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Yes, this is positive news. But I was struck by the critical absence of a date for the listing. I wonder why they have not got that agreed yet? So this is only a minor step forward in my view. Until they actually list, until the actual ratification, until they actually get the EPA, we are still in 'risk on' mode. Just my, possibly pessimistic, view.
JL
Thanks Gaias. That sums it up pretty well. Way better than my post!
My worry was how much of the value they have to give away to get the $75m-$100m up front cash they need to develop the mine and continue exploring. If they have to give away too much, then the majority of the first 3-5 years of profits are effectively used up to develop the mine. So decent profit wouldn't kick until year 4-6 depending on the deal.
Not long to wait now though, and with so many potential positive catalysts over the coming quarters, I am not letting any go.
JL
I agree. The offtake will be really interesting. In the last presentation, it was clear that only 30% of the output was up for grabs, leaving the final 20% unaccounted for. I assume the remaining 20% is MIIFs 19% share leaving 1% spare each month. Is that correct? If so, ALL are fully funded for the development but won't make any money for a little while after production commences. Which possibly explains some of the SP weakness.
JL
I went through the new presentation deck last night. Nothing really new but I thought it was really good. Very compelling case in my view, but I would say that! Lots of news flow coming up, any one of which could light a fire under the share price. It certainly needs it.
In my view, the listing, the ratification, and the MIIF investment are all intrinsically linked. As soon as one lands, it validates the others. I thought the same after the first MIIF investment but my timing was clearly wrong. Not sure when any of these will land, but once one does, the others should follow in quick succession. The main reason for thinking they are linked is that if only one doesn't happen the whole thing falls apart. Without the listing confirmed, we won't get ratification as that is a condition, without the ratification we won't get further investment from MIIF. Although the formal listing could actually happen later, but as long as they have the process confirmed, ratification should not be held up.
Then onto permits and financing which are also only a few months away!
I topped up recently, and am now maxxed out. Fingers crossed!
JL
Hi Shareminator
If you go back to 2019 then yes there is growth. But what about the last three years...
2021 revenue $227m Net profit $37m EPS 15p
2022 revenue $290m Net profit $42m EPS 17p
2023 revenue $318m Net profit $36m EPS 14p
Now I get that some of this will be investment, ie Capex. But personally I am disappointed with the drop in profits and EPS in 2023. 50% increase in revenue with zero increase in net profit or EPS. So we are larger but no more profitable. And the dividend is also flat in 2023 after small increase in 2022. None of this is a good trend IMO.
I stick to my summary, they need to show better bottom line growth, to sustain an increasing dividend, or I am going to start selling.
JL
I agree they could have been more forthcoming with info on these tests in Cas 1.
Also, the big decline in production is the cause for the SP to fall. 8500 to 7000 in one quarter is a pretty steep decline curve. Some of this may be due to shut off for testing, but if so, why did they not state that? Presumably there was also downtime in Q4 so it is not unreasonable to assume that most of this decline is not due to shut ins for testing. In which case, what does the decline curve look like?
JL
Hi Lesville
I agree with this. Something just doesn't sit right.
I am minded by two things: firstly, when this was pitched by a PI to institutional investors a couple of years back they were unimpressed, despite the healthy growth and blue chip clients. So clearly there is little appetite for the share with institutions as you say.
Secondly, the relative lack of growth in profits over the last few years despite revenue rising strongly. It shows their lack of pricing power and thin net margins. The issue appears to be in the large sustaining Capex required to keep their fleet up to date. I remember a comment below that basically said - impressive growth, but not a lot of cash left for shareholders to benefit from (I paraphrase). This, to me is their biggest challenge, and the reason they are still under £1.
Growing revenue is one thing, growing profits at a similar rate is what we need.
Having said that I am still holding on, with MSALabs potentially the jewel in the crown, there is still good upside from here.
JL
Likewise didn't make the presentation this morning so hope to pick it up on youtube at some point.
I am slightly underwhelmed by earnings in today's announcement. Their previous positive words bely what has clearly been a more difficult market this year. EPS is down sharply on last year and unlikely to make a new high next year unless margins improve. Still think they are cheap, but mainly because of MSALabs. Imagine the rating that would get as a standalone business. Surely they need to consider spinning it off to maximise shareholder returns. It is the only growth part of their business currently and such a different beast that I have to question the logic of keeping it in the group. I guess the benefits would be the end to end solution for clients, and presumably the shared industry contacts. But is that enough to justify rating a fast growing business at a P/E of under 8?
JL
Yes, reasonably happy with that update. Pleased to see they are maintaining annual guidance, they need to hit at least $86m in Q4 to reach $320m. Given they have left the upper band unchanged, could that be a sign of confidence that they will smash that?
Obviously, conversion into profits and cash is still key here. The comment below about there being little cash left for shareholder returns is still a concern.
Also, I wonder why Tamesis are forecasting a higher p/e of 7 for next year. Lower earnings? Surely not - there should be more upside given recent contract wins and the MSALabs growth. I hope.
JL
I agree, another great win. What a muted reaction to the news though.
On Tamesis report, I haven't read it, are they forecasting a reduction in earnings for 2024 as the ratios quoted seem to be rising. I had another rise in income and earnings pencilled in for 2024.
JL
Hi LV
I am starting to think you may be onto something here. I am still holding currently but am getting more and more concerned. If the wall of cash turns out to be a small knee height one then all of the cash will go on paying back debt with nothing to spare for a few years. It will take a decent 2m high wall to have enough to pay down debt, invest in more production wells, plus the exploration that we were promised would come quickly after Casca.
And of course, any issue with Casca and we are toast. So the risk is not insignificant. Hence the weak share price.
They need to do a decent market update to explain their plan in detail for the next 6-12m. Including details of funding and expected free cash flow. Including what contingency they have included to cover the unexpected to reassure there is enough headroom without any further dilution. Until we have this, the market will remain unconvinced IMHO.
JL
Anyone join the call this morning? I wasn't available but hope it will be available publicly in the next day or two. More good progress this half, although looking unlikely they will get back into Sudan in the near future - it looks awful over there. A tragedy unfolding. Other than that, still looking very cheap indeed.
ON Tamesis point about 2.4 times 2020 revenue, but what about profit or free cash flow. They have certainly not kept pace with that rise. Hopefully, they will follow in time, otherwise there is something odd going on - too much depreciation?
JL
Finally caught up on the webinar. I tend to agree that over all it was useful. They certainly talked a good talk and were very credible. Having reflected, here are my questions that are still nagging me.
1. The $29m NPV from a $13m well quoted. Does the NPV include the cost of the associated infrastructure? In particular, their design is for 1 reinjection well for each 3 production wells. Presumably this well cost of $13m is averaged over the four and is not simply the cost for a production well directly. Although the waterfall chart seemed to imply it was a single well cost. Otherwise, they will need a lot of wells before they cover the cost of the infrastructure, further delaying any returns to us poor shareholders.
2. How does this ratio of $12m to $29m compare to other fields? In particular any similar fields elsewhere, or even on unconventional fields where these techniques are required to make any sort of return. I would hope this ratio would be ahead of Permian and other unconventional fields that only made money during higher oil price environments.
My other concern with PANR is simply time. If it will take until 2028 to become cash self fulfilling, what will the NPV be by that point if the ESG lobby take hold. I have no doubt that oil will need to be left in the ground if we are to stop burning up the planet, with such a long payback time, it could well become unsustainable way before the field is exploited - especially Kodiak. To me, this is the main thing holding back the price.
JL
I would only do an offtake for a proportion of the output in case of any unforeseen issues. Or they would need to have really water tight contracts so they are not stuffed on any shortfall like PREM.
Once they announce production rates for Q1, we can get a better estimate of a worst case scenario. So why not forward sell half the volume and use debt for any shortfall. This would allow more flexibility going forward and should easily get them the cash they need for the next stage of expansion.
Lots of options for them to consider. I was hoping for an ops update by now as surely they know the production and estimated financials for Q1 by now. Anyone know when we can expect an update? Next week I hope.
JL
HI Andii
Thanks for these posts, they make very interesting reading. Nothing to add from my side.
I think it all hinges on the next update. Volume achieved, Price achieved, Opex, and netbacks. As soon as these are clearer then we should see a re-rate.
The big question, but a nice one to ask, is what to do next. Mozambique or more Madagascar? I hope they go for the former - more diversification in both jurisdiction and product with the Vanadium looking very valuable indeed.
Happy to hold to see how it progresses, may well top up at some point too.
JL
Interesting development. Didn't see that coming, I thought they already had quite a lot on their plate with their three pillars, is this effectively adding a fourth? I can see a certain logic in it. CAPD can add renewable power to their offering when bidding for mining services contracts. But renewable energy is very capital (with a small c) intensive. Who will pay for the installation? Presumably the mine owner, but would they really want that as part of a mining contract? Why would they not be using a dedicating energy expert for that part of the mine?
Hopefully it is not much of a distraction for management in the short term. They have plenty to get on with. Share price under pressure too. :( Never nice to see director sales at that scale, so that was likely to create a softer market. Especially with rising interest rates causing havoc with large capital projects.
JL
Yes, very positive update. The only thing missing was any numbers. I wish CAPD would be more forthcoming on revenue and margins at MSAlabs as it is hard to value. Given the growth rate you would think that spinning off MSA into a separate business would be value accretive as surely that would rate much higher than the rest of the business. My other slight doubt is about capacity - after these initial 21 are rolled out, how many more can the market absorb before starting to reach saturation? It feels like they now cover the main mining areas with the exception of South America, could that be next?
JL
Thanks for the responses EEA and Was. Good points both.
But I still think the risk of a cheeky low ball bid is too high currently. I agree if / when they get the ML, we should hopefully see a bounce as that does significantly de-risk the project. If we get an offtake in Q4 then I agree that also de-risks the finances. If I was Albemarle or another suitor (Piedmont themselves?) I would pounce after the former and before the latter so that they control who to sell the product to. Unless we see a serious re-rating between now and then we are very vulnerable indeed. As you say, a typical 70% premium to the share price will be hard to turn down by many PIs. But that would be a real shame and still massively under-value the All assets and team.
The next period of vulnerability will be H1 next year while we wait on the EIA. I hope the offtake agreement raises enough funds to roll out an aggressive drill programme around end of year and into Q1 next year so that they can create an expectation of decent news flow for that period too. Expectation of the final ministerial approval in Q3 next year should provide a catalyst for an uplift. And then we should be home and dry with breaking ground.
A lot to look forward to, but with some significant gaps during which we are very vulnerable. Aim is clearly struggling at the moment which does not help. The dual listing should bring other institutions on board over time but has not been a springboard for any sustainable price rise so far. Perhaps moving up from Aim to a main listing would help, but too early for that.
JL
I watched the presentation last night and I was impressed too. I really like the mood music between the team - they appear to get on well and complemented each other well. Which is an often overlooked factor IMHO.
I was very disappointed with the drop in sp on the DFS announcement. It is not hard to see why - 5 months payback up to 19, IRR lower, with little by way of obvious upside. But after the presentation everything makes more sense.
Key points for me were:
- IRR is lower because of the early modular DMS production. This 'starts the clock' on payback and 'only' (!) delivers $160m in the first year. So $185m takes a couple of months longer. If they ignore the modular DMS and skip straight to nameplate production, the payback would be quicker in months, but later in time. I wish they had given the comparison figures so it is clearer why they are recommending the modular approach.
- modular approach will also help with training and smoothing the ramp up of the full mine. So I agree it makes sense to keep this on the table.
- Offtakes clearly targeted for this year. Post ML of course.
- MIIF investment - they were surprisingly cool on this. I think this gives them credibility with international investors who may still be worried about permitting. So would be great to get this agreed alongside an offtake.
- funding, they are convinced the off take agreement will deliver that. Hopefully with plenty of additional capital to expand exploration alongside the mine development.
- Ivory Coast - I wasn't too keen on Len's comments on this. It sounded more like we had applied for these blocks but they were not certain. But clearly this is a lower priority for a few years yet.
- ML, I liked the comments regarding how productive the Ghanian gov appear to be. Helping them get this rather than trying to trip them up. This is still of course the key to unlocking value. ML this quarter is really only the start - if they get ministerial sign off within 12 months that would be outstanding. But is that realistic? Or optimistic? I hope the former but expect the latter.
- Long lead times - all that sounded in order and Keith covered those questions well.
Overall, I feel comfortable to continue to hold. Value will out - in time. My one concern is the slight lack of newsflow for the next year. ML this quarter, then offtake Q4. Exploration results are unlikely to move the dial unless it comes with a decent reserve / resource uplift (of course) but is this likely? It could, but this year's plan feels more infilling than anything too exciting.
Finally, chance of a bid coming in is quite high to me. They are just so undervalued compared to peers. If Albemarle can bid billions for Liontrust (?) why would they not want to snip up All for a fraction of that? Could they hold off a bid if they went hostile? Not sure they could, so this is a key risk for us PIs.
JL