Capital Power shows increased Adj. EBITDA and AFFO but high Price/Earnings ratio

 This blog and the author (above) often sees companies differently than other financial websites.One such company is Capital Power (CPX).A number of websites including several banks show the CPX price/earnings ratio as about 75.This is a misleading statistic.A better measure of the performance of Canadian utilities is price/adjusted EBITDA or price/adjusted funds from operations (AFFO).This would produce a present P/E ratio of about 13.
         Non-recurring Items
   Capital Power is in the unusual situation where it's generating capacity  and revenues show good increases while it's adjusted net earnings show losses in Q3.It has made a number of large acquisitions. And at the same time spent a lot of money converting it's coal-fired operations to dual-fuel operations.This has lead to large expenses and created net losses.On the other hand adjusted EBITDA has been revised upwards.One factor here is the increase in the Alberta power price from $47 per MWh to $59 per MWh.Another is the new revenues from their recent acquisitions including Arlington Valley,Goreway (in Brampton) and New Frontier Wind.As a result 2019 annual guidance for adjusted funds from operations (AFFO) has been raised upwards by 12% or from $485 to$535 million up to $535-$560 million.
                     

    Better Performance Data
 Both Scotiabank and TD bank show negative e.p.s. and a price/earnings ratio of about 75 times.This implies that Capital Power is an expensive stock.But using adjusted EBITDA per share the P/E ratio is about 15 times 2020levels..Technically the banks are correct but this an accounting anomaly and gives a very misleading picture of an aggressive,well-managed Canadian utility.This healthy increase in AFFO will allow CPX to make further accretive acquisitions and raise it's dividend by7% in 2020and 2021.Consequently look for CPX to inch upwards towards $38 before the next dividend increase in Q2.    https://www.capitalpower.com/ 

Time for the Second Stage of Kirkland Lake Gold offer

     

        On November 25 Kirkland Lake Gold made an offer to buy all
of Detour Gold's shares.As a Kirkland Lake Gold shareholder I would like to know how this offer is progressing.The offer was for a 29% premium to the 20 day weighted average price of Detour Gold shares closing on November22, 2019.This premium is in line with other takeover offers in the gold patch.Every DGC shareholder will own .4343 shares of the new Kirkland Lake Gold shares.The exchange ratio implies a price of $27.50 for every Detour Gold share.So now the price of DGC shares should be at least $26 a share.

        Detour Gold Shareholders

              

Kirkland Lake Gold has recently had a number of press releases telling shareholders about new high-grade mineralization at their Fosterville,Macassa and Northern Territory Australia mines.But there has been no news on how their Detour Gold offer is progressing.My last blog on KL on my Blogdaleupsome blog dated December10,2019 suggested that KL acquire up to 10% on the open market and then make a specific proposal to the Detour board.

          On the other hand,if Kirkland Lake still intends to buy a major stake or all shares of Detour there should be some news on a large secondary issue of KL shares.In the extreme case if KL bought Detour Gold with all new shares about 90 million shares would need to be issued.This blog suggests that a better remedy would be a cash and share acquisition,especially as Kirkland Lake has large and growing cash balances.But the behaviour of the DGC share price suggests that they don't believe the acquisition will succeed.If they did then the price would be closer to the acquisition price of $27.50.The present price allows KL to acquire DGC shares cheaper and means that KL should own a substantial number of DGC shares.

No Secondary Issue;no Majority Stake 

At this time the train is just leaving the proverbial station.However this blog believes that Kirkland Lake Gold has  already purchased a substantial percentage of DGC shares.But this blog does not believe that Kirkland Lake will buy all DGC shares.That would mean issuing 89 million shares.Although a half cash and half share issuance is possible but not likely.It is true that Kirkland Lake has announced mailing a notice of a special meeting on January28 to vote on their proposal.But until their financial advisor BMO announces a healthy secondary issuance this blog sees only a minority position in Detour Gold.However if they have already acquired 10-20% of Detour outstanding shares by January 28 then the possibility of a substantial majority stake becomes more likely.Even with all the new mineralization discovered (including the Fosterville mine) this blog does not see all Detour Gold shares acquired.

