Tuesday, May 22, 2018

Norilsk and Palladium

I have had a position in the Russian company Norilsk for almost two years. It's done well, although it has huge ups and downs. It took a 15% hit the day the US put sanctions on Rusal. Rusal and Norilsk have some cross ownership by O. Deripaska, who was also sanctioned. There was a fear that Norilsk would also be sanctioned. It hasn't happened so far, and it's possible that Norilsk will be controlled by V. Potanin. Potanin is not being sanctioned, and his view of the company's future includes smaller dividend payouts and more spending on capex.
I agree with the increased capex. Norilsk's products are going to be in short supply over the next few years because of low worldwide capex. So the added investment will be value-producing. However, the foreign investors who set the price on a day to day basis probably do not agree. They have a higher discount rate for any Russian company than the large Russian shareholders do. So I expect some kind of move down when and if the new dividend policy is announced.
I also want to point out that Norilsk share prices seem to be following the price of palladium rather than the price of nickel. Norilsk gets about the same revenue from both, but nickel prices have been rather stable. Here's a graph of NILSY (in $US) and palladium over the last 100 days indexed to 1.00.
The two lines do move together pretty well. The big one-day fall in NILSY was when sanctions were announced.

Long term there has been little investment in both nickel mines or in S. African precious mines. So I think prices will be a tailwind for Norilsk. There may be a switch from palladium to platinum, but I do not think it will be major.
As far as the Russian risk goes, I have posted before that I think the "new cold war" is silly and not in Russia's interest. But I don't make policy; I only react to it. So I do think that US-Russian tensions should abate, but only time will tell.

Tuesday, May 15, 2018

Corn progress and more Lynas

As of the May 14 report, corn planting was about even with the five year average. So that's one risk that has passed. The weather for most of the corn belt is expected to be average for the rest of the month. So we probably won't get another scare until and unless we get abnormal heat later in the season.
OTOH, demand for US corn is still pretty good. And acreage is way down. So I doubt the market can have a steep decline until the crop is made. I'm keeping some of my position and hope to add on weakness.

So I really know how to time Lynas! Just as I wrote the post, the stock took a deep dive. The trigger was a report in a Malaysian online newspaper saying that some local officials wanted to look again at the risk in Lynas's facility. I read it, and it seemed like the same old guys saying the same old things. Is it possible that the new regime will give into them? Like I said a few days ago, I don't think so.
- There really is very little risk, and
- Malaysia needs to show it believes in the rule of law.

I'm going to wait this one out. Time will tell.

Thursday, May 10, 2018

Lynas Article


Yesterday I published an article on rare earths and Lynas on Seeking Alpha.

I am blown away by the response to this article. It's has one of the highest page views I have written. I thought I was analyzing a small, underresearched industry. Turns out there is a large cohort who were already following it. That's not necessarily a good thing.

Now, the Malaysian election. As far as I can tell, the new party is not "populist" in the sense that the new government in Italy will be. Rather it's a reaction to corruption on a very large scale. It's also a reaction to a recent drop in economic growth. However, if Malaysia wants to get out from under the "middle income trap" it's going to have to upscale its exports. That means foreign capital and foreign technology. So they would be foolish to punish Lynas simply to appease the scaremongers. However, this all depends on Lynas continuing to run without environmental problems. If they screw up, all bets are off.

I bought a little more Lynas on the dip last night. This company has a beta to the S&P of 3, so be careful.

Wednesday, May 9, 2018

Link to Seeking Alpha Article

...on rare earths and Lynas.
https://seekingalpha.com/article/4171588-rare-earths-groaning-please?v=1525871160&comments=show
This is a "non-pro" article so it will be available to everyone. I don't get paid for it either, but that's not going to change my lifestyle.

Tuesday, May 8, 2018

Rare Earths and Lynas

I just wrote an article for Seeking Alpha on rare earths. In it I say I like Lynas, the Australian producer. I am also long. The article will probably be posted in a day or so, and I'll link to it.

Monday, May 7, 2018

Vanadium Update

In my Vanadium article on  Seeking Alpha (behind a paywall now, which is why I restarted this blog), I recommended two vanadium stocks, Largo Resources (LGO in Toronto) and Advanced Metallurgical Group (AMG in Amsterdam). They both have reported earnings and both have profited by the upmove in Vanadium prices.
 Largo reported diluted earnings of $.07 for the last quarter, up from a loss of ($.02) a year ago. Production was up, so this was not only a commodity price story. If we annualize this it comes out to $.28 per year, or a P/E of 6.2! I doubt that the V price will go much higher, but I am hopeful that the multiple will expand. I am keeping my full boat.
AMG is a more complicated company. They produce many "tech" metals, and they have a large engineering business. Their EPS was up 16% to $.59 per share. The works out to a P/E of 19.5. That's pretty much in line with what a growing company like AMG should be priced at. I also still like this name, although not quite as much. I did take some off.

Tuesday, May 1, 2018

Couple of things

- I took off some of my corn this morning. The basic thesis is still intact, but I don't see this as a breakaway market yet. So I'll trade a little. Of course, I said the same thing two weeks ago, and the pullback was less than I expected, so who knows.....

- I wrote a piece for Seeking Alpha on Vanadium a few months ago. In it I recommended Largo Resources (LGO). It's gone up a lot. At this point, I think the current market for Vd is pretty fairly priced. Any further upmoves will have to come from non-traditional demand, i.e. Vd flow batteries. This is really a tech rather than a commodity story. The tech is obviously not there yet since we haven't heard of any big players going into actual Vd battery production. I'm holding most of my position and waiting. I generally do not like to be in tech, since I do not have access to the latest lab reports. But this one has so much upside optionality that I think it's worth keeping.