2020 Vision in the Year of the Metal Rat

Disclaimer: This is not investment advice, nor is it a recommendation to buy or sell shares in the company/companies mentioned.

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The information contained herein is accurate to the best of the author’s knowledge, but the material and interpretations contained herein should be independently verified by any party using this information as part of any research, editorial, or decision making process. Any views expressed here represent the author’s opinion only, and as such readers should do their own research and come to their own conclusions if they are using the opinions contained herein as part of any larger due diligence process. The author may have long or short positions in the companies mentioned and may be buying or selling in the market depending on which way the wind is blowing at any given moment. Opinions are subject to change without notice. Prospective resources, predictions, comparisons, financial projections, and extrapolated metrics are, by their nature, subjective and interpretation dependent. The topics covered are highly speculative and involve a high degree of uncertainty and risk. Speculative companies can and do go to zero. By using this site, you agree that the author(s) and Hydra Capital is/are not responsible for any damages incurred by the use of the presented materials. Anyone reading these blog posts should know that they are the author’s thoughts and opinions, which are not to be confused with or construed as research reports.

(Disclosure: The following represents my opinions only. I am not receiving any compensation for writing this article, nor does Hydra Capital have any business relationship with companies mentioned in this post. I am long every stock in this post, except for FCX, BHP, RIO, and PHO.TO)

With 2019 and its lessons fading into the fog of market history, I think there’s reason to be optimistic on materials, energy, and gold going into 2020. I say that based on a nascent coordinated move higher in oil, copper, and gold on the charts, combined with the fact that many of the big investment banks are calling for the same. Oil is comfortably over $60, continuing its move higher in the face of “prevailing wisdom” (last night’s geopolitical events don’t hurt the case either), and all of a sudden Canadian energy names are becoming more popular as the market starts to look for defensible value within a relatively expensive broader market. Likewise for the miners. Copper is showing signs of life for the first time in a long time, which has taken copper-bellwether Freeport (FCX.US) up over 50% from its October lows (BHP, RIO, and TECK are all up ~20% over the same period). And then there’s that gold quote. Gold has definitively moved up through the psychologically important US$1500 level again, and it’s notable that the yellow metal held in as well as it did in the face of a relatively strong dollar during most of 2019. I get the sense that gold exposure is still minimal for the broader investing public since there is no sense of urgency out there when it comes to the golds. Increased interest, yes, but no real sense of committed bullishness. That’s a good thing, because if this gold move is for real, it could have a long way to go.

Now, I am by no means suited to making macro calls on anything, but that doesn’t stop me from making some general observations as I rummage through the far-from-popular Canadian resource market. For one, when you spend as much time watching the market as I do, you realize that supply, demand, and inventories are factors in all commodity markets, but they are not everything. Given that commodities are generally priced in U.S. dollars, a strong USD tends to push the prices of commodities down, while a weak dollar tends to send them higher. The dollar is like the tide in the ocean, it moves the prices of all things, typically with a non-disruptive rhythm; but when the tide comes in or goes out, you can’t help but notice. Certain things can and do swim against that tide, driven by factors like acute supply and demand issues, or unexpected disruption, or discovery, but things are definitely “easier” when the tide is going with you. To that end, I always keep an eye on the U.S. dollar index (aka, the DXY), the same way a farmer might watch the horizon to see if he can get any clues as to today’s or tomorrow’s weather. Now, the DXY topped out at just over 99 in the second half of September and has been trending lower since, breaking chart support and falling below 97 for the first time since July. At least part of the reason for the DXY weakness is the fact that the Fed has said it is on hold with respect to interest rates until it sees sustained evidence of inflation in the economy, which is pretty much a green light for commodities to rally. When I see that, in conjunction with coordinated upwards moves in gold, copper, and oil, it makes me think that much brighter days could be around the corner. It’s the end of the holiday season and markets are thin, so I’m not reading too much into things yet, but I’m intrigued. 

