Gold – Robust pricing, improved returns and increased interest
The robust gold price, currently sitting comfortably above $1,700/oz, has been one of the bright spots of the current COVID crisis, although the roots of the price increase were seen well before from mid-2019 on geopolitical and trade concerns. Gold mining companies have been reaping the rewards of the higher price with forecast profits and cash expected to grow significantly. The increase in gold price has been reflected by share price appreciation for most of the gold-mining sector; gold miners, those companies developing gold projects and even gold explorers have all seen an uptick in share prices. Those companies in production should see considerably higher profits and we expect the level of dividends back to shareholders to rise.
The rate of M&A in the sector might also increase, as in previous high price periods, with some companies assuming that these prices can be sustained – however, they will have to be careful as a rash of M&A in previous cycles has shown that there may be a price to pay later on and the industry can ill afford a return to eye-wateringly large write-downs on the other side of this cycle. Gold miners will also have to behave prudently as there will, of course, be a temptation for higher throughput and production, regardless of grade, to generate more cash – a decreasing profit margin perhaps, but a lengthening mine life; as in everything there is a balance to be made to ensure sensible returns.
We are most heartened by a renewed interest in the previously (seemingly) ignored junior explorers which we think is a theme that will develop and continue.
Companies: AURA CMCL CNG GDP JLP ORR
Anglo Asian Mining* (AAZ LN) - BUY – Strategy update | Aura Energy* (AURA LN) – General meeting rejects proposed new directors | Bluejay Mining plc (JAY LN) – Chairman’s statement highlights work with Rio Tinto and near-term ilmenite (titanium) production | Chaarat Gold* (CGH LN) - BUY – Quarterly production increases, costs come down, FY20 target reiterated at 55koz | Strategic Minerals* (SML LN) – Draft environmental programme submitted for Leigh Creek
Companies: AAZ AURA JAY CGH SML
Arc Minerals* (ARCM LN) –- Arc Minerals raises £2.37m at 1.7p per share | Asiamet Resources (ARS LN) – Progress on permitting the BKM copper project \ Aura Energy* - (AURA LN) – Further issue of shares | Ormonde Mining* (ORM LN) – Covid19 measures | Serabi Gold* (SRB LN) – Q1 results | Sibanye-Stillwater (SSW JSE) – CEO calls for South Africa to allow underground mines to run at full capacity | Sunrise Resources Plc (SRES LN) – CS Project environmental assessment
Companies: ARCM ARS AURA ORM SRB SRES
Atalaya Mining (ATYM LN) – Copper price weakness blunts Q1 results | Aura Energy* - (AURA LN) – Further issue of shares | KEFI Minerals* (KEFI LN) – Finalisation of the Tulu Kapi funding due in Oct/20 and Hawiah maiden resource in mid-20 | Tertiary Minerals* TYM –– Pyramid project drilling results
Companies: ATYM AURA KEFI TYM
Where are we now?
Aura holds two development projects (Tirius uranium in Mauritania and Häggån vanadium
in Sweden) plus some very prospective base metal and gold exploration licences in
Mauritania. Tiris will be first off the block and has a Feasibility Study prepared, with Aura
looking to fund this into a rising uranium price environment. Tiris has many competitive
advantages – not least its low-capital intensity (per lb of U3O8), its low operating cost
(compared with global peers), its scalability and the fuller area potential. Häggån is largerscale
proposition and has a drilled resource and is undergoing a PEA to update a previous
study carried out a few years ago – now to prioritise the production of vanadium. Early
work on the gold/base metal licences has shown the evident potential– especially
considering the geology and its location along strike from Kinross's giant Tasiast gold mine
and adjacent to AlGold's properties. We see fair value in Aura at 3.2p/sh - with much of
that value in the Tiris uranium deposit.
