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BAJ: Look at the volume mate... Yesterday it was like 3-3.5% of the float, today it is 3% of the float...
Dropping from 90 cents to 36 cents on a 6% of float volume? Its just alot of retail people in the stock and total lack of buyers.
-Fernando
BAJ: Always a possibility of more negative newsflow, but I am betting otherwise -- At least from a company origin (Who knows if someone will sue the CEO, etc).
I spoke to the head of IR for about 30 minutes yesterday, definitely got the impression that alot is in flux but that it was 'all out there'. That 246M overrun number is EXTREMELY conservative she said, which means potential for positive revisions over the next month as they get a final number.
At least the non-stop bleeding seems to have halted, 2 cents off the bottom now. Lets see if we hold for awhile.
-Fernando
BAJ: Haha yea, people panicked nicely here =).
Grabbed some more shares below $0.50, at a 6% position now. Figure we are getting close to a bottom now.
-Fernando
Baja would be a very very good buy with copper at $2.5 btw ;). Sub $2 starts to become less so but note that the lenders assumed a copper cost of like $1.7 if I remember correctly. I used $2.4-$2.5 as my copper price when modeling Baja's cashflow personally (Due to the hedging they have in place).
I think calling for a avg 3.5% GDP growth from China for the rest of this decade, when they have done 8%-ish for the past decade is quite a radical call. I fully expect that their rate of growth will slow over time, since their economy is much larger and thus harder to maintain at a 'frenzied' pace -- but 3.5% is ridiculous IMHO.
I'm certainly not a China bear though. People who are should not buy ANY commodities, shippers or pretty much ANY non-defensive equities (like utilities).
-Fernando
No idea how low it could go in the short term, thats why I'm at a 4% position and not a 10% position (Which is still my target position size, if the price is right) ;).
Having Greenslade go poses a number of problems with lending convenants currently in place -- So it won't be easy to do that. I expect he did know cost overruns were happening but probably was not sure of the magnitude of it -- Those kind of things can sneak up on you.
I'm not sure what he gains from hiding the truth from the proxy vote though, AFAIK the AGM is coming right around the corner... I just looked online and the AGM is set for June 21st! So not much time left before that at all.
I guess he simply hopes to have the needed funding in place before the AGM meeting to defuse the situation.
Mount Kellet cannot exceed the 20% position, so they cannot buy more...Thats correct.
-Fernando
Mining cost overruns are common right now, so that was not surprising...The magnitude of the overrun certainly was though. That was a known risk in the investment thesis though and current $0.56 prices more than compensate for the current funding risk IMHO.
The resignations are worrisome but could be nothing. Baja is saying Grady resigned due to time issues and we *know* the other two simply resigned because Grady did (It was in their resignation letter). Plausible explanation? You judge for yourself.
If I was in Baja's audit committee, i'd resign too. Too much liability risk of coming out with this cost-overrun RIGHT after the proxy. If the audit committee did not know how big the overruns were BEFORE the proxy, they SHOULD have (If they were doing proper oversight)...So in either scenario they sucked.
The bottom line for me is that current evaluations are too low and the company has VERY tangible assets that will produce high cashflows. The cost of meeting that funding gap are unknown right now but even in a worst-case scenario (Which is much worse than a best case scenario) the stock is still very very cheap.
I got kind of lucky today. Was able to sell most of my position right at the open, got much better prices than I hoped for. I then rebought my share-count at $0.65 later in the morning and kept nibbling more as it fell to $0.56. My current position size is just slightly more than it was last night, at around 4% of my portfolio, but I own 50% more shares than before.
I hope the panic continues, would happily buy more if prices get better -- Even with the uncertainty out there.
-Fernando
Baja Mining: Figured this post was informative and i'd spread it here (http://www.stockhouse.com/Bullboards/MessageDetail.aspx?s=BAJ&t=LIST&m=30974574&l=0&pd=2&r=0)
"To say the least
Just got off the phone with BAJ IR after about a 30 minute call and this is the info I got.
