AFR – Alex Gluyas
Sam Berridge is portfolio manager of Perennial’s Natural Resources Trust, which has returned 30.8 per cent per annum since inception in 2020. The trust has $24.6 million in assets.
Your fund has returned 32.3 per cent in the year to May 31. What fuelled this performance?
We’ve had solid runs from gold, lithium, uranium, rare earths and bauxite at different points over the last four years. The commodity sector is becoming more diverse, with new boutique metals periodically rising to prominence due to some [usually energy-related] change to demand.
On the stock front, big winners included Capricorn Metals, Azure Mining, Ora Banda, and Brazilian Rare Earths. We still hold the last two, they’ve both got plenty more to give.
What are some recent changes you have made to the fund?
We’ve recently increased our exposure to east coast domestic gas. So far this winter, there’s been two instances of gas prices spiking by 30 to 50 per cent as soon as the wind stopped blowing. This is not normal, and is indicative of a gas market trending into deficit.
We’re on the right side of this trade, but I feel a bit like the two blokes from Brownfield Capital in The Big Short after Brad Pitt sets them straight on what’s going to happen to millions of Americans when the property market collapses.
The looming energy crisis on the east coast is going to hurt, particularly the less well-off. The key exposure here is Cooper Energy, but we have a few others as well.
Are the prospects for aluminium being overshadowed by copper? If so, which aluminium stocks are undervalued?
Yeah, I reckon there’s something to that. Aluminium is an extremely energy-intensive metal to produce. For over two decades refining of all metals has been migrating from the West to China. However, China has capped aluminium refining capacity, and recently put limits on refining other metals as well. That means as demand growth ticks along, the West is going to have to start refining its own metal again. To do that, given all the emission and environmental guidelines, it will be hideously expensive. Prices will need to rise.
A tangent to this is China is also running out of bauxite (the source mineral for aluminium), replacement supply growth out of Guinea is starting to plateau, which has led the bauxite price rising 40 per cent over the last 18 months. Our key exposure here is Metro Mining, which should produce around 6.9 million tonnes of bauxite in 2024, roughly 50 per cent more than last year, at a time of rising prices.
How can commodity investors capitalise on the AI theme?
I think the most interesting direct exposure is DUG Technology. DUG makes most of its money by processing vast quantities of seismic data for oil and gas companies, but the compute it uses for this has ubiquitous applications.
Its key advantage is the use of immersion cooling, in which the hard drives sit in gently circulating baths of oil. This is more energy-efficient and cheaper than air-conditioning whole rooms full of computers.
Elsewhere, the energy demands for AI and data centres require immense amounts of power. It must be cheap 24/7 power so, in the short term, that means US gas.
Which are the best stocks to get exposure to copper’s higher prices?
At today’s prices I reckon FireFly Metals is among the best value of the copper stocks. It’s pre-production, but offers a reasonably convincing line of sight on a 50,000 tonnes per annum project. It’s in a good location, with mine infrastructure in place, located in Newfoundland, Canada. It’s not being valued as a 50ktpa copper producer yet, but in time I think it will be.
What’s your favourite local bar/restaurant, and what’s your go-to order?
Ha! Flattered that you think I ever go out. I work east coast hours from Perth, so I’m up at 5am, and if I’m still out past 8pm, it’s under sufferance.
But we are into stout season, so if you haven’t tried the Peanut Butter Porter by Bad Shepherd Brewing, go buy yourself a sixer. Two of them followed by a slab of Margaret River wagyu is the medicine.
Any podcasts you’d recommend?
If you ever get the chance, listen to a podcast by Doomberg. Based in the US, he comments on the energy space, among other things. In a sector rife with agenda-riddled disinformation, history has found his proclamations to be largely correct.
I also rate the Money of Mine fellas; Matt, Jonas and Trav. Just like short-sellers, you need guys like these to keep the market honest.
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