Why the best time to buy resources is when people don’t like them22 November 2017
Unfashionable resources, in particular gold and uranium, are favourite commodities of 2016’s Top Performing Global Equity Manager, Dave Iben.
Unfashionable resources, in particular gold and uranium, are favourite commodities of 2016’s Top Performing Global Equity Manager, Dave Iben. At the recent Investec Wealth Forum, Iben, one of 18 exceptional fund managers in Investec’s World Axis Fund, spoke about why “commodities in general are looking much more interesting than they were five to six years ago”.
“Economics is a story of scarcity. If money and people are less scarce, the planet hasn’t grown and there’s no more resources than there used to be, then investing in resources is probably something to consider,” explains Iben, Chief Investment Officer of Kopernik Global Investors USA.
“The best time to buy resources is when people don’t like them. Buying them six years ago wasn’t the best thing to do, but now people are afraid that we’re going to swim in resources forever, we’ve got too many. That opinion has come and gone over the centuries too, but ultimately it’s a cyclical business,” says Iben.
How much is there and what does it cost to extract it?
“If it costs USD 70 or 75 not to pull existing oil out the ground but to replace those reserves, that means the price probably doesn’t stay much lower than that for that many years,” says Iben.
“Gold is something that used to be pretty cheap to pull out of the ground, now it’s at USD 800 to 1000 to pull out the ground. Importantly to replace the reserves, to find enough quantity to bring that much out the ground, the future price of USD 2000 is probably a fair assumption,” explains Iben on why gold is an important part of his portfolio.
The case for uranium
While uranium lost popularity after the Fukushima tragedy, Iben believes it is going to bounce back with China building 60 new reactors and Japan potentially bringing half of their reactors back online.
“We like it when people are unduly bearish on things,” says value investor Iben. “Six to seven years ago people went from saying Uranium is good because there’s no greenhouse gasses, no global warming, no pollution, variable cost is very low, to after the Fukushima tragedy to people believing that uranium is done.”
“The fact is that there is not enough uranium to go around and there hasn’t been for a number of years. People are realising that USD 20 is too low a price for uranium,” says Iben. “If a good strong case can be made for USD 80 per pound, then that’s what it will take to bring new mines on.”