Oil. No one likes it. Almost no one owns it. The world is awash in the stuff and we won’t need it in ten years because everything is going electric. That about sums up consensus thinking over the last four years or so, and it’s been the right call for those who have avoided the sector. But just because sentiment shifted so far to one end of the spectrum with respect to energy stocks doesn’t mean it’s rational or warranted. What people don’t talk much about these days is that oil demand is on track to be in the range of (a record high) 101.5 million barrels per day in 2020, up over a million barrels per day from 2019 levels. Forecasts from various agencies average out to a generally balanced market in 2020 with some predicting supply deficit in the second half of the year. OECD inventories are around the middle of their historical range and U.S. inventories are around their long-term average. Keeping in mind that U.S. shale has been the key driver of global production growth for years now, adding some 4 million barrels per day of supply over the last three years alone, it seems that the winds of change are blowing. Attitudes towards the energy sector have soured, and U.S. shale drillers have had the capital taps turned off, with many facing bankruptcy, and the whole oil sector is undergoing a transformation. Instead of being driven by “growth for the sake of growth”, energy companies are now being driven (at the demand of their shareholders) by things like free cash flow sustainability, dividend payments, debt repayment, share buybacks, and positive returns on capital employed. To that end, these companies are becoming more like “real” businesses, positioning themselves to convert reserves into cash in their shareholder’s pockets first, and only then looking at growth capital programs. The sheer scale of U.S. shale production means that the capital required just to stand still (in the face of a huge production wedge with very high natural decline rates) is enormous, so further oil supply growth from U.S. sources is being questioned by industry insiders and observers. Meanwhile, geopolitical tensions in the Middle East are now significantly elevated and any prolonged supply shock would ripple quickly through the market. On the flip side, there have been huge production losses from Venezuela and Iran in recent years, and if those barrels start looking like they are going to come back to the market any time soon, that could put pressure on prices; but for now, the bias sure does seem to be to the upside, especially in light of recent events. Investors like Peter Lynch and Sam Zell have already pointed to the energy sector as offering good value, and more are joining the chorus as these companies come out of multi-year throughs. Together, I think that all of that makes for an interesting backdrop; certainly not the doom and gloom that’s been the narrative for the last several years. Sure, EVs are going to phase out the internal combustion engine eventually, but with around a billion cars in the world right now, there’s lots of time for oil to remind the market about just how important it is to, well, everything.

On copper, I’m a bull until the chart tells me I shouldn’t be (a sustained break below $2.50/lb would have me wondering). For anyone who’s a believer in a green energy future and the electrification of the auto fleet, it’s going to take a veritable mountain of copper to get there. At the very least, I hope that all of the folks that think that the oil market is going to evaporate in the next 20 years are long copper. It takes a lot of copper to build and wire windmills, solar panels, electric cars, and the associated charging and transmission infrastructure, and most of the worlds largest copper mines are tired. New supply will come, but the companies that would bring it online will need to make some money first — these big projects aren’t cheap and take a long time to permit and build. Here’s hoping for a weak-dollar tailwind, but outside of that, perception of a melting trade war could boost sentiment towards the red metal further, or keep it tepid a little longer if the “phase one deal” comes into question. I’ve got my eye on $3.10/lb (just over its 200 day moving average) as a level that would confirm copper’s recent apparent breakout and have positioned for that with half-positions across a number of names. Recent events in the Middle East are likely to keep me holding tight stops on my coppers in the near-term in case the market gets jittery about the impact of higher energy prices on the economy, but overall I like the red metal.

As for gold, at $1500/oz a lot of the gold companies out there are already generating good cash flow and earnings and the Fed’s stance gives gold pretty much has free rein to float higher. Meanwhile, central bank buying and umpteen trillion dollars of negatively-yielding sovereign debt both appear to be supportive of gold overall, and the dollar is obviously a factor here. Right now, the gold chart is looking good, so here’s hoping that it continues.

