ShareHub Hotlist 2019 Review – Week 26

Week 26 ended with most market moving action taking place over the weekend at the G20 meeting. The usual rubbing of shoulders took place as Saudi’s shook hands with Russians, Chinese shook hands with Trump and Trump shook hands with North Korea. Lots of hand shaking but the truth is that’s all its been for months and months now. OPEC+ confirmed another 9 month extension which brings the cut in production levels towards its 3rd year. How many years need to pass before the ‘reduced quota’ becomes the norm? The reality is, the cuts have helped but they haven’t boosted Oil prices past $70pb which is where the Saudi’s desperately need pricing ahead of their planned Saudi Aramco IPO. The latter has been postponed several times now and keeps the likes of JPM and Goldman Sachs champing at the bit. But there is talk now that it’s back on the table.

Elsewhere in the world of US oil production (on another planet), data releases continue to defy belief. One week numbers are inline or as expected and the next a sudden 12m+ Draw arrives. It’s as if they thought they would fiddle around for a month delivering Build numbers week upon week before finally being forced to tidy up the book and slip all the Draws into one release. Investors would be wise to ignore the weekly reports and concentrate on the monthly data. Investors should also pay attention to the US production figures which were at 12.3mboepd a few weeks ago delivering significant growth from last years 10.9mboepd. But look a little closer and you’ll see that US Production has been falling. Last weeks data showed US Production falling to 12.1mboepd. This brings growth to a standstill. The last time US production was breaking 12.1mboepd was end of Feb 2019. A quarter of 2019 has past and US Production has gone no where fast. This may change, but after the significant growth phase through 2018, growth has become sluggish at best. This correlates with US rig count data which shows a significant drop in rigs over the last quarter. With OPEC+ Supply cuts set for another 9months, there’s not much room in the market for further drops in US Production. With Brent trading at $62.5pb, that’s asking for trouble if the market is net short. Do not be surprised if you see Oil prices head past $75pb (Brent) in Q3. There’s certainly not much of an argument for Oil prices to be lower than $60pb (Brent) especially with US Fed rate cuts anticipated around the corner.

Week 26 Review: The Independent and Guardian top picks continue to bat it out. Markets are at all time highs yet many stocks still seem sluggish especially across commodities. When the sun shines, risk assets become less attractive and money tends to flood to safer havens like Gold. That said, due to unattractive Bond yields, money is being forced into some riskier trades with crypto’s back in vogue. Crypto’s v Bonds? It’s like Nick Kyrgios v Tim Henman.

TheShareHUB picks are still flatlining awaiting key summer drill catalysts to get the juices flowing. Stocks like MATD, CERP and AMER are all expected to drill potentially transformational wells this summer. TheShareHUB’s recent heads up pick I3 Energy (I3E) is also another hot summer pick with 3 key drills planned over a busy 90 day period starting with the first well due to spud end of July or early August. Finally, watch out for PetraDiamonds Full year results due out in 3rd week of July. The stock has struggled to regain some impetus and momentum since completing their refinancing/rights issue last year at 41p a share. Trading today at 19.2p, the stock is a significant distance from Goldman’s Sach’s recent Buy rec and Target of 32p. In June, the CEO bought stock at 21p which was seen as a strong signal ahead of July results. The small sized diamond market has been under pressure from oversupply and lower pricing but Petra is a little different in that they have moved away from smaller diamonds and have targeted the larger sized stones and had recent success with some whoppers this year. Whilst largely historic, results will put a line under 2018/2019 trading year and the market will be keen to see guidance for 2019/2020 outlined from the new CEO with a view on reducing debt being top of the priority list.

Roll on next week.

Independent top picks 2019 – week 26
Guardian top picks 2019 – week 26
ShareHUB top picks 2019 – week 26

ShareHub Hotlist 2019 Review – Week 25

A significant run on Gold prices has given many smallcaps and mid tier gold producers a bit of renewed interest after a period of neglect. Crypto’s are also back in demand which is unusual as many market pundits had written them off months ago. It seems a resurgence in the neglected is upon us. It sometimes pays to keep your head down avoid the limelight and hope all has been forgotten when it comes to past disasters or bubbles bursting. It tends to allow for the initial recovery phase to go unnoticed. A tactic equally beneficial and often used by ‘has-beens’ to relaunch careers? Certainly something Boris seems to be deploying of late. Every word that seems to come out of the man’s mouth forms some kind of overpromise or headline that you know will never be met. That’s the trend with Mr Johnson. He says a lot but actually delivers zero. Heathrow? Brexit bus adverts? Foreign policy? The very fact that the Conservative party have arrived at a situation whereby Mr Johnson is their leading prospect just about seals the deal and places the last heavy nail in a political party coffin that needed banging in a year ago. Brexit has exposed all that is wrong with UK politics. It’s a sad story and Boris is far from being a fresh face with new ideas. He’s just a continuation of the same old, same old establishment that has thus far got us no where fast. Not only did the Conservatives come up with the idea of Brexit, they then fumbled their way through delivering the basics. Remarkably, the Markets seem to have become punch drunk to risk events and seem to be complacent with what awaits around the corner. Brexit has more unknowns attached to it than an MP’s expense account.

