Roundtable Discussion; The Future of Mineral Sands. Watch the video here.
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I would agree we don't need to take over another company along with the management and all the politics , just the production and a few key staff would be fine, that could be very accretive .
As for £3.50 bid , that values us at £940 mio and by then we should have a least £350mio on the books and rising, so really only costing them £590mio or less ? Which they could claw back in what? given the high prices ,8/9 months? and then they are in for free!
I would hope it would tempt out one or two rival bids if it does happen.
In the meantime the headwinds may be an issue but they were present last year and we were still up 253% . Malcy thinks we could do it again so I hope hes right. Should be very interesting either way.
GLA.
Dickupham,
Agree fully, hence why it's time for the SQZ train to pull into the station.
You have to wonder how many of our major holders, many of whom, like ourselves have been aboard the SQZ train for many years and they have not really altered their position to a lesser or greater degree ( other than GRG's +18% !! ). These, loyal holders must now be viewing SQZ through the same spectacles as you and I and can not help but think if I were to be approached for an irrevocable undertakings, ~350p/s, that I would most likely view it as a gift horse and take the offer, so I have no doubt major holders would too.
aimo & dyor
jasehem - to me it comes down to whether it's preferable to shareholders generally for the directors to capitalise on what's been achieved in recent years or risk what could be all on a sizable acquisition in an effort to guarantee future growth. What SQZ has achieved of late has been against all the odds - SQZ had a market cap of c.£7m six or seven years ago. By selling its assets to a bigger fish, the latter then seamlessly melding these with other assets, significant risk could be avoided.
The alternative, as you say, cannot simply be to keep on producing from existing fields because the bulk of SQZ's producing assets are medium to late life and production declines with age. Whilst N Eigg might look very promising, the risks associated with a solo exploration drill cannot be underestimated. Other licences acquired in recent licensing rounds will take a long time (and cost a lot) to develop so, if the aim is to turn SQZ into a bigger NS producer, the growth has to come by acquisition/merger.
We are all individually influenced by our history of buying into SQZ's story. Today's share price is more than 11 times my average acquisition cost, having more than recovered my original investment cost along the way. Many others will have done even better. Whilst I still regard the Company as fundamentally undervalued, experience has taught me that the unforeseeable can sometimes happen, so my approach to risk is somewhat tempered. It's always wise to consider that the markets doesn't always behave rationally. Consider also that certain shareholders might at some stage decide to convert paper wealth into cash. And that gas prices might not continue to move in our favour for much longer - who knows?
All just food for thought - all views are valid. I'm just outlining a few of mine. 350p+ at some point this year would seem fair enough to me. Always leave something for the next fella..................
dyor
Dickupham,
The Board may not have any option should an acquirer obtain irrevocable undertakings from 4 or possibly 3 now, of our major holders.
I would like to think that our board will do what is best for the owners, us shareholder and agree a deal. I find it amazing that we have not had an approach, one can only assume we have done and our board have rejected it, as they can do if 'they' alone feel it materially undervalues SQZ ( not to mention self interest ). There is also no requirement for them to notify the market of such an approach. GSK has had several approaches recently from Unilever for their consumer arm, none of which were ever notified to the market until recent GSK market update when the cat's head was poking out of the top of the bag !.
aimo & dyor
The company needs to either hit with the drill bit and increase reserves (planned for NE this year) or acquire to build reserves - both carry risk but sadly the company isn't in the position where it can continue to pump it out of the ground for decades to come.
I doubt very much the directors have any intention of selling any time soon, NK. You only have to look at the last 3 changes to the Board to see this. Two are definitely acquisition-focused and the jury's out on why the CFO appointment was made. Why appoint a CFO (everything worked fine before the appointment) if you're intent on selling - he would just be seen as baggage by an acquiror.
I fear an acquisition that would use up a lot of SQZ's cash pile. Given there are no more BKRs out there, an acquisition would expose us to way too much risk and would likely serve only to dilute what's a pretty impressive model.
No point in going into all the risks involved in making acquisitions. They're fairly obvious. In the years I spent doing what I did I rarely saw synergies achieved that had been loudly put forward to support the M&A case. Being tied in with IOC at Rhum is risk enough for me. Who knows what might happen if things kick off again with the middle-east troublemakers? And btw ,the IOC won't have the slightest interest in disposing of its interest in the UKCS. It's peanuts to them but does have the potential to annoy.
Back to sleep now.
dyor
GL
TH,
You are correct to ask that, although ROI is an important factor, the market will look at SQZ's EV where as a suitor will look at ROI metrics. Both of which will be amazing in their own way imo.
It is possible SQZ may have a negative EV come end of Q2, however that would be dependent upon many variables, not least the price of commods, when we pay our major CapEx out, taxes ( windfall or otherwise), Bruce scheduled downtime and our receivables. That said, even with significantly reduced NBP, I would still say come EoY we will or have been in a negative EV at some point in 2022 given current MCap. PS, ZERO debt helps that cause greatly too.
Don't think I have ever known a NS producer to have -EV, so the chances of that actually happening are remote, therefore if my assumption is in anyway possible, SQZ will need to either re-rate or will be t/o imo. Which is it to be ?
aimo & dyor
So approx 300 mil in the bank anytime soon and a market cap of 630 mil. If you could buy Serica then approx how many months would it take at current gas prices to get your money back? 6 months or so ?
IRT,
SQZ stated, "Strong December sales revenue to be received in January 2022..." so as you quite rightly stated, SQZ are yet to receive Dec revenue, however to counter that SQZ also stated that "November / December 2021 net cash flow sharing due to be settled in Q1 2022.." So I would guess that SQZ are 'in pocket' post Opex / hedging to the tune of ~£20m to £30m net, if now paid. So far this month, I would also like to think we have added and additional ~£51m (post Opex / hedging). Therefore I would estimated current cash resources (£243m) + Jan outstanding receivable (£51m) to be ~£294m vs current Mcap of ~£630m.
As you pointed out, to which I agree, "Serica look very cheap..." not matter how you do the math.
With full BKR, the cash build over the next few months on run up to Q3 when major CapEx is due will be as far from ordinary as you can get.
atb
aimo & dyor
Serica's cash at year end was £218.4m but no mention in the RNS of receivables.
As December was the peak month for gas prices with an average 275p / therm and gas production about 24,000boe /d the invoices for December would have been at least £130m. These invoices don't contribute to year end cash as the payment terms were 30 days.
Make that cash plus gas receivables of £348m. An even larger figure if the liquids receivables are also included. Enterprise value = Market cap £620m minus cash plus receivables £348m
EV = £272m
The Investor's Chronicle article quoted forecasts of Free cash flow of £141m for 2021 and £224m for 2022. Using these forecasts:
EV / FCF = 1.9 for 2021
EV / FCF = 1.2 for 2022
These EV / FCF estimates make Serica look very cheap.