Cadence Opportunities Fund Limited ($CDO)

Ladies and gentlemen, welcome to the Cadence Opportunities Fund December 2025 Half Year Webcast. The fund had a strong performance during the period, up 36%, outperforming the index by about 32%. Many of the top contributors were gold, for example, Robex Resources, Turaco Gold, Kingsgate Consolidated, Equinox Gold, Endeavour Mining as well as Samsung Electronics and New Gold. The largest attractors for performance were Boss Energy and QBE, both of which are no longer in the portfolio. In recent years, we have highlighted that the gold prices were rising whilst gold mining company valuations have not risen significantly. This changed in 2025, and we saw share prices catch up to the gold price movement. And this was driven -- and this really has driven performance for the fund. Over the first half of this financial year, the Australian dollar gold price was up 29%, whilst the All Ordinaries Gold Company Index was up 63%. Kingsgate and Equinox, for example, have more than doubled over the 6-month period, whilst Robex, Turaco, Endeavour, New Gold were all up more than 50%. We experienced a period of elevated capital raising initiatives across the resources sector in this period, and these provided good trading opportunities for the fund as well. We declared a $0.075 fully franked dividend, which is $0.5 higher than the final dividend. After paying this, we still have $0.74 per share of profit reserves to pay future dividends. This is around 4 years' worth of dividends based on the current interim dividend. The ex date is the 15th of April and the payment date of the 30th of April. And the DRP will be in operation for this dividend. If you're interested in registering for the DRP, please get in contact with Boardroom. We will buy back the shares that we issue under the DRP so there is no dilution. And the buyback will only operate whilst the CDO share price is trading at a discount to NTA. Here are the dividend yields in more detail. The $0.075 fully franked yield equates to a 7.1% fully franked yield, I beg your pardon, and a 10.2% gross yield based on the share price of the date of this announcement of $2.10. And you can see from that table that our yield is generally speaking around 2 to 3x what the All Ordinaries Accumulation Index has delivered over these periods. Our gross yield for this particular period is 3x higher than those of the All Ordinaries Accumulation Index. We've paid out $0.77 of dividends since inception. When we include franking, that's $1.10 per share. The NTA of the fund, you can see there is $2.37 post tax, and our share price is $2.11. We're trading at around 11% discount. This gold price rally that we've been experiencing is one of the most sustained rally since the 1970s, and this was followed last month by a significant correction in the gold price. The correction was around 20%, not quite 20%. And of course, the corrections during a gullable market are quite normal. CDO's post-tax NTA on the 31st of December was around $2.38. And as I just said, is around -- now around $2.37. The fund was up 36% at the 31st of December and now is up around 34% year-to-date. The All Ordinaries Accumulation Index during that period is down around 3%. And actually, for the year, the All Ordinaries Accumulation Index is roughly flat. CDO has reduced its exposure to gold and silver over this period, as you would expect us to do in periods of volatility and when our share price rolls over. However, gold equities remain a core exposure within the fund and many gold companies are presenting us very cheap on a cash flow and earnings growth multiple basis. Here, you can see our top 20 shareholders -- shareholdings, I beg your pardon, and as well as the liquidity of the fund. I mean, put simply, the fund is very liquid. We can liquidate 93% of the portfolio in a month -- a week, I beg your pardon, around 97% of the portfolio within a month. Some examples here of what we've been doing during the period. Samsung was a core position. We started buying it, when it was 3x earnings and growing at 200%. Samsung is in the same business as NVIDIA, producing computer chips. And they produced a fourth quarter result, which showed memory prices were up 40% quarter-on-quarter and their net profit was up 60%. Their contracts that they signed in February 2026 were at prices 100% higher than February 2025. And of course, this outlook makes the stock look very cheap still. And it gives the company a good [ hedge ] ratio and fundamental characteristics going forward. You can see those on the left, even despite the strong rise in the share price. The March war in Iran has triggered a bit of a selloff in Samsung and the broader Korean market, and we are watching this closely to see if there's a potential change in trend in the company. On this slide, you can see how much the share prices moved up and just that correction that we see at the top there, which needs to be monitored closely. The tungsten position that we took on here, again, the characteristics of this fundamental trade are a company on very low PE, 11x growing at more than 100%, very good operating cash flow and free cash flow yields. The management of this are a highly experienced team with decades of experience in tungsten mining and the tungsten market. The supply of tungsten is Chinese produces 85% of the global demand -- the supply, I beg your pardon, and has restricted exports in 2025. And this send tungsten prices up 500%. EQR will also double production over the next 12 months in addition to the price rising so sharply. At current spot prices, EQR is expected to deliver free cash flow yield of 30%, and EPS growth of over 200%. Not surprisingly, the share price has risen significantly. And I mean, this stock falls into that category of critical minerals that the world are obviously scrambling for -- to as we recently require more of the critical minerals. We've spoken about this Guzman Gomez' short position before. As we sit here today, EPS growth by the marketplace is around -- is predicted to be around 52%. We'll see whether it comes in that high or not. PE is around 90x. Operating cash flow yield of about 4%, no free cash flow yield, cash on the balance sheet, no debt, market cap of $1.9 billion. Guzman Gomez have plans to grow their store network here from around 200 to 1,000 stores and did have plans to grow a very large U.S. store base as well. The very high multiple has really indicated that's what the market believed was going to happen. We've seen the PE fall from 340 to 240 PE, when we start shorting it. And we think for a company in this sector, which is really the quick service restaurant sector, typically, we would expect to see a PE of around 20 to 25x. So I think we would expect the share price, all else being equal, to be 1/4 of what it is now. However, the company will have growth. And so we look very loosely broad brush strokes to the share price maybe being half of where it is now in the future. There has also been recent softness in trading in Australia and the U.S. market rollout is simply not going ahead at the moment. The losses in the U.S. are obviously guided to continue. And here, you can see the share price gradually falling, and we expect that to continue. Turning quickly now to upcoming CDO positions. Robex is a core position, we've spoken about it before. It has gone into commercial production in February 2026, which is great news. It has also merged with Predictive. The merger is not complete, but it will complete in this June half. And then will become a very big company. It will be multi, multibillion dollar company listed on the Australian Stock Exchange and will be a merged company with the capacity to produce 400,000 ounces per annum of gold. This increased production into a very high gold price. Obviously, sees the company throwing off a lot of free cash flow in trading, in that circumstance at 40% free cash flow yield, tremendously high free cash flow. Endeavour Mining is a multi-asset gold producer in West Africa and produces around 1 million ounces per annum of gold and just had a record free cash flow of $1 billion in 2025. This free cash flow has generated significant cash, obviously, for EDV and has reduced the leverage to -- well, basically, the debt's just about gold. The guidance for '26 suggests sustained production rates, increased margins and larger net mine cash flows. At spot prices, we estimate a PEG of 0.1 and still free cash flow of around 20% despite the share price having gone up so much. Many Peaks is a much earlier gold investment and is trading position. It's based in Cote d'Ivoire and is basically going through a phase of exploration and has had some very, very successful drills in the Ferke Gold project. And we expect the company to declare a maiden mineral resource in the second quarter of '26 and finish a pre-feasibility study by the end of the year. These will all be valuation uplifts for the company. Cyprium Metals is a trading position, which we hope will become a core position. It is the operator of the Nifty copper mines, and it's really a turnaround start-up again. The mine was previously put on care and maintenance and sold to Cyprium when copper prices were very low. A new management team is progressing a phased capital-light approach by mining tailings for mid-2026 results. And in the longer term, we expect an operation to produce 50,000 tonnes per annum and beyond. Just quickly on the December half year reporting season. Some bullet points, the old economy stocks, in particular, miners generated substantial cash flow, and people would have seen that with their improving margins, and you would have heard a lot of commentary in the newspapers about how well these companies are performing. There's also been evidence of improved shareholder returns from mining stocks as we outlined. They had probably been underperforming, but are now performing better, and they have stronger balance sheets. Defense, engineering and construction contractors have been through a period of strong earnings growth, supported by high levels of government spending. However, we see this growth outlook for the company is becoming a little bit more uncertain with higher inflation, higher interest rates going forward and maybe, question marks over how much money the government should be spending, and how much extra debt the government should be taking on. New economy stocks, largely high PE software and technology stocks are facing uncertain outlooks with investors questioning potential AI disruption in their business models. And of course, many of these are also