- ISSUE #163, July 2020 -

Greetings and welcome to this edition of the Insider Weekly.

Before I get started with this week’s edition. A heads up. If you’re an accredited investor interested in PIPEs (private investments into public equities) and pre IPO deals in the mining space then you may want to take a look at this. If you’re not or aren’t interested then ignore the following and move right along to this week’s edition.

As you likely know, Insider is a macro focussed deep value research service based on the work done for our high net worth and institutional clients at Glenorchy Capital. We are agnostic as to what we buy. We will buy anything that makes sense. Right now as you’re keenly aware we’re pretty heavily invested in resources. That is quite simply because this is where we believe we need to be for the time being. It certainly is where deep value lies. Within that space I am also keenly aware that one of the most leveraged ways to play the mining space especially in precious metals is getting into private placements. I on the other hand can’t tell one rock from another. Hence my bringing Jamie Keech and the Resource Insider program into the picture.

It’s kinda scary how fast time flies as we launched RI two years ago now.

1. I launched RI because I felt the timing was about right. You never know for sure but the bottom was in or close to it. That call obviously wasn’t too shabby (lucky us) and we’re now solidly in a bull market...one that, if I’m even half right, is going to be of the “Jeezus holy mother of Mary” variety.

2. The nature of the service is that we get a certain allocation in each deal. This is limited due to competition and as such we limit membership size. That’s just a reality of managing the service. Membership is discounted for Insider members, and my heads up is that we have 4 deals coming down the pike with the last one sent out yesterday morning.

Since then the average RI member is up 116%. This is based on investing $10k per deal you would have made $175,404. That said a couple of our deals are still private and expected to come public at a premium to initial financing but we’ll see. Maybe they all turn to isht. Could happen though I doubt it.

It’s kinda scary how fast time flies as we launched RI two years ago now.

Basically I think the timing is excellent for the resource sector and naturally private placements. Also my over 12 months of hunting (and discarding all applicants) for a really good non bullshit, non rah rah “you’re gonna make a million by lunchtime if you follow me” technical expert with deep connections and relationships is paying off. Anyway if we don’t fill the remaining slots in the program from Insider members in the next few days we’ll open it up to non Insider members. If this sounds like your cup of tea go to this link here or just hit up Jamie at jamie@capitalistexploits.at if you’ve got questions etc. Be sure to tell him you’re an Insider member or use that link.

• Pandemic• Market dystorshins• Hi Ho Silver• Mr Uranium Speaks• Uranium vs Small Caps - Breakout!• What happens before the big crash?• What the hog• Apocalypse Never• The Dow is done - not so quick• Tesla as “valuable” as JPM, P&G?• The Big Five!

1. Kraft Heinz2. Centrus Energy3. Greenland Minerals4. Orion Minerals5. Gaussin

THIS WEEK

PANDEMICI’ll tell you what. I don’t know about you but I’m well over this pha-king pandemic. Death rates continue to collapse like a teenager on spring break after a bottle of Kalashnikov vodka just blew their little head off, but you wouldn’t know it by watching the MSM.

Mainstream media, desperate to get clicks scream “covid cases soar” and politicians freshly juiced on their god like powers (lockdowns for you buddy) rise to the call as the more important facts are left discarded on the side of the road like a McDonalds paper bag. Interestingly we still have yet to breach the highs of a typical seasonal flu season in terms of global deaths. Can you imagine?

My views are based solely on evidence perhaps like this nazi grandma killer.

But we can’t let the facts get in the way of a perfectly good opportunity to leverage ever more power from citizens into the hands of the political class as “emergency powers’ have exploded faster than the rate of hypocrisy.

Last week I pointed out that in Belarus citizens were rioting, after they ‘d been locked down, only to have politicians open for elections. Soon as elections were finished they locked down again. Weird huh. COVID can’t get you if you’re out voting.

Over in NY where Mayor Bill de Blasio has canceled all large events in New York City through September, but will continue to allow Black Lives Matter protests in the city, he said.

