Birds of a feather, let us flock together, share your portfolio ideas

suhm said:

lol the benefits of trading being your primary job.

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That's why trading is a competition. There were not many shares on offer at 37c.

Now I better go actually read up on MXI's financials.

More of a cigarette butt but was looking for mid 50s for an exit

Update on positions.

Not much has changed since my last update 2 months ago, have only added MXI, one should have bought is TRF, up 50% on announcement that IFE's iron ore project was getting up but is an asset play based on an iron ore project which is not yet producing. I don't really like the iron ore field long term and prefer things that are in production. BAU also looking good asset wise given trading at half cash backing but is in the bauxite business which I don't like. They should just sell off the licenses and give back the money for a 100% gain but then who is going to pay their wages. Problem I have found with asset plays is unless they get taken over management just keeps wasting money until the value of the company meets its price.

Still thinking the market should have another leg down as there has been no resolution to the US and EU debt issues and I don't think they can muddle along like Japan has for more than a decade.

I only make real money from about 20% of my trades so I am often wrong or only partially correct.

Current positions.

BTA- Having a nice uptick. Consistent buying by East Hill supporting the share price. Had been hoping to pick up some in feb or early march after recycling my drx/drxo money before phase2b results were out in the 70s but it is back up in the 80s. Hopefully there is a down tick in the market so I can pick up a few more of these but the chart is looking healthier.

BSA- Still plodding along celeste fund management is <5% now but should still have stock to sell from 9.52%

DRA- Its expansion gold project in Kussamo is starting to look a bit shakier approval wise due to extra possibly radioactive mineralisation, company doesn't seem to concerned but should return to having good margins soon as has been expensing stripping costs rather than capitalising them.

DRX/DRXO- Seriously disappointed with these guys, PFS not due out now until feb 2012, with BFS by end of 2012, timeline is pushing out and BaoTi still have not come to the party. Management's commentary is still positive, will await the BFS results.

EXS- Played this one all wrong, drill results unremarkable and has tanked post distribution of money. Is self sustaining in its drill program after royalties and has decent territory and a quite high grade deposit so will hold for the moment and after the distribution is not that large a position.

HOG - Disappointment here again, have very poor form in the oil and gas industry. Had thought that energy was the place to be going forward. The oil layer was wet so they decided to push onto b24/25 to look for gas, previous flow rates have been low in the surrounding area. Trading at less than NPV of its sorochynchka production so will continue to hold

IDM - Waiting for production and revenue numbers, cash was getting low, they have just got another 1m USD with their major shareholders Macquarie and Sentinet cashing in some ITM options. They expire April 2014 so I suspect management were being prudent by asking for some extra support until they became cashflow positive.

MXI - Hasn't gone anywhere since its profit upgrade. Will look to see how sustainable it is or if revenue and profitably can increase.

ROS- Waiting to take my cap loss still, management probably shopping around the corporate shell company to see if anyone wants it.

TAP- Poor for in oil and gas continues here 2 for 2 in 2011 drill wise and still lost money, here is hoping for more success in WA-351P with BHP drilling soon so that the share price can go down further. Waiting for resolution of all the legal action and is probably what is keeping the sp down. Apache looks like it will win the Burrup bid which would see gas prices increase from $1-$5 so would increase profitability of the HJV markedly.

UOS - Cash backing has decreased post the distribution. NPAT this year should be around 100-120m AUSD given guidance by the company. I don't know how much of this will relate to property revaluations or to its rental book so will need to wait for the report. Market cap is 400m, should have 240m in cash left and 480m investment property, 190m inventory with 130m debt from their last half yearly, not sure how their REIT investment is accounted for as they own 2/3 of it still and investment in assoiciate is only 5.7m given they sold 1/3 of it for 330m AUSD.

