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A Rare Opportunity to Own Loss Making Stocks (Part 1)

6 September 2007 - Features - Editor

A shared secret of some of the world’s most successful investors is to buy stocks when they current prices are significantly below intrinsic values. Purchasing stocks of a company, which has never achieved profits, may seem to be an extreme form of such investing behavior, but it can be rational and valid in some circumstances nevertheless.

Stocks of Nautilus Minerals Inc. are quoted on the Toronto and London Exchanges. The company’s quarterly results have shown mounting losses from its inception until the first half of 2007. Yet, the Toronto Exchange has seen fit to promote the company’s stocks to its main trading list. Why are stocks of this consistently (up to now) loss making company regarded so highly?

The secret, for those who understand the earth’s oceans, is in the very name of this company. Nautilus Minerals does exactly what its name suggests-exploring seabeds for mineral deposits. This special sector is not as widely appreciated as its terrestrial peers, but it is certainly a superior and profitable investment opportunity. The resource crunch, which threatens to drown entire lines of business, could well see companies such as Nautilus Minerals emerge as economic and industrial leaders of the future.

The Underwater Frontier for New Stocks

Though there is a general global awareness about the potential for oceans to contribute in large new measures to industrial development, the technologies and their scientific underpinnings remain the preserve of a few (Enabling Ocean Research in the 21st Century, 2003). The conditions, in which industries have developed since the industrial revolution of the 19th century, left the oceans largely to fisher-folk! True, a few countries have used their territorial waters to source natural gas and some fossil fuels, but the technological and logistic challenges of exploring seabeds for minerals, have been daunting.

Geological experts believe that unprecedented riches may lie under the deep and unknown waters of our oceans. Specific and detailed information is lacking, as is consensus and clarity on national divisions of such untold wealth. Investors, accustomed to more reliable data than under-sea explorers can provide, have traditionally stayed away from this exciting but uncertain arena. However, the unstable geo-political scene, and maturity in mining operations in traditional strong holds, place great pressures on discovering and exploiting new sources of supplies. The matter suits investors who seek to add new dimensions of values to their portfolios, especially if technical experts can form stable corporate structures.

A Rare Opportunity to Own Loss Making Stocks (Part 2)

 


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