The Battle for Sol Gold in Ecuador (Cascabel)

The Battle for Sol Gold in Ecuador (Cascabel)

Normal Disclaimer, I have a Long Position in Sol Gold (SOLG), however I am under no illusion that what I write here will make a jot of difference to the share price. This is a big £400-500m MCap company. Many column inches have been written in the national press and associated mining expert publications.

So why write this?

There is a lack of discussion in my opinion as to why BHP have invested and why now. SOLG’s current situation also interests me with its machinations and relative complexity.

Almost every resource company, be they on AIM, ASX or TSX have a number of people saying that the big players are interested, our projects are fantastic, they are Tier 1, our grades are exceptional. 

They might even have a large discounted NPV which can be used to justify those comments. 95% of the time such utterances are at worse disingenuous and out right lies, but mostly pipe dreams, wishful thinking that never materialises.

SOLG is rather different. It has attracted massive investment, it has attracted ten’s of millions from world leading companies (Newcrest and BHP), it has moved into a much higher MCAP bracket than almost any non producing resource company.

Over the last year the share price has struggled due to lack of clarity on the Cornerstone bid, the mining cycle and external copper factors and last and but not least the country risk associated with Ecuador. They now find themselves on the verge of another MRE, with a PFS to be released in the next 3-4 months, likely to be the largest maiden Copper PFS of 2020 in the world.

Moving on to the machinations! A nice place to start here is with the Cornerstone response to the proposed bid by SOLG. One of the key points of defence is that SOLG has some unhealthy relationships with Nick Mather and DGR. (They are for all intent and purpose, one unit for voting and strategy). I understand why they are miffed by this as this is 15% of the company, as of today and is more than the 9% owned by Cornerstone. It gives the CEO (Nick Mather), considerable, none normal control of the company that most CEO’s could only dream of.

The point of DGR is that their holding is a strategy.

Other key investors are Newcrest at 15%, Cornerstone at just under 10% and until recently BHP at 11%.

There has always been some concerns within SOLG that Cornerstone and Newcrest are a little too friendly. There have also been concerns that a low ball offer will come in (25-30p) backed by Newcrest and Cornerstone. With 25% to Nick and BHP against the 25% to Cornerstone and Newcrest that would have been a tight contest, probably won by Nick and BHP, but corporate business at this level can be unpredictable and nasty.

The share price looks to have had a hand pushing the price down over the last 3-4 months, probably to support the low ball bid and make it more appealing.

The key news trigger for the low ball offer would have been the release of the new MRE, but certainly prior the release of the PFS.

Let’s move forward to this week’s announcement that BHP are raising their stake to 15%.

BHP wanted more in the placing, however SOLG had one reason and one reason only for the share issue and that was to increase DGR/Nick’s holding and BHP’s holding to 30%, therefore giving a clear block to any potential low ball bid. The share options were added as a nicety  at a much higher price. The news that BHP will help not just with Cascabel, but also be a technical partner for SOLG confirms their support to the SOLG management.

Nick has the added incentive to keep BHP honest with the Cornerstone/Newcrest partnership, who would certainly block any BHP low ball offer.

To cement the requirement for SOLG to be involved they have developed extensive environmental and ecology credentials with the local community and Ecuadorean government, above and beyond what either BHP or Newcrest could achieve given past history.

That leaves Nick/SOLG to progress their main strategic objective to sell off the majority and operatorship of Cascabel, without any party having the option to just buy the company outright.  SOLG will look to maintain maybe 30-35% of the project, giving them sufficient exposure without the headache of crippling Capex debt. The ownership of Cornerstone would have given them more jam to play with, but is not vital.

SOLG will be looking to get 200-500m for 50% and operatorship of Cascabel. This would pay to get two of the near production gold projects going in their portfolio over the next 18 months, providing the 30-35% capex requirements for Cascabel and pushing the company into the mid tier.

For SOLG the key trigger to sell Cascabel will be the creation of the PFS. I don’t believe SOLG want the costs or concerns of creating the final Bankable Feasibility Study.

So to recap:

The BHP deal has allowed SOLG to safely fulfil its ambition of a meaningful and speedy monitisation of Cascabel. This will allow SOLG to maintain a sizeable exposure to one of the most important copper projects of the 2020’s.

SOLG will have the capital to quickly progress some of its other potential Tier 1 assets.

There are a number of important share price power ups. The BHP deal is one. The MRE will be another, the PFS a third. Regional developments will be a forth and a partial sale of Cascabel the final, crowning glory. 

All in the next six months.

Ode to our Political Democracy.

Ode to our Political Democracy.

Politics is often a cacophony of noise, it seems to be there purely to grate and frustrate, most “normal” people hopefully just ignore it assuming not too much is done, with varying degrees of either hope or trepidation depending on which group is winning at that time. Despite largely being an irritating noise, we need to be aware that it will at times become an overwhelming flood dangerous to life and limb if not managed, or controlled by the voters in charge of it.

This is unfortunately where we find ourselves. The main culprit for this resides in deliberate obfuscation of the word “Democracy”. Regardless of your political leanings, support and beliefs this affects you. Such a thought has been in front of me for a while now, it is not a new thought, nor a unique thought or even an unusual thought but it is a good thought to have. We are currently quickly moving pass the point of being able to do anything about it. We risk losing our political democracy and the only thing that can take its place is absolutism and populism.

Whilst watching a BBC politics program, a discussion was taking place with “experts”, please do imagine me saying this word as if I have bile rising up in my mouth. These experts came from various organisations. All these organisation were recognisable and so you could take their biases into account, all except for one expert, who came from an online organisation called Spiked. No mention of this organisation was made by the BBC, which in itself made it difficult to assess bias. On the surface the mutterings of the said expert were popular (democracy mattered, all politicians are useless etc). I am sure you know the type. But there was a persistence and undertone that I found more than a little scary which reminded me of the obfuscation of democracy that I mentioned above. A small amount of investigation of Spiked and I quickly understand why I started to feel scared. For those that don’t know, it’s an organisation funded by the Koch Foundation, (Yes the famous brothers who spend hundreds of millions a year buying US politics). It has a stated aim of not just reporting on the world, but changing it.

I was angry, not angry that they were given a voice or that they were deemed an expert, but angry that the BBC put somebody like this on a platform without first giving the viewer information concerning their bias and agenda.

I was angry enough to want to write this, a political piece on a none political blog. I was angry that I felt I had to stand up for political democracy as no other bugger is doing it!

In western democracies, whether the US, UK, Germany or even the EU. Each democracy has a system of checks and balances. Each sub area is represented, be they each US state, each UK constituency or each EU member state. There is normally a second chamber elected in a different but similar way, often at different times. I am not going to go into much more detail, it’s a well known, well trodden path. The key aspect is that they are all political democracies. They were not created with a whim, some of the greatest thinkers of their appropriate times, deliberated and fashioned the systems we now have. So a political democracy looks at how a form of democracy is used to create a stable political system in the best interest of and to reflect, all the people in the political area.

