The latest Investing Matters Podcast episode featuring Jeremy Skillington, CEO of Poolbeg Pharma has just been released. Listen here.
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?
HITS: you’re being generous. Mr. Forrest must be very pleased. Assuming he’s paid off in full, that leaves Angus with £3.3mm, and the immediate application of the 8% of turnover royalty. Mercuria won’t give that up without substantial compensation, the same with the forward contracts. This, below, is crucial:
“A dynamic rolling gas price protection programme has been agreed which will provide protection at least until the scheduled maturity date of the Refinance Facility. The offtake arrangement with Trafigura will be substantially in line with the existing gas sales agreement; 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.”. It seems they’re replacing monetary hedges with physical gas forward contracts of some kind.
The reduction in interest rate, and the one-year grace period, are welcome, but the gas price needs to be high and stable and the Saltfleetby gas flow similarly, or this deal doesn’t help much. And, as someone has suggested, the fees on this to Aleph and Trafigura are likely to be high. And Mercuria won’t have given up its hedges: the terms on which they’ve replaced by fixed price contracts, will need to be watched.
There’s not enough new money in this to allow Angus to drill another well, if that well is anything like the most recent one. So many internal and external experts have supervised the drilling of wells here for more than twenty years, the new man will have to be pretty good to do better. Meanwhile, this already heavily depleted field is depleting further. I think there’s going to be an equity capital raise early next year in the absence of corporate action in the interim. I think a corporate action is very likely though.
Asimpleinvestor: the lending bank would be offering them financing to enable Vast to sell the diamonds, not for any of those purposes.
Asimpleinvestor: I think, if they receive the original parcel soon and it’s valued at £10mm. plus, they should be able to get short term bank financing to enable them to do what is necessary to sell them.
I think you know more about Vast than I do. I can’t see where else the money is to come from, other than from the diamonds - otherwise they’d have announced it by now and met the payment deadline.
I agree with your immediately previous post.
Asimpleinvestor: it doesn’t really matter to investors here whether it’s the Zimbabwe Government/RBZ or Vast management that’s at fault re the absence of the diamonds, does it? The fact is, they’re not in Vast’s hands at the time when Vast needs them. It’s hard to believe that this is Vast’s doing, though - presumably the management would prefer to keep their jobs.
Yes, and the RBZ probably enjoys immunity from prosecution. You have to ask, though, why they’re procrastinating over the return to its rightful owners of such a small item. They may of course eventually end the stalemate with the handover of a different parcel of diamonds of a similar weight. That may be part of the protocol they’re working on. It would be hard luck on investors, they’d probably find the grades a bit disappointing. This is Zimbabwe.
Onetomany: why do you think it’s taking so long to negotiate the Global Re-financing trumpeted last summer? Please don’t tell me these things do take a long time. They don’t. Not unless the terms being offered are quite unacceptable The ability of the Lenders to lend is probably intact. The ability of Angus to meet the terms of the loan covenants and interest rates being demanded probably isn’t. They need high, stable flows and high, stable gas prices. It’s perfectly predictable that gas prices will rise if tankers in the Red Sea are being targeted by elements employed by dodgy regimes. The alternative routes add so much time and expense to the journey, the price would have to rise. But the Europeans and Americans won’t put up with it for long. In terms of the gas at Saltfleetby, it’s nowhere near the predicted post-sidetrack volume and they're still having to fiddle about with the temporary and the permanent flowlines. Their costs must be huge at Saltfleetby. And these experts are likely to disappear off home for well-deserved, prolonged winter holidays. Saltfleetby is as close as you’ll come in England to a hardship posting.
As things stand, Angus is in the worst position it’s been in to date. Cash flows only support borrowing costs if the company is easily covering its opex and debt service costs, as well as meeting the terms of the existing loan covenants. In my opinion, any new lender will want terms at least as generous as on the existing bridging finance. Anything can happen here in the next three months.
JD-Nau: the problem not addressed in your post is that the Lenders didn’t expect the building of the gas plant to go way above budget and to be so late in completion. The lateness resulted in a further £10-12mm of further unbudgeted losses on the forward contracts for July and August last year. Nor did they expect the sidetrack to be so late and so expensive, or that it would take so long to resolve issues arising from the drilling choices made over the six months it took to complete (only the Martians got the sidetrack right) . Both of these factors combined have completely transformed the financial picture. Gas recovery from the heavily depleted Saltfleetby gas field is predicted to start falling very soon, if it hasn’t already and current cash flows are all going on debt service and operating expenses, which are still much higher than expected as a result of all the problems with SB07. As the debt repayment gets to 85% of the senior loan, 8% of turnover will go to the Lenders. Angus are trying to re-finance horrendously expensive short term debt, but are remaining silent on progress. Meanwhile the share price has fallen so far that the alternative to a re-financing - share placings- will result in massive increases in the number of shares and may require a bid, which would be at a much lower price that the current price. This is why the gas price is so important. The fact is, gas flows are much lower than expected and so is the price, just when Angus needs the cash flow.
Will that require an RNS?