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    Tuesday, November 18, 2008


    2008 February – December Predictions Closing Some Positions

    Of my 7 levered ideas for 5% of your portfolio in 2008 I think that 1,2,3 & 6 are pretty much ready to be closed out:

    1. NASDAQ will see another major fall off a higher peak. QQQQs see less than 40 (buy puts on QQQQ especially as it heads higher) (45.59 on Feb 1 - now 28.37, puts would have made about 8-10 times your money)
    2. Junk bond spreads widen substantially (buy puts on JNK) (46 on Feb 1 - now 30.43, puts would have made about 8-10 times your money)
    3. Japanese yen appreciates against a basket of currencies but especially against the Euro (and maybe GBP) (long JPYEUR) (.0063 on Feb 1 - now .0082, 30% unlevered return)
    6. The banking index falls even more from here and banks keep announcing new write downs every quarter (buy puts on BKX RKH) (96.11 Feb 1 - now 46.12, puts would have made 10-12 times your money).

    I'll review the performance at the end of the year but I think these have had most of their appreciation.

    Saturday, November 08, 2008


    Opti Canada (OPC

    I've written extensively about Canadian Oil Sands Trust since 2005. I've recently looked into Opti Canada. An oil sands company about to start commerical production with a somewhat modified, cheaper, process. OPC ( is trading at CAD $2.54 and is almost certainly worth CAD $10 +, potentially even closer to $20 over the longer term as they have a very long reserve life and a cheap cost of production.

    The problem is debt!

    They CAN run out of cash and/ or they can violate covenants on their debt. S&P announced today that Opti was placed on CreditWatch with negative implications. There is a "very real risk of violating its covenants on its revolving credit facilities should there be start-up problems with the upgrader or bitumen production does not ramp up to expected levels in first-quarter 2009,"

    It is important to understand that the risk of violating convenants doesn't mean that they ran out of cash. They can still have cash available but their $500M credit line could be withdrawn.

    It's very likely that there will be problems getting the plan to commercial production, we just don't know if they'll be sufficient to violate covenants. I can't even find a good reference to what all the convenants are. I've been able to find that there is a covenant relating to debt to equity (though not calcuated on a GAAP basis) and I've also found that they need to declare they have sufficient cash to complete the project before drawing down any additional cash. Furthermore their $100M short term revolving credit line expires in June 09 and will need to be refinanced or extended.

    Anyone buying this needs to understand that you have a chance to make a lot of upside and a chance to lose all you investment. Compare that with a Canadian oil sands trust or Suncor; you have a chance to make 3+ upside and no (almost no) chance of losing it all.

    I've bought a little OPTI but without detailed disclosure on the covenants you're flying blind. The Notes are selling at 68c on the dollar or a 17% yield to maturity.

    Thursday, November 06, 2008


    Interesting Reading - Nickel, Buffett and AUD

    Article in the Australian about Nickel miners. Mincor and Panoramic get favorable mentions.

    Brilliant Motley Fool article on Buffett's recent Buy call and how the media is sceptical. The media is always sceptical of Buffett at turning points. He's always right.

    National Australia Banks' Ipod Nano index, their version of the Economist's Big Mac Index, shows the Australian dollar as the most undervalued.

    Sunday, November 02, 2008


    Panoramic Resource (PAN

    Panoramic Resources has a similar story to Mincor. They have cash and receivables of $94M (netted off against about $16M in payables and $26M in tax liabilities) plus $109M in the money hedge book. They have 193M shares on issue which is about 80c a share in net cash and equivalent.

    PAN closed at $1.08 on Friday though they have recently been as low as 75c and as high as $6.15.

    Their cash costs are $6.05 per lb with current AUD Nickel prices at $8.47 per lb.

    Merrill Lynch 5-Sep-08 research report values the company at around $5 per share. Their short term nickel forecast is higher than reality but their longer term forecasts are likely too low ($8.5 in 2011 and $8 in 2012). WilsonHTM value the company at $3.51 with current resources. Their Nickel price assumptions are higher than Merril's.

    As with Mincor, there is little downside when the company is selling for cash value (or net cash plus equivalents). It's not clear if the company is worth $3 or $5 but it is worth more than $1.08.

    Mincor (MCR

    Mincor Resources is traded on the Australian Stock Exchange.

    They have net working capital of $76M (all amounts in AUD) and total cash and receivables of $111M. With about 200M shares outstanding they have a net cash value of 37c. They are debt free. When you add in the value of their hedge book (estimated at about $39M) then that rises to about 56c per share. The share price closed below 70c on Friday.

    Their cash costs per pound are about $5.79 as of the end of September 2008. The current (2nd November) Nickel price in AUD is $8.05.

    They have put in place a plan to keep cash costs within $5.4 - $5.7 per lb and are now planning to mine up to 25% less ore if prices remain poor.

    A reasonable estimate of Nickel prices for valuation is $11.21 AUD ($8.47USD) . That is based on the 2002-2007 average Nickel price and Australian Dollar USD exchange rate (AUDUSD 0.755). Deutsche Bank's research report on Mincor is based on $9USD Nickel and an AUDUSD of .74. They value the company at $2.80. They traded as high as $5.19 in the last 12 months.

    With a conservative 4 times upside and selling near cash and equivalents this looks like a great opporunity.


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    Disclaimer and Disclosure Analyses are prepared from sources and data believed to be reliable, but no representation is made as to their accuracy or completeness. I am not paid by covered companies. Strategies or ideas are presented for informational purposes and should not be used as a basis for any financial decisions.
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