Tracking John Malone (Part 2)

Where I think Malone thinks the media industry is headed

“I think it’s at a point in history when the most addictive thing in the communications world is high-speed connectivity,” he said. “Everywhere in the world that we operate, we’ve just seen the public want more and more data rate. Whether it’s wireless or wired. There’s a big appetite for it. Cable technology right now is the most cost-effective way to deliver that growth in speed.”
– John Malone, CNBC interview (http://www.cnbc.com/id/100637283)

Tracking John Malone (Part 1)

I think that John Malone is one of the best CEOs and capital allocators out there.  Here’s what he does and why he’s good.

Selwyn: Possible $0.10 dividend on a $0.08 stock

The short story is this.  Selwyn Resources recently announced a deal to sell its flagship deposit for $50M.  After paying off its debt, it should be able to distribute $40M to shareholders (or around $0.10/share).  Most of Selwyn’s shareholders now seem to be in favour of the dividend.  It seems likely to me that Harlan Meade will eventually get kicked out (though this is not a sure thing).

Here’s RCF’s position on it:

http://www.newswire.ca/en/story/1150743/rcf-comments-on-events-at-shareholders-meeting-of-selwyn-resources-ltd

*Disclosure:  I own… 1 share of Selwyn.  I may buy Selwyn shares in the future if my orders get filled.

Issues with mining stocks

I think that institutional investors generally don’t know what they’re doing when it comes to mining stocks.  If they were smarter, many problems with mining stocks wouldn’t be so widespread.

Dollar stores and Dollar Tree (DLTR)

Dollar Tree is a quickly growing retailer with a P/E around 18 and revenue growth in the ballpark of 17%/year.  I don’t think it’s that cheap right now but it’s on my radar since it is a quality business with very high returns on capital.

Senvest Capital (SEC.TO) – good business trading below liquidation value (illiquid)

I found out about this company from Oddball Stocks, which is a great blog with a great writeup on Senvest.  It trades at a ~31% discount to book value.

Valuing mining assets

The big picture is this:

1. Mining projects in the earliest stages of development are the most difficult to value.  As more and more drillholes are sunk into a property, we know more and more about the size and the nature of the deposit.
2. When senior miners invest in a project, they will have (A) access to engineering data and (B) a team of specialized engineers.  Institutional and retail investors virtually never do this level of due diligence.
3. In general, mining assets are very difficult to value precisely or accurately.  Mining professionals will often come to different conclusions about the same property.

Mining: what companies are actually saying

#1- Our gold production is going to go up over the next few years

Translation:  We are going to waste money on dumb projects and we still won’t be able to increase production.

The conventional wisdom is that miners have to re-invest their capital to maintain or increase production.  This is idiotic.  If you will get poor returns on new mines, then don’t build them.  There is no rule in capitalism that says that you have to throw away money.

What happened in the gold industry is that the seniors chased dumb projects and didn’t make as much money as they should have in a bull market.  And because the economics of the new mines were bad, they didn’t even manage to increase ounces produced per share.  In hindsight, gold miners should have returned capital to shareholders and let production drop instead of chasing dumb projects.

#2- We have initiatives underway that will decrease production costs

Selwyn Resources: Post Mortem

Previously I wrote that:

1. Resource Capital would be trying to liquidate its position.
2. The Yukon project probably isn’t worth that much.

It looks like I was right on the first count as Resource Capital sold in the ballpark of 2 million shares.  I was kind of wrong on the second count.

Pinetree Capital (PNP) – Cigar butt situation

Pinetree trades on the Toronto Stock Exchange at around $0.51/share.

Pinetree says that its “net asset value” is around $1.28/share or less as it publishes a NAV calcualtion every month.  This is a big, big discount to NAV.

It’s also in a terrible business and has bad management.  It definitely qualifies as a cigar butt.