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  • What It Really Costs To Mine Gold: The Yamana Gold Third-Quarter Edition [View article]
    I have been following your articles for a while. I appreciate your work. I am looking at taking a position in some miners. I want companies that have a very strong balance sheet, low costs of production and enough reserves to maintain production. Would you mind giving me the names of your 5 favorite that meet that criteria?
    Skip olinger
    Nov 28 11:41 AM | 1 Like Like |Link to Comment
  • The Thinking Behind Druckenmiller's Selling Short IBM [View article]
    With all due respect, you and many other comment-ors on SA, attempt to disparage the character or motive of someone with whom you disagree, often times calling them a "short seller" as if that were a criminal offense. Why don't you spend your time doing some your your own fundamental research and dispute the assertion rather than character?
    Nov 25 11:41 AM | 1 Like Like |Link to Comment
  • Allied Nevada's Debt Load: The Consequences, Opportunity, And Risk [View article]
    excellent points. thank you.
    I assume you saw the counter article to this that mentioned the wire rope sale as a source of funds?
    I think you hit it on the head where this company does not have any margin of safety if AU prices continue to fall. I don't believe any one has been able to demonstrate any positive correlation between prayer and AU prices.
    Nov 20 12:18 PM | Likes Like |Link to Comment
  • Allied Nevada's Debt Load: The Consequences, Opportunity, And Risk [View article]
    yes I agree
    Nov 14 11:15 AM | Likes Like |Link to Comment
  • Allied Nevada's Debt Load: The Consequences, Opportunity, And Risk [View article]
    Perhaps you might do some homework and show us your valuation of the company
    Nov 14 11:13 AM | Likes Like |Link to Comment
  • Allied Nevada's Debt Load: The Consequences, Opportunity, And Risk [View article]
    Very well done article. I would interpret your conclusion that since no one knows the direction of the price of gold and there is as much down side as there is up side, there is no positive asymmetry to this investment. Therefore, if one is bullish on the price of AU, one should seek a company with a strong balance sheet and better cash flow, even if there might be less up side. One could be zeroed out with this company.
    Best regards and thanks
    Nov 11 11:25 AM | 1 Like Like |Link to Comment
  • The Brand Name Advantage: Valuable, Sustainable And Elusive [View article]
    Thank you for taking the time to post this. You are clearly one of the smartest guys in the room concerning valuation so I have a couple questions for you, if I may impose:
    1. Why do you think COT is able to generate higher sales / capital than KO? Initially I thought that KO might have made greater investments in its brands over the years; however, aren't brand investments just advertising and therefore expensed?
    2. If the price of COT fell below the company's valuation, would you make an investment in it? From a quick look at their numbers in Morningstar, it appears that they generate FCF on a consistent basis. Or, as the company does not generate excess returns, it should be avoided.
    Thank you and regards
    Oct 6 11:14 AM | Likes Like |Link to Comment
  • Vanguard Natural Resources And Enhanced Oil Recovery [View article]
    Mr./Ms. Smurf:
    If you were to read the company's 1Q13 10Q, you would find that every one of your points is wrong.

    Yes the company has debt, about $1.0B vs $987m in equity. That is 1.01 debt equity ratio. I think that is very reasonable as it is only 3.5x adj. EBITDA.

    The company actually had less debt as of 3/31/13 compared to 12/31/12 by $200m as the company issued $256m of equity and repaid $303m of LTD

    While the company had a net loss from operations of $11.3m for the quarter, the loss was a result of a non-cash expense of $35m for unrealized loss on derivatives. Adding that back and subtracting the $6m realized gain, the company generated $18m in operating income.

    As you can see from the above, earnings did not come from derivatives; they generated a $35m unrealized loss. In fact, the company had a net loss for the quarter.

    Since you refer to their derivative activity as Shenanigans, I infer that that you believe that hedging is a bad policy. Taking the inverse of that view, I assume you would suggest that the company not hedge any of its revenues and expenses. That would leave the company exposed to volatility in oil and gas prices and interest rates, which at certain price levels could generate real operating losses. You would be effectively gambling on energy prices. That seems a bit reckless to me.

