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Pinetree Capital increases net asset value, markets ripe for picking

Pinetree Capital's shares hit by Japan crisis, but investor sees upside to come

Junior resource investor Pinetree Capital (TSE:PNP) said Tuesday that its net asset value at the end of February rose 7% over the previous month, and was about 90% higher than the company's current trading price.

At February 28, 2011, the firm, which invests in junior commodity stocks, had an unaudited net asset value per share of $5.01, compared to $4.68 at the end of January. Pinetree, however, is currently trading at $2.60 per share, reflecting the potential volatility of the commodities sector.

Markets today are tumbling after the massive earthquake in Japan, as investors fear that the nuclear crisis in the country could lead to lower demand for uranium, oil and other metal used by the third largest economy's huge manufacturing industry. The country has so far closed 11 of its 54 nuclear reactors.

The disaster and the accompanying adverse news headlines are likely reflected in Pinetree's share price, as nearly 22% of the firm's portfolio is weighted towards uranium and coal.

However, Pinetree's corporate spokesperson, Marshall Auerback, told Proactiveinvestors Tuesday that the market is potentially overreacting, and could just as quickly "snap back the other way".

Despite the crisis in Japan, India and China have said they plan to keep using their nuclear power plants, and are moving forward with their intentions to build new ones.

Indeed, the problems in Japan have led many countries to reconsider their ambitious nuclear expansion plans with regards to safety, but have also brought to light serious unmet energy needs in various parts of the world, which makes investing in nuclear power a necessity for many.

In November, the International Energy Agency projected that global electricity demand will soar by some 80% by 2035. (Over that same time period, the IEA expects oil demand will grow by 19%, coal by 20%, and natural gas by 44%.)  So while multiple factors will prevent nuclear from gaining much traction in the US in the medium-term, the enormous power densities achievable with nuclear sources assure its commercial viability for many decades to come.

And if nuclear power isn't an option, the world will have to return to traditional or alternative sources, where Pinetree also has significant exposure. In the natural gas sector, for example, the ability of drillers to unlock vast quantities of natural gas has resulted in an avalanche of methane production and a resulting collapse in prices. Last year, US gas production hit its highest level since 1973, and despite a very cold winter, natural gas prices have generally stayed below $4 per thousand cubic feet, which is about half the level seen as recently as 2008.

Mr. Auerback also noted that the Japan quake will no doubt lead to a massive re-construction project, which will require huge fiscal resources, having a positive impact on the commodities markets.

The current state of markets also represents a strong buying opportunity for investors like Pinetree.

"There was a macro policy response around the world towards fiscal tightening, but this type of disaster [in Japan] will put all that on hold, with the trend tilting back towards reflation, which would be a positive thing for us," added Mr. Auerback.

In fact, Pinetree is growing fast, with the value of its investment portfolio in 2010 more than doubling to $794 million at year-end. The firm is looking to build its portfolio even further, and has no plans to expand beyond the commodities sector, an area that has allowed the investor to reap high returns over the years.