Democracy is different. Democracy is one person, one vote. Majority rule. It is how you vote for the leader of the bowling club, or how a group of friends might decide what film to watch at the cinema. 

It is a binary choice, whoever had the most votes wins, the least loses.

Donald Trump won power through a democratic election, but didn’t win the most votes. In the UK Teresa May won power, but didn’t get the majority of the votes. Angela Merkel in Germany etc. To be clear no Western Democracy actually uses a democracy, but rather a form of political democracy.

Imagine actually living in a true democracy.

If you are a minority your view would simply be worthless.

If the majority of people live in urban areas, then rural areas would be left to their whim.

If you were a member of a religion, then your religious freedoms would be left to other people’s whims.

If you were a high earner, then your tax rate could be determined by the majority of the lower earning people.

If you had Chinese heritage you might be forced to sign a register of fealty.

Imagine being a CEO of a small company where your bigger majority competitor company made all the rules.

Many countries have constitutions and laws to counter this, however under a true democracy, these would only be a democratic decision away from being changed.

If you think that's a good idea, maybe try out the kind of Democracy that Putin enjoys in Russia. His treatment of minorities is a perfect example.

This is where the murdering of the word democracy comes into play. You will often hear, “We live in a democracy. The people must be heard. This is what the people want.” Such utterings generally come from those we term populist politicians.

You know them, they wrap themselves in their countries flags and utter exactly what the majority want, often at the expense of the minority.

They might be categorised as right or left wing, it doesn’t matter. But make no mistake it’s about mob rule.

But, I hear you cry, we have democratic referendum. Yes we do, unfortunately. They are generally used to grant or extend powers and not to limit them. There is a good reason for this as you then don’t get the majority limiting or affecting the rights of minorities. Good examples might be lowering the voting age to 16, which would extend democratic rights and not remove them for anybody. Equally another might be the legalisation of cannabis, which again extends rights.

I am sure most are thinking about the EU referendum and that is where we have a problem as it does limit people’s rights, it is the majority limiting the minority. It would have been regardless of who won. For clarity I was one of those that thought that the ratification of the Maastricht Treaty should have been done with a referendum. But whenever we have a referendum we need to square its use with our parliamentary system which will enact it.

Our MP’s are voted in with a straight democracy. However they are expected to represent not just the views of those that voted for them, but of all of those they represent, their entire electorate, the majority and the minority, the voters and non voters.. It is therefore no surprise that MP’s have and will continue to struggle implementing such a big change that will affect everybody, which has been approved by 17m out of 66m people. Again for clarity I do think the referendum should be respected and that we should leave the EU, however it needs to be done with the least amount of impact on those that didn’t vote to leave. This is how our political democracy works.

Politics has certainly muddied the waters thanks to the inane splashing of all groupings, but I do believe that this is the way forward that allows Parliament to do its duty for everyone, as it should.

I also believe that eventually parliament will get there.

It will have got there far quicker though if the main parties did NOT adopt true democracy to elect their leaders….Did they not learn anything about the founding principles of democracies around the world. All they have done is ensured that the majority have all the power and the minority have none. That “mob rule” or populism is the decider. It is therefore no coincidence that both main parties have leaders now that embrace rather extreme versions of populism thanks to the relatively recent changes in the election methods.

With the spreading of absolutism, the spreading of populism, the well known magnifying affect of social media, the interference of organisations such as those funded by the Koch brothers, it comes as no surprise that we are in this mess.

Is there a way out?

We need to realise that talk of democracy is often false and means mob majority rule.

We need to realise that people v parliament means mob majority rule.

We need to realise that hateful words and attitudes lead to violence.

We need to understand our political democracy, value it and take part in it.

We need to understand that as well as our rights in our political democracy we have our responsibilities.

We need to understand and protect the guardians of our political democracy, such as an independent legal system and the inability to buy influence.

It really doesn’t matter whether your views are left, right or centrist you can be part of the problem or part of the solution. Regardless we should be counted amongst the people that are prepared to stand for our democracy and not support those that seek to circumvent, destroy or lessen it.

I am fed up of people using the term Brexiteer or Remainer to describe themselves, are their political opinions so shallow that they can be defined by a single issue?
The terms have one purpose, to keep and define divisions, to foster absolutism. Even worse are the people that turn it into an insult, the "Racist Brexiteers or the sore losers Remoaners."

This at least is my view. I certainly don’t force anybody to read this, but knowing the above don’t be surprised if I think less of you.

Savannah Resources Resignations Required.

Open Letter to

David Archer CEO of Savannah Resources.

Matthew King Chairman of Savannah Resources.

Dated 16/09/2019

Dear Sirs.

I have been a patient and loyal investor in Savannah Resources. I have spoken by phone and Email to the Board. I first invested in Savannah Resources at the start of the companies journey, before many of the projects and employees were but a twinkle in our eye.

The projects that Savannah has are world class, the development of the projects has been very fast paced at times.

It is then with obvious reluctance and frustration that I must call on somebody at Savannah Resources to take ownership of the disgusting and insulting way that existing retail investors have been treated by the company.

To make myself crystal clear, I fully hope and expect either the CEO and/or Chairman of the company to resign.

A company must do two simple things. Firstly it must keep shareholders informed within reasonable timeframes. Secondly the Chairman and the CEO must have the trust of shareholders.

In 2018 Savannah Resources published a list of targets it expected its board to meet and in return receive remuneration bonuses. Not a Single target was hit.

In July 2018 the company raised funds with the purpose of funding the company and project through to the decision to mine in early 2019, after having completed its feasibility study. This has been proven untrue.

Today you announced that the Feasibility study will now not be completed in Q2 2020, with a potential that the decision to mine will now not take place until after this date. This is a clear delay of over 12 months. After delays to both the Omani project and the Mozambique project.

There is NO incentive for shareholders to believe that the current statement today is any more believable than the statement last year.

It is unacceptable for the company to have allowed its cash position to have fallen to only £1.8m. The decision to raise funds should have taken place many months ago. (When the Share Price was 6p rather than 3p).

No material explanation has been given for either the extra cash required or the extra 12 months extension to the project go decision. You MUST inform shareholders as to why? a simple “additional resource delineation and work programmes” are not acceptable. You SHOULD be clear about this, shareholders are not stupid, stop treating them as if they are. The first rule of project management is DO NOT ALLOW SCOPE CREEP, since you are doing exactly that, be open and honest about your reasons for it.

The company MUST inform shareholders in a timely manner, you the company must have known months ago that the company wouldn’t meet its 2019 delivery target for the Feasibility Study. You SHOULD have told us months ago that this was the case.

Retail shareholders often find themselves utterly in the dark with regards to timeframes, activities and updates to projects. The company does not even have a 3 month update for shareholders, being Australian I am sure your aware of the requirement of ASX for this.

The company cannot just hide behind the poor market conditions for its share price. The Board of Savannah Resources seem to be think that PR and even RNS’s that might attract new investors are a detail they can skip as meaningful communication to retail investors simply don’t matter. This isn’t the case. Some positive PR would have kept the SP up, which along with better timing of the share issue would have led to much less dilution for ALL shareholders.

