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Mining Stocks – How Winners Behave

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In the last article, I articulated my belief that as investors, we shouldn’t hold onto our loser investments for too long, holding out hopes that they will be able to turnaround a broken thesis. Sure, everyone likes a feel good, underdog story, like Rocky, but reality usually doesn’t work that way… In the real world, usually the winners keep on winning, and the losers keep on losing, eventually fading away into obscurity, or inevitably falling into a darkened abyss, never to be heard from ever again.

When it comes to mining stocks, as I’ve mentioned so many times before, your mineral deposits are at the heart of your underlying story. If a company doesn’t hold quality, economical assets under their belt, they will not last very long in this game…

In my own case, it’s out with the trash and in with the good stuff.

With so many prospects out there, I don’t really see the point or need to hang on too tight to investments gone awry. To me, it’s absolutely frustrating to read press releases and headlines about your crappy stocks, time after time again.

It’s so much more rewarding (and fun), to tune in each morning and be pleasantly surprised by another bout of good news..

Here are some examples of companies doing it right on a regular basis.

Franco-Nevada (FNV)

The absolute best gold stock on the planet, bar none. With Franco-Nevada, investors can go to sleep with ease, knowing that the business is in good hands.

It’s comforting to read these type of headlines on a regular basis.

May 04, 2016:

Franco-Nevada

“Franco-Nevada’s recent investments at Antamina and Antapaccay helped generate the record quarterly GEOs and revenue results,” stated David Harquail, CEO. “These investments have further strengthened and diversified our portfolio with long duration quality assets. Thanks to the support of our investors, Franco-Nevada was able to raise equity fnancing and is again debt free. The Company now has over $186 million in cash and short-term investments and $1 billion in available credit facilities so is well positioned to continue to grow the portfolio. I am particularly proud that Franco-Nevada has today raised its dividend for the ninth consecutive year since its IPO. This speaks to the strength of the portfolio and the business model.

Record production.

Massive new acquisition streams coming online from world-class projects (Antamina and Antapaccay).

No debt.

$186 million in cash.

9th consecutive year of a dividend raise, up to $0.22/share.

Awesome sauce!

Ivanhoe Mines (IVN.TO)

A junior mining company that holds 3 world class assets in Kamoa (copper), Platreef (platinum group metals), and Kipushi (zinc). Further, Ivanhoe mines is backed by Robert Friedland, arguably the absolute best mining entrepreneur alive today.

May 11, 2016:

Ivanhoe Mines

Highlights of the Platreef Project’s updated Mineral Resource estimate include:

  • An increase of 58% in the Indicated Mineral Resources tonnage to 346 million tonnes, at a grade of 3.77 grams per tonne (g/t) platinum, palladium, rhodium plus gold (3PE+Au), 0.32% nickel and 0.16% copper, at a cut-off grade of 2.0 g/t 3PE+Au.
  • An increase of 21% in the Inferred Mineral Resources tonnage to 506 million tonnes, at a grade of 3.24 g/t 3PE+Au, 0.31% nickel and 0.16% copper, at a cut-off grade of 2.0 g/t 3PE+Au.
  • An increase of 45% in the contained metal in Indicated Mineral Resources, at a cut-off grade of 2.0 g/t 3PE+Au, totaling 41.95 million ounces of 3PE+Au, plus a 47% increase in nickel to 2.44 billion pounds and a 50% increase in copper to 1.23 billion pounds. 
  • Contained metal in Inferred Mineral Resources, at a cut-off grade of 2.0 g/t 3PE+Au, has increased by 11% to total 52.77 million ounces of 3PE+Au, nickel has increased by 13% to total 3.44 billion pounds and copper has increased by 18% to 1.78 billion pounds. 
  • An average thickness of 19 metres in the area of the TCU-T2 mineralized zone where Indicated Mineral Resources are estimated and an average thickness of 13 metres for the area where Inferred Mineral Resources are estimated, using the 2.0 g/t 3PE+Au cut-off.

Mr. Friedland noted that the Flatreef Deposit is characterized by its very large vertical thicknesses of high-grade mineralization and a platinum-to-palladium ratio of approximately 1:1, which is significantly higher than other recent PGM discoveries on the Bushveld’s Northern Limb.

“The new resource estimate is further confirmation of our belief that the deposit will be a model for safe, mechanized, underground platinum mining in South Africa,” said Mr. Friedland. 

May 02, 2016:

Ivanhoe Mines2

Highlights of the PEA include:

  • After-tax net present value (NPV) at an 8% real discount rate is $533 million.
  • After-tax real internal rate of return (IRR) is 30.9%.
  • After-tax project payback period is 2.2 years.
  • Leveraging existing surface and underground infrastructure significantly lowers the redevelopment capital compared to a greenfield development project, as well as the time required to reinstate production. 
  • Life-of-mine average planned zinc concentrate production of 530,000 dry tonnes per annum (tpa), with a concentrate grade of 53% zinc, is expected to rank Kipushi, once in production, among the world’s major zinc mines (see Figure 1, below).
  • Life-of-mine average cash cost of US$0.54/lb of zinc is expected to rank Kipushi, once in production, in the bottom quartile of the cash cost curve for zinc producers globally. 

“This preliminary mine redevelopment plan supports our view that Kipushi is the best brownfield zinc project in the world,” said Mr. Friedland. “Kipushi’s zinc grade of almost 35% puts the project into a class of its own.

