In this week’s FundCalibre interview, Georges Lequime, co-manager of the WS Amati Strategic Metals fund, gives an update on the current trends in the sector, particularly focusing on precious metals such as gold and silver. We also look at the broader market, including mining projects, the need for capital investment and lithium’s growing importance in energy storage.
Why you should listen to the interview: Georges provides an in-depth analysis into the metals market discussing both precious and industrial metals in this interview. Georges decades of experiences comes through in his comprehensive answers and the fund’s boots on the ground approach.
This interview was recorded on 24 June 2024. Please note, answers are edited and condensed for clarity. To gain a fuller understanding and clearer context, please listen to the full interview.
Interview highlights:
The appeal of silver
“If you look at all commodity prices and you go back to 1980, silver’s still at a lower price than we saw, so it hasn’t really moved dramatically. Historically, silver tends to be more volatile than gold and moves in the same direction as gold. So when we are getting the the gold price moving aggressively in one direction, we normally get a catch up of the silver price, and then the equities usually trade at a premium because there’s a scarcity of silver companies around the world.
“But we have an interesting situation now with the silver market where it’s been in deficit for three years now. It’s primary mine duple is falling and 70% of supply comes as a byproduct. Yet you’ve got real industrial demand for silver — 65% of the demand for silver comes from the industrial sector, which includes the solar panel industry and electric vehicles — so that demand is growing at a rapid rate. But there’s an apathy in the market.
“It’s a bit more volatile but the valuations aren’t at an extreme right now, and we get excited when they’re the extreme, because nobody knows what the future’s going to look like.”
The need for metals in our economy
“So we are in a situation where we’re moving to another phase in the economy, not only decarbonisation, which is metals intensive, but we have infrastructure spend. We’ve heard the US talk about infrastructure spend. We know in Europe they’ve gotta improve their infrastructure and in this country as well. It’s all metals intensive.
“And with these long lead times, around 16 years on average from discovery to production of these metals, the sector has been starved of capital, where capital has gone to other sectors of the market. So we go through these big phases of recapitalisation of the industry. And if you want to invest in the metal sector, you want be invested during a period where there’s recapitalisation, which means bringing projects on stream, it unlocks a discount and that’s where the real value creation comes from these companies. And I think for the next five to 10 years, we are definitely gonna go through a recapitalisation of the industry.”
The role of metals in a portfolio
“We’ve always said at the onset we would hold 15-20% in precious metals because they give you a good risk diversifier in the portfolio. Usually when industrial metals do very well, gold tends to lag and vice versa. Now, you’d throw a spanner in the works with battery metals and lithium and nickel coming in. So you’ve got three big variables moving around.
“And last year we had the battery metal sector really come under a lot of pressure. And the precious metals came under a lot of pressure because rates were rising, which conventional wisdom says, well, rates are rising, I don’t wanna be holding precious metals. But we’ve got all time highs in gold and silver prices. We got undermining valuations across the sector. So, we are holding more than usual, purely because this is where we’re finding the best value right now. And we’ll look to trim that back down to 20%. But right now, that’s where we’re seeing the most growth coming through. And that’s, for us, where can we get the best value.”
Conclusion
There’s seems a clear genuine value opportunity in the metals market with Georges making a strong argument for his asset class and the potential for a strong rerating in the coming years, now appears a good time to access this specialist area of the market.
