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OGX: The funny thing is that this just goes to show that investors don't read company powerpoint slides. The company has presented the oil production rates for every month since production began, the 20000 number has been long-gone. The last production number they had published, as of April, was 9000 barrels per day if I remember correctly.
Clearly this oil complex is not as prolific as originally thought. But frankly OGX is not a one-trick pony, it has many other oil locations which will be brought up into production. The bar has been set pretty low from this first one though.
The big problem here is the headline loss of confidence in management's promises right now. Over promise, under deliver hurts.
-Fernando
I fully expect shares to be issued to resolve this funding problem. Even if they go the debt route, they will need some kind of short-term cash to give them time to set that up properly. MK will be willing to play that role but will demand some shares of course.
I don't expect the best scenarios to play out and frankly as long as we end up with less than 800M shares outstanding, i'll be quite satisfied with my Baja investment. For a situation worse than that 800M scenario to occur, we'd need to either NOT obtain funding (a low probability event in my opinion) or obtain it in the worst way possible.
I'm willing to play those odds, which is why I bought back all the shares (and then some) today which I had sold for 34 cents the other day on the spike ;).
-Fernando
UTRA: Its been pretty strong, partly because George Valente grabbed another 1.5M shares when it resumed trading.
I posted on this board when I saw a very very firm bid on UTRA at $0.65...Someone thought I was simply pumping, shrug...Now at $1.4 =P.
Wonder if George is still buying, volumes have come down.
-Fernando
OGX: Regarding the underperformance, take a look at this chart for 6 month's behavior of Oi, Banco Do Brazil, Petrobras and OGX.
http://finance.yahoo.com/echarts?s=ogxp3.sa#symbol=ogxp3.sa;range=6m;compare=petr4.sa+bbas3.sa+oibr4.sa;indicator=volume;charttype=area;crosshair=on;ohlcvalues=0;logscale=off;source=undefined;
A lot of the Brazilian stock market has underperformed lately as you can see :). Pretty similar behavior in those four stocks once you consider they have different betas. Note: I used the Brazillian stocks in that chart to exclude the currency impact.
Its hard for OGX to break the Bovespa trend while it has no significant revenues/profits and thus no real catalyst ATM to go against the headwind.
Regarding the currency, its now at 2.08x with the dollar. The chart looks spikey and getting very attractive for me to move USA money into Brazil securities. Personally i'll be allocating more and more capital to that route in the days to come, specially if this currency spike continues. Pyramid-style for size of course =).
My Brazillian friends who live in the USA, who are planning trips to Brazil in the next 6 months, are already talking about exchanging money now for their trips while the rate is like this (chuckle).
-Fernando
OGXPY: I had sold a good chunk above $10 but have been rebuying below $6 lately. One reason for the under-performance is the currency fluctuation... Its also always had alot of beta =).
-Fernando
BAJ: Toronto is closed but it seems director SEDAR information came out that they bought shares. The BAJFF US-Pink version is up like 40-50% right now.
For those who own the BAJFF, you might consider selling some shares on this pop and looking to buy back tomorrow morning when the BAJ.to is trading as well. Alot more liquidity that way, unlikely the stock can go up 10 cents (40-50%) on the 200-300k liquidity we have seen so far from BAJFF.pk.
I sold a few trading shares for this exact purpose personally... Some I had bought in the mid 20's =). Look to rebuy tomorrow.
-Fernando
Lots of real estate opportunity out there :). Florida (Jacksonville specifically) is already 20% off the condominium bottom-prices it hit in early 2011 but people should check out Las Vegas if they want to see some insanity right now.
Only comment I have to make if you are pursuing real estate investments: Try to avoid becoming a Slumlord ;). You get more headaches than you'd expect and dealing with situations from long-distance is not easy... The nice thing about the current environment is that you can find premium properties for insanely low prices, so you get the great 15%-20%ish *unlevered* returns with good tenants. I passed up on a number of higher return properties because they were 'lower price points' in lower-income economic-areas -- I don't want a Jerry Springer moment as a landlord.
Another benefit of going for slightly lower return, higher priced and higher-rent properties is that the 'fixed costs' of maintaining your property eats less into your returns. Having to get a new carpet, paint the walls, etc weigh alot less if your renting for $1000 versus $700.
The few Jacksonville properties I managed to lever up on give 25%-30%+ returns on my money right now. So hard to get condo loans in Florida though, specially in the 50k (or lower) loan-size zone =(.