With that all said, here are a few words on a lot of things; some old and some new. I have cast a very wide net for 2020, so these comments will be generally short and sweet. I’m not trying to overwhelm anyone with this insanely long post, but I want people to get a sense of just how many stories I follow. These paragraphs are just sound bites for those who are interested in seeing some of the names that I spend time on…

Advantage Oil and Gas (AAV.TO, last at $2.63)
Painted Pony (PONY.TO, last at $0.77)
Arc Resources (ARX.TO, last at $8.15)

I mentioned these a while back, and this has been a good trio to own over the last couple of months. A update to the way that the gas system in Western Canada is balanced has pulled AECO out of the dark hole that it was in and has provided some confidence that Montney producers will actually be able to get paid for the gas they produce. Condensate has become a hot topic as of late on the back of its high demand as diluent in the west, which bodes well for gas companies with associated condensate production. The Coastal GasLink pipeline and associated LNG export plans from the west coast have served to bolster confidence for long-term thinkers, as has the fact that Montney has been flagged as one of the best hydrocarbon plays in North America. I’m up handily from my buys on all three names and will ride them as long as the trend remains my friend, with stop losses set about 10% below current prices. As they say, the trend is your friend until it ends.

Arizona Metals (AMC.V, last at $0.50)

This is a relatively recently minted copper “exploration” story in Arizona that I bought a position in on a 40 cent financing that was done in 2019. I added to the position in the market afterwards and look forward to getting some initial drill results in Q1 2020. I use the word exploration in quotation marks because this deposit was given a good poke by Exxon (yes, that Exxon) dog’s years ago and has passed through so many hands over the years that it faded into obscurity through the decades. The current management team did a good job to track the asset down and capture it, and now they are about to start drilling. The deposit doesn’t have a 43-101 compliant resource, but it is a large-looking copper-rich VMS deposit with two “sister” targets located in close proximity to the west of the deposit that Exxon drilled. I like the market cap and the capital structure, and my sense is that the shareholder base will be supportive of seeing the stock trade to higher levels given what’s on the table in terms of potential tonnage and grade. Drilling should be starting soon if it hasn’t already and I think this story could generate hits that will garner attention should copper hang in or grind higher.

Athabasca Oil (ATH.TO, last at $0.62)

In a word… leverage. ATH consistently screens as one of the cheapest oil stocks out there, depending of course on what price deck you use. As I looked around for what had the most torque to a rising oil price, ATH really stood out for me in terms of its free cash flow yield and discount to its December 31, 2018 reserves value. I think that when ATH updates its reserves values in Q1 2020, the market might do a double take if oil is still looking good. As a result, I’m long stock on this name that used to trade at levels wayyyyyy north of where it is now. It can be a long climb out of the basement and anyone who pulls up a 5+ year chart on ATH will see just how beaten up it is. The balance sheet seems manageable to me and I’m willing to ride this as long as I’m feeling good about oil. Even with its recent move higher, ATH still trades at just half of its last reported PDP reserve value.

Altura Energy (ATU.V, last at $0.355)

I’ve said a lot on this name in the past, so I won’t say a lot more. Management, management, management. This under-followed oil story just keeps adding production and reserves and will drill the first horizontal well into its new (and potentially Big Deal) Entice play in Alberta in Q1 2020. I have dreams of this growing into a much bigger story over a long time period, which is why management quality is so important to me here. Darren Gee (Peyto) and Brian Lavergne (Storm) are on the board, and the management team also brings qualities from Vermillion and Renaissance to the table. These are high quality people with high quality assets. Leduc Woodbend is already a ~500 million boe (OOIP) piece of business, so scale is not a problem. This story should also have good torque to the oil price, but the real alpha is in 1) the results from the LW waterflood (where I expect to see a pressure response from the first injector in Q4 2020), and 2) proving that Entice is more than just a play concept. I’m insanely patient with this story and it’s one the the cleanest juniors I’ve ever come across. The company hasn’t issued a share since its debut, and given the quality of the recent $10 million deal that management put together to get Entice funded, I think that this “reserves and production growth per share story” is right on track. For anyone serious out there about energy investing, ATU is the kind of story that I can see people rallying behind given that management is unlikely to do anything but prudently and effectively deploy the capital it has available to it in order to grow per-share value for its shareholders. Simple, right?

