Source: Bloomberg Video
Monday, November 24, 2008
Jim Rogers - Roth Capital China Comes To Vegas Conference
Between November 19-21, 2008 ROTH Capital held it’s China/Vegas conference in Las Vegas dedicated to Chinese-based, US listed companies. The keynote speaker was Jim Rogers who was on hand to talk about China and its macro and micro environment.
Click Here To View The Webcast
Source: Roth Capital
Saturday, November 22, 2008
Evy Hambro Sees `Great Entry Points' for Commodity Stocks
Evy Hambro Biography
Evy Hambro was educated at Newcastle University and holds a BsC (Hons) in Marketing. Evy started in finance in 1994 by joining the SG Warburg graduate program. He joined Mercury Asset Management (a subsidiary of SG Warburg) after completing the graduate program and was part of the investment team which was acquired from Mercury Asset Management by the Investment Manager in 1994.
During his time with the team, Evy has worked in London (10 years), Sydney (3 years) and Toronto as well as travelling extensively in order to conduct research on the companies in which the Investment Manager invests.
Evy is a fund manager with listed investment company Global Mining Investments (GMI) and manages the MLIIF World Gold Fund and continues to manage several segregated natural resource mandates for other clients and is co-fund manager for the ML Natural Resources Hedge Fund.
Source: Bloomberg Video
Friday, November 21, 2008
Buy, Sell or Hold Oilexco (OIL: TSX)
The following is a summary of a research report on Oilexco dated November 20, 2008 by analysts Toby Pierce and Peter Nicol of Tristone Capital.
On November 19, 2008 Oilexco announced that it has filed an amended preliminary prospectus with securities regulators in certain provinces of Canada for an offering of Convertible Senior Unsecured Bonds and Common Shares.The offering being marketed consisted of up to U.S. $150,000,000 aggregate principal amount of Convertible Senior Unsecured Bonds due 2013 and up to 20,000,000 common shares at an issue price of C$2.25. Subject to market conditions, the offering was anticipated to close on or about December 5, 2008. The Bonds were expected to be senior, unsecured obligations of Oilexco bearing interest at an annual rate of 15% payable quarterly in arrears commencing in March, 2009 and maturing five years and one day following the closing date. Bonds were expected to be convertible at the option of the holder into common shares of Oilexco at a conversion price (using a fixed exchange rate of U.S.$1.00=C$1.2239) of C$2.74 per common share from the 41st day after the closing date to the 6th business day before the maturity date. If a holder were to convert the Bonds before the third anniversary of the closing date, then Oilexco would pay to the holder two-thirds of the nominal value of the remaining interest that would otherwise be payable on the Bonds up to the third anniversary of the closing date (the “Make-Whole”). The Make-Whole premium would be payable in cash or (subject to regulatory approval) Oilexco common shares at the option of Oilexco, with the number of common shares determined by the volume weighted average trading price of Oilexco’s common shares on the Toronto Stock Exchange for the ten trading days prior to the date of conversion.
The net proceeds from the offering were slated to repay ₤30 million of bank indebtedness, which allowed for the deferral of the remaining ₤70 million until November 2009, to fund the Corporation’s 2009 capital spending program at its development properties and for general corporate purposes.
On November 20, 2008, Oilexco announced that following a Board Meeting held to review the proposed offering being led by Canaccord Adams of up to U.S. $150,000,000 of 15% Convertible Senior Unsecured Bonds and up to 20,000,000 Common Shares, it has been decided to cancel this offering. Furthermore, the company announced that it had appointed Morgan Stanley to assist it in reviewing these strategic alternatives which include mezzanine and debt financing, industry and financial partnerships together with other financing alternatives.
As far as I know, Oilexco's stock was halted on the TSX and probably the LSE all day November 19, 2008. On November, 20, 2008 shares of Oilexco resumed trading and plunged by upto 40%. A number of analysts, one of them being the duo of Pierce and Nicol of Tristone regarded the November 19, 2008 announcement of the convertible bond and common share issue as "very favourable to the convertible holders and very dilutive to existing shareholders, particularly if convertible holders convert early and receive their make whole interest in the form of shares."
Before Oilexco's November 20, 2008 announcement regarding its appointment of Morgan Stanley to assist it in reviewing strategic alternatives, Pierce and Nicol recommended that in light of Oilexco's short term funding obligations and perhaps a prolonged period of depressed commodity prices, the company's best course of action might be "sell assets and/or the company outright." Pierce and Nicol go on to say, "We recognize that it may be difficult for Oilexco to command ‘top dollar’ for its assets given that buyers know its financial situation. We feel however, that Oilexco has a diverse portfolio with some outstanding assets (specifically Huntington and Moth), and that its strategy of keeping higher working interest and operatorship would allow the company (and shareholders) to capture a higher value than one might expect."
On November 19, 2008 Oilexco announced that it has filed an amended preliminary prospectus with securities regulators in certain provinces of Canada for an offering of Convertible Senior Unsecured Bonds and Common Shares.The offering being marketed consisted of up to U.S. $150,000,000 aggregate principal amount of Convertible Senior Unsecured Bonds due 2013 and up to 20,000,000 common shares at an issue price of C$2.25. Subject to market conditions, the offering was anticipated to close on or about December 5, 2008. The Bonds were expected to be senior, unsecured obligations of Oilexco bearing interest at an annual rate of 15% payable quarterly in arrears commencing in March, 2009 and maturing five years and one day following the closing date. Bonds were expected to be convertible at the option of the holder into common shares of Oilexco at a conversion price (using a fixed exchange rate of U.S.$1.00=C$1.2239) of C$2.74 per common share from the 41st day after the closing date to the 6th business day before the maturity date. If a holder were to convert the Bonds before the third anniversary of the closing date, then Oilexco would pay to the holder two-thirds of the nominal value of the remaining interest that would otherwise be payable on the Bonds up to the third anniversary of the closing date (the “Make-Whole”). The Make-Whole premium would be payable in cash or (subject to regulatory approval) Oilexco common shares at the option of Oilexco, with the number of common shares determined by the volume weighted average trading price of Oilexco’s common shares on the Toronto Stock Exchange for the ten trading days prior to the date of conversion.
The net proceeds from the offering were slated to repay ₤30 million of bank indebtedness, which allowed for the deferral of the remaining ₤70 million until November 2009, to fund the Corporation’s 2009 capital spending program at its development properties and for general corporate purposes.
On November 20, 2008, Oilexco announced that following a Board Meeting held to review the proposed offering being led by Canaccord Adams of up to U.S. $150,000,000 of 15% Convertible Senior Unsecured Bonds and up to 20,000,000 Common Shares, it has been decided to cancel this offering. Furthermore, the company announced that it had appointed Morgan Stanley to assist it in reviewing these strategic alternatives which include mezzanine and debt financing, industry and financial partnerships together with other financing alternatives.
As far as I know, Oilexco's stock was halted on the TSX and probably the LSE all day November 19, 2008. On November, 20, 2008 shares of Oilexco resumed trading and plunged by upto 40%. A number of analysts, one of them being the duo of Pierce and Nicol of Tristone regarded the November 19, 2008 announcement of the convertible bond and common share issue as "very favourable to the convertible holders and very dilutive to existing shareholders, particularly if convertible holders convert early and receive their make whole interest in the form of shares."
Before Oilexco's November 20, 2008 announcement regarding its appointment of Morgan Stanley to assist it in reviewing strategic alternatives, Pierce and Nicol recommended that in light of Oilexco's short term funding obligations and perhaps a prolonged period of depressed commodity prices, the company's best course of action might be "sell assets and/or the company outright." Pierce and Nicol go on to say, "We recognize that it may be difficult for Oilexco to command ‘top dollar’ for its assets given that buyers know its financial situation. We feel however, that Oilexco has a diverse portfolio with some outstanding assets (specifically Huntington and Moth), and that its strategy of keeping higher working interest and operatorship would allow the company (and shareholders) to capture a higher value than one might expect."
RBC Capital Markets Recommended TSX Sector Exposure
The following table has been excerpted from the RBC Investment Strategy Weekly dated November 19, 2008.
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Stock Thoughts on Imperial Oil, Labrador Iron Ore Income Fund, Viterra, Franco-Nevada and Barrick Gold
The following opinions were excerpted from Murray H. Pollitt’s [President of Investment Dealer Pollitt & Co. Inc.] November 19, 2008 monthly market letter.
“Imperial finished a great quarter with earnings of $1.57 per share. Going forward the lower $Cdn will help, and the normal course issuer bid, which seems to be ongoing, will cost about $500 million less (because of the lower price for the shares) leaving more money for capex, dividends, whatever. The cancellation of 5% of outstanding shares every year (financed with perhaps a third of cash flow) automatically increases eps by 5% and this puts IMO in a class by itself.”
