Member Info for spike501

"Its real accounting Spike and not "hedge accounting"

Its literally called Hedge accounting under IFRS9

"Looking at the positive effect of hedging - February is nearly done and by my calculation - i3e have made a hedging gain of about $700,000 on its gas partially offsetting the weak AECO pricing."

This is exactly why I describe it as notional - whether the size of the hedge impact is a loss of $1billion or gain of $1billion it makes very little difference for the end result which was already detemined (for the hedged proportion) as I3E forward contracted to sell a fixed quantity at a fixed amount, therefore there was certainty on the revenue and the end result is barrels sold multiplied by contracted price. The hedge gain/loss is simply a balancing figure between the committed forward contract price and the spot price.

Sure if I3E make a $1billion hedge you could say that taking those hedges out was a bad decision, but firstly that is only a view based on hindsight and secondly is also only a partial view as it doesn't consider what was unhedged. So in February I3E made a hedge gain of $700k which makes it look like a good decision, but given 60% of production was unhedged, you can equally say I3E made a bad decision not to hedge more.

This is exactly why I describe it as notional - its simply a balancing figure that can swing wildly one was or another without having much impact on the end P&L result. Its a volatility correction instrument.

"The net effect is identical - i.e. you only earn $71 on the barrel. So its a very real loss or gain and this exactly how it is shown on the Income statement in the Company Accounts - so notional accounting entry my a$$ !"

Its notional in the fact that months ago I have agreed a fixed sale price and so my budgets and forecasts are based upon that fixed sales price and so the spot price has pretty much zero relevance to me. If a company buys a flight ticket 6 months in advance for £300 and then on the day of actual travel find that the cost of booking the ticket is £500 they don't book £500 cost and then a £200 hedge gain.

Its hedge accounting, which is fine, its absolutely necessary as hedging does involve some more complex aspects than the airline ticket above, but if in future I contract to see all my oil at $70 per barrel then my revenue is number of barrels sold multiplied by $70 and any gains and losses between spot and hedge are just notional bookings to get the true revenue number, that i knew I was getting to in the first place.

Agreed financial hedges are a little different as they have ongoing fair value adjustments (i.e. the difference between hedge price and spot is not simply booked at delivery).

Record ore mined in H2, record gold sales in ounces and value in Q4, strong grades in Q4, $36million revenue in H2, around 40% increase on H1.

There was so much that could have been made of those numbers, however undone just by dropping in at the last minute a delay with no explanation whatsoever. Its not even that much of a delay, on a substantial infrastructure project in the current environment 3-5 months delay is not much and overall execution over the last 2-3 years has been pretty good, but they could make a bit more effort.

Which just raises the concern if the majority shareholders don't care much about the share price, what is the point of the listing - and as they could effectively take it back at any time, its unsurprising volume and interest here is thin

“Anyway - beer time !“

Let’s leave it there then - I think we’re not actually a million miles apart and on the rest I can just accept you are wrong :)

Enjoy

“And finally - this was not even what we were really talking about - my original comment was that imo - a hedge placed today by i3e for say WTI in May is likely to be priced more accurately or at least with more thought process than anyone on here's forecast. “

Agree that’s where we started and this is where you remain on shaky ground - the primary driver of hedge prices was future prices that are based on the prevailing spot price at the time of the hedge.

There are quite a few research papers showing that futures pricing is not a poor guide to actual future spot price forecasting.

The spot price situation has changed since those hedges were set.

And again you are wrong thinking the financial institutions setting the hedge prices are doing so based primarily upon their forecasts of future oil prices - they aren’t, they are tying the futures market and making money on the spread not the risk.

“1) i3e lost $25m in 2022 on hedging - that's a fact - it in their audited accounts. The loss is ABSOLUTELY not "a notional accounting entry". This is a real cost and cash they have paid out to the entities providing the hedges !!“

The hedge contracts are physical delivery contracts so the hedge provider pays the hedge price to I3E, there is no settlement by I3E of any cash difference. The accounting loss that is booked is the notional difference between the spot price and the hedge price. It’s an accounting booking only, there is no cash movement and I3E have already budgeted with the hedge price not the spot price (as they want certainty).

“ 2) For i3e to lose $25m means that a counterparty/counterparties have gained $25m - this is just common sense - the money just doesn't disappear into thin air.”

You’re assuming the counterparty takes that gain/loss and that will not be the case - the counterparty will have a counterparty on the other side who want price certainty (not speculation) - they will have the same notional accounting booking as I3E (depending on accounting standard and whether they hedge account) but as like I3E is notional in the fact they haven’t taken the hedge to make a profit or loss, but to give price certainty in their budgets and reduce commodity price risk. The counterparty at the centre of the trade - Bank or commodity trader - had taken the spread not to hedge gain or loss. Although as I say there is further speculation on buying and selling hedges as well.

“ Hence the majority of the Counterparties will be making money on whether they get the hedge right, not on whether they make money selling physical oil and gas. ”

This is flat out wrong, hedge providers above everything else have to be reliable and were they gambling just on getting commodity prices right they would be going pop all over the place - they never need to take physical possession of the commodity and they manage their risk by also hedging and trading risk, but most of the money is simply in the spreads, between the future buy and future sell - they are not taking large commodity risks on buying/selling futures and hoping to buy or sell spot when the price comes.

The notional gains and losses on the hedges sit at either end of the chain with the physical sellers and buyers, but they don’t care as they do it for risk management and price stability.

Tony, that I3E made a $25milliom loss, does not result in the fact some smart hedge provider made a $25million gain. The hedge price was based upon the futures market and so the provider of the hedge have then immediately sold that to an oil buyer - therefore oil seller (I3E) and oil buyer (e.g an end industrial user) both have guaranteed prices in the future to reduce their risk of commodity price exposure and the hedge provider has simply made money on the spread between the price they guarantee to buy from I3E and the price they sell to the buyer, they haven’t take any commodity price risk. Notionally I3E make a hedge accounting loss and the buyer makes a hedge accounting gain, but it’s simply accounting entries they have to make and not the purpose of the transaction which was about reduce commodity price risk.

The primary driver of the future price is the current spot price, there is only a certain difference between spot and future that the market will reach, but it is the future price that is determining the hedge market.

Of course hedges are financially tradeable so there is speculation in there as well and the large commodity houses will be taking buy and sell positions on hedges and futures if there analysis of future prices is different to the actual futures markets, but it’s huge volumes on tiny margins.

Again using hedge prices set months ago for an indication of upcoming spot prices is not advisable - the hedge prices were set at a time when the future prices were based on a very different spot environment. You just have to look back at historical hedge prices I3E had to see how ‘wrong’ they were.

Tony - the banks and commodity traders to do not commit to buy that oil and gas off I3E at a fixed price in the future then simply sit on that risk to sell the bought product at spot at the time they take delivery - there is an actives futures market, which is linked to the spot price and future price expectations at the time of taking the hedge out that is giving sellers like I3E price certainty and on the other side giving buyers price certainty. It’s is categorically not the banks gambling substantially on future commodities prices,. The commodity traders will be more actively buying and selling the hedges as they form their own assessment of future prices, but commodity traders mainly make money on volatility not absolute prices.

If you are taking the hedged price that I3e took in the past and use that as an indicator that prices must go up, then that must mean the prices that are being hedged out at the moment indicate the market will collapse again.

Don’t use hedge prices as a proxy for future spot proces

Tony, hedging is generally not the banks or trading houses taking bets based upon their assessment of future oil and gas prices - there is very little speculative risk. The hedges are being set based upon the forward curves that are in the market at the time of taking the hedge, there is most likely a counterparty directly on the other side of the hedge who has already purchased the oil or gas based upon the forward curve as they want certainty of the future price.

I really wouldn’t put too much weight in the hedged prices as being a guide of where the market goes.

You can add the FT this weekend

https://www.ft.com/content/ae2366b7-ea34-4e24-b4a7-f695eeaa580c

“Indonesia to wipe out global nickel rivals, warns French miner Eramet chief”

I see for some posters Denial is now moving on to anger.

I guess Strow will be a future leader of the HZM shareholder action group, repeating the futile exercise seen across many other shares which suffered wipe out.

Around a $15million reduction in net debt in the second half of the year and given drilling is backloaded to H2, it’s likely the company moves to a net cash position by middle of this year.

Its highly unlikely they bid, they most likely don't want to take full ownership and delist - but if they do bid, they do it at 4-5p, the BOD recommend it as the alternative is administration.

More likely there is a massively dilutive fund raising, leaving existing non-participating holders (i.e. private investors) with 3-5% of the enlarged share capital, contingent on them getting waives they can hold more than 30% without making a mandatory offer. This way they keep the listing and can liquidate shares later.

Mv01 - you are living in cloud cuckoo land.

If you run some calcs and come up with a result that suggests someone might bid 20X the current SP, then I'd suggest your assumptions are utterly flawed as opposed to actually taking the result seriously.

Short selling isn't illegal in Germany.

I also suspect they are in a strong position as Jadestone have substantial tax credits that can be utilized that make the valuation attractive.

I struggle to see any deal would be anything other than substantially accretive for the share price. Following the last raise there are some cornerstone investors here with investments made and warrants with a far higher strike price from today.

They must have been brought in as insiders to get their support for the transaction otherwise it’s dead in the water and it’s likely a key topic the sellers would want to know in any bidding process. Plus the banks must have been informed and be inside as well.

You don’t go into this sort of transaction without being fairly certain that if you win the deal it’s not going to be shot down by existing parties.

I’m hoping they are waiting with the Q4 update until the commissioning of the expanded processing capacity which is expected on Q1 so they announce both together

Malcy is a clown, I wouldn't pay attention to a single word he says. He's constantly pumped obvious dogs right up until their death throes.

“I think a placing is out of the question, when the mcap is so low ($178M). Its not going to raise much cash, to make a lot of difference. “

Don’t forget that the RBL needs rebaselining due to the latest updates on Montara and Stag and there is a gap between the RBL change and Akatara coming online. It may well be they do have another short term cash need and why again the market seems nervous about the appointment of the joint broker.

In previous updates they gave clear net-cash / net-debt forecasts based upon various oil price scenarios and could show they were within the RBL limits.

Its a shame that did not do that this time and I think the market is now (rightly) questioning whether they are going to have liquidity issues again when the RBL is re-determined as they certainly haven't given any clear guidance.

$60 per barrel opex on Stag and Montara now, hardly ideal.

If they can maintain operational reliability and ensure they have sufficient liquidity until mid next year then things should pick up, but any bumps along the way now will be painful, so unsurprised to see SP reaction.