Portfolio Update: Adding to My Best Ideas (February 13, 2017)

by FI Fighter on February 14, 2017

in Precious Metals Updates

Readers may be thinking that I’ve been making far too many moves (transactions) of late in trading precious metals mining stocks… and that’s probably true. Nevertheless, I continued reshuffling the portfolio a bit…

Last time around, I sold out of shares of B2Gold (BTG) and Klondex Mines (KLDX), booking some rather significant profits at what I felt were some pretty attractive exit points. And as I mentioned after selling out of KLDX, I wanted to redeploy some of that capital into silver stocks…

So, I did…

Here are my latest moves:

  • Bought 4,000 shares of Fortuna Silver (FSM) @ $6.383/share
  • Bought 30,000 shares of Alicanto Minerals (AQI.AX) @ A$0.22/share

 

Fortuna Silver

First up, I decided to use some of the BTG gains on a company that I would deem to be one of the better run silver companies trading on the marketplace, Fortuna Silver (FSM). At close to ~$1 billion market cap, by no means do I think that shares of FSM are cheap, but like I mentioned last time around, I’m extremely bullish on silver in 2017, and I think at some point later this year we’ll see a spot price of over $20/oz again.

Yup, I’m expecting silver shares to outperform gold shares when that happens…

But rather than going with a “shotgun approach” on some more speculative early stage junior explorers (which will probably outperform larger cap stocks like FSM), I decided to err on the side of conservative (although there are never any guarantees with mining!) and stick to a “tried and true” high quality producer.

Fortuna Silver is led by President and CEO Jorge Ganoza (a fourth generational miner) who is highly regarded in the mining industry (his son is also the CEO of Atico Mining; ATY.V).

The company’s flagship San Jose mine (located in Mexico) is a pretty nice, high grade silver deposit and it features low cash costs/All-In Sustaining Costs (AISC)…

San Jose is NOT world class (in terms of size), but a solid asset that should be able to crank out over 7 million ounces of silver in 2017. Operations at this underground mine ramped up to 3,000 tpd in 2016.

The Caylloma mine (located in Peru) in Fortuna’s secondary silver deposit, which is a little bit smaller in size and less economical than San Jose… Outside of those two revenue generating primary silver mines, the company is developing the Lindero Gold Project in Argentina.

Here are some key stats of FSM for you.

In comparison, here’s what the valuation of a peer, Tahoe Resources (TAHO) looks like.

From a valuation perspective, TAHO has FSM beat in many metrics: Price/Sales, Price/Book, Enterprise Value/Revenue, Enterprise Value/EBITDA, etc…

Not to mention, Tahoe Resources owns the MASSIVE world class Escobal silver deposit (located in Guatemala) that has over 300 million ounces of silver in Proven and Probable Reserves (in comparison, San Jose currently has about ~30 million ounces of silver in PPR)… Tahoe Resources also controls some very good gold assets as well, particularly the Canadian portfolio they acquired from Lake Shore Gold last year…

In essence, both FSM and TAHO are sort of becoming hybrid companies these days… Investors are getting a blend of both silver AND gold… But at their core, I still look at FSM and TAHO as being primary silver companies…

So how come I’m not buying up shares of the more attractively priced Tahoe Resources, instead?

When it comes down to it, this investment/speculation of mine is a bet on people… No, I’m not trying to knock on the TAHO team, but for whatever reason, this company (and stock) just haven’t been able to perform and execute up to expectations…

Here is a 1 year chart comparing the share price performance between FSM and TAHO.

FSM is up 85% while TAHO has risen just a paltry 6%!

TAHO has had a lot of issues in the past with the local communities in the regions in which they operate their mines, and I honestly can’t say I have a competent grasp on whether or not these disputes have been resolved or will be an ongoing struggle moving forward…

Bottom line, I just wanted to place my money with a mining team that I think will be a prudent steward of capital… Yes, I think silver will outperform and head higher this year… In the process, I just want to make some money… and even more importantly, not lose a ton of it on a speculative bet… That’s my main reason for going with FSM… Sometimes, there’s more to picking out these stocks than just going with the best assets and technicals…

People matter a lot… and it might be the most important criteria of them all.

