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2022 Metals and Mining Year in Review

January 3, 2023

This post is an Omnibus post-mortem on the positions I mentioned on Twitter. It originally appeared in my newsletter.

If you want to skip to the point it’s this: Too many trades for too little return.

Thankfully I didn’t blow myself up thanks to the big boring stuff that anchors my commodities portfolio like Teck and Altius. I also learned to use technical analysis to enter my positions and average down in size while still controlling risk.

My metals resolutions are simple for 2023:

  • I only want to add copper exposure.
  • Unless I see a royalty angle, I’m good with my gold exposure.
  • Bigger positions in better quality that I can hold for a long time.

This is my homework project to look for new mining opportunities …

I'm looking for ideas deep in the orphan period of the Lassonde Curve. Ideally the sell off has been exacerbated by the current state of the market, but said mining stonk comes out the other side in 12-18 months with an operating asset in the middle of a commodity shortage.

— Sultan Ameerali (@SultanAmeerali) December 29, 2022

Latin Mines turned me onto Salazar, which appeals to me as something completely bombed out with asset value. It’s going on the list.

Onto the individual post-mortems. Part two will come later this week when I go over all the non-mining positions.


Long Positions

Amerigo Resources (ARG.TO)

  • Profitable (+5% with 10%+ in dividend payments)

This position is profitable because I averaged down in size (this will be a theme) below $1.10 and collected some large dividends along the way. I like the dividend and I like the extreme leverage to rising copper prices without the headaches of a traditional miner. As long as the water is flowing in Chile, Amerigo has an unlimited source of copper in those tailing ponds.

Altiplano Metals (APN.V)

  • Unprofitable (-31%)

My mistake here was buying a large block to start. I added as much as I could when Altiplano dropped below 20 cents, but the lack of volume made it hard to do so without driving up the price. That said, there are no issues with management or operations. They’ve delivered high grades at Farellon and now have the El Penon mill to get the full benefit of processing their own feed. Altiplano has leverage to copper, gold and iron ore prices. This is a full position, all I can do now is wait to see if APN can actually generate the cash flow I think they can. As a self funding miner/explorer in a metals bull market, Altiplano could be worth $1 if the market values several small deposits the same as one larger one.

Minera Alamos (MAI.V)

  • Profitable (+30%)

Minera Alamos is still a profitable trade, but I bought my first and largest block of stock in 2019, so my IRR isn’t as great as the headline number suggests. It’s not something I would add to at this point. Similar to Altiplano the team has executed. All I can do is wait for the cash flow from production and see if the market will give MAI credit for building several mid-size mines instead of a single, larger deposit. I think this makes the business more robust, but the market says I’m wrong. Ideally I can hold Minera forever and just wait for a buyout.

Metals X (MLX.AX & MLXEF)

  • Unprofitable (-10%)

My cost price on Metals X came down as a series of stink bids were tripped on the way to the 52-week low. This is pretty simple: I want some exposure to tin. I don’t want any exposure to Congo. The balance sheet is rock solid, for a mining company. Now I wait with the option to buy more if MLX touches the lows again. This is not a large position and I don’t want it to be. I’m no tin baron.

Kinross CVRs

  • Learn more about the rights here

Better than free: I have a negative cost base on these. Did some merger-arb magic to clip a small return and add my name to the register for these CVRs. They pay out if Dixie goes into production by 2032. I love CVRs and I have dozens of them I have collected for free through merger-arb trades, mostly related to pharmaceuticals.

Sandstorm Gold (SSL.TO)

  • Unprofitable (-16%)

I ended up with Sandstorm shares after they swallowed Nomad Royalty is a share-swap deal. The less said about this the better. I made every type of mistake possible when I bought the Nomad shares:

  • I got the arb math wrong
  • Didn’t sell when my thesis broke
  • Didn’t sell and take the small loss on the SSL takeover announcement and ended up with shares of a company that doesn’t know how to allocate capital
  • Didn’t sell Sandstorm before they boned shareholders, as they tend to do every few years.

Now I have shares in a shitty holding company. Shitty. They should change the name to Shitstorm Gold Royalties.

Elemental Altus Royalties (ELE.V)

This is basically flat. I bought Altus Strategies shares to back into the merged company at a discount and haven’t looked at it since. I reserve the right to add more in the future but this is working out.

Kazatomprom (KAP.IL)

  • Unprofitable (-20%)

No worries here. I’m being paid to wait for a uranium rally that may never come. If it never arrives, I’ll still own the last man standing who can set the price.


