Cobus Loots, CEO of Pan African Resources, on delivering sector-leading returns for shareholders. Watch the video here.
From the corporate presentation in September 2017, here is what I have been expecting regarding Duyung and China. Duyung: They have core / logs so should have been performing SCAL and refining their petrophyics / geology / reservoir models . They also have a PVT data set so there is no excuses for not being well advanced in the process. What I'm expecting is an announcement that they have completed their PSE (I believe our equivalent of FDP) and something regarding FID along with a rig / project schedule. Since EME are not the operator they are essentially working to the timescale of their partners and the operator. Even providing milestone news to investors is beneficial, the fact we've heard nothing is pretty poor. China: From the schedule that EME provided to shareholders, the 3D processing should have been completed by mid Feb 2018 with revised / risked reserves to be issued imminently. In conjunction with this they should also be contracting a rig (we've heard nothing) and also providing the rig schedule and planned appraisal programme. Again, milestone news to shareholders would be beneficial and I'm pretty disappointed we've heard nothing. EME are in full control of this process so there is no excuse for not keeping shareholders informed. Coop
KoE, zone 2 flowed with much lower porosity (albeit at very low rates). There is correlation of porosity to permeability in all reservoirs, however, you need the analogous data to determine what this relationship is (it's typically a linear line with an increasing permeability as porosity increases). Therefore, to answer your question, yes it will flow as the porosity in zone 3 is higher, the interval is longer (therefore higher kh) but will it flow commercially - I don't know. Bigspike, it would be possible to stimulate 2 reservoirs at the same time but you'd have no control over where the treatment goes. We could stimulate each reservoir independently from each other and flow independently or co-mingled. Does that answer your question? Coop
Hello everyone, I've been checking in and out of EME over the past few months - I haven't sold out. I believe partners have pressured SGC into the change in their current strategy as the market obviously wants to see results. I think I said early on they should have sequentially shot all the zones and tested by difference getting much needed revenue in the bank. Subsequent appraisal / exploration wells would have provided opportunity to follow the strategy SGC eventually embarked on and I think that has been proven to be naive. I'm not sure what the permitting process is like in California but if it's anything like the UK then as long as SGC have a strategy and a plan going forward for the various scenarios that could play out going forward then there's no reason why the permit should not be granted. As long as well integrity criteria is met, pumping / chemical / treatment designs have been approved then the regulatory body should be able to take a pragmatic approach. From the RNS dated the 12th March, it was stated that SGC were going to pull the current completion and re-complete allowing access to a couple of zones above the current producing zone. I have a couple of ideas as to how they have achieved this (stacked completion design comes to mind immediately) but these take time to execute. Depending on when the workover rig arrived, it could take 3-4 weeks before they are to test. A typical sequence would be: Isolate well from pipeline Mobilize rig and rig up over well Kill well - this involves placement of a kill weight fluid in the well Pull completion Run lower completion and isolate zone 2 Perforate zone 3 Run 2nd lower completion and isolate zone 3 (this would involve a sliding sleeve) Displace well to underbalance fluid Run upper completion Perform well test of zone 3 by opening the sliding sleeve In the event they want to come back and frac zone 2, they close the sliding sleeve (isolating zone 3), remove the plug in the lowest completion and perform the fracture stimulation. This method also allows them to commingle the flows as well. As you can see these operations aren't straight forward and will require good planning and execution. As to my friend ratatouille, it always makes me smile when someone who knows very little about a topic tries to join in the conversation. Whether you have an agenda or not, you certainly make me laugh. Take Care!! Coop
Nice summary post EVbullish. I'm not so sure about NextView coming back into the picture - I hope you're right though. One thing to note is that when Sonora comes online we should be issuing the results of the Zinnwald DFS around the same time. Coop
Guys and gals, nobody actually answered my question re the financing (debt v's equity). To provide an answer regarding mining from Clay, that would have been one of the main objectives within the detailed feasibility study. The conclusion was low Opex, in fact they will be one of the lower cost producers in the industry. That alone tells me volumes and coupled with the fact they are already producing high grade lithium again speaks volumes. When you throw a grenade, you need to know the answer otherwise the grenade goes off in your face. Barksy obviously has his own agenda and with that he's pretty transparent. Coop
