a fantastic position.
I don’t really subscribe to the point that there’s a problem between Australia and China with respect to trade. I think it’s a marriage of convenience, not a marriage of love. We need China as they need us. Iron ore is important to their recovery. So, whilst they might make some noises around some of the more minor commodities, I think that relationship with iron ore and China remains intact.
As we come out of the COVID situation, what impact do you think that all this stimulus spending will have on the commodities’ sector?
Well, we’re already seeing some of it. We’re seeing some of the commodity prices run ahead of the demand at return. What you need to remember is that this has carried on longer than a lot of people thought possible, especially when looking through how quickly China recovered. The reality for demand is that the system is not as structurally broken as it may have been in the 2008 GFC. Its just that this time, the rug has been pulled out from under us in a hurry. As we’re seeing from China and other countries who are pushing through this, demand can return quite quickly. When you are in a position where you may already have a structural deficit in some commodities, and you’ve got a huge amount of liquidity flooding out of the system, it’s bullish at best and it’s supportive at worst.
What’s your take on where we’re going to be towards the end of this year? Do you think the metals and mining sector is set to continue to perform well?
I think so. Obviously, we’ve got a U.S election, well maybe. It looks like it’s still going ahead. So there are still political and macro pressures that we might find there. One thing that is clear in the United States is that they’ve got no choice but to try to push through this as have a lot of other countries. China is trying to return to normality, and that is going well. Countries across Europe or India for example, who have been badly affected, are still having to return. Japan and Korea have been a little bit stop-start and slower than maybe some would have thought possible. So there’s a lot of demand that still needs to return in the next six months. They can’t afford to have these large scale shutdowns that we saw at the beginning of the year.
I think it’s going to be really interesting next six months across the whole sector. So strap in and hopefully we all come out on top.
This interview has been transcribed and edited from our original video interview with Sam – you can view it below: