ShareHub Hotlist 2018 Review – Week 15

Q2 is now in full swing and the changes from Q1 are notable. A number of commodity stocks are back in demand after a cool off period that followed the rather over excitable start to the year. As an example, Tullow kicked off the year at 205p, then popping higher to 235p before the market cool down and Dow wobbles. Tullow (a bellwether for mid tier oil players) is currently trading around the 215p to 220p level after dipping as low as 170p just 8 weeks ago. That’s a decent 30% swing from lows against PoO which has seen a recovery of circa 10% to 15% from 2018 lows. A similar 30% recovery from lows can be seen on SOLG moving from 20.5p lows to test 27p today. The bulk of these corrective moves have occured in Q2 suggesting that a fair amount of new or sidelined money has been making its way back into the commodity sector whether through tax planning/ISA trading or simply because of more attractive entry points. As mentioned at the start of the year, TheShareHub believes 2018 could be the year that sees a switch away from overbloated QE fuelled bluechips and into cheaper and more attractive risk plays within the commodity sector. Stand outs are Gold focused stocks as these present an extra layer (potentally) to benefit from market volatility and global risks such as Trade wars as well as physical wars. The latter looks unlikely but there is no doubt about it, with Trump and Putin at the helms, anything is possible… even the unthinkable. With Gold at circa $1340oz, the market is yet again showing signs of complacency. This go-to metal at times of uncertainty really should be trading in the $1400’s minimum. A similar level of ignorance applies to PoO. At $71pb (brent) the market is not factoring in any shortage in supply. That’s dangerous especially with Iranian / US sanction talks due to kick off within the next 6 to 8 weeks. The market must look beyond the usual supply and demand metrics and instead start to concentrate on where the new supplies or ‘growth’ is going to come from. Investment in new developments has been poor over the last 3 to 4 years and as such many fields are heading for decline (inc US shale) with no obvious indications of new developments replacing them. In a situation like this, you tend to see sharp volatility in prices as the market seesaws around trying to find a new balance. Over the last 6 months or so, we haven’t had much volatility in PoO which suggests in a market that does not do ‘dull’, we might be in for a trip into the $80’s pretty soon.

Overall, week 15 was decent for all stock picks. The newspaper picks have recovered around 5% although are still a decent 10% swing away from TheShareHub commodity focused top ten. The latter are performing well across all stocks with exception to AMER.L. Good updates from CERP and SOLG appear to have gone unnoticed which suggests that when the market wakes a bit, these stocks will outperform as they both have some catching up to do. Great results from Serica saw the stock bounce back from 64p lows to test early 80’s (another magical 30% recovery). Hummingbird Resources is trading relatively flat for the year which is a surprise considering they are weeks away from full commercial production. Early mines are notorious for stuttering at start up as it takes time to get bedded in. But thus far, HUM.L have shown no signs of problems and look firmly on track. If or when the Gold sales start flooding in, it would not be a surprise if the stock rerated by the recent trendy figure of 30% or so to test 41/42p. The company is also set to kick off some new exploration drilling in the surrounding area of the Yanfolila mine in the next couple of weeks or so which should add further catalysts for the share price heading into May/June/July.

Week 15 – Current positions below:

ShareHub Hotlist 2018 Review – Week 14

Week 14 was another choppy one across the major indices. US & China continue to lock horns over trading disagreements. The trend of Trump bluster vs substance is beginning to wear a little thin and a concern near term is that someone somewhere may well return a very serious reposte. To date, Trump has gone for the shock headline only then to negotiate and subsequently revise threats which then disappear into the ether in ‘headline’ terms. Shock and awe is back and the algo’s/black boxes are just not programmed for this type of Trumpism. Hence the volatile swings across the DOW. An index that once used to trade in a 5% range over a year or two, is now trading in 5% swings on a near daily basis. Ridiculous and symbolic of a market that has become so leveraged and pegged to multiple assets/ catalysts that it no longer reflects anything rational… just casino type style operations. Roll up roll up, place your bets!

Factoring in the above is virtually impossible but derisking or hedging into safer havens like Gold might not be a bad idea. The digital world and all that drive it are demolishing the traditional bricks and mortar retailers. Housing sector is wobbling. Banks are finding it harder to make money which in turn pushes them into more risky assets. Online fraud is increasing at a pace and the police look stretched ‘on the beat’ and ‘off the beat’ which is not helped at all by government cut backs. 2 years+ now and Brexit drags on with the average UK resident that voted ‘for’ or ‘against’ still in the dark to what has been agreed. It feels a bit of a mess out there at present and looks like it’s going to take a while to untangle.

