[36chambers]

In other 'to the moon' news, I hope you all held onto a little crypto. Trying not to sell to early this time, but interested in any opinions on timing the top...

I've long since given up trying to make sense of the movement. While the going's good, I just sell a slither every now and then and try not to think about it too much.

[petejh]

However, when we in a massive arms race against AI / big data development / global economic expansion, then even renewable resources are *massively* constrained, yet the likes of amazon etc. are gobbling up all the new solar in wind capacity with corporate power purchase agreements, this just pulls it away from other, more difficult to mitigate energy consumers.

Then there's the mineral resource required to produce the wind farms, cables, batteries, solar farms etc. None of these things are infinite...

To circle back around to this point (as energy/materials demand is one of the foundations of my investment thesis). As can be seen by current mania in Nvidia and other AI-related tech leading the US markets to all time highs there's a lot of excitement around the roll-out of AI - shades of dot-com bubble exuberance perhaps but wtf knows. What is known, is it (AI, energy transition, IoT, transport, yada yada) all requires the build of lots of physical infrastructure including energy-intensive data centres, and the means to supply them with reliable electricity. Good article from 'Datacentre' trade magazine, giving overview of global energy demand as it relates to data centres required for the progression of AI.
Quote:
As AI and other new technologies continue to be in high demand worldwide, the data centres that facilitate this growth will double their electricity consumption in just two years.

The International Energy Agency (IEA) has forecast what energy demand could look like between 2024 and 2026. It has revealed that, whilst global electricity demand rose considerably in 2023, it is set to grow at a much faster pace in the next two years.

Considering the impact on data centre sectors, industry leaders will need to consider how to keep pace with continued rising demand for AI, by boosting capacity in a way that is economically viable and sustainable.

Global electricity demand continues rising in line with AI
With AI expected to consume as much electricity as a medium-sized country, the technology could pose severe challenges to data centres, as they battle to meet growing customer needs.

Global demand for electricity grew 2.2% in 2023, according to the IEA, with countries such as The People’s Republic of China and India experiencing transformative digital growth. Over the next three years (2024-2026), the need for electricity is set to grow by an annual average of 3.4%, which the IEA puts down to economic outlooks improving in both advanced and emerging economies.

Particularly in locations like China, electricity demand will be supported by the ongoing electrification of residential and transport sectors, as well as notable expansions of the data centre sector. China has already seen huge growth in its data centre capabilities, having recently launched its first underwater data centre in order to deploy innovative cooling solutions and increase overall energy efficiencies.

The country’s data centre market is also expected to reach revenue heights of US$69bn by the end of 2023, in addition to a market volume of US$86bn by 2027, demonstrating continued data centre demand around the world.

Also experiencing mass demand for data centre electricity is the Republic of Ireland, with the nation’s data centre electricity having risen by 400%. Figures in 2023 suggested that this was due to multinational companies such as Facebook, Google and Microsoft having built data centres in the country, with more expected in the future.
https://datacentremagazine.com/data-centres/ai-boom-will-cause-data-centre-electricity-demand-to-double

This, before you start to consider more everyday activities like... heating, lighting, transport, food production and manufacturing tangible goods.

Add on the energy demand for other essential activities such as mining BTC so degenerates can yolo.. What a messed up civilisation 

It's part of the reason a very large % of my long-term pf is in tin, copper and other base metals producers and royalties (AFM, Filo, Ngex, Ecora, Altius, Adriatic). Tin essential to the semi-conductors and electronics increasingly in everything, tin supply deeply constrained. Copper essential to the electricity generation/distribution infrastructure to power it all, long-term the consensus outlook for copper supply is it's been underdeveloped.
With some old world energy stuff - coal and oil/gas (WHC and TXP) - which isn't going away any time soon while nations work out affordable and reliable energy baseload (likely nuclear imo) and steel production. I completely missed the Uranium boat, may consider getting in if it ever pulls back deeply. SMR's being increasingly talked about as means to provide baseload power required for expansion of AI's data centre infrastructure.

[petejh]

Update on a couple of things..

Adriatic. Holders will be pleased to see the Vares processing plant finally, after delays since November, successfully commenced operations 2 weeks ago. If production ramps as planned to 800k tons per year by Q4 then I'd expect price to gradually re-rate over this year, past my initial £2.15 target to between £2.50 - £3. Upside to this is if they exceed 800ktpa as suggested they want to in last year's reserve update; if silver price does something wild; if/when Adriatic announce results/resource update for their Serbian asset 'Raska' (suggested by management to be this year); plus satellite discoveries from ongoing drilling around Ruprice. Long term a good entry is anything below £2 imo.


