One Shot, One Opportunity!

All I have is one opportunity. This is a thought that I constantly crosses my mind because it is unlikely that I will be able to add significant capital to my portfolio over the next few months or years. There is one last cash injection to come (which I will discuss in a later post) but after that I have to make this work with what I have already got.

Throughout my life I have learnt that I like working for myself. This even stretches back to when I was sixteen I owned a retail business for a couple of years. After this I moved into the property industry, and if I am honest I didn’t enjoy my life. I hated waking up to go work for other people and found my work life to be somewhat stagnant. This probably wasn’t helped by the fact that the private company I worked for was undergoing a transformation with the father passing the business onto his son who had absolutely no idea how to manage people or projects, let alone run the numbers over potential developments (but that’s a story for another day).

Anyway it had always been a passion of mine to work in the stock market and to be honest I don’t know why I didn’t follow that path sooner. Towards the end of my property career I tried applying for a number of graduate roles, however I had in part studied the wrong degree. It was basically an economics degree which applied the theories and modules to property, however when recruiters saw that I studied a Bachelor of Property, they didn’t seen the economic side of things that dream was eventually shattered.

In the end it probably was a positive thing because I don’t know if I could have gone on to work 80 hours plus a week in the city, which would leave little time for my family and other activities I enjoy (soccer and going to the gym). Anyway I continued to muddle along and switched to working in residential sales, it didn’t last long and I reached another cross road in my life. Basically I was forced to go work for someone else or grow some balls and risk it all again to work for myself.

That is when I expanded an online business that I had previously only run for some additional income on the side. I increased the businesses advertising tenfold and with it came a corresponding increase in revenue and profitability. I was not rich, but I had the enough money to pay an average wage, keep the wife happy and press on with my dream of working for myself and eventing into the stock market once more. If you read my original welcome post you would know that I feel at home in the market and this was kind of like returning to my roots, even though I am only 22.

As a result I am writing this piece today. I have this one opportunity and need to make it work. I am not under any illusions of how hard this is going to be and realise that to do this full time I need to get a number of “10 baggers” within the next 3 to 5 years. To ensure I can make enough to realise this dream I have to throw everything I have against it. I have to be willing to take on more risk than ever before and back my own research. This is not about being reckless or throwing good money after bad, it is about taking the steps that could result in a life changing outcome. As I mentioned at the start I have a limited amount of capital with which to work with and being married does limit my access to future funds (as we are also saving for our own home one day, as a result I have one shot at making this work and to change the course of my life.

Background Information on Kentor Gold

Kentor Gold listed on the Australian Stock Exchange in February 2005 with an issue price of $0.50 per share which raised $6 million. The proceeds of the offer were to be applied towards the exploration of the company’s tenements in the Kyrgyz Republic.

In March 2005 there was a change of Government with the “White House” stormed and the President and Administration in Bishkek removed from power. This was the third revolution in the history of the Kyrgyz Republic and the interim Government promised elections within 3 months. Kentor continued to operate during this period and its people, offices and assets were safe and unaffected.

The next couple of years were largely uneventful with the company exploring in various regions, branching out into Geothermal exploration and even Uranium exploration in the Northern Territory (Australia). During this period the most important event in my opinion was the appointment of Simon Milroy as the Managing Director and Chief Executive Officer. Since his appointment there has been significant improvement in the company’s strategy and ability to move forward with projects (in my opinion).

Throughout 2009 there were plans to establish a small mining operation of 10,000 oz per annum in the Kyrgyz Republic (Savoyardy Gold Project), however, the option to acquire the Andash Gold-Copper Project which surfaced in July 2009 shifted the company’s focus due to the size and potential of this mining operation.

An option to purchase the Andash project was announced on 1 July and would give Kentor the opportunity to purchase an 80% interest in the project. The project came with a JORC compliant resource estimate of 680,000 oz of gold and 77,000 tonnes of copper with the feasibility study, environmental and social impact assessment and mining licence all completed (i.e. the project was development ready).

Under the option agreement Kentor would pay the current owner (Aurum) US$100,000 for an initial exclusive 3 month option to purchase 100% the company which held the Andash stake and the mining fleet/construction equipment. A three month extension could also be granted for an additional payment.

The purchase price for the 80% Andash stake was US$10,000,000 with a further US$5,000,000 payable to securing the mining fleet and construction equipment. The option was exercised on 20 October 2009 with the start of production targeted for 2011.

Kentor considered both debt and equity financing for the deal , with Macquarie Bank offered a US$15,000,000 loan facility, however the company decided to raise $28,000,000 via a share placement (which was oversubscribed) before completing the deal on 23 December 2009.