“While the dynamics have changed for the worse in the iron ore sector, we continue to feel LIF.UN offers upside from current levels. Most of LIF’s earnings come from Iron Ore Company of Canada royalties, off-the-top, and because of IOC’s large pellet production, the cartel-like atmosphere of the iron ore industry and the lower $Cdn, we don’t see a dramatic fall. Sure, LIF’s 2009 distribution is unlikely to match the expected $5/unit in 2008, but it should be over $3.”
“We still like Viterra. Shares are down 50% from their 52-week high of $15, and still people have to eat. Viterra dominates the Western Canadian grain handling business with over 40% of the market share. Revenues are primarily based on volumes, not grain prices. Viterra is in great financial shape as a result of a $400 million common share offering at $14 in May 2008. Based on current valuation metrics Viterra shares appear undervalued.”
“Recently we wrote up Franco-Nevada because of the company’s impressive portfolio of royalty resources in the gold and oil & gas sectors, and its ability to act as a merchant bank in a dried-up equity and credit market for the resource industry. Even though royalties are an easy way to invest in the metals industry, they are still subject to metal prices and mine closures. Recently the economic viability of Stillwater, one of Franco’s larger royalty streams has come into question. We don’t like Stillwater’s chances and are therefore now cautious about Franco.”
“Barrick Gold's Q3 statement is fascinating. They deal extensively with the hedge book, over a thousand words of heavy legalese, admitting that "depending on the circumstances, this may result in early settlement of such [hedge] contract." Wow. These guys are four, five or more billion dollars under water on over nine million ounces of hedges, they have over four billion of debt, and they may have to start covering? There are better ways to play gold, such as gold bullion itself.”
Source: BeEarly.com
“Imperial finished a great quarter with earnings of $1.57 per share. Going forward the lower $Cdn will help, and the normal course issuer bid, which seems to be ongoing, will cost about $500 million less (because of the lower price for the shares) leaving more money for capex, dividends, whatever. The cancellation of 5% of outstanding shares every year (financed with perhaps a third of cash flow) automatically increases eps by 5% and this puts IMO in a class by itself.”
“While the dynamics have changed for the worse in the iron ore sector, we continue to feel LIF.UN offers upside from current levels. Most of LIF’s earnings come from Iron Ore Company of Canada royalties, off-the-top, and because of IOC’s large pellet production, the cartel-like atmosphere of the iron ore industry and the lower $Cdn, we don’t see a dramatic fall. Sure, LIF’s 2009 distribution is unlikely to match the expected $5/unit in 2008, but it should be over $3.”
“We still like Viterra. Shares are down 50% from their 52-week high of $15, and still people have to eat. Viterra dominates the Western Canadian grain handling business with over 40% of the market share. Revenues are primarily based on volumes, not grain prices. Viterra is in great financial shape as a result of a $400 million common share offering at $14 in May 2008. Based on current valuation metrics Viterra shares appear undervalued.”
“Recently we wrote up Franco-Nevada because of the company’s impressive portfolio of royalty resources in the gold and oil & gas sectors, and its ability to act as a merchant bank in a dried-up equity and credit market for the resource industry. Even though royalties are an easy way to invest in the metals industry, they are still subject to metal prices and mine closures. Recently the economic viability of Stillwater, one of Franco’s larger royalty streams has come into question. We don’t like Stillwater’s chances and are therefore now cautious about Franco.”
“Barrick Gold's Q3 statement is fascinating. They deal extensively with the hedge book, over a thousand words of heavy legalese, admitting that "depending on the circumstances, this may result in early settlement of such [hedge] contract." Wow. These guys are four, five or more billion dollars under water on over nine million ounces of hedges, they have over four billion of debt, and they may have to start covering? There are better ways to play gold, such as gold bullion itself.”
Source: BeEarly.com
Thursday, November 20, 2008
Video - Fadel Gheit Sees 1% Oil Demand Drop, Price Between $40 to $60
Fadel Gheit Biography
Fadel Gheit is a Managing Director and senior analyst covering the oil and gas sector for Oppenheimer & Co. Inc. He spent six years with Mobil Oil and five years with Stone & Webster. He has been an energy analyst since 1986 with Mabon Nugent and JP Morgan and has been with Oppenheimer & Co. Inc. since 1994. He has been named to The Wall Street Journal All-Star Annual Analyst Survey four times and was the top-ranked energy analyst on the Bloomberg Annual Analyst survey for four years. He is one of the most quoted analysts on energy issues and has testified before the U.S. Senate and the U.S. House of Representatives about oil price speculation, and is a frequent guest on TV and radio business programs. Fadel holds a B.S. in chemical engineering from Cairo University and M.B.A. in Finance from New York University.
Source: Bloomberg
Buy, Sell or Hold - Strateco Resources (RSC: TSX)
Quick Notes on Uranium
UxC spot price rose by 10.4% or US $5 for the week, ending up at US $53. UxC reported an upward bias in prices for the week with new offers at week end at the US $54-55 level and an unnamed non-US bidder looking for ~2 million pounds U3O8. This week’s price increase reflects the fourth consecutive weekly increase and the spot price has now rallied more than 20% in less than a month, from a low of $44 on October 20, 2008.
The UxC long term price stood affixed at US $70 (3 weeks and counting) for the week with a US utility receiving offers for 1.8 million pounds of U3O8e, while an additional US utility has offers due this week for quantities upto 2 million pounds of U3O8e. Keep in mind that the long term price is down 26% year to date.
In the futures market, settlement prices were up between 10-14% across the curve for the week with the nearest settlement dates experiencing the largest proportional increase. March 2009 contract settlement price was up by US $6 to US $56, while the settlement price for March 2010 was up US$6 to US $65/pound of U3O8e. June, September, October and December 2009 settlement prices were higher by US $6 to US $58, US $59, US $59 and US $60 per pound of U3O8 respectively.
In light of the recent turnaround in Uranium prices a number of analysts (2 that I know of) have initiated coverage on several Uranium focussed equities, Geordie Mark of Haywood Securities being one of them and the other being David Talbot of Dundee Securities.
The following is a summary of November 19, 2008 research report on Strateco Resources (RSC: TSX) by David Talbot of Dundee Securities.
According to Talbot, RSC or Strateco offers investor 2 unique propositions: not only does it happen to be the sole junior uranium company that is permitting in Canada but it is also developing of the world’s highest grade deposits outside of the Athabasca Basin. The company’s Project description was filed earlier this year in July 2008 and its underground exploration license application was submitted earlier this month. The company has reported average U3O8 grades of 0.68% in the measured and indicated category and 0.44% in the inferred category.
The scoping study on Strateco’s 100% owned Matoush property located in the Otish Mountains, 260 km north of Chibougamau, Quebec was based on a long term price from US$60.00 to US$90.00 per pound U3O8 over the life of the project with an evaluation price of US$75.00 per pound U3O8, an exchange rate US$/CAN$ of 0.85, a royalty of 2% and transport to smelter costs of $0.10 per pound. The scoping study estimated operating costs of US $27.33/pound (or C $32.15/pound) and capital costs of an estimated US $291 million with a contingency cost of US $53 million. The mining plan outlined in the scoping study is based on production of 15.5 million pounds of U3O8 over 7 years at an average grade of 0.437% U3O8. The study indicated an internal Rate of Return before Tax of 37.1% and project pre=tax NPV (at a 10% discounted rate) totalled us $196 million. With regards to the the scoping study, Talbot opines: “The initial study appears overly conservative. We anticipate further studies could streamline capital and operating costs. In conjunction with adding resources through exploration, Strateco could likely provide for an expanded production rate or longer life operation.”
Talbot views Strateco’s immense property package to have the characteristics of a regional district with potential to host multiple ore bodies.
Furthermore, Talbot views the potential for adding mineralization in the vicinity of all three zones of the Matoush deposit as high and points to the early success 300m west of the high grade AM-34 zone as evidence for further delineation of two steeply plunging, parallel zones.
Talbot initiates coverage on Strateco Resources (RSX: TSX) with a Buy recommendation and a C$1.30 price target. Talbot bases his target price on a 10% discounted NAV estimate plus value for year end cash and additional resources.
UxC spot price rose by 10.4% or US $5 for the week, ending up at US $53. UxC reported an upward bias in prices for the week with new offers at week end at the US $54-55 level and an unnamed non-US bidder looking for ~2 million pounds U3O8. This week’s price increase reflects the fourth consecutive weekly increase and the spot price has now rallied more than 20% in less than a month, from a low of $44 on October 20, 2008.
The UxC long term price stood affixed at US $70 (3 weeks and counting) for the week with a US utility receiving offers for 1.8 million pounds of U3O8e, while an additional US utility has offers due this week for quantities upto 2 million pounds of U3O8e. Keep in mind that the long term price is down 26% year to date.
In the futures market, settlement prices were up between 10-14% across the curve for the week with the nearest settlement dates experiencing the largest proportional increase. March 2009 contract settlement price was up by US $6 to US $56, while the settlement price for March 2010 was up US$6 to US $65/pound of U3O8e. June, September, October and December 2009 settlement prices were higher by US $6 to US $58, US $59, US $59 and US $60 per pound of U3O8 respectively.
