Portfolio Update: Reshuffling the Deck (November 10, 2017)

by FI Fighter on November 10, 2017

in Cobalt, Cobalt Updates, Precious Metals, Precious Metals Updates

Here’s an update on my latest trades for the week ending on November 10, 2017.

  • Bought 20,000 shares of Erdene Resources (ERD.TO) @ C$0.55/share  
  • Sold 50,000 shares of Auroch Minerals (AOU.AX) @ A$0.25/share 
  • Bought 20,000 shares of Balmoral Resources (BAR.TO) @ C$0.47/share 
  • Bought 25,000 shares of Balmoral Resources (BAR.TO) @ C$0.43/share 

Erdene Resources

Over the past few months, I have been dollar-cost averaging (DCA) down into adding more shares of Erdene Resources (ERD.TO/ERDCF), which is a badly beaten up gold developer.

Erdene has district scale potential in Mongolia, and long-term I think this story will be a winner…

From Erdene Resources.

Short-term, yes, it’s definitely been painful, and it very much feels like “catching falling knives” with this one…

 

Buy low and sell high.

It’s not easy, but I am trying my darnedest to do that!

Auroch Minerals

Last week, I mentioned that I was looking to add some more cobalt exposure to the portfolio, and as such I initiated a position in Auroch Minerals (AOU.AX). To my surprise, shares ripped much higher above my entry point (on no news), and almost immediately I was faced with the proposition of selling and booking a quick gain.

Since this story is still very early days (and I don’t have that much conviction just yet), I used this most recent period of strength to sell into a rally.

Assays are due in the next few weeks, so if the share price can stay weak leading up to that event, I may look to get back in. But if I can’t get in at a favorable price again (A$0.18-0.22/share range) before assays are released, no worries, I won’t mind paying more after the facts are out (if the results justify a higher valuation).

Auroch could be sitting on a massive cobalt find, but it’s very speculative at this stage of the game, so I booked some quick profits and I’m sitting on the sidelines for now…

Balmoral Resources

2017 has been a great year so far for many lithium and cobalt investors. Nickel has started to gain traction as well, as evident by the growing interest in stories such as Garibaldi Resources (GGI.V/GGIFF). Lost in the mix is Balmoral Resources (BAR.TO/BALMF), a gold/nickel explorer/developer located in Quebec (prime jurisdiction for mining).

Balmoral is an interesting company, and I must admit that my investment thesis has changed over the years with this one… Originally, I was here for the Martiniere Gold Project…

From Balmoral Resources.

There’s been a lot of drilling (progress) made over the last few years at the Martiniere property… The company has so far outlined 4 potential gold deposits (Martiniere West, Bug North, Bug South, Bug Lower Steep), and recently made a new discovery known as Bug NW Zone…

 

But…

 

Because sentiment towards gold is in the crapper at the moment (nobody cares), and due to the following price chart:

From InfoMine.

I have been reminded that Balmoral also controls a high grade nickel sulphide deposit!

From Visual Capitalist.

Yes, that’s right, nickel sulphide (which are rare) NOT nickel laterite!

From Balmoral Resources.

The last drill hole at the Grasset Nickel Project was punched in late 2015 and returned 7.5m at 10.5% Ni… The company put Grasset on hiatus because sentiment towards nickel (and base metals) was absolute shit in late 2015 (if anyone cares to remember)…

With a 0.5% cut-off grade, Grasset already has 10.2 Mt @ 1.1% NiEq grade… Not an enormous initial resource by any means, but a good start!

Clean energy has really started to boom this year (lithium and cobalt stocks in particular), and I think it’s only a matter of time before nickel catches a strong bid and investors start piling on in… In the future, cathode formulas will likely be re-worked to 80/10/10 configuration (see below).

From Visual Capitalist.

Of course, the pick up in nickel demand won’t happen overnight (the nickel market is HUGE relative to small “niche” sectors such as lithium, cobalt, rare earths, etc.)…

Similar to copper, it could take a few years for the heat to turn up for nickel, but if/when that actually happens, is anyone’s guess… I do know that investor sentiment towards the nickel sector has intensified in recent months…

Just check out some of Balmoral’s nickel peers and the share price performance so far this year…

  • Garibaldi Resources (GGI.V/GGIFF) is up 2,810%.
  • Giga Metals (GIGA.V/HNCKF) is up 541.7%.
  • Balmoral Resources (BAR.TO/BALMF) is down a painful -39.6%.

Talk about BLAH for Balmoral, in comparison to some of its peer group… but clearly interest for nickel stories is there!

Seriously, with nickel heating up, can you imagine how the share price of BAR.TO/BALMF would respond to news of 7.5m at 10.5% Ni in today’s environment?!?

Certainly, not like the following (which is the sad nature of reality for Balmoral shareholders this year)…

Balmoral management is no doubt well aware of the current depressed share price situation, so I would imagine lots of news flow will hit the wire in the future to remind the market about their Grasset asset (and hopefully the company’s plans to start aggressively drilling it again in 2018!).

Anyway, at ~C$60 million market cap and ~C$11 million cash in the bank (with a recent financing completed), the company looks like a damn good deal to me at these low prices!

The exploration potential that exists with Grasset is why I loaded up on shares of Balmoral this week… but despite that, we really shouldn’t forget about the high-grade gold, which is no slouch, and in theory should command a significant premium (since we are talking about Quebec here) in a decent precious metals market.

Summary

Not too much activity this week; I went deep value hunting by picking up shares of Erdene Resources and Balmoral Resources. Also, I booked some quick short-term profits by trading out of Auroch Minerals.

Here’s where things stand now…

 

Until next time…

 

Fight On!