FSM is a new position for me; this was my first tranche of 4,000 shares. FSM should complement my silver holdings quite nicely… I also own:

  • Bear Creek Mining (BCM.V)
  • Endeavour Silver (EXK)
  • First Majestic Silver (AG)
  • Alexco Resource (AXU)
  • Defiance Silver (DEF.V)

Defiance Silver (DEF.V) has risen in share price quite a bit over the last year, and it’s another one of those very early stage and speculative junior explorers that I own in my mining portfolio… I may look at booking profits on DEF.V in the near future, just FYI…

The other stocks mentioned above (BCM.V, EXK, AG, AXU), I consider to be Core Holdings… and you can now add FSM to that list as well…

Alicanto Minerals

Moving on, readers may recall that last September, I was calling Alicanto Minerals (AQI.AX) one of my “best ideas” in the gold space… Back then, I first initiated a position around A$0.32/share, but on the heels of some pretty poor initial drill results last fall at their joint venture (with Barrick Gold; ABX) Arakaka Gold Project, shares of AQI.AX have been under a lot of selling pressure over the last few months (the declining spot price of gold didn’t help matters any either)…

Well, finally, the company decided to shed some light with investors in regards to their drill program for 2017.

Here’s what Alicanto announced most recently on December 7, 2016.

7,500 meter drill program for Year 2, funded by joint venture partner Barrick Gold.

Shares of AQI.AX ripped higher, about 20% or so shortly following the news release, but have since come off again…

At around A$0.22/share and under, I’m a pretty confident buyer… Yes, Alicanto Minerals is an extremely early stage and speculative stock (which are the type of holdings I”m doing my best to make sure I’m not overly concentrated in), but these guys are at least drilling holes in elephant country (Guyana)… There is no doubt that the gold is there (there is far too much smoke in the region)… Alicanto (and Barrick) have just got to find it (a lot of it)!

I now own 130,000 shares of AQI.AX.

 

These are just some of my latest moves and I’ll just end by saying that I’ve got a few other good ideas in the precious metals space and right now I’m most certainly in an eager mood to buy more mining stocks…

 

Stay tuned…

 

Fight On!

{ 7 comments… read them below or add one }

1 Roadmap2RetireNo Gravatar February 14, 2017 at 5:15 am

Thanks for profiling the companies, Jay. Fortuna and Tahoe both look pretty interesting….I am sold on teh idea of going after silver more than gold — even though I have a decent exposure to gold. Will take a look over the coming days

cheers
R2R

Reply

2 FI FighterNo Gravatar February 14, 2017 at 3:59 pm

Sabeel,

Yup, I’m with you there and think that silver will outperform gold moving forward… The majority of my mining portfolio is still gold, but I’m trying to diversify into a bit more silver these days.

Cheers!

Reply

3 SFtraderNo Gravatar February 14, 2017 at 10:40 am

Hi Jay,
Which of your core holdings do you believe will have the most torque with a rising silver price? I would assume it would be either Bear Creak or First Majestic, but I am not as familiar with a few of your other positions. Also, do you have an opinion on MAG Silver? Looks to be a similar market cap as Fortuna with a high grade silver mine under construction.

Cheers,
SFtrader

Reply

4 FI FighterNo Gravatar February 14, 2017 at 4:01 pm

SFtrader,

In regards to most torque to the upside, without question that would have to be Bear Creek Mining… First Majestic is a “go to” name in silver, so I like it mainly for that reason, but Bear Creek owns a massive base metals project, Corani, in Peru that is extremely sensitive and leveraged to metals prices, particularly silver.

MAG Silver is a company I don’t know too much about, but on the surface it looks to be a solid option as well… PAAS is another good one as well… There are a lot of quality silver companies in the space… This time around I elected to go with FSM primarily for their proven and respected management team.

Cheers!

Reply

5 Buy, Hold LongNo Gravatar February 14, 2017 at 5:04 pm

That’s a large position in AQI. I hope it works out for you. All the best.

Reply

6 FinanzrNo Gravatar February 15, 2017 at 2:32 am

I also like Silver alot – similar reasons: higher torque if gold continues to rise, industrial demand etc…
Interestingly, I own the same silver shares as you – all of them. BCM is my largest position (might add again in the 2.6 CAD range, if it continues to drop). In addition, I own some Brixton Metals and Impact Silver.
I think Brixton has a very promising land-package, seems to be realtively cash efficient and came down a long way from the 2016 highs.
IPT had a realtively good run from the December lows (I got in at around 0,48 USD) but see a lot of upside.
Looking forward to your silver thoughts!

Reply

7 alNo Gravatar February 19, 2017 at 8:54 am

Hi Jay, thanks for spending time with this blog, great resource. Now that Trump is king in the US, and the FED starts increasing interest rates because local inflation starts inching up, many are saying the US dollar will become much more expensive on the forex market. When the USD gain in strength, the gold price usually goes down. Don’t you fear that silver prices will follow, since it is also a precious metal joined at the hip to gold, although silver is mostly used in the industrial sector, thus the demand picture is totally different than for gold ? I mean, you now are speculating that silver will go up in price because the gold / silver ratio is so out of bound, but have you prepared for the case that silver price can go down in 2017? Hope you find some time to think about it in another blog post. Keep up the great work, I am learning a lot from you. Please do not publish this post, since I don’t want it to appear on your blog.

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