Happy Halloween? The scariest thing in the house is my Portfolio

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The information contained in this communication is provided for general information purposes only and may relate to speculative investments. It does not constitute financial product advice, and has been prepared without taking into account your personal objectives, financial situation or needs. You should consider obtaining independent financial advice before making any investment decision.

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Happy Halloween?

Most of us have already been living in a spooky nightmare for the last few weeks... every time we open our stock Portfolio.

Don't worry, it's not just you.

Every phone call I’ve made this week to market participants is more depressing than the last.

“Worst market I have seen in a while”.

“When will this end?”

“Stop calling me”

No solace on the phone.

Maybe I should log in to look at my Portfolio, can it really be that bad...?

You could also replace that red watchlist image on that ghoul's bagless head with either the silver price OR the gold price right now.

Let’s put that bag back on please.

Not the first market pullback we have lived through, and certainly won't be the last.

This one has come on pretty fast, which often means it's an overshoot and bounces back quickly (I hope).

We are long term holders.

So as much as these pullbacks suck, we are really in it to see our Investments have a proper crack at doing “the thing” they said they will do, which generally takes a few years.

Pullbacks like this are annoying for us...

Mainly because it means any company that DOES NOT have enough money in the bank is forced to raise money on terrible terms, meaning significant dilution for existing shareholders.

For example (rough numbers for illustrative purposes only):

If you own 1% of a small ASX company, and they need to do a horror Halloween raise in these spooky market conditions, you might go down to 0.5% ownership.

(if you don't participate in the raise to maintain your % holding)

If that company ends up going to a $100M valuation in the next few years...

(yes, it's rare but it can and does happen, and that's the kind of result we are here for)

What would have been a $1M position is now a $500k position - because of that one desperation raise in the peak of a terrible market.

Some investors are more short term and get spooked when share prices come off (which is fine), so pull the rip cord and sell out when things start looking rough.

Which compounds and makes things worse, spooking everyone else:

Anyway...

While portfolios and stocks are all down, and many of us are all probably feeling pretty sorry for ourselves...

It's usually time to reflect on what really matters in life and that we are actually pretty lucky to be sitting at desks punting on the market.

And the worst thing that can happen in our job is some paper losses on a screen (it's only a loss if you sell)

Last night I was invited to a table at a fundraising dinner event for the Australian Special Air Service Regiment Resources Fund.

The fund assists current and former members of the Australian Defence Force and their families who suffer hardship, disability, or death as a result of their service with the Special Air Service Regiment.

The Special Air Service Regiment (SASR) commonly known in Australia simply as “the SAS”, is the country's most elite, highly secretive special forces unit.

They specialise in covert intelligence gathering deep behind enemy lines and high-intensity precision raids...

Plus serving as Australia's ultimate line of defence for domestic counter-terrorism and hostage rescue.

The purpose of the SAS Resources Fund is to give them peace of mind that if they are killed on the job, their family will be taken care of.

The dinner was also to commemorate 30 years since two Black Hawk helicopters collided during a training exercise and 18 soldiers were killed and 12 injured.

We heard stories from the day of the crash from the wife of a soldier in the crash (who had two young kids at the time) and what happened in the next 72 hours... then the next 30 years where the fund was supporting them.

And from the son of a SAS soldier that died on that day (he was 5 years old at the time) and how the fund had been supporting him where he needed it over the last 30 years (school fees, education etc).

We also heard from the guy piloting the Black Hawk that was behind the two that crashed and saw the whole thing unfold... and had to land and help with the rescue.

(And then was expected to be back in active service 72 hours later)

All the work they do for the security of our country, so we can all sit around sipping coffee and lamenting that our stocks are down this week... even though they will probably go up again next month.

It's hard to thank these guys enough using just words...

Making a donation to this cause was the best I've felt for the last couple of months, and it was a good bit of clarity on feeling sorry for yourself when stocks are down.

If you want to donate too or find out more about the SAS Resources Fund, you can do so here.

The SAS motto was spoken many times during the speeches last night:

“Who Dares Wins”

Meaning that those who are willing to take bold, calculated risks are the ones who ultimately achieve success.

