Hunt for value amid tax-loss selling

These mining markets have not been kind to resource investors, so I decided to purchase a couple of early Christmas presents for myself this week. The price was right and in each case, I believe there is underlying value not reflected in the current share price. One is a miner, the other a junior exploration company. In both cases, tax-loss selling has compounded the damage to shareholder value.

Earlier this year, I wrote about the proxy fight targeting Sherritt’s well-paid board of directors and management and bought shares. It was led by Halifax value investor George Armoyan and his public investment company, Clarke Inc. Through Clarke, Armoyan accumulated a 5% stake in Sherritt – which mines nickel in Cuba and Madagascar and has Cuban oil-and-gas and power assets – and fought to install himself and two directors on the board. His beefs included excessive director and executive compensation, poor capital allocation and the almost complete lack of “skin in the game” – share ownership by insiders.

Armoyan lost the proxy fight, but won the war – Clarke exited its position in Sherritt and booked a $17.5-million gain on the foray. I got stopped out of Sherritt stock at $4.50 after booking a small profit, and the company dropped off my radar. (Search “Sherritt” to see all my blog posts)

Sherritt leaped back onto my radar in a hurry on Wednesday morning when I heard that the U.S. was normalizing relations with Cuba after decades of a ridiculous Cold-War-era embargo and standoff. I bought shares at $2.67, reasoning that the U.S. thaw could only help Sherritt both operationally and on the markets, where there are few other ways to directly invest in the island nation. Going forward, relationships will be vital for those who want to do business in Cuba, and Sherritt has a decades-old presence and deep relationships. The company has less of a presence in Cuba than it did in Ian Delaney’s heyday, but it remains a major player through its Moa nickel joint venture, oil and gas exploration and production, and power generation interests.

Sherritt, 12-month chart (Google Finance)

It’s been a good few sessions for Sherritt stock, which closed Friday at $3.23, but I believe shares have a ways to go yet. It’s traded much higher in recent years, when the company’s prospects were not as good.

On my watchlist. Have owned shares previously. The people running the company are high-calibre operators with track records of generating shareholder value by developing and selling assets. Sabina is developing high-grade gold projects in Nunavut, a remote jurisdiction where it can be hard to get things done. I also like this about Sabina:
- it’s cashed-up, with about $30 million in the treasury at year-end;
- it has a potentially valuable silver royalty on the Hackett zinc property, which it sold and is now owned by Glencore.

The stock had a volatile week on heavy volume. I bought shares at 31 cents when the market cap was below $60 million. The stock subsequently ran up to 37.5 cents on multiples of its average volume, but has dropped back to 32 cents at time of writing.

Sabina Gold and Silver, 12-month chart (Google Finance)

Disclosure: I own shares of Sherritt, Clarke and Sabina. Please do your own due diligence and read my disclaimer.

Related reading

Sherritt and Clarke: Nickel for your thoughts | World of Mining

Two investing ideas (one of them is Sabina) | World of Mining

Sherritt website
Sabina website

This entry was posted in Energy, Exploration, Ideas, Mining, Uncategorized and tagged , , , , , . Bookmark the permalink.