On a final note, simply tweeting everything that concerns Volkswagen and having a quote on your new presentation isn’t good enough. This drip drip of EU and Volkswagen hints is just not acceptable. The company either needs to be open about any possible relationships or stop doing it after 12 months it’s become a running joke amongst retail investors..

Somebody in the company, anybody MUST have the interest of ALL shareholders, this is lacking and MUST be addressed.

I would still consider the company a buy for my own portfolio, however the company is currently being held back by the combination of yourselves and serious failings within the company.

Yours

Mr Swift AKA Icebergshares.

AAOG – Jokers and Clowns.

“Clowns to the left of me…

Jokers to the right….here I am.

Stuck in the middle with you..”

Let’s get one thing straight. I am invested in AAOG. I’ve had a small top up today at 5p and am keeping some more cash in case of a rights issue or fund raising.

It does seem as if we are stuck in the middle at the moment. We have a BOD who have performed a terrible job in communicating what’s been going on. I have been waiting and waiting for the final results as it’s at last a chance to see where the company is in an official RNS with all the backing that entails through accounts sign off and nomad oversight.

Key bits for me are the affirmation that the topside can cope with 2500bopd currently. Djeno oil is not just seeping through, but as James puts it (a reliable none spin source), the Oil is flowing everytime they open the well. The oil has managed to come up from a crack in the bottom cap.

There are now three plans

.

A)     To produce from the middle or top Djeno depending on 103 sidetrack.

B)      Produce from the known top Djeno

C)      Produce from the Mengo/R layer

The write downs etc are irrelevant for me. Many companies do this but just keep quiet about it.

Now imagine if this news had been properly managed, instead of negative comments they talked about the possibility of increasing revenue by $1m a month by taking a further 6 months to finish the hole etc. Over the course of 3 years by taking it’s Djeno strategy the company is probably going to generate over $50m more revenue through this route than the Mengo route (for just the 103 hole).

A few issues re funding, but this is a 28 day event, rather than the 100+ day event of the 103C drill. With that in mind the cost is likely to be no more than 4m, so 2.2m or so for AAOG.

AAOG have also heavily dropped the hint(not confirmed by RNS), that its looking at maybe offering a percentage of the license for funding, hence the strong desire to get SNPC to swop debt for more percentage of production. David also confirmed that he had been speaking to the key shareholders. Probably for their AGM support. They don’t want lots of dilution and some kind of commitment was likely given.

We’ve also heard today that SNPC have just paid a further $850k. Plenty of money coming in.

So we’ve covered the clowns.

Now for the jokers.

I hope folks have been reading and following some of the happenings over the last few weeks on the boards for AAOG.

Take note of the names.

We have seen some brainless, spineless, idiotic, mange induced, personalities. People so low on the scale of humanity that even a pound shop wouldn’t trust them to shelf stack.

We all know who they are.

They are the people that constantly tried to sow fear by talking about suspension due to no accounts.

They are the people who talked about legal action from SMP.

They are the people that talked about fund raising over the last 6 months.

They are the people that have spread lies about Ebola, strikes, SNPC taking the license away, no oil etc etc.

They are the folks who this morning sold, complained how the share price would crash, then in a blink of an eye brought back and then turned really positive.

They are the cretins who think that because it’s AIM they can do and say whatever they like. It’s all OK because everybody is doing it. They are probably the kind of people who would, in a war, commit war crimes, because everybody else was doing it. Or even in Nazi Germany happily send innocents on the death trains, because everybody else was doing it.

The honest answer is not everybody does, there are some really nasty players on AIM, but you don’t have to join their ranks to make money. If you do, then it’s because you choose to do so. However you might try and justify it.

I have had enough success to not care too much about AAOG this year, it will come good at some point, but every investor has their own choices to make. I just hope, without much anticipation, that the Jokers on AAOG realise what kind of person they really are.

AAOG – Djeno Unmasked AAOG are “looking to produce from the Djeno using 103”

Well I’ve been on some holidays for the month of April. During that time most of my shares have been pretty stable.

However my first focus has been on AAOG.

As per my past Blogs, I’ve been a massive fan of Djeno. In my opinion AAOG’s 103 drill was the most misunderstood on AIM in the last few years. The success of finding a column of oil in the Djeno beneath the cap should have re-rated AAOG. The failures of the rig to drill further were disappointing, however it shouldn’t take anything away from what was a massive success. Many share pundits became openly sceptical that anything except a few oil shows had been found, along with a difficult to produce Mengo and small section of R2 sands.

Back in February, pundits also claimed the company had no cash and needed to raise more money urgently. Wrong!

Open on record predictions from AAOG of 1500bopd from the Mengo/R2 have been made to counter this, as well as firm denials of any fundraising plans.

Of the $8-9m owed to AAOG from SNPC, a payment plan has been entered into, with the 3^rd payment due to be made in the next 10 days, bringing over £1m into the bank account of AAOG already, a further half a million every month and a very thin monthly expenditure.

AAOG’s plan from the first quarter to produce from the Mengo/R2 was pending the arrival of the one time simulation kit that was due to arrive in April and give first oil in April.

After being shut in for 45 days, the 103 well was opened at the end of March and Djeno oil flowed readily to the surface, under “considerable” pressure. AAOG commissioned a company to look at producing from 103, under the preconceived idea of producing from the Mengo/R2. After Djeno oil first flowed, a decision was taken to include the Djeno reservoir into the CPR to be released this month.

The market should have cottoned on to the importance of the Djeno flowing at this stage, however it didn’t.

Djeno: One of the world’s most sought after oils. A premium is paid for Djeno oil, due to its high quality and ease of processing. It’s also very low in sulphur. Most oils around the world are lucky to get Brent minus 2-3 dollars. A few oils get true Brent price. Djeno is one of only a handful of oils that get a premium to Brent, rising to Brent plus 30 cents in April due to very strong demand.

The Djeno reservoir is highly productive. With a natural gas mechanism, the Djeno field is highly pressurised. It’s low sulfure nature and ability to flow, means that it naturally flows, normally at a rate of 5000bopd and doesn’t have the tendency to reduce in flow unlike more waxy oils, until the reservoir is depleated.

We know that producing 1500bopd from Mengo/R2 would be fantastic, plenty of money in the coffers (1m a month), paying for other drills. Mengo/R2 has a decline rate after the first year or so, but it would pay for Djeno drills.

The first change to the plan to Mengo/R2 occurred with the cryptic note from Fincap that AAOG were deciding whether to produce from Djeno or Mengo?

We know that Djeno flowed, that in itself was unexpected. But surely it was a just a bit of oil and couldn’t compare with the 1500bopd from Mengo/R2?

Fast forward to after my holidays and yesterday I asked David out right about 103. His reply, “Yes, as a result of analysis of the data and also the oil coming to surface, the engineering team is looking at how to produce from the Djeno in 103C.”

Yes, we could have a major delay from this decision but.... Switching to production that won’t decline, switching to production that is one of the most sought after oils in the world and most importantly switching to production which will clearly derisk 104 and beyond would be fantastic news.

