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Morning Colonel Drake.
I have recently conducted a comparison of HUR in order to try to establish I3E value.
In July 2016 HUR commenced their 2 well drill programme on the Lancaster field, which commenced with a pilot drill to de-risk a 200bbls 2C resources.
They too raised significant funds in the market to fund this drill but did not achieve a junior facility that delivered warrants or indeed manage to convince their drill contractor to accept payment at first oil and warrants that deliver a further £3m in cash.
So whilst the fully diluted position of I3E is circa £75m at 50p a share it does include £27m in cash.
When HUR spudded the Lancaster pilot well their MC was circa £150m. Yes we can argue that the resources sought by HUR on the pilot drill were much larger but at the very same time the average Brent price of oil in 2016 was just $44 per barrel. Today it is $66 per barrel.
Cash position was a little stronger than I3E at around £15m v circa £6-7m.
Furthermore, HUR were reporting a 2 well field development cost of $240m prior to their drill commencing. I3E are stating $100m through an RBL facility. More importantly, the initial anticipated production levels are about the same. So there should be more than enough to cancel out the perceived difference in the resources even based on this very simple comparison.
By the time HUR reached the day before the pilot well results (8th Sept), its MC had increased to £228m.
On the day of the results ( announcement that stated that the 200mm bbls resource would likely be significantly higher), the MC jumped to £354m.
The Sept 2016 average Brent price was $46.57.
Its not black and white but it is clear that the I3E SP is a loaded gun right now.
It is for each contributor here to believe and indeed say what they wish regarding the company and its BOD. As a relatively new investor here I do take on board the comments and research their validity to the best of my abilities.
That said i have taken a good sized long term position at what I believe to be a low enough entry point, not because I want to see gigantic wildcat drills as have been backed here before, but simply because my research leads to me to believe that the Lixus license is a real gift be it in the hands of self serving directors or not.
When partnerships begin to be announced, which I am certain they will be, we will find out whether it was the correct call or not, that's investing that's how it works. But whatever previous aggrieved investors may think about the previous actions of the BOD, none of them can truly say that those actions will be repeated because this company, this BOD, never had a 70m boe gas discovery on their books with still 75% of ownership with which to negotiate, sitting on the door step of one of the best gas markets in the world.
The BOD card is marked but right now the quality of the asset, the current MC, and the low cost capex needed to get it to market, far outweigh the risk associated with perceived future dilution, which when properly considered ($17m cash on hand, no well commitments, current workload attached to partnering discussions and signposted drill costs carry), is only based on historic actions that were designed to deliver a wildcat drill with a major partner. The 2 scenarios are a world apart in terms of risk and strength of negotiating position.
I have no doubt that this BOD have made mistakes, that they are to be watched closely, but bashing them with their previous failings, whilst also failing to recognise that they actually negotiated the Lixus license for just a $1m commitment to seismic re-processing only, is also not the correct thing to do and is in itself a failing by investors. who would seek to point out the failings of others.
Each to their own, I am not here to convince anyone. I have made my choice based on the extensive research I have shared here since April. I expect a partner to be on board this year and I am happy to wait on what I believe will be a considerable development when compared to the current MC.
I am currently away this week but just wanted to offer a couple of thoughts.
This update for me is not about how much more resource the company now owns. Adding 30-40 years of resource to a total that already delivers 150 years plus is of limited consequence. The key here is the definition of the Brits Project and what it all means for the future.
Said project is now defined as portion 3 of Brits only, the farm immediately next to Vametco. If BMN wanted to impress the market with a significant increase in resource (aka Tando) then they would have drilled all of Portion 4 or indeed all 3 farms but they didn’t. What they have done is demonstrated a 1.65km near surface extension of the Vametco Strike on the west and central areas of Portion 3 only. What that then does is open up the remainder of the eastern Vametco farm that sits between the Vametco mine and Brits portion 3.
The resource as it turns out is a resource and not a reserve but can now be properly valued.
Key points to appreciate.
1. BMN currently own 65% of portion 3 and the BEE partner is different to Vametco.
2. The mining right application for Brits is on Portion 2 only. Not currently advanced in terms of mining.
3. Portion 3 holds a prospecting permit only.
4. We have had no further news on the section 11 change of ownership.
The last time BMN completed a resource update in this manner it was in preparation for a buyout of Yellow Dragon.
If Vametco strike is to be extended into the Brits property and thus create 1 mine plan that feeds minimum Vametco plus perhaps Vanchem, then simplifying the ownership structure to be the same as Vametco is surely easiest. With a resource now defined at Brits that process can now be completed.
