Galaxy Resources Is More Like A Black Hole

Galaxy Resources recently changed its name from Galaxy Lithium.  I never let a name change distract me from changes in operations.  The company's current management team has a background more in finance than mining.  I can totally understand if the company feels more confident about improving its financial situation than it does about improving its operations.

The company has three active projects at present.  A couple of them appear to be only semi-active; the Mt. Cattlin (Australia) mine has been shut since July 2012 and the James Bay (Canada) project is still under exploration.  The Sal de Vida (Argentina) lithium project is the only one left on which the market can hang some valuation.  Galaxy's corporate website displays a summary of some NI 43-101 data for Sal De Vida's claimed 2P reserves.  I cannot find the full 43-101 report for that project anywhere on Galaxy's website or in a SEDAR search of the company's filed reports.  If a company has to make it this difficult to verify its claims, I cannot waste my time evaluating its operational potential.

I did download the company's annual report for the year ended December 31, 2014 straight from its investor relations page.  Galaxy had a total net loss of over -AUD$56M in 2014, which wasn't nearly as bad as 2013's restated loss of over -AUD$104M.  A reduced loss is still a loss.  Their total current liabilities have exceeded total current assets in both 2013 and 2014, and with only AUD$13M in cash on hand they will absolutely have to raise a lot more money just to keep the lights turned on.  It is impossible to determine whether their fundraising serves an operational purpose without access to a 43-101 report describing how the company should further develop its most viable project.

The stock trades in the pennies, typically under US$0.04 throughout the summer of 2015.  One look at the EPS of -US$0.05 tells me this company is losing more than what the market thinks it is worth.  There is no way that such a company will ever belong in my own portfolio.  A company with aspirations to be galaxy-sized needs to have more than a big black hole of important information.

Full disclosure:  No position in Galaxy Resources (GXY.AX) at this time.

Financial Sarcasm Roundup for 02/24/14

I can't imagine a life without sarcasm.  Maybe other people can manage that but I can't relate to them.  I don't write for the inattentive or unimaginative parts of the human race.  This blog of mine isn't their cup of tea.

The SEC is studying whether changing the tick size of trades will improve liquidity for small cap companies.  Tick sizes are a non-issue.  Changing a trading increment doesn't add liquidity; only attracting more participants to a market adds liquidity.  I can't believe the SEC hasn't figured this out.  I need to lower my expectations even further.  These people must have nothing better to do.  Oh wait, I know, they could prosecute all of those financial executives who falsified mortgage documentation prior to the 2008 crisis.  They could also go after Libor and currency traders who colluded to fix the market.  Nah, that's not as rewarding as changing tick sizes.

Deutsche Bank thinks the Australian dollar is headed for a price collapse.  Well, that's just great, since I'm using that currency to hedge the US dollar.  Actually I don't care much for what Deutsche Bank thinks.  Their derivative exposures to European markets are so bad that they could easily collapse themselves before the Australian dollar hits bottom.  A cheaper Aussie dollar just means I'll buy more FXA.  I can't say the same about any European banks.

The NAR notes that existing home sales are at 18-month lows.  The real estate sales pros never let facts get in the way of their sales pitch.  It's always a great time to buy a house, even in their mushy heads.  I don't expect them to connect the decline in home sales with the Fed's reduced commitment to purchase mortgage-backed securities.  The math on higher real interest rates is inevitably a negative for people who borrow to buy a house.  Note further that I've said "house" and not "home."  People who missed out on the flipping craze ten years ago jumped back in, and I'm pretty sure it will end the same way.  Private equity shops borrowing to buy existing homes in all-cash offers are going to get flushed.

I've got a pretty busy week ahead with a few meetings and social events.  This gives me several audiences to entertain, live and in person, with my sarcasm.  I expect attractive women to swoon with every sarcastic financial utterance I generate in San Francisco.  

Talking Down the Aussie Dollar

I own the Australian dollar ETF, ticker FXA.  It's been losing value lately partly thanks to the country's central bank governor talking it down.  China's diminished appetite for Australian resources also keeps that currency down.  I'm hanging on to my FXA position with no changes.  That may sound crazy to many investors but I don't care.

Australia's central bank is doing the right thing for the country by not cutting interest rates.  Australia's debt-to-GDP ratio is nowhere near as high as the US's ratio.  Australia's natural resource sector is one big hard asset hedge against high inflation in the rest of the developed world.  The major economies' unprecedented monetary stimulus hasn't infected Australia with that brand of lunacy.

Hang in there, Aussies.  Fiscal and monetary discipline pay off in the long run Down Under.

Full disclosure:  Long FXA.  

Financial Sarcasm Roundup for 04/08/13

Cyprus is out of the headlines but not out of trouble.  There's enough going on in other countries to warrant continued sarcasm.

Portugal is going for austerity.  Europeans can say goodbye to their precious social safety nets, which are really drags on productivity.  No more nonsense like two months of vacation for those folks.  What has Portugal done lately that warrants such generous benefits anyway?  It's not like still own big chunks of the New World, for crying out loud.

