Tricky tricky. Not an easy market at present. Trump and China appear to have called a truce which again is headline news with absolutely zero substance. It’s ‘can kicked down the road’ stuff again. Brexit much of the same although yesterday’s debacle in Parliament looked like a dress rehearsal for next weeks vote. Was that the intention all along? Mr EU… did you take note of that? Did you take it as a warning or a poker style bluff by good old blighty? Worse case scenario… push it all into 2019 and extend Article 50? Please please do not agree to this. I think the UK has had enough of MP’s and politicans in general. Brexit has revealed the very darkest parts of UK politics. From outright lies or false promises to BoE governors predicting huge house price crashes… as well as the previous chancellor. The UK public have been subjected to more dodgy headlines and promises than your average online Black Friday retailer. Was this the idea from the beginning? Exhaust all involved and reduce the most important decision in UK history to a ‘this is the only deal on the table’ situation. 2 years+ and progress is zero. How much tax payer money has been spent on flights, meetings and planning for this poor deal being tabled? Extend Article 50 and you are opening the door to future extensions…. until of course there is another referendum which will be justified based on the contrived mexican stand off which seems to be in the making. The trouble is… a second referendum may well deliver the same result. In fact, after the way the EU has acted, my assumption is it would indeed be more popular to vote the UK away from these EU stalwarts. Brexit is Brexit. Get it done with no deal. Force the UK and EU to then work together, because the idea of them working apart is nigh impossible. Sometimes you have to throw the dog into the water… it will soon learn to swim.
Big day tomorrow. OPEC members hook up for the annual biscuit fest. Plenty of tea and munching going on. This time around there is a feeling of global pressure on Saudi’s. US are squeezing from all sides. Saudi’s need military supplies to deal with Yemen. Saudi’s need Iranian’s sanctioned. Saudi’s need many things which the US can help with. So what do the Saudi’s have that the US wants? Well, in a nut shell my guess is that this is all leading to a US listing for Saudi Aramco. Worth billions and billions to the likes of Goldman’s, JPM and others likely to be the book runners. Saudi’s had flattered many with LSE actually bending over backwards and changing some laws and decades of compliance to allow Aramco to bypass Jail and go straight to GO. There are no gluts out there this time around. There are no major oil tankers floating off the coasts of US or China. Yes there is an oversupply but that is simply because OPEC pumped harder upon request from Mr Trump some 3 months ago and then Mr Trump pulled the rug on delivering meaningful Iranian oil sanctions. Had Mr Trump followed through with his promises, PoO would look just fine in the mid $70’s. So bear in mind, if OPEC cut tomorrow, they also cut Mr Trumps ability to up the sanctions on Iran. Mr Trump wants OPEC to stay as they are so he can then hit Iranian oil with the proper level of sanctions without sending PoO into the $90’s. It all comes down to trust. Which is probably why OPEC might elect to go for moderate cuts citing March as next key review/meeting date. Then it’s over to Mr Trump to deliver further Iranian sanctions. If he fails to deliver, then I would expect OPEC to cut again by Q2. OPEC is fast becoming controlled by the US and that will worry many members as well as the lieks of non OPEC Russia. One OPEC member has already elected to jump ship although to be blunt, they are full of GAS.
What does this mean for PoO sensitive equities? Well, the next month could be a decent recovery month if cuts are reasonable and hedge funds begin closing out huge shorts on PoO and there are record numbers out there that need to be bought back. If cuts are on the low side, then it could be sideways trading for the next 3 months. Dull dull dull. But remember one thing… PoO has already fallen from $86pb on Brent to $60pb recently. That’s a huge correction and some might say the worst is already priced in. Some might say too much negativity is priced in. The Algo’s will walk it back up when they are ready.
Week 48 Review.
PoO’s wobbles finally put an end to TheShareHub’s growth in 2018. That’s a drop of 15% or more over the last few months. The newspaper picks look like they are suffering from Brexititus. A Santa Rally looks impossible now especially with Brexit looking like a roll over into 2019. Commodities might get a mince pie or two from OPEC tomorrow but that looks like it for 2018. It would be a victory to finish 2018 with a minor bloody nose but any growth would be a glorious result against 2018’s backdrop. TheShareHub picks still have hope, but the newspaper expert picks looked well and truly done with little hope of recovery.
