ShareHub Hotlist 2018 Review – Week 5

Global markets slump. Huge fall on DOW 30. Markets hit by massive sell off. Just a few headlines grabbed from the usual market media channels. Panic Panic Panic? Well, not quite. Lets take a less dramatic and non sensationalist view at the DOW chart below:

Looking at the pre-santa rally trading range of 23500… all good there and still some 1800pts higher than the lower September numbers. Now, with traditional Santa rally periods, stocks rise into year end as all brokers and funds involved do their best to secure bonuses and year end numbers. A self-gratifying process. From late Nov to year end the DOW jumped to 24750. That’s now 3000pts higher than the previous quarter (Sept low). Historically, that’s a massive rise in a single quarter. Hence what follows from Jan 2nd through to 4th week in Jan is just ridiculous. A rise of another 2000pts added in just 3 weeks. So lets just discount the fluff and nonsense from the last 4 weeks and get back to 24500 level which incidentally is still some 2000pts above Aug/Sept levels. With that done, we are still in ‘happy days’ territory and the only thing lost on the DOW is some over exuberance and festive cheer trading. I noted last week that a 2500pt drop on the DOW was likely purely because there was no reason for it to rise that high in the first place. A correction has been expected for sometime but lets make it clear. The expectations for a correction started when the DOW was 21k and not 26.7k, hence, the DOW has plenty of steam or fluff to offload as yet. Dropping 1400pts in the last week is about 50% of the nonsense done. Another 1400pts would take the DOW down to around 24k level or just under. A move to 23k or 22k would just about return the index to levels last seen 6 months ago. Hardly a global slump is it!? But just imagine the headlines due should the DOW drop another 3000pts. Panic Panic Panic? Markets are casino’s. And volatility is good for the ‘house’. So prepare for more drops on the DOW. A simple correction to Q3 2017 levels is worthy of 4000pts drop alone and long overdue.

Moving onto Commodities. It’s a different picture entirely. Commods have been slow to correct higher and whilst the DOW might look frothy, the same cannot be said of Commodities. PoO has been rising strongly for the last 12 months. The compliance levels of OPEC has blown many doubters away and cost a few shorting Hedge funds a small fortune in the process. What’s more is that the usual mantra of higher prices equalling higher US production is nothing more than ‘fake news’. US shale production has yet to show signs of solid growth after the PoO downturn. Signs of growth returning are often represented by the US ‘OIL’ RIG COUNT which gives a decent indication of new drilling activity and is often a product of greater investment. So lets take a look at the ‘oil’ rig count chart below:

Well well well. Or perhaps not well well well. More like static well. The US Oil rig count stands today at exactly the same level it stood back in July 2017. Now the eye opener is the corresponding 6 month WTi chart below:

Now, if Crude rises from $42pb to test $67pb, in theory US oil rigs should be rising at a significant rate too. Afterall, $50pb+ is supposed to be the point whereby US Shale investment bounces back.

Based on the above, PoO 50% increase has delivered zero in terms of Oil rig count increases. So if anyone says US shale and investment is flooding back, just point them to these two charts which prove the opposite.

To put it into context, with PoO at $67pb, The US Rig count should actually be just shy of 1000 rigs today. So if US Oil rigs begin to rise from 765 to 800 over the next few weeks, that’s still negative compared to where they should be. Same applies to a rise to 900 rigs. But just like the recent media news channel headlines on the DOW’s frothy top slice, you can bet your bottom dollar that the headlines will read ‘SHALE bounces back’ when (or IF) the Oil Rig count numbers hit 800+. But that’s not the case at all. US shale has been ‘SLOW’ to recover in ‘OIL’ Rig count terms and if that rig count can’t rise substantially at $67pb, then it certainly isn’t going to rise too much with WTi at $57pb. Hence, any near term pull backs in PoO is actually bullish for PoO in the longer term. So don’t be surprised to see PoO in the $50’s at some point during 2018 albeit short lived I imagine. It’s certainly one to watch over the coming weeks and months as PoO continues to align with lower supply and higher demand.

Unfortunately, Markets tend to use a broad brush when dealing with equities. If the DOW tops off, then all indices wobble which is crazy and relatively unsophisticated in a world that is supposed to be ‘sophisiticated’. The Dollar’s previous weakness was certainly a benefit to miners so it’s fair to say that any corrections are valid based on the Dollar strengthening. Don’t mix that up with the DOW correcting.

