Amanda van Dyke is a fund manager for Peterhouse Asset Management. Her primary fund the SF Peterhouse Smaller Companies Gold fund in Feb 2017 became the best performing fund year on year in the 2800 strong UK mutual fund universe, a year after Peterhouse took it over.
Amanda is a mining equity and gold sector specialist. She has been previously with the mining teams of GMP, Pareto, and Dundee Securities, as an analyst and mining specialist sales person. She was the former Chairman of Women in Mining UK between 2011-2016, and a member of the advisory board of Mines and Money London. Amanda is also a director of Paternoster Resources and Glenwick, AIM listed mining investment companies.
She has authored numerous research reports as well as articles on the mining sector and is a regular commentator on the gold market. She is a professional gemmologist, and holds an MBA and MA in International Economics, from SDA Bocconi and China Europe International Business School.
We talked about the Uranium market,what it takes to become a successful investor, and what to look for in a resource company. Enjoy!
Hi Amanda, would you be able to give us some background on your career and how you ended up in the resource space? Have you always been interested in the markets?
I started as a gemmologist, which on a practical level means I looked at diamonds and gemstones through microscopes, assessed their quality, and appropriate price in the market and bought and sold them as a gemstone buyer. I got reasonably bored with that though (women never believe me when I tell them that), and decided that the aspect I liked most about what I did was the business part.
So I got an MBA and a Masters in International Economics. My first job in the industry was for an investment bank and I kind of fell into the mining area there, and I have never left. I love the mining business. Every time I look open my eyes I see the products of mines, from the steel girders that frame my building, the copper wires that run electricity from a nuclear power plant, to the gold in my iphone and in my ears. Basic resources are the building blocks of a modern economy, people don’t realize that very often, but they truly are the lifeblood and the starting point of the modern world and modern economies. And the mining industry is capitalism at its best, demand and supply, survive or die, and finding gold in Timbuktu, its pioneering stuff, and I love it.
For the uranium sector, which has been in a bear market for about six years, whats your feeling behind the latest price surge in the spot market and the stocks. Are we back in a bull market?
The fall in the uranium price was a combination of a lot of factors, new low cost production from Kazakhstan came on line briefly before Fukishima. When Fukishima occurred they took 10% of the worlds uranium demand out of the market, and the combination of the Japanese selling their stockpiles, (which oversupplied a market already in surplus) and Kazakh over supply created a very serious glut in the market that has taken years to work its way through. Nobody truly believed the Japanese would keep their reactors offline as long as they have, but recently a few things have changed.
The Kazakhs have reduced their supply, and also taken their trading and selling operations to a central office out of Switzerland that is more sensitive to global demand and supply and how it affects pricing. A number of uranium mines in the world have also closed down because of the low prices. Also the Chinese nuclear reactor builds have finanlly started to come online at approximately one reactor a month. The market has basically finally moved into equilibrium again which is what is allowing the price to rise. The incentive price for new uranium supply in the world is approximately $60/lb, so it will be some time before any new mines are built.
There are exceptions of course like Berkeley Energia who have bottom decile costs and therefore have just financed a new mine that is being built in Salamanca Spain, but they are an exception, and I don’t know of many projects in the world that can build or produce at these prices. As for whether we are back in a bull market, I don’t think we can say that yet, I do believe that 18.50/lb was the bottom and that there is a very good chance that the uranium price appreciates significantly in price over the next few years considerably, but to truly be certain we are in a bull market will require more time to tell.
If you are investing in uranium my advice is to try to stay closer to the producers and developers at least for the time being as this new market finds its bearings, and stay in the bottom quartile of the cost curve. These are the companies that will appreciate the most every time the price jumps.
What does it take to become a successful investor?
The answer is simple, do your homework and pay attention. By do your homework I mean you have to understand the fundamental business plan of the company you are investing in, know how and where they are going to make money, specifically. Lithium has been very popular lately, but that doesn’t mean all lithium companies are going to make money, and therefore achieve price appreciation. Also you need to know the fundamentals of demand and supply of the commodity in question, commodity prices make or break resource companies. If you are not sure, err on the side of buying companies that either will produce or do produce in the bottom half of the cost curve. They tend to survive the down markets and outperform in the good markets.
The second part of the advice is pay attention. Things change, a good investment today could be a horrible investment tomorrow, and vice versa. Buy and hold is a thing of the past, to be a successful investor you must watch both your investments and the market and be prepared to trade when circumstances change. If you don’t have the time to do that, buy into a fund and someone who’s job it is to both do their homework and pay attention.
