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GSE Systems: A Unique Speculation on Uranium and Nuclear Power?

daniel — Wed, 18 Jan 2017 18:26:37 +0000

GSE Systems (GVP, NYSE) – Market Cap = $62M

GSE is a pioneer and one of the world’s leaders in providing high-fidelity nuclear plant simulators and performance improvement solutions. Since building the first commercial full-scope nuclear power plant simulator in 1977, GSE has installed more than 1,100 simulation and training programs in 50 countries.

My 154 word thesis on why the stock will make you money…

As of 2015 GSE has a new management team in place and the company’s operations have turned for the better, dramatically. Following 3 years of quarterly losses, GSE has reported 5 quarters in a row of positive adjusted Ebitda. Amazingly, and alarmingly, many nuclear plants are still using simulator systems that were installed in the 1980′s. Old nuclear plants need to be updated and the +50 reactors under construction require training and simulation software. GSE‘s $69.3 million backlog is sitting near all-time highs and operating cash flow was up 197% year over year to $3.9 million, making it fairly valued at roughly 10 X operating cash flow ex cash. Approximately $1.02 of GSE‘s $3.20 share price is cash. A bull wave in Uranium prices and government mandates for “carbon free” energy will support GSE. Additionally, savvy speculators will begin to figure out that GSE is an excellent proxy on Uranium and follow BMR’s lead.

Technically speaking, the stock chart is beginning to confirm our thesis that GSE‘s underlying business has improved.

Regaining the 2007 highs of $12 per share is possible if GSE proves to be in the sweet spot of a performance improvement and software upgrade cycle within the nuclear power industry.

Government stimulus as a catalyst…

During August of 2016 the state of New York’s public service commission authorized $500 million per year, commencing 2017, to help keep New York’s power plants running. Half of the states electric power is mandated to come from carbon free sources by 2030.

Other states could follow.

Additionally, the Department of Energy (DOE) released a draft plan to double America’s nuclear power generating capacity via advanced reactors that don’t require cooling by 2030.

Currently, the majority of GSE‘s business activity comes from the USA, UK, China, Korea and Japan. Below is a look at its blue chip customer base.

Between August 2016 and March of 2018, Japan is supposed to restart 19 nuclear reactors. Post Fukushima, one would expect advanced “simulation” and “training” programs would be mandatory at every nuclear power plant in the world.

Baby boomers retiring as a catalyst…

GSE estimates 39% of the nuclear workforce will be eligible for retirement by 2018.

Meaning, the industry must hire 20,000 new workers over the next 4 years to replace them. Training new employees and re-training old one’s to efficiently and effectively operate nuclear plants should be a growth business for GSE over the next 12 to 24 months.

8 more points worthy of mentioning:

I listened to GSE‘s 2 most recent earnings conference calls and there was only 1 question from a retail investor! An excellent anecdotal sign this stock is under-loved and relatively unknown.
Insider buying– since August 2015 insiders have purchased more than 300,000 shares (almost 2%) and implemented an employee stock program to better align their interests with shareholders.
To my knowledge, GSE is the default simulations provider for Westinghouse‘s “AP 1,000” Reactor. The Westinghouse AP 1000 is the reactor being installed for about 50% of all new nuclear power plants worldwide.
GSE‘s new management team has cut operating expenses by $4 million since joining and are implementing a re-seller program that’s commission/performance based.
In addition to organic growth, GSE is doing due diligence on +100 acquisition targets that would compliment its existing businesses and create shareholder value.
New orders for 2016 were up 160% to approximately $14 million.
Net income for 2016 was a positive $168k versus a loss of $3.8 million.
Barriers to entry. You better believe it, you can’t just roll out of bed and decide to give the nuclear power plant business a go. GSE has a 40-year track record and 1,100 installations under its belt. Arguably, it is “the” go to provider for what it does.

I think I’ve discovered a real gem with GSE Systems and the timing couldn’t be better given the recent surge in Uranium stocks.

First published at BullMarketRun.com

*Author has a long position in GVP

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Did TAG Oil’s New Engineering Team and Henrik Lundin Crack Kapuni’s Code Already?

daniel — Thu, 05 Jan 2017 18:02:38 +0000

What?…

Back in 2014, a more prosperous time for petroleum companies, TAG Oil (TAO, TSX) invested more than $10 million drilling 3 deep wells targeting the Eocene-aged Kapuni formation which lies below its producing Cheal field in New Zealand. One of those wells, Cardiff-3, reached a total depth of 4,863 meters, intersecting all 3 zones (the upper McKee, the K1A, then the deepest and thickest K3E Sand) as planned.

Condensate-rich gas shows were recorded in all 3 target zones within the Kapuni formation, encountering an impressive 230 m of potential net pay in total. As a result, TAG cased the well to total depth and pursued a completion and testing program.

The deepest of 3 zones identified for further completion, the K3E zone, was perforated and hydraulically fractured. The following parameters were independently interpreted from that fracture stimulation:

The reservoir pressure is 10,400 psi;
The reservoir contains hydrocarbon gas with low (7%) CO2;
The reservoir pressure and induced perforation pressure was suitable to give a 3,000 psi drawdown;
The K3E zone produced gas, Oil and condensate with no formation water, but not at the commercial rates expected, given the above parameters.

Ultimately, independent experts and further analysis determined either the fracture stimulation was affected by a poor cement bond over the interval, or skin damage must exist in the near wellbore area, which restricted flow.

So what?…

Mechanical problems delayed a potentially huge success story.

TAG’s Kapuni formation isn’t far from the Kapuni field, New Zealand’s first major gas discovery. A consortium led by Shell and BP have produced an astounding 1.4 Tcf of gas and 65 mmb of condensate from the Kapuni field since 1969 and it’s still producing today!

Given TAG’s near-production experience with Caridff-3 and the Kapuni formation’s proximity to Shell’s Kapuni field (as per the image above), we know there’s significant upside potential. In fact, we have numbers to support this potential. Sproule International Limited prepared an independent assessment on July 31, 2013, that estimates the undiscovered resource potential on TAG’s Cardiff prospect is 160 billion cubic feet gas and 5.59 million barrels of natural gas liquids on a P50 basis (P50 means 50% certainty of being produced).

A more conservative, yet still meaningful estimate for a company TAG’s size is provided below:

Now what?…

Over the past year TAG has reigned in spending and shifted its focus toward maximizing production from its existing assets. Additionally, TAG’s Founder and Chairman Alex Guidi (a significant shareholder) brought in new talent, including CEO Toby Pierce and COO Henrik Lundin. These new sets of eyes, an important pair being Lundin’s, a smart young petroleum engineer who must have gained invaluable experience in his previous positions working for Lundin Petroleum AB, may have cracked the code at Cardiff-3 (potentially unlocking 160 billion cubic feet gas and 5.59 million barrels of natural gas liquids; P50).

On December 6, just over two weeks ago, to little fanfare, TAG announced a successful interim flow test with gas and condensate produced to surface after years of struggle at Cardiff-3.

CEO Pierce commented, “I am very pleased to announce TAG’s successful initial well test results at the Cardiff-3 well. Demonstrating the possibility for economic production at Cardiff is the first step in unlocking the significant resources present in this deeper formation on our 100% Cheal owned acreage. The resources identified at Cardiff have the potential to become the major source of production for TAG Oil following development. Further, the positive results of the Supplejack-1 flow test and analysis represent a new producing location for TAG, with additional drilling opportunities identified. The TAG Oil team is continuing to build off our recent momentum at Cardiff and Supplejack and we will update the market with further information on these two assets in due course.”

You can watch a short video here.

Based on the preliminary test results, further testing is being undertaken in order to support commercialization of Cardiff production via tie back to the TAG’s nearby Cheal A facility. Mr. Market should catch wind of just how “commercial” Cardiff-3 is or isn’t within weeks or months.

An important one-liner that deserves to be re-emphasized within Pierce’s quote above is: “The resources identified at Cardiff have the potential to become the major source of production for TAG Oil following development.” Given the 3 “unsuccessful” wells drilled and TAG’s infrastructure in place, the development costs of bringing on new production will be very low (and any new low cost production helps). Buyers of TAO around 80 cents could hit the jackpot upon TAG achieving commercial success at Cardiff-3, but if they don’t expectations are so low I don’t envision any room for disappointment – which seems a good risk/reward situation to me.

In conclusion, relative metrics for TAG Oil…

Market Cap = $48.1M

Working Capital = $19M/Cash on Hand = $13.6M as of Sept 2016 (no debt)

Proven + Probable Reserves = 5.2 million barrels (implying a valuation of $9.25 per barrel, or $6.63 after deducting cash)

Average Production = 1,176 boe/d (implying a cost per flowing barrel of $40,901, or $29,337 after deducting cash)

At today’s valuation, TAG Oil is priced in line or superior to M&A deals that have concluded over the past month. TransGlobe Energy (TGL, TSX) paid $25,806 per flowing barrel and $3.76 per barrel of reserves to acquire assets in Alberta. And Steelhead Petroleum paid $58,823 per flowing barrel and $8.50 per barrel of reserves to acquire Toro Oil & Gas’ (TOO, TSX-V) assets straddling the Alberta-Saskatchewan border.

*Author has a long position in TAG Oil

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Here’s How You Control Oil For Just 39-Cents Per Barrel

daniel — Mon, 05 Dec 2016 22:39:47 +0000

Thank you, Mr. Market…

For offering us one more opportunity to buy Africa Oil (AOI, TSX) at or near long-term support levels. We are thankful for this gift (filling the gap at $1.80), and will not let it go to waste.

Admittedly, I haven’t been to the optometrist lately, but AOI appears to be stair-stepping higher. This consolidation pattern is laying the groundwork for a powerful move to the upside – the only question is when.

Putting the prior 12 months of trading into perspective, by backing out to a long-term chart (all data), we can see a clear picture of where AOI stands (or sits?). The stock appears to have an upward bias.

When it runs, AOI likes to stretch its legs by 700% or more. I don’t see why another move of this magnitude is out of the question.

What’s the downside? The last stair-step up was during the month of August. That move, beginning with a gap, lifted AOI by roughly 33% (from $1.75).

Yesterday, AOI traded about 6 x its daily volume. Scotiabank, Dundee, and TD Securities have price targets for Africa Oil between $3 and $3.50.

Risk/reward is very attractive for a trade because we have relatively well-defined support zones. While possible, it’s hard to imagine AOI dropping back below $1.75 – implying a downside of 8.3% from yesterday’s $1.91 close.

Optionality struck twice! Will it strike again?…

I’m not sure about you, but after seeing Ivanhoe Mines (IVN, TSX) and Alderon Iron Ore (ADV, TSX) double and triple in price this year, I’m convinced “optionality” is a profitable strategy. Pending strategic selection(s).

Africa Oil offers exceptional leverage to Oil prices and exposure to one of the world’s best onshore discoveries (approximately the size of the North Sea!), which is nice. But the great thing is that the price is right and AOI has two near-term catalysts. Allow me to explain…

The pipeline joint development agreement is expected to be signed before year-end.
Africa Oil, along with partners Maersk and Tullow, are drilling 4 exploratory wells now. There’s potential to drill 4 in addition to those.

39 cents per barrel?…

Looking at slide 8 from Africa Oil’s presentation, we see 3C Oil resources have increased dramatically over the past 4 years and are estimated to be 1.63 billion barrels gross.

