Monthly Report

June 2021

After two very strong months (April +9%, May +8%), June ended 9.84% lower for the leading asset class. The second quarter can therefore best be described as: two steps forward and one step back. Such a pattern fits a recovery move after a long correction. A correction that started almost a year ago. The correction is technically not completed until the bottom has been retested, resulting in a second higher bottom. After that, the road is open again to higher prices. Avi Gilbert, the only technical analyst who correctly predicted both the 2011 peak ($1912) and the 2016 low ($1050), expects another strong precious metals rally based on this pattern. In strength at least comparable to that of 2020.

Due to the drop in the gold price (-7%) over the past month, gold is now technically just as oversold as it was during the crash of March 2020. Back then, gold rose almost 50% within five months. Such a move would now take us towards $2500.

The HUI index of gold-producing companies fell a staggering 17% over the past month, while our basket of producers fell just 4%. But our exploration portfolio declined by more than 10%, partly as a result of profit-taking in some core positions. Prices of most base metals were also under pressure in the past month. The poor sentiment in commodity markets in general, and precious metals markets in particular, was caused by a number of macroeconomic factors. First, the US central bank, the Federal Reserve, hinted that it will have to raise interest rates in due course as inflation is now starting to skyrocket. China's concerns about this became clear as Beijing announced that it would dump strategic reserves of a number of metals onto the market in an attempt to push speculators out of the market. This action is putting temporary pressure on the prices of many metals, but of course it confirms the attractiveness of these metals for investors with a somewhat longer horizon.

The sharp drop in precious metals prices in June also appears to be related to the introduction of the new Basel-3 banking rules, which will take effect in July. These stipulate that so-called paper gold positions should be valued lower on bank balance sheets, while physical gold may be valued higher. In recent months we have observed that financial parties have significantly reduced their short positions in gold, although they remain relatively large.

Since our inception in 2008, the fund has shown net inflows every year. Due to the very strong inflow this year (YTD, more than EUR 35 million), we now have more than 1,300 participants. The number of outstanding units of our fund broke through the 1 million barrier for the first time.

Gross return (%)

Investments

We saw prices fall across a very broad front. But most of all, we faced very sharp corrections in some of our core positions. Both Greatland Gold and DeGrey Mining were down 20%, while Great Bear Resources was down more than 10%. All were among the best performing positions in 2020.

Concerns about potential lead shortages caused the lead price to rise 5% last month, while it is now already up nearly 17% this year. Zinc and copper fell by 3% and 8% respectively, last month. The silver price also fell by 7%. Clearly, (precious) metals producers are finding it increasingly difficult to keep their pipeline of new mining projects filled with quality projects. As a result, even large producers now feel compelled to take stakes in projects that were seen as unattractive in a previous cycle. Many in the industry are concerned about being able to maintain the current levels of production for the coming decades. Tension is rising in many metals markets, with global mining production often no longer able to keep up with physical demand. Concerns about future production shortages are also real for copper. Rio Tinto's recent investment in Western Copper & Gold is a testament to this. WRN owns a major project in the sparsely populated Yukon, with relatively low copper and gold grades. Apparently, Rio envisions a scenario of continued high metal prices that will allow even this project to be mined profitably.

We have started to reduce the number of individual positions in the portfolio. Due to the large number of Private Placements (200+) in which we have invested in recent years, our portfolio has expanded significantly. The number of warrant positions in particular has grown very strongly as a result. The warrants obtained for free give us the right to purchase additional shares at a later date, at a predetermined price. The total value of our warrant portfolio currently amounts to almost 6 million euros.

We ended the second quarter with a cash position of 3.2%, with ETFs making up 6.9% of the portfolio. The producers or royalty/streaming companies category accounts for almost 20%, as does the 'developers' category. The exploration category still accounts for half of our assets. We seek to reduce this percentage to 40% in the second half of the year.

Results June 2021

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

 

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

Willem Middelkoop:

Rising inflation is now beginning to take on worrying dimensions. Lumber prices, for example, have risen by more than 300% since the start of the Corona crisis. The worldwide wave of incentives, ie. money creation, is causing major disruptions in many markets. Yet central banks continue to insist that these will only have temporary effects. If the opposite turns out to be the case, financial markets could suffer. It therefore seems opportune to adopt a more defensive stance as an investor.

Terence van der Hout:

We have been contemplating the idea of adding Bitcoin to our portfolio for some time now. Since it was clear that opinions were very divided on this, we posed this question in our recent survey. More than 40% of the current participants appear to have a positive attitude towards this idea, while around 30% are negative. We have therefore decided not to add digital assets to our portfolio for the time being.