What is your background?
I joined APAC Resources in early 2010. I began my career as a mining engineer. I then started New City Investment Managers with my friend and mentor, Richard Lockwood, in London. NCIM was the first natural resources high-yield fund set up in London. It was subsequently taken over by asset-management group CQS and I moved to Hong Kong to become chief investment officer for CQS.
Why did you leave CQS?
I left CQS in 2009 because they asked me to return to London. I felt the future of the industries I was focused on [mining and natural resources] was in Asia and I wanted to make this my base, rather than be one of the many expats who comes and goes. Staying was the best affirmation of my commitment and faith in the region.
What is the background of APAC?
APAC has been around for quite some time but it has only been since 2007 that it has focused on resource investments. In that time, it has built a portfolio of holdings of which Mount Gibson and Metals X are the two largest positions.
What does APAC seek to do?
We are a global investor in natural resources companies with a commodity division in Shanghai. We have both a strategic, long-term portfolio and a trading portfolio. We have a large pool of permanent capital, which lends itself well to the long-term nature of investments in resources companies. In the commodity trading business, our team in Shanghai sell Australian iron ore to Chinese steel mills. We are looking to expand on the range of commodities and our client base.
What is the current ownership structure of APAC?
Our major shareholder is COL Capital, which owns a 27.15% stake. The chairlady of COL, Shirley Chong, is also the chairlady of APAC. We also have Fushan International Energy Group, which owns 13.81%, Sun Hung Kai Strategy, which owns 8.49%, Penta, which owns 4.97%, and CCB International Asset Management, which owns 4.91%.
Was it a big change for you to join a Chinese-owned company after working with a British firm? How have you had to change your working style?
I’ve been in the financial industry since the early noughties. My earlier employer was a fund management group, which charged a fee, while my current mandate is to enhance shareholder value. I have a unique opportunity at APAC.
Having been a fund manager, I can be a little impatient so I am embracing the fact that in a publicly traded company things can move more slowly. But I’m a Scotsman at heart, thus prudent, so I know better than to leak MOUs for example -- they are not worth the paper they are written on!
Can you share details of your long-term portfolio?
We currently have three stocks that tell a great story. We own a 26.2% stake in Mount Gibson Iron, the fourth-largest iron ore producer in Australia. We also have an off-take agreement with Mount Gibson for approximately 20% of the production from their mines. The majority of our commodity trading revenue is currently realised from the sale of this iron ore.
We own 29.1% in Metals X, Australia’s largest tin producer with a world class nickel project under development. Tin is a new world metal, with demand increasing due to lead replacement in solders worldwide for health and safety requirements. Yet, the global supply is decreasing. Metals X also has an attractive portfolio of strategic investments in copper, gold and zinc companies. Both Mount Gibson and Metals X are listed on the Australian Securities Exchange (ASX).
We also own 12.5% of Kalahari Minerals, which owns 41% of Extract, which has one of the world’s largest undeveloped uranium reserves and could start construction on their Namibian project next year. We believe uranium has a massive role to play in providing green energy in an increasingly carbon-conscious world. The numbers coming out on China’s plans to roll out nuclear power plants are quite phenomenal and will drive huge demand growth. Some commentators see China’s demand increase more than 10 times between now and 2020. Kalahari is listed on the AIM [London’s Alternative Investment Market] and the Namibian Stock Exchange.
What is your exit strategy for these investments?
It may not necessarily be part of our strategy to ever exit the three core investments. We are bullish on the underlying commodities we have invested in. Mining is very capital intensive and investments have a long duration. However, as a fund manager, it is important to be able to let go of a stock at the right moment even if you love it.
Do you play an active role in management of the long-term investee companies?
We have board representation on Mount Gibson and in November we exercised our right as the largest shareholder of the company to renew the board. We are entitled to board representation on Metals X and Kalahari but have not exercised these rights, yet.
Mount Gibson’s ratings have been cut by analysts who suggest it is not a good idea for one of its largest customers to be in control of management. What are your thoughts?
Let’s be clear. We do not have control of management. We exercised our right to renew board members simply to diversify the skill set of the board -- to involve more technical mining expertise. This will support Mount Gibson’s growth and benefit all Mount Gibson’s shareholders.
Tell us about APAC’s trading portfolio.
It currently comprises around 25 stocks covering emerging stocks in the natural resource space. The majority of our investee companies are based in Australia, Canada, the UK and Hong Kong. Since I joined we have started trading more actively -- doing two to three trades daily. I believe trading is key to our core investing business as it provides insight and colour into the metals and mining industry.
What listed company do you think has successfully done what APAC is aspiring to do?
I think the success of Noble Group is impressive. They started as a logistics business and moved into mining via investments at the project and corporate level. We are really the opposite, as we already have core mining investments. We already have access to raw materials [via the Mount Gibson iron ore off-take agreement] and are staffed in Shanghai with competent professionals who know how to maximise our price realisation on the iron ore. I think there is room in the market for a smaller, less high-profile company than Noble.
APAC trades at a discount of nearly 50% to NAV [net asset value], partly, I believe, because people do not understand our business model. I joined APAC with the understanding that I will help improve the performance of the share price and my remuneration is highly geared towards this.
Do you see APAC becoming an operator of mines in the future?
Yes, I would like to see APAC have an independent cashflow. This is what the market is looking for. However, it will take time as we would need to identify the right asset and build or acquire a strong operating management team.
Where’s home for you?
It is now definitely Hong Kong. I enjoy Asia and I’ve consciously made a five-year commitment to APAC. I don’t speak Mandarin, which is a bit frustrating for me in mainland China, but I’m still hopeful that I will learn. I aim to take Chinese money to corners of the world where it might not otherwise go and Hong Kong is the best place to be based for this.
This story was first published in the December/January issue of FinanceAsia magazine.