The Limerick of Finance for 08/17/14

Carlos Slim says Latinos need wealth
Pushing funding for training and health
There's no doubt they'll succeed
Following Slim's own creed
No need to chase business by stealth

The Haiku of Finance for 07/24/14

Mexico opens
Privatizing energy
End Pemex control

The Haiku of Finance for 06/20/14

Mexico linking
Latin bourses one market
Stocks speaking Spanish

Alfidi Capital Pays Attention to Mexico and Silicon Valley

We often hear about the special relationship between the US and Great Britain.  It's cemented by language, culture, common law, and a long absence of conflict.  There may be some other special relationships out there that some of us have ignored.  I found out about another special relationship last week when government and business entities from the US and Mexico met in Silicon Valley to promote bilateral trade.

The City of San Jose's Office of Economic Development let us know just how lucrative the trade relationship is for California.  Mexico's GDP is growing this year and it's California's largest export market.  That's a whole lot of refried beans, pardner.  I didn't know that the federal government of Mexico had a trade promotion organization named ProMexico.  The Mexican Consulate in San Francisco informed us that ProMexico is their equivalent of the US Commercial Service.  They said the US is Mexico's #1 FDI source, and I tried to confirm this in OECD's Statistics with no luck.  "Made in Mexico" products have the highest percentage of US content of any domestically sourced products in the world; in other words, Mexicans put more US subcomponents into their goods than any other country.  The country has not done well in developing lower-tier suppliers and must rely on a high percentage of US-made components.  The regional breakdown of Mexico's economy is important.  Northern Mexico has generally higher purchasing power and more industrialization than southern Mexico.  This is clearly a good opportunity for US suppliers to continue to target maquiladoras in northern Mexico.

The Consulate said that US retirees in Mexico are mostly an untapped market for US-branded services.  Yeah, I'm pretty sure the makers of medical alert devices and motorized scooters are salivating at the chance to sell down there.  I also learned that Mexican startups rise seed-round money in the US because there's very little to find in Mexico.  It's hard for startups to qualify for business loans from Mexican banks because their interest rates are high.  It sounds like Mexican startups take CustDev seriously if they seek early adopters in the US to obtain market data.

The US Commercial Service introduced their Silicon Valley Export Assistance Center, which I didn't know existed.  See, I learn stuff too.  US companies doing business in Mexico can easily launch into other Latin American countries.  The Commercial Service can customize trade missions for a single company due to their extensive contacts in-country, starting with their Mexico country page.

Please note that the SBA also connects with the Silicon Valley Export Assistance Center.  Our government really does work well when the business sector is the client.  Uncle Sam protects intellectual property rights at StopFakes, safeguards critical technologies at the Bureau of Industry and Security (BIS), sponsors emerging markets through the US Trade and Development Agency, and finances trade at the Ex-Im Bank.  Our taxes pay for these services and they're pretty effective, so businesses would be crazy not to leverage them to the max.  Check out the SBA's export loan programs and OPIC's investment services (like their Expanding Horizons workshops).

The San Jose Silicon Valley Chamber of Commerce presented the local region's perspective.  I don't come down often enough from San Francisco to use their services but I'm intrigued by their program for reintegrating military veterans into civilian life.  The Joint Venture Index of Silicon Valley tracks this region's economic health and sponsors public-private solutions.  I recall that San Francisco once had a public-private partnership called the Private Industry Council but it was merged into a City office during Gavin Newsom's administration.  The Silicon Valley Leadership Group assembles the region's leading employers to speak in one voice on public policy.  I didn't quite see the direct connections to trade with Mexico but the region certainly has the right policy players in place.  I also learned that "embeddedness quotient" describes employee happiness.  Who knew?  I didn't.

Mexico and the US have a lot going on.  That's pretty special.

Financial Sarcasm Roundup for 09/09/13

Another gala week has opened the annual social calendar of San Francisco.  I performed my public duty by attending some high-profile black tie functions so the hot women of this town can marvel at my extreme manliness.  I tone down my sarcasm at social functions.  I turn it back up when I'm online.  

The Mexican government has a fiscal reform plan.  The government's assumptions for the costs of subsidizing a new social security regime need more transparency.  It looks like a good try at getting control of the gray-market economy if small businesses accept the new tax regime.  The narco-warlords won't like that at all.  I hope there's a budget line in there for subsidizing more hot Mexican actresses to make movies up here in the US.  

