December 3, 2017
December 3, 2017


Leaving for Miami. 2nd full week since May…. FYI, I was overwhelmed with requests for information on Mongolian bank accounts from readers. I’m going to look into this when back in UB in 10 days. My friend there handled about 5 of these and I felt that I had given her too many.

Currently there is an extreme correlation of individual stocks to the S&P 500,i.e. nearly all stocks have been going up or down with the averages. That would seem to be an advantage to a real investor that looks at companies rather than the stock market. That might be some reason that the market doesn’t appear to care very much about an individual company’s outlook?, i.e EGD?

Good companies will go up no matter what the market does. Just look at Mongolia. The exchange is up huge this year. EGD is cheap because no one knows it exists and most portfolio managers find it hard to believe that last quarter’s run-rate is sustainable. This was the breakout quarter. Put another one up like this and we’re in double digit land on the share price b/c then it’s a trend that they can plot out to infinity on a model…

Regarding Energold Drilling, you wrote:
” This is by far my largest position (and one of the largest that I’ve ever taken in my career).”

Can you share what percentage of your portfolio EGD constitutes?

I’d rather not just because I don’t want readers to carry larger positions than they feel comfortable with just because I am. What works for me in position sizing might not work for others.

How in 2006 did you get your thesis that the exploration market would continue to grow?
How do you make such a prediction that the exploration will continue to grow 3 fold from current levels?
It seems that all your investments involve some sort of tangible natural resource and you calculate numbers days or weeks on end to recognize mining or production shortages. Is this somewhat correct?
Thanks for such a learning expierence, I’m excited everytime I see a post. Wonderful Energold article!

In 2006, I started looking at what happened in other gold bull markets. Who wins? Just like Levi Strauss made more money than most of the miners combined, I figured that the drillers would be the largest beneficiaries. Then I figured out which drillers I liked the best. In the end, economics is all about supply and demand and I look for industries where demand is set to explode. When that happens, you get two things that wall street really loves: parabolic revenue growth and margin expansion. This ultimately leads to huge upside for share prices.

Hi Harris,
Energold is also one of the largest positions I have ever carried and I never carry more than eight or so.
Using a Graham and Dodd approach, EGD is a company I would be proud to own outright…as in ALL of it. My hat is off to the CEO and his team.
Not to be picky but if they were listed in the Toronto Exchange I’m sure that the stock would trade closer to my current fair value target of $12 to $14 a share.
In my experience, small caps can trade very lumpy and the extend VERY quickly.
So, my question is whether you know what the listing requirements are for the Toronto, would Energold qualify and do you believe it would make much difference?

I agree, the larger the exchange, the larger the PE multiple. I would think that they qualify for the TSX or NASDAQ if they were interested. I just don’t get the sense that they really care where the shares trade…

Hi Kuppy,
Good luck with your Mongolian adventures and thank you for your website.
Can you give some examples of investors that share your philosphy of buying into underappreciated growth themes in countries at turning points in their development?
Any examples of previous successful investments that we can study?
Templeton? I guess Buffett does not really take this approach?
Many thanks

Look through my ‘friends of kuppy’ tab. Many of them do similar things. I’m a big fan of Marc Faber and Jim Rogers who also have similar approaches. The Capitalist Exploits guys are always finding interesting things. Simon Black as well. I never know what country he will be in next. Agora group, casey’s group. There’s actually quite a lot of people doing similar things. Many of these guys have books and websites to read and learn from.

kuppy, your emails always contain the most interesting info.  I am thinking of buying some more physical silver.  Tulving Co has the lowest premiums bar none and free shipping but you have to buy in bulk.  Just curious….do you like silver?

Silver is going much higher over time if only b/c the US dollar is going so much lower….

I’m not a huge fan at these prices. I’d rather own other commodities that trade nearer to their cost of production. I’m a much l bigger fan of gold at current prices and agricultural prices are even lower. That’s where I’d focus my energy right now. It’s all one trade. If they debase the currency, all commodities go up–try to always cycle into the cheapest ones.

I’ve traded silver successfully a few times this year from the long time when it was oversold. I wouldn’t mind owning more–just prefer other things.

Is there a bear case out there against Energold that you are aware of? Have you spoken to any portfolio managers who have passed on the name and told you why (or any analysts that have gotten negative feedback)? I notice that Sprott owns a grand total of 7000 shares. It is not as though they or anyone else hasn’t had the chance to position themselves (for example on the last secondary).