“This is a historic moment of change. We have to respect that but also say to people the kinds of gatherings we’re used to, the parades, the fairs — we just can’t have that while we’re focusing on health right now,”

Crazy right?Well it’s our job to understand what’s taking place and to protect and profit. This is why of course we’re long RGR, SWBI and VSTO.K. The loss of faith in the institution of government is as obvious as mud at this point. Nobody without the aid of some seriously strong drugs would think that this behaviour is acceptable or that the local government has their best interests at heart when forcing them to remain locked down, destroying their businesses, curtailing their freedoms and unleashing a wave of violence on them.

I think as the US descends into a civil war these...along with much of our portfolio will benefit. So that’s a bright and cheery thought isn’t it.

MARKET DYSTORSHINSThe NASDAQ market cap has just passed the GDP of the entire EU. Now before you get your knickers in a knot, I am aware this isn’t an apples to apples comparison since GDP is annual revenue and market capitalisation is the entire value built over the lifetime of the company...but the relationship over time IS indicative of relative distortions and there is no doubt in my mind that we’re in “dear mother of Mary” territory.

Now to be clear we’re not saying that we want to be buying European equities, though absolutely we’d favour them over European or any government bonds. Indeed we think this is the market figuring out that the EU is going to go full retard communist and they’re getting the pha-kout.

What are we doing? Well you know that. NASDAQ is silly so we’re not there. Europe is heading into full blown Marxist territory so we’re not going there either. In the period of absolute chaos to come there will be a move to own “stuff”. That is because when trust evaporates and you struggle to figure out where safety is you want to own tangible assets.

Which brings me to….

HI HO SILVEROne of the things that I learned a long time ago was how to view things from different angles.

Here is spot silver vs the DOW. So essentially how many ounces of silver to buy the DOW.This just broke above a 50 month high. As Brad mentioned to me. Silver looks angry. Yup

MR URANIUM SPEAKSIn case you missed it our good buddy Mike Alkin gives the essence of his bullish thesis:

Our quick summary - It is an absolute poetic setup:

Demand is inelastic - slowly ticking up each year by 2% (more reactors coming online than going offline). Nuclear power stations are run at near full capacity…...

Supply is way more inelastic than you think…….Significant supply has and is coming offline and there are massive supply deficits opening up. Inelastic? Mines that have been put in C&M will take a lot longer to come on line than everyone thinks. Take Cameco’s two mines - Cigar Lake and McArthur River for example, they are in the middle of nowhere! Not only that, they are technically challenging mines which take specialized labour (most of which has been laid off). No doubt this labour has by now found other jobs elsewhere.

Tic toc…...it’s almost like you can hear the clock ticking as utility’s inventories get used up at an exponential rate.

Don’t forget this……...long term chart, Uranium Part Corp and the weekly spot price of U308.

So what, you might ask……….it has been an ultra-long term bear market. Many miners have gone tits up and others have had to stop operations to avoid the same fate. We’re thinking that mines will only be brought back on line if returns make it really worthwhile for miners and that means they’ll need to see big fat ROEs! Considering that contracts are signed to deliver uranium over 10yrs or so, we doubt that miners will be willing to contract unless uranium prices double from current levels.

Now let’s toss in a minor complication - the Corona! Once again we take Cameco’s mines (at full production they accounted for about 15-20% of world production). Continued shutdowns impact supply here.

It’s not just Cameco the same applies to other miners - Kazatomprom in particular. Don’t be surprised to see lockdowns extended for longer than just a few weeks:

https://twitter.com/KonstantinKlip/status/1284916230357495811

Cutting a long story short……...mines in C&M will remain idled/in C&M for way longer than the market is pricing.

So what stops us from sticking a mouthguard in, donning a crash helmet, gritting our teeth going all in on the uranium trade? Well we already have a 12% exposure to Uranium with clients in Glenorchy Capital…..do we take that up to 20%? We think 12% is aggressive enough especially given that the stocks we are invested in can double at the drop of a hat and even then still offer extreme value.

We think the biggest problem we now face is how far to push our luck on this trade. Let’s take Denison as an example - one of the few miners who has a long enough price history. If the bull market in uranium miners is only “half as good” as it was in the 2000s then “when to pull the pin” is going to be a massive problem for us.

