Waiting Through the Worry

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Disclosure: The following represents my opinions only. I am long every stock mentioned in this post (Image credit to Jack Ansty on Unsplash)

They say that markets climb the Wall of Worry, but hand-wringing has never been much of an investment strategy.

I’ve been intentionally quiet. Mostly because there are a lot of crosscurrents out there, but also because sometimes there’s just not a lot new to say. Markets go up, markets go down, and when I started writing this note weeks ago, most commodity stocks were at higher levels — so much so that I stopped writing for a while because I felt a pullback would make for a better time to talk about longer-term names and themes that I like regardless of the broader market tape. The CEO of CPP, John Graham suggests that the 2020’s will be “the decade of alpha“, where just owning “the market” won’t work the way it used to… Translation: investors will get paid for being right, as opposed to just being there.

To that end, I strongly suggest that readers take the time to watch this presentation by Mark Mills (click here to link to the Youtube video) on some hard truths about the “energy transition” that gets so much press these days. Seriously, take the time to watch it — remembering that an investor is only as good as the ideas that they can generate within the context of the information with which they are presented. I think this Mark Mills talk should be mandatory viewing for the entire population, as it realllllly lays out what the reality of the energy transition looks like in physical material and energy terms. In forty minutes, Mr. Mills makes clear, simple, and well-supported arguments that will leave you with some very clear conclusions, including:

  1. The energy and materials cost of making the “energy transition”, if it can be done at all, is going to be shockingly high.
  2. The past decade of investor apathy with respect to the energy and materials sectors is going to come home to roost (big time) as dreamed-up transition plans meet cold, hard, physical reality.
  3. There’s going to need to be some kind of Plan B, because Mr. Mills’ conclusions are stark enough to make even the most fervent “green” energy supporter’s jaw drop. Think “all of the above”.
  4. Fossil fuels aren’t going away anytime soon, no matter how much soup you throw at fine art, or how many COP conferences are held.
  5. Mr. Mill’s conclusions bode very well for a guy like me, who primarily invests in energy and materials. 

So, while everyone tries to figure out what they are worried about — be it interest rates, recessions, wars, inflation, deflation, or spy balloons — I’m just going to stick to my knitting and run through some companies where I think I have something to say. While the market winds try to sort out a direction, I’ll stay focused on the fundamentals of what I own and why I own it; because I think the multi-year backdrop looks just fine.


When I look at what I own, oil figures prominently. Maybe it’s because global demand for oil has gone up just about every year for the last 100+ years. Maybe it’s that this year, demand is expected to set a new high at 101.7 million barrels per day, rising to another all-time high of 102.2 million barrels per day next year. And maybe it’s the fact that this is happening against a backdrop of an industry that is hesitant to spend at the levels that it may have in prior cycles; as returns to shareholders and ESG chops have become far more sacred than growth any cost. Even if we are headed into a recession, I think that the associated wobble that oil might experience pales in comparison to the longer-term problem of ever-increasing oil demand with limited industry emphasis on new discovery and long-lead development projects. And remember that oil demand growth doesn’t come from Europe and North America anymore, it’s the other 7 billion people on the planet who drive that bus now.

Tenaz Energy (TNZ.TO, last at $2.39)

Energy stocks are generally cheap, but I think Tenaz is at the ridiculously cheap end of that spectrum. Recall that TNZ is an acquire-optimize-develop asset roll-up vehicle run by one of the most experienced, and most disciplined, management teams out there. Anthony Marino and Mike Kaluza were instrumental in building both Baytex and Vermillion and now they, and their equally experienced team, are going to build a company from scratch. TNZ’s corporate objective is to get to 50,000-100,000 boepd through acquisition and development projects over the next 5 years, with a focus on the international arena. That might seem like a tall order given that TNZ’s 2023 production is expected to be about 2,300 boepd from its existing assets, but as I’ve seen on multiple occasions, one acquisition can change everything. Consider the fact that when TNZ closed its Dutch North Sea acquisition in December, TNZ’s 2023 cash flow estimates went from $0.50/share to $1.30 per share, without issuing a single share. Now, that was a small deal, but on bigger deals, whatever value TNZ is able to capture is going to be spread across a very low share count — even assuming that TNZ issues equity along the way when it pulls the trigger on something more substantial.

As it stands today, TNZ should end Q1 with around $1/share in cash, which means that the company is trading about about 1.1x EV/CF… 1.1x!!!!!! The average market multiple for a Canadian-listed energy stock on the comp sheets these days is just under 3x EV/CF. So the question I ask myself is, “Should a vehicle whose biggest shortcomings are simply its small market cap and lower trading liquidity, trade at such a large discount to the group?” The answer depends on your perspective. As an investor, in the Warren Buffett sense of the word, all of the ingredients are there for the building of a great company, so the company is a steal at this valuation. As a trader, TNZ stock represents something with an unknown holding period, with an unknown catalyst of unknown timing — so there’s a chance of getting bored before getting paid. With this company, with this team, at this price, I’m firmly in the “investor” camp. I can have a lot of patience for a name like this. I’ve let too many like it slip through my fingers over the years by not thinking like an owner. Not this time. Even at 2x EV/CF, TNZ would be trading in the mid-$3 range and I could make the same argument that I’ve made here again about it being too cheap. 