If BMN intend to mine Brits portion 3 separately then why haven’t we heard about a mining right application for portion 3? I would suggest this is because the company intends applying for a Vametco mind extension into portion 3 of Brits, which I have seen evidence of on other mines in S.A.
However, in my opinion the ownership structure needs to be updated first. My expectation is 65% becomes 74% and later down the line 70%. The all future monetary shares are easy to calculate.
The key point here is that this update isn’t about how much the Brits resource adds in terms of years but what it sets up for the future ownership of Brits and its role in driving lower cost production at both Vametco and Vanchem. A message that has been repeatedly driven by BMNever since Brits came on the scene.
@Proffit I am currently away on holiday until next week but have of course kept an eye on my investments. I wanted to wait for the expected interview before judging and as expected everything is developing as expected. They have hit every deadline so far on what has been a fairly sporty programne, and I expect the partnering deal Isa lot closer than many are prepared to appreciate.
With all due respect the talk of placings etc has no grounds when the company has around $17m in the Bank and is seeking a partner to pay a healthy portion of the costs on a license that is proving to be as valuable as was advertised. To continually judge the company on historic evidence that came from a time when they had no material discovery on the books, is simply wrong. In my opinion, at these levels, this is screaming buy. But it is for the individual to decide against their own research.
Until next week.
Suresh786 I have tried to include my thoughts on questions in my reply to O&W but the key message for me is that this gas discovery was handed on a plate to CHAR (yes that company that does bad deals apparently), that does not mean that it will then automatically be handed to someone else in the same manner.
It is worth more than just an appraisal well carry because it has come far enough down the risk ladder. So yes I expect a drill plus some help with the development costs. The exploration well is phase 2 and isn't required for the first 10 years of gas at 90mmscf/d, so it doesn't need to be in the discussions with any front end partners.
This is just my opinion of course, no more.
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Thus far my investigations demonstrate that it should be well within reach although I would wish to take a further look at this when the FS is released shortly.
What is important to remember is that the government partner and holder of the remaining 25% of the license ONHYM, at development level, which is where Anchois 1 would be post appraisal well, is responsible for its full share of the development costs. So no free carry, which is very important in all of this.
Any potential partner that comes in is negotiating a percentage of of a very profitable low risk gas play (and this is in part dealing with Suresh786 question), that they would in my view of gladly paid for had it been available to them. CHAR have secured 75% for just a $1m commitment to seismic. They don't even need to commit to a drill because over $100m has already been spent on the play through the 4 drills that have taken place.
I am looking for a circa 50/50 split so around 37.5% each. For CHAR to give that away for just $15m for an appraisal drill would be criminal. I expect multiple interest because I view the CAPEX as being fairly low (currently $350m of which 75% = $262m is with CHAR and their partner). For a very good chance at a 22 year plus gas project of oil equivalent 16,000 bopd, that is very manageable and would leave ample room for further payments. Paticularly when we see that the gas play has the potential (be it more risky) to more than double in size on further discoveries at the many satellites around Anchois.
So I expect the appraisal to be covered + a cash payment that at the very least would help CHAR on its way towards its share of the development costs. It may not be big money but at a total contribution of say $130m, even 20% would help set up CHAR for debt financing facilities for their share.
That said I do still fully expect sizeable dilution but at just 365m shares in issue and 37.5% delivering 6,000 bopd equivalent, the stock can handle it.
The above are just examples. I have no idea how much CHAR really wants of this play but what it shows is just how doable it all is when the hard work of exploration has been done and one is left still holding 75% of the license. That wouldn't happen on a wildcat. So they have far more aces in their hand than ever before and from these levels I expected to be rewarded well for my support.
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@Olderandwiser Good morning I trust you are well and many thanks for your kind words.
I am just about to jet off on holiday for 10 days but wanted to respond to your questions.
In my opinion the two stocks aren't in the same league in terms of impact and standing, but as is the way with AIM, CHAR with the right tailwinds has the ability to outperform BMN over the next few years simply because it is coming from such a low base.
That said I fully expect BMN to be sitting at several multiples of its current price within the next 2 years because the market has still to factor in its energy platform, which is coming on very well now.
The key difference in terms of standing right now is that CHAR has a perceived history of doing bad deals for its shareholders. The trouble is that analysis is based on a minnow oil company attempting to convince major partners to join it on a wildcat drill. Those sorts of deals place CHAR bargaining position at a very low ebb.