Could the bull market in uranium miners be of greater magnitude than the 2000s bull? Well there is a “better than even” chance that the magnitude and duration being way bigger…….and that presents an even bigger problem.

So if we are right we have a big enough problem with our 12% exposure!

URANIUM VS SMALL CAPS - BREAKOUTAfter a 12yr bear market relative to small caps the Uranium sector is breaking out! Yes folks I know there is more to making a bullish/bearish call than the “angle of a chart” (we have addressed fundamentals above and countless times previously) but sometimes a chart tells you 80% of what you need to know. The charts below are textbook long term cyclical reversal patterns (at least from a relative perspective).....what makes the chart below poetry to our eyes is the 5yr bottoming phase. If our experiences are anything to go by the break to the upside will be dramatic and prolonged!

CBOE World Uranium Index vs Russell 2000

Few would realize that if you had selected a basket of uranium miners at the start of each year over the last 5yrs you would have made more money than by investing in the Russell 2000…...although we couldn’t have said that at the start of this year! LOL

And if we line Uranium miners up against the Russell 2000 Growth Index the same story starts to emerge.

Here is the real deal - technically and fundamentally it looks like something big on the uranium front is just getting into gear!

WHAT HAPPENS BEFORE THE BIG CRASHThe Fed is now the largest holder of treasury securities.

We’ve said it before and we’ll reiterate again. The bond market is THE bubble of all time. The repercussions when this finally succumbs to the forces of gravity will be profound.

WHAT THE HOG?What happens when your trade barriers interfere with hog prices.

China’s daily hog prices are up +41% since May 15th to 39.1 rmb/kg. They are now the equivalent of US$333/cwt on a carcass weight basis and are also 9.3x the price of U.S. hams. Profit potential for Chinese importers has never been larger.

We expect more of this sort of volatility in many markets..not just Chinese hogs. Volatility is uncertainty and uncertainty brings higher costs of … well everything from capex to financing costs.

We remain long ag.

And speaking of ag. According to the “woke” class we’re all rapists now. Awesome!

We came across a brilliant book written by Michael Shellenberger - Apocalypse Never

dispelling many common myths. Here is one……..

Plastic bags are worse for the environment than paper or fabric? Of course it is plastic bags! Well that is what we have been led to believe! Well not so quick…...think about it. What goes into producing a paper bag vs plastic bag?

APOCALYPSE NEVER

Kind of makes you think about the common narrative doesn’t it! It’s often wrong or very distant from reality!

Sadly though we’ve moved rapidly from evidence based thinking to a new religion and if you question this new religion you’re a nazi.

THE DOW IS DONE? NOT SO QUICK!Folks might be thinking that stocks are too expensive…...well expensive relative to what? The problem is that the goal posts keep moving in the form of money printing by governments (not just the US). We don’t want to be drawn into “what is your outlook for the stock market” as it isn’t our gig. However, we do want to throw out a “left of center” thought - granted a thought taken to the extreme. Below is Venezuela’s Bursatil stock index indexed to 0 as at Sept 2018…..rather impressive gain.

But in USD terms……..hmmm not so impressive

Yes this is an extreme example but it does highlight that under inflationary conditions equities can go way higher than you care to imagine. However, even if equity markets are doing really well it does not mean that you are actually holding your head above water in real terms. In Venezuela’s case any currency AUDs, USDs, EUR, GBP could be used as a “real” benchmark. But in the Dow’s terms? Well you take your pick. Let’s use the world’s oldest and most trusted currency - gold.

The Dow Indexed to 0 and Relative to Gold

We will be the absolute first to say that everything is easy in hindsight and you gotta be careful reading too much into charts……..but seems to us that the “real” bull market in stocks ended in 2000! Yes you could say that we had a bullish phase from 2011 until 2018, but that has now ended beyond reasonable doubt! Oh one more observation - these trends last for very long time periods - 10yrs +.

Moral of the story……..just because a stock index is going up doesn’t mean to say you are “really” making money.

Investment implications? Don’t write gold off as a “relic of the past”, precious metals (and commodities in general) are likely to be your key to outperforming the indexing mania that has gripped the investment world for over a decade now.

