On a prompt from a mailer, I took a closer look at the Kerrisdale Capital hit piece on First Majestic (AG) (FR.to) last night and what I can say now is that Kerrisdale breaks one of the cardinal rules of the short report. Fact is, when the anal yst (you or I) publishes a long call on a company, nobody ever cares too much if a detail is wrong, information incorrect, a fact doesn’t stand up to checking. But when you’re writing a short sale hit piece my stars, you’d better get every last punctuation mark in the right place… or else. Kerrisdale fails on that, not because of any part of the Ad Hom attacks on Neumeyer but because it uses bad numerical inputs on its DCF valuation boards. That, ladies and gentlemen, basically blows the whole argument out of the water because 1) the report is clearly unreliable and Kerrisdale is pretending to be an expert on a subject in which it is obviously deficient, plus 2) I get the feeling this Kerrisdale dude is less adept at anal ysis than he thinks.
And by the way, all the ad hom stuff about Neumeyer may be interesting gossip (and the parts that reveal his true connections with First Quantum way back when were long overdue) but they don’t make a jot of difference to the AG market valuation in 2016.
But it’s the reaction to the USA BLS Jobs report today which is the real nail in the coffin of Kerrisdale and its short position. The macro trumps everything, no matter if your stock is relatively cheap or expensive to peers, they all rise on the tide from here and the pop in PM stocks on the back of the weak jobs number is all the evidence you need. That a short seller picks a PM company this early in the cycle to attack is either brave or stupid. In the case of K2 Assoc and its position against Asanko, that one is brave because K2 thinks it has found specific evidence of operational problems at its key asset. If that’s true then Asanko will fail and K2 wins no matter what the gold price does (and if not it won’t, or course). But shorting First Majestic “on the numbers” at a time like this, so early in the precious metals cycle? That’s just plain freakin’ stupid and we the outsider should have serious misgivings about the financial acumen of the guy running Kerrisdale if he can’t make the obvious macro call. I’m no fan of Neumeyer or of his stocks, but I’m not stupid and I don’t short market leading silver stocks like First Majestic just because I think it’s overvalued compared to Coeur or Hecla or Pan American. Because if silver moves to $25/oz all those four will cost more to buy than they do today, it’s as simple as that.
Kerrisdale, in my considered opinion, has failed in its analysis of FR.to first on the inaccuracies of its report and second because the company is obviously stupid about precious metals. That’s not so good when you’ve decided to short a precious metals miner.
PS: For more on PMs try this post, “We’re still early in the precious metals cycle” from a week and a bit ago.