(Disclosure: The following represents my opinions only. I am not receiving any compensation for writing this article, nor does Hydra Capital have any business relationship with companies mentioned in this post. I am long AAV.TO, BU.TO, PE.V, SDX.V, VLE.TO, and PLU.V)
February Events Worthy of Note
Given all of the action in the markets these days, I thought a "lightning round" update would be a good way to recap developments on a number of names that have been discussed here recently, so here goes...
AAV.TO - Advantage reported reserves and an operational update this month, followed by a modest capital raise to support future resource and business development plans. Advantage has gone from "under the radar" to a best-in-class leader in the Alberta oil and gas industry. Sure it's dry gas, but their margins are good and their operations are nothing short of spectacular. Higher reserves per well, lower than expected declines, rock-bottom operating costs, prudent hedging, secured transportation capacity, new zones yielding better than expected results, and the company owns its infrastructure... there is nothing not to like.
Reported 2P reserves are nearly 2 TCF now. Advantage could see some volatility along with the natural gas price, but in my mind there is nothing to do but wait for the day that Advantage gets taken out or starts to pay a dividend once Glacier ramps up to "full" production in the 2017-2018 window. If Advantage isn't at least a $10 stock by that time, I would be very surprised... and the company has visibility on generating significant free cash flow in future years and if AAV becomes a dividend payer, my $10 target could prove to be conservative. Nothing to do but sit and wait.
BU.TO - Burcon has rewarded the faithful recently, moving up more than 75% off its lows (the stock is up from roughly C$2 to C$3.65 this month). So what's changed? Well, in a nutshell, a senior executive at CLARISOY licensee ADM made a statement regarding the planned launch of a juice drink that will include CLARISOY in the "near future". The relevant comment, as well as a link to Burcon's full press release in response to queries by market regulators can be found below:
"...Vince Macciocchi, senior vice-president of ADM and president of ADM’s Wild Flavors and Specialty Ingredients division, commented on CLARISOY™ within the larger context of ADM’s efforts to drive revenue growth through ADM’s innovation expertise and synergistic applications of ADM’s numerous food ingredients. Specifically, Macciocchi stated ADM has over 700 synergy projects in its pipeline at present, and he added the following statement:
"An example of a recent revenue synergy win, one we're very excited about, is there's a national brand of a juice drink, a natural juice, that utilizes natural color, natural flavor and for the first time our clear soluble protein, CLARISOY™. This product is going to launch in the marketplace in the very near future."
Read more at:
This comment appears to have caught the street by surprise and apparently had a lot of people discovering Burcon for the first time as part of ADM's food ingredient portfolio. I've seen reports with price targets in the C$7-8 range for Burcon based on numbers that are arguably representative of the "first-stage" deployment of CLARISOY. I think it's also worth pointing out that Burcon's Peazazz pea protein isolate arguably has similar potential and Burcon reports that talks are ongoing with respect to licensing that product. It could be an interesting year for Burcon indeed.
CPI.TO - Condor recently announced that it would acquire Marsa Energy, a tiny pre-production player in the Turkish natural gas market. Condor was likely lured in by the attractive country netbacks/fundamentals and rock-bottom valuation of Marsa, that was largely a product of its lack of access to capital (something that CPI had plenty of). The plan is to start generating cash from the development of Marsa's 2P resource base in the next 18 months or so. Turkey is absolutely dying for domestic gas sources at the moment and tensions with Russia over Syria are only exacerbating the problem.
FOM.V - Foran has traded down to a dime in recent trading. The asset is the same and management is seeking to move the project along. If you believe in zinc and copper, FOM is a very interesting speculation in a camp-scale copper-zinc resource... but patience will be a virtue here.
PE.V - I mentioned Pure Energy a while back as a side-note in the lithium space. The company appears to be one of the best plays on Nevada lithium brine play that a few companies are chasing these days. Pure Energy recently completed some deep wells on its lands that prove up their theory regarding the presence of a confined basin trending within its acreage (that acreage is contiguous with Albemarle/Rockwood's operation to the north). Chemical analysis and flow tests of the wells are pending, but I met with management recently and was very impressed. Pure Energy is a good speculation in my mind with the Tesla Model 3 being rolled out at the end of March with pre-orders starting shortly afterwards. Tesla is eating the luxury car market share for lunch in North America and the Model 3 could start pushing that trend down market. I mention Tesla here because Pure Energy is one of the few companies that Tesla has selected as a potential lithium supplier for Gigafactory One.
POE.V - Pan Orient paid a 40 cent special dividend to shareholders this month and the stock dropped 40c in conjunction with that. The market is still waiting for guidance regarding the timing of the potentially high-impact (carried) Anggun well in Indonesia. In the meantime, POE released some updated numbers on its SAGD pilot well-pair at Sawn Lake in Alberta that blew away all type-curve estimates. No one cares about bitumen right now, but with POE still trading basically at cash value, long-term speculators will likely take comfort in the test results... the well pair produced an average of 606 bopd over seven weeks. Get all the details in this link: http://panorientenergy.mwnewsroom.com/getattachment/a03b9922-d4bb-4f9b-9dff-1ba91bca7582/Pan-Orient-Energy-Corp-Sawn-La-201602231044031001
SDX.V - SDX Energy (formerly Sea Dragon) hit the ground running with a >3,000 bopd development well in Egypt (10% net to SDX). The stock trades at 50c, which is basically cash value, and the company produces something in the range of 1,500 boepd with one of the lowest cost structures in the industry ($5/bbl operating costs). There's a lot of high-impact potential in this little company's portfolio and it's a name that could really surprise to the upside if one or two things click for them. I really like the risk-reward here.
VLE.TO - Valeura reports in the second week of March, at which time I expect a comprehensive operational update along with a reserves update. Testing of the Yayli-1 deep (overpressured) zones is underway and confirmation of gas charge could see VLE courted by any number of potential farm-in partners for what could be a significant basin centred gas accumulation (BCGA) on the 100% owned Banarli block. My thesis here is pretty simple... I think that a modest shallow gas development program could ramp VLE's 2016 exit production rate up to the 2,000 boepd range, which would generate something in the range of $25-30 million in operating cash flow... not bad for a stock with circa $7mm in cash, no debt, and a $45 million market cap. The fundamentals of Turkey's gas market are incredible, and while a weak Lira relative to the Canadian dollar is a minor headwind, I think that VLE's growth potential at Banarli is significant. Time will tell.
PLU.V - Nothing new here. Plateau's PEA economics were/are very impressive (~US$600 million post-tax NPV8 with a 40.6% post-tax IRR at $65 long-term uranium on start-up capex of just ~US$300mm) and I think that it's just a matter of time until a serious player takes a stab at this one. The metallurgy is fantastic and the uranium leaches very well from the host rock. Access and infrastructure are excellent and the project has the scale to attract any of the serious players in the sector. Patience is a virtue here as well for bottom fishers like myself. In the meantime, China just keeps building reactors. People sometimes forget that nuclear is one of the best zero-emission energy sources out there in a world that is looking to reduce CO2 emissions.
That about sums it up for the month... Happy hunting.