Contrary indicator alert: Everybody loves Colombia

Colombia ANH Mapa de Tierras

Sure looks good from a distance

In the last few days, everybody’s been pig-piling onto the Colombia stock love-fest. Here’s Carlos Slim. Here’s Jim Cramer. And while they may just be citing others (which I thought was my job), the most terrifying of all: Here’s “Business” “Insider.” This stuff makes me tingle in that special way — the way that says I’m in the presence of hype that will end in tears.

In utterly unrelated news, Alange Energy Corp., the most heavily traded Colombia-oriented company on North American exchanges, lost a board member this week. Boris Abad Guerra, who joined the board exactly seven months earlier, “resigned for personal reasons.”

I worry that Colombia as a whole is getting a good rap for the same reason that Alange Energy did. Alange got positive sentiment because people liked Luis Giusti, and expected that anyone so hated by Hugo Chavez must be an ok guy. Colombia, may be getting positive sentiment in part because it’s the anti-Venezuela. I am not sure about this, but my impression is there are people want to see Hugo Chavez fail because he insults the U.S. and is a power-hungry jerk, so they throw money at “good” South America — especially Colombia, but also Peru and Chile — without recognizing local risks.

For weeks I’ve been playing with a possible post looking at other risky bets people are making in Colombia. Rather than give the full analysis, here are a few thoughts. If you want something more in-depth, feel free to contract with me. I love blogging and it’s been great getting to know you, the readers, but I’m prioritizing paid work these days.

A few possible types of person or company that may be splashed by the mud of the Alange collapse:

– Other Canada-listed oil and gas juniors with trading volume out of proportion to reserves, production or drilling activity
– Companies that share board members or funders with Alange
– Companies that have sold assets to Alange in recent years, especially if those assets turned out to be overpriced
– Companies with similar weirdness to Alange’s financial statements
– Companies where investors are giving a premium to a personal story rather than sticking to fundamentals
– And especially companies that fit more than one of these criteria

Am I tarring every oil and gas company working in Colombia? Honestly I’m not sure — there may be a few that dodge all those issues. Feel free to pay me for 20 hours work and I’ll work up the lists in a more rigorous manner. But yeah, it hits a lot of them.

Which sucks. Because if you’re reading this, you’re probably someone looking for a place to invest your money. And I understand that everything worth investing in has its risks. All I’m saying here is that you need to be aware of what the risks are — something you’re not going to get from Jim Cramer.

Aside from all the Alange-related stuff above, there’s also:

– Ongoing concerns about paramilitary, narco-trafficker and guerrilla activity — including a pipeline bombing this week

– The possibility that someone may decide it’s best to wait and find out what is living in the jungle before drilling for oil there

– Ongoing conflicts between the provinces and the capital, often expressed through pipeline takeovers

– Questions about whether the country is pushing companies to produce too much, too fast, in order to meet goals

Carlos Slim buying shares of oilfield service and drilling companies. Such companies are likely to make money in Colombia, and maybe that’s the direction he’s heading. And Cramer’s big idea is to buy Bancolombia, making money off the country’s general economic development. Fine. But just buying shares in these juniors? Probably best done as a speculative bet with part of your money, and not as your main or (ouch) sole stockholding.

LATE UPDATE: Gotta love that this blog is attracting people with the search term “next rubiales like junior oil play.” Dear reader, whoever you are: if that information were available through a Google search, the stock would already have risen. Some people should really not be managing their own money.

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