Another tough week for commodities as Oil continues to get pummeled ahead of the OPEC meeting on Dec 6th. Heavily debted stocks like PMO and ENQ have taken hefty hits. PMO has practically halved from 2018 highs. That’s a serious correction. Markets being fairly unsophisticated places of late, wild swings are aplenty. Equity prices are open to abuse on a daily basis when there is no real focus on fundamental valuations. Until of course a buyer steps in and offers a cash price like that seen by DNO on Faroe Petroleum. Faroe’s share price had dropped from 160p+ to settle around 120p during the recent Oil Price reversal. Not many brokers were issuing buy notes. Yet hours after DNO’s 152p offer, analysts and brokers were out in voice claiming the DNO offer undervalued Faroe. It seems the market wants it both ways. It wants a share price that has no basis or valuation and is more to do with algo bots, ETF trading and shorting. In this situation, the price can go anywhere. But when it comes to a real genuine cash offer, the market suddenly decides on what is undervalued and what is not. Surely in a functional market the value of the business would be the price paid per share. Of course there is some room for some fluidity. But today, the markets biggest problem is that it simply doesn’t value stocks correctly in the first place. Amerisur Resources recently announced a farm out deal that effectively values some assets in the folio at the same price as the full market cap. Meanwhile, a cash pile of over $60m along with a folio of further prospects is valued at zero. The strategically important OBA pipeline valued at zero. And 20mmboe in reserves along with the 5kbopd production valued at zero. If the farm out deal wasn’t a wake up call to the market, then the £1m in cash Director buy certainly should have felt like a second wet fish slapped across the face. More director buys have since followed, yet the share price is still hugely discounted. It seems in today’s market, you actually have to have cash offers tabled before a realistic valuation is arrived at. That’s pretty poor and just shows how far this market has moved away from reality. M&A is the one thing that brings back that much needed reality. Whether DNO’s offer is acceptable or not, the market can’t have it both ways.
Trump has been on the tweet machine again spouting more headlines that read well but actually carry no weight at all. Quite embarrassing for the USA. Nothing meaningful has come from Iranian sanctions. Nothing has come from North Korea talks and much of the trade war with China still seems to drifting along with no real sign of progress. Trump endorsing or supporting Pro Brexit campaigners is just as meaningless. Trump will likely not be around in 2 years time. The UK will likely be dealing with a more open minded US President. Same applies to OPEC and Saudi Arabia. Trump might rant and rave about oil prices but he knows very little about the complex world of Oil&Gas. The Saudi’s have ruled the roost for over a century now. I don’t think they will be dictated to by a man that will likely be of no importance in around 2 years time. Yet again, it is just headlines with no real muscle. The Saudi’s and Russian’s have been over producing now for 2 or 3 months. Production levels have risen beyond the OPEC agreed levels set earlier in the year. So if the Saudi’s and Russian’s simply return to previously agreed levels… is that a cut? Of course it is. But that won’t necessarily be portrayed that way across the media or via Trump. The truth is, the Saudi’s and Russian’s historically reduce supplies from time to time simply to do maintenance/workovers and manage refineries. They can’t NOT do maintenance. In a nut shell, there will be cuts coming but they might not be communicated that way. Trump saving face is an issue that can be spun across media headlines. When OPEC announce the outcome on Dec 6th, I would expect it to go along the lines of maintaining current production as per last agreement… although in reality that actually means a cut of 1.4m barrels!
