ShareHub Hotlist 2018 Review – Week 14

Week 14 was another choppy one across the major indices. US & China continue to lock horns over trading disagreements. The trend of Trump bluster vs substance is beginning to wear a little thin and a concern near term is that someone somewhere may well return a very serious reposte. To date, Trump has gone for the shock headline only then to negotiate and subsequently revise threats which then disappear into the ether in ‘headline’ terms. Shock and awe is back and the algo’s/black boxes are just not programmed for this type of Trumpism. Hence the volatile swings across the DOW. An index that once used to trade in a 5% range over a year or two, is now trading in 5% swings on a near daily basis. Ridiculous and symbolic of a market that has become so leveraged and pegged to multiple assets/ catalysts that it no longer reflects anything rational… just casino type style operations. Roll up roll up, place your bets!

Factoring in the above is virtually impossible but derisking or hedging into safer havens like Gold might not be a bad idea. The digital world and all that drive it are demolishing the traditional bricks and mortar retailers. Housing sector is wobbling. Banks are finding it harder to make money which in turn pushes them into more risky assets. Online fraud is increasing at a pace and the police look stretched ‘on the beat’ and ‘off the beat’ which is not helped at all by government cut backs. 2 years+ now and Brexit drags on with the average UK resident that voted ‘for’ or ‘against’ still in the dark to what has been agreed. It feels a bit of a mess out there at present and looks like it’s going to take a while to untangle.

Commodities continue to outperform the general market. The digital revolution has done many things (good and bad) but it still can’t stop the black stuff from being in demand. Gold too has performed well despite challenges from the digital crypto’s. The Saudi’s and Russian’s have done well to coordinate over the global glut which at present looks just weeks away from being drained. The question now is what to do once a ‘rebalance’ has been achieved. Expect to see increased chatter on this subject as we move towards June and July. Throw in Iranian/US sanction discussions and that’s potentially a potent cocktail which even the most daring of traders might like to avoid.

The ShareHub picks for 2018 continue to outperform the newspaper tipster guru’s. A decent news update from CERP.L yesterday suggests that there is plenty in the tank as Q2 progresses. News is also expected from SOLG.L soon on their updated MRE. And on the ‘heads up’ pick for 2018, MATD.L looks primed to release news on seismics and drill dates for late spring. A small fund raise from WRES.L was a slight disappointment as the pricing favoured larger investors (mates rates) and yet again left the smaller retail investor a little out of the loop. AMER.L continues to underperform and has been a drag on the overall folio performance. Q2 and Q3 looks brighter but investors may seek some blood at the upcoming AGM as the last 2 years+ have been abysmal. Finally, HUM.L edges ever closer to full gold production. All of the above stocks look ready for moves higher assuming the progress ‘news’ is good of course. Last week TheShareHub mentioned M&A as missing in action. But last week saw a small glimmer of hope for the North Sea with DNO’s 27% smash and grab on Faroe Petroleum. Under takeover regs, it looks like DNO will need to wait another 6 months before being able to table an official bid. Judging by Faroe’s responses, the 27%+ taken at 125p is well below their perceived value which suggests the ShareHub’s 2017 pick (103.5p) will be batting away any low ball offers in the future. If or when an offer does appear, it should provide the market with another reminder of asset value vs share price value. Normally these gaps are circa 30% to 40%. But recently the gaps look more like 100%+. The market has been slow to rerate many of these companies and this is largely to do with the uncertainty and fine balance that exists between OPEC and NON-OPEC aka Saudi’s and Russian’s. It’s only 3 years+ since the last PoO downturn and it might take at least 2 to 3 years of proven compliance and stability from OPEC before the market finally closes valuation gaps on the sector or even adds in some premiums. M&A is certainly a good omen. I would expect to see more M&A over the next 6 to 12months. SOLG.L will certainly be on the list of many predators. The question is… can they prove the resource up fast enough before offers come rolling in?

Week 14 positions below:

 

4 thoughts on “ShareHub Hotlist 2018 Review – Week 14”

  1. Thanks, Hub. I decided to leave Randgold alone for now. Put half my allowance into more HUM plus a bit more into Faroe. HUM, Faroe, & Hurricane are the backbone of my portfolio these days, and all showing good profits at the moment.

    1. HUM, FPM and HUR all very solid. Good choices as both PoG and PoO look strong at present. Gold not far off breaking into a new trend higher. A few closes above 1350 would be welcome. With Twitter Trump or Trumper Twitter around, it’s surprising Gold is not 1400+ right now. At $1400oz, HUM would be gaining an extra $150 per oz above their development/commercial plan set back in 2017. Should make for very strong cash flows once they confirm full commercial production status which should not be too far away now. They couldn’t have timed full production any better.

  2. Hub, regarding gold, do you have a view on Randgold’s prospects? I was looking for places to put this year’s ISA allocation and I noticed that their SP had fallen back below the level at which I originally bought some (sold at a decent profit last year). There appears to have been some talk of risk from political interference although possibly just sabre rattling.

    1. Randgold is a complicated beast and not easy to value or predict. Gold plays are often measured or favoured based on their regional stability and tax regimes. For instance, miners in South Africa have been hit of late due to the strength of the rand v dollar. Miners focused on Congo (DRC) or Tanzania as an example are always going to be choppy as these regions are notorious for playing around with taxes and revenue cuts/royalties. Hummingbird Resources was picked for 2018 based on the early producing status but also due to Mali’s stable and friendly environment. You only have to go several hundred km’s north of Mali and it’s a different picture entirely. HUM are currently discounted based on projected cash flows due to the fact that they have yet to deliver them! That’s fair enough, but with the mine near full nameplate capacity, the gold sales should kick off soon and the share price should follow suit. No guarantees of course. If you fear the early producers, then why not look at Highland Gold? Or Centamin? At 33p, HUM looks nicely priced for any ISA moves as the upside to 50p or 60p on proven gold sales would provide a near 50% tax free profit. Of course, equally it could deliver losses if the mine underperforms… so you need to be careful. Longer term, GOLD is one of the last commodities to have a decent bull run. Copper has performed well. Gold should surely follow. At $1450oz or $1500oz levels, cash flows via HUM with lows AISC’s circa $700oz are huge. Hence, important to look at AISC’s as well tax rebates/pools when measuring one sector player against another.

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