I really like the prospects for nickel- the price hit US$10,755/t yesterday, its highest level in nearly a year as the Philippine government continued to up the rhetoric in its crackdown on mining companies. But the price is still well below the marginal cost of around US$13,000/t and it seems to me that gap could close rapidly.

For me the best way to capitalise on the upside for nickel is through juniors,  but I am well aware of the risks associated with investment in a single junior mining company – not least that management goes off on a tangent (see Keras Resources, down 40% in a week since the company admitted its small scale gold strategy is not – yet –  working).

So I have chosen a set of three juniors to play the nickel theme:

• Panoramic Resources (ASX: PAN). I was already a holder of this stock but last week bought another 15,000 shares at A$0.21/share. Previously a producer, the company mothballed its mines in response to low prices. They can quickly be brought back on line with potential production of 20ktpa at cash costs of US$10-12,ooo/t it needs a nickel price of slightly more than US$13,ooo/t to start to come back on stream. The company has an enterprise value of US$63m of which theoretically cUS$11m is Gum Creek gold soon to spin off through IPO.
• Poseidon Nickel (ASX:POS). A new holding for me I bought 100,000 shares today at A$0.065. Like Panoramic, Poseidon holds mothballed mines which have produced recently and can readily be brought back to life – in Poseidon’s case assets bought from Norilsk. Again operating costs are $10-12,000 and it needs a price of $12,000-13,000/t for these assets to think about restart. We are not far off that already.  The lithium potential may add to the story depending on your view (personally I am a contrarian and hence Lithium is not high on my wish list right now, but there it is).
• Horizonte Minerals (London: HZM). Hoping to add to the 100,000 shares I already own. This is rather a different beast to the two Aussies – a greenfield project in Brazil that will need a higher nickel price to justify investment. But world class in scale and I think a fantastic opportunity for the long term. I like management who have stuck to the strategy despite tough times.

Elsewehere in the Contrarian Portfolio, Maurel et Prom is up 36% today to €3.85 after the Chairman and CEO, Henin, agreed to sell his 24.5% stake in the company to Indonesian State firm Pertimina at €4.20/share with a kicker to €4.70/share if the oil price exceeds $65/barrel for more than 90 consecutive days in 2017.  Shares still trading as a significant discount to the offer price and to what I think is their value so I will continue to hold.

Contrarian stands at £153,134. Portfolio below.

A few changes to the Contrarian Portfolio this week:

• I sold my last 450 shares in Semafo (Toronto: SMF) and am now out of this stock . Given my tendency to sell winners too soon (and hang on to dogs), I thought I’d try a trailing stop loss on Semafo. And so I was stopped out at C$6.19/share and left wondering why on earth I thought that was a good idea. In future I’m going to stick to selling the peaks – even if there do turn out to be higher peaks later it feels better than selling the troughs now doesn’t it. Still I made a 100% profit on this last tranche of shares so I can’t be too gloomy.
• Sold 7,000 Firestone Diamonds (London: FDI) today leaving me 23,000 shares. The company announced a positive update on Liqhobong this week with expectations for first production brought forward by a few months to “early” Q4. Firestone believes it will end the year with $9m of funding headroom as well as the $15m standby facility.  In short, it all looks very much on track. But it has been said the worst time to buy a mining company is just before they start production – there will almost inevitably be hiccoughs of some sort in the ramp up, no matter how well executed. And the diamond market still looks very uncertain. Neither of those are reasons not to own this still undervalued and well run diamond play – but a 100% share price appreciation had taken my holding in FDI to over £11,600 or 7.7% of Contrarian and I thought that a bit punchy for a pre-production smallcap.
• Bought 40,000 Sylvania Platinum (London: SLP) at 7.24p. Took the opportunity of price weakness earlier this week to add to my position. Good cash flow yield and relatively low risk exposure to PGM price upside, as they make money even at current prices. Seem to be some sellers in the market, however.

Gold – the trend is your friend. Or so analysts seem to think….

