Thursday, December 14, 2023

Bought Philippines Stock Exchange

I bought half my position (2.5%) in the Philippines Stock Exchange (PSE).  I love stock exchanges - they are simple, inflation-proof businesses.  Most are expensive, but PSE is reasonably priced: ex-cash PE around 12 with a 5% yield (before 25% witholding tax for Singapore residents).  Its a dirt-poor, growing country and their stock market is cheap and unloved, with some catalysts (paid link).  Long term the key metric to tracks is the number of listed companies.  In the short/medium term, it depends on the cycle.

Why buy now?

  • We are nearer the end of the bear market (started end 2021) than the beginning.
  • Hedgeye's trend signalled the Philippines stock index is in bullish trend.  And the country has expected increasing yoy gdp growth in the next 2 quarters.  This trend might last for months, quarters, or change tomorrow.  But since I was intending to buy a some anyway, buy a little now.
Why buy only half?
  • I'm expecting a US recession and bear market in 1H24, if this happens, other countries' indexes and stocks will probably follow it.  Final leg down.
Long term, the key metric to track is the number of companies listed.  The market will go up and down when it wants, but long term, you need to have companies listed for people to invest/trade.

PSE is a *very* illiquid stock, even buying a few thousands dollars worth can set the price.  Long term holding, not a trade.

Saturday, December 9, 2023

Uranium supply and demand: John Polomny and Justin Huhn

Sprott Uranium Trust is 6% of my holdings.  Uranium has now reached an $80 spot price where it may be profitable to mine it (the incentive price is probably $80-120).  Should I keep holding?

This is the best discussion of uranium I have heard, they give names and numbers, and good insight into Kazatomprom's production process and capex cycle.

TLDR: No meaningful supply coming on for the next 3 years, *might* happen in 5 years.  He thinks Kazatomprom cannot meet their targets and will have to report this around Jan/Feb.  


  • (1:00) High level view?  30-40m pounds shortfall this year, glut of demand for next 3-5 years which cannot be met by supply. (2:26) Current producers: Cameco, Orano, Kazatomprom, Uranium One, Uzbekistan, Namibia, BHP, thats it.  In future: Paladin (Langer Heinrich starts production next year, full production aimed 2025).  For the next 3 years, all this production capacity is sold out.  Start seeing new production capacity in 2027/28.  (3:33) Reactor (uncovered) demand for existing operations (not talking about new builds or currently under construction) is greater than what is set to be purchased.  Secondary variables considered: producers & financial entities buying, inventory restocking.  Inventories are not at dire levels - they never are - he sees does not see a utilities panic.  Thinks we will have a 'musical chairs' moment after 24 months.  Starting now with a very thin spot market.  Only current relief valve is Kaz, but he thinks they cannot increase production enough to meet their targets.  In the next 5 years, he does not know where U308 price will end up, but far higher than the 'incentive price'.
  • (7:20) John: twitter rumours that utilities put out RFPs for 100/200K pounds of Uranium, no one responds.  Whats happening with term price (instead of spot)?  Justin: (8:00) Term and spot are connected. Term is lower than spot ($66 term vs $82 spot), but you can't arbitrage it.  (9:24) Term contracts have floors (sixties) and ceilings (nineties, maybe 100s).  (10:21) Now have fewer contracts referencing the spot market.  "Everyone knows we are in a bull market".  Floors and ceilings continue to inch up, and are for longer periods.  Enrichment contracts into the 2040s.  Utilities signing contracts delivering 7-10 years out.  (12:09) Spot and term are connected, though spot is more visible.  Spot is so thin we have multiple dollar moves with very few pounds traded ($2 or 3 move on zero pounds traded, when bids come into the market offers get pulled back).

  • John (13:55): Demand: COP28 announcing tripling of nuclear capacity by 2050.  Justin: Sweden, & UK are planning new plants, Poland alone planning 24.  Gives permission to the left to embrace nuclear.  But it's not needed in a 3-5 year timeline: icing on the cake.
  • (21:28) (John) Can Kaz increase production as management says?  (24:05) (Justin) Mining is never on-time and on-budget.  Langer Heinrich's restart capex has gone from 84m (Autumn 2021) to 120m (five months later) simply from inflation.  Shortage of plumbers, electricians and ppl who can drill wells.  (26:06) Even nuclear fuel analysts like UEC and TradeTech are skeptical about supply timeframes, and are telling their customers that we are years away from supply.
  • (26:31) For Kazakistan, sulphuric acid is an issue, they were supposed to produce 23.5 thousand tonnes this year, will miss that by about 1000 tonnes (2.5 to 3m pounds) off their target (on a 100% basis), they're projecting next years' production 10% below their subsoil-use contract (25 to 25.5 thousand tonnes), so trying to produce an additional 8-10m pounds next year.  But from their capex this year, he thinks they cannot even maintain last year's levels.  Speculates is may be because they don't have sulphuric acid.
  • (27:43) Kaz production process and capex cycle.  ISR operation needs to inject the acid into a series of wells to impregnate the ore-body, then it takes time for the ore body to be impregnated.  From drilling the wells to first production is 6-8 months, full production is 12-18 months.  From that peak, it only declines.  So they must constantly drill.  But they don't drill much in Winter (Dec-Feb), so we can see their capex  in Q2 & Q3 of every year, and get an idea of what they produce the following year.  He thinks they will have a hard time even meeting 2023's production (let alone a 10% increase), and they'll have to tell the market this in Jan or early Feb.  
  • (29:14) Kaz production guidance for 2025, they say they want to hit 100% of topsoil-use contract (30.5 to 31.5 thousand tonnes, or 80m pounds, a 33% increase from 2022) - does not see how its physically possible.  Even if they increase production, most of that increase is from new deposits (Budenovskye 6 & 7 is a JV with Russia, and another one which is JV with Orano/France), Russia's share will go to Russia (who are short Uranium).  And more of Kazatomprom's share will go to China. So Kazatomprom's pounds won't be dumped into the spot market.
  • (31:33) Other new large projects in the next 5 years: a) Dasa b) Arrow c) Phoenix d) big Namibia mines (final investment decisions in 2024, first production 2027/28) e) Kazakistan increasing f) Uzbeks increasing g) small stuff in US/Oz.  Thats all we have.
  • (32:18) (John) Why cant Kaz increase production? (Justin) In my personal opinion, not enough workforce and sulphuric acid, running up against limits of physical reality.  They signed a lot of production contracts at lower prices.  Their current production is already 55-65m pounds, to expand that by 30% is a a big undertaking.  High grading and resource depletion: new projects not as good.  Building sulphuric acid plant, comes online 2026, that should help increase production.  More commercial incentives: instead of jist flooding the market.  Their max production level was back in 2016.
  • (37:15) John talks about the US.  Only produces 40K pounds.  What price is needed for US production to be sustainable?  (Justin) Old mines from the 70s/80s are from New Mexico with a bad legacy.  So looking at Texas, Wyoming, possible Nebraska, maybe South Dakota and Utah.  Lots of companies are moving towards production.  We are at the incentive price.  Still capital and labour constrained.  (42:00) Justin talks about Section 232, Trump's Nuclear fuels working group, IRA, restart Palisades and building SMRs
  • (49:12) Investment implications.  Currently 130-140 uranium companies.  3/4s of them have have no intention of producing.  Same for any mining industry (eg: gold juniors).  Have't seen animal spirits in market yet (M&A pickup), usually happens last 1/3rd a bull market.  Could be years away.  Best companies have 'X-factor': what will they potentially do that they are not thinking about now?  Management's ability to create value in a bull market.  
  • (1:01:40) (John) Where are we at in the bull market?Thinks this bull market will be longer and more drawn out than previous one.  "Stair stepping its way up".  There will be downturns/consolidations.  (Justin) Uranium can spike without conversion and enrichment doing so.  Buyers are price insensitive.  (1:08:00) China is the only one with inventory, they may sell it, but unlikely.  (1:0:47) Where are we in the cycle?  Clearly not at first inning, he doesn't know where we are.  KISS, we are in a multi-year U bull market.  U stocks still sensetive to general stock market decline.
  • (1:12:30) Whats the bear arguments?  Apart from another Fukushima.  A large holder of inventory selling into the market.  Only one is China.  They had 5 construction starts this year, they need 8 per year to hit their targets.  They have 26 under construction.   They do not have a lot of domestic Uranium in the ground.  Their goal is to produce 1/3rd, contact /3rd, and overseas acquisitions for the last 1/3rd.  They cannot produce the first 1/3rd and are relying on Kazatomprom instead, singing contracts so large they were more than Kaz's book value. They may be sitting on 6 years of inventory, not enough for them.  He does not think China will sell, as they think of energy security/stability, not profiting from Uranium.  Unless they can replace what they sell.
  • (1:18:30) At some time the price will be high enough for new U to find its way into the market (eg: if it stays at $200 per pound for 5 years we will get U from phosphates and seawater).  But there's nothing in the next 3 years.

Update Jan 2024: On 12th Jan, Kaz warned it can't meet 2024 production targets.  And Uranium is finally starting to make it into the mainstream (financial) media.

Sunday, December 3, 2023

Sold Equinor. My Positions

Sold Equinor on Friday night after reviewing it.  I don't want to hold it long term, and since Hedgeye is bearish on energy and Norway now, just sell.


  • Covered my tech shorts at a loss 3 weeks ago as it moved to bullish trend.
  • Covered JETS and Austria (EWO) shorts last week, also at a loss.
  • Shorted Energy producers (XLE)
  • Added some SPY puts as VIX dropped to 3 year lows. 
I'm still waiting for a correction:

Friday, December 1, 2023

Aker BP

A quick look at the second largest Norwegian oil & gas producer.  They operate purely on the Norwegian Continental Shelf (NCS).


They pay taxes every two months, so even quarters have higher taxes.  The current quarter has one tax payment, the next has two: however they made an additional $500m tax payment this quarter (p6) to smooth it out.

For each calendar year, their percent of FCF (CFO-CFI) paid out as dividends is:

The payout ratio increased after the Lundin acquisition.  Maybe they are transitioning from a growth company to a cash cow, or maybe its because of lower energy prices.  Their dividend policy is to payout 20-30% of CFO.  Negligible share buybacks.

Lundin Acquisition

They acquired Lundin Petroleum's NCS assets (excluding renewables), in a deal announced Dec 2021 and completed June 2022.

Debt increased 60%, shares outstanding 75%:

Production and reserves doubled:

Source: Acker BP 2022 Q4 presentation (p9)

With hindsight, the acquisition may have been timed wrong: 2Q22 was the peak of the energy market.  But there are a only a handful of listed players on the NCS so opportunities like this are infrequent.  They did not stretch themselves financially.

Balance sheet

Debt is a bit high, but all fixed and long drawn out.  I think we are at the peak of the interest rate cycle anyway.  93% of their debt is fixed-rate long term bonds:

                                                        Source: Company Website

The 6% bonds were issued June 2023, so their interest payments will have been included in the current quarter.  Total interest expense this quarter was 41m, easily covered by 300-500m quarterly profits.

Future growth

Production is expected to decline from 2023 to 2026, before picking up with new projects in 2027/28.

Source: Q3 2023 Presentation (p11)

"Between now and 2028, this will require the investments of approximately $20 billion pre-tax, corresponding to around $3 billion after-tax. This CapEx estimate has remained unchanged since we submitted the PDOs to the Norwegian authorities approximately a year ago" (p4)


Their climate transition plan is less ambitious (more realistic) than Equinor's:

By 2030:
  • Reduce scope 1 (energy consumed on rigs and spills/flares) and scope 2 (energy purchased) emissions by 50%
  • Net zero (scope 1 and scope 2) emissions.  Offset emissions by carbon capture.
By 2050:
  • Reduce scope 1 and scope  2 emissions to zero.  By electrification: using renewable energy produced onshore to power rigs.
They are not making investments in "renewables" (outside of their own use).


TTM EPS is USD 2.04 (which contains $1/share impairments in 4Q22).  At a price of NOK 300, the PE is 14.3 (counting impairments) or 9.5 (not counting impairments).


  • They Hedge commodity and currency exposures.  They hedge energy by buying Brent puts.  They may hedge up to 100% of next 12 months anticipated oil production, up to 75% for the subsequent 6 months, and up to 50% for the subsequent 6 months.  I could not find the amount of oil hedged (Only the current P&L of the hedges).
  • Presentations/reports are not as well-presented as Equinors.  But I thought relevant numbers were easier to find.


The numbers and business plans look good.  Similar to Equinor but without the ESG risk.  Short term I bearish energy, but I think it'll be worth buying sometime.

Thursday, November 30, 2023

Equinor Update

Update and Review of Equinor.  I may buy some more energy producers in a few months if we get a downturn.  Here I look at their latest numbers and their ESG plans.


Equinor is primarily an Norwegian energy play, with 90% of 2022 Net Operating Income from E&P, and three quarters of that from Norway.  

How much is oil vs gas?  In dollar terms, usually more oil, but it varies with prices.  In the first 9 of months 2023, they sold more oil than gas, but in the same period of the previous year, more gas than oil (page 29).  Due to the massive spike in European gas prices in 3Q2022:


They've been printing money in the past 2 years due to high oil/gas prices.  2022 was a bumper year, 2021 more normal:

Quarterly cash-inflows vs cash-outflows:


  • Quarterly CFO does not correlate with oil/gas prices, because taxes (payable) seem to be accumulated in Q1 and paid out in other quarters.
  • Since quarterly data is noisy, calculate the payout ratio (CFO divided by dividends plus buybacks) for each calendar year: in 2021 it was 35%, 2022 was 48%, YTD 2023 is 94%.  In 2022, they spend almost all their generated cash on dividends/buybacks.

