It cannot be denied that Virgin Money has taken a hit of a beating over the past couple of months, having dropped from 334px as recently as April, to wallow around 266gpx as at today’s date – a drop of more than 20%
Concern was raised in April over its credit card balances, as Virgin aims for £3bn of prime balances by the end of the year – the balance having risen by £200m to £2.65bn between the end of last year and March 31. As Virgin increases its credit card balances, the Bank of England’s Financial Policy Committee warned in April “potential vulnerabilities stemming from interest-free offers on credit cards” as the latest official figures showed card debt hit a record £67.3bn in February, an annual growth rate of 9.3pc.
The Bank of England has commenced a review into consumer credit lending standards and prompted the Financial Conduct Authority (FCA) to enforce new rules on card providers, particularly in respect of this in ‘persistent debt’ i.e. those who spend more on interest and charges than on repaying capital over an 18 month period. Virgin Money claims that only 2pc to 3pc of the lender’s credit card customers are “people that tend to pay their minimum monthly payment or just the interest and leave the capital outstanding” – so a very small portion of the total credit card portfolio would appear to be affected.
Since this news in April, shares in Virgin have been on a downward trajectory. It would seem that its peers of Barclays, RBS and Lloyds are also out of favour, particularly in light of the recent scandal that has wracked Barclays – the former boss of Barclays faces up to 22 years after he and three other ex-directors of the lender became the first British bankers to face criminal charges for actions taken during the financial crisis.
In light of the fact that several major banks are suffering despite no inkling of profit warnings leads me to believe that there is a sombre mood towards the banks by virtue of the Brexit negotiations. Indeed if past trends for Virgin Money are anything to go by, one could forecast profits for 2017 to be in the £270-£290m range. This forward valuation of 4.3-4.5X is laughable for a banking share, with the general multiple range being anything from 9-14X
Despite the recent hit to the share price, I have a medium term price target of 425gpx, and welcome the bottom of the trough, wherever it may be, as an opportunity to increase my holding.
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)
Summary of Operations
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.
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).
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.
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.
Revenue of $800k per month
Pipeline of project for production in 2019/20
Well funded for the foreseeable future
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.
What a time its been for Easyjet since the 16th. Having taken a battering on the 16th May and dropping over 6% to 1215gpx the share price and risen every day since to sit at 1378gpx today, not far off my revised target price.
Despite my target price not having yet been reached, I have today sold at 1372gpx, netting 24.5% on my original investment.
Would I feel annoyed if the bull run continues and my target price is surpassed, most likely. However having been greedy in the past and suffered for it I now aim to cash in when I reach 20-30% increases. At the end of the day I can always buy back if the share dips, or simply look out for new opportunities.
Speaking of opportunity, I also sold my recent investment in GSK, taking a small profit of around £100.00. The share price since then has risen and decreased back down to my selling price, whilst my alternative investments of BT (BT.A) and TalkTalk (TLK) have increased slightly. I intend to put together research notes on both BT and TalkTalk over the next week looking at their case as recovery stocks. GSK isn’t going anywhere as a high income investment – I just need to time it right.
Portfolio value is now at £27,800 – almost 25% up in 9 months, showing that the strategy of generally investing in high yield shares and recovery plays is working.
On Tuesday Easyjet released its first half update for 2017, on the back of which the share price plummet six thousand feet, or should I say percent. Investors were surprised to note a significant first half loss of £236m, far more than the £18m loss experienced a year before.
Its all about the position of the moon…
This is not quite as bizarre a statement as would first appear as Easyjets first half revenues were adversely affected by the timing of Easter, as well as the deterioration of the pound since the brexit vote, being responsible for a headline cost per seat of 4.9%. We also can’t ignore that fact that capacity in the market has been on the up and is expected to continue.
EasyJet’s headline cost per seat excluding fuel at constant forex was flat at £38.54, but including forex and fuel was £54.45.
But, regardless of the above, the company boasted a record period for both passenger numbers (9% up) and load factor (up 0.5%). The effect of the increased load factor and passenger numbers was a rise in revenue of 3.2%, partly offsetting the decrease in revenue per seat of 4.9% to £48.80.
Easyjet is clearly benefitting from a strong brand name and appealing price to the low cost thrill seekers and sun worshipers.
Some may say there are turbulent times ahead, and we cannot ignore the fact that market capacity growth looks set to continue, outstripping demand. Easyjets tight reign on costs will therefore become ever more important. Easyjet has reminded investors of its purchase of 30 321 NEO aircraft under its existing agreement with Airbus, allowing growth in slot constrained airports. The 321 NEO allows for a seat configuration of 220, versus a 186 configuration with the A320 NEO’s which dominate the fleet. Cost savings of up to 9% are deemed possible, in turn affective Easyjets competitive position in a positive way.
The Company’s bottom line profit it expected to fall by 30% in 2017, but I am of the opinion there could be a pleasant surprise in the full year results as the pound makes up more ground against the dollar. Already the pound is up from $1.22 in September to $1.30 today. With Trumps erratic form of presidency the dollar may weaken further and if inflationary pressures in the UK hold up, a BOE rate hike could be closer than we think, causing the pound the strengthen further still.
Attention should also be drawn to fact that holiday makers have proved very resilient in the wake of Brexit, and the slump in the pound that followed did not seem to deter the public from prioritising holidays over other luxuries as the market seemed to expect. It seems that we are adamant of getting our vitamin D fix regardless of economic woes.
The Company remains upbeat about its results, indicating growth of 17% in 2018. The Company trades on a price-to-earnings growth (PEG) ratio of just 0.8, leading me to recommend investors to continue to buy.
In light of the pounds strengthening and Easyjets resilience, my target price is amended to £14.50 from £12.50.
Since last writing about solo oil in October last year there have been a few developments in the company, so I thought it high time for a re-visit.
First a recap:-
This is an AIM listed company which states that its goal is to acquire a portfolio of direct and indirect interests in exploration, development and production oil and gas assets. Geographically speaking they currently deal with the UK, Canada and Tanzania. The Company states that they are prepared to acquire both onshore and offshore assets, and their intention is to acquire a mix of oil and gas development and production assets.
It remains my opinion that the UK and Tanzanian investments that are the most interesting, and hold the most promise for the company, and much of the content of my original article stands. The Horse Hill Oil Field Development, a field that has made national headlines over the past couple of years, is the largest onshore oil find in the UK, whose production could represent 8.5% of all onshore UK oil production.
The operator, Horse Hill Developments Limited, has confirmed that on the 4th April 2017 it obtained extensions to licences EDL137 and PEDL246 out to September and June 2021 respectively, giving the company more time to appraise the development and plan accordingly. Solo retains has an effective 6.5% stake in the Horse Hill Field and, given the potential scope of the project, this is not insignificant.
Solo’s Tanzanian assets are far more exciting. Production is ongoing commenced at the Kiliwani Gas Field, in which Solo has a 7.175% interest which, subject to clarification in Solos next set of accounts, should be netting the company £100,000 to £123,000 per month, pushing the company into a small profit going forward. Its fairly uncommon for a O&G Exploration/Development company to actually have an income to keep the lights running, so this de-risks Solo from an investment perspective.
Solo also holds a 25% stake in the Ruvuma Basin in Tanzania . following positive results from Ntorya-1, a second appraisal well aptly names Ntorya-2 has been drilled and yielded further positive results of 2833 boe per day, with this flow restricted by technical problems. Craig Howie, analyst at Shore Capital, house broker to Aminex, said: “this, in our view, is an extremely satisfactory result from Ntorya-2, which has significantly exceeded pre-drill expectations and (combined with the Ntorya-1 discovery well and mapped seismic features) clearly indicates a commercially significant volume of gas-in-place.” Indeed Solo declared that these results are highly indicative of commercially viable volumes being in place.