Back of the envolope gives 240+480+190-130 = 780m vs market 400m, will probably buy more when annual report comes out. Again managment is dodgy here, it looks like a shell holding company with a buyback and simultaneous DRP at 5% discount to VWAP. Sounds sill ay but management participates in the DRP and have a very large percentage of the shareholding so issue about 20m shares a year mostly to themselves and buy back 5m a year using the companies money. They put Kerry Stokes to shame. They should reach 90% soon and be able to mop up shareholders soon, especially if they use their capital return money to do so and hopefully if it does happen it will be somewhere closer to NTA.

New position GUN in at 0.191

Announced yesterday that it had signed an agreement for the plans of a natural gas pipeline to its mineral sands deposit in regards to design, construction and costings. Other updates included with regards to early stage work for development of the deposit.

I am a fan of the zircon space due to the large rise in cost and because it has been exponential there has been very few projects that are ready to go live. GUN was basically the only mineral deposit left unfunded after MDL solved its funding problem.

Is in talks with an East asian company farming into the project (40% stake is what was mooted previously) and paying a promote (valuing the project at more than GUN's current market cap). Debt funding is supposed to cover half of the capital cost 180m and between the promote and the debt funding the subsequent capital raising is supposed to be small and doable.

Feburary is supposed to be the deadline for the term sheet to be made binding. Still a risk that they don't come to the party like BaoTi has done to me in DRX but GUN has already done a DFS and with ILU saying they can't supply their current customers with all the zircon they require and very little new supply or product replacement.

Has a tenament near olympic dam which has found some copper deposits. Some small ones they are trying to offload for a profit share to smaller operators and Xstrata has farmed in earning 75% for 10m worth of exploration about a 1/3 of that has been spent to date, no hits that are that exciting at present. Previously they were more interested in this when the copper price was higher and zircon price much lower.

Cash is minimal about 2m but so is cash burn, they have basically been in a holding pattern for a year waiting for someone to fund the project with a promote and not take a large equity position in the company. Minimal amount of options on issue all at higher strike prices.

Probably needs to go 21c to look better technically.

Exited DRX in at .115 out at 0.091.

DRXO looks like a better bet than DRX at current price. Timeline is slipping with PFS not yet completed and with exposure to GUN as well now have a fairly heavy weighting towards mineral sands.

Themes for 2012.

Had previously thought that energy would be the place to be given onset of peak oil but with tight gas and coal seam gas coming onstream and increasing efficency energy constraints might not be that great. I also have a shocking record in my oil and gas industry investments and probably should stay well away. I will look to unload positions in the future and new investments will have a much higher barrier to entry.

Junior mineral sand plays and zircon replacement. Illuka was a strong performer and there is little new zircon and associated mineral sand deposits coming on stream, I like the economics of this field and is reflected in the stocks I currently hold.

Biotech- This is an area of competence for me and probably where I have had the greatest success other than obvious low pe, high roe, high sustainable growth companies but they have been few and far between. There has been a decade long biotech slump and with australian biotech companies typically floated early in their development they are only starting to reach their value inflection points. I.e. bringing products to market.

suhm said:

Biotech- This is an area of competence for me and probably where I have had the greatest success other than obvious low pe, high roe, high sustainable growth companies but they have been few and far between. There has been a decade long biotech slump and with australian biotech companies typically floated early in their development they are only starting to reach their value inflection points. I.e. bringing products to market.

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Have u looked at QRX and its recent deal?

I have looked at it previously but decided against it. Seems like a pretty large market cap for what it has. It is pretty close to market and got a pretty good licensing deal from actavis. The product itself i'm not to sure about. Practice might be different in the EU and US but in Australia we generally don't give combination opiods. Morphine and oxycodone are different molecules but both are opiod derivatives.

It would require a change of practice for clinicians to prescribe the moxduo and since they can do this currently and don't it seemed like a poor proposition.

Again the US and EU markets are bigger so it is their clinical practice which is more important than what happens in Australia.

