Portfolio Update: Building My Positions (December 11, 2015)

by FI Fighter on December 11, 2015

in Precious Metals Updates

Screen Shot 2015-12-11 at 8.49.32 AM

Although my main objective at this time is to conserve cash, I did make a few transactions that I will share with readers now. Rather than having to dip into my cash funds, I sold off shares of First Majestic Silver (AG) for a modest profit last week, and then proceeded to use those funds on other ideas.

Here is a recap of my most recent activities:

Portfolio Transactions:

  • Sold 4,000 shares of First Majestic Silver (AG) @ $3.60/share (+$721.50)
  • Bought 3,100 shares of Energy Fuels (UUUU) @ $1.92/share
  • Bought 15,000 shares of Balmoral Resources (BAR.TO) @ C$0.44/share
  • Bought 25,000 shares of Pilot Gold (PLG.TO) @ C$0.26/share

 

I’m still a big fan of AG, and hopefully I’ll have another opportunity to buy back in should it trade for below $3.00/share again…

As I’ve mentioned before, I see deep value when UUUU is trading at below $2.00/share, so I decided to top off my position with this latest purchase.

Learn more about Energy Fuels:

I now own 10,000 shares at a cost basis of $2.13/share. I should add that my own personal strategy is most likely to liquidate half of this position on the first double (~$4.26/share).

Next, I took a flyer on another exploration company, BAR.TO. This stock has been punished heavily this year, in spite of the company releasing some promising drill results on both of their major projects, Grasset (nickel) and Martiniere (gold).

In general, I like to focus on mid-tier producers since they are inherently less risky than sole-risk exploration speculations such as this… With that said, Balmoral plans to release their first resource estimates for both projects sometime in early Q1 2016, so I took a gamble in advance with the hopes that they will deliver the goods and exceed market expectations. This stock is definitely one of the higher risk propositions in my portfolio.

On the brightside? The management team is strong and has delivered great results before in the past.

Learn more about Balmoral Resources:

Let’s hope they can deliver value to shareholders again!

Lastly, my spreadsheet flashed bright yellow, alerting me that I was down big on PLG.TO (it happens whenever I’m down over 20% on any individual position). As such, I used the opportunity to dollar cost average (DCA) on yet another exploration story. I now own 60,000 shares of PLG.TO at a cost basis of C$0.329/share. I’m still heavily in the RED with this position, but I think I’m just about fully allocated here… I really like the value at C$0.26/share, but I can’t see myself adding any more shares after today’s transaction.

Pilot was a darling of the industry a few years ago, but just like Balmoral, it’s currently residing in the doghouse… With an Enterprise Value (EV) of under C$20 million, I just couldn’t resist adding more shares… The company has 4 key projects: Kinsley Mountain (Nevada), Goldstrike (Utah), TV Tower (Turkey), and Halilaga (Turkey). Not to mention, Pilot is backed by a very competent (and senior) management team that is well versed in exploration.

Learn more about Pilot Gold:

Although drilling results haven’t been spectacular this year, they do have resources out, and you would have to think that the value of all their assets (and work to date) far exceeds their current market valuation.

As a latecomer, it’s AWESOME to be able to buy shares so cheaply when you know that past financings were done at much higher costs:

April 2, 2014:

Pilot_Financing

Not too long ago, capital was raised at C$1.53/share! Shares of PLG.TO are currently trading for C$0.26/share!

The stock would have to rise close to 6x just to get back to those 2014 levels…

That’s insane…

Again, as a latecomer, that’s wonderful news (provided the company isn’t fundamentally broken which I don’t believe is the case with Pilot)… You get to pick up all the work that was previously done on these projects for pennies on the dollar…

Pilot has about C$10 million in the bank, so they should be well funded for 2016, although they may have to raise additional capital soon (hopefully share prices will rebound a bit before that time comes).

 

In any case, I’m done buying any more stocks until after the FOMC meeting next week.

 

Now we play the waiting game…

 

Happy Hunting!

 

Photo Credit: Pilot Gold

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{ 6 comments… read them below or add one }

1 MikeNo Gravatar December 11, 2015 at 10:11 am

and when they have to dilute the shares to take on more debt to sustain operating expenses?

Reply

2 FI FighterNo Gravatar December 11, 2015 at 10:27 am

Mike,

It’s also possible to sell off non-core assets to raise capital…

For choosing exploration plays, this is where the prospect generator model comes in handy — let your partner pay for the bulk of drilling and expenses. Reservoir Minerals is a good example of such a company.

We will see what happens with Pilot… Balmoral recently closed financing at a premium to the current share price (C$0.75/share), although flow-through shares.

