The importance of Trinidad for Range(RRL) and Lenigas(LGO).

 I made the call on twitter to buy LGO at 2.5 and RRL at 1.2, some found this strange given the recent rise of LGO. Off the back of the LGO rise to 2.5 once I had invested in there I did the obvious and looked around for similar companies that might make the same leap forward…

The question though is why did LGO leap forward and why was it still under valued at 2.5 ?

Well I am pretty sure its got sod all to do with Mr Lenigas. In truth they were looking for 60bopd from the well which would have been nice and sustained a 1.5 to 2.0p share price. However what they actually found was 240(300+ unrestricted), high pressure, top quality heavy oil.

More importantly to the markets this was drilled, assessed and into production in just over one month. This is an incredible achievement and will add directly to this year’s bottom line.

So the key factor was the quality of the field and the ease of the asset into production. For me this led immediately to the other owner of the key resource targets Range Resources(RRL).

RRL at the time had risen upto 1.2 but hadn’t really taken off as it still had a market cap below that of LGO.

RRL has far more assets than LGO both within Trinidad and around the world. With well timed news that the company is now virtually debt free, with the bulk of the assets intact a significant recovery play could well be on the cards.

For RRL, if it can replicate the drill success of LGO with a single drill it will bring a level of surety to its recovery back to a mid player.

As most know, the problems at RRL really stem from the awful decisions of PL. His failure to implement a successful plan for Trinidad, failed exploration around the world, woeful control of costs and one of the final acts; the developed of a crap team of drillers and drill equipment to support in house drilling at Trinidad. Thankfully new management have been addressing this by employing more experienced drills, better training, refitting the rigs and actually ensuring that the in house team is at last fit more purpose.

LGO have shown what can be achieved if the drilling and exploration is done well, this won’t be lost on RRL and I would expect RRL to capitalise on this in the coming week, they no doubt thought to drill in peace and quiet and then surprise the market, but this isn’t the correct strategy now.

So for me the potential of Trinidad is pretty clear it can support a couple of 500m Mcap companies each producing say 10K BOPD in time quite easily. The chances are that one of the companies at least will achieve this over time, so an investment in both at the current low levels would both increase my chances of a significant win and the potential reward…

Why I brought LGO at 2.5p

I am sure we’ve all heard the saying, don’t buy on a spike…..well I did today and I am very happy thank you.

Firstly a bit of background. LGO is an oil producer with various assets, that specialises in the underdeveloped Trinidad oil fields. These oil fields are historically low volume producers and quite old. They are shallow in nature. Previously LGO concentrated on workovers i.e trying various techniques to try and up the older existing holes from 1 BOPD to maybe 5 or so….. Big Deal.

I can remember saying on the LGO board when this was started that I thought it a total waste of time and money and that I wanted to see the drilling of the deeper targets. To be fair to LGO it was always in the plan to do this.

Fast forward and LGO are now drilling the deeper targets  of the Lower Cruse, whilst also encountering 270ft of net pay oil in the shallower targets. Improved extraction and filtering techniques should give a sensible production already from GY-665. Drilling into the Lower Cruse should enhance that BOPD production to similar levels if not higher than GY-664. GY 664 was drilled last month and was already confirmed as a 240 bopd producer under restricted flow and above 300, if some of the restrictions are removed.

The plan is to drill 4 holes from the GY-665 drill pad at various angles.

LGO currently at 2.5p as an MCAP of around 60m, so what is it worth ?

LGO has planning permission to drill 30 new holes, although atm not the finance, so lets leave that aside for now. If we just focused on the near term i.e next couple of months, we have 5 holes in total.

664 = 240BOPD

665 = likely 250BOPD

666,667,668 all from the same pad and likely to be similar to 665.

This gives us an easy 1200BOPD in the near term. At $50 a barrel profit, that’s $60,000 a day in profit. For 300 days a year we get $18m a year profit from just these 5 wells. At a multiple of 10 times profit that’s £110m a year MCAP so a doubling of where we are now with minimal risk. Throw in the exists assets and the other drills planned for later in the year and its quite likely LGO will start to see an MCAP of £150-200m by the end of year.

Sounds far fetched, but all LGO needs to do continue drilling how its drilling.

Well done to those that brought and held at .7 or .8. Focus on the figures and the SP will take care of its self over time….

Thoughts on an Oxus settlement

To add, these are just my thoughts on how its gone,what’s happen/happening and how it might all pan out. These thoughts are of course based on my own research, conclusions, conversations and guesses, but it will be interesting to see how close it is to real life.

So….

The final hearing was held in Feb 2014 in Paris (last week of Feb).

The arbitration panel had a meeting in May to discuss the decision and possible award considerations.

The panel are fundamentally split on a decision. With Pierre Tercier and Marc Lalonde in favour of a decision towards OXUS and Ms Stern against any such conclusion. Ms Stern has been invited by the other 2 members of the panel to draw up an alternative decision. This alternative position is not binding and largely irrelevant. Ms Stern has asked Tim Hart for firmer details in a post hearing memorial statement.

The majority decision of the panel is to find in favour of OXUS, an agreement that the BIT has been broken by the Uzbeks and that OXUS needs to be compensated for its loss.

The decision is released to the parties in a letter dated 11^th of June and decision made public on the morning of the 16^th. Ms Stern releases her minority findings on the 16^th.

In July A figure of $380m is given as an award to OXUS. With an interest rate applied of 4% pa from 2010 and an ongoing interest rate of .5% above libor. In the same declaration costs are deemed to be shared by both parties, with each party paying its own costs as it has been shown that not all points against the Uzbeks have been proven.

Wonder how close it will be…..

Quindell (QPP) the short squeeze continues

Interesting month for QPP, the share price seems to have been pretty static, however the underlies some important aspects as we move forward.

Roble increased their short holding to just over 4% and notified the FCA on the 7^th 8^th of May.  It seems fairly clear that this was behind the decline at the start of the month. QPP also continues to be the only company that Roble has shorted in the last 12 months. Once the Shorting shares had been sold the SP however quickly recovered back to the 20p level.

This gives us a few clues as to what’s happening. Firstly Roble do not want the SP to gain momentum and rise above 25p. Secondly Support seems to exist  around 19p-20p no matter what the shorters throw at the company.

4% of the company means that Roble had 41m now of stock to find, every 10% increase in the SP is an extra £4m they will need to find to fill their order. A few people have said that Roble have hedged against a rise in the SP, by buying their stock at this current level…Not sure I believe that as it would mean a notifiable holding under the FSA rules (even with qualifying instruments).

So Roble are heavily exposed and are struggling to keep the SP where they need it. UK shorting my well known UK shorters, has I am informed been reduced with a buy back occurring mid month.

So Roble have 240m shares now to close their short and don’t want the SP to go above 24p….2+2 does not equal 10, so this isn’t going to happen.

Avg Daily vols last week were around 30m with 15m buys.

Make no mistake if the SP rises to 22-23p Roble will be experiencing a bit of stress. Apart from a collapse of the share price, Roble will have to run the Gaunlet of a short squeeze, up to 3p5 maybe even 40p

I am long btw and happy to be so J

Afriag critical 4 week period.

A critical four week period coming up for Afriag. The swap component of the Yorkville Advisors deal is due to be started after David Lenigas has asked for it to be resumed.

The Share Price has started to rise off the expected bottom of .35p over the last week.

Now to the more important bits…..

I’ve said before about a deal for Afriag SA in Zambia. Well I’ve heard it’s a deal with Illovo Sugar to shift approx. 100 containers a week of refined sugar product.

There is also rumours circulating that a reverse takeover of Afriag SA is on the cards. David and Paul are certainly looking at a re-organisation of the existing structure of AFRIAG:LON and AFRIAG SA. The most likely of rumours I am hearing is that AFRIAG has finalised a £1m raising of capital at .6 to .8. This along with a further 10% of AFRIAG shares will buy a controlling interest of AFRIAG SA for AFRIAG:LON.

