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Silicom Ltd. Message Board

bobby2loaves 120 posts  |  Last Activity: Feb 4, 2016 12:18 PM Member since: Apr 19, 2008
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  • bobby2loaves bobby2loaves Feb 4, 2016 12:18 PM Flag

    Not really. I know you understand the industry better than me. I have a feeling you are going to tell me things are going to be harder, not easier, even with these curtailments. Care to teach the less savvy among us?

  • Looks like MOS is getting on board with the program.........

    PLYMOUTH, Minn., Feb. 3, 2016 /PRNewswire/ -- In response to current crop nutrient market conditions, The Mosaic Company (MOS) announced today the Company will reduce production in its Phosphates business. The Company intends to reduce production by up to 400,000 tonnes with rotating plant shutdowns in the first quarter of 2016.

    "With the recent price volatility and decline in raw material costs, buyers appear to be delaying purchases. This is lengthening the seasonal period of weak demand," said Rick McLellan, Senior Vice President, Commercial. "Today's crop nutrient prices, including phosphates, are attractive to farmers globally and we expect a strong demand response after this seasonally slow period."

    "The long-term positive outlook for phosphates has not changed, but we are adjusting our production levels to match immediate demand and manage our margins," said Joc O'Rourke, President and Chief Executive Officer.

  • Reply to

    Man. This Board is Quiet.

    by bobby2loaves Feb 2, 2016 3:51 PM
    bobby2loaves bobby2loaves Feb 3, 2016 8:16 AM Flag

    Thanks for signing up on my account. Looks like another good quarter where book value went nowhere. Seems like it's always something that wipes out net income - - energy losses, currency devaluation, assets that can't be marked to market.......

    I guess at some point those go in reverse, or at least stabilize, and we get to see the profit flow through to book value.

    Sounds like it's a tough environment out there. But as always, WRB is hopeful with the ACE/CB merger and AIG breakup. Also sounds like they will eventually re-structure their tax domain, if all else fails. I could easily see them going to a 15-20% ROE if everything falls into place.

    Until then, I suppose the stock is relatively cheap here at $49 and 1.32x book. I guess we hope to plod along with 15% annual gains until the next hard market comes, hopefully while I'm still alive.

  • bobby2loaves by bobby2loaves Feb 2, 2016 3:51 PM Flag

    In the past 3 months, this board has had 7 posts, including 4 spam posts, and 2 obscure topics by yours truly.

    Yawn.

    Well, quarterly results come out today. Wonder if WRB book value will finally leave the $36-$38 range after being there for what seems like an eternity.

    Owning this stock feels like driving home from Florida in one day - - except for the past 18 months.

  • Reply to

    Bonds

    by ferdinando_cortese Feb 2, 2016 10:11 AM
    bobby2loaves bobby2loaves Feb 2, 2016 3:40 PM Flag

    Mail everyone a check for $5,000 and see what happens. George Bush sent everyone $300-$600 back in 2001. Probably time for another such flood.

  • Reply to

    Bonds

    by ferdinando_cortese Feb 2, 2016 10:11 AM
    bobby2loaves bobby2loaves Feb 2, 2016 12:20 PM Flag

    Here's how I see it, Ferdinando.

    The debt cycle has gone wild. There is more on every level, in every country, than at any point in my lifetime. Credit cards, student debt, mortgage debt, state debt, federal debt, corporate debt, pension funds......all of it.

    The only way we've managed to get this far is with multi-century low interest rates. And even then, there are plenty of the above entities on the brink of insolvency, with debts continuing to climb every year, requiring even more of income to go towards interest payment.

    Either we have to let a ridiculously large chunk of the world default on their debts (I'm not exactly sure who would be left at the end of all the dominoes falling) or we have to grow our way out so that all that massive new global GDP make the the debt seem tiny.

    We are not going to do it with plain old organic growth alone. The world's population and innovation don't grow fast enough to keep up with the current spiraling debt growth.

    Much easier, and much more politically palatable, would be to inflate our way out.

    Deflation and inflation are really cousins in the same dysfunctional family. You can pick either one to help get you through a monetary imbalance. But inflation is much more fun to have at your annual Christmas party.

