HOTLIST 2011 – Testing your Metal.
2011 has all the ingredients of being a very good year for Commodities. Metals are in huge favour, Oil appears set to test $100 and the US Federal Reserve appears bullish/keen to see the sector do well – all looks to be in place for a fine year in Equities.
Thus, in contrast to the 2010 Hotlist, colours have been nailed firmly to the Commodities mast with a clean sweep. If Commodities are not your bag, then look away now.
In demand –
The last quarter of 2010 saw many Small Cap Commodities surge ahead. The last week of trading was particularly strong with many small AIM listed players rising as much as 50% or more. Stunning.
High growth expectations = High risk expectations
Due to the small cap nature of many of the stocks listed below – most are extremely high risk and not for the faint hearted. This is a Hotlist that really is Hot. There is a very LOW chance that all 10 will be complete success stories as many rely on successful exploration/drill programs. It’s possible that you could lose all of the money that you invest.
Investors should consult the Risk Warning section on this website and consult a financial advisor if unsure about any stocks highlighted.
Investors should think through their own individual trading/investing strategies such as entry points and exits points. It’s important to be realistic and take profits when you feel the time is right. As highlighted in the 2010 Results, often opportunities arise from simply ‘waiting’ for the right entry. TRP was a good example. Tipped at 4.38p in Jan 4th, the stock surged ahead in the early weeks due to a Drill that was underway and could have been transformational to the company if successful. Unfortunately it wasn’t to be and the well was abandoned. The Sp tumbled from 4.4p to 1p. This is not typical of all Commodity stocks but generally speaking, any duster or abandoned drill can see heavy corrections. However, these corrections can provide brilliant opportunities to brave investors. TRP is a great example of ‘fortune favours the brave’. Based on success near their licence block, interest returned to TRP as investors started to see beyond the first drill/duster and looked forward to the next one. The sp rose 500% from 1p to 5p. A five BAGGER to some investors with timing skills more attributed to a Swiss Watch.
The lesson to be learned here is to stay focused, do not rush in, do your research and be aware of which stocks are currently drilling and when the results are due. Focus on which exploration drills are up next and where is the key support levels and asset values? Are they fully funded or will they need more cash via placings, rights issues (Ri’s) or Open Offers (OO’s)?
TheShareHub aims to offer insights throughout the year with up-to-date coverage on all the Hotlist stocks. Further to this, the ‘Heads Up’ section will deliver alerts and updates on stocks that catch the eye. In 2010, in addition to the Hotlist, several ‘Heads Up’ alerts were given on many stocks. Xcite (at 40p) and Encore (at 16p) are two that shine through delivering a 10 Bagger and 8 BAGGER respectively.
Hence, sitting on the sidelines and waiting for the “Heads Up’ posts throughout the year, rather than getting stuck into the Hotlist early doors ‘might’ prove just as rewarding.
The last and most valuable thing to remember is to be ‘patient’. This proved the key strategy in 2009 and 2010. If you ask any investor what they feel they could do better – most will simply say ‘nothing’. As odd as it sounds, being active and trading in and out of stocks can be rewarding if you are experienced and good at it. However, the last two years have shown that ‘doing nothing’, simply sitting on your hands and letting the stocks do the work often delivers the best rewards. Determine your strategy early and stick to it or adjust it as you see fit based on the markets ever changing circumstances. If unsure – consult an FSA approved advisor.
Without further ado – here’s the list. Enjoy!
THE HOTLIST 2011
With so many great stocks out there, it’s a tough task picking just 10 of them. All the selected stocks have been selected based on meeting various criteria. This year there will also be an ‘alternative’ stock to look at as well. The Hotlist will be the number one focus, but a ‘subs bench’ or ‘B’ league will also be available. This will offer a fun aspect this year as potentially the B listers could outperform the A listers. Feels like the FA Cup!
