Rockshield Capital Corp is a net-net which is transitioning from a junior resource company to an investment company. RKS has $5.4 million in cash and $5.2 million in investments on their latest balance sheet, against which they have on $32,000 in liabilities. That equates to a cash value of 11.9 cents per share, which is nearly double the current share price, before accounting for any value to their investments.
The investments are in a variety of small and micro cap companies in Canada. For those interested, the investments are in:
Saber Capital Corp.
Helius Medical Technologies Inc.
Hemisphere Energy Corporation
Lupaka Gold Corp.
Americas Petrogas Inc.
Intellispharmaceutics International Inc
Pan African Oil Ltd.
By far the most material is Helius Medical Technologies, where the company owns 1.3MM shares and 650,000 warrants which they acquired for $650,000. The carrying value of those securities is now over $4.3 million. Therefore, the prospects for Helius will materially affect the prospects for Rockshield.
Junior medical device companies are outside my circle of competence, so I'm only assigning value to the cash and putting the investments in the margin of safety bucket, giving me a price target of $0.11.
My price target of $0.11 is also material because that is the strike price of the 15 million warrants the company issued when they raised capital this summer. Unfortunately, they raised it materially below the value of the company, which provides doubt as the seriousness of their capital allocation. Nevertheless, the company is trading at a valuation where I would expect good things to happen, and their track record with the investments is excellent so far based on the Helius success.
Disclosure: Long RKS
Disclaimer: I am not a registered investment advisor and do not provide specific investment advice. The information contained herein is for informational purposes only, and none of the information is guaranteed. Nothing in this article should be taken as a solicitation to purchase or sell securities. Before buying or selling any stock you should do your own research and reach your own conclusions. Seek qualified professional advice to make an investment decision. Investing includes risks, including loss of principal. Absolutely no warranty is made for the quality or correctness of the information above, and liability for its use is expressly disclaimed.
Thursday, 6 November 2014
Tuesday, 21 October 2014
Ryan Gold CVE:RYG $0.11
Ryan Gold is yet another net-net, which regular readers will realize is a theme of the blog. The company has $21.2 million of cash on their balance sheet as of their last release, and 117.1 million shares, which provides a cash per share value of $0.179, materially in excess of the current share price. In fact, the company is trading at 61% of its NCAV, which is well into Ben Graham territory. The company also owns stock and warrants in Carlisle Goldfields Limited and Coastal Gold Corp. Based on current prices, the Carlisle Goldfields stock is worth about $280,000 and the Coastal Gold stock is worth about $80,000. Carlisle is also a net-net, although barely, so there is a little bit of value in these positions, that I would ascribe to the margin of safety bucket.
As Dundee Corporation owns or controls 26% of the company, I would expect them to use it as a cash shell to merge with a business they're taking public. I have no evidence that this will happen, (it is merely my suspicion) and I would certainly prefer a liquidation. However, a merger like that would likely coincide with a stock promotion of the company's shares, which would likely allow them to approach a more reasonable valuation.
I've divided this article into paragraphs, as the first is factual fundamental analysis and the second is rank speculation. Use them as you see fit.
Disclosure: Long RYG
Disclaimer: I am not a registered investment advisor and do not provide specific investment advice. The information contained herein is for informational purposes only, and none of the information is guaranteed. Nothing in this article should be taken as a solicitation to purchase or sell securities. Before buying or selling any stock you should do your own research and reach your own conclusions. Seek qualified professional advice to make an investment decision. Investing includes risks, including loss of principal. Absolutely no warranty is made for the quality or correctness of the information above, and liability for its use is expressly disclaimed.
As Dundee Corporation owns or controls 26% of the company, I would expect them to use it as a cash shell to merge with a business they're taking public. I have no evidence that this will happen, (it is merely my suspicion) and I would certainly prefer a liquidation. However, a merger like that would likely coincide with a stock promotion of the company's shares, which would likely allow them to approach a more reasonable valuation.
I've divided this article into paragraphs, as the first is factual fundamental analysis and the second is rank speculation. Use them as you see fit.
Disclosure: Long RYG
Disclaimer: I am not a registered investment advisor and do not provide specific investment advice. The information contained herein is for informational purposes only, and none of the information is guaranteed. Nothing in this article should be taken as a solicitation to purchase or sell securities. Before buying or selling any stock you should do your own research and reach your own conclusions. Seek qualified professional advice to make an investment decision. Investing includes risks, including loss of principal. Absolutely no warranty is made for the quality or correctness of the information above, and liability for its use is expressly disclaimed.