Aurion Resources (AU.V, last at $2.03)

Aurion is starting to get a little more market traction lately, rising over $2 recently. Aurion has captured broad market support, added a great new board member in Kerry Sparkes, and continues to deliver intrigue at its Risti project. Well-funded and target-rich, Aurion offers a rare large scale “company maker” exploration opportunity. The market cap is getting up there in terms of exploration stories, but hopes are high at Launi and Aamurusko, so I’m happy to hold some as I wait for that “eureka” moment. It may never come, but this is a district-scale play with plenty of high-grade gold in rocks at surface covering a major fertile regional-scale structure called the Sirkka Shear Zone. There are a lot of eyes on this now, so I think that the stock will move on results if the company has continued success with the drills.

Aurora Solar (ACU.V, last at $0.075)

I will say very little about this one. I’ve followed it for years. Aurora Solar makes tools that improve the efficiency/quality of output in solar panel production lines. That’s a pretty thin margin business, so ACU’s technology is critical to maximizing profitability. ACU’s tools are used to evaluate furnace performance and resulting cell quality in real time, which represents a new paradigm in solar cell manufacturing. My biggest question here is “how many of these units can they sell”, but their last quarter was their best ever and sales are ramping up big time in China, so I’ll stick around and see if that momentum can continue. It’s likely that revenues will be lumpy, which I’m not a big fan of, but maybe there are some even bigger “lumps” coming down the pipe in terms of revenue in 2020 that might get the market to pay attention, or attract a suitor who could buy this business and bolt it on to their own. I’ve followed Photon Control (PHO.TO) for years and if I was an investment banker I’d be pitching ACU to the PHO board all day long as an acquisition target. ACU is cheap and has good in-furnace sensor technology, so you never know.

Colonial Coal (CAD.V, last at $0.375)

Coal is hardly in favour. Metallurgical coal however, is simply a necessary component of the steel industry. Colonial has a big met coal project in B.C. that has been pretty much forgotten by the market. Fortunately for Colonial, industry participants who know that met coal is still worth something are paying attention. This is perhaps most clearly evidenced by the recent director addition. I’ll leave it at that. Anyone who looks into the new director (hint: he’s a big deal in the Indian coal scene) may get the sense that this is a story worth following. There is some near-term warrant overhang, but once those warrants are out of the way, things could get interesting as there is speculation that India might come knocking for some met coal in a good jurisdiction in H1 2020. I guess we will see, but this trades at a fraction of its potential NPV so I’ve got some in the boat and count it as my only exposure to met coal. 

Canex Metals (CANX.V, last at $0.155)

