Yes, I know it's obvious but it's August and much of Europe simply shuts down for the holiday period. It strikes me that it's unrealistic to expect any corporate action for Amerisur in the next several weeks. And that's compounded by low oil prices. This may simply be a time for doing nothing and letting events unfold.
In terms of its assets, it might be worth considering that the company has invested some US$45million in completing the shaft sinking at the Central Shaft. This will be commissioned in 2020 with the goal of increasing overall production to some 80,000 oz of Gold per annum by 2022. But the point I am making is this. The current market cap for the business is only around £52million. For sure, the company needs to fit out the shaft over the next 12 months. However, the most difficult part of the project has been concluded. The current market price seems to be attaching no value to the shaft and its prospective production. And that represents a substantial lift in low-cost production (AISC of under US$800 per oz). Even without the development of the Central Shaft, the company is trading at a 20% discount to its book value. And that's underpinned by a quarterly dividend.
Make no mistake, it's operating in a difficult environment and that includes power outages that have recently impacted production. However, it has demonstrated an ability to get things done and appears to have good relations with the authorities. It's definitely high risk but if the label of Zimbabwe is removed, maybe the company is being mispriced by the market.
Let's take a step back for a moment. President's revenue is almost entirely in US$ while its expenditure is largely in Argentine Pesos. One of its biggest shareholders is the IFC – owned by the World Bank. While the latter is the sister organisation of the IMF. That's to say, the organisation that is currently keeping Argentina afloat.
My real concern is the possibility of a full-scale break with the IMF agreement. In which case the country could be in serious trouble. And that includes parts of President's supply chain. As yet, that has not happened.
It might also be worth considering Argentina's chronic energy problems. It seems to me to be quite unlikely that any Government will take action to discourage investment in the energy sector. Sure, President may get caught up in the sell-off but its business model is pretty much unchanged. It might also be remembered that Levine has survived and thrived deeper economic crises in Russia.
It strikes me that looked at objectively, this turbulence could throw up acquisition opportunities for President.
Today's RNS from M&C Saatchi does not, in my view, indicate fraud. But it does demonstrate the problems with aggressive accounting. One of the key attractions that I found in the company was a decentralised structure that encourages management entrepreneurialism. This could be a fault line as well as an advantage. Such a structure requires a strong financial discipline. For the moment, the issues seem relatively modest and the company claims that "It will meet expectations of operating profit for the year" before the exceptional charge of £6.4 million. And it's worth mentioning that four Directors have just made meaningful stock purchases.
Incidentally, simply an observation but the company seems to suffer from a lack of discussion and debate. With more media coverage and that includes discussion forums, issues like this may have been spotted far earlier. Leaving the analysis to institutional investors is not a good idea. At a practical level, many have large and diverse portfolios and simply lack the resources for ongoing monitoring and research.
Agreed. It's paid for. But the point I was really making was in respect to one aspect of the report and that was the dividend. If Edison is bullish about the prospects of reinstating the dividend then, presumably, so is Pan African Resources. And this is near-term - some four months away. The Gold price has moved reasonably higher since the report was published and so I think the likelihood of reinstatement has increased.
It could be worth remembering that Edison produced a report on PAF on 19th June 2019. And as I have said before, when I read an Edison report I often feel that I am reading something that has been put together in close collaboration with the company concerned. A link to it can be found below.
But the real point I am making is this. When the report was produced, the price of Gold was R19,485 per oz. As of today, it's R21,860 per oz. So taking a closer look at the section on “Dividend”, we can see that Edison is pretty optimistic about the restoration of the dividend for 2019. Should that not happen, then it suggests a possible interim dividend in early 2020. It also points out that declaring a dividend for 2019 will not impact PAF's banking covenants for 2019 (The ratios relate to 31st December 2019) as any distribution will not be made until 2020.
If the price of Gold holds up then I would suggest that early restoration of the dividend appears quite likely.
Liquidity is a prime concern for institutional investors considering any stock market investment. And much of that liquidity for small to mid-sized companies is provided by small investors. As I write, UKOG with a market cap of around £56 million has been traded 32 times with a turnover of about £61,000 while Soco with a market cap of about £245 million has been traded just 8 times with a value of around £14,000. Sure, we know that other less conspicuous trading occurs. But viewed crudely, Soco is not a very liquid stock. And yet, the company pays a generous dividend. It has genuine development upside and it's not a “Story stock”.
Maybe there are legacy issues with its involvement with exploration at a national park in the DRC. But that was many years ago and the company needs to move on and explain what it plans to do. Just being clear about what it intends to do and when would be a big help in creating more interest and, therefore, more liquidity.
At the risk of repetition, this is what I posted on 20th June.
“The real danger is selling out on the cheap. In my opinion, investors need to take a broader and longer-term view. In part, that means looking at overseas valuations before agreeing on a takeover offer.”
From my perspective, the offer is simply too low when one considers the short-term outlook for the company. Forget about the long-term. Over the short-term, let's say the next six months, it seems realistic for the stock to reach 140p. Put bluntly, it's a growth company in a growth sector. As I mentioned before, I had a similar issue with the takeover offer for Scisys.
If AIM's most successful companies are going to be bought on the cheap with the collusion of the management it does seem to raise serious issues for the AIM market more generally.
Pure speculation but with Amerisur up for sale, its remaining assets in Paraguay appear out on a limb. It still has three prospection licences in the Pirity/Pilar Basin in the West of Paraguay. Could a deal with President be possible? After all, the assets are only valued at around US$0.5 million on Amerisur's balance sheet. And President is due to drill in Paraguay in early 2020 and has extended its Pirity licence until September 2020.
This struck me some time ago. Given the size of CERP, I would have thought that operating in two jurisdictions does not make financial sense. However, Leo Koot seems to indicate that the company is moving ahead with expansion into South America. At the same time, he appears emphatic that this expansion will not be dilutive for current shareholders. So presumably at least some of its assets are up for sale?
With Colombian focused oil producer Amerisur Resources now in play, it might be worth considering the scope for merger and acquisition activity in Trinidad's oil sector. Does it need five London quoted oil companies – Range Resources (Suspended), Trinity Exploration, Columbus Energy, Touchstone Exploration and Predator Oil? It does seem a tad crowded.
Not quite but there you go. Do I retract any of the criticisms that I have levelled at the management? And the answer is no. As some may be aware I sold my holding some time ago. However, as soon as today's RNS was released, I bought back in. Why? It's simply the assets. The company has a cluster of first-rate assets. But, in my opinion, those require a great deal of focus. It's clearly operating in a difficult place. And the management team have a variety of international interests.
The real issue is price. Impossible to prove but I suspect that the 25p placing price that was taken up by institutions in March 2016 is key. This will allow fund managers to get out without too much egg on their faces.
The most obvious read-across from what's happening at Amerisur and Ironveld seems to be that Kazera is the next company in the cross-hairs. Either for selling or developing. As I have argued with Amerisur, it's all about the assets. Kazera's market cap is less than the price of a small house in Chelsea. That seems to sum up the situation.
It's not outlandish, in my opinion, to suggest that Kazera could be a strategically important company producing a commodity that is not only ubiquitous in its usage but also increasingly important. That said, as with Amerisur, it requires focus. If the management team can divest its interests in Amerisur and Ironveld then it could certainly give an impetus to Kazera. However it's viewed, the events at their other listed vehicles appear positive for Kazera.
We may need a little perspective on this. If the figures provided by London South East are correct, then the stock has fallen around 7% on a day's turnover of about £12,000 with just 15 trades. And the market cap is about £4 million.
Make no mistake this is a very risky proposition that could go terribly wrong. But, at the end of the day, the JORC results appear to be very positive. And, again, putting events into perspective. Pilbara Minerals' Pilgangoora mining development in Western Australia may be a huge Lithium/Tantalum project but the Tantalum grades that it revealed in June 2017 are poor when compared to those recently released by KZG. The Pilbara project showed Ta205 at 138ppm. By contrast, KZG has Ta205 averaging 323 ppm across both deposits. The Lithium, although useful, is of secondary importance.
On Friday 28th June, the Greater Manchester Combined Authority agreed to press forward with the conclusions of the report. In the next stage, the report will be audited by an independent third-party to ensure its integrity. It will then be put out to public consultation.
Manchester, in my view, is likely to be the first city with an elected Mayor to use the powers given it by the Bus Services Act 2017 to refranchise its bus service. The introduction of a London-style system appears to put Rotala in a strong position.
It may seem a small detail but, at the AGM, Rob Shepherd made what I think is a very important point. He said that the company was actively presenting to institutional investors. However, he was often facing the same question. And a question that I suspect bedevils most AIM-Listed companies. That question was with respect to the stock's liquidity.
As the adage goes small stocks let you in but they don't let you out. The only possible solution to the problem seems to be simply to grow the company. Pay dividends. Put in place buybacks. Simply make it a successful business that attracts investors and so creates liquidity.
More generally, I would suggest that the lack of liquidity for AIM stocks is related to the lack of success that many of the companies experience. It's not the machinations of market makers or the myopia of other investors, it's the lack of delivery.
Its AGM presented few surprises for investors:
The workovers appear to be broadly in line with expectations. Worth noting that it doesn't capitalise all the costs of these workovers.
Although its current production figures were not made public, it did point out that it would give guidance to analysts in the coming weeks.
There are no plans to take the company private – but what else could Peter Levine say?
The costs of Argentina's economic crisis are close to zero for the company. It simply tightly controls its treasury management.
Further placings are very unlikely – except for an acquisition. But the possibility of alternative sources of finance was raised – debt?
Gaining self-sufficiency in electricity production appears to have been pushed back to the end of the year.
Drilling in Paraguay is expected in early 2020 at a cost of around US$10-12 million for a single well. However, drilling a second well is largely provisional on the success of the first.
It appears to have around US$10 million in cash – that seems the maximum amount.
The integration of Puesto Flores and Estancia Vieja into a single concession is very useful. It will allow gas to be transferred from the latter to the former without incurring royalties if it's used for the company's own use eg Producing electricity.
The event was well attended and there appeared no major shareholder dissatisfaction.
Whether or not Rotala's time has finally come, who can tell? But if this article is accurate then it seems that the Bus Services Act 2017 has finally kicked in. Essentially, it appears that the duopoly that currently controls Manchester's bus routes is being challenged. So what does that mean for Rotala? This extract from its 2018 annual report gives an outline of the upside.
“Currently the Manchester market is completely dominated by two major players. Any refranchising plan will seek to spread market share more equally among market participants, as in the London market. Thus, in a refranchised market, a group like Rotala might potentially achieve a market share which it could not possibly aspire to under current market conditions.”
As an investor in Scisys, I believe that the takeover offer is simply too low. But I agree with your broad argument. This technology space could be seen as a bargain basement should Sterling tank. The valuations are generally undemanding, at least by international standards. And I don't think that UK investors fully appreciate the innovation, problem-solving skills and talent that many of these companies possess. In most parts of the world, especially in the Far East, this creativity is at an enormous premium.
The real danger is selling out on the cheap. In my opinion, investors need to take a broader and longer-term view. In part, that means looking at overseas valuations before agreeing on a takeover offer.