It is time for share investors to get out of gold and into ags.
At least, that is one reading of the strategy being pursued by David Iben, the renowned stockpicker, through his Florida-based Kopernik Global Investors enterprise.
Kopernik has taken a 5.2% stake in SLC Agricola, the Brazilian farm operator, which controls 470,000 hectares of farmland in the South American country, including a large swathe in the key corn and soybean producing state of Mato Grosso.
The purchase of the stake ranks Kopernik on the SLC shareholder register above the likes of investment management giant Blackrock, and New York-based hedge fund Global Thematic partners, set up six years ago by former Deutsche Asset Management staff.
It also follows the reduction by Kopernik of its hefty exposure to gold, with a company filing last week revealing it had, in the latest quarter, sold down stakes in the likes of Barrick Gold, Goldcorp and Kinross Gold.
Other companies in which the hedge fund manager cut stakes included airlines group Skywest, as well as SQM, the Chilean-based potash group in which it near-halved its holding to less than 230,000 shares, with a value of $5.6m, according to the filing.
The SLC stake - worth some R$73m, equivalent to about $22.5m – would represent a roughly average holding for Kopernik, whose top investment as of the latest filing was the $79m held in uranium group Cameco.
The backing for SLC follows a difficult period for the group, after drought in much of its operation region left its crop yields in 2015-16 20% below expectations, an outcome it was the "first time this has occurred in the company's history".
SLC said it had suffered from "significant water stress, the worst of the last 25 years, in our operating region" as it two weeks ago reported an after-tax loss of R$74.5m for the April-to-June period, compared with earnings of R$43.1m a year before.
Revenues dropped 138% to R$291.2m.
However, the group said it was "very optimistic" over its outlook for 2016-17, for reasons including the prospect of a La Nina weather pattern, "which historically brings higher precipitation to our operating region, and therefore would reverse the situation seen in the [latest] crop.
"We also expect lower production costs in Brazilian reais, due to the lower prices of fertilizers, and the currency's appreciation in relation to cost per hectare in the 2015-16 crop year."
SLC Agricola shares, which have fallen by 9.1% in Sao Paulo so far this year to R$14.30, are rated "outperform" or better by seven brokers out of eight registered by Reuters, although JP Morgan this week cut its target price on the stock by R$2 to R$21.
By Mike Verdin