All of the above is very positive for the company. There are two significant projects making headway, with Solo riding the wave as allowing bigger entities with bigger purses battle through the bureaucracy. In turn this keeps the company’s overheads low and limits the need to raise funds except for at certain milestones.
Which brings me to the main negative.
For reasons I cannot Fathom Solo has made the decision to make a significant investment of £2.55m in Helium One Limited, with a 90 day call option to invest a further £4m. To me this is a dangerous move, particularly as it goes against the company’s mission statement and s outside the area of expertise of the board. Likewise Solo does not boast an acquisition warchest to enable it to make such significant investments without wiping out shareholder value. This project is literally years away from being commercially viable as detailed in the RNS of 9th May:-
“- Planning of a second phase Rukwa soil gas and groundwater geochemistry survey is in progress for field work to start in the third quarter of 2017
– This second phase follows on from the 2016 Rukwa soil gas geochemistry survey which confirmed widespread helium micro-seepage characteristic of subsurface trapped accumulations
– Dan Maling, Solo’s Finance Director, has joined the Helium One Board of Directors as Solo’s non-executive representative
Helium One have now completed the acquisition of extensive airborne geophysical data with the preliminary grids expected to be received later in May 2017. In parallel with this and to complement that data, after successful analysis of the soil micro-seepage survey completed in 2016, a further more detailed soil geochemistry survey is expected to commence in the third quarter of 2017. So far Helium One has collected and analysed almost 1,500 soil samples for helium, CO2, hydrogen, nitrogen and hydrocarbons in the most advanced project in the Rukwa licence area. The work programme being undertaken in 2017 is intended to identify drillable prospects as soon as practical with drilling planned for 2018.”
So drilling wont begin until some time in 2018. If we say it could be mid 2018 the programme wouldn’t complete until early 2019, and that’s for the first appraisal wells. Certainly this investment is a very long term one.
Shares Shares Shares, lets issue more Shares
Since my original article the number of shares in issue has risen from 6,987,961,682 shares in issue to 7,846,760,000. If the 90 day call option is fully exercised then points to consider are:-
The call option is for 156% of the original investment at £4m higher.
There is no evidence to suggest that Solo has that amount in cash.
The share price has dropped by 25% since the previous investment price.
So, worst case on the above, we’re looking at around 1.14b shares being issued to fund the call option, a further 14% dilution.
Solo are getting it right on several levels but the investment into Helium One is a real curve ball and to me casts doubt on the managements ability to generate shareholder value. A shareholder invested prior to the September 2016 fundraising will have seen over 27% dilution as at today’s date, with a further 14% dilution on the horizon, whilst the share price languishes at similar levels comparing today’s price of 0.355p to October 2016.
Is it worth investing?
For me, the persevering problems with Solo are that there are too many shares currently in issue and too many continue to be pumped into the market with disregard for current investors. When the Company raised a rather small sum of £2m in September 2016 the total shares in issue were increased by over 1bn, with further dilution between September and April leading to the current 7.846b shares in issue. We’re looking at upto 1.16b more hitting the market within the next three months, and that’s on top of any further cash required towards Horse Hill or Ntorya.
The Share price and capital dilution will continue to keep large investors away, as will a lack of project information on when a return is expected to be made on any of Solos main investments.
It remains my belief that Solo needs to conduct a consolidation exercise of at least 50:1 to take them comfortably out of the sub 1p zone. Likewise Solo needs to increase its cash position by allowing its gas sales revenue to build before making any further investments. Better yet, solo should allow one of its major projects to advance to the point of being cash generative before seeking a new opportunity.
Solo is a company whose share price spikes on news surrounding its project milestones. I see a short term opportunity to invest in Solo in order to reap the benefit of the next spike, taking a 25-50% gain in the process. A shrewd investor would repeat this process each time the share price breaks over 0.4p with a view to selling at 0.5-0.6. The heady days of 0.87p are behind us with the dilution investors have endured.