Alphamin. Annual financial report out last week. All you need to know about what lies ahead is in their MD+A. If you enjoy this sort of thing then have a read and you can decipher without too much difficulty what the future brings, starting pretty much now. Can't emphasise strongly enough how good of a cash cow this company is, and is going to be for the next 10+yrs. It still flies somewhat under the radar due to location.

 - Expect to hear an announcement by end of this month that the processing plant for their second mine Mpana south has commenced processing.
- Then first tin concentrate sales from Mpana South beginning in April. This will increase production from 12m tons to 20m tons of tin concentrate per year.
- Reading between the lines of the production forecast figures for 2024 they're guiding for a rapid ramp-up to full capacity during the April quarter (interesting to compare with Adriatic's guidance of gradual ramp-up to full capacity by Q4 this year).
- Capex is all paid, the mine/plant are built - they spent ~$120m of capex on construction of Mpana south last financial year.
- Weather conditions in DRC during Q4 last year resulted in roads impassable so tin sales down by 30% for that quarter, and sales of tin down 11% for the year as a result. 
- The last 12 months average price of tin sold was 15% lower than the 2022's post-covid highs - ~$25,000 versus ~$30,000.
- They paid a huge DRC income tax bill for the stellar post-covid years of squeezed prices. they also forward-paid further DRC income taxes for financial year 2024. Meaning, this year their tax bill (on much higher profits) is going to be a $30m versus $130m in taxes paid for 2023.

Despite all this going on, they still generated handsome annual profit after taxes of $47m, and paid out $57m in dividends (from cash of $109m). Costs of production were flat year on year despite inflation.

A year of 'boring' development and high cash outflows is over and they're positioned to now reap the rewards. Notice that despite all the expense and setbacks in the last year, share price rarely dipped below 80c - the market knows this is positioned for strong growth.

I had impressive divi returns from AFM (bought at 48c) during the 2021-23 post-covid commodity squeeze. This year I'm expecting they announce perhaps a smallish (or no) divi in April during the AGM. Then from the second half of the year I expect a decade+ of sustained high profits and cash distributed to shareholders as a handsome dividend yield in the high single to low double %, relative to current share price. With sp growth back to the previous highs of mid $1's. This is from the production of 20k tons per year @ $25,000+ per ton tin, with all-in costs of production $15,000 per ton. If the tin market does what some expect and moves to an annual average above $25k then it just adds more cherries on top.

[kelvin]

Nice movement so far this week in your picks Pete 

The tin price is steadily grinding higher and taking Alphamin and MLX's share price with it. Mark Thompson is back on the twitter scene throwing huge targets around again, this time however, it's for copper.
Adriatic is up something like 4% already today but it's happily bouncing back from the recent buying opportunity.
 
Copper? It went nuts yesterday but all of Robert Friedland's banging on the table seems to have come to fruition - $4 now and probably more to come by year end.
 
Lots has been said about Filo and NGEX but I've been doing rather well with ERO, a producer rather than an explorer. Up over 30% since December and hopeful of more to come. I'll try and do a write up of it but sadly it won't be as comprehensive as Pete's are. It's now 10% of my PF, so not a small position.
American Eagle has been the other success story of late, another porphory story being uncovered by the drill. I recently doubled my position in this.

[petejh]

Update on a couple of things..

Adriatic. Holders will be pleased to see the Vares processing plant finally, after delays since November, successfully commenced operations 2 weeks ago. If production ramps as planned to 800k tons per year by Q4 then I'd expect price to gradually re-rate over this year, past my initial £2.15 target to between £2.50 - £3. Upside to this is if they exceed 800ktpa as suggested they want to in last year's reserve update; if silver price does something wild; if/when Adriatic announce results/resource update for their Serbian asset 'Raska' (suggested by management to be this year); plus satellite discoveries from ongoing drilling around Ruprice. Long term a good entry is anything below £2 imo.


Alphamin. Annual financial report out last week. All you need to know about what lies ahead is in their MD+A. If you enjoy this sort of thing then have a read and you can decipher without too much difficulty what the future brings, starting pretty much now. Can't emphasise strongly enough how good of a cash cow this company is, and is going to be for the next 10+yrs. It still flies somewhat under the radar due to location.