  • Reply to

    Bonds

    by ferdinando_cortese Feb 2, 2016 10:11 AM
    bobby2loaves bobby2loaves Feb 2, 2016 10:50 AM Flag

    I'd say commodities have about priced in 10 flat inflation years at this point, wouldn't you?

    And then if you consider that 10 years without inflation would virtually destroy all the debt structures around the world that need to grow their way to prosperity (or massive worldwide defaults, good luck selling that), there might just be upside inflation surprise ahead.....

  • bobby2loaves by bobby2loaves Feb 2, 2016 10:46 AM Flag

    You've got it all wrong, man. You're treating POT as if it you were having to liquidate its tangible assets, and right here at today's depressed values.

    POT is a profitable business, even here at 8-year low potash prices, no matter what bothers you about the balance sheet.

    POT's balance sheet is currently not in trouble. They had EBITDA of $482mm last quarter. That's a run rate of $1.928B annual EBITDA. Almost $2B a year in the worst pricing environment in 8 years. Does that sound like a company that is on the ropes to you?

    With debt covenants of 3.5x EBITDA or greater, this would allow them long-term debt of $6.478B, more than twice the current level of $3.17B. Or viewed another way, EBITDA could be cut in half, EPS could drop almost to zero, and the debt covenants and balance sheet would still be OK. And they are currently estimating 2016 to be as profitable as 4Q15 on average, with substantial improvement in 2017.

    These guys are best of breed in one of the few commodities where a competitive moat still exists. Haven't you wondered why POT is still doing just fine, thank you, while players in coal, steel, copper, oil, gas, tankers, gold, etc are going bankrupt and getting S&P downgrades?

    Now. If potash/ton prices crash down into the $100-$200 range, things will indeed get dicey. And your $11 prediction is easily within reach.

    But the difference between $11 and today's $15 a share will be a rounding error viewed 5 years from now, a mere $3B in market cap, for a company that will some day in the next 5 years be netting $3B a year and be valued $30B higher (250% gain, plus 6% annual dividends) than today.

    If you are smarter than the futures markets and can forsee further price declines in 2016, more power to you.

    As for me, I'm willing to admit I'm not that good.

    If you want to obsess over the balance sheet another 1000 times in the next 60 days, be my guest. But I won't be responding - - as my opinion is not likely to change one bit.

  • bobby2loaves bobby2loaves Feb 2, 2016 8:55 AM Flag

    Good point. Reduced Cap Ex would be good for them. Monetizing the property for cash even better. If S&P is asking for meaningful Cap Ex cut, though, Jansen is their last, best project to get this accomplished, however they approach it.

    I probably should be careful what I wish for. This would be long-term play for POT, and perhaps not helpful in the short-term.

  • bobby2loaves bobby2loaves Feb 2, 2016 8:12 AM Flag

    Cost to build Jansen is regularly published as $15B.....not going to get there spending $423mm a year.....costs going to ramp over time.

  • bobby2loaves bobby2loaves Feb 2, 2016 7:52 AM Flag

    Probably just wishful thinking on my part here.......could you imagine what a bitter pill to swallow it would be for BHP to sell its Potash mine to POT.....after building it to compete with POT.....after getting snubbed in its takeover bid?

    That said, Andrew Mackenzie did say in an interview last year that if Jansen had value, if not ultimately for BHP, then for someone else.......

  • bobby2loaves bobby2loaves Feb 2, 2016 7:49 AM Flag

    Probably too much to hope for, but if POT would use its recently ramped up credit facility to buy Jansen for a couple billion, that would explain a few things:

    (1) Why credit facility just spruced up to accommodate current environment.
    (2) How POT could afford a deal without cash on books
    (3) Why POT's lowered dividend could help it pay for the added interest cost of $100mm or so
    (4) Why Tilk recently said "One of those opportunities could also include adding a new project that would generate a “great return."
    (5) Why POT would have just closed New Brunswick, saying it would not need to be re-opened for a decade, or perhaps longer.

  • BHP Credit Rating Cut at S&P on Lower Price Forecasts
    Note in the last sentence: "S&P has effectively set a timeline for the producer to make further cuts to capital expenditure". Isn't Jansen the obvious choice here? $2b a year Cap Ex for a mine that won't produce for another 5 years?

