Shaft Sink Share Discussion Threads

[buywell2] 10/8/2014 18:07

Even if a case gets won, getting the money is not a given

Several mining punts now going on a present based upon legal outcomes

Coin flips ..... it ain't investing

[ga11amar] 10/8/2014 16:26

still seems like a digital punt to me.

i am honestly not too bothered with the details . 14mill in if win case. loose market cap max of 3.5 mill if loose

great odds, we already say a 50% spike on the strategy last week

[buywell2] 09/8/2014 08:34

Thanks for your comments

What will the shaft be lined with ?

Thick reinforced concrete or a steel casing or both ?

Any idea on concrete thickness or case thickness and costs ?


It would appear that my weight calculations using water are out by a factor of approx 2.4

Also the FINISHED shaft diameter will be 8m as per the RNS

And as you have pointed out the shaft will be blasted out and not drilled in any way resulting in a BIGGER diameter which will vary due to blasting patterns and types of rock encountered.

The actual blasted diameter could be around 12m which gives a radius of 6m , 50% bigger than the figure I used.

I will do the maths again

Re the reduction in contract price , perhaps the $USD depreciation has affected something they signed re $75m in 2013.

[muckshifter] 08/8/2014 15:43

Buywell,
Your attempt to decide on profit margins in post 2623 above is a complete waste of time, and I don't intend to be drawn into it.

I've priced major muckshift schemes many times, but each one is a "one off", which depends on many factors. From friendship with two top tunnel bosses years ago, I know that this is something muckshifters and tunnellers / shaft sinkers have in common. It's all about what you are digging through (and in a muckshifter's case, what you can use it for), the expertise you can bring to the excavation methods, including blasting, and use of the right equipment.

For starters, drift, that is the material that sits above rockhead, would normally have an in situ density of approximately 2 tonnes / cubic metre, and after hitting rockhead that density would increase, depending on several factors, with some massively bedded or unfaulted igneous rock reaching 2.8 tonnes / cubic metre. Then the estimator has to look at fractures indexes, Rock Quality Designations, rock strengths, bedding plane dips etc to decide how to blast the rock without huge overbreak, which has to be refilled with extremely expensive concrete where it occurs. He has to judge the blasting pattern (and cost) that will minimise overbreak, ( the rock which breaks beyond the anticipated outer diameter intended – which is obviously considerably more than the finished internal diameter you have used – probably 5.5 – 6 metres) but will achieve a well smashed rock for excavation and loading into skips, as big rocks reduce efficiency.

So just from those few points you can see how pointless guessing a profit margin would be.

My expectation in terms of the reduced price is that there was probably a shifting of risk ownership from shft to Kazchrome. For example, if shft had as a risk item, half a metre of overbreak to be replaced by concrete within their bid price, the client might decide to take the risk of overbreak concrete cost, leaving shft with the incentive to minimise overbreak because it minimises the amount of excavation to load out of the shaft, and hence cost. That would be emminently sensible in a situation where shft have trouble paying concrete suppliers.

Regards.
PS Carefull management of risk items is however a great source of profit improvement.

[technofiend] 07/8/2014 10:45

Shaft Sinkers new contract is featured in The Times today.

Also, and I am not sure if this has been stated already, the contract is coming from a subsidiary of ENRC i.e. the major shareholders of Shaft Sinkers.

[buywell2] 07/8/2014 07:59

Discuss the RNS below from 2013

$75m at $1.68 dollars to the £ GBP should have been £44.64m

SHFT have been caught between a rock and a hard place called Kazakhstan

SHFT have been forced to accept at hit on the $75m 2013 price of £7.64m or 17.1%

That I would suggest would have been their possible profit






Company Shaft Sinkers Holdings Plc
TIDM SHFT
Headline
SHFT preferred bidder in Kazchrome JSC tender

Released 07:00 29-Aug-2013
Number 6916M07




RNS Number : 6916M

Shaft Sinkers Holdings Plc

29 August 2013






29 August 2013





Shaft Sinkers Holdings plc

("Shaft Sinkers"; "the Group" or the "Company")



Shaft Sinkers preferred bidder in Kazchrome JSC tender



Shaft Sinkers Holdings plc (LSE:SHFT), the international shaft sinking and underground construction group, announces that its subsidiary company, Shaft Sinkers Kazakhstan LLP, has been selected as the preferred bidder in a public tender for Kazchrome JSC. The project award, valued at approximately $75 million is subject to the negotiation and conclusion of a contract scheduled to be completed by the end of September 2013.



The project entails the sinking of the Skipovaya vertical shaft to access a ferrochrome ore-body at the Donskoy ore processing plant in the Aktujbinsk region, Kazakhstan. The scope of work includes the sinking and lining of an 8m diameter skip shaft to a final depth of 1,453 metres.



Kazchrome JSC manufactures, supplies, and exports ferroalloys to steelmakers in the Americas, Europe, and Central and South-East Asia.



Speaking today, Alon Davidov, Chief Executive, said:



"We are very pleased to be selected as the preferred bidder on this project as it is in line with our diversification strategy. This project introduces the Group to a new client and country as well as increasing our commodity basket with ferrochrome."



Ends

[buywell2] 07/8/2014 07:19

I can understand those that bought yesterday but did not sell on the primary uplift are now ramping the @rse out of this POS.

[jumbone] 07/8/2014 06:54

ga11amar:

That figure seems to have been surpassed in their trading statement of 17 February 2014 to £ 350 mill

I quote from their trading update::

"Order book

At 31 December 2013, the Group's order book stood at approximately £350 million (30 June 2013: £344.1 million) (revenue to be billed on committed contracts)."

[ga11amar] 06/8/2014 21:03

thanks for your response

being balanced my target is lower maybe 38p but it is very positive.

in the FY2013 presentation the commited orderbook was 238 mill at year end
so 75mill is a 30% increase taking us to 310 which is nearly the closing book value in 2012

[jumbone] 06/8/2014 20:44

ga11amar:

In fact the volume of 3,950,522 traded today is the highest volume in the past 1 year

The broker target has been 52 p all through last year, even before this mammoth $75 mill contract win was announced this morning.

hxxp://www.brokerforecasts.com/companies/SHFT

[ga11amar] 06/8/2014 19:34

also interesting to note that volume today was 4mill units vs 45mill for company so nearly 10% of market cap.

it was a weak finish but people have sold out and new buyers come in at higher price than prior day, i hope this alone is positive

[ga11amar] 06/8/2014 19:28

Nice find. This is the way i see it.

personally i would not like dilution but hey ho, if its required so be it.

my play is on the arbitration results..even 100% dilution is ok for me.

40p/2 = 20p vs 7p still good odds :)

also if we do win arbitration etc, this can recover potentially

[jumbone] 06/8/2014 19:17

May be the Arbitration news is not that far off ...

"There were no significant developments in the arbitration process against EuroChem during the Period, however, we anticipate the arbitral hearings will take place in June 2014. Legal fees for the Period were GBP1.2 million."

According to their management statement of 19 May 2014

[buywell2] 06/8/2014 19:07

Of course it isn't just coincidence that this contract gets awarded when a cash raising is coming within weeks.


Buyers today have NO IDEA whatsoever of possible profits on this contract or what margins SHFT have worked on.


But getting the contract even if it turns out to be loss making should get some mugs to stump up lolly

[jumbone] 06/8/2014 19:02

I wonder whether any of you had a look at this:

-----------------------

Shaftsinkers: Arbitration Option Play
Filed under: Shaft Sinkers - Leave a comment
April 20, 2014

SHFT Logo

This article offers colour on a potentially lucrative special situation opportunity surrounding the main-listed company, Shaftsinkers (LSE:SHFT). It is one of only a handful of specialist mining services firms in the business of sinking vertical and decline shafts as well as the development of underground infrastructure. Currently, the company's prospects are entirely over-shadowed by the arbitration claims made against it by Eurochem, the listed Russian minerals company. EuroChem are claiming an eye-watering sum of $1,060m (around £640m).

Against SHFT's market cap of £5.6m, it clearly looks like a ridiculous claim – are Eurochem just flexing their muscles or is something more sinister going on? It turns out the story is far greater than just a disagreement between Shaftsinkers and Eurochem. The Company has rather stumbled into the middle of two titan Oligarchs battling it out, using their companies ENRC (the ultimate owner of Shaftsinkers) and Eurochem as vehicles with which to do it.

The Original Story

Shaftsinkers' wholly and indirectly owned subsidiary, Shaft Sinkers (Proprietary) Limited, and Rossal No.126 Proprietary Limited, its directly held immediate holding company, received arbitration claims made against them by a subsidiary of EuroChem: EuroChem Volga-Kaliy LLC (the contract signed between them was with Shaft Sinkers (Proprietary) Limited).

Shaftsinkers was originally contracted to sink a 1.1km shaft at the Volgakaliy potash mine, just 300km from Volgograd, Russia. The contract was signed in July 2008 and was worth $280m to Shaftsinkers. This was against a backdrop of ever rising potash prices. EuroChem planned to exploit this trend through increased production, with the Volgakaliy potash mine being a major piece to the expansion strategy. The capex required for the project would come to $3.6bn. It is now expected that the mine will be producing 4.6m tonnes of potash per annum by 2017, after suffering delays of almost three years.

SHFT 20.04.14

These delays were largely blamed on Shaftsinkers: right from the outset the Company experienced technical, logistical and administrative challenges. The most significant problem was with regards to which method should be used to hold back water and avoid cave-ins. Shaftsinkers proposed a grouting technique, a method that had previously only been used once before in potash mine sinking, at Boulby in Yorkshire, England. The other, perhaps more conventional technique, is freezing, whereby the ground is frozen before the shaft is sunk. The controversial method of grouting was heralded to bring with it significant time and cost savings, and so Eurochem and Shaftsinkers opted to proceed with this approach. This would get potash out of the ground quicker and enable Eurochem to take advantage of the record potash prices.

However, by late 2011, due to extremely difficult ground conditions, progress was slow and Shaftsinkers sought to either amend or terminate the contract with Eurochem. Later, Eurochem claimed that it was Shaftsinkers grouting technology that was the route of the problem and had cost Eurochem $161m in direct costs as well as yet further pushing back production. Subsequently in October 2012 Eurochem deposited an arbitration claim of an initial $800m against Shaftsinkers to compensate the company for the direct costs incurred by Shaftsinkers as well as lost profits.

The validity of Eurochem's claims immediately falls into question when one learns that Eurochem's break-even price at Volgakaliy was unlikely to be less than $500/tonne. So there are no rightful lost profits to be claimed for as Eurochem's mine would never have achieved break-even.

The ins and outs of the argument would happily swallow up pages of detailed story-telling, but we shall leave the story there. For more information on the argument and conspiracy surrounding the puppet-masters/Oligarchs in play, read the following article here.

The Option Opportunity

The arbitration is expected to be heard in the Summer of 2014, with any practical outcome due in early 2015. This creates an interesting back-drop for investors. We decide not to speculate explicitly on the likelihoods of a successful and unsuccessful outcome, but rather lay out the possible returns for each state of the world and offer an appropriate strategy to gain exposure to it.

The Good state of the world:

If Shaftsinkers are successful in their counter-claim, the Company will be due $16m as well as at least $7.5m in returned legal fees (as at 17/02/2014). This comes to a total of £14.1m, or 2.5x the current market cap. Further, the conclusion of the Eurochem arbitration claims will remove a major risk bearing over the company and would alone allow the Company's market cap to re-rate significantly.

Consider that Shaftsinkers is currently expected to report profit before tax of between £2.5m and £3.0m for the year ending December 2013. Taking the mid-point and applying the rough historical tax rate of around 30% gives us a profit after tax figure of £1.9m. Shaftsinkers is therefore trading at a paltry P/E of 2.90x. This aptly captures the risk the market is applying to the stock, partly due to the Eurochem claim uncertainty. There are other considerations of course, like the labour unrest in South Africa where a large proportion of revenues are derived, a falling Rand which hurts Shaftsinkers' earnings, and an overall lack of new significant contract signings.

Irrespective of this, a cash windfall of £14.1m and a conclusion to the arbitration claims would drive the market cap to at least £20m, or 41.5p. Against the current share price of 11.6p, this is an implied upside of 260% in less than a year. Or, a basic 10x P/E applied to the expcted profit after tax figure of £1.9m brings us to a similar valuation, with a higher P/E not being unreasonable.

The Bad state of the world:

In this scenario, Shaftsinkers is unsuccessful in its claims. If Eurochem are successful in their claims against Shaftsinkers then the ultimate case is liquidation, with nothing left for shareholders. The downside may not ultimately be zero, as the claim made against Shaftsinkers, if it is contained within a subsidiary, may enable the remainder of the company to operate as a going concern. But, it is unclear what the proportion of the Company's net asset value is held within the subsidiary which would effectively be lost in the bad state. So, there is a chance that the cost to enter the bet is partially retrievable.

Conclusions:

Thus, this binary outcome scenario looks very much like an option: purchase shares for the opportunity of significant upside whilst considering the cost for this right as sunk.

It is worth considering Shaftsinkers with respect to an investment portfolio, and what appropriate weighting would limit risk and offer good upside. Imagine a £100k portfolio and one opts to invest just 1% in Shaftsinkers. If the bet pays off, the portfolio will be up, according to the above calculations, by a minimum of 2.6%. In the bad state though, the ultimate downside for the portfolio is -1%. A loss of 1% can be quickly retrieved on other investments while the upside such an allocation can provide is material to the entire portfolio for the year.

We think that Shaftsinkers offers an attractive binary bet which could pay off handsomely. We also believe that the probability of a positive outcome is greater than the bad state, further enhancing the attractiveness of this investment. Finally however, we do stress that the allocation of one's portfolio to exposure in this name should be small, far smaller than one's regular holdings given the fairly simplistic set of outcomes laid out above.



hxxp://phynixmanifesto.wordpress.com/2014/04/20/shaftsinkers-arbitration-option-play/

[ga11amar] 06/8/2014 18:26

even if they issue 100% of share cap . Gets cash in and they can still make profit from operating

your upside drops moves from 16m to [16+3 (funds in) + op profit]/2 (for dilution) = 10m+

10/3.6. still looking at 200% profit.

I think this comes down to probability on your punt

[hedgehog 100] 06/8/2014 18:09

Top of the risers list today:

Symbol Name Cur % Chg Change News
1 SHFT Shaft Sink 7.63 27.08% 1.63 1


But still a relatively muted recovery, bearing in mind the small market cap.


I see this contract award as a positive in helping the company to survive, as well as being an indicator that it will be.

But there may well be dilution, i.e. a rescue fundraising.

If so, how much, and at what price?

[ga11amar] 06/8/2014 17:22

noirua

your point is well made. in arbitration we may get back our legal fees and have a counter claim as well. value of this could be 16mill GBP vs 3.62mill market cap

the key to this stock is the multi bag potential and the great odds being offered to take it.

in my prior post i show a link about a related case to this that was thrown out.

it does not mean this is bad buy i think you just need to decide what you want from the stock.

[noirua] 06/8/2014 16:23

Eurochem are claiming well over $800 million and it might end up around 1 billion dollars. Details of SHFT's insurance have not been made available.

[trek3] 06/8/2014 16:12

Noirua, from what I have read, and of course can`t be sure
it`s correct, apparently Eurochem were offered a choice
and chose the cheaper of the two options, hence the dispute.

[noirua] 06/8/2014 15:55

Good luck guys with this substantial contract. At least the weather, often at minus 20 to minus 40 degress, should cover the previous unused freezing technology.
Reason for low market cap are the costs for the International Arbitration dispute with Eurochem, not covered unless they win the case.
Eurochem will argue SHFT are the experts and they should have used ground freezing technology and not cementing.
Only Eurochem and SHFT are privy to the original signed agreements.

[webshares] 06/8/2014 15:46

Good spot, sounds good. I wonder on what terms though. Interesting this one. How much is it worth if funding cash flow isn't and issue?

[trek3] 06/8/2014 14:35

Seems that RBPlat are going tp help with cash flow,
link on III bb.