02/07/2011
December 3, 2017
01/31/2011
December 3, 2017

02/02/2011

Kuppy, What do you think on the AAG financing? Extra dilution is a negative? or a show of confidence by a well known investor is a positive?

It’s a bit of both.

Let’s talk about dilution… I don’t want to see more shares outstanding, but it isn’t the worst thing in the world. The company has needed capital to build the mine. Now they have half of what they need sitting in the bank. There’s some more shares, but that’s life. Having more cash should make the debt portion easier to obtain now. If they build this mine and it works according to plan, it’s worth a few dollars a share. I don’t need them to thread the needle and get me a double digit share price. I’d rather a lower risk way to get a few dollars a share, with a potential to grow the mine from there.

You have to remember that Trafigura has a board seat. They know what’s going on here at the company and they clearly think things are going positively. They are also considered pretty smart investors. In March of 2010, they bought $3m worth of shares at $0.40. Now they’re paying nearly double the price for $15m worth. I’d look at this as a positive. They’ve had this right to buy shares at a discount as part of the first financing and they exercised it. In the great scheme of things, I’d rather see the company raise money at higher prices, but a few million shares differential in terms of where they raised capital will not change the investment.


I’m starting to get extremely worried about the current situation in the world. I can’t believe western stock markets are rallying so strongly in the face of what possibly could be revolution across the entire middle-east; clearly the printing presses are a powerful force. However I can’t help thinking, people are overlooking some serious risks:
1. If Iran and Saudi Arabia fall into anarchy, oil prices would likely soar beyond anything we’ve seen before which would bring on another global recession.
2. More importantly if rising food prices are actually the true culprit to current unrest rather than a general frustration/resentment of autocratic and repressive regimes then the entire developing world is at risk! Unfortunately, I see no respite to rising commodity prices especially after familiarising myself with insane modern monetary theory and what central bankers subscribe to.

Currently I’m heavily invested in oil and gas stocks, hold a lot of cash and some shorts, but I also still own various stocks so as not to miss out entirely on the bull market. I was wondering how are you positioning your portfolio. Do you think gold is attractive at these prices? I haven’t managed to force myself to buy gold because I find it so difficult to value.

There are serious structural imbalances all throughout the world. Plenty of things to be scared of. However, money printing can accomplish amazing things…. Look no further than EGPT. At one point in yesterday’s rally, it was back to the pre-riot prices. There is no ‘resolution’ of the crisis in Egypt and the Egyptian stock market is still halted, but gamblers want to speculate on anything….

I cannot give you personal advice on how to position your portfolio. I own gold, not because I think it is a great investment from these prices–rather I own it because it helps me to sleep at night because I have protection from the unknown. It was a great investment when I got mine in the 300s and 400s. I am not selling it up here. If I had to choose today, I’d rather buy large cap gold mining companies instead of gold as I feel they’re ‘cheaper.’ I own a few of these currently.


Here in Europe, I too am watching Al Jazeera’s Egypt coverage.  I remember during the Bush era Al Jazeera was made out to be nothing short of a terrorist sponsored network in the US.

Anyway, the food issue is definitely an interesting one.  I was looking into Brazilian farmland a couple of years ago, and it was interesting to learn that the locals were selling farmland because it could only produce a 10% return.  Investors saw bigger opportunities elsewhere in Brazil, and of course they don’t lie to themselves about inflation so they understand that high double digit returns are required in order to make a real return over there.  Basically what I learned from my brief investigation was that farmland was a reasonable investment if you owned the right land in the ideal weather location…. ie. location location location (risk still exists being a foreign land holder).  However, this doesn’t mean farming is a great business.  Perhaps it’s comparable to being the landlord of retail shops in normal market conditions, maybe it’s the best way to make money in retailing.  As I travel I continue to hear stories from farmers telling me how terrible of a business it is.  During a recent trip to Costa Rica, I visited the Caribbean side which has  a rich history producing bananas.  I learned that banana production is being greatly affected by heavy rainfall for the first time in history.  These have to be the most ideal growing conditions in the world (volcanic rich soil, regular tropical sun, frequent rain).  Heavy rain destroyed Brazilian sugarcane crops last year leading to record sugar prices.

With risk factors like unpredictable weather steadily increasing whilst high quality farmland values continue to rise, I think the fundamentals for agriculture could not be better.  If you add government hoarding and political crises like Egypt (which surely will be repeated elsewhere) the risk/reward balance is very attractive.  I currently own RJA and sugar futures.

 

 

I’ve looked at farming and I have sort of come to the conclusion that it is up there with mining as one of the toughest businesses in the history of economics. It’s just impossible to consistently make money as a farmer until we see much higher food prices (the same with mining for metal prices). There is just too much variability each year in yields, realized prices and input costs. I sort of feel like the easiest money in farming will be made by trading the commodity futures. (I repeat, you have to be a trader of these. They are not investments because of contangos). If you are adventuresome, the biggest money will be made (was already made) buying cheap farm-land and borrowing against it as it appreciates to buy more land. Eventually, you sell it to someone else and make 3-10x your money unleveraged and some sort of crazy return if you used a lot of leverage. If you make a bit of income renting your farm-land out, that’s great. As long as it covers your interest costs by a bit, you are doing well. The idea of actually farming it just sounds crazy to me. It’s just a very hard way to make money.


hi Kuppy, if you generally prefer royalty plays, what do you think of franco nevada now ? I missed it last time around 27, perhaps that was a year ago and am surprised to see it in the 28s now…

I don’t know the details on FNV. I like RGLD because John Doody likes it. I know that’s the lazy man’s response, but no one has a record like Doody’s. He seems to think FNV is good as well–so it probably is. I don’t know the details well enough unfortunately.


In case you haven’t seen it, here are 25 countries vulnerable to food price inflation:

I have posted this for readers. I found it quite interesting.