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A sideways view for sure. But Touchstone's recent success has moved the spotlight, albeit modestly, to Trinidad. From a geological and operational perspective, it's largely irrelevant to Trinity but I suspect that it may make funding the TGAL development a little easier than would have otherwise been the case.
This simply reminds me of one of the reasons why I invested in the company in the first place. Legislation on both sides of the Atlantic now makes certifiable supply chains for key minerals a very important consideration for multi-nationals. The article is based upon Cobalt but it could easily be substituted by Tantalum. Obviously, the outcome of the lawsuit is yet to be determined but, in my view, it does demonstrate the direction of travel.
https://www.theguardian.com/global-development/2019/dec/16/apple-and-google-named-in-us-lawsuit-over-congolese-child-cobalt-mining-deaths
If the Government is about to turn on the taps of public expenditure, then Gleeson should be a beneficiary. As a North of England specialist housebuilder focusing on the lower-priced end of the market coupled with its expertise in urban regeneration, it stands to benefit. I would also suggest that there is a political drive to rejuvenate these areas - to some degree, voters in these left-behind places have propelled the UK out of the EU. There seems to be an expectation that the Government has to do something about what might be described as Northern working-class alienation. Building much-needed housing appears to be a good idea and that can only be delivered through companies such as Gleeson. The Government cannot import these homes and it has no capacity to build them - the only viable alternative is the private sector.
The big downside seems to be the economic cycle; we are due a recession and traditionally the housebuilding sector gets hit badly. For the moment, Gleeson appears to be in a strong position but for how long I am unsure. I remain invested.
Of course, it's all with hindsight but maybe this time the auditors did their job. If we look at P24 (The Audit Committee Report) of the 2019 Annual Report it states in respect to the company's global accounting operations “The need for action was emphasised by internal control weaknesses and misstatements identified during the external audit of the 2018 accounts”. On P25, it added, “The Committee has requested that revenue accounting should be a particular area of focus for the on-going enhancements to the Group’s accounting systems.” Possibly something of an understatement on P116 (Independent Auditor's Report) “Overall the findings from across the whole audit are that the financial statements use some mildly optimistic estimates, slightly favour current year revenue recognition and are light on disclosure.”
A red flag that may have been missed, certainly by me, was the dramatic increase in the cost of its audit. This rose from £268,000 in 2017 to £478,000 in 2018. For sure, it pointed out that the audit required more hours due to the growing complexity of the business. But it's difficult to see how it became almost twice as complex in a year. Again, with hindsight, someone may have asked them to take a closer look at this mess.
Incidentally, what I found most attractive about the company's model was its decentralised structure. This appears to have been its biggest flaw. It was not supported by adequate internal financial controls. My main concern now is just how systemic the problem is. According to the company's interim report published in September 2019, the problems related to four of its UK units. That seems pretty systemic to me. So the key issue seems to be this. If we remove the smoke and mirrors just how profitable is the business? Without a lot more information that's difficult to figure out. And there's one further and important thought. This is a people business. Will getting rid of the problem involve getting rid of the (Key) people?
Yes indeed, this is a company that could be a key player in a strategic and increasingly controversial and vital resource but is valued at little more than a modest house in London's Chelsea. But what I find most disappointing is that this appeared to be a resource producer that could, through an off-take agreement, step up production and develop its assets. However, it ended up as a different animal with its focus purely on obtaining a JORC-compliant report and is no longer in production. Having said that, the results that have been published seem to be very positive. It may no longer be a producer but it's far from being an explorer.
Just what the management intends to do with this business is unclear. Those taking a longer-term perspective may be well advised to take a look at Amerisur Resources - run by the same management team. It's now subject to a recommended cash offer that is probably a fraction of what most retail investors were expecting. But it's a profitable enterprise that has been developed in a very difficult place to do business.
Unless it has grand expansion plans, it's difficult to see how this company can support a London listing and, of course, a Board of Directors. That leaves one major option and that's the sale of the business in its entirety. So the real question may simply be: How much is an oven-ready Tantalum project worth? I suspect a lot more than the company's current market value. But this is definitely very high risk. And losses could be 100%.
A small point but something worth mentioning. At today's webinar, covering its interim results, the company made clear that it avoided the German automobile sector. Sure, it was interested in renting space to companies at the more futuristic end of the car market, such as those involved in autonomous driving but it appears to be avoiding the more commoditised side. Given the size and importance of the industry to the German economy, I would suggest that this is not an unimportant factor.
As for its outlook, it does not seem to be experiencing a decline in enquiries, something that it believes is a good indicator of future demand for its space. Interestingly, it's also not encountering lengthier negotiation periods with prospective tenants – as the German economy gets more fraught, tenants seem to protract their negotiations.
Its overall strategy appears unchanged. It still seeks to buy real estate at some 50% below its replacement cost and to leverage its capex to substantially increase occupancy at modestly higher rental rates. And to benefit from the subsequent revaluations. But it's worth remembering that it intends to remain a light industrial specialist – with office space taking up no more than 40% of its portfolio.
Basically, it seems to have a model that is working well and has significant mileage.
I continue to hold.
Paul Blakeley, CEO of Jadestone, recently gave a presentation at a London South East evening event. At the time, he struck me as a serious operator and so the company was worth watching. Just how this pans out, I have no idea and I am not currently a shareholder. However, something that caught my attention was its stated intention of paying a dividend in 2020. Considering that it was listed on AIM in October 2018, this is quite an achievement. Taking a look sideways at Amerisur Resources and the risk of waiting for a major pay-off on the sale of a company is apparent. Many resource stocks on AIM work to the same formula. Investor rewards are largely back-ended while management rewards are in cash and on-going.
Taking money out of the company on an ongoing basis may make as much sense for shareholders as it does for managers. That is subject to the normal capex requirements of the enterprise. And contrary to popular mythology that does not preclude the sale of the business.
Awful as it may sound, there is probably a cusp in terms of South Africa's economy at which it works for Pan African. Should the country be going really well, the Rand will soar. Should it go really bad, there could be chaos and the Rand will collapse. To some extent, both scenarios are a disaster for the company because although its output is valued in US Dollars, it needs a degree of stability. With the economy in poor shape but still very functioning, Pan African stands to do well. That seems to be where it's sitting at the moment.
And let's not forget, unlike many of its peers, it has both overground and underground Gold production situated at two separate locations. The overground offers considerable stability as its tailings production is quite predictable. And it has also utilised a Gold loan and has put in place hedges. Basically, although it's in South Africa, there is some mitigation of risk.
My primary concern is political. Will South Africa go down the same pan as much of the rest of Africa? I would suggest that providing nothing calamitous happens in the next two years, the company is probably going to be fine. Its restructuring is complete and it's now paying down its debt and that should be largely completed in the next two or so years. Of course, it's risky. It's a Gold mining company in Africa and that comes with risk.
Am a tad surprised that no one seems to have picked up on Nick Clarke's recent appointment as a non-executive Director at Caledonia Mining, the Zimbabwe focused Gold producer. Putting aside crude generalisations about Zimbabwe's economy, it's obviously a country crying out for investment and Caledonia is a profitable and dividend-paying company that appears to know how to navigate the environment.
Whether this has a read-across for Trinity, I am not altogether sure. But Range Resources has just sold a portfolio of its Trinidad assets for US$95million. Putting that into some form of perspective, Trinity with a production of some 3,000 BOPD has a market cap of around £40million. Range for H1 2019, produced just under 600 BOPD. Yes, I know that does not give a picture of its reserves but I would suggest that Trinity's assets have a higher standing in the market than those of Range.
And as I have mentioned before, there seems to be scope for merger and acquisition activity simply based on the numbers of quoted oil companies based in Trinidad.
bigsmoke, my fault. However, I think the article can be found by using the heading "ONGC to acquire Imperial Energy" and making a search. That should take you to it.
Yes, I know it's not exactly recent but this piece from the FT published in 2008 outlining ONGC's bid for Imperial Energy may provide useful background. It's also worth mentioning that Peter Levine now controls President Energy. Although its focus is on Argentina, it also has assets in Paraguay. As does Amerisur. Something else to bear in mind is the premium to the market price offered by ONGC – some 62%.
https://www.ft.com/content/0538d902-733a-11dd-8a66-0000779fd18c
Just how relevant this is, I am unsure. But Nathan Piper from Amerisur was booked for an evening event at the Scottish Oil Club on 19th September. However, it now appears that the CEO of Africa Oil will be presenting instead. With Amerisur up for sale, cancelling the presentation seems perfectly understandable. That said, I thought that this would have been arranged some time ago - the Club sent out reminders for the event on 19th August. Is an announcement imminent?
The company spudded its first Egyptian well on 16th July. It might be a good idea if it updated the market as soon as the results are known. To do otherwise would appear to create a vacuum into which all sorts of rumours can be poured. After all, it does represent a significant price-sensitive event.
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.
https://www.edisongroup.com/publication/solid-push-towards-year-end/24431