Seeking Alpha


Send Message
View as an RSS Feed
View R.Biese's Comments BY TICKER:
Latest  |  Highest rated
  • Improving Costs, Clean Balance Sheet Not Sparing Pan American Silver [View article]
    Let us look at today and out a couple of years.
    $11~$12/share ($11.60 +0.33(2.93%) Dec 24, 1:00PM EST)
    ~$2.5/share in cash
    ~$2/share EBIDTA
    ~$0.60/share total debt
    operating margin: ~17% mrq
    2P reserves: ~2 oz Ag/share (plus ~1 oz/sh as Au)
    dividend: $0.50/share (~4.5% yield)
    Argentina killed the Navidad project while Ag prices were high. Current prices keep the project on hold.

    Out a couple of years....
    1) Ag prices rise
    2) Ag prices fall
    3) Ag prices stay the same
    High probability of:
    1) share price appreciation & plus share buybacks probable
    2) 4.5% dividend (plenty of cash for this) as costs are cut further
    3) 4.5% dividend with $2.5/sh in cash with some share buybacks

    Looks like limited downside, low risk and considerable upside if 1) 'happens' strongly. Otherwise, 4.5% 'paid to wait'.

    Personal comments to management (if you read this):
    -keep the 50 cent dividend flat or growing through thick & thin as a priority
    -allocate new resources to 'maximize' price actually realized for sales plus increase premium metal products (eg 3nine coin blanks & 4nine electronic). Easiest, cheapest $2~$3/oz to be 'mined' out there.
    -keep Navidad on hold indefinitely without meaningful guarantees
    -relax about daily/weekly/monthly Comex prices except to grab short term opporunities. The company has more than enough resources to weather any forseeable storm. This is a time for bunts & singles, not swinging for the upper bleachers. Execute well and you will be rewarded. Earn that salary.

    Nuf said...
    Dec 24, 2013. 10:14 PM | 1 Like Like |Link to Comment
  • U.S. Light-Sweet Refining Capacity Hits A Wall: Power Shifts From Shale Producers To Downstream Operators Like Phillips 66 [View article]
    @michael: Part of my point was that part of the bottleneck problem is ABOUT to be changed, not HAS BEEN solved. 1.1 million bbl/d of brand new flows out of Cushing to the GOM within the next 3~4 months with the bulk of new flow within a few weeks (KGCP 700k bbl/d).

    From Feb/11 to 1Q-14, the Midwest refiners have been enjoying spectacular (IMHO, obscene) crack spreads. Only those refiners that have invested in heavy crude processing equipment can take advantage of Canadian heavy crude at ~$65/bbl. This group includes GOM refiners that have been running Maya for many years.

    However, all refiners can run sweet light feedstock. Refineries have shut down on the Eastern Seaboard because they can't compete with GOM, PADD 2 & global refined product prices using light & medium grade feedstock at world prices (based off of Brent) despite their regional production advantage.

    Hopefully, figuring out something that 'will likely happen' ahead of when everyone else reacts to 'what has happened' gives an investor a tiny edge.

    These new pipes can flow heavy or light crude from the home of WTI (Cushing) to the home of near world prices (GOM) with LLS, Maya, GOM offshore and global crudes competing for refiners purchase orders.

    It has been part of my thesis that a "$$ shift" will happen from PADD 2 refiner's crack spread over to both the heavy producers and GOM refiners if these new pipes are filled with heavy grades (i.e. WCS). Right now, IMHO, the mid-west crack spreads are obscene. A key question is when is this 'corrected' by market forces. You opened a new issue with these pipes being filled with the 'glut' of sweet light "at Cushing".

    There is a very strong incentive to flow heavy grades to the GOM to displace Maya. [old Jan 11/13 prices: Maya=$101, WCS=$57 (both similar heavy grade)]. Maya is also in decline (~150k bbpd/year). So I would expect heavy grades, such as WCS, to have a smaller differential to WTI but very little would flow to the Eastern Seaboard because of lack of processing capability there. Profits should rise for GOM refiners with new access to Cdn heavy at a price below Maya. Producers should also see a benefit. Profits at PADD 2 refiners should drop. Today the LLS 3-2-1 crack spread is ~$9/bbl then add another $5~$10 for heavy grade process cost (i.e. the Brent-Maya differential). You can see one reason why refined product exports are rising... cheap Canadian heavy crudes. At the very least, GOM refiners should benefit at the expense of PADD 2 refiners.

