Gus Cosio says so

Ideas on the Philippine Stock Market

Mine is the silver and mine is the gold

6:15 Tuesday  5 October 2010 PSEi – 4171.87 (-0.39%)

Tell me: what kind of people are happy when the market falls?  It may sound a bit twisted, but I believe many are happy today that the market has declined a bit.  Stocks that people like to trade, such as AGI, EDC, ALI, MEG, JGS, FPH and MBT are down.  Against the trend were TEL, MPI, SCC, DMC, and FGEN.  I think people do not want to be left behind in these issues because they are still very reasonably priced, especially TEL.  I actually saw some profit taking on these stocks but new buyers stepped in when prices pulled back.  Mining shares AT and PX were both very strong today in spite of LC/LCB being sold down.  I think the mining story will continue to be underpinned by China’s insatiable demand for base metals, not to mention the favorable prices that gold has been seeing.

As mining stocks go, I earlier said that I would share some notes on ORE, a stock that many are very skeptical about.  personally, I think it is good to scrutinize stocks like ORE because resource stocks are in their very nature very speculative.  The bottom line, however, on mining shares is its mineral resource and that they can mine and ship them out to buyers at a profit.

Let me share the ORE story as I have heard it.

ORE has two nickel mines in Palawan, one in Toronto and the other in Pulot.   On October 2007, the DENR estimated ORE’s nickel resource at 54.548 million dmt.  The market value of this resource, if mined and sold today, is roughly 130 billion pesos versus ORE’s market capitalization of over 4.4 billion pesos.  Palawan is also the location of nickel mines operated by Rio Tuba Nickel Mining Corporation and Coral Bay Nickel Corporation.  The explored areas of Toronto and Pulot represent only 13% of ORE’s 25-year contract with the Philippine Government which involves an aggregate area of 2,176 ha.   Of course, ORE will explore the remaining are starting next year.

ORE’s June 2010 balance sheet shows no long-term debt, 202 million pesos of short-term liabilities due to affiliates, a deficit of 215 million pesos and total assets of 1.87 billion pesos.  They definitely have the means to extract the nickel ore and are on track to deliver its first shipment in November this year.  Interest from buyers is likely to translate into shipments of at least 110,000 wmt of ore before the end of 2010.  Beginning November this year, ORE’s cash will rise exponentially with net cash expected to amount to 1.7 billion pesos by the end of 2011, inevitably wiping out the 2010 deficit.  Net cash by the end of 2014 will be 7.9 billion pesos with no long-term debt.

In 2011, following pre-production activities, both mines can produce 1.3 million wmt of ore worth 66.8 million U.S. dollars, assuming LME stable nickel prices a, i.e. August 2010 average of US$21,929  per mt. LME nickel spot prices are currently at above US$ 23,000  per mt.  Net income should reach 1.4 billion pesos compared to this year’s 100 million pesos implying present price to be only 3x 2011 earnings.  This will be followed by further growth in shipments of 16% and 32%, respectively, in 2012 and 2013, respectively, peaking at 2.6m wmt by 2015.

The story is quite credible from my standpoint.  The only thing I find missing is an ocular inspection which I hear a few fund managers will be doing in the coming weeks.  When that happens, there is no telling where the price of this stock will go.

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October 5, 2010 - Posted by | Financial markets in Asia

60 Comments »

  1. Thanks for the ORE insight sir Gus. This is very promising indeed.

    Comment by jojo | October 5, 2010 | Reply

  2. Hi Sir Gus,

    Good Day!

    Its nice to hear your story on ORE, it is indeed a very positive story for me holding this stock, but based on your statement that this is just a “story you’ve heard” and you think that this is quite credible, so are we just looking on a hearsay here? or maybe you could further justify this as “quite credible” on your stand point? hope you wont mind me asking..Thanks!

    Comment by Blogspot | October 5, 2010 | Reply

    • hence the expression buy on rumors sell on news

      Comment by greenhorn | October 5, 2010 | Reply

  3. Thank you for writing about ORE. I’m glad I’m invested in
    First Metro Save and Learn Equity Fund for the fund has holdings in ORE. GO FAMI

    Comment by gabe rapatan | October 5, 2010 | Reply

  4. hi sir gus i appreciate this post being accompanied with fundamental numbers 🙂

    Comment by cliffhanger | October 5, 2010 | Reply

    • Its very easy to view the pertinent numbers. Firstmetrosec has it. I dunno about the other online brokers. Or just download the Financial reports from psec

      Comment by jasper | October 6, 2010 | Reply

      • i know numbers are accessible. but im talking about sir gus doing his analysis on the numbers. i think thats the best way to give advice 🙂

        Comment by cliffhanger | October 6, 2010

  5. Hi sir,

    Thanks for the info about ORE. I have already allocated funds for it and maybe just add a little more. On the other hand, what are your thoughts on SMDC? From a high of 11.5, its now down to a flat 9. Should I begin to take profits? I was also planning on participating on its IPO but I havnt heard any news so far..