Balance Sheet and Capital Allocation

They've paid off their debt in 2021, accumulated cash in 2022, and have been returning capital in 2023:

But not all their cash and financial investments can be counted:
  • Their 28bn financial investments "mainly relate to investment portfolios held by Equinor’s captive insurance company and other listed and non-listed equities held for longterm strategic purposes" (p177).  We don't know how much is required for insurance.  2020's annual report says the same thing for 12bn of financial investments.  I'll take a wild guess that 12bn is required for insurance, leaving 16bn as long term investments.
  • For their 15bn cash, 6bn is required for hedging (p179).  Lets deduct another 2bn in case oil volatility increases. Leaving us with 8bn excess cash.
  • With debt of 25bn, net debt would be ~ 1bn.
Long term liabilities are 13bn provisions, mostly asset (rig) retirements.  Plus 3bn pensions.

There is no fixed policies for dividends or buybacks - appropriate for a cyclical industry.

The company previously mentioned they would like to return to a 10-15% leverage ratio (p10) - they count all cash and financial investments in this ratio - so that would entail a massive capital distribution.  I'm skeptical about this in today's world: any leverage is too much when you have 5% interest rates and a product whose price can go negative when people catch a cold.

Their main form of capital distribution is dividends.  Not tax efficient, but better than stupid acquisitions.  Overall I think their capital allocation is quite good.


They had 7 years remaining based on 2022 production.  The reserve replacement ratio has averaged 62% in the past 3 years.  Meaning replacement was below production.

Reserves in Norway have remained steady over the past 3 years (p7).

By boe, over half of the reserves are gas:

Business and Political Risks

Very few risks, which makes it a rarity for an energy producer:
  • Norway is a developed, democratic country with rule of law.  Most resource rich countries are shitholes (eg: DRC, Saudi Arabia) or simply poor & corrupt (eg: Indonesia).
  • Seabourne oil can be shipped anywhere.  The production areas and outbound shipping lanes are not in a potential war zone, like the Persian Gulf.
  • Norway's oil tax is 78%, though investments can be deducted over a few years.  This high rate is already priced in, and is actually an advantage, because: 1) Its safe and predictable, they have not changed it eg: like the UK did, and 2) the government is already getting 78% of profits, they're unlikely to take shares away from minority shareholders.
  • Norway is an net energy exporter, so they are unlikely to put a windfall tax on energy producers or restrict energy exports.
  • Offshore oil has low decline rates, unlike American shale.
  • Norway's oil is less carbon intensive to produce compared to Canadian oil sands.


Getting a reasonable valuation for energy companies is hard because energy prices have been so volatile.  Lets base it on 2021 and 9M2023 results.  2022 was too much of an exceptional year.

"Cash generated" is CFO minus "capex and investments".

Based on the current stock price of USD 32, the PE would be 8 or 12.  Reasonable, but not dirt cheap,

ESG Risk 

Equinor has an Energy Transition Plan, which I think is the biggest risk to its business:

The first item (reducing carbon use when producing oil) and third item (CO2 storage) are OK.  The second one (spending lots of money on renewable production) worries me:

  • Equinor aims to direct "30 of gross capex to renewables and low carbon solutions by 2025" and " more than 50% of our annual gross investments in 2030 towards renewables and low-carbon solutions" (p21).  It was 14% in 2022 and 11% in 2021:
  • They had to write down their US wind power projects this quarter.  Their UK wind farms are OK because prices are inflation adjusted.
  • In negotiations, they said they "would like to see 4% to 8% real unlevered return from our businesses in -- within renewables" (p12)
Lets do some numbers.  Based on 2021 and 2022 capex:
  • 2021 capex was 8bn, 2022 was 8.7bn.  Of that, 0.9bn and 1.2bn was spent on renewables and low-carbon (11% and 14% respectively).  
  • To bring it up to 30%, we need to spend an additional ~2.3bn by 2025.  To bring it up to 50%, we need to spend an additional 5.3bn by 2030.  They don't need to just bring it up to 50% of current 8bn capex, they need to bring it up to 50% of new ~12bn capex....after they spend more for renewables.
  • These additional sum could make low returns (4-8% real returns) in a much more risky investment.  Essentially we can see FCF (and therefore dividends/buybacks) reduced by this amount.
  • Based on 2021and annualised 9M2022 estimates, the 2030 aim would reduce the cash generated (CFO minus "capex and investments" by 15-17%).  It could wipe out their Net Operating Income (before tax)....though they could now claim back the new investments over several years at a 78% tax rate.


Everything looks good except for the ESG risk.  Time to explore other companies.

Saturday, November 11, 2023

Bought gold and bitcoin


Been building up my gold (AAAU) position, just reached my max of 10%.  I think the fed has stopped hiking, but I expect inflation to increase from 2+ to 3+ percent, while rates eventually go down (maybe in 2H24).