In light of the recent turnaround in Uranium prices a number of analysts (2 that I know of) have initiated coverage on several Uranium focussed equities, Geordie Mark of Haywood Securities being one of them and the other being David Talbot of Dundee Securities.
The following is a summary of November 19, 2008 research report on Strateco Resources (RSC: TSX) by David Talbot of Dundee Securities.
According to Talbot, RSC or Strateco offers investor 2 unique propositions: not only does it happen to be the sole junior uranium company that is permitting in Canada but it is also developing of the world’s highest grade deposits outside of the Athabasca Basin. The company’s Project description was filed earlier this year in July 2008 and its underground exploration license application was submitted earlier this month. The company has reported average U3O8 grades of 0.68% in the measured and indicated category and 0.44% in the inferred category.
The scoping study on Strateco’s 100% owned Matoush property located in the Otish Mountains, 260 km north of Chibougamau, Quebec was based on a long term price from US$60.00 to US$90.00 per pound U3O8 over the life of the project with an evaluation price of US$75.00 per pound U3O8, an exchange rate US$/CAN$ of 0.85, a royalty of 2% and transport to smelter costs of $0.10 per pound. The scoping study estimated operating costs of US $27.33/pound (or C $32.15/pound) and capital costs of an estimated US $291 million with a contingency cost of US $53 million. The mining plan outlined in the scoping study is based on production of 15.5 million pounds of U3O8 over 7 years at an average grade of 0.437% U3O8. The study indicated an internal Rate of Return before Tax of 37.1% and project pre=tax NPV (at a 10% discounted rate) totalled us $196 million. With regards to the the scoping study, Talbot opines: “The initial study appears overly conservative. We anticipate further studies could streamline capital and operating costs. In conjunction with adding resources through exploration, Strateco could likely provide for an expanded production rate or longer life operation.”
Talbot views Strateco’s immense property package to have the characteristics of a regional district with potential to host multiple ore bodies.
Furthermore, Talbot views the potential for adding mineralization in the vicinity of all three zones of the Matoush deposit as high and points to the early success 300m west of the high grade AM-34 zone as evidence for further delineation of two steeply plunging, parallel zones.
Talbot initiates coverage on Strateco Resources (RSX: TSX) with a Buy recommendation and a C$1.30 price target. Talbot bases his target price on a 10% discounted NAV estimate plus value for year end cash and additional resources.
Wednesday, November 19, 2008
Market Musings
The following is excerpted from a conference call transcript that was held on November 12, 2008 by Portfolio Manager Gerry Coleman of Harbour Advisors. Gerry Coleman, who has managed money for institutions and mutual funds for over 35 years, along with his partner, Stephen Jenkins manage more than $14 billion in assets at CI Investments Inc.
"Market Comment
• Panic selling stage appears over, market now focusing on earnings.
• There are three key criteria to end a panic and we have seen the first two: government initiatives to stimulate the economy, and central bank intervention. It takes time for these to have an effect.
• The third criterion is for buyers to come back into the markets and this may be starting.
• We feel that stock prices are close to their lows, though the markets may trade sideways for a while.
• Valuations are within 15% of their lowest levels of the past 50 years.
• Now seeing a global recession that will probably last into 2009. But recessions are a normal part of the investment landscape.
• Also need to remember that there are now six emerging economies with GDP over $1 trillion and they continue to grow, though at a slower pace.
• Remember that the stock market is a forward-looking indicator and typically bottoms while the economy is still in recession.
• We believe there is too much pessimism; confidence will start to recover soon.
• Interest rate cuts and other stimulative measures will have an impact, and the global deleveraging process is well underway.
Harbour Funds
• Have been adding to oil and gas holdings (EnCana, Suncor, Talisman and Petro-Canada); we believe price of oil is close to a low.
• Technology: have boosted holdings in leaders like Cisco, Microsoft and Intel.
• Materials: have boosted holdings in BHP Billiton, Rio Tinto, Cameco, Goldcorp and Barrick.
• Also have increased holdings in Tim Hortons, GE, Canadian National Railway.
• Financials: Have added to Sun Life, CIBC and Discover, but not in a rush to do much buying here. Financials may be close to a low, but there may be more shoes to drop.
• Commodities: Unlike technology companies during the tech bubble, these companies have been big money-makers and though they have declined recently, their valuations were not excessive. We expect oil and gas has a bright future in the longer term and demand will rebound with the economy. We believe the secular upward trend in commodity prices will continue, driven by demand from China, India and so on."
Source: CI Investments Inc.
"Market Comment
• Panic selling stage appears over, market now focusing on earnings.
• There are three key criteria to end a panic and we have seen the first two: government initiatives to stimulate the economy, and central bank intervention. It takes time for these to have an effect.
• The third criterion is for buyers to come back into the markets and this may be starting.
• We feel that stock prices are close to their lows, though the markets may trade sideways for a while.
• Valuations are within 15% of their lowest levels of the past 50 years.
• Now seeing a global recession that will probably last into 2009. But recessions are a normal part of the investment landscape.
• Also need to remember that there are now six emerging economies with GDP over $1 trillion and they continue to grow, though at a slower pace.
• Remember that the stock market is a forward-looking indicator and typically bottoms while the economy is still in recession.
• We believe there is too much pessimism; confidence will start to recover soon.
• Interest rate cuts and other stimulative measures will have an impact, and the global deleveraging process is well underway.
Harbour Funds
• Have been adding to oil and gas holdings (EnCana, Suncor, Talisman and Petro-Canada); we believe price of oil is close to a low.
• Technology: have boosted holdings in leaders like Cisco, Microsoft and Intel.
• Materials: have boosted holdings in BHP Billiton, Rio Tinto, Cameco, Goldcorp and Barrick.
• Also have increased holdings in Tim Hortons, GE, Canadian National Railway.
• Financials: Have added to Sun Life, CIBC and Discover, but not in a rush to do much buying here. Financials may be close to a low, but there may be more shoes to drop.
• Commodities: Unlike technology companies during the tech bubble, these companies have been big money-makers and though they have declined recently, their valuations were not excessive. We expect oil and gas has a bright future in the longer term and demand will rebound with the economy. We believe the secular upward trend in commodity prices will continue, driven by demand from China, India and so on."
Source: CI Investments Inc.
Buy, Sell or Hold Gran Tierra Energy (GTE: TSX)
The following summary is based on a research report by Blackmont Capital analyst Alexander Klein and dated November 17, 2008.
On November, 14, 2008 Gran Tierra and Solana Resources announced that they had completed the business combination of Gran Tierra and Solana. Following the combination with Solana Resources, Gran Tierra now has 263.1 million fully diluted shares outstanding and a market capitalization of 973.47 million based in Tuesday’s (November 18, 2008) closing price.
Pursuant to the closing of the business combination, Gran Tierra has become an intermediate-sized producer with current production excess of 11,600 barrels of oil equivalent per day (boe/d) and an estimated 2008 exit production rate in excess of 15,000 boe/d. With regards to Gran Tierra’s production profile, Klein opines, “Productive capacity is expected to continue to grow in 2009 but actual production volumes will likely be limited by pipeline capacity constraints.”
Klein estimates Gran Tierra to be producing at least “35,000 BOE/d with the potential for additional volumes from the Costayaco field in Colombia” by Q1/10. In his production growth estimates, Klein does not account for additional volumes from any exploration success in 2009.
Klein estimates that at the end of 2008, the company will have a cash position of US$142 million and combined with cash flow from operations in 2009 of US$173 million that would make available US$315 million of cash for 2009 capital expenditures, which includes constructing a new 10km Uchupayaco to Orito pipeline. Gran Tierra has no long-term debt.
Klein resumes coverage (after being restricted since the announcement of the merger) of Gran Tierra with a BUY recommendation and a target price of US$7.00/sh. He also rates Gran Tierra as his Top Pick in the international junior E&P sector.
On November, 14, 2008 Gran Tierra and Solana Resources announced that they had completed the business combination of Gran Tierra and Solana. Following the combination with Solana Resources, Gran Tierra now has 263.1 million fully diluted shares outstanding and a market capitalization of 973.47 million based in Tuesday’s (November 18, 2008) closing price.
Pursuant to the closing of the business combination, Gran Tierra has become an intermediate-sized producer with current production excess of 11,600 barrels of oil equivalent per day (boe/d) and an estimated 2008 exit production rate in excess of 15,000 boe/d. With regards to Gran Tierra’s production profile, Klein opines, “Productive capacity is expected to continue to grow in 2009 but actual production volumes will likely be limited by pipeline capacity constraints.”
Klein estimates Gran Tierra to be producing at least “35,000 BOE/d with the potential for additional volumes from the Costayaco field in Colombia” by Q1/10. In his production growth estimates, Klein does not account for additional volumes from any exploration success in 2009.
