STAN­LIB RE­SOURCES FUND

Financial Mail - Investors Monthly - - Analysis: Resources Funds -

The view on iron ore is no dif­fer­ent at In­vestec As­set Man­age­ment. “We’re neg­a­tive on iron ore, and this has in­formed our as­sess­ment of more high-cost pro­duc­ers like As­sore and Kumba,” says Daniel Sacks, manager of the In­vestec Com­mod­ity Fund.

He thinks the huge min­ers based in west­ern Australia will be in­creas­ing sup­ply faster than China’s steel de­mand can ab­sorb it: “In this sce­nario, the price has to set­tle lower in the fu­ture.”

This view has also in­formed his opin­ion of An­glo Amer­i­can. “It is in the process of bring­ing pro­duc­tion at [Brazil­ian op­er­a­tion] Mi­nas Rio, which will be com­pa­ra­ble in size to Kumba. Like Kumba, this will be to­wards the mid­dle to top end of the cost curve. That’s not where you want to be in this en­vi­ron­ment,” says Sacks.

It’s not just iron ore that has in­formed his opin­ion of An­glo Amer­i­can. “With ref­er­ence to De Beers, we are see­ing weak­ness in di­a­mond pric­ing, and there is no free cash flow com­ing out of An­glo Amer­i­can Plat­inum. So we think the div­i­dend will be un­der pres­sure,” says Sacks. He be­lieves it is un­likely An­glo will cut the div­i­dend — a de­ci­sion that had cat­a­strophic con­se­quences for the com­pany in 2008. But it will re­sult in the share price hit­ting new lows.

As you can prob­a­bly in­fer, there is not much love for plat­inum pro­duc­ers ei­ther: “We dis­like the three ma­jors (Am­plats, Im­plats and Lon­min). The mar­ket is dis­count­ing higher prices than we think are likely,” says Sacks. The ab­sence in the port­fo­lio does not ex­tend to the smaller pro­duc­ers, in­clud­ing Aquarius and Northam.

The fund’s pre­ferred in­vest­ments among the di­ver­si­fied min­ers are BHP Bil­li­ton and Glen­core, the lat­ter largely on ac­count of its lack of ex­po­sure to the steel com­plex.

Sacks says the fund will re­main a holder of South 32, the prod­uct of BHP Bil­li­ton’s de­merger, which re­cently listed on the JSE. “It’s a lit­tle bit like Sibanye — it looks cheap, but many of its as­sets have fairly short life-of-mines which will have to be ex­tended in a few years’ time.

“They are also heav­ily ex­posed to SA, which has a very tough op­er­at­ing en­vi­ron­ment at the mo­ment. But we like the mix of com­modi­ties in its port­fo­lio.”

One po­si­tion that has been added to re­cently is Sa­sol. “We have been buy­ers this year on the ba­sis that the prices it re­ceives for its chem­i­cals have stood up bet­ter than the mar­ket has been ex­pect­ing,” says Sacks.

In con­trast to the plat­inum ma­jors, the fund does have hold­ings in a gold ma­jor — An­gloGold Ashanti. “It’s our favourite among the of­fer­ings. It has had it rough for a long time now, and we are en­cour­aged by its dis­posal pro­gramme,” says Sacks. The com­pany plans to sell some as­sets — Sacks thinks its North Amer­i­can op­er­a­tion is a likely can­di­date — in or­der to pay down debt. It has also been re­duc­ing unit costs in an oth­er­wise chal­leng­ing en­vi­ron­ment.

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