After 35 years of stockbroking for some of the biggest houses and investors in Australia and the UK, the Secret Broker is regaling Stockhead readers with his colourful war stories — from the trading floor to the dealer’s desk.
 

Nickel, Dimes and Mines.

The old investment adage of ‘follow the money’ doesn’t always work, as Australian investors have discovered with their lithium punts and to a lesser extent, their nickel punts.

As I have pointed out before, a listed miners’ most exciting shareholder times are when they are exploring and not when they are producing.

Exciting and promising drill results can put a fire under a company share price, but when or even if they do become a producer, the share price goes to a current valuation price.

Should the commodity they produce fall in price or their local currency go against them, then they are as vulnerable as a rabbit staring at headlights.

Sure, sometimes hedging strategies can help but sometimes they can bring you down – as the Lalor brothers discovered with their Sons of Gwalia hedging disaster.

They managed to turn a massive gold producer from Sons of Gwalia to Eunuchs of Gwalia. They were related to Peter Lalor, who helped put Victoria on the world’s gold mining map in the 1850s, so they must know what they are doing, right?

Wrong!

Now we are seeing punters in the headlights, watch their investments collapse in nickel and lithium hopefuls, as well as producers.

They have been copping it from all sides and now the majority of the loyal shareholders are blaming the shorters – rather than the fundamentals – for all the kicks they keep getting between their investment goolies.
 

Sayonara Sayona!

Again, as I have pointed out before, if I keep wearing my bell bottom flared jeans enough, at some point they will come back into fashion.

If I can even keep wearing them even longer, then at some point I will become an actual leader of fashion.

People will always stop and point in the street and exclaim, ‘Look at him, he’s a leader of fashion, not a follower of fashion’ after 40 years of never changing my style.

My point is that everything comes and goes in cycles and when it comes to mining and seeing and actually discovering and then producing something successfully, it depends on where you are in that cycle of fashion.

Everyone (long and wrong) keeps telling me that electric vehicle production is at an all time high and still in its infancy globally, ‘so all lithium and nickel share prices should also be the same, shouldn’t they?’.

I just tell them to look and see how many shares are on issue and how much money do they hold at the bank and their borrowings.

Sayona (ASX:SYA) is a classic. Their latest standard reporting requirement of their quarterly cash flow report was 43 pages long.

You have to scroll through 38 pages of fluff before you get to their actual report that shows receipts from customers of $48m and cost of producing those sales from mining of $68m before other costs are taken out.

Now, at their current price of 4c, they have 10bn shares on issue and $157m in the bank.

So a valuation of $400m and if their shares should go up 1c, their valuation jumps up by $100m.

Consider that their last fundraising (May 2023) was at 18c (issued 940m shares) in exchange for $180m. At 18c their valuation was $1.8bn.

Their shares reached 32c in April 2022 and then in late May 2022, they placed 1bn shares at 18c (a 12% discount at that time) to raise $180m.

Their quarterly release after that placement in June 2022 was only 31 pages long and it showed no income and $195m in the bank, thanks to that fundraise and their valuation then was $1.4bn.

Now I’m not pointing a finger at just SYA, as they are one of many where the management are playing it the best they can with the cards that they currently hold and with a share price much lower than their last raising.

At their current share price of 4c, you would have to guess that their next placement to raise funds would have to be heavily discounted to get it away, so it looks like it may have to be 2c… but then the dilution will just be eye-watering.

57m shares traded yesterday within a range of 3.9c to 4.1c, so the nips are getting smaller and not bigger.

 

Not waving, trying to fly

If not a fundraising then the only thing left for SYA management to do is cut costs.

And that is what Andrew Forrest just had to do with the nickel mine that he bid for and paid $700m for only last year.

Since he took the keys to this mine barely eight months ago, the nickel price has slumped by 45%, so he has now decided to mothball the mine and bide his time.

Of course, this means he will have to keep everything ready to go for when there is a recovery in the nickel price. This will still cost him millions a year – maybe up to $30m, on top of his $700m investment.

For the State coffers of Western Australia, this means less royalty income, which reached billions a year and is now dramatically falling.

Now the people of WA will suffer, not only job losses but also the pulling of the government funding rug.

Talk about an Amazon butterfly flapping its wings and causing a devastating cyclone thousands of miles away. Except now it’s the London metal traders flapping their arms around and causing all the havoc.

Not to mention the billions of dollars that the Australian punters have seen disappear. If they can’t get you at the pokies, they will get you at the ASX casino of investing.

In the words of Blondie ‘one way or another, we’re going to get you’.

Even Gina is down $800m on her investment in Liontown (ASX:LTR) and that was only completed 130 days ago, as the shares have fallen from $3.00 to 95c in that time.
 

Nickels on the dime

Just to rub salt into the wounds of all these billionaires and small ASX punters, a nickel player came out of the shadows with a two finger salute to them all.

Nickel Industries (ASX:NIC) as it turns out, produces nickel at the right price and in the right place.

So much so, that their announcement declared a dividend and a share buy back. This announcement caused their shares to go up by 23% in a day.

The chair of NIC is not a billionaire, just a smart operator worth a couple of hundred million, who flies under the radar and has skin in the game.

Just because some are billionaires or a company following the latest fashion, doesn’t mean they are worth following.

Sometimes you should follow the quiet ones, who don’t care about fashion and earnt their money the old-fashioned way.

Flares ‘n all.

 

The Secret Broker can be found on Twitter here @SecretBrokerAU or on email at [email protected].

Feel free to contact him with your best stock tips and ideas.

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