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.

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.

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.

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

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

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.

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

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:

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

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.

Chaparral Gold (TSX:CHL) $0.32 - A spin-off and a Net-Net

Chaparral mining is a spin-off of International Minerals after that company was taken over. I purchased shares before the spin, as I discussed here. That article includes an attempt at valuing the company's mineral assets, which is something I'm generally uncomfortable with. However, the company has begun trading at $0.32, below the approximately $0.48 in net cash and current assets the company indicated they will have on their balance sheet. At 66% of NCAV, this is a Benjamin Graham net-net type stock. If the mining assets turn out to have any value or the price of gold increases, there is additional upside past $0.48. Basically, I just look at this as a chance to not lose money with potential upside past the cash value.

Disclosure: Long CHL






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

2013 Year in Review and Performance

2013 was the first 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.

My first post was about Automodular, when it was trading at $2.95. I argued the probability weighted value was higher, with the main factor in the value being whether the Ford contract was renewed. It wasn't. The stock hit a low of $1.19 after the news, and I bought when I posted again, with a recommendation to buy with a stock price of $1.31. The stock has since recovered to $2.40, so its getting close to my estimated downside case value of $2.55 from my original post. Other bloggers have estimates of value ranging from $2.64 to $2.37. While there are some potential upside catalysts (like a win on the GM lawsuit or a further extension on the Ford plant), I don't see a margin of safety in the stock, and have sold my position.

My next post was on Southern Pacific debentures, when they were trading at $69.50. They're currently trading at $34.70, as the company's wells at their Mackay project have not reached their estimated production capacity. The major drop in the price of the debentures comes as the company's debt to annualized last quarter EBITDA has ballooned out to approximately 17 times. However, the company's Senlac project continues to be a strong producer, and the next phase to restore production there comes on soon. Additionally, they are drilling infill pairs at Mackay, which should allow them to get more of their available steam into the reservoir. Also, conformance in a SAGD reservoir will eventually come with time, so I expect these debentures will eventually pay off at par. I am now long these debentures after recent weakness, and the yield to maturity of 58% is extremely attractive.

My third post was about a very small company trading below its net current asset value, Arrowhead Water. At the time of the post, the company was trading at $0.015. After the company announced a new management team, the stock popped to $0.35, when I added a new post suggesting there wasn't a margin of safety at that price. That was easily the biggest success of the year, except that my limit order never filled, so I never cashed in on the 20 bagger

The next company I profiled was Indigo Books & Music. Trading at $10.79 at the time of my post, it's now trading at $7.67. The company's operating results have been poorer than I expected. However, the main catalyst for the stock price decline was the company cancelling its dividend. This is a puzzling move for a company with a huge amount of cash on its balance sheet. The stock price decline has made the stock much more attractive. The company has current assets of $427 million, against total liabilities of $242 million, and a market cap of $194 million. Thus, the operating business including all the stores, leases, goodwill, and website is selling for an effective $13 million. While operational improvements are possible (for example, the company is starting to sell American Girl dolls, previously unavailable in Canada) the company could liquidate for nearly its current share price, suggesting limited downside from here. This was definitely a situation where my post was early.

The first technology company I posted on was Axia Netmedia. Trading at $1.31 at the time of my post, I identified this as situation where the sum-of-the-parts was at least as valuable as the current stock price, with potential for upside if anything went right. A few things did go well, with Axia selling its Singapore and Spanish businesses, renewing its contract in Alberta, and its French business having significantly improved margins. The shares now trade at $2.35, and the thesis has mostly been realized, although I still hold part of my original position.

The next technology company I profiled was a micro cap ISP that uses Axia's SuperNet to provide service to rural Alberta. Trading at $0.085 when I profiled it and set a minimum target price of $0.14, the company's results have improved with operating leverage, and the company now trades at $0.18. With an enterprise value to EBITDA ratio of only ~6.5, the company is still inexpensive.