On 31 March 2010 Kentor Gold announced the outcome of the feasibility study which highlighted the following project attributes:

·         Technically and economically robust project.

·         Average annual production of 60,000 oz gold and 6,800 tonnes of copper over an initial six and a half year life.

·         Initial capital cost USD$102.36 million.

·         Very low cash costs (gold US$38/oz including royalties after copper credits)

·         Project NPV USD$107m at gold $1,000/oz and copper US$2.75/Ib.

·         Strong market demand for Andash gold-copper concentrate

·         Study expects further exploration will extend mine life.

The announcement also stated that site development works would commence in April 2010 with production scheduled for late 2011.

Also on 31 March 2010 Kentor Gold announced that they had negotiated a deal to secure a further 10% of the Andash project from Aurum for an additional fee of US$2.2million, which was to be paid in three instalments by 30 July 2010. However, this changed when in April 2010 there was a further uprising in the country and an ousting of the Government . Roza Otunbayeva took over as interim leader. None of Kentor’s projects, people or assets were adversely affected by the uprising. As a result Kentor decided not to proceed with the acquisition for the additional 10% stake in the Andash project at this time. (Additional Information: Since this time a legal dispute has also surfaced about the 20% of the Andash project not held by Kentor which further clouds the picture.)

Other notable events during that occurred between 2010 and early 2011 in relation to the Andash project include the securing of a $50 million facility from Macquarie Bank and a $65.2 million capital raising both of which would help fund the development of the mine and future projects.

On 1 April 2011 Kentor Gold announced that they had made an agreed takeover for Jinka Minerals (an unlisted company with 1,400 shareholders). The acquisition would provide Kentor Gold with 100% ownership of the following projects:

·         Burnakura Gold Project

·         Gabanintha Gold Project

·         Jevois Base Metals Project

Under the terms of the take over Kentor would pay out $7.8 million in cash and assume $4.9 million in debt (which would also be due and payable at the time of the takeover). The total $12.8 million would be funded from existing cash reserves.

The first priority for Kentor was to establish JORC Resource estimate for each project and to prepare a feasibility study on Burnakura which was in care and maintenance mode. This would provide Kentor will the ability to recommence gold mining operations within a relatively short period of time. All the projects are on granted mining leases and Burnakura came with existing plant and equipment and a 90 person camp. I will be detailing the potential of each project in my future posts as this is just to provide a brief summary of events in Kentor Gold’s history. Kentor Gold took control of Jinka Minerals on 12 May 2011.

On 20 May 2011 the markets attention swung back to the Andash project with an announcement by Kentor highlighting that the project would be delayed for a number of reasons, primarily local opposition to the project. This announcement was followed by a further update on 28 June 2011 announcing that a Member of Parliament, Akylbek Japarov had opposed the mine and put forward a resolution that was adopted by parliament. The resolution revoked the land use permit and mineral licences for the Andash project.

This is however where things get complicated because under the separation of power the Parliament does not have the power to revoke mineral licences or land use permits. This is the responsibility of the Executive arm of the Government. Kentor Gold proceeded to say that they had received a letter from the Ministry of Natural Resources confirming that “Andash Mining Company complies with all legal requirements to and standards of licence activity in the Kyrgyz Republic”.

The Minister also went on to say that by the end of 2011 consideration will be given to the work plan and issues related to the fulfilment of the conditions under the license agreement. We also need to keep in mind that there are elections due in October 2011.

As part of my research and analysis into Kentor Gold I have assumed a zero percent chance of the Andash project going ahead when calculating a future value (share price) for KGL. However, if we consider the fact that mining (and in particular the Canadian owned Kumtor Gold Mine) represent a huge percentage of the country’s GDP and contributes towards providing high paying jobs to local citizens then the Andash project cannot be ignored by the Kyrgyz Government. This is especially true when previous governments have been ousted due to corruption and a failure to improve living standards throughout the country. The Andash project is expected to create 450 jobs and contribute $200 million to the national budget over its initial six years. Based on this and Kentor Gold’s long standing operations in the country I do believe that there is a greater than 50% chance of the project proceeding at some point in the future. The focus at the moment is however on the Australian assets, which may prove more valuable than Andash anyway.

Since the acquisition of Jinka Minerals, Kentor has released the following JORC compliant resources:

An Insight into My Research – Background Analysis

I thought it would be an ideal time to discuss some of my researching methodology and analysis techniques so that you all can get a better idea of how I chose my investments. I will break my investment approach down into a number of separate posts which will be published over the next few weeks. For today I am focusing on the very first step which is the background research I conduct into the company.