It’s time for change. And the biggest problem is that Labour under Corbyn are certainly not the answer. In fact, the answer is ‘no-party’. None of them are fit for purpose. Now is the time to look at a different model. A different electoral system would be a start. More ‘people voting’ processes now technology is advanced enough. Who knows, policy’s could be voted up or down and beamed live across the country in a Britains got talent style format? Sarcasm aside, we do need to relook at the electoral system and how the country is currently run. It’s been a shambles. Even as we head into the summer months, MP’s are booking their vacation breaks. It’s diabolical. I don’t think Mr Churchill went on a weeks jolly to Magaluf while the country was in dire straits.

Moving on… Week 25 was a record breaker for the DOW hitting new highs on rate cut optimism and better vibes from China trade talks.

The ShareHUB top picks were boosted from SOLG’s news that a peoples case seeking a referendum to ban mining in specific regions of Ecuador was struck out. SOLG rose from 28p to 37p before cooling off a little. Another fillip came via Hummingbird Resources which has bounced strongly with higher Gold prices moving from 13p to 18.75p. Heading in the opposite direction are SXX. The stock was 24p 3 months ago but is now trading at 14p after hefty fundraisers. Petra Diamonds continues to tip toe its way back to a recovery level in the mid 20’s. At present the stock is lacking in catalysts and requires a good results update and successful June sales tender to get new investors interested. At 20.4p, Goldman’s recent 32p price target is over 50% away. If or when the good news flows, PDL should be moving back to high 20’s / early 30’s. The second half of 2019 is expected to be especially strong for Petra, so the worst really should be behind them now. Another slow burner is CERP. Investors still await confirmation of the company’s summer drill plans. If or when this gets communicated properly, interest should grow and the share price will take care of itself. Finally, Amerisur Resources seems like it is stuck in quicksand. Despite the company making production gains, the exploration drillbit has been a let down. The market has virtually written off the Occidental deal as an event for next year. Success at Indico-2 (the next well in the drill plan) is much needed. It is an appraisal well, so the odds on finding oil are almost a given (although this still carries operational risks and mechanically, things can go wrong and they often do). The question the market wants to know is how large is the oil column, where is the OWC and at what rate does it flow? Gaining key data like this is essential to determining the resource size and agreeing the final field development plan which like many things operationally… requires significant capital expenditure. That said, AMER’s 30% stake means they should be able to pay their way providing their partner ONGC does not accelerate the infrastructure works (pipes/roads) and development plan too fast. Being onshore, each development well pays back on capex very quickly which is a bonus to a small player like AMER. However to an Indian national oil company like ONGC, they need not tread carefully on a financial basis and may step up the pace to a ‘oil major’ level if they like what they see from future drills over the next 6 months. That could place pressure on AMER’s cash resources and may explain the rather stagnant share price of late. Roll on week 26! Plenty of catalysts await in H2.

TheIndependent top picks 2019 – week 25
TheGuardian top picks 2019 – week 25
TheShareHUB top picks 2019 – week 25

ShareHub Hotlist 2019 Review – Week 24

Week 24 and the DOW is nearing all time highs again. And that’s without a firm China Trade deal signed…. yet. The market is certainly getting excitable again. After several rinse and repeats from 26500 down to 24000 levels, the 10% DOW swing is becoming the new monthly bet. Go back a decade or two and you’ll find a 10% gain on the DOW would normally take or be expected to take, about 2 to 3 years. In this casino, it can happen in just a few days. The main contributor to the markets new verve has more to do with rate cuts and stimulus than China Trade solutions. A few weeks ago, the FED Reserve moved to a more dovish/rate cut friendly position and whilst that is by no means nailed on, the recent poor US job data combined with a global trend to cut rates, has now significantly raised the odds on a US rate cut happening possibly as early as October 2019. Super Mario has always said he will do whatever it takes to keep a solid base under EU financials. Repeating this message should not come as a surprise yet this market seems to react to old news like it was new news. Someone needs to recalibrate those algo bots!

The summer is almost upon us. You wouldn’t know it looking at the UK weather which resembles something like the African wet season. Some summer blockbuster drills are not far away from spudding now. PetroMatad, I3 Energy, Amerisur, SOLG and many more all have significant drill plans over the next 3 to 4 months. An exciting period for investors awaits. That said, very few exploration wells/drills are successful as proven by Amerisur of late. The last 2 wells drilled on CPO-5 licence block have been disappointing. However, AMER did have success on Plat-26 on their Platanillo licence, delivering an extra 700bopd and boosting full production towards the 7000bopd level. The next well on CPO-5 is expected to be an appraisal around the Indico-1 discovery. Chances of success should be much higher here but there is still no guarantee that they will be successful so risks still remain.

