Year's Best Commodities Fund Is Betting on 2018 Mining M&A

(Bloomberg) -- This year's best-performing commodity fund is betting on more mining companies turning to deal-making for growth in 2018.

Commodity Capital Global Mining Fund racked up returns of 106 percent this year, the best performance among 409 commodity-focused funds tracked by Bloomberg, excluding exchange-traded products. Now it's seeking out junior companies in safe jurisdictions with solid reserves.

According to Tobias Tretter, who oversees the fund as managing director of Zurich-based Commodity Capital AG, the mining industry is emerging from a period of cutbacks that while strengthening balance sheets has curtailed growth prospects.

“There will be a lot of mergers in the next 12 to 24 months,” Tretter said. “The market is pretty desperate for new exploration. That will change the strategies of the majors. They are struggling because they have to buy in, do joint ventures and have a look at companies at a way earlier stage.”

Mining deals have totaled $62 billion this year, down from $74 billion last year and less than half the levels of 2012, data compiled by Bloomberg show.

Commodity Capital already has several holdings that Tretter believes will be part of the next wave of consolidation. Agnico Eagle Mines Ltd. and Iamgold Corp., both based in Toronto, are merger candidates, while possible acquisition targets include Vancouver-based Atlantic Gold Corp., he said.

With just $24 million under management, his fund outperformed much larger rivals such as the Sprott Gold Bullion fund and a Pimco commodity fund, which both had single digit returns this year. The Bloomberg Commodity Index is little changed in 2017.

In the gold industry, Commodity Capital is looking to target companies with assets primarily in the Americas and Australia that produce at least 100,000 ounces a year with reserves of at least 1 million ounces, Tretter said.

While gold and other precious metals are set to face headwinds from rising interest rates, the outlook for industrial metals such as copper is boosted by expectations of faster global growth and supply disruptions. A nascent electric-vehicle boom augers well for nickel, Tretter said.

“Nickel will get a nice boost from battery” demand, he said. Miners “may struggle on the supply side. New projects are just not there.”

He's optimistic that President Donald Trump's executive order to streamline permitting for miners will fuel more opportunities on U.S. soil.

“There's a lot of gold in Nevada,” Tretter said. “You have to go there and find companies with undeveloped projects or those that got stopped in the past.”

To contact the reporter on this story: Susanne Barton in New York at swalker33@bloomberg.net.

To contact the editors responsible for this story: James Attwood at jattwood3@bloomberg.net, Steven Frank, Joe Richter

©2017 Bloomberg L.P.