WFTSF- Wavefront Buy More @ $2.245

I decided to average down a bit on this one. I originally bought a smaller position so that this option would be available. I am glad I did this as the stock fell a bit after the company announced a financing deal that was pretty dillutive. I put the order in at $2.17 but the thing popped on me. This brings my average cost down to $2.44. I am still have room to average down again if need be.

This is a simple picture that shows how Wavefront’s technology differs from current water pumps that are out there…(Wavefront’s technology is on the right)

Source:

This is a very interesting Story on Michael Ware

This really has nothing to do with investing (or maybe it does at some level hidden between the lines), but none-the-less I stumbled across Michael’s story while doing some stock research (don’t ask me how…I don’t know myself). Anyways, I really enjoyed reading this and thought that anybody (if anybody is still reading this) that checks up on the blog might want to read. It also allows me to find it if I want to in the future.

http://www.mensjournal.com/cnns-prisoner-of-war

SCP.cn (SCPZF) Update on Sprott Resources “Fair” Value Estimates

In my opinion, the market continues to discount Sprott Resources. While I can see some speculation/pressure being put on the shares because of its size and exposure to volatile commodities, at its current price the market is undervaluing its “fair value” in business interests and liquid assets, not even taking into account the future potential (which I feel is high) for earnings/investments and more shareholder value. This is my latest estimation of what SCP.cn should be trading at given its current investment portfolio, not taking into account any future earnings, investments, or sales of investments.

For the purpose of this valuation, I decided to focus on each seperate investment that Sprott has and try to assign an appropriate value for these investments. I will honestly admit that I believe these estimates to be very conservative as I will explain below. The investments consist of following: Waseca Energy; ownership is 100%, Orion Energy; Owns 229.33 million shares, Stonegate Agricom; owns 63.66 million shares, One Earth Farms; owns 80%, cash, gold and silver bullion, and portfolio investments. The company also owns One Earth Oil and Gas of which I could not find very much information on. The venture seems to be new and sort of a spin off from One Earth Farms. For the purpose of this update, I did not assign a value to this.

1. WASECA ENERGY (100% Ownership). Waseca is expected to have production by 2010 year end of 1,500 bbpd. To a value for this, I estimated $50,000 per flowing barrel, which is very conservative in my opinion. According to Keith Schaefer the average amongst junior Canadian producers is around $71,000 per flowing barrel. This gives the production a value of $75 million. I did not assign any value to reserves, expansion plans, facilities, etc, in an effort to preserve my cautious estimates and to reduce speculation involved in this simple analysis.
2. ORION ENERGY (80% Ownership). Sprott owns 229,334,351 shares of Orion. It is currently trading at $1.22 as of 4/28/10. This values Sprott’s investment at CAD284.37 million. Using an exchange rate of CAD1.0126 values the investment at $280.84 million in terms of US dollars.
3. STONEGATE AGRICOM (80% Ownership). Sprott owns 63,662,000 shares of Stonegate, which is currently trading at $.98 (this is its first day being public so not a whole lot of faith can be put into this number) as of 4/28/10. This puts the market value of this investment at CAD61.12 million, using the same exchange rate gives us a US dollar value of $60.34 million.
4. One Earth Farms (80% Ownership). One Earth was by far the toughest one to value because it is a newer venture , thus I decided to make my estimates as conservative as I could. In my view I would much rather error on the side of caution. It seemed rather impossible to try an estimate a value for this one because of so many uncertainties revolving around the business (ie crop pricing, weather, expansion plans), and due to the fact that it is currently working on rapidly expanding this business. Thus, I decided to use the CAD27.5 million that Sprott just pumped into the venture (or $27.16 million), plus $453K of inventory. At 2009 year end, the company sold 800 tons of its 2.9 thousand tons in inventory for $173K. Using this same information, I estimated that the rest of the inventory could be valued at $453K. This puts the value of One Earth at $28 million, a very conservative figure given the future potential of this investment.
5. CASH: According to their latest financial statements, Sprott has roughly $107,085,000 in cash.
6. Gold and Silver Bullion: At 2009 year end the company held 73,971 ounces of gold bullion and sold its silver bullion. The gold bullion using a current gold spot price of $1171/oz values this position at $86,685,135.48
7. Investment Portfolio: Valued at $33.8 million at 2009 year end. For the purpose of this analysis, I included my per share estimates both with and without this.

