Listen to our latest Investing Matters Podcast episode 'Uncovering opportunities with investment trusts' with The AIC's Richard Stone here.
Have only been here for a couple of months and bought in steadily for an average of a little over 8p - it’s one I’ve been familiar with for a few years though as have followed it plus GEMD. Bought in for a recovery play rather than as a trade - as I believe at this sort of market cap it is already being virtually priced to fail (which isn’t the way I see it playing out)
Good to see it pullback a bit and was always likely to as those who bought in near the lows just for a trade sold. All down to where it goes now - need a proper turnaround/change of momentum not just a one day spike. If you're in for a trade then trade it - if you're holding for a recovery then stop watching every little movement up and down, as it will drive you mad!
Will be interesting to see if the shorts have changed at all after several large trades popped up after the close - either that or they were sells and Rowe are still dumping. Book still being largely controlled by the algos.
NAV is currently around $326 million, or roughly £265 million - as compared to a market cap of £65 million. You also have to consider the life of mine in the context of the likelihood of refinancing the bonds - 248 million carats of resources, with 42.5 million carats of reserves suggest many years of production still to come (quite a lot of that is contained within Cullinan where very large diamonds are often found (several each year) and which aren't factored into the forecasts. I still believe that it is a recovery play and added more at 7.5p today. I would also expect that any temporary breaches of covenants will be waived, or the ratios adjusted.
Orders placed using DMA appear directly on the order book which you can see on L2 - I accept though that it isn't actually your order as such, it is IG's (or whoever's DMA you have been granted access to via your account with them) acting on your behalf. It is why with CFDs it is possible to buy at the bid and sell at the ask price, on stocks where DMA is available. having your own DMA system in your own name would be very expensive, you'd have to be doing it professionally with large amounts of money to make the fees worthwhile.
CFDs are slightly different to SBs, in that it is a derivative based on the underlying shares, rather than just being a bet. With SETS traded stocks you can actually trade the shares via the order book using DMA (to some extent that is also possible on SEAQ - or whatever it is called these days - stocks via RSP). You don't actually have DMA yourself, but are able to use the providers DMA (IG etc) to enter orders onto the book so as to buy at the bid, sell at the ask, as long as the order gets filled/matched. That tends to be on the larger stocks though - even with DMA, on smaller SETS stocks often your order doesn't actually appear on the book (I'm assuming that IG operates an internal book that matches orders in that case).
It won't be 8 million barrels less anyway - that would mean that the whole structure wouldn't be there - even if they've lost some of the thicker part of the reservoir, I'd expect that they'd still have 2-3 million barrels from this area at least. The biggest risk for me is the possibility that the seismic interpretation and mapping is out vertically rather than just horizontally, and that would have a far greater impact.
Not sure you can view it as simply as that as it also comes down to the contours of the reservoir - if you imagine them similar to a normal OS map. From the maps provided publicly it appears that to the south side of where they thought the thickest part of the sands were, that thickness reduces rapidly (contour lines very close together) - certainly compared to the northern side where the decrease in thickness seems to be far more gradual (a slope compared to virtually a cliff). I believe that this is why they drilled in the way that they did - given the topography, if the sands had extended to where the drill location was then they would have likely been thick there - the negative though is that it now looks like they have lost some of the thickest parts of that reservoir (if it is indeed further north than the modelling suggested) and that will affect the volumetrics accordingly. Just my thoughts/reading of the situation though and I'm no expert on the geology side of things!
Maybe makes it less likely that they were forward sold - although still plenty of profit would have been available on the cheapest ones (even if it meant relinquishing part of the notes to convert to shares via the warrants, to settle the short)
Thanks - must admit I missed that bit as wasn't reiterated in future RNSs, just that the attached warrants were on a 1:1 basis! In that case it would seem unlikely that we will see them exercised for cash at any point - I had thought that it might bring in extra funding for Phase 1. I think a lot of people have missed this (although of course only comes into play if the SP is above the strike price)!
Where are you seeing that they can convert the loan notes into shares? Nothing in the terms of the junior facility that I can see which mentions that conversion of the principal? The play for the warrant holders would have been to short at above the strike price for a guaranteed profit - short price less the strike price would be the minimum profit, obviously now they can close open market cheaper! Its a pity that the warrants weren't exercised as would have brought in more funding for the company.
Whenever I've attended any investor events where small AIM cos have been existing, quite a few of the CEOs etc have reminded me of used car salesmen or someone trying to flog you double glazing! They're not all like that - but there is a good reason why their companies are listed rather than private, as lifestyle private cos don't work as no one would ever fund them!
They weren't drilling the sweet spot - they were trying to find the edge of it, but messed it up by drilling too close to where they thought the edge of the reservoir was, most likely to try to add additional reserves. it sounds like the lenders also had a say in where they drilled - according to what was said in the interview. There is no denying that they messed it up - it is just a case of how much this alters their modelling of the area, both laterally and vertically.
That's note correct with regards to the junior facility - the warrants are in addition to the secured loan facility, which is repayable after a 4 year term, and comes with an interest rate of 8%, payable quarterly. the company does have the option to settle the interest payments via 'payment in kind' at a rate of 11% (i.e. issuing shares to cover the interest as it becomes due). It has first lien over the assets up until such time as a senior facility is in place and has been drawn upon.
This has been a good example of how little transparency there is when things are being done through a private company (MFDevCo) - even down to things like the gap between the end of an accounting year and the publication of those accounts (not to mention the actual detail in them for small cos). If there had ever actually been a real business they’d have used a takeover to bring MFDevCo into NUOG, rather than keeping it at arms length! Was all fairly clear to see - even going back to the Enegi/ABT days when the same thing was going on ( ‘deals’ with Wood Group etc which never materialised)!
Worth a look at the map for the reservoir where L2 was drilled - works similar to a contour map and the distance between the lines shows how ‘steeply’ the edge of the reservoir drops off to the south side where the pilot well was drilled. Reservoir goes from being thick to no sands at all over quite a small distance.
Worth remembering that the lenders were involved in choosing the location of the drill - according g to the interview anyway, although to what extent is unknown. Possibly trying to actually add to the reserves but took too big a risk?
All comes down to what the testing shows and how much they've missed by - but unless they really have to, I doubt they would want their whole model for Liberator brought into question. Failure to go ahead with A3 as planned could suggest a more serious issue with the modelling, as opposed to just taking too big a risk with the positioning of the well - seems crazy that you wouldn't position to ensure that you hit the reservoir and then use VSP and sonic wave to identify the actual edge of it? Especially given the topography of the formation which the seismic interpretation maps seem to imply at that location?
I'd be surprised if they didn't go ahead with A3 as that shouldn't be affected in any way by the well they've just drilled (unless they've missed by a big margin and their seismic are a long way out) - to be honest, it would be a concern if they didn't go ahead with A3 as that would call into question their modelling of the whole area, rather than just that they drilled too close to where they expected the edges of the field to be and missed the target sands.
Unfortunately it is a company that I am familiar with going back to 2011 - thankfully have never liked it and so haven't been tempted to invest at any point (but several people I know were from back then). I know a lot of people haven't liked my views on the company - but hopefully it might have made at least one or two people question and review the reasons why they were holding, and possibly saved them some money. I am also certain that there were some on these boards who pretended to be long term holders but were in fact trading it and were instrumental in playing the share price (such as via the private groups, rumours and leaks) - I've seen similar on other shares before where often the most ardent supporters suddenly disappear when the share price collapses (RRL, LGO amongst quite a few others). I always go on the basis that if some random PI on a bulletin board has heard some actual proper leaked news (not just stuff selectively leaked by brokers, the company etc to manipulate the SP), then the pros will have heard it before them and would have responded accordingly! I would also question leaks in general - look at it this way, if you really were in possession of some info that the market didn't know about, would you tell everyone and potentially cause the price to rise, or keep it to yourself and a few friends whilst you bought as many shares as possible (or even try to talk the share price down to get in lower before the news lands)? I've seen exactly that on a few oil drills - leak of bad news, crash the share price, load up, and then news of a strike lands (was quite a common game back in 2010/11 with Falkland and North Sea oil cos during drills where real news did actually used to leak from crew on rigs, helicopter pilots etc), and conversely if bad news was coming they'd leak rumours of a strike to cause the SP to rise so that they could dump before a duster RNS came!