(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 ATU.V, BU.TO, CAD.V, CD.V, CANX.V, NLC.V, ORS.V and TXP.TO)
There is no lack of action in the market these days. Last week, the market swooned and took commodities with it as fears of the novel coronavirus spread across the globe. Oil is back in the low $50 range, with some estimates pegging demand destruction in China at some 3 million barrels per day while this virtual shut-in lasts. Copper shed 25 cents in a heartbeat, one of the biggest downward moves in recent memory. Gold rallied nicely, but the equities aren’t overreacting to gold price moves in either direction so I get the sense that there still isn’t any herd-like behaviour in the sector. The last two days has been a different story, with the indexes and materials sectors having a good day after many bad ones. What will tomorrow bring? I have no idea. I was stopped out of a lot of things on the swoon, as I am keeping stops tight on most things, so now I’m waiting to see volatility to mellow out a bit and perhaps see some trends reassert themselves.
I noticed that the CEO of Touchstone (TXP.TO, last at $0.51), Paul Baay, was talking up his company’s exploration success in Trinidad again at an energy conference down there, which is linked in this video. Just after the 3-minute mark, he goes into his view on bringing on “two” discoveries while indicating that he thinks little TXP might become the biggest onshore producer in Trinidad in 2021. Now, that’s kind of like saying you’re going to be the biggest minnow in the pond, but it is somewhat indicative of the level of growth that he is expecting (it’s suggestive of something >10,000 boepd). I found the reference to getting production on from “two” discoveries to be quite interesting, because that would imply that the second discovery is indeed a discovery (testing of that well should be ongoing right about now). It’s all just reading tea leaves at this point, but I’ve been adding stock based on the thesis that Coho and Cascadura are worth quite a bit more than the 30 cents per share the stock has gone up since they were announced (on 160.7 million shares, that’s about C$50 million). I might be right, or I might not, but knowing that Coho-1 is “in the bag” and is expected to be tied in later this year lets me sleep a little better while I wait to hear more about the Cascadura test results, forward program, and potential size estimates.
I’ve also been thinking a lot about (and adding to) Neo Lithium (NLC.V, last at $0.75) lately. In seeing the Great Tesla Short Squeeze of 2020 (what a chart) and the fact that I think it’s really starting to dawn on people that the EV revolution is real and inevitable, I just have to think that quality lithium deposits are going to be desirable assets for quite some time. To drive the point home, everyone that I know who drives a Tesla says they will never buy a car that takes gasoline again if they can help it; full stop. People aren’t going to buy electric cars to save the planet, they’re going to buy them because they offer better driving and ownership experiences. They have insane torque/speed off the line, nimble driving control, never make you stand outside in the cold at the gas station playing a game of 20 Questions before you even get to pumping your gas, don’t pump out toxic gases into city air, are app-controlled, and require basically no maintenance in comparison. I have chosen to focus on NLC because its 3Q deposit is huge, has very low impurities, should be a low-cost operation (in terms of both capex and opex), and comes at a big discount to the NPV of the project. At some point, I strongly believe that something is going to happen with this deposit as battery suppliers look to secure access to lithium that is under their control for the foreseeable future. In the meantime, I can wait, but 2020 kind of feels like the year for this one. We’ll see. I have a secondary holding in Critical Elements (CRE.V, last at $0.345) as well, but am bigger in NLC at the moment.
Today, I invoke the great wisdom of Chumbawamba for two reasons. First, this overall market just doesn’t want to roll over and die just yet (it gets knocked down, but it gets up again…), but generally speaking I’m thinking more defensively than I have for some time. Second, despite getting kicked in the proverbial nuts on some names last year, there are always bright spots and new green shoots presented by the market and I’m seeing lots of opportunity out there. For a speculator like me, getting back up after getting knocked down is an old habit, and I always remind myself that diversification is what makes that possible.
