Roundtable Discussion; The Future of Mineral Sands. Watch the video here.
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That's normal mole - PIs just identify a value entry point at various stages and then play along as the story unfolds with next to zero influence. trellis - endorse your take on the short and medium term desirability of natural gas and the likelihood of its longevity being extended well beyond government forecasts, but confess to being lost with your roll-out of financial plans for IOG. Will have to leave you with that one!
Took while to get my head around! Normally if its complicated its probably wrong solution.
The issue is whatever is in our interests is unlikely to be a reason for LOG, CalE or Lombard to do anything.
What was required was for LOG to get less shares originally. But to do that the bond issue would need to have been bigger or CalE take a bigger % of the pie or institutions paid a fairer price when they bought in. It was that low ball placing at 10p that has pinned us down when combined with LOG.
Where are where we are now and can't see any of those stakeholders budging.
I do hope the LOG admin guys have an unwritten agreement to an orderly disposal now we are out of the lock in. They chose to stay in mainly because share price has not exceeded their 13 to 19p baselines and they need a bigger return to pay the bondholders.
We are safe at this level to get a return but everything is out of PI investor hands these days - we are passengers at best!
Trellis I share your nervousness with them. My gut feeling tells me they are following the money - in this case CalE. But having already done well they have no loyalty to the company. That is why I think its always disappointing when the seed capital (which generally does care about the company) gets its upside creamed off by the likes of Lombard. The board were quite brazen in their view of the advantages of having institutions (over I read it a heavy PI interest but maybe LOG were the real issue and I'm over sensitive!) in the online media presentation from Q1. There is no doubt we can be picked off at a price but whether that leaves enough upside for Kistos I'm not sure and they will probably look for someone in distress or wanting to exit an asset.
Peak - he’d fund it mainly with an institutional placing with some bank debt - I believe most institutions are prevented from investing in cash shells . I reckon AA will want to scale the business quickly , so will look for a deal that has a good equity story , possibly multiples of Kristos current market cap.
mole - just a point on the Kistos "budget" which is currently reported at £35m - way short of what would be required to constitute a reasonable bid if it were to happen. Could get beefed up with further Bank loans etc. of course, but personally think it would be too big a bite for a new start-up.
Thanks Trellis - I stand corrected. The capital structure has changed so much since then, that’s its hard to track per share dilution. But fundamentals today (Fully funded NAV/ share ) does mean that an opportunistic bid will fail - only a fair offer would have any chance .
I think we all agree that we are on a trajectory to a better share price in 2021. Any offer this close to first gas would get no traction under the 30p range. It apples and oranges now post dilution - pre dillution 20p was very opportunistic. But we are vulnerable to a takeover now as a result of the dilutions since 2018 placing shares in both the LOG administrators who are no longer locked in to orderly disposal terms and Lombard and a couple of other institutions with very large positions showing good profit already. As ever it has been the PI investors who supported the early growth who have had their gains trimmed back as the institutions come in at the lower risk sage of the story.
Its hard to guage CalE here and what their objective is. They didn't really go and try and grab much in the last license round and have waited out of any commitment to Harvey. They do of course have the option of selling their own 50% stake but that is probably a bit pricey for the K team budget!
Either way I'm comfortable that we either get to first gas and beyond and move towards a higher price organically or get there a bit quicker in an offer a bit under. Nothing we can do other than let it play out .
viti - agree with all your historical analysis and no argument with surmising about the denouement of the LOG administrators' shareholding disposal on behalf of bondholders. I think we can reasonably expect that eventuality to take place before the timing of first gas, so probably some time in Spring/Summer of 2021 - still dependent of course on the sp levels that pertain to satisfy the administrators and justify their patient strategy. As such, a genuine bid for the company from any quarter in the ball park we have already defined would almost certainly cause a spike in sp and may well spark a reaction from CalE, as you suggest. With powerful backing from BH, a deal to absorb all of the LOG shareholding could well be brokered - and if so, I would then expect the present board and key executives to remain in place, also the bid to be rebuffed on the grounds of "better the devil ......" All supposition of course - but a forgiven indulgence I hope on a day when the market for IOG shares looks a whole lot livelier!