    February 1, 2016 — 11:59 AM CST

    Rating cut to A from A+ on lower iron ore, oil and copper
    BHP says it's committed to maintaining `strong balance sheet'

    BHP Billiton Ltd., the world’s biggest mining company, had its credit rating cut at Standard & Poor’s as producers reel from cratering prices driven by concern over faltering growth in China, the largest consumer of raw materials.

    The rating was lowered to A from A+ to reflect changes in price forecasts and “very challenging market conditions and increased demand uncertainty over the coming years,” S&P said in a statement on Monday. Ratings for the Melbourne-based miner may be lowered one notch further after it releases earnings on Feb. 23, S&P said.

    Plunging commodity prices are piling pressure on Chief Executive Officer Andrew Mackenzie’s pledge to maintain a “solid A” credit rating. The company, which reports first-half profit later this month, may need to raise as much as $10 billion through a share sale and scrap its dividend if it is to retain the commitment, according to Liberum Capital Ltd. analyst Richard Knights.

    “There’s certainly a lot of pressure for them to act leading into their next earnings announcement,” Anthony Ip, a Sydney-based credit sector specialist at Citigroup Inc., said by phone. In raising the prospect of a further downgrade following BHP’s earnings result, S&P has effectively set a timeline for the producer to make further cuts to capital expenditure and revise its dividend policy, Ip said.

  • bobby2loaves by bobby2loaves Feb 1, 2016 7:44 PM Flag

    I have a dream of owning a commodity company that feeds an ever growing world, with food of ever greater nutrition, out of soils of ever greater fertility.

    I have a dream of owning a commodity company where over 80% of global supply is controlled by 5 companies, with a history of partnership between them.

    I have a dream of owning the company when its core commodity is trading at 8-year lows, even as its demand can literally change with the weather.

    I have a dream of owning the company when half of global supply is producing at breakeven or a loss.

    I have a dream of owning a company that is the world's largest supplier of a commodity, ready to bring on 50% capacity in short order, while other participants face almost insurmountable barriers to entry.

    I have a dream that one day, this company will rise up, to live out the true meaning of its creed: "To play a key role in the global food solution while building long-term value for all stakeholders, and to create superior long-term shareholder value."

  • Reply to

    Oil

    by ferdinando_cortese Feb 1, 2016 10:44 AM
    bobby2loaves bobby2loaves Feb 1, 2016 11:02 AM Flag

    Aside from most commodities moving in sync based on global growth prospects, it's probably due to ethanol. Corn is something like 40% of all acres planted in the US. And ethanol is something like 40% of all corn. So about 16% of US fields are going towards ethanol.

    Brazil is also a huge market for corn and ethanol.

    And since Brazil and the US are POT's biggest markets, the market value of a gallon of gas is a meaningful factor for POT.

  • bobby2loaves bobby2loaves Jan 30, 2016 1:28 PM Flag

    Nah. Sprucing up your credit line is one thing. But if they actually end up using the thing, that news would move the stock. Re-initiating the buyback would boost share price. Acquisition would be dependent on what they bought - - although generally speaking - - the market loves to sell the stock of company who has just announced an acquisition.

  • bobby2loaves by bobby2loaves Jan 30, 2016 7:50 AM Flag

    Well, that was it, right? POT just bought themselves another year with a reduced dividend based on recently crashed commodity prices. And it looks like they have front loaded the year with Cap Ex, severance pay in New Brunswick and reduced production. So as we get into the 2nd half of 2016, we're going to start seeing substantial quarterly improvement, probably nearing $0.40 EPS by the end of the year. So that even if fertilizer prices drop further, POT will start from a baseline of $1.60 annual earnings, giving them a 60 cent a year cushion to meet the dividend, not to mention almost a $1.00 per year cash that gets excluded from net income as depreciation and amortization.

    Now that wasn't so bad, was it?

