Jtc Share Discussion Threads

[mount teide] 12/9/2018 14:07

Jadestone Energy JSE - a recent portfolio addition - following its London listing last month, the share price is up circa 20% since mentioning it here 2-3 weeks ago and today is breaking out to new highs on strong volume, after one of its major shareholders, a high performing US hedge fund continued to increase it's shareholding on the open market twice over the last few days.

David Neuhauser, Jadestone NED and MD of Livermore Partners, a Long/Short US hedge fund which returned an astonishing +85% portfolio performance in 2016, specialises in the Energy, Commodity and Financial sectors. Livermore hold 6.96% of JSE.

In the following BNN Video David explains how he and two other US Hedge Funds effectively took over the running of Mitre Energy(since renamed Jadestone Energy) in 2016, restructured the company, changed the business strategy and Management/Board, recruited Paul Blakeley and his highly successful team from Talisman (Asia) to run the company, and what the plans are going forward.




Part of an industry interview David gave in H2/2017 specifically relating to Jadestone Energy - well worth a read:

VW: One small cap you like is Jadestone Energy. What do you like about this business in particular?

DN: When we first took a position in Jadestone, we saw an opportunity to transform the company by replacing the management and board and using the business to acquire depressed operating assets others must sell to de-lever their balance sheets and focus on core basins. Producing assets (not exploration) with real cash flows and deep value.

We feel that we’ve made excellent progress on this. New management has been brought in, and the company has been transformed. New Jadestone is built on an “acquire and exploit” strategy not unfamiliar to some domestic E&P companies, whereby bringing operating capability and new capital to under-invested assets (or assets in the hands of super-majors for whom materiality in future activity is a concern to them), can add significant incremental value.

The difference with New Jadestone, compared to North American plays is that the company is focused on Asia Pacific opportunity where the returns are on average two or three times better than North America (IHS Herold annual performance reports), where the competition is very limited and therefore purchase price is very modest (often assets are sold on bilateral deals – no competition), and finally where opportunity options are on the increase.

These characteristics make the thesis almost unique (compared with North America for example where the competitive bidding is intense. What’s more, product pricing is favorable in Asia. Oil is usually sold at premiums to Brent and domestic gas is contracted in the range $7.50 – $8.50/mcf)

VW: The company just completed a refinancing to acquire assets from Stag Oilfield, what’s your view on this acquisition and the financing deal?

DN: Jadestone secured $68 million of new financing, by way of a (nonbrokered) placing for C$53 million (c$40 million) at C$0.40/sh and a $28 million convertible debt facility from Tyrus Capital to contribute towards further acquisition opportunities.

The convertible facility has a tenor of three years and carries a 7.5% coupon. The conversion price is C$0.50/sh. This additional financing will allow Jadestone to conclude the (previously announced) Stag asset acquisition, provide a LoC in respect of the Stag FSO and provide the capital to drill additional appraisal wells.

The Stag asset adds production of 3,750bopd and will generate cash that could be deployed elsewhere for the development of the portfolio. There are some additional acquisitions also in the pipeline. As described above, New Jadestone is built around an acquire and exploit strategy.

There is a growing number of M&A opportunities emerging with limited competition. Opportunities are increasingly being sold at distressed prices. The fundamental value proposition, however, is the reinvestment that follows M&A. We look for almost an order of magnitude of reinvestment potential compared to acquisition price which drives 3-6 times MOIC.

As the portfolio builds the ratio of organic capital increases giving optionality, diversity, and control. After the completion of Stag, Jadestone is now aiming to complete the purchase of two appraised gas fields in Blocks 05-1b and 05-1c offshore Vietnam in the Nam Con Son basin in the next two months and bring them on stream in 2019, as well as further development of its existing assets in Vietnam’s Malay Basin with the Nam Du and U Minh gas fields.

VW: If everything goes to plan how much do you think the company could be worth? Do you have a bear and bull valuation?

DN: We feel Jadestone can be worth $2.00+ a share. Perhaps much more over time as the company continues to roll-up assets. Timing is tough to determine, but today even with our capital raise, the shares are very cheap. Trading at only $15,000 a flowing barrel and a discounted 0.30 net asset value per share with no debt, $20 million of cash on the balance sheet and plenty of development opportunities in the pipeline this is a very compelling opportunity where we believe the downside is limited. Catalysts to further upside will be closing the two current acquisitions, adding two or three new acquisitions currently being targeted, delivering production and cash flow stability for the company for the first time since inception. Also, recognition in the market that the strategy of new management is working and value is being delivered, re-listing the stock on a more appropriate exchange, further delivered growth longer term.

VW: What do you think of the new management?
They’re very skilled and experienced. Each of the team has 15 to 30 years experience operating in the industry within the Asia Pacific region. The new team also has a longstanding relationship with the principal stakeholders and deep insight to many M&A opportunities. They’re credited with already creating one of the most successful independent E&P business in Asia Pacific, Talisman Energy, and we hope they can replicate this success at Jadestone.

VW: Are there any issues that could derail this thesis? Is the company highly sensitive to oil prices or is this a play on rising oil prices?

As Jadestone’s shares are already trading at a deep discount to the value of the company’s assets, we believe there’s a wide margin of safety here. The stock is not a direct play on oil but a play on management’s ability to buy distressed assets at attractive prices. Of course, as with all investments, there are risks; execution of the new management team, available opportunities, and of course financing risks but today the company has plenty of opportunities available to it and is fully funded.

So, we see much more upside as long as the current environment holds. On the topic of energy prices, I should point out that as part of the Asia Pacific upstream strategy, approx. 50% to 70% of the reserves and production will be domestic gas the majority of which is sold at long-term fixed prices with escalation clauses. This makes the business a natural hedge in a volatile price environment and takes away significant upstream investment risk.

[mroalan] 12/9/2018 13:02

MT, dug the link out.

[mount teide] 12/9/2018 12:41

mro - most of Rotterdam's UK shipments are deep sea container cargo destined to the UK from the Far East etc but first landed in Europe and then transhipped to the UK as it is often more cost effective, since many German, Dutch and Belgian ports receive huge, well concealed government subsidies - British Ports are not competing on anything remotely like a level playing field.

[mount teide] 12/9/2018 12:34

A tiny state with a small GDP like the Marshall Islands would generate a material income from shipping - plus many of the 'surveyors' and other assorted 'administration' staff would be exposed to a continuous supply of brown envelopes for putting their signature to everything from 'Safe' Manning Documentation to Change of measurement, tonnage or engine particulars etc.

Where the Panama and the Marshall Islands ships registry's are concerned, what shipwowners are not on their list of clients tells you far more about the quality of the registry and the 'service' it provides for the shipping industry.

[mroalan] 12/9/2018 11:53

c4 interview re brexit in port of Rotterdam,its 25 miles long and exports 10% of its wares to the uk,customs officer was asked what profissions have been made for brexit? none! So it appears that the result is being taken for granted on both sides.

[chestnuts] 12/9/2018 11:25

Mount

What sort of income will the Marshall Islands get for these services

[jtcod] 12/9/2018 07:37

Seems like you have answered the question MT. Thanks

[mount teide] 12/9/2018 01:59

Tin pot republic?

Along with Panama, the Marshall Islands is the beating heart of globalisation; together they keep the flow of finished goods and commodities moving around the Globe as the World's two largest ship registry's - despite having marine transportation industry technical and administrative set ups to perform such a function some would consider insufficient to service a fleet a quarter of the size they have on their books.

Loved by Greek and Chinese shipowners for their super light touch regulatory regimes and incredibly competitive fees.

[jtcod] 11/9/2018 19:59

So why is the IMF and US really strong-arming a tin-pot republic like the Marshall Islands over adopting a crypto currency? In case it works?

[aleman] 11/9/2018 12:02

The ILO Labour Force Survey is a scaled-up domestic telephone survey (last I checked) with high error and dubious quality methodology that results in significant revisions. It's longer term trend has tended to erratically follow Claimant Count, which has been a much clearer indicator of the general economy in the past. I suggest Claimant Count is likely to give a much clearer trend, though they have been tinkering with it in the last year or two so it might not be as consistent itself. I gather some unemployed find their way onto Employment Support Allowance while they are being assessed so the trend in Claimant Count could be slightly in arrears of the underlying actuality when the trend is turning up.

Given the state of SME corporate news, I've been surprised how strong ILO numbers have been over the last year or two. I'm not convinced their sampling is representative. Claimant Count seems to better fit the trend of corporate news and insolvencies. The underlying personal insolvences trend has been slowly accelerating upward for pushing 3 years, correlating very well with Claimant Count's rise since the Feb 2016. Recent GDP numbers do not correlate well with Claimant Count and insolvencies but early GDP releases are notorious for seeing revisions over subsequent years, with larger revisions for figures around the start recessions. It's quite possible GDP could be revised lower to match Claimant count and insolvencies better.

[blusteradjuster] 11/9/2018 11:54

Not sure how one should describe the U.K. labour market.

Total employment steady, vacancies up, claimant count up, unemployment down, wage inflation perking up.

Seems to be both tight and stalling at the same time.

Perhaps they just can’t get the staff..?

[aleman] 11/9/2018 11:48

Claimant Count up another 8.7k last month. Up 118.5k (14.8%) on a year ago. Rising since February 2016.



If you make some seasonal allowance - it is showing significant acceleration, which is seen clearly in both monthly and quarterly graphs.

[the stigologist] 11/9/2018 09:49

St Legers 'Day' tomorrow

PYC - big rise coming here imminently I suspect

Peer group benchmarking on valuation suggests should be 10-20p for starters

Ex-Founder reckons worth 100p+

[maxk] 10/9/2018 20:45

Communism is alive and well, and living in Wall Street.

[aleman] 10/9/2018 19:22

Foreign private sector $ debts - about $1trn rise in these 12 countries since ZIRP/QE started.

[jtcod] 10/9/2018 13:26

Btw it is really a 16yr period. Will amend accordingly.

[jtcod] 10/9/2018 13:01

Much has been written about emerging market economy debt problems this year. Rising interest rates in the US having resulted in a wall of foreign investment turning tail and running for the relative safety of the USD. I have been looking at the private debt situation in Emerging Markets to get a handle on the exposure there.

Bank of International Settlements does some good work in this area. It was BIS that discovered a whole layer of unreported mortgage lending existed in Hong Kong with Developers circumventing government bank mortgage limit laws to offer up to 85% financing on properties.

Well the BIS statistics for Non-financial Private Debt in the Emerging Market Economies makes for interesting reading. At the beginning of 2002 total Private Debt for all EMEs was $4.24 trillion. By the end of 2017 it was $40.24 trillion. Debt growth for the period is 849% or 15% compound growth over the 16yr period. At the same time annual GDP growth has averaged around 5%.

[aleman] 10/9/2018 12:30

Basques fished along the Northeast American coast 600 years ago and two Viking settlements have been identified in Newfoundland so I suggest the US has probably had 1000 years of practice or more, with a pause in the Little Ice Age. If Americans had spent more time studying things before they built on them, they'd probably have found they are not the new nation they pretend to be.

[jtcod] 10/9/2018 11:37

Are student loans really loan assets in the traditional sense and should they be invisible in government statistics? It’s a good question I think.

The current total liability/asset is £118bn.

If we look at the terms, the loans do attract interest but have zero lien or liability if the person does not earn the threshold figures. The anticipated payment (or not) of the principal and interest is an unknown years into the future. Maybe a form of actuary quantification and statistical adjustment should be used based upon experience to date. If these were bank assets I would fully expect a large slice or perhaps all to be written to bad debt initially, with subsequent payments treated as pure income thereafter.

The Interest rate is due to go to 6.3% soon. Atm I am guessing the treasury can book interest as income for each year as it is charged? I wouldn’t put it past them.

[jtcod] 10/9/2018 11:07

The US is an immigrant nation. They have had 300yrs of practice. :-)

[blusteradjuster] 10/9/2018 10:36

Thought they were polling 20% JTC - so not quite the breakthrough they would have hoped for.

Coalition between established centre-left-centre-right parties seems likely.

Integrating recent immigrants is obviously something a substantial number of Swedes think important, so the coalition would need take that seriously.

Iirc, the Economist magazine recently compared the US and Sweden - with the former much more successful at immigrant-integration. Making them productive members of society asap was part of that success if memory serves.

[jtcod] 10/9/2018 10:12

BA
Swedish Democrats increased vote to 18% so I guess the makeover worked for them to a degree. Looks like a coalition government for Sweden. That seems to be becoming a trend in Europe. No referendum though.

[mount teide] 09/9/2018 19:15

With Simon Yates leading as we enter week three of the Spanish Vuelta it looks like we could well have another British winner of one of cycling's big three Grand Tours.

It took us Brits over 100 years to win the TDF and Giro and nearly 90 to win the Vuelta. In the last 5/6 years our riders have won nearly as many of these three Grand Tours as the rest of the World combined.

We now have only the second rider in history to hold all three at the same time, possibly followed by three different Brits holding all three at the same time.

Enjoy - like middle distance running in the 1980's - these purple periods for the UK come along very, very rarely. (For this Grand Tour success we surely have Lance Armstrong to thank).

For it shows that post Lance and his industrial scale mobile pharmacy, the playing field so to speak has never been more even than it is today - suggesting the appalling Armstrong era and much of the shameful decade before, though highly embarrassing for the sport, may have served one good purpose - its led to an era and culture where British cyclists now feel they can arrive at the start line of the one of the big three Grand Tours with a realistic chance of being competitive, rather than considering it an achievement just to get to Rome, Paris or Madrid after 21 days and 3,500km of racing some 4 hrs behind the winner.

Much like Lance used to do every year before he got cancer, had his immune system and cancer destroyed with powerful drugs to save his life, and then miraculously came back to immediately perform in Grand Tours and on the biggest Alpine climbs better than the sport's greatest climbers who previously would routinely beat Lance by half an hour on mountain top finish stages like Mount Ventoux.