Maybe I can apply it to my “zero risk of personal injury”, stock market desk job?

Does that mean holding all our stocks during this pullback?

(SAS motto is not financial advice)

So, after last night, for me it’s firmly back to “no crying in the casino” - market opens again on Monday so next week we go again.

I was invited to this event by the team at our Investment Emyria (ASX:EMD) who are helping defence force veterans treat their PTSD and depression using psychedelic assisted therapies.

(thanks Mary-Ann and Greg for the invite)

EMD is the only company in the world focused on operating legally-authorised psychedelic therapy clinics for mental health issues like PTSD and treatment resistant depression, at commercial scale.

Unfortunately there’s an outsized proportion of defence veterans who suffer from these particular mental health issues.

Almost a year ago the Australian Department of Veterans’ Affairs agreed to fund psychedelic assisted treatment for eligible veterans...

Which meant eligible patients could have EMD’s services paid for.

On Thursday EMD said in their quarterly update that the first cohort of veteran funding approvals has been received AND it now has more than 40 veteran referrals in its pipeline:

(source: EMD quarterly released Thursday)

EMD also recently announced that former US Secretary of Veterans Affairs Dr David Shulkin will support EMD's US partnerships.

Great work EMD.

Now back to the markets.

Yes it has been rough out there.

We’ve still got our silver stocks, we still hold our gold stocks, we still hold our critical minerals, tech, energy and biotech stocks...

And when the market is down, we think it's an opportune time (for us) to add new Investments.

Especially ones that match a thesis I have shared a few times recently.

That in a new AI and robot driven world of abundance, the most scarce and important AND valuable thing will be energy and commodities (read that thesis here)

Especially energy... which brings us to...

Our latest Investment is Macallum New Energy (ASX:MNE)

The Perth Basin in Western Australia has delivered multiple gas discoveries, takeovers and new gas producers on the ASX over the last 10 years.

(and with that came a number of successful outcomes for ASX small cap investors, our head analyst laments missing his first 30 bagger that was a Perth Basin stock - he says he sold too early for a 33% profit)

This is the same gas province where major companies plus mining billionaires Gina Rinehart and Chris Ellison have been jockeying for positions and cutting deals trying to secure strategic onshore WA gas supply.

MNE holds 100% of “the largest undrilled gas structure in the entire Perth Basin”, and plans to drill test it for a discovery next year.

Below are some of the key gas discoveries, M&A deal and new producers in the Perth Basin - and where MNE’s block sits relative to all of the action:

MNE is the only pure-play ASX small cap currently listed and trading with undrilled Perth Basin targets...

...sitting next to existing gas plants and pipelines:

(source)(source)

MNE’s CEO Andy Furniss was previously Exploration Manager at AWE - the company that "opened up” the Perth Basin in 2014.

(and after that, worked at the giant company that acquired it)

Now he is CEO at our new Investment MNE, sitting on 100% ownership of multiple compelling (in our opinion) conventional seismically defined targets in Australia.

And MNE is targeting a first exploration well in H2 next year.

MNE is also anticipating a “farm-in partner soon” - saying ‘strong industry interest’ has been received to date, and multiple parties are in the data room... (source)

(a “farm-in partner” basically means a bigger oil & gas company paying for all or part of the drilling in return for some share of the upside)

MNE just raised $3M at 14c, we Invested in this round, this is our Initial Entry Price.

We are Invested in MNE to (with a lot of luck) replicate the success of some of those big Perth Basin success stories.

Like Norwest Energy which ran from 0.3c to ~7c - a gain of over a ~2,200% - eventually it was taken out for ~$497M post-discovery. (source)

(Our head analyst sold at 0.4c and still talks about it today)

(The past performance of Norwest is not an indicator of the future performance of MNE.)

And of course there is AWE - which opened up the basin in 2014.

That was the company where MNE’s CEO Andy Furniss was the Exploration Manager when they made their discovery...

Here is what Andy said in a MNE investor presentation at RIU’s Good Oil conference last month:

"Every company in the Perth Basin that's made a significant discovery has been taken out before their second well"

We also liked the below section of the presentation - it's a 30 second watch.

