Roundtable Discussion; The Future of Mineral Sands. Watch the video here.
The other point I would make is that Mr and Mrs Hardy are no fools and given the huge amount they have invested in this company, I am sure they will be employing private accountants and analysts to go over this proposed deal with a fine toothcomb in addition to considering the many arguments against, made on this and other boards.
It wouldn't require an EGM to stop this deal. All that's needed is for the Hardy's to tell Mitch Flegg they can't support it. The deal would have to be pulled. Ok it would cost £7m but that is a small price to pay. The Hardy's are private investors like the rest of us and can surely see this is being driven by Serica managements' self-interest. The other major shareholders are institutions and without someone giving them a lead will just do what management advise - like sheep to the slaughter house.
I can't believe after all these years of waiting for the right deal and not 'wanting to overpay' that this is what they have come up with. It stinks of self interest at the expense of shareholders. Precisely what has been promised, we will likely never know. We have all been stitched up before by this sort of thing. I would have liked to hope this management were above all that. But I guess, despite the rich rewards they have had from this company in the past, the temptation to get a retirement pay-off is always present..
Sadly, that's the only language this government understands - the industry should vote with it's 'feet' and stop being the whipping boy for the climate activists. If the licensing round gets no interest, the tax situation will quickly change.
Even the oil companies don't seem to understand what is going on as the following extract from Ithacas Friday RNS suggests:
"The full details and legislative changes related to these revisions have not yet been published and therefore it is currently not possible to fully assess the potential impact on the Company. The Company will provide an update to the market, as appropriate, once full details are known."
This confusion is causing a drag on the share price and it is absolutely outrageous that no-one has yet seen fit to clear up the confusion several days after the announcement. it really does make you question whether the government itself knows what it is doing.
I still don't see how reducing the investment allowance to 29% is consistent with maintaining the cash value of the old investment allowance. I believe this confusion caused the share price drop yesterday. This is creating a false market and the confusion should be clarified urgently either by the company or the government.
There is of course a silver lining in all of this for SQZ - we have still got around two thirds of our share value in cash! We have all been exhorting the Company to get on with it and buy assets, and had they done so they would probably have bought additional North Sea production. Those assets would now be worth a lot less. As it is, the Board have done us all a favour. We still have around £550m cash and will soon be in a much better position to make judgements about future investment. SQZ can buy overseas to avoid WFT or, dare I say it there may even be some North Sea assets at fire sale prices which may be worth looking at (though there are problems with that given the uncertainty of what a possible Labour govt might do in 2024).
SQZ, unlike most oil companies, have plenty of options available and excellent prospects of turning this taxation nightmare to our benefit. That cash keeps me invested and still hopeful!
UK natural gas futures fell sharply to below the 500-pence-a-them mark after a long weekend, down from their March peak of nearly 650, and tracking the European benchmark on prospects that gas stores in Germany will be 85% full next month, ahead the October target. Still, Russia's Gazprom said it would cut flows through the Nord Stream pipeline to Germany for three days of maintenance at the end of August, exacerbating concerns about supplies and raising the risk of a recession in Europe if Russia's natural gas squeeze widens. The state-owned energy company Gazprom has already reduced flows through the Nord Stream pipeline to roughly 20% of its capacity, citing issues with turbines. At the same time, outages at Norwegian and UK gas fields continue to weigh.
UK natural gas futures skyrocketed to above the 280-pence-a-therm mark, the highest in five months, as a strike this week by Norwegian energy sector workers demanding wage hikes is expected to cut the country's gas output by 292,000 barrels of oil equivalent per day. Norway is the world's third-largest exporter of natural gas and the UK's primary gas supplier, exacerbating concerns about disrupted shipments in an already highly tight market.
Personally, I see the current situation presents SQZ with a huge opportunity. Fortunately the cash is still in the bank and not spent on a asset that would now be worth significantly less. Surely the WT means buying any producing asset will be considerably cheaper than it would just a couple of months ago. If we can buy a producing asset at bargain basement prices, especially one with development opportunities which will enable us to use the tax allowances to the full, it seems like a no brainer. We could get a lot more bang for our buck than we would otherwise and if the WT tax is lifted in 2025 we would be quid's in. So my preferred option is "go big" - if the price is right (there must be majors who have had enough of the North Sea and desperately want out). I don't think we will ever see a better opportunity to boost production massively.
I don't see what's not to like with this stock. As with any stock there is downside risk. It's possible but unlikely that gas and oil prices do an early dramatic reversal (unlikely). It is also not beyond the bounds of possibility that the government could take another swipe at the sector, especially if gas prices are near 300p/therm going into winter. A few weeks ago I would have said that was extremely unlikely. But after the madness of the windfall tax - anything is possible - and it could look like an easy target for a desperately cash strapped government. the main risk, which can never be ruled out would be some catastrophic interruption to Rhum production or damage to the rig platform. However, all stocks carry risk and most of the risks to Serica look unlikely. Generally it is a very safe haven with outstanding prospects.
With £400m+ in the bank and growing all the time SQZ is a raging buy and I am surprised more people and institutions can't see that. What is more, with the windfall tax, we now get almost a free hit at N Eigg. In terms of what to do with the cash pile, I am happy that they are in no rush to blow it. Unless the mother of all deals appears, I would prefer they hold off until the N Eigg result is known. If successful, they could then afford to do a big special dividend (and I do mean big!
Just glad SQZ hasn't squandered the hard earned cash on a new investment in producing assets before this tax change was announced. I suspect North Sea assets will have halved in value over the last week and we could have saddled ourselves with a lot of debt (with no relief on the cost of that from the new 25% levy) that we then struggle to finance. Bargains may now be available. Those big oil companies seeking to exit the North Sea may be even more keen to get rid. In fact all oil companies may now be more inclined to look at opportunities outside the UK waters with more favourable tax regimes. But for buyers looking for producing fields with development opportunities bargains may be to had.
Everything about the BP share sale looked odd. It came out of the blue in a seemingly hurried way and was carried out in a bit of an inept fashion.
Trying to think positively about why this happened in the way it did, the only thing I can come up with is if BP was given advance notice of an imminent deal between Serica and one of BP's competitors that would be inconsistent with BP remaining a major SQZ shareholder. I always try to see the positives in any situation but am usually wearing rose tinted glasses, so don't hold your breath!
Yes, the weakness over the last couple of days is inexplicable. But it looks like something is going on. Could just be a drop to accommodate institutional buyers or there may be other explanations. Serica is leaky, so could be a problem somewhere that we are not yet aware of. Alternatively, it could be a prelude to a long awaited bid! Have seen it a number of times where the share price of a stock is dropped just days before a takeover is announced. We will find out soon enough.
So Alexander Stahel is suggesting Serica is currently worth £6 per share and if the North Eigg drill is successful intrinsic value rises to Between £10 and £12. Music to my ears. The big unanswered question is will his gas price projections hold up to the test of time!
Interesting article in the Guardian suggesting gas prices could remain twice as high as normal until 2025 and we could see a return to the December peaks if Russia invades Ukraine:
https://www.theguardian.com/business/2022/jan/24/how-vulnerable-is-uk-energy-system-as-tensions-rise-between-russia-and-ukraine
A major re-rate for Serica is inevitable if the current high prices prove to be anything more than a temporary blip!
This is a quote from that piece about Angus:
"I have been very positive on the oil price since the bounce in mid 2020 and last year the price was up over 50%, this was at a time that oil companies cut costs to the bone, sometimes way too much, leading to the price rises that are already coming through. But do not forget the natural gas price which for different reasons has increased by even more than oil since then and has also left a vast panoply of undervalued assets.
Speaking to a leading fund manager recently on how this is panning out for investment in the hydrocarbon sector this year he put it very succinctly. When huge cash flow meets significant capex and opex reductions, the profitability and the inevitable cash flow of the sector is going to result in growth in earnings, asset values and shareholder returns. With WTI at $80 today the scope is incredible and by that I mean downside, after all most companies are doing their sums at say, $50 but most work down to $30, just what are the returns on that basis?
So, Angus has fired the starting gun but as I said it could be anyone, in the US last year it won’t surprise you to know that Devon Energy was top pick with Chevron not far behind, other E&P’s and majors are available. Right now the asset hunters have raised the flag, if you own an asset or your company is a collection of them then someone is coming for you make no mistake…
So, in the vernacular of the property sector these oil and gas companies are in the right postcode, mostly have kerb appeal and gazumping is going to be rife, buy now while the very best properties remain, everyone else retain your defence teams…"
https://www.malcysblog.com/2022/01/oil-price-angus-advance-sdx-and-finally/
NKOTB: Thanks for taking the time and trouble to post the off book trades. It's something I don't have access to but certainly creates the impression that stock is being accumulated by someone. May be all perfectly normal but for a long time now large amounts of stock have changed hands without any accompanying holding RNS'.
Invaluable information. Thanks