Shareholders in Phoenix Global Resources (LON: PGR) have had a miserable time of it over the years but there could be the start of a comeback. The stock is up 15% over the past 24 hours. Do note this is nothing to do with the Phoenix Global crypto token – the company here is a play on Argentine shale gas.
That there is gas in the Vaca Murta shale is known, as is true of Cuadrilla’s explorations into the Bowland Shale in England. The problem there, as here, is getting it out in quantity. The usual assumption is that the geological formation is the world’s second-largest reservoir of unconventional gas.
What might be the turnaround is that gas prices have leapt in these recent months, The global price is vastly above where it was. For a company that’s not producing as yet in any large quantity that doesn’t make any difference to revenues. But it does make financing of future plans easier which is important for a company at this stage of the game. Capital becomes ever less of a problem to acquire as gas prices rise.
There is, however, more to this. Politics always plays a large part in resource extraction anywhere, doubly so in Argentina. Recent governments have been more left-wing – think resource nationalist – than a minerals company would like. The continuing terrible performance of the Argentine economy under such governance is making a switch rightwards at the next election more likely.
There’s more to this though. Given the fiscal position of that government, there’s ever more interest in the resource exploitation – to be crude about it, they want the revenue from the royalties. So, life becomes easier for those pursuing the gas in that shale. There’s also the foreign exchange point to consider. Many of the costs are in-country, which means in the Argentine Peso. Which is falling again – sinking like a tone even – against the US $ in which any exports would be priced. Also, the foreign currency in which the capital available to pay the exploration costs exists.
The costs to the company of continuing the exploration and testing programme drop with the FX rate that is. This at the same time as the potential longer-term value of production rise not just in local currency terms but also in that real, foreign, currency.
Given that the terms of trade for Phoenix Global are improving it might not be all that much of a surprise that the share price is too. However, Argentine economics and politics are themselves volatile so we can expect the share price to continue to be so.
All of this being entirely independent of how well the company is doing in the actual exploration programme itself. Sometimes macroeconomic factors do indeed matter for a share price and this might well be one of them. The longer this peak in gas and LNG prices goes on, the worse the Argentine economy gets, the more upward pressure might be expected.
Should you invest in Phoenix Global Resources shares?
Phoenix Global shares are traded on the London stock exchange's AIM market (the alternative investment market), which is the submarket specifically for smaller companies. AIM stocks are attractive to investors as they have tax advantages and smaller companies have the potential to benefit from rapid growth. But are PGR shares the best buy? Our stock market analysts regularly review the market and share their picks for high growth companies