Anybody who believes this slide deserves to lose money in junior mining

Here’s the slide:

BBA did technical report work for Bloom Lake.  Note the big discrepancy between Bloom Lake’s current operating costs and what the technical reports estimated.

BBA did technical report for Kami.  Hmm I guess Alderon’s management failed to mention this in their presentation.  Other slides in the presentation also fail to mention the sulfur and manganese levels in the Kami deposit.

*Disclosure:  No position in Alderon or Altius Minerals (key Altius employees sit on Alderon’s board of directors).  There may be some value in Kami.  However, I think that projections about Kami’s economics are “overly optimistic”.

Advertisements

How the SEC should reform market structure

1. Stop giving broker-dealers (and by extension, market makers) special trading advantages over institutional and retail investors.  There is no reason why broker-dealers should be able to price in sub-penny increments while investors cannot.  It’s bullshit.
2. Tighten spreads.  Historically, this has been the biggest reason why trading costs have gone down for investors.  However, the SEC should be careful not to make spreads too narrow to preempt the “shaving” trading strategy.  Shaving is basically a strategy where you bid one penny more (on 100 shares) to stand in front of the line.  It currently exists as market makers can jump in front of any order by bidding an additional penny on 100 shares (e.g. sub-penny front running).
3. Ban retail brokerages from taking kickbacks via payment for order flow.  Doing this would force retail brokerages to raise their rates to compensate for lost revenue from selling out their customers.  It may put an end to the “free” trades offered by some brokers.  This move might have bad optics politically but it would be the right thing to do.  This move would devastate the order internalization industry, which would have no reason to exist.
4. Ban exchanges from giving special trading advantages to market makers.  (This stuff gets really complicated because there are so many trading advantages and because many of them are subtle.)  Of course the market makers would claim that they provide “liquidity” and are performing a valuable service for the markets.  They will claim that they need incentives to provide liquidity.

While the steps above won’t get rid of all the market abuses, they would dramatically reduce trading costs for investors.

The chance of this happening is almost zero.  The SEC gave special trading advantages to broker-dealers.  It played a role in creating the sub-penny front running game.  Currently, the SEC seems like it wants to confuse and mislead the investing public.  You can read their Twitter feed and the articles on their website (e.g. “research” that totally misses the point and this speech where a staff member pretends that complexity is a good thing).

In the past, I would blindly assume that regulators are the “good guys”.  Nowadays, I am disappointed in myself for being naive.  The reality is that the human beings who work at the SEC sometimes do the right thing and sometimes do not.

Unbuilt mines with planned expansions

It is a red flag when a development-stage mining company makes plans for a mine with expansion stages.  Why?  There is one mine size that maximizes the net present value (NPV) of the deposit.  Usually this size results in a mine life of 6-15 years.  A bigger mine exploits the resource faster, making the future revenues happen earlier.  Because there is a time value to money, mining faster increases the present value of the future cash flows.  A larger mine also enjoys economies of scale that lower operating costs.  Of course, all of this has to be balanced against the capital costs of a bigger mine.  Underground mines tend to have higher capital costs so they tend to be designed with longer lives.  Open pit mines tend to have low capital costs so they tend to be designed with short lives.

If the estimated mine life is over 20 years, then there is probably something fishy going on.  Usually, it would make more sense to build a bigger mine with a shorter life.

Jury trials are bad for shareholders

I’m not a lawyer so please take what I say with a grain of salt.  But here’s what I understand about the US legal system.

I will no longer say what I truly think about potentially fraudulent companies

Regulators everywhere (not just Canada) seem to have a history of going after those who expose fraud.  I need to be more careful (e.g. apparently Canadian libel laws suck).  So from now on, I won’t be so explicit.

I am disgusted by the BCSC

On December 19, the British Columbia Securities Commission issued a press release titled “Securities regulator alleges fraud against Silvercorp short-seller” that links to a notice of hearing.  In my opinion, the notice of hearing unfairly smears Jon Richard Carnes of Alfred Little.  Secondly, I believe that the claims against him are extremely weak.

Pretium: The bullshit engineering continues

Today, Pretium issued a press release: Pretium Resources Inc.: Mineral Resource Estimate Adds Measured Gold Resources, Increases Grade at Valley of the Kings

Basically, Snowden is pretty much going to stick with its aggressive approach in modeling the VOK deposit.

The press release also contains some information aimed at invalidating Strathcona’s competing theory about how the resource should be modeled.