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Opinions Josef Schachter
Niko ResourcesNKO.TOHOLDAug 21, 2013
Stock price when the opinion was issued
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This has been a pack of cards falling through. There is kind of an option value building into this company because of its whole macroeconomic play with its geographic location close to some of the basins in India. Fundamentally the balance sheet looks really stretched. They would need a lot of help on the capital markets side in terms of financing alternatives. Trades at a Price to Book of about 6 times.
He would stay away from this. Highly speculative because there is so much debt. There is talk that after the election in India, there will be a price increase in the gas that this company and their partner get out of the D6 block. Not sure that will happen. If they don’t get that price increase, this equity will probably not be around in 2 years.
(Top Pick May 21/13, Down 62%) The big problem is that they were supposed to get a price increase in India that would allow an increase in production. The problem was that there was an election going on so they removed the price increase for the election. They have started selling non-core assets. He thinks they will do other deals. Once they resolve balance sheet issues, the story will wake up. Wait for the politics to resolve and cash flow to go up.
Josef Schachter
Really hasn’t had the breakthrough in drilling in Indonesia which has really bothered the market. Secondly waiting for a price increase out of India which has now been resolved. Have commitments on the drill side with the drill ship in Indonesia but doesn’t have the capital because the cash flows come down and this year may only do $60 million. April/14 they’ll probably do $100 million more. Problem is, everybody wonders how they get from where we are today to April 1 when that new revenue stream comes in and the commitment they’ve got for the drill ships and the issues of the asset sales they’ve been talking about. Currently drilling a well which will probably be the last well in Indonesia. If not a home run success, the rig is in demand so they could probably pass on the costs of running the rig to others. Have a very good oil discovery in India called MJ1 that needs development drilling. In April/14 they should start seeing volumes come back up from development activity. With $2 in cash flow and good long life reserves and bringing on new discoveries, there could be some significant recoveries. Would look at buying over the next few months during the window of correction and window of tax loss selling.