The latest Investing Matters Podcast episode featuring Jeremy Skillington, CEO of Poolbeg Pharma has just been released. Listen here.
A glance at the career section on Trinity's website reveals what appears to be a raft of available positions. With roles ranging from internships to subsurface operations. Considering the irons that it has in the fire, it seems reasonable to conclude that it’s gearing up for expansion. Incidentally, its headcount increased from 214 in 2019 to 222 in 2020. From what I can recall from its presentations, it has a low staff turnover. So, I think that it's unlikely to be simply replacing staff that have left the company.
https://trinityexploration.com/about-us/careers/
What the final outcome of Eurasia’s situation will be, I have no idea and I'm not a shareholder of the company. But recently there was an interesting comment in Shares Magazine about the average premia received in a takeover of a UK listed company. According to Russ Mould, and looking at some 50 companies since October 2020, and the average premia was 36% over the prevailing stock price. Simply my observation but I suspect it’s very difficult to keep a major takeover offer secret. So the price adjusts accordingly. Having said that, a 36% gain in a short period is still a stellar performance.
If we take a look at BP, it offers a sustainable quarterly dividend plus share buybacks. Putting aside scale for the moment, Trinity could do something very similar. A modest dividend with buybacks according to profitability. To put in place a dependable dividend gives the share price a floor, based upon yield. Providing investors are confident that the dividend will not be cut or abandoned, it’s unlikely that the stock price will collapse, even if the price of oil drops substantially. And, of course, we are living in an investing environment where interest rates are so incredibly low, a modest but reliable yield is a strong attraction for many investors.
It would also bridge the gap - Trinity has several major irons in the fire. But they will not come to fruition for several years.
Using information from a recent presentation and the company seems to be focusing on growth in what appears to be a fragmented US market. Considering the pound's recent strength and its subsequent slide against the US dollar, its potential American earnings look attractive.
The impression I gained from Trinity's recent presentation is that it seems likely that there will be no new drilling this year. Without new drilling, any increase in production will probably be incremental. I can understand that the company wants to drill high impact wells and is reviewing its newly acquired 3D seismic data. But it appears to be cavalier with its timings. Its RNS dated 2nd June 2021 stated its intention to recommence drilling in H2. While the outcome of the Jubilee project has now been pushed back until the end of this year. The overall picture, in my view, is still good. But more accurate time frames would probably help investors.
It’s worth noting that both PAF’s CEO and CFO have recently increased their holdings in the company. As the adage goes, they sell for many reasons but buy for only one. I’m not sure I entirely agree with that but it’s certainly uplifting when senior management buys stock in its own company.
My understanding is that the SPT reforms benefit small onshore producers where production is less than 2,000 BOPD per asset/licence. So expanding the number of its licences makes good sense from a fiscal perspective. With current production at only 83 BOPD for the new block, it has considerable upside. While the 3D seismic that Trinity recently acquired covers some 80% of the newly acquired PS-4 block, it also paves the way for remapping the company’s entire onshore reserves. The 2P reserve figures that Trinity has booked only relate to the area directly around each well, they do not include the areas between wells.
An interesting point came out of this morning’s conference call in respect to the stripping ratio. Capital, the contractors brought in to carry out the 120MT waste-stripping programme at the East side of the open pit, appear to be ahead of schedule. While the company’s own fleet is also stripping waste ahead of what was expected. The strip ratio for the quarter was 5:1. That’s far higher than its long term average of 3.7:1 (Since 2015). However, it lags behind what its Chief Executive suggested was necessary, some 6:1. That said, it appears to be moving a substantial amount of low-grade ore that’s not categorised as waste - it’s going to stockpiles. The latter increased by some 900,000 tonnes over the previous quarter. The upshot seems to be a higher strip ratio than the headline figure indicates. Basically, it's making more progress at dealing with its key issue.
Animalcare has just gained EU regulatory approval for a potentially very lucrative drug (Daxocox) and has also concluded a distribution agreement with one of the world’s largest animal healthcare companies. Over 2020, it not only functioned fairly normally but it also reduced its net debt by £4.2m.
For a listed company that seems to be in the right place at the right time, Animalcare is keeping a very low profile. I just hope that it’s not being lined up for a takeover on the cheap.
Largely gone unnoticed but the Zimbabwean Government announced in December 2020 that it intended to sell a majority (60%) stake in the Reserve Bank’s refining unit to Zimbabwean Gold miners. I would have thought that Caledonia, as the country’s largest Gold producer, would be in a pivotal position in any such privatisation. Zimbabwe may not be everyone’s favourite mining jurisdiction but it seems keen on developing its Gold mining sector. Hardly surprising as Gold is the country’s biggest export.
Some very good suggestions have been made in terms of a replacement Gold miner for TSG. Of course, much depends on the requirements of the investor. That said, Caledonia Mining, in my view, is an established and well managed Gold producer. Moreover, it’s a profitable dividend payer. While its Central Shaft project is about to be commissioned at a cost of some US$60 million. This extends the life of the mine and reduces its AISC. Importantly, the company has an exemplary dividend record and it has not diluted shareholders’ interests - the cost of constructing the Central Shaft was met from internal resources.
The downside - it’s focused on Zimbabwe and could, at some point, face issues that are beyond its ability to control. My understanding is that it has no intention of developing elsewhere and is now exploring acquisition opportunities in the country. However, it obviously knows how to navigate the local environment. And the Zimbabwean authorities are determined to grow the mining sector.
What the final outcome of Eurasia’s FSP will be, I have no idea. Frankly, I’m not an investor. But I am an investor in Trans-Siberian Gold (TSG). If anyone wants a reality check on a possible sale price, it might be a good idea to look closer at the premium offered today for TSG. Or even the premium for the takeover of Highland Gold Mining. Both Russian miners and companies that I am familiar with. Well-run, profitable, dividend payers. And, in fairness, both very good investments. But both bought out on modest premiums. No bumper payday for investors.
More broadly, it’s difficult to find ANY large companies bought out for multiples of their average stock price over the previous 28 days of trading. It very rarely happens. There are simply too many people involved in a large scale financial transaction of that nature. The likely sale price seems to leak out and that’s reflected in the market price. The large step change in value generally doesn’t happen. It may happen with Eurasia but generally, it seems extraordinarily rare.
For sure, strong oil prices are probably underpinning Trinity’s recent rise. But moving aside from the macroenvironment and Trinity is currently negotiating ten-year extensions to its onshore licences. I would have thought that the extensions plus drilling in H2 2021 using its newly acquired 2/3D seismic data will make an increase in 2P quite likely. With what are now 2C resources moving into 2P.
While a new 25-year licence for its offshore East Coast assets will ultimately do the same but on a larger scale and increase its 2P. Importantly, a new licence will tidy up the field for any potential farm-out deal.
It has several major near-term irons in the fire. Any of which could be game-changers. But this is AIM and it’s an oiler. Albeit a well managed one. So it’s still not without risk.
A long shot, I know, but I thought that IG changing its margin call requirements may have impacted Witan’s share price. It’s on the list along with 900 other stocks affected by the change. Moreover, Witan has an interesting stock picking structure (Using a portfolio of managers) and was on my watch list. However, as you point out, its performance has been poor in recent years compared to a reasonable index tracker fund.
Something that I find a little disconcerting is that two of its largest holdings are of funds (In total some 6% of the fund's assets) while its investment in investment companies accounts for some 11%. I am slightly wary of funds that buy into other funds. It seems odd to pay twice for fund management expertise. It also strikes me as a bit of a cop-out. As though the managers would prefer someone else to do the homework.
Looking at its top 20 holdings and I’m not sure that the multi-manager approach works in practice. I feel that I’m looking at a camel designed by a committee that was trying to design a horse. I’m unsure what the theme is.
Just how to interpret this I am unsure. But in the Prospectus for the GeoPro bond issue, there is a section entitled “Redemption Upon a Relevant Event”. It seems to refer to a change in the control or ownership of the key underlying assets.
If what has happened at Zod constitutes a “Relevant Event” can bondholders insist upon the repayment of capital plus interest? Is the above pertinent? If it is then it could come back to the requirements of the bondholders.
Whether or not it’s the Terry Smith effect I'm unsure but Animalcare appears to be garnering more investor attention. In Smith’s 2021 letter to Fundsmith's shareholders, he noted that he believed that COVID accelerated several existing trends. And one point related to companion animals.
“Pets — which have become more important in isolation and when their owners are at home more”.
Only time will tell if increased pet ownership proves to be a fad or a trend. Nevertheless, Animalcare has shown itself to be a resilient performer during the lockdowns and has global exposure.
As Trinity pointed out, Heritage Petroleum (And I would presume, its predecessor), has never provided 3D seismic data to an onshore lease operator. With negotiations over new ten-year licences for its onshore contract areas due to conclude by the end of March, I would expect onshore drilling to resume in H2 2021. And, as Trinity argues, there is much to play for. Its onshore assets sit in a basin with a historic recovery factor of between 12.5-18% while globally basins of a similar geology have a recovery factor of between 25-30%. This probably explains why the company is keen to press ahead with the use of technology (Used elsewhere but new to Trinidad) employed in conjunction with seismic data. The successful use of high angle or even horizontal wells could dramatically increase both its production and reserves.
Just as an afterthought, the reform of the SPT regime is most welcome. But it might be worth bearing in mind that its bids for both the Jubilee and North West District fields, as well as negotiations over new ten-year onshore leases and a new 25-year licence for Galeota, are all based on the current SPT rules. But I would suggest those rules are likely to change. With SPT reforms extended to offshore operations and not just applied to small onshore fields with production of less than 2,000 BOPD. It might be very fortunate in terms of timing.
Of course, much depends on the price of oil. But it has several major irons in the fire.
Not alone by any means. But I suspect that Trinity’s share price is relatively depressed given the long lead times that’s part and parcel of its industry. That said, the recent presentation clearly highlighted opportunities that are very much in the present.
The success, or otherwise, of its bid for the Jubilee field (1P of 14 mmbbls) should be known in Q2 2021. A serious bid made in conjunction with Cairn Energy, a positive outcome completely changes the company’s production profile. It has been shortlisted and, as the largest independent onshore oil producer in Trinidad with some 6% of the domestic market, stands a reasonable chance of success (There appear to be four other contenders in the race). And, of course, it’s already producing from its West Coast offshore assets. This would be an extension of its current operations.
Its recent purchase of 2/3D seismic data from Heritage Petroleum covers all its onshore assets. It expects to conclude its negotiations with the authorities over new ten-year licences for those areas by the end of March. It seems reasonable to assume that it will resume drilling in those fields in H2 2021. But based on a far better understanding of the geophysics. It’s also worth noting that the acquisition of the seismic data is likely to increase its reserves - it currently values its reserves purely on a well basis rather than geography. So an upward revision in reserves seems likely within a reasonable time.
Again onshore and in conjunction with Cairn Energy, it has submitted a bid for Trinidad’s North West District. A field that it describes as “a high impact exploration play”. The result and whether it gets through to the next round should be known by Q2 2021.
As for the development of its East Coast offshore assets. This is not an exploration project. The exploration has been done. It’s really a financial and technical project that is close to completion. The oil has been found. The real issue is the most profitable way to extract it. The granting of a new 25-year licence on the area should tie up any loose ends and make a farm-down an easier proposition. While a response to its field development plan is expected in the next month.
The backdrop is a low-cost operation that benefits from operational gearing. It’s now producing some 3,200 BOPD with an operating break-even of around US$20 per barrel (Including hedging). As it rolls out its Supervisory Control And Data Acquisition (SCADA) technology across its onshore operations and reduces its production volatility, costs will likely fall even further. Incidentally, it may hedge some 50% of its output over 2021. But about 85% of that covers the downside. It has not constrained itself in terms of the upside to the price of oil.
Like any other resource stock, it comes with inherent risk. But it has a variety of near-term opportunities both onshore and offshore. In the meantime, it accrues cash.
Just for clarification, Caledonia issued around US$2 million in new equity in the ten years up to 2019. Then in 2020, it issued around 600,000 shares (Raising about US$12.5 million) to fund its solar project. Which, on commissioning, should provide some 27% of its total electricity needs. But the point I was making, in my view, still stands. This is a company that has guarded its equity very well and has avoided the dilutions that beset many AIM-listed resource stocks.