#SAV Savannah Resources – one year on.

Savannah Resources has managed a fantastic 12 months. Just over 12 months ago Savannah had finished its first scout drilling on its only license area, but with no results. It had a good BOD and shares in ALO but everything else was pure potential.

I have already written 3 blogs on SAV and am very conscious that I don’t want to keep repeating my thoughts.

Well we have drilled nearly 200 holes now, only weeks away from a JORC resource estimate for Mozambique, having confirmed 2 indicated resources areas and 2 more strong possibilities in the strandlines and the southern zone. The geology has firmed up, the understanding of the alluvial deposition. Grades have been getting better and better, good depths, all shallow at surface.

The Oman has been added giving us a tremendous mid-tier low cost copper potential in a established part of the middle-east. We have multiple license areas and multiple projects.

An expanded team has been put in place, we have or will have soon, multiple JORC’s.

This is against a background of explorers in AIM where underachieving has been the norm, where exploration has added very little value to most stocks.

So where does this leave us. Well grades in the JORC zones look to be around 4 to 4.5% on average which is very good news. Importantly it’s obvious that Mozambique is a low cost surface strip scenario, drag down the channels, layering at depth, transport to a centralised processing area, concentrate sludge from dry extraction and take along the railway that’s a few hundred yards away to port and to customer’s ships.

There really isn’t anything that can go wrong with it. A small pilot plant can be produced or higher cost multiple extraction sites.

I’ve put the latest diagram alongside a diagram I produced nearly 12 months ago and tbh the areas are very consistent. David’s plans are running perfectly to schedule.

I would be more than happy for the JORC to be delayed now until the first half of January. From next week onwards, volume falls of a cliff, we have sellers cashing in money for Christmas, combined with folks who like to sell up over the Christmas period to hedge against anything bad happening.

Private Investors are more concerned with family matters and the busy holiday period and so are less likely to research etc. It is truth be told, a very bad time to release news.

This might be a difficult thing for short term traders hoping that SAV bounces back, but for anybody who is prepared to wait a few weeks a delay in news is essential.

Going forward I would really like to have a chat with David if time allows to discuss how the company will move forward next year, plans for the company and a view on how 2014 has gone.

Keep in your minds the fantastic job that David has done, the journey at breakneck speed that Savannah is currently on, the potential of the resources and the overall risk strategy. Combine that with David’s track record and I hope most will see that Savannah Resources is not like most AIM (waste a fortune) explorers.

Savannah Resources SAV – Lifting the veil of uncertainty.

Well I’ve been waiting to do an updated blog on SAV for a few weeks now, but wanted the uncertainty to slip away before commenting. I also wanted confirmation that Bergen has been cancelled and what it had been replaced with. (Before going further I still have the 4p shares I brought a while ago, but haven’t brought any since then, nor sold any.)

Today has finally provided that with a few updates from Savannah. Savannah resources has swapped from a Bergen monthly facility to a large share placement. From December onwards this will be much better, however the price to get the placing away at 4.45p has caused a decent pullback from the 6p highs (currently around 20% down from there).

It did become rather obvious this week that shares where flooding the market and being offload, no doubt some of the placing shares being pre-sold into the high.

I do have a feeling that the Private Investor market was played to some degree to enable a spike to “get the placing away” more easily. We will have more pain to come when we approach the 8^th of December and the meeting that will approve the second bunch of shares (15m).

However once this has been done from, mid December onwards, the company should start to see a very strong revival in its share price upto the 10-12p that the money, licenses and news justifies.

A placing was always going to happen with the cancellation of Bergen, SAV is committed to spending over $2m in Oman over the next 24 months as a bare minimum, as well as this we have further exploration of Mozambique, JORC and economic assessment and the administration and wage costs to cover. We also have the initial block payment for new Block 4 in Oman. All in All my thoughts before the placing was that SAV needs approx. $4-5m over the next 24 months. Based on this, the current placing should see SAV through to around June next year.

Mozambique.

We are approaching the 2^nd week in December which is when the results should be released for the final 3^rd drill. This includes the anticipated higher value strandlines.

www.icebergshares.blogspot.com/.../savannah-resources-sav-excellence.html

I have talked a lot about the strandlines etc in various posts, blogs and tweets, including above so will not mention too much here. I still believe firmly that the Heavy Minerals are part of a multi-billion resource with outstanding world class potential.

Once the results are known a JORC possibly in the week before Christmas is very possible, else David might deem it better timing to wait until after the new year, personally I would prefer him to wait until the 7-8^th of Jan to maximise market potential.

After this time I am hoping that SAV discuss a final round of drilling and economic scoping study for delivery March-April time. This would open the door for a partial sale to a Big Player to take Mozambique forward and fill the coffers with enough money to get Oman into the production stage.

 

Oman.

The latest acquisition in Oman, does take Savannah Resources into the top league for Oman mining. For those that have followed SAV since David took over and changed the name, the strategy has been widely discussed by David. It’s to become a mid-sized 1bn+ MCAP value copper producer with an interest in other metals. Mozambique arose due to a once in a lifetime opportunity and was the catalyst that split SAV and ALO, with David wanting to take advantage of the heavy mineral prospects to give a quick boost to a copper producer.

SAV is now the majority owner of licenses in this part of the most prolific Geological copper zone in the Oman. Zone 4 gives it several more potential mining prospects and an old copper smelter. It also gives it Silver, Zinc and Gold metals alongside the copper.

The plan has always been to have one, possible two, central processing areas, with several satellite open pit mines to produce cheap, near surface copper ore which can then be trucked to the processing sites. Due to David’s pedigree most can see SAV having up to 10 or so open pit producing mines by 2018 and maybe 2 or 3 by 2016. Money is readily available due to project partners and the Oman contacts.

To sum up.

SAV is not your day dreaming commodity explorer, drilling deep holes, moving from prospect to prospect looking for the next big drill grades to pay big salaries from diluted raised monies from suffering investors.

It’s owned and run by managers and directors who have a proven track record in delivery results and creating companies. It doesn’t blow its on trumpet or talk up in anticipation of placings. It doesn’t pay it’s directors even enough money to buy a pint down the local pub.

It will be, over the course of this decade, the fast growing mining company on AIM, in my opinion. It needs to be fed cash (which the BOD is trying to limit), but is essential in meeting the fast paced strategy. The proving up and partial selling of Mozambique next year will mean the end of the dilutions.

The placing shares will be fed into the market pretty quickly, or kept for 6-12 months, both scenarios will occur.

The best thing about the current deal and today’s news  though is the removal of uncertainty that has now been lifted and the market can start to price in the excellence that Savannah is both delivering and will deliver in the future.

It would have been worse if the Bergen deal were cancelled, but no money raised, or if only 200-400k were raised. Thankfully yet again David has shown that he is both flexible and intelligent in the way he runs SAV.

Rose explanation

I spoke a few words about Rose on my last blog which seemed to have hit a few nerves.

Above we have the break even thresholds for US shale, San Juan Mancos is in this and is the 4th cheapest at $53 a barrel break even.
This is break even, which is not the same as extraction costs, capex costs etc, as this includes taxes, interest etc.
These break even costs are for the whole mancos region with none conventional wells with laterals. Its quite possible that Rose will come in cheaper, but quite simply we don't know and nobody does until we have at least drilled a couple of holes and got some good figures.

This is where we get the differences. I know that in a previous blog i mentioned that Rose BOD had mentioned a cost of $18-20. Personally i think this was likely to be a pure extraction cost and it could be a mis-quote or the BOD just not clarifying exactly.
Regardless of this we are left with uncertainty and this is what the market doesn't like, it will prescribe the worst case which is the area average of $50-55.
This is why the price of oil currently at $77 is important, but isn't as important as the direction of the price of oil.
When i made the comments yesterday its important to note that i only gave a price that I would have to be silly not to buy at.
This wasnt a prediction, just a wish.

