Portfolio Update

In early Feb, I sold out of Heckmann, Reed Resources and Harris Interactive. Heckmann has a great potential future but I can find companies that are selling at even cheaper valuations. Reed Resources, I had mentioned was a mistake. Although I didn’t want to sell until I got a decent price, given what else I can find in the market I decided to get out.

Harris Interactive was a great return for us. It saw an 85% increase since I bought it, in less than 4 months. Although the turnaround has just started the question is whether it is still worth holding. The more I think about this company, the company it is not a great business. When I bought the stake it was being priced as if the doors would be closed. So the risk of loss was based on your belief whether the company would be able to generate positive cash flow. The company had 13M of cash and a CEO that knows the industry and the company very well. So the risk was low for the company to go belly-up. Although this is a small company, probably will do 150-200M in revenue, and doesn’t have a growth potential. While, in the current market you can find good companies that can grow value over a long run. Although Harris is a good business, it is unlikely to grow much bigger than the 150-200M revenue size. Given what else is out there, it makes sense to buy companies that will grow value in the long run.

I bought Yukon-Nevada Gold, Global Ship Lease. I’m also looking at two other companies to buy.

I was buying more Yukon-Nevada before the recent spike. The recent jump in price is just the beginning. I believe in the next 2-8 months you will see a long list of good news coming out form the company (results from the Mining Safety agency visit in February, new 43-101 report, move to AMEX, restarting underground mines, and getting to the steady
state of 150K oz.). Also if management is able to get approval for increasing production then the company could end the year at run-rate of over 200K oz.

Global Ship Lease, I’ve written about this over a year ago. The write-up is available on SeekingAlpha. Basically this is a shipping company that used to give 92 cent dividend before 2009. After the 2008 recession, the ship resale values have taken a huge hit. GSL can’t give out dividends unless the loan-to-value is atleast 75%. So GSL is not paying any dividend, instead it is using cash to pay down debt. If you look at the operations for the last 4 yrs you will see steady cash flow. It is just that until the company can start paying dividend the stock will be cheap. In 2011 the company was getting close to restart dividends. The stock jumped to over $7/share. Then in late 2011 with the Europe crisis put a damp valuation of ships and the dividend restart didn’t occur. The stock got hammered. At less than $2/share this is a steal (even in low-$2s it is a great buy). The company will start dividends, it is just a matter of when. In the meanwhile you have a company that is getting a steady cash flow and paying down debt. Any signs of a restart of dividends and this will be a multi-bagger. The company does a loan-to-value test in Nov ’12, which could be catalyst for a dividend restart. Too bad for me, the stock moved up much quickly and I wasn’t able to get a full position built.

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