Best of the Week
Most Popular
1. Market Decline Will Lead To Pension Collapse, USD Devaluation, And NWO - Raymond_Matison
2.Uber’s Nightmare Has Just Started - Stephen_McBride
3.Stock Market Crash Black Swan Event Set Up Sept 12th? - Brad_Gudgeon
4.GDow Stock Market Trend Forecast Update - Nadeem_Walayat
5.Gold Significant Correction Has Started - Clive_Maund
6.British Pound GBP vs Brexit Chaos Timeline - Nadeem_Walayat
7.Cameco Crash, Uranium Sector Won’t Catch a break - Richard_Mills
8.Recession 2020 Forecast : The New Risks & New Profits Of A Grand Experiment - Dan_Amerman
9.Gold When Global Insanity Prevails - Michael Ballanger
10.UK General Election Forecast 2019 - Betting Market Odds - Nadeem_Walayat
Last 7 days
Beware Gold Stocks Downside - 13th Dec 19
Fed Says No Interest Rate Hikes In 2020. What About Gold? - 13th Dec 19
The ABC’s of Fiat Money - 13th Dec 19
Why Jo Swinson and the Lib Dems LOST Seats General Election 2019 - Sheffiled Hallam Result - 13th Dec 19
UK General Election 2019 BBC Exit Poll Forecast Accuracy Analysis - 12th Dec 19
Technical Analysis Update: Tadawul All Share Index (TASI) - Saudi Arabia ETF (KSA) - 12th Dec 19
Silver Miners Pinpoint the Precious Metals’ Outlook - 12th Dec 19
How Google Has Become the Worlds Biggest Travel Company - 12th Dec 19
UK Election Seats Forecasts - Tories 326, Labour 241, SNP 40, Lib Dems 17 - 12th Dec 19
UK General Election 2019 Final Seats Per Party Forecast - 12th Dec 19
What UK CPI, RPI INFLATION Forecasts for General Election Result 2019 - 11th Dec 19
Gold ETF Holdings Surge… But Do They Actually Hold Gold? - 11th Dec 19
Gold, Silver Reversals, Lower Prices and Our Precious Profits - 11th Dec 19
Opinion Pollsters, YouGov MRP General Election 2019 Result Seats Forecast - 11th Dec 19
UK General Election Tory and Labour Marginal Seats Analysis, Implied Forecast 2019 - 11th Dec 19
UK General Election 2019 - Tory Seats Forecast Based on GDP Growth - 11th Dec 19
YouGov's MRP Poll Final Tory Seats Forecast Revised Down From 359 to 338, Possibly Lower? - 10th Dec 19
What UK Economy (Average Earnings) Predicts for General Election Results 2019 - 10th Dec 19
Labour vs Tory Manifesto's UK General Election Parliamentary Seats Forecast 2019 - 10th Dec 19
Lumber is about to rally and how to play it with this ETF - 10th Dec 19
Social Mood and Leaders Impact on General Election Forecast 2019 - 9th Dec 19
Long-term Potential for Gold Remains Strong! - 9th Dec 19
Stock and Financial Markets Review - 9th Dec 19
Labour / Tory Manifesto's Impact on UK General Election Seats Forecast 2019 - 9th Dec 19
Tory Seats Forecast 2019 General Election Based on UK House Prices Momentum Analysis - 9th Dec 19
Top Tory Marginal Seats at Risk of Loss to Labour and Lib Dems - Election 2019 - 9th Dec 19
UK House Prices Momentum Tory Seats Forecast General Election 2019 - 8th Dec 19
Why Labour is Set to Lose Sheffield Seats at General Election 2019 - 8th Dec 19
Gold and Silver Opportunity Here Is As Good As It Gets - 8th Dec 19
High Yield Bond and Transports Signal Gold Buy Signal - 8th Dec 19
Gold & Silver Stocks Belie CoT Caution - 8th Dec 19
Will Labour Government Spending Bankrupt Britain? UK Debt and Deficits - 7th Dec 19
Lib Dem Fake Tory Election Leaflets - Sheffield Hallam General Election 2019 - 7th Dec 19
You Should Be Buying Gold Stocks Now - 6th Dec 19
The End of Apple Has Begun - 6th Dec 19
How Much Crude Oil Do You Unknowingly Eat? - 6th Dec 19
Labour vs Tory Manifesto Voter Bribes Impact on UK General Election Forecast - 6th Dec 19
Gold Price Forecast – Has the Recovery Finished? - 6th Dec 19
Precious Metals Ratio Charts - 6th Dec 19
Climate Emergency vs Labour Tree Felling Councils Reality - Sheffield General Election 2019 - 6th Dec 19
What Fake UK Unemployment Statistics Predict for General Election Result 2019 - 6th Dec 19

Market Oracle FREE Newsletter

UK General Election Forecast 2019

Investors Research Chinese Investments Carefully

Stock-Markets / Investing 2011 Jul 20, 2011 - 03:41 PM GMT

By: The_Gold_Report


Best Financial Markets Analysis ArticleGrowth is where you find it. Taylor Asset Management founder and CEO Stephen Taylor is an active global investor who loves Latin America, China and certain event-driven natural resource plays that he expects will provide big growth to investors who have made a bet on his Taylor International Fund. In this exclusive interview with The Gold Report, Stephen shares his best ideas—ideas that have multi-bagger potential.