    If POT is smart, they'll at least find a way to be aggressive somehow during the lean times. Probably doesn't matter what: IPI, SQM, POT share buybacks, whatever. They're all trading at a tiny fraction of their 10-year averages, and with POT EBITDA running around $2.4B based on the POT's recent 2016 projection, they could take on as much as $4.6B more long-term debt and run out their credit facility another $3.5B without breaking debt covenant ratios of 3.5x long-term debt. And even if they took on all that extra $8.1B debt (which they won't), it would only cost them about $300mm a year (about 25 cents a year EPS) in added annual interest costs at today's rates.

    But, all this said, this drama is largely played out. Downside is well contained. Now all POT has to do is make low-cost fertilizer with its world class assets. And upside, whenever it should come along, awaits.

  • 29-Jan-2016

    Entry into a Material Definitive Agreement, Financial Statements

    Item 1.01 Entry into a Material Definitive Agreement

    On January 25, 2016, Potash Corporation of Saskatchewan Inc. (the "Company") entered into the Fourth Amending Agreement (the "Fourth Amending Agreement") with the lenders named therein and The Bank of Nova Scotia, as agent (the "Agent"). The Fourth Amending Agreement amends the original credit facility, made as of December 11, 2009 (as amended by the First Amending Agreement, the Second Amending Agreement, the Third Amending Agreement and the Fourth Amending Agreement, the "Credit Facility") among the Company, the lenders named therein and the Agent.

    The amendments to the Credit Facility include, among others:

    � The extension of the maturity date for the Credit Facility from May 31, 2019 to May 31, 2020.

    � An increase in the maximum ratio permitted by the debt to capital covenant from 0.60:1 to 0.65:1.

    � The elimination of the long term debt to EBITDA covenant in its entirety.

    The foregoing description is qualified in its entirety by reference to the Fourth Amending Agreement, which is filed hereto as Exhibit 4(a) and incorporated herein by reference.

  • Reply to

    Cost Of Sustaining CAPEX Expansion Tweaked

    by abbaman7 Jan 29, 2016 11:33 AM
    bobby2loaves bobby2loaves Jan 29, 2016 5:07 PM Flag

    Abbaman - - you're so bitter right now - - but it's not POT management - - it's fertilizer prices.

    He said $600mm-$800mm Cap Ex at the December Citi conference, too. So nothing has changed there.

    Probably in 2016, it will be on the lower end of that range now that Picadilly is getting shut down. But why lower Cap Ex guidance now, when 2017+ is so far away? What it pricing picks up and they want to max out capacity at all locations? What if they acquire another operation somewhere? What if Potash prices go to the moon?

    You're getting all caught up in semantics. These guys produce NPK, and then they sell it. And they try to produce/sell it in strategic amounts. None of this has anything to do with dividends or future guidance.

    Could they have built less in the boom? And paid out less in the way of dividends? Absolutely. Their worst mistake here was not saving cash to take advantage of a depressed environment like this one.

    But now that we're here, I see them taking a very conservative approach, protecting shareholders, and seeming determined to protect the downside going forward. The kind of stuff that gives you a little hope when grabbing the falling knife that is commodities today.

  • bobby2loaves bobby2loaves Jan 28, 2016 5:10 PM Flag

    Does anyone really know? I just read an article today about how T Boone Pickens and Harold Hamm both called their shot on oil prices recovering, and that both could be horribly wrong despite their expertise.

    Look at POT. A few months ago, increased production and a K+S acquisition looked like smart moves. Today, they are downsizing, and don't want anywhere near K+S.

    It's so hard to say where the bottom will be. By my calculation, today's $1.00 per share earnings estimate for 2016 is based on something like $240 delivered potash, $220 realized for POT.

    Can potash/ton go lower, even though half of global production is losing money at that level? Absolutely. And it would drop POT's share price even further.

    But this may not be a job for a scalpel. Not to mention that if industry professionals can't use the instrument, you and I will probably kill the patient. Better to hold your nose and buy the stock here, knowing it is somewhere near the bottom of the cycle, even if it's not the ultimate bottom.

    Instead of waiting for your 25% downside, buy now and wait for the 250% upside you'll get from 5 years of dividends, and the $40-$50 share price POT will get when potash/ton goes back to $400-$500/ton within the next 5 years.

SILC
28.00-0.47(-1.65%)Feb 5 4:00 PMEST