MoneyTalks: Why Romano Sala Tenna sees value in gold and lithium stocks

MoneyTalks is Stockhead’s regular drill down into what stocks investors are looking at right now. We’ll tap our extensive list of experts to hear what’s hot, their top picks, and what they’re looking out for.

Today we hear from Katana Asset Management portfolio manager Romano Sala Tenna.

What’s hot right now?

Given how turbulent and uncertain the market is right now, Sala Tenna says the resources sector is where he is finding shelter from the storm, particularly in the gold and lithium space.

The Perth-based boutique investment funds firm usually holds between 55 to 65 stocks, but right now they are sitting at 42.

“We don’t like being here but it is a reflection of the fact that there’s a lot we don’t want to be invested in right now,” he says.

“We’ve downsized our exposure to energy stocks dramatically because the major driver of the oil price is GDP.

“And the financial sector is another big chunk of the market that we are not wanting to invest in,” he adds.

“We’ve also been avoiding high P/E companies because of the rise in yields but we’re now looking to change that because we think rates are close to peaking and looking to roll over.”

Top picks

MINERAL RESOURCES (ASX:MIN)

MIN makes up 8% of Katana Asset Management’s portfolio.

The company has four divisions, which are all looking to double their revenue and profits over the next two-and-a-bit years, Sala Tenna says.

“They’ve got a mining services division, [and] lithium, which will be one of the top 2-3 lithium producers of spodumene globally, and the third is their iron ore division, which is looking to double over the next two years with the bringing on of Ashburton,” he says.

“And then finally, they have a gas division which is an emerging division, but the Perth Gas Basin is shaping up as being one of the hottest areas in the energy market nationally in Australia.

“The stock is running from 0.90 in 2006 to $78 today – it’s a phenomenal company with great long-term growth and we see that as being one of the few companies that has very good prospects from here.”

REGIS RESOURCES (ASX:RRL)

“I think it’s hard to go past the gold sector right at the moment,” he adds.

“We’ve been on gold probably longer than most and probably a bit earlier than most, unfortunately, and it has not worked in our favour, but we are starting to see some recovery there.”

Sala Tenna says Regis is the largest dedicated Aussie gold producer.

“All of their assets are in WA which is fantastic because there’s probably no better jurisdiction for gold mines in the world than WA in terms of support, expertise and infrastructure.

“They’ve got two very good assets, long-life assets which will be heading into a bit of a sweet spot in terms of having lower-strip ratios and higher-grade material, so we should see some really nice recoveries and some improvements in their cost of production and cash flow,” he explains.

Although they have had a problematic hedge book, which they inherited from the previous management, Sala Tenna says that has now been wound down.

“They’ve only got 170,000 ounces left to produce and they’ll produce that over the five quarters,” he says.

“The other big thing about Regis is that they’ve got the McPhillamys gold project in New South Wales, which is a two-million-ounce deposit initially but will be one of the largest open-cut mines in Australia (once they receive final approvals).”

RESOLUTE MINING (ASX:RSG)

The last gold pick by Sala Tenna is Resolute Mining, a $819.66 million market cap company.

“This is speculative but if investors like the gold price and think it is going to kick from here, Resolute is a high-risk and potentially high return play because they are producing 350,000 ounces and their market capitalisation is only 800 million,” he says.

“They’ve got a lot of leverage for that market capitalisation producing 350,000 ounces per annum.

“The big news for them is Syama North, which is about six or seven kilometres away from their existing plants. They have already done the pre-strip there, it’s about three million ounces at three grammes a ton, so super high grade open pit material.

“Once they confirm that development, it’s going to improve their production and dramatically decrease their cost of production as their cost base is largely fixed.”

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The views, information, or opinions expressed in the interviews in this article are solely those of the interviewees and do not represent the views of Stockhead.

Stockhead does not provide, endorse or otherwise assume responsibility for any financial product advice contained in this article.