A small Cayman Islands-based startup is using a former reality TV treasure hunter and a contrarian bet on gold to beat funds run by heavyweight firms such as Goldman Sachs and Pimco.
Montreux Capital Management’s $30 million natural resources fund has returned 146 percent in the past year, beating 99 percent of peers, according to data compiled by Bloomberg. By comparison, the $1.8 billion Goldman Sachs Structured Investments fund is up 33 percent while a commodity fund managed by Pacific Investment Management Co. has gained 22 percent.
Managing Partner Oliver Harris said Montreux is benefiting from a 2014 wager on gold after the metal’s worst year in decades, and an alliance with Steven Newbery, an industry veteran and former star of the Lost Treasure Hunters show. Bullion posted the first annual gain in four years in 2016 as increased political turmoil boosted demand for the metal as a store of value.
“With political headwinds in Europe, also in China and the U.S., gold will be a natural hedge toward traditional market volatility," Harris, 35, said in a telephone interview from his offices in London.
Seeking assets for his new fund, Harris flew to Dubai in late 2014 at the suggestion of a colleague to meet with Newbery, who was looking for capital for Tanzanian mining ventures. That meeting formed the basis of a partnership that helped catapult Montreux’s tiny fund to the top of its class two years later.
Rather than buying shares in the largest or most heavily traded gold miners, Montreux focuses on specific assets, an approach that gives it an edge as gold prices stabilize and investors have to work harder for returns. The fund is placing its bets this year on producers it considers undervalued as global uncertainties fuel demand for haven assets. Part of the plan is to acquire juniors in Canada that it would de-list and turn around.
Bearish Sentiment
Optimism for bullion in 2017 is a far cry from the bearish sentiment of recent years. After hitting a record high of $1,921.17 an ounce in September 2011, gold plunged. With hedge funds and commodity investors cutting holdings in 2013, bullion posted a drop of 28 percent in the biggest annual loss since 1981. That’s when Montreux decided to pounce. It launched the fund the following year.
"You had a lack of financing and a lack of investment in the sector," Harris said. "Fundamentally, there were some good gold projects available but they were just out of favor with mainstream investors."
The fund made its initial investments in the fourth quarter of 2014, betting that any market turnaround would produce a windfall. It bought a 50 percent equity stake in Metal Conakry, a Guinea-based refinery, in February 2015, and provided the company with a $5 million loan, according to Harris. In August of that year, it took a 50 percent equity position in Tanzania-based GRB Mining Ltd., run by Newbery, and provided a $9 million loan.
As a star of the Lost Treasure Hunters television show that debuted in India and Southeast Asia in 2012, Newbery was the geologist on a team that sought to find diamonds in India. His 30-year career in mining has also taken him to Australia, Russia and Sweden.
When Harris and Newbery met, the geologist already had an option to buy assets in Tanzania. He took ownership of the projects in 2015 and sold the stake in the newly formed GRB to Montreux. The venture benefited as the value of its holdings increased based on technical studies. And as the price of gold rallied, the company kept production costs between $300 to $400 an ounce. Gold traded at $1,260 an ounce on Friday, up 0.9 percent from a day earlier.
"It was twofold: an improvement in both the quality of grade and the quantity, and also the large rally in the gold price," Harris said.
First Pour
Montreux’s capital infusion allowed GRB to expand in Tanzania. Now the team expects to complete its first major gold pour in September, Newbery said in a telephone interview.
Gold is benefiting this year as concerns ranging from the threat of the breakup of the European Union to President Donald Trump’s policies keep investors on edge. An index of global economic policy uncertainty is at the highest level since records began in 1997, which bodes well for haven assets like bullion.
To be sure, faster economic growth, higher yields and record highs for the stock market could lure investors from precious metals.
Montreux isn’t concerned, and Newbery believes gold still has room to rally as the metal outperforms both stocks and bonds this year with a 9 percent gain.
For gold, "there will be a lot of upside in the next one to two years," he said.
This article was provided by Bloomberg News.
