Precision Points: Investors need to pay attention when a company makes this key announcement

In Precision Points, Precision Funds Management executive directors Dermot Woods and Andy Clayton draw on insights from two decades on the front lines of equity markets to share their expertise with Stockhead readers.

Some ASX companies are the sum of their founder’s imagination, insight and connections.

Others are more flexible, allowing leadership to change hands when there is a need for fresh blood in the driver’s seat.

And every time a junior mining company makes an announcement that a change is being made at the very top, it makes professional investors Andy Clayton and Dermot Woods take notice.

“When you see that announcement as a fund manager you want to make time to go and meet the new management team,” Clayton, executive director and portfolio manager at Precision Funds Management said.

“We’ve made a lot of money out of (backing new management teams). The classic example was Spartan – that was more of a reverse takeover with that – but then they had a different mindset.

“They made the hard decision to close production and recapitalise it to go exploring. Suddenly you had a geologist in charge who saw the potential.”

When a new management team emerges and they have a track record of success, it can be telling.

Several recent examples have shown the value in keeping tabs on where executives who have been successful elsewhere are setting out their stall.

Along with Simon Lawson at Spartan, previously a top geo at Northern Star Resources (ASX:NST), his former boss Bill Beament has created enormous value since turning copper small cap Venturex into mining services play Develop Global (ASX:DVP) while Saracen supremo Raleigh Finlayson has turned explorer Genesis Minerals (ASX:GMD) into one of the ASX’s largest mid-cap gold miners.

Perhaps the best of the lot has been the team under Mark Clark at Capricorn Metals (ASX:CMM), which has turned what was a previously cash-strapped junior with a low grade Pilbara gold deposit into their fourth similar success story after Samantha Gold, Equigiold and Regis Resources (ASX:RRL).

“It was the exact same thing that they’ve been doing for 15-20 years and it’s four times that they have been incredibly successful. They align themselves because they believe in themselves, they’re all big shareholders,” Clayton said.

“You’re looking 5-6 years down the track and they’re a $1 billion company. That’s the wealth creation from being able to take that asset where so many others couldn’t necessarily deliver it to something that they could see and touch.”

Been there, done that

Retail investors may not be able to command a meeting with a high profile management team.

But they can read the tea leaves.

“The real way for a retail punter to spot it would be, you see a change in management, and you’ve just got to look at what they’ve done,” Woods said.

“There are very few people who are proven changing, it doesn’t happen very often.

“So those examples Brendan (Harris, at Sandfire Resources (ASX:SFR)) wasn’t a proven person, he was a salaried guy, so we didn’t know and we didn’t know Simon Lawson, but somewhere like Capricorn, it was absolutely laid out they had been there done that before.”

The other critical step for an investor to take is to look at what is called an Appendix 3Y.

That will spell out the incentives on offer to the management team, which will provide a pointer as to what steps they are likely to take in the hot seat.

It follows on from the famous quote attributed to Warren Buffett consigliere Charlie Munger: “Show me the incentive and I’ll show you the outcome.”

It’s one of the reasons Precision took a look at Austin Engineering (ASX:ANG) when director David Singleton, previously Austal (ASX:ASB) CEO, became the MD in 2021.

“When we saw his package, we just started buying the shares because (the board had) given him a relatively modest salary … and all his upside was in his options package,” Woods said.

“We thought if somebody who knows the company that well and we respect that much is willing to do that then buy the shares, because that’s what he’s incentivised for.”

On the flipside, a high wage with few incentives or options linked to share price milestones is a warning sign that management are “renters” rather than “owners”.

Who’s next?

The company Clayton and Woods have been keeping a keen eye on is Peel Mining (ASX:PEX).

The owner of a string of copper and zinc deposits in the Cobar basin of New South Wales that has been exploring in the region for over a decade, Peel recently installed Nick Woolrych as its MD and Warwick Amos as CFO.

They were the team that successfully steered New World Resources, the owner of the Antler copper mine in the US, into a $243m takeover by private equity firm Kinterra Capital just this year.

“I think getting him in and Warwick in there as a team will be incredibly beneficial for the company,” Clayton said.

“They raised money, Nick’s performance shares are certainly aligned with if he delivers value, then he gets well rewarded.

“That’s one that we really like at the moment.”

Woods said Woolrych’s time at New World, turning a roughly $50 million junior into a $240m takeout target, showed he was a ‘pragmatic’ operator.

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