The most recent purchase and chartering of new capsize may reveal company philosophy behind “perpetual preferred shares" issue few months ago. Both deals are about the same in size. Share sale proceeds were around $60M, while new ship was bought for $58M.
New shares carry sizable dividend rate, 8.875%, but they don’t bring any other obligations to the company except "liquidation $25/par value", i.e. company basically got $60M with only obligation to pay around $5M in annual dividends. It differs from bond sale when principal must be re-paid.
On the other hand, by signing new cape for about $25K/day, company makes about 13K-14K/day in free cash flow ($$ after all cash expenses). It makes for about the same $5M/year.
It can be assumed that DSX planned new capesize purchase for some time, before the announcement, and possibly they arranged the preferred sale for specific purpose: buy new ship that could cover all dividend payments. If rates go up from now then company can make more than just justify the sale. Also, ships have “residual value”. When they're done (after 20-25 or more years of service) they are sold to scrap and cape can bring in good money; maybe $15-20M (I didn’t check scrap prices recently, and so I apologize for approximate numbers here).
Needless to say that in case rates go down this share sale will be less attractive. Please note that dividend is not counted against earnings; it affects cash flow only. Also, dilution was small because company sold shares for $25/share, i.e. much higher than market price.
Copper demand is robust and warehouse storage numbers are very low. Also, rumors about Chinese break-down were slightly exaggerated, as it always happens with the rumors propagated around time of Chinese New year. Hint: China has vested interest to keep major commodity prices low.
SCCO runs on positive momentum now and it can be sufficient to get in mid-to-high 30s around time of next earning release.
New capesize ship has been chartered for very profitable rate. It adds about $11K/day to company earnings ($4M or 5 cents/share annually). DSX has another cape ship waiting for renewal this year. It is currently employed with rate about twice lower than presently announced. It can provide another positive support to earnings.
It is too funny, but I have to make addition to the preceding post. It is necessary knowing history of this board :).
I used an expression "U S-based person" (no spaces). It seemed to be innocent, but by some reason Yahoo filter decided it as a profanity. It is too funny.
All flow-through shares get sold to Canadian investors. It would be hard to find #$%$-based person willing to pay formal premium to share price and get no tax benefits in exchange.
I feel it's necessary to explain how "flow-through" mining shares work in Canada. It means, in short, that company passes future exploration expenses (coming from stock sale proceeds) to new shareholders. For example, if (for simplicity sake) all flow-thorough shares are bought by single person (Mr.X) and then company spends all proceeds on mining exploration in Canada then, according to Canadian tax laws, it means that all this expense was incurred personally by Mr.X, not by the company; and Mr.X is entitled to deduct this expense from taxable income. If Mr.X has federal marginal tax rate in 25-30% range (I don't know exact number, but guessing Canadian taxes are even higher) then he gets substantial gain to show against this stock trade.
More specifically, if Mr.X buys flow-through shares for 1.70 and keeps them long enough to get all exploration done for this money, then he can sell for the same1.70 (if it's possible) and still pocket substantial gain (completely tax-free!). God bless Canada.
PS: I apologize in advance for possible inaccuracies in explanations above. Please note that I am not a professional tax specialist and I don't live in Canada.
New law proposes, besides other mining incentives, to limit EIS (environmental impact statement) approval time to 30 days. It takes now about a year to get such approval in Canada, and it can take longer than human life in U.S.
Canadian flow-through shares carry big tax-credit discount to buyers, 25-30% in average. It means that shares are sold for about $1.20, after tax discount.
Peruvian congress considers new law promising 15 year stable tax jurisdiction for new mining projects in Peru. No tax increases for many years to come. Search Google news for "peru mining tax". The official goal is to promote mining investment in the country.
This new law is proposed by President and has broad bi-partisan support, it will be adopted soon. It is a good confirmation of favorable mining regime. Peru has become one of the best mining jurisdictions in Latin America, surpassing Chile and Mexico.
SCCO expansion in Peru is on relatively good geopolitical track. Current government is surprisingly pro-business. There were grave concerns about Ollanta when he came to power and he proved them wrong. Serious political opposition is even more pro-business. It promises many years of stable mining development in the country.
BDI is close to make 52-week low and long-term rates seem to start giving way to pressure from low spot numbers. As of now, i.e. taking into account today's financials (earnings, cash flow and revenues), share price is hardly sustainable. In other words, it carries good deal of optimism about future rates. Future is hardly predictable and so this stock situation requires some caution, imho. If any profits appear then they should be taken off table and entry points should be selected in careful way.
New charter (Oceanis) is made both below preceding charter rate and below important psychological 10K/day level. DSX still has strong balance sheet, but it is not that strong as it was couple years ago. Company financials are more dependent now on future improvements in rates and the word "future" means now shorter term.
If BDI stays under 1000 for couple months then vessel values go down and DSX will likely buy more ships. It will inevitably increase leverage and market risks. It may indicate bumpy road for this stock this year. In my opinion, low 10s are very possible in near term and buying even on that level is not a slum dunk. Personally, I would be inclined to buy, but risks are obvious.
It must be noted, especially because of specific situation on this message board, that DSX doesn't lose money, technically speaking (in operating cash flow terms). However, this positive moment cannot support share price indefinitely. At some point market wants to see earnings. For some time (last few quarters) market sentiment was positive about this sector, i.e. market ignored lack of earnings hoping on near turnaround. This sentiment cannot last forever.
In total, DSX is a strong company with experienced management. However, they cannot control shipping rates. They can only ensure that company survives bad times. It lends support to share price, but this support cannot go unlimited.
This "dog" is almost 25% up during last 12 months. It is a bit better than S&P500. It is not the most impressive performance (market is very strong), but still it is not something to be labeled as "dog", imho.
Dividend will be restored here only when shipping rates go up about twice higher than they are now.
I guess this divergence is caused by wide, across-the-board buying of U.S. equities. It goes mainly through index buying, lot of cash moved to equities last week. FCX is supposed to get better benefits being represented in numerous U.S. index funds, i.e. FCX stock is perceived by mainstream investing public as much better connected with U.S. market and economy.
On the contrary SCCO is more specialized copper play, essentially a foreign company for U.S. fund investors. Copper was under pressure last week, again caused by foreign events, and SCCO paid price. TCK was weak too, by the way; also a "foreign copper stock". Needless to say, "foreign" is not always a bad word for investment, it just happened that it worked against SCCO last week.
In other words, it is not a manipulation; it is an orderly market (ordered by investor sentiment) and SCCO drop last week has created new opportunity, imho. "Chinese investigation" worked last week to drop copper price, but looking in details of this event it's difficult to see it holding water for longer than few days. In my opinion, it's more like last attempt by well-connected Chinese bureaucracy to press copper down just a bit before it flies. Could this be called "manipulation", by the way? Maybe, but really it doesn't matter how you call it. It is more important how to use it.
...continued from preceding message
The only ship in question is Leto. Its present rate 12.9K is probably a bit higher than market and it could give the charterer justification to re-deliver at earliest point. If it's the case then we will here from DSX about new Leto charter very soon (in upcoming week?).
In total when all 6 ships are re-chartered (it will happen this year) then chances are very high that combining revenue for this ships increases.
As you already know, DSX uses term charters with typically flexible endpoint (date of re-delivery, back to owner), i.e. charterer has option to choose date when to end the charter. DSX reports to public two dates of possible endpoint: the earliest and the latest. As far as I know, charter terms often stipulate that charterer must choose between these two dates before the earliest date-point comes, and if charterer opts for mid-point ending then it compensates ship owner (DSX), making it financially equivalent to the latest endpoint case.
DSX has 6 ships with charters possibly ending this month, i.e. with the earliest re-delivery date in June or earlier. Below you can see this information (I apologize in advance for possible typos and incorrect reporting; you can find all data on company web site or in public earning reports).
1. Amphitrite, Post-Panamax, rate: 10000/day, re-delivery 05/31-10/30
2. Leto, Panamax, rate: 12900/day, re-delivery: 06/04-11/17
3. Oceanis, Panamax, rate: 9250/day, re-delivery: 06/04-07/14
4. Salt Lake City, Capesize, rate: 13000/day, re-delivery: 06/11-12/11
5. Naias, Panamax, rate: 9250/day, re-delivery: 06/12-08/02
6. Arethusa, Panamax, rate: 7300/day, re-delivery: 06/16-11/22
Looking at rate numbers, one may see that re-delivery for 5 of these ships will be likely delayed because they have present charters below market rates. Certainly, this delay is not guaranteed, there are other factors. Some charterers may have internal issues, may not need the ship anymore or they may decide that waiting few months instead of re-chartering now could be counter-productive if rates go up in meantime. Anyway, if any of these ships is delivered back earlier then it is good for DSX; it will re-charter the ship with higher rate.
Rogluther, I can't give you exact numbers, mostly because I was taught them in college too many years ago.
Basic ideas regarding your propositions are following:
1. It is very difficult to use copper for air transmission lines, because copper is much heavier than currently used aluminium. Shortly speaking, copper-based transmisson line would require too many poles for support.
2. Placing cables underground in cities is necessary because air transmission line requires buffer zone around, free of anything. Typical urban landscape doesn't have room for these lines.
3. Underground cables are more expensive way of transmitting than air lines, because cable wires must be isolated from turf and isolation of high-voltage cables can be very expensive. Typically, ultrahigh-voltage lines are air based, while lesser voltage, esp. distributed in urban areas, goes through cables.
4. Anyway, copper is used widely in energy infrastructure, but not in the transmission lines. Various energy installations comprise the main share of copper demand: transformers, power switches, etc.
I see that preceding message wasn't clear enough regarding entry/exit points. In my opinion, low 10s is for entry point; obviously enough, exit point could be a bit higher.
This message is posted in case someone reads this board and interested in more serious DSX-related discussions, differing from rather uneducated cries overflown here from DRYS messageboard.
