Picking resources to provide robust returns


Transcription of Finance News Network Interview with Pengana Global Resources Fund Portfolio Manager, Tim Schroeders

Lelde Smits: Hello I’m Lelde Smits for the Finance News Network and joining me from the Pengana Global Resources Fund is Portfolio Manager, Tim Schroeders. Tim welcome back to FNN.

Tim Schroeders: Thank you Lelde, a pleasure to be here.

Lelde Smits: Pengana Global Resources Fund provides exposure to global resources stocks. With so much to choose from, what’s grabbing your attention at the moment?

Tim Schroeders: What we’re ideally looking for are companies that can think outside the square, have projects that are robust, able to withstand highly volatile commodity prices. And more importantly, able to access capital and deploy capital efficiently through good management.

Lelde Smits: The Fund invests in global mining, energy, steel, commodities and associated services sectors. How is your capital allocated between each?

Tim Schroeders: We’ve got roughly about 20 per cent allocated to energy, oil and gas at the moment and that, over the past 12 months/24 months, has provided pretty good returns. But we’re seeing the game change whereas metals and mining has been much of a laggard, given a backdrop of challenging commodity prices with falls in the bulk commodities, such as coal and iron ore. Copper has been a little bit disappointing as well and we’ve seen a big selloff in gold last year.

So it is challenging, we’ve still got sectors that we avoid. I think coal is extremely challenging at the moment, so we have a small coal exposure there. Gold we’re underweight, but we’re increasingly confident about some of the base metals, particularly nickel and zinc.

Lelde Smits: Pengana Global Resources Fund holds both long and short positions. Could you give us an example of a stock you’re long and detail where the appeal is?

Tim Schroeders: We own a stock a bit outside the normal in terms of, it’s a potential potash producer called Highfield Resources Limited (ASX:HFR). It raised capital in the last couple of months; it’s got a very exciting project that it’s trying to develop in Spain, near Pamplona in Spain.

Lelde Smits: Are there any other stocks you could highlight?

Tim Schroeders: A really nice opportunity that we’ve seen recently and we’ve invested in is Phoenix Gold Limited (ASX:PXG), which has a Castle Hill project just outside of Kalgoorlie. And over the next six months, it’s going to move from developer to producer and importantly not with a lot of capital being expended, which is exciting for us.

Lelde Smits: Which stocks have supported your performance over the last quarter, and what’s most attractive about those companies?

Tim Schroeders: Performance has been pretty good; we did about 4.2 per cent for the quarter. Oil Search Limited (ASX:OSH) was one of our bigger positions, which did around 14 per cent return for the quarter. The main fill up there was it successfully bringing its PNG LNG project into production on time and on budget. And that changes the cash flow dynamic for this company dramatically from been absorbing a lot of capital over the last few years, to generating very strong production and cash flow growth. So that’s been pleasing.

And a smaller company that we had really good success with over the last quarter was Liquefied Natural Gas Limited (ASX:LNG), which the share price was up threefold in the space of a quarter. And interestingly enough, it’s been an area of the market in terms of a smaller cap resource companies that have been unloved. But selectively we’re seeing very good opportunities, and LNG was one of them in the past quarter.

Lelde Smits: You’ve mentioned Oil Search Limited and Liquefied Natural Gas Limited. How long will you continue to hold on to these positions?

Tim Schroeders: Liquefied Natural Gas Limited, LNG, we actually liquidated our whole position during the last quarter, despite the price rise. And the company still remains very well positioned to grow its share price and ultimately, develop into a cash generative business. But we’ve seen this company grow from a market capitalisation of less than $100 million, when we got first invested in the company, to a market cap now in excess of a billion dollars. We’ve just taken our money off the table, continue to reassess the situation and won’t be surprised if we come back in at a later stage. Oil Search Limited, we’re long term happy holders at this stage. We continue to see good upside for the company and it’s just on the cusp of going through a strong cash generative phase.

Lelde Smits: Finally Tim, the S&P/ASX 300 Index has climbed higher this year but many resources have suffered. Where are you looking for opportunities?

Tim Schroeders: We’re looking away from I guess, the China centric type commodities and producers that have served investors well over the past. We’re not avoiding them, but we think that there are new exciting areas. And I think areas such as lithium, such as graphite, those types of areas are interesting. And we continue to explore ways and means of investing outside the so-called traditional type environment, because we think that they’re under researched. And we do have a competitive advantage in identifying and investing in those first.

Lelde Smits: Tim Schroeders, thank you for the update from Pengana Global Resources Fund.

Tim Schroeders: Thanks Lelde.


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