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In 2011 Peter Epstein, CFA, left a $3 billion hedge fund where he was a senior analyst to help increase awareness of a number of small cap companies in which he's invested in. Please see: epsteinresearch.com On TWITTER: @peterepstein2 Mr. Epstein formed MockingJay, Inc., a consultancy for... More
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  • Nevada Copper Corp. Could Be Takeout Target

    Peter Epstein, CFA, MBA Twitter: @peterepstein2

    Copper Supply Far From Secure, Production Costs Rising

    It's widely known that average copper grades have been falling for decades. The conventional wisdom is that the average grade from producing mines is down from about 1.0% to roughly 0.60%. That trend is likely to persist. Labor, energy, water, legal, local populations, compliance and environmental challenges and costs are up, resulting in the time from discovery to production nearly doubling since the year 2000. This suggests that a number of mid-tier and major base metals players could be looking at acquisitions to offset ongoing depletion. As I hope to demonstrate, Nevada Copper (NCU.TO) (OTC:NEVDF)leads the pack in this regard.

    An example of what's going on in the copper space can be found by highlighting Chile's Escondida mine, operated by BHP. According to reports,

    "the project includes construction of a seawater desalination plant and the piping and electrical infrastructure needed to transport water to the mine, 114 miles away and 10,170 feet above sea level." More astonishing, according to an April, 2015 FT article, "...Chile State-owned Codelco, plans to spend $25bn over the next five years just to maintain current production..."

    Time is Approaching for Potential Suitors of Nevada Copper to Step Up

    Everyone agrees that Nevada is a safe and attractive jurisdiction. The same can no longer be said about Peru. That country's rankings have collapsed as chronicled in the 2014 Fraser Institute Mining Index. In 4 categories Nevada ranked on average # 6 out of roughly 125 countries/territories. By contrast, Peru ranked # 33. Why pick on Peru? It was the 4th largest copper producer in 2014. Even as I write, escalating protests against the $1.4 billion Tía María copper mining project in southern Peru is in the news again.

    Also in the top 10; China, the DRC, Russia and Zambia. So much for security of supply! Half of the top 10 are in unstable countries (my opinion only). Compare those with others in the top 10, the U.S., Canada, Mexico, Chile and Australia. With this in mind, it may be no surprise that I believe Nevada Copper is reaching a critical stage where a number of acquirers might be circling.

    Nevada Copper's flagship Pumpkin Hollow project is a high-grade Iron Oxide Copper Gold deposit within a porphyry copper district located in Nevada, not in a some scary country. As it stands, the combined 1 & 2 Stages represent a highly attractive, large, long life asset. The company's upcoming Integrated Feasibility Study, "IFS," has the potential to both expand reserves and resources and enhance the combined grade. The identified proven and probable reserves approximately 5 billion pounds of copper, plus gold and silver at a copper equivalent grade of 0.49%. This is a solid grade for a new entrant and compared to many depleting mines.

    Continue Reading....

    May 21 7:52 AM | Link | Comment!
  • Lithium Demand Could Spike More Than Many Believe

    Lithium Demand Will Grow Faster Than Experts Imagine

    http://epsteinresearch.com/terms-of-use/#dajin

    by Peter Epstein, CFA, MBA
    Twitter: @peterepstein2 & Please consider providing your email for instant updates from EpsteinResearch.com THANK YOU!

    Disclosure: Please see applicable disclosures here. Peter Epstein, CFA, MBA

    It all started with Tesla's announcement of its battery giga-factory in February, 2014. That news was discussed endlessly with breathless excitement. The news sparked a revival in lithium, cobalt and graphite juniors. For example, Western Lithium USA Corp. (WLC.TO) based in Nevada, more than doubled that month. At the time, I wrote a few articles saying that the giga-factory was great news for select graphite companies. I didn't mention lithium or cobalt, simply because I was less fluent in those.

    Today, I'm better prepared to articulate the lithium story, one of the hotter sectors in the natural resources space. Why now? I think that the lithium-ion battery might be reaching a "tipping point," the phrase made famous by Malcolm Gladwell. Please note, I don't use catch phrases loosely, lithium's spike in demand is no, "black swan" event, and we're not near "Peak Lithium," although we could see supply shortages on the horizon. Not only did Tesla's giga-factory catch everyone's, the idea caught on so well that there's already 5-6 announced or in construction giga-factories, (Tesla's is the largest).

