Monday, February 27, 2017

Retail Holdings (RHDGF) reports strong growth at operating units

Seeking Alpha:

(snip)

Singer Bangladesh, announced its 2016 consolidated (local currency) results on February 26. Revenue increased 30% from prior year to Bangladesh Taka 9,007 million. EBITDA and net income for 2016 were Taka 944 million and Taka 546 million, respectively, increases of 42% and 48% as compared to prior year.

Singer Sri Lanka announced its 2016 consolidated (local currency) results on February 24. Revenue increased 21% from prior year to Sri Lanka Rupee 46.9 billion. EBITDA and net income for 2016 were Rupee 5.2 billion and Rupee 2.4 billion, respectively, increases of 57% and 91% as compared to prior year.

I added Retail Holdings to my portfolio last week. The company is extremely undervalued and the management is looking to close the valuation gap. The valuation should grow if the company's operating units keep growing like this.

Sunday, February 26, 2017

Sold my shares in Jericho Oil (JROOF)

I sold my shares in Jericho Oil booking a 72% gain. I bought the shares back in October of last year.

The oil market is well supplied and the rig count is bouncing back. I suspect we will be seeing lower oil prices before we see higher prices. As you can see from the last few weeks I have been pairing back on the oil names and booking profits. I am still bullish on the natural gas and condensate names I am holding.

These headlines do not make me bullish on oil:

US rig count jumps by 10

US turns into 'oil nation' with record exports, 'eating' OPEC market share

Friday, February 24, 2017

Fairfax Financial to invest $100 million in to Altius Minerals

Altius Minerals website:

Altius Minerals Corporation ("Altius") (TSX: ALS) is pleased to announce that it has entered into a letter agreement pursuant to which Fairfax Financial Holdings Limited, through certain of its subsidiaries (collectively, "Fairfax"), will make an up to $100 million investment in Altius (ATUSF) in exchange for the issuance by Altius of preferred securities and warrants.

Fairfax has agreed to subscribe, on a private placement basis, for 5% preferred securities in an aggregate amount of $100 million, issuable in tranches of not less than $25 million. Altius intends to close an initial subscription of $25 million, and has sole discretion with respect to additional subscriptions by Fairfax for the remaining $75 million in minimum tranche sizes of $25 million by no later than December 31, 2017. The preferred securities will be subordinate secured and have no fixed maturity date but may be redeemed by Altius at any time after 5 years from closing, or after 3 years if its common shares are trading at a price of at least $24 per share.

Altius has also agreed to issue 6,670,000 common share purchase warrants, exercisable at $15 per share. Warrants will vest proportionately based on the aggregate amount of preferred securities drawn by Altius under the private placement. Each vested warrant will be exercisable within 5 years, but may be extended to 7 years if the closing price of the Altius common shares is less than $24 on the fifth anniversary of the initial closing. Altius can also elect to require early exercise of the warrants if the closing price of its common shares reaches $24 at any time after the third anniversary of the initial closing.

The proceeds raised from the Fairfax financing will be used by Altius for investing in opportunities it identifies within the mining and minerals sector and for general corporate purposes.

This is great news as I am a big fan of the Altius Mineral management team. They have consistently demonstrated that they understand the cyclical nature of the resource markets. The Altius team have made money for shareholders in the last two bear and bull market cycles.

Prem Watsa and Fairfax Financial really need no introduction. Watsa is a billionaire Canadian investor who is known as the Warren Buffet of Canada.

I look forward with eager anticipation as to how Altius will put this capital to work in an emerging commodity bull market.

Altius is a hold for me.

Yoma Strategic Holdings breaks ground on central Yangon real estate project

Deal Street Asia:

(snip)

Yoma Central, the $718-million real estate development led by Singapore listed Yoma Strategic Holdings and YSX listed First Myanmar Investment Co Ltd,  held its ground-breaking ceremony last week (February 16) following its approval from the government last month. 

Formerly known as the Landmark Development, the project is located on a 10-acre site downtown Yangon at the compound of the former headquarters of the Burma Railway Company. The project comprises a mixed-use development and a hotel. “Yoma Central will help shape the face of new international Yangon and that is ready and open for business said Serge Pun, executive chairman of Yoma Strategic and FMI. “Yangon Central will no doubt play a pivotal role in the city transformation into an international city” he said, during the ground breaking ceremony.

Here is a link to the Landmark website that details the project:

(snip)

The Landmark Development will accommodate approximately two million square feet of gross floor area of mixed-use development1 with a high degree of public permeability to become the heart of the CBD in Yangon. The Group intends to repurpose and safeguard the heritage building into the Yangon Peninsula Hotel, while the remaining structures will be demolished and redeveloped into a luxury residential condominium tower, a serviced apartment building and a business hotel complemented by two office towers, a retail podium and a basement carpark. The project is expected to complete in 2019/2020.

As the Myanmar economy grows at a consistent 7-8% per year I expect Yoma to capture an increasing amount of revenue from its various businesses that are focused on real estate and consumer spending. Long term investment that should compound capital over time. 



Thursday, February 23, 2017

Alan Greenspan on gold: Does he have a crisis of conscience or Alzheimers?

From the biggest money printer of all time as related to the World Gold Council in their winter edition of "Gold Investor".

"Significant increases in inflation will ultimately increase the price of gold,” Greenspan said. “Investment in gold now is insurance. It’s not for short-term gain, but for long-term protection.”

"I view gold as the primary global currency. It is the only currency, along with silver, that does not require a counterparty signature. Gold, however, has always been far more valuable per ounce than silver. No one refuses gold as payment to discharge an obligation. Credit instruments and fiat currency depend on the credit worthiness of a counterparty. Gold, along with silver, is one of the only currencies that has an intrinsic value. It has always been that way. No one questions its value, and it has always been a valuable commodity, first coined in Asia Minor in 600 BC."

Interesting that he never talked like this when he was FED chairman and help create the stockmarket bubble in 1999/2000. I guess in his old age he has gotten religion.

It is interesting how people will change their views based on being given power and money. Alan Greenspan in his younger days was an acolyte of author Ayn Rand who is the founder of Objectivism. Here is a quote about his time with Rand:

But she had gone far beyond that, thinking more broadly than I had ever dared. She was a devoted Aristotelian -- the central idea being that there exists an objective reality that is separate from consciousness and capable of being known. Thus she called her philosophy objectivism. And she applied key tenets of Aristotelian ethics -- namely, that individuals have innate nobility and that the highest duty of every individual is to flourish by realizing that potential. Exploring ideas with her was a remarkable course in logic and epistemology. I was able to keep up with her most of the time.

Rand's Collective became my first social circle outside the university and the economics profession. I engaged in the all-night debates and wrote spirited commentary for her newsletter with the fervor of a young acolyte drawn to a whole new set of ideas. Like any new convert, I tended to frame the concepts in their starkest, simplest terms. Most everyone sees the simple outline of an idea before complexity and qualification set in. If we didn't, there would be nothing to qualify, nothing to learn. It was only as contradictions inherent in my new notions began to emerge that the fervor receded.

Back in those days he was a free market thinker and a believer in gold as money. Once he got sucked into the establishment and began working for investment banks and for Richard Nixon I guess he succumbed to the offer of power and prestige and put his beliefs on the shelf and shilled for fiat money and the establishment as Chairman of the Federal Reserve.

I guess in his old age he has nothing to lose so he now feels compelled to come clean.

Wednesday, February 22, 2017

More Cobalt news and information and why Tesla could be dead meat

The Market Mogul:

Cobalt is benefiting heavily from the renewable energy revolution concerning green-energy devices, particularly used in electric cars. The metal is considered to be a technology enabling commodity. According to the London Mercantile Exchange (LME), trading volume reached 1600 lots in November, peaking in December 2016 with nearly 2800 lots being traded, compared to 500 lots being exchanged over the past ten months.

(snip)

Taking into consideration the building of Tesla’s Gigafactory in Nevada, solely for the purpose of battery production at adequate prices, the scale of importance becomes visible. Tesla states on its website that it “will require today’s entire worldwide production of lithium-ion batteries”.

Tesla will inevitably become the largest consumer of cobalt from North America’s raw-material resources as the firm plans to start mining in the US in the near future. Hence, it is worth keeping an eye on American/Canadian mining companies and their stock prices.

So this is a real problem for Tesla. Tesla is not even the biggest consumer of lithium and cobalt, it is the Chinese. The Chinese are building more battery factories than everyone else combined. This can be see from a recent article and info graphic published by Business Insider.

