The turnaround in Pengana’s performance was fuelled by China’s ban on rare earth exports in May, which unleashed chaos across global supply chains, given that China has a stranglehold on the production of those materials.
Pengana had snapped up a stake in Metallium – formerly MTM Critical Minerals – in November at 14¢. It now trades at 72¢. McDonald was betting Metallium’s flash joule heating technology, which extracts rare earths from industrial scrap, would offer an alternative source of supply.
The same logic applies to the fund’s largest position, ASX-listed IperionX, which has almost tripled in value over the past year. The company develops low-cost titanium and offers an alternative supply for the US, given that China and Russia produce 70 per cent of the world’s titanium.
“It is just such a good time to be in these critical mineral stocks because there’s a bargain going on across the world – China wants Nvidia chips and the US wants rare earth magnets, yet both countries are doing their damnedest to wean themselves off each other,” McDonald said.
High risk, high reward
The fund manager has also developed a reputation for nailing picks in the high-risk biotech sector, which have turbocharged Pengana’s returns.
McDonald rode the stunning rally in ASX-listed cancer treatment developer Clarity Pharmaceuticals from about $1 in September 2023 to as high as $8.98 in September last year. While the stock collapsed earlier this year amid growing short interest, it surged 75 per cent in July after announcing a $200 million capital raising to strengthen its balance sheet.
Pengana’s position in ASX-listed cardiac software company Artrya has also boosted returns, with the stock up 42 per cent in July after its founder, John Konstantopoulos, announced he would step into the chief executive role. Shares in Artrya have surged 350 per cent over the past year.
One of the fund’s few holdings listed outside Australia is American biotech CalciMedica, which more than doubled in July alone. McDonald is expecting the results from the company’s phase two acute kidney disease trial by the end of this year to be a “significant catalyst” for its share price.
The high conviction fund’s stellar performance has seen funds under management balloon from $60 million in July last year to now sit at almost $140 million. And McDonald wants to hit $200 million “pretty quickly.”
“We still don’t want huge amounts of capital – we’ve made fantastic returns in small companies, so that’s really our speciality,” he said.
Read the original AFR article here.
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