This has one of the smallest market caps out of everything I’m holding at the moment. CANX’s Gold Range property in Arizona is the focus here, which has all the elements of a good treasure hunt. Attention was first brought to the area by a group of metal detector enthusiasts who made an exciting “strike” when they found a palm-sized chunk of gold-specimen-worthy quartz vein material just below the surface. Subsequent work revealed adits from Old Timers in the late 1800’s and early 1900’s that were hand-mining quartz veins hosted in metamorphic igneous rocks. Those veins have thus far been found exposed at surface in various areas over a strike length of nearly three kilometres. Some surface trenching has revealed additional veins that span a 10-30 metre-wide corridor that appears to have some relationship to the structural fabric in the area. Vein orientations have been found to be variable with some sets orthogonal (at right angles to) others. There’s one high-grade area called the Pit zone that represents an old pit that some real estate businessmen from California scratched at with an excavator quite some time ago, but there’s never been any methodical modern-day exploration that can put it in any kind of real geological context. I met with CEO Shane Ebert last year and he has a very methodical plan to define and test drill targets within the context of the broader structural/geological model as he works the property. It seems like the system could have some scale to it, but it’s very early days; hence the tiny market cap and implied sky-high risk level. Last I recall, CANX was going to fly a (cost-effective) aeromagnetic drone survey to better define the important structures in the project area. There may be more grab/soil samples coming as well, but that’s neither here nor there at this point. There is high grade (>1 oz/t Au) gold in veins at surface that were once mined by people with pick-axes and the system has some scale to it, so let the exploration begin. CANX holders might be lucky enough to see a drill program start in Q1 of this year, but I suppose that will depend on whether or not the aeromag survey shows anything of potential interest. I suspect it will, so I’ll be keeping a close watch on this one and own some stock. The tiny market cap means that even small bets can make for big returns, but I suppose I could say the same thing about a slot machine in Vegas. I don’t say that to take away at all from the quality of the target(s), or the highly skilled work that Dr. Ebert is doing down there, but at this stage it is what it is — a grassroots target clearly worthy of some exploration work.

Cantex Mine Development (CD.V, last at $1.18)

After a fall from grace on the back of getting hit by the truth stick, there are some signs of optimism in the air for little Cantex. Fipke has been buying stock in the open market and there is still a lot of drill core with assays pending from the marathon summer/fall program that was recently completed. I still very much like the overall geological picture here but this has become much more of a “hunt” than I had initially hoped for, so I’m pulling in my horns until I have a better idea on the nature/distribution of the mineralization. It shouldn’t take too long to get the next set of assays out of North Rackla, so fingers crossed that they find more of the good stuff. If they do, and it’s far enough away from pads 4, 5, and 6; that could rekindle the hopes of Chuck and Chad having a tiger by the tail up there. The jury is out on this one so risk is high if they don’t deliver as there’s no lack of exploration excitement out there in the market right now, and money can be fickle.

Copper Mountain (CMMC.TO, last at $0.75)
Capstone Mining (CS.TO, last at $0.77)

These are part of my copper basket. Both are producers, both are cheap on NAV and projected earnings/cash flow metrics. I don’t have a lot to say on them other than the fact that if copper goes higher, these stocks should obviously benefit. Both have moved up off their lows and I’ll stick with them as long as the charts look friendly.

Cronos Group (CRON.TO, last at $9.30)

This is an oddball one for me. For one, it’s weed, which I completely missed the boat on the first time around, but now the story is trading close to a 52-week low despite the fact that it has about $2 billion in cash sitting around. $2 billion could go a long way given how decimated the sector is. Here’s hoping CRON does smart things with that money. Given that Altria basically controls the company through its board representation and equity ownership, I like this as a speculation given that the Altria Group knows how to market and sell things that people like to smoke. The market cap is $3.5 billion, so it doesn’t exactly trade at cash, but just try raising $2 billion for a weed company right now and you’ll see why a war chest like this could pick up some real deals if it starts getting acquisitive. Surely they have their preferred targets already identified. I guess we’ll see. Generally speaking, weed stocks are pretty much in the gutter at the moment so it’s a buyer’s market and CRON has some serious cash to throw around.

First Quantum (FM.TO, last at $12.75)

Copper again. High Chinese ownership. Cobre Panama is one of the only large-scale new copper projects that consistently comes up in big-bank research as being an attractive acquisition target. I’ve got a tight stop on this one, but I like this as a place to park some money while I think of other, crazier ideas.

Lundin Gold (LUG.TO, last at $8.63)

Two words. Lundin. Gold.

Gold X Mining (GLDX.V, last at $2.53)

This is the renamed Sandspring Resources. This is a 7.4 million ounce gold resource (measured + indicated) in Guyana trading for about $10/ounce in the ground. I met with management recently and like the torque and scale that this company offers, so I own some as part of my gold basket. The project sings at anything over $1400/oz gold. Frank Giustra is a big holder/supporter as is Gran Colombia (GCM.TO, last at $5.59). It doesn’t take a rocket scientist to know that Toroparu is the kind of asset that will likely transact this cycle if gold can stay over $1500, so I’m happy to own some at these prices because who knows how high gold can go if a real bull market develops. Sandspring once had a $350 million market cap. That would be $8-10/share for GLDX. A guy can always hope.

