JP Morgan and Afren

Many think that a certain decomposing dead body smell is coming from the remains of Afren. This has largely come about through the stories and leaks with a source from JP Morgan.

I fully admit it wasn’t until pretty recently that I first started to invest in Afren, mainly as I saw a nice trading opportunity. I had heard and knew the rumours about massive dilutions, the company on the ropes needing massive cash injections. It’s fair to say I saw the risk, but also a short term gain.

After my third trade I researched Afren a little more to see what potential it had as a longer term recovery stock, which is where it became more interesting….see the first blog here http://icebergshares.blogspot.co.uk/2015/02/gkp-v-afren.html

As an investor and somebody who is generally very sceptical about how the financial industry works. My mind started to churn in its slow ponderous way as to what angle J P Morgan was playing….Everything seemed to be coming from J P Morgan. Their meddling started awhile back but intensified with a news article on the 28^th of January.

“The company, which operates in Nigeria and Iraq, needs the money to meet funding requirements that are higher than its market capitalization, analyst Zafar Nazim wrote in a note to clients.”

http://www.bloomberg.com/news/articles/2015-01-28/afren-may-need-to-raise-450-million-for-funding-jpmorgan-says

This was further reinforced on the 27/02 when Julie Miecamp and Luca Casiraghi again released a Bloomberg article painting Afren in the worst possible light.

“Ashmore Group Plc, JPMorgan Asset Management and Pacific Investment Management Co. are among creditors offering to provide Afren with the cash it needs to avoid a possible default as soon as Friday, said the person, who asked not to be identified because the talks are private.”

http://www.bloomberg.com/news/articles/2015-02-26/ashmore-pimco-said-to-seek-control-of-afren-in-creditor-talks-i6mfn9l1

Afren themselves admitted in January that they suffered from liquidity issues caused by the very low Oil price (at the time below $50) but refused to really expand on how severe the problems were. They did request an extra month to make a $50m bond payment so we know this was a real issue.

However the actual amount needed has remained a mystery.

We have confirmation then that JP Morgan are a Bond Holder….Would the bond holders like to see Afren in as much trouble, to take over as much of a valuable company as possible ? If the bond holders are offered warrants at a % of a 5-10 day share price, would they like the price as low as possible ?

Um….it’s worth thinking about.

So let’s dig a little deeper, Mr Zafar Nazim JP Morgan business analyst. Has he made some good calls in the past or has he maybe pushed a certain angle?….

In 2012 we had an interesting story, which (it will come as no surprised to learn) concerned a large company which was struggling to refinance its bonds, which were held by JP Morgan….

“In a footnote in its 2011 financial statements last week, DIFCI said it sold one of its discontinued businesses held-for-sale after the financial year ended to a 'related party.' It did not name the business…This sale could only be of SmartStream given the magnitude of impairment,' JP Morgan analyst Zafar Nazim said in the note, adding that other businesses held for-sale by DIFCI had minimal associated goodwill balances”

http://www.tradearabia.com/news/BANK_217072.html

It all seems very sensible until we get.

“No deal has been made yet. It is in the middle of the process," Mohammad Al Shaibani told Reuters on Friday on the sidelines of a business forum.

"I think that more than one entity is looking at it, among them are some of the Dubai government-related companies. They are showing a keen interest in this process," he said. JP Morgan had said in a research note earlier this month that, based on a footnote in its 2011 financial statement, DIFCI has likely sold SmartStream to Dubai or the ICD, resulting in a $68.8 million (Dh252.7 million) impairment provision”

http://gulfnews.com/business/investment/difc-investments-still-working-to-sell-software-firm-smartstream-1.1025092

So just over 2 weeks later we find out that Mr Nazim had been telling porkies and was very wrong about the current state of the company. I wonder whether JP Morgan gained from this in anyway?

So back to Afren, we have a series of JP Morgan related stories spreading doom and gloom around Afren. Certainly one of the credited people from JP Morgan has a less than perfect record about getting his facts right. We have a conflict of interest where JP Morgan is a key decision maker in the bond holders and yet it’s telling its clients to sell and itself will benefit from a low SP.


More eagle eyed investors will also have noticed that JP Morgan has been the major player on both sides of the L2 order book for Afren, sometimes being on both sides at the same time, a practice which is generally frown upon due to its ability to force price movements.


Is all of this coincidence?

We have an Oil price which is materially higher than it was when Afren made its RNS statement.  It’s declined one takeover offer and had a deadline today, which has been and gone without an RNS statement saying it had defaulted.

Now  I am not saying that everything is rosy, Afren certainly needs some money, does it need the $450m (or changed to $350m a few weeks later) that JP Morgan claims ? probably not in my opinion. Do I trust JP Morgan to be telling me the truth…probably not.

Its always worth digging a bit with these things and never, never trusting the investment banks. As soon as it suits them it will be BUY BUY BUY 100p target. Pay attention to the oil price and consider whether you might want to take a bit of a risk.

If you smell something around Afren consider it might not be Afren’s decomposing corpse, but might be the layers of sh*t being sprayed by certain bold holders. A quick thunderstorm of news might well wash it all away.

GKP v AFREN.

Having invested in both in the past, currently I am in Afren and not GKP, but have been thinking for a while about the GKP bond raising that happened just over a year ago..

For those not familiar with it, GKP were fast running out of money and had to issue bonds to meet short term liquidity requirements and for 12-18 months of further exploration. It was very much a do or die for GKP with a real chance of it defaulting on its existing bonds, if no new money was found.

Fast forward 12 months and Afren finds itself in a very similar situation. It has a few advantages, much higher oil production, larger range of assets and income from oil sales. But to be fair we are in a more hostile environment for oil producers now than 12 months ago, with lower revenues and vastly squeezed margins. At the time GKP was valued at the £1bn mark, currently Afren has a Market Cap of £100m.

Now I appreciate that it’s difficult to compare two companies like this, so to be honest I am not going to even try. However one fact does stand out, Afren is producing around $100m dollars of oil a month where as GKP was around $25m.

I think the main consideration is that this is quite a normal predicament for these kinds of resource asset heavy companies. They generally work out OK for shareholders.

Both companies are sitting in good positions for existing and immediate new shareholders, GKP has decided, to sell up. It’s done it nice and early before cash flow makes it seem like a bargain bucket selection. The share price has responded appropriately and you can almost guarantee that any price paid will be a minimum of 50% above the shares closing price today in my opinion.

Equally with AFREN, the selling by the risk averse institutions has created an opportunity for those prepared to take a little risk to make a nice return of 150-300% if decisions pan out how they should.

#BCN – We don’t want David.

#BCN – We don’t want David.

Thankfully its now fully in the open, Bacanora and Rem are not on each other Christmas card lists.

Or I should say Colin and David. My understanding is that Colin’s relationship with Kiran is pretty good.

But lets go back awhile, when BCN first listed on AIM, many will know I was a firm supporter of them, I admire the company greatly and really do prize their professionalism. As always I spent time researching, trying to talk to the BOD, the Nomad, advisers, asking questions about the admission document etc.

After a few email contacts it became very evident that some of the comments being made by David were not consistent with those coming from the BCN corner and that a rift and frustration with David could be seen back then. I certainly won’t say who I spoke to nor who said what, due to strict confidentiality in correspondence but I came to disbelieve David and have never invested in a David company since. I also believe he mislead the market and continues to do so over AFRIAG but that’s another blog….

Since then, thanks to the likes of Doc, David has been seen to have lied on various occasions, particularly when it suits him to ramp his companies or boost his ego.

So back to the latest move, David trying to force himself on BCN, there is a name for people who try to force themselves on others but…..Anyway the question is, is this a good thing?

