In my opinion, the best method for a CEO to make shareholders richer is to be good at wheeling and dealing. CEOs like Brian Dalton and Kevin Mcarthur (Tahoe and ex-Goldcorp CEO) are very good at valuing assets and structuring deals. These CEOs are good at shuffling paper around and making deals in a way that more wealth accrues to their shareholders. They look for undervalued assets and sell shares/assets when they are overpriced.
In 2013, Altisource was the best performing long position in my portfolio. In 2014, I unfortunately made it the largest position in my portfolio. Because of that, I am badly lagging the market.
In general, I think that the underwriters are the sharks and investors are the fish. As I have written elsewhere on this blog, too much of the industry is focused on mining investors rather than mining ore.
Here’s my interpretation of Alderon’s June 30, 2014 press release (PDF) issued today. The key piece of material information is sandwiched between two slices of public relations spin:
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”.
Sometimes I will search a company’s website to see what PDF files and other files they have uploaded onto the website (e.g. use Google to search “filetype:pdf site:JuniorMiningCompany.com”). Junior mining companies often repost analyst reports, presumably for stock promotion purposes. It so happens that I did not bother to do this until after I closed my Altius Minerals position at a large profit. Had I figured this out earlier, I’m not so sure I would have invested in Altius.
Here’s the press release. I am very surprised that Altius chose to do a secondary offering of shares. Management initially said that they would sell convertible debt.
In general, secondary offerings scare me. Selling shares is an extremely expensive way of raising capital:
Secondary offerings are generally a sign that management (A) is stupid or (B) believes that the stock is overvalued. Brian Dalton has a track record of selling high and buying low so it is almost certainly the latter. Perhaps I should have noticed the overvaluation earlier; my process may have been flawed.