Minera Alamos (MAI.V, last at $0.305)

I wish all of my stocks were MAI last year. Steadily “up and to the right” describes the stock chart in 2019. They’ve now financed Santana which should be in production in 2020 and La Fotuna isn’t far behind. “Low capex and quick payback” characterizes both projects well and these are real mine builders with the support of real mine builders (Osisko). It’s in Mexico and neither project looks that sexy at first glance, but there appears to be significant resource expansion potential on both projects, so little MAI may not look so little in a year or two. The market cap is through $100 million now, but I think there’s probably a relatively low stress double still on the table, even if the gold price just treads water here. Exploration success and/or a move higher in the gold price could take my hopes higher, but for now I’m happy that I own a piece of this in my basket of golds. It’s been a great performer. Right now, I’m waiting for news from a La Fortuna financing package and some near-mine exploration results to see what kind of add-on potential might be in play.

Excelsior Mining (MIN.TO, last at $1.03)

This is an in-situ leach recovery project in Arizona. ISR mining is when they inject (through injection wells) an acidic fluid into a target copper-rich horizon. The fluid dissolves the copper, which is then stripped from the recovered solution at surface (from production wells) before being re-injected. It’s a very low-disturbance way to mine, but start-up performance is always a question mark until you’re up and running. Excelsior is injecting already and expects first copper production this quarter, so let’s see how it goes. The project is envisioned to come in three stages, representing 25-75-125 million pounds per year of production at costs (AISC) in the $1.30/lb range. The low costs make for a nice looking economic model. At U.S. US$2.75/lb copper, the NPV of the full project is something like US$730 million, but that assumes that all three phases are built out, so getting to a “full project” NAV per share should include some allowance for dilution. MIN trades around 25% of the Gunnison Project’s NPV, so the stock is cheap, but first I think the market will want to see how Gunnison performs before assigning much value to the Phase 2 and Phase 3 expansions. It’s permitted, it’s operating, has a supportive large shareholder base, and has executed well to get to this point, so it’s in my copper basket. I will probably add to it if Gunnison is tracking well, but that’ll take a little while to find out.

Murchison Minerals (MUR.V, last at $0.13)

I’ve asked a lot of people if they’ve ever heard of Murchison Minerals, but almost no one has. I feel like it might have had ads on BNN years back that planted the company name in my subconscious, but generally speaking, this is not well followed at all. Well not by anyone except Rob McEwan and Rob Cudney apparently, both of whom are significant shareholders here. The market cap is tiny and the risk high, but little MUR is hoping that it has a new VMS camp on its hands near the community of Brabant Lake in Saskatchewan. The project is adjacent to the Provincial Highway 102 and the grid power line that runs to La Ronge, so access and infrastructure are excellent. The area has proven VMS stratigraphy as evidenced by the ~10 million tonne zinc-heavy Brabant-McKenzie deposit, but the real play here is that three weeks from now drills will be spinning on a program that will test some 12 targets in the greater area that all have good geophysical signatures +/- surface showings. If MUR can show that Brabant-McKenzie isn’t a one-off, this could start to get some traction, particularly if I’m right about the attitudes towards mining stocks improving. The stock is concentrated in a few hands, so there won’t be that much cheap stock to mop up if things get rolling here. Let the drilling begin.

NGEX Minerals (NGEX.V, last at $0.45)
Josemaria Resources (JOSE.TO, last at $0.76)

In as few words as possible: Lundin. Copper. Gold. Both are Big bulk tonnage copper-gold deposits. NGEX is in Chile, while JOSE is in Argentina. NGEX may have synergies with the nearby Caserones mine, which is currently in need of some re-imagination. JOSE is more likely a standalone project. I’m a big fan of the Lundin organization when it comes to its expertise and capability in the resource markets.

