Roundtable Discussion; The Future of Mineral Sands. Watch the video here.
The biggest issue still remains that whilst I accept they are in production, they are not receiving one cent of revenue. That is serious bad management and shows a complete lack of strategic nous. Until they have an off take agreement in place, they are eating into their cash reserves, and the SP will not move forward. Just my opinion.
MEM, I agree that it was an enlightening interview and hopefully the market will now have a better understanding of the future potential/realistic value of this share. Pleased that he covered the positives I had raised in a previous post.
Well done on your share flip.
Womo
I think you have the formula cracked and there must be mathematicians on here who could work it out. My calculator cannot cope with the numbers!
In order to get people excited again and love our company, what do you think that the initial prospective resource estimate of 203m boe would be worth to Zephyr if the three wells prove it?
Excuse some of the typos. Hate predictive text.
Malcy is doing an interview with Colin today which should be enlightening. Hopefully it should answer the concerns about they CPR and make it clearer. The total 2P reserves of $111m has been confirmed as being $88.4m from the Williston non operated wells, reflecting an increase of $42m from what was previously reported and the balance of $22.6m from the Paradox.
When valuing a producer, the advice I have been given is that initially you look at the 2P and 2C values which before Zephyr would be $170m for the paradox and $88m for the Williston making a total of $258m or just over £200m. That is more than twice the existing market cap and is the reason that this fact needs to be explained to the market.
We should not forget than on top of the above, Zephyr was given an initial prospective resource estimate, in the mid case of 203m boe. That’s is a staggering amount and would result in many multiples in value. However, it needs to be tested, and that will happen before the end of the year when the three new wells are drilled.
So imho as a result of the CPR, it can be seen that the company is currently undervalued, and the excitement will be when the prospective resource is converted to a 2P or 2C resource later in the year.
It has been a painful two days, but I am sure that once the CPR has been properly explained to shareholders, we will once again witness nice blue days, which is why the Malcy interview will be compulsive viewing.
P Manuel
My sincere apologies, you are absolutely right, that the RNS reads as you say that the combined P2 Reserves are $111m.
The $46m for Williston comes from the 22 Nov, 21 RNS.
I will contact the company and ask how they arrive at the $111m, split between Paradox and Williston.
That changes what I previously wrote, so until I get to the bottom of the numbers, it is best to ignore.
Evan, You are absolutely correct and it is important to point that out. I have been scratching my head to try and understand why the market has acted like it has since the CPR Report. Funny how I now wish it had never been released!!
Anyway having reread all the documents and re-listened to the presentations, my take is that there are $111m of Proven Paradox Reserves, there are $46m of Proven Williston Reserves giving a total of $157m or £124m.
The current market Cap is £98.3m
I think when looking at future value it may be reasonable to take into account the best estimate of Contingent reserves which was $148m Which would make a total of Proven and contingent of $305m or £242m after applying a 10%NPV Discount rate.
For myself, that is how I am looking at the value of the company, and the only conclusion I can arrive at is that it still represents great value. The exciting bit of course is the High estimate of Contingent reserves of $894m. I have only used $148m in the above calculations, as i did not want to get too excited!
Cliff
Absolutely spot on. They need to get on their bikes and make presentations to institutional investors. Not a pleasant job, from my own experience, but rewarding.
And Micru, the other point to make is that we have known about the gas and water in 16-2 but whilst we have ideas, we do not have the solution yet, as to how we are going to deal with it. That was a major weakness in the Report.
It has been a tough day, no doubt about that. Absolutely certain no shenanigans here pal. However, lots of rose tinted glasses that need to be examined at specsavers....which includes me. I have mentioned on a number of occasions that the Board really need Corporate Investors to drive the value in the SP. When I read the RNS this morning I was underwhelmed, if I am honest, and realised I had called this wrong........but never expected to be 15% down.
Malcy seems to think the CPR was positive. That is why having one of these presentations with CH followed by Q&A is imperative now, as we, and particularly me, are maybe missing something.
For the life of me, having read and reread the report I cannot understand why it was so late in being delivered. Nothing too difficult to produce imho. Again, it is a question that needs to be put to CH.
It would be great to get back to the pattern of communication that we had last year. That keeps everyone informed and excited at what Zephyr could become.
Right, back to crying into my beer now!
C’EST ARRIVE!!! Memories of the Beajolais Nouveau in the 80’s - This should taste better!
Drew
No it is not a loan. Basically BP Energy which like I said is a subsidiary of BP that deals in financial futures like hedging have taken a bet, that in Q2 of this year the average price of oil sold will be greater than $100.80. If it is for example $110 then Zephyr will have to pay them $9.20 for each barrel sold. If however, the price of oil drops to $90, then BP will have to pay Zephyr $10.80 per barrel.\
The benefit for Zephyr is that they will know how much they will get paid for just under 50% of the oil they produce(the percentage hedged according to RNS), for the next two years. For BP Energy it is just a gamble, where they hope the oil price will remain above the hedged value quarter by quarter.
Drew68
No it does not mean that. BPEnergy which is their financial trading subsidiary is providing the financial hedge. They have taken a punt that the oil price will not go below the values you see in the RNS. This subsidiary works independently from the producing arm of BP
It is great to see the feel good factor slowly coming back to the Discussion Board. Even UK Chips and RB1 have not had a spat today!!
Did some back of a fag packet numbers to try and estimate the Contribution to the bottom line from the non operated assets in Williston.
Looking at the next twelve months the value of the hedged production is just shy of $20m for the 205,500 barrels hedged. Assuming that a further 225,000 barrels are not hedged and assuming an average price of $95 then that would result in an additional $21m of revenue.
With a cost per barrel of $16 the total costs will be circa $7m, and the resultant gross margin will be $34m, or £26m at todays exchange rate.
This excludes revenue from natural gas production which lets assume generates £5m gross margin, giving a total gross margin of £31m for the next twelve months.
No idea what the general overheads are, but lets assume they are £15m a year, then the net profit will be £16m
With a market cap of £108m that would produce a p/e ratio of 6.75, just from the non operated assets. Therefore you can conclude that no value has been attributed in the share price to the State 16-21N-CC well that may now be in production, the three wells to be drilled in later part of the year and the rest of the Paradox estate.
In my opinion this shows how undervalued the shares in Zephyr are. However, we can take great comfort that our investment appears safe, as the current share price appears to be more than supported by the Williston assets on a stand alone basis. Also comforting to read that no further capital required in the next twelve months.
The challenge for the Board will be to work hard on their corporate message to get institutional investors on board, to get the SP to a level that represents the true worth of this great company.
The only question from today's RNS I am left with, is whether Wednesday falls into the definition of "early next week"..........what do you think Island Girl???
With the weeks becoming months, and the days becoming weeks, a number of us might need CPR before this damn report is issued! We will be a patient!!
I had a dream last night. Think we could get RNS today!!!!!
RB1 I don’t think it is bonkers to be on guard. When you are used to a management being superb communicators and meeting all their published deadlines, and all of a sudden the behaviour changes, then in the investment world, it should be treated as a red flag. You should try and understand the reason behind the behavioural change.
We should not forget the last time that there was a long period without communication we got hit with a placing that has strangled the SP, but has hopefully benefitted the company and it’s performance.
Personally I struggle with the concept that Sproule have needed an extra three months to produce the CPR. I can only guess that there is something going on corporately that would be negatively impacted if the CPR was released.
I would expect to see when we eventually hear from the company that whatever the reason for radio silence, that it will ultimately be positive.
I am personally disappointed that they have not stayed in touch like they did in 2021. Lots of things that could be reported on including production, revenues achieved, solution re the gas etc etc. It is not just the CPR that we want to know about.
I believe that the management is sound, however the communication is as bad as Darien’s spellchecker and the Chinese Whispers from across the pond!
I invested in Zephyr because I liked the regular upbeat communications from CH and of course the fantastic returns since my first involvement in Dec 2020. Both of these reasons have evaporated in the last six months. I have heard patience talked a lot about recently, but there comes a time when that wears thin. We were promised the CPR report a number of times, with different deadlines, the most recent referring to “the next few weeks”, which is no real guideline, which is a bit annoying.
The last time we had radio silence is when we were landed with the ill thought out placing of the shares with a broker that most us could not deal with. However, credit where it is due, in that the fund raising should have led to value creation, but we have not received any confirmation or report on that front.
In my mind there has been ample opportunity to stay in touch with the shareholders since we last heard from the company, including the CPR, the beneficial financial impact from the most recent investment, the decision on how to handle the gas emanating from the State 16- 2 LNCC well and the well being of the company in general. There are still two days left until the 31st of March and ordinarily I would expect some company feedback by then. Graeme1, I like you have same diary as me!!
My only conclusion is based on the last time when we had radio silence from what was one of the most communicative companies on AIM (now surpassed by Adam on BEN) is that a corporate restructure of sorts is in the offing. The good news is that it tends to benefit the company, though the last one was prima facie detrimental to shareholders, as the SP has not recovered from the placing news. I am sure it would have if we were communicated with.
Also CH it is getting near 5th April, when we need to plan our fiscal results for 2021/22 so please communicate before then.
JayP
How do you think that they are going to fund the development of the coking ovens and the coal production, if they just stockpile the coal and not sell it. I myself, might be missing a fundamental point, which you could enlighten me on. What I do know is that they have headroom in their Authorised Share Capital to issue more shares, although they would have to hold an EGM to get agreement to issue them.
Personally I would prefer them to start selling the coal now, but understand that there are difficulties in the local market to do so now. However, failing that, the best way of funding the ongoing development is through Loan Notes which will be easily repayable once the cash flow starts next year. I believe the share price could double once production starts and the wash plant comes online in Q2, if Carl Esprey could categorically state that there will be no further dilution full stop. To do so, he would have had to line up the financing into 2023.