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:

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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:

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Activision Blizzard (ATVI) update #6—2Q09 results again exceed expectations

Posted by intelledgement on Wed, 05 Aug 09

Our game publishing company, Activision Blizzard (ATVI), announced 2Q09 results today which topped their guidance and increased their FY2009 profit estimates. The company also expanded their share buyback program 25% to $1.25 billion. Revenues for 2Q09 were $1.038 billion as compared to previous guidance of $1 billion and profits amounted to 15¢/share, 50% above the previous guidance of 10¢/share. The results—which were released after the close of the market today—set off a brisk after-hours rally in the stock price, which rocketed up as much as 15%—to north of $13/share—from the close of $11.39.

“Since our merger one year ago, we have delivered better-than-expected financial performance for four consecutive quarters,” stated Activision Blizzard CEO Robert Kotick, CEO. “Our second quarter overperformance was driven by Activision Publishing’s PROTOTYPE, Transformers: Revenge of the Fallen, X-Men Origins: Wolverine and the Guitar Hero and Call of Duty franchises, as well as Blizzard Entertainment’s World of Warcraft. During a challenging economic climate, Activision Blizzard grew its quarterly North American and European market share 2.8 points across all platforms to 12.7% from 9.9% for the previous year and was the #1 North American third-party console and handheld publisher for the quarter and first six months of the calendar year.”

And for the second time this year, company management raised guidance for FY2009 profits, this time from 24¢ per share to 26¢ per share. Citing decisions to delay the publication of Starcraft II and Singularity from late 2009 to the first half of 2010, they lowered revenue guidance for the full year from $4.3 billion to $4.05 billion.

Highlights of the second quarter included:

  • For the second quarter, Activision Publishing was the #1 U.S. third-party console and handheld publisher and had three of the top-10 best-selling titles in the U.S.—PROTOTYPE, Guitar Hero World Tour, and Wolverine
  • For the first six months of the calendar year, Activision Publishing had two of the top-five best-selling titles in North America and Europe—Guitar Hero World Tour and Call of Duty: World at War—and grew their North American and European market share of the music/dance category eight points to 53% as compared to the same period last year
  • During the quarter, Activision Blizzard was the #1 publisher overall in North America and Europe on the Xbox 360™ and the PlayStation® 2
  • Activision Blizzard increased its European market share by 2.8 points to 10.5% for the quarter, as compared to the same period during the previous calendar year
  • Activision Publishing’s new IP PROTOTYPE, was the #1 best-selling console title in North America for the month of June
  • X-Men Origins: Wolverine and  Transformers: Revenge of the Fallen were respectively the #1 and #2 best-selling movie games released on the same dates as their respective theatrical films in North America for the second quarter
  • Guitar Hero was the #1 third-party franchise in North America and Europe for the first six months of the calendar year

Also, last month Activision Blizzard’s Board of Directors authorized an increase of $250 million to the company’s stock repurchase program bringing the total authorization to $1.25 billion. As of 30 June, Activision Blizzard had purchased $668 million—or approximately 64 million shares—of common stock at an average price of $10.41, under its stock repurchase program.

There was also news on the World of Warcraft (WoW) front…mixed news. The good news was that Sam Raimi of the Spider-Man trilogy and “Drag Me to Hell” fame has signed on to direct the forthcoming WoW feature film. No date has been announced for the movie’s release. The not-so-good news, as usual, emanated from China. On 16 July, Blizzard and their newly anointed replacement licensee NetEase (NTSE) announced that WoW—which has been offline since midnite 7 June, when former licensee The9’s (NCTY) old contract expired—is ready to relaunch pending receipt of the necessary approval from the Chinese government. Howsoever, no such approval has yet been achieved and with the outage having lasted two months—and no end in sight—concerns are mounting as to how many of China’s million-plus WoW players will return to the fold once it restarts. Some mainland players have opened new accounts in Taiwan—where servers feature the long-delayed-on-the-mainland “Wrath of the Lich King” expansion as an added attraction—but connection times are slow and Blizzard is not supporting the migration of existing characters from mainland accounts which means players have to start from scratch to develop new characters. In the meantime, other MMORPG game publishers are marketing hard to recruit idle WoW players.

In 3Q09, ATVI management plan to release:

  • Guitar Hero 5 for the Xbox 360, PLAYSTATION®3, Wii™, and PlayStation 2
  • Marvel: Ultimate Alliance 2 for the Xbox 360, PLAYSTATION 3, Wii, PlayStation 2, PlayStation Portable, and the Nintendo DS™
  • Wolfenstein for the Xbox 360, PLAYSTATION 3, and Windows.

The release date for the sf first-person action title, Singularity, has been pushed back to the first quarter of 2010, when there will be fewer competitive titles releasing. Hopefully, this should improve the probability of achieving stronger sales. The release date for the sf real-time strategy game, StarCraft II, has been delayed to the first half of 2010 to coincide with the relaunch of the company’s upgraded Battle.net® online-gaming service. Overall for 3Q09, Activision Blizzard expect GAAP net revenues of $680 million, and project a GAAP loss per diluted share of three cents.

Previous ATVI-related posts:

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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:

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