Sapan Gai, CCO at Sovereign Metals, discusses their superior graphite test results. Watch the video here.
Much,
I'll be at this years AGM, so happy to meet you there and educate you further.
I'm not sure if you were there last year; it wasn't you that turned up late was it..?
Until then, let's agree that dilution (either on the bottom line or top line), subject to the one get out of OM, is quite probable. Oh, hang on a sec. Isn't that what I said at the beginning.
GS
Nigoil,
If anyone asks about estimated dates, I will for the time being stick with those that have been publicly given by those who are in a much better position than me to know, the most important of which I gave to you below. Would I make any investment decision that depended critically on them or assert that they are definitely going to happen; almost certainly not.
There's quite differing views on this board, but I'm pretty sure in saying that everyone would agree that the history is not one of publicised timelines being met, let alone significantly beaten. Of that I'm confident.
Your opinions might be "honest" or not, but unfortunately for you it doesn't make them any less ridiculous.
GS
Nigoil,
Let's replace some of your honest opinions with some facts. I like those. We can also refer to some RNS's. I know you like those.
"Re : Timings
May / June FEED completed
June / July OM arbitration decision / award
July / August Funding decision for S/L
August / Dec FID and project sanction of Sealion
All the above dates give or take a month and is all in my honest opinion
Nigoil"
1) According to RKH's RNS of 21 February, the outcome of the OM arbitration is expected "late Q3 or early Q4 2019", so I'd change your June / July for September / October.
2) Post PMO's recent trading update, and according to the Times, TD was reported as saying that the export credit decision could take 6 months to arrive. I've heard it as 6-9 months elsewhere, but let's assume 6 months. That puts EC funding decision in early November. Not July / August.
3) FEED has been said (RNS again) to be completed by Easter, so actually on this you seem a little pessimistic.
I'll leave you to update the rest of your numbers.
GS
Much,
Most might just stop arguing when it's been pointed out they've been posting rubbish, but not you.
Whether PMO has raised equity to date to fund SL (or subsequent Falklands developments) has absolutely zero relevance to whether RKH might have to or otherwise dilute its interest via, e.g. further farm-out, and I'd expect you to know that. They're two different companies in very different positions. PMO generates cash it can use to fund (RKH does not), it is using debt (of which RKH will pro-rata share) and it appears very keen on bringing in a partner once financing is sorted (top-line dilution).
GS
Much,
It's not a difference of opinion that one "agrees to disagree on".
If SL goes ahead, RKH will not have "little or no debt". It will have perhaps $500m on its balance sheet under the current arrangements.
If RKH has cause for funding pre-SL cashflows kicking in it will need to raise equity or farm-out, subject to the one-off event of OM. I've been quite clear that dilution can be either on the top or bottom line, in the sense that the end-result is broadly the same. As far as your £10+ share price predictions it really makes little difference from a conceptual point of view. The dilutive effect of either is completely ignored.
We also do not know that Apollo has expressed any interest in taking an equity stake in Sea Lion in exchange for a cash injection. You read the story about North Sea oil investments and speculated that might be the case.
GS
Much,
Sorry to labour the point, but you keep on indicating that there are lots of options to avoid dilution. I really don't see what these are beyond OM, so basically there is one. Absent OM, any other chain of events that would see RKH still in existence by the time SL starts producing is going to involve dilution one way or another; either through a increased share count, or reduced equity share across its various assets.
To be clear, given today's valuation there is still plenty of possible upside to be had, even with some dilution, but these £10+ numbers you quote really do all live or die (irrespective of their other merits) on OM now.
FYI, in broad terms RKH would be responsible for c$500m of debt on Phase 1 as the financing is currently proposed, albeit this will almost certainly change.
GS
Much,
If RKH receives £100m after fees from OM and it has access to that cash relatively quickly then it could change the picture for sure, but it does leave those valuations of yours really hanging on the OM outcome and a very positive one at that, which wasn't always (or even 12 months ago) the case. Previously OM was a "nice to have", but it really has gained quite significance importance.
Farm-downs obviously can reduce the need for equity, but then you're just reducing the numerator, rather than increasing the denominator, so in general terms you end up in the same place. Additionally, speak to the company and you won't be left with the impression that they're going to wait to SL is producing before doing anything else.
Suggesting we will have "little or no debt" is simply wrong. Keep in mind that RKH will have its pro-rata share of debt as it relates to SL. As it currently stands, it's carried on the equity portion, but 40% of the debt would sit on RKH's balance sheet.
GS
Much,
One can argue about the appropriateness of P/E's or what the total value might be, albeit one would almost certainly be wrong given the number of events that could take place between now and then.
However, conceptually, you continue to ignore consideration of the denominator. Given that the cash balance is small and declining, and management have expressed a willingness to do deals funded with equity, it's really difficult to envisage that if RKH exists in 5 years time that this won't be with a significantly different (higher) share count.
Personally, and though that doesn't prohibit a good return from today's levels, I think it's what will ultimately prohibit values of £10+ per share. Unfortunately, and we will see what happens with OM, the various delays have meant that RKH no longer has the cash cushion to fund what it will likely try and do prior to any cash flow from SL begining.
All eyes on OM.
GS
carroteater,
On the contrary, I'm sure SM cares a great deal about SL being sanctioned. His salary might be large by a lot of people's standards, but it's largely insignificant relative to the potential value of the shares and options he sits on that could be realised. The more pertinent issue is what he can actually do to make that happen. It's never been a question of desire on the part of RKH; the issue was that they ceded all control of the timetable to PMO in the farm-out.
GS
suresh786,
I recall being told some time ago that the project financing element could be closer to 10% for this project. That was a couple years back, so whether that is still the case I couldn't say. You'd be right though that with the benefit of hindsight the decisions around financing might have been different, but if you believe the the expectations to date have been genuinely held, then one can see why the EC option has been maintained.
I imagine that so much has now been invested into the EC process, that it probably makes sense to see it through to its political end, of which at least if a formal application is made it might provide some reasonable certainty that at least a decision will be made. We need to remember that this process is not nearly as time critical to PMO as it is to RKH.
GS
lsetown,
Agree on the second point. I'd only add that I suspect most shareholders, like myself, would probably prefer RKH to essentially be a holdco for its Falklands assets, and accept a kind of "all or nothing" outcome. The BOD are quite clearly incentivised by options, but don't believe in, or cannot be expected to, follow such a binary approach. They don't need £10 to make off like bandits (far from it), so it's not reasonable to expect they're going to the roll the dice for such an outcome if they can be more reliably assured of a lower figure, that nonetheless would be incredibly rewarding for them.
Forget the cash burn we've spoken about before, and just consider corporate actions. We know they're looking at deals, etc., so unless one believes they are going to acquire assets that are as equally undervalued as the Falklands they must by definition be dilutive.
Ovets is spot on though. Given the permeations that we have an idea of, let a lone those we don't, hypothesising over what something might be worth in 5 years time is a pretty pointless, if not somewhat cathartic.
GS
Nigoil,
You also have none (if any) influence on the number of shares in issue which you will see was the point of the post. It's not you, I or any other shareholder that matters in that respect. It's the BOD. And whether by necessity (e.g. liquidity) or desire (e.g. to build that full-cycle E&P company which is the its stated purpose), I have every confidence that (1) if RKH still exists in 5-years time it will have raised some capital along the way for one reason or another; and (2) that capital won't be raised at valuations of $bn's being attributed to Sea Lion (certainly not to the extent Much was hypothesising). Thus, it will be inherently dilutive to those kind of aspirational valuations.
GS
Much,
Ignoring for a second that actual numbers you've chosen, more conceptually you may want to consider what the denominator might be in your equations given that whatever profits you speak of are maybe 5 years out and would imply and improbable amount of hand sitting.
GS
carroteater,
To be clear, it's entirely possible that a third-party could become involved with SL P1. In fact, PMO's recent update makes me think that it is the likely outcome. What they say and how they say it changes quite often. But, this won't happen until financing is secured (or not); otherwise PMO would simply guarantee crystallising a very low value, and there is absolutely no need for PMO to do that.
I opinion that PMO is the only realistic acquirer of RKH prior to a sanction decision (or you could argue financing being agreed, which may well have the same effect) because I strongly doubt that any third party would want to be, like RKH, beholden to PMO's decisions. They would likely want some control or at the least to have some conviction that everything was going ahead to a definitive timetable. And if that was the case, then RKH's value wouldn't be where it is today.
The difficulty PMO would have is that a takeout of RKH could only be justified if SL was going ahead, in which case it would be very difficult for the BOD to argue any offer was reasonable, unless at a very significant premium to today, even if cash was running a bit short. Any sort of nil-premium merger would be unlikely in my opinion, because I can't see either SM stepping into a role at PMO, which is quite often how these things come about.
For the avoidance of doubt, I'm not suggesting RKH will be taken out by PMO at this stage, but that probability could increase depending on the progress made with EC financing, the timetable generally, OM and the cash burn.
carroteater,
What a load of nonsense. RKH is a passenger in this process and the eventual outcome (at least in relation to the initial phases of Sea Lion which could clearly be very meaningful in terms of valuation vs. where RKH is today) has zero to do now with SM's personal relationships, whatever the extent of those might be.
