Roundtable Discussion; The Future of Mineral Sands. Watch the video here.
London South East prides itself on its community spirit, and in order to keep the chat section problem free, we ask all members to follow these simple rules. In these rules, we refer to ourselves as "we", "us", "our". The user of the website is referred to as "you" and "your".
By posting on our share chat boards you are agreeing to the following:
The IP address of all posts is recorded to aid in enforcing these conditions. As a user you agree to any information you have entered being stored in a database. You agree that we have the right to remove, edit, move or close any topic or board at any time should we see fit. You agree that we have the right to remove any post without notice. You agree that we have the right to suspend your account without notice.
Please note some users may not behave properly and may post content that is misleading, untrue or offensive.
It is not possible for us to fully monitor all content all of the time but where we have actually received notice of any content that is potentially misleading, untrue, offensive, unlawful, infringes third party rights or is potentially in breach of these terms and conditions, then we will review such content, decide whether to remove it from this website and act accordingly.
Premium Members are members that have a premium subscription with London South East. You can subscribe here.
London South East does not endorse such members, and posts should not be construed as advice and represent the opinions of the authors, not those of London South East Ltd, or its affiliates.
I wasn't a clever accountant, Einbert, I just happened to be good at lunch.
Don't really want to waste any more time on a subject that challenges most accountants, never mind people with little or no background in finance.
Just a couple of observations before I go, however. I think the $500m you refer to is gross revenue in the years 2027-2029. G&A and tax reduce this to $220m. Let's call this "net cash". Furthermore, JOG assumes effective tax rates of: 75% 2027; 49% 2028 & 40% 2029. That's just wishful thinking. Can anyone see Stoma announcing a 35% reduction in tax for those hateful polluters? 10% discount for risk is the industry norm ('ve used this because I'm an optimist). While Stoma, in full leftie green-mode, preaching Britain's virtue to a world that doesn't care , Britain will be crashing and burning - ok it wont be burning as there'll be nothing flammable left in the land). He's either delusional or doesn't understand what Sunakhunt's actions and his promises will do to our country (Cyril2 gets it, although as the NSTA is a Government quango, imv it will do as its told by Stoma and other Labour cretins).
Re NPV, when does the risk start? Certainly not in 2027. It is here and now - and all JOG's assets are at risk. So is there a case to be made for the first year's DCF projection being 2024? And for the discount rate to be a lot higher. At a more likely tax rate of 75%, the $220m discounted (cumulatively) back to the present, even using a discount rate of 10% for risk and 5% for money, the $220m soon disappears.
I don't want to continue as there's no point - JOG will sell (imv) on a $pb basis, plus cash. A buyer might be willing to pay for 25-50% of the capital allowances on top.
Who knows what will happen? Things on the political front might turn out better than expected or Greta Thunberg might get laryngitis.
The brokers don't seem to be far off the mark to me. I'll take £6ps - preferably this year.
The end.
dyor
Well, taking DU's numbers then at $20/barrel for producing reserves previously then under the new EPL which we should assume will continue thus bringing the total tax to 75% instead of 40% previously, then that means the company only retains 25% instead of 60% of the profits, thus $20 becomes 20*(25/60)=$8.33. But if that was for producing reserves and this is for oil which is not yet producing and won't be for at least 2-3 years and include the risk of the operators not proceeding with FID, political risks, technical risks then that surely has to go down to $6/barrel. Then you have to assume that only Buchan will have a licence before Labour get in and not the rest of GBA, so that means we are talking about 70mn barrels and not 100mn. So that gives a value of $6 * 70mn or $420mn. But JOG only have 20% of this so we are down to $84mn or £66mn. Divide that by 32mn shares and you get £2.07, so the present share price is not really far out. Yes there is also the cash that will be left in 2026 but you can also tweak some of the numbers I used to get a slightly different answer for the value of JOG's 20%, so I don't see a major discount to fair value at present.
I looked it up and it was capitalized and hyphenated
Einbert - My issue with your calculations is that I'm not sure 'Ying Yang' should be capitalised. Or recapitalised for that matter.
"So come on Dick, what do you estimate as JOG's NPV"...........
......... you can work it out for yourself, CHF - go on; give yourself a challenge.
I'd have to charge an unholy amount to tell you. I seldom charged clients my full rate as they might have cut short the lunches. Where's the incentive for me here? No-one seems to pay any attention to what anyone (including me) writes anyway and sense of humour on this blog is a distant memory.
The following should allow you to get somewhere near what I came up with (for illustrative purposes only). If you don't like what you get, just reduce the discount or make some other pretence.
https://www.investopedia.com/terms/n/npv.asp
Here's a starter: I used a discount rate of 5% for "cost of money" (some call it interest, others inflation) and 10% for risk.
Whatever NPV number anyone comes up with won't change the price an acquirer pays for the shares. This will be determined by negotiation. Poker skills are sometimes involved. PPB most recently achieved for similar oil in the same general location is probably the best measure of value to use. Not that long ago producing reserves in the NS were changing hands for $20pb or more, but that was then and now is now.
Let us know what you come up with.
