TORONTO (miningweekly.com) – Despite not being “overnight-bullish” on the resources market, Bermuda-domiciled Till Capital has started an acquisitions phase driven by its hybrid investment strategy, rooted in the reinsurance business.
This nontraditional approach has created a company with diversified investments, including royalties and physical gold, CEO William Sheriff explained to Mining Weekly Online in an interview.
Through its subsidiary Resource Re, Till was now between 30% and 35% invested in the resources sector, which Sheriff viewed as an extremely undervalued investment target. The firm’s resources portfolio accounted for more than $10-million in investments and the company was actively pursuing more deals.
Sheriff noted that despite the resources sector having been a significant disappointment for mainstream investors in recent years, many of who had turned their backs to sink their funds elsewhere, this signalled the opportune time to buy into the market.
“When everyone else is leaving, we want to get in. When you are looking for deep value, you really have to look away from the crowd,” he advised.
The resource sector is one of the most cyclical of all business. There had been disappointment in the junior segment, with the midtiers and even the blue-chip stocks providing second-rate performances.
Sheriff argued that despite one of the biggest commodity booms in the history of the earth, there was nothing to show for it on the earnings side and very little to show for it on the growth side, prompting investors to turn on the sector.
“We view this as our door to opportunity. The world is going to continue to use resources. While China’s growth is slowing down, it is not stalling or turning negative. Clearly there is a glut in certain commodities, such as oil, right now, but the down cycle is certainly providing a compelling case for valuations in the minerals sector,” he said.
Sheriff noted that despite it being “hard to fall off the floor,” the resource investment industry was fraught with pitfalls. He predicted that many juniors were not going to make it but, simultaneously, the ones that were going to make it would provide compelling valuations.
The junior and midtier market was suffering from a multiyear lack of liquidity and, while the company was aware of the inherent danger this posed, it also saw its opportunities in this context.
“There are once-in-a-lifetime valuations on certain stocks in the resources sector at the moment,” Sheriff noted.
He said Till was the only TSX-V-listed company in the reinsurance business in Canada. Warren Buffett and Berkshire Hathaway made the reinsurance business famous in the US.
Till enabled insurance companies (their customers) to offload risk (or insurance policies) whose premiums built the company's float. The float is the main profit driver; as they operate the reinsurance/underwriting side of the business, paying out insurance claims as need be, they also act as investment experts on the stock market.
Since undergoing a significant reorganisation earlier this year, Till Capital reported a net profit of $2-million for the first fiscal quarter ended June 30 and no debt on its books.
It is a closely held company, with insiders holding more than 20% of stock.
On the client side, the company is focused on high-frequency, low-risk insurance purchasing (high predictability versus pay out in the long term, such as workers compensation and health-related insurance), and on the securities side, they use a scientific hybrid investment strategy, formulated by their expert and seasoned investment team.
The company, which specialises in the natural resource sector, is focused on high-quality, long-term, liquid securities, the junior mining space and high-cap stocks with high rates of return.
Till made use of a scientific approach to investing its float called ‘Computational Intelligence’; the company's patented suite of investment technology.
Sheriff believed there were plenty of opportunities for value creation across the whole resources sector, noting that while some segments of the industry had been particularly hard hit by the economic headwinds, there were opportunities for investment in all of them, even coal, given enough time.
There were also compelling valuations in the base metals segment, while Till was particularly optimistic about tungsten and North America’s dependence on Chinese production.
However, the global economy was possibly going to get worse still. In recent days, the decline of the global market saw Europe slip into deflation, if not worse, recession. This had exacerbated the difficult financing market, especially for the juniors, but had now also started affecting the midtier miners.
“We’ve seen the oil price drop on this news and a lot of the underlying commodities have also declined, which certainly does not help the metals industry. In the face of that, gold has been trying to find a bottom and firming but, from an investment perspective, there are still a lot of mainstream investors that are still leaving the sector. And with tax losses upon us in this last quarter, it is driving prices down even further.
“We think this provides us with an even bigger opportunity,” Sheriff stressed.
He pointed out that the company had started building positions in companies it believed were at their bottoms and would add to those positions as the companies started building themselves up again, before the rest of the market had caught on.
“While we prefer equity deals, we also consider debt opportunities and would even consider streaming deals. However, we have not come across a compelling opportunity yet,” Sheriff said.
He highlighted that the oil price was seen as a good bellwether for the global economy’s health and that the declining oil price was not boding well.
Consumption, Sheriff said, was always a driver of metals prices, but metals prices usually predicted the market, instead of reacting to it.
“The industry will also have to convince investors that it has changed its old ways. Management will have to prove that [it has] some new ideas. It cannot continue as previously and we are starting to see change in every level of the industry," he stated.