INFO From another site
I recently bought shares in a company called FEC Resources. According to their lates SEC filing, “We were incorporated on February 8, 1982 in British Columbia, Canada under the name Tylox Corporation. Our continuance under the Canada Business Corporation Act resulted in, among other things, our name change, first in December 1991, to Tracer Petroleum Corporation, followed in July 2003, to Forum Energy Corporation. On May 18 th 2005 we had a name change to FEC Resources, Inc. Our wholly owned subsidiaries are TEPCO Ltd. (“TEPCO”), Tracer Petroleum International Ltd.(“TPI”), a company incorporated in Bermuda to pursue oil and gas ventures in the Middle East, and Pacific Geothermal Energy Inc. (“Pac Geo”). Prior to May 18, 2005 we owned 66 2/3% of Forum Exploration, Inc. (“FEI”) a Philippine-based oil and gas company with rights to develop certain concession areas as more fully described later. On May 18, 2005 we sold our interest in FEI to FEP for shares and cash as more fully described later. We currently own 36.72% of FEP, and in addition we have acquired a 35% interest in Metalore Mining Corporation (“MMC”), a Philippine-based company that owns a 64 Hectare license where iron ore production has begun. Along with this, we have acquired the right to earn a 40% interest in a mining project with Philex Gold Inc. (“PGI”).”
What intrigues me about the company is their 36.72% stake in FEP. FEP is Forum Energy whose shares trade in the United Kingdom. The current market cap (shares outstanding x share price) of Forum Energy (AIM: FEP) is 25.7 million GBP. Therefore, their current stake is worth 9.43 million GBP or 17.62 million US Dollars. Oddly enough the current market cap of FEC Resources is 7.4 million US Dollars. The company currently trades roughly around 0.7 of book value. Recently, Forum Energy made according to them a “World Class Natural Gas Discovery” of 3.45 Trillion Cubic Feet of natural gas with up to a potential 20 Trillon Cubic Feet of natural gas. “FEC Resources has reserves of somewhere between 1.19 TCF and 7 TCF off the coast of Palawan Island in the Philippines. By comparison, energy giant Chesapeake Energy (CHK) boasts total reserves of 8.1 TCF. So this is indeed a “world class” gas discovery.” (Zac Bissonnette, deepthoughts.tk).
So how much is this natural gas worth? “
According to British website “This is Money,” “Edison, the leading independent research group in the sector, says that based on just 3.4 trillion cubic feet of proven reserves, the current value to Forum should be around £63m - the equivalent of 221p a share.” (http://www.thisismoney.co.uk/investing-and-markets/tips-and-tactics/article.html?in_article_id=413074&in_page_id=23)
Since FEC Resources owns 35% of Forum, this works out to a value of over 41 million dollars, just from the present value of the minimum proven gas reserves: It also represents a premium of nearly 200% to FEC’s current share price. If 20 TCF of gas are there (this seems unlikely), the present value is over 240 million dollars. So whether the amount of gas actually there is at the low end of the range or the high end, FECOF shares are an exceptionally good bargain.” (Zac Bissonnette, deepthoughts.tk)
I find it very amusing that the market is valuing their natural gas as worthless. Using some common sense I don’t believe natural gas is worthless nor will it ever be. Therefore buying shares in FEC Resources is a good deal.
There’s something else I also realized about FEC Resources (OTCBB: FECOF.ob) and Forum Energy (AIM: FEP). While less upside, you could create an almost no risk trade by arbitraging these two securities. If you buy FEC Resources and short the shares of Forum Energy you create an almost riskless situation of making money. The shares of Forum Energy would have to go down by 30% and natural gas would have to become almost worthless in order to lose money on that trade.
So what are the risks? Well FEC Resources might be a fraud although I don’t see that too likely. The CEO pays himself around 25 thousand dollars and most of his options are out of the money. Therefore, he’s not trying to screw over shareholders. He also took the time to return my phone call to him.
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