Speaking of a “relic of the past”...........gold has outperformed Berkshire H since 2000 and performed in line since 1997.

You make up your own conclusions…...but to us the US stock market isn’t “really” as strong as market participants are making out.

And if you want a little more sophistication than the “angle of a few charts” then we suggest you read this”

I’ve always enjoyed Russel Napiers critical thinking and I love this paragraph:

«Politicians have gained control of money supply and they will not give up this instrument anymore», Napier says. In his view, we are at the beginning of a new era of financial repression, in which politicians will make sure that inflation rates remain consistently above government bond yields for years. This is the only way to reduce the crushing levels of debt, argues Napier.

So central banks will keep rates low and let inflation run hot - a beautiful setup for gold and where gold goes so to do other commodities.

And finally the chart below continues to echo in our heads even if it is almost 3yrs old!

THE GREATEST DELUSION OF OUR TIME?Seriously how the hell does Tesla have a market cap the same as JPM, PG, and Mastercard? .

We are dumbfounded…….and that is the understatement of the century!

Wouldn’t it be funny if 10yrs from now basic material and energy stocks crowded out the top 20 stocks in the US by market cap!

Sounds nutty possibly to some but if you look into what is taking place the probability is extraordinarily high.

THE BIG FIVEFive interesting long term setups, unloved and totally off the radar of the average fund manager……..take a closer look!

From Our Trading Desk

Kraft Heinz

Yes you could have bought it closer to $20, but realistically @ $30 in mid-late 2019. It’s only up 15% since then. You gotta think that with a big stock like Kraft and almost 18 months since it took that big bashing that all the negative news is priced in plus a whole lot more?

1. Kraft Heinz 2. Centrus Energy 3. Greenland Minerals 4. Orion Minerals 5. Gaussin

Centrus Energy

Another way of playing the uranium sector. The old “megatons to megawatts” company started by the US government to deblend nuclear warheads to fuel for nuclear reactors. Last month they applied to the Nuclear Research Commission to start up their enrichment facility at Piketon, Ohio.

Greenland Minerals

We have discussed GGG before on a few occasions. Developing a large REM & Uranium deposit in Greenland. GGG is primarily thought of as a REM mine with Uranium as a byproduct. Well Uranium @ $70lb+ won’t be such a byproduct! Their resource is 500mlb of Uranium…..ok its low grade but buy this co as a REM play and get the U for free as a kicker ! Kind of helpful to have Chinese backing for the project.

Orion Minerals

Another obscure little miner with big leverage to the rising prices of copper and zinc. Listed in Aussie but with operations in South Africa. The company is developing a significant Copper/Zinc deposit in Copperton, South Africa. Interesting to see that Tembo Capital of London and Aussies Independence Group (IGO) have significant stakes in this miner.

Gaussin SA

A french engineering company with a range of materials handling products for ports, airports, and industry. They specialize in a number of autonomous (driverless) vehicles for container handling at shipping ports.

Ando I didn’t forget. A sunset.

Skyline of Toronto from your fellow subscriber Daniel

That is all for this week.

REFER A FRIEND Much of our subscriber base love our work and refer their friends. For this, we’re extremely grateful as we’re isht at marketing, dislike it, and prefer to spend our time on things that make us happy. Markets basically.

I’d hate for any of you to refer friends and not get something out of it, which is why we have a 30% discount both for your friends, colleagues, and even your enemies if you send them this way. And you’ll score yourself a bonus 4-month subscription, which amounts to the same thing.

Nobody wants to feel like they’re selling their mates something only so they can get something in return. That’s not how friends work.

In any event, below is the link for this so when you’re singing the praises to your friends, please use this link to ensure they get a better deal… and you do, too:

https://capitalistexploits.at/refer-a-friend/

Lastly….if you’re not on it already feel free to join the telegram channel (as a fly on the wall) where hedgies myself included banter and discuss markets. If you’re easily offended then best you stay away...otherwise...buckle up. Go here to get instructions.

Chris MacIntosh

Founder & Editor In Chief, Capitalist Exploits Independent Investment ResearchFounder & Managing Partner, Glenorchy Capital

As always, thanks for reading and being part of Insider.

Sincerely,

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