We can’t always talk about the winners…
This is meant as an intermediate reflection on a specific investment, trying to stay general where I can, pressing the pain points where needed. Not going in the project specifics too much.
Case study: Regulus Resources
A developing copper-gold story
I’ll been following the story closely for the last years & I’m planning to stay around for at least the next major milestones.
Starting with the most obvious.. the SP… not a pretty sight for any long term holder.
Let’s look at the underlying story
Copper
We can be short. Overall industry sentiment last year was we would see 3-3.25$ by 2020 due to increased electrification around the world. Long term this thesis still holds true, it just – yet again – proved it’s very hard to predict short term moves. The positive note here is that for now spot prices are holding the 2.50 support line and the fact that delayed investment on the supply side will only enlarge the demand-supply gap over time. Talking long term here.
Peers and copper focused equities
Or like Sam Smith would say it “I know I’m not the only one“. Most, if not all, are in the same boat;
Share float
Tight.
Mostly touted as a very positive attribute, a tight share structure points towards a solid and aligned shareholder base which can react with more strength to positive news. It also suggests there haven’t been too many prior financings where the company on-boarded just about anyone slightly interested. Mgmt holds 14% and participated in most financings for considerable $$. Positive.
The other side of the story
Lower trading liquidity.
Regulus avg trading volume stands roughly at 50k$/day. The market complaints that pop-up every now and then is that they only trade ‘on appointment’, anyone wanting to enter/exit/trade a larger position needs patience. Patience that often doesn’t exist, so they move to an easier target.
Some smarty-pants have learned that when such a large order sits on the ask, it’s not a bad idea to put some stink bids in, knowing the seller will need to a) exercise patience or b) lower his price to get a fill.
Lesson learned: In a positive trend and market I believe a tight register has his advantages (next to it’s value as a show of smart financing). In a downtrend or market, there are some caveats and spikes in SP are to be expected.
The unknown troublemaker
Without going in too much detail, the AntaKori project has an arsenic component. While not a showstopper, it’s a struggle for new investors to assess it’s impact. At the moment the company wisely shies away from providing any economical assumptions & implications as they are still in the exploration phase. A first rough look at economics would come with the planned PEA Q1 2021. Wise but also leaving the market uncertain and you don’t want uncertainty. Balancing this is key. IMO they are doing this quite well.
While there are other players in the market having similar challenges (Regulus has included an overview in their latest presentation), most investors are saying ‘show me your solution‘ before committing any (more) money. A valid question, one they can only start showing in a later stage of the project.
Lesson learned: Some doubts can only be taken away in a later project stage. They have been transparent & fair on it, turning a possible red flag into an acknowledged challenge.
Marketing
Due to the track record of the mgmt team, in particular John Black and Kevin ‘rock doctor’ Heather, many professionals keep this team in high regard. The stock is included in recent publications by the likes of Eric Coffin, Explorationinsights & IKN.
They are attending most common conferences (PDAC, MIF, Denver, 121’s, Red Cloud, BMO, etc.). One challenge is to get meetings with significant new money, as most meetings are with existing shareholders, there needs to be a healthy mix.
Lesson Learned: A good new DD question: “What mix of meetings are you having at conferences?”
Entering the digital age, they were actually very much aware of the question “how to best & most effectively reach out to the market”. This self reflection & honestly led them to introduce several new initiatives:
- Webinars – They streamed a couple of video interviews with a Q&A section. It was each time well received. Giving the average investor a more in-depth glance at the nuances of moving a project like this forward. (Supported by O&M Partners)
- Technical on-site video’s – Well received across the board. From investors to other mgmt teams, everyone liked the rock doctor videos. A link here.
- Twitter live Q&A – Only one for now, a follow-up of the more professional webinars for intermediate Q&A.
Summary: Positive: If you believe in the copper story and you are interested in playing it by owning exploration/development stocks, you only have yourself to blame if you don’t know the story. All material is available on the website.
Those that have a complaint to file, please shoot a mail to the Regulus team as they are very much open to constructive feedback, including from Mark.
Ideas:
- Keep releasing rock doctor videos
- The value add of a well managed active social media presence can’t be understated. Some excellent examples: Doug Ramshaw at MAI.V & GBR.V, Brandon Macdonald at FWZ.V, Bryan Slusarchuk at KNT.V., Akiba Leisman at MKO.V. Giving additional context to news releases, answering questions (so as to avoid the same question in +15 mails), commenting on sector developments, connecting with shareholders and being visible to potential new shareholders. Peer review has become an important part of the DD process of a significant group of active junior mining investors, whether you like it or not. Doug Beattie posting a positive or negative remark on your news release can have serious consequences… Ask most uranium focused executives.
- Sell the story as a potential ten bagger, not a double. Telling the story with the ultimate potential is something many teams refrain to do. Be ambitious and share that ambition. It’s contagious & will push you to take those decisions that will bring you there. Two extreme examples: Robert Friedland’s and Ivan Bebek’s marketing techniques.
News cycles
+1000m holes take time to drill, assay, interpret and release. They know, we know and any trader out there knows. News during the drilling period is to be expected every 8 weeks or so, often causing a short lived SP spike as a) news was often solid to very good b) everyone knew you had 1-3 days of higher volume around such release c) everyone knew, next catalyst was again 8 weeks out.
Ideas:
- Keep releases unpredictable where possible. Starting with the 4 days of the week (Mon-Thurs) & pre-market vs after-market release.
- Batch when mediocre, hurry with a hitter.
The killers
Permit delays – Although to be expected, it is very hard to time around it for both companies & investors
Copper price weakness – Nothing to be done about. Be right and sit tight. From the company perspective, it could be wise in some situations to preserve cash and wait for better times.
Complexity in a fast-paced world – Investors want a simple story they can share in the pub in 5 minutes. Provide that simplified story. In-depth details can be shared on the website & in longer presentations.
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Cheers, Pete
