Member Info for SeaTank8300

Thanks Dofmeister. I wasn't clear on whether Teren Sai would actually require standalone processing infrastructure and if that's the case capex will be much greater, but either way any such requirements should be included in the published CPR estimates. Expect the Teren Sai project will have a NPV of $150m-200m at a $1,800 gold price and could be near or above $300m in a year or two after expansion of the reserve. As you imply it then comes down to Altyn actually pulling the trigger and funding the project, which I hope they will do sooner than later and lean on local bank finance more than an equity raise.

Nigerian assets have always traded cheaply but were further and viciously discounted again when SARS-Cov-II hit. You are referencing the value of the company against recent lows, which were blatantly extreme and not justifiable on the basis of either the oil price volatility or the cost of equity in Nigeria. Note also that Seplat is a blue chip and by far the largest indigenous player in the market as well as the cornerstone of gas production in the country for power generation - they are also a dollar earner. I expect 2020 will be forgotten in due course and a more normal valuation will be attributed again, and perhaps one that gives them some credit for the consolidation story too.

You may be right about Nigerian withholding tax on offshore dividends - although I would say that $0.10 seems likely to be adjusted upwards, at least from 2022 when the ANOH project comes on stream.

IMHO the value of Altyn is not in the current operating mine at Sekisovskoye but in the near-future extraction potential of the adjacent Teren Sai exploration target. It was a while back that Altyn produced this competent persons report (CPR) (https://145908.selcdn.ru/files.altyn.uk/2019/RNS%20CPR_Teren-Sai_14.10.19.pdf) that laid out the resource profile of area 2 of the Teren Sai project area. A net present value of the project at area 2 was published at $100m at a gold price of $1,300. Today, at a gold price of $1,800, the NPV will be considerably more than this.

Since then, however, Altyn has been drilling extensively to further define the area 2 ore body but also define a resource estimate (and presumably an economically viable reserve) for area 3, which is nearby. Since more than a year has passed and at least 5,000m of exploration drilling has been undertaken according to the last interim report, I expect we are on the cusp of seeing an updated resource estimate and potentially another CPR for area 2 as well as one for area 3. In other words there should be a significant increase in proven and probable reserves from the current 0.8m ounces in area 2 only to, I hope, closer to 2.0m across areas 2 and 3, with a similar uplift in projected value.

The beauty of these reserves being adjacent to Sekisovskoye is that the necessary infrastructure to exploit the ore bodies is mostly already in place, saving capex but also speeding time to production.

Even on an extremely mean EV/oz reserve value of as low as $50 for areas 2 and 3 of Teren Sai, the current EV of Altyn ($77m) will be 100% covered ($50 x my estimated 1.6m reserves = $80m). The reality though is that capex will be relatively limited so the NPV at a gold price of $1,800 is likely to be >$200m for these projects combined.

Now this is great but doesn’t take into account continuing exploration and highly likely additional reserves in the Teren Sai area over the next 2-3 years. Altyn could well double their reserves again, and with scale comes operating leverage as well as a higher valuation from the market.

Finally, place a value on the Sekisovskoye mine to compete the valuation exercise. I would be conservative here and suggest the value is primarily as an infrastructure base for the Teren Sai project, but I may be wrong. That’s not to say gold production at Sekisovskoye couldn’t ramp up towards the 100,000 oz annually, as was originally planned, but if it were that easy why wouldn’t it have happened already? In any case, the mine alone must be worth the current EV of Altyn.

In summary, for an advanced handful of projects adjacent to each other with material prospect of medium term reserve and production uplift, Altyn looks extremely cheap in my view. I speculate that a price level of 3p is very likely to be the new floor level once the next round of exploration results and updated CPRs are released, which I hope will be soon. But as ever with Altyn, the wait can feel

This is a quick & dirty but conservative outline of Seplat’s financial position, as I see it, for your benefit!

Core business 50 kboepd @ $45/bbl = $820m of annual revenues
Pre tax profit margin of 24% = $197m pre tax profit
= $157m net profit

Meanwhile, the ANOH 50:50 joint venture project, which is fully funded and on target to produce first gas in Q4 2021:
Once operational, Seplat’s working interest of 10 kbbld of condensate ($164m revenues @ $45/bbl) + 97k litres/day LPG @ $0.35/litre ($12m revenues) (too conservative!) = total additional revenues $186m
15% net profit margin = $28m net profit
Note Seplat’s share of equity already invested = $210m, so net profit from ANOH is likely to be way more than this to justify it's cost of equity.

Thus Seplat is, at minimum, a $185m/year net profit business at a very conservative $45 oil price, assuming no profitability uplift from operational commencement of their Escravos pipeline or additional volumes from new well development or from future value-enhancing acquisitions.

Now put this in the context of:

Market cap $630
Cash position of $213m
Debt position of $692m
Receivables/loan repayments due from Westport of $400m (2022 to 2024)
In other words, post near-term receivables and cash resources, Seplat’s net debt position is circa $100m (i.e. negligible for a business generating almost twice that in net profit)

Which results in:
Annual dividend of at least $0.10 ($60m) = 9.5% yield
Price to earnings ratio = 3.4x

You’re right, this valuation doesn’t make any sense, even for Nigeria’s leading O&G blue chip company!
This business has a 100% return in the short term IMHO as this sort mispricing just won’t hold.

(disclaimer/disclosure: this is not a recommendation to buy and I own a tonne of stock in the above company!)