The Gold Report: You had an interesting career that included being a floor trader on the CBOE when you were at Lakota Trading. You mastered skills there that could never have been developed in any other way aside from being on the floor of the Exchange. How does that inform what you do today, considering that so many of your current equity holdings are micro-cap, small cap or China-related and may not have derivatives attached to them?

Stephen Taylor: I started on the floor back in the days of floor trading, when it was open outcry and traders stood next to each other yelling and screaming. This was before the screen-based computerized trading of today, and it allowed you to see the emotional elements of markets up close and personal.

TGR: That's actually what I was getting at.

ST: When you were going down to the trading floor, you could hear the roar of the crowd before you got there. Depending on that tone and the volume you could tell if the market was up, if it was down, how fast it was moving. In the trading pit itself you saw those periods when fear or greed would take over. There's nothing like seeing it up close and personal and watching individuals or firms panic and make trades that maybe with the passage of time would not appear to be completely rational. So, in that sense it was an invaluable experience.

TGR: Your Taylor International Fund is heavily weighted in natural resources and emerging markets. Given that this space has seen a pullback and is generally soft at this point, how is your fund pacing so far in 2011?

ST: Well, we've taken our lumps. We're not too far behind some of the resource-related averages, such as the TSX Venture. We're down a little bit over 10% this year. But, you know, volatility is something that comes with this space. It's something we're comfortable with as long as we believe in the companies and the management teams that we're investing in. We maintain a long-term perspective. We seek out and encourage our investors to maintain a long-term perspective. So, we're not really rattled or shaken by these sorts of pullbacks. It just goes with the territory.

TGR: Do you think of the volatility as your friend?

ST: In many cases, absolutely. Not everybody likes volatility. Not all funds are able to deal with it. But it does present some opportunities. I think we've seen some overdone selloffs in the resource space. We've seen some extreme selloffs in the China space. And that's presenting some good opportunities, in our opinion.

TGR: Your China positions represented about half of your portfolio when you last spoke to The Gold Report six months ago. Some of these were private equity. The due diligence would be daunting to most people. How do you research and verify these assets, liabilities and valuations in what I might refer to as esoteric investments?

ST: As you know, diligence is an ever-present issue, not just in this China space, but in the resource space as well. We are big believers in looking at management teams that have delivered in the past. We look at the partnerships that management teams and companies have, and the banking teams that they choose to deal with. We look at the strategic investors that they bring along, as well as the firms doing their auditing and legal counsel. We do site visits, and repeatedly meet with management teams. We try always to look at what companies do, and not what they say.

TGR: Is there any China counterpart to Sarbanes Oxley Section 404, requiring executives to be responsible for their financials?

ST: Well, I would point out that SarbOx has certainly not been a panacea in and of itself here in the U.S. A number of the high-profile blowups here in the U.S. were Sarbanes-Oxley-compliant, or at least testified that they were. Ultimately, whatever regulatory structure you have is only as good as people backing it up. With respect to China, clearly it's a developing market. Their financial markets are not as mature as those in North America or Europe, and it's an ongoing process. I think you'll continue to see some progress being made in that area over the next year or two, especially with respect to allowing for broader SEC investigation and actions in China and harmonization of accounting standards.

TGR: When you founded the Taylor Fund in November 2008, you had $10 million under management, I believe. How much do you currently have under management?

ST: We're a little under $50 million at this point.

TGR: So, you have almost five times the assets you started with two and one-half years ago. Has that growth occurred mostly without new investment?

ST: It's been a combination of organic growth, some new investment and some follow-on investment from existing investors.

TGR: Have you reopened the fund to new investors?

ST: We haven't formally reopened the fund. I suspect that we may do that sometime in the fourth quarter. That'll be our three-year anniversary and an appropriate time to take a look at it.

TGR: That's when the lockup will end for your initial investors?

ST: That's correct, at least for a portion of them.

TGR: In a fund of this type, you really have to be as comfortable with the investor as the investor has to be with the portfolio manager.

ST: Oh, absolutely. In an ideal world, all funds would be that way. As a manager, it's vital to know the risk tolerance and financial profile of your investors. I couldn't operate nearly as well if I were concerned that some of my investors were taking inappropriate risks for themselves. It really has to be a good match.