I'm expecting a decade of inflation.  And gold is also one of the few things that goes up if China invades Taiwan, so useful as a hedge against the unthinkable.


Hedgeye's Bitcoin trend turned bullish on 23rd Oct, but its been overbought, so hard to accumulate.  Managed to get a 4% position, would go up to 5% (at my buy price).  Thats a very high allocation for such a volatile asset - if it was volatility adjusted vs gold, it would be 1 or 2%.  But I believe bitcoin won't go to zero.

I am a bit uneasy holding a volatile risk-on asset heading into a market correction and recession.  But its been years through the crypto winter and the start of a recovery, so I obey the signal and buy on the trend breakout.  Lets see if Bitcoin stops correlating with the Nasdaq.


Still think we're in a bear market heading into a recession.

When would I cover my short positions?  When everyone knows we are in a recession. A Time magazine cover saying “World in Recession” would be useful.  I'd also cover if they drop too much (bear markets don't last forever), or when Hedgeye's trend changes (means I've overstayed my welcome).

2024 is an election year, expect 2H to recover coming out of the recession.  Learn to love inflation.


Energy recently turned bearish in Hedgeye's trend, so I expect it to get worse and may buy more Equinor and CNQ in a few months.  Not now.

My Positions

Wednesday, October 4, 2023

Sold VET and WHC

Exited these trading positions, because VIX is approaching 20.  The market could start cascading down as VIX approaches the 30s.

For VET:

  • OVX is in the mid 30s.
  • Oil is weakening in Hedgeye's trend signal (but still bullish).
  • VET's chart has a big high-volume-red-candle on Tues night.  Normally one red candle won't make me sell, but combine it with the other stuff.

For WHC, its a harder decision, the chart looks OK - it may keep going up:

I am probably leaving some money on the table here.  A short term trader would probably buy it today and sell a few days later.  Especially as VIX enters the 20s into a choppy market.  But I still decided to sell now since I'm free today, and may not be able to trade later.

Small profit on both trades.

Saturday, September 30, 2023

My Positions

Still think we're in a market correction heading into a recession.


  • SPY put options are now mostly in the green, but still have a lot of upside - still holding 'em.
  • Decrease my VET holdings a bit when WTI was overbought and VIX rises into the high teens.  Energy equities can get pounded by the wider market even if energy keeps rising.  I'll keep my lower-beta, cash generating, "blue chip" stocks (Woodside, Equinor, CNQ).  WHC's price action has been strong, so I haven't trimmed it.
  • Use the last-2-day rally for the month-end-markup to add more shorts: Regional Banks (KRE), Poland (EPOL), Airlines (JETS) and Tech (XLK)
  • Uranium's (SPUT's) price rise has increased it to 5% of my portfolio.
  • Longer term, its time to start writing a shopping list.  I think it'll be a shallow recession like 2001, not a crisis like 2008.  2024 is an election year, expect the government to drop rates and pump like crazy once the recession starts.
  • But there's no rush to buy.  I can get 4.8% on USD in Interactive brokers and 5.2% in Tbills.  "There is an alternative".

Wednesday, September 6, 2023

My Positions

For investments:

  • Increased TRP to my max of 5%.
For trades:
  • Sold off a lot of gold last week.  Expect higher inflation this month, real rates fall, gold rises.  May get a chance to buy it back cheaper.
  • Copper is not bearish anymore.  Cover my small COPX position.  Was a mistake to hold so long (often against the trend) from middle of last year.
  • Silver bullish again, bought a 0.5% position, may go to 1%.  
Update: 18/Sep/23:
  • Cut Silver, it broke down
  • Took a 1.5% position in WHC, Aussie coal.  Expect price spikes if this winter is cold.  Would go up to 3%.

Update: 27/Sep/23: In the last 2 weeks I:
  • Cut XLF.
  • Took another 1.5% position in WHC.

Update: 28/Sep/23:
  • Take profit on some VET, sell 1%.  Bring down my trading pisition adn VIX nears the 20s.

Sunday, August 27, 2023

Notes on TC Energy (TRP:TSX)

I love gas pipelines, like Buffet's toll roads.  This company owns pipeline throughout North America.  The stock has fallen due to crappy management, and is below its 2020 price.  Its got world class assets, and I don't think bad management can destroy it no matter how hard they try.  Lets take a look.

Segmental Breakdown and Pipeline Details

From their 2022 AR.  "EBIDTA" below means "2022 Comparable EBIDTA".

The business is transporting gas over a continent, so we gotta look at a map to understand it:

US Gas Pipelines (41% EBIDTA):
  • Columbia Gas (6): Transports gas from the Marcellus to markets and pipeline interconnects throughout the U.S. Northeast, Midwest and Atlantic regions.
  • ANR (7): Transports natural gas from various supply basins to markets throughout the U.S. Midwest and U.S. Gulf Coast.

