Year End Position Updates

I had originally intended to post quarterly position updates. Somehow, that practice died when I moved to Mongolia. Since most of these companies do not change rapidly, I figure a yearly update is just as good. For the most part, I intend to hold onto these for years anyway. So here goes;

Andean American Gold    (AAG: Canada)   Mention Price $0.56   Current Price $0.255   Return -54.46%

What good is a mine without community agreements to operate that mine? That’s the crux of the issue here at Andean. Management fumbled horribly in dealing with the communities and it’s time for new management to give it a try. The best way to accomplish that would be to sell the company. Management has stated that they’re shopping it and I hear rumors that there may be some interest. I sold a few for tax loss reasons, but still have a pile of shares. I’m waiting for a bounce or a takeout offer. Clearly, I’ve gotten this one wrong. Great asset, lots of cash on balance sheet, but no community agreements means it’s going nowhere fast. Welcome to mining. Risk half to make twenty times. Would I do it again? If you want to play mining, this is about as good of a setup as you get. Going forward, I will only own operating assets. I sure re-learned an expensive lesson here.

BDSecurities  (BDS: Mongolia) Mention Price 2355  Current Price 3700 Return  57.11%

Mongolia is booming and BDSec is firing on all cylinders. The company successfully completed the IPO of Silikat and the secondary offering of Sharyn Gol raising a total of USD $17.3 million. BDSec also took part in a number of bond offerings. The total size doesn’t sound large, but this is a small market and BDSec’s market share stayed constant at 68% of total trading volume this year. More importantly, their retail and foreign account holder balance has continued to increase. The company is targeting a number of financings for Q1 of 2012. While financial results are not out, I’m guessing that they’ve made almost $3 million this year between brokerage commissions and underwriting. When you consider that their whole balance sheet was $5 million at the start of the year, you realize that this is a very impressive return on capital. In the end, BDSec is the largest player in the Mongolian market and I would think that their size advantage continues to accrue substantial profits to them. I’m not sure if I’d be a buyer up here at 3700, but I’m not selling.

Energold (EGD: Canada) Mention Price $2.70  Current Price $4.51  Return 67.04%

Energold just had a blockbuster quarter. I’m looking for them to earn about $1.00 in 2012 and I wouldn’t be surprised if earnings were substantially higher. This is my largest position and I’m very happy to own it as the main way that I will get leverage to the mining sector. I recently wrote about it, so there’s no need to update those comments.

SPDR Gold (GLD: AMEX) Mention Price $108.28  Current Price $156.98   Return  44.98%

The Governments of the world are all going bankrupt. Gold is one of the few ways that you can avoid the twin choices of default or money printing. We just saw a quick swoon in prices and I added a bit to my exposure. If we get a bigger drop, I’m gonna make this sizable position even larger.

Mercer International (MERC: NASDAQ) Price at Mention $8.11  Current Price $6.37 Return -21.45%

Mercer has dropped with most cyclical companies. It hasn’t helped that the price of NBSK has dropped from over $1000/t to $840/t currently. However, at these prices, the company has sizable profits from their electricity generation and NBSK operations. The company has used the cash flow from higher prices to pay down debt and retire stock. I expect the company to continue a program of debt pay-down and buybacks. I’ve used the recent drop to more than double my position. While there is more risk associated with a highly leveraged cyclical company, I think that the NBSK market has very strong fundamentals going forward and that Mercer should be a winner because of their electricity generating ability.

iPath S&P 500 VIX Short-Term Futures ETN (VXX:AMEX) Price at Mention $82.40

Current Price $36.22   Return 56.04%  (THIS IS A SHORT)

Despite unprecedented volatility in the world, VXX continues to experience roll decay due to a steep contango. This is a small position for me. I tried to size it up through IVO and learned a good lesson. This will continue to be a small one going forward. You never know when volatility will spike—however, I remain convinced that eventually, this product will decay to essentially zero.

With that, I want to thank everyone for reading Adventures In Capitalism this year. It has been a lot of fun to write and even more fun to have met some of you. My only regret is that I didn’t have more time to spend on this site during the year. Besides, there is only so much that one can say about the world today.

There are SERIOUS problems out there in the world of global finance. There will be winners and lots of losers in the next few years. I cannot think of a more dangerous time to be an investor. Stay focused, stay liquid and stay off margin. There will be times to be greedy—this isn’t one of them.

Enjoy your holidays and I look forward to another exciting year of writing for you in 2012—starting with a bit of travel to Africa.

Categories: Current Investments
Positions Mentioned: none

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