Monthly rollup | November 2021
Stocks Mentioned: Credit Acceptance Corp (CACC), New Found Gold (NFG.V), Vizsla Silver (VZLA.V), Sabina Gold & Silver (SBB.TO), Skeena Resources (SKE.TO), Marathon Gold (MOZ.TO), Integra Gold (ITRG), Aurion Resources (AU.V) and Discovery Silver (DSV.V), Voyager Digital (VOYG.TO), Vizsla Resources (VZLA.V), Zim Integrated Shipping (ZIM), Gold Standard Ventures (GSV)
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November 11 2021
Sector and Trade Update
Note: The gains/losses mentioned on these trades were calculated during market hours on 10th November 2021.
CACC - Short entered at $601.75 on 9/15. This didn't go my way. The company reported blow out Q3 adjusted earnings of $13.84/share. According to management, collections have been very strong.
From the Q3 call: “But collections have been very strong, as you have seen in our last couple of releases. It doesn't really seem logical that those will continue forever. When they falloff, I think it's harder to predict. But I would expect at some point collections to go back to more normal levels.”
I covered my short on 10/4 at $599.93 and haven't re-entered. Shares are at $653 as I type, so if you haven't already, consider closing the short for a loss of 8.5%.
NFG.V - New Found Gold had a gap down on 11/5 after announcing that assays on its high-grade samples have to be revised. The company found a discrepancy in reported grades during a quality check and is working to sort out the issue. The stock is still overvalued and has more downside but I'm closing the position for AAO for a 40% gain.
I wrote up seven gold/silver explorers in the previous issue published Oct 1. As I wrote previously, my favourites among the gold/silver explorers, in that order: Vizsla Silver (VZLA.V), Sabina Gold & Silver (SBB.TO), Skeena Resources (SKE.TO), Marathon Gold (MOZ.TO), Integra Gold (ITRG), Aurion Resources (AU.V) and Discovery Silver (DSV.V).
VZLA.V (C$2.26 entry) - The company has been delivering as expected, with drilling expanding the size of their mineralised zone. The fundamentals are bullish and the stock is at ATHs. I'm holding. The valuation is getting a tad extreme, but I don't want to sell my winner too early just for that reason. Let's see what the next round of drill results do to improve the fundamentals. We are up 45% on this position in a little over a month.
SBB.TO (C$1.45 entry) - Fundamentals remain unchanged for this high-grade gold developer in the Nunavut. The metaphorical 'For Sale' sign is still hanging in front of the company HQ. With M&A activity starting to pick up in the gold space, I feel it is just a matter of time. We are up 17% on this position.
SKE.TO (C$12.52 entry) - I continue to see this as a low-risk trade in the gold exploration space. The company now has a NYSE listing under the ticker 'SKE'. Hochschild Mining continues earning into the company's Snip project and drill are turning at both Snip and Eskay Creek. We shouldn't lack for news flow as the company continues to advance both its properties. We are up 17% on this position.
MOZ.TO (C$3.06 entry) - The company had a bit of a setback due to permitting delays. The company previously put out a press release stating it expects to begin construction activities in early 2022 - a bit prematurely since it didn't even have all permits in hand. The permitting process is now delayed
as the Environmental Assessment Committee has requested additional information. The stock dropped on the news but has since clawed back to breakeven. We are at breakeven on this trade.
ITRG (US$2.29 entry) - The company is scheduled to publish a pre-feasibility study in Q4 this year. I still consider this a high-risk trade but the valuation is compelling. The 2019 PEA on its flagship asset highlights an NPV of US$534 million and IRR of 60% using a gold price of $1600. The company is now working on aggressively increasing its production profile, which should bring cash flow forward and translate into a higher NPV. The risk is that given this is a low grade deposit, inflation pressures make the numbers uneconomic. We are up 8% on this trade.