Rose still has an amazing business model, its copying multi billion companies, with good acreage, excellent personal, tight strategy, good revenue raising. All at an early stage. Lots of good news to come, Spuding of Mancos etc.
However we need the pressure value of falling oil prices to release the SP. It will happen, but we will also have a lag between it happening and the SP responding.

Round up of #ECR #HER #SAV #ROSE #UKOG #OXS

Quick round up.

Not had time to post or say much recently so have taken a quick 30 mins to catch up on a few things. Overall for me its still a waiting game to investing, happy to keep a nice cash pile to take advantage of seriously silly prices.

#ECR still waiting on the administrators, Paul and Stephen have had a couple of years to plan and arrange something, question is have they ?

I have brought a few of these at .19, current MCAP of around 6m would indicate that Mercator has not been priced in, given the advancement of Itogon. A very safe buy for 3 months, looking for a .30 or so sell.

#HER no Oz minerals update yet for Guam, but they still on track for production come 12 months time. Patricia still on a wake up list. Again at .24 to buy it’s a safe 3 month target of .35, 6 month of .5 and 12 month of 1.3 or so. Again I have a few of these at .29

#SAV I won’t make any friends by saying that JORC is likely end of Jan and not Dec. Equally I do not believe that Bergen have finished with SAV yet. I do still have a very clear target of 8p by end of jan and 12-14p with a clear path to production of Oman. Again I still have a holding in SAV which I brought at just over 4p.

#Rose, this is really struggling at the moment. Average cost per barrel of production is paradox and mandos is likely to be around $45-50. With the current price in the high 70’s rather than above $100 we have seen any potential profit halved. This however isn’t Roses main problem, its main problem is the concern that  the price will fall further to maybe $60-65 in which case the economic case for extraction becomes difficult to make. When the oil price increases above $85 we will see a sustained increase in rose imho. A second play for rose will be the spudding of the mancos drill which could well see a healthy rise in the SP. Currently not in rose, but would be at sub 2.50 or when mancos looks ready to be drilled.

#UKOG, no surprise to see it back at .5. Enough said really.

#OXS Waiting game must be nearly over now. Win or lose we will know soon.

Horse Hill Investors beware

Horse Hill Investors beware

I think most people will know that I am not a fan of Horse Hill and the way that it has been discussed by David Lenigas. I haven’t been for months and wrote a piece back in August that I never actually put up on the site. I don’t like writing negative pieces on companies, but do feel that Horse Hill is perhaps one of the biggest injustices on AIM this year.

Lets start with Geology. Despite a few people not believing me, I did study both the Portland and Kimmeridge formations with an onsite geological study maybe 20 years ago. I have held kimmeridge clay that contains oil in my hands.

Now lets have a quick visual practical. If we take a sponge, put it in a bucket of water, then place the sponge on a piece of wood at an angle.

The water will quickly flow out of the sponge down the wood. After a little while the sponge will stop flowing water  and will just sit on the wood. If we poke the sponge it will be wet as it still contains water, even though all the free flowing water has disappeared.

The same applies to the Horse Hill potential oil layers, if we think of oil instead of water and the oil bearing rock layers as being sponges. Most of the oil a long time ago migrated out of the zones, however the zones still contain lots of oil. The problem is that the oil that’s left is stuck in the zone(sponge) and is not readily free flowing. If we poke the sponge with our fingers, it does get wet and in the same way if you drill into the oil soaked zones you will get oil shows, a very small portion of which will be moveable.

This is very well known. It’s always possible that the zones contain very large pockets that just happened to have a store of accessible oil or gas, but trying to find such pockets is still very very difficult particularly without newer 3D methods. 2D is notoriously bad at finding such targets (see FOGL and Scotia).

I do think that investors need to understand why UKOG and the associated rabble of companies attached to it have partaken in Horse Hill. In my opinion finding oil is not one of the primary reasons. Inflating a share price with wild talk about massive oil finds is a major reason, the ability to raise money is a reason, exposure is a reason and the longer term goals of the drill are a reason. Finding oil or gas would again in my opinion be a nice to have if we are lucky enough.

Many will remember David coming onto Twitter, ramping his poor little heart out, only to hit investors with a share placing, once the SP had gone up.

Many will also have just experienced the useful “leak” that talked in detail about a commercial oil discovery, which gathered in investors, spiked the share price and might, just might have enabled a few people to sell out at the top of the spike because they  knew the word “commercial was not actually in the release”.

Longer term drill reasons:  This was mentioned above, its important for investors to understand what I think these are. As many protestors at Horse Hill have known and also as the planning permission clearly hints at, Horse Hill is an exploratory drill aimed at assessed oil and gas porosity with a view to fracking. Obviously the Horse Hill consortium will flatly deny this, as will many gullible Private investors, but the geological reasons stand out a country mile. With lateral drilling alone Horse Hill might be commercially economical. With simple water pumping it might be or it might need the full fracking works. None of the above though will be allowed so close to such populated areas next to one of Europe’s busiest airports.

 

Target Reservoir Oil	OOIP Upside Potential (MMSTB)	OOIP Mean (MMSTB)	Prospective Resources Mean (MMSTB )
Upper Portland Sandstone	116	57	17
Lower Portland Sandstone	284	147	44
Corallian Sandstone	67	33	10
Greater Oolite Limestone	204	104	16
Total Oil	671	341	87
Target Reservoir Gas	OGIP Upside Potential (Bcf)	OGIP Mean (Bcf)	Prospective Resources Mean (Bcf)
Triassic Sandstone	456	234	164

(Taken from UKOG RNS)

So despite the above table taken from UKOG own data, this drilled showed 3.1 for the upper Portland, Water wet nothingness for the lower Portland target,  0 for Corallian and 0 for the greater Oolite, giving a total mean oil of 3.1, against even the lower target of 87 (lets not mention the higher 671 target, which was scary fantasy).

If we assume even a very generous 10% recovery that gives total reserves of just 300k, if we look at other similar plays then 2-3% is probably more likely giving just 100,000 barrels worth. Compared to the similar drills and nodding donkeys we would be looking at maybe 10-15 BOPD. Which by the way,  isn’t even coming to the surface at the moment  and almost certainly wouldn’t be economical with unconventional extraction.

A few final points.

UKOG and the Horse hill consortium are not the only ones to partake in exploration for the sake of doing something rather than actually exploring with a realistic aim of finding and extracting a resource. Its very common in gold exploration business for this to happen.

Horse hill only has a few days left on its exploration license so the management will be well aware of what the Gas plays contain even now. Remember that no logs will be ran on non-conventional targets.

And finally a prediction.

This will be spun out massively, rather pathetic rumours of a missed target to the south (which will keep things going a bit, despite never getting planning permission for a new drill, even if they did it would take a year or two in the UK). Any offshoot drilling should be forgotten about as there simply isn’t time on the license to do this.

New targets will be “discovered” with major potential…much like these existing targets with possible upside potential of 600m barrels of oil(in reality being a meagre 3m, which is never going to economical). New drills in exciting new areas will be discussed.

But most of all in 2 years time Horsehill will be seen as the cynical attempt it was to fool investors into putting money into an impossible pipe dream.

If you have lost or will lose money then I hope you learn from it, if you made money then your very lucky, if you made money selling whilst telling everyone how great it was then…

BTW I haven’t actually read, listened to any blogs etc on Horsehill, nor really read the forums, having obtained my info from RNS’s, tweets  el al  so sorry if this steps on anyone’s toes.

Herencia #HER– past, present and future….

Herencia #HER– past, present and future….

I’ve got quite a history with my investments into Herencia. I well remember the Mike Bohm times when Herencia was 2p a share and folks talked about PCD’s and potential share prices of 20p.

At the time Herencia was full of possibilities, it had the excellent Patricia prospect, the silvery caps of Doris. The mystery of Guam with its shallow IOCG and copper gold elephants. We had Nyrstar one of the largest zinc players on the board, each drill was adding more new veins.

Then came the delays, the snowballing, the costs and wages, new prospects such as Picachos that were going to take a little while to get traction, new CEO and the prospects of a good 18 months of dilutions….

Herencia suffered from a CEO who imho didn’t really care about or understand the role of private investors on AIM.

So where are we now..

Firstly we need to separate those that have been invested for a while and those that are looking at Herencia as a new investment. For those current investors, it’s been hard, the SP has been diluted and has fallen down to a range of around .4. The news on the 1^st has hit it again taking it down to .27 to .29. I really do feel for those investors.

However for new investors the possibility of buying into a vastly undervalued company at a price below the BOD and below the placing is starting to ring profit alarms…

Herencia has, with Patricia, the highest, most secure JORC it’s possible to obtain, (Measured being the highest and inferred the lowest). In the higher categories of measured and indicated combined there is total of 4m tonnes of resource with 3.2-5% zinc, 1 to 1.8% lead and 70 to 98g/t of silver. Given current prices we still get £ hundreds of millions of resources. This has been taken to an advanced stage with a completed DFS and mine design, economic assessments are positive and its believed the project is only awaiting a recovery in the zinc and metal prices before production starts. For the purposes of this document a valuation of £15m seems fair, using a very heavy discount to NPV. Its important to note here that the geo-phys indicates that the resource has much more potential to come, with a likely total conservative commodity value of well in excess of £2bn once fully explored.

Added to this we have Guam, where Herencia have convinced a large, cash rich (just over $500m cash in hand) copper giant to invest into Guam. They are committed to spending $3m over the first period for 50%, given this a fair value of $6m seems reasonable. Existing drilling of Guam has delivered an IOCG but the wild cat drlling has uncovered copper, gold, moly  at depth, with 2g/t of gold from one drill. Considering the wild cat nature over such a large area, it was quite amazing that such gold and moly where found by random. Given this it’s hardly a surprize that Oz minerals have agreed to invest and explore and it’s highly likely imho that a very gold, moly rich PCD is situated in Guam with a greater total tonnage than SOLG.

Finally we have the Picachos copper project, again very advanced with a MOU to produce 1m tonnes a year of ore to be processed through a local plant. This isn’t a huge amount roughly 3000t a day given 50 down days. But would require minimal capex to pay for the simple extraction, crush and transport components. A capex of around 10m sounds reasonable. Income @2% copper(copper/silver equiv) would be 60t of copper per day, with a price pre mill, post costs of $1500 a tonne giving 90k a day.(approx. 40m a year) The economics of the project would mean a very quick pay back of initial capex and also allow Herencia to self fund Patricia in 2-3 years time.

It really does seem to be a very good strategy the BOD have embarked on. With first deliveries of copper ore to the mill plant in 12-14 months time, It’s not too long away either for the stock market.

Picachos is largely derisked re mining permits and environment permits due to the existing on site unapproved mining and the extensive mining operations in the local area.

As well as the above the Paguanta license area which hosts Patricia, also has shown evidence of a significant PCD with 2-3% copper, gold and silver. Where over the summer a number of interesting JV parties took viewings and expectation is high that a JV might well take place.

Funding is always a problem for an explorer, 10 months ago Herencia raised 1.8m, now it’s just raised 2.4m. This will go towards considerable development and exploration, however expectation is that funding will last now until around June time. Herencia has announced that it is in advanced funding for development of the production at Picachos. Funding will likely be majority debt with dilution minimal and restricted to around a 10% convertible. This will restrict further share issues and the current share issue is expected to be the last of the major dilutions thanks to the revenue coming on stream in 12-15 months time.

