Cloudbreak Discovery is The Pick Of The Current Crop – Why?

Trade Cloudbreak Discovery Shares Your Capital Is At Risk
Tim Worstall
Updated: 22 Feb 2022

Key points:

Cloudbreak Discovery (LON: CDL) shares are up 400% in this past two weeks, from 1.9 pence on Feb 8 to 8.4 pence today. The spread is about 4%, volume is a couple of million shares a day, it’s on regular trading. This could be an excellent trading share for us as time goes on.

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Of course, there is significant risk with Cloudbreak Discovery. This is what we might call a microcap stock, enterprise value is closing in on only £40 million. It’s also very early days indeed for the company, let alone the stock which has only been on the market since June.

The background idea has merit to it. Junior miners – usually defined as those looking to produce something, but not yet doing so – is a gloriously inefficient marketplace. There are many viable deposits of minerals out there. There’s the skill to go find them. Technologies advance as to what can be profitably extracted. The global economy changes so as to change what we want extracted – also the prices people will pay for the minerals that are extracted.

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The major mining firms don’t tend to get involved in the small-scale and nitty-gritty business of the initial research to piece all of these things together. The skill of those majors is in being able to bring in, to complete, an already defined project.

The world of junior miners is horribly fragmented. All too many of those involved end up having to reinvent the wheel for each new idea and or project. So, why not create an investment house looking at this very early and small end of this marketplace? Broadly speaking that is what Cloudbreak Discovery is doing.

Cloudbreak – well, it says it does at least – looks at that wider global market and the opportunities in it. Then decides what would be a good fit with that likely future and goes looking for the opportunities that would fit it. Even, designs the approaches that would fit that new and changing world.

In doing so Cloudbreak intends to build up a portfolio of shares and pieces of the entities and opportunities so created. It’s, in a way, a little bit like being a merchant bank for junior miners, or an active investment fund in them.

As a thought, as a strategy, this has merit. The recent share price increase at Cloudbreak can be seen as the market more generally waking up to this.

However, any strategy is only as good as its implementation. There the jury is still entirely out – It’s not obvious that this has been going on long enough for us to grasp how successful the portfolio of projects is going to be, nor the pipeline.
A reasonable evaluation is that this is going to be a tempestuous share price. There will be bounces – either way – as specific valuation events arise. This project has worked, that one didn’t and so on, within that greater portfolio.

This is not advice that Cloudbreak Discovery is going to be a long-term hold nor even short. Rather, there’s going to be a lot of action here and being on the right side of it at any one time could well be a good trade.

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