Did this financier just call the end of the mining rally?
After four-plus years of declines, 2016 was a comeback year for the mining industry – with only a couple of exceptions, energy, metal and mineral prices rallied strongly last year.
The turnaround in the sector has convinced at least one private equity firm that it may be time to lock in some profits. Reuters reports the Orion Mine Finance Group is in talks to sell a portfolio of 87 royalty, streaming and offtake assets.
Looks like harvest time came early
The agreements cover gold, silver, base metals and diamonds across 16 countries and could fetch as much as $1 billion:
"Our fund has a seven-year life. At the end of 2016 we were done with investments. We are now in harvest mode," [Orion portfolio manager Douglas] Silver said when asked why Orion was selling the portfolio. He said the sales process was launched at the beginning of January.
The last time a large royalty and streaming portfolio was put on the market was in 2010 when Orion sold International Royalty Corp to Royal Gold, Silver said.
The exclusive report notes a long list of possible suitors including Franco-Nevada, Silver Wheaton, Sandstorm Gold, Osisko Gold Royalties and Triple Flag, a new mining financing firm founded by former Barrick Gold finance chief Shaun Usmar.
At the end of 2015, beginning of last year when metals and minerals were making multi-year lows, and commodity asset managers and banks' trading desks were closing Orion launched a new hedge fund to trade industrial and precious metals.
The peak price cycle was in 2011 and these cycles tend to last seven years
Oskar Lewnowski, the founder and chief investment officer of Orion told Bloomberg at the time "there are three factors driving commodities: momentum-driven financial flows, physical fundamentals and macro events":
"For a long time, metals were driven by financial flows, be it mining-orientated banks, commodity hedge funds, CTAs [Commodity Trading Advisors] and even retail equity investors," Lewnowski said in an interview in London.
"With those guys out, we are back to fundamentals. And that’s an environment in which we can do well."
Lewnowski, which spun Orion out of his Red Kite fund in 2013 to invest in junior mining, was also willing to put a date on a turnaround:
"The turnaround is going to come in 2018," Lewnowski said. "The peak price cycle was in 2011 and these cycles tend to last seven years."
Looks like harvest time came early.
And for those still heavily invested in mining and metals, let's hope the timing of Orion's off-load is not an indication that the rally has peaked.