Rare Earth Minerals (LSE: REM) and Gulf Keystone Petroleum (LSE: GKP) released their trading updates today — good news or bad news for shareholders?
The movement in their share prices said it all, really.
Rare Earth Minerals
First off, REM’s trading statement doesn’t move the needle.
The group said that it was pleased to announce “that Western Lithium USA Corporation (“Western Lithium”), in which REM holds an approximate 3.05% interest, is continuing its optimisation studies with Tenova Bateman Technologies (“Bateman”) in order to complete an order-of-magnitude preliminary engineering study for Western Lithium’s Nevada lithium deposit“.
New news?
No news here, I’d say.
Last week, REM also announced that it had “increased its shareholding in Bacanora Minerals Limited from 15.93% to 16.41% through further market purchases“. Its stock price was virtually unchanged back then.
Only a few days earlier, on 5 June, it had issued an update on its “Sonora Lithium and Borates Project“, which did little to lift spirits, too!
These kinds of updates should not surprise you if you have followed our previous coverage. Similarly, recent weakness in REM’s stock price — the shares are down 20% since early April — was predictable, and I would be tempted to close the trade if I were invested.
That’s likely what some opportunistic investors did today: the shares surged 6% in early trade, but they fell by more than that soon after, and they were down 0.5% at the time of writing.
Gulf Keystone Petroleum
Gulf Keystone Petroleum is not a ‘plain vanilla’ investment, but you should know that by now.
Its market value has halved since the beginning of the year, but there’s more at stake now — survival.
GKP said today that further to the RNS as of 2 April 2015, it has completed “the process of implementing the terms described in the announcement with respect to its $250m 13.0 per cent. guaranteed notes due 2017 and its $325m 6.25 per cent. convertible bonds due 2017, including the granting, on a pari passu basis, of a security interest in its shares in Gulf Keystone Petroleum International Limited in favour of holders of the Notes and the Bonds“.
This is essentially a non-event, as analysts describe news that has little or no impact on share prices — but it says a lot about the risk associated to its debt maturity profile, and the possible dilution risk associated to the investment.
The GKP investment case isn’t necessarily linked to macroeconomic trends and oil prices, but depends on whether GKP will manage to received all the money it is owed where it operates. The shares have been under a huge amount pressure since early 2015, when it emerged that Shaikan, its key producing asset, wasn’t likely to turn receivables into hard cash.
In February, GKP said that it remained in talks with the Kurdistan Regional Government’s Ministry of Natural Resources in order to receive outstanding payments and establish a stable payment cycle for export crude oil sales. While the situation seems to have slightly improved, it clearly remains critical — and that’s reflected in a stock price that has hovered around 30p/40p for several weeks now.
Today, the stock is flat at the time of writing.