    The strategy of the company is to lock in a spread for several years on the majority of its production when doing an acquisition to significantly reduce the risk of a drop in oil and gas prices. This gives the company a determinable revenue stream and provides them with adequate cash flow to cover cap ex, dividends and debt repayment. In my opinion, that is one of the main attractive investment points of the company.
    Jul 6 01:38 AM | 2 Likes Like |Link to Comment
  • Vanguard Natural Resources And Enhanced Oil Recovery [View article]
    In CO2 EOR, CO2 is taken from large naturally forming underground deposits, piped to a depleted oil field and re-injected back underground into oil deposits. It is not released into the air. This process reduces surface tension while raising the gravity of the oil and leads to significantly more oil recovery. Denbury Recourses DNR is a specialist in this area. They have a project in Louisiana, the Delhi field, that was abandoned after years of production. CO2 injection has given the field a second life. DNR owns the Jackson Dome which is a huge naturally occurring underground CO2 deposit.
    Jul 5 09:15 PM | Likes Like |Link to Comment
  • Gold: Safe Haven Or Bubble? [View article]
    You may be interested to know that Morningstar has been saying for a long period that they felt the long term price for AU was around $1200 as that was the average all in cost of production. They used the futures market curve for the first 3 years of AU price. But as noted, few if any miners have hedged their production. Remember a few years ago how the gold crowd was screaming about how stupid the miners for for hedging their positions and being locked into low gold prices? Well, here is the other side. No one screaming now.

    Another interesting point is that with these lower AU prices, reserves will actually go down when companies next calculate them. Low grade ore will be removed as it is uneconomical to mine. This will cause miners to have non-cash write downs or impairments

    The real issue with miners I see is that if AU prices remain low for a long period, cash flows will be negatively affected and possibly put companies out of business. In any case, there will be permanent loss of capital for some. Seems to me that if one wants a long term hedge against monetary and fiscal disruption, one should just own the metal. But for those with greater forecasting ability than mine, miners certainly present a favorable asymmetric bet to the rise in Au prices.

    Well done article. Thank you.
    Jul 3 05:56 PM | Likes Like |Link to Comment
  • Tupperware: Lock In The Freshness Of This Stable Dividend [View article]
    what was the explanation for the dividend freeze?
    Jun 21 12:37 PM | Likes Like |Link to Comment
  • Can Alon USA Energy Maintain Its Torrid Pace? [View article]
    Hi Gary,
    Wow, never heard of these guys; interesting business. I have not done any research myself yet so forgive my basic questions. So I am clear, this company operates a couple of refineries in TX, has some pipelines, has several asphalt terminals all over the west, sells gasoline retail and owns a lot of 7-11's? Does management or a family control the company? This would seem ripe for a split up/spin off. Why hasn't that been done. I don't see a lot of synergies between the businesses; am I missing something?

    Why did the stock run up from $8 to $21? What was the thesis at $8? Why has it dropped 20% to $16.73? Was that the result of the refinery problem? Sounds like that is a temporary problem, which would be good. Could the fall in the crack spread account for the 20% decline in price. How far out are they hedged? I noticed that their earnings exploded at 3/31/13 vs a year ago; what happened?

    Looks like the company is selling at 2.2x EBITDA based on annualizing their 3/31 Q, but that had above average earnings. Also looks like they throw off a lot of FCF and don't have a lot of cap ex.

    What is the investment thesis? Is the company just very cheap? Are earnings and FCF growing very fast for some reason the market is not recognizing? What does the market see here that caused the stock to decline 20% and why is it wrong? I am having a hard time seeing what is really compelling about the company. But is sure looks cheap and generates good cash flow. However, it is a commodity business and the refinery business is very volatile.

