Icebergshares: UKOG More than it can chew.

Well I’ve been on holiday and got back to UKOG mania, firstly well done to all those that made a fortune on the sentiment rise. For those that brought in recently on the rise, I wish you the devils luck on making money, leaving with your money, or even not losing too much.

UKOG has commissioned an American company to produce a report on its oil reserves, not only has it done this based on a single drill, but also without 3D. It reported 158m of reserves per a sq mile and even felt it was able to update and come up with a figure of upto 100bn for the entire weald across Southern England.

It has been interesting to watch the media reaction to start with we had newspaper style headlines, however as the day progressed the BBC received information that questioned the massive figure and a more sceptical reporting angle was given.

http://www.bbc.co.uk/news/business-32229794

Quotes such as “CIBC strategist Jeremy Stretch says we should treat the estimates with caution. He said: "There remains a considerable divergence between estimates of reserves and the potential degree of extraction”

And let us not forget “Last year, the British Geological Survey (BGS) produced a report suggesting there were 4.4 billion barrels of oil trapped in shale rock under southern England - which would need fracking to get it out.”

So within a year based on a single drill an American company paid by a rampty ramp company came up with an estimate that’s 25 times higher than the estimate by the BGS which was based on hundreds of drills and samples.

We need to get Nutech in perspective, it’s been ramping the hell out of Shale production in the UK for a couple of years. However lets ignore that and look at the actual figures.

Nutech compares the Weald with Bakken, Wolfcamp and Bazhenov in Russia. In all of those areas TOC’s of 4% or so are the commercial minimum’s.

If we look at the UKOG figures produced by Nutech we only get 17.4m down from the 158m where the TOC is higher than 4%, so a pretty big drop then.

As mentioned in a previous blog, reports from British Universities generally support the idea that TOC’s of 10%+ are needed to support natural extraction in the Kimmeridge layer with a sweet spot of 20%+ needed.

Given an actual recovery rate of say 5% that gives us 850k per sq mile.

Now let’s play a little more…..Kimmeridge is known for good fracturing exactly as UKOG have mentioned, what they haven’t mentioned is that the fracturing tends to be heavy but with small lateral expansion, ie a fracture might extend 5-50cm, this is unlike some other sandstone and mud stone types where the fractures can extend 100’s of metres. 

This means to extract even a fraction of a sq mile, very large laterals (probably 5-10km) will need to be drilled. If UKOG get permission to drill these kinds of laterals in the populous areas around Gatwick then I am a monkey’s uncle.

The final point is the pressure. As mentioned by David in a BBC interview the weald has no pressure…..

This means flow testing will be problematic and will require industrial level permission. Any flow will likely be measured in the 10’s of barrels a day imho. With no guarantee that the hole is commercial.

This morning UKOG had an MCAP of £50m after rising up from £5m. This is a madness figure. The news released doesn’t really change anything. A tremendous amount of poor quality posting is on the forums showing a total lack of geological understanding. Personally I put a realistic mcap of around £5-8m on UKOG at the moment, this will change in Q4 depending on the success or failure of any flow test.

Well done again for those that made money on sentiment, but whenever money is made on sentiment and not on real added value 4 out of 5 investors lose money. Personally I prefer to make money on value adding news….

Icebergshares; Nomads, Brokers and Market Makers (NBM’s).

I’ve contacted a few of these in the last couple of weeks, some with compliments, some with complaints and some with just advice or opinions.

This article is not about exposing anything, giving opinions on any companies in these arena’s (good or bad). All I want is for private investors to be aware and keep the roles these companies play in focus.

NBM’s are often the same companies, most of them perform all these roles and the 4 character market maker codes you see for your exploration company in Level 2, will often be a nomad for a different exploration company.

There are around 40-50 of these companies, they raise money, they ensure the companies meet the legal requirements of the LSE. They should have a detailed knowledge of the company they represent, visit the sites and provide PR for the company through well written research notes and broker targets for the share price. They advise on positive ways to represent information in RNS’s and can advise on the actual strategy the company might follow.

It’s easy to see that NBM’s are very important to the success of your investment.

The role of the NBM provides a raft of possibilities for conflicts of interest and they need to work hard to ensure this doesn’t happen. Sometimes this fails spectacularly, such as with Seymour Pearce and hefty fines and disqualification can occur.

There is considerable variety in the type and niche capability of the NBM’s. Some specialise in technology, some mining, some oil etc. Nomads should have an “Industry expert” on their field/s they represent. A further layer of niche specialisation occurs with come NBM’s dealing mostly with lower cap companies, an average of less than 25m MCAP, some have a much higher MCAP average(100m+).

NBM’s are NOT charities they make considerable money from companies. The more a company shouts about itself, the more liquidity exists, the more dilution, the more money the NBM’s make. I’ll leave it to you nice folk to imagine the kind of characters that might fall into this category. It’s nice for a company to make money for investors and be successful, but it’s not essential to the NBM’s as long as the investors continue to believe the dreams.

NBM’s can be further characterised by their aggressive strategies. Some NBM’s look to grow their client pool rapidly, they tend to sell themselves more and promise more…Therein lies the first large pitfall of a conflict of interest. Is the nomad well balanced? Or is paying more attention to the needs of the company than the company meeting its LSE obligations? How far is the nomad prepared to bend the rules for the company?

The next topic to think about is fundraising, Do you, as an investor, see the use of facilities provided by Bergen, Darwin, Yorkville as a good thing? It won’t take you long to notice that certain NBM’s have a preference for certain fundraising. RFC for example have led to several miners/explorers using Bergen. I am not inferring in any way that RFC benefit from suggesting the use of Bergen however it’s clear that certain NBM’s suggest a preference for certain fundraising.

You might also have been wondering about RNS’s, sometimes they are very bland and give out very specific highly technical information. Sometimes they are filled with possible, maybe, potential statements suggesting that the company is on the verge of the greatest find this decade. The Nomad does review every RNS that gets released, some are very firm about forward looking statements, some less so…..This “style” does help influence the variability of the share...

Many investors don’t consider the NBM when investing, personally there are some companies represented by a Nomad that I would never consider investing in. There are some where I would only invest short term. When reading an RNS or examining a new funding facility try and take note of who the Nomad is. It will help you realise whether something is a pipe dream or a likely reality.

Do NOT be afraid to contact the nomad, they should be there for you, they should want the opinions of investors, they should be holding companies to account.

Finally take note of when a company changes their Nomad. Is it because the nomad really is useless or it is because the company wants to push the barriers and is saying no?

Weekend Round up #OXS, #AFR, #UKOG, #FOGL, #SAV

Very Busy so didn’t want to go into each stock with too much detail.

#OXS – saw some high volume this week with many large trades particularly on Thursday. I made a call on twitter to buy at something like 3.3 (current buy 3.5), Still the big unknown risk of the arbitration but still very much worth taking with a  portion of your PF that your prepared to write off. A bit of excitement from the Jerooy contingent asset in the coming week, board holders have probably sold out now so a rapid rise off the 50 day SMA to a classically overbrought signal of 4.5p could well occur. As could a year making multi-bagger if the arbitration news comes in.

#AFR looks to have stabilised in the 3’s, this stock was always a risk and it really depended on how corrupt you think the general market would be to a FTSE 250 company…The Answer came in loud and clear. Investors should contact the company and make various points very clear to them.

From this level it seems to make sense to hold for me, I won’t be selling or averaging down, just holding to see what happens.

#UKOG – lack of understanding.

I posted about HH last year here

http://icebergshares.blogspot.co.uk/2014_10_01_archive.html

The latest news pretty much confirms what I said. HH IS NOT COMMERCIAL. Its drilled into the same “world class” source rocks that exist across much of southern and southern central England. I fully standby my comment that I could drill under a Tesco’s near to where I live and get the same results.

A study was undertaken a while ago that took rock chips from a variety of beaches around Dorset. Half of these samples had higher TOC’s and S2’s than Horsehill, some higher than anything Horsehill had as a max.

