Chen Lin has done a fabulous job of picking undervalued companies and watching their stock jump. He looks at a new strategy in a recent subscriber update.
Letter # 557 – May 19, 2011
Chen is Buying:
Special situation trade: Tungsten
Recently, I heard many extremely bullish news about Tungsten from China. In April, the government order to put strict quota on the “rare metals”. Tungsten is the first on the list. Since then, provincial governments started to crack down “illegal mining”. This is almost exact the replay of the rare earth. As the result, Tungsten price exploded recently. Attached is the price chart. You can see Tungsten price stayed around $250/MTU most of last year, now it is approaching $500/MTU recently while other commodities in correction.
https://www.northamericantungsten.com/i/pdf/TungstenPricing.pdf
https://www.metal-pages.com/metalprices/tungsten/
Worldwide Tungsten production is highly concentrated in China, over 80%. I believe China is going to do exactly what happened in rare earth. Remember some rare earth price jumped 20 folds while Tungsten “only” doubled so far. I won’t be surprised to see Tungsten price double triple quadruple even from today’s sky high price. It really up to the Chinese government, it can go as high as China wants.
https://www.indexmundi.com/en/commodities/minerals/tungsten/tungsten_t15.html
This is the recent rare earth price sent by one of my subscribers. You can see how explosive the price can be. I believe Tungsten will likely follow its path.
https://www.lynascorp.com/page.asp?category_id=1&page_id=25
I believe this creates a great opportunity to load up Tungsten stocks. I did some detailed research recently, and only found two public Tungsten stocks. Malaga, Inc. (MLG.to) and North American Tungsten Corporation, Ltd. (NTC.v).
Personally I like MLG a lot better. It is a producer in Peru. The mine has been ramping up and producing in the past 5 years. The management is the same team as DNG.to. They are known to have excellent execution and minimize shareholder dilution. Dynacor Gold Mines (DNG) is a fine pick by my partner Jay Taylor. Since his recommendation, the stock almost 10 folded at one point. I only hope MLG to be the next “DNG”. I had a meeting with MLG management recently and was very impressed with what I heard. They are profitable last year at 250 Tungsten. Now they are minting money at 450+. Estimate cashflow about 20 million/year at 450 Tungsten. They are currently only trading at 2x cashflow with huge leverage to rising Tungsten price. Going forward, they are planning to use the cashflow to explore the area and expand the production to much higher level. Recently the stock was hit hard due to general market conditions, but it creates a good buying opportunity I believe.
NTC is starting its new mine in Canada. Recently raise a lot of money at 50c, but stock dropped 30c this week. 30c area seems to be a strong support of the company. I feel the company has high leverage to Tungsten price. Even it needs to put a lot of work to reach cashflow positive, it can become very hot if people start to rush into Tungsten.
In general Tungsten is a very small market with only two small cap available. If the price continues to explode, a lot of hot money will likely to find their ways into Tungsten stocks. I feel it is a special situation just like pulp last year and start to buy both stocks mentioned above. I have been buying MLG this week at 20-22c range while loading up NTC at around 31c.
I put the letter in after the market is closed because I want everyone to have a chance to study the situation before jump in these small cap stocks.
Regards, Chen