To exploit the 5000bopd from a clean Djeno hit, then as per the RNS, the topside facilities would need upgrading and truck transportation wouldn’t be able to cope. If Djeno flows at 1500-2000bopd (as we’ve just hit a bonus upper section), then the topside will likely be able to cope with the pressure values (hence the 45 day test). We would also be able to cope with the transportation with very limited new topside, it will easily be able to be choked back.

All of this might take time though and the market is not kind. Good news then that David also added that the new plan will be produced and communicated to the market next week, with work to start shortly after that.

Maybe, the market will start to realise then that AAOG is serious and not faking it about 103. Maybe the CPR will show the market how large these new horizons are. But when the oil is flowing and folks should remember that the hole is drilled and production facilities in place, the market won’t be able to be sceptical any more….

88E Winx-1 Under the right light.

Based on the previous blog.

https://icebergshares.blogspot.com/2019/03/88e-winx-1-on-verge-of-greatness.html

We’ve had the RNS, TD has been hit, excellent. The news isn’t much different than previously announced. TD, as expected is a little bit lower than they thought but that just lends credence to the idea that the targets have been hit a little bit down dip than they thought/wanted.

To get the most out of the RNS though I think you need to read it under the right light.

88E is currently going through a highly valuable farm out. The data (3D), CPR reports etc will require whoever is going to participate in the farm out to have confidence in 88E, its geologists and its management. I know many think that Winx and the farm out are not connected, however they both  shed light on each other and each has a ‘financial gravity’ pull on each other.

The management had some criticism for its release first drill update last week. Its wasn’t very positive and mysteriously that has been counted by the ultra positive updates this week.

With Winx, 88E will want to maintain, if not enhance its reputation for the farm out. They will be very conservative. The very last thing they want is to backtrack on good news or try to explain away positive that hasn’t materialised. There is nothing to be gained by this.

To steer the RNS’s into the conservative territory, caveats will be used. Nothing will be released unless they are certain. This isn’t the way that O&G RNS’s are normally phrased on AIM.

The second light that needs to be used is that companies have primary and secondary targets for a reason. For Winx we had 3 main target areas. Seabee, Nanushuk and Torok. Seabee was a leap in the dark. Nanushuk was hoped for, but considered a risk and Torok was the safety net.

If we just take Torok to start with, it’s a secondary target, the top of it was at 4913ft and we can assume the bottom was at 6800ft were they stopped drilling. So 1887ft. Within this we had multiple pay layers as per 3D. The target layers comprised around 700ft of Torok targets. I would estimate that this might be 300-500ft of increased resistivity zones and C1-5 showings.

Torok is though a secondary target, if the primary target comes in it will, to some extent, be set aside. Interesting no doubt and still important to the wider area, but I doubt they will frack it in this hole unless they are not too interested in the primary target.

So the primary target, Nanushuk.. Obviously nothing new in this target.

“Encouragingly, we have also encountered multiple potential pay zones in the primary target as well as one of the secondary targets. Whilst it is still early days, we are well placed and look to the wireline program with measured optimism.”

The statement above is the most important as it confirms that multiple pay zones have been en counted. Looking at the measured optimism through the light discussed above, this is really as close to saying that they are as confident as possible.

Stage 1, LWD (ticked) as good as it can get.

Stage 2, Wire Logging. We know 10 days of Wire Logging, ending 16^thof March with a decision as to flow testing. Let’s be honest it will only take 1 maybe 2 days to Wire log Nanushuk. Torok, is a much bigger prospect and due to its tight oil nature will no doubt take a little longer maybe 3-4 days. 

I still think that N5 is more complicated, the potential water mentioned obviously still needs investigating, the company are hinting at a water/oil layer (oil layer sat under the top seal, water layer sat on the bottom seal and co-mingling in the middle). This could be quite productive, hence the careful examination.

We also have a consortium of companies. Any decision to flow test will be a joint decision and I would imagine some intensive meetings in day 9 and 10. Between this and flow testing a decision will have to be taken on the possibility of a side track.

Everything I wrote in the first blog stands for me. The SP has responded quite well with the completion of stage 1. The SP should continue to build steadily. A successful stage 2 will be all important as the net pay will be the first piece of solid news. The SP should respond even more positively after stage 2. Flow testing is the real biggy and a further increase should occur. A few folks will sell as we move along the stages, but volume is really quite small (less than 5% for the first day of news). Most are holding.

I do think that Winx and the actions of 88E are pretty much putting a For sale sign on the company. Wire logging news on the 16^th should correspond nicely with the farm out news and next 4-5 weeks will be an amazing time for people investing(not trading).

Look out for afternoon buying, from the US…..

#88E Winx-1 On the verge of greatness.

#88E  Winx-1 On the verge of greatness.

I have recently come to 88E, having invested at the start of last week. However I’ve been looking at the geology of the drill for many weeks.

After being tempted to write a blog over the weekend, I decided it was better to wait for the inevitable news release today.

I can’t yet get my head around why the market and certain twitter folk are mispresenting RNS’s at the moment and O&G  RNS’s in particular. We had the same issue on AAOG, which now looks like being a decent producer, once flow testing takes place. For 88E and the Winx drill, this misrepresentation is continuing apace and Winx is NOT (contrary to some belief) a duster.

Fridays RNS, simply said that they drilled the Seabee and didn’t find anything (this was the least important target by a country mile anyway) and that they had drilled to a depth of around 4550ft and had intersected oil/water. They didn’t say that this was only in the very top Nanushuk layer, however anyone with any research in the company knew that this was the case.

The criticism of 88E is that they should have put a bit more information into the RNS and maybe this needs to be taken on board, however the company had been very open in saying that the Nanushuk stretched all the way down to 4800ft with multiple seals and layers. Maybe a case of assuming the investor and the market in general is actually knowledgeable…..

I am going to refer to Horseshoe quite a bit, so let’s explain this. Horseshoe was drilled in 2017. It created the biggest onshore oil find in the US for 30 years, by extending a layer of Nanushuk much further south. It was worth hundreds of millions of dollars. Horseshoe had a net pay of 30-45m (100-150ft).

Winx is looking to show that this reserve stretches into the 88E/RMP etc license area. It also has a secondary purpose to evaluate the Torok layer.

Now back to the drill. Nanushuk is made of several (N5,N4,N3) layers. On 3D, N4 and N3 have strong seals. N5 has a much weaker seal. Nanushuk is young oil source, due to this it has a water layer that gradients down and run parallel to the highest N layers with a strong under seal. 88E finding a water/oil mix at the top of the Nanushuk (N5) was both expected and hoped for. Horseshoe had the same layer and it helps to separate the known water layer from the rest of the Nanushuk targets thanks to the stronger N4 seal. That oil also existed was excellent news which helped to confirm the oil bearing ability of Nanushuk in the Winx region.

It seems that most of this was completely lost on the market.

This brings us to today’s news.

All of the Nanushuk has been drilled and we have entered the Torok.