Friday, 22 August 2014
STP.DB $10.06 - Doubling Down on Distressed Debt
The alliterative title is my way of distracting from the fact that my previous post on STP debt was a terrible call. If you'd like to read that post, it can be found here. The short version is the company had debt obligations of around $32 million per year, and my prediction was for cash flow of around $32 million per year. However, cash flow came in much less than that, and the company's debt has now increased to a total of $603 million. (Including a finance lease).
A compensating factor is that the convertible debentures are now trading at 10 cents on the dollar. With $410 million in debt senior to the converts, that implies the company needs to be worth $430 million for the debentures to pay out. With operating cash flow last quarter of ~$5 million, the company wouldn't be worth that based on traililng results. The trailing results are terrible, because the company's performance at the McKay project has been very bad.
Hope is on the horizon however, with ICD installation proving productive. The company is using their last few quarters of time before bankruptcy sets in to install more ICDs, in hopes of turning things around. The following graph shows the potential of the new technology, as the results on the first well they installed ICDs in were excellent.
My last prediction here was terrible, but I've (much more than) doubled down at recent low prices, and will count this as a double down/new recommendation when I calculate the results for my blog recommendations at the end of the year.
Disclaimer: The content contained in this blog represents only the opinions of its author. I may hold long or short positions in securities mentioned in the blog, and no updates to the disclosure above will be made. I may buy or sell securities at any time. In no way should anything on this website be considered investment advice and should never be relied on in making an investment decision. Read that last line again. Also, this blog is not a solicitation of business. The content herein is intended solely for the entertainment of the reader and the author
A compensating factor is that the convertible debentures are now trading at 10 cents on the dollar. With $410 million in debt senior to the converts, that implies the company needs to be worth $430 million for the debentures to pay out. With operating cash flow last quarter of ~$5 million, the company wouldn't be worth that based on traililng results. The trailing results are terrible, because the company's performance at the McKay project has been very bad.
Hope is on the horizon however, with ICD installation proving productive. The company is using their last few quarters of time before bankruptcy sets in to install more ICDs, in hopes of turning things around. The following graph shows the potential of the new technology, as the results on the first well they installed ICDs in were excellent.
The debt is trading assuming the company will be bankrupt and debtholders receive a small recovery. However, if ICDs work long enough for the company to tread water for a year or two, there is potential for a significant return here.
My last prediction here was terrible, but I've (much more than) doubled down at recent low prices, and will count this as a double down/new recommendation when I calculate the results for my blog recommendations at the end of the year.
Disclosure: Long STP.DB
Disclaimer: The content contained in this blog represents only the opinions of its author. I may hold long or short positions in securities mentioned in the blog, and no updates to the disclosure above will be made. I may buy or sell securities at any time. In no way should anything on this website be considered investment advice and should never be relied on in making an investment decision. Read that last line again. Also, this blog is not a solicitation of business. The content herein is intended solely for the entertainment of the reader and the author
Monday, 23 June 2014
Batero Gold - Another net-net - (CVE:BAT $0.095)
Another short, sweet, net-net. This company has 15.5 cents per share of net cash after all liabilities on its balance sheet. It also owns a small, low-ish grade mining property in Columbia. However, the mine is oxide, and could be surface mined and then heap leach treated, so it still has potential. Nonetheless, an undeveloped mine owned by a net-net is just potential option value, as at the current 9.5 cents per share the company is trading at 63% of net current asset value, in the Ben Graham wheelhouse. The company has also announced plans to reduce their cash burn, which I like. They've also suggested they might buy an undervalued junior, which I don't like.
Disclosure: Long BAT
Disclaimer: I am not a registered investment advisor and do not provide specific investment advice. The information contained herein is for informational purposes only, and none of the information is guaranteed. Nothing in this article should be taken as a solicitation to purchase or sell securities. Before buying or selling any stock you should do your own research and reach your own conclusions. Seek qualified professional advice to make an investment decision. Investing includes risks, including loss of principal. Absolutely no warranty is made for the quality or correctness of the information above, and liability for its use is expressly disclaimed.
Disclosure: Long BAT
Disclaimer: I am not a registered investment advisor and do not provide specific investment advice. The information contained herein is for informational purposes only, and none of the information is guaranteed. Nothing in this article should be taken as a solicitation to purchase or sell securities. Before buying or selling any stock you should do your own research and reach your own conclusions. Seek qualified professional advice to make an investment decision. Investing includes risks, including loss of principal. Absolutely no warranty is made for the quality or correctness of the information above, and liability for its use is expressly disclaimed.
