PDAC: How size, location affect investor picks

Big discoveries trump jurisdictional issues but sometimes case by case analysis turns that on its head, Scotiabank’s mining and metals investment team leader told a session at the Prospectors & Developers Association of Canada’s annual convention.

“When we sort of think we’ve got a tiger by the tail with a new world-class discovery, we have no problem pretty quickly buying up to 10% of the company,” Robert Cohen, who manages $1.1 billion for the Canadian bank, said Sunday. “As we get more comfortable with the investment, over time, we could increase that to as much as 20%.”

How does he cope with mitigating risk?

“You just have to have a stomach of steel.”

Cohen, a vice-president and portfolio manager with Scotia Global Asset Management, manages the $700-million Dynamic Precious Metals fund and some $400 million across several other mining-focused funds. He joined Willem Middelkoop, manager of the $150-million Commodity Discovery fund based in Amsterdam on a small stage in a corner of the vast exhibition auditorium.

Uranium, copper

Middelkoop cited how NexGen Energy (TSX, NYSE: NXE; ASX: NXG) attracted his interest with uranium project discoveries in Saskatchewan and Ivanhoe Mines (TSX: IVN; US-OTC: IVPAF) did likewise with the Kamoa-Kakula copper deposit in the Democratic Republic of Congo in 2013. Lately, he’s been looking at the United States.

“We have, like, the second American Revolution. It is the most significant regime change in history,” he said. “It’s also changing the world of commodities, because the red tape will be cut very drastically now for U.S. projects.”

On the other side of the coin, there are places that should give investors pause, according to Cohen.

“Given the problems that, for example, Barrick Gold (TSX: ABX; NYSE: GOLD) has had in Mali, that would be a no-go country,” Cohen said. “There’s also some worries of problems spilling into Burkina Faso, so we’re not invested there either, but we favour South America, the Americas, Australia, Canada in general, as the right places to be.”

Liquidity

Cohen’s main fund holds 20-odd companies led by major producers to help provide liquidity before he considers exploration and development investments.

“We’re perennial copper bulls,” he said. “Last number of years, we’ve been very positive on uranium, and just for a bit of sizzle, we have some investments in the antimony space, all in Australian companies, actually, because of the grades that they can give.”

The mineral used in military applications is produced predominantly by Tajikistan and China, which imposed an export ban in September.

“It’s an important metal for defence, for bomb making,” Cohen said. “The U.S. Department of Defense, this is truly a critical metal for them, so, I think there’s a very interesting scenario here where you can have a lot of legs on that market for a long time.”

Middelkoop began his fund in 2008 and it focuses on the top 50 discoveries globally with 60-70% in precious metals companies. The top 40 holdings represent 80% of the fund with maximum exposure of around 3-4% per company.

“I started the fund during the last top of the last cycle, and we made so many mistakes, so many mistakes, and still we haven’t lost money,” he said. “So, the great discoveries always work.”