Investment notes

DKL – Bought at 11.80p – 08.03.2017

Wehave opened a long position in DekelOil Public Ltd at an average share price of 11.80p.

DekelOil is the operator and 100% owner of the vertically integrated Ayenouan palm oil project in Côte d’Ivoire. We believe that the Company is presently substantially undervalued on both a relative and an intrinsic basis.

DekelOil fits the Chaos Investments fund criteria in that it is a company that we feel comfortable in holding indefinitely. The business has matured rapidly since its IPO four years ago, becoming profitable and highly cash generative in a remarkably short period of time. Indeed, in January it was in a position declared a maiden dividend.

The Company’s balance sheet has been restructured with all outstanding capital notes now converted, and the original development loans have been replaced with two senior debt facilities with leading regional institutions that offer significantly reduced interest payments and longer repayment profiles.

Crucially, DekelOil has tremendous growth prospects. In 2016, 39,111 tonnes of crude palm oil were produced at Ayenouan. This equates to only 55.9% of the mill’s nameplate capacity of 70,000 tonnes pa. An increase in production to nameplate capacity (by 79.0% on 2016’s figure) would catalyse a corresponding increase in revenue, and an even greater increase in profitability and cash generation, owing to economies of scale.

Furthermore, the Company has earmarked two sites – one also in Côte d’Ivoire, and one in Ghana – that could host new mills. Clearly, the construction of one or two new mills would represent a step change in DekelOil’s operations.

We intend to publish our research on DekelOil in due course.

MKA – BOUGHT AT 3.00p – 30.01.2017

We have opened a long position in Mkango Resources Ltd at an average share price of 3.00p. The shares were acquired in an off-market transaction.

It is our belief that at its current market capitalization of £2.52m, Mkango is substantially undervalued. We feel that the Company is set to enjoy a re-rating of its valuation going forward, primarily in light of its high quality REE asset, coupled with our view that the global REE market is after a six year trough beginning to show signs of recovering.

In the coming weeks, we intend to publish a series of notes detailing our rationale for investing in Mkango. These shall be titled as follows:

  • The global REE market
  • MKA: business overview
  • MKA: valuation analysis
  • MKA: rationale for undervaluation
  • MKA: the potential next steps

As we note on the Chaos Investments homepage, this fund has been established to capitalise on those very small, very undervalued companies that have significant long term growth prospects. We are presently working on both a current and several future ‘fair value’ scenarios for Mkango, which we will present in the third note listed above.