On November 16, 2012 WSJ ran a story about Libra Advisors returning outside investor money by the end of the year as it scales down from hedge fund to “family office”: a private entity that manages a wealthy family’s investments and personal affairs. By our count Libra’s fund recently held $500+ million in resource stocks (mostly mining) including several concentrated positions in the juniors. Liquidation of these positions could create abnormal price action in the shares of the companies involved and potentially provide a trading or investment opportunity for those aware of the situation.

Unfortunately, we didn’t fully become aware of the scenario until last week when a subscriber spoke to us about it, but since 2012 isn’t quite  over yet we decided it was worthy of further investigation. In the end we haven’t come up with any compelling trading ideas other than the possibility of taking advantage of unusual price weakness on the back of any big sell volume involving the higher quality juniors held by Libra. The assumption is that the selling pressure would in fact come from Libra (although it could arise from other sellers including seasonal tax loss selling) and therefore would be short-lived.

So far, we haven’t seen many opportunities emerge from Libra’s downsizing but that doesn’t mean we shouldn’t continue to monitor the situation. Consider the following:

  1. We don’t know what % of the fund is being liquidated versus retained in the new private entity.
  2. We’d expect the larger, more liquid holdings such as Microsoft, China Mobile, Newmont, etc. to be closed out before any wholesale liquidation of the juniors.
  3. There are only a few more trading days left in 2012 and presumably Libra isn’t waiting until the 11th hour to take care of business.

That being said, an interesting name or two in Libra’s portfolio did grab our attention … we’ll look at these in more detail and report our findings to subscribers if there is something compelling that turns up. You’re free to put your guess in the comments section as to which companies this might be.

Despite the absence of any major trading opportunities to date, it is still interesting to look into the details of Libra’s holdings. Perhaps there might still be a trading opportunity that will develop or we might discover some new portfolio strategy or other investing insight. Drawing from several sources we created the following interactive data visual that displays all of Libra’s mining exposure (in addition to a few oil & gas plays). It should be noted that the fund holds a handful of non-resource names as well, notably Microsoft ($55 million holdings value) and China Mobile ($38 million), which are not shown in the visual below. We also didn’t include most of the oil & gas names but other than Gran Tierra Energy ($15 million) and Advantage Oil & Gas ($8 million) none of those left out were significant holdings.

click to interact

Although Libra owns mostly juniors, most of the chunkier positions by dollar value are in bigger names like Newmont (NYSE: NEM; TSX: NMC) and Barrick (NYSE/TSX: ABX). That said, if you sort the second column “% Issuer Owned” you’ll notice that the ownership stake in many of the juniors is actually significant in many cases. Here’s perhaps the most interesting bit: sort the third column “Times Avg Daily Volume” and you’ll notice that Libra would have a very hard time liquidating some of these juniors in the open market. This leads to an expectation of share price volatility and may indicate an opportunity to acquire shares in these companies contingent on a Libra “sales event”.

To that end, we’ve looked at the volume activity in all of the junior names where Libra’s selling would have been obvious but surprisingly there isn’t much evidence of liquidation much less fire sale. Volume was a bit spiky in October for several of the companies but that could have been unrelated to Libra. More recently we’ve seen some big volume days in Revett Minerals (AMEX/TSX: RVM), Strategic Oil & Gas (TSX-V: SOG), Storm Resources (TSX-V: SRX), and notably Avala Resources (TSX-V: AVZ) where a very dilutive financing at
.20 w/full warrant at
.30 was just announced
 … but otherwise nothing worth mentioning. Perhaps Libra has been trading positions off market or waiting for a better market to liquidate? More likely Libra is trying to sell the most liquid positions first as it tries to achieve its goal of returning outside money by year-end (the fund will continue to manage “family” money).

It should be noted as well that Libra owns warrants in many of the companies in its portfolio (you can sort based on # warrants held in the above visual and view the exact amount by hovering over individual data bars). This is potentially interesting since on balance we’d expect Libra to be more likely to sell the free trading shares of names where it retains exposure through warrants. Without giving any consideration to warrant terms (e.g. how far in- or out- of the money and time to expiration), warrant positions are significant in the following names:

  • Sandstorm Metals & Energy (TSX-V: SND)
  • Manas Petroleum (TSX-V: MNP; OTCBB: MNAP)
  • Southern Silver (TSX-V: SSV)
  • Kilo Goldmines (TSX-V: KGL)
  • Carlisle Goldfields (TSX: CGJ)
  • Suroco Energy (TSX-V: SRN)
  • Golden Share Mining (TSX-V: GSH)
  • GMV Minerals (TSX-V: GMV)
  • RT Minerals (TSX-V: RTM)
  • Shear Diamonds (TSX-V: SRM)
  • Montana Exploration (TSX-V: MTZ)
  • Solvista Gold (TSX-V: SVV)

In conclusion, Libra’s downsizing may not have provided many trading opportunities so far but there is still the chance for last-minute action before 2012 is history. Based on the above analysis, you and we both know where to look now.

It should be noted that Libra holds one company that we are currently buying for our own portfolios and so we’d obviously be looking to take advantage of any price weakness in that company during the rest of December (whether the result of Libra selling or otherwise). We’d also be willing to entertain a trading opportunity if the price were right in names like Avala Resources (bearing in mind the
.20 financing), Solvista Gold, Dunav Resources (TSX-V: DNV), Carlisle Goldfields, and Quaterra Resources (AMEX: QMM; TSX-V: QTA) … if for no other reason than they are decent companies with what we consider to be decent projects. And then there’s Manas Petroleum, which is already trading for less than the value of its 100 million share position in Petromanas Energy (TSX-V: PMI) … that one could also appeal to deep value investors as well. Last but not least, we’re looking into a couple names we haven’t examined closely in the past and will let our subscribers know if we find anything interesting.

Disclaimer: We don’t currently own shares in any of the above companies with one exception. We did not receive compensation from any of the companies mentioned. This is not investment advice, which you should seek from a licensed investment professional.