Roundtable Discussion; The Future of Mineral Sands. Watch the video here.
Part 8.5
We estimate closing FY22F net debt of c.US$440m, which we believe is consistent with the US$412m reported as at the end of March 2023 (given forecast free cash flow for the year). We expect ongoing cash generation and COTCo disposal proceeds to facilitate a further reduction in net debt to c.US$260m by the end of FY23F (equivalent to a net debt /TTM adi. EBITDA ratio of 0.9x)
Although we expect the Exxon prepayment facility to remain on Savannah's balance sheet as a residual liability, overall gearing should therefore remain very manageable. Following the recent announcement that Savannah will sell 10% of COTCo, and with the company already retaining sIgnIficant cash balances, we are also contident that the Exxon facility can be fully repaid over its original two-year tenor and that Exxon is fully aligned with Savannah as ICC arbitration progresses
Part 8
Model update
We have revised our income statement and cash flow forecasts (see Fig. 2 and Fig. 3) through
FY23F, accounting for termination of the PETRONAS portion of the Chad-Cameroon acquisition, subsequent nationalisation of Savannah's Chad assets in late March 2023 and the agreement to sell 10% of COTCo. We now estimate FY23F total revenues of US$362m, approximately two-thirds less than our prior estimate (US$1,081m). However, this isn't quite comparing "apples with apples" as revenues from the Chad-Cameroon pipeline are no longer consolidated in our model, which now assumes c.US$28m of associate income from the Cameroon section of the pipeline in FY23F.
Having made a contribution from deal completion in December 2022 through to nationalisation in March 2023, Savannah's upstream and midstream assets in Chad will obviously fall away completely in FY24F, when its average interest in COTCo will reduce to c.31% (post-disposal to SNH. However, the company is targeting first oil from Niger next year and we also have the proposed South Sudanese acquisition to look forward to - we would naturally expect this major transaction to have a significant impact on Savannah's income statement and balance sheet following the formal completion of any deal, and will therefore be waiting for publication of the forthcoming AIM Admission Document before introducing FY24F forecasts for the enlarged group
Notwithstanding associate income, operational and financial gearing in the business means that we still expect FY23F adj. net attributable profit, adj. EPS and funds flow from operations to fall by c.65% compared to our prior forecasts (to US$64m, 4.5c and US$227m, respectively). Our FY23F free cash flow forecast falls less (by .50%), due to our reduced capex assumption for this year.
Noting developments including the proposed South Sudanese reverse takeover and recent Chad nationalisation, we no longer assume payment of a dividend during our forecast period. We do, however, acknowledge that the board has yet to make any decision on this (following previous indications of the company's intention to distribute c.US$10m in the first half of FY23F).
The headline acquisition price for Chad-Cameroon was US$407m, although we estimate that the final completion amount was actually less than US$100m due to the presence of effective date and completion adjustments. Assuming that Savannah drew down an amount approaching the maximum US$170m under the Exxon facility, this would imply that a significant proportion (i.€
›US$70m) of the drawn facility continues to sit as cash on Savannah's balance sheet. This would seem consistent with the US$217m of reported gross cash held at the end of March 2023, which is meaningfully higher than cash balances at the end of December 2021 and June 2022.
We estimate closing FY22F net debt of c.US$440m, which we believe is consistent with the US$412m reported as at the end of March 2023 (given forecast free cash flow for the yea
Part 7
Appointment of NED and Chair Designate
On 21 April 2023, Savannah announced the appointment of Joseph Pago Noupoué as a Non-Executive Director and Chair Designate, with immediate effect. As previously announced, Steve Jenkins plans to step down from his role as Non-Executive Chair at the close of the next AGM, having completed over eight years in the role, but will continue to serve as a Non-Executive Director of the company. Mr Noupoué is a qualified lawyer and a senior partner at EY, currently appointed as EY Managing Partner for Cameroon and Tax Leader for French-speaking Africa. He has very considerable African experience, including in the energy sector, and we congratulate him on his appointment. In conjunction with this, Mr Noupoué has subscribed for new shares in the company, equating to a total investment of c.US$2m at a 26.25p/share issue price.
Part 6
Sale of 10% interest in Cameroon section of Chad-Cam ETS
On 20 April 2023, Savannah announced that it had signed an agreement with Cameroon national oil company SNH to sell to SH 10% of COTCo (through which Savannah holds its c.41% operated interest in the >900km Cameroon section of the Chad-Cam pipeline and associated infrastructure).
The cash consideration payable by SH to Savannah under the terms of the deal is US$44.9m, with the company stating that the proceeds will be used to partly repay its existing debt facilities. More specifically, we believe that Savannah is likely to prioritise repayment of the up to US$170m Exxon prepayment facility following the receipt of the COTCo disposal proceeds.
Completion will result in Savannah's ownership interest in COTCo reducing to 31.06% (from 41.06%), is subject to the satisfaction of certain conditions precedent and is expected to occur in the second half of this year. Prior to formal completion and payment of the consideration, Sava
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will retain the dividend entitlement attaching to its existing c.41% ownership interest.
We believe that this is a very neat deal for Savannah - being undertaken on equitable terms with
SNH, generating cash proceeds which will go a long way to offsetting the final completion amount (associated with the company's broader Chad-Cam acquisition) and facilitating a further material reduction in closing FY23F net debt. In addition, we believe that it should reinforce Savannah and SNH's alignment of interests as partners in this section of the Chad-Cam ETS. The impact on FY23F earnings is not material, given the fact that completion is not expected to occur until later this year, and the offsetting effect of lower net debt and therefore interest costs.
Part 5
The situation in neighbouring Sudan
As widely reported, the security situation in neighbouring Sudan has significantly deteriorated as conflict between rival military groups has broken out in Khartoum and other urban areas. South Sudan transports its oil production for export via a pipeline passing through its northern neighbour (to the Red Sea via Khartoum). However, due to the payment of valuable transit fees to Sudan, our understanding is that both sides in the conflict will be keen to ensure the pipeline's security, with South Sudan's oil minister having reported that relevant infrastructure remains well protected and its President also engaged with the rival leaders across the border.
With pipeline throughput reported to be continuing uninterrupted and a temporary ceasefire appearing to be holding at the time of writing, we will nonetheless continue to monitor the situation in Sudan is it evolves, given its relevance to ongoing pipeline security.
Part 4
Looking forward to South Sudan
On 12 December 2022, Savannah confirmed that it had entered into a sale and purchase agreement with PETRONAS to buy the latter's entire oil and gas business in South Sudan through the acquisition of a relevant subsidiary. The total cash consideration is up to US$1.25b (subject to completion adjustments and with the transaction also subject to conditions precedent such as shareholder and South Sudanese government approval). This would therefore be Savannah's largest acquisition to date and is expected to be funded with existing cash and new debt.
Completion of the transaction would result in Savannah acquiring PETRONAS's interests in operating companies which operate three South Sudanese blocks (with working interests rangiry from 30% to c.68%). The PETRONAS assets include interests in 64 producing fields, which came onstream in 1999. Aggregate production in FY21A averaged just over 153,000bod (gross), with major partners in the joint operating companies including CNPC, Sinopec, ONGC and South Sudanese national oil company Nilepet. The relevant PETRONAS subsidiary reported average annual audited net profit exceeding US$130m across the three years ended 31 December 2021 - clearly very substantial with reference to Savannah's existing group profitability.
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As the proposed transaction in South Sudan constitutes an RTO, the shares remain suspended pending publication of an AIM Admission Document (or confirmation that the transaction has been terminated). Savannah continues to expect publication of the Admission Document in H1 2023 and, in the meantime, details of the proposed deal remain limited. We eagerly look forward to absorbing the full details when these become available, anticipating publication of the AIM Admissior Document (and therefore lifting of the shares' suspension) before the end of June 2023.
Part 3
Summarising the situation in Chad
Following Savannah's announcement (on 24 March 2023) noting the presidential decree nationalising its upstream assets in Chad, the most recent material news on the situation came with an announcement by the Chad government that the country had "nationalised the oil assets of Esso Exploration and Production Chad Inc and Esso Pipeline Investments Limited". The nationalisation, therefore, covers the portion of the pipeline running across Chadian territory (in addition to the upstream assets) and means that Savannah's Chad interests have now been entirely nationalised.
We did, however, highlight at the time that the Chad portion is by far the shortest of the two sections of pipeline and therefore only generates a relatively small proportion of total midstream revenues from the Chad-Cameroon energy transmission system. Conversely, our model continues to indicate that the Cameroon portion of the pipeline generates the vast majority of revenues and (to an even greater extent) profits from the ETS. Following the loss of a material producing asset, and now the Chad portion of the pipeline, we continue to believe that ICC arbitration provides scope for a substantial settlement in Savannah's favour in due course
Part 2.
Key points from recent first quarter update
Earlier this month, Savannah released a financial and operational update for Q1 2023, which was very much in line with our existing understanding and expectations. Unaudited financial highlights in the quarter included total revenues of c.US$148m (including Chad upstream) and closing debt of c.US$412m. Operational highlights included average gross daily production (excl 2
Chad) of c.26mboepd on a like-for-like basis - which represented a material 20% year-on-year increase and continued to be dominated by production from the Uquo gas field in Nigeria
First quarter throughput for the Cameroon section of the Chad-Cameroon pipeline averaged
c. 129mbopd (much as we expected), with 11 liftings having been undertaken via the Kome Kribi-1 floating storage and offloading (FSO) unit. Similarly in line with our latest understanding, Savannah confirmed that its current c.41% ownership interest in the Chad-Cam energy transmission system (ETS) will be treated as an investment in an associate for accounting purposes.
At R3 East in Niger, a well test programme is scheduled for the fourth quarter of this year, ahead of first oil which is now targeted for FY24F. Operator CNPC's new Niger-Benin export pipeline is expected to be fully operational by the end of this year and significant progress was also reported at the Parc Eolien de la Tarka wind farm project (where project sanction is expected next year).
In addition, Savannah reported that it was expecting to announce a series of new utility-scale renewables projects over the coming months, and has since confirmed (on 20 April 2023) that it has signed a memorandum of agreement (MOA) with the Cameroon government for the development of the 75MW Bini a Warak hydroelectric project in the north of the country. Savannah intends to take over development of Bini a Warak on an independent power producer (IPP) basis, ahead of anticipated project sanction in FY24F and targeted first power by FY28F.
In Nigeria, a major compression project for the Uquo central processing facility is being actively progressed to maintain and grow gas production over the coming years, with Savannah having sold gas to seven customers in Q1. As previously announced, Savannah has now commenced ICC arbitral proceedings to seek full compensation for the recent nationalisation of its upstream and midstream assets in Chad, with publication of an AIM Admission Document relating to the South Sudanese reverse takeover (RTO) deal continuing to be anticipated in the first half of this year.
Apologies it’s going to be a long one…
Part 1.
We have revised our FY23F forecasts for Savannah, estimating revenues, profitability, cash flows and net debt for the existing business - post-Chad nationalisation and the agreed disposal of a 10% interest in COTCo, but pre-South Sudan reverse takeover deal. This exercise is intended to quantify the base business underpinning the forthcoming TO. We will account for South Sudan, which has the potential to be particularly material, and roll forward to FY24F, once the forthcoming AIM Admission Document has been published. In the meantime, notwithstanding the recent Chad expropriation, we continue to forecast material organic revenues, profits and cash flow - along with very manageable gearing levels.
Chad expropriation not the end of the world: Whilst the Chad nationalisation is unfortunate, we take this in the context of a modest completion amount, the retention of the Cameroon portion of the pipeline, an equitable deal to sell 10% of COTCo and a strong Nigerian performance. Whilst we expect the (largely non-recourse) Exxon facility to remain on Savannah's balance sheet, the amounts involved are smaller than we initially assumed and should be able to be repaid within the facility's two-year tenor, noting the anticipated receipt of c.US$45m of COTCo disposal proceeds.
Risked NAV reduces to 45p/share: We had previously believed that the Chad-Cam acquisition was, in aggregate, a highly accretive deal and the reduction in our Risked NAV estimate to 45p/share should therefore make sense (we had estimated 35p/share before Chad-Cam was announced in FY21A and 80p/share subsequently). However, with the shares having traded at 26p/share immediately pre-suspension in December, the market was apparently factoring in significant execution risks for the Chad-Cam deal and we continue to see very material upside
Revised forecasts. With the PETRONAS portion of the Chad-Cam deal having previously fallen away, Chad since nationalised, and agreement reached to sell 10% of COTCo (which is now deconsolidated in the group income statement), comparing "apples with apples" isn't straightforward. In simple terms, however, our FY23F adj. EPS estimate reduces to 4.5c/share (>12c/share previously - based on the terms of the Chad-Cam deal as originally envisaged). We continue to expect rapid de-gearing and forecast a closing net debt/EBITDA ratio of <1x in FY23F.
