Tavi Costa: Aggression, Creativity Key as Mining Sector Waits for Capital

Speaking to the Investing News Network about themes in the resource sector, Tavi Costa, partner and portfolio manager at Crescat Capital, said he's starting to see companies being rewarded for being aggressive.

Looking first at the energy industry, he said firms that are spending and producing more are reaping the benefits.

"If you break down and you back test the best factors that have been contributing to performance within the sector, it's not the companies that are paying high dividends, it's not the companies that are doing high buybacks. In fact, it's the ones that are doing acceleration in CAPEX, but also the ones that have been increasing production," he explained in an interview.

The metals and mining space hasn't been in a bull market like energy has, but Costa pointed to a similar trend.

"If you separate it (by) looking at the top 50 companies, and you look at the top 10 and the bottom 40 … you see a drastic difference between the two," he said at the Prospectors & Developers Association of Canada (PDAC) convention.

"The bottom 40, CAPEX is back to 2011 levels, which is something no one is talking about. In other words, companies are spending capital again. And you can see that the free cash flow is actually at one of the worst levels we've seen in over a decade. But it's not because they're not making money, it's just because they're spending more money than what they make," Costa explained.

"They actually have more cash than the other companies because they've been accessing the market through equity issuances more than the top 10 miners. And so you've got an investing mode side versus a disciplinary side," he continued.

Interestingly, the performance difference between these two groups is similar on a median basis. "So they are not getting penalized, that's the big point. They are not getting penalized for being aggressive," Costa said. "To me this is a very interesting takeaway. I want my companies to be very aggressive in exploration, in development and producing assets as well."

Watch the interview above for more of Costa's thoughts on the mining market, including what commodities he's most interested in. You can also click here for the Investing News Network's full PDAC playlist on YouTube.

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Securities Disclosure: I, Charlotte McLeod, hold no direct investment interest in any company mentioned in this article.

Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.