I have heard the rumours that the share issue was done now due to bad news from Guam, however this makes no sense at all. Most placings either happen after good news, if the company wants to raise capital cheaply or before good news, so that they can take part in cheap shares and grow the company’s market cap. The Herencia BOD would not issue shares, take part in the issue, just to see the SP drop on bad news and have their reputation ruined with the placing makers.

I personally think Guam has come in very favourably and the BOD want to use this as a spring board with any thoughts of dilution kicked well into the long grass. I can’t stress how strong the likelihood is that Oz minerals will further develop Guam on some very good results.

Looking at the trades it seems to be that a few shorts have been closed at around the .28 mark. AIM ain’t pretty at times like this.

So should you invest ?

Herencia has been well and truly pummelled by the markets for the factors already discussed, however as mentioned by Graeme over the last few months the Zinc market has started to turn and Patricia’s time is getting close, dilutions look to be over, a plan for a significant revenue stream which most explorers would kill for is firm and being progressed. The significant assets of Herencia could turn it into a mid tier miner over the next 2-4 years.

News flow is very strong over the next 2 months.

For new investors getting it at .28 or around this looks to be very risk free.  A rise to .4 or .5 would not see a great deal of selling from private investors, making a 75-100% return short term likely.

If folks are happy to wait for 8-10 weeks then they get the benefit of the funding to production announcement for Picachos which could see .7 to .9 with supporting news flow.

Existing shareholders will need to grin and bare it with an average of .5 to .7 and would be ill advised to sell at such a low point. Dilutions are horrible things, but can provide fantastic advantages for new investors and for existing investors to average down. This is unmistakably one of those opportunities.

O Man, Savvy investors to benefit…..

O Man, Savvy investors to benefit…..

Quick blog entry from me tonight to cover some MASSIVE news re Savannah Resources (sav).

The now well leaked RFC report into the sphere of the private investors has thrown up some interesting thoughts and views as to the potential of SAV.

We now have a window of understanding in that SAV are planning on being the number 1 private company mining copper and other metals in Oman. The plan of trucking ore to a central very large depot makes amazing sense in a country with record low petrol and energy prices. A central processing plant capable of 500K a year is 10 times the size in my previous blog and really shows that Savannah is serious about being a mid tier copper producer (mid tier is 1bn to 2.5bn Mcap).

The advance nature of this plan and the signing of new projects over the next few weeks seems to be pretty certain.

The plans for the Mozambique heavy mineral project also seem to be solidifying in that this is really just a cash generating project for Savannah. The plan is to prove it and then sell it.

I have mentioned that it was suggested to me by a 3^rd party that Russians were interested in mineral mining in Mozambique and where looking for potential deposits and Savannah Resources was mentioned in-particular. Well a certain Early Bird thought he might ask David Archer about this and his response was a very interesting “There are Russians in Mozambique in mineral sands. I dont believe in coincidences...”

Money wise the RFC report seems to suggest very strongly that  SAV no longer has plans to use the monthly Bergen facility and have allowed it to lapse but remain on tap. SAV had over 2m in the bank and has been approached to provide a private placement worth 6m if it needs it and has approx. 2m give or take a bit in liquid assets attached to its ALO shares. On top of this it has possible funding from Mozambique sale of 50-80m (my estimate).

Savannah Resources is on a major trajectory to the high table of AIM miners, with possibly the best, most comprehensive strategy I have seen this decade. That the strategy has been put in place by a BoD with a track record of creating large companies from nothing is not a surprise. Whilst experiencing the tightest fiscal squeeze for a generation for junior miners, SAV is having money thrown at it (and turning it down). Confidence is one thing, this is starting to look like a popstar strut to me.

Lots of news to come, much of it company changing this year until Christmas and this month. News that Bergen dilution is no more means no more easy shares for the market makers.

Buy and don’t look back.

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.