I do not believe there is a case for long term investment at this time, and this will remain my opinion until the company ceases eroding shareholder value. I would personally recommend that those interested in the long term prospects of the company take their cash and wait it out until the time is right. Solo has some big exciting projects that will benefit shareholders, just not the ones who have let dilution and time obliterate their capital.
Would you like me to research another company
I’m happy to take requests to research other companies, whether it be FTSE or AIM – just leave me a message on the contact page and I’ll either get back to you with a rough time frame , or do crack on with it straight away.
On the 27th September I wrote my first post ‘here’. In said post I stated my aim was to achieve a return on investment of 15% through both dividends and capital increases. 8 months on and whilst the site has been dormant for some of that time, the portfolio has not been. The 15% target has now been hit.
Share Target Prices
From September to November I gave target prices on four different shares, and research notes on several others. I’m pleased to note that all stocks have closed the gap between the initial price and my target price, with two companies being within 5% of the targeted price.
Share: Target price Current Price Success to within a 5% margin
HSBC: £6.50 £6.67 Yes
Shell £24.80 £21.80 No
Easyjet £12.50 £12.03 Yes
Virgin Money £4.00 £3.00 No
My long term target prices for each of the above four stocks hasn’t actually changed, though I find myself in a frustrating, yet somewhat enviable position. I can see opportunities to juggle the portfolio for example to sell Easyjet (EZJ) and purchase more Virgin Money (VM.) Shares to seek out further capital gain, but that would reduce the yield on my portfolio. My initial purchase prices are yielding 5.6% even taking account of VM’s low yield. So, do I maintain dividend stability, or go for the potential 33% capital jump. I’ll have to ponder that.
Readers will also note that I have removed Shell and acquired GlaxoSmithKline (GSK) into my portfolio. This is on the back of my GSK research note and to diversify my portfolio away from sectors which are heavily influenced by oil prices, namely airlines and oil companies. With such a hefty portion of my portfolio in Easyjet, Shell had to go.
The research will start to flow again soon people. Keep checking back.
The World in shell shock this morning over the results of the US election. Results so far show Donald Trump having won 278 seats, with several states yet to formally declare their results. Hillary Clinton has mad the fated telephone call to concede defeat, and Donald Trump has addressed attendees of his victory rally.
There was a notable change in the rhetoric of his speech. Gone were the insults and derogatory comments. Instead phrases such as:
“I pledge to every citizen of our land that I will be president for every American. And that is very important to me,”
“For those that have chosen not to support me in the past, of which there were a few people, i’m reaching out to you for your guidance and you help so we can work together and unify our great country.”
“I expect to have great, great relationships” with other countries, says.
“No dream is too big; no challenge too big. America will no longer settle for anything less than the best. We must reclaim our country’s destiny and dream big and bold and daring.
“I will always keep America first.”
Investors around the world have been wrong-footed by the result, which strongly echoes Britain’s referendum earlier in the year which resulted in the Brexit scenario which is currently playing out. Mr Trumps win has been further amplified by a Republican sweep of the Senate and House of Representatives, putting the Republican political party firmly in charge for the next four years.
There have been sharp swings in the financial markets as investors struggle to come to terms with the result, including:-
The Mexican peso was off 7.8 per cent after initially tumbling 12 per cent, its biggest drop since the country’s 1994-1995 devaluation crisis.
The price of gold shot up over $50 at one point to $1340, though it has settled down since to $1306.
The US dollar fell 2.5 per cent against the yen 1.5 per cent against the euro.
S&P 500 futures were down 3.4 per cent.
Treasury bond yields tumbled as investors sought out safe assets and marked down the chances of a December rate rise.
So why did Trump defy all predictions and nail a victory.
The battleground states of Ohio, Florida and North Carolina went to Mr Trump as voters turned out in their droves, dominated by Trumps mainfollowing, white males, predominantly without a university level education. This group is an angry one, and one that is prepared to take action as they turned out in their thousands.
It could well be similar to Brexit, when those who wanted the opposite result were so confident of a victory that they didn’t bother voting. If the voting turn out is less than 60% there is a strong case for this.
Clinton suffered significant defeats in the Rust Belt of America as victims of the loss of manufacturing jobs voted in line with Trump’s “Make America Great again” campaign. When people are feeling helpless, they vote for change, and they vote with righteous abandon
Being an Outsider
Donald Trump came from no political background. He ran against both the Democrats and the powers within his own party. People love an outsider, especially a brass and ballsey one. Mr Trump proved to the people that he would act independently and not pander to the rest of his party, and this ballsey approach ha been rewarded, both in the primaries and in the election itself.
Trump’s Campaign played out
Mr Trump’s campaign followed a similar rhetoric to his personality. Against the grain, brash and unpredictable.
He held rallies, using the crowds momentum to obtain voters rather than carrying out door to door calls.
He took on each attack and rolled with the punches, outright denying things he had said previously that showed no weakness. Fine it showed he lies, but the fact he was prepared to do this showed strength in his convictions.
He travelled to states like Wisconsin and Michigan against advice that he wouldn’t win votes there.
Where do we Stand Now?
Markets are going to be jittery at Trumps every move from this point onwards as there are many questions on peoples lips
Will he destroy relationships carefully cultivated with other countries?
Will he shun China and embrace Russia?
Will he shun globalisation, turn from EU trade partners and tarnish East Relationships to focus on “making America Great again”?
I think this can be said, I you thought the craziest think that could have happened in 2016 was Brexit – you have just been Trumped.
Are Shares still safe
Personally, I think the world will go on, and I think if you have already considered a Trump victory when revising your portfolio over the past few months, you’ll be fine. I’m still confident in the positions of:-
I will be revising my research notes on these stocks over the coming weeks, so follow Risky Bear on the home page to see the latest when it is released.
What Company do you want Risky Bear to research and report on next?
Whilst I intend to researching companies in my own time and in an order determined by news and events, I am more than happy to take requests from readers. If you wish me to research a particular company, let me know via the contact page.
HSBC today posted it’s much anticipated 3rd Quarter results. The headline figure of an 83% drop in pre-tax profits did not dampen sentiment for the share, as analysts peered trough the veil and took note of the underlying 7% increase in profits once one off items were stripped from the results.
The third-quarter adjusted pretax profit rose to $5.59 billion, surpassing the $5.29 billion average expected by analysts.
Chief Executive Officer Stuart Gulliver stated “This is a reasonable quarter; we’ve got that momentum on costs coming through. People have talked previously about whether we can take our costs down because revenues aren’t growing. You’ll notice we have positive jaws in the quarter and for the full nine months.”
Adjusted profit before tax for the first 9 months of 2016 is down $1bn compared to 2015 levels to $16.7bn as a result of lower revenue. Markets so far don’t seem too deterred by this as the bank is reducing in size, down to 77 countries from 99 in 2011. Revenue is naturally going to drop as a consequence – the key is getting profitability up. Arguable Gulliver is doing a good job in guiding this huge bank through turbulent waters.
The bank also confirmed a Change in PRA regulatory treatment of BoCom, resulting in a $121bn reduction in RWAs and a $5.6bn threshold deduction from capital driving a 104bps increase to CET1. The news will be welcomed by income seeking investors as the reduced capatal requirement swill help keep the dividend safe for the coming year.
The Share buy back has been reported as 59% complete, due to be finalised in late 2016/early 2017. No mention was made in the results of assets to be realised on the other side of the Atlantic, though that will be unlikely to be mentioned until early 2017.
My view on HSBC remains unchanged, and my target price remains as per my previous research note:
What Company do you want Risky Bear to research and report on next?
