|
Entity |
Initial Price/ Purchase *
Date
|
Price * Dec 29/15 |
Gain/Loss
since Jan 1/15 % |
Gain/Loss Since Purchase % |
|---|---|---|---|---|
|
Silver
Wheaton
(SLW)
|
12.37
2007-09-04
|
17.07
|
-26.8
|
38
|
|
Polaris Materials
Corporation (PLS) |
10.70 **
2007-06-01
|
1.57
|
-9.7
|
-85.3
|
|
Cenovus (CVE) |
32.39
2010-07-27
|
17.41
|
-24.9
|
-46.2
|
|
North West Company (NWF) |
16.23
2009-05-07
|
28.86
|
15
|
77.8
|
|
Deere & Company (DE)
|
88.07
2013-01-03
|
77.5
|
-9.8
|
-12
|
|
Rocky Mountain Dealerships
(RME)
|
11.89
2013-01-03
|
6.16
|
-29.7
|
-48.2
|
|
HollyFrontier (HFC) |
47.95
2013-01-28
|
39.81
|
9.8
|
-16.9
|
|
Oak Tree Capital Group
(OAK) |
56.45
2013-10-28
|
48.19
|
-4.9
|
-14.6
|
|
Fairfax Financial Holdings
(FFH) |
477.98
2014-3-25
|
661.97
|
11
|
38.5
|
|
Clean Seed Capital (CSX) |
.51
2015-01-07
|
0.65
|
|
27.5
|
|
Abitibi Royalties (RZZ) |
2.57
2015-11-20
|
3.49
|
|
34.9
|
|
Input Capital (INP) |
1.86
2015-11-20
|
1.76
|
|
-5.4
|
|
Marquee Energy (MQL) |
.49
2015-11-23
|
0.41
|
|
-17.3
|
|
Fairfax India Holdings
Corp (FFI) |
10.42
2015-12-16
|
10.05
|
|
-2.3
|
|
CRH Medical Corp (CRH) |
4.43
2105-12-29
|
4.29
|
|
-3.2
|
** does not reflect impact of a large follow-on investment @ $.67 per share
Selected Commentary
Agriculture
The following quote says it all:
There is no point in mincing words: a recession in the farm belt is not "coming," "threatening" or even "likely:" it has definitely arrived. The only uncertainties about it are how deep it will be, how long it will last and how extensive the damage to the nation's agricultural base will be. It will not be the same as the late 1970's to early 1980's recession ─ it is not largely due to insupportable debt burdens. Rather, it is a consequence of excessive production meeting a barrier to the exports that would normally provide an escape valve for inventories.
http://seekingalpha.com/article/3750616-u-s-agriculture-in-recession-risking-depression
I was impressed by John Abbink's writing, so I looked for more and found this take on Deere (DE). It makes a lot of sense to me. I am maintaining my position: it is a good company; the dividends will still roll in; there is a likelihood that the company will use a decline in share prices for a share buy-back; and most important, the company is well managed and has been through bad times before. Besides, my time horizon on this holding is ten years and more.
http://seekingalpha.com/article/3717386-fiscal-2016-outlook-for-deere-and-co
It should be noted that all of the agricultural holdings in the portfolio have seasoned management who have been through low periods in the agricultural cycle. The companies will survive through the “boom” and “bust” environment which characterizes this economic sector. If anything, low prices represent a buying opportunity, something I have exercised with Rocky Mountain. I doubled the number of shares in my holding. The metrics look good and the dividend is healthy and not threatened.
I consider that Input Capital will the one holding to be less affected by low prices by virtue of its business model; however, the loss of three contracts has temporarily (in my opinion) depressed the price of its stock. It is well worth taking this news in perspective:
http://s1.q4cdn.com/784243260/files/doc_news/Input-Capital-Corp-provides-update-on-streaming-contracts.pdf
The Oil Patch
I have compiled a short list of potential acquisitions and put them on a watch list. The current situation of low prices will not last forever. I've placed a special emphasis on selecting companies with with good balance sheets and the ability to ramp up production quickly. Most important, I look for excellent management with a history of operating efficiently for several years on company holdings. Lean times have left the survivors with the ability to earn outsized profits when oil prices recover ... and they will ... it's not different this time. The watch list will be presented in a future edition of The Financial Passage Maker.
Precious Metals
Silver Wheaton was one of the first metals streaming companies. I invested heavily in the company a few months after its entry into the market. It was a spectacular investment for two reasons: its new business model gave it a jump on other financing models for mine development with the result that it secured some tremendous deals (mines had access to capital when it was most needed in return for selling a share in future production); and, gold and silver prices rocketed upward thereby enhancing the value of SLW's metal streaming agreements. It was only a matter of time before competitors with similar business models arrived on the scene e.g. Franco-Nevada. The following article provides a nice synopsis of Silver Wheaton's approach.
http://www.forbes.com/sites/greatspeculations/2014/10/01/a-look-at-silver-wheatons-streaming-agreement-for-the-constancia-mine/
Make sure to click on this URL which is embedded in the above-cited article.
https://www.trefis.com/stock/SLW/model/trefis?easyAccessToken=PROVIDER_7dd7a29579af2a79a590e35d77c19c0123af74c3
In today's environment of depressed metals prices, miners are looking for financing. Some (which I tend to avoid) will issue additional shares thereby diluting the pokes of existing share owners ... Polaris Materials, come on down. Others will negotiate traditional metals streaming agreements with the knowledge that there is some room to negotiate given that there are more competitors on the scene.