Africa Oil has a 25% stake in the South Lokichar Basin, therefore 407 million barrels are net to it.

After subtracting Africa Oil’s cash position, $490 million (U.S.) from its market cap $650 million (U.S.), sophisticated speculators are paying $160 million for 407 million barrels of 3C resources or 39 cents per barrel.

Is 39 cents per barrel a fair price?

Considering the Oil industry’s “discovery costs” are between $2 and $4 per barrel, I would argue 39 cents is a steal for an investor.

Lastly, you should know Africa Oil and partners have approved an EOPS (early Oil pilot scheme) that will initially send 2,000 bpd via road by mid-2017. The company foresees reaching commercial Oil production without needing to dilute the stock. And depending on the timing of production and resource growth, Maersk may be required to pay up to $480 million in development costs on Africa Oil’s behalf.

*Author has a long position in Africa Oil

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SOLD! Harvest Natural Resources Pays 64% In 26 Days

daniel — Fri, 07 Oct 2016 16:30:44 +0000

As expected, thankfully, Harvest Natural Resources (HNR, NYSE) announced this morning that it has sold all of its Venezuelan Oil interests.

Time to lock in profits!

As I outlined September 3, the buyer, billionaire Oswaldo Cisneros, made all the difference in this deal.

Here’s an excerpt from the news release:

“At the closing, Harvest received $80 million in cash, a $12 million 6-month 11% note payable to Harvest by the purchaser, and cancellation of $30 million in debt owed by Harvest to CT Energy. Harvest used part of this cash consideration to pay the remaining debt it owed to CT Energy and for other expenses and adjustments associated with the transaction. Net cash proceeds received after paying the above closing adjustments and other expenses was $69.4 million. Also at the closing, CT Energy relinquished its 8,667,597 shares of Harvest common stock, which will be held as treasury shares, and agreed to terminate the warrant, issued in June 2015, to purchase up to an additional 34,070,820 shares of Harvest common stock. With the return of the shares held by CT Energy, Harvest now has 44,318,567 outstanding shares.

“After receiving payment of the purchaser’s note payable of $12.0 million less taxes, funding a reserve for potential change of control payments and working capital, the estimated cash remaining is expected to be $62 million. Upon the potential exercise of vested options held by employees, the estimated outstanding shares of Harvest common stock is expected to be 48,693,768 shares.

“Going forward, Harvest’s primary tangible asset is its Oil and gas interests in Gabon. Harvest has received two proposals for the purchase of its Gabon interests and is in discussions with both potential buyers; however, there can be no assurances that these discussions or either proposal may lead to a definitive transaction.”

HNR has traded as high as $1.04 this morning. Its cash position represents $1.27 per share.

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Channeling T. Boone of the 1980s, My 2 Takeover Targets

daniel — Sun, 04 Sep 2016 23:03:11 +0000

Serious contrarian investors are working at least 60 hours per week right now investigating opportunities in Oil and gas stocks.

While recently rubbing elbows with sophisticated investors in the natural resources penny stock capital of the world (Vancouver), I didn’t hear anything but negativity and pessimism regarding Oil. A great contrary indicator. Human emotions are one constant among turbulent financial markets.

Yet, like clockwork, the Oil industry is cyclical, and we’re nearing 4 on the Oil clock! The time to position oneself is between 4 and 6, as we’d rather arrive at the next OIL BOOM fashionably early, instead of being late.

The image above is courtesy of TAG Oil (TAO, TSX).

Expect to hear more about TAG Oil in the months and years to come. Simply put, TAO is way too cheap at today’s 72-cent close. After backing out its cash position, investors are paying roughly $30 million for pipeline and processing infrastructure with a +$100 million replacement cost. It looks like an even better deal after factoring in approximately 1,200 boe/d production and Oil/gas reserves (an estimated 3.6 million barrels of 2P reserves).

What is a good price to pay for 1 barrel of flowing Oil?…

Price per barrel of flowing Oil is a common metric used by M&A professionals for valuing Oil/gas companies.

In most situations we want to value each stock as if we were going to acquire the whole business (100 shares or 100 million shares). Valuing stocks from this psychological perspective is critical for achieving out-sized riches in the market.

Along with balance sheet strength, management ownership and exploration upside, when talking Oil/gas stocks “price per flowing barrel” is one of the most important metrics.

In an article titled: “Oil and Gas M&A: What Price is the Right Price?”, Oil & Gas 360 addresses the question. Boiling the article (and others like it) down to what’s most important, at +$100 Oil investors will pay as much as $75,000 to $$150,000 per flowing barrel. Bargain hunters right now, with Oil under $50, are aiming to buy quality assets for below $50,000 per flowing barrel.

Channeling T. Boone…

Even though we aren’t T. Boone, there’s no reason we shouldn’t speculate as he did during cyclical downturns in the Oil industry.

T. Boone was famous for “buying production”. Channeling T. Boone of the 1980s, the following 2 Oil stocks would be on my list for hostile acquisition. Of course, we would start negotiations in a friendly way, but given the relatively low cost per flowing barrel, closing the deal(s) would likely require an element of hostility.

TAG Oil is priced at $37,500 per flowing barrel…

TAO has a market cap of $45 million. As per its most recent filings, it averages 1,200 boe/d. Therefore the price per flowing barrel of production is $37,500. TAG Oil’s infrastructure and production is located in one of the safest and most beautiful places in the world – New Zealand. From the outside looking in, its exploration upside is favorable.

Further justifying my acquisition case for TAG Oil, I would argue its Oil and gas are sold for premium prices (relative to world markets), and its production costs are among the lowest quartile in the industry. According to CEO Toby Pierce during last quarter’s conference call, TAO’s all-in costs (including coffee filters for the office) are below $40 per barrel.