Canadian Gas Pipelines (28% EBIDTA):

  • NGTL (1): gathering and processing from producers in the WSCB to the Canadian Mainline.
  • MainLine (2): Transports gas produced in East Canada to West Canada.  
  • Costal GasLink (26): Pipeline under construction to ship gas from WCSB to the west coast for LNG export.  Its construction has had bad cost overruns, but is now 91% complete.  Expects to be operational 4Q23.
Mexico Gas Pipelines (8% EBIDTA).

Liquids Pipelinse (14% EBIDTA):
  • Keystone (not shown above, see p62).  Transports crude oil from Canada to and through the US for refining, down through Oklahoma to the GOM.  Canada cannot refine most of its crude, which is exported by pipeline to the US (87% of total crude in 2020), and Keystone transports around 14% of that.  There were (costly) expansion plans (Keystone XL) approved by Trump which were cancelled by Biden.

Nature of Revenue and Pricing

Nearly 80% of their EBIDTA is regulated (p28):
  • Meaning that rates negotiated with customers have to be approved by government agencies (FERC - US, CER - Canada) to prevent price gouging. 
  • The Canadian Mainline (7% of EBIDTA) was built before US shale gas was discovered, and has since struggled to compete with cheap US gas coming from the Appalachian Basin (Marcellus).  It has no pricing power.  In this case prices drop - regulation doesn't matter.
So regulation does limit upside a bit, while not protecting downside.

I think the 2020's will be the decade of inflation.  Are TRP's revenues protected against this?

Some FERC rates are automatically-inflation adjusted.  Depending on the pipeline classification, rates are automatically adjusted every year, or inflation adjustments are written into the contract with the customer:

I could not google any information on wether the Canada Energy Regulator adjusts rates for inflation.  The company says NGTL "operates under the terms of the 2020-2024 Revenue Requirement Settlement which includes an ROE of 10.1 per cent on 40 per cent deemed common equity." (p178)  To me, this does not sound like it adjusts for inflation.

Here are some hints that it does take inflation into account:


I could not get any details.  Not sure if they will adjust the entire tariff by the inflation rate, or only the part reflecting increasing maintenance costs (while excluding build costs from the past).  This would be a small adjustment as maintainence costs are low for gas pipelines.

So for inflation protection:
  • US pipelines adjust for inflation.  Yearly if its a "non-compeditive" pipeline.  For "compeditive" pipelines, its based on the contract, so will depend on if you have pricing power.
  • Not sure if/how Canadian pipeline tariffs adjust for inflation (?)
  • If an area has too many pipelines and not enough demand, prices will go down, regulation and inflation adjustments don't matter.


Dividends are lower than CFO, but CFI is very high due to capex on new projects.  CFI plus dividends has exceeded CFO in many years:

Projected capex is below.  Maintenance capex (part of CFI) is approximately ~2bn per year.  I've annotated for their later Costal GasLink blowout:

So its not until 2026 that they'll start paying down debt.


At end 2022, debt was 51bn: 41bn in loans or notes, plus 10bn in  Junior Subordinated Debt.  Thats unsustainable, at 8X 2022 CFO, or 12X 2022 FCF.  CFO should grow (probably another 3bn in the next 5 years) as the new projects come online, so that makes it a bit better.

Debt maturity (I have not broken it down into USD/CAD debt):

What is the effect of rising rates on their debt?  I went through years of annual reports - they did not make it easy - to consolidate their debt issuance.  They have:
  • 30bn fixed rate debt
  • 8bn floating rate
  • 3bn unknown
  • 10bn Junior Subordinated debt. (p195).  These are fixed rate for the first ten years,before converting to floating rate.
If all debt due by end-2027 is refinanced at 9% (The 20 year risk free Canadian rate is ~3.7%, the US one is 4.5%.  I'm using a high rate for high debt and shitty management)...then their 2022 results would have ben lower by 900m, a 20% reduction in FCF.  The same stress test for WMB and KMI give 10% and 7% reductions respectively.

The key thing for this company is no more cost blowouts till 2025, then being able to pay down debt after that.


  • Canada's carbon tax is $20/ton today, but due to increase to $170 by 2030.
  • The company has a history of operational problems: Milepost 14, Keystone pipeline leaks, Columbia gas line pressure drop. Concerned it may be a cultural issue.
  • To much debt, especially when the Junior Subordinated debt converts.
  • They may move into ESG and renewables, which have lower returns.


At CAD 48, its trading at a 7.75% yield.  Thats paying out 75% of their 2022 FCF.

