Adrian Day, Jayant Bhandari and Matt Fifield shared their investment ideas and thoughts on the current season in a webinar this week.
Commodities and markets across the board have been hit hard since the start of 2020, but many still believe there are big opportunities for investors during this uncertain time.
Speaking at a Mining Beacon webinar on Wednesday (May 6), Adrian Day of Adrian Day Asset Management, Jayant Bhandari of Anarcho Capital and Matt Fifield of Pacific Road Capital shared their investment ideas and thoughts on the current season.
To kick off the panel discussion, Bhandari gave his views on the economic downturn, which he believes will see a short shock, recession or depression depending on the country.
“Taiwan didn’t really suffer much, China and Korea are back in action, Japan is improving very rapidly, so my view is that East Asia will be the first emerging winner from this whole problem and their economies will be back on track in a few months. China will continue to be a major player in the world’s economy.”
For Bhandari, western countries will be stagnant, but the worst sufferers from the coronavirus outbreak will be third world countries.
“Third world countries will go into complete chaos,” he said. “They are not only in a downturn economically, but the coronavirus has completely disoriented them and (they) are mostly incapable of controlling the virus anyway.”
Fifield said he has a much more hawkish view, suggesting that the demise of globalization is here.
“When I try to look at the future, it’s the acceleration of where we were at the end of 2019 — increased protectionism, increased nationalism, more tariffs, more barriers to trade, not less,” he said.
“This has never happened before where the entire economy of the world is in a halt for a period of time … it takes time to recover from a shock like this,” Fifield continued. “The way I see the big economies recovering is the governments having their hands in the economy, and what I think you will see is really intensive industrial stimulus.”
Commenting on whether an economic downturn was in the cards regardless of the pandemic, Day said to a large extent it was a bubble in search of a pin.
“I don’t really think the stock market here in the US was really in a bubble, but some sectors were, and valuations were certainly very stretched,” he said. “Stocks were certainly overdue for a significant correction if only frankly because of declining earnings.”
For Fifield, from a valuation perspective it is a tale of two markets.
“You saw gold come down roughly 20 percent (of the) total market cap of the entire sector in the selloff, and it is now up 17 percent from the beginning of the year,” he said. “And you saw everything else that is not gold come down 35 to 40 percent and stay down 25 to 30 percent from the beginning of the year.”
He added that it is specifically either around growth projects and around single asset companies that the medium-term outlook is uncertain.
Day said he doesn’t expect a lot of companies to go out of business; in fact, there are a lot that are in better shape now than they have been for a little while.
“We may see some takeovers, we may see some base metals exploration companies go into gold exploration or something different, but I don’t really expect companies to go out of business,” he said. “Mining companies in particular — those headquartered in Canada have a remarkable ability to continue in existence long after their sell-by date.”
When looking at companies, Day said one of his main focuses is balance sheets, and that is even more the case in the current market.
“I always look at the balance sheet, the burn rate, the discipline of the company in the past both in raising equity and dilution, and on the other side, spending and cutting spending when necessary. And frankly, when I am looking at an exploration company, I look at the balance sheet before I look at the properties.”
Day said that even after the crash the markets saw in March, stocks are simply just not cheap.
“When you think that we’ve got this coronavirus, we’ve got the economies of the world shut down, we had a market crash in March, you would expect stocks to be bargains — and the plain fact is that they are not bargains, neither in terms of price nor valuation,” he said.
The panelists also shared their thoughts on the uranium market, which has seen a spot price uptrend since the start of the year.
“The spot price has gone up in the last couple of weeks, and the market has become quite excited about it as if something fundamentally has changed here, and it hasn’t,” Bhandari said. “Most uranium is traded in the long-term market and the price there has only moved 10 percent or so in the last four years.”
Bhandari emphasized that he doesn’t think the price increase over the past weeks signifies a fundamental change in the market.
“Uranium electricity generation is a dead industry as it stands today, I don’t see much future in it,” he said. “But I particularly feel sympathetic about those retail investors who have invested in the uranium exploration and development-stage companies expecting uranium prices to go up 100 or 200 times — they won’t make 10 times their money and they are more likely to lose everything that they have.”
For Day, what worries him about uranium is that the current price jump the market has seen is driven by an artificial shortage.
“There’s plenty of uranium around at a higher price, we see sustained prices a little bit higher … but it is an artificial shortage, not a genuine shortage,” he said, explaining that the mines that have suspended production will come back online eventually.
The discussion between the panelists also touched on ESG and whether this has become a top priority for mining companies.
“ESG is one of those unstoppable trends,” Fifield said. “Mining is competing for capital with everything else … There are bargains in many sectors that don’t have some of the same ESG risks you see in mining, so I think it is fundamental for people that want to raise capital to take it seriously — they have to because if they don’t they will find that they are unable to compete.”
Day warned about the bureaucracy around ESG and doing the right thing, saying a lot of companies have turned ESG into just “checking the box.”
The panelists also shared their thoughts on how investors should balance their portfolios in the current environment.
“A bear market is really the best time to make money,” Bhandari said. “People who sell off in a moment of fear are people who haven’t really done any valuation or numbers on these companies, so they just operate through emotions.”
Day agreed, saying he tends to be a contrarian and a value-type investor.
“There’s no question that gold stocks have had a remarkable run in the last month, to the point I believe the market is overdue for a bit of a pullback,” he said. “I think we have to have a shift in our approach to the gold market, because what I see happening in the gold market in the next three to four years (which is prices going up) — the gold stocks will go up meaningfully from here.”
“I think we need to be a little bit less picky on stock price and less quick to take short-term profits because of the fundamental long-term bull market in gold in my view,” he added.
Similarly, Fifield is looking at gold. “What we are looking at and recommending clients is a barbell strategy — if it’s inflationary or if it’s deflationary you will be happy to have gold,” he said.
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Securities Disclosure: I, Priscila Barrera, hold no direct investment interest in any company mentioned in this article.