Roundtable Discussion; The Future of Mineral Sands. Watch the video here.
-Frustration self-evident. Criticism easy and partly justified. However let's not forget that problems relate to oil price collapse in 2015 when it went down to around $50 and stayed there til last year. At $50 nothing stacked up!
-Since, the whole project has been recalculated and restructured. Should now work at 50$.
-As far as I can see there are no short positions in RKH shares.
- Rothchilds always bought when there was blood on the streets. The chances are that RKH will get to production and the shares are as cheap as chips!
-News looks good and opening sp looks odd.
-PMO report shows debt reduction ahead of schedule and positive news on their various projects etc.
-That PMO is seeking a farm in partner is logical in the light of their debt levels. I see any farm-in partner as probably positive for RKH.
-Uk finance application progressing.
-CNBC reporting from Abu Dhabi yesterday reported that demand for oil out to 2040 was expected continuing to grow to 110 million barrels per day before peaking.
-Italian job likely to produce more than current RKH sp.
Negatives:
- OP could tumble if eg Venezuela or Iran come back onto the market fully or if there were a serious drop in world demand.
- Following the general election a new government might wish to block SL finance.
- Argentina plays up rough.
- Doubts on current RKH manangement.
Positives:
- OP likely to remain stable.
- SP putting very low value on SL and OM.
- OM settlement should be known by the end of March next and on its own could well exceed RKH market value.
- PMO sale of Zuma oil should enhance that compamy's financial standing hopefully to the benefit of the JV.
Conclusion: Balls are up in the air still but at the current sp buyers are being offered pretty much a free ride.
Cyan2: Your post yesterday.
-As I understand it, the Oil treaty does not simply provide reimbursement of expenses and interest thereon. It provides for full compensation for lost profits plus interest.
-The claim that RKH knew the situation when they bought MOG is unlikely to be accepted. MOG still exists as far as I am aware and as a legal entity and it is not certain that Italy will obtain any reduction but be that as it may.
-The Oil Treaty is there to protect fully any oil investment made in a signatory country. Therefore prima facie RKH can expect full compensation for loss of profits. Here we are looking at least at 20 million barrels of oil with very low cost of exploitation - a maximum of say $15 per boe. At 60$ that means 45$ x 20 million = 900 million $ plus interest etc. I am not expecting that sort of figure but it could be more than 18p per share! Italy looks to be virtually undoubted for the money!
-The main risk is that FI oil could become a stranded asset at least as far as RKH is concerned.
Sobyam It is very difficult to obtain no win, no fee finance. The lawyers themselves mostly do not like to take on the financial risks involved but turn to the likes of Burford Capital to ensure payment of their fees. Demand for no win/no fee finance would appear to greatly exceed supply and the specialised finance companies involved are extremely selective. They really can pick and choose and are displaying very high success rates. So the fact that one of them has taken on the claim must be seen as very positive.
There may of course be a playoff between risk/reward meaning that as the potential reward is very high they might just have taken on more risk but these people are usually pretty conservative.
-It is worth remembering that the lawyers and their financiers are handling the RKH claim on a no win/no fee basis. I believe that implies a very high probability of success! Whilst not necessarily our case we are generally looking at a 95%+ probability of winning. The real question is how much?
-Does anyone know whether any of 'the recent outcome history' were handled on a no win no fee basis?
Carroteater Yours today. Of course the future oil price is difficult to estimate and any attempt is based partly on fact and partly on guesswork. There is quite a possibility the op could go lower but RKH now have their basic production cost per barrel down to US$25 which leaves quite a margin.If op can hold above say 55$ the finance should be approved with ease; ie the margin of safety for the lenders is substantial.
Also very relevant is the rock bottom market valuation put on RKH of around £120 million. Bear in mind that the potential value of the assets in the FI, once up and running is likely to prove well in excess of £1 billion.
Marunam2 Fully agree your observations. The positives are now outweighing the negatives by a serious margin. OP well up from lows, PMO now looking bankable and OM coming down the tracks. With shares there is always a tipping point and it could be very close indeed. Strong buy.
BlooBird Apologies for the spelling. I realise that the FOG taxes would become immediately payable in the event of a takeover and that means that PMO would not get a totally debt free company in RKH. (The $750 million must already be in PMO's accounts and only its heading would change on a takeover.)
Suresh 786. The market value of PMO might be only £850 million but I think one needs to take into account their very heavy debt of around $2.3 billion. That debt is falling but that gives an enterprise value of more like £2.5 billion. If they could buy RKH on an all share basis then their B/S might be strengthened ie more assets with only a small increase in debt. If they could take out at around 45/50p it might work very well for them particularly if they can more or less at the same time line up a new rich partner. All very speculative but also perhaps possible!
Blooburd. You are right to point to the RKH's debt to FIG although not immediately due. RKH's debt is already in PMO's accounts and probably irrelevant.
I do not expect PMO to attempt a takeover of RKH as it might be seen as disruptive. On the other hand they must have or be considering their options. They might need RKH and its team to stay in the game but they certainly do not need RKH's shareholders! So why should they not buy us out for peanuts? What are we providing them that they do not already have? PMO could then have full control with little dilution to their existing shareholder base.
Ralph - The point I am trying to make is that PMO could perhaps launch a takeover bid offering shares and without any cash. If successful they might in fact possibly end up with more cash on their balance sheet! (Or at least less net debt!)
-One can suppose that PMO must be very familiar with RKH's business. It might make sense for them to launch an all share takeover bid. Yes PMO is extended financially but perversely a takeover of RKH might actually strengthen their B/S - RKH has cash at the moment of US$30 million and is expecting a windfall from OM the amount of which is highly uncertain. After you have taken out or at least reduced RKH's overheads it might even produce an immediate positive cash flow for PMO.
-With the current sp RKH might now be seen as a tempting morsel. (Confirmation of FID should produce a rally to over 80p.) I do not know if it would be practical or even possible in the light of their insider position, but PMO might be tempted! Nothing would stop PMO subsequently dealing in a third party.
-RKH is and always has been a jam tomorrow story. The vast majority of shareholders are small investors nearly all of whom are sitting on losses. Many would be happy to get out the moment there is any sort of SP rally.
-Recent news has all been fairly positive except, of course, that we do not have FID and probably will not have it for another year or so! Ovets' observations explain the sort of problems being encountered and the delay explains the sp weakness.
-Possibly the sp will remain weak but at current levels it really is only option money. The whole FI story is being valued at very little.
-Yesterday's release was highly positive. It confirms that RKH has US$40 million and is mostly covering its operating costs.
-Probably BOD has had feedback from the OM arbitration and is maintaining the probability of a 'significant monetary award'. Obviously the BOD does not want to up expectations too high but from what we know the 'oil treaty' is loaded to favour the dispossessed investor. The likelihood is of 'significant monetary award' but maybe that should read ' very significant'. My back of an envelope calculation would be gross US$ 1,000 million ie based on 20 million barrels at around 50$ per barrel gross margin. Almost certainly that figure would be arbitrated down but by how much? Anybody's guess!
-Elsewhere oil price now just under $70 and on CNBC today 'the experts' appeared to be expecting an oil shortage in a few years' time leading to a firm market going forward.
-Perhaps we or at least RKH will soon be off to the races!
-Speculation of an eventual cash shortfall looks premature. The longer it takes to get to FID the more twitchy the market becomes. If Brent holds above 60$ FID is virtually assured but investors are tired of the jam tomorrow story. Is the market telling us to fear/expect a sharp fall in OP and that FI oil could well become a stranded asset?
-Does Opec have our back? Is the market really expecting a global slowdown which could seriously damage RKH?Are investors worried over Brexit and any change to a government much less sympathetic to FI?
-Yes all these possibilities could occur but probably will not or at least not enough to change the investment case.
-What is apparent is that the big money is waiting a catalyst but if and when that comes the sp will be off to the races before we are likely to react!
-The general expectation here would appear to be perhaps £50/£100 million compensation which in itself would be most useful particularly as the market appears to expect very little indeed.
-I had always understood that the objective of the 'oil treaty' was to protect companies from the confiscation etc of assets. (With Italy's national oil company operating worldwide it is easy to understand why the Italians signed up to the treaty!)
-I further understood , perhaps wrongly, that the treaty allowed for 'full' compensation for the net value of oil assets confiscated which both de facto and de jure is the case here!
-Thus I would have expected RKH lawyers to have started any claim with a gross market value of oil in situ of US$1 billion more or less. I can conceive that some weight might be given to any Italian defence that RKH did not do due diligence which MIGHT reduce any claim by a maximum of 50%.
-The figure for net recoverable oil might only be around 20 million barrels but with a low exploitation cost of say 20$ barrel. (As I recall MOG were expecting exceptionally low costs.) With the op in excess of 60$ when the arbitration occurred one might expect a starting figure of as much as $750 millioin which could well result in an award well in excess of £100 million. (The advice of the RKH board is that they are expecting 'significant monetary damages'.
-I would not bet on the outcome but there really is a good possibility of a settlement much in excess of current expectations! What have I got wrong?
Yes management has been less than perfect but to me it seems that there is excessive pessimism re RKH. Reminder:
-The Egyptian story is not without value. Abu Sennan is currently producing gross around $22 million of oil pa attributable to RKH.
-OM has 'strong prospects of recovering 'VERY SIGNIFICANT MONETARY DAMAGES' in Q3 or Q4. (One can suppose that will be based on legal advice.) Personally I would expect very much more than the general consensus!
-OP has recovered strongly and one can imagine that PMO will currently be locking in at around 67$ to show their bank or banks that their debt pile will be significantly reduced over the next 6 months or so!
-That FIG is anxious to see some results is obvious but they would probably be very ill advised to change horses at this late stage.
-If OP holds up we must very close to tipping point!
I notice that for some time now the RKH sp often goes up around the close of trading each day. Today the sp was at 22p nearly all afternoon but is shown as having closed at 22.9p. That is a difference of almost 5% and the following day it opens down again. What explanation to put on that? Is it just the market makers do not want to get caught out if RKH issues an overnight positive statement or is there another reason? That the market makers appear to see the overnight risk being to the upside could either be a big positive or maybe irrelevant. Any ideas?
A friend who was into race horses once bought a filly for what he considered to be a fantastic price. He could not believe that the other bidders failed to appreciate the potential. First time out I followed the advice, bet on the horse and it romped home at 12 to 1, After which it was always odds on favourite.
That was many years ago but I feel that I am now reliving the experience with RKH! I do not understand what more the punters are looking for! In RKH we are looking at an odds on favourite being offered with odds of 12 to 1 or more!
Warren Buffet says that Mr Market is a temperamental soul and the moment to buy is when he is down and showing no interest. At this time Mr Market sees an expansion in US shale production and has little time for oil stocks or RKH. He is concerned that oil does not have much of a future.
All sorts of new energy sources are being imagined and some are producing. On the other hand there has been little investment in new oil production and market studies suggest that without new investment to expect a serious oil supply shortfall within the next 3 years or so. Meanwhile OPEC is doing its best to balance supply with demand at around the current price levels.
Could be that SL will be timed to perfection. Mr Market might even start smiling.