Week 47 review:
TheShareHub picks are hanging onto positive growth for 2018 which is quite an achievement considering the commodity bear market that seems to be in full swing. The newspaper picks are going sideways or down and mirroring the FTSE100. A poor end to Brexit deal discussions will surely end any dreams of a Santa Rally, but the way things are going, the only thing the EU and UK are consistent at thus far is delaying the inevitable so do not be surprised to see Brexit decisions pushed into 2019. The man or woman on the street has yet to see the deal but listening to some remainers recently, most have turned into pro brexiteers. Why? Simply because of the way the EU has behaved. School-boyish tactics and a desire from the outset to delay for as long as possible has changed many remainers minds. They don’t want to be part of this kind of EU anymore. If a second referendum was to be called, I think it’s now odds on to return the same verdict but with a bit more conviction this time. The UK is better off dealing with grown ups. Tusk and Barnier will be long gone in a few months or years time. The time to do business with the EU is when Merkel steps down in 2021. A new refreshed EU should appear then with many of the stalwarts gone. Then is the time to return to discuss trade deals. The UK can get along just fine without a constant supply of diesels by VW, BMW or Mercedes… some fiddled with and some not!
Watch out for OPEC meeting next week. WTI currently at $52pb which is about $24pb down from highs. With US shale struggling at $50pb, it would not surprise me to see a halfway house agreed and Trump’s face saved with WTI capped at around $60pb for the next few months. Trump can claim prices are down 20% from highs, while the Saudi’s can gain an extra $8pb from todays levels. Win win? Eitherway, a return to $60pb on WTI looks the most likely as the idea of WTI at $45pb makes little sense at all. And in these markets, it’s all about swings and volatility. So do not be surprised to see WTI swing 20% higher from recent lows ($50pb).
Stock to watch: Amerisur Resources. At 13p a share, it’s trading below the value of the recent farm out deal. That’s absurd! A rise back to 21p looks likely but may need a headline success on Indico-1 exploration well to enable a swifter rise.
Battered and bruised. Two words that sum up week 46. You wouldn’t think PoO is almost double the level last seen when OPEC flooded the market. The opposite is in play now and with majority of Oil companies now making bumper profits, paying down debt and pursuing new developments that were shelved some 4 years ago, you’d think the market would be pricing these stocks up. Nope. In fact, some stocks are being priced lower than back in 2015/2016. A bizarr situation to be in and whilst there might be storms ahead for OPEC and PoO in general, a return to the lows $30’s on Brent looks highy unlikely. President Trumps’ habit of making headline promises but then not actually delivering on them is beginning to become a theme. Go hard on the headline but soft on the implementation. It’s like a boxer promising to knock you out but instead sits you down and gives you a cup of tea. All the bluster on Iran and heavy sanctions are just that. Nothing of any major impact has been done. Trump promised but has underdelivered. The Saudi’s, Russian’s and majority of Oil sector were expecting and ‘told’ that Iran oil supplies would be reduced from commercial sale. It is no wonder to see PoO getting hit sideways when the opposite actually happens. Add to this the recent Saudi report showing Oil Demand slowing in next few months and you suddenly have a very bearish scenario. PoO’s fall from $86pb (Brent) to lows of $61pb seen recently is a huge blow to heavily debted companies like Premier Oil and Enquest to name two. They both need PoO higher to ensure debt repayments can be covered and capex sustained. Producers of Gas and Oil have a better balanced exposure and thus the likes of Serica Energy and Faroe Petroleum are performing better or with more support. Debt free producers with low cost production like Amerisur Resources should be in demand. Amerisur is a perculiar case whereby the share price is actually lower today than it was back in 2015/16. The company is making cash, debt free and has exploration underway, all fully funded. Yet at 10p a share the stock is barely wanted. It’s not only Oil stocks that are suffering, Miners across the board have been reduced to levels seen in 2015 and some even below cash balances. It’s fair to say that the DOW and major indices have had their bull run and a correction is long ovedue. But that’s tech / retail and banks that need correcting, not commodities. The mantra out there at present seems to be that as bluechips wobble, so should commodities due to lack of demand. But the difference that should be noted here is that Commodities haven’t even recovered back to where they were in a bull phase market. Most are still 2 years behind. Too many algo’s and bots sweeping across the entire market these days applying a broadbrush. Symptomatic of a market that now seems content to go into auto pilot and disregard all valuations/fundamentals and just leave the computers to do the unwinding. At some point the market will pause and reset itself. Presently, with the DOW at 24600, the sought after reassessment plateau does not look to have arrived just yet. Perhaps a secondary wash out is required and the DOW pushed down to 21,500 would see a few head for the doors no matter what sector they are in. The go-to safety of Gold has yet to see a significant bid. Stuck in the early $1200’s per oz, Gold is not indicating a broad market reversal… yet!
