Investments, particularly in energy and resource stocks can very often be likened to the snakes and ladders board game. Notwithstanding all the diligence or pre-investment considerations if you are the typical 'long investor' the road is very bumpy. I respect the technical/chartist investors but for long investors charting skills assist more in timing entry/exits. They do not influence the choice of individual stocks. For an investment in STX, there have been plenty of snakes in the form of technical/operational challenges and capital raises which typically suppress or temporarily halt share price momentum. Then there have been what has seemed like interminable flat/waiting periods when there has been little to no meaningful price action.
However, over the last couple of years there have been some material 'ladders' that have elevated this story from the basement to an emerging high-rise opportunity. @invertedva really nailed it this week, noting how far the Company has come. An $80m raise is a step up into the big leagues. Strong early supporters like Petra have now been joined by Euroz and UBS. The Company and the story are continuing to gather momentum, in technical, in operational, in investment and in Government circles.
Back in May 2019, STX raised $12m from the issue of 184 million shares at 6.5c per share. This was followed in October the same year by a $30m raise at 23c per share. This week the Company announced it was looking to raise $80m at 30c per share. To add to @invertedva's point when the Company raised $12m back in May 2019, the market capitalisation of STX was around $90m. So the proposed $80m currently being raised is nearly equivalent to the Company's market cap less than a couple of years back. That's truly extraordinary.
To put further data around the above, in less than two years STX's market cap has increased 7-8 times and the SP has increased approximately 5 times. In anyone's framework of assessment that easily fits within the definition of strong outperformance. It's further noteworthy to compare the share price performance of STX with industry peers across the same two years.
....I'm of the view that the Company's SP has a very good shot at increasing another 500% in the next couple of years (my estimate in the above post link is >$1.50). Of course, it's a one investor IMO view and should be seen as that. Nonetheless, if you analysed in detail the seven companies above, including STX, IMO there would be a short-list of one that could seriously be considered to have a potential SP return profile of greater than five times. Now for those investors who backed the story back in May 2019, that would be approaching 25 times return.
There were a few key takeaways (for me) from this week's STX corporate update presentation:
(i) STX gives investors the best possible exposure to the Perth Basin opportunity
STX has the dominant position in the Basin, operatorship in all permits, the most developed technical IP and now with the funding to fully execute on the strategy. This is the best line of sight the Company has ever enjoyed.
Furthermore, as the Company's market cap continues to grow and IMO STX moves initially into the ASX300 and then into the ASX200, institutional support will be fundamental. IMO most institutions will only back one Perth Basin player and the obvious player for multiple reasons will be STX.
Were the SE1 exploration well be a success, IMO it's virtually a certainty that any Phase 2 AGIG third party gas processing will come from 100% owned STX permits.
(ii) Ownership or access to fossil fuel discoveries, even potentially exciting ones, is no longer a lay down misere for SP outperformance
Going back to the Company list above, most of these groups can point to material discoveries or even large portfolio reserves. In the fossil fuel industry, whether or not as an individual you agree or follow certain ideologies, the macro themes and market headwinds are substantially lining up against the industry. There is little to no SP accretion from resource potential alone anymore. The reverse is more the norm - take the growing push back against Woodside's Scarborough 13 Tcf development. The risk of the proposed $16B investment becoming stranded is, for some stakeholders, now perceived to be greater than the promise of future returns.
Strike has totally re-positioned itself as Australia's first integrated energy, power and fertiliser developer. This is likely to be critical in ensuring the social licence and broad stakeholder support to allow STX to lead, develop and emerge as a responsible and innovative WA participant in what is the world's inexorable transition to net zero. New rules are emerging for successful participation in this industry. IMO fail in this regard and you can kiss goodbye any chance of 5 times return, no matter how good or how large the Greater Erregulla resource becomes.
(iii) There will be abundant price sensitive news flow for STX over the next 18 months
Slides 8, 11, 19, 20, 23 and 33 point to an enormous range of activities with associated price sensitive news flow that STX shareholders will likely benefit from. If the Company was solely focused on WE, then after WE5 is completed we would basically be in a price sensitive news flow dark period for the 15-18 months from FID to first gas. All that will happen here (WE) is expenditure of a wall of development capital identified on Slide 11. Capital that the Company is now funded for, subsequent to successfully completing this raise.
This is why I genuinely believe the EP469 JV partner is going to come under increasing price pressure in coming months. How will they fund this 'wall of capital'? What other news flow will this partner have in the 15-18 month post FID WE dark period from H2 2021 through H1 2023? The 'mucho nullius' Spanish strategy is unlikely to be the saviour. Their Sep 2019 capital raise was at 29c. The October 2020 raise was at 21c. IMO there is a material risk their next raise could be somewhere in the teens. Not exactly confidence building stuff. Unfortunately, without a contemporary vision, without operatorship, without strong market support, it's going to be a huge feat for their SP to just tread water and not go backwards.
With STX presentations and CR's like these, what a relief to have the ignore button. Historically, there has been a direct correlation between positive announcements from STX and an associated increase in juvenile, low content posts from aggrieved observers. The higher the level of this mendacious activity the more STX shareholders should feel secure that the Company's vision is on a path to industry leadership, success and SP outperformance.
IMO this week's capital raise and corporate update is likely to be looked back on as a watershed in the Company's development. There have been numerous snakes and ladders along the recent journey. However, I'm increasingly confident that there are many positive ladders ahead and as a 'long' shareholder, looking for strong capital returns, I look forward to climbing them.
Cheers and as always GLTA.
Adaltiora
STX Price at posting:
33.0¢ Sentiment: Buy Disclosure: Held
(20min delay)