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{ 10 comments… read them below or add one }

1 AnoyNo Gravatar November 11, 2017 at 4:39 am

Hi Mate,

North American tax selling usually last til 2nd week of december, no fear of further slides ?

Reply

2 FI FighterNo Gravatar November 11, 2017 at 8:12 am

Anoy,

Yes, between now and say early January, should be a great time to get in on stocks that have sold off… but I have no fear adding positions in tranches… I know that I can’t perfectly time things and I just have trouble believing it will be that easy and predictable to nail the bottoms…

I remember in late 2015/early 2016, a lot of my friends wouldn’t buy b/c they were waiting for lower and lower prices… When the sector turned on a dime, they still waited for pullbacks that didn’t occur… Back then, everyone was clamoring for sub $1000/oz gold prices and it seemed like a certainty after the Fed rate hike in December…

So, I guess when I find good value (and since I’m not really a short-term swing trader), I don’t mind buying and just waiting… With lithium stocks, it took over 1 full year for many of them to turn, but when they did it made everything worthwhile… I’m prepared to be more patient with beta plays.

Hope that helps explain my own thoughts.

Cheers!

Reply

3 AnoyNo Gravatar November 11, 2017 at 8:28 am

thanks mate appreciated

See you’re also in NZC like i am.. Great story just developing.

Some notes on DFS for NZC:

There are several opportunities for the reality to be SO much better than the modelled numbers:

(1) Re the Co pricing – this is modelled as if the Co are treated as low paying credits to the Cu primary revenue stream. As you can see, the input numbers are relatively low. My understanding is that this is due to the consultancy’s requirement that they have an Offtake figure from a third party. NZC provided a draft agreement that they keep being asked to sign (which they won’t) from an Offtake party 400km away. NZC believe that they may be able to get much better terms from one of two plants that are being built as toll treatment facilities only 80km away.

As you state, if the model showed Co at $28 lb vs. $18 lb it would materially improve the numbers … not to mention if Co increased further in price which, despite battery makers moving to more Ni and less Co, is entirely possible.

(2) Secondly, I was told that if NZC can do a deal with the plants being built 320km closer to the project this will reduce logistics costs by about US$0.25 lb of Cu from US$1.35 lb to US$1.10 lb. Over the 7 year LOM for Stage 1, I work this out to be an additional US$70m as well.

(3) This is only stage one. During this stage, Co only ore with a grade of 0.62% Co will be treated as “waste” and stockpiled on-site for possible Stage 2 leaching. Thus, the mining costs will all be absorbed in Stage 1 whilst revenue (lots of it) will be released in Stage 2 which I think is very likely to occur.

(4) There are lots of both Cu and Co prospects and discoveries on NZC’s tenements proximate to the project. IMO, this ore once defined will add to LOM. I would also anticipate that in time, as cash builds, NZC will increase the value add processing on-site to capture more revenue.

(5) Then of course there is the lottery ticket drilling that may or may not discover a Kakula analogue.

DRC obviously presents risks but I appreciate Sam giving me/ us the heads up on this as I think it is worth the risk. Far better, IMO, to buy a $40m company with a great Cu-Co project, low capex, monster IRR, <12 months to production from FID, huge Co grades, excellent exploration prospects, vs. say AUZ with a MC of $344m … that is likely several years away from production (at best) and likely to require +$500m in capex and dilution ….

Reply

4 FI FighterNo Gravatar November 11, 2017 at 8:47 am

Thanks for sharing those details! Appreciate the insights!

I really like Nzuri Copper and believe it will be a winner in the future. Great project, strong economics, and I trust management to deliver here.

All the best!

Reply

5 FI FighterNo Gravatar November 11, 2017 at 8:50 am

Yeah, to add one point — Even with Congo risks, this project is way way way more de-risked and has higher odds of actually making it to production than many high flying juniors right now that are running off of hype more than sound fundamentals.

In that sense, I believe NZC actually presents less risk (Congo and all)… It should re-rate hard like many lithiums as they securing financing, offtakes, and progress towards construction phase. I expect the bulk of the re-rate to occur as we inch closer to ramp up phase.

Reply

6 AnoyNo Gravatar November 11, 2017 at 8:58 am

Couldn’t agree more.. All the best

Reply

7 BowmanNo Gravatar November 13, 2017 at 8:57 am

Thanks for the update. I also happened to add Balmoral Resources (new addition in my portfolio) @ CAD 0,45. I hope the deep value exposes itself in the future. 🙂

Reply

8 FI FighterNo Gravatar November 13, 2017 at 9:59 pm

Bowman,

Great add, lots of value here with Balmoral at these low prices!

All the best!

Reply

9 PonNo Gravatar November 14, 2017 at 11:54 pm

From an engineering stand point, if cobalt prices do go up to a point where it’s uneconomical, do you think people will engineer around it, and create/design something to replace cobalt, leaving cobalt obsolete? I mean they already have other types of battery. This is probably an extreme case, but if cost will inhibit the proliferation of EVs and clean energy, then people will work around it. “Anything that can happen, will happen” As for me, I like to pursue the path of least resistance.

Reply

10 FI FighterNo Gravatar November 15, 2017 at 8:39 am

Pon,

Yes, they are already planning around high cobalt prices… Cathode chemistries will shift to 80/10/10 (nickel, manganese,cobalt) in the future to reduce cobalt content…

Still, suppy/demand so imbalanced, cobalt will only benefit in that scenario… In other words, if there is a desperate need to shift to a reduce cobalt content chemistry, it probably means it’s b/c the price of cobalt has skyrocketed so much… which would be good for cobalt investors.

Either way, cobalt growth will be spectacular and the commodity will be in high demand short supply for the foreseeable future.

Cheers!

Reply

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