I’ve noticed a number of questions on recent analyst calls asking gold companies how they would adjust mine plans if the gold price continues to rise. Funny how a gold price of $1,320/oz was doom and gloom back in 2013 but hitting the same price from the other direction is boom time! Makes me wonder how much further gold price increases are already baked in to sector valuations. Chart below showing a few gold stocks plotted against the gold price….The orange line at the bottom is the gold price – up 21% in the past year. AngloGold Ashanti is up 261%, Centamin 204% and Barrick 178%. And there I was thinking Randgold was a looking a bit overbought (up a modest 126%) . Draw you own conclusions, but personally I’m already starting to think long/short strategies.

The value of Contrarian is £151,262. Up just over 1% since I last posted on 13th July despite a fairly volatile performance of the sector over that period. Helped significantly by the 31% increase the Firestone share price. Cash balance stands at £9,398.

Late last week I decided to introduce some nickel stocks into the portfolio. Nickel remains one of the most bombed out commodities. The price peaked at over US$50,000/t in 2007 and at $28,000/t in 2011. At the current price of just over US$10,000/t around half of the world’s production is loss making, which can’t carry on indefinitely. Sure this may be a slow burn – but by playing this theme through junior miners with good projects awaiting better market conditions I think the potential upside will be multiple times. So I bought:

• 13,000 Panoramic Resources (ASX: PAN) at A$0.17. Bought on Friday and in a rare piece of good luck the company announced Monday  it planned to IPO its gold asset. The market loved it – up 38% since. Not sure the spin out of an asset to the market justifies that sort of response, as it is far from a done deal, but I will take it anyway. More substantively, Panoramic has resources totalling over 250kt of contained nickel (in ground value of $2.8bn at today’s price) and potential production of 20ktpa with limited capex to get there as it is mostly restart of mothballed operations that could work at a nickel price of $13,000/t.
• 100,000 Horizonte (AIM: HZM) at 2p. Sure, with a market cap of £13m it may be difficult to envisage how this micro-cap will finance the $500-600m required for even a small scale ferronickel operation. But that doesn’t change the fact that they have managed to amalgamate the best ferronickel asset in Brazilian by hoovering up unwanted early stage assets from Teck and Glencore. Following the experience of Vale, Anglo and Glencore at Onca Puma, Barro Alto and Koniambo respectively, ferronickel may be a bit of a dirty word in the short term, but Araguaia (HZM plus GLEN’s project of the same name) is absolutely a world class asset and I believe there will be a buyer for this longer term. Bear in mind Vale paid US$876m for an undeveloped Onca Puma in 2006 and you have the order of magnitude upside. Considerable patience required though.
• I am also watching Poseidon resources but haven’t pushed the button yet. Looks really cheap as well but I don’t like the convertible debt in a non-cash generative company even if it is a few years out. May still bite.

Mining sector looking overbought, and I was down to just 1% in cash, so I have sold today:

• 150 RIO at £25.24, and
• 60 PHPD (the palladium physical ETF) at $60.93.

No fundamental reason here on value grounds or long term outlook – rather just reducing the most overbought of the stocks in the Contrarian Portfolio to give myself a small war chest in expectation of a sector pullback.

The value of Contrarian stands at £149,210 with £8,002 in cash. Portfolio below. The portfolio currently consists of 24 stocks which is towards the top end so I might look for something to exit. Think it would be good practice to cut a loser (and run my winners) although my instinct is as always the opposite.

The Tullow share price is down 13% on the back of an announcement that the company plans to raise $300m through a convertible bond. The bond is expected to carry interest of between 5.875% and 6.625% and to be convertible at a 30-35% premium.

To be honest, I am a bit confused at the share price reaction.In their recent trading statement Tullow said…”Strengthening the balance sheet and debt reduction continue to be key priorities for Tullow this year. Options available include further rationalisation of our cost base, further cuts to discretionary capital expenditure, portfolio management and other funding options”.

So for now they have gone with “other funding options”. I’m not sure why this should be such a surprise. Sure it doesn’t reduce net debt but it does give them additional headroom to get them through to the end of this year by which time with TEN on stream net debt should start to decline rapidly.

