NexGen is a well-funded uranium company with an incredible high impact project (Arrow) located in the Athabasca Basin in Saskatchewan. The company provided an updated resource containing greater than 200 mill lbs of U308 at 2.63%, including a high grade core of 120 mill lbs grading 13.26% U308. The company is currently in their summer drill campaign with news expected throughout the next few months. While NexGen was up 52% in the quarter (and 268% since December), we continue to hold a large position in the fund despite taking significant profits to keep the portfolio’s weight at reasonable levels.
Enabalence Technology, Bellus Health and NYX Gaming Corp were the worst performing stocks in the portfolio, and subtracted -1.6% this quarter.

Enabalence is a very small technology company that is positioned to supply products to the fast growing data market. They are currently producing a 10 x 10g TOSA / Rosa for ZTE. These products are built using Enabalence’s unique ability to integrate lasers, detectors and ancillary electrical device onto silica plc chips, enabling high speed, compact and low power consumption requirements for high speed networks of today. I continue to hold the position.
Bellus Health was in a phase three trial for their KIACTA drug to treat AA amyloidosis. The results for the trial failed to meet the trials end points. The stock has been sold.

NYX develops online gambling games (lottery, bingo, and casino platform games) to over 170 operators globally. The company has made some large transformative acquisitions in the last year and a half. The stock is quite inexpensive but the numbers are a little opaque as they work through the quarterly comparisons. The stock has been disappointing and we have redeployed the capital into other areas.

The Path forward . . . . . .

At the end of the first quarter of 2016, investors were concerned that the US Federal Reserve would significantly increase interest rates, which would result in a strengthening of the US dollar, and pressure commodities and global stock markets. However, the first 6 months of the year saw weak US economic numbers and elevated risks to the global economy (British referendum, US/European elections). Instead of raising rates in the 2nd quarter, the Federal Reserve decided to keep rates unchanged and looks likely to keep rates low for the rest of the year.
Post the Brexit vote, investors focused on negative (or near negative) global bond rates, an economy that is growing at a tepid pace and future government stimulus. Despite the US dollar strength, stock markets and commodities rallied on the premise of more monetary stimulus from global central banks (namely the Bank of Japan, the European Central Bank and the Bank of England). Gold was one of the largest beneficiaries, as it rallied $66 in the week following the Brexit vote, or +5.3%.

Recently, we have reduced some the portfolio’s positions in gold stocks, with a preference in holding exploration and development companies. In an environment where gold companies have access to capital, and where senior gold producers face an ever daunting task of refilling their pipeline of projects to keep production from falling, we expect to continue to see a healthy merger and acquisition cycle. We look to take the gold weight back up toward the end of the summer provided valuations and the gold price consolidate.

The portfolio’s oil exposure has been reduced to a more neutral position. Oil around $50/barrel has come very far from the $33 lows in the first quarter. We are concerned that at current prices, drilling activity could start to increase. If that were to happen, it would take longer to work through existing inventory and a moved back below $45/barrel is likely. We anticipate purchasing more energy stocks should oil trade close to $40, or inventory levels begin to decrease.

The base metal stocks have been the laggards this year but appear to be stabilizing and turning up (at the time of writing this report, Nickel was up 9%, Zinc was up 5% and Copper was up 2.5% in July). Inventories of most base metals are at reasonable levels despite “expert” forecasts of massive surpluses. Many analysts continue to be surprised that new supply has failed to materialize due to poor mine performance, high cost, mine closures and new projects getting pushed out due to lack of funding. Short term, we have seen global investors buying base metal stocks and have added to the portfolio’s base metal positions.

We continue to monitor the portfolio’s “special situation” stocks. Many have pulled back and are offering good entry points. We will be looking to add to many positions if stock prices continue to pull-back (eg. Shoptify, DIRTT and Kinaxis).

The markets have run pretty hard in the first half of 2016. We will closely monitor the markets to see if there will be a change in direction or just a pause to refresh. Stay tuned !

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