Savannah Resources (SAV) - excellence delivered...

Savannah Resources (SAV) – excellence delivered…

Savannah resources has been a favourite of mine since last autumn and quite a bit has happened in that time. I had decided that I would try and put a blog together once the results are in mid September.

With that in mind I started a bit of research since my summer holidays are almost over and I need to get back to the grindstone of earning money.

That research proved to be a little more extensive than I wanted and so this blog was born really before I wanted to write one. So now it will have to be a case of a pre news flow blog and a post news flow blog after hopefully talking to David.

Let’s talk about what Savannah has been up to over the last 6 months.

It has entered into a majority ownership of a very nice little Copper mine in the Oman. This looks to contain a good 30000-50000 tonnes of copper, in a pretty high grade open pit strip operation, with low capex and tonnage costs, under the current JORC. There is without doubt scope to expand this resource and it looks like a low risk, bankable operation probably aiming for total resources of 100k tonnes of copper at a mill rate of 50K tonnes of 2% rock a year over 20 years. This should give approx. 1000 tonnes a year as a bare minimum with expansion to 2000 t/yr quite easily.

With regards to the Oman project although the JORC grading is at 2% and this has been used to calculate the tonnage above, considerably higher values of 6%> have been found with significant lengths of 50+m. It’s my belief that Savannah is continuing to explore these higher value targets for early production targets. Again a through mill rate of 50k t/yr as mentioned above would if these targets are confirmed generate 3000 t /yr of copper expanding quickly to 6000 t/yr quickly on a low capex. Generating income of 15-30m a year with an approx 2 year pay back on initial capex, giving a conservative valuation of 60m Mcap.

News is expected in September as to Oman exploration on these higher targets, increasing the JORC figure and potential economic analyst.

Moving on to the Mozambique operations. I am assuming that anybody reading this has read though the RNS’s and has a basic understanding of the prospect.

To help with the exploration to date I’ve used the latest exploration map and added any features that I think are missing.

Savannah invested in this license less than 12 months ago, in that time they have undertaken 2 drill campaigns with over 100 drills, they have performed XRF and detailed electro-analyst of the results to determine Heavy Mineral values and Oxide percentages. Metalurgy results have been produced. Ground and Airbourne magnetics have been shown to provide good results of Heavy Mineral finds and have been rolled out extensive across the license area.

To remind people, the license area has extensive train and road access, as well as electricity grid and water availability. The Mozambique government have asked Savannah to explore quickly as they are keen for mining to be undertaken so permits etc are a formality. The licenses next door are owned by Rio Tinto who have a target of 7-12 bn tonnes at 3-4.5% in Mozambique.

Figure 1.

So far Savannah have identified 2 major dune systems to the SE and NW with multiple targets in each area, measuring many km’s in length.  Total Heavy Mineral(THM) results indicate widespread values of around 3% as high as 5% in places. Results indicate that the extraction process is relatively cheap and easy due to low slimes content and the deposit looks to be from surface to 25m(down to 50-75m in places) allowing easy strip extraction.

Figure 1 shows how well drilled the license area is thanks to the 100+ 2^nd drill program which will be reporting in the next 2 weeks. These drills results will give a very good understanding of how much tonnage the license area is likely to contain.

The Magnetic surveys have also done an admirable job identifying strandlines that have not been picked up yet by investors. These strandlines are massively undervalued in my opinion. Again I have put an example strandline on to figure 1 which was released as a taster by Savannah. A few points that maybe people don’t understand.

The strandlines seem to be on the edge of the dune systems and so are extra to the found exploration areas. 

They follow the contour of the upland dune systems as they go down into the river valley. They would have acted as high grade depositors channels of the Heavy Mineral sediments as the alluvial deposits built up over time, this is against the more general uniform alluvial deposits of the dune systems. It is my opinion that THM could be in the region of 8-15% in these strandlines. With some strandlines being multi km in length they would provide fantastic opportunity for high grade start up mining. These sites are currently being investigated.

Savannah resources have now mobilised a team to perform detail JORC drilling which is getting under way as we speak with the aim of defining a high quality JORC.

Savannah resources have also contracted a world leading heavy mineral consultancy firm to provide the economic component to the project, detailing potential uses of extracted Heavy mineral products and looking at details so that a DFS and PEA can be produced a break neck speed once the JORC is completed. Again its important to remember that 12 months ago this was pretty much virgin exploration territory, demonstrating the speed at which the Savannah train is travelling.

What to expect.

Well I’ve performed some initial calculations, using what I hope are very conservative assumptions detailed below.

1 sqm = 2 tonne

Only the top 25m is economical (not true but gives a low ball figure).

Only 10 strandlines are economical.

So giving the above I get a 2bn tonne resource…

At 2% THM I get 43.5m tonnes of THM, at 5% Just over 108m tonnes.

It’s clear from figures like this that Savannah is likely to have a resource valued at well over £1bn even using very conservative figures…

A large 10% strandline mined could be worth $150m over a 3 year period just by itself.

So where does that leave us.

