What do I do? Full-time independent stock market analyst and researcher:
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Modern Value Investing book:
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Today I want do describe my investing style and how it works which will give you insights in how I reach satisfying investment returns with a margin of safety. I will use Nevsun Resources (NYSE: NSU) as an example as it has been one of my largest portfolio positions over the year.
Nevsun Resources is a Canadian mining company with a copper zinc mine in Eritrea and a copper gold project in Serbia. I was bullish on both zinc and copper which made Nevsun a perfect sector play. Further, Nevsun has not debt and had a cash balance of above $400 million that fell to around $150 million after it acquired Reservoir and the Timok project in Serbia.
The cash balance, no debt, cash flow positive mine in Eritrea and extremely high ore body grades in Serbia gave the company a margin of safety as sooner or later that value had to emerge. However, there has been plenty of bad news and this shows how we have to take advantage of Wall Street’s short term orientation and myopic view. This is what happened:
2015 and in January of 2016 the company was hit by lower commodity prices which is exactly when my interest for NSU increased as the stock price fell from above $4 to $2.20.
Then in 2016 Nevsun didn’t manage to smoothly shift from mining the secondary copper rich ore to mining the primary zinc rich ore. Zinc and copper recoveries were much lower than expected and the company slashed its dividend to have better funding options for the Timok project but that really hurt the stock price and problems in Eritrea led to it trading close to $2 up to the first months of 2018.
There was also a delay in releasing the pre-feasibility study for Timok and the company shortened the expected life of its Eritrean mine from 8 to 4 years alongside a hefty impairment.