1) $246 million is what they consider a worst case scenario, they can't swear on it but they wont come back to us with a worse number in 6 months time
2) Greenslade is off to Korea tomorrow to talk to the partners and then they are all getting together with the lenders in 2 weeks in washington DC
3) Thody resigned because this was too much work and he doesnt have the time - the other two resigned because Thody left
4) they've been on the phone with Louis Dreyfuss this morning and they have put fwd their support and offered to help if needed
5) They have not spoken with MK
6) They have spoken with all of the analysts and we can expect reports tomorrow - majority of the analysts were not suprised
7) looking at either deferring cobalt/zinc circuits and funding those out of future cash flow, potentially geting the lenders/partners to extend more credit, potential JV partner, and lastly going to the equity market to raise funds
8) moral was very low last week when they finally got the number, they said moral today isnt bad and that in no way did they know the number would be this high during the special meeting. Some cost overruns were expected."
Personally I am trying to contact IR myself to ask some questions, will call them in a few minutes.
-Fernando
I have around 3% in the C&D pref and 2% in the bonds. Up nicely on the bonds atm, down slightly on the prefs :). When I bought the bonds, the entire debt of the company was market-valued at around 700M -- They did 680M EBITDA in 2011. So not worried about my bond position at all (chuckle) and its a sort of 'hedge' against a bad deal being pushed on the pref's later on (At least in my mind).
I'd love it if I had the mindset to invest 50% of my portfolio in Baja Mining (which is my favorite position), but then I wouldn't sleep at night...and neither would my family/friends who invest through me (chuckle). I'll take lower potential returns for sleep ;).
The way I view things, although I believe in my own judgement strongly, I can always be wrong on 1-2 situations (Specially when I know it entails RISK, even if the risk/reward is attractive). I doubt i'll be wrong in 10-15 situations though. Thats why I diversify, simple as that. As you say -- Risk management.
-Fernando
Hehe, there is certainly risk in YLO. The spreadsheet models we have worked on, albeit conservative, are more of a guideline for the 'breaking point' of when the company starts to get into trouble with debt maturities/convenants/etc.
Nobody knows how their real business will do in 2012/2013, we don't know how their cost cutting efforts will be enacted, we don't know how bank negotiations will turn out to enable them to buy back more debt below-par in the market, etc.
The reason I own YLO C&D pref/Bonds is because I do not believe current market prices properly account for the risk inherent in the company. Thus the risk/reward is very attractive.
That is a judgement call and as such, we could simply be proven wrong by the business =). It is a judgement we will need to consider every quarter as we get more data.
-Fernando
Hehe, so someone else on this board bought YLO bonds? Good for you!
I'm not adding more though, specially not at these prices. I plan to sell some, to lock in some profits, if the bond prices get above 65-70. Would then move the bond-profit money into the C&D pref if those prices are still at this level.
Surprising to have the bonds go from 43 to 59 and yet the preferred have not really moved higher...Normally there is a correlation between the two classes.
-Fernando
LOL!
All investment banks are roaches, but I guess the most effective Roach (ie: Super Roach) gets all the glory ;).
On the bright side, unlike real roaches, investment banks don't survive through nuclear fallout ;).
-Fernando
Figured you'd like this article ;).
http://finance.yahoo.com/news/warm-winter-may-cooked-economic-160522450.html
-Fernando
Anything that eliminates a dividend-origin financial obligation is a 'dividend payment', from a legal standpoint. As such, if that accrued obligation is satisfied in *any* way for consideration -- Be it cash or shares -- that means the obligation has been 'satisfied'.
The problem is that all the preferred shares have pari-paru dividend obligations and if the Series A obligation is 'satisfied' like this, the others would need to be satisfied as well.
I called a lawyer friend of mine today and he confirmed it to me =).
-Fernando
Already emailed and left a voicemail to IR =).