Savannah has a current Share Price of 4p and a Market Cap of 6.6m. Savannah has 3 main assets 21% of Alecto Minerals(ALO) currently worth approx. 1.5m. Oman and the Mozambique project. If we assume the Oman project is worth 1.5m, then it has lots of potential upside as it approaches production and economic studies and starts to reach it net worth of at least 20m…

That leaves Mozambique which must be worth 3.5m……Yep that’s right, we have a project that is being progressed quicker than any other project on the AIM, its being progressed by a team that has created 100’s of millions of Market cap value for other companies. It has a project size that is measure in Billions and is entering a good value market.

Buy outs in the Heavy mineral arena are currently active as the market leaders seek to squash and buy up any new entrants to ensure they control supply.

The next few months, with September in particular, will likely see a fresh and large news flow. In the past the main criticism I have of David has been a lack of understanding of how demanding AIM is. He’s use to the more research/patience ASX. AIM needs good news flow something he seems to be delivering. I have also been critical of the length of time taken to get samples to the lab and thank goodness David now transports via plane rather than via sea.

Another major problem recently has been the poorly received Bergen funding. Savannah is certainly well funded now, but Bergen have been selling into the market and forcing the price down. In a low liquidity market it has dragged the SP down from 6-7p to the current 4p.

I have been reliably informed that Bergen’s holding is now below 1.5% having fallen by nearly 80% this means that the biggest break on the Share price is about to be release and will certainly have no effect on a moderate news flow.

With the news flow we will see the size of the Heavy mineral deposit, the likely THM results and the first detailed picture of the license area. We will see how economical the copper project is.

The 1.5m value for Oman and 3.5m for Mozambique will likely be blown out of the water in the next few weeks…

Bacanora(BCN) - Ending the drought

Firstly I should say I am still on my hols and will be for a few more weeks, so it takes something special for me to write anything now.

That something special is the first new mining company to float on AIM for 3 years...
Bacanora has been on my radar for a few years now, I've greatly admired the ability of BCN to find good sites to fund them and to advance them with minimal dilution.
It has two great projects in the Magdalena Borate project and the Sonara Lithium project.

Both Projects are in Mexico, both in the more stable northern aspects of Mexico with easy access to the worlds largest market. Both projects are advanced and have been advanced on minimal spend.
As per the BCN CEO "We're looking now to do the feasibility on both of the projects," Mr Orr-Erwing said. "We hope to be offering Borate by 2015 and Lithium in 2017."

The borate project is highly advanced with plans to produce $25m of borate per year starting in 2015 with an initial capex spend of 7.25m.
This is important, firstly it provides much needed money, secondly it demonstrates that the borate project is highly economic and with larger processing could be raking in $100m a year pretty easily, thirdly it demonstrates that BCN is capable of taking a project through to production.

Then we have the well known lithium desposit, i won't go into too much detail here as its well known. But with a potential $20-30bn of resources, a pilot that has confirmed the ability to produce battery grade lithium and at very low costs. BCN quite possibly has the largest lowest cost resource of lithium in the world.

Internals. 45% of all the shares are held by 3 long term investors. Another 20% are held my other longer term investors. That leaves around 20-30m in free float.
Of that 20-30m many will be in the hands of longer term investors, however despite this 7m shares traded hands today, maybe as many as 50% of all the tradable shares. In London BCN shares rose quickly and 3 times bounced of 80p. This is either a very very quick support level or its the level that somebody is wanting to load up at.

The AIM market makers shown strong signs of pushing the bid up, pulling in any issue shares and raising the ask with any string of buys. All of this points to strong rise next week.
Longer term BCN should reach parity of NPV discount to REM, maybe over 3-4 weeks for the lithium project.
There is also the expectation of news during this period. A jagged rise to 3-4p is certainly possible.

So a special case to break the drought on AIM and its taken a truly extraordinary company to do it. For many investors it will take them by surprise.....

Afriag Update.

Its interesting how things tend to pan, since I wrote my last piece on AFRIAG about an interesting 4 weeks, we did indeed have an interesting 4 weeks. We had the announcement of a new 100% owned division called Afriag Marketing. We had the cancellation of YA funding deal and a direct placing.

What has gone before with Afriag has been all about creating foundations and supports. We are now entering the next phase which is phase 1 of value.

Phase 1 of value will happen over the next 4 weeks again in my opinion, we have the first true trading update on Afriag SA which AFRIAG have committed to delivering, this will include the new important Mozambique contract and will be enough to give us the first clues as to how profitable Afriag SA should be. I am confident Afriag SA will be on course for 1m profit by the end of the year. BTW isn’t that it will make 1m in 2014, but that by Dec 2014 it will be creating at least £100k a month profit.

I am also expecting news on new contracts and new truck expansion. This will be the first official 6 month detailed trading update form Afriag SA do not underestimate it !

Over the 4 week time period we also have the official creation of Afriag Marketing. Now Lenigas and Strang are two of the busiest Directors in the small cap world, why on earth would they create a new small cap company that pays them no wages…..Its very clear that there is a detailed plan for this company and both men can see pretty quick, maybe even immediate business for it. Expect it to be launched with much publicity and lots of noise from David.

Now we can have a bit of fun.

We have Polemos, which has Lenigas and Strang on its BOD, which in June when Afriag raised its money and announced the creation of a new company, also raised money and has the investment line of “There are no restrictions in the type of investment that the Company might make nor on the type of opportunity that may be considered”.

