Writer disclosure: the writer holds long positions in all shares mentioned in this article. Always do your own research into any potential investments!
Hi all, a slightly delayed article from me this week. I’m having what is my first full week off in nearly six months and I’m extremely happy to finally have some time to myself to read, review investments and relax a little. I’m thoroughly enjoying The Powerful and the Damned, written by the soon to be former editor of the Financial Times – Lionel Barber. Anyway, onto shares!
Arc Minerals – a new dawn finally arising?
Arc Minerals is an AIM-listed mining exploration company with highly prospective licences in Zambia. Long time readers will know that I’ve been invested in and following Arc Minerals for many years, first covering the company for Cube [back in November 2018
Last week, Arc released two RNSs:
- A placing with a UK institutional investor – Hargreave Hale Ltd – for £2 million at 3.5p.
- An Update on Exclusivity Agreement with Anglo American.
The placing from my perspective was slightly frustrating in that I’d much prefer if Arc looked to raise after releasing positive news (to get a better price for itself). On the flip side, Arc Chairman Nick von Shirnding has spoken about an interest in having institutional investors on board, and it does add credibility to Arc.
The second RNS was very significant. Anglo American have signalled an interest in a potential deal, following both technical & corporate due diligence. The exclusivity period puts Arc in a strong position – Anglo are clearly very interested, having spent time and money evaluating the prospect. Arc have previously stated that multiple majors were interested in Arc’s property and one can imagine that Arc will use this to help drive things forward and ensure that any deal is beneficial for shareholders.
At 6.4p to buy, Arc’s market cap is £66.5 million:
I’m not usually much of a chartist but breaking through the ~5p level was significant and indicates that the market is starting to look at the upside potential.
As a (mostly) long suffering shareholder it’s great that Arc is finally starting to get it’s ducks lined up. Fingers crossed management can continue to deliver – I’d love a bidding war between majors personally! The dream would be unsolicited offers from majors such as Rio and others helping to drive the best possible terms and outcome whether a deal is with Anglo American or another major. I should temper my enthusiasm by stating that there’s no guarantee that a deal will be done although I’m optimistic.
JKX Oil & Gas – let the free cash flow machine rip!
JKX Oil & Gas is a London-listed oil and gas (primarily gas) producer with assets in Ukraine. After Monday’s update
, I believe JKX is looking rather cheap – see what you think!
At 33p to buy, JKX’s market cap is £56 million:
The company no debt – indeed, at year end, it had net cash & equivalents of $24.5 million (£18 million).
Enterprise value is therefore £56 million (market cap) minus £18 million (net cash & equivalents) = £38 million.
During 2020, a year of highly depressed gas prices, JKX still generated $10 million (£7.35 million):
This means that JKX is trading at about 5 times trailing cash generated (i.e. on EV basis, i.e. once cash in the bank is taken into account).
Gas prices – exploding higher
Let’s take a look at historical gas prices in Ukraine:
(Source: Ukraine Energy Exchange)
Now let’s look at forward gas pricing:
(Source: Ukraine Energy Exchange)
You don’t have to be genius to work out what happens when prices double – margins explode.
If we conservatively suggest that at current prices, margins have doubled, then JKX could generate $20 million (£14.7 million).
This would put JKX at about 2.5 times cash generated (again on an EV basis).
I’d suggest to readers that this is very cheap when you consider that JKX also has multiple options for its ever growing cash pile.
I’d personally be very much in favour of share buybacks, although only if some of JKX’s large shareholders take part – a reducing free float would not be good, given JKX’s, shall we say “interesting” shareholder register – i.e. groups effectively controlled by Ukrainian oligarchs.
JKX is in the best position it’s been in for years, and with gas price increases I see no reason why the shares should to continue to trade at these levels.
Till next week!