PER SHARE ESTIMATION:

Adding up the values gives you $637.97 million and $671.77 million including the portfolio investment. Dividing by the shares outstanding gives us a per share price of $6.63 and $6.98 with portfolio added in. This is a 60% undervaluation given its current price. Keep in mind this is a 60% undervaluation of its fair value, using very conservative estimations while excluding One Earth Oil and Gas, and not its potential future value which could be far greater than this. Bottom line, I still think the market is mis-pricing Sprott and that the shares are still a buy here.

Source: Company financial statements and most recent presentation.

I look to double this position at $4 dollars if it can get there. It is currently trading at $4.30….which is right were I bought it….I would love to average that cost down a bit if given the chance.

CEN.cn Is this one worth considering? Possible play on emerging oil demand

Coastal Energy is another interesting oil play. The company mainly operates in Thailand, where they have several wells off the NW coast of the Gulf of Thailand. The company is currently producing roughly 11,500 boepd, however that is not what draws me to this company. The reason I like this company is because they are a pure production growth play, and while they do have some gas assets, they are primarily oil. This company could actually be a 50,000 boepd company in three years assuming their prospective wells are as successful as their first. Another reason I am drawn to this company is because it is operating in Thailand, a country that could have a significant amount of exploration and production in the future, despite its current state of political turmoil. Most large globals are already exploring there, including: Exxon, Shell, and Chevron. Because of Thailand’s location and their growing economy, I think oil will become a bigger part of their success story. The problem however, lies with their falling production rates. In fact, some have estimated that Thailand’s oil production will be close to zero within a few years, according the EIA. Coastal has experienced some loss in production however, this has come from water inflows into one of its wells, not from drier drilling results. This has led state owned PTT to invest heavily into natural gas production. This is a concern for me, as the success for this company relies solely on their ability to grow production rapidly. If these wells are not going to produce as expected (and lets me remind you, expectations are pretty high), this could dramatically affect the share price. Due to the speculation surrounding the future production of this company, it is currently receiving some pretty low valuations from the market place. Here is a summary of a few of those:

Low Valuations:

• Forward P/E 4 X –Since this is a forward multiple, it is obviously heavily dependent on whether or not their wells are as successful as they hope they will be, since these forward earnings are expecting huge growth in their production, so perhaps this metric has little meaning as the market is waiting to see if the company can actually execute.
• For what its worth, it Trades at a significant discount to the NAV of their 2P reserves: According to several analyst and the company, the NAV of their 2P reserves is somewhere in the neighborhood of C$5.60.
• From a EV/flowing barrel metric, the company is extremely cheap relative to its competitors. Currently the company is being valued at roughly $41,285 per flowing barrel, while Schaefer estimates the peer average to be $71,000.

In my opinion, there is only one thing that matters when considering a position in this stock, and it has to do with the company’s ability to expand production and meet production expectations, which is obviously leading to these lower relative valuations. Judging from the action lately, it seems as though the market is losing its confidence in the company’s ability to do this, following the closing of one of their wells and missing expectations in their Songkhla field. This dynamic makes the stock increasingly risky, as the expectations are pretty high. However, I do think that if they are able to execute on their next drilling project which seems to be their Ban Ban field, this stock could be a double from here easily. The Ban Ban project has 5 prospective wells, with the potential to add several thousand boepd, which would be a huge boost to production. The wells are expected to come on stream in June 2010. This will perhaps be the next big catalyst for the stock. In my opinion, despite what happens, the results of their Ban Ban drilling, could potentially be a catalyst regardless the results. If they are good the stock will pop, however if they are bad it might provide us with a great entry point for stock (the market is currently partly pricing this thing for disaster). In addition to the recent difficulties that the company has had in its drilling business, I am also concerned with the management of this company. While historically they have been able to grow production successfully, they have had some technical difficulties with water inflows and have been forced to shut down some of their wells. Also, while it is debatable, I still don’t like to see a company that seems to pay out its management at the expense of the shareholders. What I am referring to is their $19.5 million general and administrative expense, which was roughly 25% of revenues. $5.83 million was in warrants granted to the executives.This just seems a little excessive to me, especially considering the recent problems the company has had.

