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.
Thursday, January 03, 2013
Wednesday, January 02, 2013
Silver Lake Resources (SVLKF) Mines Australian Gold
Silver Lake Resources (SVLKF / SLR.AX) mines gold in Australia. Did I ever mention that I visited Australia in 2001? I didn't go to any gold mines but I met other multinational executives in Melbourne. What a nice town. I didn't date any Australian women. Next time I'm down there I'll have to check out some of these gold miners. In the meantime I'll just have to settle for their financial numbers.
My regular readers know that Australian company management nomenclatures sometimes throw me for a loop. The Silver Lake team looks solid even though there's no clear "CEO" title. I can live with the lack of translatable titles when the whole team is steeped in geology and mining engineering.
This is an established mining company, so a project-by-project comparison is less useful than a fundamental evaluation that encompasses the whole company's multi-project performance over time. Their net income for the past three years has been consistent and they have no long-term debt. FCF turned positive in their 2012 annual statement after having been negative for two years prior. I can understand the need to invest in new infrastructure at developmental stage projects but at some point this will hurt net earnings if they can't put new properties into production. Their five-year ROE is pretty remarkable at 19.12%.
I'm pleased with the quality grades from Silver Lake's operating mines. They need to keep their company-wide cash cost of production far below US$600/oz if they are to create value in the long term.
Full disclosure: No position in Silver Lake Resources at this time.
Tuesday, January 01, 2013
Max IRA Contribution Upped To $5500 For 2013, No Confiscation In Sight
Investors need to check out the IRS rules for tax-advantaged retirement accounts in 2013. One notable item is the increased cap for IRA contributions, now $5500. I made the maximum contribution to my IRA this morning for tax year 2013.
I've been seeing a lot of chatter on the Web lately about national plans to confiscate personal retirement accounts or force their holders to purchase government bonds. I have not uncovered any official record of any such plan under consideration at any level of government. One prominent economist has made a series of public proposals advocating a mandatory annuity-based account system but the political blogosphere has somehow magnified her ideas into a looming threat of confiscation. Calm down, people. Confiscation of IRAs and 401(k)s would be far more disruptive to the U.S. financial sector than FDR's gold confiscation. Mutual fund companies and big banks would cry uncle at the lost fee income and their lobbyists would be out in force. I doubt that any compromise proposal to custody mandatory annuity accounts with the few politically favored big banks would satisfy any Wall Street concerns over lost fee revenue. Any way I slice this one, I just don't think confiscation is any more than a very remote "black swan."
Congress has also considered methods of encouraging contributions to IRAs. Recent hearings considered new incentives that would make retirement account contributions easier. The Administration is even proposing tax credits that will encourage small employers to enroll employees in IRAs.
People can relax for now. A replay of the 2008 financial crisis may put a lot of untouchable ideas back on the table but taking away IRAs isn't likely to be one of them. I suspect that removing their tax exemption or tax deferral would be within the realm of extreme possibility, but even that would occur before outright confiscation (or forced conversion to bond-buying managed annuities) would ever be considered. I made my IRA contribution this year with the risk of eventual taxation in mind, and I would prefer to earn tax-free capital gains while they're available.
I've been seeing a lot of chatter on the Web lately about national plans to confiscate personal retirement accounts or force their holders to purchase government bonds. I have not uncovered any official record of any such plan under consideration at any level of government. One prominent economist has made a series of public proposals advocating a mandatory annuity-based account system but the political blogosphere has somehow magnified her ideas into a looming threat of confiscation. Calm down, people. Confiscation of IRAs and 401(k)s would be far more disruptive to the U.S. financial sector than FDR's gold confiscation. Mutual fund companies and big banks would cry uncle at the lost fee income and their lobbyists would be out in force. I doubt that any compromise proposal to custody mandatory annuity accounts with the few politically favored big banks would satisfy any Wall Street concerns over lost fee revenue. Any way I slice this one, I just don't think confiscation is any more than a very remote "black swan."