Once I have found a company that I am interested in or has what I believe to be good future potential I undertake a significant amount of research into the background of the company. This normally involves reading past ASX announcements, broker reports, news articles and investor presentations. Luckily for me most of the stocks I research have been listed for around 4 to 8 years so it only takes a couple of days to wade through all this information. For both of my current investments (OBJ and MHM) I have read and taken notes on every announcement released since their listing.

I know this may seem extreme, however, it helps me understand where the company has been, where it is now and where it plans on going in the future. For companies that have been listed on the market for a long time or have undergone a significant restructure I normally only read from this point forward. An example is Northern Star Resources (ASX: NST) who acquired Paulsens Gold Mine in 2010. Prior to this the company did nothing of note (in my opinion) so I only spent a small amount of time reading over these earlier announcements. That said if I believe information and a further understanding of the company’s past is required then I commit the time to read it all.

After reading about the company I have normally developed a list of questions and concerns that can affect my investment decision. In particular, my research can help highlight poor management, a failure to meet deadlines or targets or a general chopping and changing of the company’s activities on a regular basis. I will also be better able to understand the company’s future potential from these announcements and what their “vision” is. For example it may highlight that the share price has been depressed for many years due to poor management. However a new senior management team could have been installed six months ago and acquired a project that is moving towards production. This can provide an opportunity as the market may be pricing them at a discount due to the previous management and their old projects.

After I understand the company it is important to do further research into the industry and associated partners. This is particularly evident in the bio-tech space where there is a steep learning curve in regards to understanding the link between large pharmaceutical companies, their smaller partners, the approval processes and timeframe to development. For example with my stock OBJ Limited case we are dealing with three partners, two of which are unknown (due to confidentiality agreements) and as a result links need to be drawn between potential partners to get a clearer picture.

For stocks in the resource sector this analysis can involve looking at nearby mining operations, other similar companies listed on the ASX and other exchanges and considering the future demand of the commodity. This allows for additional analysis and comparisons to be made between companies when I finally proceed to the calculations and forward projections part of my research.

Finally the last part of background research I undertake is into the senior management team and Board of Directors. With Google and Linkedin it is very easy to gain an understanding of what each person has done in the past, the success they have had and any failures along the way. It is important to look for different sources other than what the company tells you because naturally they will only highlight the positives. Now just because a manager may have failed with a project elsewhere does not mean the company is immediately removed from my list of potential stocks. I am more concerned about repeated failures, illegal dealings and anything that indicates that the manager just jumps from one thing to the next with little considerable for shareholders.

As you can see the above does involve a significant amount of time and after starting with some advice from Warren Buffet I am going to conclude with some of my own. Don’t worry about the thought of wasting hours and hours of research only to find out that the company is a dud. It is better to waste 20, 30 or 40 hours of your time than lose all of your money in a poor investment. Sometimes it feels like you have wasted all that time researching a stock only to conclude it is not a good idea to buy, but you should take this as proof that the research is worth doing. In the long run you will be better for it!

A Battle in my Brain

Since I first started investing in shares I have learnt many valuable lessons about myself and one of the key things I have discovered is that in life I am very conservative. I have no problems talking to family and friends I know or those introduced to me, however I would never approach someone I don’t know at a party and just say hi. My conservative nature is also evident in other things I do and think about. I am not one for massive parties or nightclubs and I don’t think I could really throw myself off a cliff (bungie jump) or out of a plane (skydive).

Yet when it comes to the stock market and business I have been more appreciative and perhaps drawn to risk (especially when I was younger). I started investing in shares when I was twelve and bought, owned and ran my own retail business at sixteen. I was lucky that my parents were supportive of these actives as it enabled me to develop a wide range of analytical, management and communication skills. To allow your child to use all their money at the time to buy one share or to go into business does highlight the amount of trust my parents had in me. I guess they were just happy my risk taking behaviour involved business rather than drugs or alcohol.

In fact this time of my life reminds me of an article that I recently read about young entrepreneurs. When we are going through our teenage years we are natural risk takers because the front part of our brain that controls this behaviour is yet to fully develop. What the article discussed was the impact this not only had on risky behaviour like driving fast, drinking lots or trying new things but also on the drive these young individuals displayed within a corporate setting. As young risk takers they were happy to give it ago and start a business. They did not care if they did not succeed they just wanted to have a go. As a result a number of them quickly expanded their business operations and took on their more established counter parts.

