Roundtable Discussion; The Future of Mineral Sands. Watch the video here.
I think we knew this already, but Burford is funding the wife in this divorce case. In 2016 a judge ordered the husband (a Russian billionaire) to pay his wife 41.5% of his assets. Needless to say he was not happy about this and has squirrelled away his super yacht, and no doubt put his other assets out of reach of Burford. Apart from being difficult, the latest thing is that he has accused Burford of "champerty" (illegal financing of litigation). Is all this good or bad for Burford? As usual we don't know because it all depends on how much unrealised gain and legal costs Burford has taken to profit and loss for so far. Of course we are not given such information......Burford would say due to client confidentiality.
Has the time come to capitulate on BUR? With a stock like Manolete (MANO) on a P/E of 36 whilst BUR P/E is around 6………. Heck No! We can blame MW and the Woodford overhang for the present dire BUR valuation but surely these factors have nearly run their course. Blackrock must have sold most of the BUR stock it took over from Woodford’s Equity Income fund, after all the fund had to have the cash to make a liquidation payment this month. But could something else could go wrong?
Such as… the first half year 2019 results were boosted by the sale of a portion of Petersen, and this will not be repeated in the second half. Also, after the MW scare, the auditors are likely to be quite aggressive about BUR‘s unrealised gains credited to profit, maybe insisting on chopping them back a bit. So it is likely that the second half profits will be relatively lower. Still, they have to stay consistent with past accounting treatment that the auditors have endorsed for the last 10 years.
Then, could it be that BUR have been “overtrading”? In the context of BUR’s business, that means taking on more new commitments than they could sustainably finance. They certainly committed to a huge figure of $751m in the first half. Fortunately, 25% of the sovereign wealth fund arrangement has been available to ease the financing strain. BUR also tends to cite confidentiality as a reason for keeping investors in the dark about the accounting status of situations such as Petersen.
The second half results depend on investment judgement calls made 2 or more years ago, and the skills (or otherwise) of the legal professionals in working the cases since then. MW will have had no effect on that. What it will have done is worry the auditors into a more cautious approach on valuation, and of course it has drained the confidence of investors.
Paradoxically in the longer run, although it might not feel like it now, MW may have done BUR and investors a favour by puncturing the rather over bullish, self-congratulatory tone of recent BUR annual and interim reports, ripe for taking down by the likes of MW. BUR may emerge stronger, tone things down a bit, and trust and confidence should return. It is my belief that this is an investment opportunity.
Wang Cai, is there any indication of when the District Court might finally get around to having a substantive hearing of the Petersen case?
Whilst we are hoping that MW will be brought down, the reality is that MW will probably just get away with a slap on the wrist. Progress reports just give MW more publicity, and remind investors of the issue, without any useful result. So forget it. By far the best answer is for BUR to focus on the day job of concluding cases, and produce a solid set of results in March 2020. Then watch the shorts scramble. Take comfort from the fact that the CEO, directors and many BUR employees have a lot of skin in this game.
Another way of looking at this is to ask why would Argentina spend a shed load of legal fees trying to stall the Petersen claim, even taking it to the Supreme Court, if Argentina did not think that the Petersen claim would cost them serious money.
The FT article is decidedly negative on the recovery prospects from Petersen, but is it really saying anything that we did not expect already. The BUR Board have known all along that Argentina had a weak defence against the claim, but would deploy its legal team to frustrate as long as possible any Court decision that would quantify the claim. The tricky questions are not only how much of the claim can be recovered, but in the meantime, what portion if any should be credited to BUR P&L. For the 2019 year end accounts we can be sure that following the MW debacle the auditors will feel that their reputation is at stake when it comes to the valuation and crediting of unrealised gains. Likewise for the new CFO. In a way that is reassuring. We do know that the June sale of 10% of BUR’s interest valued its remaining stake at $1bn but the portion of unrealised Petersen gain already taken to P&L has never been disclosed, so we have no idea where we stand with this. Fertile ground for those like MW to exploit uncertainty. Sorry folks you just have to wait and see how this plays out.
Manolete (MANO) reported good half year results last week. Although much smaller and more of a specialist in insolvency situations, they are litigation funders like BUR. MANO shares have nearly tripled since flotation and I reckon they are on a forward P/E ratio of say 25. That compares with BUR on less than 7. How do you make sense of that? Yes Petersen flatters BUR earnings, but even so BUR is worth a P/E of maybe 15? I agree with those who attribute the situation to an extreme loss of investor confidence since the short selling attack. We can only stay with it and hope BUR comes up with a solid set of results in March 2020. It is too much to hope that the useless regulators will put the cuffs on the likes of MW this side of 2021, if ever. As for Berenberg, they knew about Petersen and the lumpy earnings of litigation funding when they made their “buy” recommendations, so all they are doing now is following the market down. Pathetic, it makes you realise that broker recommendations are mostly worthless.