The source rocks tested have always been and will nearly always be organically rich, generally TOC’s of 10-20% are needed with TOC’s of 25% for sweet spot convectional extraction. S2’s of 100 or so are also probably needed for free flowing. I am not saying I know more than the experts but the experts are purely commenting on the potential and giving industry facts and figures rather than commerciality.

Horse Hill is such a “normal” underachieving southern England drill its almost scary. Don’t believe the crap and hype this will NOT make you a fortune.

#FOGL Things are starting to get interesting now on FOGL. The drill bit will be churning through the rock, possibly hitting oil and successful hit will put a lot of confidence into FOGL, unsuccessful will create a great buying opportunity for the rest of the drills.

#SAV some very nice gold grades coming out of SAV, Gold is still an extra on top of the principle copper and so is all a bonus, adding to commerciality. At this stage the gold alone looks like it could be commercial, with the copper as well this looks almost a certainty. Just like Mr Archer to pick a certain highly safe project in Oman to go along with the now highly certain Mozambique project. Massively undervalued share.

Open Letter to Toby Hayward

Toby Hayward.


Open Letter to the Interim CEO of Afren plc.


As a shareholder i have read the recent announcements with regards to re-capitalisation and trading updates with interest.

I wish that i could say that i read them in anything but disappointed interest.

As an Interim CEO I am sure you are aware that you, the Board of Directors and the Chairman have a duty to act in the interest of shareholders who are the owners of the company.


Before I vote and attend the EGM, I would like some clarification on a few points.


Point 1. Why did Afren not try to undertake a placing or rights issue when the share was many times higher than they currently are? As a shareholder this seems to be a colossal mistake costing Shareholders dearly.
Are any of the BOD, or yourself agreeing to a salary sacrifice for its failure ?


Point 2. In 2014 Afren produced 31.8kBOPD, why under its current financial problems is it then spending a Capex of $500m to achieve a production of 29-36kBPOD for 2015? It seems very strange to spend this money without predicting any firm increase in production and it seems strange to spend this money if the company simply doesn't have it?


Point 3. Can you confirm whether any of the Ad Hoc Committee members had shorted the Afren Share either pre or post its creation ? again shareholders would be happy to see "everyone all in this together", but only if Bondholders have not benefited from the collapse of Afren.


Point 4. You mention I believe for the first time that the Hedging facility was closed in Dec 2014. Can you confirm this was the case, can you also confirm why this has only been notified to share holders now? I believe this to be very price sensitive information when it occurred in Dec, for which the company had an obligation to inform the shareholders in a timely manner.


Point 5. Why are we re-finacing and diluting for the 2019-2020 debt? Trying to refinance debt due in 4 or 5 years time, when the company is at its weakest seems to be inadvisable.


Point 6. Am i right in saying that money will be raised by giving cheap shares to the bond holders, and then this money will be used to pay off the interest due on those bonds i.e given back to the bond holders? Surely this is a zero risk transaction for which the bondholders are being rewarded.


Point 7. Will Afren forgo the ability to issue share options or pay in shares for its senior managers and Board of Directors? it would seem inadvisable for the very people who are largely to blame for not raising funds when times where good to benefit from a low share price.


I have to say as a shareholder it appears to me that the Bond Holders will have made somewhere between 100-300% profit when all is said on and done on these Bonds. The Board of Directors and Senior management have and will continue to benefit from nice wages and secure jobs.


As a shareholder I am certainly not scared to vote NO in the EGM for these proposals, I would be happy to take the risk that the assets are worth more than the debt to certain parties, or that the bondholders would increase there offer.


If you can answer the questions above that would be appreciated, if not then I will try and ask them at the EGM, before I vote.


Thanks


(Awaiting response)

Afren They got it wrong again

I’ve written a series of blogs now on Afren for a host of different reasons.

One of the main reasons has been some of the most diabolical posting ever on bulletin boards.

They will know who they are, they are folks that came on this morning before 7am saying the Afren SP would drop to 1-2p straight away so folks should just sell and get whatever they can for the shares. They are folks that said that the shares in Afren are now worthless.

They are also the folks who said that the Bondholders would own 100% of the company, or that Afren would be delisted.

They quite simply prey on the fear of investors, by stocking up that fear and coming out with some pretty dire comments. They are simply scum….
The truth is that the SP is now currently higher than the end of Jan, despite everything that has been thrown at it

Anyway now that’s out of the way…

Afren fired the starting gun this morning, first offer out of the blocks is for current shareholders to maintain around 10-11% of the company(for a company that fell 95% due to fears it might go bankrupt that’s a reasonable achievement). The Market obviously priced in a larger fall. Also obviously the market had priced in this news to keep the SP at around 6p, it looks like as I type the SP is around 4.85p due mainly to the selling out of PI’s, but who do we think is buying the shares….

The offer is stupidly low and for a number of reasons I certainly wouldn’t and won’t be voting for it.


So the negative points.

Why pay now and convert now for debt not due until 2019 or 2020 ? This makes no sense, by 2019-2020 the company will be much stronger. Why this pigs ear of a very complicated set up, whereby we /Afren borrow money from the bondholders to pay back the bondholders? The cost cutting is due to create a pathetic reduction in total spend. It needs to go much further….Why no disposal of none core assets? Are any of the current BOD going to see a wage reduction or will we find them loading up on cheap share options? (IMHO they should be banned from any share options below last nights SP). The RNS has obviously been worded to paint the worst possible picture of Afren. The BOD want to keep their jobs and this will ensure that..They should be sacked as soon as possible. Finally many of the bond holders have brought the bonds at sub issue price (i.e at 40-50% of the $) yet they get 100% of the bond value…there should be at least a nominal haircut for the bondholders.

Now the positives.

We have bondholders who are prepared to invest hundreds of millions into the company. This is now the low ball offer, we have security that a delisting will not occur, we also know that the lowest the SP will likely go to is around 5-6p in the medium term (nice feeling for me as 6p is the point where I start to lose money in Afren this year). The bondholders always had to make the first move, now that is done the very vocal bidders can come in and put offers to the table. The bank has agreed in principle to a considerable extension to the RCF, this will be good news for any potential bidders.


My final points are vote NO to the bondholders, we need to tell them to go and bully somebody else.
Sack the current BOD, ask the BOD to suspend ALL discussion with any group involving JP Morgan.
Ignore the cretins who keep saying 1p or 2p, its so not going to happen....
Keep a note of the names of the BB idiots, they are same folks who pump shares, the same folks that talk down all the shares and the same folks that feel its right to sell a car without breaks to a single mum and her family....


Enjoy...Relax...and finally now wait, remember if the BH's are prepared to invest money and loan the company money to pay back to themselves then other folks would be more than happy to do this. Also remember the BH's are not Oil Company investors, they simply want to take the shares, let the SP rise 100% or so and then sell as quickly as possible..


BTW Sorry but I will be removing ALL replies to this post. Normally I am happy to allow free opinions, but I know this simply won't happen on this blog post..

The living market. Learning from #FOGL

I thought I would put a bit of a blog together about this fine racehorse. I’ve been investing in FOGL for a few years on and off and it’s interesting how it has developed and how as an investor we need to realise that the market has developed at the same time.

The first time round back in 2012 when we had the first round of drilling for FOGL we saw the share price rise massively to £1, this was reached around the time of first spud, optimism was a high and it wasn’t until the September well results came in that the SP dropped from the 90p mark down to the low 60’s. The following Scotia well was a failure and the price then stagnated around the 30p mark.

This time round the market learnt and developed. Buyers saw a low risk opportunity, they brought in the mid 20’s sold pre spud or on spud news and the SP has pulled back to a lower level (equivalent back in 2012 to the SP falling back to the 60’s during the drill…..)

For people not yet invested it gives us quite a few possibilities. We can take advantage of this learning market, sit back and take a lower risk position by buying in now that the Share price has fallen due to the sell on spud crew. My recommendation would be to invest a portion of it now, if drill 1 fails, you have the ability to average down on what would most likely be a massive over re-action if the drill isn’t a success, (maybe 20p). With plenty of upside on the potential of future drills. If the drill succeeds you can ride the wave and pocket some very nice profit, leaving a portion in to ride the rest of the drills.

I hear from Macy’s blog that FOGL will need to raise money and this is very correct. However the targets have been chosen in my opinion to allow a window of opportunity for this probably between the results of drill 2 and the spud of drill 4. It makes no sense to fund pre potential and likely good resource news before the results of drill 2 but equally makes lots of sense not to risk waiting before the more risky wildcat drills in the southern license area.

The risk of dilution then at this time, must be pretty minimal. A window of opportunity has developed for more canny investors…. Live and Learn and have a bit of fun along the way.

Happy Halloween Afren Holders.

I wasn’t going to say much about Afren, but it was a really interesting set of events this morning from a market psychological point of view.

Let’s get things straight, Afren had a silly leak. It happened outside of working hours. It happens and lots of different companies fall for it. Indeed you can download software which will search a website for any files that do not have permissions and simply haven’t been linked to yet. It is not illegal to go to a publically accessible website and look at a file which isn’t linked to yet is accessible to the public. So a bit of a mistake but nothing too bad.

Now on to the actual news event..The RNS!

In light of the Company's current liquidity position and in order to preserve cash while the review of the Company's capital structure and funding alternatives is completed, the Board has decided, at the expiration of the 30 day grace period, not to pay US$15m of interest which was due on 1 February 2015 under its 2016 Notes.  While such non-payment will result in a default under the 2016 Notes, this will not result in an immediate obligation to repay such 2016 Notes or any cross-default under its 2019 Notes or 2020 Notes or its other debt facilities.

This makes two important points. The board has decided to default on its bond. This is not good news. However this could be for several reasons. It could be that the RCF deferral was dependent on stopping bond payments. It could be the company has simply decided to call the bluff of the bondholders and are saying, so what if I default. IMHO this reduces the pressure of the bond holders as it shows their scare stories of administration and calling in collateral are simply not going to happen at least in the short term.

For me the last sentence is the most important…A default in the 2016 bonds, does not trigger any kind of automatic default or consequences elsewhere in the business or its debt profile. This leaves the 2016 bond holders rather toothless.

The Company has received assurances from the ad hoc committee (which members hold in aggregate approximately 55% of the principal face amount of the 2016 Notes and 44% of the total principal face amount of the 2016 Notes, 2019 Notes and 2020 Notes) that the committee has no current intention to take enforcement action with respect to the 2016 Notes held by its members as a result of the failure to make payment of interest due under the 2016 Notes, in the hope and expectation that agreement can shortly be reached with the Company and its key stakeholders on the terms of a consensual restructuring that would preserve the Group and its business as a going concern for the benefit of all stakeholders.

The bond committee is not made up of the majority of  2019 and 2020 note holders….this is important. Any deal will pay off the 2016 bond holders and the RCF. Even then the adhoc committee is barely 50% of all the holders. This again weakens the hand of the bondholders.

Again of most importance is the last part of the sentence where the bondholders have no intention of enforcement actions because it hopes a deal can be made for the benefit of ALL stakeholders. This indicates that there will be a benefit to Share Holders as they are a major stakeholder. This is NOT what the bondholders have been saying up to this point. It now becomes very very unlikely that shareholders will be “wiped out” to quote a certain news article.

The Company is continuing constructive discussions with the advisers to, and members of, the ad hoc committee of its largest bond holders, the coordinating committee of the lenders under its US$300m Ebok debt facility and its other lenders regarding the immediate liquidity and funding needs of the business.  It is expected that any agreement with the Company's bond holders and debt providers regarding the provision of interim and longer term funding and a broader consensual restructuring is likely to result in economic terms associated with the new funding and/or the issue of new equity which will substantially dilute the interests of the Company's current shareholders.  

