Macro Tsimmis

intelligently hedged investment

Archive for August, 2009

Golden Star Resources (GSS) update #13

Posted by intelledgement on Mon, 10 Aug 09

Black ink! Black ink! Black ink!

Well…when we made this investment almost two years ago, we knew that Golden Star Resources was a marginal gold miner, in the sense that the gold ore they are pursuing is relatively more difficult and expensive to process. We knew we needed gold at $750/oz or higher, and we needed management to succeed in honing the complex BIOX® process, which frees the gold ore from sulphide minerals thus rendering it more amenable to standard cyanide leaching.

We expected some teething problems. We didn’t expect electricity costs to triple, production to plummet, costs to climb to as high as $900/oz, and the company to generate red ink for nine consecutive quarters (all of 2007, 2008 and 1Q09). We didn’t expect a decline in the price of the stock from the $4.19 we initially paid to as low as 40 cents a share last December. Welcome to the wonderful world of speculation in individual stocks.

Well after the close today, management announced their 2Q09 results (click here and then select “Golden Star Reports Record Quarterly Gold Sales and Financial Results for Second Quarter 2009”) and—finally!—we have regained profitability. Admittedly it’s only two-tenths of a cent per share—$380,000 total—but after nine consecutive quarters of black ink, we’ll take it!

And it’s not just the black ink. The 99,011 ounces of gold the company produced in 2Q09 was an all-time record high. The $558/oz cost of production was the lowest in two years. As announced in June, the electricity shortage/cost problem finally seems to have been solved. Cash is up from $28MM at the end of 1Q09 to $43MM. Exploration at Wassa has yielded increased reserves. Guidance provided by management confirmed 2009 targets of 400,000 ounces and an overall projected cost of $545/oz.

If management can maintain this trajectory, and the price of gold continues to rise in the face of weakened fiat currencies through the balance of 2009, we expect to see the price of GSS stock—already up from that 40-cent low to $2.45—get back into the black for us. (We optimistically bought a second tranche of GSS at $3.08 when it started to decline in 2007 and our thus our overall basis is $3.57.)

Previous GSS-related posts:

Posted in B.2 Spec Equity Updates | Tagged: | Leave a Comment »

Vertex (VRTX) update #29

Posted by intelledgement on Wed, 05 Aug 09

Vertex Pharmaceuticals (VRTX), our biopharma spec play with the killer hepatitis C drug candidate, announced their 2Q09 results today. Thanks to a spate of one-time expenses relating to the retirement of founder and CEO Joshua Boger, the note exchange, and a restructuring charge, losses nearly doubled to $171 million compared to $91 million in 2Q08. The company ended 2Q09 with $754 million in their coffers, and are anticipating collecting $105 million more due to a restructuring of their agreement with Mitsubishi Tanabe Pharma—who have the distribution rights for telaprevir in Asia Pacific (sans Australia)—announced last week.

Phase 3 trials of telaprevir proceed apace; we are on track for a second-half 2010 application by Vertex to the FDA for USA approval (about a year later than we originally projected when we made bought VRTX stock, but such is to be expected when speculating in biotechs). For more details, check out the press release.

Previous VRTX-related posts:

Posted in B.2 Spec Equity Updates | Tagged: | Leave a Comment »

BUY MSCI Brazil Index (EWZ—yet again)

Posted by intelledgement on Mon, 03 Aug 09

Again, it makes sense to be long Brazil strategically, as we stated back in 2006. We have moved out of our position here twice due to the risk that the odds in favor of a sharp world-wide decline that will take Brazilian equities with it had waxed. But here and now, the risk is in not being long; under these conditions a position here is di rigeur.

The instrument of our investment in Brazil is the iShares MSCI Brazil Index (EWZ). This exchange-traded fund is heavily weighted towards commodities (27%), energy (27%) and financials (19%), as befits a fund for a rapidly developing country with a maturing economy. There is also significant representation for utilities (8%), consumer staples (7%), telecom (4%), and consumer discretionary, industrials, and information technologies (2% each). The P/E ratio is running around 13 and the yield is 4%. EWZ is very heavily traded (21 MM shares/day).

Previous EWZ-related posts:

Posted in A.1 Investment Recs | Tagged: | Leave a Comment »