We have Afriag Asia (thanks Phil who has been researching it). Set up by various funds and from my understanding, owned from the British Virgin Islands. Mr Lenigas is no stranger to working with, buying or dealing in the BVI, Just ask REM and some of its holdings companies.

We have Viking Fisheries that I have been told are expanding in this Asia and the middle east and might have discussed with some interesting South African’s.

Make no mistake David wants Afriag to be a large global player in an industry worth hundreds of billions.

Rose Rising

This blog will be in two parts, the first part is the summary of my direct liaising with Rose Petroleum, the second are my thoughts going forward. I feel its really important not to get the two confused as I don’t want to be seen misquoting. Something I’ve learnt in the past.

Rose has a considerable asset in the US and the US is a strong market for Shale exploration companies, is there any plans or long term strategy to float on a $ exchange ? i.e OTC etc “This is under consideration”

Rose confirms its Q3 intentions. “Rose plans to commence the Mancos drill programme in Q3, with completion in H1 2015. We plan to commence testing the vertical shut in well in the Paradox also in Q3 but will not be going horizontal until 3D seismic is available.”

How exactly will the paradox drill work, whats the plan with this drill. “This will very much depend on the 3D results. Fidelity, which operate directly south of us in the Paradox have some wells producing from vertical wells only and some have 2,000ft laterals. They use the 3D to target areas of high natural fracturing. If they don’t hit them vertically then they go lateral until they do. This can be 100ft, or 2,000 ft.”

What strategy do Rose have for the two resources “A number of industry partners have shown a good deal of interest in this opportunity as well, so we’ll probably bring in an industry partner for a portion of it,”

“For Mancos….finding and development costs less than US$17 a barrel”

“For Paradox…experiencing on a single zone completion, again we get over 100% rate of return and less than US$20 a barrel finding cost”

“Essentially we’ve raised enough money at this point to get us into production and then at that point if we need any additional capital, it will certainly be very easy to raise once we’ve already established production”

Thoughts.

http://www.bloomberg.com/news/2014-06-27/magnum-hunter-turns-891-million-in-debt-into-138-gains.html

As per the link I’ve used previously, a US listing for ROSE is critical in my opinion to see Rose rise from the 100-120mcap player potential to the 400m+. Rose have confirmed to me that they are actively considering such a listing. If this were to happen it would make Rose available to the largest market for shale exploration companies, a market which is very hot at the moment. We have seen a few pointers to ROSE courting this market over the last few weeks, not least the recent main story on a prominent US oil and gas e-magazine this week. This will provide explosive growth to the tightly held shares in the UK and it is purely my opinion but I see an announcement on this within the next 3-4 weeks.

Mancos is not going to be a single exploration drill. The plan seems to be a campaign (or programme as described by them) over 6-9 months. The BOD clearly talk about wells and not well. My understanding is that a vertical well will be drilled and tested with the hope of 300-1000bopd flows, using 2D, a horizontal drill will be completed through adjacent naturally fracked source rock to increase oil flow. A fall back solution of real-time pumping might be needed, but isn’t anticipated in the short or near medium term.

The vertical testing of the already drilled paradox hole will be equally interesting, with possible oil shows, we might get a figured of BOPD from possible pumping. ROSE are being very cagey about this hole and I have a feeling that a surprise is very likely from it, even before the lateral component is factored in….More news to follow when I get it.

3D should take place across paradox with several well defined areas. The initial area around the existing hole, should be completed fairly quickly. It will then be used to guide lateral lengths to natural fracturing again.

The BOD are confident bordering on outright expectant re oil production from paradox, this again reinforces my view that the existing hole is already known to be a good one, but that lateral drilling is needed to confirm it in the 1000bopd category.

One of the aspects I like most about ROSE is the simplistic strategy its deploying. Its essentially copying Fidelity. Back in 2012 Fidelity noticed some success with a new technique in this area. The technique was simply to drill a vertical hole, if oil shows are found, but nothing flowing naturally, to simply use 3D high def to examine the ground to find a natural fracture that it can tap into. They will target 3 or 4 natural  fracturing zones along a line and simply drill until they get the desired flow….With this fidelity have reached 20,000 bopd with each new hole, almost guaranteeing 1000bopd…. Hence why they have a MCAP well in excess of 1Bn.

Rose are simply copying this, just a few miles down the road in the same geology. They have even employed the same GEO consultants that helped define this strategy. Bit of a no brainer really.

Coupled with all this we have a low barrel exploration cost and the BOD being pretty adamant that it will not need money until production (notice no uncertainty at all that production will happen).

We have strong news flow still of Mancos drilling and the program planned their over the next 6-9 months. We have 3D and associated results, we have paradox and the simple vertical testing and then plans for horizontal testing. We have a significant and large JV to be announced(IMO) which could well be fidelity for a parcel of land, probably in Mancos as both companies would benefit if they can replicate the drill strategy in that geo-location. We have further possible licence buys planned for the next 10 weeks. We have also IMO an explosive  US listing.

What more do you want !

Probability and COS.

I read a post which really concerned me about oil drill and more specifically drill campaigns. It is absolutely vital for any investor in an exploration oil stock to understand cos and how it applies to multiple drills.

