I wrote up a full investment case for Morien Resources on Seeking Alpha in December 2018 and thought I was pretty smart to get in at an average price in the mid 30-cent range. Dividends were flowing and I was sitting on a 35-percent gain.
And then the mine shut down.
Normally I would have cut my losses and moved on. In this case I harvested the tax loss where I could and piled back in, adding more to the position and lowering my cost price into the mid 20-cent range.
The Donkin Royalty and the cash flows from it at current coal prices – and the current stock price – are just too juicy for me to pass up. This assumes the mine ever reopens and it’s a binary bet at this point: The mine reopens before Morien runs out of cash – or it doesn’t.
My basic investment case:
- Coal and iron ore prices are surging
- The Kline Group is willing to restart operations at Donkin under the right circumstances
- U.S. safety inspectors will be allowed to cross the border in the next 18 months and give their approval for a restart
- It will take some time before mining resumes, but the announcement of a restart will lead to a rerating of the stock.
I buy stocks that I think are going to 5X in five years. There’s more risk of a permanent (read that as a complete zero) loss than I like, but the dirt cheap call option on a quick 4-6X is worth the risk. Like any commodity investment I make, Morien is part of a basket of coal names.
Those other stocks are doing their job and balancing out the risk that comes from investing in any single mining company, but this trade only turns into a home run if Morien outperforms.
