Archive for July, 2011

Weekend reading

July 29, 2011 2 comments

Bruce Berkowitz AAII Presentation: He goes into a detail analysis of his Bank of America holding

Secrets of Sovereign: A dated article on The Chandler Brothers

Discussion with Alan Mulally: Great piece on how he turned around Ford. Also some interesting comments on future of NatGas in large vehicles and China’s automobile industry

Categories: Reading

Palladon Ventures: Great Update

July 29, 2011 Leave a comment

CML (Palladon owns around 18% of it) provided an update yesterday on financing and operations. This is one of the best updates we have received from them in a while. All updates from CML have been good and getting better. This one, though, was good because of the details on the forward contracts to sell iron ore and cost of production. The most interesting aspects are the forward contracts and the cost of production, once the concentrator is in place.

The facility with Credit Suisse also required the Company to enter into certain hedging arrangements with respect to a portion of its 2012 and 2013 concentrate production. The hedges are cash-settled contracts in which CML has effectively sold forward the 62% Fe TSI Index as follows:

2012 690,000 metric tons $144 per metric ton
2013 1,200,000 metric tons $136 per metric ton

The forward contract gives you a good estimate of what the production could fetch in the open market.

And the cost of production:

Our current estimate for the fully delivered cost for our iron ore to China in 2012 is $68- 71 per DMT of concentrate, net of premium Fe grade bonus payments. This estimate is subject to change based upon ocean freight rates, diesel costs, Fe grade premiums and other commodities that affect our operating costs. See Appendix III for a more detailed description of our concentrate costs.

Our cost of production per ton of run-of-mine is lower than concentrate given the lower mining costs and lack of milling and processing costs, but the price we receive per ton of run-of-mine is substantially lower. We currently make EBITDA of $5-$10 per DMT on our 53% Fe ROM sales and expect a similar result in 2012.

So you have roughly a margin of $65 – 76 per ton (if we recall the interview with Jared Sturvidant, of O-Cap, he mentioned an EBIDTA of $60-80/ton). So management is on track with expectation. If we hit the 2M production expectation, we should be at $130M – 150M of EBIDTA. Jared mentions a recent transaction that sold at 6.5x EBIDTA. So put that multiple of Palladon’s 18% of CML and you are looking at multiples to current valuation.

Categories: Updates

Weekend reading

July 22, 2011 Leave a comment

Wealthy Barber’s warning on Credit Lines: One of the most popular finance writer talks about line of credit as the biggest evil

Potential perfect storm: Great discussion with Bill Gross and others on a potential perfect storm heading our way (US deficit negotiations and EU debt crisis)

Undervalued Lottery Tickets: Whitney Tilson on his recent 2 ideas

The Odds of Making Money: Great read from Tocqueville Asset Management

Howard Marks’ latest: If this is a must read for Buffett, then us wannabes can’t ignore

Categories: Reading

Weekend reading

July 15, 2011 Leave a comment

Sheila Bair’s farewell: One of the most outspoken leader that saved us from letting the credit crisis get much more worse.

The Paulson Sino Forest loss: Good look at how even great managers can make mistakes

The problems with teaching history: David McCullough discusses the mistakes with how history is taught

The Worst Mistake in the Human Race: Although I don’t agree with Jared Diamond on this perspective, it is a good read

Runaway genius: Story of one of the well known value investors from India, Sanjay Bakshi

Categories: Reading

Weekend reading

July 8, 2011 2 comments

A Morning with Charlie: Notes from Charlie Munger’s talk to his cult followers.

Matt Damon’s off screen project: We have all see Damon’s on screen projects, although he has been very committed off-screen.

SEC goes after the Chinese auditors: SEC seems to finally take some steps against the auditors of China-based companies

Interview with Plan Maestro (Variant Perceptions): If you enjoy his blog, you have to read this lengthy interview

Categories: Reading

Weekend reading

July 1, 2011 Leave a comment

Greenlea Lane Capital’s Nexus 2011 presentation: One of the fund managers I follow. Good presentation on 2 investment ideas

Indian Companies Tighten Their Belts: The coming slowdown in emerging markets

Insiders Sound an Alarm on NatGas: NY Times’ take on the NatGas industry, the economics, and environmental issues.

A Dirty Business: A good New Yorker piece on Insider trading.

NY approves NatGas Drilling: Good news for companies in the natural gas industry

The Great Books Curriculum: Comes highly recommended directly from Charlie Munger

Categories: Reading