Savannah Resources – No Man’s Land

Just a short one, #SAV is currently sat at 6.7p, well down from the 14-15p high of only a few months ago. I know to some this might seem very strange and others are probably a little worried.

For clarity, I hold SAV shares. I did sell a small amount and I will be buying more than I sold at some point this year.

The fundraising at 9p wasn’t that far ago and a relatively quick fall to 6.7p will, I am sure, get a few thinking, where might this go?

http://icebergshares.blogspot.com/2018/04/savannah-resource-its-mining-cycle.html

In the above blog, back in April, I picked up on the 5.25p, explained why the share was low due to the mining cycle and why it would increase strongly when the Portugal Lithium project turned from a negative force to a positive one on the anticipation of news.

Like a tide at the beach though, without backup news to reinforce the “wave”, it quickly dropped back. No doubt Oman was planned to provide a second wave, but this didn’t materialise.

The problem we have now is 3 projects, all at negative points in the cycle.

The first project, Mozambique, is still 6-9 months away from PFS release.

The second project, Oman, has considerable uncertainty attached. Until this uncertainty is addressed it will be stuck in a negative point.

The final project, Portugal, is well advanced in its feasibility study, but has another 6-9 months before it’s completed (I know the company says Q1 sometimes, but the market isn’t expecting it until May-June imo).

Of course unplanned news will materialise, but the market can’t price in unplanned news!

I fully expected the price to drift between 9p and 7.5p, the funding price and the price of a big chunk of David’s share options. News releases such as JORC updates, drill results and periods of little news will all affect where it goes in this range.

But the share is currently 6.7p? Yes, we have a very difficult environment for commodity, we have seen a massive and this can’t be underestimated, massive pull out from China, where state intervention is calling on de-leveraging on exposure and the US, where most companies are bringing cash back and creating a buffer for the expected cooldown conditions. Liquidity in general is down on AIM. Given all this though 6.7p is an over-reaction even allowing for the negative effects.

Could the SP go lower? Possibly, the market has obviously over-reacted, in part to the persistent large sells. If this continues then the share dropping back to 6.2p is a possibility. 6.2p is a very very strong support. If we look at the cycles then back end of October into November should be the bottom of the negative cycles.

If your planning to top up then anything below 7.5p (David’s Options price), has to be a fantastic price.

Looking further ahead, as we move into H1 2019, we enter, to take a hurricane forming term, super fuel territory. All 3 projects should enter the most positive stage, they have ever hit.

The PFS for Mozambique with Rio, not only gives 35% to SAV, not only does it give some detailed figures, but most importantly, it will demonstrate Rio’s intention to develop the project. For Rio Tinto to take this beyond PFS will be a strong go decision.

For Oman, we should know H1 2019, whether this will be a go or a no. I can’t believe the company will keep investors waiting beyond that. A go will mean near term production and profits.

For Portugal, a Feasibility Study is far more important than a scoping study. It will facilitate the go/ no go decision, allow strong profit predictions and can be used for finance purposes. It will also increase the NPV discount figure for the project.

With all 3 projects 30p+ is very realistic come June 2019, but that’s awhile away yet and certainly another blog. However just like last time, to maximise profit you need to enter early at the bottom of the cycle before folks start buying into the share.

A final note Savannah Resources, hasn’t done much wrong yet, it has 3 great/world class projects that it is developing in a timely manner. The market will assign different values to the projects at different times, as an investor your job is pick up the shares as cheaply as possible.