Resources ‘supercycle’ will be stronger for longer, says expert
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Resources veteran Stephen Mitchell is about to take a junior-focused fund Lowell Resources public. Here he shares insights from a 30-year career.
Why do you focus your investment fund on resources juniors?
We find it to be the most exciting area of the resources industry and I think it is where you get the best risk/return on investments in the industry.
While there is risk, we like to go into a project post-discovery and pre-development and that sector has been really kind to us so far.
You’ve been in the industry for 30 years. How does the current resources sentiment compare to past booms?
Sentiment and activity does go in waves – excitement in recent times has been in less usual commodities such as lithium, cobalt or vanadium that we haven’t seen before.
It just goes to show how the mining industry is adapting to the needs of industry.
I think we are seeing now the third leg of what has been described as the resources cycle. It has always been cyclical following commodity prices but the demand from China has really spurred further growth.
When China started ramping up, everyone thought it would just be a typical cycle that would run its course but that cycle has just continued to grow.
The super-cycle will be stronger for longer and the synchronised world growth has only pushed it further.
I think we are going to see this third phase of the commodities boom and the resources sector.
Small resources are generally the last to feel it but they will have the longest run.
How does a listed investment company differ from directly investing in a junior?
I think it is easier to invest in a junior resources fund, balancing some of the risk while still giving investors exposure to the upside.
Investing in juniors is fraught with risk even for the most seasoned investors.
There are so many chasing the dream and it is very hard for the average investor to follow those.
Investing in a fund allows a retail investor to get involved and leverage the knowledge of a group of professionals rather than just what they can find themselves.
In looking for the right company to invest, is it all about technical research or do you just follow the team?
The Lowell Resources Fund strategy is to invest in low capitalisation mining and energy companies in precious, base and specialty metals and oil and gas target commodities.
I think you need both – you need to do the fundamentals but also to follow the people that have had success before. There is no greater indicator than the people.
We do our own technical research on every potential investment and have geologists, lawyers and asset managers available to get to the bottom of whatever we want to know.
What are some of your greatest success stories so far?
In recent times Kidman Resources (ASX:KDR) has been a win for us – the fund was aboard the lithium ride early on and bought KDR at 26c. Now it’s trading at $2.
Syrah Resources (ASX:SYR) was on our radar back in 2009 as an industrial minerals and technology play. We bought in at 18c and increased our exposure to hold around 2.2 million shares by April 2012. By the time we sold out in 2016 we had realised an average sale price of $4.08 a share.
We are seeing tremendous opportunities in the sector we are focused in – not just in new projects but continuing to support the ones we are already involved with.
Stephen Mitchell is chairman of the Lowell Resources Fund and has more than 30 years’ experience in the resources sector, with experience in corporate advisory and investment banking.
Mr Mitchell developed Molopo Energy from a junior explorer into an S&P/ASX 200 company, with projects in Australia, Canada, the US, Asia and Africa.