You can be early, but don’t be late...
What areas still feel irresponsible to allocate capital?
Having read David Iben's piece, "Rust Never Sleeps," I attempted to find my own catchy title, but when I failed, ChatGPT stepped up.
You can be early, but don’t be late
Doors close quick, this moment won’t wait
Timing's a dance you can’t underestimate
So arrive on time – don’t tempt your fate
-FergGPT
I like the line, "Timing's a dance you can't underestimate."
Being early is where the real asymmetry is, but this needs to be balanced against Howard Marks's observation that being too early is indistinguishable from being wrong.
It’s more art than science as to “what’s too early” vs. waiting for a catalyst to arrive/asset to breakout.
You want something invisible, as my friend Paulo Macro likes to say.
Since writing Squeezy on uranium and platinum, both have become a whole lot more visible with recent news and price action.
The spark didn't take long with uranium, as the private placement closed on Friday, and those funds are already chasing pounds this week.
Platinum is in the same boat, with a deficit so deep (966 koz) that even WPIC's pessimistic demand forecast of -4% YOY can't bring the market anywhere close to balancing (and now the Chinese are ramping up demand via jewellery and investment).
Total platinum demand is forecast to decline by -4% year-on-year in 2025 (-338 koz) and with a projected market deficit of 966 koz. Given compelling market fundamentals, a severe and sharp deterioration of economic conditions would be required to materially reduce entrenched supply shortfalls, which seems unlikely.
When things start working, it’s human to want to chase. Granted that if I wasn’t positioned, the upside in both is still fantastic, and I’d buy both platinum and uranium today.
One of the early rules of thumb Brad taught me was;
“The longer the basing pattern, the larger the eventual move.”
If this rule holds, platinum is going to surprise a lot of investors to the upside over the next few years.
What else is there with a chart that looks like platinum?
A sector or asset that is still viewed as hopeless, and you feel a bit sick allocating capital to it?
Feeling good about an investment and large outperformance rarely go hand in hand.
If you asked me what the most efficient way to light my portfolio on fire is, I'd go with a basket of commodity explorers.
They are terrible businesses combined with a market that has lost interest in funding them.
Don't worry; I'm not about to pitch you on some moose pasture, although I am finding some mining services interesting, but that’ll have to wait for another piece.
I'm going to jump across to oil exploration, as it's in a worse state than the majority of mining exploration.
Before I begin, I have a disclaimer that my investment record in oil exploration and seismic, in particular, is unblemished by success (Another Punch in the Face from Seismic).
I lost 10% on a 3% position in CGG SA (now Viridien).
I got taken out of PGS at cost after going through a 50% drawdown.
I’m in a 40% drawdown currently with Geospace Technologies.
The thesis is pretty straightforward: majors have been drawing down their reserve lives for the last decade, and after the recent bout of M&A, they will turn to exploration again.
For now, it's not happening, as shale has accounted for over 90% of all demand growth in the last decade, with majors having acquired the majority of high-quality reserves.
Majors are focused on shareholder returns (dividends and buybacks), which have heavily cut into capital expenditures and starved exploration of capital.
I’ve touched on this chart from Exxon a number of times.
A 15% per annum decline across global oil supply is crazy, and I was interested in how it broke down across the various production types. Exxon doesn't give you their assumptions, so here is Grok's effort. While shale has heavy declines, its global share is still small; the 10% annual declines in offshore and 6% annual declines in onshore conventional (conservative) are what matter, as they represent ~80% of global production.
Offshore is where the majority of future barrels will come from when looking at trends in project commitments.
This brings me to today's focus, where the risk-reward is heavily skewed to the upside if one has the patience to extend one's timeframe.
Unlike mining explorers, in oil exploration, you can find quality companies that have been starved of capital due to the sector being in a brutal bear market.
Having sorted through the survivors, there are a handful that have serious multibagger potential over a longer timeframe.
The company I'm going to go over today has a wild history…