Oh Dear! Rizzo was right all along. Brave call. Now IGAS will have to make a chunky write off to P&L for worthless fracking assets. Meanwhile the fat cat CEO and his mates get to keep their ludicrous salaries whilst shareholders get nothing. What about a 50% salary cut for being useless, and maybe even pay a small divi before the dwindling conventional assets go down the pan as well? And yet....how come the USA has made such a success of fracking while in the UK we desperately need, but can't work out how to get the massive financial and energy security boost that would come from having our own industry? Gawd help us.
Someone please clarify the position on Petersen for me. So far BUR has received $236m of proceeds from assigning parts of its investment in Petersen. Conveniently a large sale was announced just before the close of the ½ year 2019 results period. Thus those results apparently benefited from a significant credit (after deducting costs), although I have not found any specific confirmation.
BUR also reported that the latest sale price implied that there was an unrealised gain which I guess might be around $500m on the retained share of the investment. But they do not say how much (or none) of this has been taken as profit yet. Any ideas?
Tthey can shout about the potential at Springs Road all they want. It’s no good if fracking is effectively prevented by brainless traffic light rules, brought in by a Liberal environment minister (what did you expect?). Realistically there is little chance of that changing this side of a general election. Would you bet on when that might be and the political result?
Then there is the situation with Sand Grove. Lately they must be looking at significant margin calls on their CFD contracts. Their losses must be of the order of several £millions. What if their nerve cracks and they start unwinding their 10% + position? With Igas trading in a very thin market, there is little capacity to absorb large scale selling. You don’t want to be there if that’s how it goes………….
I am very frustrated with the disappointing performance of igas management. Instead of getting on with their fracking options, they distract themselves fooling around with losing positions on what they think are "hedging" transactions. They received approval to test drill at Springs Road in November 2016 (!), and Tinker Lane in early 2017. But only now have they got around to delivering a rig to the Tinker Lane site. By contrast Cuadrilla received pp for PNR in October 2016 and as we all know are currently carrying out fracking operations. Igas have not even applied to frack. In other words, having been up to speed with Cuadrilla, they are now 2 years behind. And what about bidding for Total's UK prospects, now owned by INEOS? They probably didn't bother. Too much effort, easier just to collect the monthly pay cheque..
Environmentalists should remember that it takes a considerable amount of energy to liquify natural gas to enable it to be transported by tanker. Then these super tankers' diesel engines pump out large amounts of polluting diesel fumes in their long journey to bring natural gas to the UK. The gas then has to be de-liquified again to be in a useable form.
How environmentally friendly is that? How much better to produce our own gas from our own vast natural resources, fed straight into the UK gas grid without all this wasteful processing and transport. How much better economically for the UK, never mind energy security and reliance on grace and favour supplies from unpredictable and sometimes hostile foreign powers. Never mind our dependency on these foreign supplies rising to 70-80% by 2030. This is a no brainer. It is a Strategic Imperative.
The management of Igas are just a bit too laid back. Maybe their thinking is to let Cuadrilla take all the cost and grief of being the fracking pioneer. For instance, they have a distinct reluctance to start test drilling at Springs Road/ Tinker Lane. They didn’t appeal the Ellesmere Port decision until the last possible moment, and delayed their application for Ince Marshes. Also, it seems that Igas has not yet applied for permission to frack, anywhere. Hmmm………
So the plan appears to be to let the first time mover Cuadrilla do all the heavy lifting to make the breakthrough that our developing UK shale gas industry urgently needs. (By the way, flaring some gas by product is not it.) Of course the likes of major shareholders Kerogen, HSBC, and Sand Grove are no doubt party to this strategy, whilst the rest of us who make the day to day share price are left guessing as usual.
It looks like small shareholders will just have to hang in there for the next three months. It’s too much to hope that the politicians will be brave enough in the short term to reform the absurd traffic light system. Still if Cuadrilla can get through the next three months fracking without triggering 2.5 on the Richter scale…… that could be the tipping point we have been waiting for. The moment when realisation dawns that the UK has vast shale gas resources and that it is a “Strategic Imperative” to develop these in the national interest.
What it all comes down to is that the TLS is a load of rubbish. The trigger settings are set stupidly low, causing scare headlines and giving encouragement to protesters to bang on about earthquakes and tremors that actually have not happened.That causes needless volatility in IGAS share price. There is also an obligatory "pause" in fracking, obviously expensive for Cuadrilla and delaying the successful completion of the project for no purpose. We probably have another 3 months of this. Gawd help us. Will the politicians ditch the present TLS? Fat chance. The hope is that everyone (especially the media) become bored with the wolf that never appears despite all the warnings.
