(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, CPI.TO, CZX.V, FOM.V, POE.V, SDX.V, TGL.TO, USO.V, VLE.TO, IKM.V).
There's a lot to update, so I'll make the summaries short and sweet.
Advantage Energy (AAV.TO)
Advantage reported another perfect quarter. The company is the gold standard in Alberta Montney gas development. Advantage has the lowest cost structure per boe in the basin and has announced plans to expand production from the current level of 36,000 boepd to 58,000 boepd by Q2 2018. Advantage also suggested that its "surplus cash flow" run rate by year-end could be in the $36 million range. Any time I hear "surplus cash", I start thinking about dividends... and I think that's where AAV is headed eventually. I don't lose any sleep over this one and would look to add to my position on weakness. Gas price volatility aside, Advantage is one of the best operators in the patch, so while its share price is not immune to volatility, the future path to Dividend Land is clear enough that patient holders should do well here.
Burcon Nutrascience (BU.TO)
Archer Daniels Midland (ADM) notified Burcon that the first CLARISOY (TM) production facility has been fully commissioned. Additional details are laid out in the companies press release linked here. It will take some time for that plant to be running full tilt, but Burcon will start seeing royalty revenue on sales from here on out. It seems to me like 2017 will be the year that long-suffering Burcon shareholders have been waiting for. In the meantime, the company has announced a rights offering at $2.58/share which expires on November 30th. Will it be the last financing that Burcon ever does? Here's hoping. Burcon's pea protein product (Peazazz) is moving forward as well, so there's the potential for another silo in the business. Analyst targets that I've seen peg Burcon's valuation in the $6-8 range based just on selling out production from the first CLARISOY plant. As an aside, I've heard that if CLARISOY was only used as a sodium caseinate substitute (a protein found in milk that is used in coffee creamers and whiteners), it would take a whole plant to meet that demand. The size of the market for CLARISOY is large indeed.
Condor Petroleum (CPI.TO)
Condor has drilled two wells into its recently acquired Poyraz gas field in western Turkey. Both wells exceeded pre-drill expectations in terms of the gas pay encountered, which should reflect well on reserves at year-end. Both wells should be tested over the next month or so. Condor remains on track for production from the Poyraz field in H2 2017. I think the only question at this point is whether or not they're building a big enough pipe. The company remains well capitalized and trades at a big discount to street targets and NAV estimates. Perhaps test results and/or updated reserves will take Condor into the mid-$2 range, which is where I think it belongs at this stage.
Foran Mining (FOM.V)
It's been a while since this has been discussed here, but with copper and zinc both breaking out to the upside I think that FOM is one of those "call options" that I want to continue to own. There aren't a lot of good zinc or copper projects in the development pipeline and there are even fewer in stable jurisdictions. As long as this is good enough for Pierre Lassonde, it's good enough for me. Foran could be a "camp scale" development one day with a little luck.
Canada Zinc (CZX.V)
This hasn't been discussed here before, but this falls into a similar boat as Foran does and was recently highlighted in an Echelon Wealth Partners note. Canada Zinc has a large, high-grade zinc deposit (Akie/Cardiac Creek) in British Columbia adjacent to Teck's Cirque deposit. The deposit contains 19.6 million tonnes indicated plus 8.1 million tonnes inferred of lead-zinc mineralization which contains roughly 4.7 billion pounds of zinc metal in-situ. Link to the company's corporate presentation here. CZX has a market cap of around $55 million, which puts it below the radar of most investors, but this is a big deposit in a good jurisdiction and the share price hasn't moved much. Tongling (China) is the company's largest shareholder. The company also has a district-scale exploration package covering similar geology to that which hosts the Akie/Cardiac Creek deposit. Teck and Korea Zinc previously signed a deal to spend $8.5mm to earn 70% of some of those claims, but CZX has more where that came from. The company's most recent slide deck suggests that they are considering spinning out the exploration properties into a separate vehicle, which is probably a good idea as I doubt they get any value for it now. If zinc holds a bid, I think it's just a matter of time until the market takes a hard look at CZX.
