Aminex - 2013 Share Pick Update

http://www.aminex-plc.com/

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It has been a strong start to the year for Aminex (LSE:AEX) who I tipped to be a major performer in 2013. The company entered the year with a share price of 4.05p/share giving it a market capitalisation of ~£33m, but has since rallied to a share price of 5.60p equating to a ~£46m market cap. Whilst this is equivalent to a 38% rise, the company is now approaching it's first defined pivot point for the year in the form of the farmout of their Ruvuma asset where they are partnered with Solo Oil (LSE:SOLO). With updates on this front potentially imminent, the company is set to have volatile movement once news is released.

This article is a follow-on from the below post. For full context and information, read this article first:
http://www.theel1tetrader.com/2013/01/2013-share-pick.html


As illustrated above, the chart position for Aminex is highly positive with the medium-term downtrend now completely broken. The recent sideways movement at the top of the spike is also encouraging as it shows that there is no immediate downward selling forces and that this was not a 'pump and dump' operation. This has formed a 'bullish flag' which tend to lead to a second leg up once the consolidation is completed. In this case the initial rise was around 40% hence another 40% could be expected - it is important to note though that this will be highly dependent on news released from the company. If no news is released the price may continue to drift sideways and if the farmout news is disappointing then the chart will certainly not prevent a fall.

As noted in my previous articles, Aminex and partner Solo Oil are planning to farm-out up to 50% of their predominantly onshore Ruvuma license in Southern Tanzania at the border of Mozambique. The current working interest split is 75:25. I have created a map below (click to enlarge), to represent the current situation in the Ruvuma basin.


Turning to the farmout deal,a number of RNS' have been released. In early January Solo Oil released a solo RNS stating that "there has been substantial interest in the farmout from companies including both multi-nationals and NOCs." This is clearly very positive for the farmout outcome with this statement confirmed in late January by another RNS. In this one, it stated that the original bid deadline had been extended until March 6 2013 citing 'it has not been possible to accommodate all the interested parties in the physical data-room prior to the original bid deadline. Several companies have asked for the deadline to be extended in order to allow them to complete their evaluation and we have therefore agreed with Aminex and FirstEnergy Capital LLP to accept bids up until early March.' The reason being excessive interest ties in with Ritson commenting in December that after 10 days of the data room being open there were already 15 parties inside.

Aminex and Solo requested the format of bids to include funding a disproportionate share of the forward work costs and paying a pro-rata share of past costs. Depending on the farm-in partner this could include free carries on two wells that need to be drilled at Ruvuma to fulfil license obligations (potentially ~$36m), seismic costs (potentially all ~$12-$13m) and if a 50% farm-in, $30m of past costs. However, these figures can slide both up or down dependent on the level of interest and partner involved. Other objectives such as quality of partner are likely to be considered as a side-objective to raw cash numbers. Clearly the farmout is capable of being the first stage of monetising Aminex's assets - if the above numbers are achieved then it is without doubt that the share price will rise as a significant number of risks such as a lack of cash will be removed. With a market cap of just £46m, the farmout could lead to much of it being accounted for without considering Nyuni, Kiliwani and their US assets. Two lingering doubts do remain though, why did CEO Stuard Detmer leave at this crucial point in Aminex's history and why did Tullow leave the Ruvuma PSA? The fact is that investors are unlikely to ever know the answers to both of these questions. If the farmout is good that latter theory of a lack of prospectivity would certainly be dispelled plus Brian Hall has commented that Stuard Detmer's plans for the future will largely remain the same.

Questions also remain about why a takeover of Aminex is not a more sensible option for potential farm-in companies. Realistically it would make more sense as the firms would also gain their Nyuni assets and effectively proceeds from any US asset sale. Considering the strong outcome of Range Resources' (LSE:RRL) Texan asset sale, Aminex could achieve £20m or more for this asset, equivalent to almost half the market capitalisation. The US asset sale may also be continuing now even despite Meagher Energy not having it listed on their website. Aminex might be marketing the assets on their own behalf, which ties in with Brian Hall saying that the sale restarted earlier in the year. Earlier in March ENI also announced a deal worth $4.21 billion to sell a 20% stake in its offshore field to CNPC. Looking back at the map above, it is clear that small-medium sized firms have been completely priced out of the Ruvuma basin with Wentworth, Aminex and Solo being the only smallcap companies in the basin - thus it is highly probable that there will have been significant interest from midcap companies in addition to the NOCs and TNCs that Solo Oil mentioned. The result of the farmout will be particularly interesting if a major TNC is involved. it would highlight questions regarding the oil potential or high gas potential of the acreage. Currently there is little useful seismic to work with as demonstrated by the Ntorya-1 well and thus the potential is open to interpretation. The 5.75TCF is gas in place hence would reduce when factoring in recovery percentages, hence it is arguable that major TNCs would opt for purchasing a stake in Anadarko's more proven and more prospective offshore acreage if it was only the 5.75TCF figure at stake.

With the Dar Es Salaam-Mtwara gas pipeline still on course despite localised protests, Aminex also looks set to benefit from Kiliwani North-1 being brought online. Australian partner Bounty Oil have
noted that their 10% stake looks set to bring in $1.3m per annum which translates to $8.45m per annum to Aminex or £5.6m/year. At 20mmscfd, KN1 would deplete at between 6.6-7.1bcf/year. With KN1 having 45bcf at a Pmean level, this gives it a life span of 6.8 years at 6.6mmscfd although this would not account for pressure declines near the end of its life.

Aminex looks set for movement in the coming weeks that will define its long-term outlook and perhaps solidify the turn-around story from the lows of 2.61p. With a short-term bridge financing agreement in place, all eyes are on the farmout and what terms it will bring. A positive scenario is likely to see the shares at a far higher price than what the current market forces are pricing in.

UPDATE (21/11/13) - I have been very disappointed with developments at Aminex since the 2013 share pick. Financing remains a serious issue. I will update the site with a final review of Aminex at the weekend. I have moved Aminex from Buy to No Rating at 1.92p (bid) for a loss exceeding 50%.

13 comments:

  1. Great future for this gem. thanks

    Freddie

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  2. thanks for an update on aminex. excitement building abou the farm out so hoping for successive rises.

    solooiler (advfn)

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  3. 2 Critical Points answered by your great post. 1)News expectation underpins the current sp. & need to make a judgement what happens in the normal 3 scenarios of the interpretation of the said news 2)What will underpin the shares in the any case scenario and you have provided that vital answer ie income stream. Thank you-very appreciative to have got a analytical answer to possible outcome.

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  4. Thanks again El1te, great update. Eco.

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  5. Aminex has been a serial disapointer for the 10 years I have held it. Even a takeover will not make up the ltbh holders losses - lesson learned - small oilies are short term bets.

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  6. Great update, easy to understand PJ

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  7. Hi El1te,
    Will AEX get better farm out deal in comparison with EOG (http://www.europaoil.com/documents/IrelandRNS180413FINAL.pdf), any thoughts?

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    1. As good in my view (if not better) although back costs won't be at such a high proportion. Should significantly alleviate financial concerns. El1te

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  8. stock pick of the year hmmmm farm out will reveal, whats the story with solo, they have done deal with pan, must be confident with farm out?

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  9. Fingers burnt here El1te. Is it possible to do an update?

    Thanks Eco.

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    1. Hi Eco,

      I think that almost everyone's under water here. I have tried to get the new management to do an interview but they say they intend to crack on and are not doing interviews with anyone yet. The fact that they took the helm is encouraging, but aside fromthat there is not a lot to update upon unfortunately. I plan to update as of when material news is released.

      El1te

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