Member Info for tim000

The Directors plan to effectively ring fence the LOGI cashflow for shareholders and pay performance fees on any surplus cashflow into the business on top of that. Performance fees should be of the order of 10% of that net cashflow. The investment strategy will be cautious; the two Directors are major shareholders and won’t risk precious capital on risky investments. The target yield on their debt investments is at least 10%. They will consider buy backs of their own shares at some point, once cash builds up in the business and should a significant discount to NAV persist. Buybacks sensibly are preferred over dividends. The Directors have good connections and plenty of experience in many jurisdictions to help them with their investment strategy. Speculatively, I think they might favour the O&G industry. A new website is planned and shareholder communication should improve, including responding to PI queries. The intention is to build a sizeable business in the medium term, utilizing cashflow from the LOGI asset. I was reassured that the LOGI asset is very secure, subject of course to oil prices and field production remaining within expected levels. On that point alone, the shares trade at far too large a discount to the likely cashflow from the asset.

I was the only shareholder present at the AGM, which afforded me the opportunity to talk to management in some depth. I’ll post a more detailed report later, but I came away completely reassured that we are in capable hands and that our interests are aligned with those of the Directors.

I don’t have such a knee jerk reaction to this news. I will try to attend the AGM to find out more about the strategy. If the Directors have appropriate skills, there is potential to exploit market inefficiencies and make good profits.

I have emailed the company and also been ignored. I hope that will change when they have more positive news. If the AGM is in London I’ll attend that and speak directly to the Directors.

The annual results show a slight increase in NAV, as the previously assumed discount rate applied to the value of the loan has been reduced in view of repayments being on schedule to date.

A bumper payday. Still a net $29mn owed and cash balances are now roughly 50% of the current mkt cap. We should be hearing fairly soon what plans the company has to utilise its rapidly growing cash balance.

I’ll speculate that the delayed receipt of US$, due in February but not received until April, is related to the sharp depreciation of the naira at the end of January. It’s possible that to stabilise the currency, the government stopped businesses transferring US$ overseas. The naira has strengthened recently, maybe allowing dollar outflows to resume.

New RNS today. Payment due in Feb was just late it seems, no explanation given. Another payment due this month, so back on track.

Has anyone any thoughts on why the company has stopped all announcements? I’ve tried contacting them but got no reply. Silence must imply either good news or bad news (ie debt repayments have ceased). If the latter, surely the company should have announced that already? I’ve wondered whether our Directors would be open to a RTO of the borrower’s assets, whereby the borrower is able to strike out its debt, whilst getting a majority shareholding of the (UK listed) enlarged group. We shareholders exchange the loan for a minority holding of the entire oilfield (currently we get 8.65% of its revenues for a limited time). Some kind of transaction with the borrower would explain the silence; either of the kind I’ve described or simply a one-off payment to cancel the entire debt.

A 2p share price implies a mkt cap of £10mn, still a very substantial discount to the book value of the business. With the current oil price, the borrower will have no difficulty making the repayments.

I’ve been buying again today. The company now has an EV of less than £3mn but a monthly income stream of ca £400k with a total value of about £25mn, so about 5 years’ duration. The current mkt cap implies a discount rate of over 60% pa, which is nonsensical.

Today’s trade was a buy at below mid-price

That trade was mine. Including another buy today, I’ve now accumulated 1.4mn shares and might add more if there are any dips on sales. 0.4p per share annual dividends looks a reasonable target, implying a distribution of about 50% of FNK’s free cash flow. That’s a current dividend yield of about 50% and a p/e of about 1. Risk doesn’t look as great as implied by the current share price.

I bought 650k today @0.7p, and 350k yesterday. I imagine the 500k trade today was also a buy. I can’t imagine LOGI breaking the agreement; it’s too favourable for them and an international court case would surely follow, possibly freezing their entire income in the meantime (see the current SAVE dispute with the Chadian government). Our Directors are significant shareholders, so I doubt they will waste money - but may choose to prolong the company’s existence (and their salaries) by acquiring assets, rather than returning all funds to shareholders. That’s the largest risk from my perspective. But seen as an annuity, the value of the asset is not remotely reflected in the share price, that will surely change next year as regular LOGI payments continue. Patience should be rewarded.

The other alternative is that with strong electricity demand, a bounce back in PLF requires additional working capital in the short term, to finance the extra output. Remember PLFs were very low until recently. It’s likely though that the sharp fall in coal prices, hike in electricity prices and high PLFs will produce good profits and cashflow over the FY.

Indian production of non-coking coal increased by about 100mn tonnes to 830mn tonnes in FY 2023 and is targeted to increase by another 100mn tonnes this year; the extra output will be targeted at meeting the needs of gencos. Further large increases in production are planned for the medium term. By contrast, there is currently a ban on new coal power plants. So the domestic power market is rapidly transitioning to one of excess coal supply and sharply falling production costs, leading to cheaper energy. OPG should be a major beneficiary, in terms of high PLFs and cheap inputs.

The June NCI was published today. The full release can be found on the Coal Ministry website under the National Authority section. Middle grade non-coking coal prices declined 10% from April to June. Auction prices (which OPG hopefully is participating in) will have declined more sharply.

Let’s hope that there are further Director purchases so the numbers become more meaningful. I wouldn’t object to an eventual offer from the Gupta family, I doubt the institutional shareholders would accept a lowball offer.

True, many companies allocate surplus capital to buybacks as well as dividends, especially in situations where they can utilise historical losses to avoid paying any corporation tax - so shareholder distributions via buybacks incur no tax at all. However, surely that doesn’t apply here as it’s not a buyback but a shareholder purchase? You could argue that a majority shareholder buying more shares cheaply reduces the cost of taking the business private, but that’s not a tax issue. I don’t know enough about the tax system to know how share purchases by the Gupta family are tax efficient.

I don’t think they’ll buy back shares prior to an announcement of such a policy, likely to be in the annual results in September. It’s not certain they’ll do anything even then, but the trading update was surely a hint that some investor friendly policies are imminent. I imagine the new activist institutional shareholder has been talking to management. Wish we had the same opportunity!

I mentioned a sharp decline in prices in April. Worth pointing out that is based on CIL auction prices (OPG sources its domestic coal from such auctions), source Coalmint, whereas the broader NCI (calculated from fuel supply agreements, imports and auctions) showed a slight increase in April. That’s because auction prices (the source of marginal coal supplies) are falling very sharply indeed due to excess supply. By contrast FSAs are more like short term fixed price contracts. So the May NCI figures are likely to be an underestimate of the decline in prices faced by OPG when purchasing domestic (and imported?) coal.