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Trust Insider: gold minnows for a mining recovery

by James Carthew on Feb 25, 2014 at 00:01

Trust Insider: gold minnows for a mining recovery

This week I am going to have a look at a minnow, Altus Resource Capital (ARC). ARC has a market cap of just £28 million but I think it might be interesting as one of several resource plays that are out of favour right now.

ARC’s speciality is gold miners. Its brief is to generate capital growth from a concentrated portfolio (about 20 holdings) of junior resource equities (initially described as sub-£100 million market cap but, since 2011, anything up to £500 million) but with a focus on the gold sector and companies involved in exploration, development and/or mining of metals and minerals. Most of these are quoted in London, Toronto, Sydney or Johannesburg.

Domiciled in Guernsey, ARC listed on the Specialist Fund Market on 30 June 2009. It has never been a big fund – the initial fund raising managed to issue just 26 million shares at £1 each (but then June 2009 was hardly the best time to try to launch a fund).

Markets had bounced, just, off the lows of March that year but most fund managers were sitting on their hands, wary of what new financial crisis was just around the corner.

Also, to be fair, the gold price had had its own wobble and was only just nudging the high seen in March 2008. In retrospect ARC’s timing was good as the gold price took off later that summer, doubling in just two years.

ARC posted quite respectable net asset value (NAV) performance during that period and was able to expand the fund a little – issuing £14.7 million worth of shares in December 2009 and £3.8 million in August 2010.

The share price hit a high towards the end of February 2011 and at this point the trust had a market cap approaching £90 million. 

However, junior mining stocks fall into the higher risk category of investments. The Arab spring and the Japanese tsunami unnerved investors early in 2011, and junior mining stocks began to fall even though the gold price continued climbing.

This ended in September 2011. Gold then fell from over $1,900 an ounce to less than $1,200 in December 2013.

ARC’s share price drifted off over 2012 but, in the early part of 2013, despair started to set in for investors in junior markets and in June 2013 ARC’s share price fell to the low 70s and has stayed there since, even when the NAV briefly fell below this level. However, the gold enthusiasts are now getting excited again.

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