My Lepanto (LC) Bet

Today, Lepanto Consolidated Mining Company (PSE: LC) disclosed this:

Update on Far Southeast Project re: indigenous people vote in favor of issuance of FTAA

I profiled LC here and thoughts about the effect of EO 79 here. The disclosure above simply assures the investor that LC’s most valuable asset is exploitable which is the Far Southeast Project (FSP).


FSP is estimated to have a reserve of 19.8 million ounce (Moz) [1] of gold where LC’s interest of 60% will eventually be reduced to 40%.

We then use the following assumptions:

Price of gold – $1,200

FOREX rate – P40/USD

Profit margin – 20%

Estimated reserves of mining companies are never certain; to compensate this, I placed a range on my valuation based on the estimated recoverable minerals on the total estimated reserve. I also used 20% profit margin despite the fact the FSP is an open pit mining operation that commands 30% profit margin in order to provide a buffer on the future changes in mining tax rates.LC1

As you can see in the table above, what compelled me the most is the huge margin of safety that trading LC provides. LC has a value that ranges from P.70 ~ P1.58.


1. FSP gold reserve estimate is not accurate.

2. FSP will not proceed to commercial operations.


  1. Update on Far Southeast Project,

Disclaimer: I do not claim to be an expert and nothing I say should be taken as a recommendation to buy or sell. Read more in the ABOUT page.


Ideas for a better life from Brian Tracy

So true!
Dispose of the past and look forward. Take the lessons of the past and apply it to make a beautiful future. No other way but FORWARD.

Give me 5 minutes a day and I'll give you a happier, more successful life

You know the quality of your thinking determines the quality of your life. What you think about most of the time determines how you feel and how happy and how motivated you are.

The more you fill your mind with powerful ideas and positive thoughts, the more effective you will be and the more energy you will have.

You were born with extraordinary potential for success. What you have now is only the beginning of what you can achieve and have in your life. Successful people think about the future most of the time, and how they can create a better future.

If you are reading this you are probably in the top 10% or 20% of our society.

You probably believe the best is still in front of you. Top performers think about what they want and how to get it. Favorite word is “how?” They don’t think whether they…

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Profiling: San Miguel Corporation (PSE: SMC)

San Miguel Corporation (SMC, the Company) has the following corporate structure:


SMC is engaged in the following industries:

  1. Beverages through San Miguel Brewery Inc. (SMB), Ginebra San Miguel, Inc. (GSMI), and San Miguel Foods and Beverage International Limited (SMFBIL)
  2. Food through San Miguel Pure Foods Company, Inc. (SMPFC) (owns Golden Bay Grain terminal)
  3. Packaging through San Miguel Yamamura Packaging Corporation (SMYPC), San Miguel Yamamura Packaging International Limited (SMYPIL), Mindanao Corrugated Fibreboard, Inc. (MCF), San Miguel Yamamura Asia Corporation (SMYAC)
  4. Real Estate through San Miguel Properties, Inc. (SMPI)
  5. Power Generation and Distribution through SMC Global Power Holdings Corporation (SMC Global)
  6. Mining through Clariden Holdings, Inc, (Clariden)
  7. Fuel and Oil through SEA Refinery Corporation (SRC)
  8. Infrastructure though San Miguel Holdings Corp. (SMHC)
  9. Telecommunications through Vega Telecom, Inc. (Vega) and Eastern Telecommunications Philippines (ETPI)

Major contributor to SMC’s income is the Beverage, Food, Packaging, Power Generation and Distribution, and Fuel and oil businesses.

SMC’s beverage business is mainly driven by San Miguel Brewery Inc. (SMB). SMB claims to have a market share of more than 90% in the Philippines and exports its beer products to over 40 countries. SMB’s domestic operations only grew by 5% in 2012 while international operations only rose 6%. SMB launched in December 2012 a new product to cater the health conscious market segment with zero-carb, low calorie San Mig Zero.

Ginebra San Miguel, Inc. (GSMI) has trimmed down its losses down to P566 million in 2012 from P900 million and San Miguel Foods and Beverage International Limited (SMFBIL)’s subsidiary, PT San Miguel Indonesia Foods and Beverages, sold its land use rights, building and machinery for $27 million on September 28, 2012 recognizing a gain of P45 million.

SMC’s food business is under San Miguel Pure Foods Company, Inc. (SMPFC) with recognizable brands such as Magnolia, Purefoods, Tender Juicy, Monterey, Star, Dari Crème, B-Meg, San Mig Cofee and JellYace.

Below are SMPFC’s corporate structure:


San Miguel Foods, Inc. operates the Feeds, Poultry and Fresh Meats, Franchising (Smokey’s hotdog and Hungry Juan roast barbeque outlets), food services business through Great Food Solutions.

