NAP is ran by a South African right now. The very worst investments are South African mines ran by Canadians. Maybe a South African can run a Canadian mine but a sharp American or Englishman would be better.
Lots of rude generalization there but there you go.
The reasons that have been provided are that the surface mine is fully mined out and the subsurface mine is transitioning from a mined out zone to a new one. I'm sure that is true but it isn't the only reason. They have also talked about problems with hiring qualified personnel.
The truth is that they have never really been successful. There are so many failed mines in the world and in my mind there isn't any shame in failing but the Canadian ones seem to have a real knack for attracting suckers to invest in them. There are great mines in Canada but the ones ran by Canadians tend to be the ones with potential that never really deliver sustained profits.
Obviously there is a point where it matters but Palladium prices have been increasing steadily over time and NAP has seen costs skyrocket. It just isn't close at this time.
Maybe that will change someday but the track record is terrible.
Very unlikely you see $1.60 barring (1) surviving the next two months without a huge dilutive stock issuance or conversion of debt to equity and (2) spike in platinum prices beyond anything seen to date. Of course, a stock market bubble could change things too.
There are no wildly successful platinum mines in the history of man. SWC has some moderately successful mines but their ore bodies are much more productive.
There is no significant inside ownership. The current management team is fairly new and it would be much easier for them to restructure the thing than carry on as a weakly financed entity that is always on the edge of death.
You bought when things were in a bubble. You might find that you feel better when you sell and make a point of forgetting about the company. That has been my experience with big losers. The only thing that would keep me from selling if I were you would be if you know the management team better than me and have great confidence in them.
Of course not but what do you expect? This is a highly leveraged firm in danger of bankruptcy in both the long and short term.
A five or even 50% move isn't much when you examine it on an enterprise value basis which is exactly how you should be examining it.
You arguably have it backwards. As the Fed has increased asset purchases longer term interest rates have increased substantially. Nothing says they can't decline when tapering begins and in fact they have declined as expectations of tapering has increased. The whole inflationary expectations thing can really mess with rates and it isn't obvious what happens to rates when the taper begins.
Few points worth mentioning from recent regulatory documents:
* TWGP has a material $80 million in accumulated losses sitting in "other comprehensive income" as of June 2013 that is largely the result of losses incurred as a result of Fed asset purchases which DROVE UP (not down) long-term rates. It is a big loss (around $80 million) and it has decreased book value of shares even though it has not flowed through the income statement. Seems reasonable to assume that they will have a $50-$60 million loss in the third quarter and a small gain in December quarter based on where rates are currently. This reduces book value by a little over $1 a share. I'm guessing $6 - $6.50 tangible book when they report in the next couple of days.
* Their future income from investments will likely be higher because they have almost certainly sold their MUNI portfolio (15-20% of portfolio) and redeploying it into higher yielding taxables as their fuly reserved for net operating loss carryforward offsets the additional income. If they have not sold the MUNI portfolio or at least thought long and hard about selling it someone needs to be fired.
*Go to the last 10-K. They provide very good data on interest rate risks.
The problem is that even though they are growing they just aren't showing decent ROE so what is the point of opening new stores? Maybe they have some efficiencies coming with the new warehouse and spreading overheads over a larger store base but I can't help but think this should trade close to book value given the poor operating performance.
Companies always do a lousy job of discussing covenants. I've been spitting angry at other distressed firms that don't lay things out for common investors. In my mind this information needs to be put directly in the quarterly regulatory documents with detailed explanations of the calculations.
Here, you have a company that everyone knows is at risk of bankruptcy. Why wouldn't you put out information on what you have to do to avoid violating covenants? NAP's covenants aren't particularly difficult to follow so I'm not really angry here.
I can see being angry about continually missing targets. They should, in my mind, move to providing ranges of possible outcomes because right now they have now indicated that they are falling short yet again without any idea of how big the problem is.
Good point regarding the "relaxed covenants." I assumed relaxed but for all I know they are tightened.
The financial covenants in the "old" loan from way back in June were as follows:
Senior debt to EBITDA. 8 to 1 beginning in second quarter and stepping down thereafter to eventually reach 4 to 1 in second quarter of 2015.
Minimum EBITDA for trailing 12 months of 0 for Jan, $10M for Feb 2014, March 2014.
Minimum equity of $200M.
My guess is that they pushed back the deadlines as they are having trouble ramping production.
Paying $8.1 million loan commitment fee. For that they get $21 million at 19%/15% and relaxed covenants. The existing covenants were not terribly tough. Will be interesting to see what they are now.
No. They would get financing upon filing bankruptcy and the assets would eventually be auctioned off. What the proceeds of such a sale would be I don't know.
Bankruptcy would involve significant professional fees as well as litigation. It could certainly happen but it seems unlikely unless they run into significant operational problems.
SWC provides data by mine. I've compared it before and the quality of the resource (assuming they are correct) was quite a bit better at SWC. It is an important issue and I'll try and post something on it early next week.
I've wondered if there would be any operational efficiencies should SWC actually get the Marathon project going. I tend to think they wouldn't be all that material but there would be some. Perhaps it is something that has been discussed here but I've not really followed things close enough or know much of anything mining.
I can give you at least four reasons.
1) You are ignoring losses for September and December quarters. It seems reasonable (although not assured) to assume that reserves are o.k. but their expenses will be very high and bookings low.
2) Management credibility. They were very smooth before any problems were brought into the public sphere. Would encourage you to read some of the old transcripts and review investor presentations on their web site. They were pretty optimistic when share price was at $20 a share. Why would you trust them now?
3) CEO. CEO who sold shares at $10 a share is still there. He is in full control of the BOD and there does not appear to be someone new coming in.
4) Breakdown in internal controls. Normally, I think internal controls warnings are really not too concerning but it will take years, lots of expensive investment, and a totally new management team before this is really under control.
5) Legal costs. They say that the costs cannot be determined and the lawsuits will fail in any event. Do you really believe that? Also, how come they have not indicated what their D&O insurance is?
6) The thing frequently didn't trade at book value when times were supposed good so why should they now?
Should add that a preferred issuance with some severe limitations on future company actions is also possible.
Unless you have access to information on production that isn't public I would say you are jumping to a conclusion. I don't know how their production is going or what their prospects are beyond what management says but I think they can raise funds with subordinated convertible debt maturing in six months.
The BAM loan carries an interest rate that is effectively 19% That means they have to pay substantially more than 19% to get someone to take on that risk. They can't very well issue a six month note carrying a 50% interest rate so what they are going to do is issue debt carrying something that sounds more reasonable with an equity kicker of some kind that allows them to pay an extremely high rate of interest. If it works out, they make a good deal of money, if it doesn't work out at least they stand in front of the equity holders. It is cheaper than merely issuing equity.
If the mine is obviously uneconomic, then yea they die but if that is true I fail to see why this company still carries a $100 million market cap. It should be much lower. If they don't want to do the subordinated debt with an equity kicker of some kind, they should be able to issue straight equity which would obviously dilute shareholders.
They don't have to pay BAM back anytime soon. They will live for at least another year unless they run into production problems.