Thursday, 5 December 2013

#XEL #BLVN #BHR Three unwanted jumpers!

image courtesy of imagerymajestic.
So in the space of a few weeks I’ve had three early Christmas “presents”, all of which are the kind you’d happily give back if you weren’t so polite. Sort of like those nice jumpers you get from relatives that don’t quite fit and in any case aren’t the right styles. Too nice to throw away but rarely taken out and worn, they sit there in your wardrobe making you sad every time you see them because they weren’t what you expected or hoped for.

Ok so the analogy doesn’t quite work but I’m reflecting on the news from Beacon Hill Resources, Bowleven and Xcite Energy recently. Three massive small investor stocks, with massive short term trader followings, and all of which were expected to announce positive share-price-changing news over the last few weeks. What we got instead were some crappy unwanted jumpers and now all three are looking embarrassingly forlorn. It was indeed share price moving, only the wrong way.

Let’s take the unwanted jumpers one at a time......

Beacon Hill.
The share price was over 3p at the end of June and had been over 5p earlier in the year. In late June, news reports of local rebels threatening to blockade the main railway line in Mozambique knocked the price down to 2.3p, despite the fact that we aren’t even using the Sena railway line until 2014! Then, in September, an updated reserves report confirming an economic mine life of 15 years knocked the share price to under 2p. Logical no, but sentiment was damaged as investors were expecting higher reserve numbers based on previous resource numbers. At the beginning of October the news that BHR would issue unsecured convertible loan notes to Darwin and others then kicked the share price to 1.25p. Unexpected dilution of the most painful type. Finally, simultaneous legitimate shorting by Darwin (eh? conflict of interest surely?) killed the SP to 0.8p. 

Whilst all this value destroying negative sentiment has been going on, the fundamentals remain largely the same; in fact have continued to move forwards. Economically recoverable reserves are confirmed in place. Production is underway. Phase 2A wash plant is installed and being commissioned. Various operational issues are being resolved. Rail offloading site is being developed and the environmental report is due to be submitted any day. Port access plans are progressing, rolling stock will arrive imminently, a first test train has arrived, senior debt due diligence is under way. And finally we heard that we have entered into an agreement to acquire up to 70% of a licence with potential for Pig Iron mineralisation and magnetite supply, potentially improving margins and integrating the business “vertically”. Not earth shattering at this stage, but hardly the news you’d expect from a company going down the pan, which from the share price collapse you might expect to be the case. 

The market capitalisation is now under £18m. This compares to a potential takeover offer for Beacon Hill in 2011 which was reported to be at £120m, six times the current mcap and 2 years (of operational progress) ago. Unless BHR go bust, I can’t see how this £18m valuation can be sustained through 2014 and I would have thought that a return to a mcap of somewhere around £75m (over 4.5p on current share numbers) should be achievable if confirmation of Tier 1 FOB status comes next year. So a rotten jumper for Christmas but maybe wearable with pride next year?

I’m not going to repeat what has been said many times on the BB’s. Suffice to say investors were expecting confirmation of the major Etinde development’s FID (final investment decision), or perhaps environmental approval, or even just confirmation of a farm in Partner for the Bomono license. Turned out we got none of these and instead moderate dilution but at 20% below market price. Certainly a Christmas jumper you’d happily give back. 

Since then we've heard that 3 institutions have bought shares (including previous sellers Blackrock), have heard that Ian Suttie, one of Scotland’s richest men, has taken over 19m shares in the placing, and heard of another 3 (modest) Director purchases. We got a 30% increase in P50 resources to 263mmboe, and (as far as I am aware) we still have a substantial funding arrangement with Petrofac in place. Finally today we heard that Bowleven have been awarded 3 blocks in Zambia to explore, and that the geophysical survey is complete in Kenya. Now call me crazy but the 2013 IM5 well result was so successful that Bowleven have had to reconsider their production plans, we have significant upside potential for reserves upgrades, are already sitting on a major discovery, and yet the market cap at £124m is 6 times less than it was in 2011! Another sentiment destroyed share price. Another Christmas Jumper to stick at the back of the wardrobe, but next Christmas will we get it out with pride and tell everyone how little it cost and how much it is now worth?

Xcite Energy. 
And to complete the trio of festive crap jumpers, we have my favourite Xcite energy. No-one seriously expected news of a farm out, even less news of a takeover, yet the faithful were shocked to discover discussions were ongoing and MM’s took the opportunity to drop the price 20% before bouncing it back to near open prices. How many stop losses were hit goodness only knows. The market cap is now back under £300m. That’s only just over £1 per barrel of proven oil. (without accounting for anything else of value). Last month we heard that Statoil think the Xcite technology is so valuable that they have shelved their existing plans for their Bressay FDP. Read my comments here on how valuable I think this news is.

We’ve also had confirmation that the environmental statement for Bentley has been submitted to DECC, that we have a memorandum of understanding in place with Amec, that our 2P reserves have doubled to 250m barrels, that we have agreed refinancing of the outstanding unsecured loan notes and that we still have £22m in the bank. Long lead items have been identified and are being sourced through strategic alliances. A number of discussions on farm out are ongoing. “Significant interest” has been expressed by new and existing banking institutions to reassess and increase the existing RBL which “has progressed satisfactorily” (note the past tense here, not “is progressing satisfactorily”). I believe they probably already have confirmation of how much the increase is, which would likely be conditional on all the other factors coming together.

So I have 3 Christmas Jumpers now, none of which I can wear with pride. All of them are tucked away in the back of my wardrobe. I believe they are all 100% cashmere, but unfortunately are cunningly disguised as polyester V necks from Primark.

One day I'm sure they will all be taken out of the wardrobe and worn with pride. I expect everyone will want one and wonder how I managed to afford all 3. But by that time they will be very expensive to buy, if they are even still available in their current brands.

Here’s hoping for some more welcome Christmas presents.

Previous comment on BHR here
Previous comment on Xcite here
Previous comment on Bowleven here

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