So firstly what’s cos? Cos stands for chance of success. 

This is not the chance that xxxx bopd will be found in the drill, nor that the drill will be commercial. It’s the chances that the drill will be a valid and working geological oil or gas trap. Many wild cat drills have a COS of less than 20%, many drills in existing oil fields will have a COS of more than 80%.

The COS applies to a single target zone normally and not to a large play nor always to a particular drill. For example a single drill will often go through several target zones, each as independent standalone traps, each with their own COS. Popular recent examples of this are Range’s, Lenigas’s and Citation Oils drills.

Now for a very quick overview of probability. I was fortunate enough to have attended a lecture about 6 months ago from a lecturer at Oxford University. Although nothing that was said was ground breaking it did reinforce how misleading probability can often be. With regards to oil we need to know, for example if you drill 5 holes each with a single different target and each with a 20% COS what are the chances that one of them will find oil? Hint it certainly won’t be 100%.

How about if we have a single drill that goes through 3 different targets ?

When working out risk/reward if we don’t understand the risk of the oil not finding oil, we certainly won’t get our risk/reward calculations right.

So probability; firstly the Monty Hall problem. If you know about this feel free to skip it.

“Suppose you're on a game show, and you're given the choice of three doors: Behind one door is a car; behind the others, goats. You pick a door, say No. 1, and the host, who knows what's behind the doors, opens another door, say No. 3, which has a goat. He then says to you, "Do you want to pick door No. 2?" Is it to your advantage to switch your choice?”

The answer is not that you have a 50/50 chance now…..The answer is if you don’t switch you only have a 1/3 chance of winning and if you do switch you have a 2/3 chance of winning. Strange…but true. If you don’t believe me, it’s been proven multiple times by computer software creations and just google Monty hall problem.

So next one, if we have a six sided dice and we roll it 3 times. We have a 1/6^th chance of success with the first roll..But we don’t have a 50% chance of success with 3 rolls….why on earth not.

Well yes the first roll has a 1/6^th chance but next roll is totally unconnected to the first roll, whether you have rolled a 6 or not previously won’t effect whether you roll a 6 on the 2^nd attempt.

However the chances are connected. If you rolled a 6 on the first attempt you wouldn’t have to roll a 2^nd time. On the 3^rd attempt you’ve had 2 unconnected attempts to roll a 6. So a bit of math.

“For three rolls, there is a 1/6 probability of rolling a six on the first

roll. There is a 5/6 probability that the first roll is not a 6. In that

case, we need to see if the second roll is a 6. The probability of the second

roll being a 6 is 1/6, giving us a probability of 11/36. There is a 25/36

probability that neither of the first two rolls was a 6. In that case, we

need to see if the third roll is a 6. The probability of the third roll being

a 6 is 1/6, giving us a probability of 1/6 + (5/6)*(1/6) + (25/36)*(1/6) =

91/216. Again, this is less than 3/6.”

So where does this leave us for investing in oil exploration. Well firstly some oil drills are connected as they have similar caps, an example of this was Loligo for FOGL. However for a company like ROSE where we have a likely 50% COS for one area (paradox) and a 30% chance for a second(mancos). If we add in the complication of 2 possible targets for mancos we get a % chance of one of the any drills well above 70%.

Different drill targets (unconnected) = good. Multiple zones in the same drill = good.

Don’t let idiots mention 20-30% chances and leave it at that, equally don’t let rampers mention 2 drills both at 50%, 100% certainty and believe it.

COS is massively complicated….

Rose Petroleum #ROSE – Less Manure more Miracle Grow.

Rose Petroleum #ROSE – Less Manure more Miracle Grow.

Reading through the internet, it’s easy to find lots of good articles written on ROSE, before any asks these are not necessarily articles that predict 10p in a weeks time, but they are articles that give a reasoned and thoughtful view point. There are however some which are rather manure in like. For this reason I’ve been thinking hard about whether to write anything on ROSE as most of it has been said. Now I just to need to confirm that I am a holder of ROSE.

The history of  ROSE has been written about elsewhere, so I’ll  mostly skip that for now, as most know ROSE came out of the ashes of a previous company with a bit of baggage, a few exploration sites, a working  and profitable mining unit in Mexico and unfortunately a Convertible loan note for 80m shares priced at 1.25p.

The mining unit in Mexico has been doing very well, with higher than predicted grades and better throughput, which has counted rising gold prices to give a 1m+ profit. This is expected to increase further and nicely covers the administration costs of the company leaving money raised to be used for exploration purposes.

ROSE has large exploration licenses in Utah with independently assessed reserves of of 1bn barrels are a great deal of gas. ROSE has committed to drilling and completing in the upcoming quarter into an already proven and producing resource target. Over 100 drills have taken place, over $1bn is being spent by other companies exploring these plays in 2014.

Rose has also committed to producing (using recently raised funds in the next 9 months.

So what does ROSE have going for it..?

Lets start large scale external…The US has a desired aim to be self sufficient in production of oil and gas, It also wants to be a major exporter and finally wants to be self supporting in the event of a 50% increase in consumption in case of a major war scenario. US states, particularly those without a highly educated workforce or high population areas are in need on revenue. Washington although not a firm believer of fracking turns a blind eye due to the national benefits.

