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Jagercor Energy-Undiscovered Argentina Oil Producer

|Includes: Jagercor Energy Corp. (JAMTF)

I am strongly recommending accumulation of Jagercor Energy shares for aggressive investors. Jagercor trades on the CSE (Canadian Securities Exchange) under the symbol JEM and on the US pink sheets under the symbol JAMTF. The CSE is a fast growing exchange in Canada and we're seeing more and more exciting small cap growth companies choose the exchange due to the low fees, entrepreneurial perspective, and strong financial backing (e.g Ned Goodman -Billionaire and Founder of Dundee Corp): http://blog.thecse.com/tag/ned-goodman/

I'm bringing attention to this issue because I think we'll see more very compelling small growth companies like Jagercor sprout up on the CSE and US and Canadian readers should consider it a major exchange going forward. Canadians should have no problem buying shares under the main symbol JEM and US investors can buy JAMTF. As with most Canadian listed companies that have a US pink sheet component, the volume literally flows up north and buying/selling is filled on the main exchange. Jagercor went public in August of 2013 and swiftly went to 95 cents, split 4 for one, then traded to a high of 40 cents ($1.60 pre-split equivalent). The stock then came off its highs where they raised $2.6 million at 20 cents per share. After a brief pop back over 30 cents, the share price has grinded all the way down to its current price(low was 6 on JEM and it is trading between 6-7 cents currently) on October 29th. The CNSX website is a good resource for their listed companies where you can see the Jagercor news/charts/etc: http://cnsx.ca/CNSX/Securities/Oil-and-Gas/Jagercor-Energy-Corp.aspx

Jagercor is a junior oil/gas company that is operating in Argentina and expects to be a very near term oil producer (update: They now are officially producing oil per this news: http://www.stockwatch.com/News/Item.aspx?bid=Z-C%3aJEM-2220249&symbol=JEM&region=C).

Management is very seasoned, reputable, and capable of building a successful energy company in Argentina. You can view the bios of the 2 main executives of the company, Matias Bullrich and Edgardo Russo: http://jagercorenergy.com/index.php?option=com_content&view=article&id=2&Itemid=113

Importantly, Matias has managed and financed hundreds of millions of dollars in capital and in Argentina corporate financings. He notably worked at the most intense and successful hedge fund on Wall Street at SAC Capital under Steven Cohen. Despite the bad press SAC has gotten recently, you need to have been very sharp to work under Cohen for any period of time. Matias operates several businesses/interests of his own in Argentina and manages his own fund. His large scale debt financing contacts and ability may come in handy down the road as Jagercor scales into a more sizable company.

Edgardo Russo is exactly the type of pedigree you would seek in operating and launching an emerging oil/gas producer. His background and experience is impressive and he worked for very large organizations in YPF (Repsol)and Baker Hughes:

Mr. Russo brings 20 years of experience in the oil and gas industry in Argentina, mainly in YPF SA, the largest integrated oil company of Argentina, and most recently working as Field Development manager for Baker Hughes. His previous roles include General Manager of YPF SP, a drilling company owned by YPF Argentina, leading more than 500 employees in operating 15 Rigs including full responsibility and duties involving operation, safety, engineering, purchasing and finance. Mr. Russo also worked as Operations Manager, responsible for Loma La Lata production area; the most important gas field in Argentina, which is the field located over the Vaca Muerta shale reservoir. During his time in this role, YPF explored and assessed conventional and unconventional reservoirs to finally recognize the productive potential of the Vaca Muerta Shale. At the same time he started the massive development of Tight Gas in Sierra Barrosa.

YPF has seen serious capital inflows from some big name investors this year, notably George Soros and a number of very smart fund managers:
http://www.bloomberg.com/news/2014-08-14/soros-adds-to-ypf-trims-teva-exits-monster-in-quarter.html

This speaks to the question of "why invest in Argentina?", which I will address. The sheer size of oil deposits like Vaca Muerta and companies like YPF that seek wells producing at least 15,000 barrels per day, leaves a very ripe opportunity for a company like JEM. Jagercor is going after very low hanging fruit early on and has contracted with Central Resources to drill 3 wells, with the option to extend that to 8 wells in Q1 2015. The company's business model is to focus on field development (work over projects), production management, and drilling low risk reservoirs like the first project with Central (this is not a high risk/wildcatting exploration company). The 8 well contract is focused in the Rio Negro Province (Catriel Oeste field) where the data is quite compelling.

Jagercor/Central will be drilling very close to presently producing wells, in fact 2 of the 3 well locations are alongside other wells (infield). It must be pointed out that from 500 wells drilled since 1964, 100 are still in production! Of the last 200 wells drilled, only 3 were dry according to Edgardo (but even those produced natural gas). The average of the 197 "normal" wells out of the 200 was 150 bbl per day at production start and 90 % produced no less than 100 bbl per day at production start. The company is projecting 140/bbls per day per well or 41,000 cumulative barrels in the first year. This is only for the initial 3 wells and not the additional 5 that will conceivably kick in during Q1 2015, assuming success with the first 3 wells.

