sculpin

Most recent update (August 28th) on Marrett high yield's 2 bond positions i left out in prior post... RECENT DEVELOPMENTS As previously announced, the Fund had been scheduled to terminate on May 30, 2014. The bulk of the Fund’s assets were distributed to unit holders on June 16, 2014. Rather than terminate, the Fund will continue in order to hold two private positions; (Cline Mining and Mobilicity the “Private Portfolio”). The Fund will continue to be listed. Our intention is to distribute the net proceeds from the Private Portfolio when the holdings are sold and the proceeds are received by the Fund. No ongoing management fee or other fees will be charged by Marret for overseeing the liquidation of the Private Portfolio. Cline Mining The rationale for the Cline write-down is the recognition that met coal prices have declined recently and we have seen some large companies shut in higher cost mines in response. It is important to note that we consider this prudent and conservative, but it does not change our long-term view of the company’s assets nor does it imply that we are seeking a reduced price for Cline’s assets. In April, Cline received $9.8 million cash as a final settlement of claims that the company had outstanding against the Province of British Columbia, pursuant to which the company agreed to abandon certain coal licenses and applications. The company is seeking a buyer and the proceeds will be used to settle its debt obligations held by Marret. During the second quarter, Cline completed its mine plan and began the fatal flaw analysis. The fatal flaw analysis is a second independent review of the major variables inherent in the mine plan to ensure validity. Once this is complete, a U.S. investment bank will implement a sales process for all the assets of Cline. Given the very weak state of met coal prices, it is likely that the sales process will not produce any acceptable interest. Mobilicity It has been reported that Telus has terminated the proposed going concern transaction to purchase Mobilicity. As a result, we have reduced the value of the bonds to reflect the uncertainty surrounding the potential sale or realization on the assets. We originally made the investment in Mobilicity on the premise that the spectrum the company controlled was in limited supply, would appreciate over time and would support the value of the company in a workout situation. The terms of the spectrum auction included a clause that precluded a sale of the spectrum to Bell, Telus or Rogers for a period of five years. This moratorium expired in February 2014. Despite this, the government has refused to approve the sale of Mobilicity to Telus on the premise that it would hinder competition in the Canadian wireless industry. We are currently exploring legal options and alternative buyers/consolidation scenarios, but the government’s stance has been detrimental to all investors in new entrant wireless companies.

Marrett High Yield Strategies Closed End Fund trades on the TSX in Canada with the symbol of MHY.UN. Currently trading at $0.11 with last reported NAV of $0.98. Almost 90% discount to NAV due to the net asset value being made up by 75% by the senior and convertible debt of Cline mining (has cash to continue for several years until a sale) and 25% being senior debt of Data and Audio Visual Holdings which is the holding company of Mobilicity - currently under bankruptcy but containing very valuable wireless spectrum that is being held hostage by the Canadian government. Very interesting situation as the NAV of $0.983 is after the debt situations listed above have been already somewhat written down. http://www.marret.ca/pdf/MHYSF-SIP-14Q3.pdf Marret High to continue trading on TSX after May 30 2014-05-16 15:35 ET - News Release An anonymous Marret Asset Management director reports MARRET ASSET MANAGEMENT PROVIDES UPDATE ON MARRET HIGH YIELD STRATEGIES FUND Marret Asset Management Inc. is providing an update on Marret High Yield Strategies Fund. The majority of the net assets of the fund will be distributed to unitholders of record on June 12, 2014. The fund had been scheduled to terminate on May 30, 2014. Instead, the fund will continue in order to hold two private positions. The Toronto Stock Exchange has confirmed that the fund will continue to be listed after the distribution record date. Marret's intention is to distribute the net proceeds from the private portfolio when the holdings are sold and the proceeds are received by the fund. As of April 30, 2014, the private portfolio accounted for $1.18 of the fund's net asset value per unit of $8.75 or 13.5 per cent. The remainder of the fund, which accounted for 86.5 per cent, or $7.57, of the net asset value per unit at April 30, 2014, is the liquid portion of the portfolio and will be distributed on June 16, 2014, to the fund's unitholders. The actual distribution per unit will be based on the net asset value of the fund and the value of the liquid portfolio on May 30, 2014, which will be announced on or about June 2, 2014. As previously disclosed, the private portfolio consists of bonds issued by Cline Mining Inc. and Data & Audio-Visual Enterprises Holdings Inc. (Mobilicity). Cline holds various mineral assets, including the Elk coal mine in Colorado, which has almost 620 million tons of in-place coal. The Cline bonds are secured and represented 83 cents of the fund's net asset value per unit as at April 30, 2014. Mobilicity owns a mobile communications network, including valuable wireless spectrum licences. The fund holds secured and unsecured bonds issued by Mobilicity accounting for 29 cents and six cents, respectively, of the fund's net asset value per unit as at April 30, 2014. Marret intends to publish a net asset value for the units on a weekly basis on its website and will provide updates on the status of the private portfolio as warranted. No continuing management or other fees will be charged by Marret for overseeing the liquidation of the private portfolio and the winding up of the fund. Normal operating expenses of the fund payable to third parties (such as audit, custody and transfer agency services) will be payable by the fund from the proceeds of the private portfolio. Given that the fund is maintaining its listing on the TSX, the trust units will be considered to be qualifying securities for registered plans. Unitholders who hold their units within a registered plan will not be subject to tax on the distribution. The fund anticipates that the majority of the distribution(s) received by unitholders who do not hold their units within a registered plan will be received as a return of capital. The exact treatment will depend on the unitholder's own circumstances. Unitholders are encouraged to consult with their own tax advisers. We seek Safe Harbor.