New projects coming online should increase CFO by half in 3-5 years, but they need to pay down debt.


I don't know the withholding tax rate.  Interactive Brokers usually charges me 15% for Canadian stocks, but TRP has significant operations in the US, so it may be higher.

Edit: Nov 2023: Confirmed my witholding tax is 15%

The stock plunged three weeks ago on news of the Keystone spinoff, then recovered.  It looks like capitulation, so that may be the turning point.

I have bought a 2.5% position, and would go up to 5%.  My max size for this is half that of WMB or KMI, who have less operational and financial risk.


Wednesday, August 9, 2023

My Positions

 Haven't changed much.

  • Rising oil has pushed the portfolio value up a few percent in the past week.
  • 2 nights ago, added shorts for XLI, XLRE and XRT.  Added -7% to my short positions.  Now at max, cannot add more to these positions.
  • Also bought more SPY puts, this is the last time I buy them.
I think this is the turning point, and the market corrects in August.

I am looking to:

  • Remove my 1.5% SLV position, as silver isn't performing.

Edit: 15-aug: Sold silver at a loss, moving on.

Saturday, July 29, 2023

Bought Vermillion Energy (VET)

Hedgeye's oil price Risk Range went to bullish trend on the 17th July after being bearish for a year.

Looking for something to trade, I came across Vermillion Energy:

  • Half its 1Q22 revenue is from oil (2/3rds of that from Canada, 1/3rd from Europe), and half from gas (70% of this half is priced in AECO (Canada), 30% from Europe.  in Q2, we expect 40% from Europe).
  • Leverage on the high side, they are concentrating on reducing it.  Mostly fixed rate.  Negligible dividend.  Some buybacks.
  • 2P reserves of 14 years, not great.  Read somewhere there are some questions about how they depreciate their reserves.  No breakdown by oil and gas.
  • Its a high beta stock: it dropped 60% from the peak last July's peak to the trough.  Could be due to Canada's oil and gas pricing varying more than WTI (due to lack of transportation from Canada) and the wild variations in European gas pricing.
  • 1Q22 Annualised EPS is $8, trading at CAD 18, thats less than 3X a year's earnings.  Not a lot has to go right.
  • European Windfall taxes end in Dec 2023....if they are not renewed.  Pro forma, removal of the windfall tax would have added another 5% to their 1Q22 earnings.
Its a trade - not a Buffet-like stock to pass to your grandkids.  Hopefully the trend lasts a few months or quarters.  I'll sell it when Hedgeye's oil trend changes.  Would not hold a stock this volatile thru a downturn.

Bought a 1% position last night @ USD 13.25, after the stock dipped for 4 days.  I would go up to 3%.  The problem is it rarely dips enough to take a big position.

My positions haven't changed much:
  • The portfolio is quite oily, and has started to go up with oil.
  • Removed some shorts that changed to bullish trend.
  • Added some long term index puts.
  • Have VET and Silver in an "Inflation Trades" basket.  2% total.

Update 6th Aug 2023:
  • Increased VET position to 2.5%.  It wont go down enough to buy a big position.
  • Silver position increased to 1.5%.
  • SPX looking bearish, may buy more puts (June 24) if we get a bounce next week.  If things work out this could be my last chance to buy.

Update: 8th Aug 2023 morning: Increased VET to 3% last night.  Last night's rebound was weak.  SPX is no longer oversold, AAPL has broken down and VIX has broken out.  Look to press shorts, probably tonight.

Saturday, July 1, 2023

My Positions

 Small changes:

  • Increased 1% in SPUT
  • Increase my shorts in XLI
  • Started a small short in XLE
  • Bought more SPY puts on Friday, expiring January.
I think this bear market rally ends in the second half of this year.

Friday, June 16, 2023

Rare Earths: Lynas

Theres 2 non-China REE producers in the world.

  • MP Materials is expanding their production, so I can't value them.  No point looking at them now.
  • Lynas is more interesting, but not cheap.
Here I look at Lynas


Lynas mines REE ores from its Australian Mt Weld mine and ships the concentrates to its separation plant in Pahang, Malaysia.  From there, Rare Earth Oxides are shipped for sale.  Lynas is the largest supplier of NdPr to Japan, who is a partner (through JARE) with priority rights to the material (p87).