While TAG Oil’s cash balance has been decreasing for years, as of March 31 it still had $16.8 million. After backing out its cash position, TAO is valued at approximately $24,166 per barrel of flowing Oil.

KFG Resources (KFG, TSX-V) is priced at $24,468 per flowing barrel…

In my view, KFG is a textbook takeover target for a young and hungry, aspiring natural resources tycoon (older ones, too!).

For one thing, it has been run by the same person for decades. This person, CEO Bob Kadane, isn’t a bad guy. In fact, I met him about a year ago when he was visiting family in Dallas. My gut impression is that Bob is an honest guy. Not a promoter or showman for his company (its website has no pictures and no updates since 2014), in which I believe he’s a significant shareholder, but an honest guy.

While perception isn’t everything, it’s quite a bit. Do you think many people are going to take KFG seriously after seeing that website?

Channeling T. Boone, KFG Resources could be my best candidate for breaking into the business as an inexperienced Oilman. The company is small enough almost anyone could really get their hands around its operation – KFG is valued at $2.3 million. Most Big Players – let me take that back, almost NO Big Players – would be interested in KFG because its production is just 94 bopd.

But since we’re buying the whole business, which generates cash flow, our main concern is “PRICE”.

In theory, KFG Resources could be purchased for $24,468 per barrel. Depending on how one runs the numbers it could be even less. According to its last financial statement it had $1,031,922 in cash. Along with approximately $576,526 in accrued liabilities. A quick and dirty calculation including the cash component would bring our price per flowing barrel down to just $20,212.

Remember, M&A gurus are doing diligence on deals priced below $50,000 per flowing barrel.

We will revisit KFG and its mini operation in more detail soon enough. For now, suffice to say it targets “conventional” Oil wells in Mississippi, Louisiana, and Texas, where drilling costs through completion can be as low as $300,000 (“fracking” can cost over $3 million).

Of course, KFG doesn’t expect to hit any gushers, but it doesn’t need to! At $40 Oil the numbers work for KFG.

In KFG’s book, a gusher would be 100 bopd. A well that size would produce about 35,000 barrels per year, or $1.4 million at $40 Oil. In theory, KFG could recoup its drilling costs within the first 6 months of production in such a scenario.

Possibly getting the best possible deal…

Speculation and M&A in commodities is difficult as no one knows for certain what direction prices are headed. However, one can hang their hat on the fact assets must be acquired when no one else wants them (or is selling) in order to get the best deal possible.

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This 8K confirms Harvest’s (HNR) Oil Sale to Venezuela?

daniel — Sat, 03 Sep 2016 21:06:03 +0000

Harvest Natural Resources (HNR, NYSE)

Will the 3rd attempt of selling its Venezuelan assets be a charm for Harvest Natural Resources?

RISK vs REWARD

Downside risk = –11.5% | HNR trading at 61 cents (U.S.); could stop-loss at 54 cents.

Upside reward = +75% | Venezuelan asset sale expected to close by the end of September. Sell the news!

THE HEADLINE…

On June 30, Harvest, an Oil and Gas company, announced an agreement to sell its assets in Venezuela. CT Energy Holding SRL, the buyer, is a Venezuelan-Italian consortium that owns +10% of HNR equity and $30 million debt.

Assuming the deal closes, net proceeds after payment of the remaining CT Energy debt, taxes and transaction-related costs from the transaction are estimated to be $63 million.

Harvest’s market cap is currently $31 million.

THE DEAL…

The deal is expected to close by the end of September. When it does, HNR should spike higher on the news because it will have approximately $63 million ($1.24 per share) to fund projects in Gabon (or distribute back to shareholders?).

Here’s the catch…Harvest announced plans to sell its Venezuelan assets to an Indonesian company in 2012 and an Argentinean company in 2014 – both deals fell through.

Understandably, shareholders and speculators don’t have much confidence this 3rd attempt will be any different (hence the discount). Additionally, Mr. Market is inherently skeptical about anything related to Venezuela.

THE OPPORTUNITY…

There’s some indication Harvest’s 3rd time could be a charm.

Venezuelan billionaire Oswaldo Cisneros is the owner of CT Energy (the buyer) – if anyone can pull this deal off, it’s him.

GOVERNMENT SUPPORT?

I pulled the section below from an 8K Harvest filed August 18:

Authorization by Government of Venezuela

“As previously disclosed, the closing under the Share Purchase Agreement is conditioned on, among other things, the approval of the proposed sale by the Ministerio del Poder Popular de Petroleo y Mineria, representing the Government of Venezuela, which indirectly owns a 60% interest in Petrodelta. In a letter dated August 15, 2016 to Oswaldo Cisneros, the sole member of CT Energy, the Ministerio del Poder Popular de Petroleo y Mineria authorized a change of control in Harvest Holding, effective upon the acquisition by Oswaldo Cisneros in his personal capacity, or by Delta Petroleum N.V., an entity 100% owned by Mr. Cisneros, of HNR Energia’s 51% interest in Harvest Holding.”

There you have it, a confirmation (asset sale approval) from Venezuela’s government hiding in plain sight! HNR did spike from 54 cents to 64 cents the same morning on heavy volume.

In my view HNR represents an attractive short-term trade (which I rarely recommend) with a well-defined timeline. Assuming Cisneros, the Venezuelan billionaire, closes the deal, sell HNR on the news!

CISNEROS FAMILY, THE ROCKEFELLER’S OF VENEZUELA?

Regarding Harvest Natural Resources (HNR, NYSE) as a trade opportunity, success will be dependent on the company selling its Venezuelan assets to CT Energy. Therefore, our best way to gauge the odds of a successful closing by October is to delve deeper into the character(s) behind the buyer.

