Barry FitzGerald: One gold, one silver, one copper - the stocks that have helped LRT to 143pc gains in the last 12 months

Another Melbourne lockdown has starved Garimpeiro of the usual flow of junior resources stock ideas that his barfly approach to gathering information normally delivers.

So this week he has reached out for some professional help from John Forwood, chief investment officer of the ASX-listed Lowell Resources Fund (AX:LRT), trading at $1.62 a unit against a net asset value (NAV) of $1.86 on June 9.

It has been a strong performer, with its NAV per unit rising 143% in the 12 months to the end of May and 27.8% over five years. That compares with gains of 32% and 13.2% respectively in the S&P/ASX Small Resources index.

Lowell seeks out the leverage that the discovery and resource definition phase of exploration delivers. It is a strategy that has delivered it big gains on early positions it had taken up in stocks like De Grey (ASX:DEG), Lefroy (ASX:LEX), Musgrave (AX:MGV) and Predictive (ASX:PDI), among others.

So prevented from his barfly gathering of ideas, Garimpeiro hit the phone to ask Forwood where the commodities space was at, and what stocks Lowell has been adding recently to its actively managed portfolio.

Forwood reckons that the potential exists for a strong decade ahead in commodities. That is a positive in itself. But Forwood sees another, and that is that high commodity prices lower the bar when it comes to what discoveries need to be in terms of grade and scale to excite the market.

As for specific commodities, Forwood reckons the fundamentals for copper are very good, with electrification one of the key drivers.

Nickel (sulphides) doubly so.

“If you just take what Elon Musk said he would need by 2030, that would be a multiple of current world nickel supply,’’ Forwood said.

“We remain overweight gold. Gold has been about 50% of our portfolio for a number of years and will remain that way for the foreseeable future.’’

Forwood explained that one of the attractions of gold stock was that gold is “within the realms for a one project junior company to explore and develop as it does not involve billions of dollars of capex, generally.’’

He said Lowell was increasing its exposure to copper.

“There are a number of interesting companies that we’ve put some money in to recently. One of them that has performed well is Caravel (CVV). It has got a large low-grade project in Western Australia’s wheatbelt.’’

“We got in there at 4c thinking that if the copper price does run this has got great leverage to the copper price. Now it is trading at 53c, so that thesis worked out really well.’’

“We’ve been in Hot Chili (HCH) for a number of years. They have been growing the resource (at its Cortadera copper-gold discovery in Chile) but the stock has been going sideways as there is a possible cap on their share price until they pay their final acquisition payment on the project next year.’’

“We have also been topping up on Middle Island (ASX:MDI) because we like the potential for a discovery in the emerging Barkly copper province in the NT.’’

“That sort of potential is what the market really likes at the moment. If a company can say it has got 100% of a project area in a new province, and there is good chance of it making a discovery, the sky is the limit in terms share price potential,’’ Forwood said.

“An investment in Mithril (ASX:MTH) is a fairly recent one for us (it’s a gold-silver explorer in Mexico).

“We like it because the team has been operating in Mexico for many years and have had a lot of success. And unlike the Canadian market, it is hard to find a good silver stock on the ASX.’’

“And we think the potential for the silver price is as good, if not better, than gold,’’ Forwood said.

He said the fund has also got its toe in the water with the ASX-listed Newfoundland gold explorer, Matador (MZZ).

“It has a great ground position. Most of the other players there are Canadian-listed. Some of them have made good discoveries and enjoy billion dollar market caps.’’

“Matador has a sub-$100m market cap and is well funded to explore along a 120km shear zone. It is mostly covered by glacial till which they have poking through. It would be very surprising if they didn’t turn up some more discoveries.’’

And finally, just to note that because the fund is a listed investment trust rather than a listed investment company, it must distribute all of its taxable profits to unitholders annually, calculated at June 30 each year.

Garimpeiro doesn’t know what it will be this year. But its investments in the junior space have had a big year.