Becoming Better Investors, Our New Year Resolutions...
Published 07-JAN-2023 14:00 P.M.
11 minute read
With the New Year’s festivities ending, it's time to look ahead to the year in front of us.
So today we’re going to share some New Year’s resolutions we have as Investors and improvements we want to bring to how we do things.
We’re putting the finishing touches on our predictions and outlook for 2023 - with a particular focus on which macro themes we think can deliver the outsized small cap returns we’re seeking.
Stay tuned for that in next weekend’s edition.
But for now, here are some aspects of our investment strategy we want to improve on in 2023.
20 years ago we started as retail investors punting the minimum $500 allowed by CommSec on a speculative stock we liked, hoping for a quick return over a few weeks or months.
Over the years we learned many lessons, and have slowly progressed to “sophisticated 708” investors now managing a comparatively larger fund of our own money, understanding that the best returns come over years, not months.
We are still learning new things every year - and we’ve shared our learnings over this time.
The learning process in Investing is constant - seeing what works, what doesn’t, and using that experience to drive better returns, again and again.
Becoming better Investors - what we want to do more of in 2023
One thing we’re increasingly aware of is that Investing, particularly in the small cap world, is very much a human exercise.
You need to trust a company’s management team, specifically the Managing Director, to deliver on a business plan, knock down objectives and milestones - in short, to actually get it done.
Small caps are often made up of tight-knit teams that need to work together to achieve shared aims and to deliver value to shareholders over time.
We have found that you have to understand people - not just projects and finances.
New Year’s resolution #1: More face to face meetings
Furthering our aim of having a better grasp on the human element of small caps, we want to have more face to face meetings with management.
Video conferencing and webinars are great - but there’s a certain intangible aspect to face to face meetings that helps you get a better gauge on a company’s trajectory.
From the management team's level of excitement, the tone of voice all the way down to the body language when discussing a company's prospects.
These subtle cues are somewhat lost in the video conferencing environment.
Face to face meetings also help build a stronger relationship with management, which is important because we are shareholders in these companies.
For a more in depth explanation of why we think meeting management is crucial - be sure to read this past weekend edition.
New Year’s resolution #2: Attend more conferences and investor briefings
One way to get a lot of face to face management meetings is to attend more conferences - this is a quick and easy way to to achieve multiple face to face meets in one day.
Most conference line ups we see will generally feature at least two or three of our Investments, and the Managing Director will usually be in attendance and willing to talk to Investors.
Attending these conferences also gives us a sense of how other companies position themselves.
Small caps are not just competing against their peers in the market - they are also competing for market sentiment and investor attention.
Studying other companies’ presentations and messaging helps us understand what macro themes are resonating and what could be around the corner.
After missing out on much of this action for two years thanks to Covid, late in 2022 we attended some of these conferences and Investor events again, closing out the year by attending the “Lithium Experts” day in Melbourne.
Among a range of leading lithium small caps and some expert market commentary from Joe “Mr Lithium” Lowry, our Brazilian Lithium Investment Latin Resources (ASX: LRS) presented.
We also attended an Investor Briefing from our biotech Investment Dimerix (ASX:DXB) where we had a chance to speak to Managing Director Nina Webster as well as DXB Chief Medical Officer Ash Soman (seen below):
We want to do more of this type of face to face interaction - we think it’ll make us better Investors, and we will share our experience from these events.
New Year’s resolution #3: More site visits
This is another resolution that we think ties in nicely with our goal of being intimately familiar with the operations of Portfolio Companies.
A site visit is when a company organises a guided tour of its project for media, equities analysts and large shareholders.
It is one thing being behind a computer screen, analysing ASX announcements and doing due diligence online - it is a whole other thing getting on the ground and kicking the tyres (rocks?) on projects/ideas.
A great example of this was our trip to Sarytogan Graphite’s (ASX: SGA) giant graphite project in Kazakhstan in August 2022.
Before going to site, a key reason for our Investment in SGA was because of its inferred resource being the second largest on the ASX - second only to $1.37BN capped Syrah Resources.
Once on the ground, the sheer size and scale of the project, especially the outcropping graphite (the black coloured rocks in the image below) was eye opening.
All of this helped us visualise exactly what SGA is working towards developing - a giant graphite mine.
Being on site with the management team also gives us a live walk through of the management team's ambition - an experience we think is extremely valuable.
We also built up an appreciation for the jurisdiction SGA is operating in with Kazakhstan surprising us with its modern cityscape.
Ultimately being able to go and verify all of our due diligence on site, combined with a breakthrough metwork announcement, led to us crowning SGA our 2022 Next Investors Small Cap Pick Of The Year.
To see our full write up on the site visit check out the following article and why we called SGA our 2022 Small Cap Pick of the Year: SGA site visit and Pick of Year
We are looking forward to getting out there and writing up similar site visit notes for our other portfolio companies projects in 2023.
New Year’s resolution #4: Better track our performance and predictions
Finally, we want to better track the performance of our memos and other predictions/forecasts.
It’s easy to make bold predictions - it’s just as easy to quietly never mention it again if you get it glaringly wrong...
In an effort to help us understand where we get it right, and more importantly where we get it wrong, we are going to record all of our macro and company predictions and provide an easy place where we can assess them.
Our recent addition of “Big Bets” - which lay out our ultimate success case for an Investment - is one method we’re using to put down in writing our hopes for the future (these can be found on each company’s page on our website).