This said, I have noted a few trends in recent years. One is that the terms of some streaming agreements allow mining companies to buy their way out of metals streaming contracts. Pretivm Resources, a company on my watch list, is a beast of this species. Second, private equity is stepping up to the plate more often. Generally speaking, investors of this ilk have the “long view” and are prepared to wait longer to learn the fate of their investments than publicly listed companies.
Streaming is starting to be the stuff of the financial press. See the following example.
http://business.financialpost.com/news/mining/the-dark-side-of-metal-streaming-deals-strapped-mining-companies-trade-future-value-for-cash
I don't think that I will add to my positions in Silver Wheaton and Franco-Nevada. If/when metals prices increase, the share prices will increase nicely. However, there are some issues:
- increased competition from other lenders
- the shadow of a very large tax bill for SLW if the CRA is successful in pushing its case forward (likely as not, a deal will be cut to reduce the $US 567 million subject to taxation for the years 2005 to 2010)
Due to the cost of negotiating streaming deals, Silver Wheaton is largely confined to major deals with long-life mines. Most often, these take the form of taking precious metal streams which are ancilliary to the main focus of large base metals mines ... but not always. I believe that the mid-tier mines will increasingly resort to private equity deals with more flexibility e.g. the possibility of shorter streaming agreements with buy-back provisions. While investigating mine financing, I became very interested in the other end of the scale – what I term the “micro financing sector”.
Abitibi Royalties is focussed on this sector and has done very well in recent weeks. I wrote about it in a previous edition of The Financial Passage Maker. The company is nimble and positioned to respond quickly to requests for small amounts of cash to maintain mining claims fees in return for net smelter royalties in the event that the claim is mined. The company's strategy is based on the expectation/hope that it will get lucky with financing a successful claim. In making its bets, however, the company is very mindful of the adage “the best place to find a mine is in the shadow of an old mine.” Check this:
http://abitibiroyalties.com/theroyaltysearch/
Here is a recent interview with Ian Ball. Note the following:
- the fact that Ball is purchasing shares in his company in the open market
- the possibility that companies might pool resources to buy mining royalties (generally mining companies stick to their own knitting – this may mark a significant development in the business)
http://www.bnn.ca/Video/player.aspx?vid=776614
My Investing Strategy for Precious Metals ... at the current time
My investing strategy entails:
- maintaining holdings in metals streaming companies (Silver Wheaton, Franco-Nevada) with an intermediate to long-term view in mind i.e. the expectation that prices will eventually increase; and,
- engaging in short-term speculation in gold and silver mining companies (see previous edition for selection criteria) and taking profits once gains exceed 20 percent or so (depends on my gut feel). I've learned not to get greedy as the price of gold has been somewhat “choppy” in recent years, thus offering the potential for small, short-term gains (or losses). And as always, I look for a catalyst with the potential to excite investor interest e.g. the beginning of full-scale operations at Asanko or significant new discoveries at Pretivm.
It's amazing how the results of “base hits” add up over time. And I yet have the potential for some home runs if I get lucky. And no, I am definitely not a “gold bug” - simply a person who has profited very nicely in the past and who sees a heightened potential for the cycle to repeat itself.
Investors would be well advised to look at the career of Rob McEwen.
http://www.theglobeandmail.com/report-on-business/careers/careers-leadership/rob-mcewen-mining-magnate-with-a-vision/article546293/?page=all
Investors appreciate his ability to promote his projects, manage cash wisely, and operate in the interest of share owners. In mining ventures, it's all about management: 1st, 2nd and 3rd ... the mineral resource comes 4th. I've learned to be assiduous in checking the pedigrees of mine management and boards of directors as a result.
Check my findings respecting the management of Arotech, a company which is in the cross-hairs of an activist investor who is seeking to shake things up in an effort to realize the true value of the enterprise. (Write-up is presented the posting, Arotech - Some Thoughts to Consider When Making an Investment. )
Resource Stocks – When to Invest - Some Interesting Links
http://www.mineweb.com/news/mining-finance-and-investment/mining-stocks-are-becoming-irrelevant/?v=3e8d115eb4b3
http://www.telegraph.co.uk/finance/markets/ftse100/12039422/Miners-in-meltdown-Mining-stocks-plunge-to-11-year-lows.html?
WT.mc_id=e_DM69465&WT.tsrc=email&etype=Edi_Cit_New_Tue_9Sections&utm_source=email&utm_medium=Edi_Cit_New_Tue_9Sections_2015_12_09&utm_campaign=DM69465
http://www.telegraph.co.uk/finance/economics/12040314/Fear-grips-market-as-oil-leads-commodity-crash.html?
WT.mc_id=e_DM69465&WT.tsrc=email&etype=Edi_Cit_New_Tue_9Sections&utm_source=email&utm_medium=Edi_Cit_New_Tue_9Sections_2015_12_09&utm_campaign=DM69465
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