mining

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Turquoise Hill Resources (TRQ): It’s about what they are NOT saying

(This is not an actionable idea.)

Virtually all of Turquoise Hill’s value lies in its flagship project, Oyu Tolgoi.  The company has poured several billion dollars in it and the mine is currently ramping up to commercial production.  I have serious doubts about the project’s economics.

Normally, before you spend billions of dollars building out a mine, you would perform a feasibility study and release it to your investors who are putting up the billions of dollars needed to finance the mine.  I could not easily find a feasibility study on the company’s website.  (I believe there is a 2009 feasibility study filed on SEDAR somewhere.)  This is a massive red flag.  It suggests to me that the mine’s economics are so awful that the company doesn’t want its shareholders to know the truth.

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Why Selwyn is two-faced

On March 3, 2014 Selwyn issued a press release stating that it is “currently exploring options for financing the Company, with a view to restarting the ScoZinc operation in Nova Scotia, Canada”.  (You’ll have to find this press release on SEDAR because it’s not the company website.)  A few months before that in December, Selwyn returned millions of dollars of cash to shareholders that could have been used to finance such a mine.  On the surface, it looks like Selwyn management is inept.  IKN has colorful commentary as always, even though I disagree. Continue reading →

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Cliffs: I’m impressed by the new CEO

In the past, I have repeatedly criticized Cliffs as the company has done a lot of things that it should not have done.  The new CEO (Gary Halverson) is here and he is cleaning house.

  • The Ring of Fire chromite mine is cancelled and halted “indefinitely” (Nov 2013).  This is smart because the project isn’t close to being economic.
  • Phase II of the Bloom Lake expansion has been put on hold “indefinitely” (Feb 11 2014).  This is smart because the expansion project is risky and very marginal.
  • Halverson is willing to talk to activist shareholders.
  • Halverson strikes me as open and honest with shareholders.

If I was any good at predicting commodity prices, I would seriously investigate a long position in Cliffs.  Unfortunately I am terrible at predicting commodity prices.

*Disclosure:  No position in CLF.

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Contango Ore: A promising deposit

This illiquid $35M exploration company is very difficult to value but could be worth up to $75-235M.

Contango Ore has issued a press release announcing (A) its initial resource estimate and (B) the engagement of a “strategic advisor”.  The CEO, Brad Juneau, has stated: “We feel we have reached the stage of proving sufficient known resources and defined upside to attract a buyer for the Company.”

I’ll start with the resource estimate.

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Selwyn Resources: Closed my position

I closed my position at $1.74-$1.9.  I think that Selwyn’s current valuation is reasonable given that:

  1. Selwyn burned through a few million of cash in overhead, legal fees (Selwyn paid Samara Capital and RCF’s legal bills), and severance to the CEO and other employees.
  2. The mine did not find a buyer (yet) and has been put on care and maintenance.  If it has been mothballed, it means that the mine is not economic.  If the company has been trying to sell the mine (which it probably has been) and hasn’t found a buyer, it probably means that the market for the asset is weak.

The stock closed at $2.12 yesterday.I would say that this trade worked out fine.  If you had bought at $8 and sold at $1.74, you would have made a low-risk 9.25% return after the $7 dividend (all figures split-adjusted).