Disclosure: This blog is the work of Sunil Mark-Singh (Silky). Sunil holds Regency Mines shares.
Regency Mines Plc are a small cap resource exploration company creating value mthrough strategic investments and project development at bottom of the global commodities cycle.
The market for metallurgical coal in the United States is increasing predominantly because it is required for steel production.
The following table indicates some key reasons as to why the price of steel is increasing.
With the positives around steel it is hardly surprising we are getting coal companies announcements such as:
- Contura Energy are in the middle of a $162m IPO (see here).
- Warrior Coal have record income of $129.9m in Q2 2017. Warrior’s highly successful second quarter validates their value proposition as the only publicly traded ‘pure-play’ hard coking (metallurgical) coal operator in the U.S. (see here).
U.S Coal global research firm IHS Markit also pointed out that metallurgical coal revival isn’t just dependant on Trump infrastructure projects.
Probably the single biggest driver of the surge in exports is that there is international demand for U.S. metallurgical coal right now. “That is a function of the market rather than the political environment.”
Regency Mining are well placed when production commences to deliver much needed metallurgical coal.
It would appear the recent RGM RNS indicating coal projects are not now going to be progressed piecemeal but the ‘big picture’ route taken is based on some solid foundations..
Regency issue newsletter highlighting their plans for coal production (see here).
Some of the key highlights:
- Regency focusing on ‘cheap production of expensive coals‘
- Focusing on metallurgical coal rather than dirty coal. Required for steel production.
- Rosa announced coal reserve of 453,000 tons is very low as:
- Based on 300′ auger rather than 1200′ Highwaller mining.
- more coal identified
- Val has 100,000 tons/month production target
- production / revenue stream imminent.
- RGM have first mover advantage.
- Rosa coal at $130/t = $4.5m net attributable profit.
As news is released the share price will react accordingly. It is clear from the newsletter that further information is going to be released to the market.
The business is aware figures released to the market are conservative. We await the revised NI 43 101 report and also for RGM to release actual coal outputs. The market will then realise the business is undervalued.
The Regency Mines RNS today (see here) highlighted two significant developments:
1. Rosa – mine permits in place and production has commenced with a weekly revenue stream.
2. Vali Carbon Corporation – 50,000 tpm offtake contract being negotiated.
The following graphic indicates that based on Vali Carbon Corporation alone the revenue for RGM will be a minimum of £9.3m per year and if output reaches 100,000 tpm £18.6m.
These revenue figures take no account of:
- Rosa – year 2 production expected to be 120,000 tpm = revenue of £22.32m/year.
- Rosa – Highwaller production could reach 600,000 tpm = revenue of £111.6m/ year. Being conservative and assume only 50% efficient = £55.8m
- Washed coal revenue of $8 / ton
- Other coal opportunities indicated in the above graphic.
- Regency Mines interests in Motzfeldt, Horse Hill, Mambae and Curzon Energy.
Based on information in the public domain you have to question how the market cap of the business can remain c£5m for much longer.
What will be the catalyst resulting in a share price rerate?
Will it be?
1. The 50,000 tpm offtake contract currently being negotiated being announced to the market.
2. Market realising the implications of the revenue streams and significant under valuation of the business.
3. Announcements from the company regarding their other investment interests.
This mind map indicates potentially what happens next and future risks if the Slater and Gordon deal completes. Grey indicates the potential future.
Quindell after the completion of the Slater and Gordon deal will comprise of a range of insurance related technology businesses.
a) Connected Car and Telematics (Himex and iter8)
b) Insurance Claims Management (Quindell Enterprise Technology Solutions).
c) Insurance brokerage ( Ingenie)
The RNS dated the 30th March 2015 made it clear these have strong growth potential with the required capital to maximise returns for shareholders.
The RNS gives an indication as to the Board of Directors current thinking about how value will be maximised stating for each business they will consider retaining, disposing and separate listings. This would indicate that each is being considered as a separate business unit.
Before the EGM on the 17th April 2015 the business will need to provide more information to shareholders to enable an informed decision to be made regarding the strategy for the Technology Division and its future potential.
I would expect prior to the 17th April we will hear about the following:
1) Information about new / current contacts. For example:
a) Update on contracts in U.S. Business has 5 year agreements with at least 3 of the top 20 US Property and Casualty Insurance companies worth $200m
b) Updates on US pilots Continue reading