Klein estimates that at the end of 2008, the company will have a cash position of US$142 million and combined with cash flow from operations in 2009 of US$173 million that would make available US$315 million of cash for 2009 capital expenditures, which includes constructing a new 10km Uchupayaco to Orito pipeline. Gran Tierra has no long-term debt.
Klein resumes coverage (after being restricted since the announcement of the merger) of Gran Tierra with a BUY recommendation and a target price of US$7.00/sh. He also rates Gran Tierra as his Top Pick in the international junior E&P sector.
A conversation with Bill Ackman - November 11, 2008
Bill Ackman is manager of Pershing Square Capital Management LP, a $6 billion hedge fund.
Source: Charlie Rose
Tuesday, November 18, 2008
Dynamic Funds - Latest Buys & Sells
The following transactions are dated October 29, 2008 and available at http://www.sedar.com/
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Dynamic Contrarian Fund
Portfolio Manager: David Taylor, MBA, CFA of Goodman & Company, Investment Counsel
Dynamic Focus+ Resource Fund
Portfolio Manager: Ned Goodman, BSc., MBA, CFA, HON LLD of Goodman & Company, Investment Counsel
Dynamic Power Canadian Growth Fund
Portfolio Manager: Rohit Sehgal, Hons. B.A., CFA of Goodman & Company, Investment Counsel
Dynamic Precious Metals Fund
Portfolio Manager: Robert Cohen, B.A.Sc.,(Min. Process Eng) MBA, CFA of Goodman & Company, Investment Counsel
[click on the images to enlarge]
Dynamic Contrarian Fund
Portfolio Manager: David Taylor, MBA, CFA of Goodman & Company, Investment Counsel
Dynamic Focus+ Resource Fund
Portfolio Manager: Ned Goodman, BSc., MBA, CFA, HON LLD of Goodman & Company, Investment Counsel
Dynamic Power Canadian Growth Fund
Portfolio Manager: Rohit Sehgal, Hons. B.A., CFA of Goodman & Company, Investment Counsel
Dynamic Precious Metals Fund
Portfolio Manager: Robert Cohen, B.A.Sc.,(Min. Process Eng) MBA, CFA of Goodman & Company, Investment Counsel
Macro Energy Outlook
Energy Demand
According to energy analyst, Kurt Wulff of Mcdep LLC, current global energy demand is about 240 million barrels equivalent daily (mmbd). In terms of estimating future global energy demand, Wulff finds that extending past trends would indicate an increase in oil equivalent demand of 70 million barrels over the next 15 years. Lastly, Wulff adds that approximately 80% of the aforementioned growth in demand is expected to arise from emerging countries.
Energy Supply
In analyzing the supply side of the equation, Wulff is of the opinion that extending past trends would suggest that coal would contribute the largest increment, 25 mmbd of new supply. However, he says that from an environmental standpoint this will not be allowed to happen (as a result of increasingly stringent restrictions of of microsmoke, sulfur dioxide, mercury, other pollutants and perhaps carbon dioxide) and this is likely to slow the growth of coal.
Wulff pegs our current oil consumption at 86 mmbd and opines that we have “reached the limits for cheap oil. Expensive oil is available, but it takes too much time and political will to achieve projected levels.”
Turning to nuclear, which currently accounts for 14 mmbd, Wulff doesn’t believe that nuclear can meaningfully contribute to global energy demand at a rapid enough pace due to “long lead time(s), extreme capital costs, thermal and radioactive waste.”
Wulff, like Boone Pickens, believes that natural gas offers the most promising and likely answer to global energy problems. Wulff says of natural gas, which currently accounts for 57mmbd globally, just after oil and coal, is already a large supply source and well‐known.
Regardless, of the energy source, Wulff opines that “There is no shortage of energy supply. All it takes is money and time, lots of both.”
Wulff’s projects “Light, Sweet crude oil for immediate delivery at an average $88 next year, 2009, down from $107 in 2008.” After 2009, he sees a rebound in prices and projects an uptrend to “perhaps $125 in 2010.” Post 2010, Wulff sees the potential for oil to continue rising but remainig well below a 1980‐type peak.
Source: http://www.mcdep.com/index.htm
According to energy analyst, Kurt Wulff of Mcdep LLC, current global energy demand is about 240 million barrels equivalent daily (mmbd). In terms of estimating future global energy demand, Wulff finds that extending past trends would indicate an increase in oil equivalent demand of 70 million barrels over the next 15 years. Lastly, Wulff adds that approximately 80% of the aforementioned growth in demand is expected to arise from emerging countries.
Energy Supply
In analyzing the supply side of the equation, Wulff is of the opinion that extending past trends would suggest that coal would contribute the largest increment, 25 mmbd of new supply. However, he says that from an environmental standpoint this will not be allowed to happen (as a result of increasingly stringent restrictions of of microsmoke, sulfur dioxide, mercury, other pollutants and perhaps carbon dioxide) and this is likely to slow the growth of coal.
Wulff pegs our current oil consumption at 86 mmbd and opines that we have “reached the limits for cheap oil. Expensive oil is available, but it takes too much time and political will to achieve projected levels.”
Turning to nuclear, which currently accounts for 14 mmbd, Wulff doesn’t believe that nuclear can meaningfully contribute to global energy demand at a rapid enough pace due to “long lead time(s), extreme capital costs, thermal and radioactive waste.”
Wulff, like Boone Pickens, believes that natural gas offers the most promising and likely answer to global energy problems. Wulff says of natural gas, which currently accounts for 57mmbd globally, just after oil and coal, is already a large supply source and well‐known.
Regardless, of the energy source, Wulff opines that “There is no shortage of energy supply. All it takes is money and time, lots of both.”
Wulff’s projects “Light, Sweet crude oil for immediate delivery at an average $88 next year, 2009, down from $107 in 2008.” After 2009, he sees a rebound in prices and projects an uptrend to “perhaps $125 in 2010.” Post 2010, Wulff sees the potential for oil to continue rising but remainig well below a 1980‐type peak.
Source: http://www.mcdep.com/index.htm
FTSE/Xinhua China 25 Index Fund (FXI) Breaking Out ?
Is the iShares FTSE/Xinhua China 25 Index Fund finally breaking out ?
In my limited experience, Yes it is. I believe that the confluence of the $586 billion economic stimulus package, tax cuts and easing inflation is being reflected in the positive price action of FTSE/Xinhua China 25 Index Fund. Furthermore, China is going to spend money on low-cost housing, social welfare and rural infrastructure, in an effort to stimulate domestic spending, all positive signs for equity investors. Increasing volumes in the FXI signify increasing confidence from investors and I suspect that FXI is headed higher.
The top 10 holdings of the fund as of November 14, 2008 are:
10.17% CHINA MOBILE LTD
8.57% CHINA LIFE INSURANCE CO-H
8.25% IND & COMM BK OF CHINA - H
6.78% PETROCHINA CO LTD-H
5.51% CHINA PETROLEUM & CHEMICAL-H
4.64% CHINA CONSTRUCTION BANK-H
4.49% CHINA COMMUNICATIONS CONST-H
4.22% CHINA TELECOM CORP LTD-H
4.11% CNOOC LTD
3.83% CHINA CITIC BANK - H
In my limited experience, Yes it is. I believe that the confluence of the $586 billion economic stimulus package, tax cuts and easing inflation is being reflected in the positive price action of FTSE/Xinhua China 25 Index Fund. Furthermore, China is going to spend money on low-cost housing, social welfare and rural infrastructure, in an effort to stimulate domestic spending, all positive signs for equity investors. Increasing volumes in the FXI signify increasing confidence from investors and I suspect that FXI is headed higher.
The top 10 holdings of the fund as of November 14, 2008 are:
10.17% CHINA MOBILE LTD
8.57% CHINA LIFE INSURANCE CO-H
8.25% IND & COMM BK OF CHINA - H
6.78% PETROCHINA CO LTD-H
5.51% CHINA PETROLEUM & CHEMICAL-H
4.64% CHINA CONSTRUCTION BANK-H
4.49% CHINA COMMUNICATIONS CONST-H
4.22% CHINA TELECOM CORP LTD-H
4.11% CNOOC LTD
3.83% CHINA CITIC BANK - H
Don Coxe Basic Points November 2008
Don Coxe Basic Points November 2008 - "Capitalism Faces Its Greatest Challenge"
To download Mr. Don Coxe's November 2008 Edition of Basic Points Click Here
Link Courtesy: http://incakolanews.blogspot.com/
IncakolaNews is a one stop blog for news and analysis on Latin American stocks, economics, politics and stuff like that - I highly recommend it.
To download Mr. Don Coxe's November 2008 Edition of Basic Points Click Here
Link Courtesy: http://incakolanews.blogspot.com/
IncakolaNews is a one stop blog for news and analysis on Latin American stocks, economics, politics and stuff like that - I highly recommend it.
