Things Aren’t Getting Better At Petropavlovsk PLC

A tunnel in a gold mineIf you want to see what happens when a leveraged bet on commodity prices goes wrong, look no further than Petropavlovsk PLC (LON:POG).

Peter Hambro’s Russian gold miner is hemmed in on all sides by the constraints imposed by its mountainous debts — with the added spice of having to deal with the capital-raising restrictions of current western sanctions against Russia.

The firm’s share price can fairly be described as option money, but so it should be: Petropavlovsk’s directors now work for the firm’s lenders, not its shareholders — a situation I can’t see changing anytime soon.

In a new article for the Motley Fool today, I took a closer look at the (horrendous) numbers in today’s half-year results and what they could mean for shareholders.

Disclaimer: This article is provided for information only and is not intended as investment advice. The author may own shares in the companies mentioned in the article. Do your own research or seek qualified professional advice before making any investment decisions.

Delays Disappoint At Gulf Keystone Petroleum Limited, But Value Remains

Onshore oil installationAt this morning’s opening price of 86p per share, Gulf Keystone Petroleum Limited (LON:GKP) was hardly expensive.

Of course, that didn’t stop investors from pushing down the price still further (and most likely losing money in the process) when markets opened this morning, following the publication of the firm’s interim results.

In my view, the results were pretty much what any realistic person would expect — although production and oil sales are being maintained, the conflict in Iraq is disrupting the deployment of international contractors in the region, while disbursement of oil revenues by the Kurdish government is somewhat slow and irregular.

It’s fair to say that cash remains a concern, too, and apparently, bears also defecate in the woods …

Sarcasm aside, I don’t think there was anything in this morning’s news to change the investment case for Gulf Keystone, but there’s little doubt in my mind that the value present in Shaikan is not necessarily going to be realised very quickly.

I took a closer look at the numbers in an article the Motley Fool this morning, which you can read here.

Disclaimer: This article is provided for information only and is not intended as investment advice. The author may own shares in the companies mentioned in the article. Do your own research or seek qualified professional advice before making any investment decisions.

Proposed BHP demerger should be good for shareholders

An open-cast coal mineIn a new article for the Motley Fool today, I’ve taken a look at the proposed demerger of BHP’s Billiton assets, in the form of the giant miner’s aluminium, manganese, nickel and selected coal operations.

I reckon that it should work well for shareholders in the short and medium terms, as I explain in today’s article.

Update 19/08/2014: Details of the spin-off were announced today, and while the assets to be disposed of were as expected — aluminium, manganese, nickel, silver/lead plus some coal — the deal was not as expected.

There’s to be no cash return or buyback, instead BHP shareholders will be issued pro-rata with 100% of the stock of the new company, which will be listed Down Under with a secondary listing in Johannesburg plus ADRs. That’s gone down like a lead balloon here in Blighty, where neither private nor institutional shareholders are overjoyed at the idea of being given foreign shares to hold or sell, according to their mandate and/or preferences.

To add insult to injury, BHP’s full-year results, also published today, missed expectations slightly — although they were healthy enough. More details in my write-up for the Motley Fool.

Disclaimer: This article is provided for information only and is not intended as investment advice. The author may own shares in the companies mentioned in the article. Do your own research or seek qualified professional advice before making any purchase decisions.

Trap Oil Group PLC founders abandon ship: should shareholders flee or rejoice?

Oil rigs in North SeaI suppose it had to come, eventually: after seven years of frustrated ambitions and, more recently, virtually nothing in the way of accomplishments, CEO Mark Groves Gidney and COO Paul Collins, two of the founders of Trap Oil Group PLC (LON:TRAP), have announced their departure, in a new corporate update.

Today’s news release raised more questions than answers: Trapoil is going to:

“reduce operating costs to the minimum in order to maintain the Company’s existing assets alongside seeking to maximise returns from these assets.”

In other words, Trapoil appears to be entering run-off mode, but whereas such a statement would normally mean curtains for most cash-starved small caps, Trapoil is slightly different – at the end of last year, it had £16.4m in cash, with no material commitments except for the firm’s share of ongoing costs at producing asset, Athena.

Trapoil also has 4,084,198 shares in IGas Energy PLC, which are worth about £4.25m at today’s prices, meaning that the firm has total current assets of just over £20m — in excess of its £18.4m market cap.

In addition to this, Trapoil has a number of North Sea licences that could be of interest to other small-medium operators wanting to build out their acreage.

Enter Peter Gyllenhammar

The other reason Trapoil is different to most other small cap oil explorers is that all of the changes we’ve seen this year — the boardroom purge, the cost cutting and the new attention to finding a strategy — have happened since noted activist investor Peter Gyllenhammar took a stake in Trapoil.

Mr Gyllenhammar’s most recent purchase of Trap shares was in July, taking his stake in the firm to 16%. It seems reasonable to assume that:

  1. He is the driving force behind the changes we are seeing (and the end of the gravytrain for non-value adding members of Trapoil’s board);
  2. Gyllenhammar has a plan to extract value from Trapoil, as his stake is currently underwater, by my reckoning.

The only question is what will happen next? The facts, as I see them, are:

  1. Trapoil is currently trading below its net asset value, with no debt
  2. The main sources of cash leakage from the firm — its expensive founder board executives — have now been removed, along with an unused debt facility. The combination is expected to save £1m per year.
  3. Trapoil has a strong activist investor on board who will be keen to find a way of turning this investment into a profit, now he has (I suspect) effectively taken control of the firm.

I intend to continue to hold my long-standing long position in Trapoil, although I suspect the share price may continue to suffer until some evidence of value realisation — perhaps assets sales and a cash return to shareholders — starts to materialise.

Disclaimer: This article is provided for information only and is not intended as investment advice. The author may own shares in the companies mentioned in the article. Do your own research or seek qualified professional advice before making any purchase decisions.

Balfour Beatty plc rejects Carillion plc advances (again) – but which should you buy?

Fifty pound noteIt’s beginning to sound like a doomed teen romance: the ambitious suitor, Carillion plc (LON:CLLN) believes that independently-minded Balfour Beatty plc (LON:BBY) could be so much happier if it would open its arms to a union – but the two firms can’t agree on the terms of a pre-nup…

Yesterday’s RNS announcements saw a further ‘without consent’ update from Balfour Beatty, alongside the firm’s half-year results, giving chapter and verse on the Carillion offers to date, and why it has rejected them.

I looked at the issues in detail in an article for the Motley Fool, yesterday, but ultimately, I believe the problems comes down to money — and debt.

As in so many relationships, each party has a different idea of whose money should be used for what purpose — I suspect that in the case of Balfour-Carillion, we are looking at a relationship that will never be consummated, even though there are potential benefits for both parties.

The question for potential — and existing — shareholders is which firm, if either, should you buy today? To find out my opinion, read my full Motley Fool UK article here.

Disclaimer: This article is provided for information only and is not intended as investment advice. The author may own shares in the companies mentioned in the article. Do your own research or seek qualified professional advice before making any purchase decisions.