Blackwattle Investment Partners is an investment company with multiple strategies spanning small-cap and blue-chip stocks, as well as long/short investing.
This week, each Blackwattle fund released its quarterly report, with several notable themes emerging from the commentary.
One theme was the Blackwattle team’s view that the recent downturn in the lithium sector was overdone. Mid-cap managers Tim Riordan and Michael Tehran wrote:
“We see this price volatility as normal for a still nascent commodity, and this volatility is likely to have the unintended consequence of reducing capital and increasing return hurdles for new investment, driving a higher commodity price through the cycle.”
The fund holds PLS Group (ASX:PLS) as part of its exposure to the sector. The small-cap team also considers the sell-off disproportionate and holds an allocation to lithium producer Liontown Resources (ASX:LTR).
It cites evidence that industry participants continue to see inventory drawdowns and a tightening market.
The Blackwattle small-cap team also sees recent bond market weakness as a major influence on lithium and uranium prices. If its analysis is correct, the recent reversal in US bond yields could help both sectors recover.
Blackwattle sees tin as a way to gain AI exposure
The Blackwattle large-cap fund also listed tin producer Metals X (ASX:MLX) among its holdings.
The team notes that around half of all tin produced annually is used to solder electronic components. Tin is also used in batteries, alloys, and chemicals. It describes Metals X as “an indirect play on the growth of data centres”.
Of course, a producing miner such as Metals X remains exposed to commodity price and production risks that are separate from the growth of artificial intelligence.
Energy sector’s earnings power comes to the fore
Blackwattle also highlights the energy sector, with the mid-cap fund holding a “large exposure”. Its analysts believe that the market is underestimating the sector’s strong cash flow, which they expect to continue for the foreseeable future. They wrote:
“While any resolution to the geopolitical turmoil is uncertain, the market is slowly becoming of the view that energy prices will remain higher for longer given the physical disruption and damage which will take some time to recover/repair, which is a tailwind for our energy companies.”
Write to Callum Newman at Mining.com.au
Main image: Unsplash