Whilst I intend to researching companies in my own time and in an order determined by news and events, I am more than happy to take requests from readers. If you wish me to research a particular company, let me know via the contact page.
EasyJet plc (LON:EZJ) today updated the market with it’s statistics for October
Load Factor 2
Rolling 12 months ending
Load Factor 2
Load factor for the month was down 3.1% compared to 2015, but passenger figures were up by 6.9% as a result of capacity increases across the network.
Easyjet has seen a target price increase from HSBC who upgraded the stock to a “buy” rating in a report released on Wednesday. The firm presently has a GBX 1,150 ($14.04) price target on the stock, up from their previous price target of GBX 800 ($9.77). HSBC’s target price would indicate a potential upside of 15.29% from the company’s previous close.
Royal Dutch Shell (LON: RDSB) rose as high as 2214gpx on Tuesday after result stat beat market expectations
But this wasn’t enough to see the share price drop to 2090gpx on Friday in response to a general depreciation of the Footsie. Arguably this on the back of a stronger pound caused by negative dialogue over a potential Trump victory in next weeks US elections. Citigroup’s research suggests that a Trump Victory could lead to a 5% fall in the S&P 500, and ultimately a recession, according to research from Citigroup.
On the note of the US election, PaddyPower Betfair are trembling at Trump’s recent rally in the polls. The company has declared 91% of last-minute betting has been on a Trump Win. The bookmaker is looking to see a hefty loss in the event of a Trump victory. Approximately £100k has been bet on the presidential race this week alone.
Would you like me to research Paddypower Betfair or another company, Contact RiskyBear to make your request
On Tuesday Virgin Money updated the market with its Q3 results that were in line with the companies expectations
Premier African Minerals yesterday announced to the market that it has concluded its acquisition of a controlling interest in Mozambique-based TCT Industrias Florestais Limitada (“TCT IF”), which owns a substantial limestone deposit located on rail in the Sofala Province of Mozambique. Total consideration payable for the controlling stake amounts US$2.1 million (£1,735,000). It’s a shame that the deal couldn’t be concluded before the recent devaluation of the pound, as the deal is effectively 10% more expense than it otherwise could have been, but that certainly isn’t the fault of PREM.
In my last article I expressed concern at Premier’s spending patterns. It remains to be seen whether this is a prudent move, but the company is positive that this investment remains a good one, with TCT IF being self sustaining, and expecting to contribute to the company’s cash flow in 2017.
Further highlights from the RNS include:
Early test-work and import replacement opportunities supported by local demand for lime for cement production, agricultural and many other important applications including aggregates, assures the market for low capital cost industrial scale production.
Revenue and infrastructure from existing forestry operations expected to significantly reduce exploration and development costs of the deposit
TCT IF’s limestone deposit covers 27 km²
The Tete/Beira rail link, complete with 3-line siding, runs adjacent to the northern boundary of the property.
Yesterday’s news shouldn’t come as too much surprise to investors as the deal was originally announced in April. Those expressing concerns about funding will also be relieved to note that the company clearly planned ahead, with PREM signed a subscription agreement with Darwin Strategic Limited for a gross value of up to £3,500,000 ($4,582,000) through the issue of up to 140 new Loan Notes. The company described the purpose of the loan notes as to provide additional general working capital for the Company, and to support the exploration and development activities at the Zulu Lithium and Tantalum project. Perhaps the company should have specifically stated that it was to conclude this acquisition also, but I suppose it’s by the by. The point is, no further dilution is on the cards just yet, provided spending has reduced from that seen in the last set of results. Payment for TCT IF is over a period of upto 275 days, reducing the immediate financial shock on PREM.
I can’t escape the feeling that PREM is stretching itself and needs to deliver positive results to investors sooner rather than later, and remove its reliance on Darwin Strategic Limited for funding to allow for a sustained share price rise. Perhaps when further updates are announced on the RHA Tungsten mine I’ll revise my position, but for now I’ll wait and see, as per my oriignal Research Note;