TUSCANY DRILLING – TID-TSX
Today I am putting 25000 shares of Tuscany Drilling into the OGIB portfolio at
$1.11. This company is just over a year old, and is focused on drilling in Latin
America, where they say drilling rates/profit margins are higher.
The company has aggressively expanded in the last year, and raised lots of
equity recently at $1.40 and $1.53 to pay for acquisitions. There is now 266
million shares out, which is one big reason why the stock has tanked down to this
range.
Yesterday the company released its Q1 earnings, which showed better cash flow
(EBITDA) than the market was expecting, and to me represents a turnaround on
the corporate activity. The company stumbled in earlier this year in getting rigs
into countries and operating, and then they decided to purchase a large Brazilian
drilling company (they now own 20% of the drills in Brazil).
The stock was trading at $2, but after seeing one stumble, the market was not
about to finance the company at that valuation – so it got done at $1.53. The
stock immediately traded underwater and the underwriters had to scramble to get
the financing done. Without a strong aftermarket in a soft market the stock
drifted lower and actually spiked lower on the Q1 news – my opportunity.
The stock chart is against me here (big downtrend) but it does look like a double
bottom. The Fibonacci’s say it could bottom out at 97 cents.
The company has 17 rigs, only 12 of which were contributing revenue to this
quarter. Two more are being built. Gross margin was a healthy 35%. The rig
fleet is new, which is a positive. Tuscany is basically still a start up company.
But it has some critical mass, a geographic focus, and is cashed up.
Management owns a good piece of the company. Also, at this price, I’m one of
the cheapest cost bases in the stock and yesterday’s quarterly tells me the
company is getting over its start-up/growing pains.
They also have $67 million in debt and say they can increase their line to $120
million.
I’m always looking for 50% – 100% gains in 9 -12 months and I think Tuscany can
do this for me. That puts the stock at $1.65 – barely above the recent financing
prices. Several brokerage firms cover the stock – the larger national bank owned
firms have low targets of $1.50 while the more junior firms have targets ranging
up to $2.50.
And because I am a retail investor with only so much money, I have to sell
something to pay for all this.
So this morning I sold the rest of my Sterling
Resources at $1.81
– which had a cost base of $3. I do intend to keep following
Sterling and revisit the story this fall. I am also giving notice I will likely sell part
(realistically most) of my
Primary Petroleum (PIE-TSXv)
in the coming week. I
am still a big believer in the Alberta Bakken, but Primary is just drilling vertical
holes this fall (DSTs – Drill Stem Tests) and no horizontals until 2012. I don’t
expect Rosetta or Newfield to announce results until later this year (though
Rosetta will be under more pressure than Newfield to release early). Nothing is
negative with the story, it’s just a timing and cash management issue. I do
expect to buy this stock back in the fall. I own both DeeThree and Bowood for
Alberta Bakken exposure.
This stock has done wonders for me. I bought Primary on a financing at 8 cents –
but subscribers couldn’t buy it under 16 cents. But the stock traded great volume
in the 70s, 80s and 90 cent range – a huge winner! And as per my rule, I give
advance notice of my selling on stocks that I can get below market. Today is that
notice.
Iona Energy
will be coming to trade in the next few days, symbol INA. Again, I
bought this stock in a different (more buoyant) junior market. I expect the stock
to trade under its 60 cent issue price, and I am not a buyer of the stock in the
market at this time. It does have 350 boe/d production which management says
gives about $300,000 a month in cash flow. I’ll have a more detailed report in the
works very quickly.
Border Petroleum
(BOR-TSXv) has told me they expect to have their website
up and live by next week. I am hoping the market will have a positive reaction
when they can see exactly where their 25 sections of Slave Point formation at
Red Earth is. I’m also seeing some very positive trading – blocks of stock going
through above 40 cents, then it traded half a million shares in the 35-40 cent
range. The 25 cent financing came free trading yesterday, June 6. So I’ll wait to
see what happens next week.
In overall market comments, I would just say that I love the sense of doom out
there right now. I feel it too – I look at my portfolio and wish I was in more cash,
had sold more…but I still say we are not going to see a collapse in equity values
or oil prices. While oil fundamentals dictate it should be $10-$15 barrels lower,
and OPEC is going to try to help it get there by increasing more production, I
don’t see oil going much lower. There is very little spare capacity in the world.
But that doesn’t mean investors won’t continue to leave the junior stocks – the
explorers and the junior producers.
I’m very content with my strategy of moving into energy services as this
consolidation in the charts of the producers continues.
More coming in the bi-weekly wrap – Golar, Lynden and more. It was wonderful