-Fernando
No doubt common get part of the cake, the question is how much dilution will we get. I fully expect MK to extract their pound of flesh.
http://www.sec.gov/Archives/edgar/data/1331092/000114420412028575/v313116_ex7-30.htm
-Fernando
I welcome Will to the fold of Banco Do Brasil shareholders (chuckle). Good way to get exposure to Brazil's domestic economy anyhow, at extremely reasonable historic evaluations and solid return prospects.
-Fernando
IMHO, AGNC is the best Agency REIT hands down.
Here is a website with a huge list of REITs, of all types... Worth checking them out =).
http://www.dividenddetective.com/reit_directory_mortgage_fin.htm
-Fernando
I follow a few... What kind of REITs you looking for?
Agency?
Non-Agency?
Special Finance/Loan-Originators, CDO's?
CLO, REO?
Health related REITs?
etc etc...So many options.
-Fernando
Banco Do Brazil(BDORY.pk, BBAS3.sa): Here is a Goldman report on Brazillian banks, worth reading I think.
http://pdfcast.org/pdf/goldman-sachs-report-on-brazil-banks
Enjoy!
-Fernando
Shrug, I don't give a crap about valuation in this space. What is much more important in almost every case is 'What will the company do to drive valuation?'.
Having a P/E of 1, trading below cash, etc...None of that matters if the company shares do not indicate real ownership of the business AND the company acts as it if does by doing SIGNIFICANT buybacks, dividends, etc.
I do still own some CCCL, yes. I'll keep owning it in the hopes that someday management drives value...But i've written it off as a 100% loss in my mind just in case.
-Fernando
It is always worth looking at comparables but since YLO isn't spending its money buying them back at par either, it can still get 'boosted returns' by spending money on debt buybacks later ;).
The fact is though, the debt on DEXO is too much for me to ever leave the bond's playground...At least for quite awhile longer.
-Fernando
1B value on 700M shares, A&B converted... Don't forget that C&D get value before common and we have the debentures as well with their place in line ;). Will probably have to do a few more pension payments too...
Still, you can easily see 500M-ish available to the common which is what $0.71 or so?
-Fernando
All these numbers sure do 'jive' with our model forecasts when you look forward. I'd probably argue that I would not pay 6x EBITDA for a company like this, so i'd use a 5x multiple instead.
From my perspective, throw some more margin-of-error in there and assume 400M EBITDA stabilization in the future (Yea its a nice round number)... 5x EBITDA and EV should be 2Billion.
Of course, the open question is how much debt will be retired between now and when the EBITDA stabilizes at that 400M mark.
-Fernando
I don't think so for two reasons:
1) That 13.3% drop was combined revenue, so print decline was 2-3%ish higher than that since online had a 8% revenue gain.
2) They keep saying that print decline trends have steepened. So assuming a bit worse than we saw YoY in Q1 going forward makes sense to me.
-Fernando
YLO: Haha, thats what I was telling Glen the other day on the phone. My biggest fear is the stupidity factor of the BoD and Management.
-Fernando
To be expected, the stock was trading at 0.06 before the run-up leading to the quarterly results...Just going back to that today (chuckle).
Would be nice if management would stop jerking off and start doing something...Buy MTN, deal with preferred, something.
-Fernando
Hah! Was the statement in the post incorrect? If it was, feel free to say so, but you can't since it was a perfectly valid point.
Someone, god knows who, was a brick wall of a bid at $0.66 cents for UTRA yesterday. There were lots of sellers, in fact someone hit that 0.66 cent bid with 5k shares EVERY 1-2 min for hours. They only stopped at around 3:20pm which is when the stock finally started to rise a bit.
Facts are facts, my man. No interpretation required.
-Fernando
UTA(UTRA): Interesting trading there today. Its exchanged 10% of the float between 65 and 70 cents so far today. Amazingly nonvolatile, seems someone is grabbing shares with both hands at that price.
Not surprised at the big drop after a YEAR being halted though, alot of people just wanted out.
-Fernando
BAJ: My take is that Greenslade crumbled to the pressure and the fact that they need funding by Mid June (The lawsuit MK initiated probably did not hurt).
Clearly they need money by Mid June and the debt solution probably won't be done by then. That means they need a bridge loan (Maybe from MK?) or to raise 60M-ish to fund operations till the debt funding can be arranged (an extra month).
Given all that, I can see why he would go to MK and say 'Ok, you get what you want. Now lets talk funding.'
On the bright side, the Cobalt&Zinc savings were higher than I anticipated. That should lower funding requirements nicely if they choose to pursue that option.
The biggest take-away for me was that whatever governance issue existed is now being resolved. That eliminates alot of the 'worst case' scenarios for me, since I already knew they had a timeline for finding cash.
-Fernando
Remember in Q3 2011 how I was hedged but net positive in my holdings?