Simply put, TNZ is a vessel, waiting to be filled with assets that are vetted by an A-Team which is 100% focused on creating value per share. With only 28 million shares outstanding, TNZ shares have massive leverage to value accretion from its future acquisitions, which are sure to materialize as larger companies rationalize their asset portfolios. I’ve pounded the table enough on TNZ and now I’m just going to sit tight and be right. Sometimes a little bit of patience is all it takes.

Tag Oil (TAO.V, last at $0.62)

Speaking of patience, I’ve been waiting for the day that I get to see what TAO tests from its BED-1-7 well in the Badr oil field in the Western Desert of Egypt and it’s finally getting close to showtime. The company said they would be fracking the vertical well near month-end and this is the last week of February, so there you go. Once fracked and cleaned up, the IP30 clock will start, meaning that investors could get a look at results around the end of March.

Recall that TAO is fracking a carbonate source rock that is known to have sourced most of the oil in this particular basin. The targeted Abu Roash F (ARF) horizon is comparable to the Eagle Ford shale in terms of organic content and rock properties, and four historic vertical tests in the area prove that the oil is there. TAO’s resource report from RPS says there are 27 million barrels recoverable (risked) at 400 metre well spacing, but at 200 metre spacing, 54 million barrels would be on the table. Unrisked NPV on the 27 million barrel case (33.5 million barrels unrisked) is US$423 million. That is considering just 1/3 of the acreage that RPS evaluated (about 170 million barrels of OOIP (original oil in place) out of over 500 million barrels of OOIP on the license according to RPS). On success, the development program would be “capex-light” (i.e., mostly just drilling costs) as TAO is operating in the middle of a producing oil field with all of the tanks and pipelines that are needed for gathering, processing, and transporting their oil to market. The test coming up is a vertical completion, involving a the fracking of an old well that previously produced oil from the ARF without a frack. The vertical test data will set the stage for a horizontal well (to spud in May) where one could expect 5-8x the vertical IP30 test rate.

With $30mm cash in the bank, I think that TAO could ramp up the drill program on success. The wells can be tied in almost immediately. This is my favourite “exploration” story in that I don’t need TAO to find the oil — it’s known to be there. It’s just about TAO unlocking it with the same fracking technology we have been deploying in North America since the shale revolution started. It’s getting close to showtime and the ARF could be a company-maker play, so here’s hoping for an IP30 of something in the neighbourhood of 200 bopd…

Africa Oil (AOI.TO, last at $2.83)

I like Africa Oil for its strong cash flows, clean balance sheet, Brent pricing, and indirect 6% ownership of the Venus discovery offshore Namibia — which has been billed as potentially being the largest offshore oil discovery, ever. AOI’s investment in Prime, its 50%-owned Nigerian offshore operating company, was very well-timed (Jan 2020) and it continues to pay dividends (literally) to AOI. AOI had US$207 million in cash as of the end of Q3 2022 (which is about CDN$0.50/share) and the debt in Prime has come way down since the acquisition. I think that the Nigerian assets (operated by Chevron and Total) are worth CDN$3/share, Kenya is maybe worth CDN$1/share, and that AOI’s 30% holding in Impact Oil and Gas (Impact owns 20% of the Venus discovery linked above) comes as free call option on something that could be worth $1-2-3+ per share; depending on the results of the Venus appraisal drilling program which is starting this week. I’m not necessarily looking for multi-bagger returns here, but the company pays a small dividend, has an active stock buyback program in place, and I think it has enough value levers to keep the market interested. AOI is also on the M&A hunt, so you never know what they could land in that department.

Cardinal Energy (CJ.TO, last at $7.22)

Honourable mention to ol’ CJ here. With its 6-cent monthly dividend, CJ’s yield is hovering around 10%. To me, that’s an attractive level for a company that has reduced its debt to an afterthought relative to cash flow and has some of the lowest decline rates in the industry. CJ also offers reasonable leverage to WCS spreads, which some smart cookies (like Ninepoint’s Eric Nuttall) expect to contract over the coming year and beyond. Given that 1) a refinery in Ohio that takes Canadian heavy oil is reopening soon after an extended outage, 2) Mexico is planning to phase out exports to the U.S. Gulf coast refineries, and 3) the opening of the TMX pipeline will ease the Western Canadian oil export bottleneck — the idea is that those factors should act together in order to close the Western Canadian heavy crude discount that has been dogging the industry for years. Seems reasonable. Those WCS spreads were pretty wide in Q4 2022, so that may pinch a bit in the Q4 results (CJ also noted some increased power costs in Q4), but looking forward, the outlook for CJ seems more stable than its 10% yield would imply.

Valeura Energy (VLE.TO, last at $2.13)

Nothing new here, but the market is clearly on edge waiting for VLE to close its “too good to be true” acquisition offshore Thailand. I haven’t been given any reason to be nervous, so I’m placid, but the stock chart tells me that some folks are getting jittery. VLE has guided to that deal closing in Q1, so the wait can’t be too much longer, right? If the deal does close as expected, I think VLE holders will have quite a nice day as its future would look cash-heavy, especially if oil prices take flight in the back half of this year as expected. VLE is on the verge of being a legitimate >20,000 boepd producer and the market knows it… but until it’s actually a done deal, nerves will be a factor — and a lot of momentum money had chased it higher. Part of me wants to add to it here, but for now, I’m content to just sit on what I’ve got and wait.

Natural Gas

While I still love Advantage Energy (AAV.TO, last at $7.93) and Arc Resources (ARX.TO, last at $14.50), gas is totally broken for me in the short term. A warm winter at home and across the pond has brought North American natural gas prices right back to the basement and we’ll have to see how next winter shapes up. To be clear, long term, I like AAV and ARX, but right now there are too many other places where I see potential, and I only have so many dollars to invest. I’m sure I’ll buy these names back at some point down the road, maybe even at higher levels, but for now I’m a spectator. When LNG Canada comes on stream in 2024 or 2025, I think that it will have a significant impact on western Canadian gas pricing and drilling activity, but right here and right now, gas is a pass for me. Note that AAV’s Entropy subsidiary has recently set a new benchmark for carbon capture efficiency. It’s a remarkable accomplishment and one that the market appears to be overlooking right now, though I’m not sure why. The world wants CO2 solutions and Entropy has just served up something that would enable reasonably-priced, guilt-free power generation from widely available and easily-scaled gas plants. It should be front page news, so Canadians should ask themselves why it isn’t. Dogmatic opposition to hydrocarbons is starting to become pervasive in society, but solutions like the one that Entropy has developed are the key to actually solving the problems at hand. Something’s gotta give…


Lithium is hot and continues to hold the eye of the market. I don’t have a lot new to say, but Critical Elements (CRE.V. last at $2.70) remains my main horse in the lithium race. And when I say race, I mean it. Manufacturers are scrambling to secure lithium supply, with industry-giant LG Chem even going as far to say that securing supply is more important than worrying about price. The EV revolution is in full swing and uncommitted supply within advanced and permitted projects is hard to come by. The setup for CRE would seem to be quite attractive, so I’m still sitting on a good-sized position while the market continues to value it at a discount to its peers on a NAV basis. CRE is a high-quality project in Quebec and one of these days you just know that some car or battery manufacturer is going to come knocking, right? Tick, tock…


Copper stocks weren’t a lot of fun if you held them through all of last year, and most are still below their 2022 highs, even though they’ve been trending higher since July. With copper around $4.20, metal buyers appear to be more worried about lack of access to material than they are about a recession. Some of the heat in copper prices has been due to the drop in the dollar, and some of it is just due to the fact that metals markets have never been tighter according to the CEO of Trafigura, but what do they know… right? Then there’s the longer-term theme of electrification, which is on a multi-path collision course with aging copper mines, increased demands from governments and workers, a lack of new mines/investment, and increased construction costs and timelines. The only way to resolve the longer term supply issue in a world that is going to pull harder on copper in its push for “green-ness” is price. Increase demand for copper –> increase the price of copper –> increase the supply of copper to moderate prices… that’s pretty much what needs to happen and it hasn’t happened yet. Keep in mind that most investors can’t even name a copper stock outside of Freeport if they can even name that one. If/when I start seeing copper stocks regularly discussed on financial news and see regular articles on CNBC about it, I’ll know the end of the run is near, but for now I’m going to say that the trend is your friend until it ends. When I say that, I mean that I want to see evidence of buying support on bad days in the broader market (like yesterday), because that’s when would-be institutional resource buyers could be expected to step in. On stocks, that buying support should come in at levels like major moving averages (50-, 100-, 200-day) and I wouldn’t expect RSIs to drop much below 40 on pullbacks if this move has legs. I’m no technician, but for trading positions, these are the kinds of things that I watch for in what can be a very volatile sector. My copper exposure includes Copper Mountain (CMMC.TO, last at $2.10), Capstone (CS.TO, last at $5.90), Arizona Sonoran (ASCU.TO, last at $1.79), and some Surge Copper (SURG.V, last at $0.13) in the penny stock category. I’ve been nibbling at Ascendant Resources (ASND.TO, last a $0.255) because it seems like a reasonable “smallish” project that could get bigger with a little luck from the drill bit at its well-located project in Portugal.