 - Expect to hear an announcement by end of this month that the processing plant for their second mine Mpana south has commenced processing.
- Then first tin concentrate sales from Mpana South beginning in April. This will increase production from 12m tons to 20m tons of tin concentrate per year.
- Reading between the lines of the production forecast figures for 2024 they're guiding for a rapid ramp-up to full capacity during the April quarter (interesting to compare with Adriatic's guidance of gradual ramp-up to full capacity by Q4 this year).
- Capex is all paid, the mine/plant are built - they spent ~$120m of capex on construction of Mpana south last financial year.
- Weather conditions in DRC during Q4 last year resulted in roads impassable so tin sales down by 30% for that quarter, and sales of tin down 11% for the year as a result. 
- The last 12 months average price of tin sold was 15% lower than the 2022's post-covid highs - ~$25,000 versus ~$30,000.
- They paid a huge DRC income tax bill for the stellar post-covid years of squeezed prices. they also forward-paid further DRC income taxes for financial year 2024. Meaning, this year their tax bill (on much higher profits) is going to be a $30m versus $130m in taxes paid for 2023.

Despite all this going on, they still generated handsome annual profit after taxes of $47m, and paid out $57m in dividends (from cash of $109m). Costs of production were flat year on year despite inflation.

A year of 'boring' development and high cash outflows is over and they're positioned to now reap the rewards. Notice that despite all the expense and setbacks in the last year, share price rarely dipped below 80c - the market knows this is positioned for strong growth.

I had impressive divi returns from AFM (bought at 48c) during the 2021-23 post-covid commodity squeeze. This year I'm expecting they announce perhaps a smallish (or no) divi in April during the AGM. Then from the second half of the year I expect a decade+ of sustained high profits and cash distributed to shareholders as a handsome dividend yield in the high single to low double %, relative to current share price. With sp growth back to the previous highs of mid $1's. This is from the production of 20k tons per year @ $25,000+ per ton tin, with all-in costs of production $15,000 per ton. If the tin market does what some expect and moves to an annual average above $25k then it just adds more cherries on top.

Alphamin, Adriatic and Ngex breaking out. I hope people are still holding and benefitting. Many other commods stocks showing strength.

Adriatic are still in the starting blocks of the re-rate towards 1xNPV, following commencing production last month. Expect somewhere in the low £3's by end of year if the reported 2024 Q3 production figure ends up in line with guidance. The current silver price ($28/oz) is providing a strong tailwind (but risks creating short-term parabolic exuberance). But even at $24-25 silver Adriatic is a world-leading low cost producer with huge free cash flows ahead of them - any processing ramp-up quibbles that come out in the wash between now and end of year notwithstanding. I'm in ADT for the long term* - my entry was £1.65-75 and I could take the gains here and be happy, but this is a company worth sticking with as there aren't that many come that come along with this conjunction of circumstances/timing/good management/good asset. There'll be increases in the resource size for Vares, hopefully new discoveries at on or two of the satellite deposits, a resource update for the promising Raska deposit in Serbia, and longer term the company want to acquire other European development assets using cash flow from Vares. The tailwinds are behind them at an unusual time in history to be opening Europe's first major silver/zinc/lead/copper/gold mine in a long time. ADT is a blatant growth story.

Alphamin same. Tin price is ripping and Alphamin's Mpana South mine is coming on line this month right as tin price moons to $30k/ton on tight supply/demand. Expecting a sp of $1.40-50 where it'll hit resistance. May get silly if tin price continues to squeeze, but I'd prefer if tin held steady at $30k/ton now. My valuation in a previous post shows where free cash flow is headed at $25k tin. There are some nice short term gains to be had for those who bought earlier this year or last autumn and want to exit in the low $1s to escape the DRC chaos potential. But I'm in this for the long term* - the annual dividend return for me over the next 10-15 years from my 45-55c entry with a large chunk of my pf will be worth an annual salary alone, whatever the share price does.

Ngex is getting drawn closer to $10 like it's a magnet. No idea what happens beyond that. It can't break $20 as the market cap would be too high for exploration phase. Ngex won't be producing anytime soon - this is a 'first peak of the lassonde curve' situation. If you've experienced that sort of stock before you'll know that it's fantastic while it lasts, but it won't last forever and the reality of boring years of development, fund raising and permitting will set in at some point - my advice is pick your exit wisely and be grateful for the gains, don't be a sad long term holder rueing the opportunity cost (looking at you, long-term GGP holders). I'll likely exit some or all if it gets to $10, my entry was $5.08 and that's good enough for me.
(*Filo is a bit different despite still being an explorer the same as Ngex. For too many reasons to go into now but the main one being it's a once in a generation scale - like a Grasberg in the Andes. Ngex likely not of this scale but would be happy to be proved wrong).

