My 10 Year Anniversary of Holding $BNS October 20, 2008

Over the months of 2018 BNS has been getting rocked and hit prices not seen since December 2016. Today I picked up 25 more shares of Bank of Nova Scotia at $70.05. When updating my spreadsheet I noticed October 23 was my 10th year anniversary of holding BNS.

Originally, I purchased 50 shares of BNS on October 9, 2008 at $42.00 and sold October 17, 2008 at $46.01. Then October 23, 2008 re-purchased at $40.50. A month later, averaged down with 45 shares on November 20, 2008 at $38.80.

The TSX on October 23, 2008 was at 9,331.40 fluctuating from there until November 20 when the TSX tumbled to 7,724.80. I looked it up and https://www.thestar.com/business/2008/11/20/tsx_falls_over_750_points.html there was a 765.80 point drop on that day. Today, TSX is at 14,924.08.

My 2008 dividend was an annual $1.92 with a Yield to Cost of 4.823%. Whereas the 2018 dividend has increased 70.83% to $3.28 and through Averaging Up my Yield to Cost of 5.147%. Otherwise, if held at the original price the Yield to Cost would have been 8.24%.

At the height of my holdings February 26, 2016 I had accumulated a total of 1,000 shares, but eventually reduced my position for the purchase of my dwelling (and with that the cessation of my 50K Report.). My current holding has been reduced to 425 shares.


I wish I could remember what I was thinking back in 2008, especially since this holding would have represented a significant amount of my money. Evidently, I held and turned on the DRIP with the next purchase of 1 share on May 4, 2009 at an even lower at $34.74. From there on subsequent purchases were at increasing prices.

This has been a core long term holding and will likely continue to be.

$PIF Polaris Infrastructure Some Thoughts

If anybody gets those Motley Fool ads they are always very curious. You try to research and find what company they are referring to and perhaps it feels like you get close, but you never seem to find it. I don't know if this is true, but it is my perception for one reason or another to do the opposite, or take with a grain of salt, the free MF blog posts, and even at times the advertisements.

Saturday, Sept 8 I received one that kind of piqued my interest that tantalised with the possibility of investing in a TSX listed USD dividend payer operating geothermal energy in Nicaragua. Normally, with these advertisements you have a hell of a time trying to glean what company, but this time... this time it was way too easy. Google "Nicaragua Geothermal TSX" and you will get a few hits for "Polaris Infrastructure". If I am right, then that was way too easy and that makes me get the feeling to "do the opposite".

I have no skin in the game for this one, but phrases like "fat dividend", "escalating fees", and "no competition whatsoever" is enough to at least get you thinking what if I bought in. The advertisement does note the risk of "unfortunate recent turmoil" as a risk. Googling Nicaragua you get the news hits... many dead in protests... Ortega. Wow. Even a lengthy New Yorker article all the way back in April 2018 (It's September 2018) https://www.newyorker.com/news/news-desk/nicaragua-on-the-brink-once-again paints a  dire situation down there. What is truly going on down there is anyone's guess as I am up here far away.

Next looking up the company Polaris Infrastructure, you do see that "fat dividend". On Friday September 7 closing the stock was $10.77 CAD (https://web.tmxmoney.com/quote.php?qm_symbol=pif) and yielding the upper of 6% annualized and paid quarterly in USD terms. Pretty sweet.

Seeking Alpha has some informative posts as well. The last unlocked article https://seekingalpha.com/article/4203894-polaris-infrastructure-get-crushed-falling-knife (as of my posting today) is more negative to the political risk.

Reading comments from the post and on forums there is a general feel on the bull side that the World Bank has their back and that the government wouldn't nationalize and asset such as this centrepiece Nicaraguan renewable energy project. While on the Bearish side you pretty much have the whole political risk from change in government to nationalization to crumbling economy.