We found this to be a natural extension of our Investment Memos, which we started rolling out late in 2021 - we have already provided a “report card” on a few of our early investment memos that have played out.
However, we want to expand on this.
The goal is to provide comprehensive analysis and commentary - and then share and assess how well our predictions have performed, to become better Investors.
With the New Year getting underway, we’ll be updating a number of our Investment Memos and providing a retrospective on what we got right and wrong, and how the company performed.
As for the market - there’s a lot of moving parts at the moment in geopolitics, the global economy and monetary policy (when isn’t there?).
From experience, markets are generally quiet around the turn of the year - and it’s been a relatively gentle start to the year as many of our Portfolio Companies recharge.
Brokers, funds, investors, directors, basically the whole financial sector are on holiday till the end of January.
But we’re confident that when the volume starts to enter the market again there will be a flood of newsflow, and many of our companies are primed to have a busy Q1.
We’re keen to get going again - and next week we’ll share what we think the big macro themes of 2023 will be (where we’re looking for our next big wins).
And of course we will review it at the end of 2023 and see where we got it right... and wrong.
That being said, if we get it right more often than not, 2023 could be another successful year.
We are default optimists (you have to be to invest in the speculative small cap market) and are hoping for a positive 2023 in our chosen macro investment themes which we will share next week.
🗣️ This week’s Quick Takes
GAL: More high grade assay results - discovery continues to grow
PUR: $8M raised - TWO major conditions to acquisition met
EMN: Euro Manganese submits ESIA + Sustainability report
This week in our Portfolios 🧬 🦉 🏹
Invictus Energy (ASX: IVZ)
Earlier this week our 2020 Energy Pick Of The Year Invictus Energy (ASX: IVZ) finished drilling its first ever oil and gas well at its project in Zimbabwe.
The results from the well and the subsequent sidetrack well proved a working hydrocarbon system, elevated gas readings (135x background levels) and multiple potential gas bearing reservoir units.
On its own these are excellent results for the first ever well in an undrilled basin - however there was one final piece of the puzzle missing.
For the company to officially declare a discovery a fluid sample was needed - BUT due to technical issues with a tool getting stuck in the well - no such sample was obtained.
As such IVZ was not able to officially announce a hydrocarbon “discovery” on Mukuyu-1.
Even without a “discovery” - IVZ was encouraged with what it found - the company has now secured the Exalo 202 drill rig for another 12 months. The rig is going to sit warm stacked ready for IVZ to drill at least one more well this year.
📰 Read our full Note: IVZ's wireline logging results announced
Grand Gulf Energy (ASX: GGE)
This week our 2021 Catalyst Hunter Pick of the Year Grand Gulf Energy (ASX: GGE) received its drilling permit for its next well (Jesse-2) at its US helium project.
With a permit in hand we are looking to see GGE secure its drill rig next, with drilling is expected to begin this quarter.
GGE’s helium project sits inside a part of the USA dubbed the “Saudi Arabia of helium”.
Nearby sits the Doe Canyon helium field. This helium field produces up to 50% of North American helium from ~ 20 different wells.
GGE will be looking to go from helium developer to producer with this drill program - at a time where the US needs more reliable local sources of helium as it builds up its onshore semiconductor production capabilities.
With US$260BN in commitments from companies like Intel, Samsung and Micron Technologies to build US based semiconductor facilities, we expect to see US based helium supply become of strategic importance.
Here is what we know about GGE’s project right now:
- ✅ A proven helium structure: A >61m gross gas column (with ~31m of independently audited net pay)
- ✅ Commercial helium grades: Helium grades of up to 1% returned to surface (higher than our 0.4% expectation)
For GGE to deliver a commercial helium project it needs:
- 🔄 Commercially viable flow rate: GGE’s Jesse-2 well is being drilled with this goal in mind.
📰 Read our full Note from Thursday: GGE helium drilling this quarter - can it unlock last year’s discovery?
⏲️ Upcoming potential share price catalysts
Updates this week:
- IVZ: Drilling its giant gas prospect in Zimbabwe
- This week IVZ finished drilling its first ever oil and gas at its project in Zimbabwe. While the company was unable to officially declare a discovery. The results from the well and the subsequent sidetrack well proved a working hydrocarbon system, elevated gas readings (135x background levels) and multiple potential gas bearing reservoir units. See our full note on the news here.
- GGE: Preparing to drill its US helium project looking for a commercially viable flow rate.
- This week GGE was granted drilling permits. The company also confirmed that drilling is expected to commence this quarter. See our full note on the news here.
- GAL: is undertaking a second round of drilling at its Callisto PGE discovery in WA.
- This week GAL put out more high grade assay results from its Calisto PGE discovery. The highlight intercept was a 33m thick intercept with PGE grades of 2.05g/t. We also noted Managing Director Brad Underwood’s comments on the theory that the “ultimate source of mineralisation may yet be discovered at this location” - see our Quick Take on the news here.
No material news this week:
- 88E: Drilling for oil in the North Slope of Alaska next to UK listed Pantheon Resources.
- TTM: Drilling its copper porphyry target in Ecuador.
- PFE: Assay results for manganese (Weelarrana) project.
- PRL: Awaiting final execution of a joint development agreement with Total Eren.
- TYX: Assay results from its maiden drilling program at its lithium project in Angola.
- TMR: Assay results from its ~25.75m visible gold intercept at its Canadian gold project.
- EV1: Updated DFS looking to improve on the already relatively strong US$323M NPV, Framework Agreement with the Government of Tanzania.
Have a great weekend,
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