AU.V (C$0.69 entry, closed) - This trade didn't work out as expected. From the live page on Nov 5:
"Aurion Resources (AU.V) announced a brokered equity raise of up to C$10 million at 90 cents per share. Shares closed at $1.05 yesterday and are going to fall off a cliff at the open today. The financing includes an option to raise another $1.5 million on the same terms. That's a lot of dilution for a company with a market cap of $100 million. Aurion was always a long shot, and I've stayed interested since 2016 only cos I thought it had the potential to grow into a 10-bagger. Recently, management got their heads out of their asses and put out some bullish press releases, which made me think my patience was starting to pay off. Turns out, they were just pumping the stock in order to pull the rug underneath us.
I'm planning to hit the bid at the open today and close out my entire position, hopefully closer to $1.05 than 90 cents. This one just didn't work out."
I got out at just under a dollar for a small gain. The company upsized the private placement to C$13.5 million, with provision to go up to C$15 million, and then put out a bullish press release, which worked to hold the stock price up. I've seen this story before, and I remain unimpressed. Aurion needs to really convince me they have what it takes before I give them a third chance. We recorded a 45% gain on this trade.
DSV.V (C$1.26 entry) - The company published an updated mineral resource estimate of 956 million silver equivalent ounces, with a high grade subset of 509 million silver equivalent ounces in the Measured & Indicated category. In the previous AAO issue, I wrote: "With silver hitting 52-week lows, I consider this a bottom fish. I like it because it's cheap and the fundamentals for their project are great (and improving). Bottom fishing is an expensive pastime, but I'm happy to indulge when it comes to having a single bottom-fish pick in my entire portfolio."
The bottom-fishing paid off. We picked up shares close to the bottom and are now up 62% on this position.
PVG (US$1.01 entry) - I wrote this up as part of the "Five Trades for AAO" report which I posted on the AAO Live page on Sept 2. It was the only long trade in the gold space that made the cut, as I noticed the stock had made a flag pattern. On 11/8, the company received a takeover bid from Aussie producer Newcrest Mining. The consideration is either C$18.50 (US$14.86) in cash or 0.80847 Newcrest shares per Pretivm share, a 22.5% premium to PVG's last closing price. It looks like Newcrest shareholders like this deal. Usually, shares of acquiring companies fall on announcement of an acquisition, but in this case Newcrest shareholders appear to approve of the deal, premium and all. We are up 44% on this position so far, and I don't see much risk in holding on to see if there's a competing bid, or just wait for the merger arbs to lower the discount so we can squeeze out a few extra percent.
New pick: Gold Standard Ventures (GSV, US$0.5250 entry on 11/11) - The company has the second largest land package in the Carlin trend in Nevada (one of the most prolific areas to explore for gold) and its South Railroad project is sufficiently advanced. The company holds about 2.7 million gold ounces and a 2020 pre-feasibility study projects an after-tax NPV of US$505 million and IRR of 66% at $1800 gold. The initial capex is a modest $133 million. At current market cap of $190 million, the stock is attractively valued. Stock has been bottoming since August and broke out this week.
I wrote up a couple of bitcoin miners and an up-and-coming crypto exchange in the last issue. Timing-wise, this could not have been more fortuitous.
MARA (US$33.17 entry) - MARA reported production of 1252 bitcoin in Q3. The company is on-boarding third party miners to its mining pool and looks set to grow its hash rate to 13.3 EH/s. We are up a whopping 128% on this position!
I like adding to my winners but this is definitely not the time to be buying the stock. The company is trading at over 50 times estimated 2021 revenue and over 10 times book value. With growth stocks, the market tends to price in too much growth and too little growth based on... sentiment. We are definitely leaning towards the former, imo. I'm still long, but I will be watching the price action closely to decide on my next move. As always, I'll update the trade on the AAO Live group if I decide to take any action.
BITF (US$5.03 entry) - The company will report Q3 results on Monday, but has reported preliminary production of 343 bitcoin for October and 1050 bitcoin in Q3. The company's current hash rate is in excess of 1.8 EH/s. There's more growth on tap has the company has announced commencement of
construction of 4 new mining facilities. We are up 73% on this position. The company is still attractively valued, but I'd only buy now if I were prepared to use a wider than usual stop loss on this position.