Abenomics isn't going to work.  The Japanese yen is at a three year low against the U.S. dollar.  Other central banks aren't going to wait for Japan's export data before they retaliate with more printing.  When that happens, Japan will be right back in stagflation and on its way to high inflation.  Japanese exporters have window of maybe two or three months in which to use their windfall earnings to stock up on physical plant and inventory that will hold their value domestically.

U.S. unemployment is dropping only because frustrated job seekers are leaving the workforce.  Federal spending cuts so far have been too minuscule to account for the hiring slowdown, so I wish the financial media would drop that meme.  It's ironic that last week I attended a technology transfer conference with scientists and investors who would love to create new jobs.  They need STEM graduates for high-tech work but American colleges are churning out indebted liberal arts grads.  The mismatch won't last forever.

Australia is the latest country to go for direct currency exchange with China.  Neither one wants to get stuck holding U.S. dollars when the run on that currency starts sometime.  I'd like to know whether Asian multinational corporations are moving their cash holdings out of dollars.  American and European multinationals were minimizing their euro exposure in 2012 and events will prove them to be prescient.

Today's good news comes from New Zealand, where the central bank promises to raise rates to fight inflation.  That's the exact opposite of the Greenspan-Bernanke philosophy and the results for their economy will be very different from America;s current malaise.  I haven't purchased any New Zealand dollars yet but stories like this revive the temptation.

My quest for sarcastic material will never be fully satisfied.  Even "Mickey Ronin" knows that but he hasn't provided me with anything stupid to laugh at in recent days.  Come on, dude, don't save all of your lies for your court appointment.

Dart Mining (DTM.AX) Exploring for Metals

Dart Mining (DTM.AX) is developing Mo / Cu / Ag deposits in Australia.  I've finally figured out that small Australian companies name their head cheese Managing Director instead of CEO.  Dart's MD has worked in mining engineering and various sectors supporting the mining value chain, and its Chairman is a geologist.  That's pretty cool.

Their most advanced property right now is their Unicorn project, with power, water, and roads already nearby.  The MII grades for each of those three metals are very low compared to world averages for new discoveries.  IMHO the company will have a hard time making that project viable if metal prices collapse, even if the planned mine has a low strip ratio.  Their other projects are still exploration targets with no 43-101 data although a couple of their drill results show promising Au grades.  Dart Mining is benefiting from local government grants that help fund its early exploration program, which is undeniably helpful in conserving investors' cash.

Their 2012 annual report shows their burn rate has doubled to over $1M/year since they stepped up their drilling programs.  They had just under $3.5M in cash on hand on June 30, 2012, giving them about three and a half years in which to strike valuable grades at any of their active projects.

Dart Mining trades under a dime right now but they have plenty of time to discover valuable deposits.  I'd like to see what their drilling programs find later in 2013.

Full disclosure:  No position in Dart Mining at this time.

Silver Lake Resources (SVLKF) Mines Australian Gold

Silver Lake Resources (SVLKF / SLR.AX) mines gold in Australia.  Did I ever mention that I visited Australia in 2001?  I didn't go to any gold mines but I met other multinational executives in Melbourne.  What a nice town.  I didn't date any Australian women.  Next time I'm down there I'll have to check out some of these gold miners.  In the meantime I'll just have to settle for their financial numbers.

My regular readers know that Australian company management nomenclatures sometimes throw me for a loop.  The Silver Lake team looks solid even though there's no clear "CEO" title.  I can live with the lack of translatable titles when the whole team is steeped in geology and mining engineering.  

This is an established mining company, so a project-by-project comparison is less useful than a fundamental evaluation that encompasses the whole company's multi-project performance over time.  Their net income for the past three years has been consistent and they have no long-term debt.  FCF turned positive in their 2012 annual statement after having been negative for two years prior.  I can understand the need to invest in new infrastructure at developmental stage projects but at some point this will hurt net earnings if they can't put new properties into production.  Their five-year ROE is pretty remarkable at 19.12%.  

I'm pleased with the quality grades from Silver Lake's operating mines.  They need to keep their company-wide cash cost of production far below US$600/oz if they are to create value in the long term.

Full disclosure:  No position in Silver Lake Resources at this time.

Ivanhoe Australia (IVHOF) Continues Multi-Metal Exploration

Ivanhoe Australia (IVHOF / IVA.TO) is digging for copper, gold, and other metals in, well, you guessed it, Australia.  It's still majority-owned by Turquoise Hill Resources, and you can read my analysis of that company.  I like the Ivanhoe Australia management team's breadth of experience in mining, and the CEO is a hot chick (not that it matters, but it's nice to see hot chicks anywhere).

Their Osborne Operation is producing; their Mount Elliott project has MII resources (but with low grades); their Merlin project has the potential to be an important source of rhenium (and has some existing infrastructure); and their Mount Dore project is still in exploration.  I would like to see more clarity on 2P reserves.

