The latest Investing Matters Podcast episode featuring Jeremy Skillington, CEO of Poolbeg Pharma has just been released. Listen here.
From investor news feed: "The oil refinery will be commissioned in 2026, not this year - Minister of Mining and Heavy Industry J. Ganbaatar said, "Oil refinery work has been delayed for two years due to the epidemic. Therefore, it is currently planned to be commissioned in 2026. The construction of the factory is in full swing. Second and third tenders were announced and Indian companies won. From this year, the work will be carried out vigorously. - Once the oil plant is put into operation, Mongolia will become an oil producing country and get out of dependence on fuel and gasoline imports. Political and economic independence in the region will increase. Not only will 600 new jobs be created at the plant, but many more indirect jobs will be created. Foreign currency outflows will decrease and the exchange rate will stabilize. As a result, GDP is expected to increase by more than 10 percent."
I don't see where any of these funds are being raised to advance any activities with near term cash flow potential. I will not participate in this raise as a result and will just take my share dilution punishment and live with it. There are other things I can invest into in the interest of portfolio diversification at some point, but to be honest, I'm not sure what they are at this time. At least we can make a few nickels just sitting on cash. I agree with some others this is not a positive clue as to how imminent the LP is going to be, but hopefully I/we are wrong about that. It IS a good thing that MB and especially Petrovis are buying into this offering. I'm not really super concerned about how long this will take to come right at this point, so long as I think it will. I would also say that MB buying in is a clue he intends to stick around (or cash in if they get bought out.) Finally, we all know MB gets most excited about drilling for the big hit... he basically said it himself. They probably did the math and realized if they don't do the raise, it's going to be hard to drop the drill into Velicraptor this spring and have enough in reserve for the Heron thing down the road. This to me is also a strong clue that GM is going to grant PM a number of new exploration blocks. I think MB wants to "go big or go home", as they say.
Do BP writes off about $14 billion getting out of town with Russia. I would think their shareholders may be asking how the plan to replace those reserves. Clearly, MATD's resource is far smaller, but I do wonder if they might even consider buying into the Block 20 interest as well as a JV with Block V, which if it comes right, could make a mark. Or, they may just decide it is way too risky to invest in Asia at all at this point... I doubt PetroChina would be very thrilled about that turn of events, and could do some things to undermine a BP venture if they wanted to.
That was an unusual RNS, and a bit out of character for MATD is felt like to me. So when I ask myself why they would have done that, I can only surmise it is their way of passing their current and future shareholders a "hint" of what is to come. A wild guess of course.
@Fair
Thanks for the link to the presentation. I actually had listened to that back in September, but I forgot the answer to question #4, which does indeed appear to confirm that land access issues in Block XX is good to go for exploitation. It is the exploration blocks that there remains issues, as per the December update.
It will be interesting to see how well Block XX proves out, assuming they get some more drills down this year and next. We do want to drop something into Block V for sure, given the potential, but I agree with others on this board that first priority is to get Block XX cash flowing. Speaking of cash flowing, here is an interesting article that points towards the possibility of much higher oil prices down the road then most people anticipate: https://doomberg.substack.com/p/oil-to-300
The timing of MATAD coming on-line could be material.
It will be interesting to see if/when/and how a JV partner will come in with MATAD. M Buck clearly wants it to happen.
So here is what I like...
1. Petro China: China needs new sources of oil, and the option to work with MATAD to not only get a piece of Heron, but the low cost exploration in other areas would seem to be hard to turn away from.
2. The recent incentive stock options that were given out: If I recall, 75% of them were only in the money upon oil production. I would think the insiders who got these would not have accepted them if they were not highly confident of that outcome this year. They are in a much better position to know the realities of how things are playing out than most of us are.
3. The exploitation license: Yes, it took two years to get it. Yes, it is supposedly going to be easier for the next such license to be issued. But regardless, having that license is a big deal, and only MATAD has it. That is a bit of a barrier to entry for the next competitor in line, and it puts MATAD on the inside track for oil development in country going forward.
To be clear, I am long MATAD, and at scale, so I certainly hope this plays out well in 2022, for my and I assume most of our sakes. I have a lot of other investments in the country than MATAD, but I consider this one having the most explosive potential. I am not a trader, and plan to hold for a much higher price than where things are now or even could be in 2022. Time will tell, and best of luck to all of you with your respective strategies.
3. Petro China: There is no great love between a lot of Mongolians and the Chinese. That goes way back in time. From what I saw, they like the Russians more than the Chinese, but too bad for them the Chinese are the dominant market they need to deal with. Also, the Chinese (and Petro China I take to be an arm of the Chinese interests) are not super famous for negotiating "win-win" business deals. Their idea of a good deal is one that is basically one way. It feels like for many reasons that is the company that MATAD is going to have to work with, and likely do a JV with to boot if there is going to be one.
Going into 2022, I have a few concerns regarding the coming year:
1. Covid-19: The virus has dramatically affected many parts of the Mongolian economy, and remains a concern going forward. Their coal exports plummeted in 2021 as a result of delays at border crossings. Erdene Resource Development lists it as a concern in the timeline for bringing their Bayan Khundii gold project to production. I see no reason to think that MATAD's operational goals might not be affected by this risk, and the December 7th update discusses it.
- Permission to develop from the local authorities: We already saw what happened during the exploration drill on Heron. Frankly, I am a bit surprised that an exploitation license over a given block of land would not include already having that sorted out, but apparently not. I suspect this is one of the reasons that there is not more progress on getting a JV established with someone. Who in their right minds would sign into a JV if they do not have certainty that kind of thing has been sorted out first? In my experience travelling around in Mongolia, in the rural areas at least, there is no "ownership" of a lot of areas as we think of it in the west. What they do have is traditions that this or that family grazes their herds in certain valleys in say the summer, but even they don't have "title" to the land. You are free to travel through and camp just about anywhere, as long as you adhere to common courtesies. I have no idea how the local politicians play into this, or what their level of authority is. This is clearly a long term issue for MATAD, as in their update they stated: "A number of administrational requirements to register the new Exploitation Area have been completed with the cooperation of various government ministries. (Good!) Petro Matad has also led an industry effort in cooperation with other operators in country to submit proposed changes to the laws and regulations governing the petroleum sector with a view to improving the investment climate... Petro Matad has also made firm proposals to central government on how best to resolve the conflicts within Mongolian law on land access and usage. Whilst it is hoped these will generate workable changes to the legislation, in parallel Petro Matad is working with local government to guarantee access to all the sites that could possibly be used by the Company in 2022. (Confirms there is an endemic issue, Bad!) I don't know what the concerns of the locals are, but I can imaging they revolve around conflicts of land use, environmental concerns, or wanting to get a cut or larger cut of the action monetarily. Look no further than what is happening over at Oyu Tolgoi to see how "agreements" can morph over time, and induce huge costs and delays in projects. I think this land access issue will be sorted out in the next month or two, that I would not be surprised if there is a cost to it.
From Bloomberg:
Petro Matad oil production to begin in 2022
Petro Matad, a London-listed company, plans to start oil production in Mongolia in the middle of next year, the company's chief executive said.
Heron is expected to produce 500 barrels of oil per day at the start of production. However, by 2024 it is expected to increase to 6,000 barrels per day. Furthermore, it is estimated that it will be sufficient to meet domestic demand and export internationally.
The Heron block of the XX oil block was licensed in July. The permit is valid for 25 years and can be extended for 10 years. The permit also covers the White Crane area.
A couple thoughts.
First, note that China is in a bit of a pinch securing energy sources: https://www.zerohedge.com/commodities/china-orders-top-energy-firms-secure-supplies-all-costs-oil-surges
One might think they would be especially interested in engaging with MATD and GOM if they think there is oil to be had just north of their border.
Secondly, in recent months there appears to be a change of policy emanating from the GOM where they are really trying to pivot to encouraging economic development and offering a more business-friendly environment that the past decade, the Rio Tinto project not withstanding. If you look at some of the stocks on the Mongolian MSE, they have been exploding up the past month or two.
Mantasz could well be right on all counts. I just wrote up my first impressions on the presentation, and could well be off-base! It was 5 a.m. when I dialed into the call, and I didn't even have my coffee yet!
To be clear, I am a very substantial holder of MATAD and have no plans to sell based on today's call or any other recent developments. If PetroChina partnered in, that may work out incredibly well. That news alone would me quite material to the share price obviously. That said, I am prepared for a long grind forward, producing wells, taking out loans, and if we are very lucky, striking gold next year in Block V.
- Refinery delayed until 2025
- PetroChina clearly trying to put the squeeze on them for toll fee to pass oil to China
- There are a lot of logistical and contractual issues they need to work through to bring to production, this is why they can't drill in 2021.
- Great to be able to see part of the board in person and observe their body language. Great to be able to send them questions directly. They need to do this every month or two IMO.
- Does not sound like it is super likely they will get a partner on their terms. At this point, I am assuming they are going to need to go into production alone.
- Petrovis is not a bottomless pit for financing. That said, they are well embedded in Mongolia and long term committed to MATAD.
- Once they go into production, they can get debt financing. Could be most likely path to increase production activity.
- They are going to push very hard to get an exploratory drill in Block V due to their permit expiring in 2023. They are hoping to hit big there, and get the exploitation license in that block thereafter. Block V if it hits will overwhelm capacity of the planned refinery.
- IMO, they will likely bring Heron to production in 2022, but far from a certainty. PetroChina deal agreement details one of the largest risks to that.
A few thoughts. Going way back, I never understood why MATD blew their cash pile on the low odds/high reward wildcats further west before they confirmed the high odds/modest reward field at Heron. If they had done the reverse, we would probably be producing this year with no need for a dilutive cash raise at all, with plenty of remaining funds to either develop that field or try the wildcats with that plus ongoing cash flow. Regarding the delay to production in '22, keep in mind Mongolia is getting whipsawed by Covid again, and that may play into that decision: https://graphics.reuters.com/world-coronavirus-tracker-and-maps/countries-and-territories/mongolia/
On the bright side, the fact MB put in another 100k into the shares post EL, not to mention Petrovis, gives on the feeling they are pretty confident they will bring this to production and the shares will in deed rise at some point from that price. Obviously, the news of the raise leaked, and the PIs got hosed. I am not convinced we are going to see a farm-in this year. There will be details of the production plan announced, including possible details of working with PetroChina to that end, etc. It would seem they want to monetize this thing on their own, and yes, possibly once they are in production revisit the farm-in options, especially with the fields out west?
Finally, this is still Mongolia, and anything could happen (and not in a positive way for the company.) Look no further than what has been going on at the TRQ. Yes, there are differences, but there are many stakeholder's interests at play. I just hope this is the end of the dilution.
Cheers.
Jimi
The dual listing is for Erdene Resources. I actually have had a brokerage account in Mongolia for about ten years now, and I do own a few shares of ERDN via that channel. I am not sure in the case of MATD what the advantage would be to try to list on the MSE, as the volume there is normally pretty low and I'm not sure that would actually do that much for increasing the market interest in the company. I can definitely see the advantage to the reverse... listing in say London if it is only listed initially on the MSE. That said, you can typically purchase shares of ERDN at about a 5-15% discount to their value that day on the Canada, so theoretically there is an arbitrage there (for now), but from what I know there is a fair bit of friction moving those shares to Canada to take advantage of that, and by the time you do it the stock could easily have lost the value of the arbitrage and then some. The MSE has not been a good place to hang out (due to the depreciation of their currency since say 2011 vs. the USD) but it is rapidly rising now (check out the market value graph here: http://www.mse.mn/en/trade_today/2) There are a few companies that pay quite sizable dividends, though again those are priced in Tugrik, which may not amount to so much in stronger currencies, at least they have not in the past decade. Sorry for going down a rabbit hole on a relatively simple question, but I guess what I am saying is I don't see it helping MATD all that much to dual list.
I'm with you, JB. Been in this for quite some time, and have a fair number of shares, but I have no interest in selling out anytime soon. This is the "speculation" in my portfolio, and until I feel like MATD has become "just another producer", I can't see closing out my position entirely.
If there is a pound party in UB someday, I wouldn't rule out travelling to be part of it. I've travelled in Mongolia twice in the past decade for outdoor adventures, and I am a bit familiar with UB, especially the State Department Store area.
Things are looking up, but at the end of the day this company is trying to operate in Mongolia, and pretty much nothing would surprise me going forward because of that alone.
Good luck to all.
Then he's doing it in the middle of the night... on the other hand, word didn't get out about the gold strike in the Yukon until the next spring when the first boat made its way up the river...
Huge sell order I meant to say. Of course.
It is back to 4 cents or so. I think someone just put in a huge buy at market order. Oops. Someone is laughing all the way to the bank, and it ain't me.
Some fool just sold someone 5.6 million shares in the US of this for 1 cent. Wish I had left out a limit buy order for that ridiculous price.
MB has been pretty open about his strategic thoughts and options he is pursuing. Given that they have made a material discovery, one way or the arrow seems to be pointing up now. Where the shares (diluted or not) stand from here five years from now is a conjecture. Regardless, I appreciate MB's openness in his contemplations. The one piece of information he dropped that was of particular note to me that no one seems to have picked up on, was the bit about how the local political issue with permits to drill Heron was not really resolved, only put on hold to allow the drilling. That for me is the most material concern going into 2020. I remain very skeptical that whoever that party is is going to be less of a road block now that there is oil proven out then before there was. I have no idea how much influence the federal GOM has over local politicians, but if they have little, this would be the one thing I could see blocking the sought after exploitation permit from landing early in 2020 if at all. That group has to know the leverage they have over MATD at this point given their level of resources on hand with no other quick option to materialize cash flows. I've seen enough of how things roll in Mongolia since 2011 that nothing would really surprise me. Hope I'm wrong of course, since I hold a lot of shares of this thing.