Roundtable Discussion; The Future of Mineral Sands. Watch the video here.
HITS: in addition, the wording of the RNS suggests that the Mercuria forward contracts are going to be transferred to Trafigura and a fixed price formula arranged between the latter and Angus to compensate Trafigura. The fixed price contracts are unlikely to be on more generous than the existing hedges, and are going to apply for longer.
And why have Anguish added another person to the senior management team? The previous new chap, Tim Kaye, was hired as Operations Director to get the second compressor successfully installed. Is he leaving now? At least, with a new man responsible for drilling etc., we should get more realistic timescale and cost forecasts in the unlikely event that Angus drills another well. Shouldn’t we? I wonder how much detail they’ll release in the event that a re-financing loan deal is signed.
Yes, HITS. Any loan agreement with Trafigura is going to set a fixed price for an undisclosed proportion of Angus’s production, at least until the time when Angus has to apply for a continuation of its licence at Saltfleetby and the gas flow has slowed to a trickle. And yes, the terms of the new loan which is being taken on to make Angus debt-free should reward close analysis - if it comes about. Remember what happens if it fails at the last hurdle and the loans it’s supposed to replace can’t be re-negotiated. It’s all there in the RNS’s.
WG818: it appears entirely possible that events will play out in a way that will offer the (by then) majority shareholders the chance to set a far lower takeover price than 0.40p. I've said for years here that’s it’s all about high gas price and sustained high production if Angus is to prosper. It’s not going to benefit much from a higher gas price now, by the look of it, and production doesn’t look too good either. New wells are unaffordable at Saltfleetby now, so that's out. Angus is starting to feel like a pet shop in Notlob, or its palindrome, in 1970-odd.
WG818: I’m not sure that gas prices will be fundamental after the signing of the Trafigura fixed price offtake contract - other than to Trafigura.
Onetomany: I think you need to wait and see the terms of the new loan, if any. And what AIM CEO has ever offered the opinion that his company deserved a lower market capitalisation?
Apologies, HITS - on re-reading your post you do clearly refer to the 8% royalty.
I think shareholders also should bear in mind that the heads of agreement do not amount to a done deal, and any delay beyond 21 January will likely incur further fees to Aleph.
HITS: you neglected to mention the 8% of turnover royalty payable to Mercuria once 85% of the senior debt is repaid. Or the fact that the CPRs predicted a fall-off in offtake after 18 months and of 10% p.a. thereafter. I agree completely that the devil will be in the detail in any new financing, notably in the pricing of the offtake agreement. The money you detail has gone down the apparently bottomless pit of the sidetrack and the temporary flowline. That followed a hideous overspend on the plant, in spite of which it’s apparent that key parts of the newly installed kit are second hand and unreliable. The plant was producing more than 9.2mmscfd last June. It’s now at 6.8-7.2. The temporary flowline is still apparently in place, as must be the teams of external experts working on it. Any talk later this year of further drilling ought to chill shareholders to the bone. Wingas got this field right. It’s heavily depleted and unlikely to earn an economic return. They got a good deal from Forum/Angus. Forum subsequently got a fantastic deal from Angus. In spite of decent sales of high priced gas sales, Angus shareholders have recently had a £7mm placing, a £3mm bridging loan, a £6mm bridging loan, another £3mm bridging loan, the interest paid for by their gas sales and conversion (of £3mm of it all) to equity. The new financing is bigger than the remaining loans and is supposed to pay in addition for a number of items any of which will far exceed its proceeds after retiring the remainder of the existing loans.
WG818: and one notices the possible delay in signing the new, enlarged, debt deal into February, which should allow Aleph another fee on the existing £6mm bridging loan. Unless they agree to convert into equity and bid for the rest.
Angus needs high gas prices and high, consistent gas production. Talk of a dividend is premature, by miles.
Is that right, onetomany? I wouldn’t mind seeing that: buy a few and sell them back to the market maker for their higher price. Nothing like it.
Ocelot: Angus are planning to take on more debt, not less. The p&l may or may not benefit from the terms, but given the nature of the counterparties and the fix Angus are in, I wouldn’t hold my breath on that.