Good commentary on the longer term effect of the current price drop from IV boards... http://www.investorvillage.com/smbd.asp?mb=4288&mn=151650&pt=msg&mid=14337781 Broken oil market - long term pirce spike I have been following the oil market as long as I can remember. What’s going on right now in the oil market is highly suspect; prices are clearly being manipulated for political and economic gain. This attack on the oil market will have severe consequences on future oil supply, already at $100 oil, several major oil projects have been cancelled over the last few years, at $75-$80 all new major projects will come to a standstill at some point. Yet, this is happening during a period in which the need for alternative long supplies is crucial, since the panacea of future oil supply: Iraq is going through a bloody civil war thus rendering any major investment in oil production infrastructure in the country highly uncertain. Meanwhile, the rivalry between Al Saud and Iran has never been more intense with Saudi Arabia surrounded by aggressive Shia forces in the South (Yemen), East (Iran) and North (Iraq). The Saudi-Iran proxy war currently taking place in Syria and to some extent Iraq is far from over. As if the situation is not bad enough Libya is sliding in a deeper civil war, a war that has already pulled Egypt and the UAE in the fight. More worrisome, US shale production is projected to peak in the 2015-2017 time frame (probably faster at current prices) once this major source of production growth stalls a growing disconnect between supply and demand will emerge. Finally, the current sanctions on Russia have stalled and delayed multiple long term oil supply projects, the effect of those cancellations will be felt just as shale oil peaks. The current opportunity to buy quality Canadian oil stocks (which have long been accustomed to low prices, and are currently being shielded to some extent by a low $CDN and narrow differentials) will prove to be a buying opportunity of a life time, anything bought today should be held until 2020 and beyond, because the next oil spike will take us beyond the 2008 highs in my opinion. Regards, Nawar

I have had success in the past buying distressed and high yield (YTM >15%) busted exchange traded convertible debentures that are traded on the Toronto Stock Exchange. The Financial Post provides a list of these debentures that is updated daily. Link is below... http://www.financialpost.com/markets/data/bonds-debentures.html As well, various value investors play in this market - like Francis Chou, Peter Pucetti at Goodwood, Saj Karsen etc. Here is one rec form Karsen I own... http://www.barelkarsan.com/2013/07/pinetree-capitals-debt-in-free-fall-now.html Also Snyder Brown has a good write up on the Fortress Paper 2016 converts currently trading at about $54. https://www.hvst.com/posts/13799-snyder-brown-capital-management-q2-2014-letter