Companies: Aura Energy
Aura Energy* - (AURA LN) – Quarterly report highlights Tiris uranium and corporate developments | Conroy Gold & Natural Resources (CGNR LN) – Gold in outcrop at Glenish | European Metal Holdings (EMH LN) – Cinovec Preliminary Mining Permit | Glencore (GLEN LN) –- Q1 production report highlights strength of trading operations and restoration of mining | Greatland Gold (GGP LN) – Havieron project drilling results | Vast Resources* (VAST LN) – Issue of shares to Atlas
Companies: AURA CGNR EMH GLEN GGP VAST
Nokia joins partnership to improve mining communications in underground mining operations | Aura Energy* - (AURA LN) – Further issue of shares | Erris Resources (ERIS LN) –Targets identified at Scottish gold project | European Metal Holdings (EMH LN) – CEZ investment completed | Metals Exploration (MTL LN) SUSPENDED – Updated mineral reserve | Phoenix Copper* (PXC LN) – Second phase of drilling at Red Star | Sunstone Metals (STM AU) – Placing for A$1.73m
Companies: AURA ERIS EMH MTL
Aura Energy* - (AURA LN) – Issue of shares | Altus Strategies* (ALS LN) – Tabakorole geophysical survey identifies new targets | Caledonia Mining* (CMCL LN) – AGM Procedures | Chaarat Gold* (CGH LN) - BUY – Completion of a $13.8m placing | Empire Metals* (EEE LN) (formerly Georgian Mining GEO LN) – Acquisition of control in Australian Palladium Deposit | Mkango Resources* (MKA LN) - COVID-19 safety measures for Malawi | Scotgold Resources* (SGZ LN) BUY – 119p – Earnings update: delivering gold at Cononish | Serabi Gold* (SRB LN) –– Appointment of non-executive director | Vast Resources* (VAST LN) – Baita Plai parts and equipment shipment update
Companies: AURA ALS CMCL CGH GEO MKA SGZ SRB VAST
Aura Energy* - (AURA LN) - EGM schedule | BHP (BHP LN) – Quarterly production report leaves guidance largely unchanged | Gem Diamonds (GEMD LN) – Q1 trading update | Power Metals* (POW LN) - Alamo gold project expansion and extension | Tertiary Minerals* TYM – Pyramid Gold project
Companies: AURA BHP GEMD POW TYM
Anglo Asian Mining* (AAZ LN) – Production maintained amid escalating state COVID-19 containment measures | Adriatic Metals* (ADT1 LN) – Gravity data reveals additional targets | Ariana Resources* (AAU LN) – Subsidiary pays Ariana £1.6m dividend | Aura Energy* (AURA LN) – Postponement of EGM | Caledonia Mining (CMCL LN) – Virus mitigation measures in place | Gem Diamonds (GEMD LN) – Letseng placed on care and maintenance | Polymet Mining* (PLM N) - Minnesota Supreme Court will hear appeal on three PolyMet permits | Sunstone Metals Limited (STM AU) – Identification of high-grade gold-copper porphyry targets at Bramaderos | Serabi Gold* (SRB LN) –– Higher gold prices and falling Brazalian real
Companies: AAZ ADT1 AAU AURA CMCL GEMD POM SRB
Amur Minerals* (AMC LN) – £1.5m convertible loan note | Aura Energy* (AURA LN) – Issue of shares | Bushveld Minerals* (BMN LN) – Agreement with redT energy plc to supply electrolyte for Vanadium Redox Flow
Batteries | Condor Gold* (CNR LN) – Looking ahead to production at La India | MC Mining (MCM LN) – Interim results highlight a drop in earnings reflecting weak coal prices
Companies: AMC AURA bmn CNR MCM
Bushveld Minerals* (BMN LN) – Agreement with redT energy plc to supply electrolyte for Vanadium Redox Flow Batteries | Aura Energy* (AURA LN) – Issue of shares | Greatland Gold (GGP LN) –Havieron project update | Metals Exploration (MTL LN) – Unable to extend the Standstill Agreement, stock suspended | Oriole Resources (ORR LN) – Thani Stratex Djibouti | Orosur Mining* (OMI LN) – Orosur receives US$0.5m from Newmont as part of Anzá project earn-in agreement
Companies: bmn AURA GGP MTL ORR OMI
Aura Energy* (AURA LN) – Shares issued to advisors | Rambler Metals & Mining* (RMM LN) – Increased mineral resource at the Ming copper/gold mine
Companies: Aura Energy Rambler Metals And Mining
Anglo American (AAL LN) – De Beers diamond sales hit by fallout of corona-virus | Aura Energy* (AURA LN) – Clarification of moves to restructure the board | Condor Gold* (CNR LN) – High grade pit scenario for La India | Edenville Energy (EDL LN) – Rukwa wash plant operations restart | Vast Resources* (VAST LN) – Chiadzwa Community Diamond Project update
Companies: AAL AURA CNR EDL VAST
Altus Strategies* (ALS LN) – First 15m shares in Canyon issued as per the Birsok bauxite project sale | Aura Energy* (AURA LN) – Issue of shares to advisors | Cora Gold* (CORA LN) – Sanankoro step out drilling returns high grade intersections
Companies: ALS AURA CORA
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InfraStrata's acquisition of the iconic Harland & Wolff (H&W) shipyards in Northern Ireland has been transformational for the group, and with a carefully planned growth strategy, there is a clear route to cash breakeven in the short term. Over the medium to long term, these facilities could support a c£400m revenue business. With the company trading at a c30% discount to its H1/20A book value and c65% to its Adj NAV, we initiate with a Buy recommendation.
