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Argonaut's Norris wins big as commodities cartel collapses
by Amy Williams on Aug 08, 2013 at 11:22
The collapse of a longstanding potash cartel this week has boosted the performance of Barry Norris’ absolute return fund.
With a short position in German potash miner K&S Group, the IM Argonaut European Absolute Return fund benefitted as K&S’s share price tumbled by 40% as the company was hit by fears of a price war.
Norris, who also runs the Citywire Selection fund IM Argonaut European Alpha told Citywire Global: ‘Potash prices have up until now been dictated by a cartel of the three largest producers. Last week Russian group Uralkali decided to leave cartel and guided that prices would fall to $300 a tonne.’
‘K&S has been spending its entire market cap on new mines in Canada. Now with the break-even point edging higher it will be unprofitable.’
Shorting miners is a trend across the fund owing to Norris' scepticism over the sustainability of emerging market growth and as a result, commodity price strength.
‘Emerging markets have underperformed over the last two years and will continue to underperform for the next decade,’ he said.
While Norris is short selective gold miners, he has paired this trade with a long position in Danish jeweller Pandora.
‘The company has been trading well having overcome significant inventory problems after going public two years ago. Anecdotal evidence also suggests the shops are very busy.’
Highlighting the impact falling gold and silver prices will have on the stock, Norris said:
‘Gross margins are 60% with half of the cost of production coming from gold and silver. If precious metal prices fall by 25%, the company will see a 500 basis point boost to gross margins.’
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