Congress has also considered methods of encouraging contributions to IRAs. Recent hearings considered new incentives that would make retirement account contributions easier. The Administration is even proposing tax credits that will encourage small employers to enroll employees in IRAs.
People can relax for now. A replay of the 2008 financial crisis may put a lot of untouchable ideas back on the table but taking away IRAs isn't likely to be one of them. I suspect that removing their tax exemption or tax deferral would be within the realm of extreme possibility, but even that would occur before outright confiscation (or forced conversion to bond-buying managed annuities) would ever be considered. I made my IRA contribution this year with the risk of eventual taxation in mind, and I would prefer to earn tax-free capital gains while they're available.
Monday, December 31, 2012
The Haiku of Finance for 12/31/12
Fiscal cliff is here
No one wants to admit it
We can't pay our bills
No one wants to admit it
We can't pay our bills
Financial Sarcasm Roundup for 12/31/12
The waning hours of 2012 have reached the Pacific coast and I'm blogging away into the new year. Here comes one final blast of sarcasm to close out this calendar.
The U.S. Senate and the White House have made a fiscal cliff deal, but the House of Representatives took a breather until tomorrow. The lower house of Congress is missing all the fun. I hear there's free booze for anyone who sticks around and passes the anti-cliff bill tonight. My theory is that someone started a rumor that a "bungee jump" off the fiscal cliff meant a real bungee cord would be installed on the Capitol, and the House adjourned early when they didn't see a jump platform around. Tomorrow they'll figure out that the actual "bungee" is the retroactive provision they can write into the deal that will take back any harsh spending cuts or tax increases that will occur on January 1, 2013.
The French aren't having any more success with their own fiscal mess. The 75% tax on the super-rich is now null and void, so Gerard Depardieu can breathe easier during his self-imposed exile in Belgium. I think France should cut the subsidies its wine makers get from the EU. French wine is overrated anyway and California wine can definitely compete in quality. I don't drink French wine but if the euro collapses the EU will try to hyperinflate it back to life, and then French wine would be dirt cheap measured in my dollars.
Here's wishing you all a happy 2013. It will be happy for me as long I'm sarcastic.
Silvercorp (SVM) Questions Remain
Silvercorp (SVM / SVM.TO) was under a cloud for some time due to questions about its accounting practices. Those questions should have been settled in late 2011 but I'm still concerned given some recent news. Silvercorp changed their auditors, ostensibly to avoid higher fees. They are also the target of a class action lawsuit, filed today, for the period in which their financial information was under scrutiny. These two developments would mean little for most normal companies, but in the context of Silvercorp's past they give me pause.
Silvercorp's fundamentals look impressive. Their FCF is positive and they are free of long-term debt. Their EPS growth and ROE are both strong. They even pay a dividend. So what's not to like about a mining company run by geologists? I can't get the accounting questions out of my mind. I also can't reconcile how they continue to report extremely high grades of silver at several projects. I swore off China exposure in 2012 and I'm staying away from it in 2013.
Full disclosure: No position in Silvercorp at this time.
Silvercorp's fundamentals look impressive. Their FCF is positive and they are free of long-term debt. Their EPS growth and ROE are both strong. They even pay a dividend. So what's not to like about a mining company run by geologists? I can't get the accounting questions out of my mind. I also can't reconcile how they continue to report extremely high grades of silver at several projects. I swore off China exposure in 2012 and I'm staying away from it in 2013.
Full disclosure: No position in Silvercorp at this time.
Orocobre Ltd. (OROCF) Looks at Lithium
Orocobre Ltd. (OROCF / ORL.TO) is a junior Australian company moving into lithium development. Normally I think of kangaroos and Crocodile Dundee when I hear about Australia, so this means I need to broaden my perspective.
The company's page describing its leadership does not explicitly identify the CEO. Maybe I missed something, but titles like "general manager" don't necessarily mean CEO. Exactly who is in charge here? Even their financial statements aren't clear on that one.