    Thanks!

    Comment by John | October 5, 2010 | Reply

    • with out any doubt take profit

      Comment by mike | October 5, 2010 | Reply

      • Mike,

        a friend of mine recommended me SMDC and forecasted that it should reach 15 on the 1stQ of next year. At what price is it good to enter SMDC after this SRO play? Thanks!

        Comment by Gordon Gekko | October 5, 2010

    • you can still buy SMDC SRO (not IPO).If you are a COL user, you can subscribe online. THe deadline I think is on oct 18. This will help you average down in case you were stuck at P10 or P11.

      Comment by charmagne | October 5, 2010 | Reply

      • regarding smdc sro offer period is on october 18,2010,qualified are holder before ex-date{september 30}they may exercise their right at a ratio of 1:3 at php6.38/share.

        Comment by richard | October 6, 2010

  6. Hi, Sir Gus.

    Do you also have notes for SLI as in depth as that(ORE)?

    Thanks

    Oliver Mia

    Comment by oliver mia | October 5, 2010 | Reply

    • Oliver,
      Unfortunately, my knowledge of SLI is very cursory. Actually, I am already looking to reduce my SLI position as it has gone up by 45% since I put on my position.

      Comment by Gus Cosio | October 7, 2010 | Reply

  7. Sir,
    any thoughts about the banking sector? particularly PNB. Is there some more upsides to be squeezed considering 2010 is about to end and merger Allied will soon be consumated. There have also been write-ups about its sale after the merger. It is worthwhile to enter at current price 65.5. thanks

    Comment by Mark Anthony | October 5, 2010 | Reply

    • Mark,
      Personally, I think PNB has already overshot the mark. I would sell PNB at this level. I do not know of any other M&A activity except with Allied. What drove the price to these levels was an idea that there were other interested parties willing to pay a higher price. I do not know if PNB is worth more than 55 per share under current conditions.
      If you like banks, I would recommend SECB and MBT.

      Comment by Gus Cosio | October 6, 2010 | Reply

      • Sir, The core of my portfolio is PNB. Am thinking of selling it now, in favor of averaging up on agi now at 10.10 (my ave is around 7.5) or MPI (would also ave up..) where do you think my money will get the most mileage in the next 2 months?

        Im planning to top slice on all my stock profits this December coz its Christmas!! 🙂

        Comment by Cholo | October 6, 2010

      • Cholo,
        I will tell you where I am putting my money over the next two months at least – TEL (although I plan to keep this for as long as this bull market lasts), ORE (because I like resource stocks) and PX (because it has a good track record as mining stocks go). I also have DMC and DGTL.

        Comment by Gus Cosio | October 7, 2010

  8. Hi Sir Gus,

    What do you think about SMC? Is it a good investment?

    Comment by Carlo | October 5, 2010 | Reply

    • Carlo,
      I am not a big fan of SMC but a friend of mine thinks it is a long-term buy.

      Comment by Gus Cosio | October 6, 2010 | Reply

  9. Hi gus,

    very interesting notes on ORE. May I ask whats the Target Price for ORE and a good entry point? Thanks!

    Comment by Gordon Gekko | October 5, 2010 | Reply

    • Gordon,
      I have no target price on ORE. My plan is to hold it for as long as I think there is juice in the stock.

      Comment by Gus Cosio | October 6, 2010 | Reply

    • Wow! Gordon Gekko, asking for Sir Gus’s advice. Interesting haha 🙂

      Comment by KennyV | October 6, 2010 | Reply

      • Hi Kenny!

        Ever since I got out of Jail, I turned over a new leaf. I’m not into the insider trading or wrecking this airline company anymore. I’m going for the fundamentals, for the right picks, no more instant money, just good stocks. I bet on sure things. Read Sun-tzu, The Art of War. Every battle is won before it is ever fought. hehe Remember Bud, the most valuable commodity I know of is Information. And Information is what this Blog has 😉

        Comment by Gordon Gekko | October 6, 2010

  10. Sir gus,

    Any inputs on CEB IPO? is it worth buying at its 110 to 135 price? I’m planning to buy 500 shares.

