Mid-Tier Mining House, page-240

A rising cobalt price floats all boats, even rubber dinghies.

I mean, sure, if you are a trader & new to cobalt stocks & are looking to take advantage of a rising cobalt price, you may wish to look at the rubbish stocks with low MCs. A quick entry & exit for a few pips. The trader's way. But, if you are an investor, with a large position & serious conviction such as myself, & are looking for 10+ bags, you will realise that it is pointless to compare the daily SP movements of a stock such as JRV with a rubber dinghy at the other end of the market.

It is very easy to look at JRV with a $400m MC & no balance sheet and think “This company is overvalued. I am not touching it. Better value with the rubbish ones”. On traditional valuation metrics, yep - it is. Saying that, JRV are building a real business & will be creating CF next year. And that will drive their SP moving forwards.

What happens with all those other plays? What happens when it dawns on someone that the “Man, this looks cheap. It is massively undervalued” is replaced with the reality of “This company need pre-production capex of A$560m to get their project up”. One then does some further research into financing & the penny drops “Pipe dream project”. And the SP drifts back, as it stumbles (like the majority of other projects) at the major finance hurdle. If trading it, not a problem. If seriously invested, you would have to ask yourself where you really thought the project was gunna end up.

Meanwhile, the mob that was thought of as expensive has secured finance, has transitioned into a producer & is pumping out CF. The register becomes more institutionalised, as the company has been significantly derisked. And that 50c becomes $2.50. Additional projects are acquired using CF & all of a sudden, the 400m MC company has morphed into a mid-tier miner with a multibillion dollar MC.

Granted, mining is capital intensive & driven by commodity prices, along with the vagaries of the broader market. Nothing is certain. But, looking at the probabilities of paths here. One company has a higher chance of getting up than the other. The differences in MC are telling us that. So, while peeps complain about pip differentials, I think about how many more bags I will make by being invested in JRV rather than a rubber dinghy that enjoyed 28% more SP in the period mentioned by the OP. Each to their own, though. And yes, I also believe our time will come. All the best to you.