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Archive for November, 2010

Weekend reading

November 20, 2010 Leave a comment

True size of Africa: Perspective changing view of the true size of Africa.

Interview with Steven Crist: Publisher of Daily Racing Form discusses horse racing and what it takes to make money.

Bill Miller’s recent letter: Always great to hear his thoughts on the market

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Categories: Reading

Weekend reading:

November 12, 2010 Leave a comment

Melchior Palyi: the Man who predicted the Financial Crisis: The inability of regulators and the general public to see the consequences of new regulation and incentives.

The Man who saved the Whales: Humorous story of how one robber baron saved a species.

India Rising: A look at India’s rising power

Categories: Reading

Sold out: ATPG

November 9, 2010 Leave a comment

The BP disaster and revisiting the company’s debt load made me realize the risks on this investment are much higher than I had initially expected. There is plenty of upside on this investment, although I would rather be safe and accept a smaller return than take on unneeded risk.

We booked a decent gain on this investment. A return of 15.58% compared to a return for S&P500 of 10.66% over the last 10 months.

Cash will easily reallocated to a new investment with lower risk and good returns.

Categories: Updates

Weekend reading

November 5, 2010 Leave a comment

Doubts Cloud Gold’s Bright Future: We have been hearing it from many investors about Gold looking like a bubble.

McElvaine Fund’s recent letter: I always enjoy what Tim McElvaine has to say about the market. His analysis on gold demand/supply is right on.

Sprott Asset Management’s recent letter: Eric Sprott discusses his thoughts on the government actions,  currencies, and gold.

Common Sense Investing – Papers of Benjamin Graham: A compilation of writings of Benjamin Graham

Joe Rosenfield coverts $11M to $1B: A friend of Buffett, in 32 years has converted $11M to $1B while going unnoticed by most of the investment media.

GGP’s stock split and emergence notice: For GGP holders, basic information on when the stocks in the post-split companies will be issued, trading information, and tax implications.

Enduring Values, Enduring Value: An interview w/ the legendary Marty Whitman.

Categories: Reading

HNR: New financing deal

November 1, 2010 Leave a comment

HNR recently announced a $60M financing deal. The amount of the deal and the terms are interesting.

The financing gives the company plenty of capital to pursue its current exploration projects and to expedite some future projects. The company receives $60M term loan that matures Oct 28, 2012, basically 2 years from now. The company gives 1.6M in warrants, at a strike price of $15 which is higher than the current market price. The lender also gets 4.4M warrants after July 28th, 2011. The company can delay the July 28th date by three months, essentially meaning the company has a year before it has to give the lender 4.4M in warrants.

This financing deal is essentially the start of the end game for HNR. The capital should be enough for the company to pursue a huge expansion in its Utah assets, proceed with the Indonesia and Gabon projects. The capital gives the company about a year to increase its reserves and potentially increase the shareholder value in a sale of the company. Given the structure of this financing, with the 4.4M warrants 9-12 months out, the management has shows its cards that the company will be sold within a year. (There is still a possibility that the company only sells a select few assets and pays off the financing in a year, although I think at this point the management is looking to sell the entire company).

My biggest concerns is why such a financing structure, with the 9 month timing to huge dilution. The management has shown a sign of confidence in the company’s assets, ability to increase reserve substantially in the short-term, and confidence in the prospective projects in Indonesia, Gabon, and Oman. By taking on the capital and putting the strict deadline, the company is taking on a big risk. The Indonesia project has run into delays and management hasn’t been able to impact the speed at which the project gets implemented. With the Gabon project, well I don’t really feel safe about the politics with any project in Africa. So why take on this risk and try to hurry the exit plan? It seems like the management had a specific time horizon in mind, likely for a sale of the company or substantial increase in share prices. Although if management is confident with the company’s assets, then why take this risk? Why not get financing done with smaller amounts that allows the company to develop the Utah and Indonesia assets. Then based on the cash flow, develop the other assets.

I’ve held the company’s shares for over 2 years. In that time I’ve seen the management do a great job of diversifying from the Petrodelta asset. The management has also done a good job of not diluting shareholders with poor financing. In the case of this financing deal, my gut feeling is management doing the right thing.

 

 

Categories: Updates