Despite the rhetoric from the mining industry, not everyone will be hurt by the Federal Government’s newly proposed Resource Super Profits Tax (RSPT).
According to Douglas Loh, Acorn Capital’s Chief Investment Officer, “The impact of the super profits tax will hit larger miners much harder than microcap miners, particularly those in the exploration and development phase.
“In fact, smaller miners may actually benefit from the proposed exploration expense rebate.”
Seeing change as an investment opportunity
Since the announcement in the 2010 Federal Budget of a new tax on the mining industry, many investors have automatically avoided the resources sector.
But, as Douglas explains, “Any structural change to how listed companies are taxed will likely have both winners and losers. In this case, early research into the changes shows that the losers are the big miners and winners will be smaller microcap mining stocks.”
For large miners the new tax means uncertainty and, even worse, a significant barrier to earnings growth. But for smaller miners, especially those in the development phase, there may be a big silver lining.
According to Moody’s Investment Service’s vice president, Ian Lewis, “Junior resources companies stand to benefit the most from the exploration expense rebate, [which] could effectively and partially underwrite losses incurred in failed projects.”^
This is potentially good news for investors in the Acorn Microcap Trust.
Focussing on stocks outside the largest 250 listed companies, the Acorn Microcap Trust aims to take advantage of inefficiencies arising from poor information flows and the lack of liquidity. The Wholesale Acorn Microcap Trust returned 28.24% for the year to 31 May 2010*.
Tax potentially a ‘benefit not barrier’
According to Douglas, “Our analysis shows the proposed new tax won’t affect Acorn’s ability to generate returns for its investors. On the contrary, it may provide growth opportunities for junior miners.
“Importantly, too, the proposed new tax will not affect mining companies operating offshore.”
Currently, 67% of the Acorn Microcap Trust’s exposure to the resource sector is in developing and junior resource companies.
Digging deep for investment gems
With its focus on neglected and under researched companies, Acorn Capital aims to provide investment growth in untapped markets for its investors.
Douglas highlights Sphere Minerals and Indophil Resources as two recent successful examples. Both companies have exposure in off-shore geology exploration, where potential exists in unexplored regions.
“Sphere Minerals recently secured three large scale iron ore projects in Mauritania and, for the 12 months to 31 May 2010, its share price rose by 185.7%. Elsewhere, Indophil Resources, which acquires and explores gold and copper-gold opportunities in Asia, saw its share price rise 147.3% in the 12 months to 31 May 2010.”
More information about the performance of the Acorn Microcap Trust can be found on the Performance pages of this website.
About Acorn Capital
Established in 1998, Acorn Capital is the largest specialist microcap investor in the Australian market. It aims to exclusively target listed public companies on the Australian Stock Exchange (ASX) that have market capitalisations below the largest 250 listed companies.
This is sector is underserviced and under researched.
Acorn’s investment process is designed to take advantage of the inefficiencies arising from poor information flows and the lack of liquidity. Employing a rigorous and professional approach to fundamental research, it makes investment decisions based on relative value against a peer group.
Acorn’s strong commitment to research is evidenced by its highly experienced research team, comprehensive database and knowledge of the microcap sector compiled over the past decade.
Douglas Loh is the Chief Investment Officer for Acorn Capital. He has oversight of all investments and he liaises with the analysts to develop the structure of client portfolios. Acorn Capital is a joint venture partner of Australian Unity Investments.
^ ‘Resources tax may be credit negative for resources sector’, www.news.com.au, (7 May 2010)
* Past performance is not a reliable indicator of future performance.
Important Information
This information does not take into account your particular investment objectives, financial situation or needs. Before making an investment decision we recommend that you assess your objectives and consult a licensed financial adviser. Past performance is not a reliable indicator of future performance. No entity in the Australian Unity group guarantees the repayment of capital or the performance of any of the above funds.
Applications for investments may only be made on an application form attached to the relevant Product Disclosure Statement (PDS). Copies of the PDS for each of the above funds can be obtained by calling 13 29 39 or visiting www.australianunityinvestments.com.au