    Lithium demand, "is spiking," for several reasons, again heavily influenced by the $5 billion dollar Tesla facility. Interestingly, the original concept was that the Tesla facility would be completed by 2020. Now conventional wisdom says 2017-18, another bullish data point. Tesla's fully electric car was way too awesome for its own good. It guaranteed that new competition would enter the space and it has. Get ready for it, an abbreviated list of 15 automakers in the plugin-EV (hybrid) or fully EV market….BMW, Mitsubishi, Toyota, Nissan, Honda, Tesla, GM, Ford, Kia, Fiat, Mercedes, Porsche, Volkswagen, Audi and Hyundai.

    Read More at epsteinresearch.com/2015/05/13/lithium-d.../

    May 14 12:44 PM | Link | 4 Comments
  • First Southern Securities Offers Key (Muni) Diversification From Stock Markets.

    The following interview of the 3 principals of First Southern Securities, Benjamin T. Eiler, Vasileios A. Sfyris and W. Heath Hawk was conducted by phone and email in the week ended May 8, 2015. The views expressed in the answers are entirely that of the above mentioned partners. I have no investment in the fund discussed below. - Peter Epstein, CFA, MBA

    Peter Epstein, CFA, MBA has no prior or existing relationship with any investment vehicle described in this articles or with the named principals of First Southern Securities.

    Interview :

    Q: Please give a brief background and description of First Southern Securities "FSS"? How is First Securities different from other small, boutique Muni firms?

    A: Please see link to FSS above. We are is a research intensive boutique Muni firm that specializes in extracting value from under-followed tax-exempt entities (credits). W get under the hood and try to identify credits that are, "diamonds in the rough." When we find attractively valued Muni bonds, we buy them cheaply. Our firm frequently buys smaller, "odd lots" than hedge funds, mutual funds and Exchange Trade Funds would ever consider. This approach helps boost total returns.

    First Southern Securities recently launched its first bond Fund for high net worth investors and small hedge funds. Can readers get an overview of the Fund?

    Phorcys Opportunities I, LLC offers a fresh twist on distressed debt investing: an opportunity to achieve superior tax-advantaged returns by investing in distressed or defaulted asset-backed micro-issue municipal bonds which offer significant upside when the issuing entities are turned around or managed more efficiently. We also view ourselves as bond activists since we can push borrowers for change if certain targets or covenants are not met.

    Q: What's the current assets under management in the Fund, how large could the Fund grow? What's the minimum investment in the Fund?

    A: First off, we are early on in the process of attracting capital into the Fund. However, we are quite encouraged by the level of interest we are seeing. The Fund is size is approaching $3 million. We are still deploying our seed investor's capital. We deploy capital at a prudent pace, relying on our proven investment process. That's why it takes time to find attractively priced securities. All of our Fund acquisitions must go through an investment committee meeting. We think that our strategy can support a Fund in excess of $250 million over time. The minimum investment size is $250k.

    Q: What's the benefit of investing in your actively managed Muni Fund compared to a "professionally managed" Muni fund or Exchange Traded Fund "ETF" bond fund?

    A: Our Fund is an opportunistic total return vehicle. Outside of the Fund we have been able to, and hope to continue, generating attractive risk-adjusted returns. Not just attractive returns, but in many cases tax-free returns. Strong returns by acquiring credits that don't fit into regular current return portfolios, returns that have a low correlation to other asset classes, most notably stocks. Many passively managed bond funds and ETFs have mostly long-dated bonds which expose investors to downside risk if interest rates were to rise. For example an ETF bond fund with a duration of 12 years would fall by roughly 12% if long-term interest rates were to rise by 1.0%. By contrast, our portfolio would fall considerably less. In fact we would welcome a rise in interest rates as that would provide us a larger universe of attractive, high yielding bonds to choose from.

    Q: What kind of proprietary research does your team do? Is it extensive or fairly routine?

