How will Brexit impact the mining industry?
Alain Corbani, Porfolio Manager / Head of Mining at Finance SA shares his thoughts on Brexit, the outlook for gold, and the projects that most excite him right now.
Alain Corbani joined FINANCE SA in July 2013 as Head of Mining and Natural Resources and portfolio manager of the Global Gold & Precious fund. From November 2008 to July 2013 he was COO of Commodities AM and portfolio manager of the same precious metal fund. Under Alain’s tenure, the Global Gold and Precious ranked first among its French peers in 2009, 2010 and 2016. Prior to managing the Global Gold and Precious fund, Alain worked for 17 years as a Sell-side analyst and investment banker, notably as Director of Dominion Securities, then RBC Capital Markets prior to founding Green Oak Securities. He has developed an expertise in North American equity investing and financing of North American mining companies
What is your outlook for the mining sector in the next 12 months?
I predict short term headwinds and higher volatility due to maximum uncertainties on all fronts (political, economic) to dissipate in favor of a stronger visibility. The Brexit drama unwinding, Merkel’s succession for leadership, central banks, Trump’s trade war with China de-escalation should lead to a regain in confidence. A low environment of nominal and real rates will help precious metals as well as industrial metals move higher. Higher deficits and debt levels will push the US$ lower.
What will be the impact of Brexit on mining? How should investors play Brexit?
With Brexit will come the last correction / fall in value of the Pound Sterling. After Brexit I expect the UK to do more trade with the US with a weaker currency helping greatly strengthen the UK economy. I think Brexit will be a good buying opportunity for mining companies in general and in particular those with a UK bias.
What are the top three challenges facing the industry right now?
Firstly uncertainty, particularly the economic outlook, and the fear of softening demand for industrial metals.
Secondly volatility, which will prevent some institutional investors becoming shareholders.
Lastly, the direction in rates, inflation and the US currency especially for precious metals.
What is your outlook for gold over the next 12 months?
Over the next 12 months I expect the price of gold to go higher. Gold responds to interest rates. The only certainty is that the Fed will only increase nominal rates if there are signs of inflation.
What we don’t want is a change of perception where data dependent FED might refrain from cutting rates which are already built in.
How should mining projects best pitch you?
We are looking for projects with credibility. Credibility comes from building confidence through historical achievements or a solid story: balance sheet, people, margins and geography.
I am always cautious of over-promotion by juniors. Whilst I understand that exploration is often synonymous with promotion, you can have good exploration stories without promotion.
I am also very weary of any financing of companies that has been done by issuing warrants – to me this is always an orange flag unless it is an absolute necessity.
Which juniors have projects that excite you?
Two projects are currently high on my radar.
Barsele Minerals - BME – well managed with deposits totaling north of 2 million ounces in Sweden at above average grade. The only unknown is that its JV partner Agnico Eagle have slowed down their exploration in the region. This is the only thing that is holding back it’s share price.
Corvus Gold – KOR – has a very disciplined management, 100% committed to the success of the company. This management has succeeded in attracting major mining shareholders. Its deposits are in Nevada. All the financings were done with no warrants. Valuations are modest. What is not to like?
What is the book (or books) you've given most as a gift, and why? Or what are the books that have greatly influenced your life?
Benjamin Graham: The Intelligent Investor – the first investment book I read.
Peter Lynch: One Up On Wall Street – helped me understand how to think out of the box and how ‘the man on the street’ thinks. Teaches you pragmatism.
Tom Peters: Thriving On Chaos. In a rapidly changing world companies must learn how to "thrive on chaos" to survive. So do human beings. A lesson of positivism.
What advice would you give to a smart, driven college student about to enter the "real world"? What advice should they ignore?
Identify your needs.
Learn from the best in your field (not your peers necessarily) Understand their natural bias to rectify the cursor Cross information and build your own scenario (investment case).
Do not be afraid to go against the crowd. Tenacity endurance and daily monitoring of your thesis will allow you to add priceless value to your production.
Be an artist. Be creative. Be patient. Dream but keep your head, trust yourself and make allowance to doubt.
Alain Corbani will be a presenter at the upcoming Mines and Money London 2019, taking place at the Business Design Centre 25-27 November.