Well if we look at the share prices of the two companies we can see that they are both down, pretty similar amounts and similar in general to the market. So there certainly hasn’t been any kind of “Dave” effect in that region, nor a poor effect from BCN.

Has Dave managed to attract any big hitters or investors into the project…..No

If Dave is on the board will he be able to do much…..No he wont be able to vote on any REM related happenings due to clear conflict of interest.

So why would BCN want him on board ? A question I find it difficult to answer, David is good at attracting smallish investment into companies (i.e less than 10m), but has not got a good track record when things get serious. Will the large players pay more attention to the “worlds largest lithium deposit”? No quite the reverse they will look at David’s role in companies dating from Lonhro to now, his success and failure, his censorship by the nomads (and his firing of the ones that do this) and they will run a mile.

BCN asked REM to be an investor in the project, BCN to maintain working control and REM to provide the funding. The contracts were drawn up to reflect this, BCN remains in total control. All was happy until David became greedy and wanted to up his stake. He didn’t want to pay BCN a fair share and instead went down the route of buying BCN stock. This deprived BCN of money it needed to progress the projects. BCN’s response was to seek money from the same source as David on AIM. Since this time David has sat on the side, complaining about how slow BCN are, spending large sums of money on his own surveys and reports. Duplicating the efforts of BCN.

BCN’s response to all this has been simple. We will concentrate on the projects were we have the most control and REM have no control…. Essentially David has been such a pain in the arse that its screwed up REM’s share of the projects. No surprise there then. He’s signed contracts that have restricted REMs control, pissed of his partner and now is looking for a way to get what he wants.

The problem is that this isn’t going to get David what he wants, its’ all about his ego. All it will do is make Colin more determined to only advance the BCN projects. The largest lithium project in the world is not going to be all mined straight away, it will be extracted piece by piece over many years, so why would BCN not start with the areas they will get the most profit from…..

Quite a few investors have complained at the lack of news coming out of BCN, however BCN is really just entering the high diligence state of the project, this is the point where it’s important that they don’t just produce crap (pay attention David), but they produce top quality, unassailable reports to attract both funding and partners. Many many explorers fail at this stage and it really differentiates the bad companies from the more professional ones.

BCN does not need more exposure, it doesn’t need better PR, it doesn’t need a board member with the utter contempt of smaller private investors. It needs time, less distractions and a bit more money to progress a world class resource in the way it needs progressing. If they get this the SP will respond in time or when the market recovers.

If David is voted onto the board, you will get leaks, pumps and dumps, a lot more dilution and a company that will become a leper to the “real” world outside AIM and the cowboy “funders” will be the only partners.

#votenotodave. Let’s keep what little decency there is on AIM.

OXS PART 2 After the cataclysm.

OXS PART 2 After the cataclysm.

Sorry folks forgot this bit when I was writing !

Forgot to add an important point, a few folks will think “just a short term rise, it will fall back when the PI’s sell on RNS !”.

Normally this might be true however if a large award is made, it will certainly be a ground breaking, if not world record award from Uncitral. It will be a major financial news story in many countries, appearing in countless national newspapers, Bloomberg etc.

This exposure will almost certainly guarantee interest from many bespoke funds, investors and arbitration specialist investors who wait for a de-risk event before investing.

Us AIM PI’s will very quickly become very small fish in a very big pond, make sure you maximise how much they have to pay to eat you up !

Oxus Gold #OXS Known unknowns and unknown unknowns

Many will known that I’ve been a following for awhile in OXS, the advantage of buying back in the autumn  or prior this is that you could have picked these up at 2p or so. For those that have, a little de-risking is certainly going to happen when the SP hits 4p (or around this figure).

We saw a sharp rise last week when in the matter of an hour or so the MM’s raised the Bid 2.7p to 4p. Volume kicked off and the SP is now in the high 3p range. Quite a few new investors have climbed on board and unknowns and rumours abound in the chat forums.

In past Blogs such as http://icebergshares.blogspot.co.uk/2015/02/oxs-whats-being-arbitrated-over.html I have mentioned briefly about what’s at stake.

Why the rise ?

Well we know they  got rid of Darwin…..Note, they got rid of Darwin, not the other way round, there is no way that Darwin could back out of the contract they signed and it would be legal madness to try and force Oxus to backout for the sake of a single monthly drawn down. The most likely scenario is that OXUS simply didn’t need an extra month’s money, said they wouldn’t be using it and so asked Darwin if they wouldn’t mind closing a month early. Darwin obliged as they can’t force OXUS to draw down money.

Its my opinion that on Thursday a very large 5-8m order was placed, this was filled by a mixture of RAB shares and open market shares. With the Uncrossing trades at the end of the day simply the MM’s tallying up with each other (or passing on the RAB shares).

Known Unknowns

We know that RAB are selling, we know they have been doing this for many years, not a breakneck speed but steadily, with a view to de-risk. We know that the Manager of the RAB fund has brought over 1m shares and has not sold them, he continues to hold. We don’t known how many shares RAB have left, nor do we know RAB’s intentions for the convertible loan note.

We know that somebody has been buying the RAB shares when they come on the market (and It’s been pretty clear its not private investors). This was more notable in November but is still there imho).

We know that the panel are due to make a decision any time at the moment. We also know that Pierre Tercier hired a new arbitration assistant at the beginning of January to help him with his arbitration commitments, we also know that his only real arbitration commitment is OXUS. It is currently unknown as to the exact date of any judgement.

 

Unknown Unknowns

 

This is a bit of a fun bit, we have lots of rumours circulating on the Internet. These are all Unknown Unknowns because we haven’t yet had any real evidence for them.

Firstly, The judgement has been communicated to the two parties, however public disclosure needs to be agreed before any official announcement can be made.

Secondly, the award has been moved to Washington, this imo would be impossible, the case will only be concluded in Paris, I can’t see any Uncitral precedent that allows for the case to move to Washington, nor does the BIT agreement allow it imho. However similar cases have within days of a large judgement applied to the Washington courts for the forced selling of assets. It would be a natural move and I wouldn’t be surprised to hear that this has taken place in the release of any RNS.

Thirdly, a last minute settlement by the Uzbeks to the order of $350m.

Lastly that a takeover bid for OXUS GOLD is to be announced in the coming days in the region of 15-20p.

Known Knowns

This is a big case, it’s a potential record breaker for Uncitral and has the potential to be the largest pay out at the Paris Uncitral courts.

It will be a reputation/career maker or breaker and its significant that although Lamm (Whites best international arbitration lawyer) is leading the advisers, she is not the official representative of Uzbekistan, this has been passed to a much younger more inexperienced employee who will be talking and arguing directly to the arbitration panel.

When I received correspondence from Tim Hart this week, he ignored by mentioning of the Oxus Case. Tim is not shy about coming forward concerning his past successes, so this might be telling.

Finally only 2 cases that I can find have every had more than 8m spent on them by the claimant, funded by a professional funder, gone the distance and failed. It really is unusual for a case to fail at this stage now.

Good Luck and hopefully my next blog can talk about how Oxus will spend the multi hundred million award they have just received.

#ROSE quick update

#ROSE quick update

 Sorry for grammatical mistakes, my fingers are frozen, but I want to get this out.

Today’s RNS has been woefully misunderstand by the market, so I thought I would put up a quick Blog on the subject.

Bad news re Paradox but not totally unexpected. It would have been great to have utilised the paradox hole and this was always the plan for the company to meet its aim of production in H1. That the hole is not sufficiently usable is a pain.

The copper project, is a none issue in my opinion. ROSE is not a commodity explorer or miner and all of these assets should be offloaded over the coming 24 months.

Now on to the all important Mancos drill. This was a less than 50% COS and to be honest I want very hopefully that it would hit enough oil reserve to be economical vertically. For me it was all about the lateral drilling and I just wanted to see sufficient vertical pay zone to allow for that. There was always the chance (20% or so) that it would be economical vertically as a few holes are in that region.

I spent a great deal of time studying the Mancos and Paradox geology and existing drills over the summer. If we compare the findings from the hole to the existing high calibre/high producing drills in that area we get a similar arrange and size of pay zones to the Rose drill.

The BOD have clearly stated that they will be producing in H1 (I am hearing May), initial thoughts as mentioned above, are that this would be from Paradox, however given that Paradox is no, it must mean they know they will see production from Mancos. There isn’t time to drill a second hole, so this must be from the existing Mancos drill. There is no doubt that the hole has flowed.

So what are we looking at ? This is only my opinion but my estimate is that this hole is around 2000 bopd when laterally drilled and 250-300 bopd from the vertical.

I might be proven wrong, but this is the figure I get from similar Mancos drills. So will ROSE be producing 2000 bopd by end of H1 ? very possibly. With further drills likely an MCAP of £150-200m would be supported, given current oil prices.

Rose has suffered from the fall in oil price and rightly so, it could have been a total bust if the Mancos drill wasn’t so successful and could have fallen to .5 to .8p. It hasn’t and with the stabilisation of the oil price now is the time to buy into ROSE.

#OXS Whats being arbitrated over……

#OXS Whats being arbitrated over……

I thought folks might like to actually see what Oxus Gold says has been stolen from them by the Uzbeks. A figure of between $500m and $1.2Bn is massive for a gold explorer/miner isn’t it?

Well we have two license areas being arbitrated over, Amantaytau and Khandiza.

Amantaytau.

This is a large mining open pit operation. Situated next door(40km) from the world’s largest open pit gold mine. Back in 2011 it was only recently started, producing 50,0000 oz’s a year, The plan was to increase this to around 300,000 by 2015. Current gold price over this time of 1200-1300, average costs per oz where around $200-250, giving $1000 a profit per oz, so 50m a year profit, rising to 300m a year now.

Total reserves of 2.5m oz rising to 7m with the then current increased exploration program, with an estimated 24m oz of gold and 480m oz of silver contained in the site in recoverable state. The world’s 10^th largest goldmine is 29m oz’s, so you can see the global scale of Amantaytau.

All before it was seized by the Uzbeks, when they realised that the price of gold had shot through the roof.

On the picture taken in 2014, you can see the large vehicle depot, with many diggers, dump trucks etc (when you zoom in) and the very large processing centre.

Amantaytau is a fully functioning operating and highly profitable mine, with massive world class gold reserves, Oxus spent over $80m on the site. Amantaytau (AGF) should be pretty easy for a minimal value and I can’t believe that even Tim Hart has given it a very low valuation.

Khandiza

This was at the feasibility stage and is a multi commodity resource. With a JORC of 1m tonnes of zinc, 500,000 tonnes of lead, 125,000 tonnes of copper, 62m oz of silver and 176,000 oz of gold.

Current price of zinc alone is $2000 per tonne so $2bn.

Grades were generally very very high and highly profitable.

Total potential resources in Khandiza where around 5m tonnes of zinc, over 2m tonnes of lead.

Analyst of the 2014 picture seems to show small scale mining has started in Khandiza, which is very surprising, or maybe not….

Estimates for Khandiza by OXUS for the arbitration range from $72m to $588m depending on how they want to value it.

There is little doubt that Khandiza, if mined would provide an mcap of $1bn to any company.

With both of these two resources, it’s clear to see just how world class and huge they were. Nothing really on AIM at the moment compares and it’s certainly not a silly inflated award being sought in the arbitration. It’s also difficult to see how the Uzbeks could value both resources together at a value that wouldn’t endow OXUS will a multiple multi-bagger from its current level.