Thursday, May 5, 2016

Vietnam Opportunity Fund selling for a 25% of Net Asset Value

The Vietnam Opportunity Fund is a security I owned several years ago when the market in Vietnam bottomed after the last financial crisis. I made about a fifty percent gain and then decided to get out. I have revisited the fund and noticed that the fund is still selling at a discount to NAV.

The current discount to net asset value is approximately 25%. So in effect you are buying a $1.00 in assets for $.75. The fund is consistently buying back shares in the open market in order to close the gap. In fact they have bought back $236 million in shares since 2011. This is good because we want to see a catalyst for the discount between NAV and the share price to shrink.

The economy of Vietnam is growing quite nicely and the last GDP report showed a 7.0% growth rate. The lower oil price has really done great things for Vietnam as it is a net oil importer. The lowered oil price has also allowed for a quite low inflation rate of 1.8%.

Vietnamese shares in a trading range

Although the economy has done quite well over the last few years the stock market in Vietnam has basically been in a trading range. This is consistent with the general malaise we have seen in frontier and emerging market shares. However, sentiment towards these markets is beginning to turn and we are seeing money beginning to flow into these markets. Vietnam with its robust economic growth should be the beneficiary of these flows.

One of the things I like about VOF is the fact that the fund management is able to buy stakes in companies that do not trade on the exchange. This gives the fund a certain private equity component. This is also allows for optionality which I definitely am a fan of.

I like Vietnam for several reasons. It has a young population with about 40% of the people under 25 years old. I believe that demographics are destiny. Young people spend money on consumer goods, houses, children, etc...Vietnam is also another country that is experiencing a migration from rural areas to urban areas. This is also a big growth catalyst with all the infrastructure that goes along with this migration.

Overall I like this as a long term investment. Vietnam has years of growth ahead of it and the VOF is a vehicle to take advantage of the growth that is going to happen in Vietnam.

The stock trades in London but has a OTC listing in the US (VCVOF). There is not a lot of liquidity so if you are interested in buying this you must use a limit order.

Tuesday, May 3, 2016

Gasoline demand is way up

EIA is reporting that gasoline demand in the US is over 9.2 million barrels per day. The fact to note is that the summer driving season does not start until Memorial Day and that the 9.2 million barrels per day of demand is a 40 year record for February. Gasoline demand typically spikes during the summer as people take vacations. The rising demand coupled with lower supply should lead to drawdowns in storage.

Another data point is that the rig count continues to trend lower. This will have a more delayed effect but eventually supply will reflect less wells drilled.

Rig count continues to decline as there is no incentive to drill at these prices

Sunday, May 1, 2016

Russian stocks make new high


We finish our week-long trip around the equity world today with the piece de resistance, of sorts. Of all the country stock markets that we track in our database, just one traded at an all-time high this week. We are betting that not many folks out there would have guessed that that country is…Russia. Yet, here was one of the “Russian Bear’s” main stock averages, the MICEX Index, hitting a new all-time intraday high yesterday for the first time since 2007.

This really should not be a surprise for a couple of reasons. The oil price has bottomed and is now recovering sop this bodes well for the Russian economy and stock market. Quite a bit of Russia's economy is tied to oil and gas exploration.  In addition the ruble has been strengthening against the US dollar as have most emerging market currencies. This is especially good news for US dollar investors in Russian equities as the strong ruble juices prices for dollar investors. I expect Russia to continue to do well especially as I anticipate a higher oil price by year end. 

You may recall that Russia was the cheapest market compared to its CAPE ratio. The lower the CAPE the higher the return over 5-10 year periods. In case you missed it I wrote about it here.

Canacol Energy achieves forecasted gas sales in Colombia


Canacol Energy Ltd. is pleased to provide the following update concerning its gas sales and the expansion of its Jobo gas processing facility. 