VOYG.TO (C$12.98 entry) - The company just announced that it had surpassed 1 million funded accounts on its platform, a 23-fold increase from year end 2020 levels. Verified users crossed 2.7 million. This growth engine, run by E-trade veterans, has delivered as expected. This is a game of market share, not next quarter earnings. I'm not worried about the company's fiscal 2021 net loss of 39 cents per share - provided the company manages to grow users and assets on its platform.
We are up 86% on this position.
I still like, and hold, EURN, DHT, FRO, INSW, ASC, NAT and Hafnia (Oslo). I'll look to pick up more shares when the algos send shares lower on disappointing Q3 earnings results. I'm buying into a sector which I think has made a long-term bottom and has asymmetric upside. I'm patient, since I don't expect to have to hold through a V-shaped decline before the recovery begins in earnest. If you're looking for quick wins, this sector probably isn't for you. I plan to allocate 20% of my trading capital to this sector (I'm almost there already) and just sit on it.
The positive reaction to the earnings reports of Atlas (ATCO) and Matson (MATX) makes me bullish on Zim Integrated Shipping (ZIM) going into the company's earnings release on 17th.
As I noted on 11/5, I also like Global Ship Lease (GSL) which is in a slightly different part of the containership business.
From GSL website: "GSL is a containership owner, leasing ships to container shipping companies under industry-standard, fixed-rate time charters. We focus on mid-size Post-Panamax and smaller containerships, the workhorses of the global fleet, which tend to serve the faster-growing non-Mainlane and intra-regional trades collectively representing over 70% of global containerized trade volumes.
Our goal is to provide our liner operator customers with well-specified, operationally flexible, reliable, fuel-efficient, high-reefer capacity, low slot cost containerships to support their operations within the highly competitive global logistics industry.
We take a partnership approach with our customers, providing flexible chartering solutions which enable them to free up capital and management resources to focus on other strategic priorities.
As a containership owner, our business is both pro-cyclical - with chartered tonnage used as a growth platform by liner shipping companies, and counter-cyclical - with sale and lease-back structures used by liner companies as a balance sheet management tool.
Our investment model seeks to combine strong, longer-term contract cover with selective shorter-term exposure, providing a firm base with downside protection and forward visibility on cash flows, while also offering access to upside earnings potential in a highly cyclical market."
I don't pretend to know much about the fundamentals of their business or how their contracts are structured to provide upside to rising shipping costs, but I like the price action and am bullish on the containership sector. Jeffries upgraded their price target on GSL from $26 to $32 following Q3 earnings.
In the dry bulk space, I like Golden Ocean (GOGL). There is a lot of uncertainty to this business currently due to power shortages and ongoing crackdown on industry in China. We'll know what the fundamentals look like only when this blows over. For now, I am comfortable having a little exposure to dry bulk and this is my preferred way to do it.
No comments on Costamare (CMRE), but I'd like to point out that this is a stock I am always watching for opportunities for a quick trade.
I got out of uranium on 9/15 and since then, I've stayed out. Not because I wanted to be 'right' in timing my exit. It was simply time to get out and watch from the sidelines. Luckily for the bulls, the risks I outlined in that article linked above didn't come to pass.
I'm still staying out. URNM has posted a good return month to date, but so have most of the stocks I picked. Uranium isn't the only game in town. I'd rather be in all the other high quality positions I've mentioned here than stay stuck with a trade that has posted only a marginal gain while suffering steep drops. The URNM ETF closed at $98.37 on 9/15 and closed at $96.68 on 11/10, after dropping 24% along the way. That volatility is probably a blessing for a scalper, but that's not me, and I'm not losing any sleep over missing out on trading these moves.
I'll look to re-enter the uranium trade when the risk-reward is more appealing.
