Today I am discussing the investment case of two of Wednesday’s London losers.
SeaEnergy
Oil services provider SeaEnergy (LSE: SEA) shocked the market with a poor trading update in midweek business, and traders have accordingly sent shares in the business shuttling 17% lower from Tuesday’s close.
The Aberdeen business underlined the fragile state of the oil market by forecasting a “significant loss” in 2015 due to sinking oil prices. SeaEnergy — which provides software and engineering services to oil producers — now expects revenues to clock in at between £2.6m and £2.8m this year, a sharp decline from sales of £7.4m last year.
In light of these pressures SeaEnergy has agreed a working capital funding package that will allow it to draw up to £1m over the next 12 months. On top of this, the business advised that it had handed over operational responsibility for the ships previously under its management — SeaEnergy had already announced plans to exit ship management by the close of the year.
On a more positive note SeaEnergy noted that it expects the loan, in addition to existing overdraft facilities and an expected uptick in its core ‘R2S’ — or ‘Return To Scene’ — remote rig maintenance planning division in 2016 to fund working capital requirements “for the foreseeable future.”
But given the strong possibility of further capex reductions across the oil industry as global crude inventories balloon, I believe SeaEnergy’s recovery hopes for next year are built on shaky foundations. Combined with a wafer-thin balance sheet, I believe cautious investors are best giving the services specialist short shrift.
Weatherly International
Likewise, dedicated copper miner Weatherly International (LSE: WTI) is also feeling the heat from worsening supply/demand dynamics across commodity markets, and the business was last dealing 22% lower on Wednesday.
Weatherly advised that production of 1,361 tonnes of copper cathode in October was produced at a cost of $4,361. This has caused massive problems as, with red metal prices currently languishing at six-and-a-half-year troughs, the company advised that “the Tschudi mine is not making sufficient operating cash for the service of its debt facility.”
Weatherly subsequently advised that it has deferred a loan repayment to its biggest shareholder and lender, Orion Mine Finance, which had been due at the end of the month. Weatherly added that final details surrounding these amended loans are yet to be hammered out.
With nameplate production at its Namibian asset expected to hit 1,400 tonnes by the end of the quarter, Weatherly said that it expects operating costs to fall accordingly. Still, given the precarious state of the copper market — forecasts for the bellwether material to hit $4,000 per tonne are steadily growing — and questions remaining over Weatherly’s final loan agreements, I believe the mining operator is a risk too far at the present time.