Whilst the stock market waits to hear the outcome of Ascent Resources’ negotiations with the Government of the Republic of Slovenia, it is worth taking a look at that country’s track record when it comes down to resolving investment treaties. What is apparent is that Slovenia does not have a brilliant record in defending these treaties. Based on publicly available information, the current score looks something like 3-0 against Slovenia.
This is based on the analysis of three investment treaty arbitrations against Slovenia which involved Impresa Grassetto (in liquidation), Interbrew Central European Holding and Hrvatska Elektroprivreda. In a nutshell, Slovenia settled the first two and lost the third.
So, it does look as though Slovenia generally does seem keen to settle; and there are also signs that they pay up as well. It is not really that hard to see why, as no government wants to discourage potential international investors from setting up shop in its country. Particularly in these chastened times. As far as collection of any award goes, Slovenia seems to have plenty of assets outside of the country which could be used for enforcement purposes too. This may be a good way of focusing the governments attention on payment of any award, to ensure that it happens in a timely fashion.
The back story here is that Ascent Resources has been jerked about for many years by the Slovenian government. The company has undoubtedly suffered from unfair treatment in that country which has served to damage Ascent’s €50 million plus investment in the Petisovci field. Disputes have arisen both under the UK – Slovenia Bilateral Investment Treaty (BIT) and the Energy Charter Treaty (ECT).
Late July 2020 saw Ascent submit a Notice of Dispute which put the legal balls in motion. A month ago, investors learnt that the company was to enter into direct negotiations with the Republic of Slovenia. At that time, Ascent also pointed out that the view was to potentially settle the claim in an amicable manner before the end of 2020. Unsurprisingly, such negotiations will be strictly confidential, on a standard without prejudice and privileged basis. With the year-end less than six weeks away, shareholders might be in for some fireworks shortly.
The market also learnt in late-October 2020, that Ascent had completed an internal assessment of damages and that these current negotiations with the government of Slovenia won’t be prejudicing the company’s rights to pursue its investment treaty claim under the BIT and ECT. Sensibly Ascent seem to have all their bases covered. Whilst these confidential negotiations are going on, the board will be working on securing litigation funding to proceed with international arbitration, just in case it might be needed.
Around the time that Ascent served Slovenia with a Notice of Dispute back in July 2020, the company appointed an independent quantum expert to provide an estimate of the total damages. Given all the shenanigans that have gone on there over many years which have served to stall Ascent meeting its goals, this could have all the makings of a being a lofty figure. We estimate these to be in excess of 50m euros based on historic monies spent. Now with that information in its possession, the board will be in discussions with specialist litigation financiers, some of which we understand are really interested in the case since the company put in the Notice of Dispute.
Ascent is however no longer a one project company and there is so much going on behind the scenes which should result in a complete revaluation of the assets moving ahead. Ascent looks very well placed to benefit from Biden’s victory which looks set to ease Cuban sanctions as we detailed HERE only last week. Joe Biden has been promising a new Cuba policy and on the campaign trial he really highlighted his ambitions to promote human rights in Cuba and empower that country’s people to determine their own future. This is in fact is all pretty central to the national security interests of the United States.
Truth is that Cuba represents one of the few remaining world-class yet largely unexploited hydrocarbon systems. In this country, the company has a highly compelling opportunity which includes six separate PSCs spread across four blocks which cover some 7,000km².
Entry into Cuba has tremendous potential in our view and over the coming months Ascent is likely to gain operator status. Once that is in place, it looks as though the market might really begin to learn about the size of the prize in the vast onshore licence area where Ascent is negotiating access to a highly prospective area of Cuba – extensive details are laid out HERE in our comprehensive note. The deals provide an attractive mix of development, appraisal and exploration potential which gives Ascent a nice balance of opportunities right across the whole cycle.
At the same time, also in Cuba, the board has already signed a number of new non-binding letters of intent in the battery metals mining space with either vehicles owned or backed by the Cuban government. At this stage it is worth noting that Cuba has the fifth largest nickel resources in the world.
As largest shareholders in Acent, we are presently very satisfied about how matters are progressing. We initiated coverage on the stock with a Conviction Buy stance and a target price of 18.34p in mid-September 2020 when the shares were trading at 3.25p. That target price was solely based on possible Petišovci scenarios where we looked at the two alternative scenarios of either litigation or development, with both outcomes being thoroughly risked. At the current price of 5.15p the market cap remains a fraction of the hoped for payout under the BIT avenue and thus the Cuban assets and battery metals opportunity are frankly in for free if not negative value. With a tight float we look for progression towards our target price as the year closes out and news flow dictates on multitude fronts. Buy.
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