Their pricing.
Initial price: $112 based on 4 doses per day and 14 days of therapy

(its morphine and oxycodone and oxycodone is off patent I think) (PBS cost $42 + $46 = $88 so is definitely more expensive for equivalent seperate pills) This isn't even the cost of it to the government should be less and a person shouldn't be taking regular breakthrough analgesia you should increase their background analgesia to adjust for the amount of breakthrough analgesia they take.

Oxycontin isn't off patent until 2013 after which QRX wants to do a CR version of the tablet.

I also get stuff in biotech wrong, with acrux i thought it wouldn't get up because the market for testorone replacement would be to small and with mesoblast I thought the treatments would be to expensive to be a commercial proposition in hindsight being expensive was probably a good thing not a bad thing.

So in a nutshell it all depends on whether they can get clinicians to prescribe this stuff. I doubt it as 1) we don't do it now, 2) If we did do it we can do it cheaper by ordering the pills seperately.

There are a lot of combination pills available but usually it combines a patented medication with a non-patented medication so that the convience factor causes you to choose the patented medication over a variation of the patented medication. I.e. anti hypertensives with the ace inhibitors and arbs all combined with HCT.

suhm said:

I have looked at it previously but decided against it.

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Thanks. Way too technical / medical for my puny brain, however. Having no knowledge in biotechs I tend to just trade the charts. And QRX needs a decisive move above $1.60-$1.70 before it reaches some clear skies imo.

Yes I agree with Skc. I have trouble understanding what is going on with the technical / medical side with Biotech Companies.

I like the story being told, but as an investment - alot of them still seem like they are years away from making money.

There has been one stock that has grabbed my attention lately and thats Avita Medical Ltd (AVH).
Seems like they have been getting some air play in the USA and UK, and are finally now starting to make money.
Could I get your opinion on this one if you know anything about it.


Thanks

avh and its previous reincarnations always get good air play because its founder has got a good public profile but has burnt through millions of investors money.

The problem with aussie biotech is that they are listed to early and undercapitalised

FYI its Dr Fiona Wood for AVH who was Australian of the year but no one seems to want to use the tech, it has also been around for quite awhile now and approved for marketing, they are trying it now for chronic ulcers and anything that helps to heal those quicker would be great as they are very costly to manage. So again it needs to sell

Biotech companies I will back if I think their product is good and will sell and a close to a point where value will increase. Others I will buy if they are selling well and and are undervalued. The second type of biotech share are few and far between and the only specialised knowledge you need for that type is to know when patent ends.

To add to the disclosure about my errors in biotech is BTA which at a point was my largest position by a country mile with the net result that the price halved, and I offloaded most of my position on the way down.

Thanks for your reply.
I too have learnt a few expensive lessons in the past by getting sold on the story and not doing enough research on the financials.

The problem with aussie biotech is that they are listed to early and undercapitalised

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- Could not agree more.

suhm said:

To add to the disclosure about my errors in biotech is BTA which at a point was my largest position by a country mile with the net result that the price halved, and I offloaded most of my position on the way down.

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Well I have the honour of buying ACL and printing its 12-month high last year. Luckily I had a price stop so not a lot of harm done, and I kept a small parcel to make it back in the recent SPP.

Re: AVH. Not sure I can add a great deal apart from saying that the increasing sales is a positive sign while decent cash at bank alleviates capital raising risks to some extent (real genious I know )... really don't know much about the product or the market, however.

Tried to get a position in a biotech share but spitting chips as was in meetings and the stock got bid up taking out the meagre amount of volume available and there is very little sell depth left and is also out of my buy zone now. Had been contemplating bidding it up more but with the lack of volume on offer I would cause it to gap up more than it already has.

New position AZG in at 0.145, new contract win worth 10m pa approx 1/3 of what their previous revenue was. Management confident of their forecasts and recently purchased the remaining half of a subsidiary for an NPAT of just over 1 issuing shares at 0.20.

