Hey Subscriber,

In case you are managing $millions for other people as Transformity Wealth Management LLC does or don't follow your stocks all during the day, we got a very weird first day of the new quarter on USAC today.

At the open, our favorite 300% winner from March 2020 pandemic crash opened UP near a $1 on large volume and then a post on SeekingAlpha.com screamed: "USAC must imminently slash its dividend" and a PANIC rush to the exits.

Coincidence? I think not. USAC has not dropped its dividend since 2014. USAC compressors are leased on fixed monthly payments where the lease payment is made 30 days in ADVANCE whether their customer uses the compressor or not. IF there was an "imminent" drop in their distributable cash flow ("DCF") they would know it 30-days ago.

They just presented at numerous Energy conferences and made zero mention of any important changes in their advance monthly payment flow. Here is a link https://investors.usacpartners.com/static-files/33654b83-5d62-4a38-9329-9eab42803c99

I am in contact with their VP of Investor Relations Matt Liuzzi regularly. Here is part of the note he communicated to me in late December on the bankruptcy risk of their natural gas producer clients.

"Toby as you know, we are much more of a midstream, infrastructure-focused entity, with long-term customer relationships and assets that work 24 hours/day, 365-days a year for our customers. We charge a monthly fee for the service we provide – and that monthly fee doesn’t change depending on how much gas a customer flows through our units (or the price of that gas). It’s the “take-or-pay” concept that we are built around.

And as a general rule, natural gas production needs compression for the life of production.

So, to your questions - due to customer confidentiality restrictions, we don’t publicly disclose customer names or specific business relationships. But, let me give you a little color on what we’ve seen in the past around distressed customer situations and see if this helps you gain a better understanding.

As I’m sure you appreciate, our assets are critical to the movement of gas through pipelines. Our CEO likes to say “compression is like the heart of the human body”.

As part of a bankruptcy, our claims and contracts would likely be evaluated just like everyone other vendor’s. The creditors and court will likely look to see how important it is to the estate to continue having our assets working and whether the rates we charge are “market–based”.

Hypothetically, the court could throw out our service agreements. We could then opt to renegotiate a new contract or alternatively, remove our assets from the customer’s site and wash our hands of the situation.

Keep in mind, the moment you shut off/remove a compressor, the gas essentially stops flowing. And so that decision can have an enormous impact on the operations of a company and its ability to continue as a going concern, pay its bills, etc. Our past experience would indicate that courts tend to view our services as critical to maintaining the value of a business, and historically, we have been confirmed, paid, etc.

Also, we typically invoice customers 30 days in advance of the service month (e.g., we invoiced today for services in the month of May), and so are able to spot changes in payment behavior over time. But, by and large, I would say the potential to shut off a compressor (and basically stop the cash flows of the customer) is enough leverage to make sure we get our bills paid.

Key point: Over 15+ years, we’ve written off less than $2mm in bad debt expense on over $3bn of billings! Back in 2014-2016, we only had 1 bankruptcy of note and came out of that one in a great position (and continued on to provide services to the restructured business).

Let me know if that helps-
Regards
Matt

I sent a note to Matt and my managed account broker dealer compliance officer on this. In short, yes USAC is up near their debt covenant levels as currently structured. But that has been the case for the last 36 months--and those covenants are renegotiated and reset all the time (if the author of this hit job actually was in the MLP business, he would know this).

They always use distributable cash flow (DCF) and credit line to smooth out the payment of the quarterly 50.25 cent dividend that has been paid every quarter since 2014 including the energy bust of 2015-2016.

Here is USAC's projection on DCF management just made at a JP Morgan investor conference earlier this March 2021

■ Q4 reflected stability of USAC’s business; utilization & pricing moves have moderated

– Adjusted EBITDA of $98mm

– Distributable Q4 Cash Flow (“DCF”) of $50mm

■ Q4 adjusted gross margin percentage of 68.4%, Adjusted EBITDA margin of 62.1%

■ Common unit distribution of $0.525 for Q4; DCF coverage of 0.99x

Is 99X DCF coverage "imminent risk of slashing the USAC dividend???

