• Kashyap Sriram

Monthly rollup | June 2021

Stocks Mentioned: Corvus Gold (KOR, TSX:KOR), New Found Gold (NFG), Tellurian (TELL), Euronav (EURN), DHT Holdings (DHT)


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June 01 2021


Corvus Gold (KOR, TSX:KOR)


High probability of receiving a takeover offer from Anglogold Ashanti (AU) by August 6 Website: http://www.corvusgold.com/


Corvus is an explorer with two properties in Nevada – North Bullfrog and Mother Lode. North Bullfrog has an October 2020 PEA with numbers showing an after-tax NPV (5%) of $905 million and after-tax IRR of 75% at $2000 gold, on initial capex of $167 million. The Mother Lode project has an October 2020 PEA showing an after-tax NPV (5%) of $751 million and after-tax IRR of 46% at $2000 gold, on initial capex of $406 million.



Both projects have their merits but the real value is in a small strip of land Corvus owns, called the Lynnda strip, which straddles Anglo’s Silicon project and Coeur’s C-Horst project. All three companies are actively drilling the area and it is looking like a near certainty that the mineralization at Lynnda strip will boost the economics of both these majors’ projects.



On May 6, Anglo made its move. Anglo advanced Corvus $20 million as a loan, and in return was granted an exclusivity period of 90 days in which Corvus would not engage in any other M&A or asset sale discussions. Following this, Corvus published a batch of drill results, with the highlight hole at Lynnda strip assaying 0.82 g/t Au over 185m, including 3.4 g/t Au over 14.6m.


Corvus is definitely pricey for a junior, but it is also low risk, moderate reward investment right now as we don’t have to wait long for the takeover offer. The risk is that shares are correct if Anglo doesn’t bite, but we are looking at a 30-40% takeover premium so it is well worth taking that risk. Plus, there's the chance of an offer from Coeur which should put a floor under the shares if the Anglo offer doesn't materialize.


New Found Gold (TSXV:NFG)


Stock is a short with >50% expected downside

Website: https://newfoundgold.ca/


Every once in a while a stock chart defies gravity as the market falls for a story. New Found Gold is one such story. The company holds a 1500 square km land package in the Newfoundland province and is reporting spectacular drill results from the Queensway gold project. Since the IPO last August, the company has had no trouble grabbing market attention. The founder Collin Kettell runs the popular podcast Palisades Radio and is well connected within the resource industry. Billionaire Eric Sprott owns 19%. Rob McEwen of Goldcorp fame and founder of the eponymous McEwen Mining is a shareholder with a 7% stake. Quinton Hennigh is a director and Novo Resources is a shareholder with a 10% stake.


The shareholding pattern is one reason the stock has shot up so much. The float is only 21%. But the current market cap of C$1.9 billion is not just excessive - it is unheard of for a junior at NFG's stage of development. Investors are basing this valuation purely on the merit of the people involved in this story and the drill results reported thus far. There isn't even a resource estimate or any metallurgical test work done.


Development stage assets, with a mineral resource estimate or perhaps a PEA could potentially command such a lofty valuation, although that is also extremely rare. The only such example that comes to mind is De Grey Mining (ASX:DEG), with a resource estimate of 2.2 million gold ounces (of which 1.1 million is in the Inferred category) and current market cap of A$2 billion.


The closest comparison to NFG is explorers like Great Bear Resources (TSXV:GBR), Rupert Resources (TSXV:RUP) and Wallbridge Mining (TSX:WM) which have flirted with a C$1 billion market cap - again with no resource estimate - but no higher. Tudor Gold (TSXV:TUD) with its 27.3 million gold equivalent ounce Treaty Creek project has a current market cap of C$467 million.


New Found Gold is not worth more than C$500 million in my opinion. And even that's pushing it.


IBKR shows the shares are shortable. You may have trouble locating shares and the fee rate shown is 12.58%. And the float is small (21% of shares outstanding).


But trees don't grow to the sky. All it would take is a little selling pressure, perhaps triggered by one of the institutional investors or the all-star cast of individual shareholders, and the stock should drop like a stone. The money is made by going short now and awaiting that event, even if it takes a couple of attempts at this trade before it works.


Time to revisit the oil tanker trade?


I gave a presentation on the Oil Tanker industry at the TDV conference last July. I have uploaded my presentation here.


And the voice recording here.


The trade didn't work out as I expected last year. Oil demand failed to recover even as ships were freed from the storage trade. The last quarter is seasonally strong for the tankers earnings wise, but it was not so last year. The surge in earnings witnessed in the first half of 2020 didn't carry over to the second half.


The market is always forward-looking, and I think the strong price action in the tanker stocks this year is telling us that the fundamentals are about to improve. I am still thinking it over but I am partial to a small allocation to Euronav (EURN) and DHT Holdings (DHT) at current prices.


June 04 2021


Some perspective for those worried about the price action in gold and silver yesterday. The HUI, a benchmark index for the gold miners, was down 3.6% yesterday while my concentrated gold exploration/mining portfolio was down only 0.35%. That didn't happen because I hold something countercyclical. The kind of stocks I own aren't held by generalist investors and traders reacting to a headline, and that's because of where we are in the cycle, sentiment-wise. No one has fomo'd into this space since the August 2020 peak, even though gold has remained in an uptrend. You can bet that if gold was in a downtrend, with the exposure I have, I'd have been down 10-15% for the day easily.


From Peter Boockvar, who does a good job making sense of employment data:


"Net payrolls grew in May by 559k, below the estimate of 675k. The private sector contributed 492k of this vs the estimate of 610k. Construction hiring fell by 20k while Manufacturers added 23k after losing 32k last month. Bottom line, after losing 22.4mm jobs last March and April, the economy has added back 14.8mm. So while we’re still 7.6mm below where we were, it is becoming crystal clear that the main problem with the labor market right now is the supply side and we’re seeing higher wages in response to encourage people back."


Tellurian (TELL) broke out on massive volumes after signing a $12 billion deal with Vitol for LNG exports. The company is developing the Driftwood LNG terminal in Louisiana, and will carry its own nat gas produced from the Haynesville basin through a pipeline, to be liquefied and exported out. It's a pure play on the nat gas sector. I'm not buying it, just bringing it up as something to watch out for.


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This content was originally published as part of Against All Odds Research.



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