Happy to have exited ARM Holdings short last week at a profit, after it hits ten year high

ARM Holdings (ARM) rose 6.5% or 40p to a ten year high today as Goldman Sachs raised its price target to 800p saying a valuation of 23 times 2015 earnings was justified for a “strategic asset”. Goldman said that whilst ARM was earning 1 per cent royalties at the moment, newer deals had a charge closer to 2 per cent. Looks like the directors sold their shares at the wrong time last week and a relief for me that I closed my short at a profit at less than 590p with the shares hitting 651p today.

Gulf Keystone Shaikan 3 update

Gulf Keystone (GKP) announced today that Shaikan-3 shallow appraisal well in the Kurdistan Region of Iraq has achieved a flow rate of 9,800 barrels of oil per day, 30% over the 7,480 barrels per day previously achieved. The shares were pretty steady, up 1.5p at 173p. My previous post on Gulf Keystone, questions buying the shares at this sort of level given the geopolitical risks. Watching for a buying opportunity below 140p, but not diving in yet (http://contrarianinvestoruk.blogspot.com/2011/02/gulf-keystone-petroleum-interesting.html).

Sirius Minerals falls 11% on fears about Chinese Adavale partnership

I missed the significance of the Sirius Minerals  (SXX announcement) this morning in relation to the potential partnership with Sino-agri Mining on the Australian Adavale potash project. The implications are covered by the story on the iii.co.uk site below.

http://www.iii.co.uk/articles/14288/partnership-doubts-knock-shares-sirius

Partnership doubts knock shares in Sirius

Mon, 14/02/2011 - 11:06 | Esther Armstrong

Shares in AIM-listed potash developer Sirius Minerals (SXX) slumped on Monday after the firm cast doubt on the potential Chinese partnership for the Adavale project in Queensland Australia.

Back in August Sirius announced it had entered into a memorandum of understanding (MOU) with Sino-Agri Mining Industry to explore ways of working together to exploit Sirius’s wholly-owned Adavale project.

The 180 initial exclusivity period on the MOU is due to end tomorrow, but Sirius said it is continuing discussions with Sino-Agri about potential commercial agreements and that it is committed to building a long-term mutually beneficial partnership with the Chinese firm and more broadly with China.

In other areas, the group said the integration of the York Potash project was proceeding well, following the acquisition announced in January.

Sirius added that the project was moving forward on many fronts including the continued acquisition on mineral rights within the project area, analysis of extensive amounts of historical seismic data and selection of locations for the initial drilling campaign.

Sirius also updated on its operations in North Dakota and the Canning Basin project in Australia. It has acquired more land at its Williston Basin in North Dakota and continued its studies on the Canning Bain, but has yet to make any material progress in the region.

Rockhopper, Bowleven and Xcite market caps show Bowleven looks very cheap

At the current share prices of RKH (279p), BLVN (322p), and XEL (372p) we have the following valuations  - see table below (based on a conservative 5 dollar per barrel model). Bowleven looks very undervalued given its finds are valued at over £7 a share, even with the political risks of working in Africa. RKH and XEL assume no exploration upside or resources upgrades, which is unlikely and still are valued at £2.05 and £3.91, excluding cash. It is worth pointing out that Rockhopper has around £200 million in cash (which will fund at least 8 more appraisal wells and seismics) and Xcite Energy has in the region of £40 million (though most of this will be spent on the Rowan Norway rig). Most takeovers are at least the 8-10 dollar per barrel range for proven reserves following a full CPR (Competent persons report).

Bad day at the office for Contrarian portfolio

Hmmm i've had better days! Every stock is down in the Contrarian Investor UK portfolio apart from Rockhopper (after a shocker on Friday) and Angel Mining, so its a case of taking the pain for today. Xcite is recovering from a sharp dive this morning that made no sense at all but it's still down 4%. Bowleven can't stop falling and Sirius has a 10% fall after its poor RNS regarding its Chinese Adavale project partnership.

It's sometimes about courage in your convictions when the portfolio takes a tumble. I have faith that research is correct on all my holdings and that they are all worth much more than today's share price action indicates. Its about taking the rough with the smooth in this game! This is what being a true Contarian investor is about and on some days it can be uncomfortable! Sometimes it takes more than a few days for a trade to come good, but inevitably they will with patience - this game is not about luck or gambling its about "buy and research" then do even more research (and don't believe everything you read on a bulletin board or even a blog!!).

Sirius Minerals issues RNS but little to say

Sirius minerals (sxx) issued a progress update RNS this morning, but saying nothing new and hence it is seeing an 11% fall this morning. Why bother until they had something more concrete?

Plenty of swings and roundabouts on Xcite this morning

Xcite Energy (xel) opened up 10p first thing this morning on the Rowan Norway rig RNS. But it didnt last long as disapointment grew that the unlikely scenario of a takeover bid wasn't announced. It has moved as low as 368p to buy. I took the opportunity to sell a bit on the spike up and have been buying on this dip. Crazy that the price is down when a major milestone of a production rig being signed has been announced. The CPR is due any time. I'm sure the market makers are gratefully accepting those shares from the those selling below 370p! If there were buyers last week purely on a takeover rumour, they weren't very clever! Wait a couple of weeks, i'm sure holders will be rewarded with nice news,

Xcite Energy signs Rowan Norway rig deal- no fireworks yet!

