HF&G - JUNE 2022 - E S G

Energy Stops Growing (h/t H Kupperman) is the name of the game. Do you own enough commodities?

The first six months of 2022 are now behind us and we can safely say it was a wild ride on most financial markets. US markets are down anywhere between 15-30% and the same goes for EU markets. Asia has held up better with remarkable stability coming from markets such as Indonesia.

The obvious play in the first half was anything commodity-related… until late May. The month of June brought a battering of commodity stocks. While oil only went from a high of 120 USD to about 110 USD during the month oil equities started to trade as if much steeper declines in the underlying commodity were upon us. Oil equities are trading as if a recession is imminent. This might be the case but let’s not forget even without the entire Russia/Ukraine conflict energy markets were very tight after almost a decade of underinvesting and ESG mandates. In late June the CEO of Shell repeated this warning saying OPEC was tapped out and could not increase production even if it wanted to. He also said it would be impossible to replace Russian gas with LNG by the winter of 2022/2023.

ESG = Environmental, Social and Governance but we think Harris Kupperman’s version of it is more accurate:

ESG = Energy Stops Growing.

Our portfolio has included uranium, oil, and coal equities for over two years. HF&G thinks there is much more to play for as investors are massively under-positioned in these “dirty” energy names. The wake-up call that wind and solar are not going to save us will become very evident in the long European winter of 2022.

Is it a conspiracy theory to believe that Gerard Schroder (massively enriched himself thanks to Putin and on board of multiple Russian companies) and Angela Merkel (communist parents and upbringing, personal friend of Putin during Cold War, and fluent Russian speaker) were both KGB operatives who sold Germany out to Putin at whatever cost and made the economically most important country of Europe dependent on Russia as its dominant energy supplier? Meanwhile, it was proven by EU investigations that Gazprom sponsored teenage village idiots like Greta Thunberg to garner sympathy with her unrealistic “Stop Fossil Fuels Now” marches across Europe. Even worse Gazprom has been found to influence political parties to abandon nuclear power. Less nuclear = more gas demand. Unfortunately, Germany and Belgium complied, and before having any backup power they decided to shut down their nuclear plants. Dominique Reynié (French Professor in Paris): "We found that Gazprom funded environmental NGOs that provided ministers to various governments, such as Belgium, which then advocated abandoning nuclear power".

The situation has gotten so absurd that in June the German minister Habeck (from the Green party) had to announce they will restart their coal plants! Holland and Austria quickly followed suit. All at the same time, the EU ministers continue to put out ridiculous dates such as “no more fossil fuel cars in EU by 2035”. Do they even know what this means? Unless there is some unbelievable and cost-effective breakthrough in battery storage in the coming decade, that will make EV cars run comparable to gasoline/diesel-powered cars, this is just looney tunes material. For most politicians, you can really promise voters whatever you want by 2035 and 2050 as you will either no longer be alive, or no longer in parliament and the media will have long forgotten the band of degenerates who have created this mess in the first place.

It is now clear that none of the “Climate Crisis” alarm signs should carry any weight. If it were really true Germany, Holland and Austria would not restart their coal plants. Remember, if we didn’t stop burning coal the world was going to end, right? Well, Germany has just told you “that was just a joke” we are going to restart our coal plants as our industrial power base (think BMW, Daimler, Siemens, Bayer, Lanxess, etc) will get crushed if we don’t. Since energy is critical to everything we do, and two decades of moronic policies cannot be reversed overnight expect the chances of radical parties coming to power in Germany at the next elections have just gone up tremendously. The energy situation in Germany, and much of Europe, is critical and completely downplayed by major media who continue to peddle long-discredited climate hysteria as our number one cause of concern. We had similar hysteria in the past about global cooling. It is just that people forget.

PORTFOLIO REVIEW

Last month HF&G told you about a coal miner in Mongolia that looks particularly attractive. Just like we did with Rex over the past two years we will be recommending 975.HK again this month. The investment case is just too compelling and we strongly believe the stock triples from here. Mongolia  Mining trades at 2.3 HKD and our price target is 10 HKD. Why? Mongolian coal is replacing seaborne coal going into China and it seems as if market participants are asleep at the wheel. HF&G is tracking daily truck data coming across the Mongolian/China border and it’s shooting up like a SpaceX rocket. In January about 100 trucks were passing the border every day and in late June this was almost 480 trucks/day. HF&G does not know exactly when the management will update the market but we suspect by August latest. You buy ahead of this inevitable announcement. If you can buy bonds the Mongolia Mining bonds are trading at 40 to 50c on the dollar. By October it will become obvious bondholders are safe and the equity should see a dramatic re-rating from its current 300 million USD market cap closer to 1 billion USD.

That’s it for this month, enjoy the summer. As always we are on Twitter @GreedyHuat for sporadic commentary on stocks, ESG and… Angela Merkel.