likemindedpeoplemedia.angelnexus.com/pdf/lmp/lmp-august-2016-m5e.pdf · 2018. 2. 16. · agrium has...

August 2016

LIKEMINDEDPEOPLEliberty markets prosperity

August 2016 IssueLIKEMINDEDPEOPLEliberty markets prosperity

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In this issue:

• YTD Recap

• Contrarian Buy: Fertilizers

• Income Portfolio Q2 Results

• Fission Uranium Early Summer Drill Results

• Almadex Makes a Discovery

We start with a brief recap of the year so far.

Equities, particularly in the U.S., continue to push higher on the back of zero- and no-interest rate monetary policy. Some $13 trillion worth of global bonds now take your money to own them.

That makes stocks — even at 25x earnings — attractive. As such, the S&P 500 is up just over 8% for the year so far. I’ll be the first to tell you that we have likely left a few percentage points on the table being so suspicious of mainstream stocks.

Though I remain convinced the arc of stocks’ moonshot is nearing its end. The see-saw we long discussed, in fact, is showing signs of teetering the other way.

Don’t lament a light equity stake over these past few months for too long, however. We’ve taken profits this year from mainstream names like Coca-Cola FEMSA, Statoil, telco IDT, and a water ETF.

We’re also sitting up 21% in oil MLP PBF Logistics (NYSE: PBFX), as well as 69% in business development corp Newtek (NASDAQ: NEWT).

Still, our biggest open gains have come from our contrarian plays.

While the S&P is up a respectable 8% for the year (for all the wrong reasons, remember), gold is up 26% and junior miners are up 160% as evidenced by the Junior Gold Miners ETF (GDXJ).

For our part, we’re up

• 34% on Brazil Resources


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• 52% on Ivanhoe Mines

• 52% on Midas Gold

• 101% on Almaden Minerals

• 110% on Roxgold

• 150% on Almadex

We just bought Ivanhoe in June and Brazil Resources in July.

The see-saw is beginning to tilt the other way.

Increasingly, major market players see it.

In his most recent Investment Outlook, published on August 3rd, Bill Gross, who runs the $1.5 billion Janus Global Bond Fund, noted:

“Negative returns and principal losses in many asset categories are increasingly possible unless nominal growth rates reach acceptable levels,”

“I don’t like bonds; I don’t like most stocks; I don’t like private equity. Real assets such as land, gold, and tangible plant and equipment at a discount are favored asset categories.”

He added that capitalism can’t function with zero interest rates and that current monetary policy may raise asset prices, but it destroys savings.

Others that have come out for gold in the past few months include:

Bank of America — Lifted its target on gold to $1,475 in July.

David Einhorn — His $9 billion Greenlight Capital fund remained up on the year after the second quarter thanks to gold and gold stocks, which are one of its largest positions.

Juerg Kiener, of Swiss Asia Capital Singapore, called for gold to hit new highs above $1,900 in the next 18 months on CNBC in July.


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George Soros’ $30 billion family fund recently sold stocks and bought gold amid a “gloomier” view of the global economy.

We continue with our contrarian approach. Much news and action to cover today so let’s get into it.

Land, Food, WaterSometimes I struggle to know in which section of our portfolio to place a holding. CVR Partners is a fertilizer company that pays a large yield. Should it go in “Land, Food, Water” or “Income”? Lindsay Corp. is a water company that pays a small dividend. Same question.

For the record, I put CVR in the “Income” portfolio and Lindsay in the “Land, Food, Water” portfolio. Though the latter is now providing us more income.

Lindsay Corp. (NYSE: LNN) announced in late July that it’s raising its quarterly cash dividend to $0.29 per share, or $1.16 annually — a 4% increase over the existing $0.28/share dividend. That’s a 1.6% yield based on the current share price of $70.00.

The agriculture sector has been in a tough spot the past few years as net farm incomes have fallen 56% since 2013 to $54.8 billion annually, which has limited farmer spending on equipment. That sector is now turning around as evidenced by the numerous large deals announced in the space over the past few months.

Bayer has recently offered to buy Monsanto. Dow and DuPont have combined. China National Chemical is trying to buy Syngenta. Mosaic is looking to buy Vale’s South American fertilizer assets. Anglo American sold its South American phosphate assets to China in April.

