Gus Cosio says so

Ideas on the Philippine Stock Market

I’m digging

6:40pm  Thursday  24 February 2011

It is extremely difficult to make a call on the broad market due to the multifarious influences such as global commodity inflation, the price of oil and the tension in Libya.  Cursorily, broad problems exist such as disruption in oil supplies, displacement of OFWs working in Libya, political re-alignment and saber rattling among allies of the troubled countries and possibly long debates in the United Nations General Assembly and Security Council.

My friend used to say that in his household, he makes the decision on the major issues like who should the Philippines have strong diplomatic relations with, global warming and climate change, and whether the Euro should be abandoned by EU member states.  His wife is the one who decides on the minor issues like the monthly household budget, where the kids will go to school, what brand of car they should buy.  I guess they have a notion of what matters the most.

There is very little we can do about what is going on in the world, but we can get to have a look at a few minor details.  One minor item which I have in mind is ORE since I sense that there are a number of people losing money on this stock.  For your benefit these are some highlights of of the notes of one analysts note:

ORE owns 94% of Citinickel which is the sole owner of the mining claims of the Pulot and Toronto mines located in Barangay San Isidro, Bato Bato, Narra, Palawan, 100km south of Puerto Princesa City.  Both mines contain 1.83% to 1.85% nickel at a cut-off grade of 1.2%, which is one of the best explored nickel grade in the Philippines today.

  • ORE’s stockpile as of Feb. 12, 2011 stood at 142,000 cubic meters or 156,000 Wet Metric Tons of ore with grade of 1.8% nickel or better per ton.
  • Several mountains of ore (stockpile) are on  two stockyards, at a maximum distance of  2 km from the mine port and 6 km from the vast expanse of the open mine pit, 400 meters above sea level .  High grade (saprolite) nickel ore can be extracted on shallow soil.  Company officials say that overburden is 2 meters deep and saprolite protrudes at 6 meters deep.
  • ORE’s first shipment has been delayed thrice since last year up to early 2011. They hope to ship two boatloads or 110k WMT to 165k WMT, at best within the month of March.  Subsequently, they plan monthly shipments until Sept. of at least 110k WMT per shipment.
  • Tonnage (mining output) for the year and shipment will be 750,000 WMT on robust selling price of  $83/WMT based on a   grade of  2.1% which is the indicative weighted grade for the 700 ha. Toronto mine per Mines and Geoscience   Bureau (MGB) records shown by ORE officials.
  • Operating margin is 80% on the abovementioned selling price as ORE’s all-in mining cost is $15/ton.  We estimate ORE net profits assuming selling prices at  1.8% nickel grade and 2.1% grade of  $63/ton and $80/ton to be PHP1.1bn and PHP1.6bn for PE of  3.5x-2.5x, respectively.
  • Risks that we see are more rains and flooding of the mine site and a port under repair, which ORE claims can accommodate two barges at a time.  The port is 200 meters long, 3.5 meters deep and faces the Sulu Sea.

I reiterate that I do not suggest this stock to the faint of heart, and I am not saying that the price will not slide further because I think it can.  This is purely for the information of those interested.

In spite of a good number of stocks showing very attractive valuations, the markets are likely to slip further.  It is no longer a matter of value but rather a cloud of fear that people are looking at.  I have no idea when the market will turn except that net foreign selling in our market cannot go much further.  That, however, is no guarantee that there will be local buying to lift the market.  If you are going to stay in the market, you better be prepared to sit on losses for a while.  In my case, I’ve been through cases like this before, so I am used to the shelling and explosions already.  In times of war, you just have to keep your head down; but it is also in time of war that the wily get really rich.

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February 24, 2011 - Posted by | Uncategorized

20 Comments »

  1. Hi Gus,

    Thanks for the info especially on ORE, well it really goes down big time today.

    i just hope they push the shipment for the realization of its fundamentals.. though it is very tempting to buy at these level, i am still thinking…one of the investors who went to palawan said that the shipment was sched on March 01?

    Comment by Blogspot | February 24, 2011 | Reply

  2. TEL is too enticing to pick-up with the 6% dividend declaration that can be announced by next week based prior year experience.

    Again, this stock is falling and nobody knows when it will stop

    Comment by alexis | February 24, 2011 | Reply

    • alexis,
      my expectation of dividend payout off TEL for 2011 is 221 pesos, just like last year. That should bring div yield to around 9.6%. Not bad, but TEL could slide some more.

      Comment by Gus Cosio | February 24, 2011 | Reply

      • Sir Gus,
        Indeed, the yearly dividend yield is 9.6%. The 6% pertains to the dividend I expect for March only as the special declaration is usually declared on the same period. The next dividend will be August.

        Comment by alexis | February 25, 2011

  3. accounting for the potential inventory of the mine is actually very complicated. i hope the figures you mentioned above have conservative margins of safety sir gus.

