What are Katusa’s “Forced Panic Rebound Stocks?

Sniffing around the "tax loss selling" opportunities teased by Katusa's Resource Opportunities

By Travis Johnson, Stock Gumshoe, December 9, 2020

We haven’t looked into a gold or mining=type stock for quite some time, so when a few readers sent in questions about Marin Katusa’s latest pitch I thought we’d dig in.

If you don’t know the Katusa name, he was for many years one of the mostly mining-focused folks at Casey Research, so he’s been a heavily marketed name for a long time and I’ve written about his stuff many times. He maintains connections with that group of high-profile mining folks and with plenty of the Agora-spawned newsletters… but after Stansberry bought out Casey he left and started his own shop (for a long time he also managed the KCR hedge fund that included Doug Casey and Rick Rule’s money, I assume he still does but I’m not sure what the status of that is these days). He tends to be self-promotional and talk about his connections and his wealth and brilliance a lot, which is off-putting… but that’s not at all uncommon among newsletter pundits — the ability to be “liked” is not as important as having a bold image of some kind. If you can’t sell yourself as either an antisocial grump in a Unabomber cabin or an aspirational “luxury brand” with sports cars and boats, it’s hard to last long in this business.

Katusa’s basic pitch this time around is mostly about the appeal of the “tax loss selling” period for investing — which is a time-honored strategy. That’s what he calls the “forced panic rebound” — when companies with quality assets get driven down further in share price, below any reasonable estimate of value, and then bounce back when a “fear of missing out” ignites in the new year.

The basic trend this plays off of is that investors who have losing positions often want to sell those positions in November and December to “book” their losses, since those losses can then offset any taxable gains they might have from stocks they’ve sold for a profit this year. That tends to make stocks which were already pretty weak, fall toward the end of the year. The timing doesn’t always work perfectly, for sure, but the effect also tends to be exacerbated with relatively illiquid stocks, a group which includes most of the smaller mining stocks or junior exploration stocks that Katusa tends to favor, so if you do have a long-term perspective and can find value at this time of the year, particularly in a year when commodity stocks are down a bit, then it can work out well.

Assuming, of course, that commodity prices don’t collapse next year. Getting a little bonus by “buying low” doesn’t mean we acquire some magic ability to predict the future.

And yes, managing for taxes is something you can do all year, you don’t have to wait until December — though that’s when most people start to think about it. I took a bunch of taxable losses in March, for example, and just put that capital to work in the same sectors to keep exposure while “banking” those loss credits for my next tax return. Just make sure to follow the Wash Rule for tax loss selling (ask your tax person, but the rule basically is, “you can’t buy the stock or a substantially identical investment 30 days before or 30 days after taking your tax loss,” if you try to game the system that directly you lose the tax benefit).

But what readers were most interested in were Marin Katusa’s picks for this “panic rebound” period of tax-loss selling — which stocks might be appealing if investors are selling them toward the end of the year?

He talks up four different “panic rebound” stocks… let’s dig into the clues and see if we can ID them for you…

“Forced Panic Rebound Stock #1… The Creation of a ‘Super Producer’ Gold Stock

“I have almost $20 million dollars at stake in this company and have continued to purchase shares.

“It’s a gold producer with top-flight operating mines in some of the world’s most attractive new mining districts….

“The company is backed by one of the most prominent management teams and financiers in the entire resource industry.

“***They’re producing over 500,000 ounces of gold and on track for much more.

“***Production cash costs are FAR below the industry average”

And, he notes:

“FULL DISCOSURE: I am a very large shareholder of this company.”

So… hoodat? Given what we know of Marin Katusa’s past investments, I’d say this is most likely to be Equinox Gold (EQX), the emerging mid-tier gold producer being built by Ross Beaty. Marin has been pushing this idea since well before it was called Equinox, and has teased and recommended some of the companies that went into creating what is now Equinos Gold over the years, and certainly Ross Beaty is someone to follow in the industry… the main reason to own this one is to be a part of what will likely to be Beaty’s last big effort to build a large mining company.

And it so happens that it’s already producing gold — and yes, the production matches the clues, they’re roughly on a 500K ounce/year pace as of last quarter, and the company is likely to be generating positive cash flow from here on out unless the gold price really collapses, and Beaty has a lot of levers to pull as they develop and expand their current properties and continue to grow through acquisitions. There aren’t that many folks who would be thirsting to take a “tax loss” in this one, I imagine, since you would have had to buy after June of this year to be in the red with your Equinox shares, but the stock has been dropping along with gold from those October highs, so you never know.

I like Equinox Gold, though as a producer at several smallish mines (in the 100,000/yr range) they can’t really be called “low cost” — that’s not as efficient as having one big mine, and their mines as of the last quarter had an All-In Sustaining Cost (AISC) of about $1,035 per ounce. Still, that leaves a lot of profit for you to dig up when gold is at $1,800 an ounce, and lots more of gold rises in price. I currently have a position through the warrants (October 2021 expiration). I last wrote about those warrants for a Casey pitch earlier this year, as coincidence would have it.

What’s next?

“Forced Panic Rebound Stock #2… His Last Company was a 10-bagger, THIS is His Next Venture…

“Typical with meeting me for the first time, this superstar didn’t like me when we first met in 2007.

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“He wanted to meet, and we’re introduced by a mutual friend, N.J. (the broker to the billionaires).

“I didn’t like his project and told him specifically why I didn’t think it would work. He thought I was cocky and arrogant. In the end, we were both right.

“Not only was his last deal 10 bagger, he made a fortune for nearly every shareholder along the way – the company hardly dipped at all while he led the company to an ever-increasing valuation.

“And he did all this during a tough gold bear market. He had the second best performing gold stock in the world during that time.”

OK, so what is this? More clues…

“He was once the President of one of the biggest mining companies in the world.

“And when he financed his latest venture…

“Nearly $20 million was taken down in seconds, by only a handful of people.

“Imagine being involved in Steve Jobs’ next venture after Apple in the 1990s, or Jeff Bezos, or Elon Musk. You’d probably write a cheque without knowing all the details.

“That’s exactly the influence and capability that this man has in the mining space. And I think the company is underplaying everything at the moment, just like with its previous company that sold for nearly a billion dollars….

“Now, there are 2 MAJOR catalysts that I want you to know…

“This deal is so tight, that the slightest hint of volume on the projects that the CEO can bring to the table could send the stock soaring. The company is flush with cash, has world-class connections and a top-tier team to put assets into production quickly.

“I am speculating that the Stock #2’s team will ultimately put their assets into production and reap a windfall of rewards. I see this happening within 18 months.

“If they can pull this off, this stock could easily double or triple from current levels.

“Full Disclosure: I own a SIGNIFICANT position in this company and will be adding more.”

This I don’t have a good guess for right off the bat, since most of those clues are quite squishy and could apply to multiple companies… this could be a pitch for Keith Neumeyer’s First Mining Gold (FF.TO in Canada, FFNGF OTC in the US), perhaps, or for Frank Giustra’s (and now also Robert Friedland’s) Gold X Mining (GLDX.TO, GLDXF)… if you’ve got a better solution, feel free to suggest it with a comment below.

I owned First Mining Gold when it was first starting out, but don’t currently — I also wrote about it several times when it was being teased for the potential of its Springpole project a few years back. It was originally a “land bank” for prospective projects, similar to what is now Goldmining (GOLD.TO, GLDG), but shifted to becoming a resource developer in their own right and has been saying over the past few years that they will build the Springpole mine. As further evidence, First Mining did just raise $20 million in a bought deal financing a few months ago, so that’s a decent match for the clues… but not at all definitive.

Another one? Sure!

“Forced Panic Rebound Stock #3… The Ambush Predator’s Dream….

“This is a textbook ‘Alligator’ investment opportunity.

“This stock has been on my radar for a while now. I’ve wanted to buy it FOR YEARS.

“I’ve patiently stalked this stable, dividend-paying, low-debt energy producer….

“It’s by far one of my favorite oil companies that’s on sale because of the panic exit in the Canadian oil sector.

“When best in breed oil companies like this are in a fire sale, you HAVE to take notice.

“Because if oil puts in an explosive 2021, as market conditions and signals are pointed could happen, this is one company I WANT TO OWN.

“I’ll be putting in my bids like a hawk this winter.”