The Lixus license, which has been given them on a plate is a completely different animal altogether and the market is in my view unwilling to look close enough at it to appreciate the strength of its viability and thus value it more realistically.
I wouldn't wish to go too far into what can be achieved here but to place it all in context I will say this ;
No further drilling at Anchois 1 and the existing gas discovery can deliver a phase 1 70mmscf/d for over 10 years.
1 further successful appraisal well drill at Anchois 1 to open up Gas Sands C and the that becomes 90mmscf/d for over 10 years.
I further exploration well at Anchois N with an independently assessed COS of 43% and the play becomes 90mmscf/d for over 22 years.
That play sits within a jurisdiction where there is a 10 year corporate tax holiday, with low royalties at just 5%. Furthermore, the Moroccan gas market will offer prices in the region of $8.50 per mcf at $70 brent. Even at $60 brent we are talking $7.50 per mcf for something that's likely going to cost well under $2 per mcf to get to market, plus with the GME pipeline siting just 30km in land from Lixus landfall, there is a direct link to the European market.
There will be the need for further drilling to expand the discoveries of course but what I am expressing here is the criteria on the table when CHAR sit down and talk with potential partners. Will there be significant interest at those levels and with that gas market so near, and for me the answer is unequivocally yes.
With around £13.5m in the bank all of what I have just described is currently being priced at under £3m. What it should be priced at is for the individual to decide. It is not my call nor would I want it to be. DYOR always
But in my opinion even with a question mark over BOD performance, the still opportunity far outweighs that risk at these levels. The only outstanding detail for me which I have tried to eliminate is the CAPEX
As a clear example of what I am talking about, I have found clear evidence that flowline pipes can be laid at approximately $37,500 per in/km. For a 14 inch diameter pipe that equates to $525,000 per km. At 40km the flow line element of the construction should on that basis therefore come in at around $21m.
Given I have just allowed $70m for the total construction, that leaves $50m for 4 subsea trees, a manifold and the associated equipment, which looks a little top heavy but let's see.
PS I could make a strong argument for being 10-120% over because the figures I have used are deliberately conservative because I would clearly rather be over and horribly under.
Lets see what comes out when the FS is released shortly.
Apologies I left out the appraisal drill, which i had in at $14m (see previous comparison with RBD-1 costs).
So my total phase 1 cost estimate is currently running at circa at around $360m.
If its anywhere close to that figure then I will very pleased for a variety of different reasons.
Further to my ongoing costing analysis, here is a relevant example of costs in the industry today.
In Oct 2018 CNOOC purchased the following subsea system (equipment only) from Aker Solutions for $205m.
"The subsea production system for the Lingshui 17-2 field consists of 11 horizontal subsea trees, four manifolds, topside and subsea control system and a vertical tie-in connection system.
The work scope also includes more than 70 kilometers of static and dynamic umbilicals, linking the subsea development to a new, semisubmersible platform."
According to the latest June presentation from CHAR, which contains extracts from ongoing FS, the phase 1 development of Anchois requires ;
"2 - 4 subsea producer wells connected via a 6 slot manifold (additional slots for future wells)
40 km 14” subsea flow line with control umbilical" (See slide 8 below)
The rest is onshore and includes "Onshore Processing Facility" and "Export via 14” onshore pipeline," which could be as little as 30km if they decide to go down the SOU route and connect straight into the GME pipeline.
Other than 1 appraisal drill that's it for a phase 1 and a 90mmscf/d gas supply.
If we take the numbers from the case study that I posted back in April then we see that back in 2007 each subsea tree cost $4.5m and each manifold $5.7m with associated equipment for the manifold coming in at a further $9m.
Even if we ignore the associated manifold equipment we are talking 7 x $4.5m and 3 x $5.7m just on the trees and manifolds. That's $48.5m at 2007 prices, which is $60m in today's money.
Whilst umbilical and flow line costs are never like for like as it depends on diameter and product etc, a broad comparison can still be created by removing the 30km. using the 2007 study value of $1.5m per km would create a further $45m saving, although I have read various papers now that state flow lines are considerably cheaper. Still on that basis we are talking about a comparable cost for the off shore equipment of circa $110m.
According to the 2007 case study construction costs were circa 40% of the total costs, giving is an offshore all in cost of circa $180m.
The SOU gas plant and 120km on shore pipeline is costing $184m. Fro what I have been able to find out there is likely a round $15-20m in savings on that cost due to the shorter (30km) pipeline.