    However, your point of a USA-wide 'sweet light glut' has me concerned that there may be holes in my thesis. I cannot determine from your article whether Eastern Seaboard refiners will soak up the excess domestic sweet light for a few bucks less than Brent. A low WTI price (vs Brent) and a large differential for Bakken, Eagle Ford, Permian and Canadian light grades would make a large differential versus Brent. In this situation, will the spreads be high enough to displace heavy crudes in these new pipes?
    Dec 10, 2013. 03:18 PM | Likes Like |Link to Comment
  • U.S. Light-Sweet Refining Capacity Hits A Wall: Power Shifts From Shale Producers To Downstream Operators Like Phillips 66 [View article]
    There are regional pipeline bottlenecks:
    1) out of Bakken/AB/SK;
    2) out of Cushing OK; and
    3) East/West flows.
    There is some progress on #2 with a significant near term impact. I was wondering about your assessment of what is likely to happen in Q1~Q2 2014.

    There are some 'big pipes' being completed to increase flow from Cushing to the GOM with ~3/4 operational within ~0.3 years. The 'immediate three' are Seaway reversal (400K bpd), Keystone Gulf Coast Pipeline (KGCP, 700K bpd) and the Seaway loop (400K bpd). This is ~1.5 million bpd of new flow capacity out of Cushing to the Gulf Coast. Crude-By Rail is on top of this.

    Sweet light is priced as WTI at Cushing as opposed to (waterborne) sweet light priced as LLS at the GOM. For some insane reason, Bakken and Canadian crudes (WCS, sweet light & synthetic) are priced as a differential to WTI. Historical datasets for non-WTI product prices are hard to find publicly (for free).

    The Seaway 400K bpd reversal started full flow in Jan/13. The next is KGCP which is now complete & likely filling for flow in Dec13/Jan14. The Seaway Loop is under construction to double capacity & scheduled for flow Q1-2014. These are big pipes. (It is supposed to take 3.2 million bbl just to fill the KGCP.)

    There are other projects in the pre-construction stage (such as Trunkline conversion, Line 7 reversal, Capline reversal) which could be flowing as early as 2015.

    Much of the Brent/WTI spread ruckus started in 2H-2010 with the flow of 590K bpd Keystone from Alberta into PADD 2 (Illinois). In Feb/11 came the K-Ph 2 extension from Illinois into Cushing. Then, of course, the rising Bakken production (from ~350K bpd in 2011 to ~950K bpd now). Check your data on WTI spreads as to pre- & post-Feb/11. So before next spring, that big 'flushing sound' will be a LOT of new crude flow going from Cushing to the Gulf Coast.

    Once at the Gulf Coast, one would expect arbitrage shipment (e.g. vs LLS) to Eastern seaboard refiners by tanker when displaced by Bakken. This is a 'back-door' impact on the #3) bottleneck.

    This "should" benefit all Bakken-Eagle Ford-Cdn light crude producers (including synthetic) preferentially over heavy grade producers. The grade spread of Cdn imports are ~60/40 of heavy/(light+synthetic).

    At first glance, these projects plus a 'plateau-ing' of Bakken production around 1+ million-ish bpd "should" crush the Bakken/Cushing/LLS spread for sweet light crude despite the Jones Act. But your article seems to infer that the current light sweet glut at Cushing (low WTI & large Bakken differential) will drop the LLS price rather than raise WTI and/or raise the differential. This is a key point affecting investment decisions.

    Regardless, we will both soon see what the real impact the 700K bpd KGCP (& 450K bpd Q1-2014 Seaway loop) will have on spreads. One could expect the independent refiners to put up a fuss as pressure grows on their obscene $30/$40 crack spreads. Integrateds don't care as much because they capture the $ either on production or refining. Obviously, producers want closer to world prices.