Pan Orient (POE.V)
For anyone else still keeping a candle burning for Pan Orient (myself included), it looks like the Anggun prospect will be drilling "late in Q1 2017" as per the company's most recent report. This is one of those names where you just never know what might happen. Sawn Lake has performed much better than expected and is not worth zero in a more normalized oil market. The company remains well capitalized with no debt and around $50 million in cash as of June 30th, 2016. Thailand production is modest at around 250 bopd, but so is the implied EV (enterprise value) of the company. At $1.24, investors pay roughly $15 million for 250 bopd of Thai production and a free look at Anggun. I can say that based on experience, when a well is drilling on a target that's as potentially material as Anggun, I would expect there to be some sort of speculative run in POE going into that well. If you are following the company, you'll be one of a relatively small club who will know that if a material oil discovery is announced at Anggun, it probably won't be fully priced in on the first day. Then again, that'll be 5 months from now and in the meantime it might be considered to be "dead money" barring any surprise corporate developments.
SDX Energy (SDX.V)
With the South Disouq 3D seismic completed and at least partly interpreted, SDX has started to define a prospect(s) for drilling in "late 2016 or early 2017". Corporate base production seems to be fine, as does the development plan on existing producing assets. Oddly, the targets that I saw on SDX's 3D survey did not include the stratigraphic pinch-out that I was initially pitched on as being the "big target". I'm not sure if the company's view has changed to the point where that play type no longer exists, or if the data just hasn't been interpreted fully. In any case, SDX is cheap by all measures so I can handle waiting around to see the final target selected for drilling, presumably later this year.
Transglobe Energy (TGL.TO)
This has been a bit of a yawner lately with many a dry hole drilled in the exploration program, albeit with a couple of discoveries as well. My view on TGL is really about the 2017 drilling on the South Alamein block which is expected to consist of "up to three wells" on the Boraq structural complex, which has been proven to be oil charged. Transglobe has shown its ability to survive at times of low oil prices and should be a real beneficiary of any rebound in the commodity going forward. The stock is cheap by all analyst estimates and the company has some low-hanging fruit in its development/appraisal/step-out drilling inventory going forward.
U.S. Oil Sands (USO.V)
Soon-to-be-renamed-and-rolled-back U.S. Oil Sands had a nice run after my first note, more than doubling in a short period. It's not as attractive as a pure speculation at 4 cents as it was at 2 cents, but the concept of a "made in America" oil sands story seems like something that could get attention if it works... Emphasis on if it works.
Valeura Energy (VLE.TO)
Valeura has closed its acquisition financing for the purchase of the TBNG JV assets from Transatlantic and has outlined an average production target of 2,000-2,200 boepd for 2017. The company is still waiting for all kinds of approvals (new block application, initial Statoil farm-in, TBNG purchase and deep farm-out), but I don't worry about "if" that approval shows up, just "when" it shows up. A location about 3 kilometres northwest of Yayli-1 has been selected for the first deep well and it should spud in late 2016 or early 2017. Seems like Q1 2017 could be busy for a number of companies on the exploration front. Putting the deep multi-TCF potential aside, VLE is cheap and I would hope that the value proposition becomes more evident when shallow gas drilling starts in earnest in 2017.
Ikkuma Resources (IKM.V)
I'm sneaking this one in here for those who have had the stamina to read this far. IKM hasn't been discussed here before, but my thesis on this one is pretty simple. IKM trades at 85 cents right now. The company's PDP (i.e., proven-developed-producing) NPV10 is $1.24 per share. That's PDP NPV10 folks... that is the value of the assets if you just bought them today and ran them to zero without adding any more development capex. Any time I have bought a company at less than it's PDP reserve value after a market downturn like the one we just went through, it's turned out to be a very good idea. IKM also boasts one of the lowest natural decline rates in the patch and has some very impressive economics on their foothills recompletion and drilling operations. The company should be viewed as a foothills specialist, and to that end, the technical team has identified what might be a significant light oil play in naturally fractured Cardium reservoir in the Alberta Foothills. The company is in the middle of testing two horizontal wells that have been drilled into the play with initial results expected by year-end. If successful, this oil play could be transformational for the company and likely for its share price. If I felt I was paying anything for the Cardium "experiment" (i.e., all potential economics are educated guesses at this point) I might be less enthused, but to get exposure to a play with potentially 100+ locations of something that could end up being highly economic and not even pay PDP NPV10 for the option seems like a good deal to me. Link to the company's corporate slide deck here and see for yourself. I hope to be writing more on this one before Christmas assuming that all goes well with the new Cardium oil play that's detailed in the slide deck. IKM is 98% gas, so it's leveraged to gas prices at the moment... something that can cut both ways. I wouldn't bet the farm here, but I do own stock in light of the discounted value and the upside potential (likely measured in dollars) of the "emerging oil play". If the Cardium tests don't go so well, the stock probably gets hit in the short-term, but given the discount that it's trading at, I'm okay with taking that risk here.
As always, happy hunting...