As per the A series prospectus, if they do the conversion the accumulated dividends obligation is definitely 'paid' for the A series -- Which would cause the B/C/D to be paid as well:
http://www.sedar.com/GetFile.do?lang=EN&docClass=9&issuerNo=00020539&fileName=/csfsprod/data76/filings/01053943/00000007/x%3A\Sedar\2007\YPGHold\ShortForm\final\ProEng.PDF
"Subject to the previous sentence, YPG
Holdings may, subject to applicable law and, if required, to regulatory approval, exchange all, or from time to
time any part, of the then outstanding Series 1 Shares into that number of Units or New Tradable Securities
determined (per Series 1 Share) by dividing the then applicable Redemption Price, together with all accrued and
unpaid dividends up to but excluding the date fixed for exchange, by the greater of (i) $2.00 and (ii) 95% of the
weighted average trading price of the Units or New Tradable Securities, as the case may be, on the TSX (or if
the Units or New Tradable Securities, as at the case may be, do not trade on the TSX on the date specified for
exchange, on the exchange or trading system with the greatest volume of Units or New Tradable Securities, as
the case may be, traded during the 20 day period referred to below) for the 20 consecutive trading days ending
on the fourth day prior to the date specified for exchange, or, if such fourth day is not a trading day, the
immediately preceding trading day. Fractional Units or New Tradable Securities, as the case may be, will not be
issued on any exchange of Series 1 Shares, but in lieu thereof YPG Holdings will make cash payments."
-Fernando
Will, Glen, could you both verify something for me. I'm pretty sure this is correct but having a few different eyes check is always good.
If the A series is converted to common for Yellow Media (As I think will surely happen), won't the accumulated dividend for the A series be required to be paid at that time? Even if its paid in the form of extra common shares (Can the accumulated dividend also be paid in common shares? I need to check that carefully as well)?
If so...
According to the different preferred series prospectus, they are all pari-pasu with each other. That means if the accumulated dividend for the A series is paid, it will also have to be paid for the B/C/D series.
That means that the accumulated preferred dividends will all have to be paid when/if the A series is converted. After that, they can be halted again of course.
Currently the accumulated dividend is for one quarter (Q1's). I think for the C series it comes out to like 44 cents or around there. If the A series converts after May, the accumulation will be for 2 quarter's dividends.
This could present a very nice payout, if you can buy C/D preferred for 65 cents now and get paid 44-88 cents when the A is converted.
Best part is, all this dividend/etc stuff will probably happen in the next few months (Since why would the company delay and let the dividends accumulate more and more for the A series if they are going to convert).
-Fernando
To People PMing me: I no longer have a premium account on iHub, so can't reply. Sorry =). My subscription ran out awhile back and I never bothered to renew it since I'm not posting often and the CGS board is now non-premium.
-Fernando
I'd definitely agree with that 20% statement, Traderfan, when in the context of normal large-quantity money management guidelines. In that context, capital preservation is king and a 10% position is already extremely extremely concentrated.
On the other hand, if someone has a good job and is investing a total quantity they can replace in like 5 years or less, investing in a concentrated fashion with 20% in one position could be acceptable (In my mind anyhow). In the worst case, given this kind of scenario, they could replenish any lost funds from such a position in a year or so. This is more geared to a young investor, of course, not someone who is anywhere near retirement.
I'm quite happy with my 3% (almost there, a few more days of nibbling!) C&D preferred position and 2% bond position =). Some have asked me why I own the bonds, my reply would be: As a hedge on the preferred position -- Sometimes weird shit happens in BK/negotiations and the higher capital structures get weirdly preferential deals. I believe the value is there for this company, so if this happens my bonds will cover my preferred losses.
Note that I give away lots of upside by having the bond position at all, specially considering that my base case is that there will be value for the COMMON shares with this company. It will all depend on the revenue deterioration pattern of the next few years of course, along with company cost cutting measures (They can't let margins collapse).
-Fernando
The short answer is yes.
There are many scenarios where in a prepackaged bankruptcy, the preferred get value and the common is wiped out. Or the preferred gets better terms than the common.
It is fair to say, I think, that the terms given to the preferred class will always be equal to or better than the terms given to common shareholders. Keep in mind, this sentence leaves the scenario where both common AND preferred is wiped out on the table =).
