Q&A with John Forwood, Chief Investment Officer, Lowell Resources Fund
Lowell Resources Fund CIO John Forwood says the junior resource sector is facing shifting dynamics, with gold equities under pressure and copper surging to record highs.
While the fund maintains a strong weighting toward gold, it has increased its holdings in North American copper plays amid Canadian market outperformance.
Forwood warns that proposed capital gains tax changes could weigh heavily on Australian explorers, while highlighting uranium, tungsten, and lithium as commodities with strong fundamentals and growing demand.
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Tell us about yourself and your background in the industry.
My background is in geology mainly, but I’ve been focused for a long time on the finance side of the junior resources sector.
The Lowell Resources Fund focuses on junior resources, mainly pre-development companies, but across the spectrum covering everything from precious metals right through to oil and gas.
What else is grabbing your attention at the moment?
You’ve got the fundamentals of the commodity markets as the baseline, and those fundamentals are really strong.
But things are getting pushed around day to day, especially with what’s happening with the Iran war. I think there’s obviously short-term and immediate impacts from the war, but there’s also going to be longer-term impacts. Oil and gas prices have gone up straight away.
What are you seeing in the Australian market specifically in terms of a reaction? There has been quite a lot happening in Australia in terms of regulatory changes and a new budget.
I think there certainly is a concern that the changes to the capital gains tax will negatively affect startup businesses in terms of the incentive to invest in them.
Obviously exploration companies are by definition startup businesses, so if there’s going to be a bigger tax take for capital gain for high risk investment, then that’s going to make it harder for junior exploration companies in particular to raise capital.
That looks like a bit of a headwind there.
I also know that industry bodies like AMEC (Association of Mining and Exploration Companies) are really lobbying hard to have exploration exempted from those changes. This is something that’s caught a lot of attention and doesn’t seem to be dying down. For example, the budget was a couple of weeks ago now here in Australia and there’s still a lot of outcry against it, particularly the capital gains tax.
Previously your portfolio had a strong focus on gold. Do you still maintain that focus? What else is grabbing your eye these days?
We’ll always have a heavy weighting toward gold, but it has reduced somewhat as we’ve tried to capture other opportunities on an ongoing basis.
And the market has moved. The gold price has come off about $1,000 an ounce over the start of this year, and a number of equities have really been hit quite hard.
One of our largest investments, Astral Resources (ASX:AAR), its share price almost halved over this period. So, there’s been quite a bit of selling pressure.
We still think that’s a really attractive investment, and much more attractive at these prices, but at the same time, two of our largest investments in our portfolio are now copper companies that are listed in North America.
I think this reflects two things: one is that the price of copper is hitting all-time highs, but also that over the last 12–18 months, the Canadian market has really outperformed the Australian market, both in a relative sense and in a raw sense.
We’re seeing a bit of a rotation from commodities. We still really like copper and there’s some fantastic opportunities there. It’s actually hard to point to a commodity that doesn’t have good fundamentals at the moment.
Uranium looks really strong fundamentally. Tungsten has had a fantastic run and I don’t expect the reasons for that run to disappear anytime soon. With the increased demand from munitions and the Chinese export bans, tungsten is a popular one right now.
We’re looking to increase our lithium exposure. Even though there has started to be a supply response to the bounce in the lithium price, we’ve seen a couple of Australian lithium mines restart in the last month. The growing demand from stationary storage and EVs (electric vehicles) is a theme that’s not going to go away anytime soon.
You mentioned that the Canadian market has outperformed the Australian market recently. Why do you think that is?
The Canadian market was completely decimated the last two or three years, whereas the Australian market was a lot better valued. In this time, we did see a lot of Canadian companies coming to look at the ASX as a way to raise money in Australia or list on the ASX to increase their valuations. A couple of companies like Marimaca Copper (ASX:MC2) actually did that.
There’s an interesting analysis that I did that showed that Canadian companies have a much tighter share registry, with fewer shares outstanding. When you’ve got more money trying to buy fewer shares, it just pushes the share price up.
And I think, whereas in Australia, you’ve got maybe the same amount of money, but there’s more shares out there, so you don’t get the same leverage. Canadians are very good at making sure that when things are running, the company can give the right leverage.
What do you think are going to be some of the key drivers moving forward? Are there potential themes that can shift the industry?
Across so many commodities, China is by far the biggest consumer. If you look at things like copper, for example, China has massively built out its smelting capacity, so the treatment charges have gone negative, which means there’s massive demand for copper concentrates from miners.
The short- to mid-term impact of the Iran war has been a lack of sulphur, and this impacts about 20% of global copper production. It massively impacts high-pressure acid leaching nickel production out of Indonesia, who is by far the biggest nickel producer. It also impacts uranium production.
So, I think that’s a medium-term impact.
But I think perhaps some of the things that are more structural, like countries like Indonesia reducing their mining structures, will support things like the nickel price.
You’re also seeing similar things happening with cobalt out of the Democratic Republic of Congo. So, countries are getting a bit wiser and making sure that they’re not just flooding the market if they’re the dominant producer of a particular commodity.
So I think that’s a bit of a theme that has been playing out over the last couple of years and will probably not go away soon.
Write to Amy Rotman at Mining.com.au
Images: Mining.com.au