I won't be chasing anything here - not just the three above, anything. Market is exuberant. The time to buy commods was the last few years and I nailed it - many of them mentioned on this thread.

* 'long-term' = I keep the right the change my mind at any time - this year the US election is the biggest factor in my thinking, whilst watching for the yield curve to *eventually* uninvert, along with the rest of the market trying to time a temporary partial exit from stocks..

[mr chaz]

Anyone keeping an eye on Empire Metals (EEE) at the moment? specifically their Pitfield project? I got in at 7p and there's been a nice climb following the latest round of positive drill results (I sold at around 10p, but has continued to climb to 12-13p today) - all shaping up to be the one of the world's most significant Titanium resources. Further work going in 2024 to delineate the high-grade shallow mineralization and there is a long way to go before even thinking about production. But an exciting one to watch maybe.

[Fultonius]

Alphamin, Adriatic and Ngex breaking out. I hope people are still holding and benefitting. Many other commods stocks showing strength.

Quite the pullback recently on both Filo and Adriatic.  Buying opportunity? I've not been following closely enough to know if the fundamentals have changed.

[petejh]

Filo will always be a buying opportunity anytime it approaches $20. Fundamentals haven’t changed, supposedly an Argentinian policy decision is imminent on fiscal stability regards capital controls. This has been three years so far, if it happens it will be big for all arg miners. The policy announcement is likely a prerequisite to Lundin Mining consolidating Filo and NGEX into a JV, along with perhaps another major such as BHP. No progress on the huge capital investment required to build out Filo, Josemaria and Lunahuasi will happen until it’s been confirmed by the national gov what level of future profits can leave the country.

Alphamin same. It’s defo a buying opportunity - I just reinvested some of my recent Alphamin dividend back into shares. The dividend return on this is going to be a monster for a long time (already is for me, so a boss level monster).  Fundamentals have only improved - they  very recently announced successful ramp-up of the second mine, Mpana South.
The recent drop was likely a result of political instability fears around the failed coup in DRC.

Filo and Alphamin combined make up a huge part of my overall portfolio.. top of my head 50% maybe more.

Not investment advice etc.

[petejh]

Just noticed you said Adriatic not Alphamin.

Adriatic defo (imo) a dip buying opportunity at £2. The pullback due to them announcing a $50m capital raise. This surprised me (and everyone else) as they were guiding to being fully funded through the ramp-up process. Apparently not.. The market was taken by surprise. But it shows the quality of the asset that they can pull off this surprise raise into strength and not suffer too badly.

The fundamentals haven’t really changed here, it’s a brilliant asset and provided they reach production guidance sometime around late year they’ll be massively printing free cash flow. The asset is still open to expansion.
There are some issues with poor ground conditions underground as they begin stoping this month, requiring a lot of extra ground support, but the market has been aware of this issue for quite some time.

There are never any guarantees when a miner is going through ramp-up that they’ll achieve guided production levels without issues. Also Bosnia is always going to expose you to some political risk. But so far so good, surprise raise aside. If you do a search for ‘money of mine’ and ‘Adriatic metals you can listen to a decent appraisal of the recent raise. Ignore the Aussie banter, they know what they’re talking about.

But yeah £2 is very good value imo, there’s a valuation in previous posts, which is based on lower metals prices than spot currently.

[petejh]

Filo will always be a buying opportunity anytime it approaches $20. Fundamentals haven’t changed, supposedly an Argentinian policy decision is imminent on fiscal stability regards capital controls. This has been three years so far, if it happens it will be big for all arg miners. The policy announcement is likely a prerequisite to Lundin Mining consolidating Filo and NGEX into a JV, along with perhaps another major such as BHP. No progress on the huge capital investment required to build out Filo, Josemaria and Lunahuasi will happen until it’s been confirmed by the national gov what level of future profits can leave the country.

OK.. for Filo, NGEX and any other Argentinian miner (Lundin..) it looks like that three year wait on reform of fiscal stability laws in Argentina is just about over..