Husky Energy is loading up;A Good Time to buy

    This is the first time any of my blogs have covered Husky Energy.But I have seen it at $20 a share 18 months ago and in September at a low of $8.48 per share.In between it has made quite a few changes.However it just had a very average third quarter.But it has made a number of changes that show it should be ready for a better performance in Q4 and even better in 2020.For example, the Royal Bank has a short term price target of $12 per share.This blog sees that HSE may not be at $12 until the summer of 2020 but it will be there.
        Third Quarter Results
   Revenue was down about 8% over Q3 in 2018.And more importantly net earnings were down by almost 50%.While funds from operations was down 30% to $1 billion from $1.3 billion in Q3 2018.Capital spending was $878 million for the quarter and guidance remains unchanged at $3-3.5 billion for the year. So the quarter as a whole was not remarkable but the important point here is that Husky Energy is building for 2020.
    Husky tells us that their Dee Valley thermal bitumen project came in ahead of schedule and under budget,And they began the final tie-in for their Lima Refinery crude oil project.They also recived permits to commence the Superior Refinery rebuild and lastly they sold their Prince George refinery.The Sea Rose floating production vehicle is up to full rates,the Liuhua 29-1 project in China is 65% complete and the White Rose project is 55% complete.
       Summary
    Husky tells investors that they will meet their guidance for capital expenditures for 2019; they will invest a total of $3-$3.5billion.And the third quarter had capital expenditures of $868 million.It is true that operational performance was down in the third quarter and may be down slightly in Q4 also.But Husky is definitely loading up for 2020 they are working on or have completed 6 major projects and sold the Prince George Refinery.Both overall upstream production and downstream throughput increased slightly over Q3 in 2018 and are expected to increase further in Q4.With new output coming onstream in 2020 from Dee Valley,White Rose and from China.These increases should be enough to send HSE to $12 in early 2020 and stay in this range into the summer.           https://huskyenergy.com/http://www.cppib.com/en/

Oceanagold shows a Drop in Production but Constant Earnings

    On October15 Oceanagold released it's third quarter results.There were some small surprises but not big ones.First it has temporarily suspended operations at it's Didipio mine in the Phillipines since mid-July.It is awaiting a Court of Appeals injunction decision which should reverse a lower court decision.Secondly as reported in another blog on Wordpress   (Blogdaleup dated October 5,2019) their Waihi (New Zealand) mine has found a much larger ore body at the Martha underground project near the old mine.Production will not change in Q4 but is expected to in Q2 of 2020.In their other mine in New Zealand production was flat year over year.But it will increase in Q4.
         Changes in the Structure of OGC Mines
   Investors may have to look past this quarter and even Q4.But Oceanagold has some very positive results coming in quite soon.This blog foresees that operations will be running again by yearend at Didipio.While their Macraes mine found new higher grades of ore at their Golden Point project.They are working on an economic study to examine opening a new underground operation.Furthermore their Waihi project found a new 2.5 to 3 million ounce deposit close to the existing mine. It also has a sizeable silver deposit (in several veins) available for silver streaming.Oceanagold tells shareholders that it recently bought another 178 hectares near the Waihi operation.These changes, along with the silver operation could change OGC from a small to a large mid-tier gold stock  by 2021.             

         Year-end Results
  The temporary suspension at the Didipio mine will not have a big impact on OGC's annual earnings.The Didipio mine would have represented the growth in 2018.But the CEO  says that production for the year will be 470,000 to 480,000 ounces of gold and 10,000-11,000 tons of copper.Using a copper price of $US $2.85 /pound and costs at 50% of the price this blog sees  2019 net income as almost flat with 2018.This ,of course, is partly explained by the increase in the price of gold and more efficient operations by Oceanagold.But in Q1 2020 investors should see some increased production from their Waihi  mine and hopefully the Didipio        mine.This blog done in January of 2020 will be much more hopeful.                  https://www.vaneck.com/row/ https://www.sprott.com/

