10/31/2011
December 3, 2017
10/17/2011
December 3, 2017

10/23/2011

I’m in Hong Kong…


Kuppy,
I enjoyed your well informed book list. I was relieved to see that you aren’t a Randian; one never knows.

I saw this as I got off the plane in Hong Kong. Laughed for like 5 minutes…


Thank you for your awesome website. I have been getting my head around the thesis of investing in gold and silver. In some old articles you mentioned that your position in these metals were established when they traded at/below cost of production. Now that both commodities are comfortably above production cost, it seems that the rationale is now as a store of value and hedge against the government’s actions. It appears now that much of the the demand for the metals is driven by investors fear making me think that these are quite speculative. If you’ve made multiples on your investment already (based on my understanding), are you still expecting to make multiples from this point going forward even though premiums to production cost will continue to increase and demand is increasingly driven by investors? At some point, I would assume this becomes speculative.

Gold and silver clearly aren’t as cheap as they were when I first started buying in 2003. Gold is closer to its cost of production than silver is. However, the cost of production is increasing 10-20% a year and that adds to the future value of the commodities. If governments continue to debase their currencies, then the costs of producing metals will continue to go higher and the metals will follow the cost higher.


how long did it take you to read decline and fall of the roman empire, how many years ago did you read it, and at what point in your life (i don’t know how old you are)?

You’re making the mistake of presupposing that I’ve only read it once…. Every few years I re-read it. In terms of elegance of writing, it’s one of the best books in our language–it’s also quite informative. I read it for the first time in boarding school.


MERC is continuing to trend lower with the global economic head winds. Are you inclined to add to your core position at this level, hold pat or trim your position? Thanks

I’ve nibbled a bit more, but it’s a pretty full position. It’s a cyclical business that I think may have a secular upswing–that sort of thinking has generally cost guys lots of money over the years–so you have to keep the position somewhat smaller than normal. That said, it’s hard not to like it at 2x cash flow….


Kuppy are there any Australian Resource Companies (with the exception of BHP and RIO) that you would recommend that are operating in Mongolia at present?

I’ve stopped looking at resource companies. Sorry. With a few exceptions, they’re all destroyers of capital.


I have been researching Energold (EGD), a company that initially looked quite promising to me, especially after your thoughtful and well-researched write-ups. After speaking to employees at a few of EGD’s competitors, I’ve started to become a little worried about the investment thesis (obviously some discounting must be done of the employees’ motives, etc.) These concerns are the following:

(1) The drilling technology does not seem to be proprietary; rather, it seems to be copyable from other companies, and vice-versa. (2) It seems to have produced poor-quality drills, which led to unsatisfactory results in multiple drilling situations, (3) It seems like the industry might be trending away from smaller-core, more man-portable drills, to larger-core capable drills (HQ, not NQ). (4) It seems as though there is no real barrier to entry to another company vertically integrating the production and drilling sides of the business. That is, while there may be a cost disadvantage to doing that currently, it seems like something that a larger company, or another entrepreneur with capital, could do.

I appreciate the critical questions. I started this site mainly to have others question my thinking on things. Here are some responses;

1- The technology isn’t exactly proprietary. At the same time, no one else seems to be utilizing the technology b/c no one has the ability to crew up these rigs in the 3rd world. Their infrastructure just doesn’t exist. Remember that there are also hundreds of drilling companies out there that all have similar technology and many of them tend to make money. EGD has a moat b/c they can operate in places where others cannot or refuse to.

2- I don’t know where you’ve heard of this. All drill rigs have issues at times with core–often it’s b/c the core is simply highly fractured and no rig could recover it. It’s not an EGD issue.

3- I disagree strongly. If that were the case, EGD wouldn’t be turning away so much business b/c they don’t have enough rigs/crews. While Boart Longyear operates at way less than full capacity with all the big expensive drills.

4- I’ve never said that it can’t be replicated. It will take you 5-6 years and lots of capital to do it though.