Two good days early last week saw the value of my portfolio recover almost 2% to £96,518 last Wednesday, but those gains have been erased again this week with the portfolio down 1.6% week on week to £94,965 today.

In the past week the key losses have been:

• Lonmin – now trading ex rights. The combined value of my shares and rights stands at £248 against an investment of £1,000 – a 75% loss over less than 10 days is a stark reminder that a share which falls 99% is a share which has fallen by 98% and then halved. I have elected to follow my rights (as was my plan when I bought the shares) but I can’t help feeling I may be throwing good money after bad so I may yet reconsider;
• Anglo American – down a further 6% in the past week
• BHP Billiton – down another 3%

There have been some brighter spots though, namely:

• ETFS Palladium Physical (PHPD) – up 4% in the past week
• Fresnillo – also up 4% in the past week

To take the portfolio to over 90% invested, I bought three new Canadian stocks – again seeking decent margins and strong balance sheets whilst also looking to broaden the commodity exposure of the portfolio:

• Roxgold (15,000 shares at average price of C$0.65). Another gold stock, but exceptional grades mean that all in sustaining costs are expected to be  US$590/oz. Fully funded to first production next year
• PotashCorp (400 shares at C$27.07). Not only do I like potash as a commodity, but I also like PotashCorp’s strong market position, good margins and generous (arguably too generous?) 7% yield.
•  Nevsun (1600 shares at C$3.64). Copper and zinc in Eritrea. Nevsun has lowest quartile cash costs of copper production and I like the long term growth into zinc where long term fundamentals look very sound. The company also has US$434m in cash which positions them well to capitalise on organic or other growth opportunities.

I have also added to holdings in Goldcorp (buying 300 at US$12.08) and Semafo (buying 1500 at C$3.12).

I now have £7,742 in cash remaining of which £4,600 is earmarked to follow my Lonmin rights so I will pause for breathe there.

Already I am living to regret some of my choices (at the very least the timing) with Petra Diamonds down 26% and Anglo American down 19%. The only stock in decent positive territory to date is Lonmin which is up 17% but I may have just caught a lucky print on the screen as it is swinging around wildly. The portfolio overall is down 6% to £94,193 which after only 10 days does not appear a particularly auspicious start but I remain sanguine.

Below is a snip of my portfolio, which now comprises 20 stocks including 7 gold stocks (Amara, Caledonia, Centamin, Goldcorp, Nord Gold, Roxgold and Semafo). 11 out of 20 of the stocks in the portfolio operate primarily in Africa and only 5 are not London listed – the familiarity bias in action.

Having made the decision to invest the full portfolio over 10 trading days, I have had to fight cold feet. With just one more trading day to go tomorrow, I am now 75% invested.

On Friday and today I have topped up a few holdings, buying:

• 3,000 GEMD at 99p
• 500 ANTO at £4.86
• 1500 NORD at $2.95

In addition I have bought:

• 1500 Semafo at C$3.09. West African gold producer, cash generative with AISCs of under US$650/oz, this looks well placed to weather any storms in the god market;
• 41000 Amara Mining at 8.7p. Amara has been bashed by weakness in the god market combined with PFS results somewhat below market expectations, but with resources of over 6Moz and expected AISCs of US$782/oz I believe this project will ultimately be one that is built and at current prices that means the shares offer significant long term value.
• 280 Rio at average of £22.72. I was loathe to have both Rio and BHP in the portfolio but felt the portfolio too heavily weighted towards gold. Looking for non-gold stocks with strong balance sheets and good margins, the list is pretty short so I have added this solid and sensible stock.
• 150 ETFS physical palladium ETF (PHPD). I really like the long term fundamentals of palladium which should also benefit from any switch from diesel to petrol cars in Europe. This ETF holds the physical metal which seems to me a sensible way to play this theme as there are few pure-play producers.
• 425,000 Ferrex Plc at 0.47p. A penny stock but I like both the assets and management so this is a bit of a punt. Got killed on the spread though – may have made more sense to buy this in two tranches even if it meant higher trading costs.

With prices remaining so volatile across the sector, I decided yesterday to try to reduce risk in the portfolio by including a few more stocks with stronger balance sheets. In addition to adding to my position in Capital Drilling (9000 shares at 23.9p), I have also added:

• Gem Diamonds (2000 at 102p – will look to top up). The Q3 update yesterday looked solid particularly on pricing. The company has net cash on the balance sheet and is cash flow positive after capex (despite Gaghoo still not operating at full steam) and pays a dividend.
• Fresnillo (800 at average price of 689p). Low gearing and makes money even at current silver prices. Modest dividend.
• Centamin (8000 at average price of 61p). Significant net cash on the balance sheet and cash flow generative at current prices (Q3 AISC of US$918/oz). Following Q3 results, Centamin looks on track to meet this year’s guidance (in contrast to last year’s disappointment) although that does require an  improvement in the opencast grade in Q4. Egyptian/legal risk remains in the background but as a result shares trade on low multiples relative to the gold sector.

Using the opportunity presented by todays market weakness, I have invested a further £19.8k and am now 30% invested.