So we are talking circa $165m for all on shore activities and a total project estimate of $345m of which 25% is ONYM costs.
Its not 100% accurate but its not designed to be. It is designed to answer any concerns I my have for the capex. At a figure around about that level, supplying equiv 16,000 bopd, the project is going to get a lot of interest.
@Badger2017 In my opinion they already have forged a strong relationship with the Moroccan government as evidenced by the fact they were handed Lixus on a plate. This is a company that has no history of bringing fields into production and yet they were handed a viable 70m barrel of oil equivalent gas discovery, by a country desperate to create its own energy supplies.
That to me shouts strong relationship already.
I believe this is now about costs to develop, which I expect to be well within reach compared to the anticipated revenues, and asset investment interest, which I expect to be sizeable given said partner would be contributing towards an appraisal well and development costs, which are low risk.
“The reason that traders were willing to stockpile is not only because they realized that the current price had been at a comparatively low level but also because they are expecting the price to rise amid possibly growing demand stemming from an anticipated check on the implementation of the new rebar policy,” a Chinese market source said.
There's the understatement of the year.
What doesn't quite add up here is the article also states ;
"Many Chinese traders entered the market for restocking ferro-vanadium and vanadium nitrogen in anticipation of continued price increases in the coming weeks amid market chatter that China would implement checks on rebar quality in the near future."
Am I to believe that Chinese traders in vanadium don't have a good handle on the authority's approach to Chinese regulations, new licenses, and inspections, as described by BMO in their market update.
That aside, this is yet more evidence that prices are going to rise one way or the other.
PS I am under no illusions that the market clearly isn't prepared to see this opportunity at the moment. The interest here is so slight that one could argue that posting is a waste of one's time.
However, that has never put me off before and won't do now either. From what I have seen this is a really solid opportunity with far less risk than the market would care to currently assign. In my opinion.
As always time will tell but I very much like what I see.
Appreciated and indeed I agree.
If CHAR were hunting partners on even an 'exciting' exploration prospect then I wouldn't be here but they aren't. On an exploration prospect and 75% ownership they would have to give the majority of it away just to get a drill done. Previous history is a case in point on that front.
Lixus is a completely different animal. Exploration is done. It is a limited appraisal programme of 1 drill that is designed to deliver a phase 1 90mmscf/d development for over 10 years 40 km from a very lucrative gas market.
That is highly desirable and will in my opinion signal multiple interested parties because it will be a very profitable project that has the ability to expand through just 1 additional exploration drill and further phase 1 paid for capex.
I still agree that juniors such as CHAR have more to lose than to win these days but one must be careful to paint them all with the same brush. With this particular play and that anticipated competition, CHAR should get a very good deal, which is simply not even close to being reflected in the current circa £4m valuation assigned to Lixus.
Yes but perhaps they do have a plan but have yet to reveal what it is.
AMER have stated previously that OXY bought into their blocks because of the OBA. That means they didn't come looking for minimum volume of 9,000 bopd, they came after the 50-70,000 bopd design capacity that has been repeated in the AGM presentation from 14th May 2019 (see slide 13).
Slide 13 is rather telling in that it also shows that the OCP at 450,000 bopd is currently 65% under utilised and is part of the solution that allows oil to be transported at $5 per/bbl from OBA.
So the "bottleneck" lies solely with the RODA pipeline and the stated 20-40,000 b/d additional capacity with debottlenecking for which the slide repeats the message that can be found in the Annual Reports each year that the company has "Projects Identified to increase RODA capacity"
At top end that gives AMER and its partner OXY volume of nearly 50,000 bopd.
I have no doubt that how this will be achieved has all been discussed at length between the parties and that AMER had no chance of either affording it or even convincing the locals to allow it, prior to OXY coming on board.
That revelation brings a whole new meaning to the 3rd party oil agreement, which is about the authority to transport oil not how much they actually pump in 2019. It also strongly supports OXY belief in the prospectivity of those Putamayo blocks and compounds the likelihood of OXY taking out AMER once the success starts to show itself.
That why I am happy to ride this out until the end of 2020 and then review progress at that point. In the meantime I would like to see solid progress on the other blocks and in particular CP0-5 in order to give AMER stronger cash flows to protect its bargaining position across the board and allow it to partake in all the growth that is no doubt coming on its active blocks.
The other thing to consider is a vanadium producer involved in this 3 way tie up and there aren't a great many Bushveld Minerals around with which to agree such a product right now.
The vast majority of vanadium is produced as a secondary product with limited control over supply and price.