In the past few months, China has entered the market to buy fertilizer. It will become — for the first time ever — a net importer of phosphate over the next few years.

And not only does Lindsay operate in the irrigation space, but it also operates in the infrastructure and water spaces, both of which will be growth areas in the coming years.

Lindsay Corp. remains a buy under $80.00.

Our other holding in this space is Arianne Phosphate (TSX-V: DAN)(OTC: DRRSF).

While there has been a bit of pricing pressure from Morocco and China, phosphate prices have risen eight of the last nine quarters, and have been a relative bright spot in the


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commodity space the past few years.

Plus the world isn’t making fewer mouths to feed.

Arianne will eventually be recognized as the best undeveloped phosphate asset in the world.

Its concentrate will be a premium product at 39% phosphorus pentoxide versus the industry average of 32-34%, meaning it will fetch higher prices.

And it has a lot of it. Projections show some 3 million tonnes per year for almost 40 years.

It has a net present value of around $2 billion yet currently trades with a market cap of C$95 million.

I recently had a good, long chat with the new CEO of Arianne, Brian Ostroff.

In many ways, Arianne is a victim of its own success. Its phosphate is a high-grade, premium product that will fetch a premium in the market. Its one project — the Lac à Paul project in Quebec — is massive. It would make Canada the fourth-largest global producer of phosphate overnight.

The project is fully permitted and ready to be developed. It has the blessing of local officials.

In short, when people look at it (including institutions) they wonder what they’re missing. How can it be so cheap? What’s the fatal flaw? What is Arianne not telling them?

I don’t think there is anything sinister afoot. And while Arianne was certainly a victim of general agricultural and fertilizer sector weakness in the past, I think that is starting to abate. The chart below compares Arianne to the Global X Fertilizer ETF over the past five years.


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In late June, Arianne engaged Endeavor Financial as its project finance advisor. Endeavor is no slouch, and has closed over $4 billion in single-asset project financings over the past 10 years.

If no one steps up to buy Lac à Paul, Arianne will begin ushering it into production on its own.

Arianne Phosphate (TSX-V: DAN)(OTC: DRRSF) is a buy under C$1.00. It trades at C$0.98. We are up 22% on our position.

New Fertilizer Buy: Agrium (NYSE: AGU)

We have a phosphate play in Arianne. We have a nitrogen play in CVR Partners (which we’ll get to in the “Income” section.) Let’s add a potash play with diversification to boot.

Agrium is the third largest potash producer in North America. It’s also the largest agricultural retail operator in the U.S. with more than 750 farm stores. It also sells nitrogen and phosphate, crop protection like herbicides and fungicides, fencing, and plant and livestock analysis services.

It is based in Calgary.

Agrium has a market cap of $12.67 billion and currently has an annual yield of 3.89%.

In comparison to its peers, Agrium’s diversification has allowed it to maintain revenue and earnings over the past few years. It has even increased its dividend every year since 2012 while other major fertilizer companies had to cut theirs.

I like the contrarian nature of fertilizer right now. I like Agrium’s diversification in the space. I like its performance relative to its peers.

I’m recommending the purchase of Agrium (NYSE: AGU) as a long-term dividend play under $94.00.

IncomeOur nitrogen play, CVR Partners (NYSE: UAN), has endured a bit of a slide since it reported Q2 numbers late last month. While revenues of $119.8 million beat estimates (and were 48% higher than Q2 last year), EBITDA of $29.1 million was down from $36.1 million in the same


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quarter last year.

CVR completed its acquisition of Rentech Nitrogen Partners during the quarter, and a full turnaround of its East Dubuque facility was completed during the quarter. While CVR’s Coffeyville facility had uptime around 95% during the quarter, the East Dubuque facility hovered at 69%. That will improve this quarter now that the refurbishment is complete.

The company has $76.3 million in cash. Capital expenditures will be cut in half this quarter as the final payment for the new ammonia converter at East Dubuque is made.

The company will pay $0.17 per unit this quarter, which equates to an annual yield near 10%.

CVR Partners trades at $6.75 and is a buy under $8.15.