Again the assumption is that this will happen in the next 2 weeks  before the release of year end 2013 results. Which must for bloody hells sake come out in the next month.

AFRIAG is still on course to make a profit this year in excess of £1m , most of which will be used to “professionalise” AFRIAG SA to AIM standards (AIM standards is said with a certain amount of cynicism).

All in All the current .45 SP and MCAP of 5M is a very low price. If we assume a 20% dilution with 70% control of AFRIAG SA then an MCAP of 20M (the fair price) would give an SP of around 1.8p which is fair value for the next 3-6 month period with and allowing for strong growth potential going forward.

The rise of the miners.

Interesting mining tweet today from mining.com concerning a Canadian Junior, Aston Bay who is in talks with a major (10bn+) miner for a JV and confirms my thoughts of things going forward.

It was kicked off a couple of weeks ago, when one of the big four majors made the comment that it had finished cost cutting and delaying production and would start the treadmill up again and investing….

Along with a spate of potential mergers in other industries and a pick up likely in India, China and the US going forward, we are starting to see the turn in the cycle.

So what does this mean for investors in miners on AIM ? Well I’ve been very honest and I only have one active miner/explorer in my PF atm (I am not including OXS as I see this as a pure litigation play). Miners have been out of favour for a while particularly gold miners with PI’s selling into any good news and little liquidity or new money with any good news = a falling SP.

If majors are on the prowl again this will surely start to pick up, but not as a sector en-mass there is still too little leaving the masters table for that. Not for Gold plays imho. I cannot see a single gold centric AIM explorer with grades good enough to attract the majors or even the midfield companies.

Instead it will be the large deposits or more valuable commodities that will attract the eye of investors, particularly cash strapped ones, world class resources or where the target has an uncomplicated large % holding of the play in question…. Read copper, zinc, lead, possibly silver, lithium, heavy minerals etc.

Small explorers with good news and quality plays that fit the bill will likely see large rises over the summer and into the autumn, I won’t mention any names but with a bit of research miners might actual pay off for once……

Oxus Gold – The wait is very very nearly over.

Oxus gold has been involved in a long, multi-year arbitration battle with the Uzbek government concerning the alleged illegal forced removal of Oxus Gold from its major gold licenses.

The BOD of Oxus have to be congratulated for the way that they have behaved and acted during this process. After last year’s drawdown facility with Darwin, many feared constant dilution whilst the BOD received hefty wages as the expense of shareholder dilution.

The truth is that Oxus has used less than half of the allocated drawdown facility, always seeking to minimise dilution. Now there might be a selfish aspect to this in that the BOD’s own shareholdings would be diluted and so a win will mean less. But it nether the less indicates strongly that the BOD have both a high level of confidence and a high level of shareholder responsibility.

The final hearing of the OXUS v Uzbekistan arbitration was held in Paris earlier this spring and lasted several days. Average times for such arbitration cases to go from this final hearing stage for the 3 strong arbitration panel to come to its initial decision is approx. 2-3 months over the past year.

It is an indication that perhaps a decision is coming very very soon.

In conjunction with this, the Uzbek defence as presented by White & Case seems to be one of its a rogue outfit operating outside of the Uzbek legal framework, granting the licenses in the first place with bribery taking place for Oxus to get the licenses.  The defence of White & Case is one of denial that Oxus owned the licenses legally in the first place and that a mixture of ineptitude and incompetence has caused the current situation.

As well as the defence outlined above the Uzbek’s have a second fall back strategy of offering Oxus $150m which has been raised through the sale and confiscation of Gulnara’s assets. The President of Uzbekistan has laid all the blame on his Daughter for finding the Uzbek Government in its current predicament and she must pay the price according to the presidents tribal supporters. In a bid to further reduce any possible payment, the Uzbekistan Government has blamed the current detention of Said Ashurov on a dysfunctional regional government and promised to look into the matter of his detention, i.e if an offer is made to Oxus it will include Said’s freedom.

