Commodity Discovery Fund puts $316M into 40-50 discoveries

Commodity Discovery Fund, a Netherlands-based manager with about $316 million (€200 million) in assets, invests in roughly 40 to 50 discoveries across different metals, founder Willem Middelkoop said in a video interview Mining.com published Oct. 22. He spoke with The Northern Miner western editor Henry Lazenby in Colorado Springs late last month.

The fund buys at two points on the Lassonde Curve: the initial discovery, when drilling can sharply increase a company's value, and the approach to production, when investors start pricing in future cash flow. The middle of the curve is the problem. Mining shares can stagnate for years after the first excitement of a discovery fades, even in a rising metals market, Middelkoop said, so his approach is to take profits after the discovery rally and look for another opportunity as construction nears completion, when the market begins valuing a company's ability to produce metal and generate cash.

For allocators, both entry and exit sit with Middelkoop rather than with a client's own rebalancing calendar. A book of 40 to 50 positions split between discovery-stage and near-production companies concentrates the bet on two points of the mining cycle, and the practical diligence question is how the manager marks the end of a discovery rally and the re-entry point as a mine is built.

Middelkoop expects persistent supply shortages to start hitting the wider economy around 2030, and he said major producers are only beginning to increase their exposure to early exploration. He described a commodities rally that could last for decades. "Everybody thinks he will be a genius because even the lousy stocks will go up," Middelkoop said. Whether the majors' still-early move into exploration narrows the pool of undiscovered companies the fund is buying is an open question.