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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.

Importantly, be sure to subscribe to our free E-Letter below for regular updates on Americas Petrogas and other special situations:

 

 

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Legal Disclaimer: I am offering ideas for your consideration and education. I am not offering financial advice. I am not a financial or investment advisor and am acting in the sole capacity of a newsletter writer. I am a fellow investor and trader sharing his thoughts for educational and informational purposes only. This publication is a 100% subscriber supported. No compensation is received by the author from any of the companies mentioned for the recommendation of a stock in this service (if this changes or there is exception-it will be clearly disclosed to our readers). Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided on the Website is based on careful research and sources that are believed to be accurate, Mr. Muschinski does not guarantee the accuracy or thoroughness of the data or information reported. The opinions published on the Website belong to Mr. Muschinski or respective associates and are neither an offer nor a recommendation to purchase or sell securities. Mr. Muschinski does not recommend services, products, business or investment in any company mentioned in any of his essays or reports. Materials published on the Website have been prepared for your private use and their sole purpose is to educate readers about various investments. By reading Mr. Muschinski’s essays or reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these essays or reports. Investing, trading and speculation in any financial markets may involve high risk of loss. We strongly advise that you consult a certified investment advisor and we encourage you to do your own research before making any investment decision. Mr. Muschinski, Black Gold Letter’s employees and affiliates, as well as members of their families, may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

I’ve decided to publish this research report specific to Jagercor Energy’s business and not to dive too much into the macro opportunity in Argentina. The investment opportunities in Argentina are numerous and compelling enough to justify a separate report on why to invest there before and into the “regime change” occurring in January 2016. I will publish “Why Argentina” via Elite Investments blog which will outline a handful of ways to profit and where to have exposure in specific companies. That research will show without a doubt that smart money is already positioning in the country and that asset values are sure to rise in the coming years. Certainly now is a terrific time to be isolating investment themes because as people are more comfortable in a new environment next year and beyond, money will flow to Argentina from around the globe. It is the third largest economy in Latin America behind Mexico and Brazil with a GDP over $600 Million. I will also be writing about the opportunities in Brazil, where I own a home and visit yearly. The economy has run into trouble and the currency and market are historically getting very cheap.

The fact is that after much due diligence pouring over balance sheets and investment ideas in Argentina, Jagercor Energy (JEM in Canada/JAMTF in US) is still my favorite speculation. Since my last report in fall 2014, we now have some meat on the bone to chew on when analyzing value for the company. Jagercor is now an oil producer and a rare penny stock that has a robustly cash flow positive business. The CEO and CFO of Jagercor Energy both migrated from very high paying jobs at the largest integrated oil company in Argentina, YPF SA. YPF is a $16 Billion company and both Alejandro Chernacov (CFO) and Edgardo Russo (CEO) both held positions as Directors. Management is critical in these small growth companies and the pedigree here is impressive (between YPF and Jagercor Edgardo worked at Baker Hughes in Texas).

Alejandro was the Director of investor relations at YPF, working with numerous institutional investors such as the Soros fund. In addition, Alejandro was very involved in raising over $3 Billion in long and short term financings for YPF, which should come in very handy as JEM grows into a more sizable company. Edgardo at one time led more than 700 employees operating 15 rigs at YPF and has strong operational skills in addition to being an engineer by trade.

Oil reserves like the Vaca Muerta shale in Argentina are massive (U.S. Energy Dept states that Argentina has the world’s 4th largest recoverable oil resources at 27 Billion barrels-over $1 Trillion worth). The largest companies there are focused on wells that can produce thousands to tens of thousands of barrels per day. However, there are plentiful opportunities in these company’s portfolios that already produce oil where a company like Jagercor can come in and optimize/operate the projects. That business strategy alone could make Jagercor a very strong growth story but they began their journey investing in a low risk field called Castriel Oeste in the Rio Negro Province. Jagercor signed an agreement in mid-2014 with Central Resources for the right to drill 8 wells. Due to Argentina’s deficit in domestic oil production the country signed a new energy bill in late 2014 incentivizing producers within the country. Even though oil prices collapsed to the $40’s per barrel recently, Argentina pays their domestic producers $77 per barrel, thus Jagercor commands a premium to global oil prices (currently $60).

