A Game of two Halves
2020 for me and I suspect many was a game of two halves where we saw the market thrown in to chaos due to the global pandemic only to then bounce to new all time highs.
I have to say I was and am still somewhat surprised by just how hard the bounce was and for me it wasn’t expected. My overly cautious stance cost me in that I didn’t realise the gains that I could have.
I still however turned in a respectable 26% portfolio value increase which given I didn’t deploy anymore than around 60% cash throughout the year is still a solid performance. More importantly I’ve managed to sustain considerable year on year growth in my portfolio over the last 6 years which tells me I am doing things right.
As I have previously explained in my Strategy, as you grow your portfolio, your attitude to risk changes, protecting Capital is key despite temptation to deploy more for bigger gains.
So this year I finally got around to creating my research website. I created this so I had a central place to store my research notes, videos and create blogs. This makes investing more fun for me and in turn allows me to share my research a lot more easily. I’ve been humbled by the amount of positive feedback on my content and messages from fellow investors who have gained by using my research to assist their own.
So I thought it would be useful to have a look at how the stocks I researched have performed this year since production of my research notes and then to summarise how I think these stocks should progress in 2021.
How Did They Do?
The table below shows the Maximum return you could have made if you sold the relevant stock at its year high and the return you would currently have if you were still holding. This is based upon entry price at the share price when I first published my research note on the company.
Important to note that my notes were published post COVID-19 fall so we would have expected some gains anyway given some of the stocks share prices got smashed!
You can also see the average return you would have made if you had invested in the whole portfolio.
Looking at the table above we can see that four out of the five stocks has experienced in excess of 100% gain. If you were holding all the stocks currently you would be sitting on an 80% gain and if you had of sold all of them half way between their peak and current share price – 108%
Whilst I am very pleased with this performance a few of the stocks covered actually haven’t achieved the gains I had expected. This is largely due to delays caused by COVID-19 and understandable, so lets talk about each one briefly where I will highlight key milestones to come in 2021 that should bring further significant upside.
Lastly, I’ll summarise my investment focus for 2021.
What Do I Expect ?
Horizonte Minerals (HZM)
Horizonte made solid strides in 2020 due to Orion Mine Finance investing $25m late 2019, the follow-on financing syndication announcement and an increasing Nickel price.
The market had hoped that financing would be closed out in Q4 2020 so construction could commence Q1/21 however as explained the pandemic delayed some elements of financing and we now expect this early 2021.
Clearly closure of the Araguaia financing and an increasing nickel price will drive share price gains and given that nickel is well in excess of the base case $14k/t Ni Price in the BFS one would think that there is a strong chance Horizonte will be a producer come 2022
As you can see in my Horizonte Research Note though, the projected returns on both nickel projects are huge as you move up the nickel price scale and Horizonte fits the green resource/battery metals narrative which should be in focus 2021.
Particularly, Horizonte should progress the Vermelho nickel project which can produce class 1 nickel for the battery sector whilst additionally servicing the growing stainless steel market from Araguaia.
Armadale Capital (ACP)
Armadale also saw strong share price growth 2020 on delivery of the much anticipated DFS. The projects sports an incredible 91% IRR, $430m NPV with just $39m Capex requirement.
The share price came off towards the end of the year, one can only assume to hot money leaving but the investment case could not be stronger in my opinion. I would urge you to read my Armadale Research Note to see just how impressive this graphite project is
The company having a bankable feasibility study in hand will deliver the remaining pieces of the puzzle such as the mining permit, battery test-work, formal off-takes which should all culminate in a financing package given the company have two NDA’s in place.
One would infer the company wish to have all the above in hand to strike the best financing package with production then only being c.12 months away given the short construction timeframe.
The key thing here is to acknowledge the quality of Armadale’s graphite, its extremely high purity and likely amenable to battery grade product meaning it should command higher graphite basket prices
This is a serious stock to watch in 2021 in my opinion as from the current £18m Market Cap should see a significant rerate upon delivery of the above.
Fusion Antibodies (FAB)
With the advent of COVID-19 there was somewhat a scramble to get into Pharma plays earlier in the year. Sadly I missed most of these as my investment strategy is to research up-front and plan entry. They ran to fast for me !
However a bi-product of this was that I did discover a Pharma play of interest namely Fusion Antibodies.
Whilst they have a COVID angle they are much more than this. They are world leaders in antibody development. Their COVID angle is actually different to others in that they are working on a therapeutic i.e. prevention of serious illness and neutralising the virus as opposed to testing. Obviously with the advent of vaccines one can ask how important a therapeutic is? Well we don’t yet know how long the vaccines will last for and how they will adapt to new strains so I suspect it’s still of importance.