At this point in time i'm both long and short, but net negative beta (and have been for a month).
I'm around 30% long invested atm only, with 40% short and 30% cash. At least with my US portfolio. As usual my longs are extreme value, long term buildout, etc plays which frankly should build value over time in any economic scenario (Of course, that value might only be realized in the stock price after a downturn if we get one). I pretty much *never* get below 30% long, regardless of the situation if I can find decent things to own, since I believe that companies build value over time -- and that provides returns to investors (specially when I buy them cheap).
In my view, we could see the US markets get a 10% correction in a heartbeat (Yes yes, if bad scenarios happen it can go alot lower than 10%...Just saying that first 10% drop doesn't require much). The markets can stay insane longer than I can stay solvent though, thats why i'm not more short than I am.
My Brazil portfolio is more complicated with fixed income segments, etc etc.
-Fernando
It depends what you want to buy. Cars or electronics? Sure, blame the import taxes. Food though i'll happily buy in Brazil ;).
The Real exchange rate has been pretty stable in the 1.75-1.9 area since late September 2011. Thats 8 months of them lowering rates without any significant currency move (I'd argue a 10% kind of fluctuation-range on the Real is normal in a 8 month period). Heck in the beginning of March the rate was at 1.7x and the Selix had already lowered rates significantly by then.
We are now at historically low SELIX rate levels. What makes you think the 'bit left to go lower' in those rates will have a larger impact than the 4% rate-lowering Brazil has already undergone (Most of that in that 8 month period I mentioned above)? By your logic, when the SELIX stops lowering rates that should provide a boost to the Real -- How long before the SELIX reaches a bottom? I don't see them going that much lower, heck inflation rates were still at 5.25% in April 2012!
http://www.reuters.com/article/2012/04/24/us-brazil-economy-inflation-idUSBRE83N0MZ20120424
On a separate note, my fixed income investments in Brazil have been ROCKING the past 8 months (laugh). Gotta love buying in at 12.5% yields and then getting rate decrease-gains on top of that.
-Fernando
One reason for the high rates in Brazil is inflation. Brazil often sees inflation in the 5-6% range, so of course saving accounts/etc need to give more than that. Take out inflation and the difference between Brazil 'real rates' and that of other countries does shrink.
My accounts in Brazil are mainly for my relatives/friends living there. They live, work, spend in reals...so they have no interest in hedging their own currency. My uncle's business (speed-boats) benefits from a weaker Real for example (They can export to other Latin Aerican countries like Argentina if their costs go down from a weaker Real).
Good luck getting BDORY at $9.5, thats like at 0.85x Price/Book (chuckle). I'll give you a 90% chance of never buying into it at that price in the next year ;).
-Fernando
I don't view the real as being weak. Look at a 5yr or 10yr chart:
https://www.google.com/finance?q=CURRENCY%3AUSDBRL&hl=en
The government has purposely kept it from getting too strong with those 'tax measures'...Combine all those efforts with declining rates, European slowness, etc and its no wonder we don't see $1.6 exchange rates right now. But that rate is historically very very strong.
Selix rates right now are VERY low. Historically so actually. They will trend lower over the LONG term and probably a bit lower in the short term but don't expect to see it down to 5-6% anytime soon IMHO. Heck, the government just changed the SAVINGS account-return-formula rule because it didn't work properly with a SELIX below 8.75%.
-Fernando
Have you been looking at the PMI numbers out of China? Pretty strong lately actually. I think predictions of them stopping their huge infrastructure buildout are sorely misplaced in the short and medium term. The fact is, China's economy is *so* much larger than 3-5 years ago now that a much smaller GDP growth % indicates insanely high commodity demand. We also have India ramping up its own economy-base quickly which we will start to feel as a commodity-demand driver going forward -- A number of bulk shipping companies are already talking about this.
The last time the Real got that weak against the dollar was during the Financial Crisis. Other than that, when was it the last time it got that cheap? I would be shocked if we saw 2.44 exchange rate (I don't think we hit that during the financial crisis!). It doesn't impact me whatsoever though because the money I have in Brazil companies (aside from OGX) is all in Brazil anyway and thus no currency risk ;). Those clients/family-members of mine all live/spend in Brazil, so thats not a worry I have.
The fact is, PBR sells oil which is a global commodity and thus Real exchange rate changes really should NOT impact that company (It only does because they end up importing gasoline and selling below cost due to government price fixing but you have offsetting COSTS like wages which are all in Real too).
Banco Do Brazil is super cheap and has a great ROE. Yes you could try to time the currency but frankly my only suggestion would be not to do what you did late last year when the stock market dropped to 1100. Waiting for the 'perfect moment' and never jumping in is just as big a mistake as jumping in at tops.