    Personally, I lean towards arbitrage completing 'the last mile' to onboard tankers at the GOM and pricing power (in sweet light) shifting to the GOM rather than WTI at Cushing. Your article says "no" and I am always interested in knowing where I could be wrong.
    Dec 9, 2013. 11:38 PM | 1 Like Like |Link to Comment
  • Pan American Silver - Excellent Balance Sheet But Free Cash Flow Negative [View article]
    Your article focus on free cash flow is in conflict with your investment actions & decisions. While FCF is an important metric for companies with debt and large future capital commitments, it is effectively useless for companies like PAAS with huge cash hoards (over $2/share). You note the drop in 'cash' in 2013 when funding the Delores mine capital ependitures. Other CEO's & CFO's must be green with envy to be able to 'just write a check' for this large mine expansion and do not even need access to debt capital to do this, and any other, currently planned expansion.
    Dividend payments of ~18 million/quarter are no significant drain on company resources to do what it needs to do. [aside: Neither was the ~$6 million 'ooops' on hedging if management learned an expensive but valuable lesson on how the company can be 'played'. There needs to be a better management focus on 'actual realized price'.]
    All-in-all, FCF is just a flawed metric for PAAS in this situation.
    Nov 28, 2013. 06:30 PM | 1 Like Like |Link to Comment
  • What Does It Really Cost To Mine Gold: The Barrick Gold Second Quarter Edition [View article]
    Hi Hebba: Thanks for your cost analysis. I've been watching your posts for some time now. I also had trouble understanding all the accounting machinations used by companies involved in multi-year projects with large, front-end loaded capital expenditures (energy, mining, etc).
    Years ago, it was a bit simpler with companies having a 'debt or dilute' decision for project financing. Then came the 'streamers' offering up-front cash for cheap future metal production instead of debt. A bank would require forward hedging and private debt usually came with 'sweeteners' via convertible debentures or warrants. So it evolved to a 'debt or dilute or stream' decision model.
    The reported costs have surged higher over the past several years. Many of the current miners were 'making money' at $600/GEO in 2005 at the same mines with sunken costs. I have yet to unravel the full mechanics of the cost surge.
    This leads to questions of how to handle debt & streaming in analysis which you have, at least partially, addressed in your definition of a series of Costs/GEO. Would it be better to add a line item for 'streaming cost' in your Costs/GEO series? This is essentially a grandfathered 'financing cost' and deserves a similar treatment to hedging (losses) plus debt cost.
    For many miners, streaming has turned into a massive financing cost and a huge boon for the streamers. In effect, mine operating profit has been transferred to the streamers. However, this (huge?) financing cost is a variable cost proportional to the metal price.
    I tend to believe that streaming became the equivalent to 'loan sharking' when debt financing dried up over the past several years with an increasing 'vig' as metal prices lurched higher & higher. This also means that I expect "costs" to reduce with lower metal prices, especially for those participating in 'streaming financing'.
    This is not 'water under the bridge' as these agreements will still be in force for many, many years.
    What is needed is a means to identify those companies with better project cost/financing structures... going forward. Your miner cost analysis is, in part, directed at identifying those with lower cost structures with good balance sheets (to be able to weather any extended period/another downturn in product prices). I applaud your efforts here. Trust me, it is greatly appreciated by the non-pros following your work.
    Have you back tested your model to 2005-ish when streaming was in its early stages and essentially limited to by-product off takes? Is streaming truly a major (but obfuscated) component of miner (financing) costs?
    Aug 20, 2013. 05:22 PM | 2 Likes Like |Link to Comment
  • AuRico Gold Is Overvalued [View article]
    Are you actually pumping the short side of AUQ? The short side set-up has already been done & finished. The shorts are wanting to buy now, not sell. They have 'shaken the tree' but still need to buy more to cover.
    Mar/13 data says AUQ was ~15% short already. Guess you missed that, eh?
    AUQ is dual listed TSX & NYSE. Have a peek at TMX "Top 20 Short Position Report" for Mar 15/13 and the WSJ short interest section:
    NYSE: 13,553,595 3/15/13
    TSX: 24,787,614 3/15/13
    Total: 38,341,209
    An AUQ press release said 246,395,391 shares were outstanding after the $300 million buyback.
    simple arithmetic: 38,341,209/246,395,391= 15.56% short interest
    Since then, AUQ has dropped off the top 20 list on the TMX website which means that <23.7 million were short Mar 31/13 on the TSX(i.e. below #20 Mar 21/13). I do not have access to current TMX data except the 'top 20'. Right now NYSE short interest is 13,814,891 which is close to Mar/13 (WSJ data).
    Let's see.... recent AUQ avg daily volumes (3 mo):
    TSX: 593,659
    NYSE: 2,588,760
    total: 3,182,419
    estimate: ~12 days to cover (minus whatever has been covered since Mar 15.)