Neo Lithium (NLC.V, last at $0.50)
Critical Elements (CRE.V, last at $0.37)

I’m a believer in the long term growth of electric cars, so I’m a believer in high-quality lithium projects and the fact that the world is going to need a lot more of them to meet the needs of future battery demand. Now, there are a lot of lithium stories out there, but I’ve distilled it down to these two. I like NLC for the scale, grade, and chemistry of its 3Q lithium project in Argentina. I also like the NLC has lots of cash ($30 million as of September 30, 2019) relative to its market cap ($60 million), and trades at just a fraction of its potential NPV as laid out in its PEA. NLC has some of the lowest impurities in its brine of any project out there and it’s BIG, so I’m long. As for CRE, I first heard that story when it was about this price just before the lithium craze a few years back. It was clear to me that management was connected to the right kinds of people in Europe to potentially capitalize on the needs of auto manufacturers who are based there. CRE’s project looks good to me, though it is hard-rock, which has buried many a company in the past. On paper, CRE looks really interesting, so I suspect that someone with a suitable amount of optimism would want to partner on a project like this, and that’s the play for me. I’m hopeful that the stock has put in its lows now that the 2019 tax-loss season is behind us. Time will tell. Bring on the EV revolution any time Mr. Market.

Northern Shield Resources (NRN.V, last at $0.09)

I mentioned this last October and still own and like it. Drilling is just around the corner at the Shot Rock epithermal gold project in Nova Scotia, and The Root & Cellar epithermal project in Newfoundland probably won’t be too far behind. Shot Rock is ready to drill and NRN wants to run an areomag survey at Root & Cellar to better define the controlling structure/structures with regards to mineralization before drilling. I could write a lot about NRN, but really for me this is a management bet that intersects with geology. I’ve known CEO Ian Bliss for 15 years and like his grassroots model-driven approach to “Big-E” exploration. He’s yet to latch into that career-defining discovery, but that has nothing to do with his abilities or tenacity. Eric Coffin of HRA Advisories follows the story (and has for some time) which means that NRN gets reasonable play on the conference circuit, which in turn translates into broader market support. That’s a good thing, because NRN has some 250 million shares out, which is getting up there. Still, if NRN has success at either project this year, it could be one of those stories that makes a run at the $100 million market cap club or better, so I’m happy to own some going into drilling. These small stories take some work to get comfortable with, but the projects stand up to scrutiny. No one worth their salt in the exploration business would suggest that these projects aren’t worthy. I can say that with some confidence because Ian is probably one of the hardest working exploration geo/CEOs that I know and he always consults far and wide on projects in order to build his understanding of new targets. Here’s hoping that it’s his turn for a hit, because both of these projects are unique in that they are epithermal targets in areas where you wouldn’t ordinarily look for them. That means that some real goodies could have been overlooked.

NuLegacy Gold (NUG.V, last at $0.08)

Go big or go home exploration in the Nevada Cortez Trend for Carlin-style gold. Drilling is ongoing. If they hit, the market will care and everyone will know why… because the hope is that this is ‘the next Goldrush’. It’s always nice to dream. This is another good slot machine pull for me.

Orestone Mining (ORS.V, last at $0.075)

This cheapest-market-cap-company-that-I-follow has an interesting copper target in Chile that is underneath past mining at shallow depths. They will need money (I think), but I want a few in the copper bucket in case they hit when they do drill.

OneSoft Solutions (OSS.V, last at $0.60)

Pipeline integrity is not optional. OSS has the solution. Tick-tock until energy industry insurers raise the bar or start offering incentives for those companies who deploy this best-in-class next-generation pipeline integrity management software. Microsoft believes it, Phillips66 believes it, WorleyParsons believes it. Eventually I think the market will too.

