As a long term buy and hold, Aminex (LON:AEX) has been a major disappointment for me , and it is time to consider whether I continue to hold on the basis that 2011 will be AEX’s year of triumph, sell out on the basis of too much dilution, lack of confidence in management, and the binary nature of some of its exploration, or somewhere in between. The love affair is over, it's time for a cold clinical appraisal.
USA Assets
The Shoats assets were valued, pre dilution, at circa 4mmboe and the USA assets collectively at an independent valuation of circa 11p per share. Management clearly indicated unverified but best guess reserves estimate of 18mmboe at Shoats (I was in the front row in February 2010 when Brian reiterated this guidance), which even discounted by 50% translated to 20p per share. Gas prices have fallen since then and show no signs of recovering for reasons we are all familiar with, but oil has for some time been trading above the $70 assumption of the original valuation. It was on this basis that we hoped for a sale of USA assets, or reserves based lending facility, to avoid dilution and provide the platform for further Tanzanian exploration.
So what has happened? Whispers are of management regretting the 18mmboe quoted, and having difficulty agreeing a fresh reserves/valuation report. The two wells drilled so far have not flowed as we had perhaps hoped, with one requiring fraccing, leaving us wondering how this changes oil in place expectations, and recovery/flow/cost factors. Importantly these are needed to feed into a DCF model to establish core value. Management have steadfastly refused to make any comment on when the much talked about reserves update and valuation report will be finalised and made available.
I think that most of us now have accepted that the report when it comes will be disappointing, and potentially worse, and have already factored this in to our new thinking and appraisal of the company. The only excuse for management not now coming clean is that to do so might be misleading (but as time goes on this reason wears thin), or that there is an underlying corporate transaction that prevents any discussion (we thought that might be the case with ref to the 140k acres – where did they go to? – but if there is any corporate activity now it is well below the radar).
The most recent broker guidance still refers to the original OPC guidance of 11p (I think) per share, around half that post dilution. If the actual value is below that then in my book that would create a major issue of trust given the repeated use of the word transformational in relation to Shoats – we are surely entitled to expect that to mean an increase, and not decrease in NAV guidance. Unless there is VERY good reason not to do so, management must surely now provide a USA reserves/valuation update if they are to retain the confidence of the market – even if the news is not good.
Nyuni et al
KN1 has now perhaps become the asset that is seen to underpin the sp, but has no value if the gas cannot be marketed within a reasonable timescale. I am not sure whether the specific word imminent has been used, but that is certainly the way in which production news has been talked about for many months, if not years. No one doubts that the pipeline access issue is complex, and made more so by what appears to be intransigence by Orca, but something here has either gone very badly wrong or the original guidance was naive and overly optimistic. 2011 became early 2012, and then late 2012, and still discussions continue. Of course access is only one issue – the other is finding markets, and resolving end of pipeline distribution.
The other assets here, and Nyuni2 in particular, have the scope to put the area on a par with exploration by BG/Ophir and Anadarko/Cove, with major gas reserves on land/shallows being potentially more valuable than deep sea. With talk of gas providing the basis for the electrification of East Coast Africa, and pipelines from Tanzania to Kenya kickstarting industrial development in the area, these assets could indeed be transformational. Talk of a BG LNG plant (news due soon on this?) would create another underpin for these assets.
But, and it is a big but, if the assets are as attractive as we have been led to believe, why has Key been unable to find a buyer after what must be a year now of trying to market them. And why did the broker note only give Nyuni 2 a 30% COS? Lots of questions, and having increased their risk by buying out Key’s share, there is a lot of risk riding on this well.
Given the major difficulties in funding (sans dilution), why have AEX increased their risk on a single 30% COS well? Or is that guidance wrong, in which case where is the updated guidance - surely we have a right to know?
Where are we with the new PSA?
LK 1 & 2
Despite all the talk of oil in the region, nothing has yet been found commercially. In the absence of any other guidance as to why we should think differently, COS for LK2 (oil) has to be a low figure, and with that well having used up the balance of AEX funds whereto from there? If LK2 is also a major gas prospect, similar to others in the area, it would be helpful to know that.