    Have you ever tried to put out a flare? If a broad squeeze develops, there is going to be a whole bunch of flares burning in the PM mining sector.
    Let's see who else is on the current TMX top 20 shorts: New Gold, Osisko, Turquoise Hill & Barrick. Kinross had 35 million short at the end of June, and Eldorado (32 million) in mid-June and Yamana in mid-May (27 million) but all have dropped off the top 20 list (latest #20 is 26.5 million). Obviously the % short depends on the total shares outstanding. Not adding the NYSE & TSX short positions together would be, quite frankly, very stupid research.
    Additional fuel could be supplied by the very-long-in-the-tooth long gold-short miners trade (presumably hoping for an 'all equity' waterfall as per 2008). This trade has worked exceptionally well since Apr/11 (GDX/Gold from 0.044 to 0.020). Right now, the GDX/Gold ratio is as low as the bottom of 2008/9 (0.021). It hit 0.018 at the end of June/13.
    Let's see.... gold at $1200, silver at $18 and the GDX/gold ratio lower than at the bottom of the 2008 crash. Many of these guys & gals were easily profitable at $700 gold, $14 silver & $3 copper back in 2007. Most paid down debt while product prices were high and are now sitting on cash hoards plus some LT debt. All this trash talk about the miners "losing money" at <$1600 gold is just 'shaking the tree'. Good miners with good deposits will always figure out how to make money at $1200 gold or $1000 gold or $800 gold. Copper prices collapsing well below $3 (or for other primary 'byproduct' credits) is a bigger problem for most miners than the price of diesel. I just do not anticipate this collapse happening.
    Hmmmm.... Pump the short side? LOL. I think I might just be a buyer here.
    There were some great deals on Leap calls at the end of June & early July. ~20% of share price downside and 500+% of risked capital upside with a recovery to ~$1500 gold?
    Yum yum. I can wait.
    Please short the hell out of the miners. I want another entry.
    Aug 2, 2013. 12:27 PM | Likes Like |Link to Comment
  • The Short Side Of Gold Miners [View article]
    Does your short interest data include the TSX? AUQ has been pushing 15% if one adds WSJ & TSX short interest data. Just wondering if this was true or is double counting.
    May 17, 2013. 06:29 PM | Likes Like |Link to Comment
  • No More Storage in Cushing; WTI Will Be $90 in a Month [View article]
    1) Agreed that there is a storage problem at Cushing. It has become a choke point for Canadian crude into the USA. Fix it or the Canucks will figure out that exporting to the Far East is a better approach and install more pipe to the Pacific coast. Not very smart to PO your #1 supplier. I suspect they have already figured this out.
    2) IMHO, hidden in the EIA data is a growing trend for US refiners to export product. This screws up the assumption you make that refinery output=domestic consumption and impacts crude import 'reasoning' when looking at fractions of a % refinery utilizations during turn-around season.
    3) Look at the crack spreads. If I were a refiner, I would increase throughput by using more sweet light versus Cdn heavy or Mexican if I could.
    The Cushing storage issue does not bode well for the heavy-light differential as long as a high crack spread exists. That's about it.
    Long term, a persistent, large heavy-light differential will guarantee export of Canadian crude to the Far East.
    Apr 1, 2011. 01:52 PM | 1 Like Like |Link to Comment
  • 3 Gold Miners Set to Profit Big From Gold Above $1375 [View article]
    IMHO, the slow grind down in price/NAV is almost over. Go ahead check for yourself. Continuous selling through 2010 (and before)shows up in AUY/$gold ratio and AUY/GDX or AUY/$HUI ratio. I suspect, but have no knowledge of, that AUY is the "subject" of a long $gold/short AUY hedge play. For now, the buzz saw cuts up & down in a trading range (often corresponding to option expiration dates) with the HFT gradually shaking out a net few shares to cover.
    All fun and games until Mr Market realizes that new AUY mines really will come on stream in 2013-ish (production +50%).