The Salar de Olaroz, Argentina project has MII resources and their Borax Argentina division is producing revenue. They are also developing three other early-stage projects. I have a difficult time understanding their quarterly financial statement dated March 31, 2012 because its format is unlike the U.S. and Canadian statements I usually read. Since their business model is a mix of developmental and established projects, it's fair to consider their fundamentals from a value investing standpoint.
The bottom line on Orocobre is that their earnings and ROE are still negative, so the revenue from their borax operation contributes isn't enough to subsidize their ambitions for other properties. That's why I'm not investing in this one. The major lithium producers have more than enough capacity to satisfy world demand. Junior explorers in lithium are redundant.
Full disclosure: No position in Orocobre Ltd. at this time.
The company's page describing its leadership does not explicitly identify the CEO. Maybe I missed something, but titles like "general manager" don't necessarily mean CEO. Exactly who is in charge here? Even their financial statements aren't clear on that one.
The Salar de Olaroz, Argentina project has MII resources and their Borax Argentina division is producing revenue. They are also developing three other early-stage projects. I have a difficult time understanding their quarterly financial statement dated March 31, 2012 because its format is unlike the U.S. and Canadian statements I usually read. Since their business model is a mix of developmental and established projects, it's fair to consider their fundamentals from a value investing standpoint.
The bottom line on Orocobre is that their earnings and ROE are still negative, so the revenue from their borax operation contributes isn't enough to subsidize their ambitions for other properties. That's why I'm not investing in this one. The major lithium producers have more than enough capacity to satisfy world demand. Junior explorers in lithium are redundant.
Full disclosure: No position in Orocobre Ltd. at this time.
Alfidi Capital New Year Resolutions for 2013
I resolve to be controversial and provocative.
I resolve to post blog articles that are obnoxious and hilarious.
I resolve to make stupid people angry.
I resolve to bad-mouth liars, thieves, and miscreants.
I resolve to satirize incompetence from Wall Street and other financial centers.
I resolve to associate with people who appreciate my extraordinary wisdom and to avoid wasting time with losers who can't understand what I say.
I resolve to remain financially independent and strive for even greater wealth.
I resolve to share my extreme genius with the world, especially at investment conferences.
I resolve to remain stunningly handsome and irresistible to attractive women.
In other words, I resolve to keep going exactly what I've been doing my entire life, especially since I started this blog. Happy New Year for 2013.
I resolve to post blog articles that are obnoxious and hilarious.
I resolve to make stupid people angry.
I resolve to bad-mouth liars, thieves, and miscreants.
I resolve to satirize incompetence from Wall Street and other financial centers.
I resolve to associate with people who appreciate my extraordinary wisdom and to avoid wasting time with losers who can't understand what I say.
I resolve to remain financially independent and strive for even greater wealth.
I resolve to share my extreme genius with the world, especially at investment conferences.
I resolve to remain stunningly handsome and irresistible to attractive women.
In other words, I resolve to keep going exactly what I've been doing my entire life, especially since I started this blog. Happy New Year for 2013.
Sunday, December 30, 2012
The Limerick of Finance for 12/30/12
This year has wound down to an end
A "fiscal cliff" deal still not penned
Some plan will get done
That will please no one
More posturing just 'round the bend
A "fiscal cliff" deal still not penned
Some plan will get done
That will please no one
More posturing just 'round the bend
South American Silver Corp. (SOHAF)
South American Silver Corp. (SOHAF / SAC.TO) is looking for silver in Chile. I've never been down there, nor have I eaten Chilean food or dated Chilean women. I suspect the latter two are quite spicy. Mining isn't so spicy but someone has to do it.
The CEO was educated as a mining engineer but doesn't mention who employed him on any of the projects he worked in his career. His LinkedIn profile says he is currently the VP for Project Development at PolyMet Mining, and doesn't mention his position with South American Silver. He ought to update his LinkedIn bio; meanwhile South American Silver's press release announcing his hiring sheds a little more light on his background. I'm harping on this because the CEO's decisions in an exploration-stage junior mining company depend very much on an understanding of geology. Other disciplines matter more in later stages.
