gary17 Posted May 30, 2014 Share Posted May 30, 2014 hopefully this won't affect the financing for Kami http://www.cbc.ca/news/business/u-s-may-seek-to-fine-bnp-paribas-a-record-10-billion-1.2659458 Gary Link to comment Share on other sites More sharing options...
Andy Dufresne Posted May 30, 2014 Share Posted May 30, 2014 Every stock can be valued using any of a number of different methodologies. Each method has its strengths & weaknesses, & most are applicable only at certain times. Most methods assume the future will resemble the past in some fashion. If Coy X in the same industry trades at 10x EBITDA, Coy Y should do so as well (similar history). If DCF or EV methodologies worked last year, they should do so again this year – because nothing has changed. The problem is, what if today is not the same as yesterday? Cigar-but, net-net, liquidation, DCF, MOS all assume reasonably precise valuation of IV, purchase at a discount to IV, & that mean reversion will eventually drive the market price to IV . Conveniently - we omit that many of these choices will either BK & never reach IV, could actually be fairly valued net of dilution, may take 20 years to regain IV, & may not be independent by the time mean reversion occurs. We also don’t look back at how accurate our IV valuation actually is. Nirvana is a healthy & growing business with a wide moat - bought cheap. Strong BS, growing EBITDA, dominant in 1 of the 3 Porter strategies (moat maintaining). The focus is on FORECAST, & how accurate those forecasts actually turn out to be; ie : the positive end of the value investment spectrum. BAC at $5 cannot possibly go up. NBG, SAN etc, cannot possibly go up – because it is not convenient to believe so. So … don’t buy them …. & remain poor forever; it is the process – not the destination. 2 months out this will all be moot – we’ll either have a nice dividend & share price, or a take-out; we’re agnostic as to choice. But we will be rich – simply because we bought a ticket to the lottery. We make our own choices. SD SD, Thank you and the others for a very interesting thread! I feel like I am learning a lot here :) You speak about the inevitability of either a dividend initiation + share price correction or a buyout/takeover as the institutional players tire of waiting for a re-rating of the stock ... can you provide a rough timeline for this? Will we have any early warning signals? I'm still on the sidelines with dry powder and naturally would love to know how imminent the re-rating /takeover is in your opinion. Thanks in advance, Andy Link to comment Share on other sites More sharing options...
giofranchi Posted May 30, 2014 Share Posted May 30, 2014 Somebody wants out...It looks like we are heading towards 12,7 or lower. I entered too early. That’s why I believe in averaging down, and I always leave some room to do so. ;) Gio Link to comment Share on other sites More sharing options...
giofranchi Posted May 30, 2014 Share Posted May 30, 2014 We just needed to whine somewhere. There are similarities between the two like both are jockey play and listed in Canada but thats pretty much it. And if you believe we can learn, having us around is a good sign. Haha ;D ;D ;D Funny!! Thank you, Gio Link to comment Share on other sites More sharing options...
SharperDingaan Posted May 30, 2014 Share Posted May 30, 2014 Re press release: We are being told that Kami is going to close a few days before June-30. ADV does not believe they can prepare & review materially updated financials, plus give their directors adequate time to review them, & attend a board meeting within such a short window. Most would expect the existence of the deals to be announced as they are agreed to, but subject to board approval. Re timing: The fact that take-out has been discussed, & some already named, is your warning. It is a public board. Larry, Curly & Moe are being forced to dump their inventory, & deliberately being scalped by those lining up. Your warning is that those shares ARE being taken up, & their UW report is being dissed. We would have also pointed out the spelling errors & forced the price down even lower. Nobody is going to act until after there is a Kami announcement & we know terms; about a month of grace to follow & demonstrate the right things, then the heavy breathing. Most would prefer an independent ALS, but if it is not trading as a royalty coy a month after all these announcements - there will be some restructuring. SD Link to comment Share on other sites More sharing options...
Andy Dufresne Posted May 30, 2014 Share Posted May 30, 2014 OK SD, understood. Thanks! Link to comment Share on other sites More sharing options...
EliG Posted May 30, 2014 Share Posted May 30, 2014 Larry, Curly & Moe are being forced to dump their inventory, & deliberately being scalped by those lining up. SD, can you explain this like I'm an idiot. Why are they being forced to dump? Are they afraid that take-out price will be well below $14? Link to comment Share on other sites More sharing options...