    [pdtor spit on AUY for dilution... what a cheap shot. Yup! end2007-432M shares & end2008-702M shares. True. What wasn't said was production went from 441k GEO-2007 to 859k GEO-2008. Well pdtor, all I can say is DUH! Guess 2007 wasn't a good time to buy gold production partially with paper instead of using stupid levels of debt. DUH!]
    Speaking of debt, LT debt is only $486 mil vs cash of $330 mil q4-10 on a market cap of 9+ billion. Net after tax was $141 million q4-10 and paying a teensy, but improving, dividend.
    Does this sound like an outfit itching to dilute? AUY diluted to grow in 2007. Will it happen again?
    2010 production at 1047k GEO wasn't much higher than 2009 production at 1026k GEO. Projected 2011 production ~1010k GEO in 2011. Holy crap! Production growth collapsed! Both 2010 and 2011 "flat" over 2009! Sell! Sell! Sell! Bring that Price/NAV back to 1!
    Wait a minute!
    ~1250k GEO in 2012 and 1670k GEO in 2013?
    With no acquisitions? Organic growth? Low debt? Massive cash flow & strong margins? While developing new mines & upgrading the old ones? I LIKE their plan.
    Maybe I'll trade the channel, maybe not. I'm not "a trader". But I will say that I'm willing to wait for 2013 to hit Mr Market's radar (assuming POG >$1200) and let AUY turn into a multi-year cash machine.
    Apr 1, 2011. 04:14 AM | 1 Like Like |Link to Comment
  • Canadian Oil Sands: Why a Larger Syncrude Holding Makes Sense [View article]
    This is a world class asset so use international valuations.
    News says XOM is paying $4 billion for 25% stake in Ghana Jubilee field. One estimate of it's peak production rate is 120 kb/d (but unsure on this number). So fresh, produce-able, international reserves valued at $133,000 /(peak kb/d). Giving a 50% premium for 'peak/average' this comes in at $200,000 /(flat kb/d)
    The article's $3 billion price tag for 9% of Syncrude at 289 kb/d (2008 avg) is $115,000/(flat kb/d) with ?40? yr reserve life. A proven, producing asset. Permitted, built, hooked up & flowing. Making money at US$40/bbl.
    Q: Why is there so much of a disconnect between international valuations and Cdn oil sand valuations for producing assets?
    Q: Has Bay/Wall Street convinced Calgary/Houston to part with their assets at half price... again?
    Q: Was March/09 a '10 cents on the dollar' fire sale of the next decade? A "buy Microsoft in 1994" moment? (I suspect 15 years from now the answer will be "Yes"... with a comparable chart.)
    <start personal rant>
    IMHO, new pipes to the West coast for both sco & ng should be built to get international pricing & international valuations on assets.
    There is an urgent need for some new kahonas to be grown in Ottawa & Edmonton to withstand the Bay/Wall Street pressure/clutter/noise. Canada has ~10% of global proven oil reserves just in the oil sands. Act like owners not custodians of an international 'gift to the world'.
    Only a fool would 'think so small'.
    <end personal rant>
    Oct 30, 2009. 01:26 PM | 1 Like Like |Link to Comment
  • Impact of Commodity ETFs on Prices: An Update [View article]
    You are bang on to relate ETF holdings to price trends. e.g. The 17 'qualified' purchasers of GLD units now have strategic and tactical control of (at least the timing of) the purchase & sale of 500-700 tonnes of gold. This is about the 5th?-7th? largest stockpile of gold on the planet, including central banks. No 2004 CB Gold Agreement agreements here. No legislative approval for purchase/sale.
    The possibilities for futures/options/OTC derrivatives vs physical arbitrage vs ETF holdings are staggering. Whipsaws in price are extremely profitable when you know they are coming. Anyone watching COT's, Comex and CB activity must now look at ETFs in a whole new light. (Don't forget to look at volume changes of different ETF's on the same commodity such as GLD vs smaller ones like CEF, etc at volume break points before this indicator 'disappears'.)
    Thar's a new sherrif'n town. He'd be call'd ETF. An' he'd be a wild'un.
    Sep 13, 2008. 01:44 PM | Likes Like |Link to Comment