The AIM Listing Of RAB Capital Will Interest The Junior Mining Sector.
It will be interesting to see how the shares in RAB Capital open on the AIM market in London on Tuesday as it is virtually the only fund management group not dedicated to resources which realised early on that there was a mining boom in the making. This has contributed in no small way to the performance several of its funds have achieved over the past couple of years. It is raising £8 million through what is termed a restricted invitation for subscription at 25 p per share and this has been at least five times oversubscribed, though the directors are constrained from giving exact figures. Unfortunately private investors are not invited to subscribe, presumably for the same reason that they may not invest directly in the funds. RAB Capital focuses mainly on managing hedge funds and the nanny state deems these as being too volatile for thee and me.
The group was set up in January 1999 by Michael Alen-Buckley and Philip Richards who had been working for Smith New Court previously. It started to trade in June of that year and launched its first fund, RAB Europe Fund, in November 1999. It now has US$1.5 billion under management in twelve funds compared with US$1.1 billion at the end of January which gives some idea of the rate of growth. Following this issue, however it will be capitalised at £85.6 million which is close to 10 per cent of funds under management. This is quite a heady rating, but not many of its peers have put up a performance to equal it of late, and the opening price will confirm the view that it offers value.
RAB specialises in managing hedge funds which represent an alternative to traditional debt and equity investments as they can make use of hedging strategies such as short selling, options and futures to take out market risk. There is an honesty about the operation as its funds are measured on an absolute return on invested capital, rather than the benchmarks used by its competitors which may be an index or a basket of similar funds. As indices and baskets can fall in a bear market credit is given for falling less than the norm, but this is no comfort to investors who hope to see positive performances year on year.
For some time now Philip Richards has been active on the mining scene, though only a comparatively small portion of the funds under management is in resource stocks. Pride of place is given to the Special Situations fund which has risen 15 fold in the last one and a half years. It is currently valued at US$250 million and around 80 per cent is in resource stocks. RAB Europe is valued at around US$450 million and 20 per cent of this is in mining, while RAB UK is worth around US$150 million and just 10 per cent is in resource stocks. A point worth making here to those doomsters who see strength in the junior mining sector only lasting for another year or two is that Richards is not in love with the sector. As the name suggests Special Situations seeks just that - special situations - and when the managers see another sector on the trot their funds will move in that direction, and that applies to the other two funds as well.. The other difference between Richards’ investment policy and those of many other fund managers is that he is prepared to take quite big positions in very small stocks.
The fact is that RAB’s funds are managed proactively and Philip Richards, who is CEO and Chief Investment Officer has the mind set of an old fashioned jobber. This means that he is always prepared to take a profit or cut a loss and is able to job his way out of any difficulties. What is really needed is an active market and preferred stocks usually have plenty of news flow ahead of them to get things moving. Early on in the mining boom back in 2002 Richards took significant positions in both Oxus Gold and Celtic Resources which were two of the best performers in the AIM market in 2003. RAB may still be a shareholder, but considerable profits have been taken in the meantime. Last year also he took a hefty position in one of Phil Edmonds companies , Southern African Resources. This would have been looked on as a ‘lobster pot stock’ by many, but Richards made a six fold profit.
Two other successes on the IPO front last year were Caledon Resources which was a thirteen bagger at one time and Gold Mines Of Algeria which trebled between April and the end of the summer. At that time Richards took a major slice of placings by Griffin Mining and African Eagle and was taking a profit on the latter in recent weeks after the announcement of a major discovery in Zambia. He rationalises his investment policy by saying that he buys a stock when it is out of favour and sells when a queue has formed to buy. Just for the record there are three stocks which he will admit to favouring at the moment. One is Asia Energy which is due to list soon and owns the Phulbari coal and power development project in Bangladesh. Richards reckons the coal in the ground is valued at around one-tenth of that of some of its peers. He also rates Marakand Minerals, the Oxus spin-off, for its involvement in silver and the same applies to Canadian listed Scorpio Mining. Last, but not least, RAB has a significant shareholding in Tien Shan Gold which is the other story running on Minesite.
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