The issue I've considered much more regularly with regard to SM and SM is how they might react to any sort of opportunistic takeout in the event that progress stalls further, cash depletes, etc, because it's clearly not uncommon for these sort of takeouts to become "recommended" if the BOD gets a role at the acquirer.
Some comfort, however, perhaps can be taken from the fact that PMO in reality is realistically the only realistic acquirer until Sea Lion is sanctioned (or not), and it seems extremely unlikely that either would be awarded a commensurate role at PMO. In some respects you might argue that their relatively high current compensation, actually provides some sort of defence to such an eventuality.
Mogger,
Worth noting that it's 120 days from once the post-hearing briefs have been completed (not sure if that's the case yet - each appear to have submitted 1), rather than the February hearing date. It's possible, though not clear how often it happens, that there can be a 60-day extension.
Fibonacci,
Thanks for the detailed (very) reply.
If we take RKH at their word that there is a sliding scale of award share and that, if successful, before that the solicitors recover their fees of c$10m, I think we can probably agree in practical terms, whether there is a third-party funder or not (in which case we can substitute the solicitors recovering their fees with the third-party funder recovering their risk capital, as the solicitors will already have been paid), that the portion of any award RKH would receive is: Award (which may or may not be grossed up with fees) minus solicitors fees minus any capital fees (which could be low-single-digit on this) minus ATE fee (which could be low-single-digit on this) minus success fee share.
I'd clarify the the "importance" of OM was raised by me (and I believe others) not in the context of the possible quantum of damages that RKH might receive (blue sky, etc.) which I previously perceived as a nice to have option, but now how it might possibly contribute to RKH's funding prior to any decision on Sea Lion given the push-back, and the knock on effect that would have on bargaining power and liquidity. Even quite a small number could have a very big impact.
GS
Nigoil,
Please stop. You appear incapable of seeing that your form of "BUY BUY BUY" is no different in quality of contribution to those who say "SELL SELL SELL".
OM has undoubtedly become more important than it had been previously (as sensible and balanced posters like rpoodle agreed) because of the ongoing contribution to pre-sanction costs. Trying to understand that process from someone who gives the impression of knowing something about it (Fibonacci) is exactly what these message boards should be for and when they are at their best.
RNS's are important, but they should be supported by critical analysis and all possible range of sources. I think most would agree that RNS's and press comments have been very poor indicators of the trajectory of this company to date. Didn't I tell you a few weeks back that the parties would be looking to force a decision on EC by moving from more informal discussions to a formal application in Q2. Isn't that exactly what was said on Thursday? Did I know about that because what had been said in a prior RNS, or in public generally? No, I put it together from a variety of sources and speaking to various people.
Let's try and raise the standard of debate.
Thanks.
GreySquirrel aka Grey aka GS aka boiler room boy aka boiler room scammer
Fibonacci,
Thanks for your reply.
I think the confusion arose, because it appeared you were indicating that the variable split (or uplift as you likely more correctly refer) could be based on a notionally higher amount (possibly double assuming reduced by 50%) if the tribunal decided there was a case but that there had been a lack of due diligence. This would obviously could reduce an announced award quite considerably. This might possibly because you have introduced the idea of a litigation funder as a unique entity, presumably distinct from K&S. Multiple parties with a hand in the pot has never really been discussed, albeit that might simply be not to have brought in added complication with little practical implication.
You seem to have some background in this, so I would be curious if you could expand in layman's terms how this idea of risk capital and fee would work against a hypothetical budget of $10m. If the risk isn't carried (or to put it another way if the $10m costs haven't been incurred) by K&S, why would they be paid their costs first (before any uplift) out of any award which has been the stated position?
GS
Fibonacci,
Let's use a hypothetical example under which the success fee is a fixed 30%. It isn't, it's a sliding scale, but let's just assume it is and assume all taxes, etc.
If the tribunal awards $110m, K&S will first have its claims to its costs. RKH have confirmed the costs of this case are c$10m. The remaining $100m will be split according to the pre-agreed split; a further $30m to K&S and $70m to RKH. It is also possible that the tribunal could add RKH's costs to any award in which case the 30/70 split would be over the $110m gross award.
Whether K&S or a third party is effectively bank-rolling the $10m makes little practical difference in my opinion to what one can think of RKH receiving.
If you disagree with this hypothetical example I'd be very interested to hear why.