Fundamentals, page-61

The following extract from interview between LowellResource Fund's CIO John Forwood (Heavily invested in PDI) & The Assay may be of interest tosome. I follow Lowell a lot & like their approach, especially for the factthat they travel far & wide to make their own assessments directly with miningcompanies & have a superb team of analysts.

Full article available: https://www.theassay.com/articles/investor-insight/exploration-funding-for-australian-juniors-what-drives-investment/

Extract:

Are there specific industries, commodities, orjurisdictions that you’re most focused on?

We are based in Australia, so we naturallygravitate to management teams that we already know. Most of our investmentsare listed on the ASX, but we do have several companies that are listedoffshore, particularly on the TSXV. We also have several unlisted investments.We have a lot of investments in Australia, but in terms of nichegeographies, we’ve got quite an exposure to Guinea in West Africa. Companieslike Predictive Discovery (ASX: PDI) have done well there and that’s been agreat investment for the Fund.

We’re prepared to invest in more far-flungsovereign risk jurisdictions. We’re agnostic in terms of geography, so long asthe potential returns are appropriate for the risk, and we cover the commodityspectrum.

There’s been a bit of a disconnect between metalsprices and junior sector equity valuations. Do you have any insight into whythis is and if there’s any potential fixes for this?

Yeah, absolutely. If you look at gold, the juniorgold explorers have been forgotten and very unloved as of late, despite goldprices being relatively high. Today, the gold price is over A$3,000/oz. The USdollar gold price has bounced back from around US$1,820 earlier in October, andis now around US$1,925-US$1,930/oz. So, a very healthy price. The producers aremaking good money and they’re the ones sitting back and going, “Okay, well, wecan almost pick and choose the juniors that we want to acquire,” because on theM&A side, there’s not a lot of urgency or competition at the moment.

The solution for better valuations for goldexplorers is obviously a higher price. In early May, we saw the gold price jumpto over US$2,000/oz. There was a resurgence of interest, albeit brief in thejunior sector, but that fell away as the gold price came back belowUS$2,000/oz.

What’s going to drive a higher gold price? I thinkit’s a change in the US interest rate regime and real interest rates. If we canhave higher gold prices that trend up rather than down, the sentiment for thejunior gold explorers will change.