What is the biggest lesson in your career so far?
Never take anyone’s word for anything. Trust but verify. Every company in the world is convinced they are the worlds best, by definition they cannot all be. You need to be able to make independent assessments, and not be scared to back yourself. Everybody has self interest and ulterior motives, in both what they say and what they do. Ultimately whether you are managing your own money or other peoples money the buck stops with you, you cannot afford to let other people with other interests interfere in your making sound independent decisions.
What do you look for when investing in a resource stock? How important are the people behind the company?
I think resource stocks have 4 pillars upon which they stand or fall.
Pillar 1, an Economic Resource: If you want to build a mine, you need an asset or an ore body to mine, and you need to be able to mine it profitably to justify doing so. From the point of view of an investor, resources are useless in the ground. The resource needs to be of sufficient size and grade that getting it out of the ground is a sound economic proposition. You could have 100k oz of 100g/t gold in the ground, but its never going to be economic to build a mine to get it out. And vice versa some mines have only 1g/t but when you are producing ½ a million oz’s a year for 30 years with 98% recoveries, you are probably going to make good money.
Pillar 2, Management: whether it is finding a mine, building a mine, or running a mine, the people who do it are essential. A good geologist will find mines, and he also knows when to walk away and not waste any more money on a bad prospect. Good management builds and runs mines on time and on budget. Bad management raises lots of money, doesn’t get permitted, is delayed, doesn’t get good recoveries….The list of things that can go wrong in mining is simply endless, and the only thing all mining mistakes have in common is that they are all expensive. The only thing that stops things from going wrong, as well as fixes things when they do, is good management. Personally I think track records are essential and I invest in management teams I think are capable of delivering.
Pillar 3, Finance Ability. Its costs a lot of money to find and build mines. The investment climate, the price of the commodity, the country, the sheer quantum of money you need, all of these will all affect a company’s ability to raise the money required to move forward. Knowing the investment climate and and a company’s prospects for being able to get the money they need is a big part of making an investment decision. The last thing you want to be is part of the last round of money raised for a company that is stopped in its tracks due to lack of funding.
Pillar 4, Promotion: I invest in public companies, it’s a common misconception that good companies will necessarily perform well in the market. For a share price to do well the company needs to appeal to the public. It has to be a compelling story and somebody needs to be telling it well in order for a share price to both appreciate and maintain value. Sometimes you find an undervalued gem of a company (excuse the pun), but unless other people find it too, your share price is going nowhere. A certain amount of PR is essential to a pubic company’s success. Conversely, a number of companies are over promoted, and that is a recipe for share price corrections when the market finally figures out that the emperor has no clothes.
And finally, what’s your outlook for gold and silver, and the mining stocks?
I think the outlook for gold, silver, and mining stocks is excellent. There is no crystal ball for gold prices. They are affected primarily by real rates of return, and the price of the us dollar, but there are a number of other factors that affect it, demand from central banks, retail consumers, and ETF’s vary for a number of different reasons. Gold’s status at any given time as a safe haven, geopolitical and financial uncertainty in the world and many others factors are always pulling gold up and down.
I believe gold has entered what is known as a cyclical bull market. Bull markets last from 3-5 years on average, as do bear markets for that matter but the last bear ended in December 2015, after a 5 year bear market, so we can hope this bull market will do equally well on the upside. Also silver is like gold on steroids, gold goes up 1% silver usually goes up 2% so it’s a great place to invest, although be careful because the corresponding volatility usually means larger swings the downside. If gold and silver are going up, then gold and silver stocks are where you want to be. Gold went up 8.6% in 2016, precious metals equities measured by the GDX-NYSE and the GDXJ-NYSE (senior gold vs junior gold) were up 53.6pc and 73.4pc respectively the SF Peterhouse smaller companies gold fund was up 88%.
Now I don’t believe 7:1 is normal, that was coming out of a particularly long and hard bear market and gold stocks were badly beaten up and institutions were massively underweight so there was a lot of catching up to do. But to be reasonably you can usually on average expect gold stocks to outperform the gold price 2:1 and small cap gold stocks specifically 3:1.
Where is the best place for people to reach out to you?
I do a reasonable amount of public speaking at conferences and my firm is preparing for me to start travelling outside London to speak as well, so if you are there I am happy to have a chat. The best way to get access to my investment methodology though is to simply buy my fund, SF Peterhouse Smaller Companies gold fund. Last year we beat the gold price 10:1 ;)
Many thanks Amanda.
For more information about Amanda and her fund go to http://peterhouseam.com/
To read more interviews like this, go to The Next Bull Market Move