Watchlist and Trades
My public watchlist and trades thus far; Appreciating late-career Muhammad Ali
In this issue …
2023 trades thus far
PetroBras OTM Jan 2025 calls
Ecopetrol $10 May calls
EWW OTM 2025 calls
Undisclosed US microcap (starter position, patent/IP play)
The Latin American theme wasn’t intentional, it just happens to be where the simple mean reversion trades and secular growth are.
The volatility on the PetroBras options allowed me to get my original capital out, break off another piece to buy some more common when it dropped below $10, and let the rest ride. Unfortunately 2025 calls aren’t liquid enough for swing trading purposes - depending on the day they can be marked at +550% or -65%.
The Ecopetrol options are a bet on the upcoming dividend announcement. Why settle for 20% when you can reach for 200 at the risk of getting nothing?
EWW is the iShares Mexico ETF as I’m not going to pretend to understand enough Spanish to pick Mexican stocks. Buying options in this case is about conserving capital to take some big swings later this year.
For example: I have my technical marks for CVR Partners and I’m going to be disciplined about waiting for those levels before adding more UAN.
I'm probably done adding to AVAL and CIB unless they pull back completely. They’re both still statistically cheap but they’ve jumped ~20% from my cost price. The perceived political risk in Colombia is overblown, but it’s not zero either.
Purpose Ethereum Yield ETF
Undisclosed US microcap (coal related, patent/IP play)
Putting SolGold aside for a moment, the other three mining prospects are pretty basic sum-of-the-parts trades.
Share prices seem to have diverged too far from the underlying asset prices.
The people in charge don’t seem to be crooks and are working in good faith to close the valuation gap.
We’ll use Star Royalties as an illustrative example. Star is a broken IPO, having gone public in 2021 to finance a streaming deal on the Copperstone gold mine. Copperstone still isn’t in production and market sentiment has cooled off for carbon credit royalties, which make up Star’s other flagship asset known as Green Star Royalties. The plan is to eventually spin off Green Star as a pure-play.
Some high-level base assumptions:
Rising gold prices will provide a floor for my estimated Copperstone stream valuation below.
We can have some confidence Sabre Gold is taking steps to finance construction at Copperstone and get the mine into production by early 2024.
The two small cash-flowing royalties and cash balance can cover G&A expenses indefinitely.
The carbon credit portfolio isn’t worth the implied value of the Agnico Eagle investment or subsequent capital commitments, but it’s not worthless.
We’ll mark the exploration royalties at zero.
The warrant overhang from the IPO is a non-issue as they’ll likely expire worthless.
Here are my adjusted marks:
Copperstone stream: CAD$16-million (original cost US$18-million)
Carbon Royalty business: CAD$28-million
Cash-flowing royalties valued at zero to balance out capitalized G&A expenses.
I haven’t stress-tested those valuations, but they’re close enough to make my point. With 73.2 million shares outstanding, there’s about 60 cents of value inside Star Royalties trading at 36 cents. When the blood really starts flowing and STRR.V trades below 30, I will be looking to step in assuming my valuations hold up after closer review.
Nothing much to say on the other listed names at the moment.
A checklist for aspiring mining speculators.
The Old West Q4 letter mentions Minera Alamos, which is a big position for me.
Money moves back into copper.
The spread has closed on the SolGold-Cornerstone deal. This article from last year offers management’s view on how they’ll outflank the majors to extract maximum value for Cascabel. I haven’t formed an opinion yet either way.
Speaking of M&A …
This is interesting because I believe there’s a catalyst. I don’t recall the exact details, but the management fee structure incentivizes Fairfax Financial to close the gap between the FairFax India’s trading price and the net asset value. If I didn’t completely imagine that, this is the kind of trade you want to hide in. More research is required.
A Little Boxing
Muhammad Ali would have turned 81 this week. That’s a good excuse to watch my three favourite Ali fights.
Ali vs. Ken Norton 2
Norton broke Ali’s jaw when he upset him in the first fight. Here Ali steps on the gas in the final round of a back-and-forth brawl to secure the split-decision victory on the cards. The less said about the third fight the better.
Ali vs. Earnie Shavers
Anything Shavers hit, he destroyed. Ali goes toe-to-toe with Shavers in round 15 to save his title reign and pull out a decision victory.
Ali vs Joe Frazier 3
The ‘Thrilla in Manilla’ is as close as two human beings can come to beating each other to death without actually succeeding.
The fight with George Foreman in Zaire has historical significance, but these bouts demonstrate how Ali reinvented himself as a cerebral brawler with an unbreakable will in the latter half of his career. As his speed and reflexes eroded, Ali managed to compete, and mostly win, against the best generation of heavyweights up to that point.
The Chris Eubank Jr. vs Liam Smith fight this weekend on DAZN seems promising. None of the best want to face each other, continuing the trend from 2022, but Eubank vs. Smith will have a big fight feel as a grudge match between British middleweights in their own country. The winner most likely moves on to a big payday later this year.
Bonus: The fight takes place at 1pm ET in North America.
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