08/04/2010
December 3, 2017
07/24/2010
December 3, 2017

08/01/2010

Hi Kuppy,
thanks for putting up this informative website. in one of your comments you mentioned that Energold drilling has 1000 basis points cost advantage over other drilling companies.. can you please let me know how come to that conclusion.. also is it rational to think if the frontier drilling goes sideways for the next few years their rigs growth may remain stagnant..I also didn’t notice any cost reduction in the 2009 slow down. Is that because they are already leaner or didn’t find any costs to take out …looking for your next post..

There’s a lot to answer here. Energold has a massive cost advantage. You can simply talk to the competitors who are jealous. To start with, most standard rigs cost more than a million each compared to a few hundred thousand for Energold’s. That means you are running at half the cost on depreciation/maitenance alone.The real story is that most rigs need to be moved around on trucks which means you need to build a road. Energold has man portable rigs. There’s no road needed. They are more mobile and they can often drill quicker on site. The only time Energold isn’t quite as efficient is when you are drilling long holes on a flat field. This is mining–the deposit is almost never someplace flat. The advantages are everywhere else as well. Crew costs are lower because they use more local labor. Fuel, parts, you name it and they have the lead. Just look at the most recent results. Energold has increased meters drilled by more than 100% while the other guys are barely ramping up. In a tough pricing market in 2009, Energold held onto market share and has continued to pick up more share because they can price where others cannot. When the business does turn, like it seems to be, Energold is picking up huge market share gains.

If frontier drilling remains sideways, I would think that the company continues to grow because they will just pick up market share, but they will likely grow much slower. In 2009, they didn’t have much in the way of cost reductions because the CEO decided not to cut and instead grow the business. It is very expensive to only have a single rig in a country. The focus really is on keeping the support staff and growing so that you can amortize that amongst more rigs. A lot of companies chose to leave countries where they had small presences because they were too leveraged and could not fund money losing operations. Energold decided to press ahead and that is why they are coming out of this downturn so much more strongly than anyone else. The company also runs a pretty lean operation to begin with, so there wasn’t much fat to cut. Hope that helps.


Hey Kuppy,

Your remarks on choosing companies resonate to my thoughts immediately. Gearing matters, and earning potential in the long term matters.

I bought Delti.com common before the financial crisis and it went up 300% in the last three years. I paid 10xEBIT, the highest price I ever paid for a business because I believed the business model and the management’s ability to deliver. Moreover, I saw the potential to increase margin substantially by 1) more aggressive pricing as a cost leader 2) high margin on incremental revenues. Ironically, a very sharp friend of mins pasted because he is not interested in a reseller of tires on the Internet.

Anyway, just my experience to share. Keep your site going. I love reading it.

Glad you like the site. Congrats on Delti.com I continue to realize that the trick to investing is to buy great businesses at reasonable prices. Focus on gearing, focus on the business and as long as you are not paying an egregious price for the business, you will probably do just fine if you’re patient. It’s no great secret, but I am amazed at how many people have trouble following simple rules.


Harris,

I’m looking for rare earth miners and explorers. Also lithium.

Any suggestions?

I am already long Sociedad Quimica Y Minera (SQM).

I spent a lot of time on both topics a few years back. In particular, I thought lithium would be real exciting. In my opinion, they’re both worth ignoring. In summary, rare earth metals are quite rare and while demand is exploding, we are talking about very small total quantities needed. There’s a number of mines that are now in the planning stages. A few of them will represent over 100% of the world’s demand for quite a few of these. I think that this spells a massive price glut in the next few years. If you like one or more of the various rare earth metals, just buy the physical and store it somewhere. But as individual stocks, I think they’re all duds.

Lithium is more interesting because worldwide demand is insatiable. Having said that, being bullish on lithium is like being bullish on sea salt. There’s just so much of the stuff that it doesn’t really matter–the price will never go up excluding short term demand surges.. You need to focus on the cheapest production with the fewest impurities. If anyone tries to tell you about a hard rock lithium play in utah, run!! But seriously, the best lithium plays are the ones in the Atacama, and that’s only because they are the cheapest to dry. Since lithium is mostly going into electronics, you need to watch your impurities. Parts per billion may be enough to make the lithium worthless. In the end, there’s a lot going on here, but it’s hard to get optimistic on pricing in the longer run. In the short run, anything can happen. However, the last time I checked, lithium pricing hadn’t moved much–which isn’t what you would expect to see in a bull market with huge increases in demand. My gut feeling is that world demand will continue to increase and no one will make much real money in Lithium. I looked at SQM once, but I am not too familiar with it lately. Hope that helps. You may make money playing the individual stocks, but as a long term investment theme, it is hard for me to get too excited (though I have smart friends who disagree with me on this).


Is there an online resource that gives weekly or monthly assets under management for US Global Investors?

Thanks.

Yahoo finance probably has something. You can get the individual funds tickers off the Us Global website. I use bloomberg for the AUM numbers. They are usually published a week or two after the end of the month.


Excellent blog – the best discovery I have made on the web in a long time.

Resource stocks of course often lead to Canada. I like to use Yahoo Finance as a first pass for U.S. issues but there are a lot of holes in the data there for Canadian names. I wonder if there is an easy Canadian equivalent to Yahoo’s Key Statistics – a simple snapshot of price to book, debt to equity, cash per share, etc., all in one place.

Thanks for being so open and sharing your work – good research and equally good writing. Best wishes.

Glad you enjoy the website. I use Bloomberg for most things, so I really am not that familiar with the sites in Canada. If you don’t mind a bunch of penny stock pop-ups, vantagewire.com seems to be a decent enough site for all the info in one place–though I have never used it myself.