Anglo Asian Mining is an AIM listed precious and base metals producer running flagship Gedabek operations in western Azerbaijan which include three producing mines and processing facilities. The Company targets 75-80koz GEOs in 2020 with low cost operations providing capital for organic growth opportunities within the highly prospective +1,000km2 land package, with the potential for additional attractive targets outside Azerbaijan as well as 25% of FCF dividend programme.
Companies: Anglo Asian Mining
Falcon is uniquely placed in the current challenging commodity price environment with its strong cash position (US$11.5m at 31 March 2020), fully funded drilling programme and high quality assets. Following the farm down of a 7.5% participating interest to partner Origin Energy in return for an A$150.5m increase in the gross cap carry, we believe Falcon is fully funded through one of the greatest periods of uncertainty the oil and gas industry has ever faced. At a time when many in the industry fight for their very survival, we believe Falcon has managed to secure a fantastic deal for shareholders, which should see the Company through to the potential monetisation of its 22.5% participating interest. We maintain our price target at 40p, a 426% premium to the current share price and reiterate our BUY recommendation.
Companies: Falcon Oil & Gas
Sylvania's share price has fallen 53% since its peaked on the 21st Feb, as the global economy hit the brakes. The short term demand outlook for PGMs is miserable, with supply chains breaking down as both luxury goods and car sales sales collapse.
Companies: Sylvania Platinum
Savannah Energy is an AIM-listed E&P company with two sets of assets: (i) in-production gas and oil fields and a regional monopoly gas distributon network in South East Nigeria (well away from the risky Delta area); and (ii) licenses over 50% of a prolific oil basin in Niger.
Companies: Savannah Energy
An independent resource audit by Gaffney, Cline & Associates (GCA) has significantly increased the resources at the Mako gas field following the JV's highly successful drilling campaign in Q4/19. GCA have increased the 2C gross recoverable dry gas volumes when compared to its previous resource assessment (in January 2019) by 79% to 495Bcf, slightly ahead of the internal 493Bcf assessment. In the upside case, the 3C resources have increased by 108% to 817Bcf, significantly higher than the 3C internal resource estimate of 666Bcf. Following the GCA resource upgrade, the Mako field has been proven to be one of the largest gas fields ever discovered in the West Natuna Basin and is believed to be the largest undeveloped resource in the region. Located close to existing infrastructure and well established markets, we believe Mako is an attractive proposition, which we currently value at US$18.3m or 3.2p using a US$6/mcf long term gas price.
Companies: Empyrean Energy
April 2020 production payment
Companies: Gulf Keystone Petroleum
Petropavlovsk PLC (LSE: POG) have released their FY2019 results and Q1 trading update this morning. The company had already released production numbers for last year. Overall the numbers reflected a strong operational performance although various financial/other parameters thwarted positive changes below the EBITDA line. Conversely net cash from operations reduced by 43% due to lower cash from prepayment as part of the group’s forward sale facility with the banks, yet net debt came down to $561m. . We show the key figures in Table 1.
An independent resource audit by Gaffney, Cline & Associates (GCA) has significantly increased the resources at the Mako gas field following the JV's highly successful drilling campaign in Q4/19. GCA have increased the 2C gross recoverable dry gas volumes when compared to its previous resource assessment (in January 2019) by 79% to 495Bcf, slightly ahead of the internal 493Bcf assessment. In the upside case, the 3C resources have increased by 108% to 817Bcf, significantly higher than the 3C internal resource estimate of 666Bcf. Following the GCA resource upgrade, the Mako field has been proven to be one of the largest gas fields ever discovered in the West Natuna Basin and is believed to be the largest undeveloped resource in the region. Located close to existing infrastructure and well established markets, we believe Mako is an attractive proposition, which we conservatively value at US$18.3m (risked) or 3.2p using a US$6/mcf long term gas price, unrisked our valuation of Mako increases to US$25.2m or 4.3p per share. We value Empyrean as a whole at 19.0p per share a 280% premium to the share price and reiterate our BUY recommendation.
