Most Deals are Bad Deals, Even the Good Ones

by George Irwin, Joburg Diary

I sat in on plenty of deals as a casual observer-cum-consultant. That was the capacity in which I liked to participate and that’s the capacity in which my associates liked me to participate. They wanted me there because I saw things in a way that was difficult for them. They’d hear the catchy high-level points of the deal and I’d translate. They were certain this task required someone quite a bit duller than they; someone without a pedigree.

And it was always the same words of caution that I heard myself conveying. I told them over and over that the deals were pretty bad as they stood; that no matter what, you are buying everything you don’t know about these business. Very calmly, I’d plea, “Let them pay you for what they already know is wrong with their business.”

My rule of thumb was to try and convince my associates to pay for no more than 10% of the alleged value of what was being offered. Most deals happened, and at pennies an oz. But the real lesson is this: less than a third of those deals, including some of the best ones, turned into a mine. So I guess the question really is:

Who won?

Ed. George, in his voluminous, unpublsihed diary, is an inveterate cynic, as seems also to be the case in his daily affairs, but I think the doubts by which he thought he was plagued were an asset. Here, however, I have to disagree with what he is implying. The implication, if I am to follow his line of thought to its logical conclusion, is that, though many were the good deals, too few were the developments into productive enterprises to make the dealmaking in the aggregate worthwhile. I know for a fact many were the mines that Irwin saw bloom into full, productive flower and surely he knew that but only one good deal may a fortune make, be damned the losers. I like deals and dealmaking and I know Irwin did, too. The magic of them is in this: the best dealmakers know that in the final analysis, the majority are loss-making or washes, but one or two come along, fortuitously, to cement one's career. Two of the very best dealmakers of our day in whose lives I know Irwin would have taken a keen interest are Ross Beaty and Neal Froneman.
j j j

On the Valuation of Resource Stocks

by Tom Fahy

  1. Someone has probably said better what I am saying now. Keep that in mind.
  2. The way I value companies is not necessarily popular; I subtract almost all hope from the calculation.
  3. I take it for granted that anything can happen: a company’s entire management team could die in a plane crash tomorrow morning on the way back from delivering a keynote in Zurich. If all you have is the reputation of management and a PowerPoint presentation, but no rocks in the ground, that’s not gonna help the valuation as I compute it.
  4. I only calculate valuations based upon measured & indicated resources. If the company has probable and proven reserves, even better, but I’ll still have doubts about the feasibility of extraction and I’ll ensure that there’s a discount applied to account for ‘unknown unknowns.’ Because there are always ‘unknown unknowns’, cost overruns, exchange rate surprises, engineering hiccups, murders, natural disasters, coups, mechanical failures, unexpected seismic events from blasting, swelling interest on loans… You get the point.

Firstly, here’s the very simple approach I take to valuing exploration interests with actual resources and development-stage interests without cash flow from operations (most of them…). I keep it so simple a retarded caveman could do it:

Measured & Indicated Resources * Today's Price of Mineral * Discount Rate (10%) / Fully-Diluted Shares

Like I said, really simple math. I call it the ‘Stingy Acquirer Calculation’ or, aptly, ‘SAC’ — cause you gotta have a sack to get involved in this racket. If shares of the stock under scrutiny are trading at a discount to what I believe is true underlying value as I have calculated it (using SAC), it might be a company in which one might take a stake. Sometimes the difference between price and underlying value is small, so one would want to allocate enough resources to the stock to make that little trade worthwhile and be ready to liquidate when the gap has been bridged. In resource investing, that gap can close fast!

And that’s when investors begin to lose. The gap has closed and they extrapolate their short-term gains into a future wherein this particular, special miner trades at a larger and larger premium to underlying value. It can happen, but not often. Wins in mining shares are often fleeting. If you don’t take your profit when you get it, then you’ve got a new pet.

I know this because I commit capital to mining shares regularly. I both win and lose. The losses are relatively small as I am unwillingly to commit more than ~2% of capital to any single stock.

Investing in resource stocks requires preternatural patience. Most of the time, your holdings will go sideways until something lucky happens. Usually, nothing lucky happens. The vast majority of explorers drill nothing of note and developers go bust waiting for the price of gold, silver, platinum, uranium, etc., to rise, which hinges on luck, too. You never hear about these losers, but they all deserve our respect for trying.


Be mindful of it. It’s part of the game. But it is going to alter the value of those shares in which you are invested. Following a dilution, you’ve got to revise your target. The company is NOT the same company it was yesterday, prior to the dilution. It’s a little worse and so is your investment. Allocate accordingly to companies with diluted share-structures. If you make 25-100% on the trade on a stock with 1 Billion shares outstanding, take the profit and run like hell.