Not that I think this company has any realistic chance of going bankrupt in 2012.
-Fernando
It is certainly hard to imagine the preferred price saying under $1 for the entire year of 2012. A year is a long time and the company has gotten so 'bombarded' with bad news/bad-vibes/etc that it is hard to not think we are way below the 'equilibrium point' when looking ahead 4-6 months.
From a purely trading perspective, knowing the company isn't going BK in 2012 regardless of the banks/etc since the first maturity is in February 2013, buying now makes sense. High probability sometime in the next 4-6 months we get a chance to sell shares for $2-$4 (or higher). A prepackaged BK/CCAA is possible before the maturity date but extremely unlikely specially in the next 6 months.
My position size in the C&D pref series is now at 2.5% and i'm aiming for 3% this week (Have roughly 2% in the bonds as well). I will probably unload 1/3 if the stock hits around $2.4 sometime-this-year so I get my money back and become risk-free on the position.
Thats my current game plan anyhow.
-Fernando
LOL =).
I can sympathize with the desire to take advantage of market stupidity to your utmost ability -- Which would make someone want to go deep into a security.
I just like to assign a probability to the chance management is insane, i'm wrong about something critical, banks all decide to stop lending to ad companies, Canadian judges are idiots, the world goes kaboom, etc... This planning for 'What could go wrong' is what keeps me from reaching for the moon =).
I hope things work out with YLO (Odds are certainly in your favor, IMO), I also hope your able to sleep at night because this situation will be long and drawn out.
-Fernando
What does a company do during a restructuring/BK? They often reduce operations, lay off alot of workers, sell assets, modify the capital structure, etc etc.
Given the revenue deterioration that YLO has experienced, and will continue to experience, I would want members in my BoD who were experts in that kind of thing -- Since YLO will have to do them even outside of a reorganization. They have emphasized cost-cutting as a focus for 2012 for example.
So thats one reason for those board members. YLO will also be negotiating heavily with banks, bondholders, etc (in all likelihood). Having those board members will be useful for that too and YLO will depend on their expertise.
In the worst case, if they do need to do a reorganization, the board members will be useful there as well.
So yeah, lots of reasons for YLO to want those guys on the board. Only one of which is a negative scenario for shareholders.
I mean, look at the background of the three additions to the BoD:
"David G. Leith is Chair of MTS Allstream and Manitoba Telecom Services. Mr. Leith is also a trustee of TransGlobe Apartment REIT and a member of the Economic Advisory Panel of the Government of Ontario. Mr. Leith spent over 25 years at CIBC World Markets and its predecessors where he retired as Deputy Chairman of CIBC World Markets and Managing Director and Head of CIBC World Markets’ Investment, Corporate and Merchant Banking in 2009. Mr. Leith has a Bachelor of Arts from the University of Toronto and a Masters of Arts from Cambridge University.
Bruce K. Robertson serves as Principal at Grandview Capital, a Canadian merchant bank. Prior to Grandview Capital, Mr. Robertson was a senior officer at AbitibiBowater Inc. Mr. Robertson also served as Senior Managing Partner of Brookfield Asset Management Inc., a specialty asset management company. Mr. Robertson received his Bachelor of Commerce (Honours) from Queen’s University and is a Chartered Accountant.
Craig Forman is a technology executive with over 20 years of experience in the internet, media and communications industries. Mr. Forman currently serves as Executive Chairman of Appia Inc., the leading independent mobile application discovery and download marketplace. He also is a director of several other private technology companies. Mr. Forman previously held numerous executive positions at EarthLink Inc., Yahoo! Inc., Time Warner Inc., and Dow Jones & Co. Mr. Forman is a graduate of Yale Law School and Princeton University where he received a Bachelor of Arts from the Woodrow Wilson School of Public and International Affairs."
Craig Forman is obviously a media/IT guy. Good to have for the business transformation.
Both Bruce and David seem to be from a banking background. Definitely the kind of people you want if you need to get access to financing, to negotiate with banks, to adjust the capital structure to extend maturities, etc.
Note: Here is a much fuller background on Bruce --
"Mr. Bruce K. Robertson serves as Chief Executive Officer of Grandview Advisors. Mr. Robertson has been Chief Restructuring Officer of AbitibiBowater, Inc. since July 2009. Mr. Robertson's primary responsibility is to support AbitibiBowater efforts in the restructuring process stemming from its creditor protection filings. Mr. Robertson serves as Chief Executive Officer and President of BNN Split Corp. Mr. Robertson serves as Chief Executive Officer and President of Brascan Total Return Management Ltd., a manager of Brascan Soundvest Total Return Fund. He serves as President and Chief Executive Officer of Brascan Adjustable Rate Management Ltd. Mr. Robertson is responsible for Brascan's lending operations and its financial services investments since 1998. At Brookfield Asset Management, he served in number of senior management capacities, including Co-Head of Brookfield's Specialty Funds business. He served as Chief Executive Officer of BAM Split Corp. He served as President of BAM Split Corp. until April 2009. Mr. Robertson served as Chief Executive Officer and President of Brascan Soundvest Diversified Income Fund. He served as Senior Managing Partner of Brookfield Asset Management Inc., the Manager of Brascan Soundvest Rising Distribution Split Trust. He served as Chief Executive Officer and President of Brookfield Asset Management Inc. He was a Managing Partner of Public Markets and Distribution of Brookfield Asset Management Inc. He served as Chief Executive Officer and President of Brascan Diversified Income Management Ltd., a manager of Brascan SoundVest Diversified Income Fund. Mr. Robertson served as Chief Executive Officer and President of Brascan Asset Management Inc., Manager of Brascan SoundVest Total Return Fund and Brookfield Asset Management Inc. He served as Chief Executive Officer and President of Brascan Focused Business Management Ltd., the Manager of Brascan Soundvest Focused Business Trust. He served as Chief Executive Officer and President of Brookfield Investment Funds Management Inc. Since 1997, he served as Chief Financial Officer and Vice President of Brascan. From 1996 to 1998, Mr. Robertson held various positions within Brookfield and its affiliates, including that of Vice-President and Chief Financial Officer of Brookfield and Vice-President, Investment Banking of Trilon Securities Corporation. He was Managing Partner of Financial Services with Brascan Corporation and Managing Partner of Asset Management of Brascan Financial Corp. Mr. Robertson was a Managing Partner of Brascan Asset Management since 1998. Prior to joining Brascan, he was employed by Deloitte & Touche Inc. and served in various positions from 1988 to 1995, including Vice President. Mr. Robertson served as Chairman of the Board of Crystal River Capital Inc. from May 10, 2006 to April 2009. He has been a Director of Clublink Corporation since April 1, 2009. He has been a Director of Morguard Corp. since May 18, 2010. He has been a Director of Imagine Group Holding Limited since 2006; Criimi Mae Inc., since February 26, 2004 and Bnn Split Corp. since 2001. He serves as a Director of MIST Inc. and Brascan Total Return Management Ltd. He serves as Director of Brookfield Asset Management Inc. Mr. Robertson serves as Director of Brascan Adjustable Rate Management Ltd. He served as Director of Brascan Focused Business Management Ltd., the Manager of Brascan Soundvest Focused Business Trust. He serves as Member of Advisory Board of Brascan SoundVest Focused Business Trust and Brookfield Soundvest Equity Fund. He served as Director of Brascan Diversified Income Management Ltd. He served as Member of Advisory Board of Brookfield Soundvest Split Trust. He served as Director of Brascan Asset Management Inc. He served as a Director of Crystal River Capital Inc. until April 2009. He served as a Director and Member of Advisory Board of Brascan Soundvest Diversified Income Fund. He served as a Director at BAM Split Corp. since 2001. He served as director of Brookfield Investment Funds Management Inc.- Manager of Brookfield SoundVest Commodity Services Fund. He served as Member of Advisory Board at Brascan Adjustable Rate Trust I. Mr. Robertson served as a Member of Advisory Board of Brascan Soundvest Total Return Fund. Mr. Robertson is a Chartered Accountant and earned a Bachelor of Commerce (Honours) at Queen's University."
