QIS Update #2 2015 - January 29th 2015
Included in this update:
- Dalmac Energy provides operations update
- Newlox Gold Ventures clarifies, retracts previously issued technical disclosure
On Monday, our latest Weekly Summary was posted in the QIS Capital Forum on smallcaps.ca at www.smallcaps.ca/forum. These updates take a look back at the news and activity from the prior week as well as take a look at the week at hand. In addition, at the end of each weekly recap, we discuss a stock to watch that may be worth your time in performing some additional due diligence. Since Dec. 15, 2014, we’ve mentioned stocks like PHO, OML, and COV, all of which have gone on to post notable gains in the weeks since their inclusion. We look forward to providing the weekly recaps on the forum throughout 2015.
Please feel free to email us anytime at email@example.com or call us at (250) 377-1182. We look forward to your comments, questions, and feedback.
Dalmac Energy Inc. (DAL:TSX-V)
Current Price: $0.27 (coverage commenced Nov 15/11 - $0.37)
Dalmac Energy Inc. has recently provided a shareholder update.
The oil and gas industry in Canada is facing significant challenges due to falling oil prices. Production companies are beginning to take steps to limit capital expenditures by reducing or suspending drilling programs and by eliminating all unnecessary expenses. This is having a profound impact on cash flow throughout the industry for both producers and service companies. Dalmac is pleased to report that it has been proactively successful to-date in maintaining its revenue base, profit margins, and activity levels.
Current activity levels within the Western Canadian Sedimentary basin vary dramatically based largely upon location, the spectrum of hydrocarbons, decline rates, and cost of drilling. The majority of Dalmac’s operations are concentrated around the Duvernay shale basin in west central Alberta, which has not been affected to the same degree by falling oil prices as many of the marginal US shale plays. The Duvernay’s advantage of having a broad spectrum of hydrocarbon production makes it more profitable than other conventional oil plays.
The Duvernay basin has been credited as the source rock for many of the large Devonian oil and gas pools in Alberta, including the most famous Leduc Field which was discovered in 1947. The Duvernay is touted as the second largest oil reserve in Canada covering an area of about 100,000 square kilometers in size. That’s larger than the infamous North Dakota Bakken and Texas Eagle Ford combined with room to spare. According to the Energy Resource Conservation Board, the Duvernay holds an estimated 61.7 billion barrels of oil, 11.3 billion barrels of natural gas liquids, and 443 trillion cubic feet of natural gas. This makes it one of the most profitable oil and gas plays in Canada. In addition to the oil production, the Duvernay is also known for being rich in liquid gases such as propane, ethane and butane all of which can be processed and sold separately- which makes for a very profitable mix. Another important aspect of the Duvernay is condensate – which is a diluent for enabling heavier oil and oilsands production to flow through pipelines. Typical deep Duvernay wells, which cost about $11-$15 million to complete, produce upwards of 1,300 barrels of condensate per day. In Alberta, condensate commands an ultra-low royalty rate of 5% as compared to upwards of 25% for Eagle Ford or Marcellus condensate. In Alberta, condensate has recently been selling at upwards of a 10% premium to crude.
Another important factor is that while drilling activity has seen a major reduction in many areas, the majority of Dalmac’s revenues come from recurring fluid transfers from existing production wells along with well maintenance and servicing which is an ongoing requirement. Management has predominantly seen a slowdown in supply growth oriented activities such as drilling and completions as opposed to day-to-day production activity which is a mainstay of Dalmac’s services.
Dalmac is currently achieving utilization rates for production equipment in the 70% range. This represents the upper percentile of activity for the Company due to factors such as seasonality uses for various types of equipment, servicing schedules, and maintaining an adequate staffing of personnel and inventory of equipment for key customers.
Dalmac is pleased to report that revenues in Q3 ending January 31st are expected to be in line with revenues from the prior year while margins will continue to show improvement. The Company boosted its gross profit margin to 30% in the last quarter compared to 22% in the prior year. Dalmac expects to maintain its gross margin near 30% due to improving internal controls along with the implementation of the new computerized dispatching and invoicing system.
To spur revenue growth, Dalmac is working with many of its existing customers to expand its scope of service activity to reflect the full range of services provided. Management strongly feels that the benefits of offering quality service along with the correct product mix is more cost effective than having customers single source their service and production needs. The Company has been successful in utilizing much of the equipment received in 2014 and has been able to cross sell this equipment to provide a one-stop shop for current customers. This growth initiative is expected to continue into 2015.
While the Canadian oil and gas industry continues to deal with the impact of lower energy pricing, management is confident that Dalmac will continue to deliver solid shareholder value. Q3 results are expected to be reported in March 2015.
QIS Capital: This news release validates some of our previous comments that Dalmac’s business has thus far stayed consistent and is somewhat more protected from down cycles than other service companies. This doesn’t mean that the company will not have some negative pressure from oil pricing but to-date it doesn’t appear it has had any meaningful impact. Last year in the third quarter ended January 31, 2014, Dalmac had revenues of $10.3 million, a gross margin of 27%, and net income of $578K or $0.02 per share. The company has indicated that revenues for Q3 this year will be in line with the previous year but margins should be closer to 30%. That should bode well for the bottom line. Dalmac is presently trading at less than half of its book value and at a price to sales multiple of less than 0.2 times. Earnings are a little more difficult to forecast at this time as the company has yet to report its two strongest quarters historically.
