Welcome And Season Focus

SPEAKER_00 0:02

Welcome back to Finance Friends. I'm your host, Fabian, and this is season four. This season we're diving deep into the world of investing. Not just where to put your money, but how to think like a professional investor. We are bringing you conversations with highly intelligent, incredibly motivated investors with weekly episodes. Make sure you stay tuned in. On today's episode of Finance Friends, we had Rick Squire, who's a portfolio manager of a resources and energy fund at Acorn Capital. He returned 90% in his fund last year. Quite unique. He's been to Africa over 20 times, visited 13 different countries in Africa. He started his career well as a geologist before working in academia and now working in funds management. He has some incredible stories. Listen in. Welcome, Rick, to the Finance Friends Podcast. How are you this morning?

SPEAKER_02 1:03

Yeah, really well, thanks, Fabian. Thanks for having me.

SPEAKER_00 1:06

Well, thanks for coming in. I bumped into uh a good friend of mine, Dan McAlear, who's in the business on the street, and we're having a bit of a chat. And he's like, oh, you have to get Rick on the podcast because he runs the uh Next Gen Resources Fund. You had a bumper year last year, is that right?

SPEAKER_02 1:19

Yeah, that's right. It's a pretty good year. But we also like to point to the sort of the five-year performance. We've been going pretty well for just over five years now.

SPEAKER_00 1:27

Fantastic. And has the has the fund just been running for just over five years? We've been running a bit longer than that.

SPEAKER_02 1:32

Yeah, so A ACON's been around since uh 98, but um you know we started the Next Gen Resources Fund in late 2020. So so uh it really builds on the back of you know uh sector knowledge and IP that we've we've dealt developed over a couple of decades, but really focused on a uh a product which is just for the uh resources and energy sectors.

From Geology To Deutsche Bank

SPEAKER_00 1:55

Okay, that's quite uh specific and unique, and there's not a lot of products in the Australian market that that focus solely on on resources and energy. So it might be worth taking a step back to the early days. Uh sure. Because you didn't just become a portfolio manager overnight. How did you get there and uh and what did you study? Because it's quite uh quite unique to maybe some of our listeners out there that you know might study to become something and end up in a different industry.

SPEAKER_02 2:22

Yeah, sure. So I I'm a geologist, uh that's that's my my core background. I I studied science at at uni and and I left uh uni and and started working as a an expiration geologist. So I was in the Northern Territory and Western Australia, working in gold, base metal expiration for five years, and then I went off and did a PhD. So I did my PhD on on Cadia, which is uh one of the largest and and and most profitable gold mines in Australia, in New South Wales, just out of Orange. And when I finished that, there was a it was uh 2001, there was a uh a recession, and uh it was very difficult to get work and and uh but I managed to pick up a a postdoc, uh postdoctoral uh fellowship at Melbourne Uni. So I didn't want to go into uh uh academia, but there weren't too many uh options. So so I thought I'd do that for um 18 months or so, then get back into industry. And so uh 10 years later, I was uh still there and uh just living the high life of a research fellow. So I tell everyone that um I gave less than 10 lectures in 10 years. So um I was on industry-sponsored um uh projects, so uh I would get money from mining companies, from uh from state governments, from uh federal uh bodies. So I was I was very good at actually raising funds. And so so it was really, it was really good fun work and uh really interesting because I was working with the mining companies trying to understand, I'd better understand and better focus their their expirations so they can prove their discovery rates. So and then um in terms of the the pivot to to finance, I was I was literally sitting on the beach uh on a holiday, and um a friend of mine who I'd uh I'd uh worked with uh probably 10 or or 15 years earlier, he was the uh the uh head of Deutsche Bank's Global Mining Finance Group. And he rang me up and said, Oh, do you want to travel the world and uh look at mining projects and write a one-page report on whether we should invest or not? And I said, Yeah, I can do that. And so that was the the pivot that uh uh took me from academia to to uh to to finance. And I spent uh five years in in debt finance, and then uh 10 years ago, or nearly 10 years ago now I I started with ACOR.

SPEAKER_00 4:40

Yeah, so when you talk about debt finance, so you worked for Deutsche Bank, going to look at these projects and say, well, you know, uh is it safe for us to lend money to these businesses? Are they eventually gonna turn a profit or are we never gonna get our money back?

Africa Fieldwork And Jurisdiction Risk

SPEAKER_02 4:52

Yeah, pretty much that that that's what that that's what it was. And so it's a a lot of travel and um uh you know going to you know many countries uh down around the world looking at a real range of of uh projects. So it's quite quite exciting and and um you know really a great learning opportunity. So you know, now I look back, um, my wife often asked me where I've been on the planet, and you know, like uh I've just been just came back from Africa uh uh two weeks ago. I was in uh Namibia and Malawi. So it's the third time I've been to Namibia. I've been to 13 different countries in Africa. I've probably been to Africa 25, 30 times and and looking at you know all sorts of projects from from um uh gold, uh, coal, gas, uh platinum, uh all sorts of things, and uh many trips to to uh South America. Uh so seeing a real range of projects. And so so it builds up uh you know incredible uh breadth and and and depth of knowledge. Because when you go over there, you'll you're looking going really deep in the weeds to to understand you know what are the technical risks and challenges around the project and where is the the market, and equally important is where's the market really misreading the opportunities in in these uh projects? Because if you can see that uh though those opportunities, that's where there's uh mispricing, and that's where you know as an investor you don't have to take you know large amounts of risk to uh to to generate a a superior return.

