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  • Abraxas Petroleum: Clarifying Its Hedging Situation
    Yesterday, 9:25 AM AXAS 5 Comments

    Summary

    • Abraxas has 21% of projected 2015 oil volume hedged.
    • The December corporate update presentation appears to show that 78% of 2015 oil production is hedged.
    • However, the label for that graph notes that it is based on end of 2013 PDP.
    • That means the production levels in the graph are based on wells that were already producing at the end of 2013.
    • It does not include additional wells brought into production since then, which would account for 73% of projected actual 2015 volumes, thus accounting for the difference in hedging calculations.
  • BlackBerry: Back In Black
    Tue, Dec. 23 BBRY 54 Comments

    Summary

    • BlackBerry reported non-GAAP profitability for the first time since Q4 2013.
    • Lowered operating expenses and positive hardware gross margins make it much more likely that BlackBerry can maintain profitability this time around.
    • Profitability should be attainable in Q4 2015 with around 400,000 to 500,000 Passport and Classic units recognized as revenue, along with 1.5 million other BlackBerry units.
  • Update: Copper Fox Completes Inferred Resource Estimate For Its Van Dyke Project
    Tue, Dec. 23 CPFXF Comment!

    Summary

    • Copper Fox announces an inferred resource estimate of 1.44 billion pounds of copper for its Van Dyke project.
    • This is higher than the 1.06 billion to 1.2 billion pounds of copper from historical estimates in 1976 and 1981.
    • The acquisition of Curis Resources shows the potential value of Arizona in-situ leaching copper projects.
    • However, Copper Fox needs to invest additional money and time to get Van Dyke to a similar stage as the Curis's Florence Copper project when that project was acquired.
    • Copper Fox now has a significant decision to make on how much to advance Van Dyke versus conserving capital to wait for a better market for Schaft Creek.
  • Update: Osisko Gold Royalties Strikes A High-Risk, Very High-Reward Deal With Highland Copper
    Sat, Dec. 20 OKSKF Comment!

    Summary

    • Osisko Gold Royalties announced a $8.6 million secured loan to Highland Copper that should turn into a 3% sliding scale NSR royalty at the White Pine North project.
    • This appears to be a high risk, very high reward deal. White Pine North needs additional funding and has competition for development priority.
    • Osisko may be waiting a long time for White Pine North to reach production.
    • However, if/when it does reach production, the lifetime value of the deal could be worth 10x the initial investment.
    • This deal may give some insight into Osisko's deal strategies. I previously mentioned that its upside depended on the deals it made, and this appears positive but high risk.
  • Arch Coal: Lengthy Liquidity Runway, But Less Upside Than Other Heavily Leveraged Coal Companies
    Fri, Dec. 19 ACI 7 Comments

    Summary

    • Arch Coal's burn rate should be around $200 million per year at current coal prices.
    • This should give it enough liquidity until it needs to refinance its 2018 debt.
    • High debt load limits its equity value though, as it needs both a metallurgical coal recovery plus further improvements in thermal coal pricing to give upside to its equity.
    • Potentially worth $3.70 per share with a met coal recovery plus a moderate increase in thermal coal prices to $14 per ton realized Powder River Basin prices.
  • Abraxas Petroleum: Cash Flow Breakeven In 2015 At $47 WTI Oil
    Thu, Dec. 18 AXAS 15 Comments

    Summary

    • Abraxas Petroleum should have breakeven cashflow at $47 per barrel oil in 2015 due to its hedges.
    • Breakeven would be $52 per barrel in 2016 and $56 per barrel in 2017 based on existing hedges, steady state production and $60 million in capital expenditures.
    • Unhedged breakeven point is $59 per barrel if Abraxas wants to maintain production levels.
    • Debt has been reduced significantly since last year and appears quite manageable given Abraxas's reduced capital expenditure budget.
    • $85 per barrel oil would result in around $55 million in free cash flow in 2015, and would likely allow for a significant expansion in its capital budget.
  • Update: Yamana Announces New Discoveries At Its Most Important Mines
    Thu, Dec. 18 AUY 7 Comments

