I found this article in financialstandard.com.auInvestors strike...

I found this article in financialstandard.com.au


Investors strike gold with LinQ

Friday, 28 Apr 2006 12:28PM

The new wunderkid in resources is Perth-based fund LinQ, which has managed to grow investor money by as much as 500 per cent thanks to astute plays made here and overseas.

LinQ started life as Rothschild’s resources fund ‘Golden Arrow Fund II’. But two years ago, the head of that division Clive Donner bought the business and took across the Rothschild resources investment team with him to the new fund.

The result is LinQ Resources, a boutique fund that was listed on the stock exchange in January 2005. Donner said it is different from other resources-type funds because it behaves much like a late stage Venture Capital (VC) fund, which means the returns are potentially higher and in some cases, the fund will generate the deals or help the company with financing or listing.

For example, the fund was instrumental in the UK stock exchange listing of China Goldmines, currently one of the hottest resources stocks listed on Aim. “We managed to get 300 per cent return above the entry cost on that investment,” said Donner.

Another example is LinQ's hand in resolving a stalemate between three resources companies involved in a three-way nickel joint venture. Putting his VC hat on, Donner recommended an alternative business structure which led to a five-fold return to LinQ's initial investment.

Another way the fund captures the best returns is that it targets small to mid cap companies. “The average price-to-earnings ratio (PE) for mining stocks for example is 15 to 20 times. We’re not interested in those. We look at companies with PE of 1 to 2 times and hope to exit at 5 to 10 times,” said Donner.

That may sound ambitious but Donner said he is using his more than 25 years experience in the industry, mainly at Rothschild Australia, to separate the genuine opportunities from those that will never come off ground. He added that the number of the fund's investments is capped at 35 to ensure all of them are regularly monitored.

Another key differentiator of the fund is that it has a higher-than-average proportion of capital in convertible notes, which allows investors to lock in profits when the shares do well or get all their money back if the shares do poorly. Donner is widely known as the man who introduced convertible notes to the sector and, not surprisingly, use it as a financial engineering tool to reduce the risks inherent in investing in resources.

He explained, "The sector is doing very well at the the moment but there could come a time when the music stops so investors should ensure they are invested in the right companies."

Michelle Baltazar