When you have as large of a postition as I do in a company, you spend a lot of time thinking about the bear thesis. Fears are that he’ll do another dilutive secondary. That the junior market will stall out as they’re having a hard time raising capital. That China will blow up. It’s mostly the usual macro stuff. My biggest fear is that this whole company is about Fred Davidson. I worry that something may happen to him. He’s always in scary 3rd world places on business.

Just read this on your posting

How much in your estimation do the citizens of Germany and other Northern European countries care about the price of gold?. In the U.S., no one freaks out about it except Ron Paul supporters and Goldline clients. My thought is that if the Germans actually pay attention to it as a sign of impending inflation, that there will be a concerted effort to keep the price from rising while the ECB engages in whatever version of printing money they decide to do. I am not a conspiracy theorist, but it seems that it would be relatively easy to cap the price of gold for a short amount of time. Again, If the German public really looks to the price of gold as a measure of currency debasement, selling some at the right time would leave the Germans more complacent.


FWIW a friend of mine runs E-Dinar a gold trading outfit. There biggest volume is in Germany. More than anywhere else. They scaled out of the US and their main focus is on Germany since the takeup from everyone from individuals through to corporations is so strong. Anecdotal I guess but that’s what he told me.

Here’s another link on the topic.


This is from my friends at capitalistexploits.com I guess the Germans understand that the joke is on them. They’ve been agressive buyers.

Having read their Sept 2011 presentation at a CS conference, you have real fortitude. This thing is capital intensive, historically cyclical, and with 78% debt to cap. Only good think I see is an understandable 2.9x PE. What am I missing other than a hoped for supply/demand repricing of pulp?

It’s a phenominally awful business. However, that didn’t stop me from making huge money on copper stocks, methanol production and crude tankers coming out of the depths of 2002. Look at those charts!! When an awful business has finally seen demand catch up and exceed supply, you have huge margin expansion because it will take 5-10 years to add more pulp mills. This is an industry where demand is growing rapidly and there’s litterally only like 2% supply coming for the next 3-4 years. You can buy in for 3x cash flow. It reminds me a lot of copper when it first got over $1/lb in 2003 and guys said it was going back to $0.80. It sorta hovered around a dollar for a few months, almost proved the skeptics right, then went to $4.00 and my FCX went up 15x.

When you look at MERC, ignore the debt to cap as that’s misleading b/c you can need to remove the seg assets. When you do that, you realize it’s a much lower debt/cap and besides, the german govt has you back (they have lots of guys backs lately, but they paid for yours 3 years ago). The current mills also have a huge green energy credit that newer mills won’t have. You probably need $1000/t NBSK price as a breakeven for most new mills without Green credits. At $1000/t, MERC is 1x cash flow. What if NBSK is $1500 in a few years? Not saying it happens, but not saying it won’t either.

Its just like copper. If you built your copper i mine in 1970, it’s fully depreciated and you coin money. If you are building a new mine today, you need a $2.50 copper price to break even and a $3.00 price to make much money….

Then again, this is a binary position so I’ve sized it somewhat small, though i’ve added a lot here around $6.

Cheniere (LNG) has received permission from the DOE to export liquefied natural gas (LNG), the export facility won’t be up and running until 2015. LNG sell for $3.20 on our coast and $20 in England and $16 in Japan. In addition, the cost per BTU of natural gas is on par with coal currently, which is extreme. It is very easy to get a gas fired package boiler installed and up and running to generate electricity. Pipe the gas in and vent it out. Large investments are required for a coal plant, permitting, regulation, capex, coal handling, scrubbers, etc. The reason gas is so cheap is we have found more and the production methods have improved. The US has a big supply and it will likely get bigger (prices will matter as to the timing). The BTUs from natural gas are too cheap, we will figure out how to use the excess supply. Maybe in commercial fleets, power generation, export. Natural gas will not likely stay at price parity with coal indefinitely. Can you think of a way to arbitrage this?

I don’t know enough about LNG currently, but I feel pretty confident about saying that nat gas usage will increase substantially in the next few years here in the US. I would have to think that your math isn’t exactly right on the arb in the US vs England/Japan as transport costs are substantial and you need a lot of capital to transport gas as well. However, there probably is a play somewhere in here.

To your reader about the movement in UHN on the MSE:

UHN (Sudut) has been taken over and renamed Asia Pacific Properties and now trades as APP.  It was limit up again the last two trading sessions.  It is a vehicle for Lee Cashell’s real estate business.  The shares are gradually being repriced to a higher level.

