The latest Investing Matters Podcast episode featuring Jeremy Skillington, CEO of Poolbeg Pharma has just been released. Listen here.
The delay in raising funding makes me think they are confident they will get the remaining MSC deals shortly, and can wait until then before raising money. This chimes with them saying they expect to finalise the agreements by end March. At least that's what I would like to think. The pessimistic approach would be that they have to wait because they think they won't be able to raise money before doing the MSC deals. But I tend more towards the first theory because if they were worried of running ouf of funding before the MSC deals I think they would just do a fundraise anyway even if it's at a deep discount and no doubt they could raise some money just to keep things going at least for a another few months, and it would be better to do it sooner than later so they wouldn't push it off this much unless they were confident. Time will tell.
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.
To be honest the main thing is the willingness to pay. Once that is there they could find an alternative solution eg selling away rights to some of their natural resources, selling YPF, whatever, I'm sure Burford's lawyers will be happy to help them find ways of raising the money.
Https://www.bloomberg.com/news/articles/2023-12-26/argentina-s-milei-lifts-imports-controls-in-free-trade-push
"Argentina’s President Javier Milei is considering issuing a perpetual bond to pay a $16 billion lawsuit award to Burford Capital stemming from the nationalization of state-run energy company YPF.
Swinging between political jabs and policy intentions, Milei suggested that the government would issue the bond without a fixed maturity while charging Argentines the “Kicillof tax,” named after Buenos Aires Governor Axel Kicillof who was the economy minister when the YPF lawsuit started.
“Here we have a problem because we don’t have the money, we don’t have $16 billion, that’s the reality — but we have the willingness to pay,” he said in a TV interview with La Nacion Tuesday night. “What we’re going to do, it’s an idea we’re working on, is to create the Kicillof tax, meaning pay this fund with a perpetual bond.”
The Economy Ministry didn’t immediately provide details about Milei’s idea. Burford Capital didn’t respond to a request for comment after business hours."
(continued)..
By the way I would also point out that the investment that they did make has the fallback option that if there would be some problem extracting the oil they could sell the FPSO and get most of their money back, whereas if someone is going to pay cash for JOG's share or the whole company then if there is a problem they don't have a way of recouping the money.
Sorry to disappoint investors here, but I think there is an obvious reason why the share price is so low compared to broker targets. This is because in their estimates of future cash flows they assume that the EPL ("windfall tax") is going to end in 2028 as it is officially meant to. But many suspect that in reality the government of the day (especially if it's Labour) will find some excuse to make it carry on. This is in a background where there won't be a need to incentivise further drilling and exctraction as Labour don't want any new drilling anyway, so they can just cynically bleed existing investors with a 75% tax. This is in contrast to what the historic tax was, 40%, and what brokers are assuming will be the case again from 2028, which accounts for almost all the cashflow. So if they are assuming that the after-tax cashflow is 60% of the pretax, and in reality it is only 25%, then the value is only (25/60)*their valuation, so for say 600p that becomes 250p, which is about where we are.
The other argument (which brokers and posters have implied) is that Serica and NEO are paying about £1bn (mainly for the FPSO but also for farmout cash for JOG and other costs) for an 80% share of the cashflow, and on this basis JOG's 20% share of the cashflow should be worth a quarter of this which is £250m, or about 780p a share. I was persuaded by this at first. But the problem with this is that Serica and NEO are not really paying £1bn, they are really paying more like £100m, because the other £900m is money that they would otherwise have to pay in taxes on their other income, and which they avoid paying by investing it in oil assets, per the governments's investment allowance of about 91%. So the question comes down to whether they or someone else could buy JOG's 20% carry (or the whole company) and set the cost against their oil taxes. This has been debated here, and I haven't managed to determine this for definite. However it seems clear they if Serco and NEO get allowances on all their costs including the capex for JOG's 20% then no new buyer of the same asset would be able to get that allowance again, as that would be absurd, as it would mean that companies could keep selling assets back and forward to each other and therby avoiding the EPL. If the deal could have been structured in a way that they don't get allowances for JOG's capex and JOG would thus be free to sell their 20% for full value (780p) no doubt this would have been done, or indeed why didn't JOG insist on them buying its 20% at the beginning for an extra 780p share? Seemingly the answer must be that they were only interested in investing a very small sum of their own money (£100m) for this asset given the unfriendly UK backdrop of taxes.
(continued)
Preska gives new deadline of 10th January to pledge YPF shares, and extends deadline for Argentina to request expedited appeal, Burford shares up as it's now more likely that the pledging will happen, as Milei will now have a chance to do this, as opposed to previously where the deadline was before Milei gets in, therefore he couldn't have pledged before the deadline.
If the share price decline is due to the decline in the lithium price, then what I find strange is that on the chart you reference the lithium price fell primarily from mid July to mid September, whereas the CTL share price did not fall in that time. The share price only fell from mid September during which time the lithium price only fell slightly.
IC comment: "Litigation funder Burford Capital (BUR) is on a winning streak. In September, it announced another court win in the case concerning the nationalisation of Argentine oil producer YPF, which could result in billions of dollars’ worth of damages. As always, however, there is a big question mark over how much money Burford will actually receive, and when it will arrive.
The group is certainly making tangible progress, though. In the first half of 2023, its cash receipts – a key metric in such an unpredictable sector – grew by 148 per cent to $247mn (£203mn), as court backlogs continued to clear. “Realised gains”, which refer to the total proceeds generated when a court case concludes minus the deployed cost, are also on the rise.
Litigation funding remains an inherently volatile industry, however, and the nature of lawsuits, together with the complexity of Burford’s accounts, make it difficult for investors to ever understand what is going on behind the scenes. Hold. "
In other words, they have absolutely no understanding of the company, so are just taking a middle view to play it safe.
Mrmarroc, OK, but I am simply saying that the appeal judge would look at the legal arguments fresh from his own point of view so could potentially disagree with Preska; he doesn't need to grant her deference on her legal opinions, so there is some chance he could disagree. (If the main issue previously was a debate over facts and Preska had mainly decided based on her findings of fact then, yes, it would have been unlikely for the case to be overturned as the new judge would generally respect her findings of fact, but that's not what happened here, as the decision was not over determining facts, merely legal issues, so there is a higher chance of it being overturned than if the issue had been over facts.)
I thought a summary judgment is more likely to be reversed on appeal as it's a de novo appeal meaning the appeal court look at everything from its own point of view and doesn't need to give any deference to the original judge as there are no facts in dispute, only legal questions which the appeal judges look at anew. As opposed to a normal judgment based on a trial where some elements of the original judgment are based on the determination of the facts which are decided at trial, and the appeal judges will generally accept that the facts are as originally decided, therefore if the case turns mainly on the facts then there will be less scope for the appeal to overturn the judgment.
"Argentina hits milestone on path to gas export bonanza" - https://www.ft.com/content/a3982bb1-75cb-4988-8677-07499337fbda - should help them settle their YPF liabilities.
I note Litigation Capital Management announce today with fanfare that they are moving today to fair value movements. Let's see if that leads to an outbreak of shorting and scaremongering from the FT and IC, Muddy Waters, etc. Or is it only when Burford does it that it's a problem?