Like many other investors in these stormy times, I'm reviewing my entire portfolio, asking myself whether I should be crystallising losses, gritting my teeth and holding on, or taking a deep breath and buying more. (And of course, whether I should be taking entirely new positions too).
Overall I'm 50-50 cash vs stocks. I currently have about 3% of my total portfolio in Aminex which is one of only 2 holdings which give me real cause for concern. I've been surprised by the recent collapse in the SP following the disappointing outcome of the drilling at Nyuni. My perception is that the market sees everything now riding on the imminent drilling at Ruvuma. COS there is 10-20% ish which means the most likely outcome is failure. I am concerned that such a failure could lead to a furrther collapse in the SP.
Ive been trying to get up to speed on the situation at AEX, the current valuation and the impact that failure at Ruvuma (which is the most likely outcome) might have.
Shore Capital Stockbrokers is one of Aminex's house brokers. That means they have the advantage of being close to the company and hence should be well informed. The concomitant disadvantage is that their relationship with Aminex makes it more difficult for them to be objective and impartial.
Shore published a note on November 4th, which can be found via the Aminex website - link to Shore note. The note is, in my opinion, well worth reading.
The single most useful part of it is the valuation which looks like this:-
|
|
Unrisked |
CoS* |
Risked |
Unrisked |
Risked |
Risked |
|
|
US$m |
% |
US$m |
US$/share |
US$/share |
GBP/share |
|
US reserves |
70.0 |
100 |
70.0 |
0.09 |
0.09 |
0.05 |
|
Oil services |
2.8 |
100 |
2.8 |
0.00 |
0.00 |
0.00 |
|
Net cash |
18.0 |
100 |
18.0 |
0.02 |
0.02 |
0.01 |
|
G&A |
(27.0) |
100 |
(27.0) |
(0.03) |
(0.03) |
(0.02) |
|
Core NAV |
63.8 Special Offer: Invest like Buffett, Slater and Greenblatt. Click here for details » |
- |
63.8 |
0.08 |
0.08 |
0.05 |
|
Kiliwani North |
17.7 |
70 |
12.4 |
0.02 |
0.02 |
0.01 |
|
Nyuni appraisal |
98.4 |
30 |
29.5 |
0.12 |
0.04 |
0.02 |
|
Nyuni exploration |
552.9 |
10 |
55.3 |
0.68 |
0.07 |
0.04 |
|
Ruvuma |
281.3 |
10 |
28.1 |
0.35 |
0.03 |
0.02 |
|
Total NAV |
1,014.1 |
- |
189.1 |
1.26 |
0.23 |
0.15 |
What this says, in effect, is that the current SP is fully underwritten by US assets. (I'll take that with a pinch of salt, given the apparent difficulty in selling such assets at acceptable prices). Despite my deployment of salt, it is clear that is that Kiliwani, Nyuni and Ruvuma are not reflected at all in the current share price. From which it should logically follow that failure at Ruvuma should not have a negative impact on the share price. Which observation inclines me against immediate disembarkation.
Of course, markets do not run on pure logic, but on a variable/volatile admixture of logic and emotion. I fear that failure at Ruvuma would lead to capitulation and to a desperate sell-off from even these depressed levels. Which suggests it might be a good idea to jump ship now, or at least before the drilling result.
Weighing up these 2 alternatives, I notice that the valuation attributed to Kiliwani is only 1p per share. Even after it gets fully derisked, that will only increase to 1.5p - not exactly a fortune. No doubt there are operational reasons (ramping up production, pipeline capacity constraints etc etc) which mean that the value will increase over time and no doubt too that there is potential value in the areas which surround Nyuni and Ruvuma which could ultimately exceed the values used in the calculation above by a very significant margin. But the investment case is still not quite knocking my socks off.
Shore's conclusions seem eminently sensible
"...It will take the market time to get over the Nyuni-2 disappointment, while the forthcoming Ntorya-1 well is, of course, not without risk. However, Aminex shares do appear fundamentally undervalued according to a conventional valuation methodology, in our opinion, so we think that a more positive flow of news in the coming months has the potential to drive a share price recovery from current lows. Importantly, Aminex remains adequately funded, according to our forecasts, and has some important milestones to look forward to, including spudding of Ntorya-1 and commercial production from Kiliwani North...."
For the time being, I'm tending to the conclusion that I should grit my teeth and hold on. But I'll leave it to my unconscious mind to continue reflection.
Anyone else with thoughts to share in the meantime?
Disclaimer:
The author may hold shares in this company. All opinions are his own. You should check any statements that appear factual and seek independent professional advice before making any investment decision.