    Comment by noel | October 5, 2010 | Reply

    • Noel,
      I hear that it will be priced at the lower end of the range which is good. I like Cebu Pacific. I ride it all the time.

      Comment by Gus Cosio | October 6, 2010 | Reply

  11. well i hope when the fund mgrs. visits the mine site they will be impress not depress……..this has been quite a contreversial stock………i know of a first metro top executive who passed away a few yrs back…..who owns tons and tons of this stock………..too bad he was not able to see the light for ORE

    Comment by mike | October 6, 2010 | Reply

  12. Hi Sir Gus,

    I have DMC in my portfolio, and so far it’s doing well. Do you think it will continue to perform? What are your thoughts on DMC?

    Thanks also for the ORE insight, i’ll include that in my portfolio when I get some cash.

    Comment by C | October 6, 2010 | Reply

    • Hi C,
      I’m holding on to half of my original holdings of DMC (top sliced). I won’t sell the remaining position for as long as the market is rising.

      Comment by Gus Cosio | October 6, 2010 | Reply

  13. Personally, working at a mining company as well, and a nickel mining at that, I think the numbers are quite off. I doubt if they can pull off that amount of nickel ore, I mean given the price per WMT, that’s leaning towards the high grade–the right side of the spectrum.

    Comment by Topmace | October 6, 2010 | Reply

    • Hi Topmace,
      I would like to hear more. Can you elaborate for everybody’s benefit.

      Comment by Gus Cosio | October 6, 2010 | Reply

      • Unfortunately, I guess I would be biased if I compare those numbers with our numbers. But we have our mine engineers saying that it would be hard to find those grade of nickel ores around the Philippines already. There are unexplored areas, yes, but to tell that these can produce high-grade ores is remote.

        Comment by Topmace | October 6, 2010

      • Im not a mining engineer nor into mining business but here is my personal “research”…

        There are two type of material for which nickel can be produced…limonite and saprolite. If my research is correct, limonite is the low grade while saprolite is the high grade (the right side of the spectrum as “topmace” mentioned).

        For you to take advantage of the LME price, you have to deliver certain “grade” of nickel; you can achieve this by delivering high-grade nickel ore (saprolite) or combination of limonite+saprolite (I guess, but not sure, to come up to the required grade).

        I just have two apprehensions…

        My first apprehension, from what I heard, you can only mine to a certain level above sea level on area mentioned. To get the saprolite, you have to mine (or strip) the area deeper as saprolite does not reside on the top layer of the mine.

        Second, the WMT number, if extracted, “may” be true, but what is the average nickel grade that can be mine on the area? WMT is product-volume, soil to be specific, but the pricing is dependent on the extracted nickel grade. You can say you can deliver (or have reserve of) 100WMT =) but nickel grade may be less than 1.00% =( hmmmm….

        Unlike Rio Tuba / Coral Bay (I did a research on the companies mentioned here)…they are using their stockpile (aka wastage….check their website and wikipedia), from the 25+ years of operation to feed to HPAL facility of Coral Bay.

        Comment by Raymond | October 6, 2010

      • Topmace, Raymond,
        Thanks for your most informative comments.

        Comment by Gus Cosio | October 7, 2010

      • i guess mining copper isnt all that simple..

        Comment by cliffhanger | October 7, 2010

  14. Sir,
    Any thought on SMDC? Currently paper loss of 10% planning to sell tranfer to ORE or PX. Thank you sir.

    Comment by jaayem | October 6, 2010 | Reply

    • Jaayem,
      I recommend patience on SMDC. I do not think you’ll lose money on this. It’s pointless to cut your SMDC just to shift to another stock – a mining stock at that. I like ORE but i will not put all my money on ORE. I like it well enough for about 25% to 30% of my portfolio.

      Comment by Gus Cosio | October 6, 2010 | Reply

      • Thanks Sir Gus,

        Actually I already have ORE and PX and I quite have on my paper gain.

        Comment by jaayem | October 6, 2010

  15. Good day sir! The IPO for Cebu pac is fast approaching. I was wondering what your thoughts are on the initial offer price between 110-135? you think this makes sense. I’m very impressed by cebu pacific’s expansion and future plans. But from the recent IPOs of big name companies such as GMA and AP thanking one their first one or two years. I’m a bit wary of enterinn, anything you can share would be greatly appreciated.