OK, the convertibility of the bond means it is slightly dilutive to shareholder value in the long term. But it’s convertible at a 30-35% premium. Personally I would rather have additional balance sheet comfort and share some of the upside with the holders of the coverts. So I have just bought another 1000 shares at 209p.

But then I did call this blog Contrarian Miner for a reason – my enthusiasm is clearly not shared by the market.

The only oddity I have just spotted – and its a bit late to be thinking this, given I have already bought – is that the announcement says the bonds are expected to be convertible at a 30-35% premium to the VWAP on 6 July (i.e. today not yesterday?). Surely that is unusual and opens the door for potential investors in the bonds to be playing games with the price today? Your thoughts welcome.

Don’t want to bombard you with posts, but wanted to note this trade hot off the press for once. Sold a further 450 shares in Semafo at C$6.80 a share, leaving Contrarian with just 450 shares.

I continue to like almost everything about Semafo. Mana is a solid mine with a reasonable life left and AISC of c$750/oz. Natougou looks like a great project and for once an acquisition that seems to add value- AISCs expected to be <$550/oz for the life of mine and significantly lower than that in the first three years with production 225koz per annum.

But the shares are up 118% since I bought them and the market cap of US$1.6bn looks to me a little punchy. If the gold price continues to rise, shares would most likely continue up, but with gold currently at a two year high I am willing to bet this won’t continue to move in a straight line.

Share price performance relative to gold price below…

Since I last posted on 27th June Contrarian is up 9% but the FTSE 350 Mining Index (TR) is up 15% in the same period – in theory, a disappointing week. But the portfolio now stands at £147,138 – up 47% since I started and £11,900 in the past week. And I am very happy with that. Which leads me to the conclusion that for the private investor, performance is not all relative. Chart below.

Changes to the portfolio in the past week:

1. Sold the remainder of my FRES (175 shares) at 1720p. Of course the shares are up another 10% since, but I had already made a 148% gain on them so happy enough
2. Bought a further 14,000 Gemfields at average price of 35.8p. Gemfields share price remains consistently weak despite positive news from the company. The latest ruby auction netted higher than expected revenue taking total rough gemstone revenues in H2 to $94m and for the year to $174m – a significant increase from FY15’s $153m and a clear sign that despite subdued market conditions the company is succeeding in building sustainable demand for its product. When I last posted on this stock I said I was buying it despite the fact it wasn’t really a “value” stock. Now I’m not so sure – I think current operations could generate EBITDA of >$70m per annum against which the current US$285m EV does not look overstretched at all.

Full portfolio below.

The value of Contrarian Miner is currently £135,623 – up 2% since I posted a fortnight ago, which is more than I can say for the performance of my ISA over the same period.

Significant positive contributors have been:

• Fresnillo +23%
• Keras Resources +16%
• Caledonia Mining +14%
• Semafo +10%

Currency has also been a major tailwind as around a third of the portfolio is priced in USD/CAD/AUD. But offsetting the gains have been horrid performances from Highland Pacific (-17%), Maurel Et Prom (-17%), Nevsun (-17%) and Wentworth (-16%) largely on company specifics (lack of demand hampering ramp up for Maurel/Wentworth and an acquisition that shareholders don’t like for Nevsun).

I have today sold 175 Fresnillo at £15.06. The stock is up 21% since Thursday and 117% since I bought it in November so taking profits. Feels to me like both RRS and FRES are overbought  simply because UK fund managers don’t know where else to hide from Brexit.

Forgot to mention last week that I bought a further 4,000 Ophir at 68p- with rationale unchanged since I first bought this stock on 5 May.

Portfolio summary below. Portfolio is now held 18% in gold, 15% in other precious metals, 8% in diamonds and gemstones, 22% in base metals, 17% in oils, 16% in other commodities and support services and 5% in cash. Looks quite base metals heavy – but I think that is right as the base metals have yet to really recover ground whereas precious metals have  seen a significant bounce from their lows.