The Escalones project has an Inferred Resource grade for Cu of 0.41%, which is toward the lower averages of most commercially successful copper deposits in the 21st century. One compensating factor is that this is a fairly large deposit. The equivalent grades of the other minerals are negligible. Reading the project's drill and surface sampling highlights gives me the impression that the ore grades are highest nearer the surface and not very deep.
The company is also contesting the Bolivian government's revocation of its subsidiary's mining concessions. It's unrelated to the property above but nonetheless casts a cloud over the company. This Malku Khota project is potentially very valuable but the company absolutely must resolve the legal dispute in its favor.
Check out their financial statements for Q3 2012, dated September 30, 2012. They had US$29.5M cash on hand and have a burn rate of about US$1M per month. That gives them more than two years to realize value from their projects.
I am not investing in South American Silver Corp. because I prefer mining companies that have de-risked their projects by establishing 2P reserve data. I also prefer spicy women, as I hinted in my opening paragraph.
Full disclosure: No position in South American Silver Corp. at this time.
The CEO was educated as a mining engineer but doesn't mention who employed him on any of the projects he worked in his career. His LinkedIn profile says he is currently the VP for Project Development at PolyMet Mining, and doesn't mention his position with South American Silver. He ought to update his LinkedIn bio; meanwhile South American Silver's press release announcing his hiring sheds a little more light on his background. I'm harping on this because the CEO's decisions in an exploration-stage junior mining company depend very much on an understanding of geology. Other disciplines matter more in later stages.
The Escalones project has an Inferred Resource grade for Cu of 0.41%, which is toward the lower averages of most commercially successful copper deposits in the 21st century. One compensating factor is that this is a fairly large deposit. The equivalent grades of the other minerals are negligible. Reading the project's drill and surface sampling highlights gives me the impression that the ore grades are highest nearer the surface and not very deep.
The company is also contesting the Bolivian government's revocation of its subsidiary's mining concessions. It's unrelated to the property above but nonetheless casts a cloud over the company. This Malku Khota project is potentially very valuable but the company absolutely must resolve the legal dispute in its favor.
Check out their financial statements for Q3 2012, dated September 30, 2012. They had US$29.5M cash on hand and have a burn rate of about US$1M per month. That gives them more than two years to realize value from their projects.
I am not investing in South American Silver Corp. because I prefer mining companies that have de-risked their projects by establishing 2P reserve data. I also prefer spicy women, as I hinted in my opening paragraph.
Full disclosure: No position in South American Silver Corp. at this time.
Imperial Metals (IPMLF) Is Not The Miner For Me
Imperial Metals (IPMLF / III.TO) has two operating mines and several developmental and exploration properties. I'd prefer to analyze them using value investing criteria since they are not a startup mining company, but some details of their properties deserve mention.
Their Mount Polly mine is operating but its 2P reserves are very low grade. I'd say the same for their Huckleberry mine. The MII resource grade at their Red Chris developmental project is similarly unimpressive. What are their cash costs of production? I have no idea, but I wonder whether these projects would be worth doing if the price of gold were half of what it is today. The Sterling project, however, has a very impressive 7.41 g/t Au, so here's hoping they get it started. It's too early to tell whether their three exploration properties will pan out.
Imperial is earning positive net income but their five-year EPS growth is negative and their five-year ROE is below the mining sector's average. Those are reasons enough for me not to own this stock, besides the low ore grades for their active mines.
Full disclosure: No position in Imperial Metals at this time.
Saturday, December 29, 2012
Friday, December 28, 2012
The Haiku of Finance for 12/28/12
Tax people to death
Don't be surprised when they leave
Fair-tax state is great
Don't be surprised when they leave
Fair-tax state is great
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