-Fernando
Now now, Glen. You know I like the risk/reward but you can't go overboard on any single position =).
I saw a post of yours in the stockhouse forum saying up to a 50% position was ok for you?
*gets a big bat*
*knocks Glen on the head really hard*
There, did I knock some sense into ya?
Heck, if you really love the company throw 20% into it (Which is already an insanely large position). 50% is just foolish IMHO. This is a declining business that is exposed to the economy. If Canada/US enters into another recession right now, YLO could get screwed as ad spending would take a large hit just as the company is trying to claw its way out of the debt problem. Admittedly, I do not see any revenue drop in the 2008-2010 period, something I expected to see given the recession we had -- But I would need to account for acquisitions/etc done during that period to do an apple to apple comparison.
Losing 20% of your portfolio in a good risk/reward scenario situation is not so bad and recoverable...Losing 50% is devastating to the capital base.
-Fernando
If one looks, one can make a conspiracy out of most things =).
Would it be nice if the CEO bought shares now? Sure. Do I have a large problem if he does not? Not at all.
He already gets exposure to the company through his job, through his option grants (Of which i'm sure we'll see more of before this whole thing is resolved), and through his current position. Many people prefer not to put all their eggs in one basket, specially when even the CEO cannot predict how business/THE-ECONOMY/banks/bondholders will behave in the next 2-3 years.
Look at SFI in 2008-2011. The CEO did not buy any shares in the open market if I remember correctly, not even when the preferred was below $2 in 2009 and it NEVER STOPPED PAYING THE DIVIDEND. Why didn't he buy them then?
Look at GKK, MPG, etc. Many of these firms had preferred trading at 1/10th what they are now and yet management did not acquire those shares. Why not? I bought MPG-PA below $2 for example, I thought it was a gift at the time and was not bothered by management's lack of buying.
SSW is another example. It was an absolute gift at $6. The company 'founding supporters/investors (Washington Family)' were buying left and right. I don't remember the CEO or management buying any. Why not? They certainly never thought the company was in trouble.
I could go on and on citing examples of why lack of management buying does not worry me excessively.
-Fernando
I'm always wary of getting in the 'auction fever' type mentality with these low liquidity issues. I mean, take the C&D lines -- They were trading for as high as $1.2-$1.3 yesterday! People afraid of not owning enough at these levels might have chased and paid a much higher price than needed. Look at it today, the C line dropped 20 cents (or 20%) on 5,000 freaking shares!
There is no real demand for these shares out there right now, so whats the hurry? Is that going to change tomorrow or the day after?
I'll take my time and accumulate a few thousand shares a day till I get to my allocation target. No problems =). Maybe i'll get lucky and see another panic drop down to 60 cents where I can buy more strongly!
-Fernando
Haha yea, such low liquidity in the C&D lines...Nibble nibble. Gotta be patient :).
-Fernando
None that I would be fine with buying right now aside from Baja, they have all surged the past few months.
I'll list a few i've talked about before:
GSL around $2 is a gift.
NM around $3 is a gift.
NNA below $3 is a gift.
RSO around $4.5 is great.
AGNC below $28 (Great dividend, sell on run-ups, predictable, etc).
SFI under $5.5.
GKK below $2.5.
OGXPY (OGX Brazillian oil company) below $8 is a great price. My initial buy was at like $9 and I added more all the way down to $6. I would not buy it now at $10 though, personally.
Many others, but those are all ones i've spoken about before =).
-Fernando
Thoughts:
1) Sierra Leone is risky, so a discount has to be assigned. This mine used to produce but was shut down due to civil war, etc. That is always a BIG issue in any long-term project (20+ years) which is whats used to calculate IRR, etc.
