Mining’s old guard needs strong medicine
A new report details subpar investor returns in the mining industry over the last decade, particularly big cap diversified companies which have not adapted to new realities.
The key to getting monster-sized returns in mining equities is to be small, according to managers of the Plethora Precious Metals Fund.
With only 18 million euros ($20 million) in assets, Plethora Precious Metals is a minnow in contrast to giants such as Blackrock Inc. and Vanguard Group Inc. While investment funds generally try to increase assets to share success and rake in higher fees, this Dutch fund isn’t interested in being like its larger peers.
“We invest in small teams of geologists that are looking for ore deposits,” the fund’s founder Peter Vermeulen said in an interview. “Those companies are so small that it is practically impossible to allocate a lot of money there. However, their returns — when they have found gold — are huge.”
We are setting up a private equity fund to invest in young exploration funds that are run by geologists
The Utrecht-based fund invests in young mining exploration companies — mostly in gold. This strategy reaped returns of 502 percent during the last six years, according to the fund’s own data. A staggering performance compared with the VanEck Vectors Junior Gold Miners ETF’s drop of 62 percent, or the 65 percent fall in the NYSE’s Gold BUGS Index.
Thus far this year, Plethora has fallen 17 percent, reflecting the share price decline at its main holding, Westhaven Inc.
Plethora holds a stake of between 5 percent and 15 percent in roughly 20 portfolio companies, ones that have a market valuation of about $20 million or less prior to a significant discovery. Funds with billions of dollars under management aren’t able to research and invest in companies that small, fund manager Douwe van Hees said. “We can allocate money very specifically and don’t have to invest in a limited number of less performing assets.”
It wasn’t always like this. Until 2014, Plethora invested the same way as its larger peers, the managers said. “We invested in large companies that already discovered the gold. We just tried to beat the index but this didn’t turn out to be very successful, so we changed strategy,” Van Hees added.
In order to stay small, Van Hees said they recently returned one million euros to investors — the second such distribution in two years. Plethora hasn’t taken in any new money since 2016, despite investors’ requests.
The fund sees a second route for expansion. “We are setting up a private equity fund to invest in young exploration funds that are run by geologists,” Vermeulen said. This will “cut out the middle man” and maintain the same strategy as the equities fund, he added.
Plethora Private Equity, as the fund will be named, aims to generate double-digit returns and distribute 50 percent of realized profits back to investors.
(By William Canny and Ruben Munsterman)