UTAH is very much at the forefront of this drive.  Its low population density. Has a need for revenue and has a number of world class oil/gas plays vastly under developed (of which ROSE is very well placed). Utah is currently rapidly activating licenses for auction.

The licenses that ROSE have in UTAH have very good oil and gas connectivity with major pipelines within easy distance to get production up and running quickly.

http://www.bloomberg.com/news/2014-06-27/magnum-hunter-turns-891-million-in-debt-into-138-gains.html

An interesting article above on the state of Shale mining at magnum hunter, it owes, vast amounts of money, has a 1.6bn market cap, has only drilled 5 wells. But importantly its potential is seen as so massive that it can raise money at will…..The boom in US Shale should not be underestimated imho.

So moving down Rose has probably the most impressive OIL BOD and Team of any Oil company with a valuation of less than 50m MCAP imho. Through the end of May the share price rose rather dramatically and importantly for the Note holders shot past the note issue price of 1.25p+ a healthy profit margin. On the 5^th of June the SP was over 3.50p a share, however the companies was forced the on the 6^th of June it was given notice that the note would be converted. As the CEO has mentioned in recent interviews, the only reason the conversion would occur would be in they intended to sell the shares. The Share price started falling on expectation that 80m shares would hit the market and the BOD knew they would need to get a placing in quickly before the SP fell to far. They opened a book, didn’t have to underwrite the placing and received 6 times more interest than they needed. A few comments have been made about the quickness and timing, but in my opinion this was forced on them to do it before the 80m share hit the market. They negotiated a respectable 1.5p. Importantly the information obtained, indicates that the most of the placing went to industry specific funds, with smaller percentages to private individual’s, directors and brokerage companies like Jarvis. The extra money raised above 5m in the placing was solely to industry specific funds.

On the 19^th of June the equity for the note conversion was released, on the 20^th of June the placing was announced. The Share price fell to 1.6p within an hour…… At the same time the 80m shares from the note conversion started to be sold on the open market, by the 24^th of June over 30m of the shares had been sold…

Seems to have been a perfect storm to collapse the share price. However the share price responded. Despite this we now currently sit at 2.275, after having reached over 2.5p.

An examination of the large trades indicates that over 120m has been sold in large quantities, an assumed 60-80m of the notes (although it’s possible that the note holder, sold enough shares to cover the 1m note and the remainder is staying unsold as a free carry). An assumption can also be made that some of the shares from the placing were pre-sold into the market before being released on Monday.

So where does that leave us moving forward…

The laws of gravity normally dictate that the share price will fall whilst a big seller offloads, that hasn’t really happened, although the share has come down from its spike. It’s been very clear that the share has actually risen from the date the 80m shares came on the market. I firmly believe that most of the placing shares from traders that were only looking for a short term profit have most likely sold up. Volumes have been from 30m to 110m over the past 10 trading days on AIM an ISDX combined and its fairly clear investors (both large and small) have been buying all of the available stock on the market.

The questions that most are asking are, is this a spike ?, what will happen when all the placing shares are sold ?

These are totally the wrong questions, investors should be asking, what will happen when the large sells have gone ? (which looks to be  the case very very soon) and why was the placing 6 times over subscribed ?

We are in my opinion on the verge of a liquidity crunch for ROSE this will happen in 3 places to differing degrees.

First crunch before spud, during July, August and September the company will conclude its virgin hole. Prior to this interest will peak allowing a rise to 5-6p, as shares drift to more medium term holders will to wait until after the results are known for the 1^st drill.

Second crunch post spud, pre results. This is likely to be sentiment push, again with minimal selling. Drift to 8p.

Third crunch post results. If Rose hits any kind of decent flow rate, then the money rich mid tier US companies will be knocking, many with a 1-2bn Mcap, spending 400-500m a year on exploration able to raise upto 1bn in short order. If Rose gets a decent first drill, then the chances of rose staying independent for more than 6 months will be tiny. A rise to a 300-400m MCAP is not to be discounted, again who would sell with the knowledge that the US are Shale exploration crazy and ROSE is successful ?

We have to remember that ROSE has the profitable Mexican mining unit. This could, should and hopefully will be sold once a successful production ready drill has occurred for a reasonable price of 10-15m. This would be enough for 10 further drill, expected to cost $1.5m per a drill. So ROSE could well be fully funded to  3000-4000bopd.

As with all investments, ask the right questions, buy at the right price and the opportunity that the offloading of the notes and the funding shares has presented should not be ignored by investors, a very real chance of being the share of the year and at this price a genuine steal.

The importance of Trinidad for Range(RRL) and Lenigas(LGO).

 I made the call on twitter to buy LGO at 2.5 and RRL at 1.2, some found this strange given the recent rise of LGO. Off the back of the LGO rise to 2.5 once I had invested in there I did the obvious and looked around for similar companies that might make the same leap forward…

The question though is why did LGO leap forward and why was it still under valued at 2.5 ?

Well I am pretty sure its got sod all to do with Mr Lenigas. In truth they were looking for 60bopd from the well which would have been nice and sustained a 1.5 to 2.0p share price. However what they actually found was 240(300+ unrestricted), high pressure, top quality heavy oil.

