Petra Diamonds – A Rough diamond that should polish up well

Petra Diamonds (PDL) has certainly been in the wars of late. Issues with ‘Sales Parcels’ being held up, tough challenges from labour strikes and the strengthening Rand are the main points of concern. Oh… and that $650m debt pile of course! But even taking the above into consideration, does a near 100p knocked off the share price over the last 12 months justify the fears? PDL’s core businesses/mines are performing very well. Record volumes and lower capex are hardly good news stories to ignore. The business and sales throughput is strong. Which just leaves the other niggles to worry about. Assuming the Rand begins to work in PDL’s favour (even marginally) and the ‘Sales Parcel’ issue gets resolved amicably – the debt situation should sort itself out. The company is expected to reduced debt to a range of $560 to $600m by end of H1. Further details on 2018 capex plans and potential operational savings are expected to be revealed when the company issues interims on Feb 19th. That’s just 5 days away, so not long to wait.

For investors that like a recovery story based on strong fundamentals rather than market casino algo bots… PDL might be your answer. The business looks robust but significant near term risks remain. Resolve those issues and the recovery to 100p+ should be fast. And remember, diamonds are forever.

The ShareHub initiates coverage on PDL (part of the ShareHub ‘Heads up’ calls for 2018) with a share price target of 130p.

Based on current share price of 68.3p, that’s within a hair of multibagger potential with a serious sparkle. No guarantees of course so please read the risk section in the side panel.

Petro Matad excites with high impact 2018 exploration schedule

Each year the small cap minnows take to the stage hoping to strike big. Funding is the first big barrier and with farm outs even eluding the likes of Hurricane Energy after making a number of huge discoveries, it’s not easy getting exploration (let alone development) underway in a market that to date has not needed to take much risk to make alot of money. But signs are there now that after 2 years of OPEC Oil glut management, and 6 years of free QE bluechip injected fluff, institutional investors are begining to look at riskier plays to kick start their high growth plans. PetroMatad’s RNS this morning reveals a fully funded 100% interest owned exploration plan for 2018 which offers investors a front seat at one of the most attractive high impact drilling campaigns on AIM this year. This is not a one drill wonder. There are 4 drills planned. Each one different and offering greater or lower risk/CoS (chance of success).

Investors have had to wait a few years for this campaign and it’s been far from straightforward. BG had initially agreed a farm out deal with MATD but later was forced to pull out after a root and branch cull of exploration by their new owner Shell. This is not uncommon and the likes of Ophir Energy are also feeling the brunt of Shell’s often slow and deliberate progress in Tanzania. BG and Ophir were going great guns until Shell came along. For MATD, it was now all about going it alone. Brave and not without dilution, the company raised $16.8m at 6.5p in January 2018. Funding now secured, it’s full steam ahead on 4 x exploration targets.

Today’s RNS hints that the earliest time any spud will occur on the first prospect ‘Wild Horse 1’ will be mid April 2018 and the latest possible would be circa June 2018. The drilling season closes down in Mongolia around end of November, so MATD will be keen to get on and drill the 4 targets swiftly. A second rig is being sourced for the 2 x drills planned for H2 on Block XX so it’s possible that they could have 2 drills underway at the same time subject to the timelines/drilling durations with the Sinopec Rig 4518.

Key catalysts near term are clearly the Seismics data which is due shortly and the environmental permits with the latter being the last barrier to spudding the first well.

In 2017, TheShareHub picked Providence Resources as a potential summer “heads up’ blockbuster after it revealed 2 x drills back to back in the Celtic basin. The share price was circa 9p and moved up to pre-TD levels of 20p notably some 4 months ahead of the planned Spud date. Unfortunately for PVR, the Seismics were off and nothing of significance was discovered. And that’s exploration for you. Mother nature has never made it easy for explorers. That said, with 4 x drill opportunities in 2018, MATD have essentially given share holders 4 lucky attempts to strike black gold. At today’s price of 7.125p, it might be worth getting the ‘early doors sleeping bag’ and ‘tent’ out if you want to secure a good seat – centre stage. Look out for upcoming Seismics and environmental permit news. Not for the faint hearted and clearly a punt, but at today’s share price levels, one or 2 drills look priced in for free.

