Ty Fred much appreciated. I have looked at nickel superficially for awhile, it’s just so annoying that I can’t trade those futs in the US and don’t really like the ETFs either.
I scanned a number of Nickel companies (notably those in the NIKL ETF) and I am not comfortable investing in those as they do not fit my own valuation criteria.
Specifically SHL has close to zero net income and except for 2 quarters in 2020 not a decent EPS.
I see it has rallied tremendously which shows the leverage we can have investing in small miners but I have decided long time ago to stay clear of that after experiencing it on PM miners.
Mining wise the only companies I feel comfortable having are large base metal miners.
Hi Fred, thanks for the response. I absolutely get your reticence when it comes to investing in companies with no income whatsover, but just a lot of potential on paper. However, on the other hand is it not way more worthwhile buying stocks of mining companies as an individual investor than buying the metal itself (I suppose I would be buying futures, correct me if I am wrong) which have capable management and proven reserves? I am not questioning your intelligence and understanding on the matter, I am just coming from the point of having never invested in commodities as such. To my point, I read this article on substack which spoke to my intentions: https://open.substack.com/pub/metalsandminers/p/governments-buy-metal-investors-buy?r=77haq6&utm_campaign=post&utm_medium=web
My short answer, not it is not necessarily more worthwhile.
[some details below, apologies for long answer but lot to be said IMO and it's an interesting topic]
The basis of the issue is in the article
- massive lag
- and "potential".
The degree of knowledge specialisation to chose a small miner over another one is enormous. Often border into geology and I am not an insider with a geology degree :)
And I do not like to delegate my due diligence.
How do you know for instance that said reserves are there for sure and economical ?
If a company has good management and is producing with great cash-flows yes I would look at it.
I therefore stick with large companies with long-standing track record of revenue generation.
There are a few Commodity producers I love. But not so many on mining side as we speak.
That is linked to valuation metric approach and my view of always coming back to what is the risk/reward when I invest.
I rather earn less (cf big Nickel miners' move) but put larger bet on something I am more sure of (ie I am bullish x% with y% downside on the metal).
Even after big price moves occurred in PM I failed to find good candidates in PM producers (I owned GDX, GDXJ, SIL and SILJ for a time but I made much more on the metals).
Now the price of said companies moved.
In term of worthwhile: if analysis is done properly and you manage to catch a breakout the returns can be tremendous.
When I bought Silver at 22, I think the outcome was still more than acceptable and even great in hindsight.
As we speak you would have mad twice the money of the large Silver miner ETF (SIL).
Secondly, trading energy for a long time taught me that when you have a thesis, place your bet exactly on the thesis.
Not on "related trade" or a proxy.
It can work. But it's never the same thing.
In case of Commodity producer vs Commodity, your risk on a single stock is huge. They can have production asset breaking, seized, etc.
Debt issues, management messing up you name it.
I am happy to take those risks on a given company when I have down a long deep-dive.
Whether it is commodity related or not.
But if I spot a great risk/reward on a Commodity I prefer to take the bet on it. Unless related equities are very cheap and high yielding (case of energy right now) then I would spread my bets between the Commodity and the equities.
Execution wise you can normally invest through ETFs although I understand many Americans I speak with need US listed and some of the more niche metal ETFs exist but are London based (would guess it's accessible via Interactive Brokers but I am not US based so can't fully comment).
Again, sorry for long reply but I have put a lot of thoughts on this topic and it's worth sharing.
Brilliant breakdown on production costs as the anchor here. That cost curve analysis showing 45% of supply underwater is the kind of stuff that actualy gets overlooked when everyones chasing narrative plays. I remmeber similar setups in crude back in 2016 and the patience paid off once fundamentals kicked in. Indonesia's hand looks forced at these levels no matter what the budget docs say.
Yes you are absolutely correct, 2016 was a big year for that phenomenon.
Saw it in crude, TTF (EU Gas) and Coal in the same year.
In TTF specifically, which I was closer from, traders were baffled how long we traded under the estimated production costs of Russia back then. And mostly for me as an electricity trader, how long it took for power generators to switch behaviours between coal and gas. This eventually was the big switch that helped find a floor at the time.
It took 4 to 6 months if I recall correctly but it eventually happened.
Can be linked to hedges already in place. Can be other factors (some actors are fast moving in every market, some slower).
Fred!!! I love this. What are the tickers to trade the new Nickel bull market?
Thanks Erik, appreciate the nice comment !
I am focusing on the metal myself so that is LSE listed NICK ETF.
Ty Fred much appreciated. I have looked at nickel superficially for awhile, it’s just so annoying that I can’t trade those futs in the US and don’t really like the ETFs either.
Pleasure, good to hear you liked the note.
To be fair, if you can access NICK in London it's pretty one for one with the Futures.