Central Resources is the operator on the first 3 wells and Jagercor receives 70% of revenues until costs are recouped, then flip to 40% for the life of the wells. We now have close to 2 full quarters of production data from the initial 3 wells and besides a weak month in February due to weather and union issues, production has leveled off at approximately 4500 barrels per month (January was 4,676 so it is likely a bit higher). After deducting transportation and other costs from the $77 barrel price, I estimate Jagercor’s NET take to be $42 per barrel, which brings us to nearly $200,000 per month in revenues ($189,000 at $42×4500 barrels). The burn rate at the company is around $50k per month so cash flow is right at $150,000 on a consistent monthly basis. They are optimizing well production and that number could trend closer to $175,000 currently but we’ll use $150k for estimate purposes.

The fact is that the two wells in the northern area of Catriel Oeste produce 85% of the oil while the southern well is weak and produces quite a bit of water. I believe they’ve increased oil production in well #3 to nearly 20 barrels per day so it is meaningful and might be improved but we’re not counting on it. The next 12 months of production should be quite consistent and predictable. The company revealed a cash balance near $450,000 as of January 31st 2015 so with 90 days of additional cash flow they will be approaching $1 Million in cash very soon (approximately $850,000 as of April production is my estimate). This is very important for several reasons. #1. How many penny stock micro-cap companies do we actually see with nicely positive consistent cash flow like this? They do not need to raise any money from the market during this period when the share price is dramatically undervalued.

Certainly, with the positive economic profile of the Catriel Oeste wells (particularly in the north where their next targets are), I would like to see them drill the next 5 wells quickly. At a $4 Million market cap, it doesn’t make sense to raise money by issuing equity to drill these wells at $1 million a pop. However, in just a handful of more months, Jagercor will definitely be able to drill a 4th well out of their own cash flow. One big benchmark that will need to be resolved, and is a risk (albeit a small one I feel), is the need for the Rio Negro Province to extend the Catriel Oeste oil concessions beyond the October 2016 timeframe. Based on conversations I’ve had with various folks, it seems very likely officials will vote on (and choose to extend) concessions within the next 3-4 months. That will be just in time for Jagercor to pull the trigger on well #4 in the fall of 2015, further expanding their production profile and revenues.

I am going to model my projections later on with that additional well from cash going into 2016. However, it does not by any means indicate that I believe the company won’t do more to aggressively grow the business. In fact, in an April 20th, 2015 press release, Edgardo Russo confirmed that “Management is currently engaged in negotiations with a couple of different companies, seeking operatorship and minority interest in three different oilfields in Argentina”. In addition, he stated “We are pleased to confirm that we are running a cash flow positive business, currently seeking to enter agreements which should provide us the possibility to grow production, revenue, and position ourselves as oilfield operators in Argentina”.

This is exciting on several fronts but becoming an operator that can also claim reserves ownership is an important step and classification in Argentina. This would open up various opportunities for Jagercor no doubt. We will have to wait and see what they have up their sleeves but I feel quite confident after conversations with management, and reading these press releases, that we’re getting quite close to seeing their next move to expand. One thing that Alejandro and Edgardo made very clear to me when I met with them earlier this year was that neither of them left their cushy high paying jobs to run a 3 well company. Meaning, they are here to build and grow and I believe they will be successful to one degree or another.

Now down to the numbers in terms of valuing this company. We know earnings will be in the $2 million area (give or take $250k—$1.8 Million using $150k per month which is conservative) for 2015 based just on current production rates. A 10X earnings multiple (PE) would give Jagercor a value of $20MM, or approximately 20 cents per share. Ypf is trading at 13 times trailing earnings, which would put us closer to 25 cents per share. However, Jagercor is growing much faster than YPF and will continue to do so for some time, potentially commanding a higher earnings multiple by the market. Say they expand their production by 100 barrels per day by adding another well or by acquiring similar production. That would put revenues closer to $300k and cash flow at $250,000 per month, which I fully expect to happen by year end, if not sooner.

I believe Jagercor has much larger opportunities on the table as well but management is prudently building block by block and focusing on a few more base hits before swinging for the fences. There is actually very low risk buying this stock at 4-5 cents CDN right now. To put things in perspective, if JEM just sits on their hands for 9 more months and accrues cash, they could choose to issue a 2 cent cash dividend to shareholders in Q1 2016(i.e. pay 4 cents per share in the market today and get half your money back on the dividend yet still own the shares). Obviously that is not likely because we want them to invest that money into growing the business but it puts the investment in perspective when you have such a low market value and are nicely cash flow positive.

My blue sky guess here (I think it’s not blue sky and is more of a mid-range estimate) is that Jagercor Energy is a $50-$100 million company in 2 years. Once cash flow and production double from current levels, which won’t be very hard, there will be opportunities to finance more projects with debt or even traditional bank financing. Or, if JEM trades back to a more realistic $20 million market capitalization, they could easily justify an equity raise for several million to drill more aggressively in Catriel Oeste or other ripe fields. My guess is also that Jagercor could be a very attractive acquisition for an energy company looking to enter Argentina in a couple of years once the political and business environments are not nearly as uncertain or hostile. Why start from scratch when you could buy a cash flow positive company with assets and significant management relationships for $30-40-50 million dollars?

In summary, I like this deal quite a bit. It makes sense on multiple levels and despite the very tiny market capitalization and low stock price, the risk is actually very low at this juncture due to predictable cash flow from existing operations. It’s quite conceivable that we see additional projects announced within the next several months that excites investors. It’s also realistic to assume this company will experience hockey stick growth in 2016 once they become a respected operator and producer in Argentina. Opportunities abound in Argentina as asset prices are suppressed yet an entirely new business environment is just ahead in 7 short months. Even the furthest left candidate would be a significant swing in the right direction to stimulate capital flows back to Argentina.

Due to Jagercor’s very low share price, I will be somewhat conservative in my estimates. Even though I believe we can justify 10x forward earnings currently, I’ll push my 20-25 cents price target out 12-18 months. So, by year end 2016, this is a 5 bagger from the current 4 cents per share price. A big benchmark we’ll need to see to alleviate any concerns here will be the concession extension for Catriel Oeste. I think the risk is low that the extensions won’t be granted as the province is motivated to stimulate and maintain revenues and oil production is a big part of that. My suggestion is for long term investors to continue to accumulate shares under 5 cents while you can. It is possible that news of a new endeavor rerates the share price to a more reasonable valuation as it is simply too cheap at a nickel. As cash accumulates in the treasury each month, the stock will sooner or later trend higher. The only explanation of why we have continued to see selling is that the initial shell “investors” were given ½ of one penny stock. It was 2 cents but after the 4 for 1 split, half of a penny is their cost average so selling at 3-4 cents is still a huge gain. But, because we’ve seen nearly 45-50 million shares traded since last summer, it is not likely many of the original players are still around. My guess is that, maximum, they have another 10 million shares to sell. Which is great because it allows growth investors a chance to add cheap positions and at maximum only equates to less than $500k CDN in value, which is peanuts in the big scheme of things.

For more information go to:
http://jagercorenergy.com/

Importantly, be sure to subscribe to our free E-Letter below for regular updates on Jagercor Energy and other special situations:

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Disclaimer: Eric owns 3 million shares in Jagercor Energy and may choose to buy or sell anytime without notice.

Legal Disclaimer: I am offering ideas for your consideration and education. I am not offering financial advice. I am not a financial or investment advisor and am acting in the sole capacity of a newsletter writer. I am a fellow investor and trader sharing his thoughts for educational and informational purposes only. This publication is a 100% subscriber supported. No compensation is received by the author from any of the companies mentioned for the recommendation of a stock in this service (if this changes or there is exception-it will be clearly disclosed to our readers). Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided on the Website is based on careful research and sources that are believed to be accurate, Mr. Muschinski does not guarantee the accuracy or thoroughness of the data or information reported. The opinions published on the Website belong to Mr. Muschinski or respective associates and are neither an offer nor a recommendation to purchase or sell securities. Mr. Muschinski does not recommend services, products, business or investment in any company mentioned in any of his essays or reports. Materials published on the Website have been prepared for your private use and their sole purpose is to educate readers about various investments. By reading Mr. Muschinski’s essays or reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these essays or reports. Investing, trading and speculation in any financial markets may involve high risk of loss. We strongly advise that you consult a certified investment advisor and we encourage you to do your own research before making any investment decision. Mr. Muschinski, Black Gold Letter’s employees and affiliates, as well as members of their families, may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