    Norman

    Comment by Norman Go | October 6, 2010 | Reply

    • First and foremost, this site gave me new ways on how to do my research (I used to trade before purely on technical tools). I started browsing this site last Aug 2010 (and officially made a post last Aug 22), but I learned so much for the past 2 months on how to look at fundamental side of the issues (thanks for the person who suggested the book “security analysis”). I wish I have known sir Gus before I joined the stock market “game” way back in 2007.

      Here are my thoughts on CebuPac…

      According to their prospectus –
      CebuPac will allocate 55M+ (55,991,200 to be exact) shares as domestic offer (via PSE trading particiant and local retail inventor ALONE) –
      assumming there will be no over-subscription
      @110/share, 6.1B will be sapped-out in the stock market;
      @135/share it will be 7.5B – before the IPO date

      Total shares to be offered by IPO is 214M (30.6M new shares, 155.9M existing shares, and 27.9 optional shares);
      let’s assume that it is fully subscribed (as in most cases there are over-subscription during IPO), and 35% decide to sell the next day; at 110/share that would be whopping 8B.
      What can I say….wow! perfect recipe to push the market or for deep correction =( … just my opinion

      Some of the data from the prospectus –
      – no dividend policy, have not declared dividend for the past 3 years, will not declare dividend at the end of Dec 2010.
      – Board may declare cash dividend and declaration does not require any approval from shareholder

      So where will I put my reserve fund – probably not in CebuPac BUT with JGS! as JGS owns 100% of CebuPac via CPAir Holdings Inc.

      This IPO is for JG Summit!

      Comment by Raymond | October 6, 2010 | Reply

  16. Gus should do post just for the Cebu Pacific IPO. Everyday people has been talking about it..

    Personally? If you were waiting since august, and instead of waiting you just placed your money on something like DMC, you’ll have over +30% increase already..

    But i guess the new kid on the block is always the hot stuff..

    However, it would be nice we can have a post for Cebu Pac just like this current one about ORE. That is, if there are information out there thats floating around. I can’t seem to find any..

    Comment by jasper | October 6, 2010 | Reply

  17. btw: MPI has breached 4 pesos (Closing 4.11) – One of the best investment I’ve ever made. Thanks Gus.. your logic is proving to be true for this particular issue.

    Comment by jasper | October 6, 2010 | Reply

    • Hope it reaches 5 by year end!

      Comment by Ryan | October 6, 2010 | Reply

  18. Hi sir,

    I have just started trading 4 months ago and have already gained 60%. Then I came across an article talking about getting your retirement from your stocks invested lets say 10 or more years ago. Is it still possible to do this today? I was thinking if I gained at least 40% every year then compound it for 10 years, it would pretty much be a good retirement package? What would you think are stocks that could help me acheive this?

    Thanks!

    Comment by Aaron | October 6, 2010 | Reply

    • Hi Aaron,

      I have the same feeling way back in 2007 when I first started “trading” in stock market. Well, I say “trading” because I really dont know what Im buying as I dont know what the company is doing, are they earning, etc…
      What I know then was stock price is rising as indicated by the chart.

      But stock market has a cycle, it rises and it falls (like the year 2008 to Mar 2009). I have 12% gain before the end of 2007 (as that was the last leg of the bull run in PSE before the global financial crisis became the headline). At the end of 2008, only 16.5% of my total equity was retained – 83.5% loss, that was my “tuition fee”.

      I share you this experience not to scare you but to give you insight on how priceless the information being shared in this site. There are lots of trading/investment strategies mentioned from the previous blogs which you may use to attain your goal. Check Jasper’s entries – I learned a lot from his entries.

      Comment by Raymond | October 6, 2010 | Reply

  19. Hi Sir Gus,

    Thanks for SLI, MPI, and DMC! Still holding MPI though as this stock hit the 4 peso barrier.

    Since I read your blogs a month ago my YTD gain is currently up by 16.5% and I also recover my paper losses last year of -12%. Your are very helpful.

    http://esquieresfotografia.weebly.com/my-blogs.html

    Comment by alssy | October 6, 2010 | Reply

  20. To Mr Gekko:

    The original movie was shown way back in 1988. If you will remember the years 87 and 88 was a banner year for the Los Angeles Lakers as they won back to back championships. Anchored by the charismatic Magic Johnson, and Coached by a slicked backed hair, Armani wearing Italian-looking coach Pat Riley.