(or you can watch the whole presentation video in the link underneath):MNE’s CEO Andy Furniss was previously Exploration Manager at AWE - the company that "opened up” the Perth Basin in 2014.

(and after that, worked at the giant company that acquired it)

Now he is CEO at our new Investment MNE, sitting on 100% ownership of multiple compelling (in our opinion) conventional seismically defined targets in Australia.

And MNE is targeting a first exploration well in H2 next year.

MNE is also anticipating a “farm-in partner soon” - saying ‘strong industry interest’ has been received to date, and multiple parties are in the data room... (source)

(a “farm-in partner” basically means a bigger oil & gas company paying for all or part of the drilling in return for some share of the upside)

MNE just raised $3M at 14c, we Invested in this round, this is our Initial Entry Price.

We are Invested in MNE to (with a lot of luck) replicate the success of some of those big Perth Basin success stories.

Like Norwest Energy which ran from 0.3c to ~7c - a gain of over a ~2,200% - eventually it was taken out for ~$497M post-discovery. (source)

(Our head analyst sold at 0.4c and still talks about it today)

(The past performance of Norwest is not an indicator of the future performance of MNE.)

And of course there is AWE - which opened up the basin in 2014.

That was the company where MNE’s CEO Andy Furniss was the Exploration Manager when they made their discovery...

Here is what Andy said in a MNE investor presentation at RIU’s Good Oil conference last month:

"Every company in the Perth Basin that's made a significant discovery has been taken out before their second well"

We also liked the below section of the presentation - it's a 30 second watch.

(or you can watch the whole presentation video in the link underneath):

(watch it in full here: MNE investor presentation from a month ago)

Andy was the General Manager of Exploration at AWE from 2009 to 2018. (source)

Andy was with AWE all the way through to the eventual $602M takeover.

And then he spent ~7 years as Vice President of Exploration at the company that bought AWE - the Japanese giant Mitsui.

(source - Andy’s LinkedIn profile)

We have been watching MNE for a couple of years, moving from being a private company to an ASX listing in February this year.

Since then MNE has shot 3D seismic, increased the size of one of its prospects by ~70%, added 52M barrels of oil to its prospect inventory, has drill ready targets, and a data room open to potential farm in partners.

Yet, its share price has come off a bit (like nearly every small ASX stock has) and we are coming in below the IPO price - arguably into a much better macro environment for oil and gas stocks.

Here are some of MNE’s key targets:

(source)

Whilst it's come off a little since its 20c IPO, we have seen the stock hold up relatively well post-IPO in an otherwise terrible market over the last few months.

To us it is a good sign that the company’s shareholder register isn’t full of flippers in it for a quick trading win.

We wrote about the importance of a solid shareholder register a few weeks ago here:

“A strong cap structure is one where shareholders are here to follow a company progress its project - a busted up one is where shareholders are there for a quick profit or to cut their losses.” (source)

And we commented on how the ideal situation for an Investment is a great project in a great capital structure.

MNE’s top 20 hold ~71% of the company’s stock (source) and ~34% of the register is escrowed until February 2028 (after this week’s raise).

MNE’s annual report came out a few weeks ago. Looking at the MNE top 20 holders, and then looking at top shareholder behaviour in other companies over the last 10 years, in that report we saw:

Multiple 3-6 year holders - pretty good for a small cap register these days.

But the main reason we like MNE’s register is MNE's top three holders - Macallum Group, the McIntyre family and the Sikirich family.

(who between them hold ~29% of the company) (source)

They are the same crew that built Extract Resources - the uranium explorer that discovered the third-largest primary uranium deposit in the world at the time.

AND got taken over for A$2.18BN in 2012.

(source)

Yep... that band is back together again doing MNE - and something tells us they won't be hovering over the sell button for measly 20% wins from the IPO or latest cap raise.

(Like that guy in the Jaws shark video earlier.)

Check out our full MNE initiation note here: Our New Investment is Macallum New Energy (ASX: MNE)

Have a great weekend.

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