Portfolio Update: Reshuffling the Deck (February 01, 2017)

by FI Fighter on February 1, 2017

in Graphite, Graphite Updates, Lithium, Lithium Updates, Precious Metals, Precious Metals Updates

Mining stocks are an extremely volatile asset class… For readers of this blog, that probably goes without saying… So, although investors/speculators like myself try to do the best that we can, one thing I’m observing over the years is that there seems to be a constant feeling one gets (from time-to-time) to “retool” and “reshuffle” the portfolio.

No, I don’t think that I’ve ever quite looked at owning mining stocks as something suitable for Buy and Hold Forever, but I’m witnessing that I’m buying/selling more often than I had originally expected to when I first started this endeavor back in the summer of 2015…

Is there a right or wrong answer? Maybe… But I know that I’ll never figure things out completely, so I’ve learned to just roll with it… If my gut instincts are telling me to make a move, well, then I will just do it and let myself sleep easier at night…

Most recently, here are the latest moves in the portfolio:

  • Sold 6,495 shares of Alexco Resource (AXU) @ $1.71/share
  • Sold 1,200 shares of Klondex Mines (KLDX) @ $5.11/share
  • Sold 133,770 shares of Volt Resources (VRC.AX) @ A$0.049/share
  • Bought 19,330 shares of Birimian Limited (BGS.AX) @ A$0.33/share
  • Bought 5,000 shares of New Gold (NGD) @ $2.59/share

 

Alexco Resource and Klondex Mines

First off, I trimmed my positions (just slightly) in Alexco Resource (AXU) and Klondex Mines (KLDX) while I was in Vietnam last month… Both AXU and KLDX are still core holdings in my portfolio, but as everyone knows, gold and silver were going ballistic this past fall/winter, bouncing up and down like crazy, so not knowing what to expect next, I thought it might not be a bad idea to reduce my cost basis and hoard more cash…

 

Just in case…

 

In the past, my preference was to avoid trading these mining stocks so much, but this year I think I’m going to take on a slightly different approach… Right now, my mindset is to be a lot less aggressive than I was in 2015, so when I’m up a decent amount, I really don’t mind leaving some profits on the table to reduce my risk exposure…

Everything is relative, but overall I’m pretty content with the gains I’ve made in mining stocks, so I’m no longer feeling the need to hit a homerun on such a regular basis…

Yeah, you could say I’m learning to play a more conservative game (heh, well I’m still in mining stocks, so most investors will probably still think I’m totally insane)…

I still own 18,000 shares of AXU and 3,800 shares of KLDX.

Volt Resources

With that said, my next order of business was to close out my position in Volt Resources (VRC.AX), which was a spec graphite holding of mine. The clean energy stocks haver certainly cooled off since last summer when everything was soaring… graphite in particular. Certainly, with the benefit of hindsight, I can now see clearly that I fell victim to all the hype and hoopla, which influenced me to chase up and buy a stock at the top of the market cycle… A big NO NO!

Yup, I really made a big mistake chasing up VRC.AX, with a cost basis of A$0.11/share, prior to liquidating out of the stock entirely. I took a realized loss of $6,390.46 USD.

OUCH!

In general, I still think graphite will do well down the road, but quite honestly, I think the market is way too opaque for me to understand, and I can’t say I have a good grasp on the supply/demand dynamics of it at all… I do know that my own preference is to load up on commodities that the Chinese cannot source internally themselves, and that certainly doesn’t apply to graphite…

To further complicate matters, natural flake graphite also competes with synthetic graphite (derived from petroleum coke), so there’s always the question of trying to figure out what the battery manufacturers actually want and prefer… Then, there’s the whole characterization process of it all, which I’m finding out takes ages and ages… With all these junior graphite players, so many of them have a Memorandum of Understanding (MoUs), but nobody has locked down a Binding Offtake Agreement (BOA), which at the end of the day is the only thing that matters… In other words, Mr. Market isn’t going to take these juniors very seriously until they have supply contracts locked in and secured with vendors…

After months and months of waiting, well, let’s just say I got tired of waiting… After Volt Resources released their Pre-Fesability Study (PFS), the stock price did nothing except head south…

Sighzzzzz…

I’m all about patience, but I’m also NOT a fan of trapped capital… And that’s what was happening to my principal as I waited for things to turnaround… Not convinced that the company actually possesses a world class Tier-1 asset either, I finally decided that enough was enough, and that I wanted out completely…

When it comes to mining stocks, making bad picks and losing money is all part of the process… Just like in baseball, for example, no batter is going to get a base hit everytime they step inside the batter’s box…

Strikeouts happen!!!

I’ve learned to just cut your losers and move on… There’s no point in crying over spilled milk (but seriously, I do need to learn that chasing assets up seldom ever works out for me!), so I’m moving on…

What’s done is done…

At this time of writing, I’m only holding a single graphite stock, a tiny position in Black Rock Mining (BKT.AX), who I believe holds a superior (higher purity) graphite asset than Volt Resources. I have zero plans of adding any more graphite shares or companies to my portfolio…

One graphite stock is plenty…

Birimian Limited

With the proceeds from the Volt Resources sale, I used the freed up capital to add to my position in Birimian Limited (BGS.AX).