Realized contractual gas sales currently total 90 million standard cubic feet per day (MMscfpd). Canacol’s gas sales are priced in US dollars sold at the Jobo plantgate under long term multi year escalated take or pay contracts at a 2016 average sales price of US$31.92 / barrel of oil equivalent boe), or US$5.60 / thousand standard cubic feet (mscf), to major Colombian gas consumers including thermoelectric producers and mining companies. Realized contractual gas sales for the months of January 2016, February 2016, and March 2016 were approximately 30.0 MMscfpd, 38.5 MMscfpd and 47.0 MMscfpd respectively, reflecting the additional sales related to the Promigas pipeline expansion. Realized gas sales netbacks for the first quarter of 2016 was approximately US$25.80 / boe, or US$4.53 / mscf. 

This is why I bought the stock. The area in Colombia where Canacol Energy ships its gas has a shortage of gas. The wall of cashflow will now commence as the company realizes a netback $4.53 per thousand cubic feet. In its operations update the company stated that they anticipate $135 million in EBITDAX for calendar 2016. The management also stated that they will turn their oil exploration back on if the oil price goes above $50 per barrel. I like this company especially in the cotext of a rising oil price which I expect over the rest of 2016.

Thursday, April 28, 2016

Cub Energy gives operational update


Average production for the first quarter was approximately 1,644 barrels of oil equivalent (“boe/d”) (Cub WI), which was a 22% increase over fourth quarter production of 1,353 boe/d. The majority of the increased production in the first quarter came from Tysagaz due to successful workovers on the RK-23 and RK-21 wells late in 2015 and early 2016 respectively. Tysagaz’s production volumes increased to 431 boe/d during the first quarter of 2016 as compared to 200 boe/d during the fourth quarter of 2015.

The estimated natural gas price received in Ukraine during the first quarter of 2016 was $6.23 per thousand cubic feet (“Mcf”) as compared $7.23/Mcf in the fourth quarter of 2015. Cub is paid in hryvnia (“UAH”), so the realized price in USD will continue to be influenced by changes in the exchange rate. The exchange rate went from 24.2 UAH/USD at the end of the fourth quarter of 2015 to 26.3 UAH/USD at the end of the first quarter of 2016 for an approximate 8% devaluation.

It is interesting to note that since the second quarter has started the Ukranian Hyrvnia has actually strengthened to 25.1 UAH/USD and is trending in the right direction. This is a highly speculative company but several years ago the management demonstrated  that they could consistently grow production and cashflow. It was only when the government of Ukraine stupidly jacked up the royalty rates that the company saw production shrink. Production has now begun increasing, the currency is strengthening, and the government, forced by necessity, is making market based changes that the IMF is demanding so that Ukraine can get the loans it needs to keep from defaulting. It is interesting to note that a couple of years ago this stock traded at over $.40 per share. 

Wednesday, April 27, 2016

Another view on the future higher oil price



Almost all analysts including the EIA and IEA agree that demand continues to grow at a steady pace throughout the rest of the decade, and even a minor economic downturn will only slow the pace of growth (green line), but not upend the upward trend line of demand.


But most analysts agree that the sharp drop in Capex budgets, not just among shale producers, will have its effect on sharply lowering production this year and putting growth in reverse, efficiencies and well cost reductions notwithstanding. What’s critical to note is how the media, and surprisingly most analysts, see global oil merely through the prism of U.S. independent shale players. To me, this is the critical grave mistake they make. Recent lease outcomes in the Gulf of Mexico, problems in Brazil and the likely end of spending for all new Russian oil projects are just a few of the other gargantuan gaps in global production we’re likely to see after 2016.


Longer-term projects from virtually all other conventional and non-conventional sources that have not been funded for the past two years will see their results, in that there won’t be the oil from them that was planned upon. Chevron estimated in 2013 that oil companies would have to spend a minimum of $7-10 trillion dollars to 2030 to merely keep up with demand growth and the natural decline of current wells. And this was without factoring in the drop in exploration spending that is occurring now and throughout the next two years. Severe capex cuts from virtually every oil company and state-run producer over the last two years has put this necessary spending budget way behind schedule.

The article points out a couple of facts that most people do not grasp. The first is just concentrating on US shale as if that is the only production that has any effect on the oil price. The 800lb gorilla in the room is that there has simply not been enough investment to ensure enough supply in the near future. All that oil in storage you keep hearing about. That will evaporate like a puddle on a hot summer day. Higher prices are coming and the contrarian play is top buy quality oil producers now before the crowd figures out what is happening. Once the media shifts the narrative the easy and big money will have been made. 

Fondul Proprietatea sells stake in ROMGAZ for $137 million


Franklin Templeton Investment Management Ltd. United Kingdom Bucharest Branch, in its capacity as Investment Manager of Fondul Proprietatea SA (“the Fund”), announces the agreement to sell an aggregate of 22,542,960 existing shares in S.N.G.N. ROMGAZ S.A. (“Romgaz”) (20,286,910 in the form of Shares and 2,256,050 in the form of Global Depositary Receipts, aggregate representing 100% of the Fund’s participation in Romgaz) to qualified investors and certain other investors not exceeding 150 natural or legal persons per Member State, other than qualified investors (all within the meaning of paragraphs (2)(a) and (2)(b) of Article 3 of the Prospectus Directive) (the "Transaction").

The shares were priced at RON 24.00 and USD 6.09 (in relation to disposals via dollar-denominated Global Depositary Receipts, based on the National Bank of Romania’s exchange rate of RON 3.9434 per USD as of 20 April 2016). The gross proceeds of the Transaction amount to RON 541,031,040 / USD 137,199,128.

This transaction represents the carrying out of the mandate by the funds investors to maximize shareholder value in Fondul. I expect the stock buybacks to continue. The current discount to the net asset value is 31%. I will buy a dollar for $.69 every time I can. As the fund continues to buy back shares I expect that eventually the discount will shrink. The economy in Romania is growing around 4% and the fund is paying a dividend so we get paid to wait while the management closes the discount. 

Tuesday, April 26, 2016

Sold half my position in Formation Metals (FCO.T)

Way overbought and going parabolic!

I am selling half my position in Formation Metals after experiencing a 100% move in the stock. This is the company I bought to take advantage of the looming cobalt shortage. Unfortunately the company is nowhere near production and this whole move is speculative hot money.

If you read my article on Formation Metals this is exactly what I thought would happen.

Now this company is a true penny stock that is nowhere near production of cobalt. However, as I said before this is a pure speculation on higher cobalt prices.

Anyway time to take half off the table and let the rest ride. This is possibly heading for a blow off move to the upside and then a big decline. Not to bad a 100% gain in 22 days!

Monday, April 25, 2016

How to invest in a government mandated monopoly

If you ask most people what they think about monopolies they will more than likely respond that they are against them. In the US and most every western country monopolies are not allowed. However, what if I can show you a legal way to take advantage of a government mandated monopoly? Would you be interested?

First of all what is a monopoly? A monopoly is; "the exclusive possession or control of the supply or trade in a commodity or service."

NagaCorp is a gaming company based in Hong Kong. The company's principle asset is the NagaWorld casino entertainment complex in downtown Phonom Penh, Cambodia. From the NagaCorp website:

NagaWorld consists of some 1 million square feet and approximately 700 Suites and Deluxe Rooms, public and premium gaming halls, an all-suite luxury spa, shopping gallery, 19 food and beverage outlets, extensive entertainment services and premium meeting spaces with state-of-the-art facilities, as well as one of the country's largest hotel convention spaces that can accommodate more than 1,000 delegates.

NagaWorld has a 40 year monopoly 

What makes this investment so attractive is the following fact; a 70-year casino licence that will run till 2065, as well as a 41-year monopoly within a 200km radius of Phnom Penh that expires in 2035. That's right no one can build a casino within 125 miles of NagaWolrd for 41 years! 

Here are the key facts from NagaCorp's 2015 annual report:

Net profit of US$173 million, a 27% increase over last year. Gross Gaming Revenue (“GGR”) for the year increased by 26% to US$481 million.

International tourist arrivals to Cambodia continued to follow their growth trajectory, recording 4.8 million visitors in 2015, an increase of 6% compared to 2014. Visitor arrivals at the Phnom Penh International Airport increased by 17% over the same period. Visitors from Vietnam (21%), China (15%) and Lao PDR (9%) collectively accounted for 44% of total tourist arrivals to Cambodia. The appeal of Cambodia as a travel destination for Chinese tourists is evident from a 24% increase year-on-year to 694,712 visitors in 2015.

In addition to the currently operating NagaWorld the company has several other projects under construction.

NagaWolrd2 which is right across the street from the current NagaWolrd. The idea for NagaWorld is the following:

The existing NagaWorld complex is reaching full capacity, with 80-90% room occupancy on a regular basis as it caters to gamblers, tourists, tour groups, walk-ins and the general public. As such, NagaCorp has decided to develop Naga2 (costing US$369 million), which will be situated a stone's throw away from the current premises. The development of Naga2 has a total built-up area of approximately 110,105 square metres, which includes the NagaCity Walk with approximately 13,248 square metres of retail and public space, and the TSCLK Complex which features approximately 1,000 hotel rooms, 38 luxury VIP suites, a multipurpose-entertainment/theatre with a seating capacity of approximately 2,100; and additional gaming space (up to 300 gaming tables and 500 electronic gaming machines).

Here is a map on how this will all look when completed.

NagaCorp is also building Nagawalk which will basically connect NagaWorld and NagaWorld2. This will consist of duty free shops.

The company is also building a casino in Vladivostok Russia which is the capital of the Russian Far East. 

The PERC Project is not expected to be operational before 2018 and will be expected to be the Group's next growth catalyst. The Group believes that its participation in an exciting new casino market in a different geographical region will diversify and enhance the Group's results in the long term.

The company has committed to paying out around 60% of earnings in dividends. This amounts to a yield of around 5.25%. 

Cambodia is a growing frontier market and as the country continues to grow and modernize expect more tourist traffic especially from China. Overall I think this is one you just buy and come back in ten years and it is worth a lot more than you paid. The symbol is NGCRF on the OTBB.

Sunday, April 24, 2016

Cobalt story starting to get picked up


Is Tesla doomed?

Don't get me wrong; the company has some great value and is driving the lithium revolution...
But there are so many challenges ahead.

The largest, of course, is figuring out how to scale up production of its cars. Remember, more than 400,000 future customers have laid down their deposits for the Model 3, and I wouldn't be surprised to see another surge in pre-orders before the cars roll off the assembly line.

Then there's one incredibly profitable problem: the lithium supply Tesla hasn't completely secured yet.
That alone has caused a sudden surge in demand, ultimately pushing prices sky high.

And now the same thing is about to happen to another commodity, one that's in an even worse situation:cobalt.


IF Tesla can ramp up...

IF a steady supply of lithium can be found...

And IF the world can keep — and increase — its cobalt production... then early investors in the booming battery field are set to make a fortune or two.

It's a lot of ifs, isn't it?

I think it's safe to say that most people are confident that Musk can deliver on the first, and the lithium revolution taking place in Nevada is helping to shore up Tesla's desperately needed lithium supply.

I have no idea if Tesla will succeed and I really do not care. The lithium and cobalt supply story is much bigger as it is not just EV batteries but stationary storage of wind and solar that are also taking off. Not to mention both of these metals are by-products of other mined minerals. I just do not see where the supply will come from in the near term. Yet we are ramping up green energy as fast as we can. Looks like higher prices for lithium and cobalt are going to be the order of the day.

This is my cobalt speculation, going parabolic?

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