Kirkland Lake Gold shows Tremenduous Growth in Production and Earnings

    Kirkland Lake Gold is a company covered in my Workathon blog many times.Kirkland Lake Gold bought Newmarket Gold in 2016 for about $1 billion and shares.At that time Kirkland Lake Gold was trading at about $12 per share. In 2018 it was trading in the $40 range and had a market cap of $10 billion.At the beginning of 2019 it was trading at about $48- $50 per share.It has steadily moved up  in 2019 to today's price at $60 per share And now it has a market capitalization of about $13 billion.My blog in Workathon of March 19 stated that the main reason  for this price movement is that investors have gradually seen that the Fosterville mine formerly owned by Newmarket and before that Crocodile Gold is much bigger than stated by the former owners.And this is because one partially explored fault (the Phoenix fault) and two unexplored faults (Lower Phoenix and Eagle fault) were larger and had a much higher grade of ore than in the original mine.Grades of ore  in the southern faults were 7 to 10 times richer than  in the main Fosterville mine.
           History of the Fosterville Mine
   Newmarket Gold gave an estimate of the size of the ore deposit in 2015.At that time it was stated that all their Australian gold reserves amounted to 2.5 million ounces.There was only thought to be .5 million ounces in their northern Cosmo mine and almost no deposit left in the Stawell mine.So that means that the Fosterville mine was estimated to contain 2 million ounces.At that time little was known of the 3 large faults to the south;they were thought to be small extensions of the main mine.Later it was discovered that there were 3 major faults.And then exploration revealed that the grade of ore at the new faults was considerably higher than in the main mine.A few samples showed ore with 100 grams per tonne as opposed to more normally 4 to 5 grams per tonne.For example, one gold company in northern Ontario survived and made a profit for years on 2 grams per tonne.                                                             The detailed information given by the former owner and by Newmarket Gold lead this blog in an earlier Workathon blog dated 20/01/2018 to give an estimate of 8 million ounces at the Fosterville mine alone.Kirkland Lake Gold now estimates,in their blog, that this ore body contains 6 million ounces.The difference  between these estimates depends on the size of  extensions from the last fault-- the Eagle fault and the average grade of ore.The fault north of this one called the Lower Phoenix has largely been explored and measured.
    KL does not tell shareholders in their quarterly report what production from Fosterville was but does say that total Kirkland Lake production was up 30% from Q2 2018.It also adds that it has made a number of improvements to the mine including a new ventilation system, and a water treatment plant.Much of these expenses have been caused because the mine body  and mine entrance come from the old,original mine.This blog has stated before that costs could probably be reduced by making a new mine entrance.
     Second Quarter Highlights
 KL tells shareholders that Q1 revenues at $281 million were up by 31% from Q2 in 2018.And gold sales at 212,000 ounces compared to 164,000 ounces in 2018.Of course the price of gold rose from $1300 an ounce in 2018 to $1525 an ounce presently.As a result EBITDA grew from $124 million to $185 million.However quarterly free cash flow fell to $53 million from $61 million in 2018.At the same time "all in sustaining costs" dropped 16% to $638 an ounce.While quarterly capital expenditures were $48.5 million with $14 million of this on the Fosterville mine.And $30 million  will be spent on advanced exploration in the Northern Territory of Australia.This exploration work is intended to progress underground development and support the resumption of operations at the Cosmo mine - the original Australian mine.
      Annual Results
   E.p.s. for the 3 months were $.49 compared to $.29 for 2018 and for 6 months $1.01 compared to $.52 for 2018 or almost double the previous year.No information is given on production from the Fosterville mine but this blog estimates that there will be greater production  in the second half. And there is room for much greater production with a second mine entrance.With this deposit and continued KL improvements, e.p.s for 2019 could grow by another 50%.This will happen even if the price of gold is constant.
     Future Exploration 
       KL tells shareholders that $14 million will be spent at the Fosterville mine in Q2.They also tell shareholders that $29 million will be spent on the Cosmo mine.Originally the Cosmo mine was estimated to have .5 million ounces but Newmarket Gold (the former owner) did some more exploration and found there were two faults not one.So Kirkland Lake will undoubtedly find one million ounces in their Cosmo mine.
        Conclusion
         Only a little more exploration needs to be done to finalize the total estimate on the Fosterville mine.But the final estimate is going to be beteween 6 and 8 million ounces. The final estimate for the Cosmo mine is going to be close to 1 million ounces.The problem with both mines is that KL needs greater production from both.But KL is gradually increasing production for each quarter.And in the Fosterville mine there is a lot of room to grow.With this in mind look for the price of KL to hit a new record high in 2019.   