The Milei reform bills passed through senate this morning. Whether ideologically you view it as positive or negative, it's a major milestone for all miners and other foreign businesses in Argentina.

https://www.infobae.com/politica/2024/06/12/ley-bases-en-el-senado-en-vivo-ultimas-noticias-del-debate-del-proyecto-y-el-paquete-fiscal-en-el-congreso/

https://apnews.com/article/argentina-congress-milei-senate-protests-vote-reform-854202d5c18bc862f3cdbc27bf6cae35


The particular bill relevant to foreign capital investment and fiscal stability is known as 'RIGI'.
Details of the bill:
https://www.bnamericas.com/en/news/the-large-investment-incentive-regime-rigi-is-a-relevant-factor-for-the-development-of-argentina#:~:text=The%20RIGI%20is%20a%20new,foreign%20investments%2C%20without%20sector%20limitations.

The conditions outlined in the bill to remain in place for 30 years from date of accession, with no new taxes or constraints able to be imposed.

Apparently the next step is for the bill to go to the lower house, reported as v.likely to pass.

This is what market commentators and me on here have been on about since back in 2021. The reform needed to happen for any of these projects to get the investment green-light to move from exploration to development. Expect big developments to follow from here on, later this year - Josemaria getting green-light for development, Filo getting consolidated into some kind of JV (likely following the initial resource estimate for the sulphides in Q4 this year), NGEX's Lunahuasi getting spun out in some currently unknown form. It's a big day for these companies despite the market not reflecting it yet.

[petejh]

Filo will always be a buying opportunity anytime it approaches $20. Fundamentals haven’t changed, supposedly an Argentinian policy decision is imminent on fiscal stability regards capital controls. This has been three years so far, if it happens it will be big for all arg miners. The policy announcement is likely a prerequisite to Lundin Mining consolidating Filo and NGEX into a JV, along with perhaps another major such as BHP. No progress on the huge capital investment required to build out Filo, Josemaria and Lunahuasi will happen until it’s been confirmed by the national gov what level of future profits can leave the country.

OK.. for Filo, NGEX and any other Argentinian miner (Lundin..) it looks like that three year wait on reform of fiscal stability laws in Argentina is just about over..

The Milei reform bills passed through senate this morning.
..,
This is what market commentators and me on here have been on about since back in 2021. The reform needed to happen for any of these projects to get the investment green-light to move from exploration to development. Expect big developments to follow from here on, later this year - Josemaria getting green-light for development, Filo getting consolidated into some kind of JV (likely following the initial resource estimate for the sulphides in Q4 this year), NGEX's Lunahuasi getting spun out in some currently unknown form. It's a big day for these companies despite the market not reflecting it yet.

And there it is. Lundin Mining and BHP reported to be about to make a bid for Filo. What we’ve all been waiting for since the discovery hole 41 in May 2021

All filo shareholders here who bought and held can pat themselves on the back.. job almost done. Assuming the deal does complete, now just the wait for the final price to confirm what your investment gain is going to be.

This will be the third successful buy-out I’ve got into early in the past 4 years. Great Bear (bought by Kinross) wad the last one. It feels a little weird to see these companies disappear, after being so focussed for years on the inner workings of their projects. Filo will be a once in a generation project, unlikely to be another copper discovery like it in a long time. 🙂

NGEX’s Lunahuasi discovery will be the last one standing now in Vicuña province… (after Josemaria and now Filo being taken out).

You know what to do with those Ngex shares.


https://www.reuters.com/markets/commodities/bhp-lundin-make-joint-bid-filo-corp-sources-say-2024-07-12/

https://www.bloomberg.com/news/articles/2024-07-12/lundin-is-said-to-pitch-bhp-on-joint-bid-for-copper-miner-filo?srnd=phx-deals&embedded-checkout=true

[kelvin]

Yeah, interesting end to the week. Suddenly all things Filo and not in the usual bad news report on a Friday post trading kind of way.

I wonder if they two pairs of Filo socks I have will become collectables? It'll be strange to not see the name in my list of stocks if everything happens as expected.

I did sell out of NGEX for a touch under $10 and have had a bid in this week to buy half back (it was 20% of my PF) but it wasn't filled. I'll try again on Monday but who knows how the Filo news will change things.
I also own Mirasol down that way - doubled my position on Monday after it had been going down for a while. There have been offers for them from three different parties, I'm happy to take the risk. Only 2% of the PF. Massive insider buying going on at Mirasol, not seen anything quite like it.

I rolled the funds from NGEX initially into ERO (Brazilian producer) and American Eagle Gold. AE being all about a copper porphyry story that's currently unfolding. I've been in a while and am up over a 100% on my first shares but have upped the position to 10% of PF. Now it's a waiting game, see what the drilling shows - I sized it up because going bigger seems to have the best results for me. Still learning my own style and what works.
Copper has definitely been a good ride this year and ERO, as my biggest position, has more catalysts to come in the second half of the year.

[kelvin]

As for tin, I finally trimmed MLX after that became 18% of the PF which felt a bit ridiculous - again, a solid profit at 50%.
They've just bought 23% of a small tin company, don't quite know what to make of that. Huge pile of cash but a tiny buy back announced and no dividend. Now this. The tin price has been steadily rising for the last year but there doesn't appear to be a serious supply issue yet. Alphamin continues to rake in money at current tin rates and hopefully extra dividends to be announced. Possibly this week I sell half of my MLX and buy more Alphamin.

Cheers Pete for the initial introduction to the tin thesis and the copper zone down in  Argentina. They've made a huge difference to my PF performance.

Hit a new ATH this year and whilst it's fell back a little, I really can't complain. I really struggled with my health last year, especially my brain and the PF suffered for that. I don't think I reported back in but just scraped a 5½% profit (in my ISA thankfully) which I was disappointed with initially, especially after the 31% up the year before but all things considered with my health, it was okay. Managing your own funds, especially when they're mostly in very volatile mining stocks isn't for the faint hearted and it's been a huge learning curve. This year tho, it feels like I'm beginning to understand the landscape of investing better and it's good.

[Fultonius]

I sold half my Filo a while back for about 100% gain, bought some more again on a dip and been holding since.

Shadow investing someone who seems to know his shit seems to be my current style 

[kelvin]

I sold half my Filo a while back for about 100% gain, bought some more again on a dip and been holding since.

Shadow investing someone who seems to know his shit seems to be my current style 

Then maybe follow Nancy Pelosi into trades...

[petejh]

Sold all my Filo @ C$31.05.

My thinking for selling now over waiting for C$33 per share when the buy-out completes in Q1 2025 are:
1. I had a significant portion outside my ISA so I'll have a chunky CGT bill. Labour will v.likely be increasing the CGT rate/lowering the allowance in the Oct budget. Filo is a guaranteed crystallised profit for me by Q1 2025 at the latest so I wanted to get out before the CGT changes are made. It might not change until the new tax year but my profit is large enough for the risk/reward to say it's wise to sell now.
2. I've various reasons to be unsurprised by a significant market wobble between now and Q1 2025. If shares of Lundin Mining took a large enough hit during any market wobble then the C$33 share price for Filo may not be guaranteed as a portion of the buyout valuation is based on the sp of Lundin Mining as at the date of the transaction. (until the L.M shares returned or exceeded that price - to be clear LM are a pretty 'safe' company but still).
3. In event of any market wobble I'd like a large chunk of cash available to take advantage of opportunities. This gives me that.
4. I can get 5.22% p.a. on the cash now with zero risk/volatility. Versus waiting until Q1 for a 6% premium on C$31 ($2 extra).


Invested 5-figures in March/April 2021 @ between C$3 - 4, prior to the hole 41 result. Sold some along the way and sold the remainder last week, for an overall 600% gain and mid-6 figures. My 2nd best investment result so far.

I wonder if they two pairs of Filo socks I have will become collectables? It'll be strange to not see the name in my list of stocks if everything happens as expected.

Very envious of your filo socks! Keep a tight hold of those they'll attract a good value down the road among a small group of nerdy Canadian resource investors. I had these created last year by an artist in the US,  they're the logo's of the 3 Lundin Group companies in Argentina: Filo, NGEX and Josemaria made from copper, brass and zinc.   
These companies paid for a large chunk of my new house and I'll forever be grateful.

[petejh]

If anyone's wondering what's going on at Adriatic..

In short,
1. Legal ruling by constitutional court of B-H repelling a law made by the federal gov of B-H around which is the proper gov body to be permitting state land for alternative use. This looks like internal friction between B-H intuitions for underlying reasons unknown. Has affected the viability of Adriatic's proposed tailings disposal at Rupice. Company says they'll build the tailings at alternative location. There's uncertainty whether/how much this might affect production rates despite company reporting it shouldn't.
2. CEO departed. Replaced by former chief technical officer of the world's largest mining company so no issues around competency.
3. Cap raise last month (now looking like genius move compared to today's price).
4. Uncertainty around how poor the ground conditions underground are as they ramp-up (requiring higher-cost ground support and slower rates of production).
4. All this in an environment of general market unease over the last few weeks.