SharperDingaan Posted May 30, 2014 Share Posted May 30, 2014 LCM were required to support the $14 issue price as part of their agreement. Ultimately they had to buy up around 7.5% of all the shares issued, were not able to find a buyer, & paid around $13.90 for them. They would have borrowed to buy the shares & need to get rid of them asap at the highest possible price - to minimize their losses. To do that, they put out a research report in the hope of dumping into the goosed up demand. They held around 1% of the total share count, & with all the take-out discussion around ALS, could reasonably have expected to sell their 1% to a single buyer in a dark pool, at a small premium to the market. Problem is - LCM botched the UW, & botched it again with a report so full of logic errors & indefensible spelling mistakes; that they are now laughing stock. When LCM say .... psst, I have some stock for you - it sounds like a skit. Those buyers are quite aware LCM are in trouble, know it is highly unlikely that LCM can carry their inventory through the weekend, & are low-balling their bids which LCM will eventually have to hit. Around close those buyers might throw out an overnight repo, ease the selling pressure, & paint the tape. It is also highly likely that some of those buyers are also those who got screwed on the UW; so a little pay-back may be in there as well. Just market discipline being enforced. SD Link to comment Share on other sites More sharing options...
alertmeipp Posted May 30, 2014 Share Posted May 30, 2014 SD, Is the above speculation or from source? What is LCM? Agents? Thanks Link to comment Share on other sites More sharing options...
Andy Dufresne Posted May 30, 2014 Share Posted May 30, 2014 While I may be wrong, I'll venture to say that LCM are Larry, Curly and Mo ... a.k.a. the underwriters who did a poor job and botched the share offering Link to comment Share on other sites More sharing options...
SharperDingaan Posted May 31, 2014 Share Posted May 31, 2014 LCM are indeed the underwriting group; Larry, Curly & Moe. There is no need to state their actual names. In the days immediately following the issue of the new shares, TSX trading history indicates that a little over 350K shares crossed the TSX & the low was around $13.90 - that was LCM buying. Then comes the day that ALS drops $0.58 on heavy volume that really could only have come from LCM. Sell at an inflated valuation, & then choose to cut & run - is very poor business; it angered the wrong people, & they made their displeasure known on the stockhouse board. Compound the error by playing those folks you have just sold to as fools - is bad for your financial health. The rest of the mechanics are standard UW procedure. LCM is being separated from the UW fee that was paid to them, through imposition of an inventory loss. There will probably be people changes as well. Once LCM has dumped their inventory (share overhang), the drama will be over. Institutions are not idiots. SD Link to comment Share on other sites More sharing options...
giofranchi Posted May 31, 2014 Share Posted May 31, 2014 Once LCM has dumped their inventory (share overhang), the drama will be over. In the meantime, I keep buying… I bought yesterday… I will buy again on Monday… ;) I find the behavior of the share price really baffling… So, let me review my thesis about ALS: Minerals will always be needed. That won’t change. Am I right? So which are the true risks here? I can name basically two: 1) The cyclical nature of the mining business 2) The use of some minerals gets out of favor Risk n.1, of course, refers to the price of iron ore, and therefore the profitability of Kami and JL. Risk n.2, of course, refers to carbon used to generate electricity, and therefore to a part of the royalties newly acquired. Risk n.2 doesn’t concern me a lot: like ap1234 as always said, it is possible that the purchase of the new royalties was not a great bargain, but it is very difficult to argue against the fact the price paid already discounts the eventual gradual erosion of the electrical carbon royalties… here the adjective “gradual” is key: it is not plausible those royalties will stop producing revenues all of a sudden, instead it will be a slow process of shifting from carbon to natural gas and/or other renewable energies. Risk n.1, instead, is very real: so, what are we left with, if Kami is not built? The way I see it, we will still have: - The “Prairies Royalties” at cost, $240.9 million - The CDP at cost, $42 million - The Voisey’s Bay Royalty, worth $3 million x 10 circa $30 million - Circa $30 million invested with Cranberry Capital - Circa $34 million invested in Virginia Gold Mines - Circa $5 million invested in Callinan Royalties - A portfolio of exploration projects - $44 million in cash ($65 million from the recent offering of common shares - $21 million used to purchase the second half of the CDP) Total Assets: $426 million (assigning no value to the portfolio of exploration projects) Total Debt: $130 million NAV: $426 - $130 = $296 million Today’s market cap: $354 million ALS is selling for 1.2 x NAV… And my calculation of NAV assigns no value to Kami royalties, no value to JL royalties, no value to Alderon shares, no value to Century Iron Mines, no value to Champion Iron options… And my calculation of NAV considers the “Prairies Royalties” at cost, and the CDP at cost… I guess also ap1234 might agree it is a conservative way of valuing those new purchases, even after taking into account risk n.2… And we have a 40 years old entrepreneur, who has a wonderful track record of growth, who surely knows his job, company, and industry very well, and who already has some concrete opportunities for growth in other areas besides iron ore: think for instance at CDP and potash! No matter what the economy and the markets do, people still need to go on eating, right?! So, what am I missing here?! Until I don’t understand where I am mistaken, I will keep averaging down. :) Gio Link to comment Share on other sites More sharing options...
