Updates on Uranium, Greece and Russia PLUS Observations on and Improvements to the Blog
Published on March 11, 2021
This blog started a little over seven months ago. I hope it has provided you with ideas, opportunities, and lessons without learning the hard way. Today, I want to talk about some observations on the blog itself. Specifically, what’s been popular, and where things are generally headed. I’ll also introduce a couple of new features that I hope will improve your experience. Finally, I will update the key investment themes discussed in prior posts, namely uranium, Greece, and Russia.
If you just want the investment updates, feel free to scroll on down.
What the Blog Can Tell Us So Far
There have been twelve posts so far, a third of which focused on specific investment ideas. The majority focused on the investment process and bigger picture. I also introduced a Resources Page, which provides valuable books, websites and podcasts. Going forward, opportunities pending, I hope to further balance process and investment ideas.
By a wide margin, my posts about investment ideas have been the most popular, with uranium leading in traffic and feedback. The uranium post has been particularly timely, coming at a time where there is a renewed focus on the metal as an investment, and the topic appears to have a much larger English-speaking following than the other two areas that I’ve covered, Russia and Greece.
As described below, there will be updates on investment themes in the future, and I will continue covering both process and market ideas.
With some experience and feedback under the belt, the blog will be going through a couple of upgrades that should make it more useful for you:
- Newsletter: Going forward, I will continue to utilize the blog to cover long-form ideas and to introduce new investing themes in detail. To update ideas or views on previously discussed topics, I am going to introduce a monthly newsletter. This newsletter will cover:
- Summaries of the prior month’s posts
- Updates to investment themes
- Any relevant general market commentary
- You can sign up in the upper right corner of the page!
- Resources Tab: The Resources Tab has been up and running for a couple of months but with little attention. I will be updating it more frequently. If you have specific areas of interest, let me know.
- Comments: For those who have provided comments via email, thank you for your engagement, critiques, error-catching, and advice. To boost engagement, I will be creating and moderating a comments section as a trial run. You will have to register to leave comments, and I commit to responding within 48 hrs, except in cases of advance notice.
- Social Media: In a lapse of strategy truly akin to putting the cart in front of the horse, I realized I had not referred to my own presence on social media. I have found Twitter immensely useful, and it has been a platform for providing more up-to-date or tactical commentary on investment themes. You can follow me at @castawaycapital.
- Contact Page: Until now, I have encouraged people to email me. I often forget that this adds a couple of unnecessary steps and can be a pain. There’s now a Contact Page that will automatically generate an email to me without the extra steps for you.
Investment Updates on Uranium, Greece, and Russia
What you all came here for. Below are my thoughts on the major investment themes covered so far.
To put the update in context, nearly anything with a ticker has done well since November of last year. On the surface, that makes a convenient case for owning index funds. Still, I think part of why investors should consider investing in single-name stocks or baskets is the conviction that comes with understanding an idea and having a sense of value.
Although the market has been choppy for a couple of weeks now, I suspect the themes below will continue to perform especially strongly for a few more months. I fear that fundamental YoY comps and hitting maximum stimulus expectations globally will lead to headwinds in the second half of 2021. It also seems as if many sectors are approaching pre-COVID valuations.
So one should either learn to trade around broader market undulations or size positions appropriately to ride through. Both approaches work and work best for different personalities.
Uranium, posted November 25, 2020
The uranium space has had a strong positive performance over the last 3 months. If you’ll remember, in the Original Post, I made a case for owning Yellow Cake plc (LSE: YCA, OTC ADR: YLLXF) and a preference for the companies holding physical uranium rather than the mining shares. Here is how the space has performed over the last few months:
Performance has belonged to the miners in this period. Underlying spot and term prices have not moved over the same period and I believe a lot of the relative outperformance of the miners relates to sentiment surrounding:
- Additional production-related outages from Cameco and Kazatomprom mines affecting future prices and keeping the two majors buying in the spot market;
- Biden administration signals that may favor supporting the nuclear fleet in the US;
- The GME drama and the #UraniumSqueeze; and
- The recent YCA capital raise (ironically).
While the first two are relatively self-explanatory, I think it is worth noting the impact of the #UraniumSqueeze. While no uranium miner had a short interest even close to dangerously squeezable, they are all pretty thin stocks and somewhat easy to push around. I would add that Cameco, as the only one with relevant US-listed options, was also prone to a Gamma Squeeze, which may have happened.