    Summary

    • Yamana announced significant new discoveries at its El Penon and Chapada mines.
    • These discoveries should significantly expand the resource base at these mines and could potentially extend their mine lives.
    • I hadn't expected this announcement, although I had before noted Yamana's history of extending mine life at existing mines.
    • Chapada and El Penon are Yamana's most important mines, accounting for around 51% of revenues and 60% of gross margin during Q3 2014.
    • Exact impact will depend on how much the resource bases will expand because of these discoveries. Yamana will continue work on defining and categorizing these resources in 2015.
  • Alpha Natural Resources: How It Could Be Worth $6 With A Met Coal Recovery
    Thu, Dec. 18 ANR 9 Comments

    Summary

    • Alpha Natural Resources is a leveraged play on a metallurgical coal recovery.
    • It could potentially burn $500+ million in 2015 without changes in working capital, but also has several years of liquidity remaining.
    • A metallurgical coal recovery could make it worth $6 to $7 per share while a thermal coal recovery on top of that could make it worth $10 per share.
    • It would be beneficial if Alpha Natural Resources could offload some of its CAPP thermal assets though, as there appears to be limited upside from that.
  • Yamana Gold: Looking At The Value And Potential Of Its Brio Gold Subsidiary
    Tue, Dec. 16 AUY Comment!

    Summary

    • Yamana announced that it would place its non-core Brazilian assets into a subsidiary called Brio Gold.
    • Brio Gold's current production is 130,000 ounces per year, with the potential to produce over 230,000 per year after additional investments.
    • Yamana Gold would likely prefer not to invest a significant amount of additional money into non-core assets, and would likely sell Brio Gold if it could get an acceptable price.
    • The main assets in Brio Gold have an estimated value of nearly $500 million.
  • Update: Copper Fox Announces Preliminary Test Results From Van Dyke
    Mon, Dec. 15 CPFXF Comment!

    Summary

    • Copper Fox announced the preliminary in-situ leach test results from its Van Dyke project.
    • The resource estimate should be completed soon. It was previously anticipated in mid-December, although there was no date mentioned in the latest release.
    • Van Dyke could have good potential, but will require additional expenditure to advance it.
    • Copper Fox could potentially have several years of runway after receiving its tax refund.
    • However, any spending on Van Dyke or other properties could significantly shorten its runway while it waits for Teck's decision on Schaft Creek.
  • J.C. Penney: Is It Worth A Buy At $6?
    Sun, Dec. 14 JCP 8 Comments

    Summary

    • J.C. Penney has fallen far short of its shareholders' expectations this year.
    • At $6 though, it appears that the revenue targets it needs to justify its current value are relatively reasonable.
    • J.C. Penney doesn't seem to be a compelling short at $6 any more, but there's still long-term downside risk to its share price that makes it a mediocre long-term holding.
    • There may be some trading opportunities at $6, but otherwise those interested in J.C. Penney long-term should consider its bonds or preferred shares.
    • Yields are at 11+% right now and J.C. Penney can likely handle a modest decline in business.
  • Update: Taseko Extends Its Hedging Program Into Q2 2015
    Sat, Dec. 13 TGB Comment!

    Summary

    • Taseko has extended its hedging program to cover half its share production for the first half of 2015.
    • The strike price of the put options is $3.00 per pound in Q1 2015 and $2.90 per pound in Q2 2015, denominated in US dollars.
    • The hedging locks in a favorable price in Canadian dollars, as $2.90 US per pound converted into Canadian is approximately the average price of copper since March.
    • The hedging program could potentially guarantee $0.80 per pound margins for the portion of production that it is hedging.
    • This is a very solid level of margin that would make Taseko quite undervalued if it could be maintained long-term.
  • Powder River Basin Coal Benefits From Lower Oil Prices
    Sat, Dec. 13 ACI, ANR, BTU 3 Comments

