Roundtable Discussion; The Future of Mineral Sands. Watch the video here.
For now I’m not making any new buys to the position. I did try some topping up the other day but my platform couldn’t find any shares for sale so instead I’m going into other shares but I’ll hold my positions to see what happens.
The only real upside of low prices are that you can invest with low multiples and in the long run may still see good returns. I’ll build small positions on this in the ISA if it all turns rosy the result should be good. Outside of that I’ll focus on tried and true till the road map improves. As said we won’t know the answer till concrete news drops.
I wouldn't be surprised if we are waiting a good few months for more news. As Dan says, I'm with him that good news may not bring a substantial material increase in price. It is true that if we reach late quarter with oil around present prices or higher and production, we might make more then anticipated.
You can take the update in different ways: 1) They note TO-14 is still being tested and; 2) They are still exploring creative solutions to carry out a flow test from drill sites. 3) They are still trying to find ways to get the oil out of the ground.
Its fair to say I am generally bullish given this share revived from 0.25 to 1.4 before the recent fall back. I would like us to receive good news. The bod have a 20% stake in the business they want good news as well. It is hard to sit through days like today, it really could not have been predicted. I am bullish but also a pessimist which is why I am no where near all in. Even so, I would like some more positive news. Given where we are that will make a big difference.
Next hurdle then for news is after the new tax year starts. The reasoning is the US law related to unrealised profits. Maybe there will be more buying in April by US investors after that date.
Still it’s as you say Rock, I think I’ll take a break from the forums, news won’t come just because we want it to. The timeline says they’ll have oil by the end of the year, might be we see movement between now and then but there’s time DCA. I want the needle to move positively but I’ve time to wait.
My mistake, thought 0.8 was 80p it’s 0.8p. I should mean 8-36p so more like 10x-36x but if we did get to 67bill that would be nice.
Someone in this group mentioned previously that the LinkedIn slide mentioned 18000bpd so it’s possible. Let’s get there first, after all their projections were at $70 bbl $112mill whilst $80 bbl $148mill.
All this being just the oil play, if by the end of summer more Russian production goes offline we might be looking at $90-100 prices like in 2022.
This all ignores the lithium play which by the last report the canegrass (1 of 3) sites had more upside then first thought and they thought it had deep reserves before. This year we have our eyes on the $112-148 mill but if these other parts get added in year 2/3 we might be looking at $350mill with current LSE P/E ratios for oil and gas company’s the company share price could go to £8-36 in a few years time which is a good deal higher then we are now.
But it’s a long way from October 2024, some 6-7 months so let’s do our best to see if this is our stock that makes us. I’d be happy if that was so.
I would agree with most people who are bitter about dividends being cut. Basically the company knows they’ll make 400mill this year in profits so are guaranteeing those profits will be spread over the next few years. It’s prudent, what the shortest said would happen but is disappointing all the same.
If less leveraged gas producers face the wall because of oil producers (given so many have scaled back) then there’s indeed a possibility for diversified to pick up more wells at a reduced price another 200 mill to spend on lowering debt or buying production fields with another 50mill for buybacks will certain help shore up the balance sheet. If gas does recover in a year or more then by then diversified might have a 30% increase in production from today. So the message is a mixed one.
I meant buy backs*
At this stage diversified has done nearly everything it can to resist the decline in stock price. All that remains is to finish the tender and increase the dividend. As many have said I don’t think they have been wrong to do but backs, reduce debt, increase dividends, list in the US. Probably to some extent these actions need to be baked in over time. If over time the company’s health continues to improve or gas prices go above $4 we will see the share rebound. So if they steer the course a lower interest environment will bring back investors.
If I was the company I’d post results that day mid trader week. Hopefully we are on to a winner, at this stage a small sum may go a big way.
That’s a fair take, I didn’t consider the US given I have little understanding of their tax metric but if that’s indeed the case given how close we are to the end of the tax year it would make sense. They might waive the dividend to get a bonus on the sale of some shares and that way gain the value through a share price increase.
Can certainly relate having held these shares over 3 years. It has been quite the sight to see our fortunates being revived and even opening up the possibility to in a few months be at the very least double where we are now with a business model that has sustainability. I hope to one day receive todays investments as a dividend. Sooner the oil is flowing the better.
I concur, seems to make sense the company has 42mill allocated to deal with shares whether buybacks or not. We know shares get sold all the time with diversified. So traders who picked up shares when it dropped below £9 etc will likely sell same with day traders to net the 5% boost to the spot price. They can always buy back in after with more capital, it means a premium on the spot price over a dividend but if they have a large position that’s hard to sell in mass due to day volumes it allows them to sell a large chunk without causing the shares to drop siginificantly. There are bound to be some institute investors that need quick cash who might go for the chance to exit part of a large holding. I doubt the tender is really aimed at retail holders unless they have big holdings.
What this signals to me is a rarity amongst AIM, through EXT the board is hoovering up a sizable stake in the company. Assumedly the executive must have a lot of faith in the company. Many of them accumilated at the lows in when it was at 0.2-0.3 and now they are buying in again, they might already have the flow results in afterall they need to type it up to notify us.
Likely there is some true to what all sides say, inflation will mean the cost of capping can go up in future. I believe diversified argues because them own capping company’s rather then having to farm out the work to third party’s like other energy company’s do this means they can lower their costs.
As for the shorts they are right, given the company’s level of debt and the historical fall in the price of gas in the long term it might not be possible to maintain these level of dividends when the hedges start to expire and price of gas stays low.
Something to notice is the company has taken steps to lower debt this helps to preserve profit margins even with a decline in hedges. The base cost of operations is slightly up whilst labour costs are slightly down allowing them to save, in a deflationary environment operating expenses will likely lower whilst the hedges insulate profits.
Assuming this stock had not been shorted by over 60-70% the past year its dividend would be a rate of 12-14% whilst most energy majors have dividends of 7%.
What I would like to see are not BBs or raised dividends but the company to continue to lower its debt position and continuing to find ways to improve capex plugging through investment efficiencies. If capping is sufficient then Congress can’t complain. If debt is low and efficiency is improved then margins will hold well.
If in that environment the SP continues to be lowered then it is better to load up at the low prices as soon as might be getting a 50% dividend or more. No one wants to see their SP lowered but it can be a good buying opportunity. It’s true to say shortest can be right at one time and wrong at another. The headwinds are in shorter favour a gas price decline, high debt, congress investigation on capping.
The buyers have a narrative too, capex can be explained through full ownership of capping chain (the way supermarkets control supply chains), taking steps to reduce debt, hedging to protect against gas price decline and lowering operating expenses as well as a US listing.
In the long term we will have to see how the narratives play out. I picked up shares at the 30% dividend as it seemed to me oversold and the narrative still positive.
I just wish I had listened to you much much sooner. Had I done so I would be in early retirement. There is a confucian saying, the best way to learn is from anothers experience, the worst way from your own. So now I do not check this stock anymore, if it comes out of left field it will be due to its luck or speculation.
I would say my worse investment decision was to invest in this business. I will not say there were no warnings. Ranger was very vocal on these forums. There were many companys it was obvious to invest in over the years. I thought we had a 10 bagger. Then was down 30% at that point I could not sell. Then it was down 45% still I could not sell and went overseas so could not access the account. Then it was down 70% and no one was buying shares. Now it is down 98% and finally I can sell my shares. I will say this, you can invest in these companys but never more then 250 pounds. At the low end 10-25 pounds. I deeply regret throwing good money after bad. Now I am liquidating any shares I have left. Its good MH is going and the board but their salary means this company will go out of business soon and I do not want it when it does.
So, the board alone costs more then we pay laborers, I would like to know how these costs are determined as most are written off as the debt which is odd as its not like the entire revenue amount is being paid into that sum.
It is clear MH has been slowly 'lowering' his salary from nearly 1 million to 250,000 a year. It seemed odd that in July 2022 they only realised average oil prices of $51 bbl
For those who are interested you can go on to the Company House search to look at the reported salaries of the various directors of the board.
1. The UK location and secretary are remote worker companys so cost barely a few hundred pounds.
2. There are a number of companys which MH is the active director of, below is the list:
A. Echo Energy Plc Company number 5876534, salary in 2020: $708,724, in 2021 $423,704, in 2022 $344,700 (in theory) - see page 33 of the 2021 'Group Company Accounts' Directors renumeration
(Pearson got 110,304 then $84,210 whilst the other directors got about $56,000)
B. Echo Energy Tapi Aike Ltd 11029574 - Accounts of Dormant Company - $0 revenue
C. ECHO ENERGY BOLIVIA (HOLD CO 1) UK LTD 10760859 - $0 revenue
D. ECHO ENERGY BOLIVIA (OP CO 2) UK LTD 10763803 - $0 Revenue
E? ECHO ENERGY C D AND LLC LTD 11029613 - $0 Revenue
F. ECO ENERGY TA OP LTD 11031381 - ($4 million revenue) Net profit on Barrel of Oil at $43, Gas sales $2.7mmbtu, Operational costs $5,4million,
G. ECO ENERGY CDL OP LTD 11031406 - Revenue 7.9 million, costs 9.7 million
($22million in carried foreward tax losses)
ECHO ENERGY ARGENTINA HOLDINGS LIMITED 11023721
ECHO ENERGY BOLIVIA (HOLD CO 2) UK LTD 10762120
ECHO ENERGY HOLDINGS (UK) LTD Company number 10756541
ECHO ENERGY BOLIVIA (OP CO 1) UK LTD Company number 10761861 - no revenue, $1million losses