For investors, it’s the toughest challenge of all to find growth in a period of market correction. The last 10 years have felt like a freebie or gift. If you can’t make money in that kind of market then you shouldn’t be investing at all. That said, some do better in falling markets. Mr Woodford, the once admired Fund Manager has failed miserably during a bullish market period. Go back a few years in bearish markets and you’ll find Mr Woodford has performed better than most. The test of any investors mettle is when the market turns, where does the investor turn? Back to cash and on the sidelines or into seeking growth stocks that offer catalysts for share price growth. Commodities are long overdue a bull market and have been out of favour for the last 10 years+. Perhaps now is the time to switch to commodity focused stocks rather than sell them into the ground. The likes of Schroders are doing just that with sizable investments in some selective oil focused stocks. One of the ShareHub’s picks for 2018 (CERP.L) has seen Schroders increase holdings to 15%. That’s a vote of confidence for teh small Trinidad focused company. 2018 has seen most of any growth across the bluechips wiped out. Selective commodity picks within the ShareHub 2018 picks have performed well but some have suffered from the poor sentiment that is swirling around like a green fog of late. M&A is missing in action. This is much needed for a return to fundamental pricing. If anything, the opposite is happening. The big majors are offloading smaller fields to smaller companies. Instead of buying in reserves / resources, many are disposing of them to leaner tax haven businesses like Serica Energy. For the likes of Premier Oil and Enquest, these debt heavy businesses would be better off merging and lowering costs. Same applies to many other mid tier players. Combining businesses, saving costs, reducing debts… all go towards supporting a better investment story for investors to buy into. At the moment, there are still too many smaller sized companies out there that are doing very little apart from paying the directors high levels of salary and bonuses. The sector needs streamlining. The sector needs some ‘spin’ and ‘sparkle’ to get investors interested again.
Week 46 Review: The recent rout in Oil has seen the ShareHub picks slide and if it continues then it might be red across the board by week 47. The Newspaper picks continue to look weak and just goes to show the poor level of interest in equities at present. It’s becoming a bit like a ghost town out there but with Brexit still up in the air – I doubt much will change over the next 3 weeks. A santa rally would be welcome but is more likey to come via Oil focused stocks if OPEC agree cuts on Dec 3rd/4th. The market has 2 weeks left before that event so any bounce in PoO might be seasaw like for next few days. By the time November is out, I would expect PoO (Brent pricing) to be back into the $70’s. That’s 10% higher than today’s $64pb level. The question is… will the market listen and price up equities at the same time? One would hope so!
Another decent week for TheShareHub picks. The DOW bounced back strongly after US mid term elections delivered a strong result for President Trump. Yet again the President defeats the negative media with an election campaign that was based on common sense and business accumen. Why go after the house, when you know the most important and more realistic goal is the Senate. Past Presidents have either been Lawyers, Oil execs, Actors, Farmers or Writers to name a few but never before has America seen a President with Mr Trumps business prowess. The media has worked hard to paint a picture of a man who is a live wire or a loose cannon. But in true one track mind media style, not many will applaud his business sense. Just imagine Mr Trump doing the Brexit talks. I think Tusk and Barnier would have been put firmly back in their box a year ago. Mrs May is doing a fine job against a party background that is more interested in shifting internal status and power than determining the best deal for the British voter. There is no way that Mrs May can please all of the people all of the time. It’s not going to happen. The EU set out a message from the very beginning that they had to make Brexit feel like a punishment and the end result would need to deter any other country with ambitions of leaving the EU. That’s always going to be a lose lose situation, but that’s just the desired headline. The truth is, deals are made and then chipped away at over the following months and years slowly morphing into the best for ‘all’ involved. Trump would have arrived at that result in year 1. Compared to China, US, Russia and emerging countries like India, the EU looks weak and ponderous. Merkels days are numbered and one would hope that when she steps down in 2021, someone with some business sense steps in to replace her. Don’t get me wrong, a mix of skills is required in all governments, but it’s the lack of business skills that is missed most. Moving on, it’s good to see some Media are getting behind a campaign to u-turn the governments woeful decision to put off the Gambling bet reduction plan. There is no reason what-so-ever that this cannot be introduced in 2019 as previously planned and the likes of Hammond should hang his head in shame. Do the ‘proper’ thing and apologise, and bring it forward to next year. You’ve made mistakes before and done u-turns. You can do it again. The gambling industry will be just fine. Although Tory and other MP’s may seen a drop in election funds/donations next time around.
Week 45 Review:
If you had £100k to invest, then you’d be a lucky person. Based on below’s performances to date, the Guardian’s 2018 selection picked by industry experts (apparently) will have cost you almost £20k. Ouch! The DailyMail top city / analyst picks will have taken off almost £10k. TheShareHub picks at present will have grown your cash pile by £10k. That’s a £30k swing on the Guardian’s performance and a £20k swing based on the DailyMail’s results thus far. Of course there are occasions where you may have sold stocks rather than sitting locked in for 12 months but that’s the way the top picks comp works. It’s where you start Jan 1st and end Dec 31st that counts. Some stocks within the newspaper picks may give out moderate divi’s which could skew the numbers by 1% or 2% but generally, the numbers seen are how they would feel in the pocket.
Still some 7 weeks left to go and the way the markets are trading at present some would be say christmas trading has come early. Volumes are low and participation across the board looks poor. Risk off investors may have retreated to their caves ahead of the big Brexit deal decision. We saw a similar pattern ahead of the US mid terms and markets rallied after results proved to be ok for Mr Trump. Brexit is certainly beginning to heat up now we are at the sharp end. The odd thing is that at this stage you would think the British people would know the basis of the deal tabled. In fact, it is the opposite. Left in the dark at the 11th hour is never a good idea and getting this elephant through a narrow exit door is going to need a great deal of pushing. It’s been messy from the outset and it’s not looking like being a slick finish especially as the very public that voted for it have yet to show their voice.
Roll on week 46. The 175th OPEC meeting is set for Dec 6th. Historically, Oil tends to head higher going into these meetings. Currently at $68.5pb (Brent), it looks cheap considering the lack of floating oil storage out there. Supply is tight and the Saudi’s want brent closer to $75pb than $65pb based on recent hints. So expect some positive movement once the hedge funds have adjusted their short weighted positions of course!
Another week passes and another 1000 stabbings occur in London. That figure isn’t verified and if you asked the Police, they wouldn’t be able to verify the numbers either. The problem is… the only stabbings that get notified or registered are those that are either fatal or require emergency A&E attention. Tighter laws need to be introduced and swiftly. A knife is just as dangerous as a Gun. Unless you’re a butcher or a fisherman, I see little point in walking around London streets armed with a knife whether pen-knife size or cleaver. Just ban the carrying of any blade like weapon and increase the penalty ten fold. That should reduce the number of knife carriers by half in blink fo an eye. Some will point to the Tory cuts to policing. Of course, if you reduce the presence of Police on the streets, then crime will increase. So the government has to be held to account when it comes to the demise of London and the new Ghetto name tag. Like actions taken on pushing back the gambling law or the sloth like approach to dealing with the likes of Amazon/google tax avoidance. These are issues that need to be addressed swiftly. We don’t live in a world anymore where you can allow a year or two to slip by. Changes need to happen and happen faster. Brexit has been a distraction for all involved and if you add the number of metaphorical ‘back stabbings’ into the numbers, we’d be close to 1 million per week and that’s just within the Conservative Party. Too many politicians have used Brexit to strengthen their political donors positions. Too much infighting and not enough cohesion. Should a deal finally get agreed in the next couple of months, then minds can refocus on the important issues at home which hopefully will result in the gambing stake reduction law being introduced next year, a new Knife ban with higher penalties and many other important issues sorted out.