But the COVID angle is more of a pilot for Fusion who are using the virus as a ‘test case’ to validate their Mammalian Library. The game-change for Fusion will be validating the MAL that can then be used for other targets like Oncology with prospects for Joint drug development/royalties using the MAL as well as licensing of the MAL
So it’s a Pharma play pretty much under the radar that could well surprise the market going forwards and as such remains a firm hold in my portfolio. You can read more in my Fusion Research Note here
Goldstone Resources (GRL)
If you search the twitter feed you’ll find little mention of Goldstone. It is however one of my top picks for 2021. They have two gold mines in Ghana that were both previously producing mines.
I’ve written extensive blogs and a Goldstone Research Note on the company which if you are interested in gold is worth taking the time to read. The company are now within a cusp of first gold pour awaiting final permit. That hasn’t stopped the company preparing for production though with all equipment now on site and cold commissioned ready to pour gold within 8 weeks of the final permit award. As with other stocks COVID has delayed the permit but looking at surrounding mines locality and the fact the mines were previously producing I’d expect the award to come imminently.
Then you are left with weighing up the following: The company following its recent Phase 1 project resource increase will likely be producing 30-50koz gold per annum up from an initial planned 14,400 with a Market Cap of just £20m
Simple maths shows that 30-50koz at a c.1koz margin would yield $30-50m EBITDA pa – this is just from the Phase 1 project though! The scope here is enormous and we are not talking about an early stage driller we are talking about near-term (imminent) production that the company can expand organically given their is plenty of exploration and development scope at both projects. Forget 5-10 years time like some other junior gold hopefuls, Goldstone will be in the sweet spot of this gold market.
Homase is where they start Gold production but take a peak at Akrokeri where grades of up to 51g/t were mined and a head grade of 24g/t ! Homase is the ‘starter’ before what could be a very appetising ‘main course’.
Ghana is now the second largest gold producing country in Africa and both of Goldstone’s projects sit on strike of the Obuasi AngloGold Ashanti 70moz mine – couldn’t be a better postcode
I expect a rapid re-rate for Goldstone upon the final permit award as the current Market Cap simply doesn’t match that of a gold producer with the numbers they have and we can also expect an updated DEP and JORC Q1 (the latter I expect could hit 1moz)
One other thing to bare in mind, Goldstone raised Capex via debt with no equity placing, this and the shareholder register – Paracale and BCM largest holders means there isn’t a lot of loose stock sloshing around – that means when the penny drops and demand comes in the re-rate should be rapid – we shall see!
Contango Holdings (CGO)
Finally, I most recently invested in Contango Holdings PLC. This is another stock to watch closely in 2021 as they plan to bring two projects into production. The projects consist of the huge LUBU coking coal project and the Garalo gold project in Mali.
As with other commodities, coking coal has experienced a recent up-lift driven by Chinese action against Australia and increased production of steel. Coking coal makes coke which is a critical ingredient to make steel with no substitute so follows the steel price up along with Iron Ore.
Another dynamic is playing out though, many of the majors are reducing coal output which is starting to cause concern for off-takers who still need to secure critical supplies regardless of the ‘green energy narrative’
This actually works in Contango’s favour who can fill that gap and this is evidenced by the fact the company are now in discussion with coke producers contemplating installing coke ovens at Contango’s LUBU project pending testing of the coal. This could be huge for Contango and shareholders as will mean premium and long-term contracts aside of any other off-take deals struck.
Add this to the fact that Contango just announced a 400% resource increase at the Garalo gold project (1.8moz non JORC) which can be brought on-line H2 2021 with low capex and off-take finance, the projects are potentially a marriage made in heaven from a diversification and hedge perspective.
Perhaps most attractive with Contango is the companies plans to return cashflow to shareholders quickly by way of a dividend. They are not trying to develop and explore large scale metals projects they have gone for simplicity and organic growth which is an interesting investment prospect.
You can read more in my Contango Research Note
2021 Investment Focus
The stocks mentioned above remain a core part of my portfolio and where I expect to see significant returns in 2021. Each stock mentioned I believe will outperform its 2020 returns.
In addition I hold a few other positions going into 2021 along with a few I plan to add to the portfolio – it’ll be heavily resource based for obvious reasons.
Look out for my New Year blog where I’ll present to you my top 10 picks for 2021 !
Research materials prepared based upon my own analysis and research. Accuracy cannot be guaranteed and research notes should not be taken as investment advice. Please always do your own research.