A Conversation about Oil – November 13, 2008
Charles Maxwell Biography
Charles T. Maxwell is senior Energy Analyst for Weeden Co. Educated at Princeton as an undergraduate and Oxford as a graduate, Charles T. Maxwell entered the oil industry in 1957 and worked for a major international oil company for 12 years in the US, Europe, the Middle East, and Africa. His background has been in four traditional sectors of the industry?producing, refining, transportation, and marketing. In 1968, Mr. Maxwell joined a well-known Wall Street firm as an oil analyst. In polls taken by Institutional Investor magazine, Mr. Maxwell has been ranked by the US financial institutions as the No. 1 oil analyst for the years 1972, 1974, 1977 and 1981-1986. In addition, for the last 17 years he has been an active member of an Oxford-based organization comprised of OPEC and other industry executives from 30 countries who meet twice a year to discuss trends within the energy industry.
Daniel Yergin Biography
Daniel H. Yergin is an American author, speaker, and economic researcher. His first major book, was “Shattered Peace”, but he is best known for “The Prize: The Epic Quest for Oil, Money, and Power”, a number-one bestseller that won the Pulitzer Prize for General Non-Fiction in 1992. The book was adapted into a PBS mini-series seen by more than 20 million viewers. Yergin was awarded the 1997 United States Energy Award for “lifelong achievements in energy and the promotion of international understanding.”
Source: Charlie Rose
Monday, November 17, 2008
Buy, Sell or Hold Hathor Exploration (HAT: TSX-V)
Before summarizing a November 7, 2008 research report by Dundee Capital Markets analyst David A. Talbot on Hathor Exploration (HAT: TSX-V), I would just like to say that if I was ever to own a uranium exploration/development stock – Hathor would be the one.
- The Athabasca Basin hosts the world’s highest grade uranium deposits and accounts for 23% of the world’s production. Hathor’s Midwest NE property is 90% owned by Hathor and totals 502 hectares (1,240 acres). The property is located approximately 4 km to the northeast of the Midwest uranium orebody of AREVA, Denison Mines Inc. and OURD Canada Co. Ltd. that grades 5.47% U3O8, 4.37% nickel and 0.33% cobalt. The property is also 900 metres to the northeast of the Midwest property Mae Zone discovery where Denison have reported recent drill results (following up a late 1970's drill intersection of 8.24% U3O8 over 3.8 meters) including: 6.2% U3O8 over 7.1 m; 11.7% U3O8 over 7.7 m; 1.1% U3O8 over 17.7 m; 9.5% U3O8 over 7.2 m; 12.4% U3O8 over 6.1 m; and 15.3% U3O8 over 12.5 metres.
- Hathor Exploration recently reported one of the best assay results to date, recording 11.23% U3O8 over 23 metresKeep in mind though, that the hole was basically an infill hole that improves upon nearby hole -34 (8.93 U3O8 over 6.5metres).
- Propinquity of Midwest NE to the McClean and Rabbit Lake mills and other deposits has the potential for sharing of infrastructure such as roads, power, water treatment and tailings facilities. [Proximity also has the added benefit of takeover potential]
- Talbot opines “Roughrider has intense alteration and polymetallic mineralogy. By-product credits could potentially improve economics. Although the zone occurs in the basement, its characteristics closely resemble the nearby Midwest unconformity deposit that hosts 40MM lb. Midwest displays a small keel mineralization within the basement - most of its value is found at the unconformity. Hoping for the same, future Hathor drilling will work to extend the zone towards the unconformity."
- Talbot also feels that Roughrider has significant growth potential since mineralization is open along its ~110m strike. He says “Delineation of high grade pods could add pounds quickly. Basement rocks below the unconformity (190 to 210m) are of superior rock quality than if located within the sandstone.”
- With next year's drill program - which is expected to ramp up in January 2009 with the help of 3 rigs and sufficient cash in the till, Talbot expects deposit delineation to improve significantly. He feels that "ice drilling would provide proper positioning and orientation and allow for tighter spacing. This should help trace higher grade pods and basement mineralization towards the unconformity - to help [investors] determine how large the Roughrider zone really is."
- Talbot estimates the Roughrider zone to potentially contain between 25 and 40 MM lbs of U3O8 at an average grade in the 4-5% range, similar to Midwest. With overlying sandstone alteration being both extensive and intensive, Talbot opines that geological complexity, multiple units of mineralization, poor drill angles and unknown ore density presently make this deposit difficult to evaluate. After visitng the site, Talbot writes that confirming continuity may require significant infill drilling.
- Talbot inititated coverage on Hathor Exploration (HAT: TSX-V) with a BUY recommendation, Specualtive Risk rating and a 12 month price target of C$5.00/sh.
- The Athabasca Basin hosts the world’s highest grade uranium deposits and accounts for 23% of the world’s production. Hathor’s Midwest NE property is 90% owned by Hathor and totals 502 hectares (1,240 acres). The property is located approximately 4 km to the northeast of the Midwest uranium orebody of AREVA, Denison Mines Inc. and OURD Canada Co. Ltd. that grades 5.47% U3O8, 4.37% nickel and 0.33% cobalt. The property is also 900 metres to the northeast of the Midwest property Mae Zone discovery where Denison have reported recent drill results (following up a late 1970's drill intersection of 8.24% U3O8 over 3.8 meters) including: 6.2% U3O8 over 7.1 m; 11.7% U3O8 over 7.7 m; 1.1% U3O8 over 17.7 m; 9.5% U3O8 over 7.2 m; 12.4% U3O8 over 6.1 m; and 15.3% U3O8 over 12.5 metres.
- Hathor Exploration recently reported one of the best assay results to date, recording 11.23% U3O8 over 23 metresKeep in mind though, that the hole was basically an infill hole that improves upon nearby hole -34 (8.93 U3O8 over 6.5metres).
- Propinquity of Midwest NE to the McClean and Rabbit Lake mills and other deposits has the potential for sharing of infrastructure such as roads, power, water treatment and tailings facilities. [Proximity also has the added benefit of takeover potential]
- Talbot opines “Roughrider has intense alteration and polymetallic mineralogy. By-product credits could potentially improve economics. Although the zone occurs in the basement, its characteristics closely resemble the nearby Midwest unconformity deposit that hosts 40MM lb. Midwest displays a small keel mineralization within the basement - most of its value is found at the unconformity. Hoping for the same, future Hathor drilling will work to extend the zone towards the unconformity."
- Talbot also feels that Roughrider has significant growth potential since mineralization is open along its ~110m strike. He says “Delineation of high grade pods could add pounds quickly. Basement rocks below the unconformity (190 to 210m) are of superior rock quality than if located within the sandstone.”
- With next year's drill program - which is expected to ramp up in January 2009 with the help of 3 rigs and sufficient cash in the till, Talbot expects deposit delineation to improve significantly. He feels that "ice drilling would provide proper positioning and orientation and allow for tighter spacing. This should help trace higher grade pods and basement mineralization towards the unconformity - to help [investors] determine how large the Roughrider zone really is."
- Talbot estimates the Roughrider zone to potentially contain between 25 and 40 MM lbs of U3O8 at an average grade in the 4-5% range, similar to Midwest. With overlying sandstone alteration being both extensive and intensive, Talbot opines that geological complexity, multiple units of mineralization, poor drill angles and unknown ore density presently make this deposit difficult to evaluate. After visitng the site, Talbot writes that confirming continuity may require significant infill drilling.
- Talbot inititated coverage on Hathor Exploration (HAT: TSX-V) with a BUY recommendation, Specualtive Risk rating and a 12 month price target of C$5.00/sh.
Market Outlook Video - Marquest Asset Management
Marquest's Fall Presentation to investors dated November 10, 2008
Energy Chart Of The Day
Graphic depicting the market capitalizations of the world's largest oil companies
Wanna guess the world's 3 largest oil companies ....?
Source: NY Times
Thursday, November 13, 2008
Base Metals Chart Of The Day
"... commodities – whether they are base metals or oil – tend to stabilize 1-2 quarters after the global leading economic indicator stabilizes and it is still heading south ..."
Myles Zyblock - Chief Institutional Strategist & Director of Capital Markets Research at RBC Capital Markets (November 5, 2008)
Source: RBC Investment Strategy Weekly dated November 5, 2008
Myles Zyblock - Chief Institutional Strategist & Director of Capital Markets Research at RBC Capital Markets (November 5, 2008)
Source: RBC Investment Strategy Weekly dated November 5, 2008
Energy Chart Of The Day
Itching to get back into the energy sector...??
Source: Salida Capital Global Macro Trader dated November 10, 2008
Source: Salida Capital Global Macro Trader dated November 10, 2008
Tuesday, November 11, 2008
Recent Don Coxe Interviews
Click Here To Download A Barrons interview with Don Coxe entitled "Feed the World -- and Boost Returns" (5 pages)
Courtesy: http://greenlightadvisor.com/glablog/
Click Here To Download Don Coxe interview on CKNW News Radio dated October 25, 2008 (length 28:31 - size 6.52 mb)
Courtesy: Reader Bill S.