Alligator or hawk, which will it be? Not much in the way of clues there, but if you go by those criteria (Canadian oil company, relatively stable, below average debt, pays a dividend), you might narrow it down to Imperial Oil (IMO), Arc Resources (ARX.TO), or Cenovus Energy (CVE, which is merging with Husky Energy (HSE.TO))… you could even through in Prairie Sky Royalties (FRHLF), but I imagine he would have mentioned it if he was pitching a royalty company (since investors tend to love those… including yours truly).

I’d probably pick Imperial Oil out of that pack if forced to choose after a quick scan of the numbers, just because they’ve continued to increase the dividend this year (now 3.5%), but I have not looked at the detailed assets or prospects of any of them. Oil names in general have been bouncing back a bit of late, but, of course, remain well off of their 2019 prices and, in most cases, still well below their 2014 highs. No real clues, so can’t really be sure on this one — sorry.

But there is also one more, so no need to panic just yet…

“BONUS: Force Panic Rebound Stock #4… The Next Monster Gold Producer

“The management of this company are the largest shareholders and have an incredible track record in the gold sector.

“They’ve also built Canada’s largest gold mine which has produced over 600,000 ounces of gold per year since 2011. Not to mention, it has many more years of production left.

“The company CEO has created BILLIONS of dollars in shareholder value with their previous companies.

“And this is their BRAND NEW VENTURE.

“I will be taking a significant financial interest in the company to the tune of over $2 million dollars.

“It’s the kind of company I want to own BEFORE all the big funds starting looking at it. Because the company will want to eventually list on the NYSE.

“And if it does, institutional money will pay VERY close attention to this stock.

“FULL DISCLOSURE: I am putting millions of dollars of my own money into this company”

Again we’re a little bereft of clues, but a solid match is Gold Terra (YGT.V in Canada, YGTFF OTC in the US), which until this year was called TerraX Minerals. The connection to the clues here is that Gerald Panneton is the new Executive Chairman of Gold Terra (as of October of 2019), and he’s now effectively leading the company as it transforms to focus almost entirely on further exploration and eventual development of their Yellowknife City Gold project. Panneton was previously the architect of Detour Gold, which did indeed build a mine that at points was arguably “Canada’s largest gold mine” and produced 600,000 ounces a year over the past decade, though he left the company a few years into production in 2013.

The Yellowknife City Gold project has some appeal, though I’m not a mining expert (which is why I tend to focus on the royalty companies more than on producers or junior miners)… there has been a lot of gold produced in the area along the Campbell Shear historically, and while it’s in the often-inaccessible far north, it’s also within just a few miles of Yellowknife, so it’s got plenty of infrastructure and people available — they don’t have to build a city there just to get a mine built. They’ve only identified about 735,000 ounces of gold so far, all in the “inferred resources” category, so it’s still very early days, but they have been drilling this year and believe they’ll be able to grow that number, and the Panneton presence is seen as an endorsement of that potential (he’s also a substantial shareholder, having bought shares as he joined the company — some of them for more than the current share price).

I have no idea what the timeline is for the project, but it will probably be at least several years before they’re thinking seriously about building a mine. It’s quite small at this point, with a market cap of about C$60 million, but clearly there are a lot of investors in the mining space who follow the executives who have had past success, and Panneton is pretty high profile in that regard. You can check out their investor presentation here if you’d like to get a little more of the story.

And, like so many gold stocks, it is down a bit recently… but there would only be a tax loss-selling opportunity if you bought it near the highs over the summer, so what happens over the next few months I don’t know. Those names all seem like rational speculations on gold, ranging from the highly speculative early-stage projects (Gold Terra and First Mining) to the established and producing Equinox… with, of course, that mystery oil stock thrown in on which I won’t opine, given the lack of a real Thinkolator answer. I find myself rather low on the enthusiasm scale with all of these names, but do own those Equinox warrants, and as the only real established producer in that group it’s also the one I’d be most comfortable with… but it won’t shoot up 300% on a takeover or a super high-grade drilling result or reserve estimate like Gold Terra or First Mining might.

So I’ll leave you there, dear friends — if you’ve got thoughts on any of these resource names, or the appeal of anything else in the space that you think might be a “tax loss selling season” buying opportunity, please do share those thoughts in a comment below. Thanks for reading!

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