writeups – shorts

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SkyPeople Fruit Juice (SPU)

SPU is the company that led me towards Equisolve and developing a better understanding about how pump and dumps work.  *Disclaimer: I am not saying that Equisolve caters to pump and dumps.  Maybe they do, maybe they don’t.  You should form your own opinion based on your own research.

The domain registration for skypeoplefruitjuice.com shows contact information for Mark Lazatin at CCG Investor Relations.  (Not that this matters, but LinkedIn and his new employer’s website suggests that he has moved to a new job.)  The domain registration suggests to me that CCG built SkyPeople’s website and controls the domain registration.  It so happens that many Chinese reverse merger frauds retained CCG for investor relations services before they blew up.  While I don’t believe that ‘guilt by association’ is evidence of fraud, it is a red flag in my opinion.

I find it interesting that other people are on the fence about whether or not the company might be a fraud.  Investingsidekick.com has an interesting blog post on the company.

*Disclosure:  No position.  I am not saying that the company is a fraud and I don’t know for sure if it’s a fraud or not.  I have not done much research into this company.

EDIT (3/26/2014):  Roddy Boyd has an interesting piece of journalism on SPU.  It covers Absaroka Capital’s attack on the company and the legal battle between the two parties.

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Magnum Hunter (MHR) short thesis

In the independent oil and gas space, I will happily bet against the high-cost operators.  I would argue that Magnum Hunter overpays insiders, wastes money on corporate aircraft, and has excessive G&A as a percentage of revenue.  This has contributed to Magnum Hunter’s track record of GAAP losses since current management took over in May 2009.

Market cap: $1.42B
% of float short: 18.2%
Cost of borrow: ~0.6%
The put options are somewhat liquid.

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Veris Gold: The end is near…

Yukon Gold is an illiquid $58M market cap gold miner with an expensive borrow (over 10%).  I’ve mentioned Yukon-Nevada Gold / Veris Gold 3 times in the past.  The most relevant post explains why it is a value trap.

On Jan 29, 2014 it issued a press release saying that it defaulted on its gold loan with Deutsche Bank (press release).  The company blames it on a fire that happened on Dec. 19, 2013.  This fire was reported in the Dec 30, 2013 press release entitled “Veris Gold Corp. Reports on Production and Toll Milling for November“.  Apparently the company did not think that the fire was important enough to report right away.  It’s not like defaulting on your debt is a big deal right?

In any case, fire or no fire, I think that Veris Gold would have defaulted anyways.  The mine should never have been restarted and has continually lost money since.

*Disclosure:  I am short common shares of Veris Gold.  In hindsight I should have shorted this earlier (e.g. a year and a half ago).

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Avid update

Today Avid dropped around 29% on basically no news.  It issued a press release saying that Avid shares would be delisted, which they had already said would happen.

At a market cap of 192M, I think that Avid’s valuation is reasonable.  While management is poor and the company hasn’t made GAAP profits in years, the assets are valuable.  Avid’s video editing systems and Pro Tools are leaders in their field; Avid itself has strong turnaround potential.  There is the possibility of a takeover as an Avid and Autodesk combination would make a lot of sense.  Avid’s customers would certainly welcome such a merger/takeover.

*Disclosure:  No position.  I covered earlier today and missed most of the drop in price.

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Access Midstream Partners: Are their distributions sustainable?

I think that ACMP’s cash flows will decline due to:

  1. Less gas being carried on their gathering pipelines.  Throughput will decline as shale gas wells naturally decline.  Throughput on ACMP’s existing assets cannot grow unless more shale gas wells are drilled.
  2. Cash flows from minimum volume commitments ending.

*Disclosure: I am short ACMP common.  This is not one of my better short ideas and I may cover this position in the future.

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