Their financial statements for September 30, 2012 show $17M cash on hand and net losses of $7.7M/month that quarter.  I didn't average that burn rate with their nine-month rate because it is significantly lower than what they burned for the entire nine-month period, representing a qualitative shift in their operations.  It remains to be seen whether this reflects an effort to conserve cash for future exploration and infrastructure development.  Besides, they have little to worry about because they recently had a very successful capital raise.

I'm not investing in this company because I'm not clear on which of their projects will ultimately be successful enough to drive the company's valuation.  I'll wait for more definitive results.

Full disclosure:  No position in Ivanhoe Australia at this time.

Strata Minerals And Australian Phosphate

Strata Minerals (SMP.V) wants to mine phosphate in Australia.  I have concerns about the management team's experience.  The CEO and other key team members are primarily from the finance and beverage sectors; some of them have mining sector "experience" but that appears to be confined to corporate development work and not actual mine operations.  The company either needs to specifically articulate the relevant mining operations experience of these people or get some new people who have that experience.  Mining company managers absolutely must know how to pull rocks out of the ground.

Their Cardabia, Australia project probably has a transportation cost advantage over phosphate from Morocco, but this is less compelling than a production cost advantage.  I'm even less confident about their Savory Basin project, which has no modern exploration history.  SEDAR has their NI 43-101 report dated July 4, 2012; it identifies no resources but recommends a Phase 1 exploration budget of AUD$500-650k and Phase 2 exploration of AUD$2-3M.

A quick check of their SEDAR financial statements reveals whether they can fund such exploration programs.  Their quarterly statement dated September 30, 2012 shows C$138k cash on hand with a burn rate of about C$154/month (averaging the two different quarters presented.  They opened a private placement solicitation in October that can cover the proposed Phase 1 budget, and they successfully closed the offer 15 days later for the full amount.  Strata's exploration program is clearly on track but their financial position leaves little room for unexpected delays.

It is too early to tell whether Strata Minerals will succeed in finding economically viable phosphate deposits.  They deserve another look in a year or so when their exploration program has quantifiable results.

Full disclosure:  No position in Strata Minerals at this time.  

The Haiku of Finance for 10/15/12

Australia rate cut
Few inflation worries yet
Mining rolls along

Dude, Where's My Inflation?

You want inflation?  I got your inflation right here.  The OECD is tracking monthly inflation in the developed countries, and it's higher by 0.1% in August.  That may not seem like much of a jump but think of it as the first of many camel noses under the tent.  The U.S. and Germany are leading the way but both countries under-report their official statistics.

Private reporting of Australia's inflation rate puts it higher than the OECD developed countries' rate.  That does not deter me from investing in Australian currency, since their government's debt is smaller relative to GDP than that of many other developed countries.  The Reserve Bank of Australia is not encumbered with some academic who demands quantitative easing, as we are here in the U.S.

BTW, the question in my title is a reference to an idiotic movie from a few years ago, and the meme it spawned more recently wondering whether a recession was in progress.  Answering it today is easy.  Dude, inflation is everywhere, but some countries' central bankers have a much higher pain threshold.

Full disclosure:  Long FXA.

Alpha-D Currency Diversification for June 2012

I did it.  I contemplated this move for many months and finally executed last Friday during market hours.  I added foreign currency diversification to my Alpha-D portfolio with long positions in CurrencyShares Australian Dollar Trust (FXA) and CurrencyShares Canadian Dollar Trust (FXC).  I can explain this fairly radical departure.

I like what John T. Reed has published on the desirability of holding currencies other than the U.S. dollar as hedges against hyperinflation.  He correctly identifies several countries that rank high on Transparency International's list and low in relative debt-to-GDP ratios.  My tactical approach to holding the currencies differs from Mr. Reed's.  He advocates opening cash accounts with banks in each of his chosen countries.  I chose instead to hold ETF securities that represent cash holdings of currencies held in trust outside the U.S.

I reserve the right to add CurrencyShares Swiss Franc Trust (FXF) to my holdings but I suspect the Swiss central bank will continue its efforts to hold down that currency's value relative to the euro.  That's why I sold puts underneath FXF, as I suspect central bank action may drive its value lower relative to the dollar (as well as the euro).  I read the prospectuses on the CurrencyShares website before I made these choices.  The good news about these ETFs is that they are physically held outside the U.S., beyond the reach of confiscation and capital controls should the U.S. government enact those policies.  The potentially bad news is that JPMorgan is the depository for the currency.  In the event of JPM's bankruptcy, holders of the ETFs would be considered unsecured creditors of JPM and could suffer partial or total losses (hmm, shades of MF Global).

There is no way to mitigate the risk of JPM going bust.  The only consolation available to me is the possibility that the U.S. government will selectively backstop the balance sheets of systemically important institutions, and JPM appears to be one of the favored few.

I would like to take a position in New Zealand's currency but I can't find an ETF that represents holdings there.  I am not about to book a flight there just to open a savings account.  I may add more cash to my long positions in FXA and FXC in the near future.  Alternatively, I may not do so if I find some good hard asset stocks.  It's my money and I'll protect its value any way I like.

Full disclosure:  Long FXA and FXC with covered calls; short cash-covered puts under FXF.  No other non-U.S. currency holdings at this time.