SPEAKER_00 6:21

Yeah, and can you share maybe some of the risks that obviously in Africa, very mineral resource rich continent. Yeah, but there are some some risks investing in in Africa. Can you maybe share some stories that you've you've had a situation where you thought it was a really good opportunity, but maybe the risk hadn't been factored in or risk that was factored in that didn't make you uh sorry, made you not decide to invest in that company?

SPEAKER_02 6:49

Yeah, so it's a really good question because there are um uh a number of uh countries what that ha have large-scale mining in them and and uh there are a number of countries that don't. Yet they might be, you know, some of those ones that don't might be uh quite prosperous uh countries. You know, for for example, like Kenya has a very big uh tourism population, but they don't have a a big mining uh uh a big mining industry in terms of mining for large-scale uh mining companies. And and and that difference is is is really important because uh what I've discovered from you know the the visits to a a lot of these countries is the the importance of established uh uh uh mining industry in a country is really important. And the the reason for that is the the bureaucracy is set up for it, the education system is is set up for it. And so when they start a new mine, you know, one of the the great risks to starting up a mine is is the the risk of uh risk of corruption, but but it's also the slow the the speed at which you can actually move through the system to get a mine into production, just through that permitting phase. So if you have a uh a bunch of accountants, for example, and they really understand tourism and and agriculture, and then you bring them into the mining industry, they don't know quite what's actually what what's what what's needed. And so that can lead to you know really poor decision making and and and just sort of slow down the uh the the process. And so so when you when you think about that education system, it's not just about producing uh a geologist, mining engineers, metallurgists, it's actually also producing an accountant who understands mining as opposed to an accountant who understands you know agriculture or or uh or some other uh sector. And and that that that that difference is so important when you're trying to start an operation or when you're trying to expand and do something a little bit different. But if you're in a a country like Namibia and uh they've they've got a well-established um uh uh mining industry that when you take them and say, Oh, we want to extend expand our project, you know, these are the issues, you know, there's a real system in place and there are people involved that actually understand what you're doing, and so you've got a much better chance of getting across the line.

SPEAKER_00 8:59

Yeah. And what other some other risks that might play? And obviously you talk about corruption, but yeah, uh it's is it and have you had a situation where you've had a mine been taken over by, you know, a uh maybe a a local tribe or a gang, because they've seen I've you know, I have heard stories of that, or the government's just stepped in and and just taken over the asset.

SPEAKER_02 9:22

Yeah, so good question. So, you know, back in the the uh lithium boom, there were you know two good examples of you know uh problems like that with with AVZ in the uh Democratic Republic of Congo, the DRC, that you know they they lost their their their project. And so the the DAC, you know, we we we used to say, well, DRC is a really difficult uh uh country, but but um it wasn't just that. That they were in the Harlem end of the DRC. They were in the bad end, you know, there's like the Paris end of the DRC, and then there's the Harlem end. And that they were right down a really difficult part, you know, an area that not many people went to. Yet it was an incredible uh deposit. And so as a geologist, so I was really torn because I would look at this project and say, oh wow, that is amazing. You know, that is like one of the best undeveloped lithium projects on the planet. But then I'd look at the lot the jurisdiction and it was like that is just too much risk to to to take. And that real that that real balance, it's really important to uh to consider these things. And and uh, you know, it's a bit like uh South Africa today. And I I like, you know, I love visiting South Africa. I think it's an amazing country, but the the social tension uh around the uh the projects, to me, that makes it really difficult to invest. So there's a company that has a country that has large-scale mining, you know, great mineral endowment, just incredible mineral endowment. Yet you know, I just find the the social tension around uh in South Africa is just too too big a risk for for for me to invest. And and again, that's you know, someone who's been to 13 different countries in Africa that I've you know, I've I've I've I've seen a lot and made many uh many trips over there and and would be very comfortable taking my my family for a holiday there, but I just can't invest there.

SPEAKER_00 11:09

Yeah. Have you ever had a situation where you have felt at risk being in Africa?

SPEAKER_02 11:14

Uh yeah, I um yeah, yes is the answer. I I went to Mali once. I got in a little bit of trouble doing it, but uh I I went I went to Mali uh when they were still fighting the Taliban in the uh in the north and and I had to go and uh this uh company had had uh uh operations in in Mali, in uh Burkina Faso, Cote d'Ivoire and and Ghana. I had to go and uh visit them as part of the the D D where we're lending money to them. And uh, you know, I travel around Ghana and Cote d'Ivoire and we flew into Mali. And you know, when you see the uh the that there was actually the the French, the German and the UN uh uh air force at the uh at the the airport and and it's a bit like in the movies where they have those uh you know sort of sandbag uh checkpoints that come in and they check under your car with the mirrors, you know. That's a bit uh unnerving when you you see that sort of uh thing. But when we flew, uh that's when we came into the city, the capital, Bamako. And when we flew out of there and and went to um to the site, it was just as uh peep, peaceful and quiet and and and relaxed as any other uh site that I'd been to in in Africa. But certainly, you know, in the in the city of uh in the capital, Bamako, uh, at that time, and that was probably um that that was probably 12, 13 years ago. It was uh it was a bit unnerving. So that wasn't probably my favorite trip, that one.

How The Portfolio Is Built

SPEAKER_00 12:46

Yeah. And when do you look at to so constructing your portfolio? You talk about the is it the the resources fund? Yeah. Um next gen resources. So next gen you're looking at um can you maybe share some insight into a little bit about the fund and how you build the portfolio?