That’s the risk you take with exploration, which is why I prefer mid-tier producers who don’t need to dilute… Like always, it’s a question of risk vs. reward… The explorers provide more upside potential if you want to take that gamble…

For a portion of my portfolio, I’m willing to take some exploration risks…

Take care!

Reply

3 No Nonsense LandlordNo Gravatar December 11, 2015 at 11:04 am

It’s good you are liquidating stocks that have a gain. I am not sure if BAR.TO is less risky though…

Reply

4 FI FighterNo Gravatar December 11, 2015 at 11:16 am

Eric,

BAR.TO would be more risky, indeed…

Investors loved it at C$1.80/share and now they hate it at C$0.43/share…

If you follow the projects, though, they’ve only gotten better, not worse… I think a large part of the decline in share price is due more to the decline in nickel and other base metals than anything else.

There aren’t that many quality nickel projects out there… If they can prove The Grasset resource out, it should fetch a nice premium in a better market… The gold asset is further diversification, although I do wish they had a few other key projects as well to help mitigate risks.

All the best!

Reply

5 JNo Gravatar December 11, 2015 at 6:23 pm

I was curious about what you believe in the difference of (DCA). Vs Opportunity cost. I understand the premise that timing a bottom, or a top for that matter, is basically an impossible feat but at what point is the DCA on a downward trajectory, unless you believe sooner then later a possible reversal is in the cards, is costing you in opportunity even if its still yet a cheaper entry point in the coming months.
I do remember a previous entry about catching a deal at any point, as long as the hypothesis is correct, that in the end it’s a win. (Paraphrasing).
So to summarize my ramblings, if we believe in further short term pain, and still believe in the long term commoditie cyles and eventual reversal at what point is DCA taken into account with opportunity cost.
As always, I appreciate your post.

Thank you.

Reply

6 FI FighterNo Gravatar December 11, 2015 at 6:57 pm

J,

Thanks for the comment.

In regards to DCA vs opportunity, it’s a tough question to answer but I’ll do my best to share my own points of view…

For instance, earlier this year I bought shares of Caterpillar (CAT) because I was drawn to the high dividend… I sold out for a small profit, but had I kept holding onto shares, I would argue that now is probably not the best time to DCA into this type of story b/c it’s one that reflects a declining business and drop in revenue/profits… And it’s probably crystal clear to everyone that the global economy is entering recession, as opposed to a period of extended recovery that would lead to massive more consumption anytime soon… So, there really are no catalysts for a strong bounce back… Outside of the dividend, the share price will probably be stuck in neutral or in decline for quite some time…

Yes, the dividend is a nice consolation, but the overall stock/story is one that I would say eats away opportunity costs and is in essence “dead money”. Does CAT have the potential to 2x, 3x, or 5x over then next 3-5 years? Highly unlikely, so trapped capital here lacks the substantial upside appeal to make me motivated to do so.

In regards to Pilot, my views are different… Yes, I am DCA on the way down and the stock is in a severe negative downtrend… But this is more a reflection of weak commodity/gold prices more than it has to do with the company’s business model… Further, some of the sell off may be attributed to tax-loss selling…

I’m willing to tie up “dead money” with this stock, along with other gold miners because the potential upside gains are so enormous… Gold doesn’t even need to enter a new bull market for shares of Pilot to double… When you speculate on commodities, it’s only prudent to do so at or near a bottom… With shares of Pilot coming off by 70% this year and about 90% the last 5 years, I would say now is as good a time as any to start tranching in… Ditto for the GDXJ which is down about 90% as well.

Could prices keep going lower? Absolutely…

Will some companies fail and go bust? For sure, which is why a speculator NEEDS to diversify into different companies or purchase an ETF… Every stock in the sector is broken right now and cheap, so I can’t see the rationale for putting all your eggs into one single basket (especially in the case of commodities where EVERY company is producing the EXACT SAME end product)… I’ve got about 20 stocks in my own portfolio to help mitigate individual risks.

But when the overall risk vs reward profile skews so heavily on the reward side, I’m very willing to keep DCA down b/c I know that when things turn, the explosion to the upside will be worth the wait (which could take another 2-3 years for precious metals). Using Pilot as an example again, if gold were to run up to say $1,500/oz again, shares could easily 5x… There’s a lot of appeal with that kind of proposition to entice a speculator to tie up “dead money”.

And as we all know, a rising tide lifts all boats… But some more than others, and that’s what we are trying to nitpick here… The best names that will outperform on the way back up… But in the big picture, all this scrutinizing probably won’t be so important b/c the companies that survive will most likely all do extremely well.

Hope that helps!

Cheers!

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