    Summary

    • Lower oil prices should result in reduced Bakken shale oil production.
    • Railway availability has been a major issue, causing the reduction of 20 million tons of Powder River Basin shipments. This was mainly caused by increased demand for oil transport.
    • Reduced oil shipments plus railroad investments in increased capacity should alleviate the availability issue.
    • Lower diesel prices should translate into $1 to $2 per ton savings in fuel surcharges for delivering coal.
  • Walter Energy: Debt-For-Equity Swaps May Cause Less Dilution Now Despite Fall In Share Price
    Thu, Dec. 11 WLT 12 Comments

    Summary

    • Market reaction to the BB&T Capital bankruptcy prediction was a bit puzzling since it had already said nearly the same thing at the end of October.
    • As well, Walter Energy's significant bankruptcy risk shouldn't be a surprise.
    • Despite the fall in share price, debt-for-equity swaps remain a potential option.
    • The dilution caused by a partial cash and partial equity swap for debt will be lower now than when shares were $3.
    • EPS would actually benefit from debt-for-equity swaps, assuming the met coal benchmark price was below $190 per ton.
  • Update: Thompson Creek Places Endako Mine On Temporary Suspension
    Thu, Dec. 11 TC 1 Comment

    Summary

    • Thompson Creek is placing its Endako mine on temporary suspension at the end of 2014.
    • This was anticipated as Endako's cost of production has averaged $10.71 per pound during 2014 and the price of molybdenum has been $9 to $10 per pound in Q4 2014.
    • I had previously assumed in my financial calculations that Endako would not be a positive contributor to Thompson Creek's EBITDA.
    • The suspension is good since it preserves the remaining molybdenum reserves at Endako for a stronger molybdenum market.
    • I'd expect Endako to remain closed until above $12 per pound molydenum.
  • Update: SouthGobi Addresses Its Critical Liquidity Situation
    Wed, Dec. 10 SGQRF Comment!

    Summary

    • SouthGobi completed a private placement for $9 million, allowing it to pay China Investment Corporation the $8.1 million it was owed in November.
    • It also received a deferral from Turquoise Hill on the $1.9 million plus interest that Turquoise Hill was owed on December 31.
    • SouthGobi appears to have enough money to continue operating until May 2015, when it has another China Investment Corporation payment due, plus the deferred Turquoise Hill payment.
    • I had previously anticipated that SouthGobi would face liquidity difficulties. It appears that SouthGobi is able to temporarily address its liquidity at the cost of dilution.
    • May 2015 is going to result in another scramble for additional funding, as it is highly unlikely that coal markets will improve enough to make SouthGobi's operations profitable by then.
  • Cloud Peak Energy: Falling Oil Prices Are A Boon To Production Costs And Railway Availability
     • Tue, Dec. 9 CLD 29 Comments

    Summary

    • Lower oil prices will help Cloud Peak save on diesel costs. The potential savings is $25 million per year if diesel prices end up falling as much as gasoline has.
    • Low oil prices will help dampen production in the Bakken Shale, alleviating the railway congesting issues that have plagued Powder River Basin coal.
    • Improving Powder River Basin coal prices will mainly impact 2016 results.
    • Cloud Peak Energy is worth $15 to $16 per share based on projected 2016 results.
  • The Drop In Oil Prices Could Save Coal Companies Hundreds Of Millions
    Tue, Dec. 9 ACI, ANR, BTU 4 Comments

    Summary

    • Supply-driven lower oil prices are very positive for coal companies.
    • Oil and coal minimally compete against each other. Lower oil prices (due to oversupply) will not affect coal demand.
    • Lower oil prices mean lower diesel prices though, and diesel is a major cost to many coal companies.
    • $2 per gallon wholesale diesel would save Peabody Energy nearly $170 million per year.
  • Update: Sears Holdings Reports Q3 2014 Earnings
    Sat, Dec. 6 SHLD 6 Comments

    Summary

    • Sears Holdings reported comparable sales numbers that were essentially flat.
    • The business appears to be stabilizing, but at levels far below even breakeven adjusted EBITDA.
    • Q3 2014 adjusted EBITDA was negative $296 million, marginally better than Q3 2013's negative $310 million.
    • Sears is likely to burn over $1.5 billion next year, before working capital changes and asset sales.
    • 2015's funding gap will be partially filled by the reduction in inventory and asset sales. Then, the pattern will repeat itself again the following year.
  • J.C. Penney: What It Would Take For Profitability
    Fri, Dec. 5 JCP 31 Comments

