Call with Africa Energy

We had a call with Africa Energy yesterday. Below are the notes from the call. I think the most important take out for us was that the Production Rights Licence should be issued by South African government by 1Q24. By that time the off-take agreement should be in place. Two major catalysts in the next 9 months.

Financing

• Total cash stands at USD 2.7 million (actual at Q1 end)– that is sufficient till the end of the year and may last longer depending on our cost-cutting measures
• Annual burn is now below USD 3 million
• The company reduced its staff to 3 employees and closed the Cape Town office (4 employees total, including the new CEO), and reduced the size of its board from 6 to 5 members
• Financing is not an issue – AEC will take more in loans from our shareholders if needed in 2024.
• AEC does not plan to raise capital until the milestones have been reached

Block 11B/12B

• The operator, Total, applied for production rights in September 2022. Approval is expected in 12-18 months after submission – early 24. The approval is automatic. There is no delay expected.
• It is safe to assume that the offtake agreement will be reached before/when the production rights are granted.
• After the offtake agreement – AEC will do the independent assessment
• The goal of the AEC is still to sell the 11B/12B after the above is finalized
• AEC is also willing to continue with the project if that creates more value – Banks are very favourable to the project, and they are interested in landing projects that reduce the carbon footprint of SA
• There are three options for 11B/12B production
  • Deal with Eskom
    • Mossel Bay – power plant is burning diesel – owned by Eskomthey have enough diesel, but it is more expensive than gasEskom could save around 30% by burning gasEskom still have no CEO – which is slowing the talks
    Deal with Petro SA
    • Petro SA is the owner of the Block 9 infrastructureAEC will need to use the infrastructure to supply gas to Mossel BayPetro SA owns gas to liquid plant in Mossel Bay, which is out of gas, as Block 9 is depleted – they do need gas
  • LNG liquefaction plant for export to Europe or Asia

• Total/AEC needs a government guarantee for the supplies to either Eskom or Petro SA.
• Two ministers are in charge – the new minister for electricity and the minister for energy. The issue is who can make decisions.
• SA is now focused on short-term solutions for its electricity crises. Two years is long-term for them now.
• Total busy with Venus in Namibia and LNG in Mozambique – 11B/12B is the third priority in Africa

Near-term Catalysts

• Gas price agreement finalization – should come during 2023
• The resource report by an independent auditor – after the off-take price is known
• Sell or stay for development decision
• Production Right grant Q1 2024

Our comment:

We are long AEC. The company is very cheap now. It takes much longer than we expected. But it always does. If we would not have our position limit fulfilled, we would be buying here.

Disclosure: 

The goal of the blog is to provide investment ideas for further research. I/we have a beneficial position in the shares discussed above either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. The article does not represent investment advice. Please do your own research before making any investment action.