TGR: You have to walk a narrow path, where you hold enough different positions that you're not dangerously under-diversified, but where at the same time you can potentially achieve outstanding capital appreciation. Currently, how many different securities does your fund own? How are you weighted by country and sector?

ST: We have approximately 45 positions right now. In terms of weighting, we're probably 20% in the energy space, 20% to 25% in the mining space, and we have probably about one-third in China-related investments. We currently have a 2% or 3% weighting in the financial space, but I suspect that will change to about 10% in the next few months. And we have roughly 5% or 6% in cash.

TGR: In part, you buy very small companies, some of which are in the micro-cap range. In many cases, they probably require some tinkering or restructuring. Do you think of yourself as an active investor or an activist investor? How do you see yourself?

ST: We like to look at ourselves as being positive, additive, collaborative shareholders. We like to think of ourselves as always having a good relationship with management teams. Depending on that relationship, CEOs will reach out and may ask for our input from time to time. We like to work on a collaborative basis in a win/win situation. Having said that, there are times when we have had to become active.

One case that I mentioned in the December interview was the Chapter 11 case of Meruelo Maddux Properties, Inc. (OTCPK:MMPIQ). It unfortunately required a lot of time and effort on our part, and it's something that we're happy we did. As part of the confirmed reorganization plan, which we believe will be effective this week, I will be taking a board slot there. So, I'm going to restrict my comments on that for now.

TGR: You invest in event-driven situations, and I assume distressed situations as well. Can you describe events and other situations where you might enter a position?

ST: By event-driven, we mean company-specific events that we believe will drive increased shareholder value. That could be a new project. It could be drill results. It could be a financial restructuring. In the case of Meruelo Maddux, it was bankruptcy reorganization. Another company that we were involved in early, of which I continue to be a big fan, is Red Eagle Mining Corp. (TSX.V:RD). I love Red Eagle Mining. We participated in this company as a private venture and knew it would ultimately move toward an IPO, and that it would bring in some very attractive additional properties in Colombia.

TGR: What's your favorite region?

ST: Central and South America, because of its mining companies. We are big fans of Lumina Copper Corp. (TSX:LCC), which has its Taca Taca project in Argentina. The drill results just seem to get better and better. Its recent spinoff of the royalty company was very shrewd in our opinion.

Anfield Nickel Corporation (TSX.V:ANF) in Guatemala has the same management team as Lumina and is very good. Also, Silvermex Resources Ltd. (TSX:SLX) in Mexico is ramping up production now and is very good. We continue to like silver here. We think these are terrific names.

In New Zealand, we like energy companies, including Tag Oil Ltd. (TSX.V:TAO) and New Zealand Energy Corp., which should be having an IPO in the near term. We've been an investor in three rounds of private funding in the company, and think it's really worth a look at the IPO.

We like Miranda Gold Corp. (TSX.V:MAD) in the U.S. We like Largo Resources Ltd. (TSX.V:LGO) in Brazil and in Canada. Largo has made some great progress since we last spoke. It's completed the financing on its Maracas vanadium project, and the drill program is now underway in the Northern Dancer tungsten-molybdenum project up in the Yukon. This company continues to make great progress.

TGR: What's the near-term catalyst with Largo?

ST: I think you could see some drill results out of the Northern Dancer project. The company began the drill program for a pre-feasibility study up there. They will begin construction on the Maracas project. I think vanadium is a metal that we're going to hear a lot more about in the years ahead, and Largo arguably has the best undeveloped vanadium deposit in the world down in Brazil—one of the best markets. So, I think you'll keep seeing good things about them.

TGR: Silvermex acquired the La Guitarra silver mine and put it back into production. Is that the principle growth driver here?

ST: Yes. You saw the first quarter production coming out, and it's ramping nicely. The company has a shrewd, experienced team. It's a bunch of ex-Hecla Mining (NYSE:HL) guys.

TGR: Going back to Miranda Gold for a moment. It's a micro cap; about a $22 million market cap. Is there an exit strategy for the company?

ST: I've known Miranda Gold President and CEO Ken Cunningham for a lot of years. It just seems like people are finding more and more gold closer to his neck of the woods in Nevada, where Miranda has a great land package. And I like to say that Ken has a good nose for gold—I think over the next few months the company's going to find some. It's a dynamic company, and it has some great JV partners. It's shown the ability to get into new jurisdictions such as Colombia and Alaska. I have a lot of respect for Ken and his team. I think they know how to find gold.

TGR: Miranda shares have been strong over the past month—up about 15%. I presume this is about the initial drill results from the Red Hill Project.

ST: That could be a lot of it. That stock is down 30% or so since the first of the year. I just think it's a bargain. It's been way oversold. I think there's good potential news coming out of Nevada; don't forget the joint venture with Red Eagle on a number of Red Eagle's Colombian projects.