MNP Petroleum trading at 11 cents (US) is a very unique small cap oil company and it trades in Canada under the symbol MNP and in the US under MNAP. I am in the US and have been buying MNAP so I will address prices in US Dollars, increase approximately 10% for the Canadian equivalent if that’s your preferred market. This company was brought to my attention when I mentioned Petromanas Energy in the summer in my other newsletter. The M in MNP is “Manas” and Petromanas’ large project with Shell Oil in Albania was purchased from MNP. MNP has some quite large European/Asian oil/gas assets, still owns shares and has upside in Petromanas, has a very impressive management team/board of directors, and were just financed to the tune of $67 Million on EXTREMELY favorable terms by an institutional investor. The company has a recent corporate presentation you can scroll through to learn about their assets/company here.

Then, the big catalyst/lynchpin here just occurred via a binding agreement regarding the financing: http://finance.yahoo.com/news/mnp-petroleum-corp-enters-binding-111500894.html Stichting is investing $67 Million into MNP, $17MM of which is in equity at 15 and 20 cents (the stock is trading at 11-12 cents). Then, incredibly, they will be investing $50 Million in a convertible debenture at only 3% interest that will not be paid back in cash but by converting the $50 million into equity at 70 cents per share! Why have they done this? 3 reasons in my opinion: 1. MNP management cut a very shareholder friendly deal so I respect their negotiation abilities. 2. It speaks volumes to the value of MNP’s assets that the market simply has not reflected (this stock is undiscovered and not widely followed). 3. Last but not least is this statement below that was made upon the LOI of the agreement a couple of months ago:

– MNP and Vagobel are discussing the integration of Vagobel’s sister company, VBV International Pte. Ltd., into MNP. VBV holds in excess of $2-billion (U.S.) of assets

Stichting may be looking at this like a reverse takeover of sorts….a way to go public and put huge assets into the venture to boost the value. The bottom line is that this deal really got my attention and it will get much bigger investor’s attention as they start drilling and end up merging more large assets into the company. We very rarely see a $20MM market cap company get funded for 3.5 times their entire market cap, at a huge premium nonetheless!

So, MNP has significant oil/gas assets, a multi-billion dollar conglomerate as a close partner, and is very cashed up to grow this company. I think the relatively muted response to this blockbuster news is because of the recent action in oil/oil stocks has kept people on the sidelines. But, I can tell you what will happen here. Sometime by early-mid next year a large institutional investor will catch on and take the stock way up to take a position…..although, it should move higher in the meantime. But, this stock is also very undervalued/under followed and I think this will be a great short term and long term investment for BGL subscribers.

This is definitely still a speculative opportunity as we do not have very much information about the intentions of Vagobel/MNP. I am simply reading between the lines here and making a call as to what I sense is at least very ambitious plans. I have never spoken to MNP management nor anyone closely associated with the company. Sometimes I really like this objective view with small cap plays because I’m going strictly on what I’m seeing/reading. This is what happened with Zenyatta Ventures a couple of year ago. I made a recommendation based on my own way of conducting due diligence when I was intrigued by the graphite sector, then 6 months or so into that recommendation, I finally started to engage with management. In that case, it worked out exceptionally well when the stock moved from 18 cents in August 2012 to $5 per share in July 2013, a net 25 bagger.

MNP definitely has big upside potential. But, much will need to be revealed in terms of their business plan, execution thereof, and market affinity towards energy/oil and gas securities. Despite the recent bearish sentiment in oil, I feel that this has presented discounted investment opportunities and MNP is the type of story that could buck the sector trend if it proves to remain bearish for an extended period. If you have a longer term mindset, I think this stock can be a core small cap position that can be bought up to 14-15 cents US….aggressively. Even for trading you can buy up to 13 cents and likely sell in the .20’s early next year (shares are clearly trading above the 50 day moving average, which is bullish). My gut tells me this is going to be a 10-20 bagger in the next couple of years but I think it’s a layup that will double or triple from current prices. I strongly suggest consider taking a position and accumulation on any dips these next few weeks. This is a juicy one…Black Gold Letter is initiating a buy recommendation and 35 cent 12 month price target, which is a triple from current prices.

Importantly, be sure to subscribe to our free E-Letter below for regular updates on MNP Petroleum and other special situations:

 

 

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Disclaimer: Eric owns shares in MNP Petroleum and may choose to buy or sell anytime without notice.