We have had the answer to virtually limitless, cheap, emissions-free power for well over 50 years, and yet the misguided fears of weak governments and a vocal minority have led us to where we are today — afraid to deploy the single, most realistic solution to CO2 emissions from power generation that the world has ever had. Between their breaths of unfounded general fear-mongering, nuclear’s opponents love to point out that nuclear power plants are expensive and take a long time to build. Is that really a surprise given that the intellectual capital of the sector has been decimated? How many of you studied anything about nuclear power in school, ever? Today’s reactor designs are incredibly safe, reliable, and long-lived. Nothing is regulated more stringently than the components of the nuclear fuel cycle. There are no untracked emissions, no untracked materials or waste, and no other power source that has a lower pound-for-pound environmental footprint. If your entire life was powered by nuclear power, it would take a lump uranium metal that is about the size of an egg (once turned into fuel rod material, that expands to something about the size of a can of Coke). Think about that next time you see an egg, or a can of Coke. All of the energy you would use… all of the heating, the air-conditioning, the driving, the flying, the consumer goods — all of it, for your entire life — powered by a lump of uranium that would fit in the palm of your hand. There’s no change in my favourite names here so use the search bar on the website to find “uranium” if you’re interested. I would add Uranium Energy Corp (UEC.US, last at $3.51) to that list based on its U.S. market exposure, dynamic CEO (Amir Adnani is someone who can really carry the torch for the industry), and relatively short runway needed to increase production given its focus on in-situ recovery methods.


I’m just not sure what to do with gold right now, so I’m doing a whole lot of nothing. I own a handful of golds with the largest position being in Agnico Eagle (AEM.TO, last at $61.50). I’m about ready to barf when I look at the AEM chart, so that’s probably a good sign… right?


There are only two nickel stocks that I really care about, which makes my life simple in this sector. Nickel inventories keep plumbing new lows, but I don’t see a lot of chatter on it anywhere. Given what’s going on in other battery metals, I think that nickel will have its turn in due course. Magna Mining (NICU.V, last at $1.19) and Premium Nickel Resources (PNRL.V, last at $1.70) are all I need in this sector right now. NICU smells like the second coming of FNX Mining with its high-grade historical Ni-Cu resource with footwall Cu-PGE exploration upside. They have a mill permit and a great team in place. I’m not aware of a new nickel project that could be up and running sooner than NICU, in one of the best nickel mining jurisdictions in the world, so it’s a must-own in the sector for me. The other name is PNRL, which is also a brownfield situation, in Botswana. PNRL has a theory that two old mines, separated by kilometres of strike, are actually continuations of a multi-kilometre prospective trend. Within that trend PNRL has identified numerous conductors, some of which correlate with known, high-grade, Ni-Cu mineralization. If PNRL starts hitting good grades and thicknesses at depth where the modelled conductors are, the tonnage could build very quickly here. If I had to pick one, I’d probably pick NICU, but PNRL adds the kind of long-tail exploration upside to the mix that’s hard to find in the sector.


This note is already so long that boring old zinc gets just a few words. Fortunately, those few words carry a lot of oomph if you care about Big Zinc — like the kind that Fireweed Metals (FWZ.V, last at $0.83) has in the Yukon. CEO Brandon MacDonald has persevered after years of hard, sometimes thankless, work and attracted a sizeable investment from the Lundin family. More importantly, FWZ will now have access to the Lundin rolodex as they look to advance not one, but two monster projects in this can-do territory. FWZ likely has one of the largest zinc resources in the hands of a junior at its Macmillan Pass project, but that will be more clearly defined after a resource update is released later this year which will include years of successful — but as yet “uncounted” — drilling. The company also owns a freakishly large and high grade tungsten project called Mactung that would benefit from staged-development with Macmillan Pass. Tungsten is a critical mineral, so the Lundins may be playing for a couple of different angles here. In any case, FWZ will see more drilling this year than it ever has, so there should be plenty of activity to track as the company looks to peel the cover off “Mac Pass” and take it for a spin.

I can never cover it all and there’s always next time, so good luck out there. In markets like these, I think there’s a real temptation to “do something”, but sometimes the best thing to do is to just take a step back, think about the bigger picture, and worry less about the headline-driven gyrations when the news cycle is so active on so many different fronts. There are multi-year themes at play in many of the sectors discussed here and that presentation that I linked to at the top of this note really drives the point home in terms of what’s to come if the electrification push and energy complacency continue. It’s like a train coming down the tracks — it’ll get here when it gets here; but as Tom Petty said so well, the waiting is the hardest part.

Happy hunting.