Friday, November 07, 2008
Crude Oil and Natural Gas Forecasts – AJM Petroleum Consultants
On October 31, 2008, Calgary based AJM Petroleum Consultants released their price forecasts for WTI Crude and NYMEX Natural Gas through the year 2016.
With regards to Crude Oil, Ralph Glass, AJM’s Vice President of Operations says:
“… AJM’s October 31, 2008 forecast now predicts that the WTI price for the balance of 2008 will be around the $75.00/bbl mark, rising to $85.00/bbl for 2009. It is anticipated that the crude oil price will continue to recover, reaching the $100/bbl range by 2013. The impact on the Canadian Edmonton par price is less than the US prices as we have seen the Canadian dollar drop in relation to the American dollar. AJM’s revised exchange rate forecast sees the Canadian dollar at 0.80 for the balance of 2008, rising in 2009 to 0.85 and reaching 0.95 by 2011.”
With regards to NYMEX and AECO Natural Gas, Glass opines:
“… The revised AJM October 31, 2008 forecast actually sees only marginal changes from our September forecast on the natural gas front, with the NYMEX price dropping $0.50/Mcf to $7.50/Mcf for the balance of 2008. For 2009 the estimated price is $8.10/Mcf and for 2010 the price is $8.60/Mcf. We anticipate that the NYMEX price will return to the levels predicted in our September 30, 2008 forecast by 2013 when it will reach $9.50/Mcf.
… The AECO price should see no change for the balance of 2008, but will drop $0.50/Mcf in 2009 to $8.20/Mcf and then increase to $8.60/Mcf. AJM anticipates the long-term forecast for AECO natural gas will remain where we had predicted in our September 30, 2008 forecast, holding steady at $9.00/Mcf from 2012 onward.”
AJM says that their forecasts are based on data collected from various government agencies, industry publications, Canadian oil refineries, natural gas marketers and industry trends. They also take into account inflation forecasts and exchange rates.
Source: AJM Petroleum Consultants
With regards to Crude Oil, Ralph Glass, AJM’s Vice President of Operations says:
“… AJM’s October 31, 2008 forecast now predicts that the WTI price for the balance of 2008 will be around the $75.00/bbl mark, rising to $85.00/bbl for 2009. It is anticipated that the crude oil price will continue to recover, reaching the $100/bbl range by 2013. The impact on the Canadian Edmonton par price is less than the US prices as we have seen the Canadian dollar drop in relation to the American dollar. AJM’s revised exchange rate forecast sees the Canadian dollar at 0.80 for the balance of 2008, rising in 2009 to 0.85 and reaching 0.95 by 2011.”
With regards to NYMEX and AECO Natural Gas, Glass opines:
“… The revised AJM October 31, 2008 forecast actually sees only marginal changes from our September forecast on the natural gas front, with the NYMEX price dropping $0.50/Mcf to $7.50/Mcf for the balance of 2008. For 2009 the estimated price is $8.10/Mcf and for 2010 the price is $8.60/Mcf. We anticipate that the NYMEX price will return to the levels predicted in our September 30, 2008 forecast by 2013 when it will reach $9.50/Mcf.
… The AECO price should see no change for the balance of 2008, but will drop $0.50/Mcf in 2009 to $8.20/Mcf and then increase to $8.60/Mcf. AJM anticipates the long-term forecast for AECO natural gas will remain where we had predicted in our September 30, 2008 forecast, holding steady at $9.00/Mcf from 2012 onward.”
AJM says that their forecasts are based on data collected from various government agencies, industry publications, Canadian oil refineries, natural gas marketers and industry trends. They also take into account inflation forecasts and exchange rates.
Source: AJM Petroleum Consultants
Wednesday, November 05, 2008
Stock Thoughts by Trapeze Asset Management
In their most recent investment letter entitled ‘Value Trumps Fear,’ and dated October 21, 2008 portfolio managers Herb Abramson and Randall Abramson of Trapeze Asset Management comment on the unrecognized value of a few of their portfolio holdings. The following are a few excerpts:
“Corridor Resources and Orca Exploration are 25¢ dollars and therefore could increase four fold, while our two largest cap holdings, Walgreen and United Technologies, are only 50¢-60¢ dollars."
"Positive surprises, the commercialization of Corridor’s shale play or the monetization of Orca (both of which we believe could happen over the next year) obviously have much more price impact than anything that could positively occur to Walgreen or United Technologies."
"For example, our largest holding, Corridor Resources, now has a market cap of $200 million, though based on our appraisal, we believe it should trade at $12 giving it a market cap over $1 billion. At a minimum, the company should trade above the discounted present value of its 2P (proven and probable) reserves—twice the company’s current price. And, that allows zero value for further development of the Hiram Brook resource and the material upside potential from the company’s exploration prospects. If natural gas prices were to fall well below the current $7 price, the company might need to cut back on capital expenditures to make sure spending does not outstrip cash flows in a capital constrained world. The company is on a solid financial footing—next year’s cash flow is expected to be at least $80 million, the company has no debt and working capital of $20 million. At 2x cash flow, 80% of book value (having spent virtually its entire trading history over the last 8 years above 2x book value until the last couple of months), 50% of 2P reserve value and 15% of its risk adjusted Net Asset Value, Corridor should not persist very long at this ultra-low valuation level. As good as it gets. High reward, low risk. Value well above trading prices. And, well financed, a clean balance sheet, material cash flow, no current needs to access additional capital, plus a consistent record where they’ve found gas virtually every time they’ve drilled for it."
"Orca Exploration trades at 25 cents on the dollar, has a debt free balance sheet and substantial and growing reserves. With 1.25 TCF of 2P reserves and substantial additional resources, we estimate Orca has intrinsic value in excess of $12 per share. As a monopoly supplier to the power starved Tanzanian market, other companies should be extremely interested in Orca’s growing assets."
"Canadian Superior and Petrolifera Petroleum are 20 cent dollars with world class assets. Canadian Superior’s two recent discoveries in Trinidad added about $5 to the company’s asset value (now over $8) yet the share price has dropped, like all the others. There should be significant interest by major energy companies in the very valuable Trinidadian assets, even if the stock market isn’t willing to recognize the value. Petrolifera’s Argentinean assets alone are worth more than 4 times the share price. At around 70% of book value and 1.5x expected cash flow of more than $80 million, the company is absurdly cheap, especially given the exploration prospects in Colombia and Peru."
"Sterling Resources and Canoro Resources both have spending needs in '09 which require capital. That said, each has no debt, asset values far in excess of prevailing share prices and could access capital or delay projects until capital is readily available. We expect little dilution. Sterling has assets we believe are now worth more than $500 million yet the market prices the entire company at only $85 million. And, cash flow in 3 years is expected to be more than $400 million per year from oil and gas they’ve already discovered. They just hit on two more wells in Romania and another in the North Sea. Canoro’s market cap has dropped all the way down to $34 million (34% of book value), yet the company has approximately $20 million of cash, $10 million of cash flow, $170 million of 2P reserves and a total risked asset value that’s over $300 million (10 times the prevailing market cap)."
"Our other key holdings trade at big discounts too and should have no need for capital in the near term. Etruscan Resources trades at one-third of our appraised value, United Technologies is a 60 cent dollar and Walgreen a 50 cent dollar."
Note: The investment letters by Trapeze Asset Management are a recommended read for all investors and their most recent one is no exception.
Source: Trapeze Asset Management
Tuesday, November 04, 2008
Salida Capital Multi Strategy Fund Market Commentary For October 2008
Salida Capital Multi Strategy Fund Market Commentary For October 2008
In his most recent (October 2008) letter to investors, portfolio manager of the Salida Multi Strategy Fund Brad White writes “Our Fund, which finished the first half of 2008 with a gain of 10.04% is now down 62.85% for the first 10 months of the year.”
Pinpointing the sources of the fund’s losses, White notes that the impact of the recent renegotiation of OAO Severstal’s bid for PBS Coals, a US coal producer was “significant to the fund.” White also points out that even though he sees great value in his private equity holdings, the fund has written down the value of private equities by 40% for the month to reflect market illiquidity. Lastly, White notes that since convertible spreads have widened he has been adding to higher quality convertible issues given as they are “capital efficient ways to obtain market exposure with lower risk.”
White writes that he has been rotating the Multi Strategy Fund’s small to mid-cap holdings into larger, undervalued names to better position the fund in terms of liquidity. Furthermore, he writes “Our weightings are very liquid, with 85% of our non–private positions holdings held in securities with less than one day average trading volume.”
In reflecting on the prevailing credit crisis that has gripped the markets, White opines that a “freezing of credit has domino effect in halting global trade and inflicting damage to commodity markets.” However, he believes that synchronized policy initiatives from global Governments and Central Banks will be enough to kick-start trade and global trade. Indicating that the credit crunch could be very deflationary in the near term, White is quick to note that the aggressive monetary policies being employed by Governments and Central Banks around the world will eventually end up being inflationary thereby leading to the “next “bubble — in scarce hard assets and commodities.”