In my view, Mr. Market is placing a hefty discount on HNR because of skepticism surrounding Venezuela and the fact its government blocked similar deals (at much higher prices) twice before.

Below, I aim to outline a case by which Mr. Market is overly-pessimistic about the odds of HNR selling its assets because the buyers are deeply entrenched with corporate and political interests across the world.

THE MAN BEHIND THE DEAL.

The man behind the curtain at CT Energy is 74-year old Venezuelan billionaire Oswaldo Cisneros.

Oswaldo is Gustavo Cisneros’ brother. According to Forbes, the Cisneros’ family is the 2nd wealthiest in Venezuela with a net worth of +$2 billion. Gustavo is the owner of the Cisneros Group, a conglomerate with interests in Venezuelan television stations, telecom, a brewery, a real estate company and a baseball team.

the Cisneros Family’s connections…

Gustavo is an independent director to Barrick Gold (ABX, TSX)

The brothers are sometimes-fishing companions of former president George H. W. Bush.

Gustavo has also been a member of the Chase Manhattan Bank International Advisory Committee under David Rockefeller’s chairmanship.

Venezuelan President Nicolas Maduro chose Oswaldo as part of his National Council for Productive Economy (January 2016). In the image below, Oswaldo is shaking hands with Maduro.

WHAT’S the SIGNIFICANCE?

Clearly, the Cisneros brothers are wealthy and well-connected at the highest levels of business and politics. Therefore, I believe their odds of acquiring Harvest’s Venezuelan assets are better than they were for investors from Indonesia (2012 attempt) and Argentina (2014 attempt). Additionally, via an 8K filing August 18th (with no news release), we are being led to believe Oswaldo received a letter from the Venezuelan government that essentially gives their blessing on the deal.

Finally, Oswaldo and two of his associates have been on Harvest’s board of directors since June 2015, so they’ve had ample time to review Harvest’s assets from the inside and out. Given Venezuela’s dire economic state (need to increase Oil output), Harvest’s need to sell (at rock bottom prices), and the Cisneros family as natural buyers, I think the 3rd time will be a charm.

In my view HNR provides a unique trading opportunity with a defined timeline. Assuming the deal closes as advertised, HNR could increase by +75% between now and then (late September, early October?). However, the downside appears to be limited because Harvest also has 4 discoveries offshore Gabon that could support the valuation (it’s shopping those assets too). From the outside looking in, if anyone can make this deal happen it would be the Cisneros family, the Rockefellers of Venezuela.

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enCore Energy: the ultimate optionality play on uranium?

daniel — Sat, 06 Aug 2016 20:27:46 +0000

William M. Sheriff and team captured 100% ownership of +100,000 acres within the Grants Uranium District with no holding costs. Located in New Mexico, Grants Uranium District is 1 of the top 5 largest historic producers globally. It accounts for nearly 40% of all Uranium mined in the United States. An estimated 400 million pounds of U3O8 mineralization remains in the ground.

Considering the U.S. is the world’s largest producer of nuclear power, yet imports 90% of its Uranium, Grants Uranium District is obviously a strategic location – enCore Energy (EU, TSX-V) says it controls over 30 million pounds of Uranium mineralization there.

enCore’s management team has skin in the game, and they’re committed to delivering shareholder value. Their last Uranium deal went from <$1 million market cap to $1.8 billion.

Holy moly! Wouldn’t it be net worth changing if EU did an encore to that performance!

Then again, can anyone expect to do such a thing more than once in a lifetime?

Ok. I’m really going back and forth on this, Sheriff is also Chairman at Golden Predator Mining (GPY, TSX-V), another stock that’s been killing it lately (up 900% ytd). Friends! Sheriff is another guy we must talk to (the list keeps getting longer) – if anyone can pull something like Energy Metals off again he may be the guy.

Dear Mr. Sheriff,

Today enCore has a market cap just under $4 million. I think I speak on behalf of everyone at BMR when I say – we would be thrilled if you can grow enCore to $120 million over the next, let’s call it 2 to 4 years (with minimal dilution of course). Do you feel such a goal is attainable, and in a best case scenario how much do you think EU can be worth?

Looking at the chart below, clearly EU has been leaning toward a worst case scenario since 2011 when it hit $1.05 per share.

First Published July 19th at BullMarketRun.com EnCore Energy is now $0.085

As a value investor at heart, and an aspiring technical analyst – I’m intrigued.

On the surface, enCore seems a textbook example of “optionality”. We’ve been talking about optionality quite a bit lately because we know it can be a successful strategy coming out of bear markets (here’s 4 more Major League Optionality Plays).

Uranium is in a bear market despite strong demand, trading near a 10-year low. Although nearly every brokerage house on the street is predicting higher prices.

How much longer can everyone be wrong?

When U3O8 prices turn, and according to the laws of supply and demand they must, EU could be a grand slam. Presently, enCore’s in-ground resource base stands near 30 million pounds of Uranium (give or take a few thousand pounds). Speculators in EU are paying just over 10-cents per pound.

Cheap, relative to its peers.

7 more things you must know about enCore and Uranium…

1. enCore has a toll milling agreement in place with Energy Fuels (UUUU, NYSE). By securing the right to mill ore at the White Mesa Mill, the company has eliminated the need for capital expenditure financing and the onerous cost in dollars and time required to permit a new facility for conventional ore processing in the United States.