SPEAKER_02 13:04

Yeah, sure. So in in terms of uh construction of the fund, so uh next gen resources fund is a a resources and energy fund. Uh we we uh invest uh across all all sectors and and commodities. Uh what we use as a uh a guide for portfolio construction is the investment universe. So if you look at uh uh companies, so the comp we invest in companies that are outside of the top 100 on the ASX. So think of uh market cap around sort of five or six billion dollars. We're in the companies that have market caps less than that. Yeah. So and we we we'll go into uh companies from uh expiration through the development phase and and and into uh production. And uh what we're really uh looking for is where there's mispricing with within that sector. And and the best place for that uh mispricing is uh is actually in that uh that development phase where there's there's there's risk on execution of that expansion plan. And that that expansion plan can be uh building a brand new mine, you know, so building a processing plant and and and putting that into production, but but it can also be expanding a uh uh uh a processing plant or opening up a new ore body uh you know where you're you know a new source of uh ore to put in, whether it's gold or or um copper or whatever it might be. So so what we really look for is where there's uh uh uh a technical risk on on uh expansion in in a company, and then then I come in with my my analyst uh Angus and we look at that uh risk and we assess whether you know how how how large that risk is and whether there's some mispricing around that. So so in terms of you know building the portfolio, if you look at the investment universe today, if you look at companies on the ASX that are outside resources and energy companies that are outside of the top 100, um about 45% of that is uh uh in gold, gold and silver stocks. Yeah. Uh you're probably uh close to uh just over 10% is uranium, uh just under 10% would be uh copper. Uh and then we we start just building the portfolio there. So it very much reflects the proportions reflect are very close to what the investment universe is. Yeah, and then we use a bottom-up process to identify the best stocks within that sector. So really important that we're bottom-up investors, so we're not taking a macro view where we say, oh, we really like lithium, and so we put 30% lithium in the portfolio. We look at, okay, what's the lithium uh exposure? Yes, it might be uh four or five percent. We might tilt that towards six or seven, but we we're certainly not going to make it fifteen or twenty when when the uh the universe is is five or six. Yeah. And are you strictly ASX? No, we have the ability to invest on other exchanges, but we we we uh focus predominantly on the ASX. And uh uh w one of the reasons for that, it's it's something we joke about, we take quite seriously, is that it's a full-time job staying on top of all the crooks on the ASX. That we we just don't have the time to stay on top of all the crooks on the the TSX and the A and every other exchange. So so what we do with the other exchanges, it's more opportunistic. And uh where we see sometimes you know, a company might be TSX listed and they're bringing and they're and they're gonna list on the ASX. And so so they might be bringing an asset cross. So we we can actually get on early, we can get a toe hold on that company, yeah. And then when it comes across, you know, we can open up there. Sometimes there's uh an arbitrage, an arb that opens up between the two. So we can take the advantage of that. The other thing is um to listeners, it might be hard to believe this, but there's a a real geological bias in the uh the different exchanges that reflect the the uh types of companies, resources companies you get there. So a really good example of that is if you look at um uh Western Australia, the big iron ore producer. Now, that's not because the Victorian geologists are really lazy and haven't gone out there and and and found the iron ore deposits, it's because the uh the rocks that are uh economic and uh to to mine are only found in northern uh Western Australia. Yeah. And you seem you get different types of rocks, but uh you get really uh good iron ore deposits in in Brazil, in South America. And so there's a geological uh uh reason for for that. Now, if you then look at commodities like silver, for example, there aren't too many silver companies on the uh the the ASX, but if you have a look on the Toronto Stock Exchange, the TSX, uh there's actually a lot. And and one of the reasons is there uh in in the Americas, you've got the the Rockies and the Andes, yeah. And in those uh in those mountain ranges, you know, over the you know tens to hundreds of millions of years, you produce these uh really good uh gold, silver, lead, zinc, silver deposits. And uh so so the environment for forming silver deposits is actually really good in in that type of setting. But we don't have a Rockies or an Andes in Australia, and guess what? We don't have the uh the the silver deposits. So there are some silver deposits here, I'm not saying there are none, but we just don't get the the the variety and we don't get the quality that uh that that they have uh uh over there. And so because of that, there are times where you need to be opportunistic, you need to look to the Americas to get your your your silver exposure, but maybe in Australia there's plenty of gold and lithium, we don't need to to go over there. So so sometimes we use it opportunistic. Copper's another example where there are lots of you probably heard of the really big copper mines that are in South America and Chile and and Argentina. Yet when you think about Australia, you've got um you know Cadia is a large producer, but it it gets dwarfed by that by those ones. Uh Olympic Dam is a huge producer, but there aren't too many Olympic dams. That's a bit of a uh geological freak. But uh, but you know, we don't have the the copper endowment uh compared to uh the Americas. So again, you get copper, but not to the same uh degree.

SPEAKER_00 19:24

Yeah. And so when you build the portfolio, you obviously mentioned you the um the resource or the material that you the energy that you invest into in line with give or take where the ASX is below the 100.

SPEAKER_02 19:38

Yes.

SPEAKER_00 19:39

Um have you had a situation where you're not, you know, I know you don't really take a macro view, but like for instance, if you know, if the if it doesn't stack up because the lithium prices drop to, you know, really low, do you say, okay, we just won't have exposure to that, or do you have more of a three to five year plan uh view and you expect sort of lithium prices to get back to where they were based on supply and demand?