234ft of Nanushuk were found, with multiple oil shows. If Winx can find even half of Horseshoe (50-75ft) of actual net pay that would be an amazing, transformative result. LWD is clear that C1-5 ratios and resistivity indicate gas and oil.

Another quick side track, LWD Logging While Drilling is not new, it can be very useful, particularly 

on fast paced drills such as Winx, however it can be a little bit inaccurate. The resistivity is a measurement of the conduction of electricity in the fluid, less = water, more = thick oil. It does need a baseline to work accurately. It does prevent drill fluids from interfering with the C1-C5 mix though.

The Torok has been encounted at 6052ft, importantly LWD has found evidence of oil. We are not yet at the bottom of the Torok.

It’s fair to say that the geology model hasn’t been great (although it looks highly successful), the greater depth of all targets would indicate that the drill didn’t hit the target, as sweetly as it might have done. As good as the drill looks like it might be, it could be better. With this in mind the license area might not just extend the edges of the Nanushak, but it might potentially show it at full strength (like horseshoe), in the license area.

It would be fantastic if 88E would just say. “Hey everyone, we’ve found loads of oil, its all commercial, you are all millionnaires.” But it doesn’t work like that. This is a 3 step process.

Step 1 LWD results.

Step 2 Wirelogging results.

Step 3 Flow testing results.

You can’t skip a step. The RNS has shown that so far the Winx drill has done everything asked of it, except the Seabee. If Steps 2 and 3 comeback positively, (we have no reason to think they won’t), then this will be a major, major rerate for all the companies involved.

We should hear tomorrow morning concerning the Torok.

We then should hear within 3-4 days the results of step 2.

If Torok is more than 200ft then there is no reason why Winx wont be even more important for Alaskan oil than Horseshoe.

88E currently has a farm out process ongoing, due to be completed by the end of March. It would be naive to think that Winx wouldn’t affect this. Most companies interested in the farm out with 88E, would be highly interested in the reserves of Winx. Rather than participate in a farm out with limited exposure to 88E assets, it would make far more sense, if funding allowed, to bid for the company. A strategic interest in Winx and full ownership of the farm out assets would be cheaper and give a company more options. I think that 88E’s problematic existence on ASX and AIM and its restricted ability to raise funds would make this a viable option for 88E and its management.

Key points.

LWD requires a baseline for oil/water resistivity comparisons. It seems possible that the current higher Nanushak layer might not be water, one to watch out for.

The drill is important for the entire North Slopes and so also for the whole of Alaska, if it’s successful in determining net pay, it will make Alaskan News and Oil news globally.

The drill is going as well as could be hoped at this stage.

Modern wire logging is very accurate if it shows net pay for oil, then it will flow, how much is uncertain, but it will flow.

The angle of penetration and the geology of the drill, shows that it likely missed the sweet spot.

Just like horseshoe, a sidetrack drill might be planned to intersect even more net pay and find the sweet spot, this will be from a position of giant size strength.

The share price will respond, how quickly I am unsure as the market is incredibly dumb since the major Aim funds have left, but I fully expect considerable US buying if Winx comes in, as its shaping up to look like.

#AAOG Answers, Answers and Money.

I’ve not been too involved with AAOG recently. About two weeks ago I created a list of questions I had and none of them were being answered. I was rather annoyed by this as well as how much was left out or unclear in the RNS’s released.

However thanks to the last few RNS’s and the wonders of the internet and David’s presentations, many of these have been answered. I am finally able to comment without having to say that everything is uncertain.

So what do we know.

Geology:

R2, is considerably better than they expected. Importantly the pressure was better (being the same as 101 when that was first drilled) and R2 is a compartmentalised system. The expectations from both SNPC and AAOG geologists are that it will flow at the 1200bopd for 12-18 months which is the same as 101 flowed.

Mengo, is not quite as good as we might have liked. Although larger, SNPC have estimated 300-500bopd, rather than 700-800bopd. It will be fracked (simulated) once using latest technology. This won’t be done using the rig, but will be done using Schlumberger’s own equipment. The equipment will be on site end of March beginning of April due to a delay their side. Fishbone technology won’t be used to keep things plain and simple and to follow guidance from SNPC who have multiple successes now drilling into and producing from the Mengo.

Djeno, the drill only reached into the upper Dolomite section of Djeno. In this section a working oil field was observed. Trap, seal etc were all in place. Down hole data indicated a working oil sands system below the Dolomite, this was backed up by SNPC and their knowledge of Djeno in surrounding fields (being a part owner in surrounding field SNPC geologists are experts with full field data). Given this the depth of the Djeno can confidently be assessed as 100m>

CPR:

David has confirmed several times that the CPR will be released in the beginning of March. A figure of 300m barrels for the R1, R2, R3 New zone 1,2,3 and Mengo is expected.

David has also heavily suggested that the Djeno field is similar if not the same as nearby license areas, which contain in-excess of 1 billion barrels of oil. This will obviously only go into a CPR when 104 is drilled.

Funding:

Is has been confirmed multiple times that funding is not going to take place unless it’s for 104 and or a new oil field. Any new oil field will be a payment of shares imo and David would be foolish to do this until the share price is much higher. It has been confirmed that 104 will not be planned until production is underway. Given all this funding will NOT happen until May at the earliest. A loan against production would be first way of doing this anyway.

104:

A possible rig has been identified (from the states) and a late summer timeframe has been floated. This will target the Djeno sands for production and Vanji for exploration. Production target will be 5000bopd.

Product:

David has confirmed that oil samples have been taken and the API is 39-41, light crude. Price has been confirmed as Brent, with an $18 cost per barrel.

David has confirmed that they have already spoken to the major offshore Djeno terminal about Djeno production later in the year, they have confirmed that Djeno Heavier oil is required and they would like to take whatever AAOG can produce.

Revenue:

SNPC have paid $663,000 to AAOG, after electing to pay rather than give away ownership. This is good news. A short repayment plan had been entered into.

We know that the expected production is 1500 bopd we know the price and the profit.

1500*(brent-cost) * 30  = cashflow profit pcm

1500*(67-18)*30 = $2,205,000m pcm

Given roughly 55% of this is AAOG, we get a figure of roughly $1.2m.

This is perfectly in line with David’s insistence that the company will make pro rata, $1m a month cashflow.

To add to this we have an agreement for SNPC owings to be paid out of revenue, even if we have no extra money from them as per the repayment plan that gives AAOG $2.2m a month, possible $2.7m a month if SNPC make a $500k payment a month as per the repayment plan.

So where does that leave us?

February License renewal to 2040 by SNPC, now to happen as financial terms have been agreed.

March 300m CPR

April Flow test and production start.

May Money flowing in.

April – July $9-10m flowing in, money partially used to pay for topside enhancements for Djeno production.

August 104 Drill?

By end of 2019 – Djeno 5000bopd to add to 1500bopd, $13m a month pro rata to AAOG $7m giving $84m a year profit…MCAP $500m plus as the Djeno field and further holes will be in the works.

Obviously one step at a time, but now we know the answers to many questions, investors can at last start to put real projections together.