From January 25, 2016:

Ivanhoe Mines3

 

Two exploration drill holes completed in late 2015 in the Kakula exploration area — DKMC_DD996 and DKMC_DD997 — rank among the highest-grade and highest-grade-thickness intersections drilled to date within the Kamoa copper deposit licence area.

DKMC_DD996 intersected 24.16 metres (24.13 metres true width) of 3.48% copper, at a 1% copper cut off. At a higher cut-off of 2% copper, the intersection was 13.16 metres (13.14 metres true width) of 5.26% copper. 

DKMC_DD997 intersected 18.75 metres (18.47 metres true width) of 4.64% copper at a 1% copper cut-off and 15.17 metres (14.94 metres true width) of 5.33% copper at a 2% copper cut-off. 

The two holes were drilled into an area of thick, high-grade copper mineralization first identified in 2014 — now called the Kakula Discovery area — within the large, 60-square-kilometre Kakula exploration area. The two holes represent 400-metre step-outs north and east from the high-grade copper intersected in drill hole DKMC_DD942 (13.50 metres (13.49 metres true width) of 4.15% copper, at a 2% copper cut off). Completion of an 800-metre-spacing infill grid over the Kakula Discovery area is planned for 2016.

“The Kamoa copper deposit already is distinguished as the world’s largest, undeveloped, high-grade copper discovery,” said Mr. Friedland. “The Kakula Discovery has the combination of significant thickness, high grades and strike length that holds promise for significant and rapid expansion of the Kamoa copper deposit.

“The Kakula discovery not only shows the potential to substantially increase the size of the Kamoa Copper Deposit, it also highlights the potential for new discoveries to the west of Kolwezi in the Congolese copperbelt.”

 

All 3 world-class projects continue to get bigger, better, and more economical.

 

What more could you possibly want?

 

OK, sure, the Democratic Republic of Congo and South Africa are scary places, but besides that, as an investor, you’ve got to be mightily pleased with all the progress you’re seeing made by this company…

Pilbara Minerals (PLS.AX)

The darling of the lithium world right now is no doubt Pilbara Minerals. And for good reason…

From May 02, 2016:

Pilbara Minerals

The latest results include thick intersections of spodumene mineralisation along the Central and Western Pegmatites, including highly significant results from two holes (See Figure 3 – drill holes PLS 542 and PLS 546) which confirm that the Central Pegmatite extends to the north and remains open along strike and at depth beyond the current Mineral Resource boundary.

As a result of this work, Pilbara Minerals has upgraded its Exploration Target for the Pilgangoora Project to 130-150Mt grading 1.2-1.5% Li2O and 175-225 Ta2O5, compared with the previously published Exploration Target of 100-110Mt at 1.2-1.5% Li2O and 175-225 Ta2O5 (see ASX Announcement – 1 February 2016).

The absolute best, undeveloped spodumene project on the planet (so far) continues to grow in scale… and may eventually (hopefully) challenge and overtake Greenbushes as the world’s largest.

Summary

There is a lot of garbage proliferating out there in the mining world… But there are definitely a lot of incredible stories as well. No, I’m not trying to “pump” up any of these stocks… This article should NOT be interpreted in any way, shape, or form as a recommendation to you to go out and buy shares of these companies. Please do your own due diligence, as always!

Yes, I do own shares of Franco-Nevada, Ivanhoe Mines, and Pilbara Minerals… Only because I believe in the fundamental stories and think that these companies are doing some amazing things right now… That shouldn’t imply that things can’t (or won’t) go wrong. After all, mining is an extremely challenging and tricky business to get right, especially over the long haul.

But I’m just a dumb retail investor who’s doing my best to play the mining space. So, I want to stick to as many of the best stories out there that I can… It’s no fun reading depressing headlines, day after day, week after week, month after month, and year after year, regarding crappy projects backed by even crappier management teams who just keep doing all the wrong things…

So, the above press releases are reassuring for me to read, and I certainly welcome them, whenever they arrive in my inbox… Hopefully, the good news keeps right on chugging along…

 

“World-class”

“Outstanding”

“The absolute best”

 

Yeah, I can dig those descriptions…

 

Mining simplified… Well, as much as possible, I guess…

 

Happy Hunting!

{ 2 comments… add one }
  • Income SurferNo Gravatar May 15, 2016, 3:12 pm

    Thanks for sharing a few of your top holdings Fighter. Any idea how Franco-Nevada is back to not having any debt? It seems like two months ago I was looking at the company and they took on like $500 million in debt to buy into a couple new projects. Am I making this up…..or has something changed with them in the last month or two?

    I hope that Lufthansa terminal picture means your trip is nearing. Make sure we catch up before you leave. We’re home again.
    -Bryan

    • FI FighterNo Gravatar May 15, 2016, 4:05 pm

      Bryan,

      Thanks for stopping by buddy! Yes, Franco-Nevada is debt free again, due to an equity financing that was used to also fund the Glencore deal for the Antapaccay stream earlier this year.

      I wouldn’t be too concerned with the equity raises, these deals are highly accretive… When I spoke to management, they said they’ve been out buying ferraris at bargain basement prices… You can interpret that however you wish, but I have confidence these guys know what they are doing… I’m hoping for even more blockbuster streaming deals later this year with more base metal companies. Franco’s still got a lot of growth potential, me thinks.

      Yup, will be leaving on a jet plane soon… don’t know when I’ll be back again.

      Let’s catch up soon!

      Best wishes!

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