Week 5 saw some ‘corrective’ action taking place. TheShareHub continues to lead the pack but has lost over 12% from a peak of 16% just a couple of weeks ago. That shows the ‘hefty’ broad brush applied across equities when in theory many of these stocks are making the same money 3 weeks ago as they are today. Nothing has changed for many commodity focused stocks on a simple earnings basis. Infact, many are earning more as debt reduces.

In summary, the DOW could shed over 3500pts and in theory it should not effect or relate to commodity stocks at all. That said, with ETF’s and trackers galore, algo bots, so on… it’s hard for sectors such as commodities to avoid the contagion that comes from a big market Index correction.

 

W Resources updates on finance package

A bit of a holding RNS rather than full confirmation on funding but nonetheless, this news is the first real solid piece of evidence that La Parrilla is indeed heading for full mine development. Management have made promises before but today’s news confirms the first tranche of $13m will be drawn imminently and then followed up with a further $22m tranche in Q2. A staggered approach makes perfect sense from the lenders stand point and will require smooth operational and development performance from all involved. Delays will not be welcome and thus it is key that timelines are adhered to.
Contract news is likely pending funding hence today’s RNS should clear the way for the LOI’s to be converted into full scale sales contracts. Again, these commitments will require ‘delivery’ dates and as such place sensitivities upon the overall development. Nothing worse than keeping your key customers waiting. All in all, W Resources looks like it is delivering on the promises made in late 2017. 2018 will be a busy year and if all goes well, the share price should reflect the enlarged mine potential and sales growth that comes from that.
It’s been a long wait and whilst caution is still required, W Resources looks properly up and running at last.
W Resources is part of The ShareHub top ten for 2018.
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RNS Number : 5680D
W Resources PLC
01 February 2018

La Parrilla funding increased to US$35m with first funding expected in February

W Resources Plc (AIM:WRES), the tungsten, copper and gold exploration and development company with assets in Spain and Portugal, is pleased to provide an update on the funding of the La Parrilla mine development.

As the Company announced on 12 December 2017, W had received preliminary approval from a US Special Situations Fund to provide a US$30 million term loan to W Resources to fund La Parrilla, that the term loan had received preliminary approval from the investment committee and that it was subject to final due diligence and legal documentation. Financial close was expected by the end of January 2018.

W is pleased to announce that W now plans to borrow an increased amount of US$35 million with the first US$13 million expected to be drawn in early February following execution of the credit agreement and the balance of US$22 million in the second quarter of the year after satisfaction of a number conditions precedent typical for this type of term loan.

A further announcement with more details of the loan will be made on execution of the credit agreement in the coming weeks.

ShareHub Hotlist 2018 Review – Week 4

Another strong week for the broader Indices. The DOW and S&P seem on auto pilot as the Bots and Algo’s just keep on buying up those bluechips no matter what the dizzy heights. Of course, at some point the Algo’s will be switched to ‘sell mode’ and with a bit of help from the normal media channels, I suspect there will be a few ‘market crash’ headlines coming. The truth is… market commentators have been calling the market overbought for the last 12 months. The last 12 weeks have been nothing short of absurd for the DOW and S&P. Just because there is no bad news around does not mean you buy up equities regardless of price valuations. With the DOW testing 26650 recently, there’s every chance it could drop 2500pts and still look absolutely fine. Of course, a drop of 2500pts would have huge panic and wild swings thrown in which is probably why the VIX index is picking up recently after being flat for months. It’s the aggressive moves that shake the market and volatility is precisely what the hedge funds want. But the question that remains unanswered at this present time is whether commodities such as PoO and PoG will follow any market correction down? The irony is, PoO is looking more bullish by the day at a time when the broader market is looking more bearish. What would 2500pts off the DOW do for PoO or PoG? Well, I guess we’ll find out soon as the DOW is long overdue a corrective move. Whether this is temporary or more permanent is anyone’s guess at the moment. But if ‘bad’ news remains a rarity – then it would seem any pullback would simply be bought back into once the dust has settled. Historically, Gold has been a go-to safety haven when volatility returns and with crypto’s looking wobbly, Gold might be the strongest play around. Investors concerned over market corrections should look carefully at market trading volumes particularly on small cap equities. Small caps often correct or move in volatile patterns but it’s often the ‘volume’ indicator that gives the game away or suggests ‘fake’ moves. Light volume moves have relevance but are often weak indictors and can reverse swiftly.

