Positions

$AFM.V

7/30/23: Tin as a commodity is extremely small in comparison with most commodities. There is currently a potential for 10% of the market supply to go offline with Myanmar suspending operations August 1, where there is thought to be a loss of high grade resources at the Man Maw mine in the Wa State. Yunnan smelters are planning to go offline for maintenance (45 days) so it may be another 2 months until this causes any ripples. Being located in the DRC, there is geopolitical risks with the M23 Rebels (w/ Rwanda backing). It is currently cheap <3 EV/EBIT, with 60% YOY growth next year, and high margins. PT Timah (20% of market) needs around 30k tin prices to profit, and thus tin price should be sustainable with possible short term volatility in either direction.

8/17/23: Tin warehouse stocks are high, and the commodity price is down to 25k. This doesn't change long term unsustainable to be less than 30k. Myanmar ban seems to be legit which will help work down the high warehouse stocks. Q2 financials are out and averaged 25k price, 35M EBITDA. Annualized this would be 140M. +60% with Mpama South would be 220M a year. Fwd PE is 4x at 25k tin. Additional profits would be 20,ooo t * additional tin value * .85 (margin).
...At 30k tin additional 5k *20k tons * .85 would add 100M annually. =320M yr
...At 35k tin additional 10k *20k tons * .85 would add 200M annually. =420M yr
...At 40k tin additional 15k *20k tons * .85 would add 300M annually. =520M yr
...At 45k tin additional 20k *20k tons * .85 would add 400M annually. =620M yr

Review: Each weekend for news on keywords Myanmar Wa State Tin (Man Maw mine), M23 Rebels, and PT Timah plans (as they are near the margins).

Exit thoughts: A few quarters after full production at Mpama South, and tin at 35k (realistic). I expect 1.6-2.4B valuation (4-6x, likely lower end due to DRC discount) which equates to around $2 CAD share. If tin makes it back to 45k, I would envision a valuation closer to $3.50 CAD share.

$FIL.V $FLMMF

7/30/23: Exploration copper play on the border of Argentina and Chile, with large copper porphyry found. We have already seen the greatest run up in valuation, to the extent top 10 global drill results are more expected than moving the market. The Lundin family continues to fund with willingness to take 100% of the capital raises on their own. BHP involved. 8/10 of this years top 10 global copper drill holes. With copper shortages looming there is no reason to sell now. At 3B market cap, continue to believe there is 100% upside despite high capex to build it.

8/17/23: Copper is the constant in EV, as battery metals can change with technology. Structural deficit coming in the future.

Review: Take long term view, allow prior gains to compound.

Exit thoughts: Likely the company will be sold at some point to a major, but there is no rush given the further exploration potential. They continue to execute, and have the Lundin family running the show. Will hold until company is sold (suspect 1-3 years). There is short term risk it is not a producer during an economic downturn I would prefer to have producers that can provide dividends.

$HCC

Alabama Metallurgical Coal producing High Vol-A and Mid Vol, blended and sold as Mid Vol.
- 2 longwall mines (#4 and #7, developing third Blue Creek)
- Sell to Asia (55%, Europe 30%, and US 15%)
- Recently broke strike, increasing production to pre-strike levels. Will need to increase employees/labor to prep Blue Creek.
- Mgmt has shown they will return capital, 2017-2019 95% returned by dividends.
- Future prices? $155/t? Wild 2022 had prices to $400. Costs: AISC $140?
- Blue Creek cost 700M, open 2025 hopefully.
- Cash on hand 800M, 25 % of market cap. They want to keep 250M on hand.
- Only coal mine that can re-rate w increasing production. — Long term strategic assets. Also assets (coal quality is superior in the US)
- NOLs expire early 2024, not paying tax until then. (Alos prevents someone taking it private)
- Expect 25% of current EV in EPS for 10+ years.
Summary: Cheap price, growth, and high ROIC (~30% IRR on Blue Creek)

Review: Quarterly, financial statements and Blue Creek progress.

Exit strategy: Downside would be someone takes it private quickly. Expect will have to wait until 2025 when Blue Creek is operational to realize full potential, or for next cyclical top. Price target $90+ in 2025.

$AR

7/30: Background: Natural gas is cheap in US, expensive in Europe. Gas must be liquified to transport, and depends on infrastructure. Lack of infrastructure has provided this arbitrage. Oil ratio is 6:1 (ie $2 gas * 6 = $12 oil for the same energy) making gas much cheaper than oil.

  • Infrastructure: 14 bcf/d currently, (2 bcf/d offline in 2022 due to Freeport fire), increasing 1 bcf/d in 2023, 3.3 bcf/d in 2024, and 6.7 bcf/d 2025.
  • Demand: Global gas is currently 3x the price of US gas. Global demand is the key making it an easy play when infrastructure improves. US supply has increased by 25 bcf/d in last 6 years, 13 bcf toward increased domestic demand and 12 bcf toward exports.
  • "The next U.S. LNG plants expected to open are the QatarEnergy-Exxon joint venture at Golden Pass in Texas in late 2024, the first phase of Venture Global LNG's Plaquemines in Louisiana in 2024-2026, and Cheniere Energy Inc's (LNG.A) expansion at its Corpus Christi plant in Texas in 2025 (stage 3). — Late 2024 this becomes easier play, but could structural deficit happen sooner?
  • Permian, Marcellus, Haynesville - all could face peaking and future declines. Haynesville already dropping rigs as it is not profitable when cheap. If these areas cannot grow 6 bcf/d over the next 18 months the arbitrage will happen as the facilities open increasing Henry Hub prices up to 5x.
  • Henry Hub trading 30% above all time low. 5x higher on arbitrage. Great risk/reward.
  • $AR specifically has paid to cancel all hedges even while price is low to benefit from the upswing. Only play I could find that is unhedged.
  • FCF breakeven is $2.51 for Henry Hub at AR. Lower than most producers, comparative with 2 peers.

Review: Monthly, news on the LNG plants above. Quarterly financials.

Exit strategy: Monitor for closure of the Europe - US LNG arbitrage. Likely starts to close late 2024.

$X

7/30: US Steel is currently heavily dependent on Chinese infrastructure however the US is now spending more on infrastructure also. They survived scary downturn during CV19 but are now cash flow positive with massive CapEx (2.5B) into next year. New facility expected to add 1B in EBITDA annually. Another story of cheap, high growth, high ROIC. Buying back small clip even while building out BRS2.

8/17: Multiple bids for the company from $32-$35. True value likely $40+.

Review: Quarterly, financial statements and progress on BRS2.

Exit thoughts: Wait until BRS2 is finished and cash flow ramps from that facility. Late 2024? With the new bids for the company $32-$35 best case would be higher bid and/or selling off parts of the company. Exit at $38 if there are other better opportunities.

$EC

7/30: Columbian oil company. 88% nationalized. Some risk for total nationalization, but low. Extremely cheap due to left leaning government that dislikes oil and could tax heavily. Initial political legal changes (inc taxes) did not make a big difference in the investment case. Yielding over 20% dividend through end of year.

Review: Monthly, with respect to oil prices. Monitor SBR.

Exit thoughts: Wait for a run up in oil prices, then exit as oil approaches $100.

Paul Weaver

Charlotte, NC