That 70’s Show

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Disclosure: The following represents my opinions only. Assume that I am long every stock in this post. (image credit to Pixabay)

They say that history doesn’t repeat, but often rhymes. When it comes to the market, you see that all the time. Talk to someone who has been around for a few market cycles and you’ll often hear them reference market conditions or events from decades long past in order to put current events in context. Now, I wasn’t even around in the early seventies, but anyone who knows anything about gold and commodities will tell you that it was a remarkable period for “stuff stocks”. I found this summary on the commodity boom of the early seventies online a couple of weeks ago and I think it’s definitely worth a read if you’re at all a student of the market: link to the paper here.

Along the same lines, there’s a great interview with Jeff Currie from Goldman Sachs on the Odd Lots Bloomberg podcast about what he calls the “Volatility Trap” (search for that at your leisure). Currie cites a few past commodity bull markets, including the 1970’s, and goes on to describe the “capital light” decade that has set up the market that we find ourselves in today. As we stand on the threshold of the Great Energy Transition, investors in general are still grossly underexposed when it comes to energy and commodities. This is because investors, and banks, have little faith in the earnings sustainability of “old economy” stocks, which means that the capital needed to ensure the adequate supply of the commodities of tomorrow is hesitant to commit to the long term investments needed today. Currie suggests that until this attitude changes, price backwardation (near term prices being higher than future ones) and shortages will persist, which makes for a strong case for commodities.

Seeing strength in commodities and gold prices in conjunction with a strong DXY (the U.S. dollar index is floating around 100) should raise eyebrows in general, as it suggests that the commodity price strength has nothing to do with U.S. dollar weakness. While the dollar is maintaining its strength relative to other currencies, it is losing its purchasing power relative to a broad basket of commodities as too many dollars (from all around the world) chase too few goods in a world that just saw the biggest step change in global money supply, ever. Before all is said and done, we might see some real mania in commodity stocks by the time this cycle comes to an end. A commodity investor can always hope, right?

I’m not going to drone on about macro views, but I really encourage people to read more, listen more, and study more about past market cycles, what caused them, and how they resolved. I would argue that the shock effect of the oil embargo of 1970 closely resembles the one that we are seeing today as a result of the Russia-Ukraine conflict. In both cases, the sudden loss of oil supply sent energy prices soaring, with ripple effects throughout the economy given the “embedded” nature of energy in, well, everything. The oil shock of the early seventies ended up setting off a massive energy investment cycle in OECD countries as they looked to establish some sense of independence from Middle Eastern supply. For a variety of related and unrelated reasons, things like copper, gold, fertilizer, and soft commodities (food) all ripped higher in the years that followed, which led to some very hot inflation numbers throughout the decade.

In order to bring persistent inflation under control, Paul Volcker was eventually appointed as the Fed chair in 1979 and jacked interest rates up to 20% by 1981; from 11% just two years prior. That caused a lot of pain for people and companies that were carrying too much debt on the back of too few earnings. Unemployment spiked, and people walked away from houses with mortgages that they couldn’t afford. Now, given that Fed chair Jerome Powell considers Volcker as a bit of a hero, folks would probably be wise to consider the endgame for the Fed this time around. The market is already prepared for the Fed to implement a 50 basis point hike in May, followed by steady “data dependent” hikes over the balance of the year. Those carrying large debts or buying stocks on margin should consider themselves as having been put on notice at this point. I don’t say that to fear-monger, but rates have only one direction to go in the near-term, and that is “up”. Whether it’s a soft landing, or a hard landing, I don’t know, but the Fed has pointed the nose of plane downwards and eased off the throttle, so fasten your seatbelts.