    I guess if you’re doing a movie and wanted to piggeyback on the momentum of the showtime lakers(hey, the extra attention wont hurt right?), you’ll model your lead actor on Pat Riley too.

    Comment by jasper | October 6, 2010 | Reply

    • Good point haha I thought their similarities were just coincidental

      Comment by greenhorn | October 7, 2010 | Reply

  21. sir gus,
    Good Evening!
    what are your thoughts on MPI?any target price on this stock? I took profits this morning when it hit 4.11.. is it still that undervalued?thank you sir! more power!

    Comment by Raymond | October 6, 2010 | Reply

    • Raymond,
      Right now, it appears to me that portfolio fund managers are re-rating the Philippine market upwards, i.e., they are accepting higher PEs. I cannot tell how many times higher but if a stock has very good prospects, it is better to keep it. Right now, it is no longer whether a stock is undervalued or not, but what alternative investment could be better.

      Comment by Gus Cosio | October 6, 2010 | Reply

      • Hi Gus,

        I don’t know what to do now. Am waiting for dips to buy but the dips are getting much higher than previous lows and are almost equal to the highest price of the previous week.Where can we get new higher PEs? I also don’t know when to sell since I might miss out on the bull run. I have EDC, AT, PX, ORE, PNB, DGTL, FGEN, DGTL, MEG SCC and FLI. Would like to buy MBT,SECB, VLL, AP, SLI, ALI more PNB and CebuPac IPO. Your comments please..thank you.

        Comment by Newbie | October 6, 2010

      • Newbie,
        I would not encourage you to pick up PNB ans SLI at this point since it has moved past where I am willing to buy it. I am not too keen on MEG either bcause I’d rather have AGI. ORE and PX are quite high on my list because I think mining will perform over the next few months. I also like Cebu Pacific.

        Comment by Gus Cosio | October 7, 2010

  22. ore is good but i think PX is better in minning sector. they are both profitable business anyway.lol

    Comment by joppy gwapo | October 6, 2010 | Reply

    • Joppy,
      Definitely PX is the premier mining stock in the country. The reason ORE may outperform PX is because ORE’s potential is yet to be seen while PX is a mature company. We can say it is a bit speculative at the moment because we are still gambling that they will be able to ship by November. If they are able to, that moves the risk factor to a lower level which in theory should bring the price higher.

      Comment by Gus Cosio | October 6, 2010 | Reply

  23. Sir Gus,

    Thanks a lot for your insights that are very helpful. I just sold my TEL (+15%) after holding for 2 months and MEG (+60%)to have a 20% cash allocation as I am fully invested. I will enter TEL by February before they declare its dividends.

    The market is going higher each day which is making the PE of stocks higher due to foreign buying of almost 500 M each day. This is already 25% of the trading amount during the first quarter which averaged around 2-3B.

    My previous PE for companies I buy is less than 10, but with the current environment, I can go higher to a PE of 12 or 13 which is still below the market average.

    I do have DMC,DGTL,MPI,FGEN,UBP,LPZ and RCM. I am planning to sell my FGEN as this is already up 40%YTD and I do have indirect exposure in FGEN thru LPZ. RCM has been a 4- bagger and my target price for this is around 8.50 based on the PE of 10.

    Comment by alexis | October 6, 2010 | Reply

  24. Sir Gus,

    I prematurely sold my MPI at P3.60 (made a bit of money), I want to get back in. Will this still be a good move? And at what level will I enter again?

    By the way, thanks for the blog. I’m learning a lot from you and the comments posted. Continue the great work.

    Comment by gabbysev | October 7, 2010 | Reply

    • Gabby,
      As a rule, I do not like chasing prices. May I suggest that you consider another stock such as VLL or AP or even TEL or DGTL. You can pick up MPI when it pulls back a little.

      Comment by Gus Cosio | October 7, 2010 | Reply

      • Gus,
        Thanks again. I already have DGTL and some SLI.

        Comment by gabbysev | October 7, 2010

  25. SIR GUS,
    DO YOU HAVE ANY IDEA ABOUT ACESITE (DHC)? AND IT WILL GIVE 250% STOCK DIVIDEND.

    Comment by AL | October 14, 2010 | Reply

    • AL,
      I have no clue on Acesite.

      Comment by Gus Cosio | October 15, 2010 | Reply


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