The ShareHub initiates coverage on MATD (part of the ShareHub ‘Heads up’ calls for 2018) with a pre-TD share price target of 19p.

Current price 7.125p

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RNS Number : 6423E
Petro Matad Limited
13 February 2018

Operational Update

Petro Matad, the AIM quoted Mongolian oil explorer, is pleased to provide an operational update for its planned 2018 work programme:

Highlights

  • Completed a US$16.8 million fundraising to execute a four well drilling programme on the Company’s acreage in 2018, with the first well, Wild Horse-1, planned to spud in Q2 2018 using the previously contracted and fully certified Sinopec Rig 4518
  • Making progress to source a rig to drill the two well programme in Block XX in H2 2018
  • Processing of the 2D and 3D seismic surveys acquired in Blocks IV and V respectively is ongoing. Data quality is very good and the work is progressing on schedule with final processed products expected by the end of Q1 2018

Blocks IV and V

The Company’s planned two well, back to back, exploration drilling programme will commence with the spudding of a well on the Wild Horse prospect in Block IV in the Baatsagaan Basin. The Wild Horse prospect is a prominent structural high well positioned to receive oil charge from two of the largest and deepest potential source kitchen areas in the Company’s western Mongolian acreage. The planned total depth (“TD”) of the well is 1,850 metres, penetrating a significant thickness of stratigraphy within closure. The Company’s mid-case estimate of prospective resources in the Wild Horse structure is 290MMbo recoverable, with significant upside potential (c.750MMbo recoverable) identified in 13 further prospects and leads in the same basin that would be partially de-risked by success in Wild Horse-1. The well is expected to take approximately 30-45 days to drill and log at a cost of approximately US$4 million.

Following Wild Horse-1, the rig will move to Block V and drill the Falcon prospect in the Tugrug Basin. The primary objective of the recently acquired 3D survey was to accurately delineate the cluster of prospects in the Falcon area to ensure the well is optimally located to penetrate the primary reservoir targets. Falcon-1 is planned to be drilled to a TD of circa 3,000 metres and it is expected that the well will take approximately 60 days to drill and log at a cost of approximately US$7 million. The Company’s mid-case prospective resource estimate for the Falcon prospect is 100MMbo recoverable with 180MMbo of follow up potential identified nearby.

The Falcon area has been high graded for early drilling as there is very good evidence, including live oil staining in reservoirs penetrated in a nearby deep core hole, that the petroleum system is working in the Tugrug Basin.  As a result of this high grading, Falcon has moved ahead of the Snow Leopard prospect in the Company’s preferred drilling order. The Snow Leopard prospect remains an attractive target for exploration in the Taats Basin of Block V and the Company looks forward to drilling the feature with the results from the 2018 drilling campaign in hand.

Efforts are now focused on securing the necessary environmental, chemical and land use permits that are required prior to the commencement of drilling. The Company is targeting the spud of the Wild Horse-1 well as early in the Mongolian drilling season (mid-April to mid-November) as possible to provide sufficient time to fully complete operations and evaluate the results of the 2018 drilling programme. The exact timing of the first well spud is dependent upon securing the necessary permits.  As a result of the ongoing engagement with the Ministry of Mining, the Ministry of Environment and the industry regulator MRPAM, the Company expects that Wild Horse-1 will spud in Q2 2018.

Sinopec Rig 4518, contracted for the 2018 drilling campaign in Blocks IV and V, has been stored for the winter in a Sinopec facility in southern Mongolia. Mobilisation will commence once the Company has secured the necessary drilling permits from the Mongolian authorities.

Block XX

The Company is in active discussions with drilling contractors operating in Mongolia to secure a rig for its 2018 work programme in Block XX, and the Company is confident that a suitable rig will be contracted to enable drilling in 2018, as planned. The Company’s current intention is to spud the Gazelle prospect in Q3 2018, with a second well to follow on immediately afterwards at a location still to be determined, based on ongoing technical work.

The prospectivity in the northern part of Block XX, neighbouring the producing fields in Block XIX, offers a good chance of success with the potential to put commercial discoveries on-stream quickly, utilising spare capacity in nearby facilities. The recently approved two-year extension to the exploration term of Block XX allows the Company sufficient time to explore these near field opportunities, with the 2018 two well programme being the first step in that campaign.

Mike Buck, CEO of Petro Matad said:

“This is a very exciting time for Petro Matad as we head into one of the highest impact drilling campaigns any independent has undertaken in Mongolia. We are now deep into the preparation phase to spud our first well at Wild Horse-1 in Q2 2018. We are pleased to see that rig availability for our planned drilling in Block XX looks good. I look forward to updating the market on our progress as our preparations for this highly active year continue”.

Ophir hits all time lows – Bullish or Bearish?

The last heads up on Ophir Energy was issued back in Nov 2016 with the share price at around 77p. See post post here. 7 weeks later and the stock was testing 100p a share. The promise and attraction was largely all down to their EG asset Fortuna. This large scale project is likely to deliver around 16kboepd to Ophir in 2020. The majority of 2017 has been spent on delivering the key partners/services required to enable the FID to be agreed and signed. Ophir has to date achieved all the timeline agreements and with deals now in place all that is needed is the signing of a $1.2bln debt funding facility. That’s no shoe-in event so it is very likely that the share price drift to all time lows are due to this risk and possibly some pre-debt arbitrage perhaps albeit a tad presumptuous? Aside from Fortuna, Ophir’s current producing folio of circa 12kboepd looks just fine. Cash flows are significantly better after PoO’s recent rises and higher Gas prices. Debt pile is reducing, net cash still solid. What’s the problem? Well, the market does not like uncertainty. And as mentioned before, prefers to price ‘out’ opportunties or jam tomorrow news and instead discount the share price to project failure levels. To date, with all the necessary parts in place, Fortuna is almost ready to go. Assuming the debt deal is confirmed in the next few weeks (before end of Q4) then the market should wake up again (bit like last year) and a decent share price recovery back to 100p would not be unwarranted especially considering the improved sentiment across E&P’s and O&G sector over the last 12 months.

At 63.5p today, Ophir provides an excellent upside opportunity based on confirmation of Fortuna FID. 50% upside would see 95p levels which looks more than fair. Of course, there is always a chance that the debt deal does not complete and Ophir has to seek another way to finance the project, inclusive of partners and EG gov. That said, at today’s levels, it’s important not to forget Ophir’s other sizable assets. Tanzania assets alone are estimated to be worth approx double today’s market cap and that’s cheap. Tanzanian gov and Shell are not exactly best buddies at present so perhaps the market is writing down the Tanzania ‘sale opportunity’ as being something that’s not likely to happen within the next year or two. I’m not convinced myself. If Fortuna funding does not come in as planned, I do wonder if Ophir has interest lined up for their remaining 20% stake in Tanzania? Pavilion Energy (Indian) might be interested and I’m sure Shell would have something to say too. The current asset is not doing much for Ophir’s balance sheet and to monitise it would be transformational. Any spike in share price based on a sale would be enormous. It’s an event that might or could happen. It’s something that the market should not rule out.

For the moment, Fortuna is 2 years away before delivering gas sales and today’s market is very much about the ‘short term’. Looking forwards further than 6 months seems practically impossible for some analysts these days. But first things first… a debt deal is required before dreaming too far ahead. If/or when the Fortuna debt package is confirmed, then it becomes a little more exciting and of course believable. In 2020, assuming Fortuna is on time and on budget (and rest of folio is performing well) a share price of around 200p+ would not be unusual for a company producing 30k to 35kboepd and free of heavy debt. That said, I would expect 140p+ a share by early 2019 assuming all on track and no equity dilution along the way. Get Fortuna financed and moving and Ophir’s share price should take care of itself.

Broker ratings at present are all ‘in or around’ the 90p+ level.

Certainly one to watch closely over the next few weeks. Ophir Energy is part of TheShareHub top ten for 2017.

Current Share price 63.5p.

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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Premier Oil – The penny will drop.

It wasn’t that long ago that the market would price in a decent £500m cap ahead of a speculative and low CoS exploration well. Remember Chariot Oil and Falkland Island plays? Success was priced in weeks ahead of the drill bit even turning. Over the last year or so the opposite has been happening. Companies with proven resource / billions of barrels are priced at levels that suggests the resources will never make their way to commercial markets. That said there are a handful of companies out there whereby the market seems to be more willing to listen. Sound Energy is a good example. Not a bubble of gas or condensate produced, in a risky MENA region and Sales still some way off. Market cap £535m+. Another is SOLG, a miner drilling for resources in Ecuador. No sales and very much early stages – Market Cap £550m. The list goes on.

So what’s the problem with Premier Oil? When will the penny drop? Lets take a quick look at what’s under the bonnet.

1.  As at 31 December 2016 PMO had total 2P reserves and 2C resources of 835 mmboe (excludes ZAMA-1). The 700 mmboe represents our discovered but undeveloped 2P reserves and 2C resources (ie excludes reserves associated with producing assets) and relates to projects such as Catcher and Tolmount in the UK, Tuna in Indonesia and Sea Lion in the Falkland Islands.

2. In July, the company discovered the 5th biggest discovery anywhere in the world in the last five years… ZAMA-1. Tony Durrant, Premier Oil’s chief executive, said the discovery, which suggests the presence of more than one billion barrels of oil, “adds materially to Premier’s portfolio of assets worldwide”. Mark Wilson, an analyst at Jefferies, said the announcement about the discovery “appears about as material as we could possibly imagine at this early stage”. Stephane Foucaud, at GMP FirstEnergy, said the size of discovery was well ahead of estimates and there were several “very encouraging” signs, including that it is light oil and the reservoir is of good quality. Light oil is considered preferable to denser heavy oil as it is easier to process. However Mr Foucaud added: “There is no question that one needs to be cautious until the well has been tested.”

3. Production of circa 75,000 to 80,000 boepd.

4. After spending billions on Catcher, first oil is expected by year end boosting production further with numbers in 2018 expected to top 100kboepd.

5. Wytch Farm Sale circa £200m for PMO’s 15mmboe Reserves. (At last a valuation marker! … Take note and then look at the remaining 1 Billion+ in resources).

6. Net Debt of circa £2.5bln (after recent asset sales).

7. Convertible bond (circa 260million shares) set at 74.71p

8. Current share price 66.25p. Market cap of £340m.

They say if you drop a penny from a very tall building it can kill someone. Not a pleasant thought but the point is when the penny finally drops on investors, PMO will be in demand. A rerating is inevitable assuming PoO sustains levels of $55pb to $65pb range. The production and cash flows are vital to ensure debt is repaid but as proven by PMO of late, they are willing to sell off ageing assets to chop off wedges of debt in a faster and more accretive manner. There are many other assets in folio that can be sold off or farmed out. Sealion is one and of course, the recent ZAMA-1 success is another although a couple or more wells on that world class licence will be required to get a decent price. That’s planned for 2018. Exciting stuff.

In summary (and it is a quick review) PMO have assets in the folio which if in another listed companies hands would enjoy a £500m or £600m market cap per asset and that’s cheap. Perhaps PMO should spin them off? If only! Unfortunately, the debt pile is the cloud that hangs over this company. But assuming Catcher delivers production in late 2017 and ramps up in 2018, PMO’s debt will begin to drop fast with PoO in the mid to late $50’s. Perhaps the markets reluctance to rerate the stock is based on past failures like Solan? Perhaps the market just wants to see Catcher producing and debt reducing before it finally agrees the rerate is warranted? But lets get real here for a moment… the company has production levels higher than Tullow. It has prime assets like Sealion and Zama (not to mention Tolmount). It’s assets are by large in secure regions with no significant threats. The debt is reneg’d.

What’s not to like?

Key event remaining this year is the all important Catcher development. The Floating, Production, Storage and Offloading (FPSO) vessel for the Catcher field (“BW Catcher”) left deep water anchorage off the coast of Singapore and is on route to the North Sea. Expected arrival 14th October 2017. Good news on this development over the next few weeks/months should be greeted with a rise in the sp as key events become derisked.

Premier Oil is part of TheShareHub Top Ten picks for 2017. Current SP = 66.25p. Target price at 100p for 2017. TP of 160p for 2018.

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As with all stocks, please do thorough research and please read the risk warning section here.

Columbus Energy Resources rises from the ashes – One to watch

Relaunched, reborn or just refreshed?
The difference between the old company and the new is clear for all to see. After digging a little deeper into the all new CERP.L (having been a past investor to the former company LGO.L) the assets are just as good as they have ever been. The problem with LGO was confidence. This was lost due to poor management and an approach to treat shares/equity like confetti. The former owners, (inc Mr Lenigas) promised a lot and delivered very little. It is no surprise to see investors greet the reborn LGO… now called Columbus Energy Resources with a critical eye and for long term holders, plenty of distrust and disdain.
The new owners/management team look lean and mean. Issuing confetti shares seems the last thing on their minds although funding plans are without a doubt on the horizon further down the line. Management have issued a clear plan and have outlined targets. These all look doable and with minimal cash outlay and fast pay back. The target is 1000bopd. That’s a near 300% increase in current production. If achieved and more importantly… sustained, then the company will move to increase production further in 2018. It’s possible the company could exit 2018 with circa 1500bopd to 2000bopd. That would bring in considerable cash and still barely put a dent in the 12mmboe reserves. The company has plenty of other catalysts to drive the stock higher. Spanish assets are suspended at present and a conclusion to this licence issue should be sorted soon.
Whilst the business is cash generative and has the means to pay down the pre-arranged funding via LIND (previous /current convertible bond holder) cash is instead being focused on raising production volumes with debt payments/draw downs being paid in shares. Today’s announcement of 20.3m shares being issued to LIND comes with a caveat / lock in of 6 months. That should be enough time for the company to deliver sizable production increases and cash flows which in turn should bring in new investors and increase liquidity. Hence, perfect time for LIND to exercise/profit from their new shares.
The assets are plentiful and mainly focus on Trinidad although there are added interests in South America (Colombia) which may see progress in 2018. For the moment, it’s all about boosting the productivity of each well via an infill drilling programme. It’s low cost and pays back swiftly. If you forget about the current production of circa 350bopd and instead look at the 2p reserves of circa 12mmboe and cost per barrel at circa $5pb, you soon realise that there is a large disconnect between the £21m market cap and the company’s full potential.
Should the company boost production to levels near 1000bopd or 1500bopd in next 6 months, the cash generation alone (using $55pb) could be $50pb+. Compared to most other operators, cost per barrel is close to $25pb (and that’s the good ones!). Profit points are closer to $10pb to $20pb at best. Hence, 1000bopd net to CERP, is a bit like 3000bopd to a higher cost per barrel player. Of course, that’s a rough comparison and tax /decom costs should be considered too. As should WTI / Brent pricing with $5pb difference at present.
For the here and now… CERP is doing around 350bopd. The new management team will know all too well how dangerous it is to over promise and under deliver. Hence, when the Exec Chairman Mr Leo Koot says he thinks production can boosted considerably, you have to take the man at his word. Should the company succeed, the cash flow funds coming in may go towards drilling a deep prospect on the Icacos Oilfield (Columbus, 50%) located in the extreme southwest of Trinidad. Resources are estimated in the ‘billions’ and any success there would be talked about for decades to come. Seismics are limited to date so there’s a bit of work to do before the deep prospects get explored. Currently, the licence is producing 25bopd from shallows with plenty of room to improve on that level on a low capex basis.
In summary, CERP’s assets were never the problem. It was past management that was the problem. The new team, new company name and new funding arrangement all points to a very new company. At 3.9p per share, it has all the potential to multibag on production success. Certainly one to watch over the next few months.
As always, important to read about risks and warnings in the sidebar to the right.