2. Energy Fuels owns 19.9% equity in EU;

3. Asia and Africa represent 70% of global Uranium supply. After nearly 30 years with no new reactors under construction the U.S. is expanding its nuclear energy capacity to meet growing energy demand;

4. Small Modular Reactors (SMR) are designed to be about a third of the size of a traditional reactor and will significantly reduce capital costs while enabling nuclear power to be more widespread;

5. enCore’s Crownpoint and Hosta Butte assets are both ISR-amenable deposits. Of the 6 active ISR plants in the U.S., the average Uranium equivalent grade is 0.118%, about the same as Crownpoint and Hosta Butte;

6. EU has been very quiet lately, only 5 news releases since January 2015 (3 related to hiring personnel);

7. Oh yeah! We prefer our optionality plays to spend little to no money until the commodity turns higher. enCore slashed its professional fees and staff costs (mainly the CEO) in Q1 to $34,002 from $78,000. It has roughly $270,000 cash (as of March 31) and $0 long-term liabilities.

EU shares outstanding = 71,492,750.

Market cap = $4 million.

Insiders and strategic investor ownership = +50%

*Daniel has a long position in enCore Energy

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Deep Value or Priced Efficiently? 3 Resource Stocks Trading Below Cash on Hand

daniel — Sun, 16 Aug 2015 19:50:27 +0000

According to the “efficient markets theory”, the prices of stocks, bonds, and other securities fully reflect all available information at any point in time.

In other words, no one should waste valuable time researching thousands of companies to find a deal, because someone else has already done it. This “someone else” is likely much smarter, and has more resources to deploy. Someone else will always isolate the mispricing first and capture the arbitrage before you, so why bother?

—hire someone else to manage your investments.

Arguably, too much information has already been written on the topic of efficient markets. I won’t waste your time arguing for or against the theory, but I will present two opposing viewpoints and ask you ahead of time… can both be true?

1) “I’d compare stock pickers to astrologers, but I don’t want to bad-mouth astrologers.” –Eugene Fama

2) “I’d be a bum on the street with a tin cup if the markets were always efficient.”
–Warren Buffett

In my humble opinion (which just happens to align with Warren’s), there is a well-established trend supporting the idea that markets aren’t always efficient (and won’t be anytime soon), especially when dealing in securities valued less than $2 billion.

Below are the A’s, B’s, and C’s supporting my belief:
A) The Wall Street machine has been firing equity analysts by the thousands year after year. No fees = no analyst coverage.

B) ETFs and mutual funds… millions, perhaps billions, are spent advertising them. The message is, why buy an individual stock when you can buy a broad basket? Trust someone else, you’re not a professional.

C) Group think is rampant! Very few portfolio managers have the courage to invest outside the herd, trend following rules the day. In a world desiring instant gratification, there’s not enough time to be a contrarian.

Getting to the point, below you will find 3 resource stocks that are currently valued below cash on hand. My goal is to provide just enough information to peek your interest, if you require more in depth analysis I trust you know where to find it.

Alternatively, call (407) 772-1135 or email [pennystockexperts@aol.com] to speak with me directly. I have invested hundreds of hours researching these companies, and would be happy to share further information with you.

As you review, keep in mind, famous resource investors like T. Boone Pickens made fortunes by mining the stock market.

Presently, the cost to build would exceed the cost to acquire. In all likelihood, the following valuations would not exist outside of a vicious bear market in natural resources.

Here they are!

1) Strategic Metals Ltd (CVE: SMD) (OTCMKTS: SMDZF)
According to The Fraser Institute, the Yukon ranked #1 in the world for mineral potential. Strategic Metals Ltd. is the largest claim holder in the Yukon, it controls more than 800,000 acres of prospective terrain. Applying a “prospect generator” business model, Strategic Metals Ltd. spreads its risk across hundreds of projects. Exploration is risky, but fabulously rewarding when successful. The prospect generator model increases Strategic Metals Ltd.’s odds of owning a piece of something great, as opposed to 100% of nothing.

Market Value on August 14^th, 2015 = $23.2 million

Cash and Investments on hand = $37 million (approx.), no debt

2) Pan Orient Energy (CVE: POE)
With cash on hand, prospective drill targets with a carried interest, and no long-term debt, Pan Orient Energy is positioned opportunistically to survive the downturn. Earlier in the year Pan Orient Energy sold a 50% interest in its Thailand subsidiary, after closing costs it netted $52 million (its market value is $55M). Looking forward to 2016, its much larger partner, Talisman Energy (now Repsol), is funding the first $10M of drilling expenses, located onshore and offshore Indonesia. Additionally, Pan Orient Energy holds a 71.8% equity stake in Andora Energy. Its assets include a small bitumen operation in Sawn Lake, Alberta, and a patent related to steam assisted gravity drainage (“SAGD”).

Market Value on August 14^th, 2015 = $74.2 million

Working Capital on hand = $87 million (approx.), with no long-term debt, $70M cash

3) Orca Gold (CVE: ORG) (OTCMKTS: CANWF)
Orca Gold controls a vast swath of land in what geologists call the Arabian-Nubian Shield, it’s thought to be the original source of King Solomon’s gold. Despite its tremendous mineral wealth, and storied history, little to no modern exploration has been done there to date. Orca Gold aims to uncover much of the gold ancient Egyptians left behind. Artisanal miners are literally picking up nuggets from the surface using metal detectors, little to no modern exploration has been done, so it wouldn’t be surprising to see Orca Gold grow its existing resource base of 2 million ounces to over 5 million ounces gold in the coming years. Led by Chairman Richard P. Clark, Orca Gold consists of much of the same team who built, then sold Red Back for $9.2 billion to Kinross Gold in late 2010. Equity partners worthy of mention (> 10%) include the Lundin Trust and Sinotec, a Chinese multinational.

Market Value on August 14^th, 2015 = $18.3 million

Cash on hand = $24.7M as of December 2014; expenses for 2015 approx. $5M

Closing Thoughts: the stocks mentioned above, like any other business, have a unique set of risk characteristics. Arguably, on a risk/reward basis, each presents an interesting, dare I say deep value opportunity, given the underlying assets are assigned little to no value at recent market prices. Then again, according to theory, someone else, surely more intellectual and resourceful than you and I would already know everything there is to know about Strategic Metals Ltd., Pan Orient Energy, and Orca Gold.