Newlox Gold Ventures Corp. (LUX:CSE)
Current Price: $0.05 (coverage commenced March 31/14 - $0.05)
Newlox Gold Ventures Corp. has provided an update on the announces that, as a result of a review by the British Columbia Securities Commission, it is issuing the following news release to clarify its previous disclosures.
The Company clarifies that it does not have a Mineral Resource or Reserve as defined by National Instrument 43-101 and retracts any statements which imply a Resource or Reserve and cautions readers that a Qualified Person has not done sufficient work to classify any material under the Company’s control as current Mineral Resources or Reserves. Newlox Gold Ventures Corp. is not treating any material under its control as Resources or Reserves. In addition, the Company does not hold any mineral exploration or exploitation properties and therefore makes no claims in regard to current or historical Mineral Resources or Reserves. As such, the Company retracts the disclosure as well as the documents which contain these disclosures and asks investors to disregard statements made therein pertaining to tonnages and grades. The Company advises readers not to rely on such statements as they may continue to be found in the public domain.
The Company had posted documents to its website and made filings which are non-compliant with National Instrument 43-101 in that they were not reviewed by a Qualified Person and are non compliant. The Company is taking this opportunity to correct any non compliant information that had been disseminated in the past and makes a commitment to avoid any such events in the future.
In particular, the Company would like to address a Fact Sheet dated August 2014 in which a grade and tonnage estimate was quoted for the Company’s “First Reclamation Target”. The Company would like to clarify that the grades and tonnages quoted in the document are not Resources or Reserves as defined by National Instrument 43-101 and are therefore non compliant. The reclamation target consists of waste dumps from artisanal mining that have not been verified by a Qualified Person. The Company retracts this document and any other versions which contain the disclosure of these figures of grade and tonnage.
Statements in this news release may be viewed as forward-looking statements. Such statements involve risks and uncertainties that could cause actual results to differ materially from those projected. There are no assurances the Company can fulfill such forward-looking statements and the Company undertakes no obligation to update such statements. Such forward-looking statements are only predictions; actual events or results may differ materially as a result of risks facing the Company, some of which are beyond the Company’s control. The Company is not a mining or mineral exploration company and therefore holds no Resources or Reserves as defined by NI 43-101 or any mineral exploration or exploitation properties. The Company is a technology and trading company developing processes for economically viable waste remediation and therefore makes no claims in regard to tonnage or grade of feed material.
The Company also draws attention to additional non compliant materials; the Corporate Presentation dated October 2014 and its September 30, 2014 Management Discussion & Analysis (the MD&A) where the Company referred to grades and tonnages deemed to be a disclosure of mineral resources that are contrary to s. 2.2 and 3.4 of National Instrument 43-101 compliance standards. The Company retracts these documents and any other versions which contain statements regarding tonnage and grades. The Company asks investors to disregard statements made therein pertaining to tonnages and grades.
A revised version of the MD&A for the period ending September 30, 2014 has been filed on SEDAR.
The Company pledges to ensure that future material published by the Company will comply with appropriate rules and regulations. The Company has on its board a Qualified Person who will review any future dissemination of technical information.
Additionally management wishes to clarify that Newlox Gold Ventures Corp. is not a mining company and does not intend to conduct mineral exploration, orebody definition, or mining. Newlox is a precious metals trading and environmental reclamation technology company. Management plans to continue the development and growth of this business model.
QIS Capital: In short, the company is not designated as a mining company nor does management view the company as being a traditional mining company. Newlox is involved in processing old tailings to remove the existing gold while providing environmental reclamation services. The BC Securities Commission disagrees and is requiring the company to register as a mining company and provide a 43-101 report. Some statements have been made in past Fact Sheets and MD&A documents that do not comply with regulations set out by the BC Securities Commission. Nothing has changed regarding the stockpiles waiting to be processed by the company, however, more care will be taken prior to disclosing tonnages and mineral grades going forward.
Newlox should be nearing the completion of its expansion doubling the size of its processing facility. We are also awaiting more news on the status of the benefication facility which will process the concentrate into gold bars for sale. Once complete we are expecting a significant boost in cash flow and earnings from the company.
Disclaimer: This article is for informational purposes only. The information contained within this article should not be construed as offering investment advice. Those seeking direct investment advice should consult a qualified, registered, investment professional. BOEs may be misleading, particularly if used in isolation. A BOE conversion ratio of 6 Mcf: 1bbl is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. The company profiled assumes no liability for the information presented. This is not a direct or implied solicitation to buy or sell securities. Readers are advised to conduct their own due diligence prior to considering buying or selling any stock. The author(s) owns directly or indirectly 1,293,000 shares, 1,200,000 warrants, and a $60K convertible debenture of Newlox Gold Ventures Corp. and 118,000 shares and 200,000 options of Dalmac Energy Inc. QIS Capital may have a financial relationship with these companies and may trade in the stocks mentioned. No stock exchange has approved or disapproved of the information contained herein. Copyright © 2003 - 2015 QIS Capital Corporation.