White also points out that the incredible decline in commodities supplemented by a freezing of financing options will lead to severe future supply shortages. However, in order for banks to ease into project financings again, they will have to re-capitalized. This allows “lines of credit to thaw and trade to re–ignite well before banks compete for financing development projects. This time gap with increased trade and (albeit cooled) growth versus new supply sources will tighten supply/demand in virtually all commodities, and also allow costs to decrease for financeable (quality) projects.”
White, like many his contemporaries these days, feels that in hindsight this current period could perhaps turn out to be the buying opportunity of a generation. The current investing climate has evidenced valuations so incredible that “equities with free cash flow are trading below cash enterprise values; that is, the business is for free or less.” Although such disconnects in valuations are unsustainable in the long term, the exact timing of the turnaround is hard to predict. Looking back at history, White comments that “equity cycles typically respond 6 months ahead of economic and consumer sentiment. Ultimately the result of the concerted bailouts and liquidity injections will be a punishing of the US dollar, competitive currency devaluation, and a tailwind for commodities. Renewed demand, combined with most new projects shelved due to low commodity prices and the credit crunch and existing producers closed or put on "care and maintenance" should see supply constrained and a commodity cycle commence again.”
White is adamant in noting that Salida is adequately capitalized and has “more than enough capital to withstand a protracted downturn in markets or our funds.” Furthermore, he opines that given the extremely loyal client base that is characteristic of Salida, White and the team at Salida are sticking to their guns in terms of their investment style. He says “Discipline and risk management continue to play a paramount role in our investment process, however we must take a long term view in our investment decisions and that may mean an increase in short term volatility in our funds. We are not willing to “go to cash” on the sidelines and try and time our re–entry into this market in the future. Though we have reduced our exposures to weather this volatility storm, we believe timing the market is an impossible task. We must “take a side” in order to generate wealth over the long term.”
White ends by thanking all the firm’s supportive investors and reiterates that Salida intends to weather the current market crisis and emerge a victor on the other side.
Note: In October, 2008 Salida opened up a Global Macro Hedge Fund for Canadian investors. While the fund does not have performance data of its own in Canada, the Global Macro Hedge Fund is actually modelled after the BTR Global Macro Hedge Fund which uses the same portfolio manager (i.e. Jason Russell), investment objectives and investment strategy and year to date performance for the BTR Global Macro Hedge Fund currently sits at 21.97%. The Global Macro Hedge Fund invests primarily in very liquid financial and commodity futures contracts in 7 different sectors including stock indices, bonds, metals, short term interest rates, energy, currencies and agriculture. Trading takes place on over 25 different exchanges in over 60 different markets. For further information, check out: http://www.salidacapital.com/
In his most recent (October 2008) letter to investors, portfolio manager of the Salida Multi Strategy Fund Brad White writes “Our Fund, which finished the first half of 2008 with a gain of 10.04% is now down 62.85% for the first 10 months of the year.”
Pinpointing the sources of the fund’s losses, White notes that the impact of the recent renegotiation of OAO Severstal’s bid for PBS Coals, a US coal producer was “significant to the fund.” White also points out that even though he sees great value in his private equity holdings, the fund has written down the value of private equities by 40% for the month to reflect market illiquidity. Lastly, White notes that since convertible spreads have widened he has been adding to higher quality convertible issues given as they are “capital efficient ways to obtain market exposure with lower risk.”
White writes that he has been rotating the Multi Strategy Fund’s small to mid-cap holdings into larger, undervalued names to better position the fund in terms of liquidity. Furthermore, he writes “Our weightings are very liquid, with 85% of our non–private positions holdings held in securities with less than one day average trading volume.”
In reflecting on the prevailing credit crisis that has gripped the markets, White opines that a “freezing of credit has domino effect in halting global trade and inflicting damage to commodity markets.” However, he believes that synchronized policy initiatives from global Governments and Central Banks will be enough to kick-start trade and global trade. Indicating that the credit crunch could be very deflationary in the near term, White is quick to note that the aggressive monetary policies being employed by Governments and Central Banks around the world will eventually end up being inflationary thereby leading to the “next “bubble — in scarce hard assets and commodities.”
White also points out that the incredible decline in commodities supplemented by a freezing of financing options will lead to severe future supply shortages. However, in order for banks to ease into project financings again, they will have to re-capitalized. This allows “lines of credit to thaw and trade to re–ignite well before banks compete for financing development projects. This time gap with increased trade and (albeit cooled) growth versus new supply sources will tighten supply/demand in virtually all commodities, and also allow costs to decrease for financeable (quality) projects.”
White, like many his contemporaries these days, feels that in hindsight this current period could perhaps turn out to be the buying opportunity of a generation. The current investing climate has evidenced valuations so incredible that “equities with free cash flow are trading below cash enterprise values; that is, the business is for free or less.” Although such disconnects in valuations are unsustainable in the long term, the exact timing of the turnaround is hard to predict. Looking back at history, White comments that “equity cycles typically respond 6 months ahead of economic and consumer sentiment. Ultimately the result of the concerted bailouts and liquidity injections will be a punishing of the US dollar, competitive currency devaluation, and a tailwind for commodities. Renewed demand, combined with most new projects shelved due to low commodity prices and the credit crunch and existing producers closed or put on "care and maintenance" should see supply constrained and a commodity cycle commence again.”
White is adamant in noting that Salida is adequately capitalized and has “more than enough capital to withstand a protracted downturn in markets or our funds.” Furthermore, he opines that given the extremely loyal client base that is characteristic of Salida, White and the team at Salida are sticking to their guns in terms of their investment style. He says “Discipline and risk management continue to play a paramount role in our investment process, however we must take a long term view in our investment decisions and that may mean an increase in short term volatility in our funds. We are not willing to “go to cash” on the sidelines and try and time our re–entry into this market in the future. Though we have reduced our exposures to weather this volatility storm, we believe timing the market is an impossible task. We must “take a side” in order to generate wealth over the long term.”
White ends by thanking all the firm’s supportive investors and reiterates that Salida intends to weather the current market crisis and emerge a victor on the other side.
Note: In October, 2008 Salida opened up a Global Macro Hedge Fund for Canadian investors. While the fund does not have performance data of its own in Canada, the Global Macro Hedge Fund is actually modelled after the BTR Global Macro Hedge Fund which uses the same portfolio manager (i.e. Jason Russell), investment objectives and investment strategy and year to date performance for the BTR Global Macro Hedge Fund currently sits at 21.97%. The Global Macro Hedge Fund invests primarily in very liquid financial and commodity futures contracts in 7 different sectors including stock indices, bonds, metals, short term interest rates, energy, currencies and agriculture. Trading takes place on over 25 different exchanges in over 60 different markets. For further information, check out: http://www.salidacapital.com/
Birch Mountain (BMD: TSX) Forced To Liquidate Assets
Birch Mountain Resources ( BMD: TSX) announced late Monday (November 3, 2008) evening that it had received a demand for repayment of its loans from its principal secured creditor, Tricap Partners, together with a notice of intention to enforce security pursuant to section 244 of the Bankruptcy and Insolvency Act.
In a news release dated October 3, 2008 Birch Mountain reported that it had been unable to conclude a sale agreement or an equity financing in excess of $10 million to help pay for a $31.5 million principal amount convertible senior secured debenture, issued to Tricap Partners Ltd. on a private placement basis on December 21, 2007. Pursuant to this, the company and its financial advisor, RBC Capital Markets, were working with its stakeholders to recapitalize the balance sheet to improve liquidity and continue implementing the business plan.
However, since Birch Mountain has been unable to repay its indebtedness to Tricap at this time, it’s expected that Tricap will begin enforcement proceedings as early as this week. Birch Mountain said that “At this time there appears to be little likelihood that there will be any recovery by the shareholders in the event of a liquidation or sale of the Corporation's assets.”
Birch Mountain is developing the industrial mineral potential of their extensive mineral properties in the oil sands region north of Fort McMurray, in north-eastern Alberta. The company was marketing Limestone from the Muskeg Valley Quarry as construction aggregates and as rock for making concrete and asphalt. Reagent grade limestone can be used directly in applications such as flue gas desulphurization. With its Hammerstone Project Birch Mountain was intending to process the limestone as quicklime for flue gas desulphurization, water treatment, pulp and paper manufacturing, and soil and biosolids stabilization.
Source: http://www.newswire.ca/en/releases/archive/November2008/03/c4604.html
Chinese Economy
China's official purchasing managers' index (PMI) fell to 44.6 in October, down from 51.2 in September, the China Federation of Logistics and Purchasing (CFLP) said on November 1, 2008. It was the lowest reading in the history of the survey, evidencing the impact of the global financial crisis on the Chinese economy. New orders, new exports orders and input prices all fell dramatically.
