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Jan H. Lessner

Jan H. Lessner
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  • What Will Iamgold Do With Its War Chest Of Cash? [View article]
    Western managers see themselves as deal makers. They want to manage the things and they believe by their nature that their management adds value to the company.

    I don't buy this premise in general and specifically in the case of Iamgold I highly doubt, that the management can make a value creating transaction. They've sold now their best and lowest risk assets, the niobec mine and this royalty. They've proven so many time that they are very bad operators.

    I assume that this cash and liquidity hoarding is part of a plan to spend the money in a transaction, which means to buy a junior mining company. That is the worst outcome, but I assume it will happen.

    The right thing would be to right-size the company. They should try to sell working interests in the remaining mines to strong partners and shift operatorship to them. The cash, cash equivalents and proceeds from further sales should be used to first buyback the bonds and then the shares. The bond is traded at 84 per cent at the Frankfurt exchange. If they get a significant portion below par so much the better. But even buying pack at par would be fine. There would be enough money left to buy back share continuously. This would compel all short sellers to cover and it would reward the shareholders in the most efficient and sustainable way.

    The problem with this shareholder friendly way is that it doesn't fit to the self-perception of management and to their personal interests. They want to earn bonuses and the best road to high bonuses are transactions and risky deals.

    CEO Letwin (You may also call him Let-lose or Bet-win) doesn't want to shrink the company since this isn't really sexy and it would mean to shrink his salary too.

    All of the cheerleaders for buying a junior miner or assets should ask themselves why Iamgold should make a bargain by this. There are al lot of mining companies watching the market. Why should of all things Iamgold be the lucky one to find an undervalued gem, which has been overlooked by the others?

    So it is fair to assume that Iamgold will have to pay a fair price or even a premium. The ugly assets like Rosebel won't become better by this but a low cost mine would blend the average numbers. That doesn't create any value.
    Mar 30, 2015. 11:57 AM | 2 Likes Like |Link to Comment
  • Higher crack spread could cut Cenovus Energy funding gap, analyst says [View news story]
    I don't understand this show: on the one hand they pay a high dividend on the other hand they issue new share and dilute current shareholders. That doesn't make any sense since their are high administrative costs of such a bought deal issue.
    Mar 28, 2015. 11:20 AM | Likes Like |Link to Comment
  • Manchester United: It's Not The Time To Buy [View article]
    Some billionairs and tycoons have bought soccer clubs as a whole. So may be it is a good idea for retail investors to consider similar investements.

    Do You know any further examples of publically traded shares from soccer clubs beside MANU and the German BORUF?
    Mar 27, 2015. 11:49 AM | Likes Like |Link to Comment
  • Vantage Drilling - A Likely Candidate To Go Under In 2017 [View article]
    A very good article. Thanks a lot for this.

    I would add that there may arise one problem more. If EBITDA, EBIT or debt/equity worsens, this could cause a breach of covenants. I haven't researched this, so I'm not sure about this.

    But if this occurs, long-term debt would become short-term debt and this could only be avoided by a waiver from the creditors. The bond buybacks indicate in my view that management is already listening more to the creditors than to sahreholders.

    The interests of the shareholders seem to be already removed from the agenda, since there will be probably a debt-to-equity-swap.
    Mar 23, 2015. 04:46 AM | Likes Like |Link to Comment
  • Crude Oil: Why A 'Storage Crisis' Might Not Be So Bad After All [View article]
    One quote from the article:
    "Instead of cutting production, many shale players have instead opted to maintain and even increase production, just to keep making interest payments on their highly-levered balance sheets."

    I don't understand this. To increase production and to some extend even to just maintain production these shale players have to invest fresh many. If their returns are used for interest payments I don't see from which source they get the money for fruther CapEx.
    Mar 23, 2015. 04:27 AM | 2 Likes Like |Link to Comment
  • Petroamerica Oil: The Strong Buy Rating Has Become Even Stronger [View article]

    Quicksilver Resources isn't a "major US energy company" and hasn't been such. If You believe in such headlines, You shouldn't underestimate how much luck You will need.