Legal Disclaimer: I am offering ideas for your consideration and education. I am not offering financial advice. I am not a financial or investment advisor and am acting in the sole capacity of a newsletter writer. I am a fellow investor and trader sharing his thoughts for educational and informational purposes only. This publication is a 100% subscriber supported. No compensation is received by the author from any of the companies mentioned for the recommendation of a stock in this service (if this changes or there is exception-it will be clearly disclosed to our readers). Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided on the Website is based on careful research and sources that are believed to be accurate, Mr. Muschinski does not guarantee the accuracy or thoroughness of the data or information reported. The opinions published on the Website belong to Mr. Muschinski or respective associates and are neither an offer nor a recommendation to purchase or sell securities. Mr. Muschinski does not recommend services, products, business or investment in any company mentioned in any of his essays or reports. Materials published on the Website have been prepared for your private use and their sole purpose is to educate readers about various investments. By reading Mr. Muschinski’s essays or reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these essays or reports. Investing, trading and speculation in any financial markets may involve high risk of loss. We strongly advise that you consult a certified investment advisor and we encourage you to do your own research before making any investment decision. Mr. Muschinski, Black Gold Letter’s employees and affiliates, as well as members of their families, may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

I am strongly recommending accumulation of Jagercor Energy shares for aggressive investors. Jagercor trades on the CSE (Canadian Securities Exchange) under the symbol JEM and on the US pink sheets under the symbol JAMTF. The CSE is a fast growing exchange in Canada and we’re seeing more and more exciting small cap growth companies choose the exchange due to the low fees, entrepreneurial perspective, and strong financial backing (e.g Ned Goodman –Billionaire and Founder of Dundee Corp): http://blog.thecse.com/tag/ned-goodman/

I’m bringing attention to this issue because I think we’ll see more very compelling small growth companies like Jagercor sprout up on the CSE and US and Canadian readers should consider it a major exchange going forward. Canadians should have no problem buying shares under the main symbol JEM and US investors can buy JAMTF. As with most Canadian listed companies that have a US pink sheet component, the volume literally flows up north and buying/selling is filled on the main exchange. Jagercor went public in August of 2013 and swiftly went to 95 cents, split 4 for one, then traded to a high of 40 cents ($1.60 pre-split equivalent). The stock then came off its highs where they raised $2.6 million at 20 cents per share. After a brief pop back over 30 cents, the share price has grinded all the way down to its recent prices (low was 5 cents on JEM in October and it is trading between 6-8 cents currently). The CNSX website is a good resource for their listed companies where you can see the Jagercor news/charts/etc: http://cnsx.ca/CNSX/Securities/Oil-and-Gas/Jagercor-Energy-Corp.aspx

Jagercor is a junior oil/gas company that is operating in Argentina and expects to be a very near term oil producer (update: They now are officially producing oil per this news: http://www.stockwatch.com/News/Item.aspx?bid=Z-C%3aJEM-2220249&symbol=JEM&region=C).

Management is very seasoned, reputable, and capable of building a successful energy company in Argentina. You can view the bios of the 2 main executives of the company, Matias Bullrich and Edgardo Russo: http://jagercorenergy.com/index.php?option=com_content&view=article&id=2&Itemid=113

Importantly, Matias has managed and financed hundreds of millions of dollars in capital and in Argentina corporate financings. He notably worked at the most intense and successful hedge fund on Wall Street at SAC Capital under Steven Cohen. Despite the bad press SAC has gotten recently, you need to have been very sharp to work under Cohen for any period of time. Matias operates several businesses/interests of his own in Argentina and manages his own fund. His large scale debt financing contacts and ability may come in handy down the road as Jagercor scales into a more sizable company.

Edgardo Russo is exactly the type of pedigree you would seek in operating and launching an emerging oil/gas producer. His background and experience is impressive and he worked for very large organizations in YPF (Repsol)and Baker Hughes:

Mr. Russo brings 20 years of experience in the oil and gas industry in Argentina, mainly in YPF SA, the largest integrated oil company of Argentina, and most recently working as Field Development manager for Baker Hughes. His previous roles include General Manager of YPF SP, a drilling company owned by YPF Argentina, leading more than 500 employees in operating 15 Rigs including full responsibility and duties involving operation, safety, engineering, purchasing and finance. Mr. Russo also worked as Operations Manager, responsible for Loma La Lata production area; the most important gas field in Argentina, which is the field located over the Vaca Muerta shale reservoir. During his time in this role, YPF explored and assessed conventional and unconventional reservoirs to finally recognize the productive potential of the Vaca Muerta Shale. At the same time he started the massive development of Tight Gas in Sierra Barrosa.