Regarding OGX, I pray to god the Real gets cheaper. They have alot of money offshore in Dollars right now, their commodity is Oil which will go up in real-terms if the currency goes down, many of their costs are in Reals which will go down in 'dollar terms' if the real gets cheap... So I don't see a currency risk of owning OGXPY. Oil price risk sure, but not currency. Just glad they don't have the problems PBR does with its refinery/government-control/etc.
Dip your toe, get a 25-50% position size. That way if your right you get to buy a great company insanely cheap...If your wrong you make lots of money too. At least thats my take on it.
-Fernando
UTA: It'll be UTRA on the OTCBB? Shown on their website at least -- On Monday.
http://www.otcbb.com/asp/dailylist_detail.asp?d=05/04/2012&mkt_ctg=NON-OTCBB
Good luck to everybody who got stuck in it!
-Fernando
Exactly. There have been some Macro problems which is why all Brazillian banks have gotten much cheaper over the last year. Those negative factors should start to stabilize by Q2 and improve by year end from what i've read by Goldman/etc though.
Out of the Brazillian banks, Banco do Brazil is the cheapest right now. As your friend said, they are the most conservative (ie: Government controlled), have great underwriting, and have arguably the best asset quality of them all (lowest NPL %). BBAS3's discount to peers ITAU/Bradesco is currently much larger than historically as well.
One thing to be aware is that the government is pushing through some 'cost/spread reductions' in the banking sector through its government controlled banks. That means BBAS3 will be cheaper in making loans than the private banks, which will have two impacts going forward:
1) Slightly lower ROE compared to private banks, which is why I expect 18-19% versus the 20%+ we have seen before
2) Significantly higher loan growth than private banks as borrowers flock to the cheaper alternative. If they qualify through BBAS3's underwriting that is.
I expect private banks will be forced to follow this path of slowly reducing fees/spreads over time -- By not leading the initiative though they will lack the boost from loan growth but will have higher ROE from a constantly higher 'cost'.
The question for BBAS3 becomes: How much will loan growth offset returns from the lower cost/spreads? Goldman thinks it mostly will, Credit Suisse is a bit more bearish in its views. Goldman has a 36+ price target, Credit Suisse has a 28+ price target. Their differences seem to stem from a slight disagreement on what the sustainable ROE % will be going forward (Roughly 1% difference in their views). The stock is at 22.5 right now, so either one is fine with me.
-Fernando
Santander is not trading below book. Its Brazillian stock symbol is SANB11.sa and is at $15.56 while book is $13.31. I think you were looking at the American ADR and got confused about book? Might want to recheck that dividend % too ;).
I looked at it before and Banco Do Brazil looked alot better for a number of reasons to me.
1) SANB11 only has 14% ROE. It has historically had much lower ROE than Banco Do Brazil.
2) Lower overall loan growth than Banco Do Brazil.
3) Out of total loans, 199.3B, a MUCH larger percentage (roughly double) is in Auto Loans and Credit Card loans than for Banco Do Brazil. I am not a fan of those segments, specially Auto Loans in Brazil.
4) Santander NPL percentages are significantly higher than for Banco Do Brazil. Off memory its like 4% BBAS3 to 7.5% for Santander.
-Fernando
BBAS3.sa/BDORY.pk: I'm getting very tempted to join into this 'Banco Do Brasil' stock. You get roughly a 7% dividend and a company trading at around 5.5 times P/E and 1x P/B. This is a company which historically has gotten ROE's of 20%-ish.
Its controlled by the Brazillian government and trades at a very steep discount to private brazillian banks because of that (The discount is wayyyyy too high right now at over 42% the last time I looked compared to ITUB). At the same time it has HIGHER loan growth than other Brazillian banks and better asset quality (lower NPL's).
Very solid bank ratios such as tier 1, etc etc (All Brazillian banks do actually). I don't think its traded this low on a P/B ratio for a long time (if ever) -- Not even in the 2009 crisis since their shareholder equity has grown 60% since early 2009.
-Fernando
Baja fair value? Even assuming worst-case assumptions from dilution due to the cost overun, I get it at $3+.
Haha, people love to hate Phonebooks. That will probably only change once digital gains offset print losses and we get revenue gains.
-Fernando
BAJ: I'm not looking to daytrade this stock mate, so not paying attention to that kind of stuff.
Do I think the stock will be higher than 48 cents in 12 days? Yes.
-Fernando
I'd lay 99% odds that he was asked to resign, yes.