So no farm in, no takeover talks, no Rowan Stavanger for Xcite Energy (XEL). An RNS this morning confirms that the deal with British American Offshore for the Rowan Norway is in the bag with delivery Q4 2011.  So Xcite will have oil flowing by the end of this year and with Brent Crude at around $100 a barrel things are looking mightily good. Now the key news is the CPR document which hopefully will upgrade resources significantly.

4 February 2011

Drilling Contract for "Rowan Norway" N-Class Jack-up Rig

Xcite Energy is pleased to announce that its 100% subsidiary, Xcite Energy Resources Limited ("XER"), has entered into a binding drilling contract with British American Offshore Limited("BAOL"), part of Rowan Companies, Inc. for the N-Class "Rowan Norway", a harsh environment, deep water jack-up unit, designed and built for simultaneous drilling and production, which is currently under construction.

The Rowan Norway is expected to be used to commence the first stage production of the Bentley field, the planning for which is currently being undertaken. XER expects the Rowan Norway to be made available in the fourth quarter of 2011.

Return to the madness of the dot-com bubble?

There were reports in the press last week that Twitter had been in talks with both Google and Facebook, with some estimates putting the value of the company at $10 billion. This follows the purchase of the online site the Huffington Post by AOL $315 million. There was talk that Facebook is now valued at $50 billion and Linked in announced its $175 million IPO (LinkedIn turned a profit of $10.1 million on revenue of $161 million in the first nine months of 2010, according to documents filed to the Securities and Exchange Commission).

AOL itself is infamous for the $164 billion merger with media group Time Warner completed In January 2000 at the height of the dot-com frenzy, which created AOL Time Warner. In 2002, the company was forced to report a loss of $99 billion due to the goodwill write-off related to AOL, at the time, the largest loss ever reported by a company. In 2003, the company dropped the "AOL" from its name, and removed Steve Case as executive chairman. In May 2009 Time Warner announced that it would spin off AOL as a separate independent company, with the change occurring on December 9, 2009.

Looks like we're heading for the day's of the 1998-2000 dot-com bubble all over again! (see my previous post on the anniversary of the bubble in March 2010 - http://contrarianinvestoruk.blogspot.com/2010/03/10th-anniversary-of-internet-bubble.html)

History of key Do-com busts from Wikipedia (http://en.wikipedia.org/wiki/Dot-com_bubble)

• Boo.com, spent $188 million in just six months^[17] in an attempt to create a global online fashion store. Went bankrupt in May 2000.^[18]
• Startups.com was the "ultimate dot-com startup." Went out of business in 2002.
• e.Digital Corporation (EDIG): Long term unprofitable OTCBB traded company founded in 1988 previously named Norris Communications. Changed its name to e.Digital in January 1999 when stock was at $0.06 level. The stock rose rapidly in 1999 and went from closing price of $2.91 on December 31, 1999 to intraday high of $24.50 on January 24, 2000. It quickly retraced and has traded between $0.07 and $0.165 in 2010 .^[19]
• Freeinternet.com – Filed for bankruptcy in October 2000, soon after canceling its IPO. At the time Freeinternet.com was the fifth largest ISP in the United States, with 3.2 million users.^[20] Famous for its mascot Baby Bob, the company lost $19 million in 1999 on revenues of less than $1 million.^[21][22]
• GeoCities, purchased by Yahoo! for $3.57 billion in January 1999. Yahoo! closed GeoCities on October 26, 2009.^[23]
• theGlobe.com – Was a social networking service, that went live in April 1995 and made headlines by going public on November 1998 and posting the largest first day gain of any IPO in history up to that date. The CEO became in 1999 a visible symbol of the excesses of dot-com millionaires.
• GovWorks.com – the doomed dot-com featured in the documentary film Startup.com.
• Hotmail – founder Sabeer Bhatia sold the company to Microsoft for $400 million;^[24] at that time Hotmail had 9 million members.^[25]
• open.com - Was a big software security producer, reseller and distributor, declared in bankruptcy in 2001.
• InfoSpace – In March 2000 this stock reached a price $1,305 per share,^[26] but by April 2001 its price had crashed down to $22 a share.^[26]
• lastminute.com, whose IPO in the U.K. coincided with the bursting of the bubble.
• The Learning Company, bought by Mattel in 1999 for $3.5 billion, sold for $27.3 million in 2000.^[27]
• Think Tools AG, one of the most extreme symptoms of the bubble in Europe: market valuation of CHF 2.5 billion in March 2000, no prospects of having a substantial product (investor deception), followed by a collapse.^[28]
• Xcelera.com, a Swedish investor in start-up technology firms.^[29] "greatest one-year rise of any exchange-listed stock in the history of Wall Street." ^[30

China overtakes Japan as world's second biggest economy

Japan has reported a preliminary 0.3 % decline in GDP (gross domestic product) in the last quarter of 2010 as a government stimulus package which included subsidies on eco-friendly cars came to an end in the previous quarter. Japan's GDP fell by 6.3% in 2009 and 1.2% in 2008. The poor state of the Japanese economy means that China is now clearly ahead of it in terms of economic output after itself producing a 10% GDP rise in the last quarter, making China the second biggest economy in the world after the U.S..