November saw a very rapid rebound in equity markets as the ‘soft landing’ narrative took hold, despite commodities continuing to signal otherwise. The portfolio did not participate in the rebound and ended down 1.86% for the month.
Perhaps the Christmas rally came early this year, but when markets went vertical in November without pause, they call these a ‘lockout rally’, as anyone waiting for a pullback to jump on board is left on the sideline. It can be frustrating to watch when you are not fully onboard, but traders quickly learn that chasing these sharp rises is a losing strategy in the long run. It is now likely that markets continue to grind higher into the year end as inflation expectations are collapsing, and the market is now starting to price in rate cuts for 2024. Our bet that US 2-year yields would fall was correct – the yield fell from 5.2% in October to a low of 4.3% a few days ago.
Gold tried to break to new highs at the start of this month but has been knocked down. I still believe we will see precious metals outperform in 2024. We have also seen potential green shoots in the price of lithium and rare earths( the spot price of lithium had declined over 80% from its highs) The entire lithium sector has been under severe pressure over the year, but perhaps 2024 will be the start of a turnaround and we have identified a number of names that might do very well.
I said last month that I would give an update on Infinite Green Energy (IGE), our unlisted Hydrogen investment, once that AGM has occurred. From an investment standpoint, they are in a solid position as they continue to make excellent progress with their plans and are a clearly becoming a leader in the development of commercial scale green hydrogen. After the AGM I managed to speak to the CEO, Stephen Gauld, who took my call while in Italy, where he was there to launch the Valle Peligna site, which was attracting a lot of local media attention. He still mains extremely optimistic about the success and viability of the company and has been hitting all of his performance milestones to date. When I mentioned that a Wollongong firm, Hysata, had developed a world beating 95% efficiency for hydrogen electrolysis, he knew the company well and that we might hear something about a partnership in the future. Hysata are currently trying to scale their electrolyser to a commercial size, and the timeframes for commercialisation are very similar to when IGE should be in first production.
If such a partnership is successful, it will mean that IGE would be producing ~26% more Hydrogen for the same amount of input energy. This would be a massive boost, a terrific Australian partnership, and would alleviate one of ‘Hydrogen as a renewable’ main criticisms – poor efficiency.
In terms of the IPO, disappointingly IGE have postponed once again, and they are currently not being drawn into providing a new date at this stage. Given their history of delaying, perhaps shelving it until they are ready is the right decision from their perspective. When I took over the running of the Fund in July last year, IGE was planning to IPO in December 2022. It was then pushed to June 23, and then Nov 23. Given the company is still more than a year away from producing and selling Hydrogen, it does make sense for them to wait, as a company without earnings can suffer from share price slumps as there is no cashflow to support the valuation.
I am now actively looking at some options to rebalance before the IPO takes place – we can look to find a buyer for a portion of our IGE holdings to reduce the position size and free up some liquidity. While I remain very optimistic for both the future of Hydrogen as part of the renewable mix, and IGE’s ability to prosper, I believe it is prudent to do a partial rebalance.
Elsight is finally starting to deliver. They have just announced their second record sales month and are on track for this quarter to breakeven. This is a huge milestone for a company. I’m hoping in the coming months you’ll all be pleasantly surprised at what happens when the demand equation for an illiquid stock flips and demand far outstrips supply. While revenue continues to build quarter on quarter, my only concern now is that someone tries to buy them out before the true value is reflected in the share price.
I wish everyone a very good holiday season and a happy and prosperous new year.