Monthly Report

March 2021

As a result of the continuation of the gold price correction in March, we saw the last month of the first quarter end with a loss of -2.94%. Silver fell 7.2% despite the global wave of additional physical purchases, while the TSX-V index of smaller commodities companies lost more than 8% for the month.

The lower precious metal prices in the last eight months are partly the result of the sharp rise in interest rates in the US, and with it the value of the US dollar.Now that central banks have clearly indicated that they are aiming for higher inflation, we see financial markets responding to this.Particularly the soft commodities, the raw materials of many food prices in which we do not invest, are rising rapidly.This is a development that we are keeping a close eye on, given its destabilizing effect.The last period of a surge in food prices, a decade ago, signified the start of the wave of uprisings known as the Arab Spring.Even the war in Syria has resulted from this.

Gold-related stocks were still down about 30% at the end of March, compared to early August 2020. Fortunately, despite the loss in the first quarter, our fund is still trading higher over the same period.At the time of writing, April 9, the value of our holdings (NAV 119) is 15.5% higher than 8 months ago.Compared to a year ago, we boast an increase of 139%.As a result, we see a lot of interest from (international) investors, such that the "inflow" of assets in the first quarter amounted to over 20 million EUR.In the past 12 months, the total inflow ran up to more than EUR 35 million.Assets under management thus amounted to almost EUR 110 million, a tripling compared to a year ago.

Base metals, such as copper, nickel and zinc, also struggled in March. Nickel fell as much as 15%, while the copper price ended the month almost 4% lower. The increased attention for uranium did lead to 8.5% higher prices. Now that French Cameco is restarting its temporarily closed Cigar Lake uranium mine in North Saskatchewan, uranium prices may come under some pressure. As mentioned previously, we took profits on much of our NexGen position. We continue to see large inflows into PSLV, a prominent silver ETF. We already referred to this ETF that has suddenly become globally popular last month, as investors increasingly doubt whether its big American brother (SLV) actually has all the ounces physically in the safe. Following the US, we now see a high degree of silver short-squeeze activism in Australia, with investors drawing attention to the selling of paper silver, which has kept silver prices artificially low for decades. This has led to the rising demand for physical silver through the government-affiliated Perth Mint. It has sold a lot of "unallocated" silver in recent decades, with no storage costs for investors. These customers are now discovering that there is no silver reserved for them in the safe. A number are now trying to switch to 'allocated' silver positions, which is increasing the pressure on the silver markets.

Gross return (%)

Investments

Last month, two of our positions in the portfolio were acquired. Newmont, the world's largest gold producer, made a successful offer of approximately $400 million for all shares of GT Gold, responsible for a major copper-gold discovery in British Columbia. Remarkable since copper, instead of gold, is the most important metal here. It seems that Newmont is also increasingly appreciating the importance of copper. We have already seen the same development at a number of other gold producers. The GT Gold project is around the corner from the Red Chris Mine, which has recently been taken over by Australia's Newcrest. All this fuels the rumors that Newmont and Newcrest could possibly work together in the future. We know Newcrest as an investor in Greatland Gold, SolGold and Lundin Gold, all core positions within our fund. The other acquisition took place in Latin America, where Colombian gold producer Gran Colombia made an offer for all shares of Gold X Mining, an exploration company valued at over $200 million.

Commodity producers are increasingly concerned about shrinking reserves.The reserves of precious metal producers have decreased by 25 percent over the past 10 years. Production figures are similarly under pressure as a result.For example, gold production by the main global producers, decreased by 2% over the last year.Due to the lack of good silver discoveries over the last 10 years, the situation with silver is even more dire.This has resulted in many listed silver companies adding gold projects to their portfolios in recent years.For example, First Majestic recently bought a gold project in Nevada, which means that even this silver producer is no longer a predominantly silver company.

In our portfolio we again saw some major outliers over the past month.The biggest climber in the exploration companies was Canadian SPC Nickel, with a return of 93% following good drilling results.Among the so-called developers, Minera Alamos rose 25% after the correction of the last months.The biggest drop among the (near) producers, was MAG Silver with a loss of almost 23%.The reason lies in the delay of the start-up of its project.We still see a lot of speculative demand for investments around green energy and electric cars. In the ETFs, there was a remarkable amount of interest in platinum last month. For example, the PALL ETF rose almost 13%.The VIX fell by a third, and the UVXY fell by almost 40%.We use these volatility instruments (ETFs) as a hedge for our portfolio.Their extremely sharp decline is reminiscent of a pattern that we also saw in 2007 and 2001, just before broad markets started a sharp correction.

Results March 2021

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

 

For the full graph (2008-2021), click here

Willem Middelkoop: 

The first quarter of 2021 was the worst for gold since 2016. Explanation: there appears to be a strong correlation between the rise in interest rates and the fall in the gold price.Now that central banks have indicated that inflation can rise ('to make up for lost inflation'), we see prices rising across almost the entire commodity spectrum.It therefore seems only a matter of time before gold and silver resume their way up again and an outbreak from the downward trend to ensue.We have seen the value of our participations (NAV) increase sharply since the beginning of April.Once precious metals actually break out, we expect precious metal-related stocks to rise at least 50% over a period of less than 1 year.

Terence van der Hout: 

In the past decade, palladium has quadrupled, while the price of platinum has halved.Strangely enough, the explanation for this can be found in the success of hybrid cars.Both metals are mainly used in automotive catalysts, but since palladium also works well at lower temperatures, hybrid cars almost exclusively use this precious metal.Due to the hybrid nature, these engines switch themselves off more often, which keeps the temperatures in the exhaust systems lower.Now that the applications for hydrogen are increasing, platinum is coming back into the picture.After all, 30 grams of it is needed for each fuel cell, the heart of the hydrogen car.We expect platinum eventually will return to a value higher than gold, as was the case in the past.