I like Knight-Swift Transportation (KNX) as my sole point of exposure to trucking and freight logistics. I was stopped out of this trade earlier and am looking to re-enter. I continue to hold Valero Energy (VLO), again as my sole point of exposure to the refining business. I consider these technical trades so I won't be providing any guidance on entry or exit.
November 05 2021
Aurion Resources (AU.V) announced a brokered equity raise of up to C$10 million at 90 cents per share. Shares closed at $1.05 yesterday and are going to fall off a cliff at the open today. The financing includes an option to raise another $1.5 million on the same terms. That's a lot of dilution for a company with a market cap of $100 million. Aurion was always a long shot, and I've stayed interested since 2016 only cos I thought it had the potential to grow into a 10-bagger. Recently, management got their heads out of their asses and put out some bullish press releases, which made me think my patience was starting to pay off. Turns out, they were just pumping the stock in order to pull the rug underneath us.
I'm planning to hit the bid at the open today and close out my entire position, hopefully closer to $1.05 than 90 cents. This one just didn't work out.
New Found Gold (NFG.V) dropped 21.8% today. The stock is still ridiculously overvalued at C$7.25 and has further room to go down. The company made a mistake by listing in the US, makes it easier to borrow and short. I'm not at my desk but I think the short entry point in the AAO June issue was around C$12.38.
Meanwhile, Aurion upsized its PP to C$13.5 million, with provision to go up to C$15 million. I managed to exit between 1.02 and 98 cents in the first minute of trading.
Vizsla Resources (VZLA.V) is on fire with news that drilling has expanded the size of their mineralised zone. The fundamentals are bullish and the stock is at ATHs. I'm holding. The valuation is getting a tad extreme, but I don't want to sell my winner too early just for that reason. Let's see what the next round of drill results do to improve the fundamentals.
Bargains in shipping: ZIM, EURN, FRO, GSL and GOGL. I'd use technical stops. My read is that this is just a correction in a fundamentally strong sector, but I've been away from the market for a while so I'm not sure if something happened to change the fundamentals. I think ZIM has the most near term upside (check out how fellow container shipper MATX performed following the Q3 earnings release) among all these names.
November 09 2021
Pretivm Resources (PVG) received a takeover bid last night from Aussie producer Newcrest Mining. The consideration is either C$18.50 (US$14.86) in cash or 0.80847 Newcrest shares per Pretivm share. That's a 48.4% return in a little over 2 months from our entry. I'd opt for the cash, or just sell and deploy the proceeds elsewhere and let the merger arbs squeeze out the last few %.
November 11 2021
Took a small position in Gold Standard Ventures (GSV) today. The company has the second largest land package in the Carlin trend in Nevada (one of the most prolific areas to explore for gold) and its South Railroad project is sufficiently advanced. The company holds about 2.7 million gold ounces and a 2020 pre-feasibility study projects an after-tax NPV of US$505 million and IRR of 66% at $1800 gold. The initial capex is a modest $133 million. At current market cap of $190 million, the stock is attractively valued. Stock has been bottoming since August and broke out this week.
November 12 2021
November 16 2021
Voyager Digital (TSX:VOYG) grew AUM from $2.6 billion in Q2 to $4.3 billion in Q3 to $7 billion at present. The volatility we're seeing in crypto should be good for growing its user base, but the broader rout in the crypto equities should hit Voyager shares as well. Still, I'd rather sell Bitfarms, MARA and VOYG in that order. I'm not in any hurry to sell but will be waiting for the rebound to trim my exposure.
This Rogers interview is from 2012, but the title is apt. Only, he should have added that ag futures traders are going to be driving Lambos too, lol.
ZIM reports earnings tomorrow. Other containership companies have responded to earnings surprises (up and down), which makes me think ZIM shares will take a leap tomorrow. It goes without saying that I'm expecting a blowout result. The company has guided 2021 earnings before interest and taxes of $4.2 billion (Market cap: $5.7 billion). The China FUD may drive iron ore, coal and dry bulk shipping lower, but as long as consumer demand in the US is healthy and port congestion doesn't get solved, freight rates should remain strong. I expect the market will feel the same way, so I have put on a separate long trade just to play the earnings.