    Beside this I've never asked You to recommend shares to me. But You are fully right. Following You recommendations would mean to rely heavily on luck.

    I think there is a reason, why PTA.TO either has to pay high interests (11.5% !) or hasn't access to cheaper debenture capital. Ask Yourself why they don't find lenders and instead have to issue more and more shares at ever decreasing prices.

    Generally it is easier to press pennystock shares into the market than debt. To borrow money You have to convince professionals in the banks. But to issue shares it takes not a lot. If there aren't enough buyers You just have to increase the discount to the current price and You will shurely find some salespersons who sell this stuff to retail shareholders.

    OK, PTA.TO has been an explorer several years ago and thus had to pay high interests. That's not unusual. But with derisking their case value should have become more obvious. That hasn't happened. Instead of a rising price they've sold cheaper and cheaper.

    Now they are a producer. So if their case is derisked now and if they can show a reliable cash flow, why the heck don't they get the currently cheap money from the banks?

    Overly leveraged companies are to be avoided. That's a no brainer. Value Digger has had to learn this the hard way with Tuscany international Drilling and to some extend with Caza Oil & Gas. But on the other hand there is not a single reason to refuse moderate leverage.

    US, Germany and a lot of other states lend out money with negative interest rates. Companies with negative equity but stable cash flows like the big tobaccos refinance themselves completely by dept at low rates and pay dividends plus buy back shares.

    Thus, if a company has a solid asset base and reliable cash flows, it is in the best interest of the shareholders if the management refinances growth by borrowings with low interest rates.
    Mar 20, 2015. 11:19 AM | 4 Likes Like |Link to Comment
  • Paragon Offshore Is Not Doomed [View article]
    I fully agree to the thesis, that there is a value in an old but functional fleet. The offshore drilling companies have told the market since years that there is a bifurcation and when there was high demand for UDW drillships due to high oil prices they were right.

    Now we realize that the market has changed completely and thus it is legitimate to put everything on the test. It's plausible that E&P companies may prefer smaller an cheaper projects now instead of those giant sophisticated projects of the past. These unspectacular, smaller projects won't need hi-tech/hi-spec rigs, UDW, dual BOP, harsh environment, etc. The main criterion is the price.

    Those old jack ups are nearly written down to scarp value. Not much further depreciation on the balance sheet.

    Anyway the biggest problem for PGN are financial issues. May be former bond buybacks haven't been timed well, but in my view bond buybacks should continue and accelarate. A debt-to-equity swap would dilute shareholders and the share prices would have fall farther to reflect that. Thus, shareholders can't wish a debt-to-equity swap.
    Mar 20, 2015. 05:04 AM | Likes Like |Link to Comment
  • Petroamerica Oil: The Strong Buy Rating Has Become Even Stronger [View article]
    Indeed a very prudent management. See on their homepage the financial history:

    They issued again and again "units" (shares plus warrants) and while the number of share has grown the unit prices have sunk consistently. Those who participated in these bought deal financings and private placements all paid higher prices than current share price.

    Everyone who hasn't sold share in them meantime carries substantial losses.

    The money of the sahreholders has found it's ways in the pockets of the management, the employees, the tax authorities, suroco shareholders and the bondholders (rate of 11.5% per annum).

    This successful management is used to spending shareholders' money and if they need more money they again issue and sell new shares. They will continue to do so until they find someone, who buys this stuff.

    So it's really safe to say, that it is a "prudent management". I just doubt whether the buy&holders of PTA.TO are such prudent.
    Mar 18, 2015. 03:17 PM | 7 Likes Like |Link to Comment
  • Why Ocean Rig Remains Depressed [View article]
    ORIG recieves higher interest payments from DRYS than what ORIG has to pay to the banks. Thus this loan adds earnings. Why don't You like that?

    Of course the easiest answer is, to assume that DRYS won't pay back the money. but that isn't Your assumption.