If we rely on theory alone, you’re time reading this will have been wasted. But if… just maybe… that all knowing someone occasionally gets lazy, leaving a mispricing or two for us, all the effort will pay off handsomely in the end.

Each name was highlighted because it checks three boxes I prefer to have checked on any potential investment/speculation:

The people factor, each has a strong team in place, coupled with a track-record of success.
Share buybacks in place, the corporation and insiders are, and have been repurchasing stock… much of it at higher prices.
Little to no analyst coverage, I interpret this to mean very few influential investors are telling the story and there is plenty of buying potential on the sidelines.

*Disclosure: author has a long position in Strategic Metals Ltd

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Attractive, Smart, and Relatively Wealthy Oil Operator Seeks Your Attention

daniel — Sat, 23 May 2015 15:10:22 +0000

Let’s face it, mainstream financial media has trained investors to think shale plays like Bakken, Eagle Ford, Marcellus et al. are the only game in town.

Now I’m no T. Boone Pickens, but I know they’re ignoring more than a few proven oil fields.

Disregarding conventional projects in favor of shale could continue to be a costly mistake for investors and operators alike moving forward.

Like a moth to a flame…
After harnessing the power of horizontal drilling, the oil industry was drawn toward hydraulic fracturing and shale like a moth to a flame. As a whole, it abandoned conventional shallow prospects, historically its bread and butter, and flew directly toward the orange yellowish glow of this newer (dare I say sexier) more controversial technique.

Easy money leads to oversupply.
Thanks to an era of easy money and $100 per barrel pricing, banks, brokers, and their clients lent to just about anyone willing to borrow. Therefore, oil operators took the money. And I guess they had to, those fancy horizontal wells don’t come cheap, each one can cost over $10 million.

As you can imagine… the bills start adding up quickly.

Thousands of wells would never have been drilled if cash from operating activities were the only funds available. Levering up ruled the day! Even sub-par outfits were able to borrow, borrow, and borrow some more, betting they could pay back lenders after oil prices continued rising.

Long story short, drilling successes contributed to an oversupplied market (we’ll save the other factoids for another day), and lots of bettors got it wrong. Nearly all shale projects need at least $60 WTI to break even, some would argue much higher, so many oil companies are now facing a life and death situation.

If we break the industry down into three groups, here’s my interpretation:

1) Those who got burned flying too close to the orange yellowish glow [bankrupt]

2) Those who levered up and are forced to run faster to stay ahead of debt collectors [borderline delinquent]

3) Those who operated during the boom expecting a bust someday [healthy, strong, and control destiny]

Which of the three would you be attracted to?

Simplicity is back in fashion.
With enough time, what’s old always seems to become new again. Conservative, conventional operators like KFG Resources (CVE: KFG) (OTCMKTS: KFGRF) and its CEO Robert A. Kadane now look like the smartest guys in the room. Bob, as he prefers to be called, has first-hand experience spanning forty years. As a youngster he watched, learned, and then helped his dad manage a small fleet of drilling rigs back when oil was $3 a barrel. Maybe you’ve heard or know about guys who run around in Armani suits calling themselves “oil man”? You’ll see them more frequently during the boom times

… well that’s not Bob!

Granted, marketing and promotion aren’t his strong points, just look at KFG’s website. Rough around the edges, maybe, but Bob understands the oil business and knows how to run a tight ship, and that’s most important for KFG’s long-term success. Looking for proof of concept? Prime Energy (NASDAQ: PNRG) is a $135 million dollar exchange listed company Bob started for $500k and ultimately exited when its valuation was approx. $20M before starting his next venture(s)… a limited partnership and KFG Resources.

KFG controls its own destiny…
With help from his team, including G. Stephen Guido of Shamrock Drilling, Bob and KFG Resources have time to think wisely and make strategic moves aimed at creating shareholder value. Unlike many of its peers, whom are weighed down by debt or already bankrupt, KFG Resources controls its own destiny.

While the industry was chasing the latest and greatest shale play(s), bidding up prices, KFG Resources stayed true to what it knows best, low-cost high return conventional opportunities, primarily in Mississippi and Louisiana.

Hold it… “Low cost high return”? Isn’t that what everyone is looking for, the kind of deal you only hear about from pitchmen, too good to be true type stuff.

Well, yes and no, please stay with me.

Hitting it where they ain’t!
To use a baseball analogy: drilling one of those fancy $10 million dollar horizontal wells into the Eagle Ford or Bakken is equivalent to swinging for the fence. You either hit a homerun or strikeout, there isn’t much room in between, success or failure.

Hitting homeruns are great! But the oil business can be less forgiving than MLB when it comes to strikeouts. Therefore, every winning baseball team (or portfolio of oil assets) needs players who get on base 30-40% of the time, and keep dry holes (strikeouts) to a minimum.

Occasionally, KFG Resources will hit a homerun, like it did with Craig #1 November 2013, this well paid back its initial investment in just 12 weeks! But singles and doubles are also in its game plan. Inevitably, dry holes will and have occurred, but with drilling costs under $650,000 (less than 7% of a horizontal), KFG Resources should always be able to take another swing at its best geological targets.

I can assure you, Wall Street and Bay Street are overlooking KFG Resources because of its small stature, but to me that’s part of its appeal. In my experience, independent investors improve their odds of success and make more money by hitting it where the professional analysts aren’t— then selling to them at a premium later.

Bottom Line: With proved crude oil reserves of 247 million barrels, as of Dec. 2010, Mississippi exhibits strong potential for the development of oil and gas reserves. KFG Resources manages risk by working with loyal partners who co-invest; it maintains a 10%-59% interest in 26 producing wells. Additionally, it earns monthly revenue per well as operator and servicer. Finally, the metrics work, Craig #1 cost approximately $650,000 to drill and complete, so for $65k (KFG’s 10% stake, then jumped to a 21% working interest at payout) it added 20 barrels of oil per day>>> roughly $403,200 in annual revenue at $60 per barrel>>> for KFG’s $65,000 investment! Obviously, that discovery wouldn’t move the needle for Exxon Mobil, but it’s a homerun for KFG, and with any luck it expects to hit a few more like Craig #1 this summer.

Installing Barnum Pump Jack

*Disclosure: author is establishing a long position in KFG Resources

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Off 89%, TAG Oil is a Value Investors Dream Coming True.

daniel — Mon, 16 Mar 2015 15:52:04 +0000

Judging by TAG Oil’s stock performance one could easily assume it’s headed toward bankruptcy. Since 2012 shares have crashed from $10.99 to $1 and change.

He loves me… he loves me not.
Buyers of TAG Oil (TSE: TAO) (OTCMKTS: TAOIF) seem to be few and far between these days. The interim CEO/founder Alex Guidi and the company itself are the only two showing much interest, each has purchased shares religiously much of the way down. More recently, TAG Oil repurchased 1,977,200 shares at an average cost of $2.10 during 2014, and it has authorized buying up to 5,800,000 more through 2015.

Mr. Market has fallen in and out of love with TAG Oil numerous times over its five year relationship, while Alex Guidi and TAG’s board have stayed committed throughout— focusing their efforts on building New Zealand’s premier energy company.

Strong to quite strong
TAG Oil has matured to become an integrated company capable of discovering, transporting, and processing 100% of its own product. Aside from a few well-timed equity raises (e.g. $46M at $10.45 per share), TAG Oil has funded its growth via operating cash flows. To date, over $100 million has been invested into infrastructure. Assets include state of the art processing facilities and pipelines.

Production volumes have maintained a smooth upward trajectory since day one, up over 400% in total.

TAG Oil’s clean balance sheet of $0 debt and $31 million cash should ensure it survives or thrives during the current downturn.

Cause for concern?
Weak oil and gas pricing has certainly caused downward pressure on the stock (and the industry as a whole), but the simultaneous departure of TAG Oil’s long-time CEO and COO February 11^th have also weighed on investor confidence. However, any worrying on that matter should prove to be unwarranted, it’s highly unlikely TAG Oil will have any trouble attracting experienced professionals to join its New Zealand based team.

Where would you rather work?

New Zealand in Winter

Canada in Winter

Additionally, outgoing CEO Garth Johnson worked with TAG Oil for over a decade, so a change in leadership should be good for both parties

Blue skies smiling at TAG Oil
Geologically speaking, for hundreds of years Kiwis and industry experts have known oil and gas literally bubbles up to the surface in parts of New Zealand, yet only a pinprick of exploration has taken place there to date. According to one of TAG Oil’s video presentations New Zealand hosts 18 sedimentary basins, but only one has been commercialized to a limited extent: Taranaki.

Watch Video: get a better feel for TAG Oil’s operations!

TAG Oil’s onshore lease holdings span 2.3 million net acres and three basins: Taranaki, East Coast, and Canterbury. Additionally, it controls shallow-water offshore permits. From the outside looking in, and taking the company at its word, there is no shortage of prospective locations for proven low-risk and higher-risk drilling opportunities looking forward.

Political stability, regulatory incentives, existing infrastructure and excellent weather makes for a climate that juniors and super-majors are keen to invest in [New Zealand].

Top Ten one and two-liners worthy of mention:

TAG Oil is focused on lowest cost/lowest risk investments in Taranaki, maximizing production from current reserves, and postponing the majority of its capital program that planned on targeting non-core non-producing permits (seeking farm-in partners for non-core assets; East Coast Basin and deep Kapuni Formation Taranaki)
Positioned to internally fund its adjusted 2015/2016 fiscal year operations program
TAG Oil’s oldest wells have been on stream 5 years, average well just 3 years old, “we’re the first guys, our learning curve is solidifying”… Shallow Miocene pools (TAG’s bread and butter) have flat-lined around 150bopd
Cheal B3: original estimates pegged reserves at 70,000 barrels, after five years it has produced more than 400,000 barrels
Average daily production for quarter ended Dec 31, 2014 = 1,991 BOE/d (77% oil); majority of current production coming from “lightly explored” Cheal and Greater Cheal Fields (Cheal = cash flowing machine for TAG Oil)
Discovery potential… 1) shallow water offshore Kaheru and 2) conventional frontier exploration in Canterbury Basin
According to the published “Proven and Probable Reserves”, TAG Oil has 5.5 million barrels, approximately 9 years of reserves assuming a production rate of 1,500 bopd.
Alex Guidi, interim CEO and founder owns 3,701,039 shares (buying recently in open market)… Fidelity held 9% or 5,787,793 as of most recent disclosure
$0 debt and $31M cash… Liquid assets equivalent to 50 cents per share
TAG Oil crude based off “Tapis”… often used as an oil marker for Asia and Australia, typically trades at a premium to WTI and Brent because of its low sulfur content and high API

Looking at the numbers:

Bottom Line: value investing requires an element of mental toughness; not everyone can “buy low” because a stock will often go lower after their purchase… and paper losses can feel uncomfortable. Therefore, in a society that prefers instant gratification, “buying high and selling higher” is the masses preferred strategy. As per the points referenced above, TAG Oil is a valuable and growing business that depreciates in worth on a monthly basis (until it doesn’t anymore), so I’m acquiring some now, but hoping it drops even lower.

*Author has a long position in TAG Oil

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