While this company definitely has an inherent amount risk involved with it, the stock has been beaten down over the year, down over 25%. In fact, in my opinion the market is already pricing in a significant amount of future production problems. This is obvious given the 4X earnings multiple (keep in mind this is a forward multiple), for a junior mining company that has shown they are able to grow both their production and reserves at very high rates. This makes me more inclined to consider a position here, as I think the stock is currently priced (at least partly) for much lower production growth from its key assets. While this could be a good entry point, I think the play here is to remain on the sidelines and wait for this one to play out more, especially given the current economic environment and their most recent drilling problems. Perhaps after their next press release we can re-evaluate the future of this company based on how they are able to execute the Ban Ban drilling projects and better evaluate the managements technical ability. I will remain on the sideline with this one for now, given just too much uncertainty regarding this company.

I need to check out (TRIT) Tri-Tech Holdings

I need to look at this one again when I have some time. I day traded this stock last year when it had its IPO back in late 2009. It turned out to be a pretty awesome trade. Since then I haven’t really gone back to it but it has pulled back quite a bit (as have GDW and RINO). While the foreign water treatment industry seems to be in the tanker after China and other nations have cut stimulus packages, I still think their is a healthy demand for those products, especially in regions where water is very unsanatary (Brazil, China, India, Indonesia). Piper Jaffray has a price target of $20 on this stock, which seems reasonable. It is currently trading at 14X earnings, which is arguably small for a company that is growing revenues rapidly. Many companies of similar nature have had 20X multiples. I think the real question to answer, it are they going to be able to continue growth at these rates. Many seem to think this will not be the case, thus it is critical to be able to answer this. None-the-less I am still interested in this name.

SNVFF Purchase @ $.15

SNV.cn Sonic Technology…Is this something that could actually work?

Recently, I have been interested in companies that are developing newer and more efficient technologies within the oil and gas industry. I feel that there is currently a technological revolution going on within the oil and gas industries as companies scramble to increase operating efficiency and well production. Sonic fits nicely into this category. The company is currently developing sonic technology that will (*hopefully) be able to separate light and heavy crude oils. By separating the heavier particles, companies would be left with lighter and much more profitable oil, increasing their profits. While the concept sounds extremely compelling, there are two main questions that I have. The first, is whether or not this technology could actually work. Unlike Wavefront (who I previously have written about), Sonic does not actually have a product out there selling in the marketplace. In fact, the company has no revenues to date. The company is currently testing their product through a joint venture in Albania. Their Albanian partners have agreed to fund the $1 million in start-up costs along with a refining facility where the product will be tested. They chose Albania because they have some of the heaviest crude contents of anywhere in the world, so the location makes sense. I actually view this as a positive because they will be gaining exposure in the middle east, where the company could enjoy some huge success assuming the product works. The second concern that I have is regarding the capacity of this technology. From what I have read so far, their Sonicpetro product has a relatively small refining capacity…something around 1,000 bpd (this is just an approximation and I have yet to confirm this). I was rather hoping that this technology could be adapted to larger global production and thus be targeted by larger global companies who are more willing to spend money for newer technologies. Regardless of their customers, Sonic could be a multi bagger from here just based on positive product testing results, without even making a sale. From there, depending on the technologies usefulness within the industry (which sounds like it could be a lot), the upside potential for this one is very very high. Thus, I think the risk (though it is large is capped on the downside to $.15) reward relationship here worth taking. With the addition of Richard Wadsworth, I think the chances are good that this company will succeed in developing, marketing, and ultmately selling their product. Richard has a lot of experience in the oil industry specifically in areas surrounding heavy oil. He was previously an executive at Bankers Petroleum and brings with him a lot of industry experience and respect amongst his peers.