SOLG has been hit hard by local opposition to mining and a hearing to decide on a referendum is expected to be held tomorrow (June 20th). Ecuador needs mining and is prolific as a region when it comes to resources. But the locals and communities want a fair say on how their villages get moved or cleared out and rightfully so. Some do not want any mining at all and fear pollution. On the other side of the argument, the large mining companies bring jobs, roads, infrastructure, schools… the list goes on. One would expect common sense to prevail and a referendum to be avoided.

Finally, stocks like Petra Diamonds and Premier Oil look heavily oversold against a recovering market backdrop. These kind of valuation gaps tend to get filled swiftly once risk reduces. Rate cuts tend to stimulate global growth which in turn can bolster interest for Diamonds. And with OPEC due to meet on July 1st (although they can’t seem to agree on a firm date yet) Oil should be heading back to the $70’s (brent). Concerns over MiddleEast stability are also a major factor for Oil prices and after recent tanker attacks things are certainly not cooling down. Quite the opposite. Yet looking at oil prices, you really wouldn’t guess that there is any risk there at all. A complacent market is a very dangerous market. If things worsen, Oil prices could be trading at $100pb again. That’s clearly bullish for many oil companies out there.

Week 24: Independent picks continue to top the chart without any real challenge from the Guardian or ShareHUB picks. A few good summer drilling results for the ShareHUB folio and things can change fast.

Independent top picks for 2019 – week 24
Guardian top picks for 2019 – week 24
ShareHUB top picks for 2019 – week 24

ShareHub Hotlist 2019 Review – Week 23

Back in the black for TheShareHUB picks. A good week for all stock picks as the DOW bounced 1500pts on hopes of a US rate cut and an end in sight to a China Trade deal. Mexico tariffs were also a concern but appear to have been avoided for the time being. All in all, weak US Job numbers is certainly nothing to be celebrated. Growth is slowing and the longer Trade wars go on the more damage is done. Growth fears have commodity stocks under pressure with Oil being effected more than most due to the US production data issued each week. The market has been expecting ‘DRAWS’ as supplies tighten under OPEC’s cut in supplies. But lately, the DRAWS have been replaced by huge unexpected BUILDS. And the frightening thing is, this is with Iranian Sanctions in place, historically low Venezuela supplies and Libya production at near zero. If it wasn’t for these three issues, the market would be awash with Oil and prices would be $40pb again (Brent). In short, something has gone wrong. Either US data numbers are incorrect or OPEC agreed cuts are not being executed as agreed. The last two months data is more notable suggesting that someone somewhere (could be Saudi’s or Russian’s) are pumping more than they should be. OPEC are due to meet up on July 4th to agree on a possible extension to production supplies for at least 6 months. If data continues to be poor, they might need to consider cutting supplies further or at the very least ensuring all involved stick to agreed quotas and are not allowed to pump more than they should. As for US data, trust it as far as you can throw it. US rig counts have been dropping month on month for the last quarter yet production continues to rise. That’s not symptomatic of US shale. Historically wells perform initially at peak rates and then tail off fast meaning that new wells are required to replace them and that involves rigs. So again, something doesn’t quite add up here. It’s a bit of a mystery. But that’s the Oil trading market for you. More barrels are traded that actually exist and speculative hedging/shorting is rife. The fact that it’s possible to either have $40pb next month or $100pb says it all. The Saudi’s can’t cater for the speculators. All they can do is try and rebalance the market and they failed to it last year and thus far, they have failed to do it this year too. Their credibility is certainly being tested.

Overall, the uncertainty over trade deals, global growth, OPEC… all mean commodity stocks are out of favour. There are some cheap stocks out there – that’s for sure. But a lot of unknowns need sorting out before the sector can see some bullish action. Small caps on the other hand trade in a cosmos of their own. Anything can happen on AIM. Stocks like MATD, I3E, PVR and many more drilling huge targets over the next few months are in favour as these are not effected by Oil prices near term and due to small market caps, they can multibag upon any significant discoveries. The Risk vs Reward ratios vary. From drilling wildcat wells to drilling almost ‘appraisal’ style wells. The latter generally have CoS of 60% to 70% or more. So you have to pick your AIM exploration stocks carefully. Some have a much better chance of success and in theory this should be reflected in their market caps… but often it isn’t, which presents opportunities for savvy investors.

Week 23 – Review:

A good recovery week for TheShareHUB picks as they climb back into the black. The two newspaper top picks tread water. H2 is approaching fast and the year is zipping by. It’s either going to be much of the same in H2 or with a US/China trade deal agreed, it could be new highs for all stocks and a terrific end to the year. With US elections around the corner, Trump will be keen to see markets do well.