It is not yet clear whether the offer will be made prior to the announcement of the judgement or within a few weeks after the judgement, this approach seems to be the modus operandi of White & Case for the last 12 months.

Remember the likely timeline is final hearing,  judgement announcement, award announcement and costs announcement.

Gulf Keystone (GKP) the end of schizophrenia

I noticed a few people might be disappointed with the recent GKP RNS. However for me it was the start of a new birth, focus and direction.

When companies move from explorers to producers it can be a painful and traumatic experience, the whole company needs to change and not only find and define assets but also to reduce costs, make a profit and manage what in most cases is a massive increase in workforce and size.

The same transformation occurs when a company moves from AIM to a main listing, gone are the days of appeasing private investors, when the company moved forward and saw the share price increase by selling a dream that everybody will be a million. Welcome the days of spreadsheets, price earning ratio’s and broker notes that determine when the Institutional investors will decide to invest. Again this can be a painful experience as shares move from Private investors to pension fund managers.

Rather than selling a dream, they need to sell a company using real figures, where the analysis can produce a report which will then go before an investment committee before a sector or industry head gives the green light for an investment to take place. Such committee’s are not impressed with maybe’s and dreams.

GKP is moving along this journey and is trying to perform multiple transformations at the same time, unfortunately this has put it in some pretty ugly positions as the share price shows. The company hasn’t helped itself by not knowing quite which way to face either. I spoke to somebody close to the company today and the reply I got was that this RNS “shows the door that Gulf Keystone is now facing and about to walk though”, this will be finalised when we get the news that Todd Kozel will step down in a few weeks time.

At last the schizophrenic nature of the company will be removed, gone will be dreams and in will be professionalism.

This won’t make some private investors happy and I can already hear the screams through this keyboard. Gone will be the details of exactly what happens at the company. The SH 7 update is a perfect example of this, before Private investors complain, do you think BP would give a blow by blow account of exactly why a drill failed ?...The answer is NO.  They wouldn’t. The main market would only care that it failed, it doesn’t sit there dreaming of finding another 1bn barrels of oil. Indeed the market cares about the revenue and profit over the coming 2 years or so. With that in mind GKP duly updated the market on potential profit figures. We come to the next charge which is why didn’t GKP try and estimate BOPD flow rates for SH 7 rather than just saying it’s a significant producer. Quite simply again no company gives out flow rates which are not 100% certain on the main listing, for AIM they do it all the time. If GKP issued a flow rate which was too high or too low, people would complain. Again would you expect BP to issue flow rates before it was certain ?

I am sure many will view the RNS as being poor or negative, however I say without hesitation that those people do not understand the transformation journey that or the door way that GKP is about to step through. Ignore such people, focus on the profits, bottom line figures and the amount of oil connected to the PF terminals. 

As an investor you need to decide whether you’re a dreamer or a hard nosed money maker, thankfully GKP have now made the choice for themselves.

QPP Quindell worth a try

What an interesting twist today on QPP. Lets get it straight. I am not a fan of QPP, nor would I normally buy the shares, but occasionally an interest trade presents itself.
QPP is an out and out gamble and not for the faint hearted but what we saw today looks to be viewed by the QPP BOD as a bunch of shorters taking a position, then a small unit releases a devastating research note.
What we probably saw were the shorts being closed today at 20-24p.

"The Board of Quindell Plc (AIM:  QPP.L), is aware of the publication today by Gotham City Research LLC. The Board rejects the assertions raised in this note and considers the note to be highly defamatory, deliberately misrepresentative and entirely rejects the conclusions that are made. A more detailed response shall be announced before the end of this week. In the meantime the Company is also consulting its legal advisors on what immediate action can be taken against Gotham City Research LLC and is reporting coordinated shorting activity to the appropriate authorities."

In other words they refute all the accusations, they will issue a point by point rebuttal in the next 3 working days and they have noticed strange shorting activities.
If the response is good enough you might well see 40-45p, if its reasonable then 35-40p, if its not good enough 20-25p. If its dire and they admit problems 5-10p.

I've taken a punt and brought £10k @ 22p i see enough upside to make 50% quite easily in the next 3 days.
Its a gamble but worth it.
One things for sure i wouldn't want to have had an open short position and closed it today as they police will be all over you. If legal actions follows against Gotham, I also wouldn' tbe surprised to see that expanded to cover various blogs etc on the subject....An interesting few weeks ahead.

Gulf Keystone away with the fairies..

I had an operation on Thursday and whilst recovering from my general anesthetic, I started looking at the bulletin boards for good old GKP to see if I could make sense of anything new happening……

Now you might think that a big mistake for many reasons, but for once while still away with the fairies it all became clear. Nobody has a clue and we have so many emperor’s with new clothes on we could create a world record for the number of naked posters at any one time!

If this insults a few people then, sorry. But it’s the truth. Along with our naked emperors we have our boiler room shorting derampers. We have our unhappy campers who lost money on the fall and blame the BOD. We have our optimistic posters positive they will be buying new cars on a £5 takeover bid. We have our “experts” who know more about the oil, drilling and geology than the BOD’s own geologists. We have our armchair football managers who think they could do a better job than the BOD, although I bet most haven’t managed 10 people let alone 100.

This next comment won’t make me popular but if you’ve been in GKP from the 250p days and haven’t sold then you seriously need to look at your investment strategy. You should always have a good and bad exit strategy and if you didn’t sell as it came down, I don’t think you had an exit strategy.

Lots of unsubstantiated accusations floating around, with many of the people complaining about the BOD probably not realising the difficulty of taking an explorer to a producer, particularly in an unstable part of the world, nor do they understand the exploration/production SP cycle, nor do they understand that almost every BOD in the world makes mistakes sometimes.

Make no mistake this is the key 12-18 month period for GKP, if they move successfully to a fully profit making oil producer their SP will be multiple times of what it is now I’d suggest 3-4bn MCAP.

If they don’t then the bond holders will take all and the 30-40p predictions comes true.

The news we need is all around GKP’s ability to make this transformation successfully. Drill results will be helpful IMHO if they add BOPD production to the new facilities as they come on line. They have the funding to create the new facilities, they need the oil drills and they need the political framework for certainty around payment and profit.

Everything else is fluff.

Hope this didn’t offend too many peeps, but the only reason you invest in Oil explorers is for large greedy returns. That includes me. Take the rough with the smooth and accept both the risk and the reward in good nature.

AFRIAG Food for Thought

Afriag PLC TIC AFRI                                                                                                                      15/04

Afriag isn’t my normal kind of investment. Indeed who wants to invest in lorries and food, when normally its oil and expensive commodities, but it tweaked my interest.

So what do we have, AFRIAG is an investment company with 40% of AFRIAG SA. It also has a few hundred thousand in AIM shares of companies connected with agriculture in Africa. These holdings are a useful source of money if needed due to very liquid holdings.

The main reason for AFRIAG though is as a vehicle for AFRAG SA on the AIM index. Using such an investment vehicle, AFRIAG SA can bypass all the normal oversight connected with an AIM listing.

AFRIAG SA is a joint company owned by Paul De Robillard and David Lenigas (through AFRI) that aims to become a logistic giant spanning the African continent. This is a very profitable space currently occupied by the likes of DHL and Lonhro. David is the Chairman of Afriag SA.

Those familiar with Paul and David will know  about their relationship with Lonhro in the past and Paul’s track record of creating one of South Africa’s largest logistics companies that Lonhro then went on to takeover.

Afriag SA started from scratch around 8 months ago and in this time has already obtained the following contracts.

08/13 Contract to transport Spring Water with Premier Spring Water

10/13 Contract with United exports to transport fruit to European Supermarkets

03/14 Contract with Mozambique’s largest fresh vegetable growing

03/14 Contract to move animal forage to the UAE (approx. 50 containers a week)

The case for investment.

“British researchers Analytiqa projects logistics spending in Africa by manufacturers and retailers will increase by almost $28.8 billion, or 5.19 percent, in a four-year span, from $128.5 billion in 2012 to  $157.3 billion in 2016. The size of the outsourced logistics market alone will increase by 38.4 percent in the period, Analytiqa says in its February report, “Africa Logistics: Keep Cool for Growth; Charting growth trends in logistics markets to 2016.”

It is abundantly clear that logistics is a growth area in Africa and the stated aim of AFRIAG to become the fastest growing logistics company in an estimated market of 157bn by 2016 is certainly a lofty aim.

With Paul and David together they have the track record of creating a multi hundred million logistics business and then selling it.

Afriag has also chosen to concentrate on the sub market specialising in temperature controlled storage and transportation. The below quote is taken from a research paper that supports the view that this is the most important higher end, high margin, high growth sub market.

“Much higher levels of trade in food products will create further opportunities for 3PLs.

Facilitating trade will require vast improvements in cold-chain services, including both

transport and temperature controlled storage facilities.”

Afriag has won the very lucrative contract to perform such a service to the largest producer in Mozambique, which is quite a feat for a company less than 12 months old.

Both Paul and David are very well connected business men in Africa, with large business networks.

Afriag plc has a current SP of .475p with an MCAP of 5m. This values Afriag SA at £10m. Is this fair value ?

It’s very difficult to judge the potential current profitability of Afriag SA. It has no past accounts due to being only 8 months old. No information has been forthcoming about profit margins or potential profit from contracts. Due to this the AIM Market has applied the uncertainty principle and so gives very little value. The potential of Afriag is massive though, given its positioning, its targeting, the size of the market and the strength of its owners. The possibility that in 5 years time this is another company valued in the hundreds of millions is real.

Afriag is suitably funded at current levels after raising £300k with Yorkville Advisers at an average of over 2p a share, well above current levels. The funding contained a second SWAP component that was announced on the 15/04/14, with the monthly swap payments starting on the 30th of June. This was delayed at David’s and YA’s consent due to the low share price that AFRIAG is currently experiencing. That both parties are now happy to start the monthly payments is an indication that they both see an increase in the SP by June. The agreement also means that AFRIAG is fully funded until June 2015, with the obvious caveat that new investments or reverse takeovers might happen with share dilution.

So where does all this leave the share price? Well in the short term until the market sees realisation that Afriag is expanding its profitability rapidly, the share price will struggle to respond much above 1.5p, Over an 18 month period a share price of 5-6p is a real possibility as the market starts to get regular updates of profitability trends.

The short term Share Price could be helped with the following.

1.       A detailed vision being given by AFRIAG as to how the logistics firm will create profits and grow.

2.       A 3 or 5 year plan of where the company is expected to be, what important milestones for profit , margins and revenue they expect to reach and when they expect to reach them.

3.       An overview of the contracts and bids logs with discussion about industry standard margins.

AFRIAG shares a very good place in my Portfolio, it offsets the industry heavy holdings in oil and exploration nicely without the risk of tech stocks. For me this is a BUY with my own 3 month target of 1.5p and 18 month target of 5p.

Some useful research for Logistics in Africa:

http://www.pwc.com/en_M1/m1/publications/africa_gearing_up_-_transport_and_logistics_industry-web.pdf

http://www.africastrictlybusiness.com/news-analysis/logistics-high-growth-industry

http://www.joc.com/sites/default/files/u52092/Arica.pdf

Oxus Gold might well glitter soon

Oxus Gold is an unloved share at the moment, when news that the arbitration was to be fully funded broke the share price reached 6p. However after several years wait people have moved on to other things.

This is a mistake in my opinion. The timetable for the arbitration is secret, however with a bit of work and research you can determine a rough plan. Oxus received funding from Darwin to take it through the arbitration. Last year it changed this funding to terminate in September 2014. I find it inconceivable that OXUS would arrange funding to finish just a few months before the award. So its safe to assume that the award will be known to the market by this time.

