2023 Portfolio Review
Let's see how I did last year
In this issue:
What worked in 2023
Closed trades
Open positions
It’s that time where folks post their return for the last 12 months. I don’t see the point personally. Professional money managers have to report back to LPs, retail investors can be more patient and disciplined about waiting for the inflections that send stock prices parabolic. I prefer looking at the annualized IRR of an investment after I sell as an indication of my performance instead of an arbitrary window. For example, anyone who held and accumulated Filo Mining through 2018, 2019 and 2020 can probably live with the underperformance on any one-year timeframe given how 2021, 2022 and 2023 turned out.
Besides, my annual returns would only tell you that I’ve spent almost all of my professional life working at BCE, Rogers and Power Corporation hoovering up cheap employee stock and reinvesting dividends.
How I approached 2023
My portfolio at the beginning of the year was bloated. I spent 2023 consolidating, high grading and trying to be a more active trader to take advantage of temporary dislocations. The wins took care of themselves, my best decisions involved avoiding drawdowns.
Selling my cash-strapped developers before the bottom fell out
Taking profits and exiting oil and gas before the bottom fell out
Avoiding Lithium, avoiding First Quantum and generally avoiding any falling knife where I didn’t have an edge or differentiated view.
Closed Trades
Uranium
Global Atomic (GLO.TO)
A 25-percent gain after a hold period of a few months. This was a trade based on the overreaction to the military coup in Niger. ECOWAS was never going to invade and the US isn’t in the habit of freezing itself out of markets that provide strategic materials. Assuming the cost overruns at Dasa aren’t too bad there’s probably money to be made here for those still long.
Cameco call options (CCJ)
Hold period of just over two years for what started as out-of-the-money call options. I sold these in June as they were coming up to expiry. 900%+ gain on a hold period of 25 months.
Exiting Oil and Gas before the price collapse
The idea of oil above $100/barrel - with no supply increase, no demand response and no permanent impairment of Russian production - never seemed plausible to me. I am not an expert on global oil markets and I have no desire to learn, so I decided to take my money off the table early.
I took losses on my distressed gas stocks: PHX Minerals and Pieradae. I also sold small positions in Mongolia Growth Corp. (loss), Prospera Energy (loss) and Source Rock Royalties (gain) that essentially balanced each other out. However, I exited Energy Transfer Trust, Permian Basin Trust, PetroBras, PetroBras options, EcoPetrol options, Range Resources options, Spartan Delta and finally MEG Energy for gains ranging from 30 percent to 350 percent.
The range of outcomes is why I prefer holding a basket when dealing with the volatility of oil and gas prices. It’s harder to take risks on distressed balance sheets when you’re only holding 2-3 names.
Building Mines is a tough business
This is not a market to own any junior miner that needs cash and taking losses on Athabasca Minerals and Altiplano Metals was the right call, even if I waited too long.
Athabasca Minerals had incinerated 40 percent of my investment by the time I saw management wasn’t going to turn the business around. Most investors don’t look at filings, as it was clear from Altiplano Metals’ MD&A they were going to run out of money before Farellon was feeding ore to a fully functional El Penon mill. I consider myself lucky to have exited with only a 30 percent loss.
Altiplano has since run a series of keep-the-lights-on placements with warrants attached that have destroyed the equity value. Athabasca finally ran out of money and filed for CCAA protection late last year.
Special Situations
The consistent stupidity of the mining industry provided some easy set ups.
Electra Battery Metals (ELBM.TO)
Went short for a 33% gain in a matter of weeks. Red Cloud pumped Electra stock like a fluffer on a porn set before ramming through a brutal financing with no hold period and a full warrant. My only regret is covering too early. ELBM requires another $50-million to get its black mass recycling plant built, so it is toast. There’s no equity value left and ELBM probably finishes 2024 below 20 cents, assuming it isn’t taken out at a huge discount. I won’t be shorting individual juniors anymore. It’s too much work to pick up pennies.
SILJ rebalance trade via Sailfish Royalties (FISH.V)
Putting a bunch of illiquid juniors into a liquid ETF leads to brutal price movements when the components are rebalanced at the end of the quarter. I rode the volatility via Sailfish Royalty and walked away with a 15% gain after a hold period of less than a month. This trade wasn’t executed well. I left money on the table as Sailfish paid a dividend and kept running past $1 after I sold. I turned a 40 percent gain into 15 percent.
This setup seems repeatable. I need to do more research on how this particular ETF rebalances and pick a better component as my trading instrument.
Newcrest Mining sells out to Newmont
I didn’t even bother with the short Newmont part of the trade. I went straight long Newcrest in late February - using margin to really size up the position - and sold in late April for a 32% gain. Newmont paid full price for the desicated remains of Goldcorp. It never seemed likely they would walk away from their Newcrest bid once it was in motion.
Wins that weren’t wins
I exited Teck Resources around $52 after the announced sale of Elk Valley Coal. I’ve held Teck since 2017 with an average cost base of just above $18. A big win? Yes. But this could have been so much more if Teck understood what their coal business was actually worth (I was expecting to sell for $75/share based on the assumption management would sell the entire business to Glencore). It’s even more painful because I sold Warrior Met Coal for $19 in 2021 and held onto Teck as my preferred coal play.
Spark Power was a 120-percent gain in less than six months. It was taken private in December for 82.5 cents and I had made this a big position with a cost basis in the high 30-cent range. After reading the deal documents, it’s clear management wasn’t executing and wasn’t going to be able to pay off the company’s debt without significant dilution. The takeover was a bailout.
I sold Genesis Land Development early in the year for a 16-percent gain. I had bought most of my large position in the Calgary-based home builder during a November 2021 rights offering. Considering how large this position was and how long I held Genesis, I’d have been better off putting my money in an index fund or keeping the cash in reserve for better opportunities.
I did a general clean up of my portfolio and sold smaller positions like Algoma Steel, Cipher Pharmaceuticals, Enwave, two Chilean banks and ScotiaBank. I made about nine percent after the receipts were tallied, but this was bad portfolio bloat and I never should have bought these positions. The subsequent surge in Cipher in particular tells me I didn’t have a good enough understanding of what I owned.
Bad management teams
The lesson about avoiding bad management teams in the mining industry is something I seem to have to keep learning every few years.
Metals X management seems intent on not returning cash to shareholders and making sketchy investments in related party mining ventures. I took the 25-percent loss and shifted to Alphamin, with its 7 percent dividend and tier one deposit, as my preferred tin play.
In my defence, I only owned Sandstorm Gold Royalties because Nomad Royalties was bought out with SSL paper. I consider myself lucky to have exited with a loss of less than 20 percent. The long-term track record is there for everyone to see: Nolan Watson and team are bad capital allocators.
Taxes Deferred
Amerigo, Bancolombia and Grupo Aval were sold this week for total returns of between 20 and 75 percent. I will probably regret selling Bancolombia before it hits $50, but I suspect I may have top ticked the other two.
Open Positions
I’ve bundled these by theme.
North American re-shoring and US infrastructure buildout
AtkinsRealis: Common and 2025 calls
Quarterhill
Centrus
EWW: Common + OTM 2025/2026 calls
I acquired some call options on the iShares Mexico ETF that performed so well I’ve bought the common and added more long-dated contracts. This will be a core position. SNC-Lavalin changed its name to AtkinsRealis during the year to get away from its scandal-ridden past. I acquired most of this position in the low $30-range and expect it to be in the portfolio for years. As lump sum turn key projects come off its books, investors will realize this company is going to make billions of dollars servicing nuclear and infrastructure needs.
Midwest Energy Emissions
MEEC is a special situation investment based on the upcoming settlement of a patent infringement lawsuit. This is a classic Pabrai setup: there’s high uncertainty but low risk. The current market cap is approximately $85-million USD. A settlement of $50 million or less and the shares are probably fairly valued to slightly overvalued. But a settlement in the $100-$200 million range is well above the current market cap. The defendants that have already settled are now giving the company earnings and cash flow via licensing agreements. There’s a range of outcomes here, but none of them involve losing a large amount of my investment.
Crypto capital flows via spot ETF approval
Iris Energy
Ether Capital
Galaxy Ethereum ETF
Filecoin
The perception of bitcoin as high beta equity is overly simplistic and the cryptocurrency market isn’t going anywhere. Recent SEC applications for a spot bitcoin ETF will eventually be approved - and with them another avenue for institutional crypto allocation. Iris Energy is a bitcoin miner with hidden assets. Its custom-built data centres and power purchase contracts will allow IREN to seamlessly pivot to servicing the AI market after it’s done harvesting outsize profits from bitcoin. Ether Capital has been a frustrating investment. It may require an activist approach if Som Seif won’t do the right thing and convert the company to a staking ETF so it can eventually trade closer to its $16 fair value.
Commodities
Filo
Salazar Resources
Alphamin
Kazatomprom
Vulcan Minerals
Ecora Resources
Altius Minerals
Elemental Altus
Minera Alamos
CVR Partners
Chibougamau Independent Mines
I don’t want to own any mining stock that has to raise capital right now. I feel like I have a good mix of best-in-class assets and stocks with significant asset value and a defined catalyst the market doesn’t believe in. A new government in Ecuador is moving the permitting process forward at El Domo, while Ross Beaty’s involvement with Adventus means financing construction is no longer a concern either. It all adds up to Salazar Resource’s free carry on the project eventually becoming incredibly valuable in relation to its $10-million market cap. Minera Alamos is another coiled spring, a self-funding gold developer that should come out of permit purgatory in 2024.
Other Stocks
EWJ: Common + OTM 2026 calls
Elanco: 2025 + 2026 OTM call options
Kaspi
Sun Communities
I owned Elanco Animal Health but sold for a 20-percent gain in December. I’ve decided to limit my exposure to options because of the debt pile and future revenue mix skewing towards livestock rather than pets.
Punts
SolGold
Franco-Nevada: $120, Aug 2024 calls
Sable Resources
Kinross Contingent Value Rights
These are small bets I’ve already marked down to zero.