Altus Strategies: A Low Profile, But High Returns

An internet search for Altus Strategies throws up the company’s website, but precious little else.

For many firms, particularly one focused on the natural resources sector, this distinct lack of profile might be a problem.

Not for boutique firm Altus Strategies, run by Steven Poulton and his team, who are backed by some of the leading entrepreneurs of the junior mining sector.
Being a private company, in this case a very private company, it has no need or desire to over promote itself.
And its relative anonymity is something of an asset when it comes to sniffing out opportunities – particularly among the small-cap and developing gold miners, one of its specialist areas.

The group runs Altus Capital, which in turn manages the assets of Altus Resource Capital (LON:ARCL), a £53m Guernsey domiciled investment firm listed in London and on the Channel Islands Stock Exchange (CIX:ARC).

Its other venture is Asterion AV, an active value investor focused on fledgling and special situation resource companies.

When Altus Strategies was founded in 2007, its mandate was to be opportunistic and to seek out value in the resource sector.  But the remit changed with the onset of the global financial crisis.

“We created Altus with some seed finance from ourselves and close associates and a passion to create something substantial from scratch” Poulton told Proactive Investors.

“And shortly after being founded the wheels well and truly fell off the global equity market locomotion. While we initially had ambitions of launching a number of early stage grass roots gold ventures, we quickly realised it wasn’t the environment to do this, but that an even larger opportunity now existed.

“You might have the best story, but when markets are prepared to value established companies with good prospects and management at half their cash in the bank. then it becomes far  more compelling and pragmatic to simply buy into those companies.”

So as the number of market opportunities “grew and grew” as institutions deleveraged and cashed out almost at any price, Poulton and his team set about launching a new fund – Altus Resource Capital (ARC).

With the assistance of Nimrod Capital and despite the “absolutely terrible market conditions” the company successfully raised an initial £26 million, mostly from institutional investors and listed on London’s Specialist Fund Market in June last year.

Shortly afterwards it added another £13.5 million and earlier this month tapped investors for a further £3.8 million, showing there is certainly investor interest in the ARC story. And no wonder: the fund is up 41 per cent since inception.

That may have something to do with Altus talent pool, which is impressive.
Its advisors include Guy Pas, an industry veteran who has set up and backed a succession of mining, oil and gas winners, and Malcolm Burne, the former Financial Times journalist who through Golden Prospect went on to head up Ambrian Capital.

David Netherway, a gold mine builder with a track record for deal making, is chairman and Dr Tom Elder, a veteran geologist, adds some big company experience.

Poulton himself is a well-known and respected player in the sector, a geologist who co-founded Ariana Resources (LON:AAU) and set up African Aura Resources, which merged with Mano River last year to form African Aura Mining  (LON:AAAM, TSX-V:AUR). And he is joined at Altus by Ed Bowie, a geologist with City expertise.

“Between us there are not that many projects and individuals Altus can’t get some good due diligence on,” Poulton says.

“It is important to back winning people with a good project. That is what we are siphoning out.”

“The fund is approximately 70pc focused on gold equities in the development and production stage,” he adds.  “Really our focus is the junior market, so anything less than a half a billion dollars.

“We do have a couple of ETF (investments) which we treat as quasi cash. This is useful for when the underlying commodity is strong but the equity markets are weak. Our typical investment size for the fund is about one to three million pounds and we don’t like to hold more than 5-10pc unless there is a compelling reason to do so.”

This means Altus tends not to invest in companies with a market value of less than £10-£15 million.

“But we make exceptions where we see substantial potential,” Poulton adds.
The real value generators are assets in the production or development stage, the Altus chief adds, which means ARC doesn’t look at the very early stage explorers.

The Asterion wing of Altus is an even more active and involved investor. The special situations vehicle is headed up by Matthew Grainger and has quickly scored some notable successes including an investment in Serabi, the gold exploration and mining company in Brazil (LON: SRB) and Triple Plate Junction (LON: TPJ), another gold junior, which has gold giants Barrick and Newmont  as partners in Papua New Guinea.

Asterion’s model is to find unloved fledgling miners with good assets, which have been written off or simply overlooked by the market.

“We are looking for niche opportunities to make semi-strategic investment where we can acquire a block of stock that is meaningful, 3-10 per cent of the company,” Poulton explains.

“We will then go and have a practical discussion with the board if warranted, with a view to assisting the company, putting it back on the rails.  Really sometimes it is just a case of allowing companies to tell their story, ensuring they relay it in a way the market will appreciate.”

Through Asterion, Altus has other interests, including a bauxite project in Cameroon, a gold joint venture in Saudi Arabia and gold exploration Ethiopia.

So the fortunes of the Altus stable are for the time being inextricably linked to the precious metal.

As the detailed CEO letters to shareholders on the Altus website reveal, Poulton and his team remain upbeat on the prospects for gold.

“In the last few weeks there has been some bearish sentiment suggesting the gold price has run its course,” he says.

“The theory is the markets are returning to stability buoyed by confidence from positive year-on-year earnings, so gold has served its purpose and it is time to move back into the dollar and back into equities.

“We would suggest it is a little too early to make that call. Much of the earnings data is coming off a low base and some of the profitability is synthetic – a product of revaluing impairment provisions on expectation of a brighter outlook.

“However, substantial sovereign and individual debts still have to be flushed through the system and banks are now less able and willing to mobilise capital - we are arguably still in the eye of the storm.”

With unprecedented and further money printing it will be important to "keep an eye" on the impact of rising import costs as emerging market currencies are re-valued, Poulton says. Yet there is also a genuine risk of a Japanese-style deflationary spiral as speculative pressures push banks to the brink, resulting in a flight to safety by investors.

"In either of the scenarios the gold price should do relatively well," the Altus chief adds.

"Notwithstanding the summer doldrums we are presently in no man’s land for the wider markets and may continue to tread water for a while as the inflation vs. deflation dynamic plays out.

"But in either scenario there should be more buyers than sellers of gold and with the number of new and substantial discoveries not keeping pace with the rate of depletion we remain bullish overall."