December 3, 2017
December 3, 2017


Harris, good report. I agree.  I also think that natural gas is at or close to a bottom.  Naturally one cannot predict when that will change but I would like to have a trade that allows me to benefit from a future increase in the price.  I think its a 5 year trade. Simple and cheap is the type of trade I am looking for, and also one that is leveraged 2x, 3x, etc. to the price.  Are there any ETFs out there??  Any other vehicles??   I want to stay away from natural gas companies because the leverage inherent in these companies can bust them.

You’re a years early. Something like 30% of the nat gas in the US is now produced as a byproduct of liquids production. That ratio will increase in the future. These producers do not care about the price of nat gas. I’d really expect prices to drop from here and stabilize at a much lower level for a long period of time. You’ll eventually see most of the primary nat gas producers go bankrupt when their hedge books can no longer protect them. If I weren’t so focused on Mongolia, I’d be trying to find a way to play the bankruptcy of most of the US primary nat gas producers. Remember, in some cases, if they do not continue drilling wells, they lose their acreage. This will end with lots of bankruptcies. Only then, will we see higher prices, but not much higher than $3.00. The dynamics of the industry have changed for the longer term at least.

I read the report you highlighted from Capitalist Exploits, and it’s great work! I think we are close to the inflection point for the Yen and as a result, the JGBs. I’m positioning for this and simply waiting, trying not to lose too much as we wait.

My question is how do see fit to best leverage this situation– Would you be more inclined to play this via puts on YEN instruments or puts on JGB instruments OR would you rather go long USDJPY?

Yen puts or just straight cash USDJPY or a combination will probably work. I hate buying premium, so prefer to just be short JPY and patient. I see JGBs as a sucker bet as a short. The govt will just buy these and prop them up, just like 30-year treasuries here in the US. We’re still too soon to be shorting bonds.

Do you invest in primarily mining companies ? Or primarily any small cap companies ?

Do you take new accredited individual investors ?


I rarely (read never again) will invest in mining companies. They’re trades at best. I invest in lots of small caps. My fund has been closed to new investors for almost 5 years now. I have no intention of re-opening it.

Hi Kuppy,

Just saw the season premier of No Reservations. It was a trip to Mozambique.

Don’t know how one can see the whole hour long episode.

There is a lot to learn about this country from this show when one keeps your writings in mind – I watched while thinking things like, “Have they turned the corner to free enterprise? The past was so brutal, can the population move forward? Where’s the industry, the catalyst?” (BTW I do believe people can move on because there are many examples of this. Notably, Vietnam, Cambodia, Loas.)

Bourdain’s show doesn’t delve into economics. But most of all, I was thinking, how would this episode look to me if I had not read your writings on Mozambique? I suspect with more pessimism.

The show ends on a very optimistic note. In fact, throughout the show, Bourdain repeats how friendly people are, how there is no anger, unlike say American inner city gangs (he says that not me).

A very interesting hour especially after reading your writings.

I haven’t had a chance to watch this, but post it for readers who are interested in learning more about Mozambique. I found the place to be very happy and peaceful. Absolutely no evidence of violent crime—just poverty.

Do you think Mercer will have a chat with Abibiti about potentially buying the NSBK assets, while Abibiti keep the hard wood assets? Wouldn’t such an agreement let both parties get the assets they want at a lower overall price than by competing over all of FBK?

That would make a lot of sense, but I have a feeling that both sides intend to be irrational.

Kuppy–I found an interesting site that I think should be in every investor’s repertoire–www.indexmundi.com/commodities–which allows you to chart various commodity prices going back as long as 30 yrs. You had pulp prices nailed, as in general there has been no substantial increase in 30 yrs., unlike almost every other commodity type. Do you have any idea why that has been so? Would not like this industry to be like the airline industry where sustained profitability always seems around the corner but never arrives. The weakness in price over the last year or so, which is actually found in many commodity types, suggests more QE will be coming.

Hardwood prices have seen a step-change lower on the cost side as most hardwood pulp now comes from fast growing eucalyptus. So as the technology changed, so did the price and that offset inflation. On the softwood side, there has been a lot of substitution of hardwood, however, we’re now seeing serious difficulties in continuing this because diminishing returns on the costs involved in turning hardwood into the properties of softwood. That substitution kept softwood prices depressed for years. I think it’s about to change, and VERY significantly.

Do you have a link to the giant smelters coming on line? And is there currently a smelter shortage, so unrefined ore is piling up somewhere? First I’ve heard of either of these, but you’re usually right….

There’s no link. Just talk to some mining companies.

The problem is so bad that Impact Silver missed their quarter b/c of a lack of smelt capacity. It will surprise all the tin foil hatters when they see what a 50% increase in supply does to the price of silver. I’d be worried much more worried about supply than JPM….lol

regarding silver supply/demand, you mentioned a few giant smelters about to come on line. I’m guessing at least one of them is associated with the giant copper mine in Mongolia… is that correct? And what about the other one(s)?   Do you have a rough idea what fraction of global supply they represent?

I don’t know of any silver smelters from Mongolia (though that doesn’t mean that it won’t happen as Mongolia is VERY rich in silver). What happens to the cost of silver when the smelt cost drops from $2-$5, back to $50c-$1.00 as the bottleneck goes away?? I’d suspect that a whole lot more marginal supply comes online. It will simply shock guys. Only reason I didn’t sell my silver in the $40s is that I wasn’t sure what else to buy and I was too lazy to take all my bars to the dealer (they’re damn heavy).

It was interesting to read that you “really like the concept of metal streams”. I was thinking to ask you the same question about something like Sandstorm. How would you think about applying your rules against investing in junior miners against investing in a metal streaming company that is itself investing in junior miners?

I’m skeptical of juniors, but the management team at sandstorm have proven themselves over the years with SLW. I think it will work out ok. Royalties are a great concept, unless metal prices go so low that the mines don’t produce anything.

Thanks for your enjoyable,interesting blog.I was wondering if you could point me in the right direction on doing research on the large amount of silver that is going to hit the market and the large smelters that are going to open.Thanks.Keep up the good work.

There’s a billion sites on the web that track this stuff. Just look at what penoles is doing in terms of new smelt capacity. Look at how many guys are now doing secondary silver recovery circuits when a few years back they didn’t even bother to recover any silver at all. Then look at supply from the silver institute. It seems pretty well documented that there is a crushing glut of silver coming. Will demand from the tin-foil-hatters offset it?? That’s the key question. But it’s not a bet I want to make.

Mining stocks act terrible. Are you still long?

Unfortunately…. remember, i’m usually early on things. I’m mostly playing through GDX and GDXJ. I just don’t want the exposure of individual names. They’re all soooooo terrible. But a basket should be ok–right?

If the Mongolian economy is so strong; why is IVN down?

You have to look at this and remember that a mining company building a new mine has nothing at all to do with the growth in the standard of living of the average mongolian. They’re completely seperate concepts. Mongolia is simply booming. IVN is a copper mine…..