San Miguel Mills, Inc. (SMMI) engages in the manufacture and distribution of flour and premixes. In September 2011, SMMI formed Golden Bay Grain Terminal Corporation (GBGTC) for the construction of a grain terminal in Mabini, Batangas where SMMI plans to invest P2.5 billion with the intention to minimize freight costs for the flour and feeds milling operations.[1] Total costs incurred as of December 31, 2012 for the grain terminal is 1,071.2 million.[2] GBGTC is not yet in commercial operations.

The Purefoods-Hormel Company, Inc., a 60-40 joint venture between the Company and Hormel Netherlands B.V., produces refrigerated processed meats (i.e. hotdogs, bacon, ham, and nuggets) and canned meat products (i.e. corned beef, luncheon meat, sausages, spreads and ready-to-eat viands.) Magnolia, Inc. a wholly owned subsidiary, manufactures and market butter, margarine,  cheese, jelly snacks, and ice cream. PT San Miguel Pure Foods Indonesia, a 75% owned subsidiary engaged in the manufacture and distribution of processed meats in Indonesia. San Miguel Super Coffeemix Co., Inc., a 70-30 joint venture between the Company and Super Coffee Corporation Pte Ltd. (SCCPL) (30% interest was initially owned by Super Cofgeemix Manufacturing Ltd. of Singapore), started commercial operations in April 2005 by marketing its 3-in-1 coffee mixes in the Philippines. San Miguel Pure Foods International, Limited, a wholly owned subsidiary, has a 51% effective interest in San Miguel Hormel Co., Ltd. which is engaged in live hog farming and production of feeds and fresh processed meats in Vietnam.

SMC’s packaging business supplies the internal requirements of the Company and major Philippine-based multinational corporations such as Nestle Philippines, Inc., Unilever Philippines Inc., Kraft Foods Phils., Diageo Philippines, Inc., Del Monte Philippines, Inc. Coca-Cola Bottlers Philippines Inc., and Pepsi-Cola Products Philippines, Inc. SMC’s packaging group has Glass, Metal, Plastic, Polyethylene terephthalate (PET), Paper, and Composites.

SMC’s participation in the Power industry is through SMC Global Power Holdings Corp. (SMC Global). Currently, SMC Global derives its revenue from the sale of electricity under the Independent Power Producer Administrator (IPPA) contract with Independent Power Producers (IPP). IPPAs are responsible for the procurement of power plant’s fuel requirements and management of the contracted energy output of the facilities, including the sale of power and offering of ancillary services [3] while IPPs are private companies that owns and operates the power plants. [4] SMC Global is the IPPA for the Coal-fired Sual, natural gas-fired Ilijan and hydro-electric San Roque power plants which have combined contracted capacity of 2,545 MW.

In 2010, through a subsidiary, San Miguel Energy Corporation, SMC Global purchased 100% interest of Daguma Agro-Minerals, Inc. (DAMI), Bonanza Energy Resources, Inc. (BERI) and Sultan Energy Phils. Corp. (SEPC) for $ 25 million. [5] DAMI, BERI, and SEPC are in the exploratory stages of their mining activities. Delays of the production timetable were caused by the newly enacted Environment Code of South Cotabato that bans open pit mining. [6]

SMC operates its fuel and oil business through a wholly owned subsidiary Sea Refinery Corporation (SRC). SMC has 68.26% in a publicly listed oil refinery company, Petron Corporation (PSE: PCOR) with SRC owning 50.10% and SMC directly controlling 18.16%. PCOR dominates the petroleum industry and Liquefied Petroleum Gas (LPG) industry with 38.5% and 41.7% market share respectively. [7]

In 2011, a $2 billion refinery upgrade dubbed as Phase 2 of Refinery Master Plan (RMP-2) was launched that will enable PCOR to fully convert residual products to higher-value gasoline, LPG, diesel and propylene. PCOR is also constructing a $500 million co-generation power plant adjacent to the refinery plant in Limay, Bataan which can generate considerable cost savings in power consumptions and thus lower refinery costs. The first phase of the co-generation plant will be completed by the second half of 2013 while RMP-2 is expected to be completed in 2014.

Other significant investments:

In 2010, SMC subscribed to 10.1% interest in Inodphil Resouces NL (Indophil). As of December 31, 2012, SMC’s interest was diluted to 3.99% as a result to additional share issuances made by Indophil. Indophil has 37.5% beneficial ownership in Sagittarius Mines, Inc. which in turn holds a 40% controlling equity stake in the Tampakan Copper-Gold Project in Southern Mindanao.