China's banks will sell preferred stock.  It will have the same accounting treatment and liquidation preference as preferred stock available in the West.  This is good long-term news for the transparency of China's capital markets.  It's also good Basel regime capital for banks as long as they can pay the preferred dividends.  It's only bad for Chinese investors if and when inflation gets out of control.  Collecting a 7% preferred dividend at par means nothing if inflation degrades that par value to nothing in real terms.  

NYSE Euronext is investing in an online private placement market.  I have been wondering since late 2012 when the big securities exchanges were going to recognize the listing potential of companies whose securities trade in secondary markets.  Partnerships with other crowdfunding portals won't be far behind.  The crowdfunding revolution is reaching the public capital markets with or without guidance from the SEC.  

The Affordable Care Act isn't going to cover everyone.  Well, no kidding.  I don't think it was ever intended to provide universal health insurance coverage.  It has too many moving pieces and allows for too many exemptions to cover everyone.  Its designers from the managed care sector wanted to lock in a guaranteed customer base and its public policy advocates wanted something attractive enough to win elections.  The hybrid result is a mandate of cash flows from the pockets of taxpayers into politically favored sectors.  

Tourism is booming in Greece.  Foreigners love bargains in a devastated economy and Greeks love hard currency that isn't inflating.  Here's real confirmation that investors holding currency from financially sound countries preserve their lifestyles when other countries hit hard times.  I'd like to be rich enough to afford dates with a bunch of hot Greek women.  

The Economist is spewing total garbage about how the world's financial sector is safer now than in 2008.  It errs in fact by saying the US has reduced its excess debt; no such thing has happened.  It errs in logic by ignoring how the bond bubble has inflated the value of Treasury bonds banks own, regardless of risk-weighted capital.  I am dismayed that the Economist has sunk to this level of ignorance.  I console myself by realizing that some very sophisticated investors are going to take this false picture seriously and invest accordingly.  I won't miss them when they're bankrupt.

Financial Sarcasm Roundup for 05/13/13

Kick it off.  Sarcasm ahoy.

The G-7 is getting worried about Japan's devaluation experiment, though not in so many words.  They were the ones egging Japan on and now they feel guilty.  Great.  Central bankers play games with our livelihoods and only think about the consequences after they really get going.

Worry isn't the G-7's only job.  They also want bank rules that allow for swift resolution of bad banks before  they melt down everything.  The Cyprus dry run worked and the US/UK joint plan will now go global.  The idea is pretty close to what I and others advocated in 2008.  The policy elites should give credit where it is due.

Mexico's financial reform plan is winning plaudits.  I wonder if this plan is a bunch of eyewash like our own Dodd-Frank regime.  Transparency rules are nice but expanding credit is not a cure-all.  We learned that north of the border.  Expanding small business credit means more Mexicans can open Taco Bell franchises instead of fighting drug gangs.

IPOs are through the roof again.  I've noticed lots of market high-water marks in recent weeks.  Margin debt is back.  Junk bonds are at record valuations and volumes.  Now companies are grabbing IPO cash while they can.  I shake my head at the suckers who think this can go on forever.  No one wants to be the last one circling the chairs when the music stops but I'm already out the door.

Mickey still has no clue, nor do his apologists.

The Haiku of Finance for 04/24/13

Mexico silver
Some major wants to mine it
If the price is right

Silver Bull Resources (SVBL) and Silver in Mexico

Silver Bull Resources (SVBL) is digging for metals in Mexico and Gabon.  It was known as Metalline Mining until May 2, 2011, yet I am puzzled that the old MMG ticker still exists.  What the name change has to do with operating a mine is anybody's guess.  Hard data and results are more relevant.

The CEO is a geologist.  I tend to favor operating geologists over consulting geologists but a breadth of consulting experience in different geologies and metals helps.  The rest of the team also has deep experience in the mining sector.

Their project in Sierra Mojada, Mexico is coming along.  Their 43-101 data indicated fairly sizable Ag deposits with attractive grades, albeit still in MII categories.  The photograph of the site in their corporate presentation shows several large flat areas adjacent to the projected mine that can accommodate milling facilities and tailings piles.  The site also has a railroad connection, grid power, and water wells.  That is truly the logistics trifecta.