So there will be substantial dilution….Yes we have always known that. Nobody invests $300-500m in a company with a Market Cap of less than £100m without there being substantial dilution. The substantial dilution was always the reason why the Share Price fell from 100p to the sub 10p. The question is how much dilution is going to happen? For Afren to maintain its stock market listing 25% of the company must be in public hands. So a realistic assumption is that we will end up with 75% of the company in the hands of the a third party and 25% with the current shareholders….

Given this the real question is what is an Afren, with no debt due before 2019, with 40-50K BOPD output and with a capital injection of $300-500m for 75% of the company actually worth….

Personally I would put a minimum price of 1bn on the above, this would give the current shareholders a share worth approx. 250m or 20p or so a share. Of course the dilution could be lower than this and a firm case could be made for the company being worth considerably more….But this is far above the current trading price.

While the Company is also having discussions with its other stakeholders and third party investors regarding interim funding and recapitalising the Company, the Board believes that an agreement between the Company's creditors presents the most likely solution to the immediate issues facing the business.  There can be no certainty that an agreement will be reached.

Code for any third party investors need to get their act together and put in a firm bid pronto.!

For investors the RNS doesn’t make particularly good reading, particularly for those people who have had their heads in the sand with talk of £1 a share. However in reality it actually reduces the risk of a total wipe out of shareholder value and anybody below 20p is likely to see a profit if they hold over the short term and probably a much better profit longer term.

Dilution was always going to happen.

For those that believed the vultures and scum who came on the board at 7.00am until 8.00am talking about 2p, sell straight away etc and sold for sub 6p only to see the SP rise above 7p 30 mins later, then I hope you learnt an important lesson.

Do your research, stick to your plans unless something material happens and remember share trading is unfortunately dominated by crooks, greedy liars and people you would never listen to if they came knocking at your door, so don’t listen to them they are simply dressed up to scare you!

Afren and the 3 little pigs.

“'Little pigs, little pigs let me come in' said the wolf, 'not by the hair of my chinny chin chin….' Cried the 3 little pigs.”

Well an interesting weekend for Afren holders, let’s just recap quickly.

Afren said they had short term liquidity problems due to the low oil price and needed help to survive.

Seplat offered a rumoured $200m to help them out in return for control of the $2bn assets….They were told to go away.

The Bond holders then offered an extension of 30 days for some interest due, this was not an act of kindness, but had more to do with the fact that they needed some time to put a bid together with the other bondholders and gave them time to plant various scare stories in the media about how bad things were for Afren..(nothing like a cheap fire sale).

Last week the bond holders put an offer into Afren to give them $300m in return for the company leaving the shareholders with nothing..The Afren BOD then asked its major shareholders what they thought about the bid and the answer was an unsurprising…..NO

Finally this weekend we have Fosun making a $500m offer, with something for shareholders and a continued market listing….

Afren have said maybe, let’s wait another 30 days and see what else materialises for its £2bn of assets and £800m or so of debt…

For the bondholders, the only hope of them walking away with everything was a knockout punch into submission, scaring away any potential bidders. They could then invest a bit of money and maybe, in 12 months time, float the company without any debt for around £2bn maybe £2.5bn.

Well thankfully the 3 little pigs on the Afren board have turned round and said no to the big bad wolfs. Afren is made of stone, the bond holders cannot blow the house down and instead we the shareholders can continue to live in what is a valuable desirable house.

It’s really too late for the bondholders to come back from this imho. They have two simple choices, either increase their bid so that the shareholders are not asked to carry the entire can at their own greedy benefit or start negotiations with the potential bidders to ensure they can get as little a haircut as possible and maybe some nice warrants to make them happy.

For Afren the bids we have had so far have all been highly opportunistic, value adding bids from the likes of Chevron could well be waiting in the wings. As an investor it’s possible to see a bid for as much as $1bn for a substantial stake in the company, this would allow the company to cover all its debts due in 2015 and 2016, give it all the money it needs to raise production, restructure the company and make all payments until 2017.

In the shorter term, a preferred bidder could come along and grant a loan to Afren for say $100m to cover a few months of negotiations and to get the bond holders off their backs.

Afren now have so many options, the most important thing was getting rid of the wolf and calling their bluff…

Well done Afren BOD

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.