Niko Resources (NKO.TO)

Hasn’t owned this for a long time. Has been looking at it a bit since it has come down. There are much better opportunities in others.

On his Watch List. Too scary for him. You have to watch that it is not just a value trap.

(Market Call Minute.) He is Long the convertible bond and Short the stock so he is neutral on this.

(Market Call Minute) Lots of exploration disappointment and high debt, and may not be around.

India was going to be the main long-term impetus. Demand for gas was huge. Got into all sorts of problems. Feels there is still too much risk associated with this. Maybe once a financing is complete and a new CEO is appointed.

(A Top Pick Dec 5/12. Down 85.38%.) Everybody knows the negatives and that they have to pay back the bank line, which is extended now into the end of November. This is a liquidity, financial balance sheet issue. If they can get the line of credit and get moving forward, they will be getting a change in price from $4.30 in MCF to $8.40 on April 1/14. They are doing remediation on the D6 play and volumes will potentially start rising in April 2014 and he thinks the company could be doing $2 a share in cash flow in 2015. A very speculative security. He thinks their success in India will happen again.

(Market Call Minute) Has regulatory and geo-political risk layered on.

(Market Call Minute.) Has struggled with production lately and is captive to the Indian governments gas prices and has fairly high debt.

Such a binary stock. He cautions viewers to be very extremely careful. It could go up greatly or to zero. They are burning cash. He figures they have 5 months of cash. They have had very poor drilling results. They are in a spat with the Indian government. If they resolve this financing issue it could have quite a pop.

Had a debt problem, tried to solve that and ended up with another debt problem. Now a situation where they have great assets but the company needs to exploit those assets and meet their commitments. Management owns a lot. They have done nothing for shareholders for 12 years. There is upside, but huge risks as well.

Long on convertible debentures and short the stock. It is very speculative at this point because of debt and the wells are deep water wells costing 80-100 million dollars per well.

You have to be really, really careful with this stock. This company is locked into long-term contracts on offshore drilling rigs. Because of their cash situation and lack of exploration success in Indonesia, he feels they have about 6 months of life support left. Thinks they have to come to market and do a massive equity financing to clear up the overhang. Burning cash on a daily basis.

Really hasn’t had the breakthrough in drilling in Indonesia which has really bothered the market. Secondly waiting for a price increase out of India which has now been resolved. Have commitments on the drill side with the drill ship in Indonesia but doesn’t have the capital because the cash flows come down and this year may only do $60 million. April/14 they’ll probably do $100 million more. Problem is, everybody wonders how they get from where we are today to April 1 when that new revenue stream comes in and the commitment they’ve got for the drill ships and the issues of the asset sales they’ve been talking about. Currently drilling a well which will probably be the last well in Indonesia. If not a home run success, the rig is in demand so they could probably pass on the costs of running the rig to others. Have a very good oil discovery in India called MJ1 that needs development drilling. In April/14 they should start seeing volumes come back up from development activity. With $2 in cash flow and good long life reserves and bringing on new discoveries, there could be some significant recoveries. Would look at buying over the next few months during the window of correction and window of tax loss selling.

This company has all kinds of problems. Earnings just came out and they were down $1. They have to start selling off a lot of assets.

Volatility is so exceptionally high. The down trend has stopped however and it is a basing. If you broke the $6.50 level there would be a place to put a stop in at its recent low in June.