Week 4 Review – Another decent week for TheShareHub 2018 picks. The 2017 picks are slipping back a little, suggesting that the 2018 rotation is delivering some benefits from fresh legs. January is notoriously a month of ups and downs as the start to the year is often excitable. Feb and March will provide better indicators to read/follow. Stocks of note are Cora Gold and SOLG. Both released decent news yet got no real gain out of it. SOLG is approaching ‘oversold’ so certainly one to watch closely. The market is beginning to show signs of a return to previous levels of ignorance or benign interest when it comes to exploration results. I suspect a bit of M&A in the sector is needed again before some excitement returns to these stocks. After a period of 3 to 4 years in the doldrums, it’s about time the mid tier and Super Majors got the cheque books out. There are plenty of resource heavy companies out there that are cheaper than cheap. And plenty of resource rich ‘producing’ companies too. It only takes a deal or two before the market attention sweeps through the rest of the sector. Stocks like Ophir, Premier Oil, Tullow, SOLG, AMER, Petrofac, Enquest, Faroe Petroluem, Hummingbird Resources… the list goes on… are all good buys for any company that has cash doing little at present or are short on reserves/resources. Interesting times ahead in 2018, just need the first piece of M&A to kick off and the rest should follow.

As per last week, the sharehub 2017 picks have been included as a comparison tool. The picks started the year 9.75% down and are 6.5% up in 2018. In future, the 2017 picks will be added every month rather than every week with the other 2 newspaper picks continuing to fight it out with the ShareHub 2018 picks and reported on a weekly basis.

Plenty of news catalysts worthy of discussion to follow across the top ten picks in the coming weeks as 2018 gets into its stride.

ShareHub Hotlist Review – Week 3

After an explosive start to 2018, it’s not surprising to see some cooling off. The optimism and foundation for the recent surge in commodities/equities was more down to the poor or lacklustre interest in 2017. Commodities are back in demand and there doesn’t appear to be any clear catalysts for a change in that positive direction. China manufacturing is strong, US growth looks relatively solid and the dollars weakness doesn’t look like changing path anytime soon. Last week saw the usual media channels citing concerns over US shales comeback. As yet there is nothing in the market what-so-ever to suggest US shale is returning to previous strengths. In fact, on Friday, the rig count showed another drop. Considering PoO has been in the high $50’s / low $60’s for some months now, the rig count should be surging higher. Instead, the numbers are roughly where they were when PoO was in the mid $40’s. So what’s going on here then? Seasonal drop off? Or a trend of reduced funding resulting in reduced rig hires? Another issue for the market to contemplate is the timeframes involved from getting rigs onsite to delivering production. US shale is normally quick to make a return but conversely, it’s also quick to deplete. So the question is…are future rig hires/production simply going to sustain production levels or increase them? The next 6 months should be provide the first real insight into US shales ability to plug the depletion rates and if possible increase production further. OPEC will be watching closely. And for the record – ignore the IEA and US API numbers. They are all over the place. Neither has a clue on what is around the corner and both would be just as successful making forecasts using the finger in the air technique. The Trump/Iranian issue will be addressed in a few months time and it may end up with heavy sanctions applied to Iran’s oil market. That by itself would be enough to support US shale’s come back while not denting the Saudi’s Aramco IPO ambitions.

Week 3 can be best summarised as a consolidation period. Many of the top picks cooled off. That said, TheShareHub 2018 picks held onto much of the 2018 gains and is roughly 4.5% better off than the 2017 picks benefitting (for now) from the Folio refresher. Stocks of note include Cora Gold, Premier Oil and Amerisur. All have provided strong news flow with the latter announcing infrastructure developments on the OBA line to Ecuador today. Assuming AMER can bolster production to 9k this year from their Platanillo field, the cash flows should be impressive going into the final quarter with such small overhead costs circa $15pb.

One disappointment thus far across the picks is SOLG. Stocks often pullback after long awaited news arrives. With SOLG, the early mine resource estimates were impressive but the feasibility study and commercial plan is what the market wants most. That said, the company is going all out to prove up the full resource and until that is finalised later this year, it’s hard to know exactly what commercial plan works best. My hunch is that an early (small) mine development could be the best option assuming the infrastructure can handle it. Bringing in cash flows and moving the company away from equity financed placings is undoubtedly the best way to bolster the share price. Adding resource also opens up the door to farm out possibilities but at an early stage these are usually valued at a low point. At 25p a share, SOLG certainly offers new investors a terrific entry point into a company with immense resources and a very active work programme. Fully funded to Q3/Q4 2018, SOLG should be trading in the 30’s and 40’s based on news flow to-date.

Finally, a special mention goes to CERP. Schroders can’t get enough of this stock and that’s one of best bullish signs you can look for on an AIM smallcap. There are not too many smallcaps out there being bought up by institutional investors in the open market. Great to see and testament to the new CERP management team and CEO Leo Koot in particular.