Don’t be a sucker. Don’t buy stocks because everyone is touting them. Stay away from newsletter writers. If you are paying for wisdom, you’re getting shafted. Period.

Investing in resource stocks is not rocket science, but holy cow, you have to dig like hell to find value and then wait for shares to fall into your waiting hands, which could take months or longer, then wait for the value gap to close, which also could take months or years.

So, if you don’t want to lose everything as a resource investor, you’ve got to be mindful of a  few things:

  1. Get your capital allocations right — concentration may work for the guy that is pumping the stock, but that’s not for you (that dick is morally bankrupt). If you allocate 1.5-2% of your capital to each speculation, and if you have been mindful of ensuring you have a margin of safety, you’ll do fine… As long as you remember to sell when the selling is good!
  2. Be ethical in your dealings. And don’t do business with people that aren’t ethical in their dealings. We all know who these people are.
  3. Keep your valuation model simple and actionable. Ensure that it can be revised on-the-fly as the fluid prospects of your investments change.
  4. Finally, finding valuable minerals that may be extracted economically is harder now than ever before in modern history. Hence, finding investments that will prove out is harder than ever before in history. Consequently, in order to have a meaningful exposure to luck, you’ve got to own a piece of a lot of opportunities.
j j j

Uranium and the Industrial Metals Complex

FCM utilizes the Palladium/Platinum ratio in order to gauge inflationary and deflationary cycles…

Palladium / Platinum Ratio

It has been noted on a handful of occasions that uranium is weakly correlated with gold. This may be so, but the stronger correlation is with inflationary & deflationary cycles and the industrial metals complex. And the industrial metal with which uranium has shown the highest correlation is platinum.

j j j

Time Enough at Last — Dynamics within the Quadratic Family

Mean reversion is critical to the value premise if indeed the walk is random. If the walk is not random and the path is deterministic nonlinear, then the observed periodicity of the value premise betrays a succession of function iterations along a transitive trajectory forming orbits that describe cyclical human behavior in its relentless pursuit of value premise periodic and fixed points.

This post is a load of horseshit.


j j j


Dumont Nickel-Cobalt Project — A Robust, Long-Life Nickel-Cobalt Sulphide Project

The Dumont Nickel-Cobalt Project is the 3rd largest nickel reserve in the world, the 5th largest nickel sulphide discovery ever (largest since 1960), and one of the largest cobalt resources outside of Africa. Additionally, the project is structurally low-cost, large-scale, shovel-ready, and once in production, will be the largest cobalt operation in North America.

The jurisdictionally advantaged, fully-permitted and community-supported project will have a mine life of approximately 33 years with an initial production of 73 million pounds of nickel and 2.3 million pounds of cobalt contained in concentrate annually, with an expansion in year 5 to 113 million pounds of nickel and 4.3 million pounds of cobalt annually.

Cobalt Potential

Dumont - World Class Cobalt Potential


1 Billion Tonne Reserve + Upside Potential


1 Billion Tonne Reserve + Upside Potential


RNC Mineral’s Nickel Roasting Approach: A Significant Breakthrough

RNC’s strategic alliance with Tsingshan led to the development of the first integrated nickel pig iron (“NPI”) plant to directly utilize nickel sulphide concentrate as part of the stainless steel production process through concentrate roasting. Roasted nickel concentrate is effectively a very high grade laterite ore feed which effectively creates a new source of demand for nickel sulphide concentrate, notably at a time when many NPI and ferronickel producers face feed shortages as a result of Indonesia’s nickel ore export ban.

RNC Minerals: End Notes

The Dumont Project is a 50/50 joint venture limited partnership with Waterton Global Resource Management, funded with US$35M in capital commitments to develop Dumont and acquire additional nickel assets, and backed by Waterton’s two largest funds with a total of US$1.725B in committed capital.

The joint venture’s objective is to establish a pure-play nickel company with multiple projects operating in stable jurisdictions.

j j j

How We Buy Stocks

How We Buy Stocks

1.) We buy stocks at or near the bottom of their respective cycles. When they revert a little, we sell them and use the proceeds to buy other stocks at cycle lows. We do this over and over and over again. That’s it.

2.) And because we know beyond a shadow of a doubt that we aren’t the brightest investors on Earth, we diversify in spite of its probable impact on alpha, and we ignore anything without a substantial perceived margin of safety.

j j j



“Out of all the investing sins, the one that is most severely punished is hubris.” -George Irwin

j j j

If there is one thing we have learned, it is this: whether or not one can pick a bottom correctly does not also forecast one’s ability to survive it. A tiny fraction come out of those sorrowful valleys alive and with their spirits intact. [LINK]

j j j