By James Kwantes
Published first at Patreon
Fat pitches, investing punch cards and the ability to stay focused in a distracted world.
These are a few takeaways from Seth Klarman's recent ode to Warren Buffett, the 95-year-old investing titan and outgoing Berkshire Hathaway CEO, in The Atlantic. Here's a gift link: How Warren Buffett Did It.
It's a worthwhile read for all investors, including those of us who play in the junior mining sandbox. The article is also something of a celebration of Buffett's character, during a time when grift and avarice are on the rise and bad behaviour increasingly lauded. Klarman is a value investor who runs U.S. hedge fund Baupost Group.
Here are a few of Buffett's top strategies, as outlined by Klarman, with some related observations on junior mining:
Look for great businesses - wait patiently for a "fat pitch" (high-quality business that is misvalued), then take a big swing.
One of junior mining's great businesses, Kenorland Minerals (KLD-V), released a maiden resource estimate of 2.55 million ounces of gold at 5.47 g/t on Sumitomo's Regnault deposit, on Dec. 16. KLD has a 4% NSR. The stock is up 8% since and about 40% in the past month but may still be cheap. Kenorland has a top technical team and leverages partner funds to drill for mineral discoveries, maintaining exposure through royalties, equities and project stakes. KLD: $2.70
Buffett "never tried to get rich quick ... when going slower would produce a more certain and ultimately far more lucrative result."
The longer I invest in this sector, the more I recognize the value of "going slow." Many of the "get-rich-quick" lottery-ticket-style stocks that I've invested in over the years ended up in the trash.
The ability to stay focused over long periods and avoid distraction.
This is a superpower, especially in the noisy and promotional junior mining sector. Distinguishing between signal and noise is not only important, it's existential. One stock that I held for years but gave up on announced a transformative deal this morning. Westhaven Gold (WHN-V) brought in Dundee Corp. (DC.A-T) on an $85-million earn-in agreement that allows Westhaven to retain a 40% stake in their B.C. gold properties. I'm once again a WHN shareholder. WHN: 0.24
The idea of disciplining yourself with an "investing punch card" that has just 20 punches to be used over a lifetime.
I wrote about Buffett's concept in this Patreon piece: One Stock | February 16, 2023, identifying royalty/project generator Altius Minerals (ALS-T) as one of my punches. The stock was at about $20. It has since doubled and this morning Altius used its strong currency (and some cash) to acquire Lithium Royalty Corp. (LIRC-T). Altius CEO Brian Dalton is an excellent capital allocator and today's deal aligns with his counter-cyclical mindset. ALS: $39.33
Efficient-market hypothesis was gaining traction just as Buffett was building momentum finding undiscovered gems.
There may be no more inefficient market than junior mining. One of the challenges in a bull market is finding high-quality stocks that are not (yet) participating in the rising tide. Two ideas:
FPX Nickel (FPX-V) has a large, high-quality nickel deposit in B.C. and a good share registry, but has also experienced speed bumps with a local First Nation. Reading between the lines, FPX is making strides on that front. The B.C. government is expediting resource projects and recently announced a power line near FPX's Baptiste project. FPX shares are double where they were in September, but its market cap does not reflect the potential. FPX: 0.475
Mirasol Resources (MRZ-V) is preparing to drill its 46 South target at Sobek Central, 7 kilometres west of Filo del Sol in the hot Vicuña copper-gold district on the Chile-Argentina border. Mirasol staked its main properties in Vicuña prior to the high-grade Filo discovery and has been monetizing non-core assets as it pivots to sole-risk exploration. There have been plenty of hiccups with exploration programs in recent years. MRZ is trading lower than it was a year ago, 2 years ago, 5 years ago. MRZ: 0.435
One final takeaway, this one from Klarman's own toolkit. He runs a concentrated portfolio, making big bets on high-conviction holdings. For example, according to this Motley Fool article from a year ago, Baupost owned only 21 public equities (the fund invests in a range of public and private assets). At the time, about 43% of the equities portfolio was invested in just three stocks.
The trap for junior mining speculators, given the number of junior mining equities and the upside potential possible, is to:
own too many stocks
not own enough of your best ideas.
Disclosure: I own shares of Kenorland Minerals, Altius Minerals, FPX Nickel, Mirasol Resources and Westhaven Gold. No business relationship with any company mentioned. This article is not financial advice and all investors need to do their own due diligence.