SMC’s infrastructure business, San Miguel Holdings Corp. (SMHC), is engaged in the construction of Tarlac-Pangasinan-La Union Expressway (TPLEX), Metro Rail Transit Line 7 (MRT 7), NAIA Expressway, and Boracay Airport. The 46-kilometer first phase of TPLEX is expected to be operational in the third quarter of 2013 and the remainder 88-kilometer is expected to be completed by late 2014. Construction of 44-kilometer MRT 7 has not yet started. In May 6, 2013, SMC was awarded with P15.52 billion NAIA Expressway Project. [8] Construction of the project is expected to commence in January 2014. [9] SMC hopes to commence construction of the Boracay Airport by the first quarter of 2014 and to complete the project by 2015.

San Miguel Properties, Inc. (SMPI) hast the following projects:



  1. PureFoods investing P2.5B in grains terminal in Batangas,
  2. PF SEC 17-A 2012, Investments in Subsidiaries, p. 67,
  3. PSALM preparing to bid out 5 power contracts,
  4. RA 9136, Definition of Terms,
  5. San Miguel to expand Davao coal project,
  6. SMC SEC A17-A 2012, Investments in Subsidiaries, Note 6, p. 164,
  7. Oil Supply/Demand Report FY 2012,
  8. NAIA Expressway project,
  9. San Miguel to start building NAIA Expressway in January,

Disclaimer: I do not claim to be an expert and nothing I say should be taken as a recommendation to buy or sell. Read more in the ABOUT page.

Manila Water Company (PSE: MWC)

Manila Water Company (MWC, the “Company”) entered into a 25-year Concession Agreement (CA) with Metropolitan Waterworks and Sewerage System (MWSS) on February 21, 1997 and was renewed for another 15 years in 2009. MWC’s CA with MWSS will expire on May 6, 2037. The Company had served 99% of the customers in the East Zone up from only 26% at the start of the CA. The Company spent over P58.7 billion in the span of 15 years (from 1997 to 2012) on capital expenditures and plans to spend P66.4 billion from 2011 to 2015. In 2012, MWC supplied approximately 1,333 million liters per day (mld) in the East Zone operations and billed 427.3 million cubic meter (mcm) [1,333 mld x 320 days / 1000 liters].

MWC Expansion Efforts

MWC won a $ 15 million contract in Ho Chi Minh City (HCMC), Vietnam in 2008 for leakage reduction in the area. As lucrative as the contract may sound, MWC did not profit much as shown below: [1]


MWC’s 3-year presence in Vietnam allows the Company to learn about the business climate in the country and it paved way for more investments in Vietnam. In December 2011, MWC purchased 49% of Thu Duc Water B.O.O. Corporation (TDW) the largest private bulk water supplier in HCMC through Thu Duc Water Holdings, Pte, Ltd. a wholly owned subsidiary of MWC incorporated in Singapore. TDW has a 300 mld bulk water supply contract with Saigon Water Corporation under a take-or-pay agreement. In the third quarter of 2012, MWC purchased 47.35% of Kenh Dong Water Supply Joint Stock Company (KDW) another bulk water supplier in HCMC. A 200-mld Kenh Dong bulk water treatment plant is currently under construction and will be completed and operational by the second quarter of 2013.

In December 2009, MWC entered into a Concession Agreement with the Tourism Infrastructure and Enterprise Zone Authority (TIEZA, formerly Philippine Tourism Authority) for the provision of water and wastewater services in the Island of Boracay. MWC participation in Boracay was through Boracay Island Water Company (BIWC) an 80-20 joint venture with TIEZA where MWC has 80% interest.

In September 2009, Laguna AAAWater Corporation (LWC) entered into a 25-year Concession Agreement with the Province of Laguna (POL). LWC is a 70-30 Joint venture with POL in which MWC has the majority interest.

In December 2011, MWC purchased Veolia Water Philippines and Philippine Water Water Holdings which owns 100% of Clark Water Corporation (CWC) which has a 25-year water concession in Clark Freeport Zone in Angeles, Pampanga until October 2025.

In the first quarter of 2012, MWC, through Northern Waterworks and Rivers of Cebu (a consortium of MWC and Viscal-Gaisano group), signed a Joint Investment Agreement with the Provincial Government of Cebu for the development and operation of a bulk water supply system in the province. A 35-mld capacity treatment plant and transmission lines is on-going and is expected to be completed in the fourth quarter of 2013. The water will be sourced from the treated surface water extracted from Luyang River in the town of Carmen.

Below is the billed volume of MWC’s operations outside the East Zone:MWC2


With MWC East Zone concession providing 90% of the Company’s revenues and considering that MWC’s crown jewel will only last until 2037, it would be fairly easy to estimate MWC’s intrinsic value. Assuming that the 9.3% appropriate discount rate [2] for 2008-2012 will be used as a discount rate for the remaining 24 years of the concession and the concession will generate a smoothen cash flow of 7 billion, we will arrive at an intrinsic value of 67 billion or 33.47 per share.

