The latest Investing Matters Podcast with Jean Roche, Co-Manager of Schroder UK Mid Cap Investment Trust has just been released. Listen here.
So many on this forum just spouting garbage. Today was a day when NVIDIA had the largest one day move mkt cap wise in history (still 10mins to US Close). Given the huge moves into tech/AI stocks we have seen over last few days, dont you think this has caused a massive rotation out of underperforming/unloved sectors such as oil? Zero value in just speculating stuff, like oooh I think big news is coming cause we are up or down 5%. How many times has this kind of speculation led to zero developments?? Yes , probably every single time. I have never contributed to this board before, but the sheer annoyance of the constant garbage I read here made me intervene. Lets discuss EBITDA, free CF, liquidity, project developments, potential acquisitions, farm-outs etc etc. Lets try to add value people.
Bottom line is Naira devaluation is now over. Official rate in line with street rate. Balance sheet has taken a hit but it is manageable, and hopefully we can look forward and regard this as a big one-off hit which was necessary to revive the nigerian economy and crucially to allow FX flows to pick up.
Some new research I came across on Naira (summarizing as not able to post exact text) :
> Reform momentum in Nigeria has been strong recently The USDNGN has depreciated by more than 30% over the last 2 weeks, significantly closing its gap with the parallel market rate.
> The Central bank of Nigeria (CBN) has also made important changes on the FX regulatory front, lifting exchange rate restrictions on international money transfer operations and interbank transactions.
> Important changes have also taken place with regards to transparency around oil revenues. Nigeria's state oil company has announced that it had moved a significant portion of its earnings to an account held at the CBN, which should improve transparency around oil-related inflows, and ease pressures on the naira.
> This should allow new sources of FX to the official market, and help unlock a budget support loan from the World Bank
> Given the speed of reform momentum we forecast that the Naira will stabilize by the end of the year, and our new year-end forecast is N1450 (current level is 1514)
The loss was a cash loss related to the specific pile of cash we had sitting in Naira. Post devaluation, in USD terms, that cash is worth less, hence the loss. Ideally savannah would want to hold all of its cash offshore in USD, but I guess a minimum amount needs to be held locally to fund business needs. The offset comes from the fact revenues are fixed at a specific USD rate, thus when local currency devalues, USD revenues - lower amount of local costs = higher profits than before devaluation. This should help offset the cash loss made from holding the Naira cash balance. As I said previously, the offset effect will be much greater once the $300m USD loan facility is refinanced for a local Naira facility.
The reason the nigerian central bank is devaluating the currency is to bring it more in line with the street rate (i.e. to close the FX gap). They do this to ensure currency is at correct value. This will make foreign investor more willing to invest USD into the local economy. Often the IMF push countries to do this as a pre-condition to giving them more loans. Post these recent devaluations Nigeria's FX flows should improve, and it may actually help get save's deal refininanced (given FX gap is closed). In terms of devaluation being a good thing. This is definitely true and not just mgmt talk. As revenue are in contracts fixed in USD, this means when the local currency devalues, and local currency costs are paid, this will generate an FX profit. Currently local costs likely consist of wages, and costs of local contractor. The main problem SAVE has is that there biggest cost is the USD interest paid on their $300m bank facility. Once this is refinanced into Naira, SAVE will be in a much better position, given stonger Fx offset.
Our gas contracts are paid at a rate fixed to dollars, so revenue isnt affected by the naira devaluation. Any oil and gas revenues received will also be in USD. The main negative effect is on the pile of cash Savannah hold locally at Nigerian banks denominated in Naira to pay local costs.
Ian Stalker, Executive Chairman, commented:
"The results from this first-ever gravity based geophysical survey in our
Basin district in Arizona USA add to our confidence to reach our new target
resource no. of 2.5mt of LCE with a limited amount of further drilling. This
cost-effective campaign is designed to allow us to unlock a further US$3m
payment from LRC, the royalty company that has an existing royalty agreement
with us.
"The potential existence of thicker clay beds in both Upper and Lower Clay
sequences is hugely encouraging and reaffirms our understanding of our Basin
Project as an important resource for lithium-in-clay. The additional discovery
of the new clay and silica nodule beds to the north is indicative of
favourable open pit based mining conditions, further promoting the value of
this project.
Hi RR
Good colour on your chat from the NOMAD. Fingers crossed for all those projects you listed.
With reference to the Shore Capital note, they are just a sponsored broker, hence why their notes always have a disclaimer for investors to view it as marketing communication. ("This material is considered to be a marketing
communication and accordingly it has not been prepared in accordance with legal requirements designed to promote the independence of investment research nor is it subject to any prohibition on dealing ahead of the dissemination of investment research. This material is issuer sponsored and has been prepared pursuant to an agreement between
Shore Capital and the issuer in relation to the production of research".)
Thus would not attached too much significance to it.
The other brokers who seem to cover SAVE are "Cavendish" and "Hannam & Partners" who might be independent and not hired by Savannah directly however cannot see anything published by them (which I guess is not a surprise as we have no data/ financials to analyse!)
Given the nationalisation of Chad and the huge uncertainty over the closing of the South Sudan acquisition, why would Savannah even entertain this transaction. This isn't Andrew's personal gambling vehicle, this is a listed company with a group of shareholders. Aside from my annoyance, the question also has to be asked why they would even consider being involved. Is it because SS is also close to falling through? If we had done zero M&A, and just focused on generating free CF from nigerian business and paying down debt, perhaps we could have been in a much better position. Sorry guys, just typing out my thoughts. Obviously frustrated like many here given 2 years + of suspension.
Https://www.reuters.com/world/africa/moodys-upgrades-outlook-nigeria-positive-2023-12-08/
Hi Noix
I'm far from being a Nigerian expert but if you look at Nigerian USD bond spreads (nigerian bond spread - US treasury bond spreads) they continue to tighten. There are several reasons for this. There is of course the recent pivot by US FED who are now signalling rate cuts for 2024 which has put downward pressure on the USD which has been positive for all Emerging mkts including Nigeria. More specific to Nigeria, Moodys upgraded Nigeria's credit outlook from stable to positive. Although the rating is still very low (Caa1) its still a positive development recognising the recent positive momentum from recent fiscal reforms. In addition, Nigeria's current account has improved massively to a surplus of +3.5% of GDP. All these development should help stabilize the Naira, and should help attract more foreign inflows. To conclude many fundamental and mkt pricing signals which indicate things in Nigeria continue to improve.
Yes, very strange. Zero mention of the fact that Savannah has already bought the Petronas stake. Almost like the acquisition is completely dismissed on purpose. Wonder what's going on here. South Sudan disappointed by the price, embarrassed that the stake is being sold to a minnow (esp compared to the likes of Exxon, Petronas) or is this a negotiating tactic. Regardless its frustrating, especially given the information vacuum.
I'm taking the extension positively. As others have stated, why continue process if chances of completion are very low. Yes its super frustrating to be suspended for what feels like 2 years (for Chad and then for SS) but much prefer that to a pre-xmas RNS stating that SS deal has fallen through. Fingers crossed for next year. Hope everyone has a good christmas and new year.
RR, the interest rate and maturity are important considerations. Obviously a longer maturity and lower rate are preferable but do bear in mind, current local currency Nigerian government bonds trade at around 16%, so we are very unlikely to be below those levels. But what I think is much more important is that we are taking away a huge FX mismatch issue. We saw the negative ramifications of this given the recent huge devaluation in NAIRA and the resultant FX losses we incurred given our need to hold large local currency balances (to pay local wages, other local costs) whilst at the same time having to service USD debt. Post this refinancing, those large local currency (Naira) balances (derived from USD-linked long term gas contracts) will be matched to new Naira debt.
Given Nigeria inflation is currently running at 26%, the Naira will continue to depreciate, thus the sooner we get this debt refinance complete, the better. My view is that this would be a big positive for the stock.
Guys, it doesnt matter if the interest rate on the new debt deal is high. Remember they are refinancing a USD term loan using a new Naira-denominated loan. Thus if you are selling gas to Nigerian govt entities at a USD referenced rate and then are paying your financing costs in Naira, even if the interest rate is 10%+, its not a huge deal.