Firering Strategic Minerals: From explorer to producer. Watch the video here.
Adonis Pouroulis invested another £ 400.000 in CHAR in the recent capital raise, as follows:
AP´s holding before the equity issue: 85.243.102
AP´s holding after the equity issue: 87.465.324
Shares acquired: 2.222.222
Price: 18p
Total invested by AP in recent capital raise: £ 400.000
The words "follow the money" come to mind.
Regards
Fernan
SP Angel thinks that SOU´s core business (including the 2 phases of Tendrara production concession) has a value of US$ 184.3 mm, equivalent to £ 141.8 mm (page 2 of last month report).
Dividing that number by the total shares oustanding 3 years from now (I assume 2.5 b shares) you have the target price for the "core" business (excluding any exploration upside).
Further value from there should have to come from exploration. I think it will be important to watch the results of the farm out process for the 3 wells exploration/apprasisal campaign that SOU´s management is currently carrying on.
If they can not find anybody interested in funding the drilling of these wells, I would take that as a signal of the real value of the acreage that SOU management boasts to have.
Regards
Fernan
Hi PS:
The impact of the additional shares in the target price depends on what the dilution is for.
For example, if the company buys a new asset through the issue of new shares, both the company´s total asset value and share counts go higher. In that case, the effect on the target price will depend on the relation between those metrics (value of the additional asset vs additional shares issued to buy it).
In the case of SOU, the dilution that has happened in the last few months generates only a few million of additional cash, that will be eventually applied to keep the lights on, or pay day to day expenses.
Lets see:
1. Warrants outstanding (2.021 Annual report page 93), for the equivalent of 100 mm shares.
These warrants have a strike price of £ 2,75 p. If they are converted into shares, they will add £ 2,75 mm to SOU´s cash position.
2. Stock options issued on May 3, 2022 (see press release on that date), for the equivalent of 69 mm shares
- 20 million options are nil-cost to the beneficiary
- 49 million options are excersible at a price of 2,4 p/sh. They will add £ 1.1 mm to SOU´s cash position
3. Shares issued in most recent equity raising (see June 8, 2022 news release): 200 mm
The amount received by issuing these shares (£ 4 mm) will be used to fund general expenses, for the most part.
In conclusion, the recent increases in the (fully diluted) share count will add a minimal amount to SOU´s total assets value. I expect future share issues to be very similar to the last ones.
Then, answering your question, I think the target price informed by the analysist should be proportionally reduced, to give proper consideration to the higher share count.
Regards
Fernan
The analyst´s target price of 8.2p/sh is based on 1.729 mm shares outstanding, as follows:
Sum of the Parts-SOTP valuation (page 2 of the report)
Core value: US$ 184.3 mm, equivalent to £ 141.8 mm
Core value: 8.2 p/sh
Share count: £ 141.8 mm / 8.2p = 1.729 mm shares
Regards
Fernan
In my opinion, taking an optimistic point of view, the fully diluted share count will be around 2.500 million shares by the time phase 2 of Tendrara comes online.
This number includes future share issues to keep the lights on (similar to the one that took place a few days ago) and future share options to be awarded to management.
This “optimistic” forecast share count could substantially increase if:
- There is a need to immediately pay Moroccan taxes, in case of an adverse result of the judicial proceedings
- The company fails to attract farm-in partners to drill the commitment well in the Anoual concession, and management decides to nevertheless drill the well, funding it through the issue of new shares.
- The company fails to find alternative ways to fund the equity component of the financing package for phase 2 of Tendrara
Regards
Fernan
Fully diluted Share count:
Shares outstanding at May 3, 2022 (see news release on that date): 1.645 mm
Warrants outstanding (2.021 Annual report page 93): 100 mm
Stock Options outstanding at Dec 31, 2.021 (2.021 Annual report, page 92): 5 mm
Restricted Stock Units (RSU) outstanding at Dec 31, 2021 (2021 Annual report, page 93): 1mm
-RSU outstanding at Dec 31,2021, issued at May 3, 2022 (see news realease of May 3, 2022): -1 mm
This RSU are already included in the 1.645 mm shares outstanding at May 3, 2022
Stock options issued on May 3, 2022 (see press release on that date): 69 mm
Shares issued in most recent equity raising (see June 8, 2022 news release): 200 mm
Total (fully diluted) share count: 2.019 mm shares
My rule of thumb for a reasonable relation between reserves and production is 5.000 days (aprox 13 years)
This allows (always in my oppinion, of course) to exploit a reservoir in a reasonable timeframe, allowing also for the reinvestment of operational cash flow to drill new wells and then keep the production level flat.
Then, for 1bcf of reserves, it could be reasonable to have a production capacity of 200 mmcfd.
Regards
The moroccan tax authorities raised claims against 2 of SOU´s subsidiaries, for a total of aprox US$ 37 mm (see 2021 Annual report, page 79).
The total amount of the claim is divided between the 2 subsidiaries on aprox a 50-50 basis.
IF I understood correctly, management commented on the call that one of the subsidiaries sued by the government is currently dormant. In that case, the eventual lost of the demand by SOU will not affect the current pace of exploration/development.
Regards
Exploration funding
they have put up an "exploration package" of 3 wells (SBK1, TE 4 and one well in Amoual license). It´s being offered to potential farm in partners. According to managers, there has been signicantly increased interest in the industry lately to participate in this kind of projects.
Phase 2 development. Equity interest funding
They are exploring 3 options:
1. junior debt
2. vendor financing
3. farm down of SOU's equity interest
Apart from that, they had 2.9 mm pounds of cash at the end of March, The running G&A expense is around 0,3 mm pounds/month. So we will have news about the "funding" of these expenses in the next few months.
Regards
"Since AP has been in charge, placings have been done with purpose and at a much higher price than the one previous."
Adonis has been a significant shareholder from the beggining of the company.
It hasn´t prevented CHAR to go from 144 million shares oustanding at the end of 2011, to almost 1b shares after the recent placing.
I know that the business model has changed, from "high risk exploration" to the current one. But, if you think that AP is shy of keeping diluting himself to advance a project, think twice.
Regards
Nop, I´m a long term holder in CHAR.
I like Anchois and the Lixus license. But I think we shareholders are at risk of our future return from Anchois being diluted, because of the need to fund other projects with poorer eonomics.
Regards
Hi Jimmy. I'm not sure you can adjust the NPV proportionally, in order to account for the higher reserves. If the production profile is not adjusted accordingly, the additional reserves will be produced further down the line, and then will have a lower NPV than the initial reserves.
Regards
Bigguboi:
You wrote:
"To add, once again I don't see how we can end up with 5b shares. That's about £850 million pounds worth of equity issued at the current share price. Kind of ludicrous when you do the math, which is why you should always just do the math and ignore the emotions"
My comments:
1. Management is talking about a "new gas venture" that we dont know how much is going to cost us. Is it a producing asset? Or an exploration venture?? We simply dont know.
2. We already have a pipeline of renewable projects, for hundreds of MW, for which we still have to fund our equity interest.
3. And finally, we have the green hidrogen project, that, again, we dont know how much is going to cost us.
For these reasons, I still think there is a risk of big dilution going forward.
Regards
I don´t see the full value of our gas project will be realized in just 2-3 years.
What I expect is that, after getting to the production stage (3 years from now), operating cash flows should be reinverted in exploring the remaining prospects in the Lixus and Risanna licenses (see my previous posts on what I think should be the best strategy to develop the project)
Then, in order to know the full potential of the licenses, we will have to wait 6-7 years at a minimum.
As a I said again, I don´t want CHAR to have 5b shares by that time.
Regards
Anchois could indeed be a profitable project...but if we end with 5b shares outstanding, in order to fund "new ventures", renewables projects, etc, etc, the return for each individual shareholder won´t be as great as it would be.
Time will tell
I sent to them a few questions about how they are planning to fund the development of the phase 2 of Tendrara, exploration commitments at the other licenses, etc. I'm afraid they will answer by the standard "all options are open".
I think the most important issues to be clarified next Monday are related to how are they going to fund:
- development of phase 2 of Tendrara production concession
- 1 exploration well commitment in Anoual permit (US$ 8 mm)
- 500 km 2D seismic commitment in Sidi Mouktar (US$ 4 mm).
If they are going to keep talking about the progress of the civil works for the phase 1 micro LNG, or how our gas is desired by the market, it will be a completely waste of time.
Regards