on lofty PE multiples. And those PEs have substantially compressed in this quarter. Not only have they substantially compressed, but many of these stocks are still on very, very high price to earnings multiples, which really begs the question on what kind of PE multiples were they on before the prices compressed? Using our methodology, these companies still do not look that attractive from an earnings growth and cash flow multiple. High interest rates are a further headwind for these high PE stocks because as interest rates go up, PEs in general come down. Heightened volatility with many stocks having very large intraday swings that you would have seen -- read in the financial papers that there were swings of around 10% often when a company reported its half year results and that means uncertainty is another word for high volatility, and uncertainty is another word for risk. So the environment is certainly not that straightforward. You would have seen us start to put this 220-year interest rate chart into our AGM presentation since 2022. We have updated this now with the green line of where actual interest rates are. And you can see that we had that wonderful period of falling interest rates from the early 1980s all the way through to 2020s. And of course, falling interest rates means less interest rate repayments, asset prices go up, a wonderful period in financial history. And now we are experiencing the opposite. And as these interest rates go up, you would expect that the structure of the economy will look quite different. The average interest rate over the 220 years is around 8%, which is why we've kind of drawn that dotted line to 8%, just to give a reference point for what interest rates might look like in the future. And these cycles are -- interest rates fell for 42 years from 1980 to the 2020s period, and they went up for nearly, this is -- I beg your pardon, more than 40 years on the way up. So these are long cycles. Just quickly a few snapshots from 1970 compared to today, which is that period when interest rates did go from 0% to 14% in America and then from 14% down to negative interest rates. Energy shocks in 1970. Global energy squeeze today, food inflation and scarcity in the '70s, wheat harvest crisis supply chain shocks in grain, industrial unrest and strikes, storms of protests against rising cost of living sweeps Britain, demand for inflation-match pay, gold and currency. Central banks accumulate gold at a record pace and gold price climbs dramatically. The Nervous Central Bank in the 1970s as the Fed raises interest rates to combat inflation, recession looms and of course, now market expectations of a pivot higher for longer as rate cut hopes fade. Really, that last sentence there, understanding the past to navigate the present and the realization that these headlines look so similar from 1970 until the -- and now in the 2020s. It's worth obviously studying what happened in those periods to understand what could potentially happen now and actually what is happening now. Turning to the outlook now. Well, we've spoken a bit about interest rates. The RBA did raise interest rates 0.25% in February and March, and they moved to raise interest rates another 75 basis points before the end of this calendar year. This recommences what we believe is that longer-term rate hike cycle, which started in May 2022. CPI inflation is at 3.7%. We've seen articles in the paper about how estimates could be that it's at 4% or 5% or really inflation numbers well above our target band and price pressures remain from a combination of persistent government spending, deglobalization, historically high migration levels, falling labor productivity and now more recently increased energy prices as well and also disruption of logistics throughout the world. These structural drivers will likely cause further inflation for the foreseeable future. This exacerbates price pressure and escalating geopolitical tension in turn disrupts supply chains, which in turn leads to higher interest rates. There are many similarities between now and the 1970s. In this context, gold equities and critical minerals remain our core exposure within the fund and on relatively inexpensive on valuations. So that's an important point. They are, in fact, not expensive at current valuations. Across the broader ex-resources market, valuations at the extreme end of the distribution have started to contract with higher interest rates, particularly in growth areas exposed to AI disruption. And just generally speaking, these high PE stocks have seen quite a bit of PE compression. It doesn't mean they're cheap. It just means they're not as outrageously expensive as they were when they were -- before they fell 65% or 70%. Notwithstanding all of this change that's taking place at the moment, we will continue to see evidence of these PE valuations outpacing earnings growth. And we remain focused on implementing our process, which is actually to try and find stocks on good valuations relative to earnings growth and cash flow. Ladies and gentlemen, just to make sure that if you are not receiving our monthly newsletter webcast or periodic results, please go to our website and apply to do so. We'd love to have you receiving our monthly information. And thank you very much for your time again today.