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Northland kommentar

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Jag har tidigare varnat för att investera i Northland Resources. Jag skrev en omfattande analys för att genomskåda riskerna med att investera i företaget. Jag publicerade denna analys i slutet av Augusti på olika börsforum. Här kommer en liten summering.

24/07/2012 – Summary of Recommendation: Northland Resources

Northland’s management has shown to constantly be overly optimistic in their projections. The company has failed to achieve the promised goals of the April, 2011 company presentation. In particularly the long promised syndication of the senior loan. Additionally the doubling of the Kaunsvaara NPV by raising the reference price is another sign of over-optimism. The company has promised to deliver the highest quality iron ore in 2013 and that the iron ore price will remain at high levels. There are reasons to believe that the management might disappoint investors again with optimistic goals.

Excessively optimistic managers will overinvest and underestimate risks and costs. As a result they pursue projects that they perceive to have a positive NPV based on overly optimistic price estimates, but in reality have a negative NPV. Research on the mining industry by Brian W. Mackenzie (1981), shows that the NPV of the average mining project turned out to be negative. Excessively optimistic projects forecasts belong almost entirely from agency conflicts between shareholders and management (Montier, 2010a).

In my point of view Northland is a perfect short candidate for three reasons.

  • The iron ore price outlook is unfavorable.
  • The management is influenced with behavioral biases that ultimately results in a poor capital discipline.
  • The investing public is enthusiastic about it which has resulted in an overvaluation.

Northland may make you quickly rich or poor, but would not be recommended for long term wealth accumulation. In the long term the downside risks outweigh the upside risks and considering humans’ belief system of overconfidence, optimism, and wishful thinking, investors might be in for a real disappointment. Personally, I would not touch it even if I wore a hazmat suit.

24/01/2013 – Northland Resources Press Release

“At this time, the Company announces that it has identified an additional funding need of approximately USD 425 million to enable it to reach the Kaunisvaara projects expected minimum cash point which is expected to occur in the second half of 2014, and until the anticipated full production is achieved in third quarter of 2014. The funding is required due to higher than expected operating costs in the production ramp-up phase**, higher capital expenditures than expected** and adverse movements in iron ore prices and exchange rates. “



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