TGR: You also like energy.

ST: Yes, I like Saratoga Resources Inc. (OTCQB:SROE). It's a Louisiana-based oil and gas company active along the Gulf Coast. It was in Chapter 11 a couple of years ago and management just refinanced some long-term debt. It's completed two equity rounds this year and we participated in both. It's our understanding that The Blackstone Group LP (NYSE:BX) is a big participant in the most recent round. Management owns a substantial stake in the company and is highly incentivized.

As the company has emerged from Chapter 11, it's been able to spend on the necessary capex to bring back online a lot of the existing production that suffered during the Chapter 11 process. We see the company's production and revenue growing very sharply over the next few quarters. Now that refinancing is out of the way, I think that stock has a lot further to go.

TGR: Do you see this a distressed situation or as a turnaround story?

ST: It's a little of both. It had been a distressed situation, and like a lot of companies that have found themselves in the last few years with good operations and good managements but weak balance sheets, it got caught in a bind. Often it's just a case of needing to find the right type of investor to step up and lead that first equity round or to bring in a few partners and demonstrate some confidence in these companies and their management teams, and be willing to be the first person in the water. We felt we played a little bit of that role with Saratoga. We're playing that role with Pan Pacific Bank. It's the type of role we don't shy away from, and we think we could really earn some outsized returns for investors willing to take that risk.

TGR: You mentioned Anfield Nickel a bit ago. The stock is flat over the past six months, but it's up about 49% over the past year. Do you feel there's a lot more to go there?

ST: I think there could be. The recent preliminary economic assessment on its Guatemalan nickel zone was very decent. But it also is only based on a portion of that deposit. We think the company may be positioning for either a full or partial sale. The presence of Lumina guys [Lumina CEO] David Strang and [Chairman and Founder of Pan American Silver Corp. (TSX:PAA)] Ross Beaty as significant shareholders in Anfield is a very positive sign.

TGR: What about a China play?

ST: In China, I think LianDi Clean Technology Inc. (OTC:LNDT) continues to show terrific results. I mentioned it in December. The stock has been overly beaten down here, and I think it's a real bargain at these levels.

On the China space in general, a lot of the good U.S.-listed Chinese companies will not tolerate these extremely depressed valuations for long. I believe you'll see them move to delist from the U.S. and relist in places like Singapore or Hong Kong in order to receive fair and higher valuations. I think that's a move that a lot of investors may not fully appreciate. Certainly the shorts may not be fully thinking about that yet.

LianDi is trading for two times next year's earnings here, but in a place like Singapore or Hong Kong, it could probably be valued at 8 or 10 times earnings very easily. If you're a short, you might have a problem there.

TGR: This has all been very exciting, Steve. Thank you.

ST: Thank you very much.

Stephen Taylor is chairman and CEO of Taylor Asset Management, a Chicago-based investment management firm focusing on small-cap domestic equities and emerging markets. He also serves as a portfolio manager for the Taylor International Fund, Ltd., a small-cap equity fund. In addition to emerging markets, Stephen's area of expertise includes private equity, restructuring and turnaround situations and both small- and mid-cap companies. He has considerable experience in the natural resources and finance industries in Canada and China.

Want to read more exclusive Gold Report interviews like this? Sign up for our free e-newsletter, and you'll learn when new articles have been published. To see a list of recent interviews with industry analysts and commentators, visit our Exclusive Interviews page.

1) George Mack of The Gold Report conducted this interview. He personally and/or his family own shares of the following companies mentioned in this interview: None.
2) The following companies mentioned in the interview are sponsors of The Gold Report: Red Eagle Mining Corp., Silvermex Resources Inc., Miranda Gold Corp. and Largo Resources Inc.
3) Stephen Taylor: I personally and/or my family own shares of the following companies mentioned in this interview: Meruelo Maddux Properties, Inc., Red Eagle Mining Corp., Lumina Copper Corp., Anfield Nickel Corporation, Silvermex Resources Inc., TAG Oil Ltd., Largo Resources Ltd. And LianDi Clean Technology. I personally and/or my family am paid by the following companies mentioned in this interview: None.

The GOLD Report is Copyright © 2011 by Streetwise Inc. All rights are reserved. Streetwise Inc. hereby grants an unrestricted license to use or disseminate this copyrighted material only in whole (and always including this disclaimer), but never in part. The GOLD Report does not render investment advice and does not endorse or recommend the business, products, services or securities of any company mentioned in this report. From time to time, Streetwise Inc. directors, officers, employees or members of their families, as well as persons interviewed for articles on the site, may have a long or short position in securities mentioned and may make purchases and/or sales of those securities in the open market or otherwise.

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules