Contrarian Investor Portfolio Review October 28th 2019

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It has been a busy week in the markets as the US Q3 earnings is in full swing with some pretty good results and the Brexit Parliamentary squabbles go on and on so lots to ponder on both FX and share related issues. Plenty of opportunities in small-cap land so sure with some big moves in the likes of I3 Energy, Petro Matad (be careful on this one) and VAST on AIM UK. Large-cap plays like Tesla on earnings and lockouts expiring on Beyond Meat and Uber on NYSE and Nasdaq also worth keeping an eye on.

The next few weeks will be pivotal for the Contrarian Investor portfolio of bombed-out stocks which I believe could be due to a turn for the better as there are some big RNS’ due.

Reabold Resouces (RBD) and Union Jack Oil (UJO) - Average buy in 0.94p and 0.22p (current share price UJO 0.23p, RBD 0.92p)

Reabold share price oct 28 2019

Lots of news flow for UJO and RBD in the coming weeks. West Newton news on EWT and CPR for a start, but also the planning consent inquiry for the Wressle development (operator Egdon) starts for UJO on November with the operator pretty confident of a successful outcome. UJO News from Biscathorpe also any time.

Both shares have been pretty range-bound for a few weeks but I am hopeful of a more robust performance in November as newsflow hits both shares. Annoying that RBD has been having some legal issues with the equity swap, causing a delay to the issue of new shares, see announcement below. Good buying opportunity if it dips. Who can blame Rathlin shareholders holding out for a better deal given the West Newton potential? Pay up now RBD! Better now than after CPR and EWT.

UJO’s share price has been depressed by #chrisoil share sales, aka Chris Williams.

chris oil share trades ujo

On October 9, Reabold announced the successful completion of the Placing announced on 8 October 2019.

A total of 2,666,666,666 new Ordinary Shares were conditionally placed with new and existing institutional investors by Stifel, at a price of 0.9 pence per new Ordinary Share, raising gross proceeds of £24 million. Dealings in the Placing Shares will commence on AIM, at 8.00 a.m. on 29 October 2019.

On 7 October 2019, RBS also announced it had reached agreement to increase its interest in Rathlin Energy (UK) Limited to up to 74.99 per cent., through a £16 million cash investment and a proposed equity swap for up to approximately £7 million to be offered to existing Rathlin shareholders and an agreement to increase its interest in Danube Petroleum Limited to between 49 and 52 per cent. through the exercise of an existing option to invest an additional £1.95 million in Danube.

Rathin is the operator of, and holds a 66.7 per cent working interest in, PEDL 183 including the West Newton discovery, located near Hull on the North East coast of England, with substantial nearby oil and gas infrastructure. Licence partners on the asset include Union Jack Oil & Gas PLC and Humber Oil & Gas Limited, both holding a 16.665 per cent. working interest in the asset. Reabold has invested £4 million in Rathlin to date.

Two wells have been drilled on the West Newton prospect to-date (A-1 and A-2), with a major oil and gas discovery confirmed in the Kirkham Abbey Formation that is potentially one the largest hydrocarbon discoveries onshore UK since 1973. The original Competent Persons Report (CPR), prepared by Deloitte LLP in 2017 for Connaught Oil & Gas Limited, a 33.3 per cent. owner of Rathlin certified the discovery as having 189 Billion cubic feet equivalent (Bcfe) of gross best estimate gas resource (31 million barrels of oil equivalent (MMboe)), with an associated NPV10 of US$247 million.

RBD has also announced that it had entered into a binding subscription agreement with Rathlin, conditional on completion of the Placing, to make a cash investment of £16 million in Rathlin, at a valuation of £2.75 per ordinary share. There will also be an equity swap for some existing Rathlin shareholders. The Rathlin Cash Investment and the Proposed Equity Swap would, if completed, result in Reabold increasing its ownership of Rathlin to up to 74.99 per cent. and increase its effective economic interest in the West Newton discovery to up to 50 per cent. Should the Resolutions being passed at the General Meeting, the Company will increase its effective interest in West Newton through an investment of £16 million in Rathlin and the Potential Equity Swap with Existing Rathlin Shareholders, both at £2.75 per Rathlin Share.

The Placing, the Proposed Equity Swap and therefore the Investments are conditional upon the passing of the Resolutions at the General Meeting, to be held on 28 October 2019, for the purposes of authorising the board of directors of the Company to allot the Placing Shares and to disapply statutory pre-emption rights.

More on West Newton

On 29 August 2019, it was announced that the West Newton project represents a significant oil and gas discovery, rather than a gas discovery as originally anticipated, with an approximate 45 metre gross oil column underlying a gross gas column of approximately 20 metres. Well logs and 28 metres of core cut from Kirkham Abbey also indicate encouraging matrix porosity approaching 15 per cent and natural fracturing within the oil zone. The discovery of oil and better than expected reservoir characteristics has the potential to materially enhance the economic value of the project. As such, the Extended Well Test (EWT) that was being undertaken on the A-2 well has been paused to allow the operator to re-assess the hydrocarbon volumes and economics, in order to optimise evaluation of the oil column. A revised EWT is planned for Q4 2019.

The West Newton A-2 well data ties to the high-quality 3D seismic that covers the entire West Newton project. The new data allows for a revised interpretation of the seismic, incorporating the well and the newly identified gas over oil gross hydrocarbon column. A revised CPR will be commissioned following the EWT and the Company will announce the results of this in due course. The West Newton A-2 well also intersected an oil-bearing section of the deeper Cadeby formation, although as expected the reservoir quality and porosity was poor. In line with seismic and geological model conclusions, which indicate significantly better reservoir quality at the West Newton B location, the next well will target the Cadeby reef flank, as well as intersecting the Kirkham Abbey reservoir.

Two further wells at the West Newton B site are permitted and are planned to commence in Q1 2020, approximately 2.5 kilometres from the A site. These wells are optimally located to define the deeper formation Cadeby oil play.

Update RNS October 28th

RNS provides the following update on the Proposed Equity Swap in advance of the General Meeting of the Company to be held today.

The Company has significantly progressed discussions with certain Existing Rathlin Shareholders regarding the Proposed Equity Swap and the Board continues to expect that the transaction will complete on the terms described in the Circular.

Certain legal and administrative issues have caused a delay to entering into a binding Equity Swap Agreement. Accordingly, the Company will not be issuing any new Ordinary Shares in connection with the Proposed Equity Swap on 29 October 2019. Subject to shareholder approval, the Company will be issuing and allotting the Placing Shares as planned.

Notwithstanding the significant progress made to date, there can be no assurance that the Proposed Equity Swap will be completed. Further announcements will be in due course.

Unless defined in this announcement, defined terms used in this announcement have the same meaning as set out in the Circular issued by the Company on 10 October 2019.

Metro Bank (MTRO) - Buy in price 204p, current share price 208p

metro bank share price oct 28

Far from being disastrous, last Wednesday’s Q3 results weren’t great but far from awful.

Vernon Hill, the Chairman, has left the bank early. Now is it to formulate a strategy to take the bank private or see it taken over or it is to cultivate a tan in the Bahamas? The Book Value of MTRO is around £10, tangible book value of £8 versus £2 share price.

The Bank of England has screwed challenger banks with capital requirements as a result of MREL but MTRO now has tier 1 capital ratio of 16% so it is well capitalised and customers, deposits and loans are increasing.

Clearly there is a value gap and even if MTRO isn’t taken over, it can do plenty to fix itself from these bombed-out levels (it has come down from £40 in 2018).

Announcement of a decent new chairman, continued customer growth (as bad news stories start to disappear), changes to MREL requirements if the UK actually does Brexit, reduced Brexit uncertainty if a deal is done, control of operational expenditure and costs, further reduction in the loan book.

It was confirmed on last week’s conference call that there would be no more equity raises.

The Financial Conduct Authority first began investigating Metro Bank in February 2019, a month after the bank revealed that it had miscategorised the risk-weightings for several of its loans. The mistake meant it did not have enough capital to protect against potential losses.

In August, the FCA said it had extended its investigation to include “certain senior members of management”, and to cover the period from 1 June 2017 until February 26 this year, when it reported its full-year results and announced plans for the share issue.

Metro is separately being investigated by the Bank of England’s Prudential Regulation Authority. The prospectus provided further details on the areas under investigation by the two regulators.

If the PRA and FCA investigations are not as bad as feared e.g. censure of management, fines etc. then this will be positive. At the moment, market expectations are for terrible news.

Metro isn’t going bust and at £2 the risk/reward looks very good from the Contrarian Investor point of view. The shorts should continue to reduce.

UKOG Average buy in price 1.2p, current share price 1.12p

ukog share price oct 28

The drilling of the HH-2z horizontal well is underway and ops wise everything is looking good. The well will reach target depth mid-November and should be a game-changer for the Horse Hill development site.

Plenty of swampy protesters nearby this weekend, but al quiet when I drove past on the way to Gatwick on Sunday afternoon. More patience required but no red flags so far in the latest round of operations.

UKOG pic October 27th 2019 Horse Hill, near Horley

UKOG pic October 27th 2019 Horse Hill, near Horley

UKOG pic October 27th 2019 Horse Hill, near Horley

UKOG pic October 27th 2019 Horse Hill, near Horley

VAST Resources (VAST), average buy in price 0.29p, current share price 0.31p

Vast share price oct 28

I’ve been watching VAST for a few weeks now, following a write up on October 2. The shares back in early October were 0.3p, but gosh have they been volatile the last few weeks. Early last week they were 0.42p on October 21, then dived to 0.36p on October 22 as funding for the company’s projects was delayed by travel commitments of key signatories and on Friday the price moved as low as 0.27p. So traders heaven and I’ve been in and out and currently hold just shy of 0.3p on expectations of good news flow. Not a big position, but Contrarian Investor will build on dips.

On October 24th the company announced that it had signed a binding conditional Bond Issue Deed for a facility of up to US$15,000,000 through issuance of secured convertible bonds to a UK based fund, Atlas Capital Markets. The bonds will be used to reach production at the Company’s Baita Plai Polymetallic Mine in Romania and at the Chiadzwa Community Diamond concession in Zimbabwe and subsequently to generate positive cash flow for the Company. This facility does not affect the Company’s continuing process with the Swiss Bank or other funders, and the Company’s intention is to continue its efforts in securing a long-term financing facility for Baita Plai and its other Romanian assets.

Andrew Prelea, CEO of Vast Resources PLC, commented: "The Bonds provide the required capital to enable the Company to bring its two core assets, Baita Plai in Romania and the Diamond Concession in Zimbabwe, into production. The agreed non-conversion period, the early redemption and cash settlement options give us flexibility and enable us to limit dilution. The Atlas facility will accelerate the start of production at Baita Plai while we continue to work on the establishment of a long term finance facility for Baita Plai and other assets in Romania, whether with the Swiss bank or otherwise.

Mixed response to the bond issue as some concerns about the impact on equity, e.g. TW says the start of “Death Spiral”. I am more open-minded as funding is tough for small-cap miners right now.. But at least VAST’s two main projects are now funded and it is now for the operations to start on time as planned. A risky share, but derisked by funding. Not one for widows and orphans but an exciting traders stock. At £31 million market cap doesn’t look expensive with $15 million bonds in the bag.

Watch list

Petro matad, I3 Energy, Uber, Peloton, Beyond meat, RBS, Hurricane Energy, GBP Euro, GBP CHF