Scandal in the works? Southwestern Resources (SWG.TO)

A scandal seems to be unfolding at Southwestern Resources--a junior gold miner from Canada. Here is a Globe & Mail article on the unfolding story. The stock was down as much as 80% yesterday but has recovered some of the losses today. It is still down more than 50% from a few days ago. I'm neutral on the gold sector right now and would be careful given the rally in gold in the last few months but this stock looks attractive from a book value point of view.

The stock is trading close to book value (C$2.38 based on 3/31/07 balance sheet) right now, and it was below book value yesterday. No debt and around $50m cash on the books. Investors had a great opportunity to pick up the stock way below book value yesterday. There is risk but if one can get it at a low price, it isn't so bad. The big risks now are (i) management cannot be trusted (they took months to disclose the discrepancies) so who knows if the accounting statements are cooked, and (ii) there may be lawsuits that may cost tens of millions (wiping out the cash on the books that makes this company attractive). There is also the risk that gold prices may decline and cause the market to negatively re-price this stock.

If this stock trades way below book value in the future (it may depending on what actually happened over in China with their exploration), it is worth investing IMO.

Comments

Post a Comment

Popular Posts

Thoughts on the stock market - March 2020

Image
Right now, DJIA has a P/E of 16.8 and forwand P/E of 15.1, whereas S&P 500 is at 20.1 with forward P/E of 15.8. Source: WSJ market Data If you ignore interest rates and inflation expectations--both of these influence valuations but depends on your macro call-- the market is not cheap. Long-term P/E is around 15. Trailing P/E is around 20% (Dow) to 40% (S&P500) higher than average. Forward P/E is in line with long term average but that assumes a strong V recovery. Consensus forecast is for profits to drop 1.2% in 2020. In 2008, it dropped 25.4% so current forecast is a very mild recession. Covid-19 coronavirus is not going to last more than a few months but these forecasts are still too rosy in my opinion. So I wouldn't rely on forward P/E. The richly valued (mostly tech or high quality) have not fallen much but the distressed ones have. So if you want to outperform in the long run, I think one’s choice right now is to: • Wait for market to fall another, say
✖ READ MORE >>>

Warren Buffett's Evolution and his Three Investment Styles

Image
A Young Warren Buffett In a comment to one of my posts , Mark Carter, who incidentally appears to have a  good blog worth checking out , asked: "Buffett Prime is 1970's to early 1990's" Could you elaborate? I have vaguely indicated how I view Warren Buffett in the past, but I thought I would detail my view of his investing behaviour. This is more of an opinion piece and many others would disagree with me (if you do, I'm curious to hear your thoughts). I don't follow Warren Buffett as closely as many value investors so I may get some facts wrong. My view is that Warren Buffett went through three different phases, with each consisting of different investment techniques. The overall investment theory remained the same—what people call value investing—but his execution, tactics, and strategy differs across the three phases. Some people may break up his career into additional periods but my feeling is that the three I will describe essentially capt
✖ READ MORE >>>

Hugh Hendry discussion at the Alternative Investment Conference

Thanks to Value Investing World for bringing this Hugh Hendry interview to my attention. I may not agree with all the things—short-term orientation of hedge funds is actually worse IMO; the sharp pencil effect doesn't always work—but Hendry is a true contrarian and worth listening. Like Marc Faber or Jim Rogers, you also can't take everything Hugh Hendry says seriously. I had always felt Hugh Hendry was firmly in the deflation camp but I get the feeling that he is now opening up to high-inflation possibilities. Otherwise, his stance appears to be similar to past opinions.
✖ READ MORE >>>