Wins

  • Orca Gold gets taken out by Perseus. I sold too early. But 80 cents was still a great return in a very short period of time.
  • Great Bear Royalty sold to Royal Gold. This opened my eyes – I expect Filo and every other monster deposit to run the same play book.
  • Yamana Gold sells to Agnico Eagle and Pan American. This didn’t make me rich, but I made a little money going straight long after the Gold Fields deal was announced. Validation of the theory that management incentives drive outcomes.
  • I sold the last of my Paladin Energy shares in the 60 cent range when they started talking about going into production. I had sold a large block the year before in the 80s. I bought PDN below 10 cents at a low point in my personal life. This trade changed the trajectory of more than just my P&L.

Wins that weren’t actually wins

  • I thought I was smart selling Morien Resources into the pump by the National Inflation Association and walking away. I added to MOX occasionally when it got into the teens, so it wasn’t a small win when these jokers answered my prayers and gave me the liquidity to exit between 45 and 50 cents. Then Donkin reopened. Good results don’t forgive bad process. I should have loaded up and waited for Donkin to reopen or cut my losses the minute Donkin shut down.
  • I sold Allegiance Coal before the bottom fell out and made more than 100%. Better to be lucky than good, but I escaped disaster by the skin of my nuts. In hindsight I didn’t understand who I was in business with or the assets I owned.
  • I escaped Three Valley Copper twice with double digit gains. A win is a win, but this whole adventure was careless and stupid. Particularly the first time when the position was incredibly oversized. I’m convinced Kevin Bamborough’s tweets where he misdiagnosed the situation are the only reason I didn’t take a loss here and could dump my shares.
  • I made some coffee can money on GoGold and Vanstar Mining selling them for a gain shortly after I bought them. So what? I should never have bought them in the first place. Again, too many trades and too many positions.

Losses

SailFish (no gain) and Mako (-55%)

This is the executive summary …

I'm more disappointed by $FISH.V and $MKO.V. The cash flow is real but so is the Nicaragua discount, and it just expanded. Can always revisit both names in a few years when the stink fades, assuming they continue to execute, delever and buy back every possible share they can.

— Sultan Ameerali (@SultanAmeerali) November 10, 2022

I think the lesson here is about opportunity cost and reward exceeding risk. There are a lot of places to find value right now so why hold dead money? These were long-term holds which makes this particularly painful. The final groin kick came when Sailfish shot up upon inclusion in the silver juniors ETF (yeah, don’t buy that ETF).

Solstice Gold (SGC.V)

What GoGold and Vanstar give, Solstice partially takes away. Same lesson applies. Too many trades and too many positions. A 40% loss for me but this could work out for people who have more conviction and hold through.

Osisko Gold Royalties (no gain)

I was pretty angry about this financing …

Lesson learned. Never trust the management of an Osisko company to keep their word. Finished blowing out all my $OR.TO stock: Minimal profit and lots of opportunity cost. I don't believe management cares at all about closing the valuation gap and making accretive transactions. https://t.co/foq5b9VTLb

— Sultan Ameerali (@SultanAmeerali) March 18, 2022

Which made me look like an idiot for tweeting this …

Too many value investors think they get points for difficulty. If you're one-stop shopping for gold exposure, step over the 1-foot bar and buy $OR.TO
– Production growth
– Cheap valuation
– Clean financials
– CEO looking to close the valuation gap
I think $OR blows past the ATH

— Sultan Ameerali (@SultanAmeerali) June 4, 2021

The lesson here is to judge management by what they do, not what they say. I’m also thinking it’s good to identify situations where the CEO may not make the final call and avoid them like an STD.

Filed Under: Investment Ideas Tagged With: commodities, Gold, metals, portfolio

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sultanameerali Sultan Ameerali @sultanameerali ·
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Seemed like the right book to pull off the shelf given the state of the world. Give me a few days and I’ll be able to spew uninformed bank hot takes with the best of them.

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tristinhopper Tristin Hopper @tristinhopper ·
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It's rather incredible that you can run up a $50 billion deficit amid relatively good economic times, and military, health care, housing and any number of other basic metrics remain a disaster, and will remain so into the future.

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econguyrosie David Rosenberg @econguyrosie ·
28 Mar

Canada’s budget gets a big fat F. The tax bite expands. Spending out of control – an added $42bn in the next 5 yrs brings the cumulative burst since 2021 to $345bn! FY24 deficit’s to balloon to $40bn from last Fall’s estimate of $30.6bn and debt/GDP ratio up to 43.5% from 42.4%.

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sultanameerali Sultan Ameerali @sultanameerali ·
28 Mar

$SDE.TO is paying out $9.50/share. This was an easy buy at ~$4.50/share. https://finance.yahoo.com/news/spartan-delta-corp-announces-1-110000284.html

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reuterscommods Reuters Energy and Commodities @reuterscommods ·
28 Mar

China's 2023 crude oil imports set for 6.2% rise, but risks prevail - column by @ClydeCommods https://www.reuters.com/markets/commodities/chinas-2023-crude-oil-imports-set-62-rise-risks-prevail-russell-2023-03-28/

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