Kinder Morgan Inc (KMI): You sell, I’ll buy

Richard Kinder, the CEO of KMI, is a brilliant operator and a brilliant capital allocator.  He is a self-made billionaire with a net worth of roughly $9B.

This is a company with good economics, great management, and a reasonable valuation.  The company is buying back its shares and its warrants.  Kinder has come out and said that the company is undervalued. Continue reading

Contango Ore: A promising deposit

This illiquid $35M exploration company is very difficult to value but could be worth up to $75-235M.

Contango Ore has issued a press release announcing (A) its initial resource estimate and (B) the engagement of a “strategic advisor”.  The CEO, Brad Juneau, has stated: “We feel we have reached the stage of proving sufficient known resources and defined upside to attract a buyer for the Company.”

I’ll start with the resource estimate.

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Chesapeake’s one-sided midstream deals

Originally, I thought that Chesapeake may have been using its midstream deals to inflate its profits.  I was mistaken.  Chesapeake’s midstream vehicle (now named Access Midstream Partners) was structured in a very one-sided deal that heavily favored Chesapeake.

I don’t think that many people give credit to Aubrey McClendon for this deal.

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Selwyn Resources: Closed my position

I closed my position at $1.74-$1.9.  I think that Selwyn’s current valuation is reasonable given that:

  1. Selwyn burned through a few million of cash in overhead, legal fees (Selwyn paid Samara Capital and RCF’s legal bills), and severance to the CEO and other employees.
  2. The mine did not find a buyer (yet) and has been put on care and maintenance.  If it has been mothballed, it means that the mine is not economic.  If the company has been trying to sell the mine (which it probably has been) and hasn’t found a buyer, it probably means that the market for the asset is weak.

The stock closed at $2.12 yesterday.I would say that this trade worked out fine.  If you had bought at $8 and sold at $1.74, you would have made a low-risk 9.25% return after the $7 dividend (all figures split-adjusted).

Avid: I don’t understand what they’re doing

Today, Avid issued a press release titled: Avid Announces Appointment of Deloitte & Touche as New Audit Firm.  Some key points in the press release and the 8-K are:

  1. Avid doesn’t expect that it will be able to file its financials by March 14, 2014.  It expects that delisting is likely.
  2. Its current auditor, Ernst and Young, is being replaced by Deloitte.
  3. From the 8-K: “As of the date of this Report on Form 8-K, material weaknesses in the Company’s internal control over financial reporting continue to exist.”
  4. Avid is adopting a rights plan.  It looks like a poison pill to me.
  5. The Company expects that cash expenditures in 2014 related to the ongoing accounting evaluation through completion of the evaluation will amount to approximately $25 million to $34 million.

From the perspective of Avid’s high-end professional customers, all of this is highly unfortunate.  The well-being of these customers will be affected if Avid is no longer updating the software and issuing new versions of it.  They want to know that Avid is financially sound because their livelihood depends on Avid.  Avid should come out and put any speculation about its financial well-being to rest.  It should be louder when it says that the “Company’s cash balance on December 31, 2013 was approximately $48 million and it had no debt or draw on the available line of credit with Wells Fargo”.  It should explain to its customers why a delisting would not in any way affect its commitment to updating its software.  It should file its financial statements as soon as possible.  I don’t understand management’s lack of urgency and why it still hasn’t filed financials (it’s been almost a year).

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