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  • IBM: A Strong Buy [View article]
    Perhaps you could provide some detail as to when you think IBM's sales might start turning around. Something like a 1/3 of sales come from developing countries. Sales in China were down 22% in 3Q. CEO just admitted missing their targets. Sales have been declining each quarter for ~2yrs? But EPS keeps rising due to share buy backs and lower tax rate. That would sure seem to me to be an indicator of low quality earnings. I'd like to know why you think profitability from operations will improve and when. Thanks
    Mar 11 01:55 PM | 1 Like Like |Link to Comment
  • Occidental Petroleum: Catalysts Will Power This 3% Yielder Higher [View article]
    I'll give this a shot. CA assets are in a growth mode and require reinvestment of free cash flow. TX assets don't require as much reinvestment and therefore OXY can dividend out that FCF. So separating them allows the market to assign different multiples to separate companies. Income seeking investors can stay with OXY. Growth investors can invest for the long haul with the CA assets. Also as you can see from a lot of the comments here, there is a great deal of skepticism about the ability of OXY to actually drill and complete all the wells they plan due to government regulations. But clearly OXY is doing a lot of work in CA already and it is predicted to be a very large play.
    Feb 18 05:15 PM | 1 Like Like |Link to Comment
  • Why Bitcoin Matters [View article]
    I am no expert on this subject and felt the same as you until I read this piece. I think you need to look at bit coin in two ways, one as a medium of exchange, just like money as the bit coin can be exchanged into currency as soon as it is received. There is no speculative risk when you do that. The second way is to view bit coin as a speculative trade. If you hold it, it can go up or down. Those are 2 very different approaches.
    Jan 27 01:12 PM | 1 Like Like |Link to Comment
  • Why Bitcoin Matters [View article]
    Yes Memshu I do know someone that did get hosed, all retirees including me. Zero interest rates have forced people into speculative assets to get any yield. Zero interest rates are just like taxation; they are taking money from those who need it to live and have saved all their lives to have enough in retirement. Zero interest rates and money printing have caused bubbles such as the recent housing bubble. I think that may have hosed a few people.
    Jan 27 01:08 PM | 1 Like Like |Link to Comment
  • Occidental Petroleum: 11% Upside Plus Dividends [View article]
    Thanks for pointing this out. It is a significant point that the author missed.
    From reading the transcript of the 3Q call the company is looking at selling a minority stake in the MidEast NoAfrica operations that would lower their political risk. They also want to sell their midstream operations. Most interestingly, they are considering spinning off their CA Monterey Shale operations. The CA operations are in the expansion stage and require a lot of capital. The company pointed out this is not consistent with a dividend paying entity. So a separate company would be able to retain earnings to grow that business. The monterey shale is one of the biggest reserves in the country; however, it requires a great deal of drilling expertise. OXY is the largest land holder in the area with 2.1M acres. OXY has demonstrated its ability over the last several years. Venocco, the second largest land holder now private, came up short with their initial wells.
    So the reason to really look at OXY is their divestiture plans and their potential to increase their returns on capital. From just a quick look, they would be reducing their political risk and maximizing the value of some of their biggest assets. This is not a steady-as-you-go company. Developing CA has huge potential and optimizing its capital structure should reward shareholders. Perhaps that is why it is trading at a high PE.
    Any meaningful additional insight would be appreciated.
    Jan 13 02:27 PM | 1 Like Like |Link to Comment
  • Vanguard Natural Resources Makes A Strategic Shift Towards Natural Gas [View article]
    Thanks for the well done article. Would you please expand on the comment that upstream MLP's are a house of cards in the event the financial markets collapse?
    Is it because upstream MLP's have to replace production and, as they pay out their cash flow, have to raise more capital for cap ex? In other words, they are essentially investment banking junkies?
    What attracted me to VNR a couple of years ago was their first foray into NG where they got a large amount of hedges with the purchase of the resources. That allowed them to hedge almost 100% of their NG production out 5 year. Seemed plenty of time to for NG prices to rebound. In the meantime, they were making money at their hedged price.
    The company seems to have very disciplined management and a good margin of safety and insulation from further declines in NG prices. Therefore, dividend should be pretty stable even if they can't access public markets.
    Appreciate your help
    best regards
    Jan 6 02:26 PM | 1 Like Like |Link to Comment
  • Allied Nevada Gold - Huge Relative Value And Ripe Takeover Target [View article]
    How can you say this company will not go bankrupt??? I could very easily go bankrupt. All that has to happen is for gold prices to go down to $1100 and they will be burring cash. This is the risk to ANV and all other miners that did not hedge gold prices, which I don't think any did. If you believe that gold will go back up, which it may, ANV will have a big pay off. However, if gold does not go back up you get wiped out - zeroed. That is not an asymmetric bet - one with up side and minimal downside. There are a lot of reasons to be bullish on gold but don't say the company can't go bankrupt. It can. There are other substantial risks here as well - dilution and an unfavorable stream deal as pointed out above.
    Dec 22 12:40 PM | 1 Like Like |Link to Comment
  • Allied Nevada Gold - Huge Relative Value And Ripe Takeover Target [View article]
    Note that old management that made the mistakes is gone.
    Dec 22 12:21 PM | 1 Like Like |Link to Comment
  • Allied Nevada Gold - Huge Relative Value And Ripe Takeover Target [View article]
    Itinerant you make a good point. Assuming they figure out a more optimized way to mine the sulfides, they still have to spend $500M to build a mill to grind the crushed material to powder.

    Regarding the comparison to Pasqua Lama, ANV's original estimate to get the mine fully operational with the mill was $1.243B. Dividing that by the 20.793 P&P reserves, you get $60 per oz. So you are spot on in that the reserves are very cheap at this mine. But any purchaser would have to lay out the $500M to finish the mill.

    The other point about this mine is that it has a very large amount of silver deposits that can significantly reduce their adjusted gold production costs. Going back to their Jan 24, 13 presentation, they expected production of gold to be 582k per year from 2015-24 and silver to be 29M ozs, which they predicted would drive the average cash cost to $166 per oz. Point being that Hycoft has the potential to be a very cheap operation. However, that may have been too optimistic. They have a ways to go to figure out how to optimize mine production.

    An additional favorable point is that next year their Merrill Crowe plant will be operational and that will allow them to maximize silver extraction, which will drive down cash costs below '13. Capex is projected to be a lot lower at around $35m including sustaining.

    However, results still depend on the price of gold. $1200 AU is below their all in cash costs including sustaining capex and interest. Given that interest rates seem to be rising, AU may be low for a while. Don't know how many buyers there are out there.
    Dec 21 11:11 AM | 1 Like Like |Link to Comment
  • 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]
    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
  • 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
  • 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