As of now, DSX case is unclear. Company has lot of ships to be renewed during next 12 months. I didn't make exact count; probably, it is majority of ships. Many of this ships have present charters with daily rates in single digits, i.e. outright unprofitable. DSX was able to renew few of these ships recently with better rates. These new contracts mostly fall in "gray area" from 10K to 15K daily. Generally speaking, these new rates generate positive cash flow, but still they are not high enough to produce positive GAAP earnings.
It can be also noted that BDI trends down recently. It is very close now to 12 months low point and, in general, long-term charter rates gravitate gradually to 10K mark separating "gray area" from losing fields.
Also, company continues vessel purhase policy and this, inevitably, makes balance sheet more leveraged, i.e. debt increases. It is still very solid and, it is important to understand, the issue is not about company survival, as it goes for too many peers. The issue is whether $11 is fair price now.
In my opinion, last couple months were negative for company finances and it moves "fair value" down. This process is slow and fair value deterioration is not critical at this point. Also, fair value depends on general market conditions. The latter seem to be at crossroads now, i.e. uncertainty prevails. It makes reasonable, imho, to move entry and exit points for this stock a bit lower, let say to low 10s at the moment.
Also, just to clear openly wrong point conveyed to this board from the DRYS-based "source". DSX will never use ships on spot. You may count on it more than counting on Sun rising on East. It will continue making long-term charters. Recent charters are mostly for 12 months period. It may indicate positive forecast for future rates.
The main reason for increasing mining costs is physical (geological): it is not the same gold now as it was in 2007 or any other preceding year. Mining industry is unique, it deals with depleting resource: both quantity and quality of exploited resources go down every year. It is especially true for gold mining, because this metal is rare, hard to find and, at the same time, this industry doesn’t receive much encouraging from government and society. Actually, governments mostly try to kill this industry.
It creates double pressure: on one side, it is costlier to exploit sub-standard resources, on another side, additional taxes and regulations mean more costs. It makes costs high and they keep increasing. They are not overstated.
Also, 2004-09 bull market encouraged companies to pursue marginal projects, profitable only with high-priced gold. It takes many years and expenses to bring mining project to production and even with favorable pricing companies should continue production for some time just to recover capital expenses.
Any company that invested significant capital when gold was higher than 1500 (this number is for illustration purpose only) finds itself in difficult financial situation now because today’s gold price is not enough to justify past capital expenses. In some cases today’s gold price is not enough even to justify operating costs.
Sorry, Sandiego. I apologize for replying again to your message. Hopefully, you won't consider it excessive.
In this case I feel obliged to say that it is unlikely that NGD has the lowest cost in the industry. I didn't check that stock situation for considerable time, but cost cannot change quickly. Most likely, your perception is caused by numbers posted by the company and, probably, the number is misleading.
Many gold miners used to make following trick: they report cost on "by-product basis", i.e. they pretend that all revenues (revenues, not profits) from mining metals, other than gold, can be used as credits to decrease gold mining costs. That's a misleading concept that confused many gold investors for many years.
It can be said, for justice sake, that NGD is not the only company doing this trick. Actually, all gold miners, except few majors, do it. However, NGD produces very significant amounts of other metals (copper and silver) and higher amount of by-products allows to report lower cost. It can create perception that NGD has the lowest costs in the industry.
Maybe, you remember from glory days of gold bull market how some companies were able to report "negative costs". They used this by-product trick, even before AISC concept appeared in print. It was used for "cash cost". When AISC concept was adopted initially, most companies were shy to use the same trick for new thing. However, gradually they overcame their anxieties and started to do the same thing as before. It creates the same burden on retail investor to verify all numbers.
Please note, I didn't check NGD print recently and my reference to NGD above is hypothetical. I apologize in advance if my assumption is not correct. However, if you decide to buy NGD based on this low cost number (NGD is a good company, btw) then check fine print related to the number.
Sandiegoman, are you familiar this company business? Let me refresh this topic just in case someone is really interested to know actual situation besides "imbecile management" and similarly helpful hints.
IAG plans about $400M capex this year. About $100M goes to open Westwood, i.e. finish Westwood construction. The rest goes to ongoing capex, i.e. money spent to maintain existing operations. You can cut on ongoing capex until some point only; going beyond it means closure. IAG already cut ongoing capex last year; it is very possible that the point has been reached.
One should also understand that company mines, Rosebel and Essakane, are essentially joint ventures with national governments (Suriname and Burkina). You cannot just stop the mine that is partially owned by the government. If you do it, then you risk confiscation.
Do you see my point now? Management cannot cut capex lower than $400M/year until Westwood comes on line and it cannot cut capex below $300M/year after that. Better say, they cannot do it easily. If they do then it is very possible that they lose ownership of one or both mines.
That's one of the basic ideas about IAG investment case. $300 M/year to maintain ownership of mines that could be very valuable if gold price recovers some day. Love it or leave it; that's it. Don't try to invent something else. No any other management could do anything different here. It was up to investors to understand the situation, see the risks and make decisions. More specifically, it was already known in 2013 that financial situation will deteriorate in 2014 if gold price stays low. No miracles, gold price is the only factor.