YPF has seen serious capital inflows from some big name investors this year, notably George Soros and a number of very smart fund managers:
http://www.bloomberg.com/news/2014-08-14/soros-adds-to-ypf-trims-teva-exits-monster-in-quarter.html

This speaks to the question of “why invest in Argentina?”, which I will address. The sheer size of oil deposits like Vaca Muerta and companies like YPF that seek wells producing at least 15,000 barrels per day, leaves a very ripe opportunity for a company like JEM. Jagercor is going after very low hanging fruit early on and has contracted with Central Resources to drill 3 wells, with the option to extend that to 8 wells in Q1 2015. The company’s business model is to focus on field development (work over projects), production management, and drilling low risk reservoirs like the first project with Central (this is not a high risk/wildcatting exploration company). The 8 well contract is focused in the Rio Negro Province (Catriel Oeste field) where the data is quite compelling.

Jagercor/Central will be drilling very close to presently producing wells, in fact 2 of the 3 well locations are alongside other wells (infield). It must be pointed out that from 500 wells drilled since 1964, 100 are still in production! Of the last 200 wells drilled, only 3 were dry according to Edgardo (but even those produced natural gas). The average of the 197 “normal” wells out of the 200 was 150 bbl per day at production start and 90 % produced no less than 100 bbl per day at production start. The company is projecting 140/bbls per day per well or 41,000 cumulative barrels in the first year. This is only for the initial 3 wells and not the additional 5 that will conceivably kick in during Q1 2015, assuming success with the first 3 wells.

Initially, JEM keeps 70% of revenue until their investment is recouped, then 40% of revenue for the production life (potentially decades but certainly the wells at Catriel Oeste will produce for at least 10 years). The initial deal was for a $4.2 Million investment by JEM to drill these 3 wells. The exchange rate between dollars and Argentina pesos has been extremely favorable. Matias’ background is arbitrage, and I believe the all in cost for drilling will be less than $1MM US per well, which is very cheap. The breakeven point with an assumption of $83 market oil price and a $57 net back to JEM, is 9 months. The IRR’s are fantastic at 74%. If the company has success on these first 3 wells, they will invest another $6-$7 million in early 2015 to drill an additional 5 wells. The cumulative annual oil production then jumps to 280,000 barrels. But, keep in mind, my 6 month target for the stock is based just on 3 wells flowing 140 bbls per day, generating just over $400,000 in cash flow per month by the end of this year. Keep in mind also however, that if the company is successful with 8 wells, the cash flow by mid-2015 will be over $1.5MM per month for this tiny company.

Right now, at 6-7 cents per share, the market is putting virtually no value on these projects. At just over a $5MM CDN market capitalization, it is barely trading over paid in capital (i.e total $$ raised to date=in the bank and money sent to Central for drilling). The burn rate outside of the Central commitment is tiny, less than $50k per month so very manageable. Now, we already have results announced from the first well and they were right in line with projections at 148 barrels of oil per day. By sometime in early November, we should know what’s happening with all 3 wells. If they are all producing 100 plus barrels per day, I think the stock should be valued upwards of 20 cents by the end of the year or so.

This may seem too good to be true but the reality is we don’t have proof that they’ll produce what they expect, therein lies the risk (we still need results on 2 of 3 wells). However, this is what Edgardo Russo has done for 20 years and JEM had an independent French consulting firm verify their data before committing with Central Resources on the project. It’s just a question of how much oil is being produced vis-vis field pressure etc. What I like about this play right now though, is that the market is barely putting any value on the company’s projects and there is room for error. Meaning, if they only hit 1 or 2 out of 3 wells, the stock should move up from here. If they only hit 1 of 3 they would be the most cursed people in Argentina considering results from the previous 200 wells.

