Connacher (CLL)

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Connacher (CLL)

Post  Max on Wed Nov 17, 2010 11:11 am

Also bought a little Connacher this morning, since it is getting back within historically cheap price range. Need a fresh analysis to assess the risk for this company, which I will provide later.

I have a feeling we are heading for serious overall market correction so why I am buying this stuff so early in the decline is a mystery. Lets just say that I am wrong a lot, so I like to hedge my bets.

Max
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Re: Connacher (CLL)

Post  Fred on Wed Nov 17, 2010 11:28 am

I've been in CLL for a while and am begining to be impatient. They need to prove themselves with a new kind of progress - $$$! Other than finalizing the existing facilities production rates and expanding on their reserves this one is highly dependant on the price of oil. With the dilution it has had in the past it might take a bit more to move it. I'd appreciate the analysis that you come up with.

I also decided to start stepping in to the market early in the correction. I bought 400 shares of TX yesterday (16th) at $33.40. Waiting for the final payment from Chaves for the take-over of Sidor... should be within the next 3-4 weeks and I predict $36-38.

Fred
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Re: Connacher (CLL)

Post  Max on Thu Nov 18, 2010 1:36 am

$0.10 cash per share. Book value of $0.58 (conservative estimate of $1.4B property took of $0.4B)

$1B in debt roughly same value as conservative estimate of Assets. Assets certainly not liquid, so may have some risk of meeting short term liabilities. Especially considering their accounts receivable and inventory are so low (approx $100M). I see a share issuance in their short term future (they cant add more debt easily).

Are they producing a profit at least.... No. The seem to be on the brink of breaking even.

It is a little bit alarming to me the interest rates they are paying on their debt. bulk of it is at 11% locked in until 2015. How is this even possible in the current interest environment. Very risky. It also sounds like they are hiding some of the effect of the interest costs by capitalizing it. This means that as they pay the cash cost of interest, they actually add to their assets at the same time. Then they expense the interest costs over time through depreciation. This causes the income statement to be higher than it would if they included the interest costs.

Bulk of option exercise prices are at or above $1.20, so there is significant motivation to get the stock above that price. No expiry any time soon, so there is no hurry.

Pretty heavy exposure to currency. They are selling a lot to the US. A $0.01 change in the CAD USD exchange rate would result in a $7M change in net income. That is pretty risky as well.

In all of this, where is the good news? I just dont see anything to make me like this stock. I need convincing that the turning point is just around the corner and they will be able to monetize whatever potential they are sitting on, because right now, they are pushing things pretty close to the limit and bankruptcy cannot be ruled out.

I am considering admiting I made a mistake and dumping my small purchase from this morning. Its hard to sell when you know it is so close to the bottom already, but I think it can go lower, and I have concerns over financing. I am actually up 2-3% on it today, so I might clear a nice $10 profit if it holds at that price.

Max
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Re: Connacher (CLL)

Post  Max on Thu Nov 18, 2010 10:55 am

Dumped it this morning

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Re: Connacher (CLL)

Post  Fred on Thu Nov 18, 2010 11:23 am

I don't see bankruptcy in their future, but I couldn't agree more with your analysis.

I'm going to hold because it's already near the bottom and I don't want to sell for a loss. Also holding because new resource estimates will undoubtedly cause a rise. Maybe they could be timed with the official production commencement of Algar.

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Re: Connacher (CLL)

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