November 17 2021
ZIM earnings blew all previous records. Q3 net income of $1.46 billion or $12.16 per diluted share, compared to $1.36 per share in Q3 2020. The company also declared $2.5 in quarterly dividends. 2021 Guidance increased to between $6.2 Billion and $6.4 Billion of Adjusted EBITDA and between $5.4 Billion to $5.6 Billion of adjusted EBIT. Let's fucking go!
I plan to close the ZIM earnings trade around market open. I'll continue to hold on to my core position and follow the company for AAO.
Crypto stocks update: MARA is under SEC investigation. I'd rather not wait around, especially as the company hid the news in its 10-Q instead of issuing a press release on it. Time to hit the bid and book the (lesser) win. The sell-off in all things crypto is also my cue to exit BITF and VYGR. I'm not in any particular hurry with those two stocks, but will be exiting over the course of this week. Today's closing prices will mark the official trade exit for all 3 stocks for AAO.
November 18 2021
November 19 2021
Stop hit on VLO. Not sure why, but exiting anyway. Not my best trade but at least I managed to collect a 98 cent dividend along the way.
November 24 2021
GOGL (dry bulk shipper) up 11% today on announcing Q3 earnings of 97 cents per share and declaring a 85 cent dividend. The dividend alone is 10% of the current share price. The company has used this strong market and locked in rates for over 30% of its fleet for Q1 2022. Overlooking the China FUD appears to have been the right trade.
November 29 2021
We are long Ardmore Shipping and Hafnia, two companies which are already benefiting from rise in demand for chemical tankers.
November 30 2021
I'm working on a write up on my top pick in the shipping space, but today's price action made me decide to put it out (good entry) rather than spend time fine tuning.
Zim Integrated Shipping (ZIM) aims to be the Uber/Airbnb of the shipping space. The company owns (almost) no vessels, instead securing its fleet through long-term charters. Founded in Israel in 1945, the company has been around for a long time, but became investable only this year following an IPO pricing shares at $15.
Its business model is simple: identify profitable trade routes, book freight along those routes, and position its fleet to maximize profit. In good times, the company will charter-in (lease from ship owners) more vessels and service the additional demand, as it is currently doing. In lean times, it can let the leases roll off and scale down its fleet - a luxury ship owners don't have since scaling down for them would imply selling/scrapping vessels in a down market with declining rates. Thus, Zim's business has downside protection from shipping cyclicality.
But what I'm interested in is the upside in the current environment (see attached spreadsheet).
Company reported a blow out YTD EPS of $25.07 and closed on Friday at $53.34 ($54.7 as I hit send). Assuming status quo rates (scenario 1), with the company carrying 3.5 million TEUs per annum, stock trades at a PE of 1.29.
Perhaps that's too ambitious. If rates stabilize lower (scenario 2) and the company experiences margin compression, the PE rises to 3.01.
To get a forward PE of 15 using the current market cap, revenue and net income would have to drop drastically from current levels. The implied assumption of freight rates per TEU is beyond ridiculous and not in sync with reality.
Limited downside. Explosive upside of a growth stock, with cash flows and dividends to boot. The company will distribute $2.5 in dividends (from Q3 earnings) on December 27, and expects to declare dividends amounting to 30-50% of 2021 net income, which implies another significant dividend in 2022. Oh, and the company also distributed a $2 special dividend in August.
There's no reason it cannot double or triple from here within a year as we head towards stagflation and inventory re-stocking becomes more important, further driving volumes and rates higher. Another catalyst is upcoming regulations which will force ships to "slow steam", or cut speed in order to reduce emissions. That's effectively taking supply off the market, in turn driving shipping costs higher.
This content was originally published as part of Against All Odds Research.