The accounts for them are all a bit strange. There is a deferred bonus pool which I am not sure how they are going to account for starting FY2013. Cashflow is abysmmal but they have extra funding for the moment and were forecasting NPAT of 16.5m before the acquisition, not bad for a current market cap of 38m.

NPAT should go down in further financial years as the bonus pool kicks in 6-10m pa for npat of 9.5m-15.5m respectively and as $7.8m of stock is issued as a delayed earn out for an acquisition.

Incidentally got offered stock in WRG at 6c by my broker, looks like pump and dump detritus to me though and they aren't raising enough money to get rid of their cashflow woes.

suhm said:

Tried to get a position in a biotech share but spitting chips as was in meetings and the stock got bid up taking out the meagre amount of volume available and there is very little sell depth left and is also out of my buy zone now. Had been contemplating bidding it up more but with the lack of volume on offer I would cause it to gap up more than it already has.

New position AZG in at 0.145, new contract win worth 10m pa approx 1/3 of what their previous revenue was. Management confident of their forecasts and recently purchased the remaining half of a subsidiary for an NPAT of just over 1 issuing shares at 0.20.

The accounts for them are all a bit strange. There is a deferred bonus pool which I am not sure how they are going to account for starting FY2013. Cashflow is abysmmal but they have extra funding for the moment and were forecasting NPAT of 16.5m before the acquisition, not bad for a current market cap of 38m.

NPAT should go down in further financial years as the bonus pool kicks in 6-10m pa for npat of 9.5m-15.5m respectively and as $7.8m of stock is issued as a delayed earn out for an acquisition.

Incidentally got offered stock in WRG at 6c by my broker, looks like pump and dump detritus to me though and they aren't raising enough money to get rid of their cashflow woes.

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Reasonably sure that the massive bonus pool will be paid as shares via 5day VWAP to close of the financial year. The problem with NPAT target is obvious... management can just go and acquire business at a high price without due regards to EPS. Although this doesn't seem to be happening based on past acquisitions.

On back of envelop calcs and my interpretation of this bonus pool issue...(current shares outstanding ~276.3m)
At NPAT $9.5m bonus pool is $17.8m. They can issue 89m shares @ ~20c, bring total shares to 365m. If you take PE 8x on $9.5m you get market cap of $76m, which is ~20.5cps.

At NPAT $15.5m bonus pool is $30.8m (which truely sounds ridiculus for a company with market cap ~$38m). This needs ~102.7m shares @ ~30c. Total shares will be ~379m. PE 8x on $15.5 = ~33c.

So the dilution is pretty significant, but the share price should still rise from current levels if those forecasts are hit.

Note that those bonus shares are in fact dished out over 3 years so there's a bit of time value benefit to the above calcs that I've ignored.

Out of HOG completely, techinically looks poor and from a TA standpoint should have exited long ago. In at 0.30 out at 0.176

Still think it is cheap on the basis of it SOR-1 well but has needed to keep increasing the choke size to maintain flow rates which means pressure would be decreasing. SOR 2 will also only reach TD in a 6 months or so.

Report out today looked to me like the chets drill is a duster, b20 zone was water logged and b24/25 from the commentary didn't seem like it would be particularly productive. Basing this solely on this 'Wireline logging operations commenced on 14th January with the gamma ray, sonic and electric log suite. Logging should be complete within the week, and a decision on testing will be taken following analysis and interpretation of the entire suite.'

Release on Monday Aug 23, 2010 when SOR-1 hit the pay zone August 21, 2010 on a saturday was that gas had been encountered and that they would commence flow testing later that week, they then released that they were flow testing Aug 24, 2010.

I will feel stupid for having waited this long if I am wrong though and will not be able to rectify it as I have already redeployed the capital.

Increased position BTA in at 0.825. East Hill seems to have taken out most of the people who want to sell. Chart now trending upwards. Cochrane review out during Thursday market reviewing the use of neurominadase inhibitors in flu.

