Advertise | Bookmark | Contact Us | E-Mail List |  | Update Page | UraniumSeek.com 

Commentary : Gold Review : Markets : News Wire : Quotes : Silver : Stocks - Main Page 

 GoldSeek.com >> News >> Story  Disclaimer 
 
Latest Headlines

Gold Seeker Weekly Wrap-Up: Gold and Silver Gain Over 1% and 2% on the Week
By: Chris Mullen, Gold Seeker Report

Ira Epstein's Metals Video 11 17 2017
By: Ira Epstein

Next-Generation Crazy: The Fed Plans For The Coming Recession
By: John Rubino

COT Gold, Silver and US Dollar Index Report - November 17, 2017
By: GoldSeek.com

Gold Miners’ Q3’17 Fundamentals
By: Adam Hamilton, CPA

Bonfire of the Absurdities
By: John Mauldin

The Social Security Inflation Lag Calendar - Partial Indexing Part 1
By: Daniel R. Amerman, CFA

Rob From The Middle Class Economics
By: Gary Christenson

GoldSeek Radio Nugget: John Williams and Chris Waltzek
By: radio.GoldSeek.com

The Metals Market Is A Mess And Will Likely Continue To Frustrate You
By: Avi Gilburt

 
Search

GoldSeek Web

 
Less Correlation Among Commodities Demands More Careful Selection: Philip Richards


 -- Published: Tuesday, 17 June 2014 | Print  | Disqus 

Source: JT Long of The Gold Report

 

Commodities from coal to gold once traded in close correlation, but today the graph looks helter-skelter. This means Philip Richards of RAB Capital has had to think on his feet when choosing names for his company's Special Situations Fund. In this interview with The Gold Report, Richards explains how commodities markets have changed in recent years, and he lists companies of interest in the gold, silver, nickel, vanadium, zinc and oil and gas sectors.

 

The Gold Report: Philip, your March update on the Special Situations Fund showed a 4.21% increase during Q1/14, compared to 1.29% for the Bloomberg World Mining Index. You noted that cold weather and concerns about China, Ukraine and South Africa are driving commodity markets short term. Are you worried about the impact of a slowdown in China on commodities and your funds?

 

Philip Richards: A slowdown in China is a concern, but it's one of many, and it isn't an overwhelming concern. Ukraine has had an effect on the gas market. Strikes in South Africa drive the platinum price. Specific events in specific countries can drive specific commodity prices, but they don't drive all commodities.

 

In the boom years of 2005–2007, there was a correlation among commodities. Iron ore, coal, nickel and even gold and silver tended to move together. I attribute that to the amount of speculative money involved in commodity markets.

 

Today, that correlation is greatly reduced. For example, this year the nickel price has been extremely good due to the Indonesian export ban, but also because of extremely strong demand growth. On the other hand, while there's still reasonable demand growth for iron ore, the increase in supply has been enough to send the price down. In the energy sector, the coal price is down very sharply and the uranium price has been really bad, while the oil price has been relatively stable and may even be improving.

 

TGR: With commodities going in different directions, how do you decide what goes in the Special Situations Fund?

 

PR: The Special Situations Fund tends to invest in early-stage companies, which makes it hard to invest for the short term. Sometimes, you have a chance to take profits more quickly than you might expect, but you have to invest with the expectation that you'll be in it for the long term. Therefore, we look for long-term structural factors.

 

Among the metals, we particularly like zinc and nickel going forward. Both have positive demand profiles, with nickel being the stronger of the two. Both also are in short supply. The Indonesian export ban is hurting the nickel supply. Three big zinc mines will close between now and 2016.

 

We're less positive on copper and have much less exposure there. On the precious metals side, we have exposure to gold and silver, with the emphasis on gold. In the energy sector, we have quite a lot of exposure to oil, some exposure to uranium and very little exposure to coal.

 

TGR: The market seems to like it. The price is way up from January and the company just released Q1/14 results. Does the company have enough money in the bank to move forward until it finds a partner?

 

PR: Yes, it has enough money to continue through 2015. I expect it will soon have an industrial partner in place. The company has publicly stated that it is having material conversations with more than one party.

 

TGR: You also have some holdings in vanadium. What's the supply-and-demand story there?

 

PR: Vanadium has two main potential demand factors. The first, and most immediate, is in steel. Since the Chinese earthquakes, for example, the need for vanadium for building earthquake-proof structures has become very important there. As an alloy, it's also used in automobile and aircraft production, to reduce the weight of vehicles and planes. Longer term, vanadium will play a role in storage batteries. That could create a quantum leap in demand.

 

The total world supply market is about 127,000 tons (127 Kt). Demand exceeds that slightly, at 136 Kt. Supply is concentrated in China, South Africa and Russia, with China being the biggest producer.

 

Vanadium pricing has been weak for some time. With restricted supply and a structural long-term upshift in demand, we expect vanadium pricing to improve over the next couple of years.

 

TGR: About 44% of the fund is in the oil and gas sector. What supply-and-demand fundamental for oil appeals to you?

 

PR: To some extent, our exposure is due to the return/risk profile on the individual stocks.

 

What is interesting about oil is the steadily rising demand, which now exceeds 90 million barrels per day (90 MMbbl/d). Of that, demand from the Organisation for Economic Co-operation and Development (OECD) region—meaning North America, Europe and Japan—accounts for only 37 MMbbl/d. The balance of 53 MMbbl/d is demand from non-OECD regions. This is a huge change from 20 years ago, when the OECD was the only important demand source for oil. While demand for oil from the OECD area has declined from 42 MMbbl/d since 2007, demand for oil from the rest of the world has grown. That growth has offset some of the decrease in OECD demand. If demand in both areas were to increase in tandem, we should see an increase in demand overall.