(snip)

Contemporary Amperex Technology Ltd (CATL) has plans to build the largest lithium-ion megafactory of all – but the company is little known in North America. It’s already worth $11.5 billion, and could be a dominant force globally in the battery sector if it successfully increases its lithium-ion production capacity six-fold to 50GWh by the year 2020.

Other Chinese manufacturers are on a similar trajectory. Panasonic, LG Chem, and Boston Power are building new megafactory plants in China, while companies such as Samsung and BYD are expanding existing ones. All lithium-ion plants in China currently have a capacity of 16.4GWh – but by 2020, they will combine for a total of 107.5GWh.

Chinese Playing the Long Game


The difference between Tesla and the Chinese is that the Chinese have secured their supply of cobalt by doing mining deals in the Democratic Republic of Congo. The Chinese are not encumbered by the morality of not buying cobalt and other inputs that come from "conflict zones". Tesla and European manufacturers at least pay lip service to not buying material from conflict zones or areas that use child labor. Now you know why Elon Musk was hanging around Trump Tower. In my view he is looking for a dispensation from these constraints.

The inability to cost effectively acquire the necessary raw materials for their batteries is the Achilles heal of Tesla and other non-Chinese manufacturers.

I am quite sure that having secured their supply chain for cobalt that the Chinese will not be selling material to potential competitors like Tesla.

Unless nickel and copper mining increase substantially (cobalt is mostly derived as a by product of copper and nickel mining) than manufacturers of lithium ion car batteries are in trouble. There is simply not enough cobalt readily mineable in the near future to support all this growth.

If the price of Cobalt goes high enough the metal will come out of the ground. However, it will take years and millions if not billions of dollars to bring on new non DRC production.

The one article says that Tesla is trying to source their material from North America. That is a joke and indicates that the author has no idea of how mines are created. It takes years to identify, prove up, permit, build, and finally bring a mine online.

I have seen others argue that other battery chemistry's that use little of no cobalt will just be substituted. That is all very possible bu that will not happen for years either as the tech needs to be developed, tested, and proved up before billions are committed to it.

"Your Whole Company Is Going Out of Business"


We know cobalt supply is an issue for Tesla because mining billionaire Robert Friedland talked about this issue recently at a mining conference.

"Elon came to me because we have a nickel sulphate and cobalt sulphate operation in Australia, not the Congo,” he said. “And Elon said ‘I’ve got the world’s biggest battery factory, so I want to buy your nickel and your cobalt at the current metal price for 10 years, because I’m the biggest buyer.’ “

So we told Elon Musk, you know, Elon, that’s interesting. We’ll think about it. And then two months later we went back to him and said “Elon, you’re totally screwed. The Germans are building a gigafactory twice as big as yours, the Chinese are building four of them bigger than yours, the Japanese are building two and the Koreans are building one. So unless you’re willing to pay to buy our cobalt and our nickel at whatever the price may be in the future, you’re not going to be able to build any batteries in your own gigafactory and your whole company is going out of business, and we’re going to make money shorting your stock.”

I have been talking about this issue for over a year. Tesla reports earnings today and folks are anticipating they will be ramping up M3 production this year. We shall see as raw material availability is just one of their issues.  I am short Tesla via long term puts.

Tuesday, February 21, 2017

Cobalt price now above $20 per pound

Business Insider:

Investors are buying up physical cobalt in anticipation that shortages of the metal, a key component of lithium-ion batteries used in electrical cars, will spur prices to their highest levels since the 2008 financial crisis.

Prices for cobalt metal have climbed nearly 50% since September to five-year peaks around $19 a pound as stricter emissions controls boost demand for electric vehicles, especially in China, struggling with ruinous pollution levels in some cities.

The article referenced above is a week old and the price of cobalt is already over $20 per pound. The price looks like it is going parabolic. There is definitely going to be a short term price spike as electric vehicle batteries suck up demand for cobalt used in their batteries.

Eventually enough investment will come in to solve the supply issue and/or battery chemistry will change in order to find an element that is in better supply.

Not sure how this will resolve but one thing I can be sure of is that every stock promoter in Vancouver and Toronto will supply a never ending supply of cobalt stocks to unsuspecting investors. Buyer beware.

I am playing this with long term puts on Tesla. The cobalt shortage is just one of their many problems.