There have been resistance and side effect issues with Tamiflu and the previous Cochrane review questioned the efficacy of Tamiflu but there was a vigorous response from Roche.

THe report could question the use of all current neurominadase inhibitors so could hit sales of relenza but biota hasn't been getting much in the way of royalites from that recently anyway and would incrase the value of LANI its second generation flu treatment.

BTA 798 results, biota's treatment for rhinoviruses half the causes of the common cold are also due out in the next few months so I am mostly set again with my position in biota. Previous molecules had efficacy but toxicity issues, this molecule is more active and has not had toxicity issues so should bode well for a good clinical result. Hopefully they would be able to get a good licensing deal for this as a few biotechs have achieved recently.

note the market seems to disagree with me about the release from HOG, volume was light and hence why I am questioning whether my interpretation of the release was correct.

Exited dra in at 0.98 out at 1.16 announced a cap raise of 15m to fund exploration of their kuuasamo deposit. I had expected to fund this from operational cashflow and cash at bank. Diasappointed again.
BTA 0.815 more bought as they have finished their p2b trial for the common cold. I expect them to license this out and have a positive result. They spent 20m for the trial plus previous expenditure. They would need a big pharma partner who could get doctors to prescribe this off label as they are testing this on asthmatics as it would bankrupt the health system if it was funded for everyone. It is currently a 12bn market for all the various alternative therapy and symptom controllers so should have the potential to be a blockbuster drug and is a lot more common then the flu. Lani also seems to have a 50% market share in Japan atm not sure if other antivirals are coming out of the stockpile instead with sales of relenza slow as usual. Backing the science and chairman here sold vision systems to the Americans for nearly 6 times what the Australian market was valuing it at prior to his liquidation processs and has said that biota future is outside Australia as well. They have engaged piper jaffray for a year now analyzing this on a fee for service basis so am expecting news flow soon

Mid reporting season update.

MXI in at 0.39 out at .47 decent results but not a preferred sector for me.

BSA in at 0.20 out at .255 again a decent results but not a preferred sector, didn't see it as a long term hold may re enter on weakness

DTQ in at 0.135 out at 0.139 I still hold, poor results out today at the 4month mark unaudited results showed NPBT of 2.5m this became 1.7m at the half year due to a bad 'six weeks' according to management. Didn't seem to effect BLY or ASL but will take management at their word. Have kept it in the portfolio as annualised PE is <7 they have bought new rigs for the coal seam gas which are being delivered soon which should add further revenue.

DRXO in at 0.03 out at 0.0155. Timelines are getting pushed out further and further and I see the deal with Baoti now probably only going to fund the DFS rather than taking a large equity chunk of the project or company so an option on future production rather than full fledge co-operation.

EXS in at 0.70 out at 0.20. This includes a 28cent fully franked dividend and 10c capital return. Drill results have not been that great thus far and generally do not like exploratoin plays. White dam ore has run out and are now moving to the vertigo deposit. EV is quite low though as they have about 16c cash, a gold mine and a copper royalty so including NPV of these the EV is probably 0.

suhm said:

DTQ in at 0.135 out at 0.139 I still hold, poor results out today at the 4month mark unaudited results showed NPBT of 2.5m this became 1.7m at the half year due to a bad 'six weeks' according to management. Didn't seem to effect BLY or ASL but will take management at their word. Have kept it in the portfolio as annualised PE is <7 they have bought new rigs for the coal seam gas which are being delivered soon which should add further revenue.

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Yes very disappointing esp after ASL and BLY's report + the positive price movement earlier in the day. I took the guidance and extrapolated full year EPS to be ~4-4.5c, putting them some where like PE ~3-3.5 at 13.5c. Instead I can now only assume conservatively a full year EPS of ~2c which is still cheap, as you said, but not the sort of upside I was hoping for.

Still a good reward / risk considering the facts available until today. If they hit the guidance they could easily shoot up 30-40% in a day.