ShareHub Hotlist 2019 Review – Week 09

A quiet week with Trump Korea talks taking the headlines. Markets appear to be treading water ahead of the much awaited China / US trade tariff discussions. With the DOW at lofty heights already, much looks priced in. Should further delays occur or the mood music change significantly, markets could be set for a hefty sell off. Global growth has slowed dramatically over the last 3 quarters largely due to Mr Trump’s trade war with China. Assuming Trade talks end amicably, global growth is expected to be modest at best. China have already downgraded growth projections to around 6% to 6.5%. That’s still extremely strong in the context of other leading economies. The chart below shows how the decline is expected to continue over the next 3 to 4 years.

China GDP growth rate 2011-2023 Statistic. Source: Statista.

Last weeks US oil inventory report showed another rise of 100kboped to 12.1mboped. US production is flying high. In Feb 2018, US production was 10.2mboepd. In just 12 months, US production has risen a dramatic 2mboepd. If it wasn’t for Venezuela’s woes, Oil prices would be under heavy selling pressure as supplies continue to flood the globe against a demand backdrop that looks stagnant at best. With US growth set to slow too (assuming reductions in fiscal stimulus policy), OPEC will be hoping that US shale is at peak levels. The problem for OPEC (and RoW) is the level of confidence in the US production figures in the first place. Many have suspected for sometime that these numbers are not quite what they seem. It might take another 12 months+ to test the US production peak production theory which is based more upon infrastructure constraints. It’s unlikely that OPEC will be changing course on recent cut levels/quotas while US production rises. It’s a wait and see game for now but with supply/demand balance very close to an even bias, any global risk, such as unrest in MENA region or with India/Pakistan issues could have dramatic effects on Oil prices. Trump’s lack of sanctions on Iran is also weighing on investors minds. It’s a delicate issue at present and the market is not pricing in any premium for a global risk events.

Market sentiment towards Oil and Gas E&P’s is weak at present. Many large institutional holders are staying away from risk assets. But not all. Schroders bought a sizable stake in Columbus Energy (CERP) last year at 5p and more recently at 3.5p. With the stock currently trading at 2.4p, it shows that Schroders (like many) often time their entry points wrong. But if all goes to plan with CERP, 2019 should be the year the company transforms itself albeit with the drillbit. With stock supply low, it often only takes a few high trading volume days to see the prices double and return to 5p again. Columbus investors should be due an update from the company at the end of March (3 weeks time). Many will be keenly looking for confirmed dates and plans for a summer exploration well in the SWP region, Trinidad. CERP is part of TheShareHUB picks for 2019.

Elsewhere among the 2019 ShareHUB picks, AMER and PMO edge closer to revealing news on their respective exploration wells. Watch out for news coming over the next few days on the above.

The 6 mining picks in TheShareHUB top 10 are struggling to find interest. Many have traded flat for the last 2 months. Petra Diamonds being the worst performer after a poor update and heavy hit from the rising RAND. SOLG remains TheShareHUB’s top pick for M&A this year. With the likes of Newmont, BHP, Barrick and others all doing their best to try and eat each other up, SOLG has attempted to bolster itself against cheap predatory offers by offering to take over Cornerstone Capital Resources 15% stake in their Cascabel copper-gold project, Ecuador.

It’s a smart move but will Cornerstone play ball? Will BHP or Newmont offer Cornerstone a better deal? Certainly one to watch.

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