Why New Mines Are So Hard

SPEAKER_02 20:04

Yeah, it's a good question. We we're at the fringes, we definitely do drop out of uh particular commodities. So so a um uh a a good example is nickel. We just haven't been in nickel for the the the the last couple of years. We just think that's a um you know really difficult, uh really difficult sector for the the Australians because what what's happened is uh Indonesia has now uh become a major producer uh of nickel. And what they've got is this geological bias that I was talking about before. What they've got is uh these uh these nickel deposits that are uh really easy to mine, you can mine them at low costs. The technology to process that ore is really improved, particularly in the last five to ten years, and they've really managed to exploit that. And so what we're seeing in some commodities like you know, rare earths, where uh China has taken a control and there's a geopolitical risk around China's dominance of rare earths. I I don't think that geopolitical risk with Indonesia is anywhere near as large as it is with uh with with China. You know, we're actually considered a much friendlier neighbor than China. And so so for that reason, I don't see a great uh geopolitical threat to Indonesia's dominance in in the sector. They're producing it really cheaply, a bit like Australia and it's iron ore. So so why try and get in there and get exposure to something that that's uh really difficult? You know, there will be the odd deposit or odd company that comes along and does quite well in in the sector, but that that's one that you know I just don't see uh a need to be there. So it might be a a small part of the uh of the investment universe, but that's one where we would step away. Another example was uh something we've done really well over the the you know uh over the last 10 years I've been at Acorn is actually getting into the lithium boom and actually getting out at the right time. Yeah. And uh we've been um well fortunate because But you know, through through um uh planning and consideration is you know, we got onto the uh lithium boom uh really early. We did that really early when I first started at um at at Acorn. And then uh one of one of my you know really good decisions, uh I think looking back when I first started was actually exiting uh the the lithium. When I saw it got really the valuations got a bit crazy, we actually exited and and sold right down. And and it uh in hindsight it was a really good move. And and we did something similar, it wasn't quite as well executed, but we got out of the uh lithium before the worst of that bust. And then we came back in again in uh in in uh uh June, July last year. And so again, it was good timing to come back in. So recognizing those cycles, getting in and out is as you mentioned, it's really important. It's you know, we haven't always perfected it, but uh it's something that we we do look to do. And so we there is some tilting in and out of that exposure.

SPEAKER_00 23:01

Yeah, and can you share some insight into I saw a chart recently around there's hasn't been a lot of gold mines, new gold mines being established globally in the last couple of years, and and even I think oil rigs, um, you know, the lowest amount of oil rigs that have been um produced, how does that affect pricing of of the commodity? Obviously, you know, it's cyclical supply versus demand. Can you share some insight there?

War Shocks And Energy Positioning

SPEAKER_02 23:26

Yeah, no, it's a really good insight. So what we're seeing is the the the barriers to entry in some of these commodities are uh are really high. And so because of that, you don't get a supply response you know really quickly. So when the when the uh demand increases and and uh and the price starts to go up, the supply response can be really slow. So copper is a really good example of that. You know, the copper prices has been you know on a run for the last few years, but it really surged in the last uh probably six months. But we haven't seen a a really strong response in in in uh in the supply of of copper. And that's because the it's really difficult to actually put a copper mine into production. And um it's a lot easier in gold, but even gold, we we we're finding that it's uh you know it's it's quite a struggle to uh to to bring new mine mines on. You know, the you know the barriers to to bringing that on are really high. And when I talk about barriers, you know, there's a multitude of these, you know, they can be you know geological issues about you know actually defining and drilling out the resource, because if it's getting deeper, you've got to drill deeper holes to actually hit the target zone. So it takes longer to to drill those holes. And then uh the the mining, you know, the the the studies and if they're getting uh deeper, you know, understanding and getting the details, the geotechnical details and everything around the uh the the potential operation, that's getting more difficult. Uh the processing side, you know, now we're starting to have to you know process the the trickier and more difficult or types than the minerals that were previously you know we we would ignore. Now you have to go back and consider them again. So so we're thinking about then. And then you've got uh the environmental, social, and governance issues that that come along. And so, you know, they they they certainly can't be overlooked that the regulations around ESG are just becoming greater and greater. So that's just you know more time because you need to you know address all those issues to uh to to get through the regulator. And then once you've got all them, then there's the financing risk. And so you've got to go through and finance it. And the the market is getting really wary of you know companies you know raising money and and and uh so so there's a you know, there's a real real game to be played and and to be understood that when you're trying to raise m money, you know, how do you do it without being too too dilutive to the existing shareholders? So so it's a really you can you you build all those uh facets together. There's you know seven key areas. There's the the three you know technical risks, there's the three the ESG, and then there's the financing risk. And then you've got to bundle all that together. And so so that's what's ultimately that interaction of all seven parameters is what's uh making it more and more challenging to bring it on. So it doesn't matter whether it's a a gas project or a gold mine, it the the the barriers to to entry are just uh uh are getting larger and larger. And so what it means is we've been driven towards bigger projects and uh the timelines to get them and the and the and the cost to get them is is is larger and larger.

SPEAKER_00 26:33

Yeah, and uh obviously the the impact of of war, like recently, um we're not you know, I'm not 100% sure when this is going to be uh this podcast, but this episode, but we've seen over the last few days uh what's happened with Iran and oil price spike and and the effect of of of supply, potentially a supply shock. Does that, you know, when something like this happens, how does that you know affect your positioning in a portfolio?