Market is reacting to uncertainty both specific and generalised. But the asset is still world class and it's hugely undervalued here. The £2+ was beginning to realise the value, £3 realistic. I haven't sold any and don't expect to be.
I think the most likely outcome is they'll fix the legal/permitting issues around the tailings location and/or just build it elsewhere as stated. The asset is too good not to work through the issues and it'll contribute 2% of B-H's gdp. Regional politicians have been praising Adriatic and how it has revitalised the area since it began developing Ruprice. As someone else said B-H is not going to allow this to fall over due to literally a few hundred spruce trees.

Alternative outcome is ADT gets a takeover offer at a premium over this low level. Which would be a shame but not a shock.

I have a large chunk in ADT so doubt I'll be adding, but would have bought the spike down to £1.20s if I'd been quick enough.

Of note, Adriatic's CFO bought £30k's-worth on the market last week.

[Ally Smith]

CFO buying stocks isn't necessarily a positive indicator, as plenty of companies (mine included) have remuneration policies that mean board members have to hold X multiples of their salary in stock.

[petejh]

It's a valid point but that isn't the case here - the shares weren't part of a remuneration package or incentive scheme. To best of my knowledge when shares of listed companies are purchased by insiders under employee remuneration schemes / employee incentive schemes / performance rights schemes / exercise of options, the wording of the regulatory market announcement must make it clear that the shares were purchased under such a respective scheme.

The regulatory announcements for these two insider transactions (there were actually two insider purchases in last week - the CFO for £30k and the chairman for £50k) states the shares were bought on the public market - this is the standard wording used for a private transaction, not an employee scheme.  Searchable on LSE and CEO.ca for examples.

£30 & £50k is no big deal, but it isn't without meaning either - Michel Horner (CFO) supposedly comes from a metallurgist background and has been quoted as understanding the difficulty of processing high-grade polymetallic silver/zinc/lead. The first underground high-grade stopes are being extracted and put through the processing mill last week/this week (up to now the mill has been processing low-grade development ore - i.e. the dirt from digging the access tunnels as they get closer to the high-grade ore body). He'll know as well as anybody if there are any issues with the processing and grade of the first stopes..

Positive report of recent meeting between PM of the regional canton and Adriatic's new CEO, stating the constitutional court permitting issue won't be allowed to halt progress at Adriatic.. positive, but tell it to the constitutional court... https://zdk.ba/vijesti/12148-premijer-pivic-razgovarao-sa-sanelom-karic-novoimenovanom-generalnom-direktoricom-adriatic-metals-bh-koncesija-nije-upitna

[stone]

This is very much me just being curious about how the world works rather than me have any sort of opinion on the matter.

Presumably the large diversified mining companies such as Rio Tinto have analysists looking for small/exploratory companies to acquire. Did they overlook these success stories by mistake or is there some factor that made them a v good bet for an individual buying £50k worth of stock or whatever but not for take-over or part ownership by a large mining company? Or was it a bit of a total unknown anyway that came out lucky in this instance?

[petejh]

It's a reasonable question and the answer mostly boils down to risk and to scale.

The major miners - the BHPs, RIOs, Glencores, etc. want to own and operate what are known as tier 1 assets. These are resources of such size that they have a long life of multiple decades and ore bodies of sufficient grade to be economic even during troughs in the cycle. This give these companies a low risk profile which attracts shareholders of a certain risk profile - insto's, pensions, dividend investors, etc.

There are also mid-tier and smaller mining companies - those with tier 2 / 3 assets of smaller scale hence a shorter mine life, or resources at a lower average grade that puts them further up the cost curve towards the margin of unprofitably during troughs in the cycle.

Exploration companies sit in a sweet spot - they're too small to be of any interest to majors, but some of them end up finding what the majors want: typically a junior explorer has a £5 - £50m market cap, and there are literally thousands of junior exploration companies listed on the various markets of N.America, Australia and the UK.

For a major to just buy them all would be unrealistic - very high risk (not what majors do - there'd be a shareholder revolt), v.costly, and unworkable. Imagine the wage bill and the admin. And for 99% of these companies it'd be a lot of cost and effort for nothing found.

So the next thing to think about is when should a major buy-out a junior explorer - if Rio bought 100 juniors at random they'd have blown, say, $500m - $1billion (of shareholder's money - shareholder's who want low risk and dividends), and probably find nothing that's going to repay the cost.
If Rio bought the ten junior explorers with the ten best discoveries each year, then they'd be blowing, say, $5 billion - $10 billion - a lot of capex, even to the majors. Because that's the torque and the power of a significant resource discovery to the market-cap of a junior explorer.