Of all that I can't really add much more. I spent a few hours tonight attempting to delve deeper into the company in order to try understanding the argument of not wanting to piss off the World Bank by defaulting and such. It all seems messy to me and admittedly, this is definitely not my forte. However, here is what I could gather and interpret:

Ram Power does not directly own the geothermal San Jacinto project. It owns it indirectly via its subsidiary Polaris Energy Nicaragua, S.A. (PENSA).

Polaris Energy Nicaragua, S.A. (PENSA) was able to develop San Jacinto via loans arranged through the International Finance Corporation (IFC), which is a member of the World Bank. https://ifcextapps.ifc.org/ifcext/pressroom/ifcpressroom.nsf/0/3BEDDCFA8FC0F21B852577D500568985?OpenDocument

PENSA pays distributions to the parent company: Ram Power. Hence, the source of revenue for Ram Power is PENSA itself.

PENSA was heavily indebted and was in default on its credit facilities. As a result of this, PENSA was not allowed to pay out distributions. This meant Ram Power was no longer receiving any income.

Polaris Infrastructure, as we know it today, is the result of a recapitalization of the previous company is called "Ram Power".

May 13, 2015 Ram Power through an agreement with Private Equity Firm Goodwood Inc was able to convert $53mm of Ram Power's outstanding 8.5% senior debentures into equity. Plus a private placement of shares to raise $60mm. Essentially, diluting the existing shares by over 25%, which was afterwards consolidated 2000:1. (ouch?)

PENSA credit facilities were also amended as part of the deal using details from April 20, 2015. "revision of the payment schedule (including increasing the term of the Credit Facilities by four years), a reduction in the amount of capital required to be funded into each of the debt service reserve account and major maintenance reserve account on an ongoing basis, a potential reduction in the interest rates of up to 1.5% over three years (provided certain conditions are met), the deletion of certain hourly output covenants and the postponement of certain financial covenants, all of which are expected by Ram Power to result in it being in a position to begin receiving distributions from PENSA in 2016.  The Company also expects that the effect of these changes will result in total debt service in 2016, inclusive of both principal and interest payments, being reduced to approximately US$22 million."

Recap: In 2015 was the subsidiary PENSA was so indebted they were in default and could not pay distributions to the parent company Ram Power. Ram Power as a result went into financial difficulties of its own. The solution was to convert debt into equity and raise additional funds via issuing additional shares. PENSA was able to relax debt requirements allowing it to save on interest payments.

- April 20, 2015: Ram Power, Corp. Announces Private Placement and Recapitalization Transaction https://www.newswire.ca/news-releases/ram-power-corp-announces-private-placement-and-recapitalization-transaction-517454341.html

- April 30, 2015: Ram Power, Corp. Announces Private Placement and Recapitalization Transaction https://www.newswire.ca/news-releases/ram-power-corp-announces-private-placement-and-recapitalization-transaction-517454341.html

- May 13, 2015: Polaris Infrastructure Inc. (formerly Ram Power, Corp.) announces closing of recapitalization transaction https://www.newswire.ca/news-releases/polaris-infrastructure-inc-formerly-ram-power-corp-announces-closing-of-recapitalization-transaction-517714941.html

There's the "World Bank loan" that people were thinking about. It appears to be held within the subsidiary that owns and operates the actual San Jacinto geothermal asset. The debts appear to be there still albeit with extended terms.

Here's where Polaris appears to be going next. They want to continue expansion of the San Jacinto asset. Plus they have been actively looking into developing another asset called the Casita Project.

This is Casita Project is another of these "World Bank loans" and is much more obvious as it is written right in the latest quarteries/Management's Discussion and Analysis. Except, if you read it, this "World Bank loan" is very preliminary exploratory work and not actual funding of a new geothermal facility. This means if they get the loan and exploration is successful they will still need additional financing to plan, source, and build a new geothermal plant.

The plus side PENSA has been paying down debt with $164.6mm to go as of June 30, 2018. Additions to San Jacinto is also increasing free cash flow, which is beneficial. Then we have the next downside, a) the cost and b) they specifically state further investment for their binary unit (add on generating unit, no drilling/exploration needed) is delayed due to the muddy Nicaragua investment climate.