Independent top picks 2019 – week 23
Guardian top picks 2019 – week 23
TheShareHUB top picks 2019 – week 23

Heads up – I3 Energy

The following note was issued exclusively to ShareHUB subscribers on June 4th 2019. Now available to all ShareHUB readers.

I3E 2 year Chart

I3 Energy PLC is a newcomer to AIM having listed just under 2 years ago. Its taken them that long to get a summer drill funded and organised on their Liberator Field. On June 3rd 2019, the company closed the deal on a transformational Junior Loan Facility of £22mln. These funds together with the previously successful £16mln share placing (12th March 2019 at 37p a share), means the Company is now ready and loaded for an exciting Summer 2019 drilling programme.

Drilling operations on the Liberator Field are expected to commence as early as mid-July 2019, using the Borgland Dolphin semi-submersible drilling rig. The Company has also made good progress in its negotiations with RSRUK to finalise offtake terms for the Bleo Holm FPSO and continues to progress documentation with the OGA for the Liberator field development plan.

The Company has also executed a crude oil offtake and marketing agreement with BP Oil International Limited to market its crude production from the Liberator field. First oil from the Liberator field remains 2020 with flows expected at approximately 20,000 bopd, from two development wells.

I3 Energy Said:

“We are very pleased to announce the closing of this £24mm funding package. The Company is now funded for its upcoming 94-day, 3-well drilling campaign this summer on its 100% owned Liberator field and Serenity prospect, which is targeting a combined STOIIP of over 500 MMbbls. The Company is now fully focused on delivering a successful 2019 drilling programme and execution of the Liberator development to deliver first oil in 2020.”

Lombard Odier Asset Management (Europe) Limited have been a key shareholder and recently took on an extra £2m equity placing at 37p which looks to have sealed the deal in terms of the Funding package.

With a market cap just shy of £39m, i3E clearly has plenty of upside should they deliver success with the drill bit. The junior facility is expected to give way to a more significant £50m to £100m loan facility upon a successful summer campaign which will be required to see the company through FDP and 20,000 barrels of oil. The company has just under 95million shares in issue so it would be fair to say that shares in issue will rise as the project progresses. But should they succeed, it might be worth noting Hurricane Energy as an example of a explorer that has now turned producer with their EPS set to produce 17,000 to 20,000bopd albeit with sizable resources under their belt but as yet, limited proven commercial delivery… to date. Hurricane Energy’s market cap is £1.1bln.

A long way to go for I3E, but with the funding package sorted and the drill bit set to start spinning in just over 4 weeks time, the stock should be in high demand in a very tight market with just under 100m shares in issue (many of which are in Lombard’s hands).

Not without sizable risk, so please conduct your own full diligence/research and read all risk warnings (see side bar of website).

ShareHUB target for 2019, 120p. Assumes a successful 2019 drill campaign.

Price at time of note: 44p
Current price: 48.25p.

Director buys – Petra Diamonds CEO Richard Duffy 240k @ 21.35p

Richard Duffy – Petra Diamonds CEO

Late on Friday (last week) Petra Diamonds said Chief Executive Officer Richard Duffy purchased approx GBP51,200 in shares in a transaction at 21.35p a share. Earlier in the week, Goldman Sachs issued a broker note on PDL upgrading their recommendation to ‘BUY’ and increasing the target to 32p a share.

It’s not unusual to see directors buying in the open market, but in Petra’s case Mr Duffy’s purchase perhaps carries a little more weight as it’s his first purchase and one that has been made ‘after’ he has had 4 months to review the business since joining in mid Feb 2019.

Mr Duffy is no spring chicken. He was previously chief financial officer and head of African operations at AngloGold Ashanti. He’s very well respected in the City. So the message from Mr Duffy is a strong one indeed.

Upon his appointment, Petra’s chairman, Adonis Pouroulis, said, “Mr Duffy will be critical to drive Petra’s transition from a phase of intensive capital expenditure and expansion to a focus on steady-state, cash-generative operation.”

Mr Duffy’s challenge is to get Petra’s $550m (approx) NET debt pile down. The first half of 2019 has seen a continuation of capital injections into the business which has been ongoing for sometime now. However, this intensive capex period is set to change with the bulk of investment completed. The second half of 2019 should see Petra generating significant cash flows which should enable sizable chunks of debt to be paid down. The market is understandably taking a cautious view to-date with PDL’s share price near all time lows. But Mr Duffy’s recent purchase might be seen by some as a message to all the doubters out there that the company is indeed on the recovery path to solid growth. If anyone knows the business… it would be him.

Petra Diamonds is part of TheShareHUB top ten picks for 2019. Please read all risk warnings (see the sidebar). PDL current price 22.7p.