It produced a great time for many miners to sell shares, and many explorers and developers have. YCA also raised $140 million (over 50% of its pre-issue market cap) to buy ~3.5 million pounds of uranium under its agreement with Kazatomprom. More recently, it appears that the many uranium names got overextended and are now in a phase of consolidation.
Over the last three and a half months, I did three things within the uranium space:
- Added to my core position in YCA in February/March and Kazatomprom on the breakout in December. I also added Cameco in January but was stopped out in the volatility pretty quickly.
- Executed, with only modest success, a couple of swing trades in YCA, KAP and CCJ. Historically, I have never been good at trading minor and intermediate moves and took advantage of the GME volatility to attempt to trade swings, buying the underperformers and short selling the outperformers.
- Sold some 10-20% OTM March 19 puts on CCJ in the first week of February as implied volatilities remained elevated on the back of limited fundamental news. Annualized returns were north of 60% (annualizing the premium over the cash backing).
I currently maintain “core” positions in YCA and KAP, with YCA being much larger. The fundamental thesis discussed in November remains intact with perhaps a more accelerated though still uncertain timetable if 1) there are continued COVID-related shutdowns at mines, 2) there is a firm pro-nuclear policy from the Biden administration, and 3) YCA, CCJ, KAP and likely U, continue removing spot pounds from the market.
My preference for additional exposure at this time remains with the YCA, CCJ and KAP as opposed to the top developers like Paladin (ASX: PDN, OTC ADR: PALAF), NexGen (Nasdaq: NXE, TSX: NXE) and Denison Mines (NYSE: DNN, TSX: DML). That said, a small position in such names can make sense from time to time. While the payoffs stand to be much larger in these names, there are more risks, many of which are outside the companies’ control. The key risks for me are financing and execution.
Many of these development companies’ market caps rose very rapidly in February to valuations equal to those implied in their pre-feasibility studies (mining jargon for a business plan) or back-of-the-envelope calculations. In other words, their share prices suggested that there were no further risks to executing their business plans or to the uranium market generally. I simply think they’d moved too far too fast.
What I have learned in this process, however, is that miners can lead movements in spot pricing much faster than the commodity holding companies. When there is a big push in sentiment and expectations like we’ve seen in the last few months, they can outperform and certainly have.
The larger developers, PDN, DNN and NXE, all are now in varying stages of consolidation after the moves noted above. PDN appears to be holding its ground best, which may be a function of how close it is to production. I am watching this as an opportunity to add a small position to compliment my core positions highlighted above. Many have now swung down too quickly and likely shaken low-conviction investors. Sprinkle some general market weakness on top, and you’ve got a great setup to add.
Looking at the chart of YCA, it has been consolidating since peaking in early 2021. The chart is slightly misleading since YCA is priced in GBP, which has rallied 4+% over the same period. Volume seems to suggest this is a minor or intermediate bottom.
KAP appears to be playing catch-up to some of the miners here and just closed last week at a new ATH, but continues to consolidate in the 22 to 24 range. North of 24 is green pastures. On the downside, there is a small gap on the chart around 21 that may need to be filled.
CCJ tried to break out north of 17.25 earlier this month but failed. It continues to consolidate in the 17.25-15.50 range.
For the sake of consistency and certainly at the risk of crying wolf, if you are going to own developers or explorers, it makes sense to buy a basket. There are many idiosyncratic risks—financial, execution, management, regulatory, etc.—so diversification makes sense. If you own an insufficient number of names, you can run into the scenario where uranium goes up and you don’t make any, or not enough money.
That is a terrible place to be.
Greece, posted January 7, 2021
In my Greece post, I mentioned three companies that I was following: Mytilineos (ASE: MYTIL, OTC ADR: MYTHF), Piraeus Port Authority (ASE: PPA) and Aegean Airlines for a speculation (ASE: AEGN, OTC ADR: AGZNF). I also mentioned that I had a Cairo Mezz plc position (ASE: CAIROMEZ, OTC ADR: CMZZF). There were a few other retailers I was not investing in but had mentioned as well.
Greece had been underperforming the rest of Europe at that time and has continued to do so in aggregate. Like the rest of Europe, relative to much of the world, COVID-19 restrictions have remained in place, amplifying the impact on the services sector. Here is a chart of the performance of these names since the post.
I continue to hold MYTIL and PPA, with MYTIL being one of my largest portfolio holdings. I had attempted to buy more PPA during its dip in January but was too cheeky on pricing (and importantly, Fidelity does not allow GTC orders for international stocks).
