The latest Investing Matters Podcast episode featuring Jeremy Skillington, CEO of Poolbeg Pharma has just been released. Listen here.
Nothing really wrong with that update - sales and revenue are slightly down, but anyway we knew about that as it was due to the maintenance activity in Q1.
They might miss budget a bit, but I think it was always optimistic that the upgrades would not impact production and they should still produce and sell around 16-18koz in the second half.
Almost 200,000 tonnes were mined in Q2, so mining has increased by around 50%, so they are well placed to process around 800,000 tonnes next year assuming the capacity is in place relatively early in Q1 which would produce 40-50koz depending on what grades they can achieve.
Overall operationally I think this was a positive update - I always had 2023 down as a transitional year and development is clearly on the right track.
As usual releasing news at last minute and skipping updates doesn't say much for shareholder relations which is holding this back as much as anything.
"I don't think it's irresponsible either to be talking about m&a or buy backs - had i3e hunkered down after the failure of liberator and not taken the decision to make several large acquisitions in Canada (at the bottom of the market"
Agree and I'm not averse to a great deal, but I'm not sure how many are on the market at the moment that will be accretive to existing shareholders. Plus they already have enough opportunity to develop for the last deal they did
"I'm not sure what you are talking about with regards to "substantial negative assets" - just went back to the yearly report and they are reporting 168m pounds in net assets !?"
I missed a rather important word there - negative net CURRENT assets. At the end of 2022 the balance sheet shows net current liabilities of $32million, that is a weak balance sheet.
I agree cash generation was good last year and obviously one of the reasons they didn't generate much net cash was the capex spend, but in my view it was irresponsible to pay out effectively 100% of free cashflow after capex as dividends, when the current position of the balance sheet is as weak as it is and furthermore the increase of the dividend this year was terrible management, when commodity prices were already weakening.
Before anything else, dividends should be reliable and then ideally progressive and for a commodity business where prices are volatile it takes extra care to make sure the are the ongoing financial resources. I3E went at it like a bull in a china shop and have severely damaged investor sentiment and trust and that will take a long time to come back.
Tony, first let me say, sorry to see you getting this grief from other members on this discussion board, I see you as an excellent contributor with complete integrity.
To respond..
"I3e still have CAD35-CAD40m left on the drawn portion of the loan - so I expect them to do something with it shortly."
Frankly, I hope not, unless it is a hugely attractive piece of M&A that adds production and cashflow. I3Es balance sheet is weak - last year they paid out all free cash generation in dividends and ended the year with substantial negative net assets. Their claim that the debt facility strengthened the balance sheet is laughable - debt does not strengthen a balance sheet, but it does provide additional liquidity and flexibility, but there is no way they should be blowing through all that now, there is every change that commodity pricing gets worse in the short term.
They need to focus on hunkering down now and strengthening the balance sheet, throwing around glib statements about buybacks is completely irresponsible.
I'm not sure I can think about anything more damaging to management credibility than slashing a dividend you have only fairly recently substantially raised, slashing the capital expenditure budget and then talking about buybacks.
I argued last year they were getting ahead of themselves with the dividend - even at higher oil and gas prices, with the development drilling they were doing this was not throwing off a huge amount of cash and the dividend looked aggressive while they did not build up much in the way of reserves.
I highlighted the last thing they should do is get ahead of themselves as it would be reputationally damaging if they had to cut the dividend. The market never trusted the dividend in the first place
And here we are.
I doubt there is an audit issue, the negative working capital at end of last year most likely came from the fact that development investment was backloaded and so at end of year the invoices for the Q4 drilling were still due.
Capital investment in 2023 is also backloaded and it is entirely discretional so its unlikely the auditors would have a going concern issue over that.
"Oil price will be on the rise soon enough"
Thats a brave call - the economic outlook is very uncertain and OPEC+ couldn't agree on reductions, hence Saudi going into alone with a temporary cut that didn't lead to a big more in oil prices.
For a management team that is so highly regarded and with their track record this is utterly appalling. Zero indications or communication over recent months that the cash situation was getting so tight and why the hell are they proceeding with PenMal drilling or any other non-required spend beyond Akatara development, or looking at further M&A opportunities if they have to go into the market with a begging bowl with such a terrible deal.
Sinphuhorm which about 3 months ago cost$27.8million is now an utterly terrible deal for existing shareholders as that has cost the cash buffer that has resulted in this placing being required at a terrible share price on terrible terms for the underwriting.
After boasting for the last two years about benefitting from being unhedged, while oil prices blew above $100 and not taking any opportunity to lock any of those high prices in they've now been forced to hedge at or around 12 month low oil prices for 50% production for the next 2 years - and the hedged price also looks on the low side, as Jadestone production generally trades at a premium.
All in all terrible risk and liquidity management that removes a significant amount of future value from present shareholders.
“ Planned / forecasted, but not announced, acquisitions?”
They shouldn’t really make forward looking statements that include unannounced acquisitions.
Plus it would also be bad expectation management if it was forecast but not committed acquisition.
“I'm not sure i agree on point 2. The cake is simply getting bigger hence, it is diversification. I'm on the call now and Blakley just said 7500 BOPD with a 6000 average, not 5k.“
The 20% comment relates to mid-2024. My calculations suggest production of around 25kboepd by mid 24, so Montara would be 5000 for 20%. At 6000bopd from Montara this would suggest total production at 30kboepd which would be great but I’ve not seen any credible forecasts it could be this high - happy to be proved wrong though.
Not too surprised by the market reaction as there were two pieces of information there that were slightly surprising.
1. The fact that Jadestone will enter a net debt position in 2024 - I think even despite the acquisition and the development spend it was expected existing cash resources and cashflow would be sufficient.
2. Montara will be 20% of production in 2024 - this suggests that Montara production will be down to around 5000bopd by then. I’m not sure trying to sell this as diversification was wise.
Generally I’m not concerned and I’ll be rather a buyer not a seller - here for the long term, the planned increase of gas production is smart, the strategy is right and the management team is excellent.
However I won’t be buying yet as sentiment is weak both for the company and wider sector given the risk of recession.
I've about to respond sensibly to this post and then I saw it was Emerald Carrots who posted it - ultimate ramping merchant, just posting any old tosh across boards.
When was the last time Shell bought out a small cap oil and gas explorer? Its simply not part of their playbook, they can farm in project by project and carry all the cards.
"Could new licence wins prompt shell to act? I think news of licence wins will push the sp more than today's RNS has."
Licences will do nothing - Deltic already has tons of licences, virgin licences don't get valued at anything by the market.
"I got to buy loads in th 0.70's. loads and loads ha and ha. ;-)"
0% of 0.70 is the same as 0% of 1.00, 10,00 or even 100.00
Its not a 50/50 bet though is it? Its a 99/1 bet with the odds against you.