Well, Ocelot, you underline neatly the trouble Angus are in. Any kind of agreement is better than nothing, apparently. The alternative is an extremely low-priced takeover by parties interested in storage.
Bubble point: yes!
Bubblepoint: yes, I agree with this entirely. And it’s not nearly a done deal. Something needs to be signed, however, before the expiry next month of the £6mm. bridging loan. Between Mercuria, Aleph and Trafigura, Angus shareholders seem to be facing a squeeze.
Bubblepoint: Trafigura plans to be the Offtaker. If they’re buying all the gas, what purpose does a hedge arrangement fulfil, other than to offer them an even higher profit on their investment? Their judgment on future gas pricing is likely to be better informed than Angus’s. If Angus insists on arranging hedges, they will be little more than a punt on future prices and production. I don’t think they can afford to do it.
The statement says: “physical fixed price contracts will be entered into on part of the production to cover the existing hedge position until June 2025 and for risk management beyond that.”
Not hedges then. Fixed prices on part of Angus’s production. And whose risk, Angus’s or Trafigura’s?
And none of this is a done deal, or anything like it. The wording is a bit like the wording of the November 2020 RNS re the planned terms of the Mercuria deal. That wasn’t signed until late May 2021. Angus has signed Heads of Agreement. Mercuria has agreed to Angus talking to Trafigura. That’s about all, it seems to me. I think that if an agreement results, it’s likely to be on very expensive terms as far as shareholders are concerned.
P&d, asimpleinvestor. Shocking, isn’t it?
I don’t understand the references to new hedges. That’s not what the statement says. It says Trafigura would be the new Offtaker - which I take to mean they will replace Shell. What place hedges have between a gas producer and the party buying all its gas, I don’t understand, can someone explain it to me? The only interpretation I can put on it is that Angus’s full production will be on fixed price contracts with Trafigura. That’s why I’d be concerned about this aspect of the statement. What Angus shareholders gain on lower interest they may lose on gas pricing. Mercuria won’t care as long as they’re paid off, their forward contracts generously recompensed and a similarly generous alternative to their royalty agreed. Shareholders here are very exposed. It seems to me this new financing agreement is being negotiated above their heads, between two very smart and profit-oriented companies.
Bubblepoint: it’s Mercuria who have the whip hand in these negotiations, not Trafigura. If a generous settlement of the forward contracts and royalties cannot be negotiated, Trafigura will have either to sweeten the pot (at Angus shareholders’ expense) or walk away. I also think it would be as well to look again at the statement re the proposed fixed price offtake clauses which they plan to replace the existing forward contracts. There’s clearly a lot of detailed negotiations to be held next month and this time it’s not Angus and Mercuria, it’s Trafigura and Mercuria, with Angus watching on anxiously.
In addition, this new proposed financing will doubtless.come with arrangement fees, warrants etc. It will repay £16.7mm of debts to the existing lenders and Mr. Forrest. That leaves £3.3mm gross, to pay for all the other items on their list, including drilling another well! Good luck with that. Meanwhile, the already heavily-depleted Saltfleetby gas field continues to deplete.
President Mugabe’s wife, as I’ve mentioned before, loved diamonds and owned a diamond cutting business in Hong Kong.
Asimpleinvestor: I agree with all of this. It’s the Zimbabwe Government, a gang of crooks fronted by the most unprincipled and ruthless of them, who are to blame, and have been ever since Mr. Mugabe rose to the top, after the fashion of you know what in a swimming pool. Yes, they control the RBZ (though not, apparently, the High Court - though the High Court is quite irrelevant and powerless in practical terms). It appears that it’s against the interests of the current President for progress to be made on discovering the diamonds, if any.
Asimpleinvestor: so are you conceding the fact that it’s not a long-winded legal system and inefficient banking procedures that have caused the parcel of diamonds to remain where they are, but that it is the fault of the Zimbabwe Government?
I’d discount it altogether. Vast needs the absent diamonds. Otherwise its future is not in its own hands.
Asimpleinvestor: would this actually be allowed at all, other than as part of a rescue package? Offering bonus shares in a placing at par is tantamount to offering the placing shares at a discount to the nominal value, which is specifically prohibited, isn’t it, if the company is deemed a going concern?