Thanks Fred - unfortunately same thing: “U.S. residents may not open positions in this contract.”
What do you think of companies like SHL? Are they worth investing in to ride the Nickel wave?
Hi James,
I scanned a number of Nickel companies (notably those in the NIKL ETF) and I am not comfortable investing in those as they do not fit my own valuation criteria.
Specifically SHL has close to zero net income and except for 2 quarters in 2020 not a decent EPS.
I see it has rallied tremendously which shows the leverage we can have investing in small miners but I have decided long time ago to stay clear of that after experiencing it on PM miners.
Mining wise the only companies I feel comfortable having are large base metal miners.
Some have Nickel but none are Nickel specific.
Hope that helps.
Hi Fred, thanks for the response. I absolutely get your reticence when it comes to investing in companies with no income whatsover, but just a lot of potential on paper. However, on the other hand is it not way more worthwhile buying stocks of mining companies as an individual investor than buying the metal itself (I suppose I would be buying futures, correct me if I am wrong) which have capable management and proven reserves? I am not questioning your intelligence and understanding on the matter, I am just coming from the point of having never invested in commodities as such. To my point, I read this article on substack which spoke to my intentions: https://open.substack.com/pub/metalsandminers/p/governments-buy-metal-investors-buy?r=77haq6&utm_campaign=post&utm_medium=web
Thank you for your time.
My short answer, not it is not necessarily more worthwhile.
[some details below, apologies for long answer but lot to be said IMO and it's an interesting topic]
The basis of the issue is in the article
- massive lag
- and "potential".
The degree of knowledge specialisation to chose a small miner over another one is enormous. Often border into geology and I am not an insider with a geology degree :)
And I do not like to delegate my due diligence.
How do you know for instance that said reserves are there for sure and economical ?
If a company has good management and is producing with great cash-flows yes I would look at it.
I therefore stick with large companies with long-standing track record of revenue generation.
There are a few Commodity producers I love. But not so many on mining side as we speak.
That is linked to valuation metric approach and my view of always coming back to what is the risk/reward when I invest.
I rather earn less (cf big Nickel miners' move) but put larger bet on something I am more sure of (ie I am bullish x% with y% downside on the metal).
Even after big price moves occurred in PM I failed to find good candidates in PM producers (I owned GDX, GDXJ, SIL and SILJ for a time but I made much more on the metals).
Now the price of said companies moved.
In term of worthwhile: if analysis is done properly and you manage to catch a breakout the returns can be tremendous.
When I bought Silver at 22, I think the outcome was still more than acceptable and even great in hindsight.
As we speak you would have mad twice the money of the large Silver miner ETF (SIL).
Secondly, trading energy for a long time taught me that when you have a thesis, place your bet exactly on the thesis.
Not on "related trade" or a proxy.
It can work. But it's never the same thing.
In case of Commodity producer vs Commodity, your risk on a single stock is huge. They can have production asset breaking, seized, etc.
Debt issues, management messing up you name it.
I am happy to take those risks on a given company when I have down a long deep-dive.
Whether it is commodity related or not.
But if I spot a great risk/reward on a Commodity I prefer to take the bet on it. Unless related equities are very cheap and high yielding (case of energy right now) then I would spread my bets between the Commodity and the equities.
Execution wise you can normally invest through ETFs although I understand many Americans I speak with need US listed and some of the more niche metal ETFs exist but are London based (would guess it's accessible via Interactive Brokers but I am not US based so can't fully comment).
Again, sorry for long reply but I have put a lot of thoughts on this topic and it's worth sharing.
Hope it helps
Brilliant breakdown on production costs as the anchor here. That cost curve analysis showing 45% of supply underwater is the kind of stuff that actualy gets overlooked when everyones chasing narrative plays. I remmeber similar setups in crude back in 2016 and the patience paid off once fundamentals kicked in. Indonesia's hand looks forced at these levels no matter what the budget docs say.
Thanks for the nice comment AI A.
Yes you are absolutely correct, 2016 was a big year for that phenomenon.
Saw it in crude, TTF (EU Gas) and Coal in the same year.
In TTF specifically, which I was closer from, traders were baffled how long we traded under the estimated production costs of Russia back then. And mostly for me as an electricity trader, how long it took for power generators to switch behaviours between coal and gas. This eventually was the big switch that helped find a floor at the time.
It took 4 to 6 months if I recall correctly but it eventually happened.
Can be linked to hedges already in place. Can be other factors (some actors are fast moving in every market, some slower).
Anyway. Happy you find it helpful.
Any good ways to invest in nickel stocks? I am interested in altius minerals in canada and vale.
There is a NIKL miners ETF but I personally stick with the metal. I am not big fan of specialist miners in the sector.
I do like Vale though but they are not Nickel specific !