    Summary

    • J.C. Penney can't turn a profit at $10 billion in sales without major store closures (300+).
    • Slight full-year profitability would indicate a value of $7 to $10 per share.
    • Q4 profitability is more likely than not and is also expected by analysts. More attention will be paid to comparable store sales growth.
    • The true test of J.C. Penney's revival will depend on whether it can deliver profitability in non-Q4 quarters. Achieving that would likely make J.C. Penney worth $14 to $19.
  • Thompson Creek: Still Cash Flow Positive Despite Weak Metal Prices
    Fri, Dec. 5 TC 7 Comments

    Summary

    • Thompson Creek should generate $40 million to $45 million in free cash flow at current metal prices without any molybdenum production, excluding any debt repayments.
    • A weaker Canadian dollar and lower diesel prices are helping to reduce costs.
    • Although it has a significant debt load, refinancing and redeeming its existing bonds should not be problematic unless metal prices crash.
    • Thompson Creek should be cash flow positive unless copper prices fall below $2.50 per pound and gold prices fall below $1,050 per ounce.
  • Update: Sears Canada's Q3 2014 Earnings Highlight Risks To Its Value As A Real Estate Play
    Mon, Dec. 1 SRSC 3 Comments

    Summary

    • Comparable sales fell 9.5% in Q3 2014.
    • Sears Canada is monetizing its remaining real estate too slowly given its rate of cash burn.
    • Target's struggles in Canada may decrease the value of Sears Canada's real estate too.
    • It is difficult to recommend Sears Canada when it has significantly negative EBITDA.
  • J.C. Penney: Statements Without Concrete Numbers Have Limited Meaning
    Sun, Nov. 30 JCP 20 Comments

    Summary

    • J.C. Penney mentioned that it had a strong start to the holiday shopping season.
    • However, without actual numbers, this statement doesn't provide any meaning.
    • Statements have mentioned that sales have been "strong" during Thanksgiving before, but actual November results have been both down significantly and up significantly during those years.
    • As well, stores are always reportedly busy during the holiday shopping season. That tells us little about year-over-year performance.
  • Save Our Swiss Gold Initiative Unlikely To Be Successful
    Sun, Nov. 30 GLD 1 Comment

    Summary

    • The November 30th vote on the Save Our Swiss Gold Initiative could increase gold prices significantly if it passes.
    • Polls indicate that there is little chance of it passing though. Recent polls have support at under 40% and support has been declining as the referendum approaches.
    • Even if it can get to 50% support, past history indicates that there is a 25% chance that it will not get the support of a majority of cantons.
    • There is also likely to be reluctance on the part of legislators to move quickly on a yes vote.
  • The Impact Of Gas Prices On Retail And Restaurant Sales
    Thu, Nov. 27 SPY, QQQ, DIA 1 Comment

    Summary

    • Gas prices have fallen 23% from 2012's average price.
    • Average household can potentially save $670 per year in gas, if consumption remains the same.
    • Lower gas prices result in increased driving and increased purchase of premium gas, so gas expenditures don't fall as much as gas prices.
    • Estimated 2% increase in retail and food service spend from a 23% decrease in gas prices.
    • Restaurants are likely to benefit more than average.
  • Rhino Resource Partners: Pennyrile Expansion Potential Makes It A Strong Long Term Rebound Candidate
     • Wed, Nov. 26 RNO 4 Comments

    Summary

    • Rhino Resource Partners cut its distribution by 88% and investors have fled the stock.
    • The reduced distribution allows it to invest in expanding its Pennyrile mine without adding too much debt. Expansion can add up to $25 million per year to cash flow.
    • Even if thermal markets fail to recover, an eventual rebound in metallurgical coal prices to $160 per ton (below long-term analyst forecasts) could add $14 million in additional cash flow.
    • Reducing operating costs at its NAPP and Eastern Met operations to historical levels could improve cash flow by another $10 million per year as well.
    • These items make restored $1.78 per unit distributions quite feasible by 2017/2018 without requiring extraordinary assumptions. This scenario should result in its shares reaching over $11 again, 4x current levels.
  • Update: Jiayuan.com Announces Q3 2014 Earnings
    Wed, Nov. 26 DATE Comment!