BHP just purchased 50% ownership of Filo (shared 50/50 with Lundin Mining) for C$2.25 billion. The game for a major is balancing waiting long enough to be confident that what you're buying will be worth the price tag plus the large capex required to develop it (in Filo's case, $6-8 billion capex to develop into a mine), versus the longer a major waits the better the resource might get and the higher the price tag.

You're wondering how come Rio's / BHP's etc. don't just take the exploration in-house. They do, they have exploration departments. But the world is still too large a place and too full of unknowns for any one organisation to have it all worked out. That's part of the wonder of resource exploration.   

A common in-between approach is 'the farm-in'. This is where a junior has discovered something, not entirely certain how big yet and still far from being de-risked - a resource is only de-risked when it starts producing usually 7-12 years later and even then not entirely risk-free - but something seemingly significant to a major. The major will farm-in usually by paying $x thousands or millions to the junior, or other schemes of payment, and they get a foot in the door - ownership of anywhere from 5% to 75% of the asset. They can offer technical expertise and supply chain assistance and guide the exploration of the junior. Like a parent guiding a teenager.

That's what happened at Filo - BHP bought in a 5% stake following hole 41 because they could see immediately it was v.significant and suggested a major ore body of tier 1 scale. Thing is it only takes one drill hole like hole 41* for all us retail nerd who follow juniors to have high confidence too. And because we knew Filo is owned by a family group renowned for their success in exploration and creating shareholder value over the last 5 decades, we could be confident Filo was going to go the distance, as opposed to a common junior 'shitco' story of management lining their own pockets through endless cap-raises 'for G&A expenses' at the earliest whiff of a speck of copper.

This niche in the market is what I focus on, because I find it fascinating and also because it's what our civilisation is founded on. And I love that most people are willfully ignorant of where their stuff comes from, it's part of what makes for a market where you can do still well for yourself if you're prepared to get into the weeds and accept some risk. The key to doing it profitably isn't having some super-ability to spot the best resources early (although early'ish is quite useful), it's position sizing large when you finally do spot the emerging successes and position sizing small up until that point. In this way you can have 70% failure and make a big profit.   

If you ask me about tech I haven't got a clue and my track record on investing in tech is woeful.  The market is never fully efficient, but in the large sectors it is a lot more efficient. Resource investing is a tiny sector when you view it on a heat map of the overall market. Full of opportunity and market inefficiency, as I laughed to myself about when I started this thread and was being told by a certain pompous know-it-all that it's impossible to get ahead of the market intelligence.
 


* NGEX's initial hole into Potro Cliffs (now 'Lunahuasi') is the same thing  - suggestive of a  v.significant ore body. I suppose this is significant part of doing well at this game - knowing what's a good drill hole and what's just reported by management as a good drill hole. It's not that difficult to learn it just takes time and error, you don't need to be a geologist there are plenty of free learning resources out there.

[stone]

Thanks Pete for that super detailed and thoughtful response!

[Johnny Brown]

Ditto, great info!

it's impossible to get ahead of the market intelligence

I seem to remember reading something similar in one of Taleb's books - The Black Swan probably - although I think he was a currency trader in which context in might be true.

[kelvin]

Very nice artwork Pete and a great reminder of some good investments.

Well I sold out of Filo again for C$32. It's been a great journey.
Also sold out of Adriatic. I'd had the odd conversation with Michael Horner, then the news about the tailings came and Paul Cronin blew up on Twitter. So I sold at £1.80+. Obviously it's crashed a lot since and I did think of buying back in but if I'm honest, I'm not so sure where stocks in general are headed and the cash is a nice hedge.
Also sold Clarity on the ASX, a pharma tech company. The chart still looks amazing but I took my profits and I'll use them if I need to.
Met coal has took a bit of a hammering lately, which has meant my PF has too, and as usual, it's all about where the Chinese economy is headed.
Glad to have some cash currently, and I really wished I'd sold in May and gone away. It really seems to hit my PF quite badly every single year.

[kelvin]

Pretty much doubled the size of my Alphamin holding too. Sub one dollar? Crazy.
Good dividend. Well, everything really. Exploration, good management, a second mine now.
Pete's explained the tin thesis well enough. I had thought to sell my MLX and buy AFM shares instead but I dunno, I just feel they'll maybe have more torque when it all goes nuts eventually.
AFM is my 3rd biggest holding, MLX my 5th.