Roundtable Discussion; The Future of Mineral Sands. Watch the video here.
Thank you Sajy - your update & sharing is v much appreciated!
Agree an update from CEO on strategic deals / progress, would be good, BUT It would be great for the CFO to take us through the interims as would be best practice - other nat resources / commodity names (listed & private) always have the CFO explain the numbers to investors, and, to fold in RR theme from other post, would show team leadership, not just one man show.
It’s going to be a very technical set of interims which a CFO should speak to - eg1 the Nigerian FX piece (I am braced for material negative short term impact, despite the sunny uplands assurances of positive long term); eg2 CC revenues - few months’ upstream and cotco (~40% of $155m treated as receivable?), provisions (?), CC fees; eg3 newly amended pxf terms will show up in numbers(?); eg4 new / renewables fte impact at Head Office on the HO / management costs, etc, etc. At the AGM was poor CFO not present and it was suboptimal not to get a clear and thorough explanation of FX, when everyone on the EM ‘street’ was aware that there were / are big issues with $ in Nigeria, and SAVE had material NGN deposits. To name a few. Not the CEO’s role to explain this stuff.
DYOR Cheers
Thanks so much for sharing Rocky!
LST - I know you’re not being negative, but I am a bit more positive - there will be other avenues / assets / funds to go after in the unlikely event we cannot obtain this- through the supply chain / financial chain. See other posts on Mareva injunctions.
(Cont)
…we may need to be patient given all these multiparty negotiations (presumably) on each of the SS portfolio assets. Interesting btw to read the ONGC websites you refer to. Also worth a read of ONGC’s prior glossies - quite a lot of detail around SS. I’m really curious about capex commitments and operatorship where we are majority owner for example. Also, like Zengas, I’m very curious on the topic of purchase formula! Let’s hope capped at maximum $50m upside…
I’m also very hopeful on the CC arbitration going SAVE’s way and being enforceable - following reported comments from the AGM on this bb end July - and then researching successful direct expropriation arbitration history through this summer. I’m feeling much more confident on this and it’ll be really interesting to see the published award and view the arbitrators take on the valuation : ie the March 2023 ‘default’ / direct expropriation date value of the assets versus the 1 Jan 2021 purchase price. This could positively surprise.
Hopefully we’ve had all the “twists and turns” on this company for a corporate lifetime - one could not have made up the extraordinarily challenging last 18 months geopolitical / expropriation events - Chad, Niger, Nigeria, Sudan. RockyRoad is aptly named indeed!
Dyor
Thank you CYB - you’ve obviously thought long and hard about this, have made conservative assumptions and, importantly, made a decision - for current model purposes only - as to where to park the material, substantial, ($35m from memory, fast rising towards $40m given recent hires?) head office cost.
It’s a PV15 model as I understand it, to start with, which is, as you say, conservatively assuming the business stops end 2028. So it’s conservative but makes sense given (a) with 15% discount cash flows for later years aren’t significant (b) given the Emerging Market nature of businesses.
On reflection of your assumptions and model inputs: It makes total sense to me that Nigeria is allocated the head office cost. I ask myself where else one could put this? We now know the CC refi means Cameroon biz / revenues is effectively working for XOM. This changes when SAVE wins and receives settlement for the arbitration over the expropriation by Chad. Then it could bear a share of overhead. It would also change if SAVE closes SS - HO overhead would then be attributed to Nigeria and Sudan businesses. But until then, right now, SAVE effectively has one business. I’m not sure where else it can go. And it’s s big drag on a business that has material debt at a high 15% carry / price. Niger will take years now to get up the j curve and assume a portion of overhead.
On this point, btw: It’s confronting to see the 15% assumption in your model on interest rates after we’ve been used to 10% - but again, on reflection, after swingeing interest rate rises over the last 12 months - this is spot on. Quite a shock to see it though! Any debt at these levels is a serious dead horse being dragged along on any business. Agree on the positive side AK nailed LEK - a real win - but due to the dramatic turn of events in Nigeria (which could not be controlled) and potential impact on our NGN cash at bank and the FX loss we have no idea SAVE’s net debt there - post devaluation of the currency - impact on deposit - I note btw you used a gross debt number for this reason but am guessing your net debt number is similar to other posters.
I would agree that a cashflow model is appropriate: Turnover is vanity, profit is sanity, cash is reality! The energy market looks at / values purely discounted cash flows, not NAV - I’m painfully aware of this on RSE - anyone taking a look at this energy fund can see the massive discount to NAV attributed - because the discounted cash flows don’t support a higher SP. SAVE isn’t an exception.
Anyway, thought I’d share some quick thoughts since your thoughtful post.
This bb is the highest quality I read and all posters are very respectful & thoughtful- which I really appreciate.