Peak - when AAustin made his first approach ,IOG was in a fundamentally different position to today - no development funding, no equity, a financial scandal surrounding its main backer. The LOG administrator backed management's plan against the approach made by AA for the debt package (inc warrants) that the LOG Administrator owned. There was never an offer for the equity, and I've no idea what the equity would have been worth had the AA approach turned into an offer. The share price then was more of an option on the future of IOG. TODAY we're in a different place, albeit with the same share price. LOG restructured, IOG refinanced and recapitalised (at some dilutive cost to shareholders), fully funded via CALe and Bonds. Development risk reducing by the day and first gas/cash in sight. Unfortunately we still trade at a MASSIVE discount to generally accepted NAV due to LOG overhang imho. This could create a sweet spot (maybe the 'high 20's you mention ) where LOG gets out with head held high (remember they've already taken some capital off the table in the restructuring), II's get a good return, AA gets a fully funded , staffed , operating company a year from first gas. And CALE? I guess they still get the gas project they bought into, just via an operator with a new Chairman, and some new shareholders. And if for some reason they didn't want that, they'd need to bid up the LOG Administrators stake to block the deal. Maybe I'm dreaming........it could get competitive.
viti - agree with what you say, but the CalE factor is far stronger than pure equity holding. They are jumping around on the Kistos board about acquisition policy which may well be fact, but as mole states, any form of bid in IOG's direction will need to be in the high 20s or 30 before it gets any consideration - and then turned down. We are in an infinitely stronger position now than when the frivolous 20p bid was made by RockRose - and whilst we might be an excellent fit for Kistos JB, it ain't gonna happen! Try DELT - they haven't even put a drilling plan in place as yet, and their chat board is getting excited about big K.
Very interesting development, but I would think more in terms of Angus or Deltic than IOG.
I suppose a lot depends on what funds they have behind them, they certainly have knowledge and experience so well worth watching.
Any views on what may be a good fit for Kistos?
There is a risk here of the PI holders from before LOG and the institutions were able to gain underserved and heavily discounted positions. But that was the price of using LOG in the first place.
They are all in good profit north of 20p. Realistically any attempt at a takeover would need to be nearer the nav with under 1 year to first gas. So say 25 to 30p.
So still a good return if you have a low average like the institutions of which Lombard have want 25%. So between lombard and LOG they have over 50% of the equity.
CalE might move to block a move by taking the LOG 30% but not sure that is their preferred modus of operation.
Nothing we can do but let the board carry on and hope they leave us alone.
Peak - Calenergy would probably prefer a stable institutional ownership , but they don't own any equity, and so whilst they are a key source of development funding and a key stakeholder, they can't control who owns the company . I have always thought that at the right time they might take the LOG Administrators stake, to secure more direct control. Either way the LOG stake will change hands in the next 12 months in my opinion.
The Company has initially identified (by way of appraising the proposed strategy and the opportunity) several potential target transactions which the Directors believe could be completed in the near term. Of these potential transactions, the Directors believe that several may be capable of rapid execution with minimal initial cash outlays, thereby allowing the Company’s cash resources to be employed in the rapid development of its operational assets. The Directors have made these assessments on the basis of information in the public domain only and accordingly there can be no guarantee or expectation that any owners of any particular asset(s) would be receptive to an approach from the Company. The strategy and the opportunity accordingly remain speculative and untested at the current time.
The Directors believe that there is increasing appetite in the power industry for domestic gas production opportunities and power response projects. This is against a background where traditional junior exploration and production companies are finding little private capital support for smaller scale stand-alone projects. The Directors have noted with some interest, recent merger activity in the power generation sector and the emergence of opportunistic corporate consolidation as a means to develop incremental generation capacity and efficiencies.
Following completion of any Acquisition, the objective of the Company will be to operate the acquired business and implement an operating strategy with a view to generating value for its Shareholders. This may be achieved through either, or both of: operational improvements; and/or complementary acquisitions. The Directors will maintain a focus on cash generation and ultimately a progressive dividend policy.
The Company’s efforts in identifying a prospective target company or business in the upstream and downstream hydrocarbon production and power sector will not be limited to a particular geographic region and, whilst the focus will initially be on the UK and Continental Europe assets and the Continental Shelf, it is possible that an Acquisition with compelling potential may be found in Continental Europe, Ireland or the Scandinavian region.
If he does make a move, he would need to price it up a lot more realistically than during his RRE tenure. Even so, I very much doubt if the BH connection would entertain a boarder at this pivotal stage of Phase 1 development.
Kistos listing/placing has put Andrew Austin (Rock Rose) back in the market looking for acquisitions of energy businesses involved in 'energy transition' to low carbon. Gas production and infra-structure could be relevant, and he knows the IOG portfolio and owners well from his earlier run. He could take out the LOG administrator, or merge with IOG to give him an operating company? Any thoughts ?