Casimir Capital Round 2

This is a continuation of my original post on this small investment bank that has underwritten a lot of junk.

Petaquilla Minerals Ltd

The borrow on this stock is expensive (around 8-10%) and I can see why.  They have breached one of the covenants on their debt*.  From the latest quarterly financial statements:

The Company is in default of its Forward Gold Purchase Agreement (Note 14) as the Company failed to meet its physical delivery requirements and has settled such obligations in cash. The default persists as of the date of these condensed interim consolidated financial statements for all agreements with Deutsche Bank as certain other reporting covenants continue to not be met.

*It’s possible that Deutsche Bank will give Petaquilla a break on the debt instead of trying to push the company into bankruptcy.  Sometimes banks will do this to avoid writing down the value of its loans.

The mine did not provide positive cash flow in the last quarter.  Negative cash flow and debt that may be due soon is a very dangerous combination.  This company may be in imminent danger.  I hate crowded shorts but Petaquilla may be so awful that it’s worth shorting.

I would note that things were quite different a year ago.  Inmet (since purchased by First Quantum) wanted to buy Petaquilla for $112M to consolidate both companies’ operations in the area.  Gold was also at much higher prices.

Shoreline Energy

The company must be extremely desperate because it has been raising money on terrible terms.  From its latest quarterly financial statements:

Private placement
In March 2013, the Company closed a private placement financing, resulting in net proceeds to Shoreline of $4,359,904 through the issuance of 1,400,000 common shares of the Company at a subscription price of $3.50 per Common Share. In connection with the closing, the Agent received a cash commission equal to 10% of the gross proceeds raised under the Financing and were also issued agent’s warrants entitling the holder to purchase 56,000 Common Shares at an exercise price of $3.89 per Common Share.

Debt financing
On February 4th, 2013, the Company obtained $5 million, net of $600,000 in fees of short term debt financing in connection with the November 20, 2012 acquisition of Wattenberg royalty interests. Interest is calculated at 18% per annum and payments of $75,000 are due monthly. The loan has a minimum period of six months and matures February 4, 2014. The debt is secured all after acquired real and personal property of Shoreline Energy Holdings Inc. and has a second charge on Canadian assets held by Shoreline Energy Corp. for up to $5.5 million.

It will be very difficult for this company to make money when it is paying 18% interest.  Not surprisingly, the stock is trading at $2.21 which is near its all-time lows.  I don’t like shorting beaten-down stocks so I probably won’t short this unless the share price is much higher.  (Most of the time, it is a good idea to buy the dip and to sell during the rallies.)

Arsenal Energy

This company has a track record of slowly losing money.  Their debt could one day become a problem for them ($62.14M versus $56.32M of equity).

I don’t understand why this company is issuing a dividend… it seems like a bad move to me.  The company should hold onto cash to grow, pay down debt, or (from the insiders’ perspective) to pay insiders’ salaries.

The company is bad, but is it so bad that it is worth shorting?  I’m not so sure.

Crocotta Energy

This is a shale gas company that derives most of its revenue from natural gas.  Management would like you to believe that this is a shale oil company as they often use the unit boe (barrel of oil equivalent).

Based on reported earnings, this company has lost money at a lower rate than Arsenal.  Arsenal is probably the inferior company.

Macdonald Mines Exploration

The market cap is under $5M.  It’s not worth researching as a short position.

Probe Mines

Agnico-Eagle Mines has taken a stake in this junior exploration company.  AEM may try to take over the rest of the company so I don’t think that Probe is worth shorting.

Sterling Resources

Sterling needs money to finance and build facilities to exploit its Breagh deposit.

Vitol Anker, a major shareholder, originally wanted to purchase Sterling for cash.  Sterling resisted these efforts, prompting Vitor Ankor to issue a press release criticizing management:

Vitol believes that the Proposed High Yield Bond and Proposed Cladhan Farm-Down represent the latest in a line of value destructive initiatives undertaken by Sterling’s board of directors that are highly dilutive to all shareholders and whose main purpose appears aimed at preserving the Company’s independence at all costs and at the expense of all its shareholders. Specifically, Vitol believes that the Proposed High Yield Bond effectively represents a defensive tactic to frustrate its intended take-over offer, both due to its restrictive covenants and security package as well as the prohibitive costs required to retire the Proposed High Yield Bond.

I don’t think Sterling is a good short as the possibility of shareholder activism or a takeover will likely limit how low the share price can go.

Tag Oil

Tag recently sold shares at C$4.40 (the underwriters received a 5% commission and call options) and now trades at around C$3.30.

The operating business seems slightly below average though it doesn’t seem like it has lost too much money since 2003.  The company has an accumulated deficit of -C$40.66M versus C$171.17M raised.  The company has no debt so I doubt that the stock is going to 0 anytime soon.  I don’t see it as a good short.

Vista Gold

This company seems too beaten down to short.

Companies that I did not analyze

I did not analyze the following companies because it doesn’t look like I’d be able to get a reliable borrow for the shares:

  1. Blackham Resources Ltd
  2. CUB Energy Inc
  3. Eastmain Resources Inc
  4. Globex Mining Enterprises Inc
  5. Greenfields Petroleum Corp
  6. Iona Energy Inc
  7. Marquee Energy Ltd
  8. Palliser Oil & Gas Corp
  9. True North Gems Inc
  10. Vista Gold Corp

*Disclosure:  I currently do not have a position in any of these stocks.

Advertisements

2 thoughts on “Casimir Capital Round 2

  1. Pingback: See Thru Equity | Glenn Chan's Random Notes on Investing

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s