Frustrating that David has not put all this into RNS’s so it’s easy and clear to understand but then the SP wouldn’t be where it is, if he did.

My own personal opinion is that David has grown very fed up with the retail market, with its twisting and short-termism. You could argue, that this was due to his own actions, as the shares that have entered the market have largely fallen into slippy hands. As many as 20-25% of shares are slopping around, immediately stopping any sustained rise. To counter this David has been presenting to HNW investors. We’ve seen this bearing fruit with a holdings RNS. As more and more of the slopping around shares enter into sticky hands the SP will be become more and more variable to the upside.

The strategy of doing this prior the release of share price enhancing news (CPR, FLOW etc) is good and will maximise share price increase.

The share price will respond, when is impossible to say, the intelligence of investor on AIM seems to be at an all time low, preferring to use it as a gambling machine however quality and revenue will focus the mind of investors as the share price moves up.

AAOG Flow Testing and Questions.

Well at long last we have the news on AAOG we've been waiting for.

Production is a major stage for a company and AAOG achieving this in April should not be underestimated.

• Initial anticipated aggregate flowrate in excess of 1,500 bopd for the first 14-18 months
• Projected financial metrics at 1,500bopd:
• US$1 million/month net free cashflow generated
• Breakeven oil price falls to below US$20 per barrel
• First production targeted for April 2019
• Completion of the Well to production will be funded from existing cash resources

This is the right strategy, We can bleed R2 out quickly (over 18 months) at a higher rate get the money and use it to pay for the more important Djeno production drill.  
We should get a debt facility based on this production.

So the all important thing now is achieving the flow testing results.

It is a little bit frustrating that AAOG has taken quite so long to get this RNS out. I don't really see why this couldn't have been out  at least a week earlier but.....

Also I do wish that David put a bit more information in his RNS.
We don't know whether the flow testing will be done zone by zone. whether the new zones will be fracked or when the flow testing will take place.

Based on this I must confess to selling the shares I brought in the 10's, this morning first thing in the high 11's. My core holding with an 8p average I have kept. However I am not convinced the market will believe the flow rates until they are actually achieved.

Anyway. Very good news today. AAOG is meeting all expected milestones to become a significant oil company.

The trolls have been proven wrong about funding and production.

Long may it continue.

Savannah Resources Review of 2018.

Savannah Resources Review of 2018.

Or

Trials and Tribulations of a Troublesome Teenage Genius

I’ve been meaning to write this for a little while now, as I’ve said infinitum Savannah Resources is a jewel in the cesspit of AIM. Its projects are on the whole exceptional and its management team highly experienced and successful.

However its far to say that 2018 has been a troublesome year for Savannah, its reached new highs, raised sums of money at levels that are envied by most companies. It’s created alliances and expanded its team. It’s advanced projects and done considerable work to add value. Despite all of this, the share price is currently lower than at this time last year. In my mind of normalising a company’s characteristics, it seems to resemble a “Teenage Genius” that has had a troubling year.  It’s been affected by the bad behaviour of those around it, notably the tribulations of the Lithium Market over the past 6 months and the declining fortunes of its peers. Also weighing heavily on Savannah are the trials of Oman.

This review will hopefully put 2018 in to some perspective and shine a light on what to expect in 2019.

Mutamba Mineral Sands Project, Mozambique

“Savannah has a Consortium Agreement with Rio Tinto, which became operative in October 2016, to define a potential dry mining operation for staged, early development in a world-class province in Mozambique…Savannah is the operator of the Project and may earn up to a 51% interest in the combined project as it moves towards production through scoping, pre-feasibility and feasibility studies….The global Mineral Resource estimate for the Mutamba project (Jangamo, Dongane and Ravene) currently stands at 4.4Bt at 3.9%total heavy minerals ("THM") comprising both indicated and inferred category material and containing ilmenite, rutile and zircon This includes a high-grade portion of 92Mt at 6.2% THM, which was defined at Ravene. Importantly, significant potential remains to expand the resource beyond its current boundaries, which will be the focus of future prospecting activities.

·     Targeting first production in 2020 with average annual production of 456,000t of ilmenite and 118,000t of non-magnetic concentrate

·          US$4.23 billion LOM revenue forecast based on Management Case Two (base case revenue of US$3.53 billion forecast)

·         Pre-production capital expenditure of US$152 million plus US$74 million of contingency, EPCM (Engineering, Procurement, Construction Management) and spares, with identified opportunities that may reduce capital expenditure (based on conceptual estimate +/-35%)

Rio Tinto will be providing all its existing camp, facilities and associated equipment, and the Consortium Agreement includes an offtake agreement on commercial terms for the sale of 100% of production to Rio Tinto (or an affiliate).”

Taken from http://www.savannahresources.com/assets/mutamba-jangamo-project/

Block 4 and 5 Copper Projects, Oman

“Savannah has rights to two blocks covering 1,004km² in the copper-rich, Semail Ophiolite Belt in the Sultanate of Oman, a region proven to host clusters of moderate to high-grade copper deposits with gold credits..The Company’s strategy is centred on building a copper and gold resource inventory to support high margin, low cost operations and establish Savannah as a commercial producer, with mining expected to commence in 2018…Block 5 has a current Indicated and Inferred Mineral Resource of 1.7Mt at 2.2% copper ('Cu'), including a high-grade zone of 0.5Mt at 4.5% Cu, which was defined at the Mahab 4 target. This resource has been delineated at the Mahab 4 (1.51Mt at a grade of 2.1% copper for 31,500t of contained copper) and Maqail South (0.16Mt at a grade of 3.8% copper) deposits..  This has led to the projection of an Additional Resource Target between 10,700,000t and 29,250,000t grading at between 1.4%/t and 2.4%/t copper with additional gold credits.*”

Taken from http://www.savannahresources.com/assets/block-4-and-5-copper-projects-oman/

Mina do Barroso, Portugal

“Savannah acquired a 75% interest in the Mina do Barroso Lithium Project in northern Portugal is Western Europe’s largest new spodumene lithium discovery….a highly strategic opportunity to become the first significant lithium producer in Europe. With a granted Mining Lease (valid until 2036, extendable for 20 years), a 20Mt Mineral Resource which has the potential to increase further, robust project economics, established infrastructure, and preliminary metallurgical test work indicating that a high-grade (over 6% Li2O), clean, low iron spodumene concentrate can be produced.

The project has a current Mineral Resource of 20.1Mt at 1.04% Li₂O for 209,000t of contained Li₂O. Of this, 16.4Mt at 1.04% Li₂O for a total contained Li₂O of 171,400t has been defined at the Grandao deposit, with ~90% now reported at the higher confidence Measured and Indicated category, which represents the first 4-5 years of the mining inventory.”

Taken from http://www.savannahresources.com/assets/mina-do-barroso/

2018 (imagine this scrolling like a starwars movie intro……)

We start the 2018 story in an all too familiar way for junior miners.

The Mozambique PFS has been initiated but will take many months.

Oman is awaiting magical signatures for its mining license.

Portugal is still new, young and very much unproved….