SPEAKER_02 27:01

Yeah, it's look, it's something you really have to take uh take take very seriously because you never know how long you know these disruptions will go on for. And you know, something like the the war in Iran at the moment is is you know really front and center. And you you uh if if you get that wrong, it can be you know quite diabolical. So you know, as an investor, it's something you know I take seriously and and and assume that it is going to be uh long. And so so you can see uh things like you know the uh gold price and oil price are going to be beneficiaries uh for that. But uh you've got to be careful because when Russia invaded Ukraine, the oil price went up and everyone said, Oh, this is magnificent for for energy stocks. And so everyone jumped on, and then suddenly you realize that no, that's actually not good for the global economy when you drive inflation through the roof, and then the energy stocks all all collapsed. So there was a period where uh if you go back to 2022 when Russia invaded, I think it was in February, between February and May, the uh the all the energy stocks just went ballistic, it went went incredible. And then uh suddenly this realization dawned, and then there was a really sharp pullback in in that market. So so you can't get, you've got to uh uh recognize it, you've got to respond to it, but you can't get too far in front of it because if you're if you're too far out and there is a sharp pullback, you know, that that can be pretty diabolical. So you just gotta be uh very mindful that you know you might be a uh short-term beneficiary, but long term this could actually be quite destructive for for the portfolio in other reasons. And so so you you've got to you you've got to understand that balance.

SPEAKER_00 28:45

Yeah, and then if you know, do you how many holding, uh how many um shares do you have in your or portfolio in there? Is there a cap in in what percent you can hold in each in each stock?

SPEAKER_02 28:57

Yeah, we do have some limits. Uh at the moment, the Next Gen Resources Fund has uh about 30 stocks in it. Um we we have uh it's a guide rather than a fixed limit, but we we try to keep it under 40 and uh so we're comfortably uh inside that. And um uh in terms of uh limits, the the only limit we have is uh not once a stock goes over 10% of the uh of funds under management, we we can't add to that. It can keep keep growing if if it's on a run, but we can't continue to buy in market on that stock. But it's it's very rare that um anything goes over 10%. The the only times that that's happened is if we've had an explorer that's made a big discovery and it's run, we've let it run a little bit, it might go up to 12 or 15 percent, and then we pull it back and bring it in line. But that's that's just part of that uh that that risk management.

The Titanium Discovery Story

SPEAKER_00 29:52

Yeah, and um well it's a good good problem to have it. Yeah, exactly. You like it when a stock runs to 12%. It doesn't happen often enough, but I can tell you that. Yeah, and can you maybe share a story of a stock that you've invested in that has you know been in exploration phase and and and found you know uh the commodity they're looking for, the mineral they're looking for.

SPEAKER_02 30:13

Yeah, I'll tell you a really interesting one that we're a bit of persistence in that case. We had a a company, uh Petrotherm. They've changed their name to PTR uh now, but uh PTR is the ticker. And so we we invested in that. It it it that they uh initially they were uh drilling some rare earths and we they found some some uh they started drilling something that looked really interesting, so we took a small stake in it. And then we soon realized that the metallurgy for the uh the rare earths was uh a little bit tricky and and um didn't particularly like it. So I uh actually went out to site, it's in South Australia near near Kuba Pete, it's within a few hundred kilometres of uh Kuba Pete in in South Australia. So I went out to site, had a look, and we had an afternoon free. And so the geologist said, Oh, look, I'll take you out to our copper projects. And I said, Yeah, that'd be good. So we drove around and had a look at his copper projects, and I said, Oh, these look really good. I really like and he talked about the targets. He goes, Yeah, well what the focus is rare earth at the moment, but we really like this. And so, so anyway, it was a few months later that the results from the uh from the rare earth metallurgy came in, and I was starting to lose interest. So I I rang the um the jolly and said, Oh, what are you doing about the the copper? He goes, Oh no, we're we're gonna change focus, we're gonna go onto the copper. So I thought, oh, this would be good. I'll I'll I'll hang in there because this is good. And go, oh, we've got this really good target, and it was coming up to Christmas, and they were gonna drill this really good hole, and I was pretty excited about it. And so they they drilled the hole and there was like nothing in it. It was like so bad that they didn't even send it off to Assay, they just packed it up and stored it. So so it was Christmas time, and it was like um there was no liquidity in the market, and we had like about four or five percent of this little company, and I thought, oh, this is a disaster, the share price is collapsing. So I thought, oh, I can't do anything until the new year. So so I I went to a conference, it's a big conference in Fremantle in um in February, and I said, Oh, Peter, you've got to tell me something good. What is the good? Because the coffer is no good, the rare rest are no good. He goes, mate, we've got titanium. I said, Oh, that's not I said, I've only ever lost money in in mineral sands, but keep going, Peter. So so he said, No, we've got this titanium, it's it looks really good. I said, Oh, okay, show me some more. So he showed me the thing. He goes, We wandered around and we found all these like black sands. He said, they're really, really, really, really black. It's really unusual and really thick. He said, We think it's pretty good. I said, Oh, okay, I'll hang in. So we hung in, and sure enough, they made a big discovery and they went from about three cents to 50 cents somewhere very quickly. Now they've settled back to about 25, but uh, but we sold a bit near the top. So so you know that that's a case of persistence. But um, the really nice thing about that is sure, we went in for the uh rare earth, we then pivoted to to the um copper, and then we ended up winning on the the titanium. But what it was was a uh a company with a really uh strong expiration culture, and they're always thinking about their their projects and they're picking up ground, and even when things weren't going well, they were doing joint ventures and picking up things and thinking about their projects. So we really like uh companies that it's only a very small part of the the portfolio, but every now and then you can have a really good win from something like that. So there's a stock that you know was probably only was probably less than one percent of farm, but because it ran so hard, that's one one that went up over 15%. And then we were selling into that and it was still going up. And so that's where you can make you know really explosive gains by taking you know just a small amount of risk. It was you know, it was probably uh 80 basis points in the portfolio or 0.8% of the funds under management, but you can get really explosive uh gains on that, and uh you know that that's good fun.

