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Christopher Wallace
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Former private equity fund manager, now full time private investor.
  • Alberta Oilsands Looks Like An Easy Double 3 comments
    Mar 6, 2014 9:59 AM | about stocks: AOSDF

    I think this is an interesting opportunity.

    In a nutshell, Alberta Oilsands is an oil exploration company with a diversified portfolio of pre-production assets in Canada and Africa. It trades under the ticker AOS on the TSX Venture. As at Sept 30/13 it had S/H equity of $66.7 million made up of $3 mil of current assets, $76 mil of exploration and other long term assets, $1.4 of current liabilities and the balance is almost entirely a deferred tax liability. So that works out to book value per share of $0.31 per share. The stock trades at $0.13 per share, a 60% discount to book. That is not terribly meaningful as it could just be their land isn't worth what they paid and depreciated.

    But that is not the issue. The issue is that the government has expropriated a bunch of their Alberta land and has to make compensation to the company for the land so-expropriated. The Company has submitted a claim, which it believes is proper and defensible for $56 million. This claim of course is an asset that does not show up on the balance sheet. That works out $0.27 per share. Forget the book value of the cash and assets at cost less depreciation for a moment; they get $0.27/share in cash if the government settles at that amount. Maybe they do, maybe they don't. The stock trades at $0.13 so there is a big cushion if the settlement amount comes in at less. And don't forget, there is $0.31 of net assets on the books. So the risk/reward is decent here. The big question is, how long do you have to wait to know if this speculation pays off or not? That is the interesting part. This is excerpted from today's press release: (full PR here: http://web.tmxmoney.com/article.php?newsid=66188714&qm_symbol=AOS )

    "As previously announced on November 28, 2013, the Company submitted a claim to the Government of Alberta

    for compensation of approximately $56 million (including interest).

    Since January 2014, the Alberta Department of Energy has been reviewing the Company's compensation

    application and in normal course, has been conducting an audit of AOS' submitted compensation claim to verify

    that the amounts claimed as development allowance from 2006 to 2013 are being claimed in accordance with

    section 6 of the Mineral Rights Compensation Regulation. AOS has been working with the Alberta Department

    of Energy during this audit process by providing supporting documents for the development allowance claimed

    and has responded to all government queries to date.

    AOS anticipates that the audit process will be completed shortly and that the Company will be in a position to

    confirm the compensation amount with the Government of Alberta thereafter."

    Of considerable interest is the fact that Bruce Mitchell, former head investor at the CBC Pension Fund and now low-profile private investor with an excellent reputation has been buying up all the stock. He has ~24 mil shares and has bought 5.6 mil shares since Dec 18, paying between $0.135 - $0.16 per share.

    I think this makes for an interesting speculation and an attractive short term parking spot for some uninvested cash.

    Disclosure: I am long AOSDF.

    Stocks: AOSDF
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Comments (3)
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  • Andrew Williams
    , contributor
    Comments (235) | Send Message
     
    Thanks for writing this up. I am scratching my head at the discount.

     

    Fyi - Bruce Mitchell bot another 999k shs yesterday and now owns 29.14 mm shs or about 29.7% of AOS outstanding shares.

     

    Also, two members of the board of directors bot stock in the open market in February at higher prices.
    6 Mar, 10:22 AM Reply Like
  • Christopher Wallace
    , contributor
    Comments (1040) | Send Message
     
    Author’s reply » Thanks for giving me the idea, Andrew. It really is perplexing to see this discount, given the asset value today, before any possible settlement. But I guess that is what makes for opportunity. I am comforted by Mitchell's buying and other insiders as well.

     

    I have taken a position and I intend to forget about it until some news comes out. It sounds from the press release that it should be soon, my guess is before summer. Anything can happen in the stock market, but this seems to be pretty low risk to me.
    6 Mar, 10:56 AM Reply Like
  • Andrew Williams
    , contributor
    Comments (235) | Send Message
     
    I misspoke above.

     

    Bruce Mitchell owns about 13.7%. Insiders in aggregate own about 29.7%. AOS has 212,032,057 shares outstanding.

     

    Devon Shire posted a nice write-up on AOS last Fall and that is how I came across it. That article has since disappeared behind the paywall.
    7 Mar, 12:40 PM Reply Like
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