New Investors are sought amongst the stars…..

The year of 2018

Savannah started the year in quite a dull way, the share price hovered around 6p, falling to 5.2p during the second half of April. During this period the mining Licenses for Mozambique were submitted in January. The most significant activity during the first quarter was around the Barroso Lithium project, a 200% increase in the mineral estimate to 9.1m tonnes which led to the kicking off of the initial scoping study for the project. 200% far exceeded most estimates from the limited drilling that took place and brought the project very close to the 10m tonne target it thought it needed in order to prove profitable and attractive.

A small fund raising took place at 5.5p to enable the company to meet its auditor requirements, as always with most Savannah fundraisers the placing shares went predominantly to long term holders.

Of the 8 signatures needed for the two Oman licenses, we received news that 8 had been received for one license and 7 for the other.

Grandao Extended was announced in April.

“ 90m at 0.96% Li₂O from surface including 31m at 1.06% Li₂O from surface and 34m at 1.37% Li₂O from 50m in 18GRARC65

Drilling to date at Grandao Extended has defined a zone of pegmatite approximately 300m long and 200m wide confirming the excellent potential of the zone”

The Grandao extended provided the first real sign that this was moving from a potentially good European lithium project, to something rather special and of real European strategic significance.

Despite the advancement of all projects during this period, the share price had a very muted response. It was as a I mentioned above a “dull period”. The market didn’t subscribe any new value to any of the advancements, I suggest this was in part, due to the  small fund raise, in part due to the mining cycle, but also in part due to the lack of value that the market assigns to news updates of these types.

As we move into May and June we enter the “phase of enlightenment”. Throughout this period there was only three major pieces of positive news, however the share price response was dramatic. From the 23^rd of April to June 11^th, the share price rose from 5.26 to 12.69. Intraday highs were actually far higher at 15.25p.

During this period the only news for Mozambique was that, in conjunction Rio Tinto, Savannah submitted mining licenses for the mineral sands deposit.

For Oman, the only news was that all magical signatures were obtained for the two Oman mining areas. The remaining obstacle left for the company and the granting of the mining licenses was formal approval by the ministry of mining.

Although the Oman mining license situation left shareholders expectant, neither of the projects provided the catalyst for share price increase, this was left to Portugal….

At the start of May, Savannah announced yet another 52% increased resource upgrade. This came quickly on top of the 200% upgrade less than three months earlier. It was a clear demonstration of the successful drilling undertaken and proved what many private investors who had been following the drilling had suspected..

The share price responded and started to rise, the company made a conscious effort to promote the company, including articles in national newspapers and trade publications. Based on the anticipation of the scoping study the share price rose to 12-13p.

On the 14^th of June a scoping study was released.

• ·         14.42Mt at 1.07% Lithium
• ·         IRR of 63%
• ·         £85m Capex
• ·         Pre tax NPV of $356m

The share price responded well and maintained much of its gains.

In the background, like many AIM companies, Savannah was ensuring that it was fully funded for the foreseeable future by taking advantage of its higher share price. A share placing occurred on the 5^th of July raising £12.5m at a price of 9p. Although this was below the heights that the company had reached, it was considerably in-excess of its news start point, back in April of only 5.2p.

For the rest of July we had the appointment of Primero to produce a feasibility study and an option to acquire some more land in Portugal.

From the placing in July, the share price has had a near straight decline until year end finishing back at 5.2p.

It would be an easy mistake, to assume that the company just suffered the normal AIM fate. The company was funded, the BOD could take its wages for another year, the company sat waiting on the PFS creation and on the Feasibility for Portugal.

This didn’t occur, instead the company entered a period of introspective improvement, from Aug to Dec. As mentioned above its important to note that this didn’t really change the downward movement of the share price, however they are the details that make this share so different to many others and longer term add the most value.

In Sept a further increase in JORC at the Mina Do Barroso Lithium deposit to compliment the already announced 14mt tonnes was declared. On top of the 200% increase, the 50% increase, we now had a further 50% increase to over 20mt of lithium.

More drilling was announced in Oman, we presume in order to facilitate the granting of the permission to mine in Oman.

A further mining license was requested for Mozambique and we finish September acquiring more mining lease applications for Portugal.

The final few months of the year consisted of agreements with Porto University and discovery of further zones of mineralisation in Portugal.

In December Savannah released the final significant piece of news with an increase in its Saleable Co-products. Along with its Lithium production, Savannah also plans to produce Feldspar and Quartz products from the waste. A specialist company was employed to assess and find final markets for a bulk sampling that took place. This waste material was found to be worth approx. 100-150% more than thought under the scoping study. It is anticipated that, along with other factors, it will enable Savannah’s lithium mine to be one of the cheapest in the world and the cheapest in Europe by a very wide margin.

Over the year the team at Savannah was expanded. James Leahy, formally of Bacanora Minerals joined in Novemeber. Martin Steinbild from Germany joined in January from Rockwood Lithium (brought by Albermarle Group) as a Lithium commercial director.

Finally during 2018, Savannah joined the EBA (European Battery Alliance), it’s a small group of companies under the direction of the EU Vice President to ensure that the European Union is a driving force in the electric car market. It recognises that battery metals and the creation of batteries are of strategic importance and aims to build partnerships between companies to keep things “European”. Most of Europe’s largest companies, car makers, electronic giants are members of this organisation. Over the year Savannah has clearly been leveraging this to its advantage.

Hopefully the above demonstrates that Savannah is very much “the teenage genius” the possibilities and potential is incredible, the company has made amazing strides and headways in 2018, achieving things that most, sometimes no other AIM company has been able to do. Some AIM companies might well brag about meetings with Asian government organisations. Or Joint Ventures with big companies, but Savannah takes this to the next level with its Rio Tinto JV and its EBA membership. Despite all this though the company has had a very troubled 2018 and it is important to realise why?

The lithium commodities market:

2018 was the much clichéd “Rollecoaster” for Lithium. At the start of the year Lithium prices were red hot, having risen by as much as 50% in the last 12 months. Nowhere was this more evident than China, which seemed determined not just to monopolise the lithium market, but to own it outright. Chinese lithium buyers were paying 20% above the global premium and Australian lithium hard rock miners were more than happy to take advantage of this, often in binding offtake agreements. Europe and to a lesser extent the US(with the exception of Tesla) were coming from behind, planning to build their battery megafactories to compete with China and only just starting to put offtake plans in place.

As we progressed through the year we had two important happenings. Firstly we had the earthquake of Trump. His Chinese trade war has had a major impact on the Chinese middleclass. It was this emerging middleclass that helped to drive the Chinese lithium demand, as well as potential export market longer term. The falling (relatively speaking) Chinese demand and the ever increasing Australian hard rock lithium turned a demand led boom of a higher price bubble, into a supply led glut. As we went through the year the Chinese premium evaporated and prices started a general fall globally.

The second major thing to happen is the rapidly expanding European battery market. Europe is set to build a host of megafactories. Much of the lithium supply hasn’t yet been arranged for this and with South America struggling and failing to meet its production targets, prices in Europe are showing some strength.

The falling of lithium prices generally and more particularly the collapse of the Chinese price bubble along with the failure of the S.American lithium producers has seen a significant fall in the share prices of Lithium companies over the last 6 months. Savannah Resources has been caught up in this.

The AIM market conditions haven’t helped conditions either, most reading this will be well aware that AIM liquidity has fallen sharply as funds and other HNW investors have left the market. Bottom feeders and quick buck merchants dominate any rise.

For Savannah resources a further unique affect has been the closing down of a large position by one of the Institutional investors that partook in the July placing. This isn’t through any fault of Savannah and is due to the investor suffering losses and withdrawing from the market.

Along with the effects of the mining cycle, which I have gone into length with in previous blogs, the lack of news particularly around Oman and short term nature of investors generally, has allowed the share price to fall as low at 4.7p recently.

What does 2019 hold for Savannah Resources?

Project	Performance Condition			Timing
Oman	Commencement of mining			December 2018
Mozambique	PFS completed and mining lease granted			March 2019
Portugal	Feasibility study completed and a strategic initiative entered into (e.g. securing major industry contract/alliance/offtake/equity investment from the lithium industry)			March 2019
Participant	Total Target Award	Form of Target Award	Applicable Project/Performance Condition
David Archer	100% of Salary	40% Cash 60% Deferred Equity	Oman	33.34%
			Mozambique	33.33%
			Portugal	33.33% Â
Dale Ferguson	100% of Salary	40% Cash 60% Deferred Equity	Oman	33.34%
			Mozambique	33.33%
			Portugal	33.33% Â
Michael McGarty	100% of Salary	40% Cash 60% Deferred Equity	Oman	33.34%
			Mozambique	33.33%
			Portugal	33.33% Â
Paul O'Donoghue	40% of Salary Â	40% Cash 60% Deferred Equity	Mozambique	100%

As always for completeness I am declaring I have been a long term holder of Savannah from pretty much the start of the company. Last year I added at 5.8-6.2p and 5.2p and have recently added in the last week between 4.8p and 4.9p.

·   * Taken from the RNS dated 13-04-18.

Of the three projects, I have reluctantly written off Oman. I so wish to see some value from it, but can’t in good faith say that I expect anything released to add value. I hope that I am wrong. I hope we get the mining license, get production started and very quickly earn money. On paper this is what should happen. However all of that should have happened last year, as per the management’s incentive scheme.

Mozambique has an interesting 2019 coming up. During 2018 nothing of real significance occurred on this project. 2017 saw the completion of the scoping study and the raising of Savannah’s stake in the JV to 20%. The PFS has been a long time coming, it’s a considerable project, valued at well over £1bn and Rio Tinto requires a very detailed set of studies. The next stage in the JV agreement beyond the PFS is a DFS (Definitive Feasibility Study), which would earn SAV 51% and control on the JV. It is in this context that the PFS should be viewed.

As part of the normal mining cycle the PFS would carry considerable share price weight under normal circumstances. With 1bn+ NPV, profit and revenue figures on a project that already has one of the world’s largest companies with an offtake agreement to take 100% of the mined resources this should doubly be the case. With Savannah resources though the PFS carries even greater significance. IF Rio Tinto want to carry on to the next stage, (the DFS) it will be Rio committing to giving Savannah controlling ownership of the JV.

This nicely bring us to Rio’s role in the JV. Rio’s latest production report last month. (https://www.riotinto.com/documents/190118_Rio_Tinto_releases_fourth_quarter_production_results.pdf).

In every production report for the last few years. Rio has included its Mutamba JV with Savannah as a tier 1 project. It’s one of only 7 projects in the studies stage. I have spoken to Rio several times about it, but Rio Tinto have a firm rule of not commenting on projects until they are pass their PFS. Presumably if the PFS isn’t good and they don’t want to continue it they can just drop it.

Due to the above if Savannah and the JV opt to continue to DFS when the PFS is release or indicate that this is the plan it should create considerable reporting interest and global coverage. Given all of the above the PFS should add considerable value to the SP. Obviously I don’t know what the NPV 8 will be on the project, but I suspect it will be at least 20-25p, probably considerably higher.

The timing of the PFS should be soon, to meet the incentive award it has to be by March, but could slip to April/May. March is also the timeline when the Mozambique Govt will report back on the mining license application.

This kind of project, with this kind of JV partner, with firm bankable PFS figures and a mining license will be many steps up from where we were in 2018.

Moving onto Portugal, 2018 was anything but a slow year for Portugal, the anchor effects on the share price should reduce, the China/US spat should show signs of being overcome. More importantly the demand for lithium for Europe should start to grow very strongly, possibly resulting in a European lithium price bubble as we enter 2020-2022 as the food for mega factories is needed.

I am fully expecting the Lithium resource size to continue to grow at a fast rate, maybe taking the size of the project to 30-40mt. This would make it one of the biggest 15 hard rock lithium sources in the world.

The feasibility study when its produced is bankable and will provide figures far in excess of the scoping study. A minimum for me is an NPV 8 of 30p. We already had some of the world’s lowest costs in the project, but with the new figures on by product prices we should see the project being one of the top 5 hard rock lithium projects for lowest costs per tonne in the world.

The IRR of the project, how quickly it will make a return on the capex, is likely to go even high as profits per tonne increase. Portugal is already one of the quickest/best IRR’s on the London Stock Exchange, both AIM and Main Index.

To meet the incentive criteria both the feasibility study and the strategic partner should be in place by the end of March. Again there is always the possibility this might slip, however both should be in between March and May very comfortably.

I think the strategic partner might well be given some pre release draft information from the Feasibility creation and that be announced first. My guess would be in the next 3-4 weeks. Given the favourable location and membership of the EBA, a strategic partner from the EBA seems most likely and desirable. My own hunch is a major European car maker, with a tie up to China, allowing Savannah’s lithium to be process in China until the European processing capability is in place.

With a low Capex and a very strong, stable partner and EBA/EU backing, the market should assign almost NPV 8 value to the project as it would be deemed highly likely of happening with production next year.

The announcement of the strategic partner is in some ways more important than the feasibility study. As we’ve seen recently with the likes of SOLG, when a company has a large external investor investing into a company it assigns a high degree of value to company and the share price responds. Not least because we would expect any strategic company to help fund the modest capex.

So key share price points.

-       Mozambique’s PFS and Rio’s continual involvement.

-       Mozambique mining license approval.

-       Portugal’s Strategic Partner.

-       Lithium Feasibility Study.

-       Lithium Go decision, funding and construction start.

All of the above should add anything from 10-30p to the share price as a minimum. After having the foresight to load up on cash at 9p, this is the year that Savannah moves out of its teenage genius stage, where people other than its loving family see the value and invest in its future. Where it steps onto the world stage.

The current share price doesn’t factor any of these factors, nor the amount of attention that Savannah will be receiving over the coming 6-12 months as Europe’s largest source of Lithium and Rio Tinto’s partner.

For certain though 2019 will have neither, trials or tribulations.