Just because rates are going up, it doesn’t mean that the sky is falling — but it probably means that most investors are going to find the sledding a lot harder now. With a lot of supply chains still reeling from the effects of covid, adding rising food, energy, and materials costs to the mix isn’t making it any easier for businesses or consumers. The energy shock that the western world is seeing has lit a fire under the (extremely-materials-intensive) decarbonization/energy transition movement. This is where things like lithium, copper, nickel, manganese, uranium, vanadium, and rare-earth elements really start to look like secular investment trends as opposed to just cyclical commodity trades. Meanwhile, with most analysts now calling for a protracted battle for the future of Ukraine, the energy trade seems likely to have some legs to it. Oil closed at US$106/barrel and natural gas at US$7.30 on Thursday. OPEC is telling the world that they cannot fill the hole left by the loss of Russian exports and the U.S. is pledging to ship as much LNG as it can to Europe for the foreseeable future. Lithium is in the stratosphere, copper is hanging out at $4.70/pound like it’s no big deal, the nickel market is on tilt, and uranium, rare-earths, vanadium, and manganese look like they are not far behind. So, when I say that I think most investors are going to find the sledding a lot harder, I only say that because a lot of investors only have a vague understanding of commodity stocks and most still don’t appreciate why they might want to bulk up (I’m talking a few percentage points) on the sector in light of the changing market landscape. And, while gold is quietly being taken along for the ride, even the gold bulls barely believe in their gold stocks with gold at US$1975 per ounce. The gold and commodity squares are very small ones relative to global bonds and equities, so even minor allocation changes by large asset managers will feel like a tsunami of buying if that’s what comes to pass. Dare to dream.

When I look at what I own, it covers a broad swath of the commodity complex. The more I read and see, the more I find this to be a very unique market. As in, this could be a “seventies” kind of commodity market for papers to be written about in the future. I’ll try to cover a lot of bases in not a lot of words as there’s a lot to think about out there.


Oil is on everyone’s lips. Believers are being manufactured daily by the buybacks, rapidly improving balance sheets, earnings growth, and free cash flow yields offered by the oil stocks. Even with China in its own version of covid lockdowns, oil has barely budged. Summer driving season in North America is coming and the Russian “situation” isn’t going to improve any time soon (that is a huge hole to fill). At this point, I haven’t met a lot of oil stocks that I don’t like. I happen to currently like Cardinal (CJ.TO, last at $7.23), Africa Oil (AOI.TO, last at $2.27) and Yangarra (YGR.TO, last at $2.92) the best, but that’s just me trying not to pick what everyone else already loves. CPG, TVE, BTE, WCP, MEG, you name it… I think they’re all priced for about $80 right now, so every day above $80 is a good day — and every day over $100 is a very, very good day for holders of oil stocks. I’d throw an honourable mention in here for Vermillion (VET.TO, last at $27.47) because of the company’s direct exposure to European energy markets. I’m not sure if that’s going to end up being a good thing or a bad thing in the end (“windfall tax” risk?), but right now, VET looks set to mint a lot of free cash flow, for years to come, based on strip pricing.

CJ is easy because it’s about to start paying a dividend and should have a lot of room for increasing it if oil stays strong. CJ is Scope 1 negative in terms of CO2 emissions, so it’s hard to argue with its “low-decline + ESG” chops. CJ, not typically known for new discoveries, has been showing success in new areas as of late that are worth keeping an eye on. CJ also has one of the bigger tax pool holders out there, with $1.2 billion of tax loss carry-forwards. CJ is almost as clean as a story comes and its top two holders are smart cookies (Murray Edwards and Eric Nuttall).

AOI is very simple for me. I listened to their year-end call not long ago and came away with the following in terms of value… Kenya is worth a buck. The giant offshore Namibia discovery (via Impact Oil and Gas) is worth a buck. The rest of the minority-equity portfolio is maybe fifty cents right now, but that could grow with drilling. Offshore Nigeria is worth no less than two bucks, and maybe as much as three or four bucks. That means that AOI is trading at half of my most conservative estimate of its value in an $80 oil world. As a result, I see little reason not to own it given its first-class management team and the Lundin Group’s global resource prowess. I think the market wanted a bigger dividend and was maybe surprised about some of AOI’s hedging losses, but that’s water under the bridge now and oil is still over a hundred bucks, so I’ll own it while it’s on sale. I do own a little bit of Sintana Energy (SEI.V, last at $0.145) and Eco Atlantic (EOG.V, last at $0.58) as side-bets on offshore Namibia and South Africa exploration respectively. SEI is an “area play”, while EOG for me is specifcally about the Block 2B target in South Africa that should be drilled in the back half of this year.