Andy Dufresne Posted May 31, 2014 Share Posted May 31, 2014 Gio, Great breakdown! I assume you are using CAD in your calculations. If so, Google Finance shows a market cap of CAD 414 million at yesterday's closing price of CAD 12.83 ... it may be more as I am not sure their share count is always updated ... that is a NAV multiple of 1.4 .... which is still not expensive given the depressed prices of iron and the optionality of Kami and JL ... Link to comment Share on other sites More sharing options...
giofranchi Posted May 31, 2014 Share Posted May 31, 2014 ... that is a NAV multiple of 1.4 .... Ok! Thank you for correcting my mistake! ;) Gio Link to comment Share on other sites More sharing options...
giofranchi Posted May 31, 2014 Share Posted May 31, 2014 ... it may be more as I am not sure their share count is always updated ... No, it seems they are right: after closing the recent equity offering, ALS has 32,238,821 shares issued and outstanding. 32,238,821 x $12.83 = $413,624,073.40 (Canadian Dollars) Please, consider that what I have posted is imo a “worst case” scenario… Think of this: even if Kami and JL are not built, even if all their investments in iron ore plummet to ZERO… It is enough to assign an 11x multiple to the “Prairies Royalties”, to get back to 1.176 x NAV. If you think the CDP is worth some more than what they paid, the gap between market cap and NAV shrinks further. Then, tell me: do you really think risk n.1 is so high, that Alderon will prove to be utterly worthless?? ??? Gio Link to comment Share on other sites More sharing options...
Blue Macaw Posted May 31, 2014 Share Posted May 31, 2014 ... it may be more as I am not sure their share count is always updated ... No, it seems they are right: after closing the recent equity offering, ALS has 32,238,821 shares issued and outstanding. 32,238,821 x $12.83 = $413,624,073.40 (Canadian Dollars) Please, consider that what I have posted is imo a “worst case” scenario… Think of this: even if Kami and JL are not built, even if all their investments in iron ore plummet to ZERO… It is enough to assign an 11x multiple to the “Prairies Royalties”, to get back to 1.176 x NAV. If you think the CDP is worth some more than what they paid, the gap between market cap and NAV shrinks further. Then, tell me: do you really think risk n.1 is so high, that Alderon will prove to be utterly worthless?? ??? Gio Well I don´t. Kami will be built unless there is a complete crash in iron ore prices or the new dip (Lehman brothers 2). The former will maybe get a little lower but many mines will then stop so we would go up again. Maybe this is the equilibrium or we will see a new rush to 120? The latter will happen sooner or later but since the printing press is at full bore and Europe can lean on Scandinavia and Germany for while longer I don´t expect this to happen for a few years. (Hopefully I am rich by then) Less then 2 months to go to the Alderon AGM. Two new board members. Only one thing more to be concluded which is the water monitoring report. Things are looking good that is for sure... Link to comment Share on other sites More sharing options...
alertmeipp Posted May 31, 2014 Share Posted May 31, 2014 I would say that even Lehman brothers 2 will only delay the mine. The rock will still be there. No debt give ppl sitting power and I can see why ALS hates debt, they probably see many little miners going under because of it. Link to comment Share on other sites More sharing options...
shalab Posted May 31, 2014 Share Posted May 31, 2014 Looks like iron ore prices are headed lower - goldman is predicting $80/ton in 2015 http://www.bloomberg.com/news/2014-05-30/iron-ore-heads-for-record-losing-streak-as-goldman-eyes-supply.html Link to comment Share on other sites More sharing options...