First up (by virtue of alphabetical order) is…
1. Anglo Asian Mining (AAZ) www.aamining.com
Gold, Silver, Copper – Explorer & Producer
Risk – MEDIUM
2010 Dec 31st sp 70.75p
Anglo Asian Mining Plc is the only gold producer in Azerbaijan. The company owns the rights to develop six fields in south-west Azerbaijan at Gedabey, Ordubad, Gosha Bulag, Gizil Bulag, Vejnali and Soyutlu. According to their PSC, it is planned to produce about 400 tons of gold, 2,500 tons of silver and 1.5 million tons of copper at the fields.
The first gold and silver were extracted at Gedabey mine in May 2009. In general, it is planned to produce over 300,000 ounces of gold at Gedabey field before 2015. In Dec 2010, the company announced that they had repaid $5.4 million of its outstanding loan with the International Bank of Azerbaijan ahead of schedule, bringing the current loan balance to $29.6 million.
The debt payment demonstrates their cash progress and intention to reduce debt swiftly. If all goes to plan in 2011, it’s possible that all debt will be cleared and profits will be sizable for a company with a market cap of just circa £72mln.
TheShareHub target price for 2011 is 170p.
Alternative pick – Jubliee Platinum (JLP)
2. Beacon Hill Resources (BHR) www.bhrplc.com
Coal, Magnesite – Explorer & Producer
Risk – HIGH
2010 Dec 31st sp 15.75p
Beacon Hill currently has two primary interests; a significant magnesite asset in north-west Tasmania, which has a current defined resource of 39Mt, and exposure to the only producing coal mine in the globally significant coking coal region of Tete, Mozambique.
The Company has a defined development programme in place to advance its magnesite and coal projects towards production in the near term and the Board is actively seeking to acquire or invest in additional projects to add value to its portfolio and benefit shareholders.
The Company’s intention is to increase cash flow in the near term from its producing coal mine in Mozambique, whilst simultaneously expanding the current underground mining operation, which produces approximately 8,000 tonnes per month. Longer term objectives are to establish a large scale open cut operation to produce approximately 4Mtpa ROM coal by Q1 2012, capable of generating annual revenues of approximately US$200 million at current coal prices. Beacon Hill’s additional asset its significant magnesite project in north-west Tasmania, which is currently being developed with first production scheduled for Q4 2011. This will provide the Company with additional cash flow and facilitate the appraisal and potential acquisition of additional businesses or projects which meet the Company’s stringent investment criteria.
A recent placing at 12.5p suggest II’s see much higher value in BHR which is something that is easy to agree with when you view their assets and the rising Coal prices globally. This is an exciting stock with great promise.
TheShareHub Target Price for 2011 is 36p
Alternative pick – Xtract (XTR)
3. Bowleven (BLVN) www.bowleven.com
Oil & Gas – Explorer & Producer
Risk – MEDIUM
2010 Dec 31st sp 379p
Bowleven is a West Africa focused oil and gas group, based in Edinburgh and traded on AIM since December 2004. It holds equity interests in offshore and onshore exploration acreage in both Cameroon and Gabon.
Bowleven holds a 75% equity interest in the Etinde Permit, being three shallow-water blocks offshore Cameroon, West Africa: namely blocks MLHP-5, MLHP-6 and MLHP-7. The Etinde Permit comprises approximately 2,316 km² of exploration acreage located across the Rio del Rey and Douala Basins. As well as P50 and contingent resources on block MLHP-7, the acreage has very attractive exploration potential.
Bowleven also holds a 100% equity interest in the Bomono Permit, onshore Cameroon, extending to approximately 2,328 km2 in the Douala Basin. Bowleven holds its interests in its Cameroon operations through its wholly owned subsidiary EurOil Limited.
Drilling Operations on Sapele-1
On 9 November 2010, Bowleven announced that the Sapele-1 exploration well drilling in the Douala Basin in block MLHP-5 of the Etinde Permit offshore Cameroon, had made two potentially significant hydrocarbon discoveries in Miocene reservoirs, based on the results of drilling and initial wireline logs and pressure data.
As stated in that announcement, the revised preliminary in-place volumetrics on a P90 to P10 range were estimated to be 40 to 290 mmbbls for the Lower Omicron discovery or, in the event that the hydrocarbons at that interval are determined to be gas condensate, 75 to 595 bcf, and for the Deep Omicron discovery 55 to 380 mmbbls.
On 25 November 2010, Bowleven announced that the Sapele-1 well had encountered further log evaluated hydrocarbon pay in the Miocene reservoir objective, taking the estimated range of net pay across the Omicron discoveries to 31 to 43 metres.
The Aim-listed company is currently drilling the main part of Sapele1 and it’s fully financed to fund multiple wells this year thanks in part to a $113m (£74m) fund-raising at the end of 2010.
Kevin Hart the former finance director of Cairn Energy is leading a fine business and is well respected in the City.
TheShareHub Target Price for 2011 is 790p.
This could be revised upwards if the current drill in the Sapele1 Creatceous targets proves successful.
Alternative pick – Rockhopper (RKH)
4. Caza Oil & Gas (CAZA) www.cazapetro.com
Oil & Gas – Explorer & Producer
Risk – HIGH
2010 Dec 31st sp 44.25p
Based in The Woodlands, Texas, Caza Oil & Gas, Inc. is engaged in the acquisition, exploration, development and production of hydrocarbons in the Texas Gulf Coast, South Louisiana, Southeast New Mexico and the Permian Basin of West Texas regions of the United States through its subsidiary, Caza Petroleum.
In November 2010, Caza raised £18.9 mln through a placing at 42p per share. Dual listed with Canada’s TSX, it is isable. Due to dual listing, no stamp duty is incurred with this stock.
On Dec 8th, the Company executed a drilling contract with Nabors Drilling USA, LP to utilize Nabors Rig 4 to drill the Marian Baker #1 well on Arran Prospect to a total depth of approximately 16,000 feet beginning on or around December 18, 2010. Arran is regarded by the Company to be a multi-segment prospect, with prospective reservoirs supported by AVO data within a proven play fairway. The Marian Baker #1 well is expected to encounter multiple, potential, hydrocarbon bearing reservoir sections. Caza will update the market accordingly when the well spuds.
On Dec 15th the company commenced production on the OB asset. Initial production rates through the permanent facilities are approximately 2.48 million cubic feet of natural gas per day, 400 barrels of oil per day and 190 barrels of water per day in total. The well is producing on a 9/64th choke at 6,100 pounds per square inch flowing tubing pressure and still has approximately 750 barrels of fracture fluid to recover. The production rates are being closely monitored, and Caza will provide an update once the rates and flowing tubing pressure have stabilised.
2011 looks an active year for Caza and the recent cash raised at 42p shows keen II interest. All eyes on the Arran prospect in Q1. Success at Arran would de-risk Tiree which is significant.
TheShareHub Target price for 2011 is 120p. This could be revised upwards based upon future discoveries.
Alternative pick – Range Resources (RRL)
5. Firestone Diamonds (FDI) www.firestonediamonds.com
Diamond Miner – Explorer & Producer
Risk – MEDIUM
2010 Dec 31st sp 32.25p
2010 was busy year that saw Firestone merge with Kopane Diamonds creating a much larger company with much greater prospects. The combination of the merger and a recent placing has weighed heavily on the stock as it moved towards its first ever production sale. With 2010 behind them, Firestone can look forward to an exciting 2011 where production is expected to double swiftly and cash flow could be significant based on the first auction price sale which fetched an average carat price of $98.
The Company plans to hold nine tenders in 2011. The average size of the BK11 tenders is expected to be approximately 12,000 carats, and the average size of the Liqhobong tenders is expected to start at approximately 15,000 carats, increasing to 50,000 carats by Q4 2011.
II’s have been building stakes – Audley raised their holding above 5% recently.
There’s nothing like increased production numbers and increasing diamond prices to get investors excited.
TheShareHub Target price for 2011 is 85p.
