Jim Letourneau's Blog

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Why Does Enmax Invest in Penny Stocks?

Enmax Corporation is 100% owned by the City of Calgary. Why would it invest in penny stocks? It appears that Enmax put over $4 million into speculative green energy investments that have a market value of around $400,000 today.

Enmax is a shareholder in Streetlight Intelligence Inc. (SLQ.V) and NaiKun Wind Energy Group (NKW.V). On May 4th, these companies closed at 18 cents and 1 cent, respectively. These investments have not gone well. I'm not sure this public utility should be in the energy venture capital game, at least based on the performance of these two investments.

Streetlight Intelligence

Streetlight Intelligence has developed lighting control systems (wireless dimmer switches). The company's chairman of the board is recently re-elected Calgary Centre MP, Lee Richardson. Enmax first invested in Streetlight Intelligence on March 13, 2008 by participating in a private placement. They bought 11,562,500 common shares at a cost of 16 cents per share for a total subscription amount of $1.85-million. Rather than cut their losses, Enmax bought another 2 million shares at 10 cents on June 10, 2009 for $200,000.

What do they have to show for their investment of $2.05 million? At the current share price that investment is now worth $20,050 and could soon be worthless as Streetlight Intelligence announced that it has ceased operations on April 15.

NaiKun Wind Energy

Enmax also invested in NaiKun Wind Energy Group. NaiKun wants to develop an offshore windfarm in Hecate Strait between Haida Gwaii and Prince Rupert of the northwest coast of British Columbia. The project was conceived in response to the government's BC Energy Plan. Unfortunately for NaiKun, BC Hydro dropped the project in March 2010 from its list of potential clean power suppliers. This was a high risk venture with considerable opposition (source).

Enmax purchased 1,097,562 common shares in NaiKun Wind Energy Group at a price of $1.36 per for a total of $2 million in March of 2007. Shares reached an all time high of $3.97 that summer but have been steadily declining since. In addition to the shares in NaiKun Wind Energy they received 500,000 common shares of NaiKun Generation, a subsidiary with the exclusive rights to install the generation facilites. Enmax also received a seat on NaiKun's board. The market now thinks the value of Enmax shares is just shy of $198,000. This investment doesn't show up on insider filings but it is unlikely that Enmax would have sold given their partnership relationship with NaiKun. Enmax could recover some of their investment if wind power ever comes to Hecate Strait but the project currently appears "dead in the water". Their ownership of private NaiKun Generation is worthless if no project construction occurs. NaiKun's cash reserves (just over $7 million as of December 2010) will keep their lights on for a while longer but the meter is ticking.

The bottom line is that Enmax put over $4 million into speculative green energy investments that are approaching a valuation of zero. To Enmax, $4 million is lunch money, after all they paid $4.6 million in severance to former CEO, Gary Holden. To the citizens of Calgary however, it would have been enough to pay for over 57 Blue Rodeo concerts.

Charts from stockwatch.com