Portfolio Review

87% YTD
Hummingbird Resources and a review of 2020

Q4 2020 review – I took an opening position in Hummingbird Resources to gain some gold exposure

January 11, 2021 / 4 min read

Hummingbird Resources and a review of 2020

What a wild year. 2020 ended +87% which seemed unimaginable down at -53% during the March low. Few can have expected markets to bounce back and make new all time highs as aggressively as they have (ok FTSE aside).

Q4 was quarter of few transactions. I increased my position in Arc Minerals and Longboat Energy, sold Sylvania Platinum and took a new position in Hummingbird Resources. The final transaction (which seems barely noteworthy being only 0.3% in value) was Rambler Metals and Mining which was for a swing-trade simply because of it being a copper producer recently under new management due to extended poor performance, and the chart was the image of capitulation.

Sylvania Platinum & Hummingbird Resources

Sylvania was always a mid-term holding trade – something of a safe harbour while I was waiting. It turned out to be a healthy one, closing it in 46% profit. I only sold because it was looking somewhat overextended technically but it’s value and fundamentals remain fantastic so i’d gladly hold again.

Hummingbird’s been on my watchlist a while as a high grade, low cost gold producer trading on a low-valuation.

2020 wasn’t a great year for them suffering operational setbacks and missing their production guidance of between 110,000 – 125,000oz. Q4 production figures haven’t been published but production for the year looks likely to come in just shy of 100,000oz.

Their main producing asset Yanfolila started commercial production in 2018 with an estimated 7 year mine life. Further drilling results this year were very positive so a mine-life extending upgrade to the mineral resource is expected soon. The company also has a large development asset in Liberia and as exposure to further exploration in the form of junior miner Cora Gold (of which it own ~20%) which has discovered significant deposits within the same region.

Total production is forecast to be around 440,000oz over the next 4 years, and are set to become debt free this year. Mali obviously carries jurisdiction risk, but with the company trading on a forward P/E of 3 Hummingbird looks too cheap. If they can get production back on track and confirm the anticipated resource upgrade I would expect something of a re-rate or become vulnerable to a takeover.

Arc Minerals

Much of the quarter was just silence. Nothing of the expected drill results. Some suggested covid had delayed processing the samples, others that it was a direct request from Anglo American (AA). Others disagreed but in my mind it mattered little as the already published grades were compelling enough for AA to enter into the exclusivity agreement in the first place, which incidentally closes later this week.

The share price has remained fairly stable during the period, ranging between 3p and 4p.

The only relevant update arrived in early December but was incredibly short, lacked any detail and left everyone as in dark as before, even if it was natural to read it as positive development.

“Arc Minerals announces that, following the Exclusivity Agreement signed with Anglo American (as announced in an RNS on 14 July 2020), the Company has been informed that Anglo American has completed its technical review and will be submitting specific due diligence queries in respect of the Zamsort and Zaco companies.”

Something seems more likely than nothing, but who knows. Even if AA pass we know other majors were sniffing around so i’m keeping.

Given the option of a JV or full takeover i’d personally favour the takeover as it’d save me the conundrum of when to sell, plus it sees value realised immediately.

Longboat Energy

I added a few more here during some short-term weakness. Still radio silence/no deal, so unsurprisingly the share price drifted as bored investors look for more immediate opportunities, although it has perked up the last few weeks. Ex-RockRose Energy CEO Andrew Austin also returned to the market with Kistos in early December so I wouldn’t be surprised if it drained some capital from Longboat given their appeal to similar types of investor. I’d happily have been one of them but it took off right out of the gate and hasn’t yet cooled.

The investment case for Longboat still remains little more than a punt on management, but against the backdrop of improving oil prices, returning strength and sentiment the last few months coupled with the ongoing silence is naturally unsettling investors.

It’s not helped when other assets swapping hands at what seems attractive opportunities such as Viaro Energy’s acquisition of SSE’s North Sea gas assets for £120m. My hope is they’re looking/seeing better value elsewhere.

I’m cognisant not to confuse silence with inactivity as these moments often offer the best buying opportunities despite it feeling disconcerting. If they can just get something over the line within the next few quarters it would leave them well positioned to capitalise on any improvement of oil prices.

It’s not been a hugely comfortable hold thus far, but management have a proven track record and the story remains intact so for now i’m happy to wait. Patience has been my most successful strategy to date anyway.