Commenting on the China Manufacturing PMI survey, Eric Fishwick, Head of Economic Research at CLSA – Asia Pacific Markets said:
“The very sharp fall in the October PMI confirms that China is more integrated into the global economy than ever. Chinese manufacturers are seeing their order books cut, both at home and abroad, as the world economy falls into recession. Costs are falling but so are output prices. The coming twelve months will be difficult ones for manufacturers, China included.”
Elsewhere, Metals and Mining analyst D. Gagliano of Credit Suisse commented that:
“On 3rd November, the China PMI data for October was released, with a weak overall reading of 44.6. As a result, our China Economics team has lowered their forecasts for Chinese GDP growth in 2009 from 8.8% to 7.2%. Bottom line: For the metals & mining sector, we think the main takeaways from the macro changes October PMI data & lower GDP growth forecast are 1)Underlying metal prices will potentially stay lower for longer…i.e. potentially straight through 2009, and 2.It most likely pushes investor expectations for a sustainable rebound in the metal equities out to Q1'09, in conjunction with a trough in global IP growth rates. While we still believe the metal equities are already pricing in a worst case scenario (i.e. a marginal cost environment), the absence of a demand catalyst remains the biggest hurdle for the metals & mining group, as in our view investors will remain on the sidelines until some evidence of demand stabilization emerges. Regarding the changes we are making, we are lowering our steel price assumptions for 2009 (avg. HRC price declines from US$800/ton to US$663/ton), driven primarily by our view that weak steel demand will be met with production cuts, putting pressure on the prices of key raw material inputs for steel, which in turn will pull the marginal cost of production for steel down further. (see full report for more details & specific earnings revisions). We are maintaining our base metal & coal price assumptions. We recently cut our base metal price forecasts to what we believe to be the marginal cost of production for 1H'09, on the view we will see surpluses in each major base metal, and this data does not change that view (see 10/20/08 note for details). Similarly, in our view the U.S. thermal and metallurgical coal price assumptions (which are 30%-50% below recent transaction prices) already reflect a view that US coal exports swing back to the US in 2009. Among the individual equities - We think the first reaction to the China October PMI data will be most negative for Freeport-McMoRan Copper & Gold (FCX, $29.06, OUTPERFORM [V], TP $52.00, MW), and United States Steel Group (X, $36.88, NEUTRAL [V], TP $66.00, MW), due to a)relatively greater leverage to an underlying commodity most impacted by continued poor demand prospects from China (i.e. FCX), or b)a higher fixed cost structure than the peers (i.e. X), Conversely, we believe the following shares are positioned to hold in relatively better… Nucor (NUE, $40.51, OUTPERFORM [V], TP $50.00, MW), and Alcoa Inc. (AA, $11.50, OUTPERFORM, TP $20.00, MW), given a) more flexible cost structure (NUE), and b) underlying commodity exposure where pricing has already dropped to marginal cost (AA)."
Note: A PMI reading over 50 indicates an expansion of activity, while one below 50 suggests a contraction. Since 44.6 is clearly in the latter category I wonder if there are any 'Decoupling' theorists still remaining?
Given that China accounts for 48% of iron ore demand and 30% of copper demand, both these metals will benefit from any boosts in infrastructure spending which many are expecting the Chinese goverment to pursue in an effort to address to economic slowdown.
Commenting on the China Manufacturing PMI survey, Eric Fishwick, Head of Economic Research at CLSA – Asia Pacific Markets said:
“The very sharp fall in the October PMI confirms that China is more integrated into the global economy than ever. Chinese manufacturers are seeing their order books cut, both at home and abroad, as the world economy falls into recession. Costs are falling but so are output prices. The coming twelve months will be difficult ones for manufacturers, China included.”
Elsewhere, Metals and Mining analyst D. Gagliano of Credit Suisse commented that:
“On 3rd November, the China PMI data for October was released, with a weak overall reading of 44.6. As a result, our China Economics team has lowered their forecasts for Chinese GDP growth in 2009 from 8.8% to 7.2%. Bottom line: For the metals & mining sector, we think the main takeaways from the macro changes October PMI data & lower GDP growth forecast are 1)Underlying metal prices will potentially stay lower for longer…i.e. potentially straight through 2009, and 2.It most likely pushes investor expectations for a sustainable rebound in the metal equities out to Q1'09, in conjunction with a trough in global IP growth rates. While we still believe the metal equities are already pricing in a worst case scenario (i.e. a marginal cost environment), the absence of a demand catalyst remains the biggest hurdle for the metals & mining group, as in our view investors will remain on the sidelines until some evidence of demand stabilization emerges. Regarding the changes we are making, we are lowering our steel price assumptions for 2009 (avg. HRC price declines from US$800/ton to US$663/ton), driven primarily by our view that weak steel demand will be met with production cuts, putting pressure on the prices of key raw material inputs for steel, which in turn will pull the marginal cost of production for steel down further. (see full report for more details & specific earnings revisions). We are maintaining our base metal & coal price assumptions. We recently cut our base metal price forecasts to what we believe to be the marginal cost of production for 1H'09, on the view we will see surpluses in each major base metal, and this data does not change that view (see 10/20/08 note for details). Similarly, in our view the U.S. thermal and metallurgical coal price assumptions (which are 30%-50% below recent transaction prices) already reflect a view that US coal exports swing back to the US in 2009. Among the individual equities - We think the first reaction to the China October PMI data will be most negative for Freeport-McMoRan Copper & Gold (FCX, $29.06, OUTPERFORM [V], TP $52.00, MW), and United States Steel Group (X, $36.88, NEUTRAL [V], TP $66.00, MW), due to a)relatively greater leverage to an underlying commodity most impacted by continued poor demand prospects from China (i.e. FCX), or b)a higher fixed cost structure than the peers (i.e. X), Conversely, we believe the following shares are positioned to hold in relatively better… Nucor (NUE, $40.51, OUTPERFORM [V], TP $50.00, MW), and Alcoa Inc. (AA, $11.50, OUTPERFORM, TP $20.00, MW), given a) more flexible cost structure (NUE), and b) underlying commodity exposure where pricing has already dropped to marginal cost (AA)."
Note: A PMI reading over 50 indicates an expansion of activity, while one below 50 suggests a contraction. Since 44.6 is clearly in the latter category I wonder if there are any 'Decoupling' theorists still remaining?
Given that China accounts for 48% of iron ore demand and 30% of copper demand, both these metals will benefit from any boosts in infrastructure spending which many are expecting the Chinese goverment to pursue in an effort to address to economic slowdown.
Monday, November 03, 2008
Signs of a Market bottom?
According to Nick Majendie, Chief Portfolio Manager of Canaccord’s Independence Accounts many of the features of a market bottom are already in place, some of which include:
- Volatility as measured by the VIX has been at historic highs
- Net insider buying both in Canada and the U.S. is at all time highs
- The ratio of bears to bulls as measured by the American Association of Individual Investors signifies extremely negative investor sentiment, which is always present a market bottoms
- U.S. housing starts and consumer confidence are at levels that last were seen around the time of market bottoms in 1974 and 1982. Housing inventory levels actually declined last month
- Holdings of cash in the U.S. are now one third of the value of the S & P 500 and will provide the fuel for the next bull market when investor confidence returns
Given the aforementioned reasons, Majendie does caution however, that market bottoms are often shepherded by a retest of the lows with a prevailing period of immense volatility. He writes “The retest can happen within a month or as long as five months. In 1987, it took a month, in 1974 two months and 2002/2003 five months interspersed with a 25% rally.”
Majendie also points out that a turnaround in market direction requires leadership from the financial sector. In this regard, he notes that the Philadelphia Banking Index (BKX) has so far held its nose above a double bottom at 47 on July 15 and October 17. With respect to the Canadian Banks, Majendie is “hopeful that the banks might be in the process of forming a base that can that help launch a rally.”
Source: Special Canaccord Independence Accounts Bulletin Dated October 27, 2008
Market Perspectives
"... We think this recession could be longer and deeper than average, but we do NOT think we are headed into anything like the Great Depression. Not only are we much stronger economically, but, currently, many more safeguards are in place to prevent a further downward spiral. Among them: FDIC insurance (which insures bank deposits for consumers who ultimately drive the economy), globalization (which provides a market for U.S. exports), and more proactive countercyclical fiscal and monetary policy. As Ben Bernanke stated recently, "We didn't wait for three-and-a-half years as the financial market collapsed to take strong action."
" ... the market appears to have priced in a fairly deep recession. And barring a significant near-term rise in interest rates (which we don't foresee unless there is a disorderly decline in the dollar) or depression (which we also consider unlikely), current market valuations may increasingly become a compelling offset to the ongoing liquidation by hedge funds and the like."
"... Watch for a sustained stabilization in the dollar (or more likely weakness) to reflect a return to risk taking and funds flowing back into international equity markets."
Source: Schwab Market Perspective: Global (Credit) Warming? by Liz Ann Sonders and David Kastner - October 31, 2008
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