Aminex PLC is engaged in the exploration for, and the development and production of oil and gas reserves. Its principal area of activities includes the United States, East Africa, North Africa and North Korea. Its segments include Producing Oil and Gas Properties, Exploration Activities and Oilfield Services and Supplies. The Company's licenses in Tanzania include Nyuni PSA, Kiliwani North and Ruvuma PSA. During the year ended December 31, 2010, it drilled three wells, one in Tanzania and two in the United States. As of December 31, 2010, the Company held leases at Shoats Creek covering approximately 2,100 acres. Aminex Oilfield Services & Supply Company (AMOSSCO), its wholly owned subsidiary, provides logistics services to oil industry and sources oilfield equipment and consumables to international oil companies. In March 2012, it announced that Aminex USA, Inc. its subsidiary, completed agreements to sell leases and other assets consisting of the Somerset Field in Texas. more »
15 Posts on this Thread show/hide all
I tend to be in agreement with all of that. It does seem to me that on any rational basis that failure at Ntorya is fully priced in, but of course the markets don't work like that! I will be holding, for now at least, to my holding, which is also now about 3%. I have had thoughts of topping up at times over the past months, but have managed to resist, so far. A luke warm response to any success at Ntorya might make me think again on that.
I think it would probably be possible to argue that the COS figures Shore has used for Nyuni and Ntorya are on the low side, though I wouldn't want to go to far with that argument at this stage!
AEX is not going to be awash with cash for some time at least, but with US production being slowly ramped up and KN coming on stream in due course cash flow will be improving. I'd be very surprised if Nyuni doesn't yield up some production at some point too, though the path to that may not be entirely smooth!
.
I fear that failure at Ruvuma would lead to capitulation and to a desperate sell-off
Haven't we already had capitulation and a desperate sell-off?
As noted elsewhere, the "success" probability at Ntorya needs to be tempered by the view that gas discovery isn't worth much cash in the near future, and is gas more probable than oil?
The market doesn't want to touch Aminex at present because it fears another equity issue at these very low levels. Investors should clearly tell management that an equity issue below 10-15p is impractical, will not be supported and will fail. The company needs to communicate that whatever its cash needs in 2012-13 are, they will be funded by asset sales. It's time to realise some of that NAV, not have it meaninglessly floating around on analyst's notes. The trouble with the recent IMS was that 2012 appeared to be just marking time, going nowhere and doing a bit more Nyuni seismic before (it appeared) the next equity issue in 2013. If management communicated that there wouldn't be an equity issue at all at these low levels then the shares would start to recover. The way forward is getting production going at KN and Shoats Creek, not further equity issues for explo.
It's no good it being implied that it is just bad luck that is Aminex's problem. With all these equity issues management has followed the wrong strategy. Management can start to improve sentiment if they made clear there would be no equity issues at these low levels, and started to sell assets in order to realise some of the paper NAV.
Good analysis Tournesol,
One aspect that worries me is that they either get taken out cheaply,as there is effectively a free stake in E Africa,or to protect themselves they go private.
I dont know how well they are protected,but they have been vunerable for a while now and no one has swooped in.
So if equity issues are no longer the way forward can the US production cash flow fund Tanzanian drilling.
I somehow doubt it.
FH
...and they were saying the same thing last year, before it went on to lose two thirds of its value -
"UK and Irish-listed Aminex has a current market cap in the range of GBP 30.95m, with a share price of around 7.50p. Its brokerage’s equity house, however, said the company’s net asset value would be reflected in a 26p per share price."
http://www.ft.com/cms/s/2/a5cec7d6-7aff-11df-8935-00144feabdc0,dwp_uuid=e8477cc4-c820-11db-b0dc-000b5df10621.html#axzz1ejzdwFOq
Anyone holding this is just punting on the next well result now.
I can understand the psychology of long term holders not wanting to miss out on the potential jackpot and wish them luck.
Others amongst you might want to take a look at SACoil
http://boards.fool.co.uk/hi-ghh-sacoil-sort-of-hinting-that-something-12417692.aspx
The advfn thread has some decent links
http://uk.advfn.com/cmn/fbb/thread.php3?id=25511282
and what's this further cautionary announcement all about? GHH seems to think ther's a takeover in the wind. I hope he's right.
http://uk.advfn.com/p.php?pid=nmona&article=50168744
repo
Repobear
Please do not use this thread to ramp unrelated stocks. Let's stick to the subject under discussion.
Feel entirely free to start another thread to discuss SACoil if you wish.
Thank you
T
In reply to tournesol, post #6
It was hardly a ramp T. Just trying to highlight some value. I can't be arsed starting another thread. If anyone else can see the value feel free to do that. My apologies to anyone reading this who thinks it is a piece of shite.
Apology accepted.
Any further off-topic posts will be moderated
OK enough already
this thread is for discussion of the analysis and valuation of AEX done by Shore capital
its ok to extend discussion to other analysts and to your own analysis but that's it
T
Hmm I wonder if they might finally get a bit of luck with this one.
http://www.energy-pedia.com/news/tanzania/tanzania-aminex-preparing-to-drill-ntorya-1-exploration-well-in-the-ruvuma-psa
Even a thin slice of that gas which has 200m+ pay 80km would be significant to AEX.
Does anyone have an idea what their cash position will be after the drill?
repo
In reply to repobear, post #14
Does anyone have an idea what their cash position will be after the drill?
According to the AGM presentation the Ntorya well will cost AEX $9.6m, adjusting for the increased equity since then. The IMS, 16th Nov, said they had cash of $18m, so about $8.5m left (assuming that they hadn't already been spending on the well, which may well not be true). Of course, that will mostly be accounted for in increasing production in the US and KN, though both of those should generate future cash flows.
Peter