 

On the supply side, although there are some increases in supply coming through, we think shale oil production from the U.S. will not exceed 4 MMbbl/d, given that shale oil fields tend to decline at a faster rate than traditional oil fields.

 

In a nutshell, one could say while demand is likely to continue to grow, the same is not true with supply.

 

There could be price wobbles. Ramped-up production in Libya or more onstream production in Iraq might depress the oil price. Longer term, we think the oil price should do very well.

 

TGR: Are you worried about the Ukraine situation?

 

PR: Not very worried, but if something went wrong, it would only increase the pressure on oil supply.

 

TGR: Many of the companies in your portfolio operate in Canada. How much weight do you give geopolitical risk versus commodity fundamentals?

 

PR: Canada is well represented, but we've also talked about companies operating in the Falkland Islands and Bahamas.

 

Geopolitical risk is important. We prefer companies that are operating in a Western jurisdiction or a jurisdiction in Africa that has proven itself to be reliable. We have found it difficult to protect shareholders' interests in companies in the ex-Soviet Union countries.

 

TGR: You ended your last update by saying you were positive on the structural and long-term prospects of natural resources throughout 2014. How positive are you? When you get excited about a sector, how do you adjust your portfolio based on those predictions, given your long-term approach?

 

PR: We've said that structurally, we think oil, nickel, zinc and vanadium will be good. We're also pretty happy about gold and silver.

 

Overall, we think natural resources will be a better place to be than in recent years. But remember, the correlation between different natural resources is breaking down. One has to pick and choose the commodity more carefully than perhaps one did in the big boom of six years ago.

 

TGR: Philip, thank you for your time and your insights.

 

Philip Richards is the executive director, founder and president of RAB Capital Limited, having co-founded the company with Michael Alen-Buckley in 1999. He is the investment manager for the RAB Special Situations Fund. Prior to joining RAB, Richards was at Smith New Court from 1987 to 1998 (later Merrill Lynch) where he was a founding member and executive director of the European equity division. At various times, he was responsible for Belgian, French and Italian equity research at Smith New Court and, after its acquisition by Merrill Lynch in 1995, he became a managing director of European research and later managing director of investment banking for Belgium and Luxembourg. Richards holds a Bachelor of Arts Honors from Oxford University (Corpus Christi College) in philosophy, politics and economics, was a captain in the Royal Green Jackets (British Army) and received the AIM Entrepreneur of the Year Award in 2006.

 

DISCLOSURE: 
1) JT Long conducted this interview for Streetwise Reports LLC, publisher of The Gold Report, The Energy Report, The Life Sciences Report and The Mining Report, and provides services to Streetwise Reports as an employee.

2) Streetwise Reports does not accept stock in exchange for its services.
3) Philip Richards: I was not paid by Streetwise Reports for participating in this interview. Comments and opinions expressed are my own comments and opinions. I had the opportunity to review the interview for accuracy as of the date of the interview and am responsible for the content of the interview. 
4) Interviews are edited for clarity. Streetwise Reports does not make editorial comments or change experts' statements without their consent.
5) The interview does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports' terms of use and full legal disclaimer.
6) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned. Directors, officers, employees or members of their families are prohibited from making purchases and/or sales of those securities in the open market or otherwise during the up-to-four-week interval from the time of the interview until after it publishes.

 

Streetwise - The Gold Report is Copyright © 2014 by Streetwise Reports LLC. All rights are reserved. Streetwise Reports LLC hereby grants an unrestricted license to use or disseminate this copyrighted material (i) only in whole (and always including this disclaimer), but (ii) never in part.

 

Streetwise Reports LLC does not guarantee the accuracy or thoroughness of the information reported.

 

Streetwise Reports LLC receives a fee from companies that are listed on the home page in the In This Issue section. Their sponsor pages may be considered advertising for the purposes of 18 U.S.C. 1734.

 

Participating companies provide the logos used in The Gold Report. These logos are trademarks and are the property of the individual companies.


| Digg This Article
 -- Published: Tuesday, 17 June 2014 | E-Mail  | Print  | Source: GoldSeek.com

comments powered by Disqus



 



Increase Text SizeDecrease Text SizeE-mail Link of Current PagePrinter Friendly PageReturn to GoldSeek.com

 news.goldseek.com >> Story

E-mail Page  | Print  | Disclaimer 


© 1995 - 2017



GoldSeek.com Supports Kiva.org

© GoldSeek.com, Gold Seek LLC

The content on this site is protected by U.S. and international copyright laws and is the property of GoldSeek.com and/or the providers of the content under license. By "content" we mean any information, mode of expression, or other materials and services found on GoldSeek.com. This includes editorials, news, our writings, graphics, and any and all other features found on the site. Please contact us for any further information.

Live GoldSeek Visitor Map | Disclaimer

The views contained here may not represent the views of GoldSeek.com, its affiliates or advertisers. GoldSeek.com makes no representation, warranty or guarantee as to the accuracy or completeness of the information (including news, editorials, prices, statistics, analyses and the like) provided through its service. Any copying, reproduction and/or redistribution of any of the documents, data, content or materials contained on or within this website, without the express written consent of GoldSeek.com, is strictly prohibited. In no event shall GoldSeek.com or its affiliates be liable to any person for any decision made or action taken in reliance upon the information provided herein.