No change in view for me when it comes to Tenaz Energy (TNZ.V, last at $2.40) or Tag Oil (TAO.V, last at $0.295). I’m waiting very patiently for both to capture deals. Both are clean conduits for assets with very strong financial and market backing when the time comes. Oddly, as buyers and/or conduits of energy assets, both of these vehicles could arguably benefit from an oil price drop. I would be shocked if both of these companies haven’t secured deals by the end of this year. When that happens, I think I get a step-change in value. That’s my thesis and I’m sticking to it.


Two names Advantage Energy (AAV.TO, last at $10.25) and Arc Resources (ARX.TO, last at $17.90) dominate my gas exposure. For me, ARX is easy to own right now. It consistently screens as the “cheapest of the biggest” gas-weighted producers despite the fact that it is very well managed, has excellent condensate exposure, and high-quality gas assets. ARX has an active buyback in place, pays a modest dividend, and may have some “overhang” as the market wonders what ARX is going to do with respect to its somewhat-capital-intensive Attachie development. For value-focused fund managers panicking because they don’t have enough energy exposure, I think ARX looks like a port in a storm. It’s familiar, its fundamentals are defensible as an asset manager, and it’s highly liquid. It’s an easy holding for me at these levels.

I’ve made my case on Advantage before, but since then something BIG has happened. AAV recently disclosed that Entropy’s financing partner from the end of last year and it turned out to be Brookfield Renewable Energy Partners. It doesn’t change the fact that the initial deployment of Entropy’s tech at Glacier hasn’t happened yet, but it is like being called up to the NBA from your freshman year and getting a personal endorsement by LeBron James before your first game. No pressure. That’s maybe a little dramatic, but Brookfield is, without question, recognized as “smart money”, maybe the smartest money, and their interest in Entropy should be a wake up call for anyone thinking about how to capitalize on the nascent carbon industry. If Peleton can get a $50B market cap for bikes with iPads attached to them, what’s the world’s most readily deployable carbon capture tech — that makes money at a $40/tonne carbon price, and with Brookfield behind it — worth? Well today, the market assumes Entropy is worth around $300 million, and at that valuation, AAV screens as one of the cheapest gas stocks out there. AAV will be debt free this year and has an active share buyback program in place. I wouldn’t be surprised to hear people speculating on dividends come this fall. Aker Carbon Capture ASA has a C$2B market cap over in Oslo, and from my perspective the Entropy story is more compelling… hmmmm.

A quick comment on the carbon capture industry. There are two main kinds of carbon capture in the news; 1) direct air capture (e.g., giant stacks of power-hungry air-fan-suckers in Iceland) and 2) point-source capture (i.e., get the CO2 at the flue stack, before it enters the atmosphere). In my humble opinion, mechanized direct air capture of CO2 is pure folly unless you are on Mars and need the CO2 feedstock to manufacture rocket fuel. Look, the atmospheric concentration of CO2 in the atmosphere is around 412 parts per million (ppm). That means 999,588 ppm of the atmosphere is a big zero from a carbon capture perspective. Think about that for a second. Why on Earth would anyone ever spend any energy trying filter the CO2 out of the atmosphere at 412 ppm as opposed to capturing as it comes out of a gas or cement plant flue stack that is pumping out anywhere from 80,000-140,000 ppm (8-14%) CO2? To put it another way, would you rather (a) corral cattle as they come through a feedlot gate in an orderly fashion or (b) let the cows out into your 50,000 acre ranch and then go about trying to round them all up? If you chose option (b), I can’t help you. But what about the cows that escaped before you realized you shouldn’t have let them out? We should try to deal with those, right? Sure. Hmmmmm, if there was only some kind of self-replicating device that would take CO2 from the air and store it in a useable, ecological, and attractive form while only running on solar power and water… you know, like trees. There, now all you direct air capture folks can spend your time, engineering talent, and capital somewhere else. Or at least spend that time and money on planting trees and making sure they make it to maturity. Geez. 