Thursday, 15 May 2014
How to Prepare for Rising Interest Rates
Today's post is a portfolio strategy piece for income investors, which is a bit different than what I normally write about. It covers ways to alter a bond portfolio to reduce interest rate risk. Also discussed are types of equities that will benefit from high rates to use as a potential hedge. Although its different than my normal fare, I enjoyed writing it, and I hope you enjoy reading it.
Full article here.
Full article here.
Friday, 9 May 2014
TransAlta Renewables - Well Covered Dividend of 6.7%
My very first post on this blog, I indicated it was going to be for deep value ideas with a margin of safety, with a bias towards small Canadian companies. I've generally stuck to that, which is why today's post links to an article I wrote for Seeking Alpha and not the blog directly. It is a medium capitalization renewable power producer with a well covered dividend yield and decent growth prospects. The full article is here.
Thursday, 10 April 2014
Updates on Previous Posts
This post is going to be a bit of a grab bag of updates, as a couple of the stocks I profiled have had material news.
Petrobank (TSX:PBG) has announced a merger. I profiled the company here earlier in the year, as a net-net. While the company will no longer be trading below its NCAV after the merger, that is because it has parlayed its cash into a stake in valuable producing assets, and the market has bid up the stock accordingly. The combined entity will have the resources to more fully develop the assets in Trinidad, and will be less focused on THAI development in Canada, which hasn't worked. All-in-all this is a positive development.
Chaparral Gold (TSX:CHL) demonstrates one way that good things can happen when you buy companies for less than their net current asset value. When I profiled the company here they were trading at $0.32, and was available at a discount to their net current asset value at that time of approximately $0.48. This was also a spin-off situation, and those are often prospective for value investors. The mechanics of the spin was analyzed here.
Recently, a private equity firm has made an offer to purchase the entire company at a price not much above its NCAV. This seems like an opportunistic course of action, as the company's mining properties are likely to have some value. The bid was recently extended, and was for $0.50 per share. As the shares are trading at $0.68, or nearly 40% in excess of the bid price, I've closed my position. It's a double from where I recommended/purchased, and the incremental value of a higher bid is outweighed for me by the possibility of the deal going through at $0.50. I could be leaving money on the table here, but I don't see a margin of safety in the shares any more.
Whatever happens, I'll use the current $0.68 price when compiling my results at the end of the year, even if that turns out to have been a mistake.
Of course, not all of my net-nets have had something exciting happen to them, but that's not always necessary. Eyelogic Systems (CVE:EYE.A) is at $0.14, or nearly a double from $0.08 when I profiled the company as a net-net. It's still trading well below NCAV, and I still hold the shares. Maybe nothing exciting will ever happen, but the company is still trading around two-thirds of net cash, so there is a definite margin of safety.
Disclosure: Long PBG, EYE.A, may change at any time
Disclaimer: I am not a registered investment advisor and do not provide specific investment advice. The information contained herein is for informational purposes only, and none of the information is guaranteed. Nothing in this article should be taken as a solicitation to purchase or sell securities. Before buying or selling any stock you should do your own research and reach your own conclusions. Seek qualified professional advice to make an investment decision. Investing includes risks, including loss of principal. Absolutely no warranty is made for the quality or correctness of the information above, and liability for its use is expressly disclaimed.
Petrobank (TSX:PBG) has announced a merger. I profiled the company here earlier in the year, as a net-net. While the company will no longer be trading below its NCAV after the merger, that is because it has parlayed its cash into a stake in valuable producing assets, and the market has bid up the stock accordingly. The combined entity will have the resources to more fully develop the assets in Trinidad, and will be less focused on THAI development in Canada, which hasn't worked. All-in-all this is a positive development.
Chaparral Gold (TSX:CHL) demonstrates one way that good things can happen when you buy companies for less than their net current asset value. When I profiled the company here they were trading at $0.32, and was available at a discount to their net current asset value at that time of approximately $0.48. This was also a spin-off situation, and those are often prospective for value investors. The mechanics of the spin was analyzed here.
Recently, a private equity firm has made an offer to purchase the entire company at a price not much above its NCAV. This seems like an opportunistic course of action, as the company's mining properties are likely to have some value. The bid was recently extended, and was for $0.50 per share. As the shares are trading at $0.68, or nearly 40% in excess of the bid price, I've closed my position. It's a double from where I recommended/purchased, and the incremental value of a higher bid is outweighed for me by the possibility of the deal going through at $0.50. I could be leaving money on the table here, but I don't see a margin of safety in the shares any more.
