Musings on Investing

India: Demonetization Fiasco

First Point Minerals (FPX)

A chronic depression has set inside India.

Households are avoiding any purchase they can avoid. Companies are avoiding any investment they can avoid. Poor people have reduced even food purchases. Small businesses are unable to pay salaries and cannot sell what they produce, for people are putting off any unnecessary purchases. Poor people are getting laid off. They then cannot buy food. A vicious cycle has set in.

There are long lineups outside banks and banks are rationing cash.

Not only higher-order problems are continuing and will continue to emerge, but even the first-order problem continues to feed the vicious cycle.

I have traveled within India, but there is no way for me to get a balanced understanding. There is virtually no reporting in the mainstream media about this crazy demonetization exercise. I am left with my anecdotal experiences, assimilating what others tell me, and then applying first principles.

In my view, India will face a very tough time in 2017.

Statistically 4-5 million people die unnecessarily every year in India, because of exceptional poverty, bad hygiene, etc. If this goes up by a few million, would anyone notice? I doubt it.

Linked is my latest article on India.

Now, about investments…

Most people I talk with want to invest in gold equities. I always find this amusing. When you invest in the market you invest to make money. Whether the company I invest in produces gold or nickel makes no difference. If you really like gold, you should invest in the metal.

First Point Minerals (FPX; $0.10) has a Nickel project in Canada. The company has done a lot of work on the project. Their yearly burn rate is a mere $750,000, giving them a possibility to sit on their project until Ni price improves. Of course FPX is an optionality play, on Nickel.

FPX has just closed a financing. I told several people about it. They asked me if the company would offer warrants. I dislike warrants. When a company offers warrants it harms its current shareholders for the benefit of outsiders. I don’t like this approach. Moreover, how often do you actually make money from warrants?

Others who I told about FPX expressed worry that their project might not go into production for many years. Again, I am not bothered. What matters is the discounted or optionality value in relationship to the share price. If my share price goes up, does it really matter to me if the project goes into production five years from now or ten years from now?

People’s dislike for Nickel and disinterest in participating in financing without the warrant makes FPX an unappreciated company, a contrarian play for me.

I like Martin Turenne, CEO. FPX has just closed its financing at $0.10, the price I am happy to pick more up at. There is of course no hurry for most people are ignoring Nickel equities.

Warm regards,

Jayant Bhandari



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