Commodities continue to outperform the general market. The digital revolution has done many things (good and bad) but it still can’t stop the black stuff from being in demand. Gold too has performed well despite challenges from the digital crypto’s. The Saudi’s and Russian’s have done well to coordinate over the global glut which at present looks just weeks away from being drained. The question now is what to do once a ‘rebalance’ has been achieved. Expect to see increased chatter on this subject as we move towards June and July. Throw in Iranian/US sanction discussions and that’s potentially a potent cocktail which even the most daring of traders might like to avoid.

The ShareHub picks for 2018 continue to outperform the newspaper tipster guru’s. A decent news update from CERP.L yesterday suggests that there is plenty in the tank as Q2 progresses. News is also expected from SOLG.L soon on their updated MRE. And on the ‘heads up’ pick for 2018, MATD.L looks primed to release news on seismics and drill dates for late spring. A small fund raise from WRES.L was a slight disappointment as the pricing favoured larger investors (mates rates) and yet again left the smaller retail investor a little out of the loop. AMER.L continues to underperform and has been a drag on the overall folio performance. Q2 and Q3 looks brighter but investors may seek some blood at the upcoming AGM as the last 2 years+ have been abysmal. Finally, HUM.L edges ever closer to full gold production. All of the above stocks look ready for moves higher assuming the progress ‘news’ is good of course. Last week TheShareHub mentioned M&A as missing in action. But last week saw a small glimmer of hope for the North Sea with DNO’s 27% smash and grab on Faroe Petroleum. Under takeover regs, it looks like DNO will need to wait another 6 months before being able to table an official bid. Judging by Faroe’s responses, the 27%+ taken at 125p is well below their perceived value which suggests the ShareHub’s 2017 pick (103.5p) will be batting away any low ball offers in the future. If or when an offer does appear, it should provide the market with another reminder of asset value vs share price value. Normally these gaps are circa 30% to 40%. But recently the gaps look more like 100%+. The market has been slow to rerate many of these companies and this is largely to do with the uncertainty and fine balance that exists between OPEC and NON-OPEC aka Saudi’s and Russian’s. It’s only 3 years+ since the last PoO downturn and it might take at least 2 to 3 years of proven compliance and stability from OPEC before the market finally closes valuation gaps on the sector or even adds in some premiums. M&A is certainly a good omen. I would expect to see more M&A over the next 6 to 12months. SOLG.L will certainly be on the list of many predators. The question is… can they prove the resource up fast enough before offers come rolling in?

Week 14 positions below:

 

Amerisur Resources disappoints with reduced reserves and lower production

A disappointing update from Amerisur on operations and reserves. All are heading lower and that’s after spending roughly $50m+ in capex drilling wells. From May onwards, the drill bit starts spinning on more targets which if successul will save some blushes across the management team. The latter have over promised and under delivered. If Amerisur was a premier league football team, then you can bet your last easter egg they would have been sacked long ago. Mariposa-1 and CPO-5 (as a whole) is the jewel in the crown and thankfully that it is in the hands of ONGC’s management team which look ten times more experienced and capable than AMER. A large HNWI seller adds further woes to the share price and based on today’s RNS’s, he’s been bang on the money when it comes to selling AMER. The stock is down from 2017 highs of 26p to 13p levels this am. AMER was added to the ShareHub 2018 hotlist based on the Mariposa-1 and CPO-5 potential. Progress on this asset looks on track and the next drill target (if successful) has the potential to move resources up considerably. That asset alone is potentially worth Amerisur’s current market cap. It’s been a tough few years for investors and should a predator come forward and offer to end the misery – it might be accepted with ease. AMER has plenty to offer in a region that is seeing renewed interest of late. But management needs to change as progress is slow and cash burn is high.

News catalysts such as drilling results in June/July should at the very least see some speculators return to the stock. But a change in senior management might see much needed larger investors return. Amerisur’s AGM is normally held in May so not long for shareholders to voice their concerns as well as put pen to paper.