I stopped myself out of CAIROMEZ at EUR 0.11 as it failed to move and hit my stop. Finally, I have not pulled the trigger on Aegean Airlines yet, though it seems to have stabilized with a big move at the end of February.
I plan to maintain my MYTIL position. I believe it may be positioned for a unique moment in its history where all three business segments are poised for simultaneous growth. The company’s 2020 earnings results reinforced the view. Its further growth into renewables, both in terms of EPC and project ownership, should also continue to force up valuation. While its multiples may be reaching fair value in absolute terms, it lags other renewables-focused peers globally.
For PPA, I will continue to try and add on dips. While global trade may not bounce back the same way, the port’s multiples are not demanding, and its balance sheet is pristine. I will continue to monitor Aegean and let readers know as I formulate a strategy there.
On AEGN, the question is ultimately how the Greek economy reopens and what happens to fuel prices. While vaccinations will undoubtedly improve numbers, will they be able to operate at low load factors, particularly in light of rising oil prices? I am still working on these points.
Russia, posted January 22 and January 29, 2021
- Sberbank (MICEX: SBER, LSE GDR: SBER, OTC ADR: SBRCY)
- PhosAgro (MICEX: PHOR, LSE GDR: PHOR, OTC ADR: PHOJY)
- Transneft Preferreds (MICEX: TRNFP)
- Surgutneftegas Preferreds (MICEX: SNGSP, OTC ADR: SGTPY)
On the fundamentals side, despite the fear of increased sanctions under the Biden administration and the Navalny imprisonment, the names above, along with the RUB, have held up well. The chart below shows performance after the second post.
Only PhosAgro and Sberbank have reported complete full-year results so far. In both cases, they were strong.
For PHOR, removing the non-cash FX-loss, profit was up, cash flow was up strongly and the business grew. As I mentioned in a tweet on Feb 23, phosphate fertilizer prices are up strongly in the new year, and Texas’s freeze should have impacted all of the major feedstocks for nitrogen and phosphate fertilizer production in the US. I think fertilizer names outside of the US should stand to benefit.
My mistake from the introduction in January was assuming that there would be a 3+% pullback, which there had not been on a closing price basis until this week, and I added. The other three names are still largely consolidating, as you can see below.
For Sberbank, earnings were robust despite the uncertainties surrounding its loan portfolio amidst COVID. The cost of risk came in lower and is forecast to be lower. Most notably, they are now separately disclosing their ecosystem elements, e-commerce, B2B, etc. The hope here is that the market will assign a higher multiple to those businesses, boosting their valuation. As it currently stands, the market appears to subscribe zero value to them.
SBER is nearing the top of its channel and is something to watch.
The drop in US production from COVID and the negative impact of Texas’s freeze on marginal share producers should be positive for Russian oil production in general, and the fundamentals for Transneft and Surgut. In addition, Transneft is setting the bar low by guiding that production will be lower in Russia for the entirety of the year. That puts the risk to the upside in my view.
Surgutneftegas Preferreds and Transneft Preferreds are still consolidating, albeit at higher levels than most of last year.
I am looking to add between 5.20 and 5.30 to Surgut on the OTC ADR and 141,000 and 143,000 on the Transneft Prefs.
Regarding the currency, the ruble, prices have been consolidating between 76 and 73.50 to the USD. Fundamentally, the currency should be appreciating given the performance of commodities of which Russia is an exporter. This strengthening against the dollar, however, is likely tempered by politics and concerns over increased sanctions of Russian government officials. If anything, the USDRUB chart below suggests that the USDRUB is headed lower, but there is strong support around 73.50.
Thanks for being part of the Castaway Capitalist journey so far. I hope the changes discussed in the first part of the post will make the website and content more useful for you, and I look forward to making further updates on the ideas I’ve discussed.
To your investing adventure,
The Castaway Capitalist
IMPORTANT DISCLOSURE: As of the date of publication, the Castaway Capitalist owns YCA, KAP, MYTIL, PPA, SBER, PHOR, SGTPY and TRNFP, and has written puts on CCJ.
Disclaimer: No content on this website is intended to provide personal financial advice. This information is provided for information purposes only. We are publishers and not financial advisors. You should consider your personal situation, conduct your own analysis, and consult with a licensed professional advisor before making any investment decision. No content on the site constitutes – or should be construed as — a recommendation to enter in any securities transactions or to engage in any of the investment strategies presented here, nor an offer of securities.
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