Alternative pick – Stellar Diamonds (STEL)
6. Gulf Keystone (GKP) www.gulfkeystone.com
Oil & Gas – Explorer & Producer
Risk – HIGH
2010 Dec 31st sp 168.5p
Gulf Keystone is an independent company whose focus is on exploration in the Kurdistan region of northern Iraq. In November 2007 Gulf Keystone secured interests in two production sharing contracts in the Kurdistan Region of Northern Iraq, Shaikan and Akri-Bijeel. In 2009, the Company diversified the asset base in Kurdistan with the addition of two new Production Sharing Contracts, Sheikh Adi and Ber Bahr. This region has the potential to be a world class hydrocarbon province and Gulf Keystone believes it is well positioned to seek out further growth opportunities.
In 2009 GKP struck oil with their Shaikan Discovery and currently have oip numbers near 4.2bln based on p50. Currently 2 drills underway in SA-1 and SH-2. Both could increase oip numbers significantly. News is due early this year on recent SH-3 well including seismics plus production news too. Recent legal dispute has knocked the stock slightly and adds to the risk although BoD are confident it is without merit.
There’s no doubt it – GKP have made one of the most significant oil discoveries of the last decade. It’s now a race against time for them to firm up the Shaikan discovery through several appraisals. A move to the FTSE 250 has been on the agenda and this may come to fruition in Q1 2011. Key turning points in 2011 include SH-2 results and Iraq oil ministry inclusion/approval of all Kurd contracts/PSC’s expected before July 2011.
GKP was previously included in the 2010 Hotlist – finishing in second place.
TheShareHub Target price for 2011 is 550p.
Alternative picks – Heritage Oil (HOIL)
7. Herencia Resources (HER) www.herenciaresources.com
Zinc, Silver, Lead, Gold – Explorer
Risk – HIGH
2010 Dec 31st sp 3.725p
Herencia Resources plc is a mineral exploration and development company listed on the Alternative Investment Market (‘AIM’) of the London Stock Exchange with a primary focus on developing its Paguanta zinc-silver-lead-gold Project in northern Chile.
Herencia is fully funded for 2011 to commence a Feasibility Study for the proposed Patricia Mine (Zn, Pb, Ag and Au), with the goal of bringing Paguanta into production by 4Q2012. Funds will also be used to undertake drilling at the exciting “Doris” copper-silver prospect and the ‘La Rosa’ porphyry-copper target plus infill/step out drilling of the Patricia Mineral Resource.
Herencia has the backing of the global zinc group Nyrstar in addition to some well known London institutional groups.
2011 looks an exciting year for Herencia with Doris prospect likely to hit the headlines. The planned program will involve drilling of the ‘Doris’ prospect (targeting the high copper and silver grades seen on surface), the ‘La Rosa’ prospect (where the porphyry-copper potential will be the target) and ‘in-fill’ drilling of the ‘Patricia’ Mineral Resource with the aim of upgrading the Inferred Mineral Resource Estimate and collecting metallurgical and geotechnical core samples.
A diamond drilling rig is currently scheduled to mobilise to site during the 4th week of February 2011 with drilling work set to commence at Doris by the end that month. Once operation of the first rig has been established, it is planned to mobilised a second drill rig to site, possibly in April 2011.
In relation to the Feasibility Study, the Company is pleased to advise that Golder Associates (“Golder”) will commence their Study work during 1Q2011, with selected study components also starting in 2011.
Managing Director Michael Bohm stated “as seen in early 2010, our goal is to again hit the ground running at Paguanta. The Feasibility Study at Patricia and the Drilling Program, initially commencing at Doris, will mark a new chapter for the Project. Subject to meeting our planned mobilisation timetable we would anticipate first drill assay results from Doris sometime in April 2011.” END.
TheShareHub Target price for 2011 is 9.5p.
Alternative picks – Nyota Minerals (NYO)
8. Ithaca Energy (IAE) www.ithacaenergy.com
Oil & Gas – Explorer and Producer
Risk – MEDIUM
2010 Dec 31st sp 169.75P
Ithaca has built a diversified portfolio of exploration, development and producing assets through participation in the last four United Kingdom Seaward licensing rounds and through asset acquisitions. This diversity is evidenced by properties in different geographic areas, encompassing multiple play types (both oil and gas), while maintaining a close proximity to producing fields in proven petroleum systems. Ithaca UK’s interests range from 16% to 100% in 26 blocks or partial blocks under 14 licences covering more than 203,600 acres.