On the news front, Canex (CANX.V, last at $0.22) has had a very nice move on the back of additional sampling results and geophysics at its Gold Range project, offering lots of opportunity for the sell-half-at-a-double crowd. More trenching and soil sampling is planned as the footprint of known gold occurrences increases, which ultimately will lead to drilling later this year. Cantex (CD.V, last at $0.73) reported some results from around a kilometre away from the last high-grade hits, but there we also lots of holes that were not as interesting. It’s become a real treasure hunt now in terms of trying to track down mineralization in an area with faulting and minimal geophysics of any value. Cudney has been selling stock and voicing his general desire for better governance and management practices, which is probably weighing on it, but the real problem is that they don’t know what they’re dealing with just yet. Altura Energy (ATU.V, last at $0.31) is almost certainly working on their first well at Entice right now, not that anyone cares. If it works out, the market just might care though, because energy companies are generally in great shape these days and wouldn’t mind adding assets that can generate big reserves and high netbacks, which is what I think Entice could offer. There’s no sense in putting the cart before the horse though until some test results are on the table. As it is, the stock is silly cheap, but that’s not unique to Altura, so I’ll just wait. And then there’s tiny little Orestone (ORS.V, last at $0.135). Orestone has a market cap of around $4 million and the more I think about it, the more I like it as a lottery ticket. I’m keeping my position small here as exploration is a high-risk proposition, but my thinking here is that even a small bet can pay off large given that there are 28 million shares out (43 million F/D). There was a company called Far West Mining that made a discovery (called Santo Domingo) in 2005-2006 that would arguably be of comparable size and value to what ORS is targeting at Resguardo. Far West went to a $175 million market cap shortly after discovery and was eventually bought for $725 million in 2011. I guess my point is that a stock can only go to zero, and in this case, success (which for me would be anything in the 0.5 g/t Au and 0.5% Cu range over 200+ metres in thickness) could mean a multi-multi-bagger, so I’ve made a smallish bet on that basis. ORS also likely needs some money for drilling, which I don’t think they will have trouble finding given the quality of the target, but that’s certainly a risk. Colonial Coal (CAD.V, last at $0.465) has had a big move off its warrant-induced lows (the warrants are all expired now) and could be set for much higher prices if my thesis regarding India’s desire for met coal is right. I’m still waiting for some IP results/interpretation and more drilling from Azimut (AZM.V, last at $1.35) so nothing doing there. And old flame of mine, Burcon NutraScience (BU.TO last at $1.85) has had Nestle come to the table as a product development partner for the company’s novel plant-based proteins. Burcon is a nutrascience company that specializes in the development of plant-based protein isolates used in food and beverage applications. The scale of this market is baffling, and current sustainability and “health” trends suggest that consumers are gravitating towards plant-based products in increasing numbers. The real challenge with using plant proteins in food applications is that it is very difficult to use a plant protein that doesn’t affect the taste, colour, or texture of the product in which it is being used. This is Burcon’s sweet spot of expertise, which is likely why they have attracted Nestle as a partner in product development and commercialization. A long time ago, in a market much the same as this one, Burcon used to trade with a $300 million market cap on the basis of its novel protein offerings and a partnership with Archer Daniels Midland on a line of soy-based protein products called CLARISOY. Market interest faded as ADM’s roll-out was much slower than hoped and Burcon drifted into obscurity until May of last year when Burcon entered into a JV agreement with Merit to get a plant built for the the production of its pea and canola derived protein lines. I’m not sure what this is worth, but the Nestle announcement certainly feels more like the beginning of something, as opposed to the end, so aside from keeping a somewhat prudent stop on this in the context of the broader market, I’m interested to see where it goes as it’s right “on trend” with the sustainability push in the market.
That’s a lot of writing for what was supposed to be a short note, but I think you get the point… there lots going on out there if you’re looking. And, I’m certainly not a Chumbawamba fan, but today I just couldn’t help it.