Here is an article on the place -- http://www.reuters.com/article/2012/01/25/sierraleone-iron-idUSL5E8CN3C720120125?feedType=RSS&feedName=basicMaterialsSector&rpc=43
2) There seems to be a 650M claim against the company. No idea of merit of the lawsuit but thats an overhang for sure. Another discount.
3) Contract law in Sierra Leone is not very solid. London Mining originally was going to pay 6% tax for the first ten years of production, now they are being forced to pay 25% after-the-fact. What else can change if they don't respect contracts?
http://www.reuters.com/article/2011/12/16/sierraleone-londonmining-idUSL6E7NG1OI20111216?feedType=RSS&feedName=basicMaterialsSector&rpc=43
4) No bankable feasibility study done yet for any of the company's projects. Not a large issue right now since they can fund growth from cashflow for the next 2 years... But a BFS is needed for the market to assign value to a number of those projects. PBFS don't count for nearly as much, so I don't think the market is assigning much value to the Isus location/etc.
5) Iron Ore companies don't seem to be assigned very high multiples. Many comparables I see get market valuations of 6x-8x, and those are big developed companies... At least London Mining seems to have a high growth-rate projected, so some of that 'future production' should count towards evaluation.
6) I don't like Iron Ore as much as Copper. I'd probably be conservative and assume a $120/T price in any calculations. I'd assume $40/T costs for the Sierra Leone mine in my modeling too. So thats $80/T gross-profit, 400M gross if they get to that 5M production in 2014. Throw in taxes, royalties, other costs, etc... That number will probably come down to $250M or so.
Given the 500M market cap, that means in two years time it is going for a P/E of 2 -- With solid growth potential beyond that.
Not bad at all, i'd need more research aside from this back-of-the-envelope-look before I got excited about it though...Including much more research on Sierra Leone's situation.
-Fernando
Hehe, I was just joking. These prices are all quite attractive given the relative risk =).
Your right that i'm under allocated on the Pref equity, but I also own YLO bonds ;). My total exposure to the company given bonds+pref is around 3% right now and i'm still adding another 0.5%-0.7% allocation of pref.
I'll be happy with my position if I can finish buying my full pref allocation under $1, but I doubt thats gonna happen... Maybe i'll get lucky.
-Fernando
Pennies are worth fortunes! buying at 0.60 gives me 41x upside, buying now at 0.87 (my last buy) gives me only 28.7x upside =P. Oh the agony!!!
-Fernando
Haha, I know the feeling Will. I was buying some all day when I saw it start going higher, too many people were waiting for the knife to stop falling I guess -- Been a battle getting shares.
-Fernando
My only thought is: Its a China name. Whats the fraud risk like in the name is more important (by far) than what they say in their filings.
-Fernando
Take a look at the presentation for Baja, it includes alot of good info from their feasibility study/etc about cashflow and so forth.
My personal expectation is that the stock will be above $3.5-$4 by the end of 2013. I see potential upside to $5-$6 as reasonable (When you include manganese) but I likely will be all-out of the stock if it hits $4.5 or so (Will probably unload linearly from $3.5 to $4.5).
This is all without assuming an increase in copper prices (I'm bullish on copper mid-term and long-term).
I'd call BAJ a easy 'triple base hit' with the pitcher throwing the ball right smack in the middle of the strike zone at 5 miles an hour. Probably my favorite position at the moment.
Note: I accumulated my Baj shares on the downturn in late 2011, buying from $0.80 down to $0.65. Took some profits when it hit $0.93-$1, so avg cost is now at $0.65. Its a 4% position size right now for me, I'm praying I get to buy it below $0.80 again so I can bring it to a 10%-12% position again.
-Fernando
Your certainly correct, Dan. At the same time, i'm not sure what the odds are of a total equity-wipeout as long as strong cashflow+profitability remain with low leverage net-debt/EBITDA metrics.