SPEAKER_00 34:11

And a lot of the um stocks that you're invested in, because they are small and and micro cap or mid cap, small micro cap, is it predominantly um retail investors that are invested in, or do you do you are you also sharing the register potentially with some other um asset managers or institutional investors, as you might say?

SPEAKER_02 34:36

So in terms of the the size of the companies we invest in, it it's really important to point out that the um uh very we probably less than it'll be probably seven or eight percent of the uh uh of funds are in companies that have market caps less than a hundred million dollars. So, so yes, we're at the small end of the market, but most of the money sits in companies with market cap between probably a hundred million and one point five billion. So that's really our sweet spot there. We do have a couple of you know tiny companies like the PTRs at the time, but they're they're a really they're a tiny part of the the portfolio. So I gave an example there, but that's actually almost an anomaly in the uh in the portfolio. Most of them you know sit in that um probably most of it sits in the sort of the 300 to a billion dollar uh range. And the the reason for that is we actually need the liquidity that if we want to get out, that we want we we want to exit. Because the problem with the the the petrotherm, when I said we own four or five percent, that wasn't in next gen, that was across multiple funds.

SPEAKER_00 35:39

Okay.

SPEAKER_02 35:39

So so at at Acorn, uh we've got uh uh a a range of uh funds, some are purely listed, some are unlisted, some are a mix of listed and uh unlisted. And uh so next gen is just what one fund within a uh a number of funds that we have. Yeah. So so just to sort of clarify that that that point, that um yes, we do have some um uh smaller, small, smaller uh stocks, but but uh uh the the bulk of it sit in that uh middle part of the range.

Other Products And How To Invest

SPEAKER_00 36:12

So I'm not sure I answered your question though. No, I think you did. So we'll we'll continue on. So maybe just share some insights here. Obviously, you've got the next gen fund, which is give or take 30 to 40 stocks, small mid-cap resources and energy. And then do you run any other funds within Acorn or are there other portfolio managers that yeah?

SPEAKER_02 36:32

So we we've got a number of uh other funds, but you you they're they're uh are diversified. So resources and energy is just a sleeve within that fund. So we have other portfolio managers that that that look up to the financials, healthcare, industrials, and and and the like. So so I just uh look after uh uh just the resources and energy. So for example, we have a uh uh licid investment company, an LIC. It's uh Acorn Capital Investment Fund or ACQ is the the the ticker, and and resources and energy off the top of my head would be uh uh about uh 30-35 percent of um uh uh of uh ACQ. Yep. And uh so I I manage you know that. And so that's for companies that are outside of the top 250 on the ASX. And then we have some uh institutional uh mandates. Uh so you know, and again, I'm just I just look after the um uh after the resources and energy uh uh sleeves for for for those. So so you know, across across all those uh uh those products in the unlisted, so acorn manages uh in the order of about uh 900 million is what we have under management. And and um and so next gen, for example, next gen resources fund is uh somewhere between 55-60 million dollars of that um of that 900 or so that we we manage.

SPEAKER_00 38:03

So if anyone or any of our listeners want to invest in the fund, they can go to your website directly and we'll share the link. Or if they want to invest in through their LIC, that's obviously through the ASX. What's the ticket for that again for the LIC?

Career Advice And Networking

SPEAKER_02 38:16

ACQ. ACQ. ACQ for uh uh the the the L I C. And um yeah, you can jump on. We we we we have um you know retail and and uh and wholesale clients, you know, so we have a range of uh of products. So you know retail can certainly get exposure to it.

SPEAKER_00 38:33

Yeah, you're obviously very passionate about what you do. I can tell by the way you speak. What what advice would you give to someone that might be the start of their career that wants to get into that might be working in in science field, that wants to get into funds management?

SPEAKER_02 38:47

Yeah, it's really important to um, you know, networking is is really the key to it. And and as I said, you know, I I I I um made an unlikely pivot into finance, but it was it was through that uh network and and and when when people talk about network, often they feel that, oh yeah, I've got to talk to someone who's you know older and more senior, and that's how I network. It's you know, more more quite quite often it's actually just networking with your peers, you know, people that are the same age as you and experienced. And so the the person that I got my break into uh into Deutsche Bank was someone that I worked with, you know, as an expiration geologist in the Tanamaide Desert, and we were flying in and out of Darwin. It's just that uh when I left Darwin, I went to uh do a PhD and he went off to do an MBA, and then he took a very different uh career path to me. But we stayed in touch, uh not not regular, but we just stayed in touch and um and you know, would you know just sometimes we would talk once or twice a year and other times we wouldn't talk for you know two or two years. But you know, we just we still maintain that contact, and so that's how I I established that uh that that that that pivot. And and so like I said, it's um you know that networking is really important, but don't think about it's networking up, networking sideways among your peers is as important as networking you know up the chain.

Commodity Supercycle And The Investor Wave

SPEAKER_00 40:10

Yeah, it's a really good point. I remember when I was at university many moons ago when I did my undergrad, I said to myself, my fellow students, my um uh you know, my around me, they're gonna be the future leaders of these countries. So, you know, meet these people and there's gonna be opportunities, and you'll be able to learn and maybe opportunity to to be hired by one of your you know fellow students. Um, so that's worked well for me. I'm still really close with a lot of guys I went to university with. Not a small portion of them went into finance, but um, I've got friends now that you know run hospitality businesses and do all weird and wonderful things. So a good opportunity to learn from you know a diverse range of people and you never know where opportunities can present themselves. Exactly. Exactly. Um, and in terms of uh well, from what I hear, we're gonna be through a bit of a commodities super cycle. What are your what are your thoughts on on that? Do you see uh a lot of upside for commodities over the next three, five, seven, ten years?

SPEAKER_02 41:10

Yeah, really interesting. Uh uh it it's certainly a really strong market for commodities at the moment, but it's really when when you look at the detail, and this is how I you know look at it as a uh an investor in the sector, they're all moving at different rates. And it's really important not to lump all commodities into the same basket. And because you know, people saying, oh, you know, the the resources sector is up. It's like, well, there are some parts that are doing well, and there's some parts that are actually struggling. So I mentioned nickel before that nickel's come off the floor, but it's still uh still a difficult sector to be in. And if you look at gold, for example, the gold producers are doing well, the gold developers, those trying to build a uh a mine are doing very well. But the gold explorers haven't really moved too much. And and so so while gold's been on this incredible bull run for uh for two years, it's really been a sector for the gold producers and the developers, but the the explorers haven't moved uh quite yet. If you have a look at um uh uh lithium, lithium was in a a long decline until mid-last year, and then it's been really explosive. It's come out of that um that the that that downturn uh really sharply. And it it's uh the the the the prices really skyrocketed in that time. Really interestingly, the producers did well initially. You know, companies like uh mineral resources, um uh Lion Town, uh Elevra, Pilbora, you know, they all did uh really well at the start, but now we're actually starting to see some of those developers taking off. So the Winsoms and the like, they've started to pick up just in the last uh two or three months. So we're we're progressing down that uh down that chain from the producers to the developers, but the explorers haven't moved off the ground, and I don't see any hope for them just in the in the near term. And then you know, the same with uh copper, we've seen the copper producers doing well, but the we haven't really moved into the the the explorers flourishing at the moment. And that's when you see them flourishing, that's when you you you know in the mature parts of a uh uh a bull market. And so that that's what you know git gives me some optimism optimism in terms of the the outlook is good, but you you've got to break it down into the individual commodities because they all move um all move differently and they can move at uh at uh different paces too. So so uh lithium is far more explosive than uh than than gold. So it's explosive up, but it's explosive down too.

SPEAKER_00 43:40

So is that just because of the amount of supply that's in the market?

SPEAKER_02 43:42

Yeah, it's yeah, it's it's it's supply, it's that barrier as we talked a little bit about earlier. It's the the barrier to entry uh is a lot higher. And so you get that much more volatility in the commodity price, and and that's why you you you see that that really sharp response. We're gonna be Sharp up, it can be sharp down as soon as the supply comes on, then it uh it it it falls quickly. And so so as an investor, you've just got to be mindful of that volatility because it can be your friend on the way up, but it can definitely be your enemy on the way down. And so you you've just got to be very careful uh in that in in in those phases.

SPEAKER_00 44:20

And so to just to repeat, or just from my understanding, you the the the producers normally move first, then the developers, then the exploration companies.

SPEAKER_02 44:29

Yeah, too. That's that's that's the key point. So it's you know, we described it as a nice wave where the they they they take off and there's a a a progression as it comes through. And so it's really important for investors to to understand that wave because if you if you try to at the at the mature end of a um of a bull market, but people m can make the mistake of saying, Oh, the explorers, yeah, that's a bit risky. I'm gonna go into the safety of the producer, but they can actually be in decline when the uh explorers are taking off. So so they can actually go into decline early. And the the lithium boom was a great example of that. In the the final 12 months of the lithium boom a couple of years ago, the producers, the big producers, they're actually starting to fall when companies, I don't know if you remember names like Azure, Patriot, Winsome, when they're all taking off and and and and having you know explosive gains, the big producers were actually in decline in that because the market was cycling out of the producers into the explorers and uh and intuitively would have said, Oh, explorers, that's too risky, I'll go, I'll go to where the safety is. It was actually not the place to be. It was uh so you've really got to understand that market and that dynamic and and uh where to invest and when to invest. So you can't be too early, but don't be late either, because you'll you'll you'll back the wrong horse in the right race.

Gold Silver Links And Timing Exits

SPEAKER_00 45:55

Yeah. Um, and it I could talk forever, but let's just touch on uh last question I'll have for you. Um the correlation between commodities, obviously, there's a the silver's had a massive bull run over the last sort of 18 months. It's gone from sort of 30 bucks to up to 120 at one point, now it's sitting around 95 US as of the third of March. Um is there a and I've done a lot of research around the the correlation between gold and silver, and normally there's a ratio that it sort of trades between. Can you sort of touch on the the correlation between some some commodities that you've seen? And maybe gold and silver might be a good example.

SPEAKER_02 46:36

Yeah, there there certainly are correlations, and and uh sometimes they get stretched, and and that's what happened in in silver. Uh uh gold ran and uh silver sort of hung around that$30,$40 range for for um quite some time as gold was going, and then there was just this you know massive rebound and and it was it was pretty spectacular. And you know, some some of that was uh driven by you know demand for for for silver in in um in in in solar uh applications and and things like that. But uh, you know, there was just a a real a real catch-up that that occurred. But vol silver's always been really volatile like that, and the pullback it had is actually, even though it was very large in terms of dollar numbers, the percentage ratio is similar to what we've seen in the past too. And so, so you've got to be careful when you're chasing those things because I'm I'm sure there were quite a few investors that started to chase it in the last few months. There was a big pullback, and and you know, when it when it drops 25-30 percent, you know, that can shake a lot of people out that lose their confidence. And so, so yes, it's then come back, but that's that's the nature of the game. So you've got to be very careful with uh those commod commodities because you can win on the way up, but you can get uh seriously burnt on the on the pullback. And you don't know how long those pullbacks are gonna last. That uh yeah, we weren't um uh too concerned about the gold one. So we got into uh silver early and we we rode it up and uh unfortunately probably pulled out well unfortunately did pull out too early on on a lot of it. So so then on the the the pullback, yeah, now we're building a now we've built a a reasonable base again. So we're more comfortable with it. So we didn't didn't per perfect the timing on silver this time, but there was another little peak probably two years ago. We did really well out of that one. We it ran up and we we we had some good exposure in companies like ND and Silver and Unico. We did very well out of them and and pulled out. And so we got the timing really well on on that, and but we we're early on the exit for the the most recent one.

