Strategy

The horizontal axis shows the time, while the value development of the position can be read on the vertical axis. Each circle in the graph represents one of our investments.

Discovery-Investing

The Commodity Discovery Fund is a unique fund. It is one of only a handful of investment funds worldwide with an emphasis on new raw material discoveries. And it is the only one with a global outlook. We don't care if a discovery is made in Australia, India, Peru or Canada. As long as it creates value. These resource discoveries create billions in value annually. Exploration companies with a significant discovery are often taken over within a few years. We call this form of investing “Discovery Investing”. Because of this strategy, a company in our  portfolio has been taken over on average every quarter. Usually by a larger mining company looking for additional reserves. This has happened more than 60 times since our inception. The full list can be found here. More information about our portfolio here.

Four phases of the Mining Cycle

Each mine goes through four stages. Before a discovery, we speak of the pre-discovery phase. After that, the discovery is made. Then comes a period in which feasibility studies are carried out (development phase). And eventually production is started. For value investors like us, the discovery phase and the start of production phase are particularly interesting. In both periods we usually see the market value rise very strongly. That is also the focus of our investments.

Stage I: Pre-discovery

The exploration company has yet to start rilling.

Most mines were not accidentally discovered because someone stumbled upon a nugget. Even though that did indeed occur in early mining history. Just think of the large gold mines around Johannesburg, which were actually discovered by accident. Most of the time, however, years go by during which extensive geological and geophysical research is required before drilling can be started.

Stage II: Discovery

Drilling demonstrate a significant discovery.

The real discovery usually starts with a “discovery hole”, the first borehole showing a gold vein or copper field. During the discovery phase, a lot of value is created by demonstrating valuable mineralization in subsequent boreholes. A relatively worthless piece of land can suddenly become worth billions. For example, the valuation of Arquipa's shares rose from $2 to $32 in 1996, after only nine boreholes. Within a year of its discovery, the company was taken over by Barrick Gold. Another special example is Aurelian Resources, which Willem bought as a private investment for 30 cents per share, in 2006. In late 2008, the company, by then accredited with a major gold discovery in Ecuador, was acquired by Kinross for $1 billion. The stock then traded at $43.

Stage III: Development

Studies must demonstrate the feasibility of the project.

Think of economic studies (PEA/PFS). Environmental reports must also be drawn up and the financing options must be identified. At the end of this period, companies are often taken over and therefore interesting for us to keep in the portfolio, even though the valuation of the company often decreases significantly. We usually strongly reduce our position at the end of the discovery phase.

Stage IV: Production

Successful start-up of production increases the stock market value.

When production finally starts and cash starts to flow, we often see a significant revaluation of the company. According to a study by the Oxford Mining club, this can reach several hundred percent. That is why we also focus on this phase of the mining cycles. About half of our portfolio consists of the exploration sector, the other half is invested in (start-up) producers and the so-called Royalty/Streaming companies. The latter are entitled to part of the proceeds in exchange for co-financing the new mine.