Now, here’s a stock that I really believe in! Unfortunately, the recent share price performance of BGS.AX is also really testing shareholders’ patience… BGS.AX has been essentially range bound and flat for the last 8-9 months or so…

Zzzzzzzzz…

However, in the case of Birimian Limited, I actually do believe that the company holds a world class Tier-1 lithium (spodumene) deposit (in terms of grade, not size), so I have a lot more confidence adding shares to this position. That, and it’s abundantly clear (unlike with graphite) that there are many Chinese companies who have a strong thirst for more lithium supply (particularly hard rock spodumene to feed their converter plants).

Despite the pathetic share price appreciation (what share price appreciation?) in recent months, I’m more excited than ever with the prospects of this company (yes, I still believe with full conviction that Lithium Boom 2.0 is just around the corner in 2017-2018), as they wrap up their most recent 10,000 meter drill program.

From Birimian Limited.

It ain’t always easy to tune out the noise, but in the case of Birimian Limited, I’m doing my best to do so… I’m convinced that the patient shareholder will be rewarded in due time… Yup, I’m focused on the fundamentals here, and as long as those keep on improving, I’m content with holding/adding shares.

The first pass Scoping Study (SS) looked promising as well

Compare to Altura Mining (AJM.AX) Definitive Feasibility Study (DFS).

Not a bad start for Birimian, no? Keep in mind, the Scoping Study was delivered with just 50 holes and ~5,000 meters drilled from the maiden drill program… The follow-up 10,000 meter program should be nearing completion sometime in February, so the mineral resource/reserves should still have plenty of room to grow…

So, lots of upcoming news to look forward to! And who knows, Birimian might even see a shake up in management and have some new directors onboard before long to help the company transition from explorer to developer…

Yes, Birimian is still a high-risk, early stage spec story… But no doubt, there should be lots of progress made in 2017.

Now if Elon Musk could just get on stage and get the clean energy/electric vehicle momentum train moving again, that would be great…

I now own 487,330 shares of Birimian Limited (BGS.AX/EEYMF).

New Gold

Lastly, I decided to initiate a new position yesterday, and added to my gold holdings by acquiring shares of New Gold (NGD). Due to consistent (and persistent) issues at their flagship Rainy River project, shares of NGD have been absolutely thrashed these last two trading sessions…

Certainly, there are high risks and red flags across the board with this story, but at some point cheap becomes stupid cheap and deep value wins out…

In the case of New Gold, after a -25% plunge followed by another -15% drop, I decided I liked the risk vs. reward proposition enough to buy my first tranche of stock.

I gotta say, I’m really digging the leverage New Gold can provide to a rising gold price environment, since Rainy River will add ~320,000 ounces of gold to the company’s annual production, which is NOT small potatoes… We’re looking at a potential 600-700k oz gold producer, if everything goes smoothly…

Hopefully, the company can right the ship now that the management team has been re-aligned, and a ton of shareholder value can get unlocked by getting Rainy River ramped up and into full production without any more issues…

From New Gold.

The main concern right now is how the company is going to be able to raise an additional $100 million in capital needed to finish construction of Rainy River? It’s the fear of dilution (and loss of confidence) that probably explains the mass exodus and recent selloff…

Like I mentioned above, there are liquidity concerns, so this stock is high risk at the moment, but one of the largest shareholders of New Gold just so happens to be Pierre Lassonde (who is in the mining Hall of Fame), so it’s not like the company doesn’t have the right backing and names attached to it.

I’m placing my bets that although the short-term might be painful, ultimately, New Gold will be able to weather the storm and successfully bring Rainy River online…

But seriously, a rising gold price would sure alleviate a lot of fear/concerns and make the whole process a hell of a lot easier…

 

Anyway, that’s enough ranting for now.

 

Thanks for stopping by!

 

Fight On!

{ 4 comments… read them below or add one }

1 yinNo Gravatar February 1, 2017 at 3:57 pm

Good to see you are still convicted to BGS.AX. I was going to swap it out for Lithium Americas – end up still holding on to Birimian on top of buying Lithium Americas.

Reply

2 FI FighterNo Gravatar February 1, 2017 at 6:54 pm

Yin,

Yup still a fan of BGS… I’m not expecting the moon and the stars, but a double in share price from here should be within the realm of reasonable expectations.

That’s all I’m asking for… 🙂

Cheers!

Reply

3 MattNo Gravatar February 9, 2017 at 7:59 am

I wanted to get your take on the new management that was recently announced by BGS. Also, what would you say your time frame is at this point for holding onto gold mining stocks vs lithium mining stocks? I know lithium obviously has a ways to go, but would you really get out of BGS if it only doubled (based on your comment above).

Reply

4 FI FighterNo Gravatar February 10, 2017 at 12:58 am

Matt,

The entire situation facing BGS is unfortunate… Drill results and clear path to production strategy (whether internally developed, JV, or sold off to the highest bidder) should be the primary focus, as that will unlock the most shareholder value and returns… not internal conflicts…

With mining stocks, there’s a common question of, “What’s more important the mineral deposit/project or the management team?”

BGS, will be a good case study and datapoint for future reference…

I’m hoping the asset is high quality and economically robust enough where it can succeed, regardless…

We shall see… At this point, I’ll hold off publicly commenting on which way I’ll be voting regarding the resolution for change in management.

As for returns, I would be very tempted to cash out after a double with BGS, but that’s just my take as of now.

Cheers!

Reply

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