- Net cash of $7.9mn on 30 April 2024
- Forecast cash deficit in funding position from July 2024
- Multiple expressions of interest for funding transitional power unit
Aim-traded shares in Africa-focused transitional energy group Chariot (CHAR:7.15p) have lost 16 per cent of their value after the board forecast a cash deficit in its funding position from July 2024.
On 30 April 2024, the debt-free group had cash of $7.9mn (£6.2mn), trade and other receivables of $1.3mn, inventories of $2.2mn and trade and other payables of $3.2mn. Over the 1 May 2024 to 31 December 2025 forecast period, the directors estimate gross cash outflows for the following parts of the group: Anchois offshore gas project, Morocco ($6.5mn); Loukos onshore gas development, Morocco ($6.7mn – the remaining cost of drilling two wells); Transitional Power business ($3.6mn); Green hydrogen division ($1.4mn); and corporate general and administration costs ($7.2mn).
In March 2024, Chariot commenced a strategic review of its transitional power business, which is focused on providing competitive, sustainable and reliable energy and water solutions across Africa through building, generating and trading renewable power. Specifically, Chariot has been progressing development of three key renewable projects on the continent for mining companies: Tharisa (ZA:THB) – 40MW solar project in South Africa; Karo – 30MW solar project in Zimbabwe; and First Quantum Minerals (CA:FM– 430MW solar and wind projects in Zambia. In addition, the group has a 10 per cent stake in the operational Essakane 15MW solar project at IAMGOLD's (CA:IMG) gold mine in Burkina Faso, which continues to perform well, and a 49 per cent stake in South African electricity trading joint venture Etana Energy.
The strategic review could result in a full or partial sale or even demerger of the division with the aim of maximising value for shareholders. I can report that Chariot has received multiple expressions of interest for both debt and equity funding at the subsidiary level, mainly from South Africa-focused banks and investors, willing to fund the transitional power projects. Importantly, the directors are “confident that financing options are available to fund ongoing project work and overheads”.
Analyst James McCormack at house broker Cavendish believes that a “successful refinancing of the transitional power division will eliminate a perceived overhang in the market [whereby Chariot will need to raise further equity at the group level to continue to progress this side of the business] and allow management to concentrate its time and finances on the transitional gas projects”.
Potential share price catalysts
Investors should also note that Chariot and its joint venture partner Energean (ENOG) in the company’s flagship Moroccan gas project are expected to spud the offshore Anchois-East appraisal development well in August 2024. The drilling and testing programme will further appraise the existing gas sands, including flow test, and target undrilled prospective resources to potentially increase the gas development project to more than 1tn cubic feet.
Chariot has an $85mn gross carry on the Lixus licence pre-final investment decision (FID) including the Anchois-East well and flow test. Assuming the Anchois-East appraisal development is a success then it could lead to the FID shortly thereafter and unlock a $15mn cash payment from Energean under the terms of the farm-out agreement.
So, having rated Chariot's shares a hold after the Energean farm-out was announced (‘Chariot’s transformational farm-out is underrated’, 7 December 2023), and subsequently upgraded my advice to buy, at 7.1p (‘An African gas play with multi-bagger potential’, 16 May 2024), I maintain the view that the shares offer potential for material upside.
In the near term, positive newsflow on the financing of the transitional power division and a successful outcome on the Anchois-East well and flow test campaign should provide near-term catalysts to narrow the huge share price discount to the sum-of-the-parts derived target prices of Cavendish (57.7p) and Auctus Partners (50p). So, having seen the share price fall back to the level of last month’s buy call, I would continue to hold.
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