Disruptive Discoveries Journal

Are Electric Vehicles About to Jump The Shark?

Chris BerryComment

By Chris Berry (@cberry1)

For a PDF version of this note, please click here

 

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)

 

For a PDF of this note, please click here

 

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)

 

For a PDF version of this note, please click here

 

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

 

For a PDF copy of this note, please click here.

                                  

 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)

For a PDF of this note, please click here.

 

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?

The Chicken and Egg Problem with Energy Metals: Scandium as a Case Study

Chris BerryComment

By Chris Berry (@cberry1)

 

For a PDF of this note, please click here.

 

One of the biggest knocks I usually get from investors when discussing energy metals is that it’s too small. Lithium at 160,000 tonnes per year or cobalt at roughly half that are not big enough for the larger institutional money managers to focus on as other, more liquid metals markets are deemed safer (or likely just more familiar).

That said many of these “safer” opportunities are hampered by excess capacity and investor disinterest which continues to cast a pall over the commodities sector in general. The paradox is that despite the smaller size of most energy metals, they likely offer higher rates of return over the long-term as technology advances and quality of life between East and West slowly converges. To be fair, these metals will likely remain in niche status going forward, but avoiding learning about them risks walking away from unique opportunities.

It is this disinterest and general lack of funding availability that presents what I predict will be the seeds of the next bull market. This will be rooted in reliable access to the raw materials necessary to make technology supply chains run smoothly. As the demand for various technologies grows, these growth rates are dependent on the answer to one question:

Sowing The Wind In The Oil Markets

Chris BerryComment

By Mike Berry

 

“For they sow the wind, and they shall reap the whirlwind.” Josea 8:7

 

Will the Saudis now reap the whirlwind?

I thought this bit of recent commodity price history of interest.  Income boost from today's gasoline prices versus what I paid on July 22, 2014 for regular gasoline at EZ Check (gasoline prices in Whippany, New Jersey).

Berry's Big Seven: Questions To Ask Energy Metals Companies This Earnings Season

Chris BerryComment

By Chris Berry (@cberry1)

 

Please click here for a PDF of this note.

 

Investors in the small cap mining sector are well aware of the “end game” for the junior mining plays - either a take out by a larger company or the mythical “get into production” (which few achieve successfully). Significant structural barriers including strong deflationary headwinds and traditional cyclical issues have altered this line of thinking. I think this mandates that we evaluate the natural resource sector differently.

This is why I continue to believe that those companies with a competitive and disruptive advantage are better placed to survive the current commodity collapse and emerge when global supply and demand forces eventually equilibrate in the future.

That said, if every crisis provides opportunities, the current metals landscape demonstrates significant pockets of value. If that is the case, there are two questions to consider:

Where is the value? And….

What are the catalysts to unlock it? The answer to the first question is subjective; the second is more objective.

Since the end of the current iteration of the commodity super cycle in late-2011, one of the ways I have addressed these questions is through more detailed focus on larger market capitalization companies mainly through dissecting their quarterly earnings calls. Everyone has their due diligence “list” when reviewing companies (management experience, balance sheet strength, sustainability, etc), but listening to what publicly traded commodity producers and users have to say is not as prevalent.

Einstein, the Definition of Insanity, the Euro Zone, Gold, and QE

Chris BerryComment

By Chris Berry (@cberry1)

For a PDF of this note, please click here

 

 

At this point, what could possibly be said about the economic health in the Euro Zone and the prospects for growth that hasn’t already been said? Realistically, the only question that has yet to be answered is how to ignite growth? This is a question you could ask about numerous economies around the world, but the structural challenges in the Euro Zone and the fact that you have a political union but not a financial one appear to be the reasons for what little growth actually exists.

With that in mind and with the European Central Bank (ECB) essentially out of ideas, the announcement of a quantitative easing (QE) program of €60 billion per month was likely the worst kept secret in finance. Specifically, this program will take the form of an asset purchase mechanism where the ECB will buy government bonds, private sector bonds, and debt securities of European institutions totaling €1.3 billion during the “life” of the program. Many would argue that the QE programs in Japan and the US have failed to achieve their objectives and this is why I mentioned Albert Einstein in the title of this note. He’s credited with saying that the definition of insanity is doing the same thing over and over and expecting a different result. Is anyone in the ECB familiar with this?

In just the month of January alone, central banks in Denmark, Turkey, India, Peru, and Canada have all lowered rates in an attempt to ignite growth. Additionally, the People’s Bank of China (PBOC), quietly injected USD $8 billion into the domestic banking system via a 7 day reverse repo lending facility. Clearly, the Swiss National Bank’s un-pegging the Franc from the Euro was the first domino to fall and other central banks around the world are positioning for a challenging way forward.