Portfolio Update: 03. December 2021
Market down, adding to existing positions, initiating new ones in ARLP, EVR and VALE, consider selling BTU.
We apologize this is coming a bit too late, but better late than never! The macro update for December will be following soon…
On December the 8th we used the recent market scare to add to our positions and initiate some new ones. We added to all of our positions apart from Rio Tinto RIO (we were overweight) and Vedanta VEDL (ADR stopped trading). We also initiated three new positions in Alliance Resource Partners ARLP (coking coal), Evraz PLC EVR.L (Russian steelmaker, high dividend), Vale VALE (diversified miner, high dividend).
Performance
For the month of December 2021 “The Haptón Portfolio” had a +0.82% Money-weighted rate of return (MWRR) and a +1.49% Time-weighted rate of return (TWRR).
Since inception (end of August 2021 to end of December 2021), MWRR was +5.87% and TWRR +8.67%.
Monthly performance
For the month of December 2021 we outperformed the benchmark index by +0.25%.
TWRR for December; +1.49%
Benchmark Index “FTSE All World ETF (£VWRL)” TWRR for December; +1.24%
Performance Since Inception
Performance since inception (since the 31st of August 2021) is at +8.67%, outperforming the benchmark index by +2.31%.
TWRR since inception; +8.67%
Benchmark Index “FTSE All World ETF (£VWRL)” TWRR since inception; +6.36%
Positions
Southern Copper
There have been some worries and sell off of Chilean miners following the election of a left wing president, Gabriel Boric, in Chile.
Bloomberg, “Copper Miner Shares Slide After Leftist Wins Chile Election”;
While the political shift isn’t likely to have immediate supply impacts, a slowdown in permitting or higher costs imposed by the government could slow investment in capacity to produce copper, a metal seen as key to the energy transition. That could send prices back up to record levels seen earlier this year.
Barrons, “A Leftist Firebrand Is Taking Power in Chile. It’s a Red Flag for the EV Revolution.”;
Chile’s multidecade status quo has been under fire since late 2019, when transit fare hikes ignited massive street protests and spurred a new constitutional convention. Congress is debating the country’s first natural-resource royalties—cash the government takes out of revenue, not profit. The most aggressive proposals could “destroy 70% of the value from new projects,” figures Francisco Acuna, a Santiago-based consultant with commodities specialist CRU Group.
We don't know much about Chilean politics but we're not selling anything yet. We're evaluating the situation; what we often find with career politicians, irrespective of their ideology, is that they usually promise many things but implement very little and sometimes implement the opposite of what they promised (left wing Greek past prime minister Alexis Tsipras is a great example).
We're also comfortable with our jurisdiction diversification; Freeport-McMoRan (FCX) has minimal exposure to Chile and Turquoise Hill Resources (TRQ) develops a mine in Mongolia. Even Southern Copper (SCCO) is not fully exposed just to Chile alone.
Chile provides 28% of the world's copper supply1 so any increase in the cost of production in Chile would be beneficial to the other copper miners. Nothing has changed on the demand side for copper, so we're sitting tight.
Vale
Vale came to our attention because it pays a 18.25% dividend! It’s a diversified miner but most of the revenue comes from the production and sale of iron. However they are looking to increase investments in nickel, copper and cobalt production, in line with the trend towards more electrification, renewable energy (solar, wind) and electric vehicles.
Currently around 84% of their revenue (from 3Q21 financial data) comes from iron products, and only 6% comes from nickel, 4% from copper and 0.2% from cobalt, but as we mentioned these are set to increase.
We like Vale as part of our base and energy metals sector; it's a well run company, good debt management, pays a massive dividend and gives us some optionality in energy metals. We also think it's a good time to buy the stock after the price decline caused by the iron price decline, attributed to slower Chinese economy growth and the Chinese property sector financial troubles.
Evraz
We've also initiated a position in Evraz (EVR.L). Evraz is a Russian steel producer, and as we mentioned in past portfolio updates, we think we will need more steel for the green transition. Evraz also pays a good 9.00% dividend and it seems undervalued based on it's DCF (Investopedia, "Discounted Cash Flow").
Transactions
On the 8th of December 2021 we placed the following transactions. The “% of Tranche” is the proportion of the total investment capital of this tranche we allocated in each company; so if for example you were to invest £1,000.00 in this tranche, then you would allocate, for example, £82.60 in iShares MSCI Eastern Europe Capped (IEER) and so on.
Closing Thoughts
Peabody Energy (BTU) is our worst performer so far and it's approaching the area of underperformance (currently -24.49%) where we feel uncomfortable and we need to re-evaluate our holding.
Any position that has reached -30.00% we monitor closely and we're inclined to close our position or buy more so we either maintain our capital or benefit on the upside, assuming we still like the company.
Currently we still like Peabody, though it's on the risky side. We've bought a bit more recently but we might close the position altogether in the coming months.
Watchlist
These are companies we find interesting and we're considering while doing a bit more research. These are not trade recommendations. If we decide to add them to our portfolio we will send an update.
TECK Resources
From Yahoo! Finance (TECK);
Teck Resources Limited engages in exploring for, acquiring, developing, and producing natural resources in Asia, Europe, and North America. It operates through Steelmaking Coal, Copper, Zinc, and Energy segments. The company's principal products include steelmaking coal; copper concentrates and refined copper cathodes; refined zinc and zinc concentrates; energy products, such as bitumen; and lead and molybdenum concentrates. It also produces gold, silver, germanium, indium, and cadmium, as well as chemicals, industrial products, and fertilizers. In addition, the company holds interest in Frontier oil sands projects in the Athabasca region of Alberta; and owns interests in exploration and development projects in Australia, Chile, Ireland, Mexico, Peru, Turkey, and the United States.
TECK resources is divesting away from coking coal and shifting towards energy and electrification metals.
MP Materials Corp.
From Yahoo! Finance (MP);
MP Materials Corp. engages in the ownership and operation of integrated rare earth mining and processing facilities. It owns and operates the Mountain Pass facility located in the Western Hemisphere. The company holds the mineral rights to the Mountain Pass mine and surrounding areas, as well as intellectual property rights related to the processing and development of rare earth minerals. It offers neodymium and praseodymium that are rare earth elements, which in combination form neodymium-praseodymium.
We don't really have many options to invest in rare earth minerals in Freetrade.io (eg.: VanEck Vectors Rare Earth/Strategic Metals ETF REMX) so we're looking for a way to gain some exposure to the sector.
Thank you for reading, hope you enjoyed and once again we apologise for the delay but Christmas holidays happened 🤷🏻♂️!
Disclaimer
We are not professional financial advisors, therefore not qualified to give financial, investment or any other kind of advice. The content in our "The Haptón Portfolio" publication is intended to be used and must be used for informational purposes only. It is important you do your own research and seek independent professional advice before making any investment decisions.
Disclosure
We hold investments in the companies mentioned in “Figure 3“. We may initiate or close positions without further notice.