Our only current oil play, PBF Logistics (NYSE: PBFX), had solid Q2 earnings and raised its dividend.

Excluding a one-time item for expenses related to the acquisition of four refined product terminals from Plains All American, PBF had earnings per unit of $0.51, exactly in line with expectations.

According to CEO Tom Nimbley:

“During the second quarter our assets performed well and, with the completion of the East Coast Terminals acquisition in April, we increased our asset base and introduced third-party revenue to our growing business. The integration of the East Coast Terminals into our legacy East Coast assets went well and we have commenced the necessary infrastructure investments to expand the East Coast Terminals and generate additional revenue. We are pleased that the board of directors has approved an increase in our quarterly distribution to $0.43 per common unit.”

PBF Logistics is now yielding nearly 8%. It is trading at $22.16. We are up 21%, and are only buying new shares below $20.00. There is a great writeup on the company here.

Newtek (NASDAQ: NEWT) posted net income of $5.4 million for the second quarter, or $0.37 per share. The company’s net asset value climbed to $14.11 per share from $14.06 per share at the end of 2015.

Newtek also increased its dividend forecast, which is the primary reason we own the stock. It now expects to pay $1.53 per share this year, up from $1.52. That’s a 10% yield.

http://seekingalpha.com/article/3997247-pbf-logistics-outlook-confused-parent


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Newtek trades at $13.61 and is a buy under $14.50. We’re up 69% when factoring in the one-time special dividend from last year.

EnergyFission Uranium (TSX: FCU)(OTC: FCUUF) has announced the first early results from the summer drill program in mid-July.

If I were a betting man I’d say they found more uranium. And they did.

All six of the first holes announced intersected shallow and wide mineralization. Three holes were drilled in R840W and three were drilled in R1620E.

Importantly, holes on the western side of R1620E expanded the zone another 15 meters toward the Triple R deposit, and expanded the strike length of the high-grade core in that zone to 60 meters (tripled from 20m). High-grade mineralization was found for the first time there this past winter, and now these early summer results are showing even more promise in the area.

And it’s a similar story on the western side, in zone R840W, where all three holes hit wide and shallow mineralization.

Here’s your map:

(Click to Enlarge)

http://fissionuranium.mwnewsroom.com/press-releases/fission-hits-7-1m-of-10000-cps-at-r1620e-narrows-gap-between-zones-tsx-fcu-201607181062968001https://images.angelpub.com/2016/29/39061/july-2016-pls-drill-map.jpghttps://images.angelpub.com/2016/29/39061/july-2016-pls-drill-map.jpg


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The world’s best undeveloped uranium asset just got bestier. You can hear President & COO Ross McElroy discuss the results here.

A second batch of early results were out on August 2nd.

This time, Fission intersected wide, high-grade, shallow mineralization at both the R840W and R1620E — the easternmost and westernmost sides of the project, which now spans 2.58 kilometers.

The high-grade core of R1620E alone is now over 95 meters in strike length.

Once the cores are assayed they will add to Fission’s pounds in the ground. The market, of course, isn’t interested in more pounds right now. Its eyes are on the price of uranium, which needs to rise before related stocks do, no matter how great their assets are.

Here’s the map of the recent holes:

(Click to Enlarge)

Fission Uranium (TSX: FCU)(OTC: FCUUF) was also out last month with a 3D animation of how its deposit has grown since 2012. I made a visit up there back then, and it’s been fascinating to watch this grow into the best undeveloped uranium asset in the world. And it’s still growing. When uranium prices start to rise, Fission is going to make us a lot of money.

http://www.resourcestockdigest.com/sspr/index.php?&content_id=3674http://fissionuranium.mwnewsroom.com/press-releases/fission-hits-multiple-high-grade-holes-at-both-ends-of-2-58km-trend-tsx-fcu-201608021064487001https://images.angelpub.com/2016/31/39294/pls-august-2016-map.jpghttps://images.angelpub.com/2016/31/39294/pls-august-2016-map.jpg


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(Click to Play)

Fission Uranium is a buy under C$0.70 and trades at C$0.69.

When the uranium bull market starts Fission will act as a proxy, and you’ll see it do what some of the best junior golds stocks have done so far this year, which is go up 200%-600%.