More importantly to the markets this was drilled, assessed and into production in just over one month. This is an incredible achievement and will add directly to this year’s bottom line.

So the key factor was the quality of the field and the ease of the asset into production. For me this led immediately to the other owner of the key resource targets Range Resources(RRL).

RRL at the time had risen upto 1.2 but hadn’t really taken off as it still had a market cap below that of LGO.

RRL has far more assets than LGO both within Trinidad and around the world. With well timed news that the company is now virtually debt free, with the bulk of the assets intact a significant recovery play could well be on the cards.

For RRL, if it can replicate the drill success of LGO with a single drill it will bring a level of surety to its recovery back to a mid player.

As most know, the problems at RRL really stem from the awful decisions of PL. His failure to implement a successful plan for Trinidad, failed exploration around the world, woeful control of costs and one of the final acts; the developed of a crap team of drillers and drill equipment to support in house drilling at Trinidad. Thankfully new management have been addressing this by employing more experienced drills, better training, refitting the rigs and actually ensuring that the in house team is at last fit more purpose.

LGO have shown what can be achieved if the drilling and exploration is done well, this won’t be lost on RRL and I would expect RRL to capitalise on this in the coming week, they no doubt thought to drill in peace and quiet and then surprise the market, but this isn’t the correct strategy now.

So for me the potential of Trinidad is pretty clear it can support a couple of 500m Mcap companies each producing say 10K BOPD in time quite easily. The chances are that one of the companies at least will achieve this over time, so an investment in both at the current low levels would both increase my chances of a significant win and the potential reward…

Why I brought LGO at 2.5p

I am sure we’ve all heard the saying, don’t buy on a spike…..well I did today and I am very happy thank you.

Firstly a bit of background. LGO is an oil producer with various assets, that specialises in the underdeveloped Trinidad oil fields. These oil fields are historically low volume producers and quite old. They are shallow in nature. Previously LGO concentrated on workovers i.e trying various techniques to try and up the older existing holes from 1 BOPD to maybe 5 or so….. Big Deal.

I can remember saying on the LGO board when this was started that I thought it a total waste of time and money and that I wanted to see the drilling of the deeper targets. To be fair to LGO it was always in the plan to do this.

Fast forward and LGO are now drilling the deeper targets  of the Lower Cruse, whilst also encountering 270ft of net pay oil in the shallower targets. Improved extraction and filtering techniques should give a sensible production already from GY-665. Drilling into the Lower Cruse should enhance that BOPD production to similar levels if not higher than GY-664. GY 664 was drilled last month and was already confirmed as a 240 bopd producer under restricted flow and above 300, if some of the restrictions are removed.

The plan is to drill 4 holes from the GY-665 drill pad at various angles.

LGO currently at 2.5p as an MCAP of around 60m, so what is it worth ?

LGO has planning permission to drill 30 new holes, although atm not the finance, so lets leave that aside for now. If we just focused on the near term i.e next couple of months, we have 5 holes in total.

664 = 240BOPD

665 = likely 250BOPD

666,667,668 all from the same pad and likely to be similar to 665.

This gives us an easy 1200BOPD in the near term. At $50 a barrel profit, that’s $60,000 a day in profit. For 300 days a year we get $18m a year profit from just these 5 wells. At a multiple of 10 times profit that’s £110m a year MCAP so a doubling of where we are now with minimal risk. Throw in the exists assets and the other drills planned for later in the year and its quite likely LGO will start to see an MCAP of £150-200m by the end of year.

Sounds far fetched, but all LGO needs to do continue drilling how its drilling.

Well done to those that brought and held at .7 or .8. Focus on the figures and the SP will take care of its self over time….

Thoughts on an Oxus settlement

To add, these are just my thoughts on how its gone,what’s happen/happening and how it might all pan out. These thoughts are of course based on my own research, conclusions, conversations and guesses, but it will be interesting to see how close it is to real life.

So….

The final hearing was held in Feb 2014 in Paris (last week of Feb).

The arbitration panel had a meeting in May to discuss the decision and possible award considerations.

The panel are fundamentally split on a decision. With Pierre Tercier and Marc Lalonde in favour of a decision towards OXUS and Ms Stern against any such conclusion. Ms Stern has been invited by the other 2 members of the panel to draw up an alternative decision. This alternative position is not binding and largely irrelevant. Ms Stern has asked Tim Hart for firmer details in a post hearing memorial statement.

The majority decision of the panel is to find in favour of OXUS, an agreement that the BIT has been broken by the Uzbeks and that OXUS needs to be compensated for its loss.

The decision is released to the parties in a letter dated 11^th of June and decision made public on the morning of the 16^th. Ms Stern releases her minority findings on the 16^th.

In July A figure of $380m is given as an award to OXUS. With an interest rate applied of 4% pa from 2010 and an ongoing interest rate of .5% above libor. In the same declaration costs are deemed to be shared by both parties, with each party paying its own costs as it has been shown that not all points against the Uzbeks have been proven.

Wonder how close it will be…..

Quindell (QPP) the short squeeze continues

Interesting month for QPP, the share price seems to have been pretty static, however the underlies some important aspects as we move forward.

