I love situations like Americas Petrogas (BOE.V/APEOF on OTC). This is the exact type of situation that it is very difficult to lose money even though it is a small cap exploration company. Typically, you only find these gems in severe bear markets, which oil/gas is in now. But that’s only part of the story here and it starts with the fact that the current market value at 20 cents per share on BOE is trading significantly below the company’s cash value. With a $43MM market cap at 20 cents and a nearly $65MM working capital position (no debt), there is a disconnection that will sooner or later be rectified. Cash in the bank equals just under 30 cents per share as of today.
The main negative here is that it is not a pure play, as the company’s assets are split between potash brine and phosphate blocks in Peru, and oil and gas assets in Argentina. However, both assets are quite valuable and very large with 200,000 net acres in Peru, and 296,000 net acres in Argentina shale oil and gas blocks. Make no mistake, these are large land packages with significant value. Insiders own 27% of the stock, which is meaningful and well above industry averages.
The flagship asset is an 89% ownership in GrowMax, which owns the Peru phosphate/potash concessions. The Indian Farmers Fertilizer Cooperative (IFFCO—world’s largest fertilizer co-op) with 34,000 members/shareholders and $4 Billion in annual revenue, owns 11% of GrowMax and 14% of BOE. The board is deep with representation from Point72, Steve Cohen’s family office, and Abby Badwi as Chairman (former Vice Chairman/CEO at Bankers Petroleum). This is a situation where investors just need to wait for value to be unlocked, not discovered.
The Argentina assets, even though not the company’s main focus, are nothing to sneeze at. With new president Macri in place, growth in Argentina will be very robust for years to come, attracting major global capital looking to invest in their significant energy resources. Argentina is said to have the 4th largest shale oil reserves in the world and BOE could command a significant partner to develop their assets. Or, these assets could be spun out or purchased for another huge cash infusion into the coffers. Either way, my sense is that even if BOE only consisted of the cash balance and oil/gas assets in Argentina, it would still double or triple from current levels.
Catalysts coming up will be the release of a new Preliminary Economic Assessment in Q2, which could wake investors up to the value in Peru. An asset divestiture or acquisition could also spur fresh buying in the stock. But mainly in these situations, one day we wake up and the stock rockets 30-50% in a week, just because. In actuality it is because the share price is simply too low and undervalued, so the market eventually corrects these divergences. I’m putting a price target by year end (9 months) 2016 of 40 cents per share for BOE.V or 100% upside from current levels.
The daily chart shows a very attractive entry point right here as the stock is bouncing off of support and is clearly hitting higher highs and higher lows so far in 2016. There will be some resistance around 25 cents but after that, a run well into the .30’s should be fairly easy.
The share price is only trading modestly higher than the 52 week lows in the high teens. If we take a step back to look at a 10 year chart, we see that BOE is trading 95% lower than its 2012 high of $4.50 per share.
This is a very low risk/high reward bet and I encourage readers to take a “free swing” under 25 cents for an easy 50-100% return in 2016.
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