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Archive for December, 2010

Heckmann Interview

December 21, 2010 2 comments

A recent Bloomberg interview w/ Richard Heckmann. I think this could be a start of a string of PR to get the word out about their complete suite of services. i see 2011 as the key year for Heckmann.

Categories: Updates

Portfolio Updates and new buys

December 17, 2010 2 comments

I haven’t been able to update the blog in the last couple of weeks. In the last couple of weeks I’ve made come changes to the portfolio.

TX: I sold out of Ternium. I had said previously that I liked the management, the strong business fundamentals, the location in Latin America, and potential upside from the Brazil plant. The biggest drawback was the price I paid to build my position. I bought it at its highs about 2 years ago. Although I like the company, at the price I paid there was no margin of safety. I sold at a small loss.

New Buys:

Avino Silver: A junior silver producer that has some wonderful assets and backing from Sprott Asset Management. They own land in Mexico that has been proven to produce substantial amount of silver. Their mine was producing silver back in the Conquistadors times, so there is no risk of whether there is silver to be found. It was considered one of the top silver mines in the world, so the assets are very good. The mine was closed off by Mexico for decades. The management team bought the land and is now close to major expansion.

I started buying this one a few weeks ago. Although the shares have moved up, it is still a good buy based on your views on silver.

– The management team is good, runs a tight ship, and has kept a clean capital structure (very little warrants or dilution).
– Mgmt recently reported that the replacement cost is around $40M, compared to the market cap of the company at $60M.
– Mgmt put out an estimate cash generation of $10M based on $900/gold and $15/silver. Silver has doubled since then and gold is higher by $400. So I think the cash generation is more around $20-25M.
– Company has a partnership w/ Goldcorp’s Mexico subsidiary for massive expansion. The results of tests has been exceptionally good, in terms of grade and further expansion of un-mined land.
– All permits and environmental tests are done and company is looking for huge jump in production starting Q2 ’11
– Recently did capital raising from Sprott Asset Mgmt. Sprott got warrants at $1.25, so today’s market price fo $2.20 has a bit of run up but I think there is still quite a huge run-up left.
– Infrastructure in place to do 1,250 tpd.
– Sprott recently did another capital infusion. These transactions are dilutive but management has done a good job on keeping the dilution to a minimum.
– The Eagle Property asset could be a huge upside. Results so far have shown strong silver and Iridium (rare earth material).
– The breakeven cost on production is extremely low, around $7/oz for silver.

At current silver prices of $30, the company could be making around $25M of free cash. Based on what happens to silver prices and the Eagle property, you could see huge upside.

http://www.avino.com/i/pdf/Avino-ppt.pdf
http://www.midasletter.com/news/10031201_Avino-Silver-Asks-You-Like-Mining.php
http://www.gold-eagle.com/editorials_08/blog120910.html

ATS Corp

This is a pure play on the IT services for government agencies. The company has been around for 30+ yrs but it is only recently that the company has cleaned up its act and started growing. New management team had turned the company around, substantially increased backlog, and provides services for mission critical products (making it a strong recurring revenue model for the company).

The company is extremely thinly traded, 2K shares trade on a good day. There are over 22M shares outstanding but very few trade hands. Why? Osmium Special Situations and the folks at Locke & Conway own a large amount of the shares. Both are buying even more.

The company provides IT services for some of the key operating products for governmental agencies. Fannie Mae, one of the company’s big customers, uses ATS services for Fannie Mae’s MBS transaction software. ATS has been providing service to Fannie Mae for years and with what is happening the real estate market, it is unlikely ATS services will be stopped. The US military uses ATS’ services for their order management software. The software is critical for purchasing of food and goods for the military.

The market opportunity has been growing at a healthy pace and its is likely to grow for years to come. ATS is positioned extremely well to grow. The backlog for the company has been growing, operating results are strong, and the company has been smartly leveraging for accretive acquisitions, and using cash flow to reduce debt.

The company is making around $14M of EBIDTA, compared to a market cap of $60M. The debt has been reduced to low teens. Company should be growing EBIDTA organically and levered up the company for acquisition. Typical competitors sell for 8-9x EBIDTA, so you get a huge discount to true value. Based on management’s execution, they have done a great job, there is much higher upside based on M&A and revenue growth.

Corporate presentation

Categories: Investment Idea

Weekend reading

December 17, 2010 Leave a comment

– Financial Times series on International Business: A four part series covering Europe, Asia/Pacific, Middle East and Africa, and Latin America

China’s bubble burst: The consequences of a bubble bursting in China.

Google maps view of US foreclosures: Pretty amazing.

Conversation with John Hathaway (Tocqueville Gold Fund): His take on gold, silver, and the market.

Census Data: Mapping Ethnicity in America: Amazing.

Categories: Reading

Weekend reading

December 10, 2010 Leave a comment

It’s not rocket science: Plain english guide to investment from the folks at SteadyHands funds.

Prem Watsa sees a bubble in commodities: It is as simple as avoid the herd

– Charlie Rose interviews: Interviews on gold and David Einhorn.

Europe’s CMBS problems and European bank getting creative: A potential bargain hunting for value investors.

Bruce Berkowitz’s unconventional investing: Good article on one of the top fund managers that most folks don’t know much about.

Categories: Reading

Charlie Rose interviews

December 7, 2010 Leave a comment

Some recent interviews by Charlie Rose on topics that investors should find interesting:

– Interview w/ David Einhorn, and Mr. Jim Grant on a discussion about gold.

Categories: Uncategorized

CPD: Buyout offer

December 6, 2010 5 comments

On Friday Sun Pharma made an offer to buyout the remaining shares of Caraco. The offer price of $4.75 is absurdly low, a 5% premium to the closing price on Friday. When was the last time you heard a company taking another company private at a generous premium of 5%?

My investment approach has been to not get involved in situations where I need to prod management or the board to take specific actions. I do not get involved in activist type roles. There are some practical reasons for not doing this. Although in CPD’s case, I did reach out to the IR. I still haven’t heard back from them. For the most part, I will be sticking with my investment approach of not getting involved in company operations.

The offer from Sun Pharma is absurdly low priced. For Caraco, there is not valid reason to go private at this point. The costs for staying public are minimal (I believe the Audit/Attestation fees are less than $100K annually). Caraco is close to getting back into FDA compliance and has no need for urgent capital.

For Sun Pharma, I never understood why they didn’t buy up the minority shareholders when Sun Pharma initially signed the technology transfer agreement. So taking CPD private is likely to be Sun Pharma’s goal for a long time and at the current depressed prices Sun Pharma is getting its best opportunity to do it. When the initial FDA issues appeared with CPD, CPD was trading at a huge discount to today’s market price. Although Sun Pharma couldn’t take it private at that time due to potential lawsuits.

I would expect the independent board members to reject the current Sun Pharma offer as too low. Although Sun Pharma has appointed all the board members at CPD, so there is no guarantee.

Categories: Updates

Weekend reading

December 3, 2010 Leave a comment

Investors look at post-bankruptcy buys: One of the great places to find some very interesting buys.

Disadvantages of an Elite Education: Our top universities are failing us

Evan Davis meets with Warren Buffett: Great view on Buffett’s enterprise.

Books of the Year: The Economist’s top books in 2010.

Hugh Henry’s commentary: The Eclectica Fund’s December commentary

Categories: Reading