2024 Q3 Earnings Update Part III: New Fortress Energy $NFE, Burford Captial $BUR, Equinox Gold $EQX, Vermillion Energy $VET, +1 Paywalled Stock

Hello and Welcome to Part III of the Q3 Earnings Call updates.  Over the weekend I took a look at the charts for many of the portfolio names. My technical analysis is amateur at best, but sometimes even just the basics can go a long way toward complementing fundamental analysis. This was done before the Monday rally and the Tuesday sell off.

Trade disclosure:  I have sold half of my Forward Air (FWRD) position in order to rotate those funds into Heartland Express (HTLD), and several other names, all of which are in the model portfolio.

New Fortress Energy (NFE)

Just as management guided, EBITDA improved from $125 million two quarters ago to $175 million this past quarter. Management did guide down from $275 million for Q4 2025 to $200 - $220 million due to planned maintenance at FLNG1 and one-off startup costs in Brazil. The good news is that this still guides toward sequential quarter over quarter growth, which stock prices typically respond well to. The FEMA claim resolution is pending, but still with an unknown time horizon. Brazil construction is on time and on budget. Nicaragua construction is 95% complete, expected to come into operation in Q1 2025.

A lot of attention has gone toward statements on the earnings call about finding strategic partners or a partial sale of assets. Given the decline in the stock price, naysayers are proclaiming that NFE is a distressed company that needs to firesale at a loss. With few debt maturities before 2026, and positive cashflow, NFE is in no imminent danger and is not a seller under duress. I have no guidance as to which assets NFE is looking to partially sell, but management had guided on a few figures in the past. For example, FLNG1 cost about $2 billion to build, but management values it via conservative discounted cashflow at $3 billion. If NFE sold half of FLNG1 for $1.5 billion, their all in cost for their half of FLGN1 would only be $500 million, and on that cost basis, the rate of return for the cash flow on that remaining half would be enormous. In the meanwhile, the $1.5 billion raised from asset sales could retire debt or grow the business. Again, this is an illustrative example, management didn’t guide toward exactly which asset they are looking to joint venture or partially sell, but it should be clear that NFE is not a distressed seller.

Management seemed to indicate that things could move pretty fast. This includes raising funds from asset sales, the FEMA resolution, and an expansion in Puerto Rico after their recent elections. Puerto’ Rico’s new Governor, Jenniffer Gonzalez Colon, specifically mentioned power plant conversions to natural gas early on in her victory speech.

With Q2 2024 being the floor for NFE in EBITDA, there are very good odds that it was the floor for the stock price as well. Markets can behave in odd ways for out-of-favor stocks, so nothing would surprise me, but NFE is a better buy today than it was when I initially wrote about it at a much higher price.

Burford Capital (BUR)

Burford Capital had an amazing quarter, their backlog is starting to flow through the system, and realizations and cash receipts were double year over year. The Q3 results are usually slow for BUR, as most lawyers take vacation over the summer. Despite the poor seasonality, 2024 was strong as it appears courts are focusing on reducing their Covid backlogs.

I am surprised that the stock price has not responded well to the results. There are two potential reasons why the stock price hasn’t responded, first, I have seen it take as many as five quarters for a small cap stock’s growth trajectory to be recognized by the market. And second, the large YPF lawsuit, against the sovereign state of Argentina, is too large and too binary for asset managers to value appropriately.

Regarding YPF, BUR’s stake in the settlement is somewhere near 40% of proceeds. This is held at a GAAP book value of $1.5 billion, but this number will increase when certain milestones are hit, the nearest of those would be the conclusion of the appeals process in the state of New York. While it is true that anything can happen, several Argentinian politicians, including president Milei, have prepared the public for the reality that Argentina owes this money, that the nationalization of YPF was illegal, and that the resolution of the settlement is important to rebuilding Argentina’s reputation.

I don’t own enough, I need to buy some more BUR before the market realizes that they generate a 26% IRR on their book, which stands at $5.2 billion today, and the company has a $3 billion market cap.

Equinox Gold (EQX)

Equinox has yet another quarter of results where the production from the new Greenstone mine is not tallied into the total, as it is still considered to be ramping up and not in a steady state of operations. Without the new Greenstone mine, the all-in-sustaining cost (AISC) of gold sold this quarter was $1,994 per ounce. Management has been consistent in guiding that the AISC of Greenstone would be around $900 per ounce. Even without having Greenstone’s production included in the AISC calculation, the ramp up product is still included in revenues, which are 59% higher than last quarter, and gross profit, which is 288% higher than last quarter.

Greenstone mine is now officially in commercial production. This means that next quarter, the AISC will include an incomplete quarter of Greenstone production. The quarter after that should give an AISC indicative of future run rates. Greenstone produced 42,000 ounces this last quarter, and management is guiding toward 50,000 to 70,000 ounces from Greenstone next quarter.

The market seems unimpressed, especially because gold prices have started to pull back a bit after the Trump election results. It might be the case that 2025 gives us some great opportunities to buy mining stocks much more cheaply than I thought was possible after the gold price ran from $1,900 to $2,700 in a year. In the longer term, gold is now 15% of central bank assets and growing. The Trump election is not enough to convince BRICS countries that the dollar is not a safe savings vehicle for them.

Vermillion Energy (VET)

Another quarter of executing share buybacks and the share price falling. It is frustrating to own any oil and gas exposure over the last two years. But energy is cyclical, and when the cycle turns, VET will have more production and fewer shares outstanding.

Some Canadian gas was shut in last quarter due to weak North American natural gas prices. Despite this shut in, barrels of oil equivalent per day are up 7% this quarter on a share adjusted basis. VET spent $40 million last quarter on share buybacks. Share buybacks have shrunk the float by over 5% combined for the first three quarters of 2024. The share buyback program should accelerate as debt paydown is beyond target levels.

Dutch TTF natural gas prices are high heading into this winter. In the last two years, VET grew European natural gas production by 40%. Free cash flow this quarter was $126 million, or about 11x the market capitalization. International production is only 36% of VET’s production, but is responsible for 64% of profits. A boom year in energy, and VET should do very well. Will the boom year be 2025, 2026, or 2027? Nobody knows.

And now for the Earnings Update for the Paywalled Stock: