focusIR May 2024 Investor Webinar: Blue Whale, Kavango, Taseko Mines & CQS Natural Resources. Catch up with the webinar here.
I share the frustration at the lack of information and the consequential lack of appreciation in the share price Like many other shareholders I bought shares in August and the suffered from the very dilutive fund raising exercise and despite averaging down still have a small loss on my holding. Clearly the share price is not going to do anything until we have hard evidence about how much oil and gas can be recovered, at what daily daily rate and for how long. All we have is possibly over the top claims about WN being the largest onshore discovery for many years. It may be but all the discoveries since Dorset have been trivial so are we talking about trivial plus a bit or about a genuine large discovery?
I have a significant (for me) holding in Touchstone and it is very tempting to simply cut my losses here and put the money where the track record is superb and the upside clearer. An RNS with a timetable about when testing will go ahead and the results be published would be very helpful to say the least.
I get worried when shareholders in a company whose shares have already risen a lot, start speculating about share prices that are significant multiples of the current price. Experience of events like the Xcite £4 party and the big values quoted for Aminex when it's shares briefly hit 10p after a good well result suggest that such talk is sometimes a good 'sell' signal. That plus the feeling that the TXP share price might drift until we get flow rates led me to sell half my 16,000 share holding last week.
I would welcome comments on an alternative approach to valuation where I do not have accurate figures for some of the information needed. In a couple of years time TXP could be a pure production play. A comparable company in some respects would be Diversified Oil and Gas that currently has a dividend yield of just under 10%. The current market capitalization of TXP is about £280m, so on a production only basis would need to pay dividends of about £28m. If we assume that the dividend policy was to pay out say half the after tax profits in dividend, the implication would be a need to make profits of £56m after tax at the current share price. This does of course also ignore the need to cover spent on the production facilities needed to achieve the gas output in question.
The TSX story is arguably better than the example I have used in that the gas will flow for many years and income will not be rapidly under threat from a need to replace depleted gas fields. Similarly the money that is not distributed to shareholders can be used for exploration/ acquisitions elsewhere. If the position is modeled on this basis what potential future share price do we end up with?
The very limited share price response so far probably reflects the lack of hard data about oil/gas in place and flow rates. It may also reflect worries about the need to finance the development and concerns about possible planning permission battles to come. Looked at another way, until it is convinced otherwise , the market is arguably working on the assumption that with a fair wind the West Newton discovery will give the partners a few hundred barrals of oil each per day. From that perspective the discovery is not a game changer for any of the companies involved.
Such a view is clearly at odds with the recent Reabold podcast where the discovery was said to be the biggest on shore since the Whych Farm development. I looked up Whych Farm on Wickopedia and noted that in its peak year output briefly hit 110,000 barrels per day and that the field has had a long life. In terms of moving the share price the urgent need is to prove that the Whych Farm comment is realistic and not misleading hype.
What information do we have about the likely timescales for flow testing and an independent resource estimate?
Something is having a positive effect on the share price quite quickly after the last drilling disaster. I am aware of the side track that may be a positive or another dry hole for all I know. What other news flow is likely between say now and the end of January?
Frustrating!
I am sitting on a long term loss here despite averting down. The delay is bad enough but my fear is of either more losses due to the dilution caused by the fund raising re our other assets or a cheap all share take-over by Wentworth. We fortunately have no debts but it does cost something to run the company and arguably we ought to be progressing our other assets . Let us hope that some funding arrives via overdue payments for gas already produced and sold. Probably a miracle if it happens on a large enough scale. On the latter we have no real protection as our key partner may consider Wentworth to be a better bedfellow going forward or may simply see us as an irritant that can be removed on the cheap via a takeover.
Thank you everybody for your responses. I had shares in CERP and lost money on it when BPC bought them on the cheap. I will put BPC and Trinity on my watch list on the assumption that both of them will have a look sooner or later.
It seems reasonable to think that much of geology Touchstone are exploiting will also be shared by nearby concessions owned by other oil and gas explorers. It is must also be the case that they will be well aware of the results that Touchstone has achieved. Does anybody know who these companies are and whether any of them have stock marker quotations?
Am I missing something re Casca deep? The RNS shows that it is an offset well that even at its deeper full depth is very close to Casca. The inference is that for much of its depth the results ought to add very little to what is already known. Put another way, the key issue is whether a bit of extra depth into a different rock formation hits a new source of oil or gas. Fine if it comes off but on the face of it higher risk than earlier wells. Clearly the company has decided that the risk is worth taking as part of its overall strategy but a lot of forward projections of the share price here do seem to be counting chickens before they have hatched. I am a long term holder who has enjoyed the success here and hope for more but the ride might be a bit more bumpy than some seem to expect.
As a long term holder still making a loss on this investment despite averaging down I certainly hope that "shortly" means what is says both in terms of announcing the work programme and in respect of early drilling. My impression re the company that used to be called Solo is that like us they are waiting to see what is proposed so that they have clarity when putting their stake up for sale. My concern here is that even with a fair wind due diligence by a purchaser is unlikely to be a quick process, so getting underway may depend on our partner's willingness to fund everything for a bit.
I am impressed by the fact that Aminex has slashed its running costs so significantly. However, as there is almost no cash to hand can only assume that avoiding a funding call depends on the relevant state authority paying at least some of the outstanding bills for gas already supplied. A funding call is iuntimately inevitable given both delays until gas or oil sales take off or to fund work obligations on the rest of the Aminex portfolio . Let us hope that a rise in the share price enables this to happen on an acceptable basis.
I do recall at the time IC recommended this share reading reservations to the effect that BATM was trading at a very high earnings multiple and might therefore be overvalued. That said, both the telecoms and the Covid product news looked promising. I must admit to being a little surprised that the company has not responded to the recent fall in share price with an RNS ; perhaps bringing forward the next bit of news about product developments or contracts. Whilst Covid is clearly going to be with us for many months yet, there must be a danger that with at least 43 research teams developing an anti Covid injection we will face further announcements of successful from them between now and the New Year. Some indication of a forthcoming steady flow of good news is rapidly becoming urgent.MALBRAD
Thank you for your well researched posts. I made a small investment in Union Jack and Reabold in August having read a post on Malcy's Blog and done some research here and on the company's websites. So far the investment in Reabold is making a profit but that in Union Jack is down 28 per cent . I own several othe similar stocks and this is the worst performer by a significant margin. The obvious inference is that all of the fall in the share price cannot be explained by either general market movements or the fall in oil/gas prices. In that respect I think your comments about funding are very much
to the point. Small oil/gas exploration companies are not easy to fund at the moment and will either involve expensive/demanding loan terms or dilution if via an equity capital raise. My other thought is to ask whether there is ant history of planning difficulties in this instance.
I debated buying more stock to average down but decides not to as it amounts to catching a falling knife at the moment.
MALBRAD
Share price
Fortunately I am not a shareholder but I hadthought of getting into Premier when the share price collapsed last week, until I realized how much dilution the capital raising involved for existing shareholders. I suspect that in addition to the oil price the same fear may be driving down the Tullow share price
MALBRAD
I do not want to see us taken over this side of completing the Guyana drilling programme. If as I expect/hope we hit oil it should not be difficult to raise more cash without too much dilution. The time to be bought out is if and when we have a valuable asset that other companies want. I am trying to build up a decent holding as and when the share price dips (still time for that despite recent welcome rises in the share price). Experience suggests the need to de risk a little by selling some shares at a profit in the run up to drilling results. If we hit oil I will run the rest and if we have a poor result I may buy more if the price crashes as there are clearly several good prospects in the block. Given the results so far I find it difficult to get excited about Namibia which I see as a distraction and a potential drag on our share price.
I think you are right re the share price inJamesonweTrust. The current market capitalization is way in excess of our net asset value and is perhaps best rationalized as saying that some of the risked chance of an oil discovery off the coast of Guyana is already in the share price. That said most holders clearly believe that there iremains a significant potential upside if a discovery is made. General market sentiment and oil price aside the only negatives that I can see are the inevitable need to raise funds (hopefully post a discovery) and the our Namibian exploration programmers where success has so far eluded us.
The SDX share price took off originally because it got good assets at a distressed sale price when Circle Oil went under due to cash flow problems caused by the Egyptian government not passing on gas and oil sales proceeds to producers. The rise in the share price was subsequently sustained by rising oil prices, the resumption of payments to producers by the Egyptian government and successful drilling programmers. In turn the share price has been damaged by the falling oil price despite gas being SDX's key product, country specific doubts about Egypt and Morocco, a failed deal with BP and perceived delays with part of the current drilling programme. I got out at 43p a while ago and am undecided about buying back in. My concern is not the quality of SDX's management but an issue that I picked up on thinking about one of the broker studies helpfully mentioned by s poster here. The big cash flow generated by SDX is understandably being invested in what has to be considered a large a large exploration programme in Egypt and Morocco. What raised this as a concern in my mind was the realization that many of the wells being developed have relatively short production lives such as five to seven years. I have not seen IRR calculations but one implication is that SDX has to carry on investing heavily simply to maintain its current extraction rates. Put another way, a sustained boost to the share price needs discoveries that really boost reserves substantially above likely output over the next five years, or another bargain priced acquisition.
Clearly the market was not set on fire by the latest drill results. I suspect that it will remain this way until the widely spaced sighting drills get replaced with focused drills based on a 25 metre grid. As it stands the gold may be spread over a length of several kilometers but decent grades could be confined to small pockets of use to artesian miners but not to a modern large scale opencast mining venture. Hopefully we will soon get some more focused results that will give a clearer picture and show up decent grades that can be mined on a bulk tonnage basis.
Clearly the market was not set on fire by the latest drill results. I suspect that it will remain this way until the widely spaced sighting drills get replaced with focused drills based on a 25 metre grid. As it stands the gold may be spread over a length of several kilometers but decent grades could be confined to small pockets of use to artesian miners but not to a modern large scale opencast mining venture. Hopefully we will soon get some more focused results that will give a clearer picture and show up decent grades that can be mined on a bulk tonnage basis.
The forthcoming exploration programme looks promising but with only 7 and a bit years of 1P reserves it really does have to deliver just to keep the company treading water.
I do not subscribe to the above service (it costs too much given my the size of my portfolio) but you can register to get their free offerings of articles about mining investment and podcasts. Some time ago EI ( Brent Cook and Joe Mazumbda) tipped Mariana. I cannot find a link other than registering but during an interview the day after the Sandstorm interview JM said that they had bought in at about 50 p and advised their clients to do so. He had sold all his shares in Mariana having previously held on for too long in some other take-over situations. He added that BC had sold half his shares.JM did not criticize Sandstorm and said that he liked their management. He commented that given the quality of Hot Madden it was significantly undervalued because of the country risk attached to Turkey. Commenting on Spinco JM said that he knew and respected MARL's geologist and knew a little about Argentina. He would not make a decision about whether to invest in Spinco until he knew more about their funding.
It is of course possible that Sandstorm will seek to strengthen its position by buying shares in the market whilst Mariana's share price is at a discount to the value of the offer. However, I cannot see why a rival bidder should bother to buy in the market. A bid at a higher price or with a bigger cash component would after all be unlikely to be contested by Sandstorm who might see it as a a good excuse to withdraw having underestimated the opposition to their bid. In turn this leaves us needing an explanation of why significant shareholders or their customers might be buying shares in Mariana. The most likely explanation is presumably that they see an arbitrage opportunity, particularly if they think that Sandstorm are picking up what will in due course be seen as an absolute bargain. Conversely, another perhaps less likely but just about possible scenario is that Sprott et al do not like the bid and want their collective bargaining position to be strong enough to force Sandstorm to either abandon the bid or improve the terms. If the aim was to get Sandstorm to abandon the bid then presumably this would be primarily because they expect a significant resource increase in the next few months or because they think that the price of gold will increase in the next year or so. Though not an explanation of such behavior in itself, they may also see it as protecting the value/risk profile of whatever holdings they may have in Sandstorm.