At one time, I worked in the securities industry and old habits die hard so I still look at trends in the financial and commodity markets and occasionally, individual companies.
Turnaround investing has many aspects and involves specialized knowledge in most cases. Or you can be a technical analyst who looks at the stock trading activity looking for changes in the company's fortunes that way. You see a chart forming a bottom and get more interested. This is the kind of analysis that alerted me to the Aura Minerals situation. Aura will be my case study for explaining various aspects of stock picking.
The following information is provided aclarification of my thinking process vis a vis turnaround investing and is not to be considered investment advice. Furthermore, this blog has no affiliation with this company and to date is not an investor in this company's common stock.
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Six Months ago Aura was identified as a possible
turnaround:
Aura Minerals ready for a turnaround?
Turnaround investing has many aspects and involves specialized knowledge in most cases. Or you can be a technical analyst who looks at the stock trading activity looking for changes in the company's fortunes that way. You see a chart forming a bottom and get more interested. This is the kind of analysis that alerted me to the Aura Minerals situation. Aura will be my case study for explaining various aspects of stock picking.
The following information is provided aclarification of my thinking process vis a vis turnaround investing and is not to be considered investment advice. Furthermore, this blog has no affiliation with this company and to date is not an investor in this company's common stock.
Disclaimer: I am not an investment adviser and this is not investment advice. Turnarounds are a fertile area for investigation. This company's stock chart looks washed out. Predictions of improvement in operations starting the New Year have been made (see FP article). Tax Loss selling season is at an end. Aura appears to have suffered some selling in the tax period and after earnings disappointments. The share price could re-build from here with some good news on operating improvements and that is the point of using it as an example to write the story of turnarounds in the mining business. Turnarounds fail as often as not so there is plenty of risk to discuss in follow-up posts.
This stock was mentioned to me as a possible turn around candidate because improvements are ongoing. The write-up in the FP is 6 months old so the writer may have lost interest....or somebody's money. This stock is worthy of investigation for a small investment, as in Nassim Nicholas Taleb's theory of small investments in the high risk area and conservative investments for the rest, i.e.Italian Bonds, LOL.
Operating problems are an invitation for a 'Bigger Player' like a senior mining concern to get involved and buy good assets cheap when a junior company is struggling.
Operating problems are an invitation for a 'Bigger Player' like a senior mining concern to get involved and buy good assets cheap when a junior company is struggling.
ORA - Aura Minerals Inc. (TSE)
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Six Months ago Aura was identified as a possible
turnaround:
Aura Minerals ready for a turnaround?
Jul 8, 2011 – 9:45 AM ET | Last Updated: Jul 8, 2011 9:51 AM ET
“No question in our mind, Aura has had the proverbial stuffing knocked out of it in the market,” is how Dundee Capital Markets analyst Ron Stewart began his research note.
Indeed. Shares of gold and copper miner Aura Minerals Inc. are down 45% so far in 2011, no small feat in a world of US$1,500-plus gold prices. The company is facing a host of operational problems at its mines, and its chief executive recently left. Aura now has a lot of work to do to restore investor confidence and get its operations in order.
Is that all achievable? Mr. Stewart thinks it is, making Aura an interesting opportunity for contrarian investors. “While we’re not so naive to think these issues will all vanish, looking out 12 months, we’d argue some major changes could really take place,” he wrote.
But first thing’s first: Mr. Stewart expects Aura’s second quarter to be weak, with gold production of about 37,000 ounces at astronomical cash costs of US$1,055 (!) an ounce, along with copper output of 2.8 million pounds. He does not expect the company to become cash flow positive until the third quarter. And even then, he thinks there could be continued struggles at Sao Vicente, Aura’s most troubled mine.
Looking at Aura’s assets as a whole, he sees potential. He noted that the Aranzazu project in Mexico has potential to be a very good (if not great) mine. Likewise, he expects results at the company’s Sao Francisco and San Andres mines to stabilize, and he noted that the large Arapiraca project in Brazil could be a “game-changer” for the company. And while Sao Vicente could be a write-off, it is only 4% of his net asset value estimate for Aura.
“Combining the fundamental qualities of the company’s projects with a new CEO who can affect a turnaround, we’d argue there’s quite a bit of value to be unearthed here,” Mr. Stewart wrote.
“While we note this stock may not be for everyone, depending on who steps into the CEO seat and the progress made in rectifying the operational issues of the company, we believe risk tolerant investors who can look past the present could be richly rewarded in time.”
Noting the high risk, he upgraded the stock to Buy (from Neutral). His target price is $3.00 a share.
Source:
http://business.financialpost.com/2011/07/08/aura-minerals-ready-for-a-turnaround/
Source:
http://business.financialpost.com/2011/07/08/aura-minerals-ready-for-a-turnaround/
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