We continue to buy its sister company, Fission 3.0 (TSX-V: FUU)(OTC: FISOF) below C$0.09. It trades at C$0.07.

On the renewable side of things, solar stocks just haven’t been able to catch a bid despite record deployments. Globally, some 65 new gigawatts of solar electricity capacity will be installed this year — a record, and enough to power 10.7 million homes. But because of high debt levels and low margins, related stocks have had trouble gaining traction.

Solar energy is expected to produce 3.6% of the world’s energy in 2022, up 414% from 0.7% in 2014. Still, most solar stocks are down some 35% over the past year.

And that’s what has been holding down our position in the First Trust Clean Edge Green Energy ETF (NASDAQ: QCLN). While it holds large chunks of circuit board companies and other supportive industries that are doing well, its position in multiple solar companies like First Solar and Sunpower that are sitting near 52-week lows has limited its upside. I’m reducing the buy under in QCLN to $16.00. It trades at $15.42.

I believe we are approaching the bottom in oil and am doing diligence on a potential investment in that space.

http://fissionuranium.com/ceo-corner/index.php?&content_id=274http://fissionuranium.com/ceo-corner/index.php?&content_id=274


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Safety from Centralized PowerAs I noted at the beginning of this issue, our mining stocks have delivered for us in a big way this year.

Our worst return in the sector is 36% — from Brazil Resources, which we’ve only held since June.

The sector is red hot. And I think it’s going higher.

Remember, the junior mining sector as a whole was down 90% from its peak in 2010.

It could double three times and not be back to where it was.

It’s only doubled once so far, as the GDXJ moved from $17 in January to $34 by May. It would have to double 2.5X more to get back to the $171/share it traded in 2010.

The sector won’t run straight up. We will protect some profits along the way. But we are — by all definitions — back in a bull market for precious metals. Base, energy, and strategic metals will follow. There will be new companies to buy.

Here’s where we are with current positions…

I hope you got your Ivanhoe Mines (TSX: IVN)(OTC: IVPAF).

We’ve been buying well below $1.00 since early June.


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What a promoter it has in its Chairman and Founder Robert Friedland. A few weeks ago I attended the Sprott Natural Resource Symposium in Vancouver. I think he had the entire Sprott crowd convinced Ivanhoe is the best stock ever.

And it is pretty good. Just a few months ago it was trading at cash, despite having three of the best resource assets in the world in Platreef, Kamoa, and Kipushi. Kamoa was just ranked the best undeveloped mineral deposit in the world by the prestigious Mining Journal. China’s Zijin Mining paid $412 million for just under half of it. Platreef is a world-class PGM mine that’s being built now. And Kipushi is a former high-grade, underground zinc-copper mine that’s being reestablished.

Mr. Friedland talked them all up big time from the stage in late July in front of a very influential and deep-pocketed audience, and the stock has put on a show since — up as much as 40% in the past three weeks.

I don’t have a recording of his talk from the conference, but if you want to hear Robert Friedland talk up Ivanhoe’s assets check out this interview he did recently with Rick Rule.

We’re now up 56% on our position.

Ivanhoe Mines trades at C$1.55 and is only a buy under C$1.00 for now.

Full commercial production is expected this quarter at Roxgold’s (TSX-V: ROG)(OTC: ROGFF) Yaramoko mine. Recoveries from early production so far are higher than expected.

Roxgold has also announced the exercising of 12.9 million warrants by International Finance Corporation at C$0.90 per share. This represents ~US$9 million in proceeds for Roxgold.

https://soundcloud.com/sprott-us-media/rick-robert-finalhttp://www.roxgold.com/s/NewsReleases.asp?ReportID=755556&_Type=News-Releases&_Title=Roxgold-Receives-US9-Million-from-Early-Warrant-Exercise-and-Announces-Chan...


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That is a nice capital injection that will allow the company to accelerate its exploration of the 55 Zone and Bagassi South.

CEO John Dorward commented that “further exploration will support additional gold production and mine life growth at Yaramoko” and that the company will have “an aggressive program commencing in the fourth quarter.”