ITHACA heads into 2011 fully funded and cash rich with no debt. Production is expected to reach 22kbopd in 2013. The company is currently one of the cheapest in the North Sea based on 2p reserves and 3p/assets.
Further acquisitions could come in 2011 which would add more depth to assets. If oil can stay around the $90 to $100 mark next year, Ithaca will be generating significant cash flow. Dual listed on TSX, Ithaca is isable and trades with no stamp duty. Ithaca was previously included in the 2010 Hotlist – topping the list.
TheShareHub Target price for 2011 is 275p.
Alternative picks – Valiant Petroleum (VPP)
9. Max Petroleum (MXP) www.maxpetroleum.com
Oil – Explorer and Producer
Risk – HIGH
2010 Dec 31st sp 18.25P
The Group’s strategy is to significantly grow its reserve base through the exploration and development of a diversified portfolio of shallow, post-salt and deeper, pre-salt prospects high graded using approximately 5,000 km2 of exploratory 3D data acquired over the Group’s extensive onshore acreage position in one of the most prolific petroleum bearing basins in the world.
Debt and future funding is their biggest hurdle in 2011. They have 3 x 4 way drill prospects due to be drilled in Q1. These have high CoS compared to previous drills. UTS results are expected soon and could surprise to the upside. Management had previously announced that early discovery was ‘significant’.
Further success on the last 3 drills will essentially ensure a better funding/placing price which is inevitable. The deep prospects are mouth watering and it’s possible that MXP could go alone on these with no farm outs. Much depends on funding results.
2011 is a make or break year for MXP. The first quarter of 2011 is crucial and if they can get towards a spud of the deeper prospects without too much dilution, then the upside potential is staggering.
TheShareHub Target price for 2011 is 55p.
Alternative pick – Dominion petroleum (DPL)
10. Nautical Petroleum (NPE) www.nauticalpetroleum.com
Oil – Explorer and Producer
Risk – MEDIUM
2010 Dec 31st sp 396p
Nautical Petroleum plc intends to become a significant producer of heavy oil, initially in the United Kingdom Continental Shelf (UKCS) and in Europe.
Our aim is to secure further heavy oil discoveries in the UKCS and EU through acquisitions, farm in’s and licensing rounds. We aim to achieve near term production on current assets and enhance crude value and mitigate risk through our relationships. We will acquire heavy oil exploration blocks with low to moderate commitments and farmout to mitigate portfolio risk, with the overall aim of enhancing shareholder value.
Recent successes in the North sea in 2010 have seen Nautical move from minnow to possible mid cap player. News is expected early next year on the oip estimates for Kraken – their heavy oil prospect. As seen by Xcite energy recently, Heavy oil can flow well and sells for just a 10% discount to lighter oil.
Currently NPE is a partner in the Encore operated drill of the Varadero prospect which is related to the significant Catcher discover made in the summer of 2010. TD is expected with the first week of January. If successful, it will increase the OIP numbers significantly and enhance the drill program to further wells. If unsuccessful – the rig will move back to the Catcher prospect and appraise the 2010 discovery further – this is thought to be a ‘banker’ as the CoS is high.
At 396p, Nautical are well supported through cash balance, assets and minor existing production. There is plenty of room for the upside case based on future success.
TheShareHub Target price for 2011 is 700p.
Alternative pick – Encore Oil (Eo.) or Excite Energy (XEL)
Finally, remember the previous 2010 hotlist is far from redundant and many stocks featured on there still have a long way to go in ‘some’ instances.
Further ‘Heads Up’ alerts will be issued throughout the year, so if you miss entry into the Hotlist or the ‘B’ list, don’t worry – there should be plenty of other stocks to focus on as the year unfolds.