no_free_lunch Posted May 31, 2014 Share Posted May 31, 2014 Since we now get to talk about coal when we talk ALS: Coal is one of the oldest and cheapest sources of energy in the world, and has been the leading fuel source for U.S. power generation for decades. However, coal-fired power generation market share has been under pressure from growing regulatory hurdles as well as cheap natural gas prices arising from the prolific growth of shale gas production. Many believed the historically low natural gas prices in 2012 marked the end of coal as a viable fuel source, as power generators would switch to natural gas as their main fuel source for years to come. Coal producers were left for dead as prices, volumes and margins fell. But, as they often do, the markets have adjusted, and we believe that 2014 could mark a new profitable stage for the coal sector as headwinds have turned into potential tailwinds. .. The EIA expects coal to regain share lost to natural gas as natural gas prices are expected to rise faster than coal. Coal still provides over 40% of U.S. electricity generation and will most likely be around for years to come. Outside of the U.S., coal continues to be a major fuel source and the International Energy Agency (IEA) expects coal to surpass oil as the world’s largest energy source in the next three years. Countries like India and China continue to rely on coal fired generation providing the U.S. an opportunity to export coal. http://westwoodgroup.com/2014/05/20/the-forgotten-fuel/ Link to comment Share on other sites More sharing options...
Blue Macaw Posted June 1, 2014 Share Posted June 1, 2014 Since we now get to talk about coal when we talk ALS: Coal is one of the oldest and cheapest sources of energy in the world, and has been the leading fuel source for U.S. power generation for decades. However, coal-fired power generation market share has been under pressure from growing regulatory hurdles as well as cheap natural gas prices arising from the prolific growth of shale gas production. Many believed the historically low natural gas prices in 2012 marked the end of coal as a viable fuel source, as power generators would switch to natural gas as their main fuel source for years to come. Coal producers were left for dead as prices, volumes and margins fell. But, as they often do, the markets have adjusted, and we believe that 2014 could mark a new profitable stage for the coal sector as headwinds have turned into potential tailwinds. .. The EIA expects coal to regain share lost to natural gas as natural gas prices are expected to rise faster than coal. Coal still provides over 40% of U.S. electricity generation and will most likely be around for years to come. Outside of the U.S., coal continues to be a major fuel source and the International Energy Agency (IEA) expects coal to surpass oil as the world’s largest energy source in the next three years. Countries like India and China continue to rely on coal fired generation providing the U.S. an opportunity to export coal. - See more at: http://westwoodgroup.com/2014/05/20/the-forgotten-fuel/#sthash.uU3RoAES.08vbHU5e.dpuf http://westwoodgroup.com/2014/05/20/the-forgotten-fuel/ It is funny how the energy source that give the world more than 40 % of our electricity is kind of forgotten and will be gone in a few years. I hear this all the time from people around me. It is easy for a Sweden to talk like this since we have 50 % of our electricity from hydro but for the rest of the world???. What will happen to gas and gas prices when electricity production will change from coal to gas. 40 % of the world´s energy!!!!! Gas will run out a lot quicker than the 50 years they estimate the resources to last for. What will happen when petrol for cars will change to electricity (charging them). Will that also be gas plants giving the energy for all the cars in the world? People are scared like hell of nuclear (germany), don´t want to rely on Russia, Middle East (gas, 54 % of all gas in the world) and have no math or energy knowledge worth speaking about. (I find people quite ignorant in these areas). Add to this that we will be 9-10 Billion people in a few years. This is not the worst though if they would stay poor (the richer people use 4/5 of all the energy) but the fact that everyone is moving towards a life style which resembles that of us in richer Europe or US. Coal will stay for a long time and I would not be surprised in 10 years if we have the same amount of coal plants (or more) as today. The world will change a lot in the coming 10 years. Hopefully I will get to experience this. Link to comment Share on other sites More sharing options...
