Mining Stocks – Disasters ALWAYS Happen!

In the world of mining stocks, disasters happen all the time! Even for the best companies, it’s very tough to be able to successfully navigate the business for any prolonged period of time without having something really bad happen.

Mining is an extremely challenging (horrible) business to be involved in, especially if you’re trying to consistently make money.

I seriously understand why so many retail investors want to avoid this sector like the plague…

Today, this happened.

And this.

A wise investor once told me the following about investing in the mining sector:

Fuck ups happen all the time that destroy shareholder value. There are landmines everywhere in this sector, so you have to be a cynic. If you get a sense that trouble is brewing, don’t ask too many questions and just try and get the hell out ASAP.

In other words, it’s much better to err on the side of caution, when in doubt!

Just last month, I closed out my position in Endeavour Silver (EXK), and I explained why in this Seeking Alpha article.

Read the comments section and you’ll find many investors who not only disagreed with my cautionary stance, but took what I had to say rather personally (at least that’s how it came across to me)…

With that said, when the company released the following bad news this morning for Q2:

Financial

  • EBITDA(2) decreased 64% to $3.7 million
  • Cash flow from operations before working capital changes decreased 53% to $4.4 million
  • Mine operating cash flow before taxes(1) decreased 49% to $8.8 million
  • Revenue decreased 27% to $32.7 million
  • Cash costs(2) increased 56% to $8.36 per oz silver payable (net of gold credits)
  • All-in sustaining costs (AISC)(2) increased 94% to $20.46 per oz silver payable (net of gold credits)

Operations

  • Silver production decreased 26% to 1,143,788 oz
  • Gold production decreased 17% to 13,058 oz
  • Silver oz sold down 34% to 988,821 oz
  • Gold oz sold down 20% to 12,294 oz

 

Let’s just say I wasn’t too surprised that the stock got slaughtered…

 

Look, at the end of the day, the bottom line here is to try and make money; that’s the main reason why we are even dabbling in the mining space in the first place. To me, it makes no sense to get so attached to any particular company or stock where we choose to ignore any and all warning signs that start to surface!

 

Never fall in love with an investment or asset class!

 

If you look hard enough, you’ll find flaws with anything! And as investors, that’s exactly what we need to be doing! I’m as big a fan as any of “buying the dips” and “loading up when there’s blood in the streets”, but there’s a time and place for that type of strategy… You don’t just buy recklessly all day and night long if the underlying fundamentals of a company are deteriorating, or leave lots of questions marks that need to be addressed.

Further, it is entirely possible to be simultaneously a bull and a bear, contrary to popular belief. In the case of silver, I’m as bullish on the physical metal now as I’ve been all year. However, as it pertains to EXK, I seriously think there are way more attractive silver alternatives out there, so even with today’s huge selloff, I don’t have any interest in buying any shares.

I’m bullish on silver but bearish on EXK…

Fancy that.

For the record, I have nothing against Endeavour Silver and I hope they can right the ship and get their operations back in gear! I have no agenda or reason to bash the company at all…

Anyway, mining stocks are beyond volatile and again there are landmines everywhere that we need to keep our eyes out for.

Once upon a time, I owned the following stocks in my portfolio:

  • Endeavour Silver (EXK)
  • Tahoe Resources (TAHO)
  • Red Eagle Mining (R.TO)
  • Perseus Mining (PRU.TO)

When those stories started to change (remember this game is very dynamic and the narrative is quick to alter itself everyday!) and when I looked at things from a risk vs. reward perspective and no longer saw any appeal with owning those companies, I abandoned ship.

Sell first, ask questions later.

Here is a 1 year performance chart for: EXK, TAHO, R.TO, and PRU.TO.

Each one of those stocks has cratered by more than -50% over the last year!

Look, I’ll be straight up and the very first person to admit to you that I got really lucky being able to sell out of those stocks before the SHTF.

It wasn’t skill on my part… but the one thing that I ALWAYS try and remember to do is look at things from a risk vs. reward angle…

I refuse to fall in love with any of these crappy mining stocks (I’m a hater), which are nothing more than ticking time bombs as far as I’m concerned.

But thankfully because I was never enamored with these investments (that I know will never love me back), I was able to dodge a few bullets and protect my overall portfolio.

That’s not to say I haven’t been burned badly before, because most certainly I have!

Particularly with Cordoba Minerals (CDB.V), which blindsided me when the company announced a restructuring of their joint-venture deal with High Power Exploration (a Robert Friedland company).

CDB.V is off -57% in just the last six months!

A total train wreck which has really hurt my portfolio returns!

The Game of Rocks ain’t easy at all!

 

And you can’t win em all…

 

But you don’t want to get absolutely annihilated in the process if you can help it either…

 

Be skeptical, ALWAYS!

 

Everyone LOVES an upramper and you’ll never win any friends in this space being a skeptic/cynic/hater, but are you investing in mining stocks to be popular or to make money?

 

If the mining sector wasn’t so damn cheap and undervalued relative to basically every other asset class out there, quite frankly, there’s nothing I would like more than to cash out, walk away, and never look back… until the sector inevitably blows itself up again sometime down the road (as sure a thing as any) and I can get a chance to pick up the pieces again (like in late 2015/early 2016) for pennies on the dollar.

 

It ain’t easy… so question everything.

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Vin
Vin
3 years ago

Well said mate.. Well said.. I wish I would’ve listened to you earlier on. Even though I wasn’t criticizing you on Seeking Alpha 😉 I luckily sold my shares – at a handsome loss – at 3.40, and bought back some Cordoba at a bargain.

Midwestern Landlord
Midwestern Landlord
3 years ago

Jay, Regarding your commodity portfolio, how much time do you have to study, analyze, etc each week to ensure that you are properly educated on the trends, etc in the industry? To you it is probably not work, I assume you enjoy it to some degree. But I think that is part of the rub for some potential investors that don’t understand the sector well. While I certainly see that the sector is ripe with opportunity due to valuations, it is not something that I want to be focused on every day so I choose not to play the game… Read more »

al
al
3 years ago

“Look, at the end of the day, the bottom line here is to try and make money; that’s the main reason why we are even dabbling in the mining space in the first place. To me, it makes no sense to get so attached to any particular company or stock where we choose to ignore any and all warning signs that start to surface! Never fall in love with an investment or asset class! I refuse to fall in love with any of these crappy mining stocks (I’m a hater), which are nothing more than ticking time bombs as far… Read more »

alex
alex
3 years ago

Just a beginner here and learning…for any Canadians here ….would you please recommend one or two brokerages that would trade penny stocks and markets like the Australian.
Thank you appreciate your feedback.