I last posted on Contrarian Miner on 7th March, so firstly an overdue update on portfolio performance. Contrarian is up 4% since 7th March to £121,719 against the FTSE 350 Mining TR index which is down 10% over the same period. Since inception Contrarian Miner is up 21% against the mining index which is flat.

Last week I made a few changes to the portfolio, introducing some fresh ideas. I have added two Australian copper juniors:

• Altona Mining (ASX: AOH, Mkt Cap A$50m) – bought 60,000 shares at A$0.06. In my opinion Altona Mining’s Little Eva project looks very doable  (cash costs around $3,600/t but low capital intensity).  And they already have (subject to deal completion) a Chinese partner to fund the majority of the capex with the remainder sitting in cash in their bank. Clearly the deal could fall through, however at an EV of A$6m (market cap of A$50m and cash of A$44m) that’s a risk I’m willing to take particularly as their significant cash balance gives them space to weather the storm if needs be.
• Highland Pacific (ASX: HIG, Mkt Cap A$56m) – bought 90,ooo shares at A$0.06. Highland Pacific has an interesting portfolio of significant projects in Papua New Guinea in which it is the minority partner. It owns 20% of the massive Frieda River copper project in PNG (previously an Xstrata project but now been pursued as a slightly small scale project by Panaust/Guandong Rising). It also has a share in the completed $2.1bn Ramu Nickel operation – this will need a higher nickel price to work but they were free carried through construction and in effect its a free option on the nickel price. Lastly they have recently JV’d with Anglo American on their Star Mountain copper-gold exploration project. It may take time, but it seems to me all of these are world class projects and that is definitely not reflected in the current A$56m market cap.

I have partly funded these new purchases through the sale of  half of my holding in Keras Resources (200,000 shares at 1.08p). I bought this micro-cap stock at 0.47p per share because I like the management and the African assets. Over the past 3 months it has morphed into a small-scale Australian gold producer and without having had a really close look I am not entirely convinced I am excited about the change. In any event with the stock up over 100% I sold half – sod’s law it is up a further 40% since. I have also sold the remainder of my Gem Diamonds (2,250 shares at 109p) but retain diamond exposure through FDI.

Portfolio below.

In the past week the Contrarian Miner portfolio is up 8% to £117,186, slightly lagging the FTSE 350 Mining index which is up 11% on the week. Key drivers of portfolio performance this week have been Lonmin (+85%), micro-cap Keras Resources (+31%), BHP Billiton (+17%) and ETFS palladium ETF (PHPD) up 14%.

As previously flagged, I have continued to reduce the gold exposure of the portfolio, selling 900 Semafo last week at C$4.95/share (a 59% profit) but keeping 1,800. I also sold 2,000 Lonmin on Friday at 154p – a 38% profit – the shares powered upward last week on an improvement in the platinum price coupled with confirmation from the company that restructuring efforts are on track, and it seemed to me a sensible time to take some more money off the table .The shares look heavily overbought, and whilst they may still have considerable long term value they are unlikely to continue to travel in a straight line. I still have 3,200 shares in Lonmin which seems ample.

As promised, I have put some of the cash in the portfolio to use, adding three new holdings:

• Caterpillar Inc – 70 shares at $69.50/share. It may be a while before the more upbeat sentiment in the mining  and oil sectors translates to new orders, but I think the >70% peak to trough fall in mining sector orders for Caterpillar provides an idea of the long term upside. The balance sheet does not look overstretched even in current depressed market conditions.
• Maurel et Prom (Paris: MAUP) – bought 1500 at EUR2.98/share. Considered buying Nigerian oil and gas co Seplat and then decided MAUP was a better entry point. The company has a diversified set of cash flow generative African oil and gas assets – Gabonese oil, Tanzanian gas (they are the operator for the Mnazi Bay development in which Wentworth has a share) and Nigerian oil and gas (through share in Seplat). The balance sheet looks in reasonable shape and there is also a significant exploration portfolio (albeit on the backburner).
• Tullow. Have been watching Tullow for a while now and finally decided to press the button. Sure, I could have got them 50% cheaper in January, but the balance sheet issues look a lot more manageable at US$39/bbl oil than they did at US$29/bbl (chart below is helpful here). Net debt totals $4.0bn with US$1.9bn cash and debt headroom. Cash flow should turn positive from Q4 16 once the TEN project in Ghana comes on line (Jul/Aug this year).

Latest portfolio snapshot is below. I have £5.9k in cash which remains a little on the high side but not burning a hole in my pocket.

I have today sold the remainder of my holding in Centamin at 96.9p per share, realising a 59% profit. Gold bulls may question the sale, but 39% of the Contrarian Miner portfolio was in gold, I have been looking to reduce that.

Centamin is a solid enough company with a strong balance sheet and Sukari is a low cost producer.However, I’m not convinced there is significant value upside here, and hence am taking profit.

At today’s gold price the Sukari mine generates approximately US$160m in cash flow after tax (AISC of $900/oz and target production rate of 500koz per annum). Of that, 50-60% is attributable to Centamin (once the Government profit share kicks in) thus giving them c$83m in attributable free cash flow from Sukari. And then Centamin spends just over US$30m a year in exploration outside Sukari and other costs leaving c$50m a year in free cash flow for the group. On the current EV of US$1270m that is just under 4% FCF yield which to my mind is not enough to justify investment. Particularly given the unresolved legal issues relating to the mining licence (at small risk but nevertheless one that cannot be entirely ignored in my view).

The Contrarian portfolio stands at £108,758 currently – little changed on yesterday.