Whatever happens, I'll use the current $0.68 price when compiling my results at the end of the year, even if that turns out to have been a mistake.
Of course, not all of my net-nets have had something exciting happen to them, but that's not always necessary. Eyelogic Systems (CVE:EYE.A) is at $0.14, or nearly a double from $0.08 when I profiled the company as a net-net. It's still trading well below NCAV, and I still hold the shares. Maybe nothing exciting will ever happen, but the company is still trading around two-thirds of net cash, so there is a definite margin of safety.
Disclosure: Long PBG, EYE.A, may change at any time
Disclaimer: I am not a registered investment advisor and do not provide specific investment advice. The information contained herein is for informational purposes only, and none of the information is guaranteed. Nothing in this article should be taken as a solicitation to purchase or sell securities. Before buying or selling any stock you should do your own research and reach your own conclusions. Seek qualified professional advice to make an investment decision. Investing includes risks, including loss of principal. Absolutely no warranty is made for the quality or correctness of the information above, and liability for its use is expressly disclaimed.
Tuesday, 8 April 2014
Potential Arbitrage Opportunity - McVicar Industries (CVE:MCV $0.48)
McVicar industries is a specialty chemical company with operations in China.
For those of you that are still reading, the story gets worse before it gets better. In 2013, the companies Hongbo facility was "illegally occupied by the factory management and staff," according to the company's press release. The company sold that operation back to the entity it originally purchased it from, and has announced a plan of amalgamation with its largest shareholder. The amalgamation will deliver proceeds of $0.50 to shareholders, and the most recent trading price is $0.48, for a 4.16% return on the trade if the deal is completed.
The independent valuation prepared at the board's behest concludes that the transaction is not fair to shareholders and that the company is worth $0.70 to $0.76 per share. I think it is unlikely shareholders will put up much of a fuss, and will generally be happy to get out of a Chinese micro-cap at a premium of >100% to the pre-deal price of the company.
The special meeting to approve the transaction is scheduled for the end of April, so a completed deal would be an attractive annualized return.
Disclosure: No position, may change at any time
Disclaimer: I am not a registered investment advisor and do not provide specific investment advice. The information contained herein is for informational purposes only, and none of the information is guaranteed. Nothing in this article should be taken as a solicitation to purchase or sell securities. Before buying or selling any stock you should do your own research and reach your own conclusions. Seek qualified professional advice to make an investment decision. Investing includes risks, including loss of principal. Absolutely no warranty is made for the quality or correctness of the information above, and liability for its use is expressly disclaimed.
For those of you that are still reading, the story gets worse before it gets better. In 2013, the companies Hongbo facility was "illegally occupied by the factory management and staff," according to the company's press release. The company sold that operation back to the entity it originally purchased it from, and has announced a plan of amalgamation with its largest shareholder. The amalgamation will deliver proceeds of $0.50 to shareholders, and the most recent trading price is $0.48, for a 4.16% return on the trade if the deal is completed.
The independent valuation prepared at the board's behest concludes that the transaction is not fair to shareholders and that the company is worth $0.70 to $0.76 per share. I think it is unlikely shareholders will put up much of a fuss, and will generally be happy to get out of a Chinese micro-cap at a premium of >100% to the pre-deal price of the company.
The special meeting to approve the transaction is scheduled for the end of April, so a completed deal would be an attractive annualized return.
Disclosure: No position, may change at any time
Disclaimer: I am not a registered investment advisor and do not provide specific investment advice. The information contained herein is for informational purposes only, and none of the information is guaranteed. Nothing in this article should be taken as a solicitation to purchase or sell securities. Before buying or selling any stock you should do your own research and reach your own conclusions. Seek qualified professional advice to make an investment decision. Investing includes risks, including loss of principal. Absolutely no warranty is made for the quality or correctness of the information above, and liability for its use is expressly disclaimed.
Tuesday, 18 March 2014
Chou Opportunity Fund Holdings Q1 2014
I've started profiling a new Fund, the Chou Opportunity fund. My first discussion of their largest holdings is below.
http://seekingalpha.com/article/2095453-chou-opportunity-fund-value-investors-2014-holdings
http://seekingalpha.com/article/2095453-chou-opportunity-fund-value-investors-2014-holdings
Saturday, 15 March 2014
Oceanstone Fund Q1 2014 Update
I've updated my analysis of the Fund's holdings. It can be found here:
http://seekingalpha.com/article/2090623-oceanstone-2014-picks-update
http://seekingalpha.com/article/2090623-oceanstone-2014-picks-update
Saturday, 8 March 2014
Alberta Oil Sands CVE:AOS $0.145
I apologize for the lack of posts, my wife and I recently had our first child, so things have been a bit hectic. This will be short as I'm typing it one handed on my iPad with a baby in the other arm, but it isn't a complicated thesis.
