As my regular readers will be aware, I recently made a speculative investment into copper-gold-silver-zinc play Aeris Resources, largely because of low copper inventories worldwide, and the electrification trend. No sooner had I bought some shares at $0.40, the company announced a disappointing quarterly, showing significant cost increases due to a mishap at its main mine. The share price promptly dropped to 30c, and I was down an instant 25%.
Here I was, prevaricating about whether I should react to the disappointing quarter, which had now been (arguably) more than priced in. I was also sorely regretting that I did not emphasise the speculative nature of my investment and also the fact that I share my investing journey for entertainment and education, not because I always get it right!
In any event, over the last few days the share price has flukily risen back to 44 cents, a gain of around 50% from the bottom. I do not know exactly what has driven the move, but perhaps strengthening of precious metal prices is behind it. Either way, I guess the stock is working as a leveraged bet to commodity prices, so that is nice.
Having said that, the disappointing quarterly was a great example of the flaw in my thesis. It’s all well and good if costs stay below the price of copper, but if costs blow out too much from inflation, then even a strong copper price may not save Aeris. The reason Aeris is so cheap, clearly, is because it is going to be such a volatile journey.
At present, my ugly duckling of a speculation suddenly looks like more of a swan. Maybe there is more to come, but also, I think maybe I’d be better off getting exposure to copper through a more established copper mining company, such as Oz Minerals. Any way I look at it, Oz Minerals is a lower cost producer than Aeris. Of course, it is priced as such, so there wouldn’t be anywhere near as much upside if the copper price rises. Still, it is rather sobering to think that if a few things go wrong at Aeris it could suddenly start losing money hand over fist.
What really got to me, regarding Aeris, is that people on the mine site would have known that there were problems. However, shareholders only found out about that well after the fact. It creates a certain degree of information asymmetry that I don’t like much, as an investor.
I’m still pretty keen to have a small part of my portfolio dedicated to speculation on precious minerals like copper. My motivation is mostly just for a learning experience, but also because I am interested in capitalising on long term demand changes arising from the energy revolution. I don’t necessarily want to punt on operational outcomes at Aeris.
Therefore, I’ll sell at least half of my Aeris shares and invest at least some the proceeds in Oz Minerals. The lesson here is that if I want to invest a little in copper mining, I should be wary of the risk involved, if something goes wrong at the mine. Therefore, I’ll look to sell some or all Aeris shares some time from tomorrow. I may keep some Aeris shares, just to go on the emotional journey and get some practice holding a highly volatile, mining company stock.
Of course Oz Minerals has its own quirk: the share price is currently elevated because BHP has expressed an interest in acquiring the company at $25 per share. Prior to that offer, the share price was below $20, now it’s above $25.
Disclosure: the author of this article owns shares in Aeris (ASX: AIS) and plans to sell at least half of them some time from the day after the publication of this article. The author will also buy some shares in Oz Minerals, after selling the Aeris shares. This article is not intended to form the basis of an investment decision and is not an official recommendation. Any statements that are advice under the law are general advice only. The author has not considered your investment objectives or personal situation. Any advice is authorised by Claude Walker (AR 1297632), Authorised Representative of Equity Story Pty Ltd (ABN 94 127 714 998) (AFSL 343937).
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