Love the upside, hate the volatility? Janus Henderson on getting it right in the new commodities boom

Industry investment

What makes this so-called supercycle so compelling is that the demand is arriving at a time when the commodities sector itself is already highly-attractive on valuation and fundamentals, says Kuzmanovic. 

"This space is cheap on any criteria you want to use relative to the rest of the market, but it's essential to deliver what the world needs over the next decade plus."

As Kuzmanovic puts it simply, "the world needs more stuff", and the way you get it is through investment. "As an equity investor, we want to see investment, that's what creates value for mining companies."

A decade of underinvestment thanks to investor pressure means the world's largest mining companies now need to "pivot to growth". 

"You can do that two ways," says Kuzmanovic. "You can buy, and we're starting to see a bit more M&A, to get that portfolio earlier than having to do it yourself through exploration or funding juniors."

"The other way is discovery, exploration, discovery, build - the classic sort of Lassonde Curve where you start from a small company and you become a bigger company through this process."

Both mean more capex, more capital raised and the need for bigger portfolios to capitalise on rising commodities prices. 

Kuzmanovic points to Australia's biggest company as a case in point. BHP Group (ASX: BHP) has spent the last few years pivoting to copper as an essential commodity in the data centre buildout. It initially tried that through a bid for rival Anglo American.

"It then went out and bought a Canadian company that now drives the main asset in South America and then did a joint venture deal with Lundeen Mining, a Canadian company to create what is now called the Vecunia Copper District, which will be a phenomenal development story over the next decade or so," says Kuzmanovic. 

"Copper prices are moving higher. That's encouraging more capital, raising more investment in exploration and development." 

And that's a theme that's playing out across almost the entire commodities space. 

Identifying the right opportunities

As the name suggests, the Janus Henderson Global Natural Resources fund takes a holistic, global approach to finding opportunities, and there's a certain profile of company its looking to target. 

He says there's a few small cap stocks with that profile on the ASX, including EQ Resources Limited (ASX: EQR). 

"It has been significantly under capitalised over the last few years, but it now resolved that issue last year and it's now opened up a core part of its resource," says Kuzmanovic. "We think over the next six months, the cash generation will just flip from not much to a lot on an extremely high tungsten price that's been driven by geopolitical issues."

He says it could generate up to $600m in EBITDA by next year against a $2 billion market cap. 

"We know from history that when the market sees cash flow, it likes it and reprices it."

Lindian Resources (ASX: LIN) is another example in the rare earths space, and which has a huge deposit in Malawi and recently acquired a refinery in Kazakhstan.

"It's got a pathway to probably triple its stage one production," says Kuzmanovic. "When you look at that stock and you compare it to a Lynas or MP Materials, which is the US stock, these companies are trading on 20 times EV/EBITDA. And this stock eventually will produce a similar amount of NdPr as Linus."

He says investors also need to pay attention to opportunities further afield. Australian investors have a strong home bias, and that is equally true for its commodities investors.

While Australia is rightfully considered a commodities powerhouse, it doesn't offer exposure to many of the key growth opportunities of today, namely copper and oil. 

Uranium miner Nexgen Energy (ASX: NXG) is ASX-listed but owns a mine in Saskatchewan, Canada, that is targeting its first production in 2030. 

"It's probably the biggest single deposit globally today," says Kuzmanovic. "It's got about US$800 million in cash and it easily raised the US$2-2.5 billion dollars that's needed to build it."

Gold is another commodity where Kuzmanovic and Janus Henderson have favoured global exposure, and Canadian gold miner K92 Mining Inc (TSE: KNT) is a preferred name there.

His advice for investors