If anyone cares, here is Citi’s & First Energy’s latest on natural gas. Many of the small & mid cap gas weighted companies have been out of favour for years & were definitely the contrarian bet in the last few years. Many have rallied but could advance significantly more if NG stays priced $4.50 or higher over the rest of 2014. Higher NG prices should be great for Western Cdn tax revenues and all the other spin off benefits from the higher pricing in other parts of the economy. Weekly Canadian Natural Gas Supplement Analyst: Martin King Associate: Elaine C. Williams The enormous volatility of the past month for Aeco pricing has placed the average spot price for the month of February at Cdn$7.36 per mcf. This is the highest monthly average price since August 2008 (Cdn$7.42 per mcf) and the highest February average since 2008 (Cdn$7.89 per mcf). Western Canada storage is at its lowest level for this time of year since 2006, with withdrawals still running north of 2 bcf/d for Alberta. Since the start of November 2013, the cumulative withdrawal from Western Canada storage has reached 362 bcf, easily an all time record and smashes the previous cumulative record (for the entire heating season!) of 318 bcf set in 2010-11. Weekly U.S. Natural Gas Storage Update Analyst: Martin King Associate: Elaine C. Williams Our forecast for this week’s storage report is for a withdrawal of 134 bcf. The price meltdown of last week, the greatest seen in 16 years, was probably more a function of the unwinding of managed money positions than expectations for a dramatic moderation in temperatures or a collapse in demand. The magnitude and the speed of the price collapse should not be read as a collapse of the price bullish story for 2014. We feel that prices have returned to more normalized levels and that the market is clearly coming to grips with a storage exit for March that will be the lowest in a decade. Based on forecast degree days, we expect next week’s report to show a withdrawal between 170 and 190 bcf. Citi The market needs more rigs and rain  The market may need more than hopeful signs of production growth and precipitation on the West Coast to replenish depleted gas inventories. The end-of-March storage is now expected to fall to ~875-Bcf, 950-Bcf lower than the 5- year average and 800-Bcf lower than last year’s level. Eliminating these deficits requires excess gas to be made available for injection from Apr to Oct: 4.5-bcf/d vs. the 5-year average storage level and 3.7-Bcf/d vs. 2013’s level. Hence, strong production growth this year is critical. It is helpful that production edged higher w/w, from Oklahoma and the Rockies to the Northeast, as weather turned milder, leading to a decline in well freeze-offs. But in spring and summer, higher gas demand for industrials (up 0.6-Bcf/d y/y) and a drop in gas imports from Canada (down 0.6- Bcf/d y/y) should boost this excess gas requirement by an additional ~1.2-Bcf/d.  Northeast production is both counted on but constrained at the same time. The Northeast has to drive production growth nationally to refill depleted gas inventories but current production is still stuck at just under ~14.2-Bcf/d, nearly flat to the Dec’13 level. Looking ahead, the Northeast appears to have the capacity to grow production by about 3-Bcf/d y/y before hitting infrastructure constraints preventing further gains. (  Strong precipitation in recent days raised the expected Pacific Northwest hydro generation through June, but this relief to gas demand is far from enough to resolve the supply-demand tightness in spring and summer. Nearly two weeks ago, lower Pacific Northwest hydro generation was expected to boost gas demand by ~30-Bcf y/y, which is not insignificant in an already tight market. (See the note Impact of the West Coast Drought joint with Citi’s Utilities team.) Although recent precipitation events have erased this y/y difference based on a dam-by-dam analysis, the expected end-of-March storage has also fallen by more than 120-Bcf since then, more than erasing the improvement in west hydro.  Offsetting these signs of a looser market is the sharp reduction in Canadian gas inventories, now nearly 300-Bcf below last year’s level. 1.4-Bcf/d of excess supply from Apr to Oct would be needed to refill storage. As mentioned above, gas exports from Canada to the US should fall by 0.6-Bcf/d y/y, but this assumes strong enough production growth in Canada to meet domestic demand growth (e.g. oil sands production) and refill storage. Stronger west hydro helps to ease the demand for Canadian gas exports to the West Coast, but the support to AECO prices remains due to low Canadian gas storage. Any shortfall may have to come from cuts to gas exports to the US, thereby tightening the US gas market further.  For this week, Citi estimates a 140-Bcf inventory withdrawal vs. a draw of 95- Bcf last week and a draw of 146-Bcf last year. A rise in national HDDs from 158 to 198 pushed up demand by about 7-Bcf/d, mainly in the residential and commercial sector, but electric heating was also seen to be higher w/w.

NFL - on the Sonde, I believe mgmt & the Board are acting in best interests of shareholders. In terms of an equity issue, SOQ would as a last resort do this after all efforts to get a JV partner for North Africa are exhausted. On the Duvernay & Wabamun lands I believe they want to do a JV on these as well or merge what's left of the Canadian company with another E&P that has the cash flow & expertise to exploit both of these resource plays.