Steppe Gold (STGO.TO, last at $0.90)

It’s in Mongolia, but it is dirt, dirt, dirt, cheap gold production with significant expansion potential. Have a look. Dirt. Cheap. Perhaps a quarter or two of successful production will help melt the ice on this one.

Sun Metals (SUNM.V, last at $0.225)

I still hold a candle for this one. Good system, good team, enough money to get to them closer to the guts of this system they are in. The rocks show complex multiphase mineralization capable of generating very high grades. The geological environment is right and the only question is tonnage. SUNM is still searching for that thing that sets it alight again, but they are in the right hunting ground. Here’s hoping they spear something worthy of appreciation, because this would be a great place for a mine.

Vermillion Energy (VET.TO, last at $21.25)

The yield is stupidly high at around 13%. So many people suggest that VET might cut its dividend, while its cash flow and financials suggest otherwise. VET has been a good company for a long time. A few other companies have figured out the model of sustainable dividend payments, but VET has been sculpted over years, and years, and years into its current form. There are some concerns about long-term LNG prices impacting VET’s European gas margins, but people forget that being willing to hedge (which VET does a lot of) a year or two out mitigates price pressure to some degree and that VET is broadly diversified. The world needs more energy every year. Part of that will have to be natural gas and oil. I’m not concerned. And oil prices, well, VET has no trouble there now, so if you like the sector you get paid like a prince to hold VET. Checked the Brent price lately?

TransGlobe Energy (TGL.TO, last at $1.85)

TransGlobe is cheap oil and will soon be drilling an appraisal to its relatively recent light oil discovery in the Western Desert where there are a number of potential follow-up locations. It’s cheap on every metric you can think of and now it even pays a small dividend. I still think the Canadian asset purchase was ill-timed and a poor use of capital, but that’s water under the bridge. Now it’s about a possible extension on the Eastern Desert licenses, which could be a windfall in terms of bringing reserves into play that were beyond the initial scope of the contract. TGL is dirt cheap oil, so I own it. It’ll be a trade for me, but at these levels I like it. I’ll keep an eye on geopolitics though for any signs of trouble. 

Trevali Mining (TV.TO, last at $0.235)

I used to think the stock was cheap at $1. The stock is less than 25 cents now. Same company, same share count, improving outlook. I feel a little bit dirty owning it, but I do because I’m a sucker for value when it’s trading not far off of what really looks like its lowest lows. TV has pretty good liquidity too, which is nice for what is a trading position for me.


Okay, so that list might cover half of what I own and maybe 1/10th of what I track, but I’m starting to go cross-eyed and I think I’ve probably covered more ground than anyone wants to read at this point. I tend to focus in on stories from time to time as they develop, by my point in the short novel that I seem to have written here is that I cast a very, very, very wide net, which really reduces my overall risk to any single story. Friends often ask me what I like, but they often want to hear just one or two tickers. That’s a tall ask with so much going on out there and if we are going into the kind of market that I think we’re going into, I want to start with a wide field of stories that I can winnow down as the real winners emerge. I mentioned the idea of a “rising tide” at the beginning of this note/novel and that kind of market requires consistent capital inflows, but given what gold, oil, and copper have been doing I think I’m in a good place, and can remain nimble if required. I collect these names over periods much longer than most casual market participants would be able to maintain interest in them or the market, but when the market becomes as much of hobby as it does work, the names that rise and fall over the years are just pages in a very long book. Finding names like this takes work, but is relatively easy; the hard part is knowing which bets to press and which to reduce along the way (if anyone figures that one out, please let me know). In the meantime, I think there’s a lot of interesting stuff going on out there in Resource Land and it’s been a while since I’ve seen this kind of broad optimism. That optimism is especially nice to see because it comes at a time when very few people have any appreciable exposure to gold, energy, and materials after years of gorging on large caps and weed stocks…

Happy hunting in 2020, the Year of the Metal Rat in the Chinese Zodiac. Auspicious perhaps? Here’s hoping.