MWC is properly valued by the market, unless MWC generates substantial revenue from other water operations.


  1. MWC SEC 17-A 2012, Note 24, p. 149,
  2. MWC SEC 17-A 2012, The Concession, p. 7,

Disclaimer: I do not claim to be an expert and nothing I say should be taken as a recommendation to buy or sell. Read more in the ABOUT page.

Quasi-reorganization (PSE:APC Case Study)

On December 20, 2012, APC disclosed that its board approved a reduction in par. [1] On January 11, 2013, the rationale of the par value reduction from P1 to P.35 was in order to reduce substantially the capital deficit. [2]

How could par value reduction reduce deficit?

Par value is a promise from the corporation that no shares shall be issued below the indicated amount. In the case of APC, APC initially indicated a par value of P1.

If you purchase directly 1 share of stock in APC which means you invested P1 to APC and they later say that your claim will only be P.35, the difference of P.65 is for APC to keep which they can use to apply to their deficit.


The process above is called quasi-reorganization. The word “quasi” is Latin for the word “almost” thus quasi-reorganization means in simple English “almost a reorganization.” Quasi-reorganization is simply an accounting method of reducing/eliminating deficit. Management prefers to reduce/eliminate deficit in order to:

  1. Present a balance sheet without deficit is for potential investors.
  2. Declare dividends (a corporation in deficit cannot declare dividends).
  3. Shorten the time that it will take the company to present surplus.


  1. Board approval of reduction in par value,
  2. Additional information re: Board approval of reduction in par value; Trading halt,

Disclaimer: I do not claim to be an expert and nothing I say should be taken as a recommendation to buy or sell. Read more in the ABOUT page.

Impact of SC 51 Onshore Oil Prospect Success to PERC

Yesterday Otto Energy disclosed their intention to drill the Duhat Oil Prospect that has a range of 1 million barrels (MMbbls) to 88 MMbbls or a mean reserve of 34 million MMbbls [1 MMbbls + 13 MMbbls + 88 MMbbls divided by 3]. Given that the prospect is onshore, a discovery of as small as 1 MMbbls could be economically viable to extract and production could start as early as 2014. That said; we can have range for the value that Duhat Oil Prospect can contribute to the value of PERC. Below is my calculation:


*Profit margin is based on The Philodrill Corporaiton (PSE: OV) operaitons

Depending on the determined reserves, PERC can be worth to as high as P 18.56 per share.


  1. Drilling to Commence by Late July at the Duhat Oil  Prospect,

Disclaimer: I do not claim to be an expert and nothing I say should be taken as a recommendation to buy or sell. Read more in the ABOUT page.

Wanna Bet? (PSE: BSC)

On February 12, 2013, Basic Energy Corporation (PSE: BSC) disclosed a Joint Venture with Petrosolve Sdn BHd (Petrosolve) of Malaysia for the identification, exploration, development, management and operation of oil wells. [1] BSC and Petrosolve established Grandway Group Limited (Grandway) where BSC will have 70% participating interest. [2] On May 27, 2013, BSC disclosed that Grandway Group Limited registered Basic Energi Solusi (BES) as a 95% owned subsidiary in compliance with Indonesian laws. [3] On June 26, 2013, BES acquired from Petrosolve 10 rights to manage oil wells in the Central Java area of Indonesia. [4]

What made this interesting is that Central Java, Indonesia is very rich in onshore oil. [5] With BSC’s resources and experience in oil extraction operations, optimizing the production of the oil wells covered by the acquired rights from Petrosolve could be a profitable venture.

 Possible Contribution of the Venture to BSC’s Value

The probable reserve information regarding the rights acquired by BSC was not yet disclosed but we could range it from 100,000 to 1 million barrels of oil. Below is my calculation:


Depending on the probable reserve of oil on the rights acquired, the Joint Venture could contribute P.02 to P.20 per share in the value of BSC.

The most conservative option is to wait for the probable reserve to be disclosed and act accordingly.


  1. Joint Venture with Petrosolve Sdn BHd re: identification, exploration, development, management and operation of oil wells,
  2. Establishment of joint venture company with Petrosolve Sdn Bhd,
  3. Approval by Badan Koordinasi Penanaman Modal of Indonesia of registration of investment in PT. Basic Energi Solusi,
  4. Agreement with Petrosolve Sdn Bhd of Malaysia re: acquisition by PT Basic Energi Solusi of rights to manage oil wells in Central Java area of Indonesia,
  5. Indonesia’s Texas? Rural Java braces for oil boom,

Disclaimer: I do not claim to be an expert and nothing I say should be taken as a recommendation to buy or sell. Read more in the ABOUT page.