Roundtable Discussion; The Future of Mineral Sands. Watch the video here.
Sheer madnessToday 08:58
For the sp to slip ca 8% this morning on the back of nothing, or does the market know something private investors don't?
The usual inaccurate info from alligator, SP hasn’t slipped 8% at all, ask is currently just shy of 49p, so basically level. Are you trying to worry people with inaccurate information like you have done in the past.
Come on start being accurate and not spouting rubbish!
Unbelievable how many positives there are in todays RNS
-Drilling of the well was suspended prior to the planned total depth of 8,300 feet to preserve the substantial pay section observed in the well after high pressure gas zones were encountered
-Spudding of the Cascadura-3 development well is scheduled to commence within the next two weeks
-Completed the first stage of additional perforations at Cascadura Deep-1 where we are currently monitoring initial increased pressure and production rates.
-Drilling at our CO-1 block is scheduled to commence prior to the end of February, with two wells to be drilled from a single surface location.
-estimate that the well was drilled for under $6 million
-ceased drilling to preserve the substantial pay section observed in the well, Based on these encouraging results, we are currently installing casing for future production
- Currently, Cascadura-1ST1 production is restricted based on surface choke size. Prior to the end of the month, we intend to replace the current surface choke with a larger unit, which will enable increased natural gas production
WOW
Absolutely huge news!
The rns we have all been waiting for. High pressured gas zones encountered stopping drilling to TD. Where have we heard that excellent news before!
Cas C 1.5km away proving the huge size of Casca!! Drilling Cas 3 in next two weeks. It’s go time.
This is most recent info from Domus on discord
The Cas-2 well was on saturday deeper than 6000 ft. In other words they should know now what the Cas sheets look like. They are now in depths where they might set TD or go deeper into intermediate.
On Cas A they are still perfing.
Aligator- I thought the presentation was ok, he didn’t attempt to sell the dream I.e over hype anything and was likely conservative if anything
“ However to not be able to comment on progress almost 5 weeks later is not going to fill people with optimism. ” this comment with regards to credit facility - have to disagree, his comments on this were it has progressed and is getting there, with little left to do before it’s signed off. T + C’s if you like. He didn’t allude to there being any issues and was confident it would be done ahead of the schedule they outlined? So he literally did comment on progress of it…
They are also ahead on the guidance from December I would say,
Cas 2 spudded very early Q1
Cas deep perforations ongoing (scheduled for sometime in H1)
Happy with how they have started the year personally, seems much faster than previously!
Consistent with revenues and EBITDA, our FY24F funds flow from operations estimate is >30%
lower than before. It is also less than the company’s c.US$32m guidance – although this assumes
production at the 9.4mboepd guidance mid-point (and a US$75/bbl Brent oil price). In addition,
guided FY24F capex of US$33m is higher than we previously assumed. Our forecast closing FY24F
net debt therefore increases to c.US$29m (c.US$21m previously). If Touchstone successfully
increases its revolving credit facility, we estimate this will translate into c.US$35m of debt capacity
(post-amortisation) at year-end – at which point there should therefore be around US$6m of
available headroom. We expect US$19m of free cash flow to drive rapid deleveraging next year.
Our Risked NAV estimate (see Fig. 2 below) stands at 110p/share – representing a c.20% reduction
versus our prior 140p/share estimate. Although we have also revisited the usual financial
adjustments (such as forecast net debt and the present value of central costs) and made certain
other tweaks, the principal driver of this reduction is the removal of Royston from our sum-of-theparts valuation – now that production testing has been suspended at this location.
Ahead of the FY23F reserves update, we continue to account for reported 2P reserves across the
portfolio, and to assume an average unit NPV of c.US$5/boe – which we believe remains
reasonable with reference to our Brent price deck, forecast netbacks and finding and development
costs. Beyond Royston and the existing Cascadura and Coho discoveries, our straightforward
approach to valuing exploration potential across the wider Ortoire block is unchanged.
On that basis, our revised Risked NAV estimate implies c.150% upside from here. Accordingly, and
whilst sentiment obviously remains weak, we continue to see very substantial upside – particularly
given the scale of Touchstone’s reserves base and scope for further material production growth.
If increased debt facilities are confirmed, or flow rates from Cascadura Deep-1 are successfully
enhanced as hoped, we see the potential for a very sharp reversal in sentiment.
We have revisited our integrated financial model in detail, having incorporated the latest guidance
and engaged with the company. Our updated income statement and cash flow forecasts are
tabulated in Fig. 3 and Fig. 4, respectively, while Fig.1 (below) provides a summary of our group
production and netback forecasts – along with various per barrel equivalent measures to enable
comparisons with specific assumptions underpinning the company’s FY24F guidance.
From an income statement perspective, we assume FY24F average daily production at the bottom
of the guidance range (c.9.1mboepd) along with an average Brent oil price of US$70/bbl this year
and next. Per barrel measures (including production, administrative, cash finance and current
income tax expenses) are tied back to the FY24F guidance. Importantly, and noting guidance and
comments from the company, we now believe that our assumed current tax rate was previously
far too high – we had conservatively applied the headline corporation tax rate in Trinidad of 55%,
but now understand that an effective tax rate in the range of 30-40% is more likely (due to the
presence of carried forward tax losses in Touchstone’s relevant local entities).
Discussions with management suggest that our assumed unit depletion charge was previously too
high as well – reflecting historical depletion charges, this had stood at c.US$5-6/boe, although our
model now assumes c.US$3/boe going forward (due to the scale of Cascadura’s 2P reserves base).
Adding all of this up, FY24F revenues and adj. EBITDA both fall by >30% (to US$75m and US$37m,
respectively) versus our prior forecasts. However, positive (non-cash) depletion and (cash) tax
revisions more than offset our reduced production assumptions for this year and indeed FY23F –
allowing adjusted net profit to modestly increase versus our prior forecasts. For example, FY24F
adj. EPS now stands at 5.8c/share (compared with our previous 5.0c/share forecast).
Rolling forward to FY25F, our newly-introduced forecasts assume average daily production of
c.14.1mboepd next year – there is obviously some uncertainty associated with this assumption,
particularly as guidance and a capex budget for FY25F have yet to be announced. However, this
average is actually slightly lower that the exit production rate being targeted for FY24F, and we
therefore believe that this level of FY25F production is more than achievable if Touchstone
successfully executes on its plans for this year. Such production growth translates into a >80%
year-on-year increase in FY25F adj. EPS to 10.6c/share – whilst successful execution is obviously
required, we therefore continue to expect considerable earnings growth going forward.
In any case, our revised forecasts indicate around US$6m of financial headroom at the end of this
year, on the assumption that debt facilities are expanded as hoped and prior to rapid deleveraging
in FY25F – due to materially higher average production rates and reduced capex. We believe that
confirmation that Touchstone has successfully expanded its debt capacity could be a very positive
catalyst for the shares – given the much higher level of confidence this should instil, both in terms
of the funding position and the company’s ability to execute its budgeted work programme.
From an operational perspective, Touchstone reported November net sales volumes of
>8,250boepd, driven by the flagship Cascadura discovery which is of course now onstream and
continues to be optimised. Here, we noted in particular plans to undertake additional perforations
in the Cascadura Deep-1 well in H1 2024 – this existing producing well has been performing below
expectations (at c.11mmcfd in December) and will be a key reason for the lower-than-anticipated
production guidance, along with the Q4 weighting of this year’s guided production growth.
Alongside Touchstone’s initiatives to increase its revolving credit facility, we believe that the
successful enhancement of Cascadura Deep-1 flow rates to originally targeted levels (c.20mmcfd)
could lead to a rapid reversal in sentiment – and will look forward to further news here. We
currently expect the next operational update to come in early March, when year-end reserves are
typically released. In the meantime, we were very encouraged to see a recent photograph on
social media, showing the Star Valley 205 rig already drilling the next Cascadura well (Cas-2).
As confirmed last month, a workover of the Coho-1 well has now been successfully completed –
resulting in a material reduction in water production and, therefore, handling costs. Consistent
with capex guidance, the Coho-2 development well and Gibba-1 exploration well are expected to
be drilled from the existing Coho-1 surface location in the fourth quarter of this year.
Unsurprisingly, to our minds, production testing of Royston-1X was suspended late last year, while
preparations remain underway for a two well development drilling programme on the legacy oil CO-1 block - where we expect the drilling rig to be mobilized by end of this month.
A recap on the FY24F guidance
On 19 December 2023, Touchstone released its preliminary guidance and capital budget for
FY24F, along with an operational update. Mid-point production guidance for this year stands at
9.4mboepd, translating into targeted funds flow from operations of approximately US$32m (at
US$75/bbl Brent). Budgeted development-led capex – comprising six new wells and largely
focused on Cascadura and Coho as we expected – totals c.US$33m.
Our prevailing production forecasts had previously assumed a >14mboepd average in FY24F
(more consistent with the exit production rate that Touchstone is now guiding towards for this
year) and we acknowledged at the time that the guidance released last month was meaningfully
more conservative than our existing model – and even more gas-weighted.
We did, however, emphasise a few points. Firstly, and whilst our forecasts for Touchstone have
tended to be below consensus, this was the company’s first release of formal financial guidance
to the market. We therefore continue to expect the traditionally wide range of analyst forecasts to
tighten up materially and reinforce confidence in expectations going forward.
In addition, Touchstone is currently in a phase of rapid production ramp-up (as firmly
demonstrated by its performance in the final quarter of last year and with mid-point FY24F
production guidance representing a very considerable c.135% increase on expectations for FY23F).
With production growth now expected to be weighted towards Q4 2024, estimates for this year
are very sensitive to the precise phasing of drilling activities – and we also suspect that the
company has been intentionally conservative in providing the guidance released before Christmas.
In terms of its funding position, Touchstone confirmed that it is in advanced discussions with its
existing lender to increase debt capacity in the early part of this year, something which we expect
to be satisfactorily agreed in order to completely facilitate the FY24F capex budget. Depending
on the outcome of these discussions (and we note that Touchstone has a good track record in
flexing its debt facilities when required), the guidance is therefore subject to potential adjustment
– although our sense is that the worst-case scenario here is simply a reduction in budgeted spend.
We therefore remain very comfortable with Touchstone’s funding position – noting guidance for
closing net debt of US$25m and a modest closing net debt/TTM funds flow from operations ratio
of c.0.8x in FY24F. Our updated forecasts actually indicate closing FY24F net debt of c.US$29m –
although this is according to our standard UK-style definition (Touchstone defines net debt as net
current liabilities plus long-term debt) and is based on certain more conservative assumptions.
Following the release of Touchstone’s FY24F guidance in December, the shares have fallen by >20% -
driven by production guidance that was more conservative than our forecasts and consensus. However,
following a comprehensive model review, adj. EPS for FY23F and FY24F actually rises versus our prior
forecasts – which had assumed much higher rates of depletion and current tax. Cash flow is down on
our previous estimates, but we nonetheless believe that the recent sell-off is overdone – particularly as
our newly-introduced numbers for FY25F indicate such a strong financial performance. Our revised
Risked NAV estimate stands at 110p/share, mainly reflecting the suspension of testing at Royston.
Earnings still looking good: Last month’s production guidance, and news that Cascadura Deep-1
was performing below expectations, have understandably impacted sentiment. However, a
detailed review of our model has actually yielded an upgrade to FY23/24F earnings. Whilst we
had sensed that any prior conservatism would still find it difficult to offset the production guidance
impact, we now believe that our depletion and tax assumptions were too aggressive before –
enabling the earnings upgrades now indicated by our financial modelling.
Forecasting a strong performance in FY25F: Our newly-introduced numbers for next year indicate
an exceptionally strong performance, including a c.55% year-on-year increase in average daily
production, a >80% increase in adj. EPS and free cash flow of US$19m – translating into a c.15%
FCF yield. This, in turn, should drive rapid deleveraging through FY25F – as a result of sustained
high rates of production and lower capex. Our Brent price deck for this year and next stands at
just US$70/bbl – with assumed FY24F production at the bottom of the guidance range.
Following the cash: Touchstone has clearly flagged that it is in advanced discussions to increase
debt capacity in the early part of this year, in order to completely facilitate the FY24F capex budget.
We fully expect this to be satisfactorily agreed and believe that this is a key near-term catalyst for
investors to look forward to. On the assumption that debt facilities are increased as hoped, our
FY24F cash flow forecasts indicate more than adequate headroom. In any case, our sense is that
the worst-case scenario here is simply a deferral of budgeted spend, for example at Coho.
Risked NAV of 110p/share: Our Risked NAV estimate reduces to 110p/share (previously
140p/share), principally reflecting the removal of Royston from our sum-of-the-parts valuation.
Whilst sentiment has been weak, we continue to see very substantial upside – particularly given
the scale of Touchstone’s reserves base and scope for further material production growth. If
increased debt facilities are confirmed, or flow rates from Cascadura Deep-1 are successfully enhanced, as hoped, we see the potential for a very sharp reversal
They are pre planned presentations and not aimed at having “new news” for it. Likely aimed at new investors.
RNS will arrive when they have news from operations I.e drilling of Cas 2 and perforations at Cas deep.
Yep unless there’s an rns tomorrow morning then there won’t be much new info in the presentation.
It would be nice to see some upwards movement in SP with probably the most TXP have had going on for a long time. However maybe we will need results for that. But if you’d told me at Christmas we will be well into drilling Cas C and perfing Cas deep by 22nd january I would’ve been very happy with that - maybe finally they’ve got their foot down!
Aligator - once again so many things do not make sense about your post
North have sold 0.075% of their holding based on that update, if there was something “not exactly positive” why would they sell such a tiny amount and keep hold of the rest? It’s literally a negligible amount compared to their total holding. Secondly PB wouldn’t have organized a presentation to announce something negative, it would be an RNS and likely no presentation to follow it up.
Lastly shares magazine organize the dates for the presentation not PB, TXP have just jumped onto one of the slots.
Also Aligator they had the revolving credit facility already I believe and are just looking to extend it - if they were successful getting the original with no Cas production I can’t imagine they’d struggle no with Cas at ~ 48mmscfd plus NGL’s.