    A: It all depends on the credit. Some credits need more hand-holding than others. We frequently visit with property managers and other interested parties. We often look at the physical asset and we consult with industry/asset experts prior to acquiring bonds of the issuer. Our firm has grown to over 20 investment professionals including traders, analysts and 3 principals. Therefore, we encompass a wide range of experience and points of view when doing due diligence on an issuer. A specific comment from Mr. Ben Eiler is that, '...we are going places. Our staff is up 80% in the past 12 months. We are up in every category, Assets Under Management, Gross & Net revenue, trade volume etc…. People are starting to notice our skills and reputation.'

    Q: Are you able to provide an example of a good investment made before the initiation of the Fund?

    A: Sure, a credit we have been accumulating is representative the Issuer's Bond Rating at Fitch is BB. This is a 1st mortgage on a building in a good part of town. There will be some tenants exiting in 2015 but management does not expect it to be a significant problem. We agree. The owner is a successful developer in this part of town. The original issue size was around $60 million. We believe that many secured, single-asset entity bonds in unpopular States are trading with, 'guilt by association,' and the market has unfairly punished them. This building remains a stable, 'Class A' building with strong tenants in a desirable area. Opportunities like this are not common, but finding these, 'diamonds in the rough' is possible with hard work, persistence and our proven ability to move fast when necessary.

    Q: Can readers have an example of a less successful investment and how it came about? Did FSS exit the investment and minimize the loss?

    A: An example of a bad trade was a General Obligation bond for a troubled city. We were aware that the city had its share of financial problems but we did not anticipate things moving as quickly as they did. We had a small position in the General Obligation bonds when the emergency manager in proposed to pay bondholders 10 cents on the dollar. At that point, the bonds started trading lower, even though the market did not factor in an ugly bankruptcy scenario. We thought that in the mid-50s the bonds were still aggressively priced and their fair market value was in the low-to-mid 30s, expecting that the bonds would get worked out in the 60s for a nice gain. Over time we were able to lower our cost basis into the high-40s. The bankruptcy proceeding was pretty ugly though. The workout level was only $0.34 and stub bonds which reduced our loss by roughly half.

    Q: Does your Muni Fund have specific investment guidelines (risk mitigation) such as limits per State, bond sector, sub-investment grade bonds?

    A: That Fund's specific mandate is to be an opportunistic as necessary to achieve attractive risk-adjusted total returns. When there are a lot of attractive investment opportunities, we may be more fully invested, (less cash in the portfolio). When the Muni issues of select jurisdictions such as PR, California or Michigan become oversold due largely to headline risk and unwarranted fear in the market, we may buy more of those mis-valued securities. Sometimes odd lots of sub-investment grade issues become highly attractively priced simply because as 'fallen angles' many insurance and pension funds are mandated to sell them.

    This is a way in which we can source bonds at fire sale prices. Importantly, our Fund stands ready to sell illiquid holdings if prices improve sufficiently to allow us to redeploy the proceeds into a better risk-adjusted opportunity. However, if our cheaply priced issue remains undervalued we will either buy more or hold it until maturity. Many funds, for a number of reasons, do not have the stomach or in some cases the mandate to hold these issues until maturity. So in short, while we don't have many restrictions on our management activities, the 3 principals are personally invested and therefore 100% aligned with other Fund investors. To be clear, a Fund without investment guidelines could be more volatile than other funds and be considered more risky. We never swing for the fences and risk strikeouts, that's simply not the nature of our Fund.

    Q: Is the Fund permitted to use leverage?

    A: Yes, the Fund is permitted to use modest leverage. Typically, the Fund will probably not be using much if any leverage.

    Q: Will the Fund make annual distributions?

    A: We get asked that a lot. No, the Fund will not be making annual distributions. We believe an arbitrary rule to return capital once a year would be disruptive to our portfolio management process. For more information on FSS and our new Fund, please see First Southern Securities "FSS".

    Q: Will the Fund maintain a cash balance for safety or be fully invested at all times?

    A: While intuitively it makes sense that holding excess cash in the Fund mitigates downside risk, but it also diminishes upside potential. Investors into the Fund are seeking exposure to a reasonably diversified, high yielding Muni bond portfolio. The Fund's mandate is not to make bets on interest rates or movements in underlying Muni bond prices.Our only guidelines regarding cash will be based upon the universe of investment opportunities and the prudent investment of new investor capital.

    Peter Epstein, CFA, MBA has no prior or existing relationship with any investment vehicle described in this articles or with the named principals of First Southern Securities.

    May 11 2:23 PM | Link | Comment!
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