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.
As I have pointed out before when I read a report prepared by Edison I feel that I am reading something put together with the close collaboration of the company under consideration. Frankly, I have no problem with that. And that's why I have attached a link to an earlier report prepared by Edison. Simply scroll down to the segment covering dividends. Remembering that the report was prepared in March 2019 when the ZAR price of Gold was lower than it is today. It does seem to indicate strongly a return to paying a generous dividend in the foreseeable future.
As most investors in KZG are probably aware, the same team that run the company are also behind Amerisur. Therefore, it might be a little comforting to know that Amerisur's US$93 million farm-out deal with Occidental was made public in an RNS on 23rd November 2018. At the time the share price was around 9.5p on relatively light volume. Within days, it increased to 13.75p on much greater volume. It then went on to reach about 20p in the early part of 2019 and has subsequently fallen back.
However, the real point is this. Until the announcement, the stock price had been falling for months. It was on a downward trajectory for over a year. We may be witnessing something similar right now with KZG. This is definitely a high-risk investment and the potential losses could be 100% - a look sideways at Ironveld gives some idea of the downside. That said, this team has shown its competence in completing a major deal that positively impacts shareholder value but successfully keeping it under wraps until the last moment.
Let's be frank, it's not a trade deal but it does pave the way for the UK to trade smoothly with South Korea if (That's a big if) we leave the EU. And for Zytronic this is very important – South Korea is its major export market. The outline free trade agreement signed a few days ago should ensure that Britain's trade with South Korea will go on largely as it does today.
Yes, agreed. Shorting can be used for a variety of reasons. Incidentally, it's worth mentioning that Millennium appears to be acting alone. When a group of investors short a stock, it does make me look at lot closer at what is happening. At the moment, Millennium appears to be unwinding its short position but still has some way to go. On 3rd June it reported a 1.22% stake, on 5th June a 1.12% stake and today that has fallen to 1.07%. As I mentioned earlier, shorting a Gold miner does seem a very risky proposition. A spike in the price of Gold can upset even the best-executed strategy.
Last Friday's investor lunch was certainly a masterclass in deception. No clues were given to a possible takeover. In fact, the CFO pointed out that a takeover was unlikely given the esoteric nature of its operations. Although it's pleasant to view a hike in the stock price, I do have a major reservation in terms of the price offered.
The company is operating very successfully in growth markets that are difficult to access with clear barriers to entry. It has high levels of recurring income and owns much of its own IP. Easy to forget but it even has a very nice chunk of freehold property that has not been revalued. Having re-domiciled itself to Dublin at the end of last year, it can and has won business with the EU's Space programmes. And it's in a great position should the UK launch its own alternative to the Galileo system. This is quite likely as Britain has already earmarked some £92 million for researching the project.
Basically, I believe that it's being sold too cheaply.
Eish, distance and therefore the transport cost is obviously a key point but the real issue is the price of Gold. I would have thought that with rising Gold prices buying-in could be commercially viable. And, of course, that means reducing the depletion rate of their own dumps. Thus extending the life of the project.
As with most oil and gas companies, the stock price is largely a function of its reserves and production against a backdrop of oil and gas prices. Unless or until all increase, it's difficult to see the price moving substantially upwards. That said, since acquiring the Chevron assets it has put in place a programme that it's acting upon. And, in my opinion, that's difficult to fault. It has laid out its programme via the RNS of 25th March 2019 – “2019/2020 Work Programme” and it's carrying it out. Now, should that not prove to work then I will divest and move on. But thus far it seems to be going reasonably smoothly. Delays and problems are to be expected but that goes with the turf. However, I would suggest that over say the next 12-18 months, its actions will be reflected in higher production and a revaluation of reserves.
It would be interesting to know whether the company intends to buy-in Gold tailings given the capacity that it now has with Elikhulu. The idea was mooted last year but nothing further has been mentioned. It obviously has its own tailings dumps but buying-in would effectively extend the life of its re-treatment operation.
With rising Gold prices and, of course, the problems associated with the pollution from established Gold dumps this could be a lucrative and worthwhile expansion.
Absurd to some but I think that shorters play an important role in the market. So long as their actions are based upon sound research rather than inside information. Or, even more worryingly, on the dissemination of false information. But as I mentioned in an earlier post, shorting a Gold miner strikes me as a very risky proposition. For sure, interest rates may dramatically increase or a Central Bank could divest its reserves and the price of Gold will probably fall. However, an international crisis could easily blow up, as it seems to periodically, and the Gold price may well increase substantially overnight. Unless a Gold miner has deeply intrinsic problems, it does seem a gamble. Far riskier than shorting most sectors. As I write, Millennium holds 1.12% of the stock. Not huge by hedge fund standards but still a good deal of exposure to something that is so inherently risky.
The company's AGM will be held later this month in London and I will be there so if anyone has any relevant questions please let me know. By the way, impossible to prove but I suspect that President is getting caught up with the issues surrounding the forthcoming general elections in October 2019. Just how this could impact the oil and gas sector may be worth exploring. Moreover, I will try to find out what might stop it from achieving its goals.
It may have re-arranged its debt finance to more favourable terms. But it's worth bearing in mind that its restructuring was largely based upon two metrics – the debt associated with Elikhulu required a Gold price of ZAR16,319 per oz. At the same time, it also needed Gold to be at least ZAR525,000 per kilo to meet its banking covenants. As I write, the price stands at just under ZAR19,000 per oz and around ZAR610,000 per kilo. It may not be completely out of the woods but much of the work appears done, especially concerning Elikhulu. Of course, it's a Gold miner and should the underlying commodity collapse in price then it will have immediate cash flow problems. But, thus far, it appears on track to deliver its turnaround. And, if the recent Edison report is to be believed, seems determined to restore its dividend.