The Eye of the Tiger

Source: Malcolm Shaw 09/05/2024

Malcolm Shaw of Hydra Capital Partners shares some recent favorites in his stock list.

Gold is bouncing around near record highs of $2500/ounce, while copper was been under pressure due to recession fears. Oil is trading at around $70-75/barrel depending on the week, and North American natural gas is stuck in the low 2′s… in contrast to much higher European gas prices.

Hedge funds are reportedly more bearish on commodities than they have been in over a decade, and the market is anticipating a potential Federal Reserve rate decision in September. Despite a recent disruption in the Yen carry trade, the S&P has nearly recovered to its recent peak — and I’m keeping a close eye on the U.S. dollar as the DXY tries to hold above the psychologically important 100 level. A breakdown in the DXY could be a positive for assets like gold in particular.

Broadly speaking, I don’t see any compelling reason to change course. Gold is looking shinier than copper, and I am finding value in energy sector stocks compared to the broader market. My focus remains on the plays where I believe I have some kind of competitive advantage.

I’ve dubbed this note “The Eye of the Tiger” — partly because it’s a great 80′s song when you need some extra resolve, but also because tigers are the epitome of patience and focus when they’re on the hunt. They don’t take unnecessary risks while waiting for the right moment to pounce. Markets can be volatile, but by keeping my bets on companies and projects that I know well, I find it easier to weather the storms when they hit. Things have been pretty quiet going into the end of the summer, so below, I’ll just touch on some of my recent favorites that readers most often ask about.

Tenaz Energy

Well, would you look at what a difference a month makes? Tenaz Energy Corp. (TNZ:TSX) has recently acquired significant Dutch North Sea assets from NAM (an Exxon/Shell joint venture). This acquisition has positioned Tenaz as the top-performing energy stock on the TSX this year. Not too shabby.

The Tenaz story is a textbook case of a formidable team building shareholder value, and my bet is that they’re still just getting started. Tony Marino took the stage at Enercom in Denver recently, laying out the Tenaz story and explaining the company’s deal to acquire ~11,000 boepd of production (99% gas) and associated infrastructure in the Dutch North Sea.

Once the deal closes mid-next year, TNZ will have an after-tax NPV10 of $16 per share on a PDP basis, $22.50 on a 1P basis, and $34 on a 2P basis. And that’s assuming Tenaz doesn’t do anything else corporately.

Around the 15-minute mark, Marino said, “I like our M&A pipeline that we have better than I have at any time in the three-year history of the company, and we’re not going to stop just because we’re in the midst of the NOBV transition.” Well, well, well…

With their sights set on growing to 50-100,000 boepd through smart, value-adding acquisitions, I think there are plenty more chapters to be written in this story. And with only 27.2 million shares out there, Tenaz’s tight share structure means every accretive deal packs a serious punch for shareholders.

Right now, I am sitting tight and waiting for management to do what they do. With Tenaz, patience has always been the name of the game, and I see no reason to change tack now.

TAG Oil

TAG Oil Ltd. (TAO:TSX.V; TAOIF:OTCQX) stock performance has been painful this year. The last press release showed that the T100 well is producing around 375 barrels of fluid per day (255 barrels of that is oil, as it still cleans up water from the frack job) from a 300-meter horizontal leg in the ARF. This represents the first horizontal fracking in this part of Egypt.

For now, I’m holding. The crickets in the chat rooms and the low volumes tell me TAO’s not exactly everyone’s favorite stock right now. However, opening a new play is not the easiest thing in the world. Here’s hoping they knock it out of the park on the next go-round, ideally with a full 1000-meter lateral this time.

TAO’s been keeping it closed-lipped lately, but I foresee us getting some sort of update in the next month or so about their game plan for their forward operations, potentially including some M&A that management keeps eluding to in their updates. TAO is one of my more speculative holdings, but I’ve got a soft spot for the underdog. And right now, TAO is definitely that.

Condor Energies

Condor Energies Inc. (CDR:TSX.V)) presents an unusual investment case, yet it has demonstrated strong performance. The company has recently finalized a gas production enhancement agreement in Uzbekistan. In the second quarter, Condor reported gas production of 10,000 barrels of oil equivalent per day (boepd), generating approximately $20 million in revenue.

Initial low-cost strategies to boost gas production have shown positive results, and the company has significant potential to expand production with modest capital expenditure. Simultaneously, Condor is establishing itself as a regional player in Kazakhstan’s domestic liquefied natural gas (LNG) market, which serves as an attractive alternative to diesel in the country.

The Kazakh government has allocated feedgas to Condor to support its LNG initiatives, and the company aims to expand this allocation over time. Currently, Condor is focusing on supplying LNG to Kazakhstan’s locomotive fleet, which is scheduled for upgrades. This represents a potentially significant opportunity for a company of Condor’s size.

While this investment may not suit all portfolios, it could be of interest to those looking to diversify into Central Asian energy markets.

Midnight Sun Mining

Midnight Sun Mining Corp. (MMA:TSX.V; MDNGF:OTCQB) got clobbered recently on news that it appears to have lost its Kazhiba license adjacent to First Quantum’s Kansanshi mine in Zambia. While the company believes that it will reclaim rights to Kazhiba in time, for now, it will instead focus on the Mitu deposit — a much larger, albeit lower grade, oxide target that is also close enough to Kansanshi for trucking oxides to the heap leach there. Despite the painful chart, the company is approaching a crucial phase as drilling operations are set to commence on two fronts: the Dumbwa Joint Venture with KoBold, and the oxide drilling program at Mitu.

The current copper price has minimal impact on my investment thesis for MMA, as positive results from either drilling program could potentially lead to a revaluation of the stock in the future.