GL
dyor
£500m . Too much Brown Ale
The £300 million will have been scrutinized up the Ying-Yang for accuracy.
NPV = £364.5 million
(Using £500 million off recent slide 3 with a 10% discount rate for 3 years.)
= £11/ share
A bit lower than the £34 I need but it would buy breakfast at Buckfastleigh if I sell both of my shares.
Dick , me old mate, I know I’m only a pump attendant and you are/were a clever accountant, so please correct my simplistic calculations.
I take it that the next "bit of news" we should get is the confirmation of the Serica Farm Out proceeding.
I see from the NEO Environmental statement that was expected in January.
Now February, so hopefully fairly soon.
Hello again Dick,
re your - " Alternatively, the sum total, at today's prices, of all the (net) cash which that share delivers to its owner over its lifetime (or period of ownership, if that is different. It is called Net Present Value and is the result of aggregating discounted cash flow projections into the future for as long as the asset (in this case a share - you can extend this to a whole company).
It's best you don't push me on JOG's NPV as you wouldn't like the answer."
All those holders left on this board are people that are hardened to possible downside.
So come on Dick, what do you estimate as JOG's NPV
WADR, G101.
Recent share purchases might only confirm the respective directors’ appetite for both known and unknown risks. I can’t see how it can or would confirm that there are no unknown unknowns. But what do I know from a chilly and windswept forecourt?
Yes Cyril - you're preaching to the converted. Good summary though.
I'm just saying the further purchase of shares is confirmation that no 'unknown unknowns' are lurking.
Right you are DU. None taken.
Greener, I doubt there'll be any hitches with the NSTA. JOG is the one company that has been completely on-message vis-a-vis greener extraction. Whereas other cos have taken their ball back and stomped off to the Gold Coast or Mexico or wherever, JOG have gone with the flow and are now a poster-child for the way the industry needs to be.
If labour put more spokes in our wheel then they will already have shut down the rest of the offshore industry and thousands of workers will be marching from Aberdeen to London. Given the inevitable crash of the GB£ the cost of the imported O&G will destroy what is left of our economy. All just in time for next winter. If you thought Truss' govt was short lived.
"What has changed for the worse for you ?"..............
...........life?
Perhaps at the time I didn't think Rachel Reeves would be as big a disaster as I now think she will. Or Stoma. Or Sushi. Or the rhyming Hunt.
My intention is only ever to give a ballpark figure that people like you can dissect and make your own adjustments to. I can tell you for nothing that valuing shares in more of an art than a science. I did enough of it over the years to allow me to make this comment. What I might (and very often did) have thought a particular holding of shares was worth, when I was called upon as an expert witness to value. There was always someone on the other side of the transaction with a different expert witness and his/her assessment of value was rarely the same, although on one or two occasions the judge instructed the two exerts to go to a quiet room and agree on a number.
How much is a share worth? What someone is willing to pay for it.
Alternatively, the sum total, at today's prices, of all the (net) cash which that share delivers to its owner over its lifetime (or period of ownership, if that is different. It is called Net Present Value and is the result of aggregating discounted cash flow projections into the future for as long as the asset (in this case a share - you can extend this to a whole company).
It's best you don't push me on JOG's NPV as you wouldn't like the answer. Sunakhunt halved net cash returns to JOG (from Buchan) in the stroke of a pen. The industry norm for the application of a discounting factor for risk is 10%. I would assess the risk of Stoma doing something outrageous and destructive at a lot higher than 10%. Discount for the cost of money is higher now than it was before inflation struck and interest rates increased significantly. And there's the fact that no cash to speak of will be generated before 2027.
But I still like JOG's prospects because the likelihood of politicians deliberately crippling an industry vital for Britain's security seem relatively low to me.
Sentiment plays a big part in setting share price levels. Sentiment in the O&G sector is rock bottom for all the reasons we know about, very few of which make sense. It's ludicrous that 2P reserves in the CNS with a 33°API rating are presently fetching only $5pb, when JOG has only lifting costs (c$15pb) to deduct from BC prices the oil is likely to sell for. There is no deduction for amortisation of Capex because JOG is fully carried through to production. So $5pb buys the right to make ($75 minus $15) pb.
Tax is the killer.
Make whatever amendments to my c.rap valuation that you want, CHF. I don't give a flying F
"What, in your view would these director/employees be doing during this period?"...................
............rumour has it JOG has rented a couple of chalets (one in Verbier and the other in Cortina) to help alleviate the directors' boredom while they wait (along with the rest of us) for someone to come along and offer something impressive for what JOG has to offer. The Board (and their wives) will have sole use of the super-comfortable accommodation. Cunning move, because if they should slip up and carelessly make reference to their new arrangements, they are unlikely to be caught out because they can quickly add a reference to Aberdeen or The Moray Firth and no-one will be any the wiser. I've always thought of JOG's directors as smart cookies and this proves it. I'm jealous but, hey, they deserve it after putting up with all the abuse they've had on here these past years because they haven't turned water into wine on the UKCS as quickly as some who post on here would have done if they'd been in charge of something as simple as a NS oil junior with no money.
