Disruptive Discoveries Journal

Does the Berkshire Hathaway Model Work in Energy Metals?

Chris BerryComment

By Chris Berry (@cberry1)

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If anything has become clear in the resource space in recent years, sustained value creation is hard to come by. The reasons for this are manifold. Last week I discussed the likelihood of M&A in the Energy Metals space but didn’t allude to how this is likely to happen. There are a multitude of ways for these arrangements to occur, but one in particular seems absent from the discussion. Given oversupply and the great engine of commodity demand (China) slowing, perhaps the time is right for a Berkshire Hathaway-style model in the Energy Metals space.

Is the Fed Really Out of Patience?

Chris BerryComment

By Chris Berry (@cberry1)

 

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It would appear that Chair Yellen’s press conference yesterday in the set the stage for a Fed Funds rate increase in June or September of this year. We remain unconvinced.

 It was interesting to note how financial markets reacted to the removal of a single word (patience) from the Fed’s most recent statement. The Dow, gold, and oil all roared higher and seemingly (for the moment anyway) forgot about the increasingly disappointing economic data in the US including housing starts, retail sales, and industrial production. Export growth also slowed, and you can thank the strong US Dollar for that.

The Looming Wave of M&A in Energy Metals

Chris BerryComment

By Chris Berry (@cberry1)

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One of the key takeaways from my recent visit to PDAC was that everyone’s looking. By this I mean everyone, be they investors, company executives, bankers, or private equity players is looking for something in Energy Metals. The distinction lies in exactly what everyone is looking for. While the traditional equity investor just wants the pain of this resource bear market to stop, there are those who I spoke with that are looking at this market as fertile territory for M&A. I could not agree more and my belief lies in one simple idea:

While we have witnessed billions of dollars of value destruction in recent years, we haven’t seen a commensurate amount of demand destruction in most Energy Metals.

Are Electric Vehicles About to Jump The Shark?

Chris BerryComment

By Chris Berry (@cberry1)

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As if vehicle electrification needed any more hype, Apple Inc’s. (AAPL:NASDAQ) rumored move towards producing its own EV by 2020 may have been the first sign that the whole idea of EVs has “jumped the shark.” For those of you unaware of this term, it refers to the 1970’s sitcom Happy Days when Fonzie was waterskiing and literally jumped over a shark. Happy Days was never the same and the show never quite recovered from this stunt to win viewers.

The rumors leaked last week about AAPL secretly working on developing its own EV have fanned intense speculation about how this would be accomplished. With $170 billion in cash on its balance sheet, obviously hiring the talent and research and development are non-issues. 

 

The Fallacy in Mining Valuation

Chris Berry2 Comments

By Chris Berry (@cberry1)

 

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A great deal of attention has been placed recently on the resurgence in rare earth prices and the concomitant increase in share prices. Given the general bloodbath in the mining sector since 2011, this is extraordinarily welcome news. Nevertheless, it leaves one question unanswered: Is this enough? Specifically, is a double digit increase in underlying commodity prices enough to make specific projects “economic” and justify the start of a new cycle? 

I think the answer in most cases is no, but this then raises a second question. The tailwind of select higher commodity prices (should they last) will undoubtedly help project economics, so how do you accurately value a company with no revenues, no cash flows, no operating history, and management with limited (or no) operational experience?

Argex Titanium: An Example of Markets Confusing Price and Value

Chris Berry3 Comments

By Chris Berry (@cberry1)

 

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Regular readers will know of my affinity for Argex Titanium (RGX:TSX, ARGEF:OTCBB). I have written on the company in the past (here and here) and continue to believe in the technology that the company maintains as an extremely disruptive force in the titanium dioxide (TiO2) business. I am long the stock at a higher price.

The rationale for considering the company was simple: this isn’t a traditional mining story, but has de-risked a proprietary process for producing TiO2 from low cost ilmenite. In a global environment awash with excess capacity of commodities (TiO2 included), those companies that survive and thrive will need to prove they can produce a given product at the lowest all in sustaining cost. RGX is one such example.

We've Seen This Before

Chris BerryComment

By Mike Berry

 

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 Bob Farrell’s Rule #9: When all of the experts and forecasters agree – something else is going to happen.

I have been through two previous oil swoons.  In March 1999 oil bottomed at $10 per barrel.  I was invested - a money manager with Heartland Advisers at the time.  The Economist magazine (March 6, 1999) forecast oil to move lower, perhaps $2.  It was a painful experience but oil never went lower. 

Tesla Sparks More Questions Than Answers

Chris Berry1 Comment

By Chris Berry (@cberry1)

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Tesla Motors (TSLA:NASDAQ) released Q4 and 2014 full year earnings last night and the results were disappointing. The company missed expectations on just about every conceivable metric one would use to judge success including earnings, deliveries, and revenues. Although disappointing, TSLA should still likely be viewed through a longer-term lens than its competitors as the company is still arguably in its early growth phase and isn’t yet a mature operating entity.

While the numbers we all tend to focus on were down, what was perhaps more concerning were the statements made by Mr. Musk and his team on the call. They include: 

·         Mr. Musks’ statement that in ten years TSLA could have a market cap that equaled that of Apple Inc. (AAPL:NASDAQ). AAPL’s current market cap of US $740 billion would give TSLA a share price of approximately $5,920 per share based on TSLA’s current share count. When was the last time you hear of a company selling what is effectively a commodity (cars) with that sort of valuation and share price?