I mostly spent the summer relaxing and travelling, and only made one post in July, about a net-net called Africo Resources. The company's cash greatly exceeded its stock price at that time of $0.46. The stock price is now down to $0.43, while the net cash per share is now around $0.85. This hasn't been a success so far, but the thesis is still intact. I believe good things generally happen when you buy cash for fifty cents on the dollar, and that's what this situation is.

My next post was on Advent Wireless, a small Rogers dealer that was trading at $1.93. The company is trading up slightly to $2.00, and is still cheap on an earnings basis.

My next couple posts were all on net-nets. King George Financial was trading at $0.375 when I profiled the company, and is now at $0.31. Nothing has really changed, and I'm still holding. Phoscan Resources was trading at $0.28 when I posted, and its last trade was at $0.305. PGNX was profiled at $0.16, and just paid a $0.17 distribution, and now trades at $0.03. That was a 25% gain in under a month, and I wouldn't hold it at that price, as I doubt the liquidation will yield substantial more than three cents per share. Eyelogic was profiled at $0.08 and last traded at $0.10, for another 25% gain. The company's net cash is still dramatically in excess of this price, so I'm still holding. My last exclusive to the blog post so far this year was Karnalyte Resources, which was trading below net cash at $1.38. It's now trading at $1.62.

My main goal when starting this blog was to think through my ideas and become a better investor. I feel like it has helped with that, and doing a look over my posts for the year has led me to a couple of conclusions. My best idea posted by far was one I didn't make any money on personally, and it would have made a material difference if I had. I shouldn't have tried to squeeze the last half cent out of the limit order on my purchase. Missing out on a $20,000 gain in my twenties will keep that lesson fresh. The other errors were mainly of being too early. The Southern Pacific and Indigo ideas weren't bad ideas (I don't think...) but they were definitely too early. Just because something is cheap doesn't mean it can't get cheaper, and a bad business often will. I should have waited for a bigger margin of safety before posting those two ideas.

I've summarized my posts in the table below. I haven't included the interest or dividends earned, except for the liquidating distribution on PGNX. The average return of the ideas was 177%, but the average was dominated by the twenty bagger. If you exclude the best and worst performing ideas, the return drops to a still respectable 25.5%. The S&P TSX was up 8.7% from the time of my first posted idea until today, so that is a pretty respectable market beating result. The companies I selected had more volatility than the market, but on average buying them would have worked out very well.

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.

Karnalyte Resources Inc (TSX:KRN) $1.38

Karnalyte Resources is a junior with a development ready potash project in Saskatchewan. That description accounts for the company's current low price, as the potash industry has been recently rocked. Events include the breakup of a Russian/Belorussian cartel that culminated in the arrest of one of the CEOs involved, subsidies in India for non-potash fertilizer hurting demand, and huge layoffs at existing producing mines as the current producers try to support the price by reducing supply. The potash producing companies enjoyed super-normal profits in the 2006-2008 timeframe as they kept the price propped up through their cartels, but that has now come home to roost, as prices have come well down from their peaks. Additionally, players throughout the industry expanded supply capacity during the high price periods, and much of that capacity is now idle, which will likely mute future price gains.

Karnalyte had approximately $52 million of cash on its balance sheet, against $2.5 million of liabilities, leaving a net current asset value (NCAV) for the company of $49.5 million. With a current market capitalization of $37.9 million, the company is trading at 76% of NCAV. When the company reported its Q3 2013 results it indicated the following "the Company does not expect to spend further material amounts on Capital or Intangible Assets until further financing is available."

Thus, we should expect to see a minimal cash burn until either the potash space improves enough to make the project feasible or the company is liquidated for its cash by either management or an activist/competitor.

Disclosure: Long KRN


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

International Minerals - A Takeover Arbitrage Play

International Minerals is getting taken over, and buyers at the current price are getting cash and shares in a spin-co. The spin-co is being valued at less than the cash it will have on hand, but it also has valuable mining assets. I did a complete write-up, permanently available here: http://seekingalpha.com/article/1870071-international-minerals-a-takeover-arbitrage-play

Disclosure: No Position

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