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Abraxas Petroleum: Clarifying Its Hedging Situation
- 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
- 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
- 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
- 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
- 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
- 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
- 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
- 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
- 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
- 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?
- 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
- 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
- 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
- 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
- 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
- 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
- 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
- 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
- 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
- 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
- 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
- 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
- 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
- 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
- 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
- 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
- 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
- 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?
- 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
- 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
- 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?
- 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.