Friday, 29 June 2012

New Position: Mart Resources Inc

One of the more important things in any portfolio is diversity. The old adage that you should never have all of your eggs in one basket is extremely important to me, especially when it comes to my retirement funds.

As a result, I try to keep a good mix of stocks, bond holdings, cash, and most importantly, international diversity. If problems happen in Canada, for example, it will have a negative impact on a lot of Canadian businesses, but if those issues are specific to the country, having holdings outside the country reduces your exposure. For example, when the Canadian dollar goes down against the US dollar, that actually increases the value of your US holdings.

I personally feel I've managed to keep a nice balance with respect to that. I have several US stocks, I have holdings in companies that deal with emerging markets, and when it comes to currency, aside from my US stocks I have a Canadian stock that pays out Canadian dividends based on the value of the US dollar (Methanex).

One area I decided to take a bit of a risk on was international oil. I wasn't looking for big producers, I wanted to find a dividend paying oil junior not based in Canada. Pretty tall order, but news yesterday during one companies AGM had me leaping feet first into a junior oil company listed in Canada but whose operations are in Nigeria.

Mart Resources Inc (CVE:MMT) yesterday announced a special .10 dividend, and the implementation of a .05 quarterly dividend afterwards. The stock leapt up almost 30% on the news, and while I'm definitely not getting in on the big gain, my purchase of 1300 shares first this morning came in before a current 8% gain.

This stock appealed to me for several reasons, apart from the implementation of a dividend.

The company carries absolutely no debt, which for an oil producer makes for some incredible value. All the cash that comes in can therefore be used for operations and for shareholder value.

It has working relationships with much bigger companies in the region (in this case Shell and the Nigerian national oil company Agip) that are long term and solid.

They have a positive working relationship with local communities (given the history of the region, and the potential for problems, this is something that was important to me)

It is not, however, without some significant risks. As they operate in the Niger Delta, there is always the potential for political strife. While MEND (Movement for the Emancipation of the Niger Delta) has largely disappeared as a threat due to the 2009 amnesty and the implementation of local community improvements by the Government, they haven't disappeared entirely and not all of their concerns were addressed to their satisfaction. Sabotage of pipelines and pipeline theft remain ongoing problems. While Nigeria is an up and coming nation, emerging into a nascent and functioning democracy over the last few years after living under military rule, there are still many problems. Diving into this postion is not without peril, as a result.

However, one never makes real money without taking risks, and with the solid dividend, cash in the bank, and no debt, Mart Resources represents a risk I'm willing to take.

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