Gran Colombia Gold notes

A minor update on (TSX: GCM.NT.U), they will amortize another 8% of their notes effective October 31. (Press release)

They also received a credit rating increase from B to B+ on their senior secured notes. Considering that after the quarterly amortization that they will have US$35.5 million outstanding, coupled with a positive net cash balance, this isn’t surprising. However, Fitch is very correct in identifying that the life of the Segovia mine (which is substantially most of their cash flow) is quite limited and they will need to find additional reserves, and that ore grade levels are depleting. Even if the mine were to shut down tomorrow, the remaining cash balances will be sufficient to pay off the debt (albeit the equity holders will suffer greatly).

They’ll call off the notes on April 30th. In the meantime, holders continue to enjoy a disproportionately large coupon. The notes are trading in a tight bid-ask where it doesn’t make sense to either buy or sell them. I really wish somebody would bid them up into the one hundred plus teens. It hasn’t been the case – lately the bid/ask has been 108/109. So I’ll continue holding until maturity.

AcuityAds Holdings

I was looking at Atlantic Power (NYSE: AT, TSX: ATP) but accidentally typed in AT on the TSX, which is AcuityAds (TSX: AT). I saw the following chart:

They have nearly quadrupled their market value in about three months.

This got my interest (considering I’ve made the same error before in typing in the ticker, I generally saw a flat chart before). I didn’t see anything relevant in the financial statements – it was pretty sedated although they’ve been reasonably decent on cost controls from the first half of 2019 to 2020. I also tried to see why they spiked in July, but couldn’t find anything of relevance other than a remarkably increased amount of receivables collection in the first half, to the tune of about $6 million free cash flow.

Is this worth a market capitalization of $200 million? I don’t know much about exactly what they do (a bunch of fancy sounding names for using software to optimize advertising campaigns) but whoever invested in them during the Covid crisis will have made out very well.

Air Canada / Air Transat / Westjet

A tale of market timing…

Air Canada (TSX: AC) was going to buy out Air Transat (TSX: TRZ) for $18/share, but of course COVID-19 hit. They will instead do so for $5/share, and also with shares instead of cash (the details of this were not clear from the press release, but a typical provision is for people to elect to take cash up to a certain aggregate amount and after they will receive cash). The shares option has Air Canada equity valued at a level that is higher than Friday’s closing trading price.

Financially, Transat is not in terrible condition, with a whole bunch of cash and equivalents that are paid in the form of customer deposits (good luck getting those ticket refunds, customers!). They are still bleeding cash by virtue of their revenues going down to nearly nothing, but Air Canada is striking while the iron is hot (or rather, while the Covid craze is hot) and removing a future source of competition. The implied value in international ticket pricing they will gain will probably be a lot higher than the immediate costs of the costs they are paying.

We contrast this with Onex’s acquisition of Westjet, which closed in December 2019 for $31/share in cash (or $5 billion, debt included). Air Canada’s equity took a 3/4 haircut after Covid, and there wouldn’t be much reason to believe that Westjet would have fared any better had they still been public. Onex is a huge entity so their financial solvency is nowhere threatened, but still, they probably took an implied $3 billion haircut if they were to float Westjet to the public again.

This, and also an examination of Cineplex’s proposed takeover (at CAD$34/share), goes to show you that timing is everything.

I don’t buy airlines, nor do I particularly care for the sector as a whole. Almost everything associated with the retail side of commercial aviation is miserable. Other components of the industry have somewhat more promise.

Late Night Finance with Sacha, Episode 7

Late Night Finance with Sacha, Episode 7

Date: Tuesday, October 6
Time: 8:00pm, Pacific Time
Duration: Projected 60 minutes. Could go longer.
Where: Zoom (Registration)

Frequently Asked Questions:

Q: What are you doing?
A: You will get a brief commentary on some other things I did not reflect upon in my quarterly report. I’ll answer some questions from the /r/CanadianInvestor sub-reddit. Finally, I will review potential 2020 year-end tax-loss selling candidates on the TSX.

Q: How do I register?
A: Zoom link is here. I’ll need your city/province or state, and if you have any questions in advance just add it to the “Questions and Comments” part of the form. You’ll instantly receive the login to the Zoom channel.

Q: Are you trying to spam me, try to sell me garbage, etc. if I register?
A: I can hardly manage a mailing list without breaking my own website, what makes you think I will spam you? No, if you register for this, I will not harvest your email or send you any solicitations. Also I am not using this to pump and dump any securities to you, although I will certainly offer opinions on what I see.

Q: Why do I have to register? I just want to be anonymous.
A: I’m curious who you are as well.

Q: If I register and don’t show up, will you be mad at me?
A: No.

Q: Will you (Sacha) be on video (i.e. this isn’t just an audio-only stream)?
A: Yes. You’ll get to see me.

Q: Will I need to be on video?
A: I’d prefer it, and you are more than welcome to be in your pajamas. No judgements!

Q: Can I be a silent participant?
A: Yes.

Q: Is there an archive of the video I can watch later if I can’t make it?
A: No.

Q: Will there be a summary of the video?
A: A short summary will get added to the comments of this posting after the video.

Q: Will there be some other video presentation in the future?
A: Yes.