Looking back on my teenage years I can certainly draw similarities between this article and my life. What I have also noticed is that after leaving my business and taking a back seat from the stock market (at about the age of 18) my conservative nature started to set in, even in my thoughts and feelings towards the stock market and business This was obviously linked to my personal development and the maturing of my brain and frontal lobe. I also took on more responsibilities and an individual. I had a long term partner, who I married in 2010 and now have things other than shares to save for.

What I have come to realise is that I need to get some of that risk taking nature back. I’m not saying I want or need to be reckless with my investments, rather I need that sense of giving it ago and backing myself. Investing in ASX 100 stocks is great, but with most of the research already done by industry “experts”, there is no opportunity to be exploited and one would have to be content with average gains. I want above average returns and I know I have found my niche in the small and mico cap sector of the market. Since making my first investment in a speculative share I have even got a bit of my old spark back. I am not doing this for kicks (gambling), but I genuinely love what I do and the research that is required before I make any purchase. I feel like the old drive I once had to succeed in life as well as business is back!

Trading is a journey

Hello world and welcome to my blog!

I first began investing in shares at the age of 12, at 16 I bought and ran my own business and at the age of 22 I have left my job and established an online business so that I can work from home and become a full time professional investor. Along the way I have traded options, CFD’s and tried out a variety of short term investment and trading strategies.

After the culmination of many hours, reading, trading and learning about the markets I feel like I am returning to my roots. Originally when I was twelve and bought my first shares in Billabong (ASX: BBG) I always envisaged myself as a long term investor. Although this purchase didn’t exactly turn out the best (I purchased at $7.30 and they went to mid $4.00’s shortly after) it taught me some valuable lessons about researching a stock and understanding it’s fundamental value, future prospects and above all the catalyst that will drive its share price higher.

After my purchase of Billabong I made another rash decision that taught me even more lessons about the stock market and the behaviour of stocks. It’s not that I didn’t care about my money or the investments I made but as a 12 year old who lived by the beach I guess I thought everyone wore Billabong and bought TV’s from Harvey Norman. Any way you can probably gather that neither of these investments really paid off in a financial sense, however from an educational view point it was money well spent.

After my first two forays into the stock market I began reading financial reports and conducting some analysis into the company’s performance. I looked for consistent growth in sales, earnings per share and dividend payments. This formed the basis of my research and I was able to purchase my best two performers to date Leighton Holdings (ASX: LEI) and Origin Energy (ASX: ORG). I had found a style of investing that I liked and enjoyed creating a whole raft of excel spread sheets with formulas and graphs.

After I purchased my business at 16, my investment capital dried up and I just continued to monitor my existing shares without making any major new purchases. This went on for a number of years and I was pretty comfortable with what I had. I also think the business and my HSC took some of my focus away from the stock market during this time.

As I matured I came to realise that the potential for large, life changing returns were not going to be found in just buying and holding blue chip companies (unless I wanted to reap the fruits of my reward when I am 20, 30 or 40 years older). As a result I began investigating different trading methods and Contracts for Difference. I have in the past dabbled with options, however I have not traded them since I was about 15 or so. What would follow was a period of frustration. I can read and understand charts and could tell you how most underlying indicators works, but I never found anything I was overly comfortable with trading or basing my investment decisions off. Even if I did make some profits using various systems and trading methods.

During the Global Financial Crisis I traded the FTSE 100 and individual UK stocks, I made some fast (but relatively minor money) short selling bank stocks intra-day (at the time the intra ranges were he 10, 15, 20%+). I have also traded the ASX 200 index, where I also made some profits. Anyway what I believe was a combination of a small account balance, a lack of time to trade these markets full time and the failure to find a way of trading that I truly enjoyed I stopped.

I then went on another hiatus from the stock market and entered the property industry (something that I used to love, but am somewhat indifferent towards now). I completed a bachelor degree via correspondence and worked for almost 4 years in the industry before finding myself where I am now…… back to where I started, with a passion for the stock market and a realisation that I was in the right place the whole time. I just needed to change what I invested in slightly. I have always had an analytical mind and even during my property career I would run analysis on property developments, investments and retailer trading figures. I am now in a fortunate situation where I can apply this to the stock market in a somewhat full time capacity. At the core of my investment philosophy is the uncovering of stocks with the potential of multi-bagger returns (ideally 5 - 10 x return on investment or more). Now I am not under any false illusions and know this is not an easy area of the market to crack, but I have finally found my niche and I plan on utilising my strengths to exploit it to the best of my ability.

Welcome to my blog and please follow me on my journey! 

P.S. Please read the disclosure statement. This site is provided for entertainment purposes only and no information should be taken as advise or a recommendation to buy, hold or sell are share or particular investment.