Roble increased their short holding to just over 4% and notified the FCA on the 7^th 8^th of May.  It seems fairly clear that this was behind the decline at the start of the month. QPP also continues to be the only company that Roble has shorted in the last 12 months. Once the Shorting shares had been sold the SP however quickly recovered back to the 20p level.

This gives us a few clues as to what’s happening. Firstly Roble do not want the SP to gain momentum and rise above 25p. Secondly Support seems to exist  around 19p-20p no matter what the shorters throw at the company.

4% of the company means that Roble had 41m now of stock to find, every 10% increase in the SP is an extra £4m they will need to find to fill their order. A few people have said that Roble have hedged against a rise in the SP, by buying their stock at this current level…Not sure I believe that as it would mean a notifiable holding under the FSA rules (even with qualifying instruments).

So Roble are heavily exposed and are struggling to keep the SP where they need it. UK shorting my well known UK shorters, has I am informed been reduced with a buy back occurring mid month.

So Roble have 240m shares now to close their short and don’t want the SP to go above 24p….2+2 does not equal 10, so this isn’t going to happen.

Avg Daily vols last week were around 30m with 15m buys.

Make no mistake if the SP rises to 22-23p Roble will be experiencing a bit of stress. Apart from a collapse of the share price, Roble will have to run the Gaunlet of a short squeeze, up to 3p5 maybe even 40p

I am long btw and happy to be so J

Afriag critical 4 week period.

A critical four week period coming up for Afriag. The swap component of the Yorkville Advisors deal is due to be started after David Lenigas has asked for it to be resumed.

The Share Price has started to rise off the expected bottom of .35p over the last week.

Now to the more important bits…..

I’ve said before about a deal for Afriag SA in Zambia. Well I’ve heard it’s a deal with Illovo Sugar to shift approx. 100 containers a week of refined sugar product.

There is also rumours circulating that a reverse takeover of Afriag SA is on the cards. David and Paul are certainly looking at a re-organisation of the existing structure of AFRIAG:LON and AFRIAG SA. The most likely of rumours I am hearing is that AFRIAG has finalised a £1m raising of capital at .6 to .8. This along with a further 10% of AFRIAG shares will buy a controlling interest of AFRIAG SA for AFRIAG:LON.

Again the assumption is that this will happen in the next 2 weeks  before the release of year end 2013 results. Which must for bloody hells sake come out in the next month.

AFRIAG is still on course to make a profit this year in excess of £1m , most of which will be used to “professionalise” AFRIAG SA to AIM standards (AIM standards is said with a certain amount of cynicism).

All in All the current .45 SP and MCAP of 5M is a very low price. If we assume a 20% dilution with 70% control of AFRIAG SA then an MCAP of 20M (the fair price) would give an SP of around 1.8p which is fair value for the next 3-6 month period with and allowing for strong growth potential going forward.

The rise of the miners.

Interesting mining tweet today from mining.com concerning a Canadian Junior, Aston Bay who is in talks with a major (10bn+) miner for a JV and confirms my thoughts of things going forward.

It was kicked off a couple of weeks ago, when one of the big four majors made the comment that it had finished cost cutting and delaying production and would start the treadmill up again and investing….

Along with a spate of potential mergers in other industries and a pick up likely in India, China and the US going forward, we are starting to see the turn in the cycle.

So what does this mean for investors in miners on AIM ? Well I’ve been very honest and I only have one active miner/explorer in my PF atm (I am not including OXS as I see this as a pure litigation play). Miners have been out of favour for a while particularly gold miners with PI’s selling into any good news and little liquidity or new money with any good news = a falling SP.

If majors are on the prowl again this will surely start to pick up, but not as a sector en-mass there is still too little leaving the masters table for that. Not for Gold plays imho. I cannot see a single gold centric AIM explorer with grades good enough to attract the majors or even the midfield companies.

Instead it will be the large deposits or more valuable commodities that will attract the eye of investors, particularly cash strapped ones, world class resources or where the target has an uncomplicated large % holding of the play in question…. Read copper, zinc, lead, possibly silver, lithium, heavy minerals etc.

Small explorers with good news and quality plays that fit the bill will likely see large rises over the summer and into the autumn, I won’t mention any names but with a bit of research miners might actual pay off for once……

Oxus Gold – The wait is very very nearly over.

Oxus gold has been involved in a long, multi-year arbitration battle with the Uzbek government concerning the alleged illegal forced removal of Oxus Gold from its major gold licenses.

The BOD of Oxus have to be congratulated for the way that they have behaved and acted during this process. After last year’s drawdown facility with Darwin, many feared constant dilution whilst the BOD received hefty wages as the expense of shareholder dilution.

The truth is that Oxus has used less than half of the allocated drawdown facility, always seeking to minimise dilution. Now there might be a selfish aspect to this in that the BOD’s own shareholdings would be diluted and so a win will mean less. But it nether the less indicates strongly that the BOD have both a high level of confidence and a high level of shareholder responsibility.

The final hearing of the OXUS v Uzbekistan arbitration was held in Paris earlier this spring and lasted several days. Average times for such arbitration cases to go from this final hearing stage for the 3 strong arbitration panel to come to its initial decision is approx. 2-3 months over the past year.

It is an indication that perhaps a decision is coming very very soon.