"The Company has entered discussions with The World Bank Group (the “World Bank”) and the Nicaragua Ministry of Energy and Mines with respect to financing for purposes of completing an initial drilling program at the Casita project. To the extent the Company can complete the contemplated financing, it would enable an exploration drilling campaign at the Casita project without requiring cash flow from our San Jacinto project, and on a non-recourse basis to both the Company and PENSA. Discussions with the World Bank and the Nicaraguan Ministry of Energy and Mines are ongoing, and we will provide further updates as appropriate."

http://polarisinfrastructure.com/wp-content/uploads/2018/08/PIF-2018-Q2-MDA-2018-08-07-FINAL.pdf 

Does this mean anything to investors? I... really don't know. Or I'm tired because it's almost 2:00am ET and need to get up in 4ish hours to go to work, but the iffy thing is how ownership of the asset is held in the subsidiary PENSA. The subsidiary is saddled with debt and even if it is working on paying it off there are upcoming expenses that do require additional financing. Keeping in mind the second World Bank loan for the Casita Project is stated to be only for exploration. Continued political risks means investors may be leery of funding them. If the current political situation escalates we may be looking at additional risks.

The company is likely cognizant of the having their only egg in one basket and apparently responded to a question that they are looking for acquisitions. Financing again would be the big question.

What ifs about, but perhaps if not outright nationalization there could be other things to worry about like a slowing down economy. Increased costs and outages (they took down a drill site and lost a couple mega watts of production). These things could culminate into issues for PENSA. If the income generator for Polaris Infrastructure: PENSA is in trouble then Polaris will be in trouble. At what point could PENSA be in trouble is unknown.

Back to MF. The easily deduced advertisement was suspicious in my mind. Does the Monday September 10 ramp up in share price coincide with that suspicion? Or was it that Ortega said he would meet Trump (https://www.reuters.com/article/us-nicaragua-protests-ortega/nicaraguas-ortega-ready-to-meet-trump-despite-us-threat-idUSKCN1LQ1HK)? If any meet up occurs at the UN and turns out ok the stock should see additional gains. Ortega stating his willingness to talk could be a good sign in itself. Definitely any resolution would pump up PIF.

Polaris Infrastructure Inc.

Exchange: TSX Exchange | Sep 11, 2018, 1:57 AM EDT

PIF

$ 12.07 

Change:
1.29 (11.97%)

Volume:
106,442

Real-time price

---

Day Low 11.09

Day High 12.60

"Nicaraguan President Daniel Ortega said on Monday he is open to meeting U.S. leader Donald Trump at the United Nations later this month despite expressing concerns that the United States could launch a military intervention on his country.

...

Ortea said he would be prepared to meet Trump if it could be arranged.

“The idea of having a dialogue with a power like the U.S. is necessary,” said Ortega, interviewed in Spanish with English translation. “It could be an opportunity (to meet Trump) at the United Nations General Assembly (UNGA). I’d like to go.”

The annual gathering of world leaders starts on Sept. 24 at the U.N.’s headquarters in New York."

$IPL Inter Pipeline looks to plastics for growth - CEO Christian Bayle interview on BNN (April 11, 2018)

Since my August 30, 2017 post about speaking with Inter Pipeline's Investor Relations team ,aside from picking up the Dividend and Premium Dividend, I haven't really been following up on my Long Term Core Holding of Inter Pipeline.

It was good to see the CEO Christian Bayle come out on the Business News Network's Commodities segment on April 11, 2018 to provide viewers and investors with information and support for the massive Heartland Petrochemical Complex. It definitely seems like there has not been enough talk by management on this significant project.

Below is the information that I pulled from the interview: https://www.bnn.ca/commodities/video/inter-pipeline-looks-to-plastics-for-growth~1368195

Where are we in design and construction?



Well advanced with $450MM of procurement and design engineering. Construction started over the last few months with driving pilings. The video above from Inter Pipeline was from January 26, 2018 and can be found on the Inter Pipeline Heartland webpage. Mechanical construction will start in the summer.

