Glutton For Punishment

Having left the metals and mining industry (almost 3 1/2 years ago) after losing millions in paper gains and actual losses- again, “Glutton For Punishment Grandich” does it to himself (again) by trying to do a good thing in sharing his “adventures in stocks”. By doing so, he once again has people concern and wishing they never heard from him (and that’s just in his own household).

Well another name can be added to the forehead of the “former” Wall Street Whiz Kid, as he now writes this blog post with full intentions of being “in for a penny in for a pound” on his two stocks he and his family owns. How so? This morning, I sent an email to close friends (and even shared with my Facebook friends), suggesting the thought to consider ownership “today”, in one of the two stocks I own – Nevsun Resources-NSU $2.14. Why should I be hated 6 or 12 months from now just by a few-lol?

Please allow me to briefly comment on NSU (and also the one other stock I own, Teranga Gold. I also have a large short position on the stock market through the ETF SH-NYSE $34.07).

Here’s my thoughts in a nutshell:

NSU – The decision to dramatically cut its dividend earlier this year was a prudent one for the long-term. But, because I (and apparently many others were) was led to believe by two officers of the company that the dividend was all but secure for at least 2017, I chose to ass-u-me that if in 2018 the decision to cut it to build the mine occurred, the share price wouldn’t suffer anywhere near as it has because by then, we would know so much more about the upper and lower zones and Timok (and production problems at Bisha would long be behind us). The expectation was that perceived worth of the company would be so much higher by then, that the dividend cut wouldn’t come close to negatively impacting the share price as it has since the truly “surprised” cut occurred.

This has without a doubt, been a leading factor in the dramatic decline we have seen so far this year (and why I told those two officers what I felt: said I lost all respect for them; that they botched any and all good will they had built with me and likely many shareholders; and they should resign – one is retiring soon, but unfortunately, the other one remains. Sadly he’s still in charge of business development – a feat I believe he is incapable of doing well and hopefully the new CEO will see that early on when he arrives).

What makes this all the more frustrating is, I truly believe in my heart of hearts, NSU has never been in a better position to grow as a company. Today, May 5th, may be among its most “undervalued” share price relative to fundamentals as we know them today. That’s why I’m not surprised to see insiders stepping up, something that hasn’t  occurred at NSU for a very long time (multiple purchases just yesterday)

Unless copper and zinc prices collapse from here, an unknown factor badly impacts current assets, and/or the equity markets themselves fall out of bed, the downside risk from here appears minuscule.

If I’m wrong, again, this could be my family theme song for the remainder of my natural life.

TGCDF – Unlike NSU, the sharp decline in Teranga’s share price has not come from poor handling of corporate matters by management (In fact, management is doing a great job). While some of the retreat in the share price could be over the coming reverse split next week, by-in-large, I suspect most of it has taken place due to an ETF’s need to unwind tens of millions of Teranga shares (along with many other companies shares) due to an adjustment in the fund itself. This selling, and likely still a fair amount of overhang, has given shorts “easy pickings” (especially with gold under short-term pressures).

But like adversity always creates opportunity for someone, buyers of the company’s stock today ($.48 pre-split or $2.40 after reverse-split next week) appear to have mostly opportunity going forward at today’s share price entry point. While its natural to think the stock will retreat after the reverse as most do, most companies who do reverse split, do so just to start over. Teranga has never been in a better corporate position and should be one of those few that greatly profits from the reverse over time. They’re treated like a penny stock despite performing on the corporate side of things like an emerging blue chip mining company.

Sometime between today and the day the rebalancing ETF will have completed its restructuring (mid-June), should mark the new leg up in Teranga’s share price, and a new more institutionally driven shareholder emerge.

Given the fact that both companies fundamentals have never been better IMHO, yet their share prices are way off their highs, the biggest challenge for them both could be staying independent. Both have a key shareholder or two that own a hefty minority stake, so I don’t see a hostile bid succeeding unless it was made in the near-term and for at least 100% higher than today’s share price. That could clinch enough sellers and quite frankly, I think I would end up one too. But don’t be a shareholder for this. Be one with expectations of owning it for the next 1-3 years for potential superior capital gains from here.