Initially, JEM keeps 70% of revenue until their investment is recouped, then 40% of revenue for the production life (potentially decades but certainly the wells at Catriel Oeste will produce for at least 10 years). The initial deal was for a $4.2 Million investment by JEM to drill these 3 wells. The exchange rate between dollars and Argentina pesos has been extremely favorable. Matias' background is arbitrage, and I believe the all in cost for drilling will be less than $1MM US per well, which is very cheap. The breakeven point with an assumption of $83 market oil price and a $57 net back to JEM, is 9 months. The IRR's are fantastic at 74%. If the company has success on these first 3 wells, they will invest another $6-$7 million in early 2015 to drill an additional 5 wells. The cumulative annual oil production then jumps to 280,000 barrels. But, keep in mind, my 6 month target for the stock is based just on 3 wells flowing 140 bbls per day, generating just over $400,000 in cash flow per month by the end of this year. Keep in mind also however, that if the company is successful with 8 wells, the cash flow by mid-2015 will be over $1.5MM per month for this tiny company.

Right now, at 6-7 cents per share, the market is putting virtually no value on these projects. At just over a $5MM CDN market capitalization, it is barely trading over paid in capital (i.e total $$ raised to date=in the bank and money sent to Central for drilling). The burn rate outside of the Central commitment is tiny, less than $50k per month so very manageable. Now, we already have results announced from the first well and they were right in line with projections at 148 barrels of oil per day. By sometime in early November, we should know what's happening with all 3 wells. If they are all producing 100 plus barrels per day, I think the stock should be valued upwards of 20 cents by the end of the year or so.

This may seem too good to be true but the reality is we don't have proof that they'll produce what they expect, therein lies the risk (we still need results on 2 of 3 wells). However, this is what Edgardo Russo has done for 20 years and JEM had an independent French consulting firm verify their data before committing with Central Resources on the project. It's just a question of how much oil is being produced vis-vis field pressure etc. What I like about this play right now though, is that the market is barely putting any value on the company's projects and there is room for error. Meaning, if they only hit 1 or 2 out of 3 wells, the stock should move up from here. If they only hit 1 of 3 they would be the most cursed people in Argentina considering results from the previous 200 wells.

Management is everything in these small companies and I'm comfortable with the group here and trust that they are pros. In terms of Argentina, there is some seriously smart money going to work now and that's in anticipation of the imminent departure of the current president. She clearly has not been good for business but anyone who comes in will be better than the current administration. I had the pleasure of hearing the renowned newsletter writer/investor Doug Casey speak at a conference in August. He said he believes the cheapest/best country on the planet to invest in right now is Argentina. I believe real estate and energy are the 2 ways to play it. A small company like Jagercor with good timing could become a fairly large company pretty fast as things improve and they execute their plan of taking on projects that are very profitable but too small for the majors like YPF. There will be business opportunities galore if they succeed with Central Resources and they know it.

Interestingly and perhaps extremely fortuitous in timing, the company is raising $1.2mm-$1.5MM CDN right now in a private placement at 6 cents per unit (1 share of stock and ½ warrant at 12 cents). Matias has said he will take 10% of the offering or up to $150,000 and Edgardo has committed $50,000. These guys are putting their money where their mouths are so I am getting very aggressive in my recommendation currently. If you decide you would like to get involved in Jagercor and you are an accredited investor seeking to buy at least $15k worth of stock, you should contact the company about the pp directly. You get a discount to market and a warrant that can boost your return profile. Email Matias@bullrich.net for subscription documents if that's of interest. They closed just under $800K in the first tranche on Monday and have other commitments soft circled for tranche 2 closing. However, first money in secures the position so new investors likely have the next 3-5 business days to act on the PP if you are so inclined.

Also, open market buying is easy and for the next week or so while they are wrapping up the private placement, the stock should stay around 6-8 cents or so. I love this play here at 6-7-8 cents and think it has a great shot of being both a short term huge winner and a long term great business to be invested in. Lastly, I recorded a webinar a couple of weeks ago that will help you with your due diligence:

www.youtube.com/watch?v=y7DuGZbAFyg&list=UUuyyzlVAHqh2rzBIE2BRR_g

I am initiating a Strong Buy on Jagercor Energy at 6 cents with a 6 month price target of 25 cents and a 12-18 month price target of 70 cents. My projections are actually based on pure cash flow multiples. They project $440,000 in monthly cash flow beginning by year end 2014, if we discount that to $400k and annualize it, we get $4.8MM in cash flow for 2015. A 15x multiple is a $78 million market value. After this financing, the company will have somewhere around 90 million shares outstanding. Let's say they oversubscribe the offering and its 100 million shares. That's .78 cents per share, discount it by 10% and we have 70 cents. Clearly, this will not be exactly accurate at all because if they have success this quarter, they will raise $5MM plus to drill 5 more wells and seek more projects. Depending on the structure of that financing (whether debt or equity or both) there will be some additional dilution but clearly earnings will also be much higher for the year as well, since the $4.8MM EPS run rate is only based on the initial 3 wells.

I believe this is the perfect type of speculation. Reasonable downside risk with blue sky upside potential in a nation that 99% of investors are currently avoiding. Some smart Argentinians believe that once there is a change in power, Argentine stocks will be revalued upwards by 50%. We're looking just before that political change and JUST before this company can call themselves a profitable producer. If/when those 2 events are confirmed, investors will be paying higher prices to buy Jagercor Energy shares.

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MVN.V / BOE.V / CW.V / RPT.V

Disclosure: The author is long JAMTF.

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