Pinetree Capital and CEO Sheldon Inwentash are household names when it comes to the junior resource sector. But what does it mean when one of the market’s biggest players decides he wants out?
This article was first published on Gold Investing News on November 9, 2014.
Last week, Gold Investing News reported on the trading activities of German newsletter writer Oliver Gross, who recently decided to sell just about everything in his portfolio due to unfavorable metals prices. But Gross isn’t the only one shedding assets in this market.
Known for investing in micro- and small-cap resource companies, Pinetree Capital (TSX:PNP) and CEO Sheldon Inwentash are household names when it comes to the junior resource sector. So what does it mean when one of the market’s biggest players decides he wants out?
During the late summer months, it was business as usual for Pinetree Capital and Inwentash, with both scooping up small- and micro-cap resource companies like they were going out of style. Fast forward to October, and the company and its CEO seem to have backtracked on most of those investments, leaving investors scratching their heads.
One theory that has come to the surface is that Pinetree and Inwentash are shedding lagging resource stocks in favor of more profitable technology plays. Seeking Alpha contributor Edward Vranic highlighted that idea in June of this year, noting that Pinetree’s “portfolio has suffered in recent years thanks to the significant pullback of resource stocks on the TSX Venture.” Vranic also pointed out that Pinetree has seen a slight rebound in its bottom line through its investment in POET Technologies (TSXV:PTK,OTCQX:POETF). Since June, Pinetree and Inwentash have sold off some of their holdings of POET, but another tech stock seems to have sparked the attention of the merchant banker.
The lucky company is Keek (TSXV:KEK), an up-and-coming social media company that promises to be better than all the rest. Born in October 2011, and brought public via a reverse takeover of oil exploration junior Primary Petroleum, Keek launched on the TSX Venture in July 2014, with one of its most significant investors being Pinetree Capital. As of November 6, Pinetree and its joint actors held approximately 17.8 percent of all issued and outstanding common shares of Keek.
The Critical Investor, another Seeking Alpha contributor, has spent some time looking at the mass dumping of resource stocks made by Pinetree and Inwentash in recent weeks, and like Vranic concluded that the firm seems to be interested in using its funds elsewhere.
“One of Pinetree’s core holdings, Keek Inc, entered into a $3M loan agreement with Pinetree Capital, based on secured notes. The notes will bear interest at a rate of 12% per annum, will be repayable in 12 months from the date issued, and has all present and future assets as collateral. As Pinetree Capital already owns 41M shares (14% of O/S) in Keek Inc, a possibility for a much larger interest in this social media company could justify the large realized loss in their view, they obviously expect a lot from it,” The Critical Investor wrote on October 31.
So where does that leave the resource companies that Pinetree has left behind?
One of the companies hit the hard by the sell off from Pinetree and Inwentash is West African junior African Gold Group (TSXV:AGG), which in the last month has dropped 42.86 percent. However, instead of looking at the stock dump as a negative, The Critical Investor sees it as a possible buying opportunity. African Gold is working on a feasibility study for its Kobada gold development project in Mali, and was performing quite well before Ebola concerns surfaced and the gold price began to tumble.
In fact, at the end of October the company announced results from metallurgical testwork being completed at Kobada. The results were better than expected, and include overall gravity recovery of gold of 85.2 percent; high mass rejection, with 61 percent of saprolite total feed rejected in pre-concentration; and overall mass rejection through pre-concentration and gravity concentration of 91.6 percent.
Similarly, Quebec-based Integra Gold (TSXV:ICG) was also unceremoniously dumped by Pinetree and Inwentash at the end of October. The company’s share price is down 34 percent in the last month, but looking at a bigger picture, the company is only down 8 percent over the last year, having reached close to its 52-week high earlier this spring.
The upshot for investors is that, regardless of where Pinetree puts its money, individuals should always do their own due diligence on stocks prior to investment. Firms like Pinetree have no obligations to the market beyond satisfying their own shareholders. Sure, they can be indicators of where profits are to be had, but their investment models do not necessarily fit the bill for individual investors.
Securities Disclosure: I, Vivien Diniz, hold no investment interest in any of the companies mentioned.