Sonde (SOQ – TSX) – Spin off of Marquee Energy shares & current valuation. I own both SOQ and Marquee shares (MQL – TSX) I believe I have mentioned Sonde on here before as a play on a discounted suite of Canadian & offshore North African energy assets. Sonde currently has a market cap of $41 million and will be comprised of cash of about $33MM ($0.53/share), shares of Marquee energy which will be spun off contingent on approval of the sale of SOQ’s WCSB producing assets (34% of a Marquee share for each SOQ share – .34*$0.76 = $0.26 of MQL per SOQ share), 100,000 acres of high graded Duvernay & Wabamun acreage and most importantly 100% ownership of the Zarat offshore oil field (28MM bbls) plus significant exploration acreage in the Mediterannean waters between Libya & Tunisia. I value the cash, Marquee & Cdn lands at a total of $71million or $1.14 per Sonde share. Sonde does not have any debt although it does have a $45 million drilling liability to drill 3 wells in the offshore field over the next 3 years. I have met with the management of both SOQ & MQL this morning. Marquee is acquiring the Sonde assets at a very low price and is a perfect complement to their Alberta land base. Marquee is heavily undervalued on its own with 2P NAV of $2.68. Their latest presentation can be found in the link below and I would forward research on MQL to anyone who would like it. http://www.marquee-energy.com/cms/wp-content/uploads/2013/12/Marquee-Marketing-Presentation-49-North-2.pdf The meeting to approve the sale to MQL of the Sonde lands takes place on December 30th with the dividend out of the shares to SOQ holders by 31 December. In discussion with mgmt of Sonde this morning, they are very optimistic that they will be able to find a new partner to carry them on both the development of Zarat and the funding of the 3 exploration wells ($40MM each with cost recovery from Zarat cash flow when this begins in 2017). Net cash flow potential to SOQ of just the Zarat production over life of the field is in the range of $800MM with much more upside in several seismic located potential fields within their block. If SOQ succeeds in finding a partner for Zarat then the net cash and remaining Western Cdn exploration lands will most likely been spun out with their own joint venture development partner. Latest Sonde presentation is here: http://www.sonderesources.com/wp-content/uploads/2013/12/December-2013updated.pdf So in summary, for about $0.66 share, a purchase of Sonde at this time should result in the holding of a Company with $0.26 of MQL shares, $0.53 net cash, 100K acres of exploration land in Canada & most importantly, the offshore field that could be worth many multiples of the current share price. This value realization is, however, dependent on SOQ finding a partner to develop this asset.

Matjone, This may be of interest... http://www.hciventures.ca/media/upload/hci-management.pdf HCI Ventures Ltd. is an established land investment company that has been providing land solutions to farmers since 2005. With a reputation for building strong relationships, and its focus on providing exciting growth opportunities through it's land acquisition strategy, HCI has been able to help farmers realize higher profits and sustainable growth. Farmers can expect friendly, open, and honest communication from the HCI Ventures team. Farm visits are part of HCI Ventures strategy to facilitate the sharing of knowledge and building of relationships that both HCI and farming entrepreneurs can grow on. Today, the company remains true to its values by: looking for win-win relationships with farmers offering a variety of rental options focusing on long-term land investments and relationships working closely with farmers to help ensure mutual success

Counsel Corporation (CXS-TSX, $2.50) Outperform; Target: $2.80 Q2/13: Blowout Quarter As Mortgage Volumes Hit New Record • CXS reported Q2/13 earnings per share from continuing operations of $0.06 per share, above our $0.04 estimate. While earnings were supported by a $2.9M fair value adjustment of the firm’s Private Equity portfolio, mortgage volumes were off the charts this quarter as the firm had an outstanding quarter. • Revenues of $46.4M, up 81% Q/Q and 45% from last year. The results were similarly 48% above our estimate as margin expansion and record volumes of the mortgages sold from the primary Street Capital business shattered our expectations. • Mortgages sold in the quarter were $2.5B, up 53% from last quarter, and up from $1.6B in the quarter one year ago. While indications of an improving housing market were evident from macro sources and competitor results, the higher than expected growth is a solid indicator of the capability size of Street’s funding providers. • CXS increased their mortgages under administration to $15B at quarter end, up 13% Q/Q as the company continues to build their customer book in order to line up a steady stream of mortgage renewals in 2014 and beyond. • Combined with the healthy origination volumes, the company managed to increase their margin (revenues-operating expenses/mortgages sold) to 69 basis points, up from 50 basis points in the prior quarter. • Conference call is set for 9:00am ET (1-888-231-8191). Valuation We value CXS’ ongoing operations by applying a 9 times multiple to our EPS estimate for 2014 of $0.28 per share, generating $2.50 of our target price. We also attribute $0.30 per share to the upcoming divestiture of Counsel RB Capital leading to a target price of $2.80. Conclusion A blow out quarter for the company and we will be looking for indications on what factors led to the increase in originations specifically, whether they are market related, or Street specific (i.e. increased funding capacity). At any rate, the large jump in revenues as a result of increased volumes and margins is a great indication of future growth prospects. We will re-evaluate our forecasts following the conference call today.