Management is everything in these small companies and I’m comfortable with the group here and trust that they are pros. In terms of Argentina, there is some seriously smart money going to work now and that’s in anticipation of the imminent departure of the current president. She clearly has not been good for business but anyone who comes in will be better than the current administration. I had the pleasure of hearing the renowned newsletter writer/investor Doug Casey speak at a conference in August. He said he believes the cheapest/best country on the planet to invest in right now is Argentina. I believe real estate and energy are the 2 ways to play it. A small company like Jagercor with good timing could become a fairly large company pretty fast as things improve and they execute their plan of taking on projects that are very profitable but too small for the majors like YPF. There will be business opportunities galore if they succeed with Central Resources and they know it.

Interestingly and perhaps extremely fortuitous in timing, the company is raising $1.2mm-$1.5MM CDN right now in a private placement at 6 cents per unit (1 share of stock and ½ warrant at 12 cents). Matias has said he will take 10% of the offering or up to $150,000 and Edgardo has committed $50,000. These guys are putting their money where their mouths are so I am getting very aggressive in my recommendation currently. If you decide you would like to get involved in Jagercor and you are an accredited investor seeking to buy at least $15k worth of stock, you should contact the company about the pp directly. You get a discount to market and a warrant that can boost your return profile. Email Matias@bullrich.net for subscription documents if that’s of interest. They closed just under $800K in the first tranche on Monday and have other commitments soft circled for tranche 2 closing. However, first money in secures the position so new investors likely have the next 3-5 business days to act on the PP if you are so inclined.

Also, open market buying is easy and for the next week or so while they are wrapping up the private placement, the stock should stay around 6-8 cents or so. I love this play here at 6-7-8 cents and think it has a great shot of being both a short term huge winner and a long term great business to be invested in. Lastly, I recorded a webinar a couple of weeks ago that will help you with your due diligence:

I am initiating a Strong Buy on Jagercor Energy at 6 cents with a 6 month price target of 25 cents and a 12-18 month price target of 70 cents. My projections are actually based on pure cash flow multiples. They project $440,000 in monthly cash flow beginning by year end 2014, if we discount that to $400k and annualize it, we get $4.8MM in cash flow for 2015. A 15x multiple is a $78 million market value. After this financing, the company will have somewhere around 90 million shares outstanding. Let’s say they oversubscribe the offering and its 100 million shares. That’s .78 cents per share, discount it by 10% and we have 70 cents. Clearly, this will not be exactly accurate at all because if they have success this quarter, they will raise $5MM plus to drill 5 more wells and seek more projects. Depending on the structure of that financing (whether debt or equity or both) there will be some additional dilution but clearly earnings will also be much higher for the year as well, since the $4.8MM EPS run rate is only based on the initial 3 wells.

I believe this is the perfect type of speculation. Reasonable downside risk with blue sky upside potential in a nation that 99% of investors are currently avoiding. Some smart Argentinians believe that once there is a change in power, Argentine stocks will be revalued upwards by 50%. We’re looking just before that political change and JUST before this company can call themselves a profitable producer. If/when those 2 events are confirmed, investors will be paying higher prices to buy Jagercor Energy shares.

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Ownership disclaimer: Eric owns shares of Jagercor Energy and may buy/sell without notice

Legal Disclaimer: I am offering ideas for your consideration and education. I am not offering financial advice. I am not a financial or investment advisor and am acting in the sole capacity of a newsletter writer. I am a fellow investor and trader sharing his thoughts for educational and informational purposes only. This publication is a 100% subscriber supported. No compensation is received by the author from any of the companies mentioned for the recommendation of a stock in this service(if this changes or there is exception-it will be clearly disclosed to our readers). Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided on the Website is based on careful research and sources that are believed to be accurate, Mr. Muschinski does not guarantee the accuracy or thoroughness of the data or information reported. The opinions published on the Website belong to Mr. Muschinski or respective associates and are neither an offer nor a recommendation to purchase or sell securities. Mr. Muschinski does not recommend services, products, business or investment in any company mentioned in any of his essays or reports. Materials published on the Website have been prepared for your private use and their sole purpose is to educate readers about various investments. By reading Mr. Muschinski’s essays or reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these essays or reports. Investing, trading and speculation in any financial markets may involve high risk of loss. We strongly advise that you consult a certified investment advisor and we encourage you to do your own research before making any investment decision. Mr. Muschinski, Gold Investment Letter’s employees and affiliates, as well as members of their families, may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.