I remain very positive on the outlook for Bacanora and very happy with my investment. I wish I had the funds to add further at these prices. Funding for Sonora isn't a question of if but when. It's now up to the management team to deliver on their promise to secure the funding required (in the most favorable terms) by Q2 2018; the next few months will be very interesting. Although funding through additional equity doesn't really scare me (i.e. we dilute the number of shares but in essence increase the value of the company through the cash received therefore maintaining share price value and balance), I would prefer to see the majority of the funding for Sonora achieved via debt (hopefully with favorable terms achieved via Hanwa vehicle). I believe in the longer term this will give the greatest shareholder value. I'm by no means an expert in financing so I would appreciate the views from those of you who are more knowledgeable in this arena. Coop
Panasonic was one of the first Lithium related companies to announce earnings in 2018. It should be of great interest to Lithium investors since the company is a major customer of Albemarle (ALB). Thus, it should make ALB and overall Lithium investors feel excited that the company increased its �outlook after third-quarter earnings surge on automotive demand.� Furthermore, �a streak of solid results at Panasonic have been driven mainly by the strength of its automotive unit - a business the firm is trying to strengthen by expanding battery production capacity globally to meet an anticipated surge in electric vehicle demand.� On the other hand, of particular interest, the automotive group had to downgrade full year forecasts due the ever ongoing challenges with Tesla�s model 3 production. Speaking of EV�s�.Nissan and Porsche both announced massive investments (totaling $16.4 billion USD) into the EV market. Even with all the latest fears of a Lithium oversupply and overall financial market jitters, investment into the EV space continues to remain strong. Oil is on our minds. The oil price has continued to surge as of late and many analysts are calling for oil to hit new market highs in 2018. As we previously noted, an increasing price of oil is helpful to the Lithium market. Worldwide Oil producer BP clearly sees the signs of change as they recently announced that they would �Install charging points for Electric Cars at UK Petrol Stations.� The tech car companies such as Uber and Waymo (Google�s Automated Car Project) continue to dip their toes into the EV space. Uber announced a partnership with Jump Bikes, which is an EV bike sharing program. Waymo struck a deal with Fiat Chrysler for a few thousand plug in hybrids. ICYMI, we recently published an article on the Lithium market selloff asking �Is the easy money in Lithium over?� Should overall Lithium stocks continue to decline, we'll likely come out with our thoughts on that shortly as well. Stay tuned! Coop
Thanks Kluck, definitely a good read. The Next View deal not withstanding, I have the following points: 1. On slide 3 they discuss demand but it doesn't seem to include the additional 150,000 tonnes (incrementally to 2025) that SQM will will be producing but I don't think this will impact the market too much - we're already at the base of an exponential increase in demand (slide 15) - with things really kicking off post 2020 2. Slide 14 discusses commercializing the project and discusses the Hanwa option to increase their equity stake to 19.9% - why haven't they exercised this yet?? They will be instrumental in securing long term debt financing?? I hopeful we'll see minimum dilution during H1 2018 as the commercialize this project. 3. Very little info on Zinnwald, however, it would appear we'll get the DFS around the same time as we commence stage 1 operations on Sonora - therefore will be a very interesting period for the company. I have a significant stake here and I will continue to build. I have faith in the Board and the Management Team. The only "fly on the ointment" so to speak is the Next View deal, hopefully the next few weeks will provide clarity. I think they should have mentioned something about the deal but they can't if there is going to be something significant happening. Coop
Bluegrass, I agree with your sentiments regarding BCN and I also agree it's undervalued. I have my own views as to why the NextView deal has been delayed but I'll keep those to myself for the moment. Coop