Meanwhile, the point-source capture folks like Entropy say that they can deploy a ready-to-go solution that would/could stop 90% of the CO2 from almost all existing large-scale industrial sources, starting as soon as you can get enough engineering and manufacturing talent deployed. While some climate “purists” consider carbon capture technology as an (unwelcome) “enabling” technology in terms of our continued reliance on the hydrocarbon industry, I would ask them this — “If you could, today, eliminate 90% of the CO2 from the largest global emitters before it ever reached the atmosphere, would you?”. Obviously the answer is yes. So, while the world chases down enough materials and labour to build, install, and manage enough solar panels, windmills, batteries, and power lines to electrify everything, a point-source carbon capture story like Entropy should be front-of-mind when it comes to making a difference in carbon emissions. Here’s hoping that Entropy can walk the walk when Glacier starts up because I’m clearly excited by the talk.


The stars have aligned for uranium and we have some big uranium believers in our office, myself included. Just read the news. Increased competition for LNG is pushing Japan towards more restarts, Europe is talking about restarts and new-builds, and the U.S. has recognized uranium as a critical strategic mineral (took them long enough). Recall that 38% of uranium used in U.S. reactors comes from Russia and Kazakhstan. India and China continue to build new reactors in order to try to limit coal-fired capacity and rational logic is now creeping into the nuclear debate in the context of the world’s decarbonization plans. No change for me in terms of my exposure… U.UN, NXE.TO, DML.TO, and UEX.TO, in that order. I want to own EU.V, and I’m looking hard at GLO.TO as I think it will be bought out by the Chinese at some point, but I can’t dance with all the girls all the time. This paragraph might be the shortest, but I think that uranium could be on the cusp of an epic move and it’s hard to see the price of the commodity falling much given the massive supply shortfalls which are projected by the end of the decade without new discoveries and a big injection of capital into the sector. 

One “nuclear” play that has nothing to do with uranium itself that I own a bit of is NuScale Power ( via Spring Valley Acquisition Corp (SV.US, last at $10.98). I’d read about NuScale’s reactors before, but I didn’t realize it was going public until a friend pointed it out. The company focuses on a technology known as the small modular reactor (SMR) and there’s a vote to approve this SPAC deal on April 28th. SMRs are exactly what they sound like. They are small-scale, modular, nuclear power plants that can be sited in greenfield or brownfield settings. An example of a brownfield deployment would be where an existing coal-fired power plant is retrofitted with a SMR, thus eliminating coal as the boiler’s heat source while saving the rest of the power plant machinery and its existing grid connections. NuScale has two cornerstone investors… the global powerhouse Fluor Corp and the Japanese government via Japan Bank for International Cooperation, who recently bought stock off of Fluor, who arguably would have held too much of the equity post-deal.


Two words. Stealth. Bull. Gold is within spitting distance of the psychologically important $2000 level and yet not many people own much of it or talk much about it. I like it. Gold bulls might not be fully convinced of the move (Charlie Brown syndrome), but the gold charts are saying otherwise. I own Agnico Eagle (AEM.TO, last at $83.01) and Barrick Gold (ABX.TO, last at $31.79) in good size, kind of like how I own ARX in natural gas… even if I’m wrong about gold, AEM and ABX are great gold companies trading at reasonable valuations. Newmont (NEM.US, last at $84.77) led the breakout and ABX and AEM followed suit. Everything else is following as well. The GDXJ.US (last at $51.03) chart looks equally encouraging, so count me as optimistic on the whole sector.

My favourite small cap pre-production play is still Anacortes Mining (XYZ.V, last at $1.45). With its 2.6 million ounce resource in Peru (capped by a 630,000 ounce leachable zone), XYZ looks very cheap relative to peers. What most excites me about XYZ is the exploration upside at depth as this fully-preserved epithermal system hasn’t been drilled since 2008 and is barely scratched below 300 metres where high grade feeders are likely lurking. Long time readers will know I’ve banged the drum on this for quite some time and haven’t made much money, but now the drill is about to turn (at long last) and I think that’s the key. The market loves drill results and I don’t think that XYZ will disappoint. Anyone who knows me knows XYZ, but most of the rest of the market has no idea it exists. Kerry Smith at Haywood recently launched coverage on XYZ with a $2.75 target, so I know he gets it, but I’m hoping that drill results will bring this one into the cool kid’s club. 

