Ryan Mee, CEO of Fulcrum Metals, reviews FY23 and progress on the Gold Tailings Hub in Canada. Watch the video here.
I did the same as TWT and reduced my over exposure to BUR just before the H1 results. My concern is the same as I’ve said many times before. Cash flow. BUR keep on saying that liquidity is “robust” or “solid”. But its not really. You will notice that the cash balance at the end of June was only slightly more than the $400m borrowing they raised in Q2.
Realistically, what with the second round of Argie elections on 19 November, we should not expect any monetisation of YPF this year. Also I believe BUR cannot risk having a cash balance of less than $200m at the year end. It needs to be $400m otherwise that would confirm there is a problem. But that could easily be the situation unless there is a bumper load of cash realisations in Q3 and 4. I am looking for some improvement but will it be enough? So what should BUR do?
Shareholders won’t like it but a discounted 1 for 2 rights issue at $10 a share (about £8.25) could in theory produce around $1bn. That could be done on the back of superficially good Q3 results. I say superficially because they could do a conjuring trick of writing up YPF carrying value following the $16bn damages award. $200m “profit”…anybody? Anyway could they push the rights issue through before the year end? Pass on that. If feasible that could get BUR through until they get something out of YPF.
Alternatively, super salesman CB could try for another $400 borrowing, again before the year end. The interest rate would be well into junk bond territory, at over 10%. Ouch, but it would put off the problem for a while. Never mind the debt/equity ratio closing on 100%.
Finally BUR could of course cut back on new business, to the point of stabilising the cash flow situation. The salesman in BB would find that a bitter pill to swallow. He would also have to do what he does best, a bit of explaining to shareholders……..
BUR's profit methodology has been approved by the SEC, so it's a bit harsh to describe their profits as an illusion. That said, I am not a fan of the adjustment for the time value of money. That just adds to unrealised gains without giving shareholders any better idea of the realisable value of the portfolio. Your underlying point is valid in that cash flow has only been sustained by raising capital by means of debt, SWF, private funds etc.
It seems that Bogart & Co have made a strategic choice to grow the business at a rate that requires regular injections of capital. So far they have been successful in persuading investors to provide the necessary capital. The preferred scenario is that cash realisations from the huge portfolio will materialise to match or exceed outgoings to sustain growth of new business. The alternative is to call a halt to growth until such time as equilibrium is achieved. There is no sign of that change happening, but the trend of cash flow in the forthcoming results will need to show improvement.
Of course the cash flow situation is immediately relieved if YPF can be monetised in some way, sooner rather than later. Whilst the Argies obviously don't want to pay, there are pressures (some previously mentioned in this chat) that could force them to do so. I am more optimistic about this.
I printed off those briefs and keep on reading and re-reading them. Brilliant! BUR lawyers very clear, Argie not so much. Pleading poverty is just pathetic and irrelevant. Still I would not like to be the judge who has to make such a huge call, with a nation's finances at stake, all on her own. Agree with Planit, but would add that there are significant non financial repercussions as well. A big win would do wonders for BUR's reputation and market dominance. When a litigant finds out who they are up against they will immediately concede! Everyone will want BUR to back their claim.
A big win would also help with BUR's other problem, how to finance new business funding. The last lot of borrowing at over 9% is a bit of an orange flag. My guess is that BUR would need to set aside at least $2bn of any proceeds to fund new business for the next 2 or 3 years, and maybe even repay some debt. That would take the pressure off the cash flow situation, which I agree needs to turn positive very soon. Q2 would be a good time to start.
TWT, I would like to add my thanks to you for enduring all those hours of legal argument. Did you get any sense of what J Preska was thinking when she commented either during the hearing or in her closing comments?
What would really make these £20 SP day dreams happen is if J Preska awards "punitive damages". Argy government treatment of YPF minority shareholders surely deserves some financial penalty large enough to discourage this kind of behaviour in future. Punitive damages can be anything from 1x to 4x actual damages. I'd settle for 1x. Not sure if J Preska has the bottle to make such an award. Also, Its quite possible that it would not make much difference to the amount BUR actually recovers. Still it would definitely put BUR in a stronger negotiating position, and definitely make the market sit up!
That is a seriously bad suggestion. As CB and JM have explained, the business environment that BUR operates in requires client confidentiality and respect for Court processes, and Judges decision making in particular. Failure to respect any of that would undermine the business model. In any case an investor who thinks that they need a constant flow of news in between quarterly updates is a trader not a long term investor. If as an investor you have a problem with the environment in which BUR operates, maybe this is the wrong sort of business for you to be invested in. Perhaps you should invest in meme stocks or crypto. I don't see BUR ever becoming a "meme" stock, it is (for the reasons given) too much of a "black box", and anything to do with the law is probably regarded as too boring.
You have to hand it to super salesman Bogart. I have been concerned about the declining cash balance, and the fact that even on the good Q1 figures, cash realisations only covered expenses and financing costs, not deployments. But it looks like CB has managed to persuade some investors come up with a $400m loan. So that has saved the day for now. But with an Interest rate surely at least 7%, the hurdle for cash realisations to cover costs (let alone new investment) just got higher. And the debt/equity ratio crept a bit closer to 100%.
It is not sustainable to operate on this basis indefinitely. Of course the answer to all questions is YPF. If the Argies can come up with the fabled $3bn, then the pressure is off and BUR might even repay some loans, might even buy back shares (in our dreams), and still have cash to finance expansion at the present rate. CB has bought more time to put the squeeze on the Argies, but how much time? 12 months?
I just don't accept that non disclosure is a good idea. If nothing else it keeps EVRAZ management on notice that we are watching them. If it shows up sanctions as being an ineffective punishment inflicted on UK shareholders, so much the better. The UK govt has also penalised itself by preventing divis, thereby foregoing the tax take they could have had.
There is still time to send a message urging disclosure of the financial statements. Message the Company Secretary at Stanislav.Kostinov@evraz.com. Obviously certificated shareholders are best placed to do this, but shareholders holding through nominees are also entitled to make their views known. Thanks for your support.
I have sent the following message to the Company Secretary of EVRAZ:
AGM 30 June 2023: question
Financial statements for the year ended 31December 2022
Reading through the AGM documents, in the "further notes" on page 7, under "audit concerns" note 9, it says that management have prepared financial statements for the year ended 31 December 2022. Then it goes on to say that the Board (in the absence of an audit) could not be satisfied that these statements give a "true and fair" view, and consequently they were prohibited by law from approving them, and this prevented the Company from publishing the financial statements.
Notwithstanding the explanation from EVRAZ Directors (as summarised above), it is quite normal to issue unaudited results, either on the occasion of quarterly announcements or “preliminary” unaudited annual accounts information..
Therefore why can't the directors withhold their approval of the Accounts and disclaim responsibility (hopefully thereby avoiding breaching the Companies Act) yet issue 2022 preliminary financial statements to at least give the shareholders some sort of update? Surely some information for Shareholders is better than nothing at all?
It might help if more of us put a similar question to the directors on the occasion of the AGM?
I do not have sufficient legal knowledge of UK company law. But it is quite normal to issue unaudited results, usually on the occasion of quarterly announcements. So why not do this for annual results? It must be worth a question at the AGM. In their notice to shareholders the (new) directors say that they are "considering every option to fulfil (the company's) commitments to stakeholders. So come on guys.
Reading through the AGM docs, in the "further notes" on page 7, under "audit concerns" note 9, it says that management have prepared financial statements for the year ended 31 December 2022. Then it goes on to say that the Board (in the absence of an audit) could not be satisfied that these statements gave a "true and fair" view, and consequently they were prohibited by law from approving them, and this prevented the Company from publishing the financial statements.
But surely some information is better than nothing at all. This may be stupid question but why can't the directors withhold their approval and disclaim responsibility on the basis of the reasons given above (hopefully thereby avoiding breaching the Companies Act) yet issue the financial statements to at least give the shareholders some sort of update?
Yes DGD, but there are a couple of rogue items included in operating expenses described as "annual incentive compensation" and "long term incentive compensation" that could balloon in 2023, given a flush of maturing cases.
Thanks TWT, I did notice this, and it certainly helps to validate expectation of a reasonable result for Q1.
The thing about BUR is that it has high operational gearing. Specifically, taking a very approximate estimate of figures for the year 2023, it has operating expenses of $150m (that is expenses not charged to cases) and finance costs approaching $100m. Thus it has to have case realisations (or revaluations) producing around $250m profit to start covering its costs. After it has done that, further realisation and revaluations go to the bottom line. That is the significance of the accelerating case throughput by the Courts. If it turns out as Bogart & Co say it will, this should start to come good in results for Q1.
A pre tax profit of $187m for Q1? That would be a very poor result since it includes the $185m YPF write up. The SP would go down with a wallop on that sort of figure. Extrapolating the uninspiring 2022 figures does not reflect the jam today we all want/expect from 2023. We do not have the information to make anything like an educated guess for Q1. All we are told is that far more cases are progressing to later stages of litigation than 2022, which is why 2022 is not a useful guide . Also the new fair value method should give more of a kicker than 2022 since there are considerably more maturing cases. I'm going to stick my neck out and guess $300m pre tax, boosted by the $185m YPF write up.
Even that would not be enough to set my mind completely at rest on the cash flow question, though.
In the YPF comments I see that BUR have written up the book value of Peterson/Eton Park by $185m (BUR only ) under the new FV model. This is as at 31st March, following Preska’s decision issued on that day. Obviously that means it falls into Q1, so the Q1 figures are off to a flying start. That seems to have received little attention, and Bogart and Co didn’t make a big deal of it. Of course a “profit “ of this nature is not cash, and I have a slight concern that the actual “cash and near cash” balance is steadily declining. This is mainly the result of deployments constantly running ahead of cash realisations from concluded cases. This trend needs to reverse this year absent some monetisation of YPF, or yet more capital raising. It’s possible that the catching up of delayed cases might produce a wad of cash, but that needs to happen soon. Any thoughts?
Gtx and MrM, thanks for the insights into what is for me a very murky, impenetrable topic around Argie sovereign debt, the IMF and USA/China politics. Still no idea how that will work out. As BUR themselves have said (and others on this chat) BUR can enforce judgement against other Argie assets unrelated to the sovereign debt situation, and put the squeeze on the Argies that way. So I take some comfort from that.
Meanwhile, thinking what effect the new discounting method will have on results, even if the overall effect is positive. It is possible that the 2022 would be negatively affected because interest rates were rising in that year, resulting in a greater discount of capital provision assets?
An interesting test coming up for the wonderful SEC FV model, following the decision handed down by Preska on 31 March, the very last day of the first quarter. Is any writing up or down of the YPF book value to be booked in the first quarter as a consequence of that? Or are they just saying why the f*** didn't she delay until 1st April! On BUR previous FV model my guess is that no change would have been made on the basis that the amount of damages had not been decided. By contrast, assuming that changes in "probability" are a factor in the SEC model then some writing up would be required, since the prospect of a favourable result must have improved?
Thanks, R. For a bit of balance, I should have said that CB is an excellent front man, and with Molot they have great strategic vision, and are both smart financial operators. In this business though they have to live with the lumbering court process. The hope is that the 30 maturing late stage cases will provide enough capital to meet BUR's contingent liabilities as funding needs arise. Preferably until such time as they can put the squeeze on the Argies to come up with some YPF cash, and that could be a while yet.