Monday, February 20, 2017

Retail Holdings (RHDGF) undervalued by $11 per share

I am adding Retail Holdings (RHDGF) to my portfolio. The company put out a strategy statement on 1/4/2017. The strategy statement said the following;

(snip)

Retail Holdings N.V. (the “Company”), has as its principal asset, a 54.1% equity interest in Sewko Holdings Limited (“Sewko”), the parent company of Singer Asia Limited, with retail and financial services businesses in Bangladesh, India, and Sri Lanka. Sewko’s core business is the distribution of consumer durable products, primarily for the home, with supportive manufacturing, and with consumer credit and other financial services.

The strategy of the ultimate public holding company (hereinafter referred to as “ReHo”), is to
maximize and, ultimately, to monetize the value of its assets. The Company intends to make regular
cash distributions to its shareholders and to opportunistically repurchase its Shares. The objective is to liquidate ReHo, with a two to four-year time horizon, and distribute the resulting funds and any
remaining assets to its shareholders. 

This strategy statement is why I am buying shares. The current share price of the Retail Holdings is $18.20. Because the components of Sewko are publicly traded we can know the approximate value of the 54.1% equity stake that Retail Holdings currently holds.

I built a spreadsheet and calculated the parts of the whole equal to a net asset value of $29.48. At the current share price that means it is undervalued by $11 per share.

We know from the company strategy statement that the management intends on liquidate the company and pay off shareholders. As long as the parts of the company don't fall apart then we should see a nice profit over the next couple of years.

This is a small company and quite few articles have been written about it since the beginning of the year. The share price has moved up around $3 per share since the beginning of the year. The stock is lightly traded so if you are buying than please use limit orders.

Buying assets below net asset value is a theme with me i.e. (Fondul Proprietatea, Vietnam Opportunity Fund). Retail Holdings is a similar situation.




Chinook Energy (CKE.T) to double production in 2017

Chinook website:

(snip)

Chinook’s Board of Directors approved a $40 million capital program for 2017 focusing on the development of liquids-rich natural gas at Birley/Umbach, British Columbia. This capital budget will allow Chinook to drill, complete and tie-in six (4.5 net) wells prior to December 31, 2017 in addition to the three (2.6 net) wells currently being completed and tied-in. 

This capital budget will also fund the expansion of Chinook’s 25 mmcf/d compressor station at Birley/Umbach to 50 mmcf/d. Chinook’s pace of Montney development will continue to be prudently managed to demonstrate growth from its Montney assets while maintaining a strong balance sheet.

Average production in the fourth quarter 2016 was around 3000 boepd. In the recent press release the Chinook Energy management are going to spend $40 million in 2017. The management guidance is to exit 2017 with production running at 6000 boepd. That would be a 100% increase in production. If this occurs than the share price should revalue higher.


Sunday, February 19, 2017

Government of Mongolia and IMF agree to bailout

Bloomberg:

Mongolia reached an initial agreement with the International Monetary Fund for a three-year program that includes a $440 million loan package as part of a $5.5 billion bailout to help the north Asian country with looming debt repayments.

“The Asian Development Bank, the World Bank and bilateral partners including Japan and Korea are expected to provide up to another $3 billion in budget and project support, while the People’s Bank of China is expected to extend its 15 yuan billion ($2.2 billion) swap line with the Bank of Mongolia for at least another three years,” the IMF said in a statement on Sunday. “The total external financing package will thus be around $5.5 billion.”

This is great news and may lead to a change in investor perception regarding Mongolia. With commodity prices strengthening Mongolia could recover quicker than some perceive.

One item that will help Mongolia is that China banned coal imports from North Korea. This should benefit Mongolia as it is the number 2 supplier of coal to China. This should benefit Mongolia Mining Corp. my coal speculation.

The Mongolian economy is showing signs of bottoming.

The Headline Mongolian Sales Managers’ Index (SMI) was 38.4 in January, an improvement from the level of 37.0 in December. Year-on-year, the January level represents a 6.5 point increase, which could indicate that the Mongolian economy is slowly showing signs of improvement. All sub index components with the exception of staffing levels registered improving levels in January.

 The Sales Growth Index is still in contraction territory but there has been an emerging trend of improving conditions, with the rate of negative growth dropping off slowly. Prices charged for new sales have now started to grow, which suggests higher price inflation is to follow. Managers’ report that the prices increases have had a minimal impact on profit margins, indicating higher input costs are the driving force.


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