2018 fundamentals: 2017 was quite obviously a year of discovery, as investors large and small started to pay attention to the lithium, battery, and electric vehicle (EV) stories. Particularly, institutions and money managers really started to take a deeper look and put money to work in the sector, which is a major reason why the market was trending up. Looking forward in 2018, while there are still a lot of investors left to educate, given the high valuations new investors may be waiting for the story to play out a bit more before putting capital to work. A few things they might be watching out for over the coming year: FMC Lithium Spin- this is a big news story, and one that is likely to play out in the second half of 2018. It is a big move because it will be the first US listed pure-play lithium major on the market. This is a big deal because it will show the investment appetite in the market for a pure play lithium miner, potentially paving the way for more US listings, assuming it is well received. Furthermore, the valuation given by the market to FMC Lithium will be a good guide for those looking to value the other miners. Updates from new projects looking to come online in 2018- Given the tight market conditions in the lithium space, investors are looking for updates from the new companies expected to come online (like Altura, Pilbara, Tawana), and the existing producers ramping up production. Based on which companies actually bring new supply online and which hit inevitable delays, investors will allocate their capital accordingly. Furthermore, the pricing impact from this new supply may help boost/depress existing miner valuations. Consolidation- as we�ve already seen with Lithium X, as well as Orocobre, deals are becoming more commonplace in the industry. There are a ton of companies that are grabbing up mining resources, hoping to establish operations around them. This is making it tougher to cut through the clutter and find the true investment worthy candidates. As the year progresses, we expect to see more deals take place in the space, whether it�s mergers, JVs, or partnerships between mining companies, or vertical integrations by autos looking to secure lithium supply. And as these deals unfold, it will hopefully allow more clarity for investors to evaluate and hone in on specific assets. With all of these factors coming into play, we do believe that the easy, trending market in lithium might be over for the time being. That doesn�t mean we expect the market to sell off even more, or for all of the stocks in the sector to be on hold. It just means that we expect investors will have to be more careful and selective when putting their capital to work. We�ve outlined the value-type approach we like to take in the market, and believe that it will become even more useful as volatility and noise increases going forward. Coop
Is the Easy Money in Lithium Over? Over the last few weeks, lithium stocks have sold off across the board, with some down more than others. While the SQM deal announcement was one of the catalysts for the declines, valuations definitely looked like they were running high across the sector and ready for a pullback or pause of some sort. Investors, or traders may not want to discuss this, as they are probably hoping for the good times and trending markets of 2017 to continue, but we believe it�s time to consider whether the easy money in lithium is over (at least for the time being). Valuations: as we mentioned, valuations are running high, especially in the junior mining space. Pilbara, down ~25% off its highs, still has a market cap of $1.25B before even commencing production. Similarly, Lithium Americas has dropped almost 40%, but still has a market cap of ~$600m, 1-2 years prior to production. We can go on and on down the list, but the story will be the same- the market ran up on the tight market fundamentals, higher lithium prices, and projects receiving votes of confidence from backers like auto companies or larger incumbent miners. For long term investors, they might not have cared at all about the lofty valuations given the promise of the overall industry. Furthemore for long term investors, when valuations have started coming off its highs over recent weeks, we like how Chris Berry put it when he said that the SQM news was a real �gift.� Likewise for value investors, a step back from lofty valuations presents itself as an opportunity to buy in when the overall Lithium market is down off its recent highs. After all, the story of the short term producers, which we also covered in our interview with Ken Brinsen, has not changed. Sentiment: In speaking with a few hedge funds, we�ve noticed that many of them are falling prey to the media reports that played up oversupply concerns on the back of the SQM deal. In fact, the first thing they asked in our conversations was why we weren�t recommending shorting the miners! Furthermore, we would argue that the continued selloff in Albmemarle (ALB, -25% from highs, -14% since the SQM news), a member of the lithium oligopoly, is evidence of a negative sentiment from the larger investors and institutions. Being a US-based, US-listed, large-cap miner with significant global market share, Albemarle has arguably been the poster child for larger money-managers looking for exposure to the space. Thus, it makes sense that given what we�ve learned from our conversations, ALB has continued to selloff, despite shorter-term market fundamentals remaining intact. It�ll be really interesting to see how they handle all the Q&A on their earnings call which will happen on February 27th.
