Apr 8, 2019
I need to read all the pieces I can about resource companies to keep an accurate feel on who is succeeding and who is failing. I’m a speed-reader and that helps but I go through 150 emails a day and read many dozen articles that interest me. What amazes me when reading what others write about various companies and metals is how infrequently I hear discussions about supply and demand.
If you believe the investment world of resource stocks revolves around manipulation and conspiracies, to believe those are important, you also have to believe that supply and demand don’t really matter. You can believe in one or the other but you can’t believe in both at the same time.
I never predict the future price of any commodity. I have no idea of what gold could go to or the S&P or zinc or any other investment. I’m not that smart. I know there are lots of people who do believe they can predict price but my experience is that they are more likely to be feeding people’s fantasies. But it’s not all that hard to figure out when a commodity is cheap. Since my mantra consists of buying cheap and selling dear, I find that a valuable resource.
When I find a compelling article supporting the necessary issues of either supply decreasing or demand increasing, thus increasing price, I pay attention. So when I read about there being a ten-day supply of copper in warehouses, I pay attention. The article gave the great example of the mining disaster for iron in Brazil causing a 5% decline in supply and led to a 30% increase in price.
I’m not smart enough to predict the price of copper in the future. But with only a ten-day supply on hand, the price has great potential to go higher very quickly. Nickel is also in short supply but nickel stocks show a 76-day supply compared to the 10-day supply of copper.
If you believe a decrease in supply or an increase in demand is going to move the price of a metal higher, you need to find the most leveraged company you can find. Right now, the price of copper according to Kitco is $2.91 a pound. If you were given a choice of buying a company with an all in cost of $1.50 a pound or one that has an all in cost of $2.90 a pound, which should you buy?
If you think that copper is expensive you should buy the company with the $1.50 cost because the price of copper could drop by $1.40 and you still could make money while the company with the $2.90 company might be thinking about closing the doors.
But if you think as I do that right now copper is cheap, you want the far more highly leveraged producer with the $2.90 cost basis. Should copper go up 30% as is certainly possible in short order, the profit goes from one red cent per pound to $.87 a pound or over eighty times higher.
There is a company in Nevada with an IOCG (Iron Oxide Copper and Gold) project that will be in production in Q4 of this year. According to the company’s latest 43-101 resource estimate the deposit has over 7 billion pounds of copper, a million ounces of gold, 35 million ounces of silver and is at that phase of the investment cycle that the price of the shares should continue to advance.
With a $200 million USD market cap, the ounces of gold in their resource base would support a valuation of $200 an ounce. That’s pretty reasonable. If you thought that silver in the ground in Nevada was worth $6 an ounce that is a little high, it too would support the market cap all by itself. But if you ignore the $200 million worth of gold and sorta $200 million worth of silver, you are buying copper for under $.03 a pound. Each share of the company has over ten pounds of copper behind it.
The company is Nevada Copper. It made it through the tough part of the investment cycle barely but will gain more in real terms than any copper company I can think of in an increasing price of copper. They have a long-term debt of $80 million USD and cash on hand of $108 million USD as of the end of 2018.
I visited the project years ago. It’s a great project. Market conditions required a change of management but all copper companies got whacked, not just Nevada Copper. Current management is more than qualified to take the company into production with the assets they have on hand. The price of shares is down by 94% from the high in 2011 but that makes the price cheap. With an increase in the price of copper, the company could go back to where it was.
I wish the company would do a roll back and get the number of shares down to a reasonable number but I bitch to everyone about their shares count. By and large they ignore me but I think it would help give them the credibility they deserve.
Nevada Copper is an advertiser and I own shares bought in the open market. Do your own due diligence.
NCU-T $.40 (Apr 05, 2019)
NEVDF-OTC 662 million shares
Nevada Copper website