Market Commentary- Metals Team February 2022

The only way to predict the future is to build it……well we did both in the TB Amati Strategic Metals Fund!

In mining a week can be a long time, however on the 24th of February 2022, the world profoundly changed. The events that unfolded over the following week were truly devastating for the people of Ukraine. Their plight constantly occupies our thoughts and we hope for peace and support for the brave people of Ukraine.

When we launched the TB Amati Strategic Metals Fund nearly 1 year ago, we adopted the Amati Global Investors principles for responsible investing.; Our ESG approach is actually HESG, where human rights are front and center to our screening process. We adopt and advocate for a Clean Trade Approach, avoiding companies which tacitly support oppressive regimes. The Clean Trade argues that where the level of freedom in a country falls below certain thresholds, there can be no reasonable expectation of the International convention on civil and political rights being satisfied. When considering these issues we use the Freedom House scale, which scores for political rights and civil liberties. We simply don’t invest in companies in countries with a ‘Not Free’ status. We had no exposure to Russia, or any of the Former Soviet Union territories.

The fund was launched as an evergreen fund where we actively manage the optimum combination of precious, specialty and base metals at any given time. The key to managing a natural resource fund is to manage and mitigate risk. The strong investment return from the TB Amati Strategic Metals Fund is testament to this process. A minimum weighting of 20% in precious metals in the Fund is argued as a risk-diversifier for the portfolio. The >50% weighting to precious metals in the Fund since inception was principally driven by our core belief in finding value across the entire metals sector, and identifying companies with the ability to add or unlock value through development and exploration. This was supported by our view that global inflation was not transitory and political risk was escalating. We identified specialty metals companies which will play a future role in the global energy transition. The key aspect here was to identify ‘battery metal’ companies with a mine to market model. This will serve to address the growing issue of resource nationalism-ever more important today than it ever has been. This sovereign quest for resources has created political risk beyond our worse predictions.

The evergreen structure of the the TB Amati Strategic Metals Fund cannot predict the future, but we believe that it has all the investment tools to deal with a dynamic global economic outlook.

During February we sold our position in Goldfields and added to Fresnillo, after the stock sold off on Q4 production results and worries over rising costs and capital development requirements. In addition, the political unrest in Mali had a negative investment perception effect on neighboring Burkina Faso. We understand the risks here so added to West African Resources in Burkina Faso. As the lithium chemical price continues to rise, we have invested in a Direct Lithium Extraction company to complement our existing lithium investments.

We believe that the recent rally across all commodities and rising global geopolitical uncertainty will fan the inflationary flames and this will only serve to increase the investment appetite for gold and silver, and central bank demand for gold. Consumer purchase of silver and gold ETFs continues. The last time all 3 major components of gold demand increased simultaneously was in 2010-2011, when the gold price rallied 70%.