To say Amedeo Resources (LON:AMED) has hit the ground running would be an understatement.
In less than 18 months financier Glen Lau, who is chief executive, and executive director Zafar Karim, a former investment banker with company building and turnaround credentials, have transformed what was essentially a cash shell into one of the most exciting investments in AIM.
Amedeo has been instrumental in building from scratch a business that will go toe-to-toe with some of the big beasts in the offshore industry.
At the same time it is attaining financial self-sufficiency thanks to a US$49,900 investment in a commodity trader that is now paying dividends (quite literally).
Lau’s book of contacts has been vital to creating a rig joint-venture (JV) that gives the group a seat at the table with Yangzijiang, China’s largest privately controlled shipbuilder, and an 18.6% indirect stake in the JV firm, YZJOE Offshore.
YZJOE already has its first order, for a US$175mln, to build a jack-up rig similar in size and style to Lamprell’s LeTorneau 116E, though higher in specification.
It is currently under construction for delivery in the middle of next year.
At the same time it is developing a purpose built yard on the banks of the Yangtze near Shanghai.
That this happened so quickly is down to the involvement of Yangzijiang, which helped with the negotiations for the site and is also able to source the finance on good terms for prospective buyers.
The relationship works because it allows Yangzijiang to diversify into higher margin rig construction while sharing the risk with a partner outside the People’s Republic.
Importantly, Amedeo brings something to the party itself. Lau, the ex-deputy chairman of PPL Shipyards, a Singaporean rig builder, knows a thing or two about the offshore industry.
Not just that, he has incredible contacts both in Asia and in the Middle East, which makes the quest for customers and capital that much easier.
And the JV is riding into a perfect storm, according to Lau, who points out that there are over 350 rigs that are over 20 years old.
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Meanwhile, as the quest for new sources of hydrocarbons take us into deeper, more inaccessible waters, so there will be a need for more highly sophisticated rigs.
Not just that, accommodation facilities, and semi-submersible vessels are also in huge demand.
Reports by McKinsey and Booz Allen confirm there is significant pent-up demand.
“We have seen massive rig buying going on the last two years and we feel it will go on for another five years,” Lau told Proactive Investors.
“And it is not only about jack-up rigs. It is about semis (submersibles), accommodation vessels and platforms and FPSOs (floating storage vessels).
“Whole fleets need to be upgraded, but there are not many players. I know this through my association with PPL and our Chinese partners.”
This probably explains why the Amedeo CEO is confident YZJOE’s order book can quickly fill to US$1bn.
But first the partners need to complete the initial contract to prove they are up to the job. This isn’t something they are going to rush.
“I am very confident we can do this (achieve a significant order book), but we have to get the first one right. We have to earn our spurs,” said Lau.
Amedeo invested around US$15mln to take its stake – which will look like an insignificant sum if the business does achieve its full potential.
There is only one downside and that is the two to two-and-a-half years it takes to collect the revenues from projects.
A more immediate source of income is provided by the other leg of the Amedeo business – MGR Resources, a commodity trading house focused on ferrous metals and those other ores used in the production of steel.
The AIM listed group acquired a 49% stake for just US$49,900 and advanced the business a US$1.95mln, three-year convertible loan carrying a coupon of 15%.
Again Lau has been able to bring out his little black book to source sellers and buyers of ore that have given MGR significant traction.
And this is a hallmark of Amedeo under Lau and Karim. “The company doesn’t come in as a passive investor,” Karim explained. “We bring something to the party, we add value.”
The impetus given by Amedeo, both financially and managerially, has led to a significant turnaround at MGR, which has paid a dividend of US$210,000, with another in the offing before the financial year-end.
The cash injection means Amedeo is becoming financially self-sufficient; so it won’t be back to the market, cap in hand for cash to meet its working capital requirements.
If there are opportunities to grow the business significantly, then it might tap investors, Karim said.
The company is well backed with 72% owned by QIC, an umbrella group for a number of ultra-high-net-worths from Qatar.
Repeating its ‘speculative buy’ recommendation, City broker Beaufort concluded: “With a supportive large shareholder we can expect more deals in the resource infrastructure and asset arena and in new geographic locations.
“[Amedeo] has exciting prospects, and we encourage investors to join in what looks like the early stage of a potentially large enterprise.”