Today’s RNS’s can be found on the Amerisur website here

ShareHub Hotlist Quarterly Review – Week 13

That’s Q1 done and dusted. 3 more quarters left in the year so plenty of action to come. Traditionally, the smaller cap commodity focused stocks spring to life post April as exploration season commences. To date, there are not that many blockbuster drills lined up to look forward to across AIM. Currently CHAR.L are drilling a high impact well in Morocco which is managed and operated by the oil major ENI. TD is estimated in 2 weeks time (approx). MATD.L has 2 x high impact wells planend for H1 and news on seismics/spud dates should be issued in April. 2 further wells are planned for H2 pending rig contract. With 4 x drills in 2018, MATD.L is likely to be the small cap to watch as any success would be transformational and the share price should be doing cartwheels. Of course, no guarantees any of the 4 wells will be successful. HUM.L is set to kick off their exploration in May with focus in and around their producing mine. Any discoveries should extend mine life and bring in some longer term investors with p/e’s increasing accordingly. Full production has yet to be reached but will be another minestone for the early gold producer. Q1 had just about everything thrown at it. From DOW highs to DOW lows. Bitcoin’s rocket to fame now looking like a limp biscuit. It’s a story of over excitement followed by the traditional profit taking or consolidation period. Nothing goes up in a straight line forever. Pullbacks can be healthy especially after what looks like an over inflated bonus ticking end to Dec 2017. Trump, China, Russia, Putin, North Korea, Iran, Saudi’s, Brexit, UK housing bubble, the new Petro yuan… the list goes on. It’s been far from dull. Looking at the above, I can’t see too much changing anytime soon so get used to the ‘theme’ for 2018.

TheShareHub 2018 picks have outperformed all newspaper guru picks as well as the ShareHub 2017 picks. The latter began the year at circa 9.5% down and has added a further 8% decline to 2018 although that still puts it ahead of the newspaper picks which have not faired well. The ShareHub 2018 picks are in the blue by 1.1% or roughly 9% higher than the 2017 picks. A good example that rotating and refreshing portfolio’s can work (sometimes). With April 5th/6th Tax period just days away, it’s often a period of locking in profits as well as losses and getting ready for the new ISA season. It’s a good period to reflect on your winners and losers and get your affairs in order ready for April 6th onwards. If in doubt, seek some advice from an FCA regulated advisor or via your broker.

April should be packed with news across the ShareHub picks with AMER production update due, HUM full production news, CERP Q1 review, SOLG MRE update and much more. MATD (part of the heads up in 2018 picks) should also be delivering updates (as mentioned above).

Looking ahead into Q2, Gold looks solid with added interest of late due to dollar issues as well as risk safety trades. PoO has come through the tough Q1 period well and assuming Trump has Iran in his sights for sanction revisions (up not down) the black stuff could hit new highs… circa $70pb on Wti. M&A still missing in action and the O&G sector really could do with some mergers/acquisitions kicking off to get some attention returning to genuine ‘valuations’ rather than casino based algo/bot activity.

2018 Q1 – Current Positions as follows:

 

 

Providence Resources – delivers Barryroe farm out deal

The easter bunny has arrived early for all PVR and LOGP investors. It’s taken a few years to get to this point but finally Barryroe bags a farm out agreement. Based on timelines, it’s likely that any drilling of the 3 x wells will occur in 2019 due to seasonal weather issues in the Celtic Basin. It’s the big news that all have been waiting for and it hasn’t disappointed. As a word of caution, the chinese are well known for their time consuming diligence so be aware that the deal still needs to conclude via all the usual sign off’s.

PVR is part of TheShareHub top ten for 2018 and looks like it may have sealed a place in the 2019 picks too. Subject to deal concluding of course.

28/03/2018 7:00am
UK Regulatory (RNS & others)

Dublin and London – March 28, 2018 – Providence Resources P.l.c. (PVR LN, PRP ID), the Irish based Oil & Gas Exploration Company (“Providence” or the “Company”), today provides a commercial update on Standard Exploration Licence (“SEL”) 1/11 that contains the Barryroe oil accumulation. SEL 1/11 is operated by EXOLA DAC (“EXOLA”)(80%), a wholly-owned Providence subsidiary, on behalf of its partner Lansdowne Celtic Sea Limited (“Lansdowne”)(20%), collectively referred to as the “Barryroe Partners”. The area lies in c. 100 metre water depth in the North Celtic Sea Basin and is located c. 50 km off the south coast of Ireland.

Standard Exploration Licence (“SEL”) 1/11

Farm-Out The Company is pleased to announce that the Barryroe Partners have signed a Farm-Out Agreement (“FOA”) with APEC in relation to SEL 1/11. APEC is a privately owned Chinese company which has a strategic partnership with China Oilfield Services Co., Ltd (“COSL”) and JIC Capital Management Limited (“JIC”) for the investment and development of offshore oil and gas opportunities worldwide utilising Chinese drilling units, services and equipment. Under the terms of the FOA, in consideration for APEC being assigned a 50% working interest in SEL 1/11:

Commercial Terms — APEC will be directly responsible for paying 50% of all the cost obligations associated with the drilling of 3 vertical wells, plus any associated side-tracks and well testing (hereinafter referred to as the “Drilling Programme”); — APEC will provide a drilling unit and related operational services for the Drilling Programme; — APEC will finance, by way of a non-recourse loan facility (the “Loan”), the remaining 50% of all costs of the Barryroe Partners in respect of the Drilling Programme; — The Loan, drawable against the budget for the Drilling Programme, will incur an annual interest rate of LIBOR +5% and will be repayable from production cashflow from SEL 1/11 with APEC being entitled to 80% of production cashflow from SEL 1/11 until the Loan is repaid in full; — Following repayment of the Loan, APEC will be entitled to 50% of production cashflow from SEL 1/11 with EXOLA and Lansdowne being entitled to 40% and 10% of production cashflow, respectively. Operational Terms — EXOLA will act as Operator for the Drilling Programme with technical assistance being provided by the APEC Consortium; and, — After the completion of the Drilling Programme, APEC will have the right to become Operator for the development/production phase. Issuance of Warrants to APEC — Upon completion of the Drilling Programme, APEC will be able to subscribe for warrants over 59.2 million shares in Providence at a strike price of GBP0.12 per share (the “Warrants”). — The Warrants, representing circa 9.9% of the current issued share capital of Providence, are exercisable for a period of 6 months following the completion of the Drilling Programme.

Closing

The Closing of the Farm-Out (“Closing”), which is expected to occur in Q3 2018, is conditional on completion of all ancillary legal documentation required to implement the terms of the FOA, and is subject to the approval of the Minister of State at the Department of Communications, Climate Action and Environment and the approval of the Chinese government. In addition, the details of and schedule for the Drilling Programme are subject to further ongoing technical discussions between the Consortium, Exola and Lansdowne. Subject to Closing, the revised equity in SEL 1/11 will be EXOLA (Operator, 40%), APEC (50%) & Lansdowne (10%). Further announcements on the transaction will be made in due course.

Speaking today, Tony O’Reilly, Chief Executive of Providence said: “This is a significant transaction for Providence and Lansdowne which will deliver multiple new penetrations of the areally extensive Barryroe field. In addition, it also provides for the acquisition of modern dynamic well test data that should assist in advancing the field to production. Over the coming months, we will be working with the APEC Consortium to close the transaction and finalise the specific timeline and the precise details of the drilling programme. We are very pleased to have agreed this deal, which will allow us to avail of ‘state of the art’ drilling units and technical capabilities in order to advance Barryroe to first oil.”

Mr. Colin Lui , Chairman of APEC Energy Enterprise Limited commented: “APEC, supported by Jianyin Investment Company and China Offshore Services Ltd, are very pleased to have strategically joined forces with Providence and Lansdowne to develop the Barryroe field. This field has significant recoverable resources and we look forward to jointly developing this opportunity. Whilst the Farm-Out Agreement has been agreed specifically for Barryroe, the parties have also agreed to jointly investigate further opportunities in other licensed blocks offshore Ireland in the future.”

ShareHub Hotlist 2018 Review – Week 12

Week 12 was another choppy session for global markets as Trump continues to dish out more trade war inducing styled tariffs. That said, a pattern has emerged of late which resembles more of a fluffy blonde haired 2 year old having a premeditated tantrum and getting some sweets in return to quieten down. Export tariff’s were slapped on Canada, Mexico, EU and Britain but all appear to have been removed or suspended now certain conversations have occurred behind the scenes or sweets handed out. The markets better shape up if they are to seek any kind of stability in 2018 as this kind of Trumpism is not going to go away.