SharperDingaan Posted June 1, 2014 Share Posted June 1, 2014 Lot of misconceptions around these things. The pollution is primarily because of incomplete burning, & burning at too low a temperature. We know how to fix it, but don't - because it is far cheaper to use slightly better coal & a less skilled workforce. Granulating coal & injecting it in a continuous air blast has long been a common practice of the steel industry. Burn hot & add heat recovery units to the smoke stack - & you can heat a small village with the hot water. Choke the stack & you quickly get temps high enough to safely burn plastic &/or dispose of medical waste. Cogeneration & garbage disposal have always been silent partners. Coal is going to be with us for a very long time; but plants will get more efficient. Most of todays plants (China) are essentially cheap Model-T Internal Combustion (IC) engines getting maybe 3-4 mpg, in an age when 35-45 mpg is now commonplace. Great choice if you wouldn't otherwise have power, but only a temporary solution. SD Link to comment Share on other sites More sharing options...
giofranchi Posted June 1, 2014 Share Posted June 1, 2014 Coal is going to be with us for a very long time If this is so, then I don’t see how the “Prairies Royalties” and the CDP ain’t worth a lot more than what ALS paid them for. If they are worth a lot more than what ALS paid them for, ALS today is selling below NAV, even if all its asset related to iron ore would be utterly worthless… which, of course, is a ridiculous valuation! ;) Gio Link to comment Share on other sites More sharing options...
Andy Dufresne Posted June 1, 2014 Share Posted June 1, 2014 As someone still on the sidelines the question of time to payout bothers me - even if I were to agree that ALS is worth CSD 20 per share I must ask how long it will take it to get there and are there better options in the market at the moment. Allow me to play devil's advocate ... and I would love and appreciate anyone taking the time to show me how wrong I am, really! From my point of view, ALS was last at CAD 20 in Feb 2008, so I figure it isn't a walk in the park to get there. While SD and others have elaborated catalysts, they all have very hazy timeframes "by summer", etc. and all that I know is that ALS management spoke about things that have yet to materialise in the time frame they originally discussed, so I am skeptical about their timeframes moving forward .... also, the LCM fiesta surely did not help retail or institutional investor confidence, nor did we hear anything from management remotely resembling what an angry client would say or do .... to add to this point, iron prices are heading South from what I've read About a month ago the stock was at 16.32, so its dropped %20+... I am willing to assume that the stock can get back to this level, so this would give me at current prices a %27 gain - not bad, but if this happens only at the end of the year or in 2015 why not put money in Clarke (CKI) for now, where there is likely the same upside and possibly more, and where the stock is appreciating daily? Surely there are more options .... also, if the markets tank in this timeframe, who knows how beaten-up ALS will become ... the last time the market corrected it went down from 30 to under 5 .... this risk must be accounted for ... As the timeframe to a distinct catalyst draws near and as share price decreases I admit that the investment will make more sense and this is why I was asking about it. I realise there are no perfect warnings of a catalyst, but perhaps for those of us still without a position, its smarter on a risk-adjusted basis to stay out until event X takes place - I assume for now its the Kami financing, but if you think otherwise do tell! Cheers! Link to comment Share on other sites More sharing options...
SharperDingaan Posted June 1, 2014 Share Posted June 1, 2014 We know the ADV AGM is July, & they will be approving multiple transactions. Sometime at/before July-31. We know the ALS board will meet early August, as per routine. If you believe Kami is a go; most would expect the ADV July meeting to be approving Kami Project matters. As is routine with any UW or material acquisition, we may get advance notice that new agreements now exist - subject to board approval. Most would expect the ALS August board meeting to include the initiation of dividends. The ADV board meeting is a lottery ticket. The best outcome for ALS is a successful Kami financing, additional Kami offtakes, & an ADV restructuring that they have been able to sell their shares into - for $70M+. The worst outcome is that Kami is not financed. Most would have used options to play the lottery ticket, but they aren't available. The best alternate is a margined long position ... but it means compounding risk on an already speculative proposition. If LCM had any brains, they would have made an option market in ALS ... but apparently, narry a wit between them. So ... one has to do this the old fashioned way. 1st round, ahead of a possible ADV early release that deals exist. 2nd round, on announcement & review of the ADV deals. 3rd round, balls to the wall, on ADV board approval 1st exit, on ALS dividend initiation. 2nd exit, 30-60 days after initiation. May/may not be a bid 3rd exit, when there is something else better. SD Link to comment Share on other sites More sharing options...
gary17 Posted June 2, 2014 Share Posted June 2, 2014 http://www.foxnews.com/politics/2014/06/01/obama-to-announce-rule-to-limit-emissions-from-fossil-burning-plants-part-his/ Link to comment Share on other sites More sharing options...
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