Before dilution KN1 really could have transformed AEX - a multibagger was in prospect. Post dilution, and in the light of perhaps more conservative views of the likelihood of oil (and its commerciality), the upside is more difficult to quantify.
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An oil discovery elsewhere in the region would certainly raise prospectivity.
N Korea and Egypt
These appear to be side shows for now.
Conclusion
WHERE IS THE GUIDANCE? I had put the lack of information down to AEX putting the finishing touches to information that was sensitive from either a corporate deal point of view, or politically, or both. After all this time though I am leaning to the more straightforward view that there is a lack of progress to report, that the news that is available is disappointing, and that the current fundraising was needed to put the over optimism of the past behind us and create a meaningful platform for a final and fresh approach to development of the assets.
I think that there is enough value in AEX to underpin the current SP, and the OO is likely to be oversubscribed. But in the run up to Nyuni 2 there is likely to be significant selling into strength, and again with LK2.
I have come to my senses and am no longer in love with this share. I will take up the OO but then reduce my exposure in the run up to Nyuni 2, and again to LK2. This share could be hugely successful if one is of the view that the work of many years all comes together in 2011 in an on trend region. Alternatively one can be of the view that the COS on Nyuni 2 and LK2 makes this a binary play that could easily see its SP at or below current year levels with a distressed sale of assets once the funding runs out. Or somewhere in between. This is no longer a buy and hold share for me, but one to watch closely and trade on news (or the run up to news) – what some other respected posters have been doing for some time.
My view on management is agnostic. They could be about to pull a blinder – alternatively they could have been involved in crisis management of successive bad news and fighting for survival (news management to keep funding doors open). True leadership and trust are based though on openness and transparency – whilst we can forgive short term news management/control as being a corporate/commercial necessity, the continuing lack of guidance on the PSA, pipeline access, Shoats reserves/valuation, etc is creating a lack of trust that – imho – is in desperate need of being addressed.
All IMHO and DYOR. Some of the references and figures quoted may not be correct, but anyone who has followed the share will get the gist. Musings on a wet Sunday morning.
I hope that this piece will generate some meaningful and helpful debate, and perhaps management will take note of the sentiments and use the EGM to help us beleaguered long term PI’s better understand what is actually going on here.
dbfromgb
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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 »
261 Posts on this Thread show/hide all
In reply to thegreatgeraldo, post #61
Hi TGG,
Don't know which branch of B&Q you use, but mine doesn't sell plastic pipe at $1200 per metre (thankfully!)
Peter
Don't forget AEX will have presumably have to fork out for a gas meter as well. There's also labour costs to take into account & rather a lot of sticky tape to join the pipes together!! ;-#))
In reply to peterg, post #60
I think manzanilla's ears are still stinging from the reply she got. It was a fairly innocuous question about quarterly updates from the company about the US assets. Upshot seems to be that flows are variable, something about them either being waxy or watery and having to be increased or decreased depending on which of the two is the problem.
In terms of the question below, no more than what the slides say. I have a better understanding now of the weak position that AEX are in (generally) and why sometimes their output comes across as being overly positive. BH gave a story about why the Tanz may be willing to fast-track the commercialisation and also why they would extend the licence beyond May. But that's all he can do. Now if it does not come to pass he'll get slagged for over-egging, but it's either the story or nothing at all.
In reply to peterg, post #60
Recent energy problems? Depends on you definition of recent, this has been going on for some years now and the Tz govt have dragged their feet the whole way along with no sign of urgency.
The directors of Aminex (LSE: AEX), Ormonde Mining (AIM: ORM) and Metminco (ASX, AIM: MNC) will be presenting on:
Wednesday the 16th March 2011
Venue: Chesterfield Mayfair Hotel, 35 Charles Street, Mayfair, W1J 5EB
The presentations will start at 6:00pm and finish at approx 7:30pm. After the presentations are complete the directors will also be available to take questions during a free canapé and wine reception.