https://www.credit-suisse.com/ch/en.html ;https://www.brookfield.com/

Street Capital Bank becomes a Subsidiary of RFA Capital

  On May1,2017 Street Capital Bank became Canada's newest  chartered bank;  

;this blog described it in a Workathon blog dated 23/01/2018.For the first year as a chartered bank revenues and earnings were gradually rising.And now they were allowed to take deposits (a cheap source of funds) and make mortgages.But ,even with their new features, in late 2018 things started to turn sour.And so RFA Capital, a virtual white knight,emerged in 2019 and made an "acquisition of all of the issued and outstanding shares" of Street Capital Bank. 
       Second Quarter Results
 Separately from the buy-out SCB had a pretty good quarter.Revenues were up by 6% to $18 million.Diluted e.p.s were $.03 consistent with Q2 2018.Mortgages under administration were $27.92 million in line with $27.90 originated in 2018.However the book value per share fell from $1.15 to $.80 per share.As total SCB originations fell from $108 million to $43 million.
    RFA Capital             

   It is true that Street Capital Bank was starting to bleed equity although it had a good quarter.RFA agreed to increase equity capital by a minimum of $50 million.To that end, it has added $25 million of readily available stand by capital.Furthermore " it is RFA's intention  to cause the investors to inject up to an additional $100 million of further equity capital into the bank over the next 5 years".According to RFA Capital "approximately 20% of the outstanding common shares have agreed with RFA to vote in favour of the arrangement".
    On the Upswing

       The first year of business was not a good one for SCB.And 2018 continued this trend.But 2019 was starting to look better as they had a pretty good second quarter.But it would be hard to take back those seven or eight quarters.So Street Capital Bank was acquired by RFA Capital.It will take strong backing for awhile yet because there is stiff competition in the Canadian banking scene.But RFA Capital is seen as a good partner that will provide more than equity capital.And with a little luck Canada will have a new chartered bank.However it has a way to go as their total assets are only $1 billion and the next smallest bank is Canadian Western Bank at $30 billion of assets.          http://www.goeasy.com/  https://www.zacks.com/

Chorus'Regional Aircraft Leasing shows Increases but Air Canada Business shows small decrease

     Chorus Aviation started it's regional leasing business about 18 months ago with a $200 million loan from Fairfax Capital.Chorus repaid it with a $200 million convertible debenture.Many thought they might not be able to pay it back nor redeem the debentures.But this has not been a problem since their regional aircraft leasing has been so successful.Since it's inception Chorus has leased 56 aircraft to smaller airlines.Most of it has been turboprops which Chorus has extensive experience with including a crack maintenance team and strong ties to Bombardier.Although Chorus has also leased some regional jets as well.It's strong relationship with Bombarier helps here also.                        

   
     Second Quarter Results
   Historically speaking Chorus had an average quarter.Adjusted EBITDA increased by $1.6 million to $86 million.Partly because     adjusted EBITDA from   their leasing segment  increased by $10.4 million.  Revenue earned from Air Canada had  a small decrease.Importantly they added 11 additional aircraft for a total of 56 aircraft in their leasing program. This has been accomplished in less than 2 years.However adjusted net income deceased by $5 million to $25 million.One new item here was a $4.5 million charge for interest costs related to their leasing program. That aside, net income increased from $16 million to $39 million for Q2.
     Turboprops or Regional Jets                

  Chorus uses both turboprops and regional jets in delivering passengers for Air Canada.But it's leasing program is more popular  with customers leasing turboprops than regional jets.For short distances turboprops are more efficient but the narrow body jets are more economical for longer distances.This blog believes that in order to increase it's visibility for excellence in regional jets a stronger bond with Bombardier should be forged.As it was Bombardier that created the CRJ series.In fact, just as Air Canada invested in Chorus so should chorus invest in Bombardier.And even with great fanfare hire some Bombardier staff.Its customers will know and hopefully lease more regional jets.Their new visibility aside, this blog sees a total of 65-69 aircraft leased by yearend.          https://www.desjardins.com/ca/index.jsp https://www.omers.com/