Savannah remains a strong platform for growth: Despite the downgrade to our FY23F numbers, forecast earnings are still very material with reference to the last-traded share price, implying an undemanding PE ratio of c.7x. We also highlight the fact that Savannah trades (pre-suspension) on an FY23F EV/FFO ratio of under 4x and provides a c.35% FCF yield - reinforcing our conviction that this remains a solid and attractively-valued platform for further growth. We continue to look forward to publication of the Admission Document relating to South Sudan by the end of j
‘Mr B 4.4p, 4.1p, 2.65p, 3p held, redisked at 30p, sold at 48p, traded small beer ever since, never more than a mill or so since Viljoen left, dont rate Mojapelo.’
Load of tosh.
Jan’19
My first buy at 4.4p then averaging down at 4.1p then chasing it down left me on a 75% loss for quite a while, strange feeling 6 years later to pay 44p for a 'top up' 44k for 100,00 shares, again that has left me underwater .. in a couple of years im expecting big profits from that last tranche.
11 Feb
l added just over £65k mainly at 34.11 two others at 35.5 and 35.8.
20 Feb
Away with my wife this week...she noticed yesterday our account was 65k light so I told her about more Bushy at 33.7 p.... and what a bargain it was going to be she didnt look too impressed yesterday at 30p ... what a difference a day makes ....we know the fundementals ... holding quality always wins out over the odd dodgy investment that traders make.
14 feb
I added 192k last week at ave of 33.78 ...i couldnt see a bottom below that but im not a rocket scientist like some of you chaps.
27 march
I was here at 4.4p then 4.1p then 1 - 2 p, and again at 8p, and at 50p :)
Shall I continue.
All the above alleged purchases made with a declining SP.
No wonder you frequent these boards. Sad man.
“So coffee given we are such a disaster, why spend your time on it”
If you care to check his posting history you will find that he did indeed buy at the bottom last time round and continued to buy all the way to the top and then got shafted because he didn’t sell at the top as he would like you to believe. He simply says I publish my buys but not my sells. What does that tell you ? So he’s just a disgruntled ex- share holder who isn’t the Warren Buffet he would you to believe.
Don’t take my word for it check posting history.
In an exclusive interview for 237online.com, Yacine Wafy, Vice-President Africa of Savannah Energy, refuted the accusations of the Chadian authorities, who qualify the company as “nebulous”.
He points out that Savannah Energy is listed on the London Stock Exchange, complies with strict regulatory obligations and is a member of the EITI (Extractive Industries Transparency Initiative). For Wafy, good governance is an obligation to which Savannah Energy adheres.
Regarding the transfer of 10% of the shares in COTCO to SNH, Wafy explains that the transaction is subject to a condition precedent: the prior modification of COTCO's statutes. The transfer will only be effective after this modification, which makes the historic signing for SNH and Cameroon perfectly legal.
Yacine Wafy denies any involvement of Cameroonian personalities in the affairs of Savannah Energy. He points out that the company is listed on the London Stock Exchange and that its shareholders are mainly large British and American pension funds. It highlights the role of the Cameroonian law firm Ernest and Young Cameroon, headed by Joseph Pagop Noupoué, which assists Savannah Energy with its legal issues and has contributed to the company's expansion in Africa.
Yacine Wafy claims that Savannah Energy, its managers, employees and advisers never had contact with Frank Biya regarding the transaction with SNH. He recalls that two official delegations from the Republic of Cameroon went to Ndjamena to discuss the respective stakes in the capital of Cotco, in April and November 2022.
In summary, Yacine Wafy defends the reputation and transparency of Savannah Energy and denies any involvement of Cameroonian personalities in illegal transactions. This exclusive interview for 237online.com clarifies the situation and dispels unfounded rumors and accusations.
https://www.237online.com/en/cameroun-entretien-exclusif-avec-yacine-wafy-de-savannah-energy-pour-237online-com/