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
Heavy hedge fund shorting of natural resource stocks has been exacerbated recently off the back of all that’s gone on, is going on and could happen globally. Aminex seems to have been targeted by hedge fund short selling. The reassurance comes from the fundamentals, current SP falls below the core production, development and appraisal NAV. Exploration is not priced in, and a major dill is currently underway. Now, should the Nyuni-2 prove a commercially viable resource, Aminex at the current valuation would be grossly undervalued compared to what it has proved in the ground and would be a prime takeover target in my opinion for a Tanzania focused operator. Advice for short seller’s in Aminex- keep hold of your shirt.
Infrastructure moving at pace now.
Tuesday, 21 June 2011
Tanzania prepares ground for US$6b oil refinery
PANA
http://193.95.93.174/site_eng/articles/14985.html
Tanzania has teamed up with Russian, German and Qatari firms to build a US$6 billion oil refinery and arterial pipeline that wi l l ferry petroleum from the Indian Ocean coast to the inland lake ports of Mwanza
on Lake Victoria and Kigoma on Lake Tanganyika.
Elias Jones if what you say is true and I don't really believe it is who is lending the shares out ? Also given the drop from 8p or so to where it is now surely AEX is not really a good candidate for shorting is it? How far lower can it actually go from here ? (No need to answer that I wouldn't want to tempt providence )
Friendzarin, thanks for the reply, here’s my take on a possible current situation. Hedge funds don’t have much difficulty sourcing themselves or through prime brokers with access to stock inventory earning their fees and hedging their inventory. A number of hedge funds have very large short positions at the moment in equities across the board, especially within the natural resources sector and I suspect that Aminex has been targeted from above 8p (everyone to their opinion). Within a no company changing news period (this year so far) coupled with poor sentiment, a hedge fund could have targeted a c.20/25% mean hedged return that can be closed prior to Nyuni-2 results. With the SP being below the core production, development and appraisal NAV, shorting is a dangerous game, however PIs in an indifferent sentiment company, haven’t, during a no substantial news period got a ‘cat’s chance in hell’ of overpowering a hedge fund’s shorting intention. A commercially viable find, new II position, takeover etc would change the situation quickly post N-2.
What’s your theory?
Regards, Elias
Ps.
Just to add, I have a shareholding in Aminex and hold decent hopes for the future.
In reply to Elias Jones, post #225
So, is there any evidence whatsoever for your view, or is it entirely conjecture based on a falling share price?
Conjecture, this area is not the most transparent, hedge funds tend to generalise in communications. Trading sessions over the past few months would indicate some focused selling other than retail investors.
Can't see AEX being the target of hedge funds or serious shorters. Too small and illiquid.
Most likely large holders/institutiond selling out due to negitive sentiment in the market.
Funds tend to get rid of the dross first and AEX probably comes into that category!
There are supply and demand issues with nearly 800million shares in issue!
No one is chasing AEX stock and why would they. They are currently drilling for more gas in an area where they made a significant discovery more than 3 years ago and haven't been able to monetize.
Perhaps once/if they get pipeline access sorted sentiment here will change? I suspect those who bought in expecting a significant run up in the SP during drilling will be dissapointed!
Downside risks here are failure at the drill bit and progress on monetization. Not to mention the possible need for another fundraising in 2012? And at what price?
Director purchase
http://www.advfn.com/p.php?pid=nmona&article=48217535&symbol=L%5EAEX
Well done ee - always good to see a Director aligning his own interests (even further) with those of PI's.
ee has effectively ploughed back his Aminex salary into Aminex. I would'nt be so critical of management if they all ploughed all their annual salaries into the stock.....
Well done ee.
In reply to Isaac, post #230
Actually over the last year I have put in more than double my pre-tax fees since October 09.
FWIW.
And, re the execs etc, remember that every single one of the options that have ever been granted are now out of the money, to the tune of at least 33% above today's close. I'm quite certain that the pain of the weak share price has been very keenly felt there too.
ee
When I am critical of lack of director purchases / shareholding there is always someone that tells me the directors have x options etc and all that.
Options are not real. I have options in certrain companies too, if the price of these options are out of the money I will shrug my shoulders and move on.
But I tell you what I have shareholdings in a number of companies and when these go under water, I do get rather annoyed.
I don't care about options, they are one of the very few risk free investments one can get. To make a comparison with real tangible shares is rather foolish imho.
What I can't get my head round is whether Aminex is in the same situation Encore was in back in 2009, very cheap and unloved. Then when the success came the price rocketed.
If the second Ruvuma well works then these will rocket, but although I have a relatively small holding the thought of seeing these at 2p on a failure is rather disturbing. Money is money...
In reply to Isaac, post #232
Options are not real. I have options in certrain companies too, if the price of these options are out of the money I will shrug my shoulders and move on.
Depends on how they are used by the company in question.
Quite often particularly in small start-ups options ARE VERY REAL and indeed often used as a substitute to remuneration.
Yes Nigel I have heard of directors making a lot of money from share options in start ups, it happens but Aminex is hardly a start up.
And with all due respect I have no sympathy for Aminex directors who are feeling the pain from their worthless options.
I do sympathise with fellow shareholders who put their life savings and hard earned cash to see it dwindle away in recent years.
imho management only have themselves to blame for all the massive dilution and the low share price, when the price rocketed to 50p what stopped them from raising cash?
The economy was slowing in 2007, Aminex was trading around 25-30p, what stopped them from raising cash? Instead they dilute to oblivion at 6p in the Summer of 09.
If you run a business since 1991 and have been listed on the stock market for this long why can't you work out the markets have upturns and downturns? We had the Northern Rock Debacle in 2007, it was SO Obvious to the man on the street what was happening.
Heindsight is great I know. But it does'nt take a genius to work out the best time to raise cash is when the price rockets, these cycles repeat all the time in various stocks, it is nothing new.
It is very obvious to me when I would raise cash If I ran a small company.
By no means do I have any sympathy for management's out of money share options. Infact this thought seriously makes me sick when I think about all the shareholders who have lost quite a bit of money over the years in Aminex.
In reply to Isaac, post #234
Heindsight is great I know. But it does'nt take a genius to work out the best time to raise cash is when the price rockets, these cycles repeat all the time in various stocks, it is nothing new.
It is very obvious to me when I would raise cash If I ran a small company.
If it's that obvious why don't you go out and set up your own company rather than investing in others?
In reply to Isaac, post #234
Unfortunately Isaac, you have now digressed into areas I'm not going to discuss on a bulletin board. However, suffice to say that if it were as simple as you portray we would all be millionaires. Sometimes events move in a way that is simply beyond management control over long periods of time...and that is part of the inherant nature of equity risk (as shareholders in BP and very many other well-regarded companies can attest over the years).
On the options point, owning options that move way out of the money is effectively losing a slug of one's accumulated compensation package....so (in terms of total costs to shareholders in general) ex-post we can see that management compensation has actually been lower than both management and shareholders would have expected at the time (not that this is much consolation of course to shareholders who have seen the share price falling, though they saved themselves the cash equivalent value of the options). A mark to market "loss of value" may not be quite the same as a mark to market "loss of cash"....but it really doesn't feel much different, IMO.
Thats all I'm saying on these topics.
If it's that obvious why don't you go out and set up your own company rather than investing in others?
Looked at from the perspective of someone who has never run his own business, I'm sure Isaac does think it's easy to raise money. Of course, it takes a business idea in the first place....
Anyway, are we finally at rock bottom at 6.5p?
Lets's hope the rocks are productive.
Buffy
In reply to emptyend, post #236
If ee you are referring to the difficulties over access for sale of KN-1 gas that should now be capable of remedy with successful negotiations with Songas over access and sale, especially given the power problems that are befalling the Tanzanian people and its businesses.
Well done Brian! He has bought 325,705 SHARES.
http://www.investegate.co.uk/Article.aspx?id=201106300700324058J
In reply to Isaac, post #239
Still small change really for him at £22k but definitely good to see nonetheless.
Aminex director snaps up shares
9:44 am by Kam Patel
http://bit.ly/l6nef0
Aminex (LON:AEX), the oil and gas group, announced that Brian Hall, executive chairman, has bought 325,705 shares in the company at 6.9p.
The transaction was carried out yesterday and takes Hall’s total holding to 5,000,000 shares or 0.64%.
Hall’s purchase follows buying by Keith Phair, a non-executive director. On 27 June the company announced Phair had bought a total of 400,000 shares in three tranches with the price ranging 6.35p to 6.6p. The purchases were carried out on 24 and 27 June.
Phair now holds 2,062,422 shares in the company, giving a stake of 0.26%.... See Link for Full article.
Aminex (LON:AEX)