Not a tremor even. A London bus going over a pothole would register more on the Richter scale. Reckon it must have been the anti-frackers dropping their placards. Anyway it doesn't take much to make them start rushing around like the headless chickens they are.
Just a reminder to you good people. The Government has given a 25 October closing date for the consultation on designating certain shale gas production applications as “nationally significant infrastructure projects” (NEIP). I suggest that as many of us as possible should register our support for the Government’s proposals. Email shalegasNEIP@beis.gov.uk
There is also the significant proposal to allow exploratory drilling and testing as “permitted development”. As you know Igas has been obliged to appeal the local authority decision against testing the well at Ellesmere Port, and now faces the charade of a public enquiry. This is just the sort of thing that has drastically delayed shale gas development in the UK. It is also a stupid waste of public money since a potential negative result will be over-ruled by central government anyway. All it does is give a platform to the anti-fracking charities and placard waving nutters.
The government is being very supportive of this developing industry. We in turn should express our support for the government’s proposals. Please!
When the protesters go home after a good days work disrupting and sabotaging Britain’s efforts to produce shale gas, what do they do? Why, come October, they turn on the (gas fired) combi boiler for heating and hot water, and maybe the oven (gas fired) to heat their pizza. When they use electricity, 40% of that is generated using guess what? Gas fired generators.
If they are true to their beliefs about fossil fuels why don’t they sit hungry and shivering, in the dark? If they are true to their beliefs why don’t they take their protests to where vast amounts of fossil fuels are produced, Russia, Qatar, Saudia Arabia, Iran? Of course not, they would soon be beaten up, in prison, “re-educated”, tortured, or poisoned. So we are stuck with these idiots here. Only in in this country are they permitted such abuse of the privilege of free assembly and free speech.
When Russia shuts off supplies, or doubles the price of gas, these same people will see no inconsistency in demanding fuel subsidies or price caps. They will start protesting about that, oblivious to the absurdity of their contradictory behaviour.
As a result of their activities Britain is about a decade behind in shale gas production. Smaller exploration companies are running out of money, or had a near brush with bankruptcy (Igas). Although the Government has recently been very supportive, the fact is that the anti-frackers dominate press coverage, and are allowed to keep repeating their false beliefs, with little challenge. We need to turn up the volume to make the case: it is a Strategic Imperative for Britain to become self-sufficient in shale gas production.
We all know that there is very vocal opposition to fracking. Much of their argument is emotional, uninformed, either misguided “environmentalism” or just plain nimbyism. Some of it is borderline fanatical and is associated with illegal behaviour including trespass, criminal damage and vehicle surfing. It is highly organised and national charities and local pressure groups flood Councils with coordinated objections.
Ironically, national charities such as Greenpeace and Friends of the Earth are subsidised by taxpayers! Russia also stirs up trouble. Why wouldn’t it, with over 30% of the European gas market to protect?
BGS has identified potentially at least 800 tcf of gas resources (say 10% recoverable) under our feet here in the UK (national gas consumption 2.5 tcf per annum). Yet instead of being self-sufficient there are realistic predictions that we shall be importing 75% of our gas needs by 2030. How crazy is that?
Russia would love us to become dependent on their gas. Then we really would be screwed. When gas prices shoot up who would the protesters blame? Not themselves of course. It would be all the (Tory) government’s fault for not doing something about it.
What I am telling you, friends, is that there needs to be a fight back against the deluded protestors.
At this point we urgently need to produce gas by fracking and actually supply it to end users (or the gas grid). This would be the “proof of concept” that we can really do this. Step forward Cuadrilla. Unfortunately IGAS has lagged behind, but at least the share price should benefit from reflected glory. At present the share price just about reflects the value of its conventional oil, and practically nothing for its shale gas potential.
C’mon guys, where are the conspiracy theorists amongst you?
Ritzy is right to point to the lacklustre management of IGAS, and history of poor decision making. But that’s the reason the share price is so low right now. The puzzle is if Ritzy is not a shareholder why is he even bothering with this?
Could it be that Ritzy is being given backhanders by the Russians to bad mouth IGAS? The Ruskies have a big motive to protect their dominance of the European gas market. They would like nothing better than to see the UK shale gas industry fail or collapse under the weight of regulation, “environmentalists” and nimbys. The Ruskies already have form in RT broadcasts and funding protest activities, never mind poisoning.
Then again maybe Ritzy realises that shale gas is a “Strategic Imperative” for the UK and is desperately trying to talk down IGAS shares in the hope of diving in before the coming melt-up.
Now why would an “event driven” hedge fund like Sand Grove go for a CFD for no less than 10 million shares, 8% of the share capital? Wouldn’t be interested unless they could at least double their £8 million money. Surely it’s not a co-incidence that this appears to be backed by HSBC, possibly the CFD counterparty, also owning 10 million shares? What do they know that Ritzy doesn’t?