    Comment by cliffhanger | February 24, 2011 | Reply

    • I’d like to assume that the figures as regards the stockpile were provided by ORE people themselves as it is impossible for a person not involved in mining to make an estimate.

      Comment by marketbeginner2 | February 24, 2011 | Reply

      • Marketbeginner2 (feels like Im talking to myself),

        Could you please clarify what makes you consider a person to be involved in mining? When you buy and own shares of stock of a mining company (whether or not in operation), does not that make you involved in mining?

        But if you refer to technical knowledge, I believe the analysts who feature a mining company in its recommendation for a stock to buy do not necessarily possess the technical knowledge about mining; yet people believe in what they write about a particular mining company. Let me take another example: Gus is not a miner (in the strictest sense of the word)

        Lastly, when you refer to ORE people, do you mean the mining engineers and mineralogists who actually measure, say, the grade of the nickel ore at the site? Or do you refer to the fund managers who are big stockholders of the company?

        Comment by marketbeginner | February 25, 2011

      • yeah, seems like we are talking to ourselves. he he he.

        assuming a fund visits the site, even if he say ORE is one of the stocks that he/she monitors (and let’s say he/she covers the stock for say more than a year), that would not give him/her the skill to make an accurate estimate of how much the stockpile is.

        thus, my assumption is that only a person who is knowledgeable and is into the actual operation of a mine site (in other words, a person who works there) could give figures as to how much are in the stockpile.

        Comment by marketbeginner2 | February 25, 2011

      • missed it, it should have been “assuming a fund manager….”

        Comment by marketbeginner2 | February 25, 2011

  4. Very interesting post. I have manage to get in and out of ORE a few times already. And now I am stuck but this news definitely gives me more confidence. Thank you for this information.. Now if only the market would also be the same..

    Comment by Seth | February 24, 2011 | Reply

  5. very encouraging post for ORE holders.. not a long time ago, AT (Atlas) also was in a similar status when it planned to revive the Carmen Copper Mines. While everyone was awaiting the first shipment from that revived mine, the price of AT came close to 3 as far as I can remember. When the shipments finally came out, after many delays, the price of AT in the market has shoot up to as high as close to 20 🙂

    Comment by Zandro | February 24, 2011 | Reply

    • i read in one of the posts that you also planned to visit the site….

      were you able to visit? any info?
      thanks.

      Comment by marketbeginner2 | February 25, 2011 | Reply

      • that is, if you were the zandro from absolutetraders that i read about.thanks.

        Comment by marketbeginner2 | February 25, 2011

  6. Well the US market isn’t fairing too well either. So far only the 1300 support level is keeping the S&P 500 from plunging but as it is it has lost more than 3% in 3 days and if that support doesn’t hold we expect more heavy selling. PSE’s strongest support level is currently at 3700. If it doesn’t hold on Friday, it’s not gonna be pretty.

    The key here is exposure. The first advice of Sir Gus is duck your head. This is true. The only way truly to make money in this market environment is to buy and sell quickly and that’s really only for day traders. If you have the time then do it. Otherwise, keep your exposure to the minimum no matter how tempting those undervalued stocks are because honestly people will just sell on strength. What it means to keep your exposure to the minimum is, put your exposure in a level where a 1-2% drop in one day won’t make you cry and stick with defensive stocks that doesn’t drop 5-10% in a bad day. No stock has a chance of maintaining any kind of momentum for now. In any case the only way you can take advantage of an upswing and make lots of money when sentiment changes is if you have the cash to bottom feed. Because right now, it’s pointless to bottom feed when the market hasn’t reached the bottom yet.

    Comment by Mars | February 25, 2011 | Reply

    • Mars,

      markets everywhere around the world have recently just corrected from their tops. i don’t think we are anywhere near a bottom if the trends are truly charting a bearish trajectory. bottom feeders right now would only feed more momentum into the downtrend like combustibles into the flame

      Comment by chris munti | February 25, 2011 | Reply

      • I agree with your opinion Chris Munti about markets just recently topping out. May I also add a further comment to Mars: day trading is much more efficient in markets where one is allowed to trade both directions (i.e., being able to short stocks during a downtrend). In a market like the Phisix however, one could only profit during an uptrend. So it doesn’t make sense (and indeed it presents a high amount of risk) to day-trade during a downtrend.

        Comment by Forth Pangilinan | February 25, 2011

      • yeah. downtrend lasts longer when more people trade on the basis of a hope that a rebound is in the offing . the funny thing is that the market starts to rebound when the hopers give up hoping (at least that is what experience told me in the last bear market)

        Comment by marketbeginner | February 25, 2011

  7. I believe in you Gus, have decided to invest,,i feel that the time is very near for this stock to go up again..! Good Luck!

    Comment by Blogspot | February 25, 2011 | Reply

  8. Thank you for the ORE info. One of the more encouraging words in this current market.

    Comment by John | February 25, 2011 | Reply

  9. great information on ORE 🙂 thank you sir gus!

    Comment by hagiazo | February 25, 2011 | Reply


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