Disclosure: The following represents my opinions only. I am long AOT, CDR, GOT, GTWO, GDXJ/JNUG, MMA, NEM/NGT, OGC, PTK/POET, TAO, TNZ, TUK, VZLA, WRLG.
Gold is through $2500/ounce, copper is still trying to decide if recession is on the menu, oil is just kind of bobbing up and down from the $75/barrel level, and North American natural gas is still in the low 2’s, while European gas trades at multiples of that. A recent Bloomberg article highlighted that hedge funds are apparently the most bearish on commodities that they have been in thirteen years and everyone is looking for the Fed to cut rates in September. There was an initial start-of-the-Yen-carry-trade-unwind shock a few weeks ago, but the market seems to have moved on from that as the S&P has rallied back to within 1% of its recent highs. In the absence of anything pushing me in any new direction, I’m sticking to my knitting. I’m leaning towards gold over copper, I like the valuations in the energy sector relative to the rest of the market, and I continue to focus on names where I think I have an edge of some kind.
I’ve titled this post “Eye of the Tiger” not only because it’s a great 80’s song when you need a little motivational push, but also because tigers are both patient and focused when they’re hunting… and they don’t expose themselves to unwarranted risk as they wait for opportunity. Markets can be unpredictable, but by sticking to companies/projects that I know and like, I find it easier to ride out volatility when it shows up. It’s late August and things are quiet, so here are a few words on some of my favourites that I get asked about most often.
Tenaz Energy (TNZ.TO, last at $8.25)
What a difference a month can make. After announcing its transformative (and highly accretive) deal to acquire a key set of assets in the Dutch North Sea from NAM (an Exxon/Shell JV), Tenaz has become the best performing energy stock on the TSX in 2024 and one of the best performing stocks on the entire exchange. TNZ is a classic example of how great teams build great value for shareholders and I fully expect this trend to continue for the company. At the Enercom conference in Denver yesterday, Tony Marino presented the Tenaz story (link to it here) and highlighted the company’s recent agreement to acquire ~11,000 boepd of production (99% gas) and associated infrastructure in the Dutch North Sea. The metrics of the deal are impressive and TNZ is still in the re-rating stage as the market digests what this deal means for the company. On closing, the pro forma after-tax NPV10 of Tenaz’s assets will be $16/share on a PDP basis, $22.50/share on a 1P basis, and $34/share on a 2P basis… and that’s assuming that Tenaz does nothing else corporately, and it doesn’t include additional upside already identified by the company. Perhaps the most interesting thing to consider is Mr. Marino’s line from the Enercom presentation, right around the 15-minute mark, where he says, “… I like our M&A pipeline that we have better than I have at any time in the three year history of the company, and we’re not going to stop just because we’re in the midst of the NOBV transition…” Hmmmmm. With a corporate goal of growing to 50-100,000 boepd through targeted, thoughtful, and accretive acquisitions, I think there’s a lot of story yet to be written here. With only 27.2 million shares outstanding, Tenaz’s tight capital structure means that shareholder leverage per share to accretive deals is remarkable. I’m of the opinion that there’s nothing to do here but sit back and watch the team continue to execute. With this company, patience has always been my only requirement and I see no reason not to be patient some more.
Tag Oil (TAO.V, last at $0.33)
TAO’s share price performance in 2024 has been disappointing, but I still carry the torch of optimism here. At last report, the T100 well was doing something like 400-500 bopd from the 300-metre horizontal leg in the ARF, which isn’t really that bad, is it? Recall that the ARF is a regional source rock in this part of Egypt that has never been exploited with horizontal fracture-stimulated wells. In the absence of more information, I’m simply in a wait-and-see mode here. I can tell from the lack of chat-room chatter and low trading volumes that TAO isn’t capturing the market’s imagination much these days, but that’s okay. Opening a new play can be challenging and TAO has paid its tuition on the T100 well, so I’m hopeful that the company will be more successful on its next well, hopefully drilling a full 1000-metre lateral next time. TAO has been unusually quiet, but I would expect some kind of update over the next month or so in terms of the company’s plans and/or the performance of the T100 well. I’m long enough TAO that I can’t really trade it, so I’m along for the ride wherever this one goes. This is one of my more speculative positions, but I do like an underdog and these days TAO is certainly that.
Condor Energies (CDR.TO, last at $1.99)
Condor is one of my weirdest stories, but it has also been one of my best performers as I’ve been long good size since before the company finalized its gas production enhancement deal in Uzbekistan. The company reported production of 10,000 boepd of gas in Q2 with around $20 million of revenue for the quarter. Initial low-cost plans to increase gas production have already yielded positive results and the company has a lot of running room to expand production with a modest capital spend. Meanwhile, on the LNG front CDR is emerging as a regional player in Kazakh domestic LNG, which is a highly attractive diesel substitute in the country. CDR received a feedgas allocation from the government of Kazakhstan to support its LNG initiatives and the company plans to expand on that over time. For now Condor’s focus is on supplying LNG to the soon-to-be-upgraded Kazakh locomotive fleet, which is a nice piece of business for a player like CDR. This one isn’t for everyone, but if you like Central Asian energy investing, you need to know Condor.
