If there isn't even a slide on corporate governance, then I'm concerned

Gervais Williams, Managing Director of Miton Group, talks to Mines and Money about his outlook for the mining sector and what he looks for when making a mining investment

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Gervais Williams joined Miton Group plc in 2011. He manages a number of funds and trusts with Martin Turner that aggregate to just under £2.0bn. He is also Senior Executive Director at Miton Group plc. His fund management career extends over 30 years including 17 years at Gartmore Group Ltd, where he was head of UK Small Companies investing in UK smaller companies and Irish equities. Gervais is a member of the AIM Advisory Council, chairman of the Quoted Companies Alliance and a board member of The Investment Association. He is also on the EU Taskforce reviewing why the number of smaller IPOs has declined over recent decades. Gervais Williams published his first book 'Slow Finance' in the autumn of 2011, and his second book 'The Future is Small' was published in November 2014. His most recent book 'The Retreat of Globalisation' was published in December 2016.

I caught up with him in advance of his appearance at this year’s Mines and Money London

 What is your outlook for the mining sector in the next 12 months?

There has been a global industrial slowdown. We’ve seen a fall in oil prices, and economic indicators such as bond yields are not positive.

If this slowdown continues it will impact the mining industry. Cash flow will be less, as will the ability to fund both existing mines and scale up projects from exploration to production.

What other challenges is the mining industry facing?

There is increased pressure on the mining industry to improve its governance and safety culture, as demonstrated by Brumandinho.

How do you assess corporate governance and ESG issues as part of your investment decision-making?

I don’t attach too much significance to environmental reports as they always tend to be positive and tell me nothing. When I talk to mining companies, I like to ask how much lost time they have faced in production or how many near misses they have had. It’s also very insightful to read a company’s corporate presentation. Are ESG issues discussed prominently or are they buried? If there isn’t even a slide on corporate governance than I am concerned.

Which commodities are you bullish about?

Gold and silver will be the beneficiaries of the slow down and maybe platinum. For gold, usually the fact that it has no yield is seen as a negative. However, with government bond yields becoming negative, gold’s lack of yield may turn into a positive. In some countries where there is the danger of an economic collapse in their currency, investing in gold or precious gems offers a safe harbour.

And which commodities are you bearish about?

Although we do have a few investments such as in a tin company, overall, I am bearish about industrial commodities due to the downturn.

Is there been an investment book that you would recommend?

The Intelligent Investor by Benjamin Graham. Its principles’ of value investing share price valuation and putting capital to work is as relevant now as it was when the book was first published.

I’m also a big fan of the economist Andrew Hunt. He has been very perceptive in identifying liquidity trends. His research was spot on in predicting the Asian crisis before it happened in 1997. The mathematics behind his research on CDOs in 2007 was again very perceptive in predicting the global economic crisis.

Is there an investment decision you are particularly proud of?   

Whilst at Gartmore back in 2002 Griffin Mining, a gold and zinc miner operating out of China, came to us. They were all but at death’s door. However, we saw potential in them and invested. They now have a market cap of US$160 million and their share price has multiplied 100’s of times.

How do you identify when to invest?

I like to be the last investment round or entry point before cash flow is generated.  Scenarios that would interest me could be a mine about to come online but needing one last round of funding to achieve this, or a mining company with a pressing debt where a small cash injection will enable it them to generate an abnormal payout. We’re looking for a slightly uncomfortable entry point with a substantial return once that hurdle has been cleared.

What sort of positions do you like to take?

I like to take a 5% to 15% holding position in small cap stocks so we can have influence. For that reason, I run funds with a small cap bias, although I do hold some mid-tiers and majors. Our balance is roughly 2/3 junior small caps and 1/3 mid-tiers/majors.

You’ve also been a supporter of AIM and the LSE – why?

I am massive fan of LSE and AIM stocks. I think they are better regulated exchanges than some others. 63% of AIM listed stocks pay dividends. AIM is one of the few remaining markets with a viable infrastructure dedicated to small cap/ micro stock opportunities.

Gervais Williams is a speaker at the upcoming Mines and Money London, taking place 25-27 November at the Business Design Centre. 

Andrew Thake

Head of Content, Mines and Money