2014 Year in Review and Performance

2014 was the second year I wrote this blog, and the experience has been rewarding. In the spirit of people who make predictions everywhere, I thought I'd do a review of the year, what worked, what didn't, and why. I'm going to keep this overview to the company's I profiled directly on the blog. I also write about larger companies and American companies at Seeking Alpha, and have included a few links to that site in various posts, but I'm tracking the performance of those ideas separately.

I ended last year with the following, so I'll include these choices as well as my new profiles from 2014. For the companies that were carry-overs, I'm taking their price from my 2013 performance article to Dec 31st, 2014 all other companies are from date of publication on the blog to Dec 31st, 2014. Exceptions are Chaparral Gold, where I'm using my sell call from here as the closing price, and McVicar Industries, an arbitrage play that paid out its $0.50 value earlier in the year.


I will do another yearly review next year around this same time, and will include all my new posts, plus the following that I'm keeping around for another year: Southern Pacific Debentures, Indigo, Axia NetMedia, Platinum Communications, Africo Resources, Advent Wireless, King George Financial, Phoscan Resources, Eyelogic, and Karnalyte.

This year wasn't very good, with performance pulled down by the Southern Pacific Debentures, which I unwisely doubled down into. They closed the year at $2/100 of face value, a victim of oil prices and lack of reservoir execution. The decline in oil prices also hurt the Touchstone nee Petrobank position, which was a net-net winner part way through the year but fell dramatically with oil prices. I'm still holding it, as although it's not a net-net anymore, it is very cheap. I will leave Touchstone on next year's list but not STP.DB.

My net-net positions did poorly this year, with material declines in Karnalyte, Eyelogic, and Africo, while Phoscan also declined slightly. King George Financial was up, while final picks Batero, Ryan Gold, and Rockshield Capital were all up slightly. I'll be keeping all of these net-nets for next year's tally.

Indigo and Axia Netmedia are operating businesses which had good execution for gains this year, while Platinum Communications is one with poor execution for a loss. I won't keep any for next year as I've closed my positions in all of them. Advent Wireless is an operating business with a big bucket of cash, it would show better if you counted the $0.10 special dividend, and I'll keep it on the list for next year.

Alberta Oil Sands is flat from recommendation, and I'm leaving it off next years list. Canadream is one of my bigger winners, and I'll leave it on the list for next year. They sold their building in Calgary which surfaced some value, and I expect a cheaper Canadian dollar will benefit them going forward.

Company	Profile Price	Year End 2014 Price	Return
Southern Pacific Debentures	$            34.70	$                            2.00	-94%
Indigo	$              7.67	$                         11.97	56%
Axia Netmedia	$              2.65	$                            3.20	21%
Platinum Communications	$              0.18	$                            0.08	-56%
Africo Resources	$              0.43	$                            0.35	-19%
Advent Wireless	$              2.00	$                            1.69	-16%
King George Financial	$              0.31	$                            0.39	26%
Phoscan Resources	$            0.305	$                         0.285	-7%
Eyelogic	$              0.10	$                            0.06	-40%
Karnalyte	$              1.62	$                            0.80	-51%
Chaparral Gold	$              0.32	$                            0.68	113%
Petrobank Resources (Now Touchstone after 2:1 reverse split)	$              0.68	$                         0.315	-54%
Alberta Oil Sands	$            0.145	$                         0.145	0%
McVicar Industries	$              0.48	$                            0.50	4%
CanaDream	$            0.285	$                            0.47	65%
Batero Gold	$            0.095	$                            0.10	5%
Southern Pacific Debentures (Double Down Post)	$10.06	$                            2.00	-80%
Ryan Gold	$              0.11	$                         0.115	5%
Rockshield Capital	$              0.06	$                         0.065	8%
			-6%

Rockshield Capital Corp CNSX:RKS $0.06

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.

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.

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.

 

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

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.

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.

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.