For such a new and small company, Sonic really does have a lot going for it. In addition to their petrosonic product, they are also involved in a number of joint ventures with some very large and successful companies. This is always a positive sign for a small company like SNV. They are currently involved in creating an ash catching product for the cement and steel industry to help reduce toxic ashes released during the process. This is a joint venture in which they are being funded by Nalco. I really like Nalco as a company and wish I would have bought some shares when I wrote about it HERE. They are one of the global leaders in water treatment technologies and have a solid and diversified product portfolio and geographic dispersion. The fact that a company like Nalco is involved with Sonic is really a positive for me. They also have a joint venture in the Canadian oilsands with Shell, which for obvious reasons is another very positive thing.

Investing in this company is all about looking at the global macro environment, assessing the likelihood of this technology being adapted, whether or not the product is economical to be used, and accepting the fact that this stock could be worthless. That is why I am treating this as a call option on Sonic’s technology. Look for news on the company’s product testing results later this year. Any positive press releases could easily pop this stock above a dollar.

RIG Sale @ $88.50

I decided to just get out of my rig trade for a pretty decent 30% gain. I actually really like RIG and think it is a great long term play….which is why I would like to get back into it at a more attractive level. I sold because the market has been on a pretty solid run here and RIG seems due for a pullback in to the lower 80s. The headlines are not very good either, with their RIG that just exploded in the Gulf….and killed 11 people. I like oil but I think it could be the first thing to pullback if the market decides to give a little correction here. I am also more interested in holding a oil production company like a ATPG or PBN, CLR….I think that a play on production growth could very likely gain more on favorable oil swings. If RIG were to fall to the low $80s…say $82 and change I will enter this one again.

A little Update

I am currently working on a write up for Sonic Technology (SNV.cn) which is another company like Wavefront that I am very interested in. Like wavefront, SNV is junior company that is working on technology that can increase profits for oil and gas companies. The stock is up over 6% and has been on a bit of a roll here…I am trying not to miss this one. Unlike WFTSF who actually have a working product and collect revenues, SNV is much more speculative and are still working on actually testing their product which supposedly can turn heavy oil into light oil through the use of its patented sonic technology. There will be a post soon on this one.

I am also revisiting my QUIK post that I did a while back. Since my write up the stock is up pretty big. I am increasingly being drawn to this one as I think they are coming up with some really awesome technologies surrounding the mobile device industry. HERE is a link to my previous write up…I am now debating on whether to pick up some shares….hard at these prices.

Current Portfolio Holdings 04/13/2010

I thought just in case anyone (pops) was interested in or wanted to track what I was currently holding, I will provide my portfolio holdings and update it when changes are made. Here is the current holdings followed by their respective ticker symbols as of 04/13/2010: Click on the holding to see the thesis for each buy.

Transocean (RIG)*

Bank of America (BAC)*

Sprott Resources (SCPZF)

Gold Miners ETF (GDX)

Arena Pharmaceuticals (ARNA)

Timberline Resources (TLR)

Nokia (NOK)

Wavefront Technology (WFTSF)

Recent Liquidations:

Chesapeake Energy (CHK)

Market Vectors Gold Miner’s Index (GDX)

Rino International (RINO)

EzChip (EZCH)

Tri-Tech Holdings (TRIT)

West Port Innovations (WPRT)

Activision Blizzard (ATVI)

Market Vectos 2X Ultra Short the S&P (SDS) – This was pretty much a day trade to hedge

* Means that I do not have a post for these because I purchased them before the creation of this blog

WEE.cn Buy @ $2.57

I decided to go for this one and might have chased it a bit. The fact is, I am very worried about their ability to turn contract agreement into actual sales in a timely fashion. None the less I decided to take a shot here because I think there could be some more news out soon possibly announcing a new contract. I did however, only purchase half of the position in case the stock drifts down (as it has done in the past few weeks). I think this company could be a great story. Read my write up on why I like this company HERE