Valuation – We have updated our Mako model, with gas first in 2023 (previously 2022). Using a long term gas price of US$6/mcf, and a 10% discount factor we value the 42.1Bcf of net 2C resources at US$18.3m (risked) or 3.2p per share. We include a 30% risking to account for any potential commercial risks (including political and fiscal changes), cost risks (associated with potential development cost variations) and timing risks (to allow for any project delays). Unrisked our valuation increases to US$24.7m or 4.3p per share.
A key sensitivity to our valuation is the gas price, at US$8/mcf our valuation of Mako increases to US$31.0m or 5.3p per share (risked), US$44.3m or 7.6p per share (unrisked) and at US$10/mcf our valuation increases to US$40.8m or 7.0p per share (risked), US$58.4m or 10p per share (unrisked).
Combined, we value Empyrean's portfolio at 19p per share, a 280% premium to the share price.
Oil posted its biggest monthly advance on record, just a few weeks after prices made a dramatic plunge below zero. Crude surged about 88% in May, with US futures on Friday rising above $35 a barrel for the first time since March, driven by massive supply curbs by producers across the world. Still, prices are well below levels at the start of the year, and demand that was crushed by the coronavirus crisis may need to show a sustained improvement for the rally to extend further.
For now, the outlook for consumption looks bleak, though it is on the mend. While virus-related lockdowns are easing, demand is not yet roaring back in the US Fuel sales that were clobbered in European nations such as Spain and Italy will take time to recover. China is a bright spot, but the rest of Asia is still struggling.
The number of rigs drilling for oil in the US fell for the eleventh week, stemming the massive glut of crude that flooded the market. Yet there is a risk that oil's advance could tempt producers to turn on their taps again.
US crude futures fluctuated Friday, as Federal Reserve Chairman Jerome Powell defended aggressive action to shield the economy as the coronavirus pandemic took hold. Prices surged at the close, with West Texas Intermediate oil settling 5.3% higher at $35.49 a barrel, after falling as much as 4% earlier in the day. Futures posted the biggest monthly jump in data going back to 1983.
Brent crude for July, which expires Friday, rose 4 cents to $35.33, closing below WTI for the first time since 2016. The global benchmark has rallied almost 40% this month. The more active August contract rose 5% to settle at $37.84.
Meanwhile, US President Donald Trump is poised to sign a measure that would punish Chinese officials for imprisoning more than one million Muslims in internment camps, as he looks to rebuke Beijing over its crackdown in Hong Kong and its response to the coronavirus. He has also discussed putting targeted sanctions and trade measures on China's financial sector.
More on the oil market:
As the fallout from crude's historic plunge continues, the Securities and Exchange Commission and the Commodity Futures Trading Commission have both opened probes into the $4.64 billion United States Oil Fund ETF.
As China's demand recovery outpaces the rest of Asia, falling fuel exports from the refining giant are providing a much-needed buffer for other processors in the region still grappling with lowered consumption and poor margins.
An early look at Saudi Arabia's crude exports for May shows that historic production cuts have done little to squelch the kingdom's flood of oil to China, which is just getting back on its feet from the coronavirus.
Companies: FOG PVR 88E DGOC EME TRIN UOG
2019 was a significant year for United Oil & Gas, dominated by the acquisition of Rockhopper Egypt and its 22% working interest in the Abu Sennan concession. The acquisition has transformed United into a full-cycle E&P with c1,760boepd of production. With low operating costs (cUS$6.5/bbl) and drilling costs, Abu Sennan remains cash flow positive with oil prices below US$20/bbl. Additional downside protection comes from the Company's pre-payment facility with BP, effectively hedging 6,600bbls per month at US$60/bbl until September 2022 and its long-term fixed gas contracts, insulating 20% of United's production from the current price volatility. We update our model, accounting for slightly higher operating costs, setting our price target at 6.5p a 242% premium to the current share price and reiterate our BUY recommendation.
Companies: United Oil & Gas
Shearwater sells resilience and today's trading update shows us how resilient demand has been for its products and services. The Group has swung to EBITDA profitability and cash flow is well ahead of expectations. The macro themes of cyber security and remote working are supportive of robust demand levels going forward. We are maintaining our forecasts. Buy.
Companies: Shearwater Group
Companies: Hurricane Energy
Shearwater is on track to meet our FY19E estimates. The acquisition of Brookcourt completed post the balance sheet date and so does not feature in the interim results. The integration is going well and underlying cash generation is positive. The recent sell-off in the shares leaves the stock trading at a 15% discount to the recent Placing price. Buy.
No surprises with President’s interims as most key numbers were pre-announced in early August. