Cora Gold – Ops underway

 

Cora Gold IPO’d on AIM just a over a week ago and based on today’s news, they are not hanging about and putting their £3.45m cash raise to work with speed.

The West African focused gold exploration company, announced it has entered into a contract with Target Drilling SARL for drilling services at its Sanankoro gold discovery, in Mali.

Jon Forster, CEO of Cora Gold says, “Target Drilling has a track record of working in partnership with exploration teams and we look forward to a productive relationship. We are eager to commence exploration at the exciting Sanankoro gold discovery as soon as is practical as we believe it has the potential for a standalone mine development.” END.

Mr Forster will know only too well that he’s going to need at least 1 million ounces of in-situ gold to create a standalone mine. That’s certainly possible but it’s not the end of the world if they fall short of that commercial tier as Hummingbird Resources have Yanfolila production / processing facilities nearby. Just like the recent AGG deal signed with Hummingbird, materials can be trucked economically (tbc upon AGG deal completion) from the pit to HUM’s processing facilities. Investors that follow HUM will also know that HUM owns approx 34% of Cora Gold after spinning the exploration assets out of a previously owned 50:50 venture. In reality, the upcoming exploration phase at Sanankoro is in fact ‘resources’ in the making or waiting for Yanfolila. Of course, it may end up that Sanankoro delivers over 1 million ounces but even then the economics are going to be tight compared to the cost savings potentially involved by simply using Yanfolila. An interesting stock to watch whether you are a HUM investor or not. Cora Gold has plenty of merit as a standalone investment and with a market cap of circa £9m there is room for upside should the exploration phase prove successful. More importantly, the route to commercialisation is there for all to see. And that’s ‘potentially’ a huge USP for a small miner like Cora.

The drilling programme is expected to commence at the end of November 2017 with a total of 15000m, made up of aircore, reverse circulation and up to a further 1000m of diamond core. Drilling is expected to conclude towards the end of Q2, 2018.

Current share price 15.75p. Market cap circa £9m. Current cash approx £3m+.

Share Hub Hotlist – Week 41

Not a great deal of action over the last week and a bit of consolidation across many stocks which was much needed after some pretty decent rises.

Commodity prices continue to show signs of strength and despite the contrarian reaction to hefty Draws in oil supplies, the market is beginning to ‘fear’ the upside potential vs the downside. There are times to be bearish and times to be bullish. After 2 years+ of oil rebalancing acts via OPEC and the Russian’s, we might not be too far away from hitting the point whereby we start fretting about not having enough supply to meet demand. Markets used to be sophisticated but are now quite dumb. This means you get exaggerated moves in both directions. In PoO’s case, the possibility of PoO over running its true value is highly likely. A break of $60pb (brent) has not been seen since Q1 2015. Hence, it’s a long time coming and when it arrives (and I believe it will) it should test $65pb (the previous highs set in (Q1 2015). Other factors come into play which effect prices such as forex/dollar movements. The dollar is seen as weakening over the next few weeks/months which is normally a bullish indicator for crude. How long it can hold above $60pb is anyones guess (in this crazy market) but the Saudi’s look like they mean business and the Russian’s keen too.

The next big OPEC meeting is set for Nov 30th. However, it is widely expected that preliminary discussions will occur prior to the big event suggesting that a deal could be hammered out/agreed in the coming weeks. Compliance amongst OPEC is still a key piece in the jigsaw and this meeting will no doubt make that point very clear to all attending. At present, the market looks like it could handle a continuation of the current cuts to March 2018. Any mention of extending cuts beyond March 2018 could see a strong swing higher for PoO. Certainly an issue to keep an eye on if you have producing Oil companies in your folio (especially debt heavy ones). Metals look strong too which is the main reason why the miners have been so strong of late. Gold is normally the go-to precious resource when volatility and risk rises in the markets. There’s certainly plenty of concerns out there (North Korea/Iraq/Russia/Brexit/Spain/US/Iran the list goes on, yet the market (still acting dumb) doesn’t want to entertain it. It will be interesting to see what happens to Gold when the herd come rushing in should one of those potential risks become something that cannot be ignored.

The Telegraph picks looking strong but as mentioned earlier, it’s a case of much of the same for week 41.

Good progress on CERP, AMER and PANR (3 heads-up stock picks of last few weeks). All have busy news periods in Q4 which should provide the catalysts needed to keep the momentum going and share prices higher… assuming the news is good of course.

Week 1 to 41 – Current position

Anglo American – Another Porsche in the making?

Anglo American (AAL) is a heavyweight FTSE100 player. Historically, these big conglomerates with market caps of multi-billions would swing around with commodity prices (as you would expect) but also on broader market sentiment. But if you take a look at the last 2 years, the story for AAL looks more like an AIM listed penny share. It’s worth taking a closer look purely to understand the huge money flows involved and to appreciate just how crazy today’s markets have become.

Starting off, lets look at the 5 year chart below. Also for comparison, FTSE100 chart below.

In the good old of days of 2011, AAL reached circa £34 a share. Then the commodity bubble popped around 2012 and by 2013 the stock was trading at circa £20 a share. As the slump continued, the stock dipped to £10 per share in mid 2015. By Early Jan 2016, the stock was at 220p a share. For a mammoth company like Anglo, the fall was massive. That’s £34 down to £2.20 a share in the space of 4.5 years. So if you needed a valuation example to understand just how bombed out the commodity sector is then look no further than this bellwether. In comparison the broader FTSE100 index falls were modest although clearly there is a defined relationship, which is kind of what you would expect.

Now, lets look at the declared ‘short positions of 0.5% or more’ chart as below:

As you can see, the short positions were relatively low in the periods from 2013 to late 2015. That’s a little odd as on a comparable basis AAL dropped from £20 to £10 per share. A spike in short interest kicked in around Nov/Dec 2015 and lasted for about 3/4 months. During this period, AAL traded from around 750p a share to a low of 220p a share in early Jan 16. As shorts closed out, the price rebounded to 800p a share. Not far off a 3 bagger. Not bad for a multi billion pound company. That’s about £6bln in cash exchanging hands (and that’s being conservative) unlike the £60m type level swings on an AIM stock.

Now here’s the interesting part. Between March 2017 and today, short exposure (above 0.5%) has increased from 1.5% to a whopping 9%! That’s twice the level of short exposure used in Dec 2015 which helped pushed the price down to 220p.

So how how has that worked out for the shorters over the last 6 months? Answer: Not very well at all. Infact, it looks terrible. Anglo has risen by roughly 35% and that’s against a huge shorting campaign. Just imagine where it would be if it hadn’t had 9% of it’s stock shorted? Here’s some numbers… in the last 6 months Anglo has seen a massive increase in short exposure to 9%+ (just the 0.5% or over positions, there will be more smaller short positions in the market). In cash terms, that’s close to £2bln on the line here. Compare this to the 35%+ rise that has ocurred and it’s not far off £700m in potential losses. I say ‘potential’ because the trades are still open and who knows what awaits around the corner? But for the moment, you have to blink a few times just to take the numbers in here. For a FTSE100 player, it makes many AIM minnows look sedentary. It’s not the only example. Glencore (double the size of AAL) has pretty much the same story although short exposure on GLEN is near zero today. The mind boggles, but ti wouldn’t be the first time the cty shorters got caught out with massive losses. Porsche/VW is still one event that many remember fondly and others not so well.

It will be interesting to see how the short situation unfolds over the coming months. But as more short weights are added, the price keeps doing the opposite and just goes on rising. That’s got to be hurting a few. Now… if another conglomerate was to bang in an offer for AAL of £30 a share tomorrow, then that really would be a Porsche event repeated and one that would make toast of quite a few of the below:

In summary, the AAL case example helps provide some insight into how the market gets it right and wrong. But more importantly, it shows the commodity bubble low point and the recent recovery. Metal prices and Oil prices have risen strongly. So it is no surprise to see Glencore and Anglo recovery. But what about the midcaps? The Tullow’s, Petrofac’s, Enquest’s and Premier Oil’s are all trading at levels signifcantly below March 2017. Here’s an example:

March ’17 AAL share price 1130p (approx) Oct ’17 AAL share Price 1466p (+30%) And that’s with 9%+ short 0.5% or above weighting.

March ’17 TLW share price 280p (approx) Oct ’17 TLW share Price 188p (-33%)
With 7.7%+ short 0.5% or above weighting.

March ’17 PMO share price 60p (approx) Oct ’17 PMO share Price 65p (+8%)
With 8%+ short 0.5% or above weighting.

March ’17 ENQ share price 41.5p (approx) Oct ’17 ENQ share Price 25.5p (-38%)
With 8%+ short 0.5% or above weighting.