In part, I have topped up existing holdings, buying:

• 300 Anglo American at 491p
• 300 BHP Billiton at 950p
• 9500 Capital Drilling at 23.9p
• 3000 Petra Diamonds at 65.2p

I have also added four new holdings:

• Nord Gold (GDRs) – bought 1500 at US$2.90. The billion dollar London listed gold company no-one’s ever heard of. Partially because its only 10% free float and it’s Russian owned with assets in Russia and West Africa. But with annual production of just under a million ounces, all in sustaining costs of less than US$800/oz and a dividend yield of c5% I think it very attractive. The company is looking to move to a premium list next year which could attract a wider audience – in the interim given the size of the Contrarian Miner portfolio, the low liquidity isn’t really a big issue for me.
• Goldcorp – bought 300 at US$11.71. This is not a stock I have looked at closely in the past but I was looking for a gold company with a relatively strong balance sheet and low cash costs and this appears to fit the bill (all in sustaining costs US$848/oz). Arguably Randgold does too with a great management team as well but I am not entirely convinced the value equation on that stock stacks up at current levels given the high risk geographies it operates in.
• Lonmin – 10,000 at 9.9p. Only yesterday asked if I thought Lonmin was worth looking at at current levels I said I wasn’t sure it was time yet – the company may have secured the $400m they need through yesterday’s 46 for 1 rights issue (at 1p) but at current PGM prices it is still cash flow negative even after everything they have done to cut costs. But below 10p today I couldn’t resist. I have bought 10,000 which may not seem a lot (under £1000) but bearing in mind I need to allow for another £4600 to follow my rights.
• Antofagasta – 1000 at 497p. We can debate the direction of the copper price, but with a strong balance sheet, good margins and cash generation, Antofagasta should be well positioned to weather the storm and provides a welcome counter-point for some of the balance sheet risks I am carrying in the rest of the portfolio.

Here is a snapshot of my portfolio today following these trades.

Late last week, I bought five stocks – spending a total of £12,783 (just under 13% of my cash). Some of these are initial positions which I intend to top up. Ultimately I am looking to have 20-30 stocks in the portfolio but I will  start at the lower end of that.

• Anglo American – 600 at 540p. Clearly there is a balance sheet concern here that has yet to be fully addressed and I think it now almost certain they will need to cut the dividend but nevertheless for the long term I think the value exceptional. I like the inclusion of platinum and diamonds in addition to the copper, iron ore and coal.
• BHP Billiton – 400 at 990p. A stronger balance sheet and reasonable margins in iron ore even at current prices should make this a relatively safer play.
• Petra Diamonds – 4000 at 76p. Recent production numbers were fine and although prices fell they were not out of line with what I would have expected. Debt facilities are more than sufficient and helped by quite a bit of flexibility in the capex program, but there is risk on covenants which is what is driving the price. Petra has a great long term margin expansion story coupled with production growth and given that I expect they will ultimately be able to convince lenders to remain supportive.
• Caledonia Mining – 5000 at 42.6p. Moving to small caps, I have bought a small stake in Caledonia mining which operates the Blanket Gold Mine in Zimbabwe. It has net cash on the balance sheet, and all in sustaining costs below US$1,000/oz. They do have some capex commitments over the next few years to extend the life of mine and increase production which means that the (generous) dividend could be at risk if the gold price falls much further but that is not my expectation.
• Capital Drilling – 1500 at 24.1p. Another smallcap – this time mining services – with net cash on the balance sheet and cash flow generative in the last quarter despite operating at less than 40% capacity. Most of their revenues are currently from long term contracts including production (rather than exploration) drilling so I am comfortable they are well placed to weather current conditions with significant upside when the cycle turns.

I said in my last post I was looking forward to further red days on the screens as buying opportunities. In which case I shouldn’t be the least bit upset that the shares I have bought so far are already down 8%. Fortunately with 87% of my portfolio still in cash that means the portfolio as a whole is down only just over 1% to £98,924. But I had better get cracking as I have just 5 days left to my self imposed deadline to be fully invested within 10 trading days.

Right, with the cash now waiting in the new trading account I have set up specifically for contrarian miner (as you can see in the image) I am ready to make my first trades.

So now for some big questions and a few tentative answers….

1. Should I pile in right away or wait?
   With the screens showing red almost on a daily basis in the sector, it is tempting to think stocks may be cheaper next week or next month. But contrarianminer is not a momentum investor (the clue’s in the name) and so I have decided to fully invest over the next 10 trading days.
2. How many stocks should I be looking to buy
   Balancing trading costs with portfolio diversification I think I should be looking to buy 20-30 stocks (or related instruments – options? CFDs? Not sure yet)
3. Mining only or resources more generally
   It is after all called contrarianminer so that will be the main focus but I will include the odd mining-related or oil and gas stock from time to time.
4. Positioning for slow or rapid recovery?
   With balance sheet concerns hitting many of the stocks in the sector, the question is whether one goes for relatively more defensive stocks with decent margins even at current prices and stronger balance sheets or takes a view on a more rapid recovery and goes for some of the most bombed out stocks – Glencore, Anglo American, Lonmin come to mind amongst the debris. Given that my aim is to double my money within two years, I can’t afford to be too risk averse so I’m going to go for a combination. I’ll also be looking for some yield stocks to put in the mix.

The big question is which stocks am I going to start with? You’ll have to wait and see as I’m not planning to let you all front run my trades!