I still have some Osisko Mining (OSK.TO, last at $4.52) as a high-grade, well-drilled, multi-million ounce gold deposit in Quebec. I think it’s a takeout target, but time will tell. I’ve put a modest bet on Galway Metals (GWM.TO, last at $0.54) ahead of the company’s pending resource estimate on its Clarence Stream gold project in New Brunswick. GWM has been a lot higher in worse markets, so I’m bargain hunting with it on the eve of its resource estimate in the hopes that it reignites the stock. Alamos Gold (AGI.TO, last at 11.38), Dundee Precious Metals DPM.TO, last at $7.97), and Equinox Gold (EQX.TO, last at $11.22) all met my hurdles last week for “too cheap, well managed, and liquid” for some of my pure beta exposure to gold and I’ll own them as long as they don’t bite me.

North Peak (NPR.V, last at $1.95) was a rocket for me earlier this year but has come right back to Earth recently. I’m not sure if the stock’s recent drop from $5 is based on anything real, but NPR has a very tight share stricture (and low float) and if its handful of followers go on a buyer’s strike while some aggressive sellers lean on the stock, you get a correction like the one that NPR just saw. I still own this one and am waiting to see what drilling turns up at the Black Horse property in Nevada. This could be another Allied Nevada in the making, or not, but the low share count means there’s a lot of leverage to success if it comes.

While talking about North Peak, I have to mention Rupert Resources (RUP.TO, last at $5.64) and its high grade deposit in Finland. No one cared on RUP for a long, long time; until discovery hit them at Ikkari and the stock never looked back. RUP is on the road to a >5 million ounce open-pitiable high-grade resource at Ikkari and there’s substantial exploration upside in this one on the rest of its land package, both outside of the Ikkari resource area and at depth below it. It seems like a very natural fit for Agnico to take over at some point (AEM owns a mine that is not far away, but shares many similarities… i.e., orogenic gold). The chart is very encouraging and while I don’t own it now, I’ve got my finger on the trigger. My only problem is not being able to own them all, all of the time.


I’ve mentioned Critical Elements (CRE.V, last at $1.67) before and I won’t rehash it here, but CRE’s Eric Zaunscherb recently gave a presentation on CRE where he pointed out that CRE was trading at 0.36x NAV (the stock was at about $1.35 at the time). That looks very cheap relative to peers who average something closer to 0.75-0.8x NAV. Usually there would be a reason for that, but in CRE’s case the only reason that I can see is boredom. CRE has power lines crossing its property, good access, a partnership with the Cree First Nation, is in Quebec, and has its federal permits. The only missing piece of the puzzle is the provincial permits and I can’t think of any reason why they wouldn’t come. This project checks all the boxes and will be an integral part of the Quebec Battery Complex supply chain. European automakers prefer hard rock lithium sources over brines from an ESG perspective, so I expect CRE will get interest from someone across the pond. U.S. automakers may also has some interest in getting involved given the proximity to U.S. markets. Time will tell, but I feel like CRE is down to the short strokes with the provincial permit and that once it is in hand, it will trigger a waterfall of events with respect to financing and lithium offtake. That should make for a good re-rate for the stock, so it’s my favourite lithium horse right now.


I sold my Nutrien (NTR.TO, last at $141.34) for a nice profit and as a result, Verde Agritech (NPK.TO, last at $9.40) is now my only real fertilizer exposure. I’ve written on it before, but NPK is now tossing around some gigantic blue-sky numbers. For now, the market is entranced, so I will play along. What I will say is that current events are VERY favourable for NPK. Not only does the NPK’s project represent a significant source of fertilizer in a highly agricultural region in Brazil, but it delivers an ESG drop-kick to conventional fertilizers in terms of K-Forte’s superior micronutrient content, chlorine-free nature, and slow nutrient release characteristics. This is the definition of the forefront of regenerative agriculture.


