Nautilus Minerals – A $1 stock worth a look – update
Nautilus Minerals – NUS/NUSMF – Potential Investment
Originally published August 16, 2012 with updates to September 4, 2012
Opinion – Nautilus Minerals is a very speculative investment in a company exploring for minerals at the bottom of the ocean.
Result - Readers of the trading blog, could have averaged into Nautilus Minerals over several weeks as the stock traded in the $1.00-$1.20 range.
Unfortunately, a negatively spun news story sent the stock price into gyrations – as discipline investors, this erratic price movement and technical damage forced us to limit our exposure to Nautilus Minerals. We sold our position near break-even – so no harm done. In time, the company issued a press release clarifying the facts. We are watching from the sidelines – for now.
This company still remains one of our favorite speculative plays. We are patiently waiting the proper re-entry.
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Nautilus Minerals – NUS/NUSMF
A few months ago Nautilus Minerals appeared likely to become the first company to economically mine minerals from the ocean floor using underwater robotics. Water covers about 70% of the earth and millions of square miles. If Nautilus Minerals were successful, the opportunity would be enormous. We have been discussing our trades at www.RulingTheMarkets.com since June when unfortunately, Nautilus Minerals got tangled up in a contractual disagreement with the State of Papua New Guinea (PNG) and the stock got crushed – dropping from about $2.25 to 90c.
The disagreement is now in arbitration in Sydney, Australia, and the parties are hopefully working through their differences. Management has stated their intentions are to work with PNG and to resolve any issues outside of the courts amicably.
Bullish Case – for Nautilus Minerals
Nautilus Minerals has first-mover advantage in uncharted territory – mining minerals from the ocean. They have spent years planning and millions of dollars developing the technology necessary to economically mine gold, copper, zinc etc., from the ocean floor. The resource target is well documented and management believes the minerals exist in economically viable quantities. For example, they have determined Solwara 1, their main target, has grades of:
Indicated Mineral Resource: 1,030kt @ 7.2% Cu, 5.0 g/t Au, 23 g/t Ag, 0.4 % Zn
These grades are many times higher than an economically profitable mine on the land.
Nautilus Minerals also has titles granted and applications lodged that give the Company with rights to explore for minerals in offshore PNG, Tonga, Fiji, Vanuatu, the Solomon Islands, and the Clarion Clipperton zone in the “area beyond national jurisdiction” in the eastern Pacific Ocean. In addition, the company has lodged exploration or prospecting applications in the exclusive economic zone of New Zealand – opportunity for years to come.
Additionally, their major shareholders all participated in the most recent stock offering (discussed below). Participation by deep-pocket shareholders is a bullish sign of commitment to the viability of the technology and business concept. Big investors are usually “in-the-know” well before the public. Shareholders like MB Holdings, Metalloinvest and Anglo-American control substantial amount of the outstanding shares.
Cash Position – Nautilus Minerals
Nautilus Minerals has a substantial amount of cash. Given the potential lengthy negotiations with PNG the company may need further support from their long-term shareholders (or equity markets) to see through development of Solwara 1 – so the potential to further dilute shareholders exits. As of June 30, 2012 Nautilus had $87 million in cash and the private placement when finalized will raise another $34 million for a total of $121 million with no long-term debt.
Bearish Case – for Nautilus Minerals
Only one point to acknowledge, but it’s a big one. The PNG government disagreement – has the ability to have a material effect on the stock price. A potential extension of the development time-line may necessitate the need to raise more capital and dilute existing shareholders. Nautilus Minerals’ cash on the balance sheet could be a floor for the stock price given a less than favorable outcome.
How We Invest -
We teach buying stock in “tranches,” thereby limiting your exposure initially and giving the investor the ability to acquire more knowledge about a situation before fully committing their capital. This methodology protects against disaster and allows for substantial up side if your investment thesis is correct, because your first investment tranche takes place when the “blood is flowing on the street,” – as Wall Street likes to say.
We speak of “tranches” – For example if you wanted to acquire 1,000 shares of Nautilus Minerals, – we suggest acquiring the stock in tranches of 250 shares each, adding more shares only when new information confirms your investment thesis.
Charts – Nautilus Minerals
After you have reviewed the fundamental reasons for your investment we believe the next critical item relates to the timing of your investment and applies equally to long-term investments and short-term trades. Bad timing can decimate a good investment. Just look at how many people bought technology stocks in the bubble – Microsoft (MSFT), Cisco (CSCO) and Intel (INTC) just to name a few. All are dominators within their industry and great businesses. All had excellent business cases supporting the investments, but the timing for an investment was awful and as a result, many people took huge losses or are still sitting on unrealized losses eight years later. Timing is so important, and many investors don’t have a clue about it.
Conclusion – for Nautilus Minerals
Now is a good time to acquire a base position in Nautilus Minerals (1st tranche) if you haven’t done so already. The volume from Tuesday and Wednesday of this week signals that a near-term bottom has formed in the $1.00-$1.10 range. At RulingTheMarkets.com, having previously completed the purchase of our 1st tranche, we are looking to add a 2nd tranche under $1.40. After completing the 2nd purchase, our total exposure will be less than 50% of a full position. Upon the company confirming the finalized arbitration agreement with PNG, I will be looking to add even more.
It has been my experience that through utilizing a somewhat diversified portfolio of assets and overlapping fundamental analysis with technical analysis, that the “common” investor can outperform the markets. Stocks like Nautilus Minerals are worth having on your watch list.