Commodities are at last showing some signs of interest and the golden one in particular. It’s been a long time coming and a few years since Gold has had a serious bull run. But all looks like aligning in favour of the go-to safety metal. TheShareHub picked out Hummingbird Resources as a great early gold producer for 2018. The company is just days away from full production status and is well positioned to benefit from Gold’s recent rise and any future rises with a low AISC. Another commodity player but mainly exploration, is SOLG. I’m not surprised that the share price has drifted a little as the market awaits the updated MRE. But it is surprising to see how far it has drifted. Dropping from 32p down to 20p lows is overdone and even in the ‘wait on news’ gear position, the stock should be trading in the mid 20’s minimum.

Looking back over the first quarter we’ve had a number of hefty news headlines thrown at the market from Nuking North Korea to putting Putin in his box. Trump’s HR department has been busy and where Brexit is concerned, much talk of progress yet most are still scratching their heads over what has actually been agreed in the last 20 months. But every now and again, we have an event that just drops the jaw to the floor. Last year it was Dieselgate. It astonishes me why VW and co are still trading after that kind of deception. In the USA, litigation cases are akin to taking out mobile phone contracts. Easy to do and no brainers in many situations. It’s no surprise to see VW paying out billions to the US consumer. So what’s happening in the UK? Not a lot by the looks of things, apart from VW service costs rising. Shouldn’t VW be offering the UK people some large discounts on cars as a ‘sorry’? Perhaps they know that saying sorry does not repair the damage done to the brand or the country of main manufacture being Germany. Once a place well known for making amazing engineered cars is now a country that ‘cheats’. And that leads me to probably the most upsetting thing I have come across in the last decade or so. Ball tampering in cricket has being going on for years and years. There is nothing new there. Of course there are levels of tampering from scratching to scuffing up with other means etc etc I won’t bore you with the details. Cricket in general has had to deal with a plethora of issues as the sport expands many countries some of which are far from being whiter than white. Corruption like the Pakistan cricket spot-fixing scandal is just one example. But never before have I seen a major bellwether ‘cheat’ and not only cheat but do it in a premeditated manner. Australia and Australian’s have for generations prided themselves on being down to earth and honourable. Cricket had carried the honorable gentlemen’s tag for centuries with greats like Trueman to Bradman leading by example. Players that played for their country with a passion and commitment. Players that would never put themselves before their sport. Today, we seem swamped by individuals that think they are the ‘show’… the all important reason why people pay the ticket prices. Twitter and facebook accounts are kept more up-to-date than their sporting skills. More content sporting a new hairstyle than a new shot or technique. Cricket Australia was ‘world’ cricket to some extent. It was the Federer of Tennis. What follows this awful tainting of a once great sport has to be measurable and assuring. Cricket Australia must act with force and repair the damage done. It doesn’t just take a few indiviuals to ruin a sport. It takes an entire team, staff and culture. The rot or poor mentality should have been sniffed out by top management long ago and discouraged. The fact that it wasn’t suggests that any cull needs to begin from the top down. A one match ban and suspension is far from being balanced. The very complacency shown in such a weak penalty perhaps reveals more about Cricket Australia’s mentality than the ball tampering itself. The yellow and gold of Australia will not shine again for a very long long time. They owe it to ‘cricket’ to put it right.

Week 12 status below:
TheShareHub top ten picks continues to outperform the newspaper top picking guru’s. The good news is that there is plenty left in the tank for TheShareHub picks with many stocks merely treading water or roughly at Jan 2018 levels. Considering the strength of PoO and PoG it is a surprise to see many commodity focused stocks trading in a lacklustre way. ISA season kicks off next week which is often a key driver for many as investors sell stock a month before to book losses or gains and then return to the market post April 6th. With the Trump tantrum rhetoric set to continue, it would not surprise many to see sanctions slapped on Iran – or certainly some bluster headlines around it. With a tightening oil market, that could present some sharp spikes higher as Iran’s crude exports currently accounts for around 3 million boepd. If even half of that amount was to be wiped out – the oil market would struggle to meet demand. Over the years, investment has dropped and oil production in OPEC and non opec countries is falling. OPEC’s biggest problem ahead could be in boosting production fast enough to meet the demand rather than worrying about eroding gluts. Certainly one to keep an eye on over the next couple of months as Trump’s June revisit to the old Obama Iranian sanction deal edges ever closer.