CHI - Channel Infrastructure Ltd (NZR)

[ralph]

Yep looking like it could be a winner now at 76 c

[Waikaka]

When facts change, best I change my view to fit.

I started reading the explanatory booklet and my feeling going in was capitulating at super low refining margins takes away from the upside that might come in the next few years. This would be by managing to eke out the last bit of life before decommissioning the refinery and converting it to a terminal.

But those subsidised mega refineries in India and South East Asia mean that without state support for a strategic bit of infrastructure like a refinery then short and medium term NZR is toast. Hard to compete with govts who are willing to subsidies their petrochemical industries for strategic or economic reasons and completely ignore the economics and smash the GRM down.

Gas spot up 135% over the last 5 years and electricity up 240% over same period, hard to stay profitable in those circumstances.

Still digesting the commercial terms of the deal (at page 42 of 160 in the explanatory booklet - phewww) but at this stage ill be voting for the proposal.

For what it is worth not buying at these prices but pleased I kept loaded up around the mid 40c mark.

[Waikaka]

Always worry about the employees in a situation like this. I wish it was a less cyclical business but hopefully they can do well elsewhere. Super skilled workers.

Checked the plan for the pensions and looks like they have offered to cash out those that are still on the old (pre 2002) defined pension plan and medical plan (pre 1996).

I expect the cash offers wont be as valuable as the defined benefit they are losing but suspect the workers see the writing on the wall.

[ralph]

I dont see why we should not subsidise/support the only refining infrastructure in the N Z ,its going to mean we are at the whims and vagaries of foreign powers/companys even more .

When facts change, best I change my view to fit.

I started reading the explanatory booklet and my feeling going in was capitulating at super low refining margins takes away from the upside that might come in the next few years. This would be by managing to eke out the last bit of life before decommissioning the refinery and converting it to a terminal.

But those subsidised mega refineries in India and South East Asia mean that without state support for a strategic bit of infrastructure like a refinery then short and medium term NZR is toast. Hard to compete with govts who are willing to subsidies their petrochemical industries for strategic or economic reasons and completely ignore the economics and smash the GRM down.

Gas spot up 135% over the last 5 years and electricity up 240% over same period, hard to stay profitable in those circumstances.

Still digesting the commercial terms of the deal (at page 42 of 160 in the explanatory booklet - phewww) but at this stage ill be voting for the proposal.

For what it is worth not buying at these prices but pleased I kept loaded up around the mid 40c mark.

[Sideshow Bob]

I dont see why we should not subsidise/support the only refining infrastructure in the N Z ,its going to mean we are at the whims and vagaries of foreign powers/companys even more .

If we are importing oil for said refinery, aren't we still at the whim and vagaries of foreign powers/companies??

I would have thought only difference would be probably have more options for oil than refined products.

Is it better to refine your own or buy cheaper from other sources??

[Waikaka]

Your right that the crude still needs to be purchased overseas. The main benefit to govt support for the refinery, is that a working refinery will store a lot more oil than a terminal which is focused on moving material through as fast as possible. Grant Samuel mention in their section, currently the refinery holds 18 days supply for the whole of NZ. As an import terminal it would only hold enough for AKL and Northland. This means the system becomes a lot more fragile if global shipping is effected and a shipments are delayed.

Note the aussies often take a different view on this sort of stuff so interesting they are putting in up to $2.3 Billion to upgrade and keep open Geelong and Lytton refinery. Can't see labour/Greens getting behind that sort of support for NZR.

Got to the end of the report and ill be voting yes to the plan.

[Sideshow Bob]

Your right that the crude still needs to be purchased overseas. The main benefit to govt support for the refinery, is that a working refinery will store a lot more oil than a terminal which is focused on moving material through as fast as possible. Grant Samuel mention in their section, currently the refinery holds 18 days supply for the whole of NZ. As an import terminal it would only hold enough for AKL and Northland. This means the system becomes a lot more fragile if global shipping is effected and a shipments are delayed.

Note the aussies often take a different view on this sort of stuff so interesting they are putting in up to $2.3 Billion to upgrade and keep open Geelong and Lytton refinery. Can't see labour/Greens getting behind that sort of support for NZR.

Got to the end of the report and ill be voting yes to the plan.

Thanks for your comments - appreciated.

[SailorRob]

100% guaranteed? Care to make a little wager? SailorRob and Bull, lets just wait and see say in a year or two.
Just joking about the wager but I'll remember these comments

It's good you remembered these comments Sharp737.

So did I...

I offered you a big wager but never heard back...

As I said 100% guaranteed and I stand by it.

[SailorRob]

Sharp737 22/07/2020 Yes saw that but we shall see see. This going to be interesting. Tank terminal only? This is not a given. It may or may not. Even though things have been tough and have looked bad for some time, some of us believe 'not'.

Unfortunately it is a given. 100% Guaranteed unless the taxpayer was to fund it long term.

The only issue is when. Look at the capital allocation over 15 years, any capital invested or earnings that are retained are quickly destroyed. There is no way out of that. Occasionally it can make a return on 'price' but never a return on invested capital, and that is what the game is all about.

If you can buy in at massive discounts to book value as you can now then you might see a return short term but as a company huge amounts of capital have to be found to keep things going and over the whole cycle it has been conclusively proven that this capital is destroyed.

There is no hope it's just time.

[Sharp737]

SailorRob, how nice of you to remember! Well, it's not over yet until the f...l...sings.
And if it does go to a terminal only, it will be a sad day for many people, and bad for NZ in that we will be at the mercy of the overseas refiners.

But of course, as an investor it has been good of late. It is looking up and it does not look like it's going to stop. Can't argue with the market so at least jump on for the ride.