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My Highest Conviction Pick and Other Links

July 16th, 2011

8 Comments

Written by

Jae Jun

Dacha Capital: A Discussion With Patrick Wong

My highest conviction pick of the year. Dacha Capital, a rare earth holding company. This interview goes over Dacha’s unique business model and approach.

Groupon: Comedy or Drama?

Who does Groupon think they are fooling with their horrible financials?

Wild Things

Many people have profited and lost money by investing in commodities but what makes you think you can profit from the decade long commodity boom?

Gary Shilling’s Seven Faces Of Deflation

Gary Shilling puts forward his argument that deflation is already here.

Adrian Day’s Portfolio Review Q2 2011

I posted this up on Facebook and Google+ but if you missed it, Adrian Day is fast becoming my favorite portfolio manager. The guy has vast experience and knowledge in the commodities sector and I like his international picks.

Commentary on The Oakmark Funds

David Herro of Oakmark Funds offers his opinion on Greece.

Einhorn Greenlight Capital Letter Q2 2011

David Einhorn’s letter to shareholders. Talks about the economy, his buys and sells.

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8 Comments

  1. - Michael Johnson

    Apart from losing lots of money, how does one get to the point where rare earth holding companies are within one’s circle of competence?

  2. - Jae Jun

    @ Michael,
    It’s like everything else, you read and study the topic and make it within your circle of competence or it just hits you and you know it’s within your circle.

  3. - Ted K

    Frankly I’m not impressed at all. What exactly is there to reassure us that Dacha will not repeatedly, at times the higher ups deem appropriate, issue new shares again and again and again repeatedly to dilute the value of the shareholders who jumped in to give them their early investment equity??? I see a high probability of exactly such behavior occurring in the future. And then PRETENDING they are doing shareholders a favor because it’s being used for “Investment” when in REALITY it waters down the equity of the shares.

    Plus you have the ever popular “Stock Option Plan”. The ever popular goodies basket for management and management friends to dig into for sweets even when they have shown little productivity. This includes options and warrants.

    Also it seems like many transactions are not at appropriate “arms length” distance. And here I quote from the 2010 annual report of Dacha’s site:

    “(1) legal and tax services provided by Lavery, de Billy of which a director of the Company is a partner;
    (2) Professional fees paid to a private company controlled by the VP Finance and Secretary for bookkeeping and
    administrative services;
    (3) The Company shares its premises with another corporation whose director and officer is the VP Finance and Secretary of
    Dacha. The Company reimburses the other corporation for its proportional share of expenses.”

    Frankly, many things said in the interview relating to the Chinese bureaucrats’ control of exports, which will be a 100% crap game for anyone involved, was not reassuring. Once other players get involved watch the margins disappear. Good luck!!!

  4. - Derek

    You have me intrigued with DSM, Jae. I am placing it on my watch list.
    I hope to take an initial position under $1. It sure has enjoyed a nice run over the past three months.
    Best of luck.

  5. - Jae Jun

    Yes just remember to do the reading. The business model has changed so the old filings are meaningless. You have to read up on the latest info to get up to speed with its business model and the rare earth industry.

  6. - Jae Jun

    @Ted,
    While your arguments are legitimate, I urge to look at the corporate structure of any mining or pureplay commodity business. Dilution is the risk of EVERY metal commodity company and it is up to the investor to decipher how it will affect them. In my case, Dacha is a very small company but they do have some competent affiliate people on board. Their commitment to purchase back shares (they’ve bought back 1m so far at $1.02) and to cancel their public offering when they saw metal prices increasing, at least shows me that they are in it for themselves and for shareholders.

    Now regarding how directors are not 100% independent is something to keep an eye one, but if the services are fairly priced I don’t see what the issue is unless they are cooking the books. Sharing an office is the same. If I could open a business in my friends building at a good price and he is also my VP, I see no fault in that.

    The reason why I like Dacha is that the ONLY competitor is Molycorp and Lynas but they are several years away from production and recently Lynas has reported difficulties in their operations which sent the price down. Plus these two major companies are focused on light rare earth metals as opposed to heavy rare earth metals.

    The supply and demand issue is going to be in effect from 2011-2013 and until then, Dacha is in a strong position. Dacha is not a buy and forget company, no company is.

  7. - Jason

    1/31/12. Dacha is down to $.50. Any update on your valuation? Thanks.

  8. - Jae Jun

    No change in valuation. As they liquidate holdings, the value should go up. Q4 of last year was supposed to have seen an increase in Rare Earth activity, but the REE market stays flat. There is more activity going on now though. If a company like REE can shoot up, then DACHA is in an even better position due to its heavy rare earth holdings.

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