    Summary

    • Jiayuan had 25.5% revenue growth due to an increased focus on personalized matchmaking services.
    • Gross margin has fallen 10% due to the labor intensiveness of personalized matchmaking.
    • It retains a strong balance sheet with cash and investments equalling 46% of market capitalization.
    • Still having some difficulty finding ways to spend its cash to profitably drive growth.
    • Growth in personalized matchmaking and increase mobile focus offers opportunities. Cash balance should help provide a floor for Jiayuan.
  • Update: Taseko Completes Its Acquisition Of Curis Resources
    Tue, Nov. 25 TGB Comment!

    Summary

    • Curis shareholders approved its acquisition by Taseko and the British Columbia Supreme Court has also approved the deal.
    • This was expected to happen and now means that the approval of the Florence mine will be a key driver of upside for Taseko.
    • Currently the market appears to assign a low probability of approval for the Florence mine, likely due to the troubles that New Prosperity had in its approval process.
    • However, that means that should the project get approved, Taseko's price will benefit significantly as approval does not appear to be baked into the price.
  • Has Angie's List Bottomed Out?
    Sat, Nov. 22 ANGI 8 Comments

    Summary

    • Angie's List has fallen well below my previous $9 target.
    • The updated lifetime value model suggests that Angie's List is worth $6 to $8 now.
    • Although Angie's List has struggled, its value has fallen to a reasonable point now, even allowing for continued revenue per member declines.
  • Update: Plug Power's Q3 2014 Sheds More Light On The ReliOn Acquisition
    Sat, Nov. 22 PLUG 22 Comments

    Summary

    • Plug Power gave more details about its acquisition of ReliOn, its impact on revenue and how its products are fitting into Plug Power.
    • I had characterized the acquisition as positive but minor before, and noted that Plug Power had acquired ReliOn for its experience and product portfolio rather than for business opportunities.
    • ReliOn products have only contributed $1.5 million in revenue in Q2 and Q3. Another deal is expected to add $4 million per year, a small percentage of total revenues.
    • The ReliOn acquisition is allowing Plug Power to diversify its stack supply, with potentially 50% of its air-cooled stacks becoming internally supplied.
    • It was a good strategic move by Plug Power at a low cost, but wasn't going to create tons of new business on its own as some comments had asserted.
  • Walter Energy: The Impact Of Large Scale Debt-For-Equity Swaps On Share Price
    Fri, Nov. 21 WLT 19 Comments

    Summary

    • Debt-for-equity swaps may actually boost Walter Energy's share price in a recovery scenario in addition to improving its survival chances.
    • At a long-term benchmark met coal price of $180 per ton or less, shareholders benefit due to the debt being swapped at well under par.
    • Impact on share price upside is generally limited to scenarios where the benchmark price reaches above $180 per ton.
    • Debt-for-equity swaps also will help Walter Energy's survival changes in a moderate and prolonged met coal recovery.
    • Shareholders should encourage debt-for-equity swaps if they can be done at terms similar to the recent one.
  • Is BlackBerry Actually Going To Save $800 Million In Intellectual Property Costs?
    Thu, Nov. 20 BBRY 119 Comments

    Summary

    • It appears BlackBerry will save approximately $800 million in intellectual property costs versus FY2014 levels, although the effect is approximately $300 million annualized when measured against Q2 FY2015 levels.
    • BlackBerry hardware gross margins are estimated at between 14% to 19% for the first two quarters of FY2015, excluding inventory charges and the fixed intellectual property costs.
    • This is consistent with the hardware gross margins of brands that are strong in the developing world. Passport and Classic sales will likely boost gross margins.
    • Based on a more detailed look at hardware gross margins, it appears likely that BlackBerry can reach profitability at 13-14 million units, rather than the 17.5 million I mentioned before.