Midnight Sun Mining (MMA.V, last at $0.455)
No change in my view here, but it should be getting very close to showtime in terms of drilling on 1) the company’s Dumbwa JV with KoBold and 2) the oxide drilling program on the lands just outside of First Quantum’s Kansanshi mine gate. I don’t have anything new to add relative to my last note on this one, so in the interest of not repeating myself, I’m just sticking with it. The copper price doesn’t influence my thinking on this one much, as success on either drilling program has the potential to re-rate the stock higher in due course. MMA is lightly followed but I expect that at some point the potential synergies with First Quantum will become apparent to a broader audience. For now, I wait.
Vizsla Silver (VZLA.V, last at $2.75)
With golds acting well, a guy like me needs a little silver in the mix and VZLA is it. VZLA is like the pre-production Mexico version of Aya Gold and Silver (AYA.TO, last at $15.97). I say that because both companies have defined resources of about 300 million ounces of silver equivalent at comparable grades and thicknesses. VZLA appears to be an outlier in terms of how cheap it is relative to its silver peers and the recently released PEA did nothing to change that view for me. I can’t say it better than the company said it, so I’m simply going to quote from the VZLA press release that discusses the results of the PEA, which I think says it all:
“An estimated after-tax NPV (5 per cent) of more than $1.1-billion (U.S.), an after-tax IRR of 85.7 per cent and a payback period of approximately nine months helps solidify Panuco as a world-class development project in the precious metals space,” commented Michael Konnert, president and chief executive officer. “The PEA, based on conservative metals prices of $26 (U.S.) per ounce silver and $1,975 (U.S.) per oz gold, outlines a high-margin, underground silver primary mine with substantial silver-gold production of 162.1 million silver equivalent ounces over an initial 11-year mine life. Annually, the mine is projected to produce an average of 15.2 million silver equivalent ounces, providing exceptional free cash flow, particularly in the early years, allowing for a very rapid payback of the estimated low initial capex of $224-million (U.S.). It’s important to note that this PEA represents only a snapshot of the potential value of Panuco, as we have only explored less than 30 per cent of the known targets in the district. Furthermore, ongoing drilling with two drill rigs continues to expand and convert high-grade veins in and around the proposed mine plan, enhancing the potential for improved economics in a feasibility study planned for the second half of 2025. Panuco benefits from excellent access to existing infrastructure, significant exploration upside potential to discover new mineralized centres and potentially new standalone projects hosting similar economics to that outlined in today’s study. As such, it’s becoming increasingly clear that Panuco will be a meaningful contributor to the silver industry for decades to come. I would like to thank everyone at Vizsla Silver, our stakeholders and community members for all the hard work over the years to reach this monumental milestone.”
Golds
With gold making new all-time highs, I have to own gold. My sense is that the trade isn’t crowded and with Newmont (NEM.US, last at $51.50, and NGT.TO, last at $70.00) not even close to its 5-year highs, I think there’s an opportunity here. I’m keeping my bigger gold positions focused on more liquid names at the moment. GDXJ.US (last at $48.18), K92 Mining KNT.TO, last at $7.75), and NEM/NGT dominate my gold exposure, with small positions in GTWO (last at $1.50), OGC (last at $3.65), GOT (last at $1.30), WRLG (last at $0.77), and AOT (last at $0.55) rounding it out. At this stage, most people don’t even know the relevant tickers in the gold space, so I’m not overthinking this. There’s no bull market like a gold bull market, so here’s hoping that this breakout is for real.
Technology
I have one real tech position and that’s POET Technologies (PTK.V, last at $4.25, and POET.US, last at $3.12). I am no tech specialist, that’s for sure, but POET has captured my imagination with their photonics platform. Photonics involves sending data around on chips with tiny lasers instead of tiny wires. More data, less energy usage, and smaller form factors are all benefits of photonics and apparently photonics is highly applicable to the artificial intelligence theme. Development deals with Foxconn Interconnect and Luxshare both raised my eyebrow and the share price, so I remain long just in case this is indeed one of the next-big-things in tech. Interest in POET has never been higher and I’m hopeful that this little company could have a big impact in terms of getting its photonics technology commercialized, which could translate into a big impact on its share price. We’ll see.
Easter Egg
The easter egg of today’s note is Tuktu Resources (TUK.V, last at $0.095). This is a microcap speculation on a potential new oil play in Alberta that is still very, very early days. An initial single frack and swab test showed encouraging results but a 30-day IP rate and some discussion of reservoir/pressure performance is needed. I mention it here as a total rank speculation, but for a dime, what else do you expect to get? The share structure isn’t great with a lot of 5-cent stock and 7.5-cent warrants out there, but if the play is a success, I think this could multi-bag. I will qualify that by also saying that I’m a fan of saying, “The most I can lose is 100%”, so keep that in mind because this could still go either way at this point.
That’s probably enough for today… as always, thanks for the continued interest.
Happy hunting.