Of course not.

■ Full-year 2021 guidance: – Adjusted EBITDA: $385mm – $405mm – DCF: $193mm – $213mm

FACT: USAC 2020Dividend Coverage Ratio 1.09X

Does that look like a company that since its IPO in late 2013 has NEVER missed distribution payment ever?

BTW, our Energy Transfer (ET) owns 49% of USAC--if there was a "material drop" in USAC distributions, THEY would have to report that event as a risk in their conference presentations and guess what---shockingly they have not spoken or written a word about an "imminent drop" in USAC's dividend.

Action to Take: BUY USAC Under $15. Take advantage of this hit job and get the next $1.55 in dividends, too. The ex-dividend .525 date for USAC in April 22 so you will get over $1.50 in dividends in 2021 added to some capital gains as well.

Lomiko Metals Update

Our thesis on LMRMF is that they will get a bump to .35-.40 cents US when the 3rd party professional and certified estimate of mineable Battery grade graphite is established by the official PEA "preliminary economic assessment" survey of their highly valuable and perfectly located Quebec graphite mine.

It is standard in the junior mining world post-PEA in such a well-located and already proven deep reserve of high-quality graphite to get a doubling of the share price AFTER the PEA is fully released and analyzed by metals and mineral mining stock analysts. As mentioned, the stock of the most recent La Loutre graphite mine just 100 kilometers north tripled in value post their PEA report in October 2020.

Lomiko already has a $40 million firm commitment post PEA for building mining infrastructure that management informs us is due in mid-Fall this year. Additional financing for graphite mining in mineral and metal-rich Quebec is now a high priority for economic development (for example the recent $100M CA investment in EV manufacturer Lion Motors in March).

Action to Take: Buy LMRMF under 17 cents. Lomiko Metals is the first entrant into our new Unstoppable MegaTrends 2025 portfolio--there are many more to come.

Here is copy of the release from today

Lomiko Metals Inc. (TSX-V: LMR, OTC: LMRMF, FSE: DH8C) (Lomiko or the “Company”) is pleased to announce the selection of Ausenco Engineering Canada Inc. (“Ausenco”) as the lead study consultant to complete the preliminary economic assessment (“PEA”) for the Company’s La Loutre Flake Graphite Property (“La Loutre” or the “Project”). The Project includes the Graphene Battery (GB) zone to the south and the Electric Vehicle (EV) zone to the north. The PEA will be completed by Ausenco in accordance with National Instrument 43-101 (“NI 43-101”).
This press release features multimedia. View the full release here: https://www.businesswire.com/news/home/20210401005239/en/

Large Flake Graphite from Quebec (Photo: Business Wire)
The Project is located only 192 km north-west of the Port of Montreal and 100 km west of Saint-Jérôme, Quebec where the Quebec and Federal governments announced March 15, 2021 that they will each provide $50 million to Lion Electric to build a battery pack assembly plant.

Ausenco is a globally diversified engineering, construction, and project management company providing consulting, project delivery, and asset management solutions to the resources, energy and infrastructure sectors. Ausenco’s specialist environmental group Hemmera will provide support from Montreal, Quebec and Moose Mountain Technical Services will be responsible for the resource estimate and mine design.

Ausenco’s experience in mining projects, ranges from conceptual, pre-feasibility and feasibility studies for new project developments to project execution with EPCM and EPC delivery. Their involvement in the study and execution of projects similar to La Loutre will be invaluable in driving optimized value-enhancing outcomes for the stakeholders.
Quebec’s Role in The New Green Economy
In 2020, The Quebec Government released the Quebec Plan for Development of Critical and Strategic Minerals (“The Quebec Plan”) which indicates graphite demand would likely increase 300-500% in the coming decades as more is used in the production of spherical graphite for anode portion of Electric Vehicle Lithium-ion batteries. Quebec has an opportunity to play a vital role in reducing carbon emissions and become a key provider of critical battery materials to the North American economy.
For more information on Lomiko Metals, review the website at www.lomiko.com , contact A. Paul Gill at 604-729-5312 or email: info@lomiko.com .