It is significant that Couer D'Alene Mines Corp. owns a big piece of Silver Bull Resources.  It is also significant that Silver Bull's Sierra Mojada project is in the general vicinity of Orko Silver's project.  Coeur D'Alene completed its acquisition of Orko Silver this month.  That puts one of the largest silver projects in Mexico into a producer's control.  I do not believe Coeur D'Alene Mines is ready for another acquisition because they have to shell out CAD$100M to former Orko shareholders and had about US$125M on their balance sheet at the end of 2012.  Silver Bull's current market cap is about US$54M, a bit of a stretch right now for Coeur D'Alene Mines unless they're willing to go into debt or commit the next several quarters of FCF exclusively to another acquisition (unlikely IMHO).  

Their most recent quarterly report dated January 31, 2013 shows cash on hand of US$1.66M and a burn rate of about US$700K/month.  Holy canole, they were running on fumes at the end of that quarter.  These people needed to raise some cash pronto to have a chance at taking Sierra Mojada into production.  Fortunately they did collect about $9.2M from a private placement in February.  That's enough to last another year.

I'm going to wait for Silver Bull's PEA to see how much they think full development will cost.  I also want to see another 43-101 report with 2P data.  Acquisitions in the neighborhood are certainly encouraging because producers need to replace reserves reduced by production.  Let's see if the stock moves once they announce a PEA.

Full disclosure:  No position in SVBL (or other companies mentioned) at this time.  

MAG Silver (MVG) In Mexico

MAG Silver (MVG / MAG.TO) mines silver in Mexico.  I've never been south of the border but I hear there's lots of tortillas down there, plus attractive women.  I don't know whether MAG Silver employs attractive Mexican women but if they do they should pay them in pesos rather then tortillas.

I have no quibble with the management team because they have the proper backgrounds.  They have a lot of projects in play.  The Cinco de Mayo project's MII resources look low at first glance but the moly grades actually exceed the average grades found in porphyry copper deposits.  The rest of their projects may show promise after more exploration but it's too early to tell.

Their Q3 financial statement for 2012 reveals US$44M in cash on hand, but they'll need much more than that to complete several simultaneous drill programs.  The diverse project portfolio requires a look at fundamentals from a value perspective.  Their FCF is severely negative and so is their five-year average ROE.

I can't understand why the market values MAG Silver at over $10/share when they've been losing money since 2008.  Inferred grades only get you to the threshold of a production decision.  I could understand the optimistic valuation if one of their larger projects were close to starting production but I can't be so optimistic with so many other undeveloped properties eating up capital.

Full disclosure:  No position in MAG Silver at this time.

Gold Resource Corporation (GORO) Producing Extremely Cheap Mexican Gold

Gold Resource Corporation (GORO) has the distinction of being a junior mining company that pays a dividend.  I'd like to figure out how they became healthy enough to do that.  Management is led by two senior gold executives.  I'm extremely pleased to see that serious professionals are running this show.  

They have an NI 43-101 report for their flagship El Aguila project, although as a U.S.-listed corporation they really don't need one.  I find it interesting that the report only addresses MII resources (no 2P), yet this company is operating a producing mine at El Aguila.  They also have four other properties in development but are returning cash to shareholders as a dividend rather than holding it to fund future development.  I couldn't see the logic behind such a decision until I looked at their operating costs.  I am very intrigued by the 43-101 report's estimate that the project's operating costs are US$136/oz of Au equivalent.  That is extremely cheap gold!  No wonder the management was so confident about beginning operations before 2P was confirmed.  They can afford to return money as dividends because they save so much cash in production.

I normally consider a junior mining company's ability to stay alive, but since this one has an established operating history it's more appropriate to use the fundamental screening criteria for a mature company.  They were profitable in 2011 but not in the two years prior.  It's good that they have no long term debt and positive free cash flow.  It's bad that their five-year ROE has been negative.  That number is a legacy of the losses incurred in the years prior to production.  Producing gold at $136/oz makes their main mine profitable at any of gold's historic annual price averages in the past three decades.

Gold Resource Corporation may very well have turned a corner in 2011.  The two co-founders did so well with their previous venture, U.S. Gold Corp., that famed Canadian investor Rob McEwen put his own name on it.  I am really going to keep watching GORO to see if there's a repeat performance.

Full disclosure:  No position in GORO at this time.  

The Limerick of Finance for 04/22/12

When Wal-Mart went to Mexico
It paid for permission to grow
But a bribe isn't smart
If the check's from Wal-Mart
"Hasta la vista, amigo!"

RIG And A Deep Dig, Plus New Oil Exploration

Here's a brief note on something that will catch more investors' eyes in the years ahead.  Transocean announced a new deepwater drilling success, possibly even a new world record.  This kind of expertise is going to be very much in demand as the low-hanging fruit of onshore and shallow-water drilling is maxed out.  The industry needs answers now as it prepares for drilling in the Arctic.  How deep will they have to go?  How thick is the ice?  Answer those questions, plus tons of others, and a lucrative career awaits geologists and engineers north of the Arctic Circle. 

Plateau Oil won't be as bad as Peak Oil with drillers like RIG around, assuming they survive BP's massive lawsuit over the Deepwater Horizon fiasco.  New guidelines on the use of blowout preventers will help explorers, provided they get wide dissemination.  Any drillers looking to expand south of the border?  Mexico needs oil services if it wishes to transform its slide down the far slope of Peak Oil into a nice slow drift toward Plateau Oil. 

Nota bene:  No positions in RIG or BP.

The Haiku of Finance for 04/01/11

Mexico's Peak Oil
Needs tech, skill, and foreign cash
Production still slides

Road To Mexico Opens Wide

The prospect of a new U.S.-Mexico trucking accord is nothing new to loyal followers of Alfidi Capital (all three of them).  The preliminary agreement is ready, sort of.  U.S. negotiators need to iron out a few details that can irk some members of Congress' transportation-related committees.  The final deal will be ready for legislation once the relevant industry players have made appropriate campaign contributions. 

Business groups are celebrating too early.  Union labor can still sabotage the deal by making impossible demands that may find an audience in Washington.  The Teamsters in particular are up in arms at the possibility that Mexican drivers will work longer and harder for a fair wage than their union brethren ever will.  They didn't get the message that trucking firms hurt by the high cost of fuel need any lever they can find to stay competitive.  Teamsters are better off blaming their woes on Middle Eastern unrest than on cross-border competition closer to home. 

Full disclosure:  No position in trucking stocks at this time. 

Cheers To Cross-Border Trucking

The arrival of NAFTA heralded a new era of prosperity for North America.  The years since this landmark free trade agreement have allowed economic links on this continent to deepen and mature, especially in the transportation sector. 

The U.S. is making Mexico an offer it can hardly refuse.  A new trucking agreement will make it easier for Mexican trucking firms to operate in the U.S.  This move is long overdue.  Canadian truckers already enjoy such an arrangement, so extending the terms to Mexico furthers the harmonization of transportation rules across the continent.  Removing impediments to cross-border shipping will make it easier for shippers to forecast their logistics costs and track deliveries.

The details of the official proposed framework should allay any fears that Mexican truckers will pose traffic hazards or undercut U.S. truckers' margins.  The agreement will require Mexican firms to meet U.S. standards in safety and environmental impacts.  Inviting Mexican firms to compete on those terms will raise the quality of long-haul delivery service. 

Opposition to the proposed framework is already stirring.  Protected groups always fear innovation and competition when their sinecures are threatened.  They should examine the hard facts that harmonization of cross-border trade through NAFTA has contributed substantially to economic growth for all three participating nations.

Extending U.S. trucking standards to Mexican truckers can potentially provide opportunities for U.S. truckers.  YRC Worldwide's logistics division could see growth in the freight-forwarding traffic it handles if Mexican truckers are allowed to backhaul goods from the U.S.  Arkansas Best may benefit if its partnership with a Mexican carrier gives it more transshipment options across the border. 

The free flow of trucking across the U.S.-Mexico border will be a boon for trade once the final details of this program are confirmed by both sides.  A permanent agreement should require Mexico to lift any tariffs it imposed in retaliation for the U.S.'s elimination of the earlier pilot program.  That in itself will be a welcome development for American exporters. 

Full disclosure:  No positions in YRCW, ABFS, or any Mexican trucking firms.