There is a quick update on twitter as well and it appears Kiewit Corporation is on the job site as well https://twitter.com/inter_pipeline/status/982365646997471239 (I must have missed this piece: To enhance cost control, Inter Pipeline said it will award a lump-sum unit rate contract to Kiewit Energy Canada Corp.’s Kiewit Construction Services ULC of Calgary to deliver construction of the project.)

Propane to Plastics process:
Strategic for Inter Pipeline and Alberta. Alberta's structural defect is of having access to the markets. The disadvantage for pricing as the commodity markets are in the US.

Take Propane, which is selling at a low price in Alberta, and turn it into to high value product Polypropylene. It is a plastic pellet that is easy to transport in hopper (via train) and take it to market hubs.

There is a big value gap between Polypropylene and Propane, which they intend to turn into fee based cash flow for shareholders. Upside is contracted out to counter parties including Propane Producers and Polypropylene Consumers.

Propane Feed Stock and Polypropylene price is Commodity Risk.

Goal is to build integrated Propane Dehydrogenation Plant and Polypropylene Facility and contract it uniquely, to the world. Sign up Counter Parties under Take or Pay arrangements, of which they have a few now, and will have more later over the years. Inter Pipeline will sell capacity to producers and get a Return on Capital for shareholders that is both stable and predictable. Volatility on commodity prices would be borne by Counter Parties. Inter Pipeline will get substantial upside and Propane Producers won't need to invest their own capital to do so.

Who gets the Revenue?:
Revenue of plastic pellets will be taken by the Propane Producer. Inter Pipeline will market the Polypropylene on the Propane Producer's behalf and then the Producers will get the money remaining after Inter Pipeline deducts Capital Fees and Operating Fees.

This is a diversification play for Propane Producers in Alberta of which they can't participate in now.

Polypropylene has a great market and is in high demand. It is a flexible product used in a variety of products: automotive parts, carpets, textiles, clothing, and packaging materials. The Polypropylene market is growing 2-3% globally, which doesn't sound like a lot, but this means a world scale plant needs to be built every 2 years in North America. Inter Pipeline intends on being one of those.

Plastic environmental issues:
Polypropylene is fully recyclable and it is an environmentally friendly plastic. Plastics are needed and used every day. It is a good diversification play for Inter Pipeline and good for the Alberta economy.

Note that this $3.5BN project will employ Thousands during construction and then after construction Hundreds of full time employment will be provided for decades.

Process and engineering tricky?:
It is a new technology for Inter Pipeline and Alberta, but it is a proven technology that has been in use and improved upon for decades (Honeywell UOP LLC: C3 Oleflex technology for production of propylene at the Propane Dehydrogenation Plant. W.R. Grace & Co.: Unipol process technology for PolyPropylene Facility). High quality global engineering firms (Detailed engineering for PDH Facility by Fluor Corporation and Front End Engineering for the Integrated Polypropylene Plant by Linde Engineering) used to design.

Thoughts on Trans Mountain:
Not much to add, clearly a national interest of Canada, clearly for Alberta, and even British Columbia. The law should prevail here and the right thing will be done.

"Traditional" businesses of Inter Pipeline of  transport and storing fuels:
Major Oil Sand Transport company taking product from Fort. McMurray and Northen Alberta to market hubs. Plus a sizeable conventional oil gathering business.

Inter Pipeline operates intra-Alberta and the Province of Saskatchewan, so they do not face the same challenges as export pipelines are facing in Canada. Business can get done within provinces, but it is challenging and political to build anything with export capacity.

Dividend?:
Strong with a track record of growing Year over Year off the back of accretive acquisitions and organic growth projects in Oil Sands and Conventional Oil.

Polypropylene project to grow the dividend?
One reason why the Polypropylene project is attractive is its scale and forecasted Cash Flow of $450 to $500MM earnings before interest, taxes and amortization (EBITA) towards the end of 2021. Construction is expected to be completed by the end of 2021. The Polypropylene project will support dividend growth.