In conjunction with this, the Uzbek defence as presented by White & Case seems to be one of its a rogue outfit operating outside of the Uzbek legal framework, granting the licenses in the first place with bribery taking place for Oxus to get the licenses.  The defence of White & Case is one of denial that Oxus owned the licenses legally in the first place and that a mixture of ineptitude and incompetence has caused the current situation.

As well as the defence outlined above the Uzbek’s have a second fall back strategy of offering Oxus $150m which has been raised through the sale and confiscation of Gulnara’s assets. The President of Uzbekistan has laid all the blame on his Daughter for finding the Uzbek Government in its current predicament and she must pay the price according to the presidents tribal supporters. In a bid to further reduce any possible payment, the Uzbekistan Government has blamed the current detention of Said Ashurov on a dysfunctional regional government and promised to look into the matter of his detention, i.e if an offer is made to Oxus it will include Said’s freedom.

It is not yet clear whether the offer will be made prior to the announcement of the judgement or within a few weeks after the judgement, this approach seems to be the modus operandi of White & Case for the last 12 months.

Remember the likely timeline is final hearing,  judgement announcement, award announcement and costs announcement.

Gulf Keystone (GKP) the end of schizophrenia

I noticed a few people might be disappointed with the recent GKP RNS. However for me it was the start of a new birth, focus and direction.

When companies move from explorers to producers it can be a painful and traumatic experience, the whole company needs to change and not only find and define assets but also to reduce costs, make a profit and manage what in most cases is a massive increase in workforce and size.

The same transformation occurs when a company moves from AIM to a main listing, gone are the days of appeasing private investors, when the company moved forward and saw the share price increase by selling a dream that everybody will be a million. Welcome the days of spreadsheets, price earning ratio’s and broker notes that determine when the Institutional investors will decide to invest. Again this can be a painful experience as shares move from Private investors to pension fund managers.

Rather than selling a dream, they need to sell a company using real figures, where the analysis can produce a report which will then go before an investment committee before a sector or industry head gives the green light for an investment to take place. Such committee’s are not impressed with maybe’s and dreams.

GKP is moving along this journey and is trying to perform multiple transformations at the same time, unfortunately this has put it in some pretty ugly positions as the share price shows. The company hasn’t helped itself by not knowing quite which way to face either. I spoke to somebody close to the company today and the reply I got was that this RNS “shows the door that Gulf Keystone is now facing and about to walk though”, this will be finalised when we get the news that Todd Kozel will step down in a few weeks time.

At last the schizophrenic nature of the company will be removed, gone will be dreams and in will be professionalism.

This won’t make some private investors happy and I can already hear the screams through this keyboard. Gone will be the details of exactly what happens at the company. The SH 7 update is a perfect example of this, before Private investors complain, do you think BP would give a blow by blow account of exactly why a drill failed ?...The answer is NO.  They wouldn’t. The main market would only care that it failed, it doesn’t sit there dreaming of finding another 1bn barrels of oil. Indeed the market cares about the revenue and profit over the coming 2 years or so. With that in mind GKP duly updated the market on potential profit figures. We come to the next charge which is why didn’t GKP try and estimate BOPD flow rates for SH 7 rather than just saying it’s a significant producer. Quite simply again no company gives out flow rates which are not 100% certain on the main listing, for AIM they do it all the time. If GKP issued a flow rate which was too high or too low, people would complain. Again would you expect BP to issue flow rates before it was certain ?

I am sure many will view the RNS as being poor or negative, however I say without hesitation that those people do not understand the transformation journey that or the door way that GKP is about to step through. Ignore such people, focus on the profits, bottom line figures and the amount of oil connected to the PF terminals. 

As an investor you need to decide whether you’re a dreamer or a hard nosed money maker, thankfully GKP have now made the choice for themselves.

QPP Quindell worth a try

What an interesting twist today on QPP. Lets get it straight. I am not a fan of QPP, nor would I normally buy the shares, but occasionally an interest trade presents itself.
QPP is an out and out gamble and not for the faint hearted but what we saw today looks to be viewed by the QPP BOD as a bunch of shorters taking a position, then a small unit releases a devastating research note.
What we probably saw were the shorts being closed today at 20-24p.

"The Board of Quindell Plc (AIM:  QPP.L), is aware of the publication today by Gotham City Research LLC. The Board rejects the assertions raised in this note and considers the note to be highly defamatory, deliberately misrepresentative and entirely rejects the conclusions that are made. A more detailed response shall be announced before the end of this week. In the meantime the Company is also consulting its legal advisors on what immediate action can be taken against Gotham City Research LLC and is reporting coordinated shorting activity to the appropriate authorities."

In other words they refute all the accusations, they will issue a point by point rebuttal in the next 3 working days and they have noticed strange shorting activities.
If the response is good enough you might well see 40-45p, if its reasonable then 35-40p, if its not good enough 20-25p. If its dire and they admit problems 5-10p.

I've taken a punt and brought £10k @ 22p i see enough upside to make 50% quite easily in the next 3 days.
Its a gamble but worth it.
One things for sure i wouldn't want to have had an open short position and closed it today as they police will be all over you. If legal actions follows against Gotham, I also wouldn' tbe surprised to see that expanded to cover various blogs etc on the subject....An interesting few weeks ahead.