If we delve a little deeper into past Uncitral arbitration's we can see that the normal plan is to decide on the fault, then to decide on award value if any, then both parties submit costs and finally the arbitration board decides on who should bear costs and the final monetary award is announced and the arbitration concludes. If we look at timescales for the above its highly unlikely imo that OXUS will not be told the fault decision i.e whether its won or loss after June.

This means that we have a 2.5 month window now for the most important decision. (probably may but that’s more of a hunch).

With a 2p Share price currently, if they lose it goes to around .25p a share, if they win then what…?

Well I think given the depressed prices against NPV atm, gold price etc you could possibly make a case that they will only get 150m rather than the 1.5bn they are asking for. However the court might well give far higher than this. So if they win a rise in the SP to 10p (before the award is announced) is very possible. Any further gain will depend on the award.

For me it’s a buy before the end of April situation and I fully intend on getting another 500k of shares.

GKP, Bonds and Pricing

Gulf Keystone has recently released bonds at 13% with a 3 year maturity…A great deal has been written about the rate of the bonds and that they are “junk” status…..A few have even used this “junk” status as a reason to value the company and to judge the company’s credit worthiness.  This is a mistake. The valuation of bonds is based on far more than just the credit worthiness of the company.

But first let’s just dismiss this usage of “junk”, it’s a very antiquated term, which was originally used to define bonds from companies that were close to or had defaulted on the bonds. Essentially a company issuing bonds with a rating of BBB has bonds called “junk”, This applies to many household names and a large percentage of the FTSE INDEX companies. Where the bonds are BBB or higher they are investment grade…

Financials and funds are normally very limited in what they can and can’t buy and many won’t buy shares or bonds where the company is rated BBB or lower.

Most bonds issued are “junk”, the term junk isn’t really used anymore and the more accurate term of high-yield is the preferred term. GKP has only just joined the main index and I can’t find any company in the last 10 years that has moved from AIM to the main index and NOT been categorised as “junk” for its bonds. To expect GKP’s bonds to be valued at anything other than “junk” is frankly absurd.

The next mistake made seems to be referring to the reputation or credit worthiness of GKP based on the interest rate its paying on the bonds.

The rate on the bonds is made up from a large variety of components. Firstly we do have the Credit rating. However this isn’t a simply rating (as those that work in credit risk will know), its actually a multitude of information including Loss Given a Default, Default Frequencies i.e the chance of a default after 1 year, 2 years, 3 years etc. All of this information builds up a risk picture and profile for the financial instrument.  Associated with the CDF is the length of the bond.  A good example of this is that if you lend money to Greece for 1 year the risk in considerably less than for 5 or 10 years..

Other major components that affect the rate are country risk profiles, industry profiles and speed of issue. So not being able to issue investment grade debt might reduce the number of buyers by 70%, Geographic location might well reduce it by 20% (simply as some funds will focus only on certain countries and Iraq probably isn’t one of them ! ). The industry type will also reduce this further by maybe another 15%. Add on other factors and the pool of potential buyers will be less than 1% of all the buyers….As we all know if you reduce demand for a bond the rate will go up. Add in that GKP, through bad management wanted the money very very quickly and you can see why they had to pay 13%.

Does this 13% reflect the credit worthiness of GKP  ? no it reflects all of the above as well. Did the management cock up ? YEP. Is the term “junk” relevant ? No. Can you make a judgement on the value of the assets of GKP based on the interest rate ? No. You can only make a judgement that the BOD should never have allowed the company to have gone below 6 months working capital.

Reason for Blog

To keep it short and simple. Its because Twitter is too limiting and BB's are too fluid.
I hope everybody enjoys it, the aim is simple, to add clarity to investing and to encourage folks to perform their own research.
For me my method is very conservative, buy when a share is near its bottom and sell when the market sees the value in the share. Never buy a share if your in doubt as to whether you've missed it, its better to miss an opportunity than lose money...

Enjoy !