So watch out for the midcaps/smaller caps. They are long overdue a recovery to rival their bigger bellwether peers. But equally, you can’t write off shorters being correct and AAL retraces back to 0% levels or worse. In an event like that I would expect the FTSE100 to take a hefty hit too. And with Santa rally season not far away, that’s looking hard to imagine in a market that does like a christmas bonus. Finally, the smaller miners are showing a touch of the AAL’s or GLEN’s about them of late with strong interest returning and share price’s multiplying like it’s 2009 again. It’s certainly a market of ‘opportunity’ out there right now. Not without significant risks of course.

ShareHub Hotlist 2017 – Week 40

The Telegraph picks are steaming into what looks like a nailed on victory. TheShareHub picks can take some glory in notching up a multibagger in 2017 (all down to the HUM team) but the rest of the picks really need to pull their stocks up. It’s tricky out there at present. Investors are taking risks with O&G companies in a volatile market yet gaining very little reward against the recent PoO recovery. Tullow, a popular bellwether for the sector have done nothing wrong yet still trade in the 180’s which is odd considering the price was 300p+ just 10 months ago when PoO was $52 (Just $3 shy of today’s prices). There are other examples out there which show ‘selective’ buying/building by the bigger money players. Looking at the super glom’s as I call them, Anglo American and Glencore, both are doing very well in 2017. This time last year, Glencore was 220p. Today its 364p+. Anglo A. was testing the 1000p level in Oct 2016. Today it’s testing the 1500p zone. These moves in prices are not in the millions but in the billions. Last time I looked Glencore was worth around £53billion! So how does the market happily add £17billion (50%+) to Glencore’s cap yet struggles to price Tullow at over 200p or Premier Oil at 100p+. It’s a puzzle. Surely it’s not too much to ask to see some sensible valuations return to the debt heavy companies like Tullow, Premier Oil and Enquest to name a few? Perhaps the next 3 months or 6 months could be their time? For the moment, the smaller caps / penny shares are showing signs of decent money flows again. Bolstered by some astonishing multibagger successes like FRR, EME and UKOG, the private investor is beginning to make their weight known again. Long may it continue.

Outside of the top ten picks, TheShareHub gave ‘heads ups’ on CERP (3.9p, now 6.45p), PANR (45.5p, now 59.5p) and AMER (19.75p, now 19.5p) recently. The first two have performed well and should continue to do so over the coming weeks assuming newsflow is good (and there should be plenty of it). AMER (like Tullow) seems to have been forgotten and left behind. It’s still trading at levels that were last seen when PoO was in the 30’s and their production was half the 7500bopd it is today. AMER is debt free and cashflow positive. It really shouldn’t be treated like a Tullow. Still, it only takes a few days corrective trading and AMER could be 26p/27p again without anyone batting an eyelid. That’s todays crazy market for you! Sloppy? Complacent? It’s like the brokers and analysts have finally given up the ghost or are just tired of trying to price stocks fairly. As mentioned before, it’s more a case of ‘show me the money’ than ‘we’ll price in some good news’ ahead of forecasts. Markets are not looking forwards very much of late, and appear to be simply taking each day as it comes. This environment tends to leave valuation gaps or disconnects between share prices and fundamental valuations. Finding and exploiting those gaps is the number one game. Today’s news that Schroders have taken a near 10% holding in CERP is a good sign for all tired commodity small cap followers. It might be a one-off or it could be the beginning of a new cycle which sees the bigger money players returning to speculative small cap players which are undervalued and have great assets. The funding market may still be tight, but if it does open up again, then minnows like WRES.L should rerate. It’s access to funding / capital that is holding many of these minnows back.

As per usual, not without risk and nothing is a shoe in these days. Roll on next week. It’s beginning to feel a little better out there across the commods.

Columbus Energy Resources – Gets a bit of nitro from Schroders

News out this morning from CERP’s announcing an institutional placing agreed with Schroders for £3m at 5p a share. An open offer has also been launched to ensure all shareholders can partake in some form on a 1 for 31 basis (although you may get more than your quota via excess applications).

I don’t normally get excited by placings which come at a 17% discount to closing price. But getting a large respected holder like Schroders on board is no small feat for a small cap. It’s testament to the management team and the chairman in particular that they have managed to secure these funds.

It wasn’t that long ago that management were discussing the prospect of being cash flow positive. This was being driven by boosting small field production of which there are around 160 wells which can be ‘boosted’. Thus far, the company has increased production from some wells by 10 fold. Yes we are talking small stuff from the outset but taking a 6 barrel a day well and turning it into 60 barrel a day producer is massive for a company with such low barrel costs (roughly $5pb, although additional opex and G&A need to be considered). If CERP can do this across their licence with 160 wells, just imagine the production increases and cash flow potential. And that’s just one licence. The company has deep prospects as well as other resource potential in other licences.

Prior to this placing deal, it may have taken the company several months before being able to accelerate the production and ops program. Positive cash flows would have enabled a slow development of the wells. With £4m+ in the sky rocket (pocket) CERP is now super charged to enhance production with greater speed and potentially drill a deep well which could deliver sizable increases in mmboe resource.

Columbus Energy is certainly reborn. The future looks bright indeed.

Current price 5.8p.

CERP.L previously given the ‘heads up’ on thesharehub 3 weeks ago at 3.9p a share. See previous post here.

W Resources – One to watch

W Resources. Current Price 0.38p.

This morning WRES.L confirmed a capital raise of approx £1m at 0.375p a share. The chairman dipped in his pocket (not for the first time) and took on £100k himself.

Mr Masterman is not the type of man to invest lightly and has an exceptional track record in establishing and financing new resources companies. He completed the US$1.15bn sale of a 31% interest in the Fortescue Metals Group’s majority – owned FMG Iron Bridge iron ore company to Formosa Plastics Group. Following 9 years at McKinsey, and 8 years as an Executive Director of Anaconda Nickel, he has been a founding shareholder at Fortescue Metals Group, Po Valley Energy and Atacama Metals.

Now, I will confess that I am no specialist when it comes to Tungsten (although I do confess to owning a very nice set of Tungsten darts) even a novice can see the rising demand in the metal up from US$190 / mtu (concentrate) in late Dec 16 to levels near $300 / mtu today. This is clearly significant to a small miner like WResources and surely increases their chances of raising the $30m required to advance the mine operations to 2,700 tonnes of tungsten concentrate and 500 tonnes of tin concentrate per annum.

The company reminds me a little of the early stages of Hummingbird Resources (a Gold miner). WRES small market cap reflects a company with a great asset but a low chance of being able to fund it. Hummingbird was in a similar position in Q3 2016 but were able to get that vital $60m loan agreed. WRES have calculated they need just $30m and that the project should breakeven in year 2 which suggests with prices where they are currently, it will be generating significant cash flows for a minnow miner.

Like Hummingbird Resources, the development is likely to take 12months+ from funding deal. Of course, sharehub readers will know that Hummingbird are now just under 3 months from first gold pour. The share price has almost doubled from Jan 2017 prices and looks like doubling again once the cash rolls in. All small miners carry huge risk and until they get funding in place are relatively cheap compared to the in-ground resource value. Hence, Mr Masterman (what a great name!) may well be sending a message to investors with this recent equity raise. The sum is not much in the grand scheme of things but it may well prove to be the precursor to offtake deals and the final $30m debt agreement. Finance companies have a habit of wanting to see some ‘skin’ in the game from management and Mr M has certainly shown that confidence. In this mornings RNS WRES hints at the staged progress to finance Eg; Sign customer contracts, then get funding…

W is also pleased to announce that it has identified two large investment grade customers for approximately 80% of its planned T2 production of 2,700 tonnes per annum of tungsten concentrate. A Letter of Intent (“LOI”) has been signed by one of the potential customers and a further LOI is expected to be signed by the second potential customer shortly. W’s intention would be to convert the LOI’s into formal contracts in Q4 to provide support for the proposed debt financing announced with the interim results.

Q4 is the company’s target for final debt deal. If they get formal contracts sorted, then I would hedge a guess the funding package will follow. According to the company this will not involve any equity dilution, although today’s small placing does go against that …. although it is minor. In fact, it looks a little like ‘nest feathering’ to me. Look no further than the Frontera Resources CEO (0.09p placing – price now 0.7p) for an example of how to ‘line ones pockets’ before the big events take place!

W Resources has plenty of potential and I would urge sharehub readers to spend sometime looking into the business, including usual risks etc.

If they do get funding secured, then 2018 could certainly be a year of multiple share price progress for this little minnow.

WRES.L is on the short list for TheShareHub’s 2018 top picks.

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