Thought of the day: Return compounding is all about timeframes in #cyclicals, 10x over 5 years reinvested in 10x over 5 years reinvested in 10x over 5 years with 1-2 year waiting between reinvestment = 1000x over 17-19 years. Are you formulating your compounding plan?
Thought of the day: The biggest mistake of 90% of investors, is to overtrade (our guidance is not to trade, but to invest, sitting being the most important element), therefore missing 65% of the returns that simple cycle bottom & reversion to the mean investing delivers.
Let's review an Asymmetric trade in play: $RIG
65c low moving to $15 high (overshot potential to $25 = > 20x
Holding time: 4-7yrs = sitting
Likely 50% plus draw downs within the holding period: 3-4
Day rates: < $200k to over > $700k
Capacity Utilization: <50% to >97%
How reversion to the mean works? $RIG
- sector cyclical low 2H 2020, 10yr plus low
- low new sector capacity
- cashflow momentum increasing due to capacity & day rate increases
- sector positive coverage increases, new players enter the stock from $4 indicating > $20 recovery
#AuraEnergy initial #uranium reserve expansion, we expect this to move from 30mlbs to over 70mlb within the next 30 months. In the next few weeks expect the initial substantial lift in NPV as the project capacity increases to 3mlbs and the AISC falls to around $20. $AEE
30mlb reserve NPV at $75 pricing = A$400m or 60c per share
Sentiment is dictated by stockprice direction for many, we engage the opportunity view, $15m cap Vs 2027 NPV potential of $2bn, is worth putting in the work, if survivability occurs with moderate dilution then = 20x bagger. Most don't have the stomach for the required work. $AHQ
Likely the major holder Regal is dumping their position, we will see in the filings. 1Q - 2Q 2023 was always the timeframe required to evaluate optimization potential on $AHQ, now it's time to do the work.
With the likelihood of very dilutive cap raise, we are watching this.
Short term selling liquidity = voting machine
Medium Term Liquidity = weighing machine
A great case study on assessing the weighing Vs voting outcome.
Avoid the emotions, do the work, be patience, turnarounds are higher risk than cycle bottoms.
Thought of the day: A lifestyle explorer mining company is something to generally avoid, look for the following characteristics, CEO's earning over $300k, G&A exceeding 25% of annual spend, G&A exceeding 10% of cap. Alignment of interests are key for returns.
In our previous activist wins we faced the following:
- the stupidity of retail believing existing mgmt when G&A exceeds 35% of cap & the CEO receiving up to 18% of cap (top performing fund managers are receiving less than 3% of AUM).
- being attacked by the old mgmt teams
Often if 20-30% of the register votes for positive change, this is often sufficient in bring a stop to lifestyle mining explorers mining retail investors wallets.