Alot will depend on whether they enter normal bankruptcy, do a prepackaged deal, etc. Prepackaged deals are HIGHLY desired by everybody because of its speed (lack of business impact and no chance of being forced into liquidation, having BK take years, etc) and often include giving a 'bone' to everybody. Take a look at CIT's restructuring in 2010 for example, common got 2.5% and pref got 3.5%-5% voting power in prepackaged deal after the restructuring.
http://www.streetinsider.com/Corporate+News/CIT+Group+%28CIT%29+Launches+Restructuring+Plan,+Exchange+Offer/4987736.html
Buying a $25 par preferred at $0.60 has decent odds of being a great deal even in such a restructuring, that only requires a only a 2.4% of par recovery to break even.
With that said:
1) This is a very risky investment. All investments with debt maturities and declining business prospects are dangerous. Definitely a spec position.
2) I just started nibbling today (Pref C&D only)...Although I may do a short-common/buy-Pref-A arb position as well...If I can borrow shares...
3) This will remain a small position for me. I'd much rather accept a lower potential return with Baja Mining but have a *infinitely* higher confidence of a positive outcome.
4) I believe that YLO will survive without a restructuring. Decent odds anyhow. Common could easily have significant value in that scenario. I just like the risk/reward more in Pref C&D.
But hey, putting a 1% spec position with the potential for a 41x return (to $25 par) and insane dividends...Worth a shot from what I can see ;).
-Fernando
Losing credibility for being wrong about CCME? LOL, nobody has any credibility then or they never take any stances on an issue... Everybody is wrong at some points in their life. Losing credibility by lying, saying your going to do something and not doing it -- That seems completely different.
Shrug. To each his own.
-Fernando
I did not make up that land statement. I was quoting what I had heard from Maj of geoinvesting over the phone, which he got from an investigator. If you want more specifics about that, talk to him. I love the accusations people make sometimes, so silly.
People can listen to my opinion or not, I suggest you ignore me if this is how you feel. I am simply one voice among many.
People can believe what they want, obviously CCME was a big turd... But then, so have been many other china RTO's out there, eh? The problem with a lot of people on CCME was that people stopped practicing any sense of control and risk management. I know people who had over 50% of their portfolio in one company, pure insanity! Specially given all the allegations and how silent the company had been the 2 months before it was halted.
I think that's the best lesson for people to take from CCME, diversification and risk control are king.
Oh, i'm down on my China portfolio in 2011 -- I had hedges but not 100% cover. The main reason i'm down is because i've written off 100% of my UTA position, no idea what value recovery i'll get there. Thankfully I only had the China portfolio at 25% of my overall for alot of 2011 -- Its now down to like 3% long, 8% short at this point for a 10-11% allocation to the space. Too much value elsewhere and i'm macro-bearish so don't want to really own China microcaps at this point. Given the deep value in other companies, I don't feel I need to deal with the fraud risk of these China securities. Risk/reward is simply better elsewhere.
I've been a proponent of CCCL and have rode that down significantly, still own that...But thats pretty much the only China name i've owned on the long side for months now.
-Fernando
You don't see many long-term minded institutional players jumping into tiny microcaps that sell shares to pay debts at miniscule P/E and insane costs-of-equity. Simply not shareholder friendly.
If they showed shareholder friendly actions, slowing growth if necessary, you would see alot more interest from people. Even the dividend is pointless if they pay for it (and then some) by issuing shares at insanely low P/E multiples.
Combine that with the sale of the dairy at such a low evaluation...Shrug. Good luck enticing institutional players is all I gotta say, at least without a change in behavior.
-Fernando
At current prices? GSL for sure.
-Fernando
Welp, that makes sense then. Get shares at current-market-price, then sell the shares to get cash instead of being paid cash by the company. Just one reason I hate paying for bills with shares, sigh.
It seems weird that SIAF, which is now a fully reporting company, just keeps issuing shares like this. If they want cash to pay bills, do a secondary -- Heck do a RIGHTS offering for current shareholders if they want. This informal and constant issuance is very annoying -- To me at least.
Welp, enough about SIAF for me -- I haven't even bothered to carefully parse through the latest information/filings. I'm just enjoying my overall market hedges right now -- Allows me to sleep at night.
-Fernando