This is the “M” in NMC batteries. You haven’t heard of it much yet, but you will in time. I have two good ways to play which I’ve written briefly on before… Giyani Metals (EMM.V, last at $0.42) and Euro Manganese (last at $0.38). EMM is in Botswana while EMN is in the Czech Republic. I like and own a little of both, and I expect these will require patience. This note is getting long, so read up on both for when you start hearing about manganese prices going nuts…


This is a neat one. Renewable power needs grid storage backup for when the sun isn’t shining and the wind isn’t blowing. Lithium ion batteries are a pain in the ass when they catch fire, so best it’s not to have too many around each other… and their power density means they are better used in applications where size and weight matter. Enter the vanadium redox battery (aka, vanadium flow battery). Read up on those at your leisure, but they are ideal for grid storage applications. Sprott has been pitching a Physical Vanadium Trust product, like the Physical Uranium Trust, that would own the vanadium that goes into vanadium redox batteries for grid storage. In order to bring down the cost of the batteries, the SPVT would own the vanadium in a utility-scale battery deployment, but allow the user to use the vanadium metal until it was time for the battery to be recycled. Yes, that’s right, VRB’s can be recycled, because they are mostly just a tank of vanadium solution from which the vanadium can be recovered and reused at the end of life. Nothing like that exists for lithium batteries, so that’s a big plus for large scale grid storage projects. It’s something to think about. I own a little Largo Resources (LGO.TO, last at $15.38), one of the world’s only primary vanadium producers, which also plans to invest in the SPVT as part of its foray into the vanadium redox battery industry.


The world needs more copper for the green transition, full stop. So what can we develop? Arizona Metals (AMC.V, last at $6.62) and Foran Mining (FOM.V, last at $2.62) for existing deposits moving towards production in Arizona and Saskatchewan respectively. Bell Copper (BCU.V, last at $0.475) and BCM Resources (B.V, last at $0.30) for go-big-or-go-home exploration. Maybe some Hudbay (HBM.TO, last at $9.53) as a cheap producer. That’s about all I’ve got to say this deep into the note as I can’t cover it all.


Just the tickers please that this point, I know. North American Nickel (NAN.V, currently halted) is an office favourite that could be a very large nickel sulphide resource in Botswana (that’s good jurisdiction in my books). It should have results sometime in late spring or early summer. Soon NAN will represent a 100% interest project under the NAN banner, but first the deal needs to close. Watch this space. This is a very impressive nickel asset.

Magna Mining (NICU.V, last at $0.52). The microcap dark horse. If friendly partner Mitsui helps NICU along the way a little more, then this minnow could grow into a healthy king salmon. It has a good share structure, an A-team, an existing project at Shakespeare, and a mill permit. That’s right, a mill permit… in Sudbury. Anything new that is going into production is going to need a mill, right? It would seem that at least a few roads could lead to little NICU. I think this is one to watch in the nickel space for a 1+1=3 event. I say this because the CEO, Jason Jessup, has indicated in past presentations that if a small, high-grade deposit (within trucking distance) was bolted on to the Shakespeare project it could be materially accretive to the project economics. With Mitsui in the background, you’ve got to think there are bigger plans in the works here.

Rare Earth Elements

If anything in this post is the Easter Egg, it could be Commerce Resources (CCE.V, last at $0.28). This is the largest, highest grade, rare earth deposit in North America that has produced a proven, commercially attractive rare earth carbonate sample for evaluation by potential industry partners. The economics for this project will be impressive when they come out late in 2022 or in early 2023 and, given their critical role in permanent magnets, rare-earths are going to be very important in the green future that we are driving towards. It’s a long-shot, but if CCE can catch the market’s eye, there are few, if any, projects that will outshine Ashram on a comp sheet. CCE trades at around 2% of its estimated project NPV from a decade ago. The project economics will be updated with the publication of a new pre-feasibility study in Q4 2022 or Q1 2023 and I would expect that its NPV has gone up, not down. The fact that CCE has produced a saleable rare-earth carbonate should not be glossed over. That is a significant achievement and speaks to the established nature of the processing steps required for turning Ashram’s mineralization into cold, hard cash.

As always, thanks for the interest and happy hunting.