The details of the drilling program include:

• Expansion drilling at the 55 Zone to delineate potential extensions to strike below the floor of the current mine plan at 430 metres

• Further drilling at the QV1 and QV’ Zones at Bagassi South to further delineate and define the recently released maiden resource

• Structural studies and analysis to identify prospective horizons for additional zones in proximity to the 55 Zone and other targets adjacent to the Boni Shear Zone

• Further auger and soil geochemistry on the southern portion of the Yaramoko concession to extend the Kaho Zone

There are several upcoming catalysts that could see our shares trade higher, starting with the release of the results from a recently completed 11,000 meter drill program at 55 Zone this month.

We can also expect an updated mine plan by the end of the year that incorporates those drill results, as well as further assessment of the technical and economic aspects of Bagassi South.

So plenty of potential upside left in Roxgold.

Accordingly, BMO Capital Markets has increased its price target to C$2.00., noting:

Strong cash position sustained during ramp-up. The company reported cash of approximately $33.8M at the end of June compared to our estimate of $32M, receivables from gold sales of approximately $6M, and gold bullion inventory at market value of approximately $8.2M, bringing Roxgold’s total cash and gold position to around $48M. The $10M shares for services agreement with the underground mining contractor remains in place, but the company does not envisage utilizing the facility. Overall, Roxgold continues to appear well funded towards commercial production, and, with gold sales accelerating, could reach a cash-neutral position


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relatively soon. The company expects to report Q2/16 financial results on August 17.

Roxgold is rated Outperform (Speculative). With a solid balance sheet and an impressive ramp-up to date, the company appears well positioned to establish a low-cost, 100kozpa operation. Results of a drilling program at the 55 Zone anticipated in August are expected to be incorporated in an updated mine plan prior to year-end, further defining opportunities.

I am raising the buy under on Roxgold to C$2.00/US$1.53. It trades at C$1.63.

In last month’s issue I raised the buy-under price on Almadex (TSX-V: AMZ)(OTC: AAXDF) to C$0.40/US$0.31.

And now, I’m going to raise it again as the company has made a discovery at the Norte Target at its El Cobre project. News out August 8th was word that diamond drill hole EC-16-010, the first hole drilled in the Norte Zone since 2008, intersected copper-gold mineralization, potassic alternation, and intense quartz stockwork veining from 153.5 to 317 meters. From 393.35 to 539.1 meters a further interval of intense veining and mineralization was intersected. Porphyry-style alteration continues to the end of the hole at 776 meters and is currently being sampled for analysis.

The company is setting up a drill with greater depth capacity to deepen the hole. A second drill rig and team is being mobilized so that drilling can continue on other El Cobre targets at the same time.

According to Almadex Chairman J. Duane Poliquin:

“These results now show the potential of the El Cobre project to host a significant gold-rich porphyry system. The Norte zone is one of four well defined porphyry centres within a very large zone of porphyry related alteration. We look forward to following up this exciting intercept with a drill program focused on the goal of defining a new gold-copper resource in Mexico.”

So there is follow-up drilling to look forward to. Plus, Almadex has two dozen other properties in its chest that it can sell or joint venture out. It also owns royalties on 15 other projects.

So it can appreciate from both new discoveries in a rising gold price environment while also becoming a cash-cow from the royalty streams of other projects.

I’m raising the buy-under price on Almadex (TSX-V: AMZ)(OTC: AMZ) to C$0.95/US$0.73.


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I am evaluating Almaden Minerals (TSX: AMM)(NYSE: AAU) and Midas Gold (TSX: MAX)(OTC: MDRPF) to decide our direction with those. They have performed beautifully so far this year, with Almaden doubling and Midas up some 250%:

So keep an eye out for further guidance on those two… as well as for a new play in the oil space as soon as I’m finished a bit more research.

Congrats on all the gains so far this year. Please send me a note with any successes you’ve had.

Call it like you see it,

Nick Hodge

Like Minded People, Outsider Club LLC Copyright © 2016, 111 Market Place, Suite 720, Baltimore, MD 21202. All rights reserved. No statement or expression of opinion, or any other matter herein, directly or indirectly, is an offer or the solicitation of an offer to buy or sell the securities or financial instruments mentioned. While we believe the sources of information to be reliable, we in no way represent or guarantee the accuracy of the statements made herein. Like Minded People or Outsider Club LLC does

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