Saturday, December 3, 2022

Market nervous about CIC Energy Corp deal

The market made an about turn this week on the Toronto Stock Exchange (TSX: ELC) and Botswana Stock Exchange listed CIC Energy Corp (BSE: CIC Energy). The most nervous investors were in TSX: ELC as evidenced by plummeting share prices since announcement this week that the firm is indefinitely suspending its Mmamabula energy project.

By Monday, TSX: ELC share price fell by the widest margin from CAD15 to CAD6.07. The Botswana investors, however, on the sidelines, preferred to thread cautiously as the share price remained moderately flat around P82.33.
“I think the Botswana investors have a bit of comfort in that the project would not be completely abandoned but scaled down. The investors are now adopting a wait and see attitude hence being on the sidelines,” explained analyst at Motswedi Securities, Garry Juma. On a year to date basis, as of Friday, CIC Energy Corp shed 0.8% and “and that is a lot better compared to other counters in the foreign board,” he said.

Product Development Manager of the BSE, Thapelo Tsheole said it given that the market to react nervously to news of indefinite suspension of the project of that magnitude “but I believe that it is only short-term. One would not deny that investors expectations have been negatively affected but I don’t think the impact would be devastating overall in the market,” he explained. His assertion is based on the fact that “there has been a regular briefing about the development of Mmamabula project. Investors have had information and the most important thing when investing in the stock exchange is to have information, so that is why I am saying the impact would be minimal.”

However, he conceded fears that the foreign board might be affected by escalating global factor input costs, particularly in the mining sector. Foreign Venture Board is largely dominated by mining outfits, some of which are still in exploration stage. Mmamabula project is second largest mining related project in the country to falter under the weight of rising costs of production. The first to tumble was the ambitious nickel refinery technology concept called Activox.

Commenting on the latest development, Managing Director of Fincraft Investment Research, Gao Seleka-Sekonopo was optimistic that CIC Energy Corp share value would rebound, probably in the medium to long term.

“The company has proven probable resource and nothing much in that regard has changed except the risk allocation,” she said. She added that failure to raise required capital is somewhat a blessing in disguise, saying; “in my eyes, it is what the company needed. The capital expenditure outlay would be much more manageable if they were to commence the project on a small scale and expand along the way.”

She added that like majority of mining stocks, CIC Energy Corp shares were trading at a discount, with a resource value per share of about 18 percent. In 2007, Fincraft Investment Research notes that CIC ENERGY CORP’s stock price grew 21.6 percent, under-performing the Botswana resources market which gained on average 27 percent over the same period. However, on an 18-month rolling period the stock – as measured by the FinCraft Resources Index ÔÇô outperformed the Botswana resources market which garnered 39 percent by almost four-fold growing 159 percent.

The study noted that CIC ENERGY is a speculative stock that is faced with many unpredictable challenges. Amongst others were: cost overruns, lack of guaranteed geological estimates, exchange rate volatility which could affect the stability of earnings in Pula terms and coal prices in the world markets. “Currently the short to medium term outlook for coal prices is more positive given the high demand for coal not matched by the current coal exporters. If global coal prices were to drastically decline below $100/tonne the attractiveness of the energy project as currently envisaged will be
Affected,” said the report.

In the overall, the report considered the stock a speculative buy.
CIC Energy CORP is engaged in the advancement of the Mmamabula Energy Project ÔÇô a planned power station and integrated coal mine in Botswana.


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