The hard rock supply base typically provides mining in a low-risk jurisdiction, stable production (not affected by weather constraints [like the brines can be]) and high quality output (provided the convertors know what they are doing and are deploying the right technology. This will translate to the hard rock supply base becoming the favoured [favored for our American followers] raw material source for batteries (a dynamic which I would argue is already happening.� Interestingly, while the market focused almost entirely on the supply concerns, it seems no one is discussing the demand side of the equation. Is it still possible that the market as a whole is underestimating the potential demand moving forward? Ken seems to think so: �China will continue to surprise to the upside with the build-out of the Lithium Ion Battery Supply Chain. This will translate to the Lithium raw material consumption growth that continues to surprise to the upside.� Pilbara Minerals will be starting production on their hard rock mine sometime in 2018 (and we look forward to bringing you further updates from Ken as we get closer to that time), and from all indications it seems that the company is charging full steam ahead with their strategy. When asked how SQM�s announcement has affected their operations or vision moving forward, Ken responded with �No change. Business as usual!� Coop
As we recently noted in our SQM�s New Deal & The Lithium Market Sell off, SQM finally ended an almost four year long dispute with the Chilean Government which allows the company to dramatically increase production from around 50-60K tonnes per annum (tpa) today up to 216,000 tpa through 2025. We sat down with Ken Brinsden, CEO of Pilbara Minerals, which is one of the next upcoming worldwide producers out of Australia, to get his take on the deal and its implications for the broader Lithium market. With a lot of fear, panic, and nervousness quickly setting into the market that oversupply would come sooner than expected, we believed that the fears were overblown. More advanced stage juniors like Pilbara, will still have a chance to come in and find buyers for their product over the next few years. Ken agreed with this sentiment, saying �The near term market (as you have described, 2-3 years) has no impact as a result of the recent SQM settlement as there will be no material change in the expected output within that time frame.� Furthermore, many agree with us that certain points of the deal agreed to by SQM will chip away at the company�s (SQM) low cost advantage, potentially affecting the longer term market fundamentals. As Ken put it, �In the long term, any competitive cost advantage that the Chilean brines might have had historically has now been eroded. The combination of higher lease rates imposed and the additional costs to improve product grade/quality (whether within Chile itself or at the Cathode materials makers facilities) results in a materially higher cost base than that currently published for the bulk technical grade product they produce. As such, when global battery grade cost curves are published correctly in the future, you will ses a material shift up the global cost curve from Chilean players. I think that plays out well for the low-cost hard rock supply base for the emerging battery demand.� Ken�s comments bring up an interesting point, that the SQM deals bodes well for low-cost hard rock suppliers. With the greater shift toward lithium hydroxide demand in the market, hard rock producers were already starting to gain more support from investors. After this major news story, it seems like the Aussie mining hopefuls are indeed taking a contrarian approach, believing it will further tilt the market in their favor. In fact, Ken believes that investors may be overlooking some critical information when evaluating the lithium space. According to him, �A big piece that is being missed by the investor base is the changing dynamic around the Lithium raw material supply base, as a function of the new battery demand and its relative quality constraints. Cathode materials/cell marking require an exact standard which includes continuity of supply and the highest quality possible.