AOS used to be a company trying to develop an in situ oil sands deposit near the Ft. McMurray international airport. That didn't work out for a number of reasons, chiefly lack of cap rock and lack of money. However, the Government of Alberta has expropriated the leases for an expansion of the urban area, and AOS has applied for $56 million in compensation. The company has a current market capitalization of only $30 million with no debt, so this would be material, and make the company a significant net-net.
They also have other assets in Alberta and Africa, but are not spending money on them. I assume no value for those assets, but if someone makes a discovery on adjacent land they could have upside optionality for farm out or JV.
disclosure: Long AOS
Disclaimer: I am not a registered investment advisor and do not provide specific investment advice. The information contained herein is for informational purposes only, and none of the information is guaranteed. Nothing in this article should be taken as a solicitation to purchase or sell securities. Before buying or selling any stock you should do your own research and reach your own conclusions. Seek qualified professional advice to make an investment decision. Investing includes risks, including loss of principal. Absolutely no warranty is made for the quality or correctness of the information above, and liability for its use is expressly disclaimed.
Disclaimer: I am not a registered investment advisor and do not provide specific investment advice. The information contained herein is for informational purposes only, and none of the information is guaranteed. Nothing in this article should be taken as a solicitation to purchase or sell securities. Before buying or selling any stock you should do your own research and reach your own conclusions. Seek qualified professional advice to make an investment decision. Investing includes risks, including loss of principal. Absolutely no warranty is made for the quality or correctness of the information above, and liability for its use is expressly disclaimed.
Q1 Update on Arlington Value
Update on the new picks from the excellent folks at Arlington Value.
http://seekingalpha.com/article/2041813-arlington-value-funds-new-picks-for-2014
http://seekingalpha.com/article/2041813-arlington-value-funds-new-picks-for-2014
Friday, 10 January 2014
Book Review: How to Make Money in Junk Bonds
I recently read "How to Make Money in Junk Bonds" a great little book that covers the basics of this asset class. It has a definite value bent, more from the "quality business" side than the "cigar butt" side of the table. The review is here:
Monday, 6 January 2014
Oceanstone Fund Update
I've published a portfolio update on the Oceanstone fund due to a request from a commenter. It can be found here:
http://seekingalpha.com/article/1930141-Oceanstone-New-Picks-From-A-Reclusive-Master
http://seekingalpha.com/article/1930141-Oceanstone-New-Picks-From-A-Reclusive-Master
Thursday, 2 January 2014
Petrobank Resources (TSX:PBG) $0.34
Petrobank Resources is a net-net. The company has a current market capitalization of $33 million, against $68.5 million in current assets and $20.5 million in total liabilities. That means the company is trading at 68% of its net current asset value. The company has invested a great deal of capital in its proprietary THAI process for recovering heavy oil, which has resulted in consistent negative cashflow. The company has committed in its Q3 Update that they would get the THAI project cashflow positive by mid 2014 with minimum capital expenditures, or it would shut the project down. Either outcome would be positive. The company should be able to realize proceeds from its oil lands, which could be produced using other technologies by other companies. These proceeds have the potential to be material, but are difficult to quantify directly.
Disclosure: Long PBG
Disclaimer: I am not a registered investment advisor and do not provide specific investment advice. The information contained herein is for informational purposes only, and none of the information is guaranteed. Nothing in this article should be taken as a solicitation to purchase or sell securities. Before buying or selling any stock you should do your own research and reach your own conclusions. Seek qualified professional advice to make an investment decision. Investing includes risks, including loss of principal. Absolutely no warranty is made for the quality or correctness of the information above, and liability for its use is expressly disclaimed.
Disclosure: Long PBG
Disclaimer: I am not a registered investment advisor and do not provide specific investment advice. The information contained herein is for informational purposes only, and none of the information is guaranteed. Nothing in this article should be taken as a solicitation to purchase or sell securities. Before buying or selling any stock you should do your own research and reach your own conclusions. Seek qualified professional advice to make an investment decision. Investing includes risks, including loss of principal. Absolutely no warranty is made for the quality or correctness of the information above, and liability for its use is expressly disclaimed.
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