SPEAKER_00 48:43

Yeah, it's a bit tricky because you know when you you're happy with your return, you you pull out and then you see it keep running, it's like oh, what do I do? It should have held for a bit longer. It's every manager's thing, you know, getting out too early and it keeps running and it's too hard to get back in.

SPEAKER_02 48:57

Oh, that's it. I uh the the guy I replaced at Acorn uh Dave Ransom, he used to always say to me, He goes, You can't catch every tram up Collins Street. So if you miss one of them, just wait for the next one. Don't go chasing them, just wait. He said sometimes you might have to wait for a little while, and sometimes three or four of them will come through in quick succession. But he said, you know, there's no no need to chase them. He said there's always another opportunity.

AI Demand And Using AI At Work

SPEAKER_00 49:20

It's interesting. I used to work for an independent financial advice firm, run their investment portfolios, and we had a lot of uh high net worth direct clients who come to me and bring us uh a stock idea that one of their mates told them about, and I'd do a bit of research and DD on the on the on the company. And I used to say to them, listen, you know, it could be a good opportunity, but you know, we probably just don't have enough information to invest if you want to put your own like a small amount of money insure, but you know, it's not something we would invest in if we don't have the expertise and it's not you know cash flow, gender cash flow. And I used to say to them, you know, you can't dance with all the pretty ladies, like you know, choose one pretty lady you want to dance with, and that's it, you can't dance with them all. So uh thinking uh and then I I know I said last question, but this is I promise the last question. How is the AI boom which you know that's uh happening at the moment, the build-out of data centers? Obviously, we've got you know all these clawed Gemini and all that, and and the resources required to build out um for AI. How has that affected the prices of commodities?

SPEAKER_02 50:25

Yeah, it's uh look, the there was definitely a correlation with the uh the uranium, for example, that uh uranium price was was running you know quite strongly last year when there was a bit of a pullback in the sector, uh it it it it correlated with with that as well. So yeah, uranium has certainly been been a better beneficiary there. Uh copper is is another one because of the the build-out in terms of the the the requirements. It's a funny one because the bulk of copper still is going into construction. And uh but but there's you know increasing uh increasing demand for its requirement in this uh in the build-out. And then and then there's just the the uncertainty that's coming from that, which is still feeding into the uh into the gold and silver price. That uh, you know, we're you know, where is the world going and and uh what does this mean in terms of you know social tension and and uh and and and global politics? And and so there's there's there there's uh you know there's some of it's direct uh in terms of demand, but sometimes it's indirect, like uh gold and silver in terms of you know it's uh the the impact of AI on those. So so there's definitely um you know broad uh influence of uh of AI on that. And you know, just you know, even in terms of you know uh acorn capital and what we do, you know, we we're we're really embracing it and and and trying to uh use AI in our process. Because one of the great challenges for us is you know, there's you know, I I get hundreds of emails every day. And so trying to thin those emails out, you know, keep it concentrated so I'm always seeing the relevant ones, but um, you know, how do we do that? So so we've got um you know AI, which is screening and scan and and summarizing emails and sending us little little summaries for for um uh ASX releases so that way we can see you know more information quickly, but we're scanning out the junk that we don't need to uh to to read. So so it's something that you know we're embracing and and that's just little acorn uh capital. And it's like, well, what's happening you know elsewhere around the world that uh you know peep people are doing it. So we can definitely see really strong demand for a great application.

SPEAKER_00 52:37

Yeah.

SPEAKER_02 52:38

And uh yet it's it's not exactly clear where we're going with it all.

Where To Follow Finance Friends

SPEAKER_00 52:42

Yeah, well, there's a a lot to to play out over the next few years with AI that I've really embraced uh AI, I've my stock research and using it and doing comparisons and just giving you a different perspective. Right. But I think um, especially if you're using some of these uh you know AI tools like Gemini or Cord, I think from what I'm hearing in the market, is they're they're programmed to um tell you what you want to hear to a degree so you keep engaging and create confirmation bias. So you might need to create a separate uh profile for these to have an alternative viewpoint. But um Rick, thank you very much for coming in. Uh, congratulations on the success of the fund uh so far in the last 12 months. And um, I'm sure you'll continue to do really well and look forward to to seeing the fund grow. Great. Thanks for your time, Pavy. Cheers. Thanks for listening this week. Stay tuned for our next episode and keep up to date with us by following the Finance Friends podcast on Instagram and TikTok. Plus, connect with us and our guests over on our LinkedIn page, all linked in the show notes.

SPEAKER_01 53:54

Disclaimer. This podcast exists for informational and entertainment purposes only. The personal opinions of the speaker and guests do not represent the view of any other party. If this recording contains reference to financial products, that reference does not constitute advice nor recommendations and may not be relied upon.