This happened last month with AOI (Auto Impex), which rose over 400% in a month.

I want to thank a very knowlegable reader who runs a Mongolia focused fund for sending this in response to the question about UHN.


Kyle Bass has very publicly been short Japan and JGB. Do you have a trade here?

All my smartest friends are still long Yen and have been for years. I finally sold the last of mine on the spike following the earthquake. It was a huge run. It’s now the battle royale. Kyle bass is correct on a 5 year time-frame, but I have a hunch that my friends will be proven right for one last spike higher in Yen. Just for the record, I have a small short in JPY with a stop at the around 77.

I’m risking 1% to see what happens if the wheels fall off on the Japanese debt markets. It’s the final innings when the Japanese government offers you real money (gold) to buy their fake money (bonds). Reminds me of the ‘buy a condo in Miami and get a free BMW’ ads that came out after the developers realized they had a ton of inventory to unload fast. When this finally breaks, it will break hard and that’s when you can go ‘all in’ short JPY b/c it won’t stop until it goes to a few hundred. It’s going to do an Argentine devaluation.

If it were any country but the Japan, no one would have trusted them to get over 100% debt/GDP. Yet, here we are at 200%+ and climbing…

I spent the afternoon reading through your blog postings and must tell you that I was entranced by your story and where your research has taken you over the past few years. Like yourself, I am a self-taught nomadic contrarian investor from Florida, speaking English and a little Spanish, who has spent most of the last couple of years in China, Indonesia, Thailand, and Laos looking for special “opportunities”. After spending a year all over China, I have been in Lovina, Indonesia for the past couple of months trying to put a book together- “Case Study- How I turned $50k into $6.2 million in 22 months by following the Insiders” (or something similar). 2008 was an utter disaster for the port, but that’s a whole different story.

Anyway, I started reading your old postings today as I have become increasingly interested in Mongolia and am considering heading over for at least a few months after the New Year. If you have a chance, I would love to hear about your impression of life in Ulaanbaatar as an American. I am trying to diversify away from the stock market and am looking for “opportunities on the ground”. I guess I am looking to find out if there are entertaining things to do in the city: nightlife, decent restaurants, gyms etc. How have the locals treated you during your time there? Have you been able to meet other entrepreneurial foreigners around town? (do you think its a decent place to meet potential business partners?) I have many questions, but I will leave it at that as I know you’re very busy. If you could shed any light on your experience thus far, I would be very grateful. I look forward to reading more of your postings.

Sounds like you lead a pretty interesting life…

Ulaanbaatar is a great city when it’s not freezing cold like now (-30f). It’s still very enjoyable when indoors. The average age of the country is 26 and there’s a great nightlife, decent food and the people are quite warm and friendly–even if their english isn’t always that good. I’ve met quite a few entrepeneurial expats and made many friends with the Mongolians. My best advice is to go to UB and look around for yourself for a few weeks. It’s a small place. You’ll get a feel for it real quick.

Hi Kuppy
Thank you for your excellent blog and generous sharing.
In my experience I have found selling -whether to pyramid profits or cut loss, to be a much more difficult proposition than buying. One of your earlier post on Three Types of Positions is particularly insightful.
My question to you is that when would you generally consider exiting your core position when the thesis doesn’t play out even after says 2 – 3 years holding period, say for in the case of Andean (or Mercer if its share price still languish at USD6 12 months from now)? Is there any cut-off point that you would start reducing your exposure (say price drop by 30% or 50?)

Richard Pzena once commented the true test to a value investor how he reacts when his positions drops by 25% and 50% – whether to hold, buy more or sell. Your comments on this?
Best and thank you

Generally speaking, I buy stuff that I intend to hold for at least a few years. I buy more when it drops. I don’t sell unless the thesis changes. The thesis on Andean had clearly changed. New management has had a year and a half to get these community agreements and they’ve gotten nowhere. I’d say that it’s time to take some chips off the table and redeploy into better opportunities (not all, but no sense owning a dead asset and waiting)–even if the asset is worth well more than the current price and there is still the chance they get the permits or acquired.

On MERC, the thesis is playing out roughly inline with what I thought would happen. I’d only say it was busted if the price of NBSK dropped to $600 and stayed there a few years.

That said, I rarely pyramid much. Once its up, I don’t chase. I want to buy things when they’re cheap and unloved.