Lynas' Malaysian separation facilities have been controversial from the start:

  • They were awarded by the previous BN government which ruled Malaysia since the 50's, despite strong opposition.  
  • The opposition PH campaigned to close the plant in 2018, but after they won they allowed it to continue, upsetting their electorate.
  • Energy, Science, Technology, Environment and Climate Change Minister Yeo Bee Yin, a staunch Lynas critic, had initially insisted the Australian firm repatriate its waste (slightly radioactive waste from Lanthanum).
  • In early 2019, Lynas announced they would move Lanthanum processing to Australia, building a new site in Kalgoorlie.  In late 2019, the Malaysian Prime Minister announced they can build a permanent disposal facility for their existing waste, instead of having to repatriate it.  
  • In February 2023, PH announced the plant needs to be radioactive free by July.  Later extended to 1st Jan 2024.  After this, no more radioactive waste will be produced.  Hopefully this puts the matter to rest.
  • The license is due to be renewed on March 3, 2026.
Does Lynas sell at market price?  While they mention that they promote "fixed pricing" and "long term contracts" to some customers (p21), their historical ASP varies:

It correlates with the Nd historical price (note that their Financial Year ends 30th June):

So they seem to be selling at market price.  Remember that their ASP is for a "basket" of REs (with Lanthanum & Cerium extracted first) - they do not break them down individually.

Profitability, Production Volume and Cashflows:

Lynas' COGS doesn't vary much year-to-year, so revenue (based on REO prices) is the biggest factor determining their profitability:

Operating expenses (G&A and forex) vary randomly, while financial expenses have dropped as debt was lowered:

But these are both too small to affect profit much.  The end result is wildly fluctuating profits, following REO prices (the first graph above), with monster profits in FY2022:

Production output has varied:

They aim to increase production to 12,000t NdPr by end 2024 with their Mt Weld Expansion project.

CFO has always been greater than profit, except in FY2022.  The company does not reconcile cashflows with profits, but in most years, depreciation (eg: on p72) is enough (or more than enough) to account for the difference.  CFI is lower than CFO for the past 7 years:

In summary: everything depends on REO prices.

Balance sheet

As of June 2022, balance sheet has AUD 900m net cash.  There is 1.2bn total capex expected in FY2023 and FY2024 combined, for the Mount Weld Expansion and the Karlgoorlie Lanthanum separation facility. 

The company has a history of issuing new shares:

Given this, lets look at their EPS, rather than their PAT (2 charts above):

Seems OK.  I don't like companies issuing equity, but for a highly cyclical mining company, its safer than taking on debt.


They increased their reserves by 60% in 2018, and have since been mining them down:

As of June 2022, they have 72 years production left, at FY2022 levels.  If they increase NdPr to 12,000 tonnes/year, assuming a proportional increase in REOs, that gives 33 years of production.  The REO's given in the reserves here are for all REEs, not just the valuable ones.

Trying to guess the percentage of NdPr based on their production figures:


Hard to value a commodity company, as you need a price for the underlying commodity.

Back of the envelope calculation:

  • I expect demand to rise for REEs due to EVs and windmills, but the FY2022 price rise was too large.  I'll take the FY2021 price to be a 'normal' price.    
  • That gave us an EPS of AUD 18c, from production of 5461 tonnes of NdPr.
  • Assume they reach 10,000 tonnes NdPr in 2024 (vs their 12,000 tonnes target).
  • Gives an EPS of 33c.
  • At AUD 8 per share, its a PE of 24.  

Still too expensive for me.


Good company, but highly cyclical.  Dependent on REE prices, that are controlled by China.  May be some remaining political risk in Malaysia.  If China attacks Taiwan, this will be one of the few stocks that goes up.

My Positions: covered Tech shorts

Covered my tech shorts at a loss.  It was a mistake to hold onto SMH and XLK for so long with the AI bubble, they turned bullish weeks ago, should have cut then.

Still expect a downturn, but the bubble can go higher for a few weeks/months first.  Plan to buy some more puts next month, then add more shorts heading into August.

Plan to slowly add more short positions, before the next downturn.  And wait for the downturn to add some longer term investments.  Right now I'm doing nothing.

Monday, June 12, 2023

Bought Puts

I still think we're headed for a recession, now the debt ceiling is resolved the Fed's Net Liquidity should fall as they refill the TGA.  With the VIX at 3 year lows, and SPX concentrated on a record few number of stocks, I bought 4 SPY puts (strike 410 15thDec23) at 10.08.  Its 0.5% of my portfolio, with 4X upside if SPY drops 17% to its 2022 lows.  Aim to buy a few more puts next month, and the month after.  Aim is to buy at VIX 13 and sell in the 30s.

Why 6 months out?  The Fed's Net Liquidity probably takes longer to reduce than expected.  Probably pushed out till July/August.  The numbers below show the Fed's Net Liquidity every Wednesday: in the week after the debt ceiling resolution, the TGA increased but RRP decreased by almost triple that amount, so Fed Net Liquidity actually increased.

70% of options expire worthless.  And I was expecting a bear market 6 months ago.  So maybe I'm just burning money.  But the risk/reward is worthwhile.  Everything takes longer than we expect.