Who are the owner managers to own for the next 20 years?

[Liberty]

Thanks for posting the transcript, Bathtime. Very interesting.

 

"These assets we were able to acquire and secure for $1.2 million. A lot of people thought we were crazy and probably spent too much. However, their replaceable insurance cost is $851 million. These assets are more than 95 per cent ideally suited for our new product, dissolving pulp. As we turn this project around and convert to dissolving pulp, we are able to take these $1.2 million assets that were heavily underutilized by the previous owner, and, once we are fully converted to dissolving pulp, even at the initial stages, given the current or spot price of dissolving pulp, the mill will generate just over $200 million in profit."

[ECCO]

 

 

About Chad Wasilenkoff. He's a Vancouver guy like you Parsad, im surprised that you dont have any comments to do on this one.

[Parsad]

Yeah, he runs Fortress.  I don't know him personally.  Cheers!

[Partner24]

I like that Fortress Paper guy. He seems to be the classical contrarian value investor who seek to find value where others don't. I always search for talented investors like that. That being said, he's in an industry that is not within my circle of competences. In those circonstances where you don't know jewelry, you have to trust the jewelrer.

 

So, for those who can value that company, what would your intrinsic value range would be for that company? What are the metrics you use to value it?

 

That's a very interesting story. Thanks for sharing it.

 

 

[Partner24]

Guys, it's one thing to have a good jockey to manage assets, but in the end you still have to pay these assets at least at a reasonable price, at best at a bargain price.

 

For those who are confortable enough to value it, how would you assess the intrinsic value of the company? Do potential investors have the assets at a reasonable price and the jockey for free or do they have to pay a premium for it?

 

Thank you very much for your valuable insight.

 

 

 

 

[bonechip1]

Hi Partner,

 

Sorry for the delay.  I think you get the assets at a discount, and the jockey for free.  I am by no means an expert on this industry, and my bet is 95% on the jockey, and 5% on the assets currently owned. 

 

This is a back of the envelope valuation, but starting with dissolving pulp division, if/when they can get to production stage, delivered cash cost was estimated (in the presentation that I previously linked to) to be $600 US per tonne at time of acquisition.  The dollar has moved since then, so say delivered cash costs are now $650 per tonne.  The sales agreements, if you believe they are binding, lock in a majority of the DP production around a floor price of $1200 for 78% of the 200,000 tonnes of production (half for 5 years and half for 10 years).  So their EBITDA per tonne should be $550 at the floor price.  Multiply that by 78% of 200,000, and the supply under the agreements should produce EBITDA of $86 million, for an EBITDA margin of 36%.  That does not include the other 22% of the production that is not locked into a sale agreement. Obviously this is not a capex light business, and granted there are other costs (including interest, taxes and corporate costs) but I think one could argue, at these types of margins, and with the agreements in place (again assuming they are binding) that someone would surely be willing to pay at least 5X EBITDA for these assets. So that would value the 78% of production at a little over $400 million.

 

For the Dresden assets, there was a rumour that they turned down an offer a few years ago in the $150 million range from a competitor.  That is reasonable, as the assets earn $20 million in EBIT annually which should continue to grow. 

 

The Landqart assets have been a bit of a disappointment, but they should be able to improve op margins into the range of competitors like De La Rue (20% op margin) once they fill new capacity expansion, as new R&D initiatives like Durasafe gain traction, and as the industry returns to normal conditions. In the medium term, they should be able to generate at least $100 million in revenues with the new capacity, and if they can ramp up to running the full capacity producing entirely higher margin banknotes, this revenue could approach $200 million (10,000 tonnes * $20,000 ave selling price per tonne) and even more if they can gain some traction with Durasafe notes - which I think would sell as high as $28,000 per tonne.  At a 20% op margin, this division at full capacity producing Durasafe could be worth $560 million at a 10X EBIT multiple - although that is getting into the speculative realm, it is possible in the next 3-5 years.  However, for now, to be conservative, we'll say they can get up to an ave selling price of $10,000 per tonne on 10,000 tonnes at a 10% margin.  Multiply that EBIT by 8X, and you get an $80 million valuation for this division.   

