Research Note: Aminex plc (AIM:AEX)

Having previously researched Solo oil and noting that companies involvement with Aminex plc, I thought it an idea to put the operator of the Kiliwani licence under the microscope to see if it offers more potential to investors than Solo.

Aminex operates solely out of Tanzania,(though does have a non operator interest in Egypt and Moldova) through its 100% owned subsidiary Ndovu Resources Limited. Aminex is the operator of its 3 Licences in Tanzania:

  • Kiliwani North Development licence (65% WI)
  • Ruvuma Exploration Licence (75% WI)
  • Nyuni Exploration Licence (70% WI)

Aminex Licence areas

Summary of Operations

Ruvuma

  • The Ruvuma PSA is located in a world class petroleum province – over 100 TCF (trillion cubic feet) of gas has been discovered to date.
  • Ntorya-1: Drilled and tested in 2012 – 20 MMCFD with 139 bopde (barrel of oil per day equivalent) of associated condensate
  • Likonde-1: Drilled in early 2010, oil shows throughout a thick reservoir section. Ongoing seismic programme to help identify trap
  • The company states that all future discoveries can be brought onstream through the main pipeline currently under construction, reducing CAPEX.

Kiliwani North

  • 54.575% WI (Operator)
  • First production from KN-1 commenced in April 2016
  • KN-1 gas is being processed processed at the new Songo Songo Island Gas Processing Plant and transported through the main 532km 36-inch pipeline to Dar es Salaam
  • KN-1 produces a dry clean gas, under high natural pressure (1,600 psi).

Nyuni

  • The company states that this is a highly prospective licence with adjacent discoveries
  • Focus on deepwater prospectivity

 

Infrastructure in Tanzania

  • a 542km long (784 MMCFD) Pipeline from Dar es Salaam to the South of the country under construction
  • 2 new gas plants (Songo Songo and Madimba)
  • All discoveries have route to commercialisation through the main pipeline

The location of the companies activities in Tanzania re focused around the main 36inch gas pipeline, resulting in lower CAPEX and an improved timeframe for each prospect compared to industry averages.

My Opinion:

Given the sales agreement relating to the Kiliwani prospect, the next set of results (in 4 – 6 months) should show Aminex  as self sufficient as a going concern. Indeed the preliminary result sin April recorded revenue of $4.9m against cost of sales of $1.6m. Administrative expenses of $2.85m left the company with a profit before recorded impairments of $395k. This may not seem like much but we should bear in mind that the first gas sale took place in April, one third of the way through the year and, as with all oil and gas production, underwent a period of ramping up. I would anticipate sales for 2017 in excess of $9m with gross profit exceeding $6m. Indeed this is supported by the company’s May 2017 presentation which records $0.8m (net) per month to Aminex

 

Aminex raised $24.37 million (net) to fund the drilling of Ntorya-2 (complete) and Ntoyra-3 (and as at 31st December 2016 had $19m cash remaining). Given the expected increased revenues I consider there to be a low risk of a further fund raising this year or next, and the associated risk of dilution to the share to be low.

 

On 24th April, following a tripling of the resource estimate for Ntorya-2, Aminex stated that it is “currently in the process of applying for a 25-year development licence and is working directly with the Tanzanian Government to fast-track gas production for the benefit of the Company’s shareholders and the Tanzanian national economy.” Noting that Kiliwani asset took 8 years to reach production from discovery,  and the Ntorya discover was made in 2012, Ntorya could be operational by 2019/20. It is important t note that Aminex holds a 75% interest in the Ruvuma licence, compared to only 54.575% in Kiliwani.

 

It is my opinion that Aminex is a safer investment than Solo in terms of management.

AEX:

  • Revenue of $800k per month
  • Pipeline of project for production in 2019/20
  • Well funded for the foreseeable future

 

Solo:

  • Revenue of $125k per month (based on circa 6% interest in Kiliwani vs Aminex’s 54.575%)
  • No funding for ongoing projects – further share dilution likely
  • Inconsistent investment strategy – divesting into helium without adequate resources.
  • Share of Horse Hill development a potential company changer.

 

It may be that investors are holding onto Solo primarily for the Horse Hill development – the largest onshore oil discovery in the UK ever made.  I am certainly of the opinion that when the Horse Hill Development comes online the stakeholders at that time will reap huge rewards. I think it’s a question of when you invest in solo, not if.  Current investors may not reap the as the share price suffers from multiple dilutions in the interim period. Contrarily I believe that a person investing in Aminex at this time will continue to reap the rewards further down the line with limited risk.

 

I personally may purchase AEX in the near future – noting current share price weakness I’m aiming to get in at 3p or under. My long term target price of the share is 8p (subject to any fundraising in the interim), though I do not expect this to be reached until 2020.

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