    Sorry for so many questions. Just trying to understand what moves the business and why it is a buy.

    best regards,
    Skip Olinger
    Jun 17 05:28 PM | 1 Like Like |Link to Comment
  • mREITs Buyers Beware, Economic Data Threatens The Rally [View article]
    If that is the only reason you can think of why swaps exist, then you should probably not be investing in this space or offering opinions. Sorry
    Jun 16 02:48 PM | Likes Like |Link to Comment
  • Energy XXI Limited: Vastly Undervalued, Nicely Hedged, And Shareholder Friendly [View article]
    It is interesting to note that EXXI is now trading at a discount to EPL, another smaller but very similar GOM E&P company. Both companies are very oily. As you point out, EXXI trades about 61% on NAV. EPL is trading at 88% of NAV. Both companies appear to have similar EV/EBITDA multiples: EXXI 3.8x 6/30/14 and EPL 3.6x 12/31/13. If EXXI traded at 85% of NAV it would be a $32-33 stock.

    I believe GOM companies have usually traded at a discount to on-shore companies due to weather risk. In speaking to the company, they believe that their current discount is a result of missing some production numbers that were caused by weather - 9/12Q had a hurricane. Cold fronts in the GOM created heavy seas that made it impossible for supply boats to off load on platforms. Also there was a shut down in one of their pipelines. The company believes that production will be back on track in the next few quarters. They expect a 10% increase in production next FY.

    One of the possible negatives with EXXI is that some of their wells are in the deeper part of the shelf - 1000 ft - and are ultra-deep wells down to what looks like 30,000 ft. This is the oil that has been hidden by salt domes. EPL wells are more traditional though they do have some ultra deep potential. Seems to me that would be less risky but you would know better than I.

    EPL is a strong free cash flow generator and expects to fund future cap ex from cash flow as where FCF for EXXI was negative for the 9 mos ended 3/31.

    The reason both companies have been cheap is that in prior years, GOM was considered exhausted and only a NG play. I think both companies have proven that is not the case. Improvements in 3D seismic and the interpretation of old 3D have have allowed them to find addition significant deposits. And, these reserves are US based and ~80% liquids. They both also sell their oil at Brent pricing, not WTI which gives them a $5-10 a bbl premium.

    EXXI could be a good play as it returns to normal production levels.
    Jun 11 06:01 PM | 1 Like Like |Link to Comment
  • I Am Not A 'Gold Bug' But I Do Like Newmont Mining For The Dividends [View article]
    Try this link for an explanation of variable dividend policy

    One might also note that Newmont's free cash flow went negative in 2012 and continued that way in 1Q13.

    In 12, CFFO was $2.4b, cap ex was $3.2b and dividends were $695. This generated a cash flow short fall of $1.6b, which was financed by a net increase in debt of $1.5b so cash declined by about $200m (rounding). On the surface, not a secure dividend, especially if AU prices remain low. Also note that the sustaining cost per oz is around $1100-1200. But the company could be in an investment phase and cap ex may decline in the future. I have not done a lot of research on this company recently. I have been playing in the mid cap miner space, much to my regret.

    The bottom line with miners is that they are leveraged to the price of Au. But high operating leverage is a 2 edged sword; it cuts both ways. Small changes in Au generally cause larger changes in miners. For miners to do well, I think you need to have conviction that Au will rise again. The other problem with miners is that mining anything is a difficult business. The ROE's are low, they require large cap ex and they are subject to execution risk of which there is a lot with mines. Also large miners like Newmont have a hard time replacing reserves with cost effective large projects. Note several changes in CEO's of big miners recently as boards have come to see the huge projects in which they invested may not have great ROI's

    Note that generally when real interest rates are low or negative, then Au does well. Minimal income from bonds and worries about inflation make Au attractive. However, as rates go up, people generally move out of Au into bonds for the income. That is what happened in the 80's when Volker took interest rates up to stop inflation. The opposite seems to be happening now as the market believes the risk of inflation is low and QE may work. Therefore, I believe that if interest rates go up due to backing off of QE, Au will decline. Though call. Who knows when or if all this QE breaks down one way or another and inflation that everyone initially feared and now has discounted, really kicks in.

    Kind regards,
    Skip Olinger
    May 30 04:18 PM | 1 Like Like |Link to Comment