December 3, 2017
December 3, 2017


I just saw the 12:01am premier showing of Wall Street–Money Never Sleeps. I waited about a decade for it.

Put it this way, I will eventually make back the $14 dollars I wasted on this awful movie. Unfortunately, I can never get back the three hours of my life…. Enjoy your weekend–don’t even think about seeing this movie.

Kuppy, nice intro on the cns example and its a great tease and now we will all be wondering if theres any other companies like this? Always looking for new ideas to buy, especially in this market when all Im comfortable holding is things that benefit money printing

Wish it was a tease…. I posted this because I want YOU to find ME the next one.. Haha

I’ve had quite of few of these advertising type plays turn out to be 5-baggers+ over the years. I’m always looking for the next one.

In all seriousness, it’s time that investors stop focusing on next quarters earnings and think big picture about what creates long term value and why. I intend to do a few more pieces like this. There are lots of places where hidden value can still exist, mainly because current growth expenses hide the true earnings of the business.

Visited Andean at thier Corporate office in Vancouver this week. Was hoping to talk to Mark Zabel but he was traveling. Sheera Waisman gave us the last financial statement and the last analysis package. She told us the Financial agreement with WestLB and Barclays Bank was still in the process with due diligence and they expected a response by the end of the year.
Now a couple of questions on your view of the financing outcome. If the banks should delay or pass,Trafigura has the right to finance the Invicta Project.
How might Trafigura effect the overall picture and what effect do you see on the current price of the stock? Also what effect would you expect to see on the price when the mine comes on line next year?

Wow! That’s like a 10-part question. Let me do my best.

To start with, Mark Zabel is by far the best person to speak with. He is currently in Peru.

The banks certainly want to do this project. I spoke with them a few months back and they were excited for it. Multiple friends have spoken with the lead bankers and they say the same thing. A project like this is unusually high in returns on capital for the banks because there are so many different fees along the way. Usually those fees get amortized over a 5-year loan. In this case, the loan probably gets paid back within a year of the start of production. That means they get their money back and the fees. The return on capital is so high that the project is also relatively low risk for the banks. That said, the banks can always walk away or management can get frustrated trying to fill out all the documentation needed for the loan.

Trafigura has the right to finance–that doesn’t mean that they WILL finance it though. (keep that in mind). It will add a lot more dilution, but you need to keep it all in perspective. Once financed, the company should see a significant increase in valuation. A bit of dilution won’t be the worst problem in the world.

The rough numbers I’m using personally are that they will have $150/tonne in recovered rock and process 1.5 million tonnes a year. That gets you $225m of cash flow. At any sort of reasonable peer multiple, that gets you over a billion dollar market cap. Will a few extra shares matter? If it was already a billion dollar market cap, I’d be concerned. With the market cap now at barely $100 million, I’m content to just let them do what they need to do in order to get this into production.

I should point out that when the shares were at 30 cents a year ago, any large capital raise would create very serious dilution. With the shares now in the 90 cent range, there will be 1/3 less dilution. The higher the shares go, the less risky they are in terms of total dilution. In every other asset class, as it goes higher, it becomes less attractive–junior mining is quite unique in that as it goes higher, it is more attractive. Go figure.

On a final note, if the banks and Trafigura both pass (which I think is unlikely), the company can probably raise money using high interest bridge debt or converts–both options are much less dilutive than using straight equity. Keep in mind that management has come this far without diluting shareholders with a big equity raise. They could have raised all the money they wanted a year ago but held off because bank debt is much less dilutive. I think the company will find the right solution to minimize dilution. Unlike most junior mining companies, management has a big stake in this. They actually care about building value rather than just building a big company.

Speaking of the black market. When growing up in Quebec, there was a black market for everything….  It was not uncommon at all for small businessmen to carry around 10-20K in cash in there pockets.  If you called a plumber, there were 2 prices (cash or check).  I hope it doesn’t happen here because of the mess it creates but I am in agreement with you…I don’t see how we avoid it unless things start to change.  The middle class is getting squeezed and inflation will simply destroy what they have left.  They will get creative with how far they stretch their dollar.

it was rampant starting in the late 70s early 80s and continued throughout the late 80s when I left.  I don’t get the sense it as pervasive today as it was then but is still pretty prevalent today.  I agree 100%…once it starts, then everyone gets involved or you are forced out of business…everyone then expects it and you can’t get rid of the culture.

I remember the first years in the US…taxes were so low relative to Quebec that I happily paid and as you said, didn’t even bother figuring out all the deductions I was entitled to.  It’s changing quickly here, to the point that I am even contemplating working less to reduce my taxable income…I have all the $ I need so why work so hard simply to pay taxes…this attitude was prevalent in Quebec as well…most people who were well off just left and went to Toronto or the USA or went underground or simply retired.

Thanks for the note. I went to Argentina for three weeks earlier this year. There were 4 prices for everything. Argentine Peso with a receipt was the most expensive. US dollar with no paper trail was the cheapest. You could save 10-50% by paying with USD. Bad governance and high taxes force people to be creative about preserving their income. It’s a real dangerous process once it starts. I will write more about Argentina at some point.

Thanks for providing some excellent investment information. I would like to start doing my own homework in analyzing companies, but am not sure where to start. Do you have any book recommendations for value investors, like yourself?

Honestly, I hardly ever read much about finance any more. I mostly read history. This stuff all repeats.

Naturally, you need to start with the basics and read everything by Buffett and Graham and Dodd,

For insight, I would recommend;

Tomorrow’s Gold by Marc Faber

Both of Jim Rogers travel guides are excellent.

Both of Joel Greenblatt’s books are also excellent

For accounting, I would recommend;

The Financial Numbers Game by Mulford and Cominskey

Financial Shenanigans by Schilit

Quality of Earnings by O’Glove

For how to think about investing;

You should read all of the market wizards books

Honestly, the way that I learned to make money is that I sat down for a year with lists of the best performing stocks on rolling 5-year periods going back to the 1950s or whenever my data cut off and I tried to deconstruct what happened (revenue growth, margins, ROA, ROE, price multiples, etc.) Once I had my models for why things worked, then I tried to figure out if I could have seen it before it happened and at what point I would have recognized it. This business is just about pattern recognition. It takes a very long time to do, but you cannot read a book to learn it. you need to spend a year of your life doing it for yourself.

After that, just start reading financial history. At some point, I will probably add a tab to my site with the 50 best books I’ve read or something as you aren’t the first one to ask. It’s on the list of things to do at this site.