December 3, 2017
December 3, 2017


I’m in Lake Placid (flew in from Ulaanbaatar yesterday) for the annual family canoe trip… I promise that this is the last of the Energold questions for a while. There’s more to life than Energold…

bought deal I have read all I could find even Fleck,all say it is bad ,egd as a example what am i missing. Thanks inadvance.
Btw you should consider writing a travel book

You’re not missing anything. CEO’s who do bought deals simply have no respect for their shareholders. I would guess that if you did a back-test on the shares of every company that did a bought deal in the 90 days after the deal is announced, that it will substantially underperform the market during that time. Even after the deal has been ‘digested’ by the market, the shares will still be sluggish because investors simply do not trust the CEO’s who do bought deals. I try to explain this to management teams, but some people are just a bit dense. My good friend Bill Fleckenstein has a rule about bought deals, where he simply sells some of the shares on the day that the deal is announced. In the future, I will do that as well.

About a year ago, I wrote a piece on Energold’s last bought deal. It’s good reading if you want to learn more about bought deals.

Regarding Energold, you recently wrote: “The company re-allocated rigs to the majors in 2009 and did just fine”. Do the majors pay less than the juniors (why deal with the juniors in the first place)? Also, is there really that much demand from the majors? I was once told that the majors don’t do grass roots exploration because it uses up management resources and even if they find something, it is unlikely to move the needle.

Majors pay substantially less per meter and are much lower margin business, but it is stable and predictable. The majors do a lot of drilling, they just don’t tend to do the high margin small drilling projects that juniors do. Majors do tens of thousands of meters of infill drilling on their minesite in order to better determine grade data.


This is one of the best interviews I have listened to in years.  It’s 44 minutes long but worth your time IMO.  Mentions farmland in minute 32 which I also believe can be a major trend

This comes from a good friend of mine (also posted on Ask Fleck). Listen twice. It’s just that good…

Hi Kuppy – Assuming growth remains on current trends, what would you expect the share price of Energold to be a year from now, 2 years from now and 5 years from now? I realize a lot can happen in between but I am interested in your perpective on what you feel would be appropriate value.

Thanks in advance.

I’m sorry, but this sort of question is impossible to answer. There are just too many variables. Put it this way, I bought my first shares when they traded for about half of today’s prices. Since that time, they have grown the rig-count by nearly ten times and also added a VERY profitable energy services division and also a drill rig production company and tens of millions of cash on the balance sheet. The share count has not quite doubled during the 6 years that I have owned this. I would never in my wildest dreams have thought that it would only double in six years. Who knows what the next 2-5 years brings? I buy cheap businesses, with good economics and secular tailwinds. When I’m patient, I tend to make a lot of money, but I never know how much or when it will be realized….

Thans for the new article, there’s a smilier but longer interview with the CEO on Sky:


If you watched this interview and read the press release, you would think that the shares should be down 10% on the quarter, maybe 20%. Losing over half, after already dropping a lot seems extreme to me.

Given the potential for a hard landing in China, combined with global recession, isn’t it possible that another significant down turn in demand could result in still lower prices for industial metasl/commodities? It seems to me that expecting base metals and other industrial commodities to overcome a demand downturn due to the printing presses may be too cute. Surely money printing may provide relative support and keep the absolute decline “less bad.” Also, the new focus from the gold miners on shareholder returns and capital discipline may require a period of sustained higher prices before they commit to new projects, which could make a natural source of drilling demand due to the printing presses less robust – at least for this current cyclical time frame.

I don’t hold any positions long or short in the drillers, but I have and will continue to monitor them for a potential cycle trough. Thank you for taking my question and entertaining my thoughts.

Right now, existing mines need to continue to drill in order to plan their mining sequences. As long as metal prices are high enough for these mines to be economic, they will continue to mine–they have no choice. I really don’t see a scenario where a lot of these mines are shuttered. Greenfield exploration will suffer in the short term, but the drillers have decent balance sheets and will do just fine. I am really not focused on the next quarter or 2. All I know is that if you have an industry that has mined more stuff than they have discovered for 25 years, eventually, they will have no choice but to explore for more, and given the rapid declines in average grades and increases in strip ratios, that time is coming soon. If you can time when this cyclical bottom is, you’re smarter than me. I’m just holding.

Dear Kuppy,
Do your words “I will never again invest in a mining company.” also include the likes of an Energold, that if you could do it all over again, you would not now invest in Energold? Or rather it would be a trade as well, not an investment?

I don’t think of energold as a mining company. If i had to do it all over again, I would have sold half of my position when they announced the bought deal, but I would still be long and I’d have the firepower to add it back after the (predictable) drop in the shares after the bought deal.

Kuppy!! 2 stock picks in a week? What gives? We’ve been waiting a year for the next play. Are you worried that the market is going to new highs so need exposure? or are there actual bargains?

haha. Not sure what gives. I’m tracking a lot of ideas. It just happened that I saw two things that were actionable. BLY isn’t really a pick, it’s a trade. AYR is a real investment for me though. Trust me, it has nothing to do with the broader market making highs, my picks are near their yearly lows….

if you haven’t seen it already, a piece on Mongolia/China relations and recent ruling to limit Chinese ownership of Mongolian enterprises: http://blogs.wsj.com/chinarealtime/2012/09/06/geography-rules-why-mongolias-china-mining-strategy-is-a-mistake/
–> also interesting comment by “OODA loop STAT” on the comments page. Still enjoying your site!

I posted this for readers following Mongolia. I think that the writers look at this from the Western perspective thinking only of the economics, while OODA loop STAT (in the more comments page) really gets to the heart of how many Mongolians think of the issues. Read together, it gets a pretty thorough view of things. I tend to come down more on OODA’s side as I live in Mongolia.