Week 44 Review:
The spectacular rise of Serica Energy continues. Many ShareHub readers will know from past ShareHub coverage that this stock was dealt a blow by BP a few years ago when the Oil Major pulled out of a huge exploration well in Namibia. Three years ago, Serica Shares were trading at 7p. 2 years ago they were trading at 13p. Then, this time last year, Christmas came early. BP dropped their BKR assets down the chimney. It was an astonishing deal as it effectively gave Serica huge resources / reserves and instant cash flow. Where’s the catch? Well, imagine you are buying and selling oranges and making a 20% profit only then to have to hand over that 20% profit to the tax man. That’s BP in simple terms. In Serica’s hands, these assets are hugely profitable due to the tax breaks they receive. Furthermore, the impact of the cash flows is transformational in market cap terms. The problem for large Oil majors is when fields get to the end of their life, the last few years become loss making or at very best breakeven. All liabilities with decommissiong remain as do staff costs/redundancies. The list goes on. Now, since the BP deal, Serica has continued to pick up more assets from the Oil Majors on the cheap in similar style deals. Some of these are structured in a way that makes them look a bit like a tax dodge. Serica could in effect be an offshore tax haven as some deals see Serica return cash to BP. So ineffect, BP’s cash/assets go to Serica and then come back to them via Serica (albeit reduced) but one suspects with tax benefits. Now don’t get me wrong. I adore this kind of business model. The City of London and the likes of Goldman’s and others have been washing cash through offshore accounts for years. Russian money, whether in London Property or through cars or art sales – always seems to find its way through London. These are the ugly deals – the type of deals where the man/woman on the street sees no benefit at all. UK Oil&Gas is in need of support and investment. The City of London is not interested in supporting these companies as seen by the handling of the Xcite Energy fiasco. 300mmboe in reserves and approx £90m in debt yet the finance world could not support them and instead the company is no more and the 300mmboe is still under the sea. More ‘good’ deals like Serica/BP’s should take place. There are few AIM listed management teams out there that are more than capable of taking on the responsibility of some ageing fields and have huge tax loss pots to utilise. At 134p, Serica has grown 10 fold since last year. It’s now approaching a mid-tier Oil&Gas company. If the Oil majors continue to use Serica in this way, then it could become a 20 bagger stock. It should be noted that Oil fields don’t always perform as planned and there is a risk attached to taking on these fields. Serica recently cleared a blockage in one of their pipes which held production up for some while. So tread carefully. For the moment, Serica is going great guns and the stock has helped the ShareHub top picks to 9.7% growth for the year.
Elsewhere, AMER begins (early stages) what looks like a long overdue recovery back to 20p levels. At 11.5p, it still has some way to go but based on a valuation basis, there is no obvious reason for the stock to be so deeply discounted against cash flows and future multi exploration programme.
Not many weeks left to the end of the year, but I am hopeful that CERP can put in a strong finish by hitting a 1000bopd target. CORA is in need of cash and will need to get a funding round sorted swiftly if they are to prepare for further exploration next year ahead of the Mali rainy season in June. HUM know all too well how damaging the rains can be and an update on how the company intends to move forward is much needed. It doesn’t look like a good year for the minnow Gold Producer. Finally, WRES is edging higher after making good progress on their La Parrilla project. Quite a few ShareHub top picks look set for a decent rise assuming news is good and post US mid term elections deliver a Santa Rally.
As for the story in 2019 and which stocks might perform well… we’ll get to that in a few weeks time.
