FDR and Eisenhower’s alternate speechThat was an unintentionally ambiguous title, but I’m sure you all know I don’t mean the second President Roosevelt.
For 15 months I’ve been posting 98% exclusively positive commentary on our beloved Founders Metals. Today, we stand at an inflection point for our company. And possibly an inflection point for some of you with respect to deciding whether to increase FDR positions. So it is a good time to imagine things *not* going well at Buese. It reminds me of a similar historical moment.
The successful Allied liberation of occupied Europe during WWII would determine the post-war order. The Soviet Union’s power would be reduced, Hitler’s completely eliminated. But it didn’t look certain at the time. As D-Day approached, Eisenhower prepared two possible messages to be read to the press.
One contemplated total failure of the beach landings. In hindsight, Sun Tzu was right again, even though he was dead long before the Normandy campaign. Every battle is won or lost *before* it is fought. Given the totality of circumstances affecting the opposing armies, it is surprising Rommel even managed slow the Allies down as much as he did.
Buese is not exactly a make-or-break zone for FDR. It is merely the first of five or six still to be explored. And I am no Eisenhower. But as an exercise for any nervous Founders shareholders, this may be useful and instructive. What if all the Buese cores come back without any gold?
Buffett’s early mentor Ben Graham talked about a margin of safety in a new investment. Graham liked to find dollars selling for 80 cents and buy as many as he could. Hard not to make good returns with that as your guiding principle.
Is FDR selling for 80 cents on the dollar right now? Let’s do a simple check on the figures. Say we’ve got 2 million oz in Upper Antino. At CAD$130/oz, that gives us a $260 million market cap. Plug in 79 million shares fully diluted, with no bonus for warrant revenue, and that gives us a $3.29/share valuation. Friday’s closing price for FDR was $2.74, or 83% of this theoretical valuation.
“But wait”, some of you are probably thinking, “what about the tailings?” Yes, indeed. Factor in another million oz, to be conservative, and we’ve got a $4.94/share valuation. Before adjusting those million ounces' value for the lower-than-normal extraction/processing costs (and therefore higher profits) such tailings would have. A dollar selling for 83 cents? More like 55 cents. Or much lower.
Which means any sell-off on disappointing Buese news should be met with ample buying pressure.
Graham would have approved, and Buffett ought to approve. Even Eisenhower, Rommel and Sun Tzu would take the plunge, if they are trading stocks in Valhalla. Granted those last three were all risk-takers, but so too were Buffett and Graham, in their own way.
And so too are we, happy warriors all. Enjoy the coming week, everyone.