Top 5 holdings - all Canadian Maxim Power – undervalued power producer trading at $3.00 with a sale of U.S. & French power assets in the near term that could bring in up to $3/share cash and eliminate debt. No value for coal assets or NG powered development projects. Total value here probably > $5/share with hard book = $4.50. EGI Financial – trades @ $10.30 with book value $13.60, buyback, underwriting makes money, very conservative mgmt Counsel Corporation – trades @ $1.55 – holdco with 2 main operating companies (one to be spun out to shareholders & the other a fast growing Canadian mortgage broker), legacy real estate & other non core assets to be sold within 12 months, value >$2.75 Equal Energy – Oklahoma based E&P listed on TSX & NYSE – activist have pushed for sale of all Cdn properties & now a strategic review. B/S now very solid, initiated a dividend. Highly levered to rise in natural gas/propane pricing. Trades below half of valuation of direct comparable. Sonde Resources – asset rich E&P trading $0.95 in Canada & US – value most likely >$3. Finalization of North African farm out & Canadian strategic review outcome would be very positive catalyst for shares.

RECORD NUMBER OF COAL-FIRED GENERATORS TO BE SHUT DOWN IN 2012 Daily Caller Facing declining demand for electricity and stiff federal environmental regulations, coal plant operators are planning to retire 175 coal-fired generators, or 8.5 percent of the total coal-fired capacity in the United States, according to an analysis by the Energy Information Administration (EIA). A record-high 57 generators will shut down in 2012, representing 9 gigawatts of electrical capacity, according to EIA. In 2015, nearly 10 gigawatts of capacity from 61 coal-fired generators will be retired. While many of those coal plants are old and relatively inefficient, the scope of this new planned shutdown is unprecedented. "The coal-fired capacity expected to be retired over the next five years is more than four times greater than retirements performed during the preceding five-year period," EIA noted in the analysis. The generators that will be retired between 2012 and 2016 are "approximately 12% more efficient than the group of units, on average, that retired during 2009-2011," according to the EIA. The low price of natural gas resulting from the shale boom has led to reduced coal consumption and made the shutdowns necessary, experts say. But federal and state regulations have also damaged the industry and contributed to plant closures. "The cost of compliance with anticipated and existing Federal environmental regulations such as the Mercury and Air Toxics Standards (MATS) is a factor," the EIA noted. "Particularly in the case of older, smaller units that are not used heavily, owners may conclude it is more cost efficient to retire plants rather than make additional investments." Most of the coal-fired generator retirements will occur in the Mid-Atlantic, Ohio River Valley and the Southeast.

There definitely are increasingly positive signs for NG - the 2 most respected Calgary based I banks in Canada (First Energy & Peters & Co) are beginning to turn bullish on NG looking into 2013. NG has been in a long drawn out bear market for the last 4 years. I have written a report on a distressed NG stock that I own that has assets highly levered to a upturn in the NG price - will post this on the investments idea board when I get some more comments back from the Company & others with additional industry knowledge. Here are a couple of comments from both FE & Peters & co.... Quick summary of the FE report.. We provide an update of our tipping point estimate - the U.S. gas rig count required to bring U.S. domestic gas supply growth to a halt. At 520 gas rigs, we believe that this is much lower than the figures implied by other Street analyses, but that market is now much closer to seeing a more negative natural gas supply picture begin to emerge for the United States. Key conclusions from this research note include: • The market remains increasingly impatient for signs of a downturn in U.S. domestic natural gas supply. • We compute that the U.S. rig count is at or near the tipping point of 520 dedicated natural gas rigs, which is that rig count needed to bring U.S. domestic supply growth to zero. • Given our tipping point estimate, we expect that U.S. domestic natural gas supply will begin to show flat to negative year-over-year supply changes in the next few months, setting the market up for a strong price rally heading into 2013. Text from a research piece from Peters & Co. Continuing with our theme of late that you should be bullish on natural gas (my special email update calling for a “historic bottom” for TOU, CLT, PEY on April 25th looks pretty good right now…), you’ll see that the large storage surplus that we had at the beginning of the injection season continues to be worked off in a hurry. This is due in part to record power demand, fuel switching and decreased gas volumes (at least in Canada…US has been flattish but declines will take over). There continues to be next to no money spent on natural gas at the moment. In Alberta, there were 12 gas wells drilled in all of June and pipeline receipts have fallen by over 10% since January (a change of ~2 BCF/d). In my opinion we are looking at a market that is coming quickly into balance, and at this rate we will probably be looking at a YOY storage DEFICIT at some point this winter. As natural gas is a market that loves to overshoot in both directions, don’t be surprised to see prices recover much faster than you might think. Natural gas is a market that is littered with price spikes…and the next one is coming.