Bigspike, there's a very high potential of connecting to productive zones above and below, however, when GJ mentioned dual completions he got me scratching my head. They've already completed this well, the design and planning involved in turning this into a dual completion (i.e. 2 wellbores) doesn't bear thinking and is highly complex and extremely risky. I'm hoping he actually meant that he could turn it into a well where he could selectively produce from different zones - this is achievable and less risky with multiple production packers and sliding sleeves. It would still require a workover though. Coop
A good read for those that are interested. BCN aren't mentioned specifically but the intention is implied especially with recent interest and activity. http://www.inproved.com/blog/juniors?utm_content=buffer4f57b&utm_medium=social&utm_source=twitter.com&utm_campaign=buffer Coop
Mooncheese, there is always the potential to frac into a fault / fracture which can increase the production potential significantly it really depends on how stressed the formation is and the propensity for faulting. Natural fractures tend to occur close to faults as these areas are highly stressed. Since this is exploration I doubt we know much about the formation stress regime other than how the structure has been formed (via seismic). They'll get some information during the drilling / logging of the well that may indicate if they have crossed a fault or if there are fractures present but the wellbore is like sticking a needle into a giant haystack. The fracture stimulation will provide a much bigger radius of investigation to hit something more productive. Coop
Sorry for delay in reply. Bigspike, that range would apply for a vertical well since there are many unknowns / variables at play here. What I would say is that there is specific criteria for candidate selection when looking to hydraulically fracture a well - this is where the extended well test comes into it's own. The best candidate wells for hydraulic fracturing treatments in a tight gas reservoir have a substantial volume of OGIP and good barriers to vertical fracture growth above and below the net pay intervals. Such reservoirs have: - A thick pay zone (unlikely in Dempsey) - Medium to high pressure (Yes) - In-situ stress barriers to minimize vertical height growth (this will be known to SGC and the JVP) - Substantial areal extent (this will be known via seismic and extended well test data) Tight gas reservoirs that are not good candidates for hydraulic fracturing are those with: - A small volume of gas in place because of thin reservoirs - Low reservoir pressure - Small areal extent When we fracture a well, what are we actually trying to do?? We physically cannot change the matrix porosity and permeability of the reservoir but what we can achieve is a massive increase in contact with the matrix. When we drill and complete a well we install a single very conductive tube into the reservoir which allows the hydrocarbon within the matrix to flow into. When the matrix properties are very poor then a single contact (conductive tube) may not be enough. Think of it like having a very large accumulator filled with gas which feeds into a pipe. Between the accumulator and pipe there is a very small choke preventing flow into the pipe - that's what we currently have. What if we could create hundreds / thousands of small conductive tubes over a relative area (determined by frac length) which then feeds into the large conductive tubing installed as our completion. Now, we have our large accumulator filled with gas but instead of 1 pipe we have hundreds of pipes connected to the accumulator (each with their own little choke) all producing simultaneously - that's what we're trying to do and this is where the increase in flow comes from. That's the easiest way I can think of to explain this. Coop
I just wanted to clarify a few things I've read on this and various boards about the Dempsey Frac. 1. The Frac does not increase the porosity of the rock, the porosity is the porosity - this is where your hydrocarbons are stored. 2. The Dempsey we has poor permeability - this is a measure of how well the pore space (i.e. porosity) of the rock is connected. The Frac will increase effective permeability by an order of magnitude (above 10 but below 1000) - depends if it connects to natural fractures which may be present. 3. A vertical well is the easiest and cheapest to Fracture stimulate - we don't need to worry about the magnitude of minimum and maximum horizontal stresses as we would in a highly deviated well. 4. The frac will grow vertically until it reaches a bounding stress - a stress plot can be obtained from the gamma ray which is representative. 5. The frac will also grow radially (or tangential) to the wellbore. 6. What limits frac growth is pressure and rate - hence with a frac spread which will consist of multiple high pressure pump units all connected in parrallel to a single high pressure manifold. 7. The frac could potentally grow 200 - 500ft vertically and 300 - 500 ft radially or more - a hell of a lot better that a few perforations that will only go 6 to 8 inches into the formation - we don't know what perforation skin is present and what damage zone is present from the drilling - we're currently having to produce through these - the stimulation removes all these barriers to flow. Risks: 1. A CBL (cement bond log) will be required if it hasn't already been conducted to ensure the integrity of the cement bond and prevent the frac propagating parallel to the casing / liner - this is one of the reasons that water tables can become contaminated 2. Because this is a sandstone, they'll need to use a proppant to ensure that once they create the fracture, they can keep it open. Screen out is the big risk here - this is when you don't get all the proppant into the formation and you leave some in the casing / tubing - They would need to rig up coil tubing to go in and clean out the proppant prior to flowing the well - adds additional time and cost The extended flow test will provide a lot of quantitative information with regards volumes. Don't be too surprised that after the fracture stimulation that the connected volumes increase as well as the permeability (flow rates); remember we'll be fraccing vertically as well as radially. Coop