It is my further understanding a former council flat in Bermondsey (recently converted for use as "serviced offices" - if you know what I mean) will be available for JOG's people below director level to spend their time in (this will include the cleaner and the handyman who mainly washes the directors' - and their wives' - cars when called upon to do so and polishes JAB's shoes every hour or so).
Hopefully, between the 10 of them they'll be able to find a NS punter willing to pay £5 or more a share for JOG pdq. Then we can all head for Buchfastleigh and those who imbibe alcohol can get on with the business of getting rat-a.rsed, or for the non-imbibers like me, sip at a selection of alcohol-free Buckfast Abbey wine cordials, after sating ourselves on the renowned house speciality: "big fry all-dayer" @ £3.95 (£4.95 with an extra sausage and fried egg).
Should they be doing something different?
Hello Dick re 1/2/24 " , I get to a price per share in the range 400-500p "
This seems lower than your earlier detailed estimates and yet there has been significant progress by JOG since then.
What has changed for the worse for you ?
Moonlighting !
DU you wrote
"................inc the directors (all 5 of them)."
With a max of 10 - They reported annual expenditure through to first oil would be circa £3m. What, in your view would these director/employees be doing during this period?
................inc the directors (all 5 of them).
Greener - I didn't intend to cause offence - you fooled me by posting on a thread with the title: "RNS today". I thought you were referring to the directors disclosing additional holdings today. Should I have concluded differently?
Lots of things might happen between now and late 2026, springwater. JOG has sufficient cash to take it through to first oil, but not that much would be left over. Decisions will have to be made about existing prospects. It's not inconceivable the JV partners (with or without JOG's support - this wouldn't affect JOG's liability to meet 20% of the costs) will decide to drill an exploration well at Verbier Deep and Wengen, as Buchan works its way towards production. Both are strong prospects.
The most likely scenario as I see it is that JOG will seek a buyer post FDP - preferably immediately post FID, when NEO and SQZ are fully committed to Buchan. My understanding is that JOG has reduced its personnel from a max of c.30 at its peak to 10 people today, inc the director. This hardly indicates an expansion of operations in the foreseeable future.
So............what might JOG be valued at by the industry with its (say) 25m barrels of (mostly) 2P reserves in one of the UKCS's best postcodes and with a number of promising prospects and leads adding more than the same again in whatever category (2C??) Verbier Deep, Wengen and Cortina happens to fall? $5pb? If an interested party really wanted the reserves, they might pay more. Working on $5pb and adding the forecast cash of c.£30m, plus (say) 25% of JOG's b/fwd losses, I get to a price per share in the range 400-500p. $7pb would produce 560-700p.
Am I being pessimistic? Or the opposite? A number of respected analysts reckon between about 600p and 800p is the right price to target. I bow to their superior crystal balls. I bought mine in Woolies decades ago.
Reference a market cap in the lower range above, JOG's market cap in Feb 2016 (8 long years ago) was £675k. A sale producing (say)430p per share implies a market cap of £150m - 222 times its market cap 8 years ago. Not a bad return on investment for those who managed (had the balls?) to buy when the overwhelming sentiment was sell - and then hang on or add at opportune times thereafter. 444 times would be even better - and a site fairer looking at the likely longer term thinking on what makes sense for the UK ref the UKCS. All things considered, I make JOG at least a buy at present levels. Labour remains the biggest threat.
jmofwtw
dyor
Neo got 4 but nothing for JOG https://www.nstauthority.co.uk/news-publications/24-licences-offered-in-second-tranche-of-33rd-oil-and-gas-licensing-round/ more tranches to come following environmental studies
Anyone see if JOG have been awarded any new licences today? Would be great if they had some additional opportunities to develop.......
If you re-read my post DU you'll see that's not what I wrote.
Benitz has many years and much of his personal wealth invested in the company. He goes from hero to zero(ish) if it fails.
Les T has much less I agree, but he has bought before and has put quite a bit of time into it.
Personally, I don't think board members have an obligation to buy their own stock. They aren't founders, they have adequate options and salaries already linked to JOG. Putting more money in via shares from a personal diversification stand point makes no sense.
I'd hardly say the shares they've bought render them: "up to their necks in personal exposure", Greener. But good on them anyway - it's a positive sign and they're at least making a decent pretence about their and our positions being aligned. They are - apart from the money. Two of the current Board haven't bought a single share with their own money. And I doubt Forbes (senior management team) has either.
Must be difficult for Smith (CFO) doing the rounds in the City telling fund managers what great value JOG is, when they ask him how many shares he's holding and how many he's paid for. "I bid you good afternoon, gents" would be my response to Smith's answer, whether or not they'd served afternoon tea.
It's just what it is. Don't have too many expectations about things like honour and integrity in the City today. JOG is a lot better than most AIM companies so let's be thankful for what we've got - key people who are decent sorts with a lot of skin in the game.
Ignore me - won't do you any harm
dyor
Perhaps the only risk left is some kind of issue with NSTA and a delay to FID. CEO and Les T buying stock suggests that the relationship with regulator is good and on track or better.
Given the risks to the stock if something goes wrong, in FDP process, buying more when they're up to their necks in personal exposure already is a very good sign IMHO.