 

Add the totals up, and you get $400 million for 78% of DP division, $150 million for Dresden and $80 million for Landqart for a total of $630 million.  A little over 14 million shares fully diluted, and you get a floor value of $45 per share.  Not included is the additional EBITDA that would come from the other 22% of DP not included under contracts at whatever the spot price is at the time.  Also, not included is the additional EBITDA that would come from anything over the $1200 per tonne minimum sale price in the agreement (one set of agreements has a $1200 to $1600 collar and the other has no maximum price).  Chad has been trying to add capacity in all 3 divisions at the right price, and I think you will see an announcement or two by the end of the year.  And of course you get the CEO for free (well not quite free but you get him cheap).  I think my numbers above are quite conservative, and if you input a higher spot price on DP, and use a slightly more aggressive multiplier, $100 - $125 per share wouldn't be totally unreasonable for an upper limit on IV.

 

Hope that answers your question.  By the way, your written English is better than some of us who's first language is English.

[OracleofCarolina]

Interesting company and letter

 

http://www.mongoliagrowthgroup.com/WelcomeLetterFeb2011.pdf

[Junto]

I will throw my hat in the ring. ;) Long way to go in this guys investment lifetime.  Link to my covestor model home page and information: http://bit.ly/fUJy7A

 

 

[sdev]

Interesting company and letter

 

http://www.mongoliagrowthgroup.com/WelcomeLetterFeb2011.pdf

 

Wow, familiar names involved in that  ;). Confused how owners subscribed for shares in january just over $1 and shares are almost $4 now.

[eclecticvalue]

It seems kuppy is obsessed with Mongolia. Although he does have an interesting opportunity to make a killing. I would like to invest in his company but too bad it trades in Canada. I am sure he got his friends involved in the company. He has mentioned in the past his friends come to him to convince him to invest in random investments. So it is probably his turn.

[Junto]

Interesting company and letter

 

http://www.mongoliagrowthgroup.com/WelcomeLetterFeb2011.pdf

 

Looks like a fairly speculative play on the Mongolian economy. No established business operations from what I can ascertain. More or less almost a SPAC that is up four fold from the initial offering. Not my type of investment, but will watch out of curiousity.

 

Link to monthly shareholder letter. Most recent news...it is cold in Mongolia:

 

http://www.mongoliagrowthgroup.com/monthlysharehold.html

[Partner24]

Regarding Mongolia Growth Group.

 

I like his words, but obviously actions speak louder than words (see Biglari Holdings for a 101 course on that particular topic).

 

Somebody knows him? His hedge fund? His track record as an investor?

 

 

[sdev]

Am I the only one that noticed that the CFO is a fellow boardmember?

[Liberty]

Thanks for another thought-provoking comment, Bonechip!

[eclecticvalue]

Am I the only one that noticed that the CFO is a fellow boardmember?

 

You can go on his website and check the positions http://adventuresincapitalism.com/positions.aspx

 

He has done well and I am mad I didn't invest in MERC.

[augustabound]

Reviving an old thread to post Above Average Odds on Sandstorm Metals and Energy and their CEO Nolan Watson

 

From Wiki,

When Watson was named the Chief Financial Officer of Silver Wheaton in 2006,[1] he became the youngest CFO (age 26) of a multi-billion dollar market capitalization company listed on the New York Stock Exchange[2] and helped build Silver Wheaton into the largest metal streaming company in the world

[netnet]

I'm not a commodities guy, but why is the stream model superior to royalty model?  (That said I do know that Silver Wheaton was tremendously successful, and  I believe it is a stream company.)

[AAOI]

For anyone that was hoping for some more color on the underlying streaming assets I've posted the first of a few updates - also provides some more thoughts on Watson that readers looking to learn more may find worthwhile.

 

http://www.aboveaverageodds.com/2012/02/27/sandstorm-metals-energy-cve-snd-a-look-under-the-hood-part-1/