Late last week, I made a few changes to the portfolio continuing to reduce gold exposure and introducing some fresh ideas.

• I sold the remainder of my Roxgold (3500 at C$1.40) – at a 115% profit. As a reminder, this is what I said when I sold the first lot at 113p on 13 April:

“At the current gold price the company would generate around US$50m in cash each year, which makes for a seemingly generous FCF yield of 13% based on the current EV of just over US$380m. However, the reserve life of the mine is c8yrs, so at the current gold price the mine would generate cUS$400m in undiscounted free cash flow over the life of mine compared to an EV of US$380m.Sure the gold price could rise or additional resources could be converted to reserves. But given that its a pre-production asset in Burkina Faso, I’d say its pretty fairly priced right now and am taking some profit. Haven’t decided what to do with the other half – I have a nasty habit of selling things too early so I am tempted to hang on for a bit and see what happens”

That rationale is unchanged – except for the gold price up 3% and the share price up 24% – so I am now exiting this holding.

• Sold half of my Semafo shares – 900 at C$5.98 – a 92% profit. No particular reason not to like Semafo but feel there is better upside elsewhere. Keeping half.
• Bought 40,000 Sylvania Platinum (London: SLP) at 7p. Sylvania has a decent management team and is one of the only South African platinum plays without significant labour issues as it is dump retreatment. EV just $20m and yet profitable and cash flow generative. Looks like an EV/EBITDA of <2x before you even take into account the rising platinum price. Production starts to decline from 2018, but by then I’ll be long gone.
• Bought 7,000 Gemfield (London: GEM) at 40p. I have long liked the Gemfields story – coloured gemstones with marketing as important as the mining – but it has been difficult to argue that it’s cheap. Arguably that may still be the case, but at 40p it’s certainly easier to make the case than it was at 68p. Unusually for me this is not a “value stock” but I like the idea, I like the management and the company generates cash as well as genuine and growing profits.

The value of Contrarian stands at 132,994. For some reason I am feeling despondent about Contrarian which has been trading sideways for months. But I am up 33% since inception and have outperformed the FTSE350 Mining index by 36% , so I have no real reason to be glum. Portfolio below

Since I last posted on 12 May, Contrarian Miner is down 2% to £129,763. In current volatile sector conditions I am happy enough with that, however I have made a few tweaks to the portfolio in the last few days:

• Sold my holding in OILB (a Brent Oil Tracker) – 250 shares at $23.42 – a 45% profit. This is not to say that I think we’ve seen the end of the oil price rally. I bought this oil tracker as a “placeholder” to ensure I had some exposure to oil price recovery before I had a chance to hunt down the particular oil stocks I wanted. I have since invested in  Tullow, Wentworth, Ophir and Maurel et Prom which together make up 17% of Contrarian. That is enough oil for a mining portfolio, so I am saying goodbye to OILB.
• Sold 4,000 Roxgold (Toronto: ROG) at C$1.22 realising an 87% profit. When I last sold down my holding in ROG  on 19 April, I explained my rationale – which hasn’t changed other than the move up in price from C$1.13 then to C$1.22 now (via C$1.40 – pity I missed it). I retain 3,500 shares, but don’t see it as a long term holding.
• Bought a further 90,000 Highland Pacific. Increasing my holding in what I continue to think is an interesting play. Sure both Ramu and Frieda River need higher prices to work (nickel and copper respectively) but both are world class in terms of scale and in addition you get exploration potential thrown in. All for an EV of A$38m . Bargain.

I have £7,512 in cash and lots of ideas for it.

Contrarian Miner has been fortunate to escape the volatility of the mining sector over the past week relatively unscathed. Since I last posted on 5 May, the Contrarian Miner portfolio is up 1.8% against the FTSE 350 Mining Index down 3.4%. Since inception Contrarian Miner is now up 32% against the index down 3% as shown on the chart below.

Portfolio holdings are unchanged since my last post. Contrarian remains close to fully invested (just £3,776 in cash) with a good spread of commodity exposure (see below). So trying hard not to fiddle.