At present, Midnight Sun has limited market attention. However, it’s anticipated that the potential synergies with First Quantum may eventually attract wider investor interest. For the time being, we await further developments.

Vizsla Silver

Vizsla Silver Corp. (VZLA:TSX.V; VZLA:NYSE) can be compared to Aya Gold and Silver Inc. (AYA:TSX; MYAGF:OTCMKTS) in its pre-production phase, as both companies have identified resources of approximately 300 million ounces of silver equivalent with similar grades and thicknesses.

VZLA appears to be undervalued compared to its peers in the silver sector. The recently released Preliminary Economic Assessment (PEA) has reinforced this perspective. The company’s own press release regarding the PEA results provides a comprehensive overview of the situation. Here is a direct quote from the VZLA press release, which encapsulates the key points:

“An estimated after-tax NPV (5 per cent) of more than $1.1-billion (U.S.), an after-tax IRR of 85.7 per cent and a payback period of approximately nine months helps solidify Panuco as a world-class development project in the precious metals space,” commented Michael Konnert, president and chief executive officer. “The PEA, based on conservative metals prices of $26 (U.S.) per ounce silver and $1,975 (U.S.) per oz gold, outlines a high-margin, underground silver primary mine with substantial silver-gold production of 162.1 million silver equivalent ounces over an initial 11-year mine life. Annually, the mine is projected to produce an average of 15.2 million silver equivalent ounces, providing exceptional free cash flow, particularly in the early years, allowing for a very rapid payback of the estimated low initial capex of $224-million (U.S.). It’s important to note that this PEA represents only a snapshot of the potential value of Panuco, as we have only explored less than 30 per cent of the known targets in the district. Furthermore, ongoing drilling with two drill rigs continues to expand and convert high-grade veins in and around the proposed mine plan, enhancing the potential for improved economics in a feasibility study planned for the second half of 2025. Panuco benefits from excellent access to existing infrastructure, significant exploration upside potential to discover new mineralized centres and potentially new standalone projects hosting similar economics to that outlined in today’s study. As such, it’s becoming increasingly clear that Panuco will be a meaningful contributor to the silver industry for decades to come. I would like to thank everyone at Vizsla Silver, our stakeholders and community members for all the hard work over the years to reach this monumental milestone.”

Gold Stocks

With gold recently reaching new all-time highs, it is becoming a more popular investment option. The market doesn’t appear to be overcrowded, and companies like Newmont Corp. (NEM:NYSE) are still trading well below their 5-year highs, potentially presenting an opportunity.

My focus is on more liquid names in the gold sector, with my main holdings being in the VanEck Junior Gold Miner ETF (GDXJ:NYSEArca), K92 Mining Inc. (KNT:TSX.V), and Newmont Corp. (NEM:NYSE) .

Smaller positions include GTWO, OGC, GOT, WRLG, and AOT. The sector remains relatively unfamiliar to many investors, but there is not any bull market quite like a gold one, so my fingers are crossed that the breakout is for real.

Technology

The main technology position is in POET Technologies (POET:NASDAQ;PTK:TSXV). While I do not specialize in tech investments, this company’s photonics platform has attracted my interest.

Photonics technology, which uses tiny lasers instead of wires to transmit data on chips, offers benefits such as increased data capacity, reduced energy usage, and smaller form factors. It’s potentially applicable to artificial intelligence. Recent development deals with Foxconn Interconnect and Luxshare have increased interest in the company.

Emerging Idea

Lastly, I’ll mention tiny Tuktu Resources (TUK:TSXV) as a highly speculative microcap investment in a potential new oil play in Alberta. Initial tests have shown promising results, but more data is needed.

The share structure includes a significant number of low-priced shares and warrants, which is never ideal, but for a dime, you get what you pay for.

While there’s potential for high returns if successful, there’s also a risk of significant loss here, so this a small bet for me and is unlikely to be appropriate for most investors at this early stage, but it may be worth keeping an eye on as the story develops.

That covers a few of the bases, but I can never touch on it all. Thank you for reading, and good luck out there.

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Important Disclosures:

1. As of the date of this article, officers and/or employees of Streetwise Reports LLC (including members of their household) own securities of Midnight Sun Mining Corp.
2. Malcolm Shaw: I, or members of my immediate household or family, own securities of: All. I determined which companies would be included in this article based on my research and understanding of the sector.
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This is not investment advice, nor is it a recommendation to buy or sell shares in the company/companies mentioned.

The information contained herein is accurate to the best of the author’s knowledge, but the material and interpretations contained herein should be independently verified by any party using this information as part of any research, editorial, or decision making process. Any views expressed here represent the author’s opinion only, and as such readers should do their own research and come to their own conclusions if they are using the opinions contained herein as part of any larger due diligence process. The author may have long or short positions in the companies mentioned and may be buying or selling in the market depending on which way the wind is blowing at any given moment. Opinions are subject to change without notice. Prospective resources, predictions, comparisons, financial projections, and extrapolated metrics are, by their nature, subjective and interpretation dependent. The topics covered are highly speculative and involve a high degree of uncertainty and risk. Speculative companies can and do go to zero. By using this site, you agree that the author(s) and Hydra Capital is/are not responsible for any damages incurred by the use of the presented materials. Anyone reading these blog posts should know that they are the author’s thoughts and opinions, which are not to be confused with or construed as research reports.

( Companies Mentioned: CDR:TSX.V, MMA:TSX.V; MDNGF:OTCQB, TAO:TSX.V; TAOIF:OTCQX, TNZ:TSX, VZLA:TSX.V; VZLA:NYSE, )

Source: https://www.streetwisereports.com/article/2024/09/05/the-eye-of-the-tiger.html