Here’s hoping for some good news on the very complex portfolio of assets wrt SS negotiations - with multiple stakeholders on each project, discussion on capex commitments & operatorship responsibilities,
Thanks Rocky - all that & your conclusions make perfect sense. Your sharing is very much appreciated.
One assumes/hope Petronas is also pretty engaged with SAVE in requesting SS Gov for timely signing. I hope also reassuring SS Gov over the potential off-take for the Pre-Export Financing. But these are my guesses only.
DYOR
Good weekend all!
Bloomberg reporting Niger Presidency Says Leader ‘Doing Well’ After Reported Capture - President Bazoum reported seized by Presidential Guard. West African regional bloc condemns attempted military.
https://www.bloomberg.com/news/articles/2023-07-26/niger-presidency-says-leader-doing-well-after-reported-capture#:~:text=Niger's%20presidency%20said%20the%20West,President%20Mohamed%20Bazoum's%20official%20residence.
TIL - see RockyRide’s post 14 July with quote from IR:-
From: RockyRide
RE: Observation on timings14 Jul 2023 12:27
Spooky - Just got a reply from IR and not Camarco. Adding to the reply below, I did not hear the 28th July mentioned one single time at the AGM but I did hear Q3 mentioned a few times. Looks like they are sticking to Q3 but that does not necessarily mean it will go past 28th July. However, if it does pass that date I wonder if they will be obliged to issue another RNS as they have definitely published the date of 28th July in other correspondence. Wish they would stick to one set of timeline guidance and use the same words in all correspondence to us.
“As per Andrew’s letter to shareholders in the 2022 Annual Report, page 19, we are guiding that the transaction is expected to complete in the third quarter of 2023, alongside the publication of a new Admission Document.”
Thanks Rocky.
So an interpretation of that pretty clear msg is - investors should ‘stand down’ any expectations of 28 July /immediate relisting and wait for Q3, as advised by the CEO most recently.
This makes total sense now. Thanks for sharing.
DYOR
Thanks Rocky. Interesting.
Great to see you back RR!
Thanks Zengas, really good summary notes. For those in the meeting room the sound quality on the AK Zoom dial in was very poor, so Zengas has picked up good detail which I reckon at least half the room couldn’t hear.
To add to below notes - not in any order other than meeting order - so points aren’t linked consecutively:-
-$8m cost of pipeline
- Renewables - envisaged timeline 2024->2026 - debt financing not foreseen to be an issue given liquidity for renewables excellent - projects involve partnerships
- question on share dilution - AK said would only ever happen if material deal that was In interests of the shareholders
- gas trade receivables increases as 25% increase in commitments and commensurate increase in credit provision
- naira - usd denominated gas sales meant v positive moving forwards for save . Also- means refinance opportunity. Prior to devaluation save converted deposits into dollars and also used some for Compression project as required significant CapEx
- Nigerian diesel and petrol subsidies removed by Gov means increase doubling of petrol and diesel prices to the consumer. Diesel used for generators as well as transport - quite different to Europe. On other hand, this makes electricity from gas more attractive as has only increased by 40% with fx adjustment.
I’d add that
1 - the IR team clearly we’re trying their best to get people in to the meeting - it was flagged that comms were sn issue and Sally & team did her best.
2 - existing and new Chairman attended in person
3 - the new Chairman is very impressive
4 - - most unfortunate AK/CEO and NB/CFO not there in person - but some new NEDs there in person - assume it was because of a very important conflict for ask and NB - it would have been good if this had been explained / apology given
5 - brilliant to hear so much today from CEO who we know is ‘across’ everything but also important to demonstrate a broader and senior team - CFO should have presented financials / numbers / Naira issue & thrown back to CEO - but not the end of the world - just an opportunity missed
CYB - all good points, thank you.
Totally agree - underlying Nigerian business financials look solid. So an underlying business that is materially improving, with increased diversity of end buyers, and looks highly bankable for this key strategic segment within Nigeria.
To your main concern you surfaced: I think (hope) local banks eg Nigerian FIs will take a view of ring-fenced domestic assets in their lending and would hope they look through the lack of a clean auditors opinion and ‘get’ the broader context of the breach / misappropriation in other countries.
Confirmation of this pretty key question that emerged from the qualified auditors numbers and impact on the Nigerian refi is a question that remains unanswered in the FY22 glossy - for understandable reasons given events were in FY23 - however, I would hope this is addressed at the AGM if not before.
I’m personally keen to understand the numbers around the Exxon PXF - not just because of the obvious reasons shareholders would have for having transparency on this (vis a vis debt position (local and group) as well as whether partially or fully unencumbered now so shareholders can understand bottom line impact to the company of a positive / expected ICC Award in save’s favour (should settlement occur); but also as it’s presumably the template for SS.
I am trusting this will be made clear at AGM - if not it will be asked.
BTW I really hope people focus on key questions like this in the AGM rather than less key / material questions, as time Will be short.
Personally, questions around relatively small dividends for a growth company such as this are simply not interesting, & repeated questions on this topic at the AGM could waste precious time.
I’m keen to understand lessons learned from CC / applied to SS and the key high level principles to apply for what we are all guessing is a large Petronas PXF - key to know what SAVE SS is on hook for, what the proforma repayment schedule looks like, particularly should there be any disruption of the exports or in case of misappropriation.
Both questions on the Nigerian refi and the 2 PXFs are key as the company’s debt load and increasing costs with current interest rates having materially increased.
Would be good to understand how much cash is surplus to the debt servicing and free to invest now in preparing to ‘release’ & monetize Niger barrels in 2024, which will take investment in capex NOW - eg 30km of pipes, etc etc.
Thanks TIL. Agree quite a lot of activity on social media from the company.
While the AI stuff recently shared is hugely encouraging - My thoughts or guesses are that IR isn’t working on the stuff that we’re really keen to know about as it’s simply too early as SS not buttoned down with Gov til Summer (at best) or Autumn 2023. So they have time to post about SAP awards etc on social media. Doing their job of maintaining good brand awareness.
So I’d suggest the following info drops in June / after Gov agrees SS - earliest - in whole or part - maybe a trickle of info June onwards only to Dec :-
Summer - June earliest (suspect trickle through Sept - Oct- Dec) messages via RNS etc
1) Nigeria - v solid Gas Sales revenues 2022 / expected solid 2023 - conservative but +ve guidance only for 2023. This is key to sp. The market believes the $ from Nigerian biz. (Show me don’t tell me)
2) Niger - release a plan to build pipeline / spur to cnpc pipeline - completion realistically expected Q4 2024. Not much detail on when nodding donkeys might be hard at it - aim being Q3 2024 to coincide with save pipe spur to main cnpc pipe. Update on renewables / roadmap to FID Q1 2025
3) SS Gov update - hope announce approved but may be announcement of cancelled SPA (I hope not)
4) CC - ‘sotto voce’ due to geopolitics & litigation / diplomatic risk. It might be only a footnote - (a) arbitration won, (b) repaid XOM Prepayment Finance (PPF) - asset unencumbered. (Basis: we’ve had economics of these assets (flows plus pipeline fees) for 2.1/4 years. Average Oil price PLUS Doba premium being unprecedentedly high last year March onwards - means the debt repaid massively early. (Refer pages 88-91 of docs shared with market around purchase. $170m PPF)
Of course I hope for more to be shared; and of course for positive developments on all above; but if we got 2-3 out of above as vaguely positive news it should be hugely / massively accretive to SP on re-listing
Usual caveats - DYOR
Thanks TIL. Great points and helpful article.
Terrific post, thanks Zengas.
Will be interesting to see the brokers responses / revised (upward) target prices, or if they’ll wait til Petronas acquisition completion announced before revising. I hope not.
The XOM asset acquisition completion could perhaps signal a somewhat de-risked Petronas completion. Will be interesting to see market response tomorrow…
PF, I’d suggest that reducing the term from 7 years to 2 years is not a concern given (a) the workout arrangement with economic benefit from Jan’21 that has resulted in the considerably lower final consideration to be paid by the Buyer and (b) the prior 2 year’s revenues (stripping out extraordinary items), which again goes to likely revenues over next 2 years.
This PXF loan reflects the confidence in the speed that both the Seller, turned financier, and the Buyer, believe repayment can be conservatively achieved. No sensible lender or borrower would agree to an aggressive / unrealistic repayment schedule and this lender is the most informed about the assets/repayment ability.
The lender also will have knowledge of the borrower’s oil sales contract with the marketer, which is part of the collateral provided for the financing. This could have a a forward fixed sales component through various mechanisms.
from quick read think combination of $ debt and $ from cashflow component mentioned.
Consolidated b/sheet and cashflow analysis in coming days will be of interest…
Anyway, a nice surprise on a Friday evening!
It’s Science, CYB (aka Mr White), respect the chemistry. [With Apologies to Breaking Bad]. Think you’re spot on with your calcs. Doba premium to Brent post Feb’22 anecdotally noted by oil traders in public to be materially higher than prior years. Will be fascinating to see what happens but my read is the sp currently purely values Nigerian gas business on a discounted basis, and is waiting to see on CC, Niger & Renewables - in that order - on a ‘show me $ revenue don’t tell me’ basis. An announcement of a completed acquisition of valuable CC assets for ~$170-250m will challenge this thinking, I’d have thought. But maybe the skeptics will need to see an audited year of earnings from CC…who knows, but buckle up and enjoy the ride!
Tier, I think CYB is saying look at the timeline of the P-G Chad acquisition. Announcement Nov’21. Close just occurred. SAVE CC announcement occurred after P-G announcement. So we could reasonably expect a close after P-G close, all things bring equal.
Fundamentals look solid. GS: https://youtu.be/iUvXhMmHJyA
Sage
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