The other 2 pure play producers aren't even thinking batteries and direct relationships with those that produce them. Everybody else is trying to get a spade in the ground. Yes AVL are interested in pursuing this route but without an active mine they aren't going to get very far very fast.
The only other similar play out there right now is that of VRB Energy and Pangang V&T, which involves of course the often revered Robert Friedland. So that makes 2 world and the other is China based working with a secondary producer of vanadium and thus far does not have a publicly declared electrolyte leasing product.
So if you want to talk vanadium (leasing products) perhaps you really do need to come the Bushveld.
There is no chance the wider market can truly appreciate the significance of this update yet. However, Vanadium and VRFBs are no longer some dirty secret and the likes of BMN and what they are attempting to do, is far more known today than perhaps is currently perceived.
So the enormity of this cannot go unnoticed for very long but even if it does the contracts will soon start showing themselves and then it will be an avalanche.
as the BE reports have repeatedly stated backed up by the latest Annual Report, which states under BE "Strategic Objectives" (see page 8).
"Grow its VRFB project pipeline across Africa"
In my opinion that pipeline has been awaiting this leasing product, which will now be fully implemented in line with the growth of the business into an electrolyte supplier and VRFB project developer. It won't happen tomorrow but that is not what is important, it is the fact it is going to happen and how big a deal it will be when it does.
@kevkan et al.
The way I understand it and why I am so excited about this leasing model is that it is not solely about the tie up with Avalon Battery but about successfully pulling together what is said to be a very complicated process and getting it over the line.
The RNS is very clear when it says ;
"The complexity stemmed from developing financial and non-financial terms acceptable to three different parties - a vanadium producer, a battery company and an electricity customer. The structures and documentation created from this project are available to both Bushveld Energy and Avalon Battery to use in future projects, making it easier and faster to execute vanadium electrolyte rentals in the future."
That is the key message here. The product has reached a stage where by all 3 parties and their no doubt extensive legal teams, were able to agree a means by which the product could go live.
The VRFB manufacturing sector is fragmented and currently short of viable projects. Without wishing to sound too dramatic, this product is the answer they have been looking for, which will enable them to compete with lithium in the various tenders they are no doubt taking part in but aren't currently winning. Yes each company will have its own legal team and will wish to pour over the details but there is now a template that has done all the hard work and so should far more readily get over the line.
As the RNS goes on to say ;
"The majority of the challenges in implementing the product commercially were not financial but legal, including title ownership and risk allocation. Considering the uniqueness of the product, it was also critical to draft a legal agreement that current and future customers would be amenable to."
Given how necessary this product is to make VRFBs competitive enough to increase their tender win counts, it is not about UET being "aggrieved" but more about when and how will they and the rest of the VRFB manufacturing sector also becomes involved with this product because without it they are likely going nowhere.
As the Avalon Battery blog states ;
"One of the biggest hesitations our customers have about adding batteries to new or existing solar arrays is that they don’t understand their value, and they are legitimately concerned about the technology and commercial risk from what can be a significant up-front investment. "
"By deferring a large portion of the battery cost we not only help our customers afford storage, it also gives them comfort that the battery is going to work, as expected, over its design life.”
By expanding the ability for VRFBs to win significantly more work, what this product will do is get more and more live examples on the ground, which in turn will improve that customer understanding, and further expand the various avenues for more business across the board.
It is a true watershed moment that will have VRFB companies hammering at the BE door.
II think what is important to remember is that AMER reported the Indico-1 discovery on 10th Dec due to "press speculation," which I was not able to find at the time.
Reports from India state that Indico-1 was drilled between 7th Nov and 15th Dec. However, ONGC Videsh did not release their official statement until 5th Jan. Yes we had Christmas (Does that affect ONGC overseas arm) but still the 'delay' was palpable.
Of course given ONGC Videsh size, they are not the sort of operation that needs to update the market the moment they strike oil. They operate in 40 countries after all.
It may be that AMER will follow the same route as before, finding good reason to announce the results well before ONGC. Or they could have had their hand slapped for jumping the gun and will instead follow the lead of the operator this time around.
Furthermore, if Sol-1 isn't a duster and it is instead a very solid oil discovery then surely AMER would be wise keeping this separated from a general operations update, so that it can have the impact it deserves. They area BOD on the back foot and have already demonstrated a desire to prove to the market their worth by exploiting the good news as far as they are able.
Who knows? What all of that says is there is at least enough doubt out there to allow one to keep an open mind about Sol-1 be it a cautious one at that.