Two possibilities:
1) Decentralized cost control methods, the guy had no grasp of the project and did a piss-poor job. Deserves to be fired.
2) Management wanted a scapegoat and he was nominated. Poor fella.
-Fernando
Haha yea.
Typical Corporate Reaction:
Zzz
Zzz
Zzz
OH SHIT!
WHO DO I BLAME?
FIRE THEM?
HIRE SOMEONE TO FIX THE PROBLEM!
TELL INVESTOR IT'S ALL GOOD.
-Fernando
BAJ: Got an email update from IR:
Baja Mining Provides Update on Cost Controls, Funding Search, Executive Change and Governance Advisor
Vancouver, April 25, 2012 – Baja Mining Corp. (TSX:BAJ - OTCQX: BAJFF) today provided an update on its cost control initiatives, the development of a funding plan, an executive change and a new governance advisor.
“We are responding quickly and effectively to control costs, finance projected cost overruns and improve management,” said Baja’s President and CEO John Greenslade. “Our objective is to continue to advance our Boleo Project so that copper production begins on schedule in the first half of 2013.”
Cost controls
Baja is taking action at its corporate office in Vancouver and at the Boleo project site in Mexico to effect more stringent cost controls. Baja is actively taking steps to conserve cash and manage the Company’s short-term cash flow.
As part of its effort to defer or reduce costs, Baja is reviewing alternatives for deferring some or all of the non-copper producing circuits at the Boleo Project to allow cost deferral and a focus on higher valued copper production. Baja is also reviewing all key roles in the company and will restructure as required.
All engineering, procurement and construction management activities are being centralized at the project site from Mexico City, including all project controls personnel. A third party engineering firm is being retained to critically review project management practices and systems. As further changes are made and additional controls are introduced, Baja will provide updates to shareholders.
Funding
Following Baja’s announcement of projected cost overruns on April 23, 2012, Baja received a number of offers from investment bankers to assist with financings. Baja’s funding objective remains to minimize dilution to shareholders.
As part of Baja’s review of funding alternatives for the Boleo Project, Baja’s senior management team is in discussions and meeting with lenders and lender representatives in North America this week and will travel to Korea next week to meet with the Korean syndicate of industrial companies that owns a 30 percent interest in the Boleo project.
Executive Changes
Dennis Bailey has been promoted to Vice President Construction and Development effective immediately. Mr. Bailey replaces Mike Shaw, who has resigned with immediate effect. Mr. Bailey takes over responsibility for engineering, construction, procurement and project management of the Boleo Project and its major contractors, including the construction schedule and budget.
Mr. Bailey was formerly Project Manager, a role he took on upon joining Baja in December 2010. Prior to Baja, Mr. Bailey was Director of Engineering Services for Golden Colorado-based Golden Minerals Company (formerly Apex Silver Mines Corporation) and its subsidiary Minera San Cristobal, where he was the Project Coordination Manager responsible for the completion of the engineering, procurement and construction phases of the San Cristobal mine in Bolivia. He was also responsible for the integration and coordination between the construction team, contractors and commissioning and operations groups. Mr. Bailey has also previously held senior positions with SNC Lavalin America and Newmont Mining. Mr. Bailey holds an MBA from the University of Colorado at Denver and a Bachelor of Science – Mechanical Engineering Technology from the Metropolitan State College, Denver.
Mr. Bailey will work closely with Chief Operating Officer Adam Wright and Vice President Operations Charles Hennessey, to control Project costs and improve management of the construction project from here to completion. The executive change, combined with the new third party reviews, will result in a much stronger control of Project and contractor costs, and be a key factor in achieving first copper production on schedule in the first half of 2013 and in-line with the revised budget.
Special Advisor to the Board
Baja has engaged Jonathan Drance, a senior partner in Stikeman Elliott LLP’s Vancouver office, as a special advisor to the Board to ensure the Company’s governance practices remain effective through this critical transition period.
BAJ: Yea, BNN State lowered the price target from $2 to $1.1 I think...
Two others lowered targets to $0.85.
Do you have access to any of the reports?
Here is an article talking about it: http://business.financialpost.com/2012/04/24/baja-mining-targets-slashed-on-uncertainty/#more-166615
-Fernando
BAJ: The funny thing is that in two days, Baja has lost more market cap than its entire portion of the funding cost overrun (chuckle). Boy that future cashflow is getting awful cheap ;).
-Fernando
You see any analyst updates on Baja today? I can't seem to find any I have access to...
-Fernando
BAJ: Dan, I couldn't resist...I just added 100k shares at around that 36-37 cent area (chuckle). Having to sit on my hands to not buy more right now...
-Fernando