    So, ORIG could have used the money to pay down it's debt and would have had to pay prepayment penalties. The could have put the money in the security container, which means paying interests and receiving nothing. Instead the lend it to DRYS and ret high yield.

    Of course, neither You nor me nor anyone else except curious George likes this deal, but it isn't really bad as long as ORIG get's back the money.
    Mar 16, 2015. 01:36 PM | Likes Like |Link to Comment
  • Has Paragon Offshore Reached 'Cigar Butt Status'? [View article]
    There is a lot of fear and rumor, but not enough blood in the streets yet.

    I like the level of emotions at HERO, but I don't like that company. I would consider to buy PGN if it gets cheaper.

    Look for order backlog and scrap value. That will be the interesting figures.
    Mar 16, 2015. 01:26 PM | Likes Like |Link to Comment
  • Why Ocean Rig Remains Depressed [View article]
    "What is a leveraged company like ORIG doing making a $120 MM loan in the first place to anyone?!!"

    Although ORIG shurely wouldn't have lended this money to any other dry bulker this loan isn't that bad for ORIG. If DRYS doesn't go belly up, ORIG makes a good deal since interest paid by DRYS are much higher than what ORIG has to pay. Much better than cash on hand.

    Curious George isn't a good daddy but he isn't a fool. A default on the ORIG loan wouldn't help him.
    Mar 15, 2015. 06:03 PM | Likes Like |Link to Comment
  • North Atlantic Drilling: Rosneft Terminates 5-Year Contract With West Navigator [View article]
    Don't underestimate the Kingdom of Saudi Arabia. They are the swing producer. Finally they will decide on the recovery of the oil price.

    Although they can stomach a low oil price, even much lower than the current, it doesn't make ultimate sense for them to sell their resources for such prices for a long time.

    I assume that there are some very well informed big boys who will know earlier than we, what the Saudis will do. So look at indicators before buying offshore drillers. For example when the big five oil producers begin to buy assets at large scales, this may indicate that the worst is over.
    Mar 15, 2015. 05:48 PM | Likes Like |Link to Comment
  • Has Paragon Offshore Reached 'Cigar Butt Status'? [View article]
    I think there are three offshore drilling companies competing for the title "most hated stock ever" and these are HERO, VTG and PGN.

    Anyway, sometimes the last will be the first.

    Of course contracts will expire and the order backlog will shrink. But if they sell a rig for scrap there is a significant residual value since these rigs are made of steel. Ok, steel price are low too, but I think this could be an aoption for the oldest and least capable rigs, which don't get a new contract.

    Such sales for scrap may cause an impairment but they provide positive cash flow and if book value of the rig to sale for srap price is higher than P/B on company level it is actually creating some value.
    Mar 11, 2015. 10:30 AM | Likes Like |Link to Comment
  • Why Ocean Rig Remains Depressed [View article]
    I think it will be hard to find anyone who likes contracts with PBR or a deal like that with DRYS.

    But to put it into a perspective: SDRL's to contracts were new contracts and they weren't approved. That's a difference to approved contracts with rigs in operations. One may discuss how big this difference is, but one should recognize it.

    Second the loan to DRYS is high yield. The risk of a default is reflected by the interest rate, which ORIG receives. Again, nobody likes this deal and if not for any other reason than that ORIG isn't a bank. But the terms of the loan aren't that bad. Although ORIG doesn't get the money for free from the central banks like FED or ECB, ORIG still gets it cheaper than what DRYS has to pay to ORIG.
    Mar 10, 2015. 05:35 PM | 2 Likes Like |Link to Comment
  • DryShips: Recovery In Spot Market Rates And Increasing Transportation Demand Will Lead To A Comeback [View article]
    Never forget that curious George is the major shareholder.

    Further the offshore drilling sector is in a downturn. This will hit DRYS via it's stake in ORIG.

    Thirdly one should remember, that DRYS hasn't been able to borrow money from the financial market and thus had to borrow it from it's subsidiary ORIG. That's not what I would expect from a healthy company.
    Mar 6, 2015. 03:54 PM | 1 Like Like |Link to Comment