When will Erongo clear ?

Alfacomp

9 February 2018

UPDATED 20th Feb 2018 - read to the bottom of the page

The question since the 20th of December when the deal to buy out Yellow Dragon's 55% of Bushveld Vametco was unanimously voted for has been "why has the share price not risen by an appropriate amount ?". Even allowing for the fact that the full value of Vametco cash generation was not and is not now factored into the share price the market cannot be logically consistent and permit the SP to remain unmoved from one day to the next, whilst the ownership of a cash generating asset increases overnight by 125%.

The answer of course lies in the selling down of the 41M Erongo shares, which appeared to start the day before, on the 19th of December. Since then we have seen on an almost daily basis the appearance of paired End of Day trades which have been roughly in proportion to the nett Buys during the day. The interpretation of these pairs was discussed in detail in the trading analysis of the 5th Jan 2018. In the 8 weeks since the selling first started there have also been numerous large isolated sells most notably the 5.4M on the 9th of January and the 4M on the 29th of January.

In that period since the 19th Dec the share price has remained fairly tightly bound in the range 8.00p to 8.75p. Thus we could call this an orderly disposal despite the best attempts of a shorter or two along the way.

The question now is "when will the Erongo selling finish ?" - can we draw any conclusions from the End Day trades, and indeed all the trading since the 19th of December,  to determine reasonable limits over when the 41M shares owned by Erongo will all have been sold ?

Analysis this week has been complicated by the failure of the LSE trading logs on Tuesday and the fact that I have been away from my usual desk - but full trading analysis has been completed up until the 2nd of February - so what can this tell us ?

Whilst we are not privy to the definitive information about Erongo trades we can draw some general conclusions - and the graph below captures three different interpretational scenarios. In blue, all sells since the 19th of December are ascribed to Erongo. This is clearly the maximum possible number of sells we could potentially count for Erongo - needless to say this results in all 41M being sold down some time ago. 

The red line shows the scenario in which we count all of the large Ad Hoc sells and BOTH of the end day trades as coming from Erongo - at current rates of PI buying in the market this extrapolates to zero at the start of next week.

The orange line is obtained by counting all the large Ad Hoc Sells and only ONE of the End Day Trades as coming from Erongo. As explained in the 5th Jan article this is my most likely scenario - at present rates of buying this scenario extrapolates to zero in exactly 3 weeks time.

Now that this information is publicly available I expect that PI buying may increase, so you may have less than 2 weeks to pick up any last minute offers before all the Erongo shares are sold.


UPDATED 20th Feb 2018

Trading activity was very high on Friday the 16th Feb but as yet we have not seen any end day trade pairs for either Friday or yesterday.

How can we interpret this ?

1) end day trade pairs are all over and this implies Erongo has finished.

2) end day trade pairs are all over but this does not imply Erongo has finished, just that the mechanism of Erongo sells being reported has changed.

3) someone else is suddenly selling large numbers of shares just at the point that the SP is moving up.

I do not believe 1) to be correct as it would require BOTH End day trades since 19th Dec to be attributable to Erongo sells. This is perhaps an overly hopeful interpretational assumption.

3) of course is a possibility at any point in human history - requiring it to be true now without additional evidence seems an arbitrary assumption.

2) is another possibility and seems to be borne out by the fact that the prices paid for all of 3x 0.5M are all the same 9p and for yesterday's 3x 1M are all the same at 8.95p. Can it just be a huge coincidence that at the point that the End Day trade pairs stop we get two sets of large tripled sells on consecutive days?

I don't think it is a coincidence and have counted 3x 0.5M sells on Friday and 3x 1M sells yesterday as sells from Erongo - this leads to the updated Erongo countdown graph as shown below.


 

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