REGISTER YOUR ATTENDANCE HERE: http://www.proactiveinvestors.co.uk/register/event_details/103
Thanks to CEO Hunter from elsewhere
I was reading a special LNG supplement in The Australian today and it led me to thinking about Aminex.
I think the future will involve finding more gas in Tanzania. There will possibly be another round of dilution in 2012 before sufficient revenues start coming in. I expect that cash to come from KN-1 going to customers in Dar-es-Salem and the new fields and new techniques used (hydraulic fracturing) on existing fields.
In the last few years we've seen multiple gas discoveries in and around the Tanzanian acreage. It's likely Aminex will find more as well. Although the risk is severe dilution or a fire sale if that doesn't happen this year.
If gas keeps being found then someone like BG will buy the assets to feed in to a floating LNG plant.
If I had to guess I think that's what will happen here over the next few years.
Perhaps people have missed the announcement. But looks like Rickerby's did not take part in the last placing.
In 2009 they held about 5% of the company :
http://www.investegate.co.uk/Article.aspx?id=200908141027544586X
But from the Thursday afternoon announcement they now hold 3.4% of the company : http://www.investegate.co.uk/Article.aspx?id=201104211505333829F
I wonder why it has taken so long to publish this information as Global AEGON Asset Management Group which also did not subscribe notified the markets on 16th March.
I think it is quite revealing when two of Aminex's largest shareholders do not support the management in the share placing.
I also find it quite interesting how when I go on the Aminex website I can see nothing that says along the lines of "delivering shareholder value"
On the Tullow's website front page it says "Delivering a strong performance"
On the Premier website front page they have their strategy clearly laid out
"Grow near term production..."
"Deliver Further growth....
"Add x milllion bbls to reserves..."
On Soco's front page it says
"Recognising Opportunity"
"Capturing potential"
"Realising value"
Ithaca
Front page says "Focusing on developing reserves and production"
On the Heritage website I have to click a few times to find
"Group aims to continue to generate growth in shareholder value "
Does anyone know what Aminex's Mission statement is? What is their strategy? At what point do they deliver a shareholder return? Do they work for shareholders?
In reply to Isaac, post #68
Isaac,
You can't really criticise Rickerbys or Aegon for cutting their losers and running their winners. This is one of the key attributes of successful investors and one of the very things that both PIs and institutional investors find difficult to do.
You can't criticise AEX management either for not doing what it doesn't say on the tin;-)
In your position I'd give it a rest. Holders of every stock have their inbuilt biases and AEX holders are no different from others in that respect. The chances of you changing their minds at a time when the prospects of hope triumphing over adversity look better than for several years are slim indeed.
repo
disclosure - no position
Having been involved in the creation of "mission statements", my experience is that they are tools of "facilitators" and "public relations gurus" and have absolutely no connection with reality. In fact if Aminex begins to waste money on such tripe I will begin to be concerned.
Whether Aminex can create value for shareholders should become clear within the next 12 to 18 months - and will not depend on fancy soundbites, but results of drilling and development of existing finds, both in the US and in Tanzania.
Why should I bother to post when morons don't even look at the numbers and prefer to just spout nonsense?
In reply to djpreston, post #71
Hi djp,
Why should I bother to post when morons don't even look at the numbers and prefer to just spout nonsense?
Does that mean you haven't chopped your exposure to AEX over the last two years?
Does it mean that I'm a moron for not checking Isaac's figures?
Is it wrong to chop your losers and run your winners?
Are the prospects for AEX now brighter than for some time?
Sorry I can't be arsed looking at it in detail because I have plenty of other stocks in front of AEX, in far flung places, that I'd rather invest in, once I can wean myself off my Cladhan/Catcher and associated SLG/EO./NPE fixations. By which time it will most likely be too late anyway.
If you hold 5% of a company and you take part in all the placings and don't sell any shares then does that not mean you still hold 5% of the company after all the share placings?
Rickerbys did hold about 5% but now hold 3.4% of Aminex. Therefore clearly did not subscribe to the all the placings along the way or have sold down holdings.
Either way Rickerby's & AEGON Asset Management hold less then they did.
All that matters is the % ownership before and after.
In reply to Isaac, post #68
Does anyone know what Aminex's Mission statement is? What is their strategy? At what point do they deliver a shareholder return? Do they work for shareholders?
Read the annual report - should take 5 minutes
In reply to Isaac, post #73
All that matters is the % ownership before and after.
NO!
There are lots of ways shareholders can be diluted.
Have you ever heard of :
share options?
for example.
Well not really. There is the typical herd behaviour on here and elsewhere. Rec's mean nothing, positive or negative. There are individuals elsewhere and here who get a lot of rec's but do not make money. I prefer it when the herd does not agree with me.
As for the Share options - Your arguement is flawed as there has not been any excercise of share options.
You see maybe you have overlooked a bit of detail, for share options to be valauble a company has to add value to a business which translates into a higher share price.
I think this 5 year chart speaks for itself :
In reply to Isaac, post #76
As for the Share options - Your arguement is flawed as there has not been any excercise of share options.
You see maybe you have overlooked a bit of detail, for share options to be valauble a company has to add value to a business which translates into a higher share price.
Edited my post as it was harsh - sorry.
My argument here isn't about aminex - it's that just looking at a percentage shareholding doesn't mean anything on its own - you need to consider other factors.
Also, dilution comes into account on the granting of share options for diluted EPS purposes.
I'd recommend spending some time looking at all this stuff as it's quite useful to understanding the basics.
Sigh, here we go again, Isaac sounding as if he knows what he is talking about...
Okay, as I'm on a break from gardening:
Either way Rickerby's & AEGON Asset Management hold less then they did.
All that matters is the % ownership before and after.
No.
We had, IIRC, c19m shares. We now hold c26.5m. How is that less?
When placings come along, they aren't always done pro rata. Sometimes the idea is to extend ownership across a wider base. Look at the last placing, massively over subscribed so scale backs kick in. Look at (slightly different circumstances) the MOG placing announced on Thursday. Only those in the know got an opportunity to take part. Or the NPE placing that p'd off Was and me. I was one of the bigger and longer standing shareholders yet didn't get to hear of it till it hit the wires. There's all sorts of reasons for "dilution".
Then add in the fact that, as a discretionary portfolio manager, a fair whack of our holding was in ISAs. You do know you can't take placings into an ISA don't you? I take it you've also heard of position limits, sector maximums etc? All of these can limit a disc PM's ability to do what they want. As would say clients dying and their holdings having to be sold for inheritance payments etc or trusts being wound up or charities winding up or Pensions being converted to annuities or clients needing cash for a child's first house or simply not having any cash in that account at the time.
As I say Isaac, you know nowt, so don't try and act as if you do. That's the real reason you have so many negatives here. That and petty vendettas.
Darron - I refer you to the following chart and my past posts on TMF/Stockopedia
And predictably off you go ignoring the reply and focussing on the old tired vendetta/point scoring..... How dull.
Darron,
I am merely stating the facts, but you seem to be getting personal. This is not about me, it is about Aminex.
As for the below, I knew most of it and I think it is actually irrelevant in terms of making money so I did not wish to spend any time on it. You will recall we discussed position limits when I said a certain fund manager was over exposed to Aminex a while back.
You see I don't like placings. When there is a placing I frown upon it. I only like it when I am invited to participate at a low price & I can flip the shares in the market. Else no form of dilution is welcome by me. There are exceptions, but I very rarely Invest in companies that are likely to dilute shareholders. A key component when I research a stock is how much cash does it have. I don't have much exposure to small caps as they tend to go with the begging bowl for more cash.
Anyway taking a position on a stock and calling the direction correctly is all that matters to me.
I am only interested in making money
If you want to nitpick, well I got Soco seriously wrong the last 3 years to the extent of being long the stock even when at times I had my doubts. You see I don't know everything & don't always get it right.