Monthly Report

April 2022

The first month of the second quarter ended with a loss of 4.45% (standard class), bringing the annual return to minus 0.51%. In recent weeks, we have seen a global correction in the financial markets, with stocks and bonds being pressured downwards. The S&P 500 experienced its worst four months since 1939, while the Nasdaq has never had such a bad start to the year. On the U.S. stock market, nearly half of all stocks are down 50%, more than 20% of stocks are down 75%, and about 5% of stocks are down more than 90%. The only other periods with worse statistics are the crash of 2008 and that of technology stocks between 2000 and 2002. 

Our sector also suffered significant losses, even though the gold price rose 4% in April. The HUI index and TSX Venture index both fell about 9%. Our outperformance was partly due to a favorable currency effect, as the euro fell relatively strongly. 

The global correction appears to result from the worrisome mix of very high inflation, the ongoing war in Ukraine, and the new lockdowns in China. As a result, there is growing concern about stagflation worldwide. Particularly worrisome is the fact that central banks have put their foot on the brakes in an effort to curb inflation. In its latest comments, the U.S. central bank has had to admit that it underestimated inflation and is now behind the curve. Despite the 0.5% rate hike, the first since 2000, interest rates are still far too low in relation to inflation. Therefore, it is expected that interest rates, especially in western countries, will rise further this year, a dangerous development for a debt-laden economy. Central banks seem to be trapped in this situation. Fighting inflation affects economic growth. Further stimulating the economy will cause inflation to rise again. 

An additional concern for the West is that geopolitical tensions are also rising. An era spanning 80 years, where the U.S. was able to impose its will on much of the world, seems to be coming to an end. A Chinese commentator pointed out that 160 countries are not participating in the sanctions against Russia. In addition, we saw the ruble's value rise so that the Russian currency is now worth more than before the war. This appears to be linked to a power struggle in which the Kremlin wants to link the ruble to gold, while the Russian central bank has indicated that it is not in favour of this. 

Gross return (%)

Investments

With this mix of concerns, it is not surprising that gold is in high demand, and the gold price remains at a relatively high level. In many currencies (yen and euro), we have even seen a breakout in the gold price, realizing new all-time highs. But for a renewed rally in gold-related stocks to begin, we usually have to see a breakout in the dollar-denominated gold price first. Unfortunately, this breakout often happens last.  

Concerns about the availability of many raw materials continue to increase. The war has again caused significant disruptions in many supply lines. In addition, new lockdowns in China are causing additional delays, as many suppliers and ports are at a standstill. Also, more and more raw material producers are making downward adjustments to their production expectations. For example, copper production in Chile, one of the most important copper producers globally, fell by 9% in the first quarter of this year. In addition, BHP lowered its production targets for nickel and copper, and Norilsk did the same for nickel. But the economic slowdown may also lower demand for many commodities. 

We have seen price declines in many listed companies across a remarkably broad front these last weeks. Even the stock prices in the energy sector have seen a correction. The uranium sector was also under considerable pressure due to profit-taking. For example, the uranium-related ETF (URA) fell by 11%, while the uranium price rose by 8%. Several exploration companies responsible for significant discoveries are positive exceptions in our portfolio. For example, Antipa Minerals and Predictive Discovery rose after very positive news about their projects. Both companies announced substantial progress in the expansion of their discoveries in Australia and West Africa (Guinea), respectively. A coup in the latter country took place last year, but its effects appear to be limited for the mining sector. 

Some other positive outliers were Red5 and West African Resources. Both companies have start-up gold mines. We usually see a relatively strong revaluation during this process, often increasing the value by 50-100% in a relatively short time. 

Results April 2022

* Compound Annual Growth Rate since 01-07-2008 before correction performance fee

 

For the full graph (2008-2022), click here

Willem Middelkoop:

The last top in the precious metals cycle was in 2011, then we saw the bottom for gold in early 2016, with a retest in March 2020. The recovery in 2020 lasted just five months and took our fund over 100% in a short period of time. Unfortunately, the correction to that recovery has now taken almost two years. So our patience is being tested again. But we are convinced that the next and longer recovery phase could begin at any moment. 

Terence van der Hout:

The enormous hype surrounding lithium has somewhat surprised us. Of course, everyone knew that the demand for lithium would rise sharply due to the E.V. revolution. But unlike many other metals, there is no shortage of the lightest metal on Earth worldwide. On the other hand, there is indeed a shortage of production capacity. Unfortunately, only 1% of our portfolio consists of lithium-related investments, so we have benefited relatively little from the increase.