Another lacklustre and weak period for equities. Majority of major indices have wiped 2018 gains out completely and are trading at levels seen last year. All the risks of early 2018 remain and whilst little rocket man and the strawberry blonde appear to have shaken hands, not a lot has actually happened. Same could be said for Brexit. There’s more talk about ‘extending’ and kicking the can down the road than there is talk of getting agreements done prior to deadlines. The longer the can is kicked down the road, the more money the EU gets from the UK. It’s like paying your mortgage off and then the lender coming back to you and asking for another couple of bonus years. Big business is just getting on with it as best they can but huge changes await around the corner and it is going to be choppy. The likes of Apple, Google, Facebook and of course Amazon are unaffected. Cross border trade for digital online retail services seems almost non existent. Hammonds recent budget yesterday highlighted the need to clamp down on tax payments by these companies but that’s not going to take effect until 2020 and even then it’s minor. As an example, some will remember how UK listed PartyGaming the pioneer in internet gambling/poker/casino games etc dominated the world including the USA. The Vegas groups got left behind. But within a year or two a bill was slipped through the senate that ‘banned’ non US companies doing business with US consumers. The legal responsibility rested with the banks that do the credit transactions. The US has for years upon years been protective about ‘business’ in and outside the States and Trumps recent mantra of America ‘FIRST’ is just a blunt reiteration of this mindset. On the other side of that mentality is an America that is doing trade with the rest of the world via Apple, Google, Amazon and so on and not paying their fair share of tax due while also single handedly (in Amazon’s case) destroying the UK retail sector. So why can’t the UK or others introduce a similar ban on sales to these companies? Why not put the responsibility onto credit card companies and banks. It’s been going on for years and looking at Hammond’s recent offering, I do not think the big US firms are worried too much and Hammond should be ashamed of that. Now is the time to put a heavy boot in and not pussy foot around. When the UK finally gets over the Brexit line, it will need to put BRITAIN FIRST. That needs to happen not in 2 years time, but now.
Week 43 Review:
Dealing with ShareHub underperformers first, unfortunate news from Hummingbird Resources has all but put a nail in that coffin for that stock in 2018. A combination of poor management decisions has seen an attractive investment case and 38p share price fall to just 19.5p. It’s a wake up call for all investors to not assume that cash flows will come just because a mine is fully functional. Hiccups, unforeseen or down to managerial issues can occur in any business. HUM’s ability to deliver the mine on time and on budget should be applauded but since then costs have spiralled and AISC’s of $900oz have taken the gloss of a fine future. The latter now rests firmly with the planned boosting of resources which is now a must. If they extend mine life to 10 years, then the story looks much brighter. Amerisur Resources continues to drift lower. Anyone would think PoO is trading at $28pb again. Amerisur is debt free and has cash of approx $50m in the bank. 5000bopd production and an exciting exploration plan within the CPO-5 licence block which is run by Indian giant ONGC. It’s certainly a puzzle and management have been silent so one wonders whether an MBO deal may be in the wings? Eitherway, assuming there are no uglies lurking, I would expect AMER to put on some weight once the exploration drill bit starts turning. 3 x dusters seem priced in already which is a little pessimistic considering the success of the first well. Could be the market just being thick (which it is 70% of the time) or simply selling pressure from large HNWI’s like Rex Harbour. Next is Cora Gold. Decent news out on resources but the market knows they need funding to progress and thus share price progress is like being stuck in mud until resolved – the company needs to get funding sorted so plans can move forward. And finally CERP. This company has a bright future now that M&A is bedded in and spanish issues look under control. I expect newsflow to pick up once the recent placing shares have been waved through at the upcoming EGM. Schroders are not in the habit of throwing cash away and their investment in CERP is sizable. Out of the 4 lagging stocks, I would expect CERP to stand the best chance of seeing green again this year. Not much to report on the positive performing stocks. Serica have unplugged their blockage and are doing much better after Iran sanction issues put to bed… for time being. PVR and SOLG could have an exciting end to the year as SOLG are due to report on updated resources report and PVR are heading ever closer to a transformational drill programme on their Barryroe asset in 2019.
The newspaper picks are beginning to look like tired. But losses have been plugged of late and it is the ShareHub picks that seem more intent on tracking down to red levels rather than the newspaper picks seeing green again. I think it’s highly unlikely that it will end positive for the DailyMail or Guardian in 2018.
Commodities M&A still missing in action… surely it has to kick off soon? Roll on week 44.