TheShareHUB top ten for 2018 leads with the 2017 picks also doing well. The latter started the year 9.75% down and is just shy of returning to positive ground.

DailyMail and Guardian picks are closely matched. Still very much early doors.

Schroders buy more Columbus Energy Resources

Schroders are not in the habit of buying up small cap AIM listed E&P’s but have made an exception with CERP.L. The large institutional investors buying pattern is interesting. In October, Schroders approached CERP with an offer to invest several million into the business at 5p a share. It’s unclear how much Schroders initially offered or how much the CEO of CERP was willing to dish out. What is clear is that £3m was agreed and 60m shares duly placed at 5p on Oct 12th 2017. Job done? Apparently not. On Dec 21st 2017, Schroders added a further 5.5m shares bringing their total up to 65.5m. Bit of christmas shopping? Not done yet. 3 weeks later, Schroders stocked up in the January sales buying a further 7.45m shares on Jan 12th 2018. After all the seasonal excesses surely that’s enough? Nope. Today, Schroders piled on a further 5.8m shares (approx) which leaves the mighty Schroders weighing in with a whopping 12% stake in CERP.

Whilst II’s often get it wrong, and their trading activity should not be followed blindly, Schroders appetite for CERP shares is highly encouraging for all invested. With an average holding price of circa 5.25p (approx) a share, Schroders will have much higher share price ambitions for their holdings. What’s odd about the recent acquisitions in stock is the fact that CERP is not a hugely liquid stock. Volumes tend to be small during non news periods. Volumes only tend to pick up when ‘traders’ enter the fray based on technical insights or momentum news flows. So where is all this stock coming from? Who’s the seller? As there are no corresponding holdings RNS’s – the assumption is that stock is coming from Lind but that’s unclear and recent news releases suggest Lind have not drawn on the Convertible Security Funding Agreement since 8th November 2017. A puzzle indeed.

Schroders are hungry but how hungry? When will they get their full fill? 15%, 18% or 20%? If they like round numbers I would hedge a guess it might be 20%. Certainly bodes well for CERP in 2018 providing they deliver the production progress as forecasted.

CERP is part of the sharehub top ten for 2018.

ShareHub Hotlist 2018 – Week 2 Review

The strong start to 2018 continues with commodity focused stocks doing well. Both PoO and PoG are key beneficiaries of the recent uncertainty surrounding Trump and Iran. Both appear to be under attack from the ‘inside’ and have their own issues to deal with. It’s these instabilities that make any ongoing dialogue regarding Iran’s nuclear agreement/sanction deal that much trickier. With Oil supplies shrinking fast due to OPEC’s recent moves, any US enforced Oil Export sanctions on Iran, could see PoO in the $80pb range. US shale has yet to prove it is ready to make a come back and last weeks rig count rise suggests it’s beginning to see renewed interest as PoO heads into the mid $60’s (wti).

Week 2 saw the ShareHub surge ahead with strong gains across the top ten picks. Notable winners were W Resources and Cora Gold. The latter delivered a very welcome update on current Drilling with sizable resource opportunities being identified. This will please Hummingbird Resources (34%+ interest in Cora) as Cora’s licence area is just a few klicks away from their Yanfolila Gold processing facilities. HUM currently have their own pool of resources to target within the Greater Yanfolila area but gaining potentially additional resources via a deal with Cora could push Yanfolila into the 10 year mine life threshold and help convince some doubters over the longevity of the Yanfolila facility. With PoG looking solid, Hummingbird is certainly looking cheap based on AISC’s of just $695oz. A rerating should arrive fairly soon for the stock although might take a few days/weeks yet to see out Pageant Holdings who appear to be rotating funds out and into Providence Resources.

Most of the discussion last year was all about ‘head scratching’ as the likes of Tullow, PMO and ENQ were left languishing at levels seen when PoO was in the $30’s. The market appears to have taken some notice at long last and as predicted, corrected the poorly valued stocks. It’s a shame this didn’t occur in 2017 but being cynical I imagine the bankers bonuses were already secured via the FTSE bluechips. Hence, with a fresh year ahead, what a great time to sector rotate and buy into the beaten up commodity sector. Timing is everything!

Week 2 positions below, along with a comparison to ShareHub picks for 2017. The latter started the year down 9.75% and has thus far put on a very healthy 14% gain in last 2 weeks. But even that falls short of the new 2018 picks which have already delivered a whopping 16% gain. It’s early days so no clear sign that the 2018 folio shake up has worked but one thing is certain… both have performed very well indeed. The newspaper picks are doing ok albeit driving in the slow lane. Roll on week 3.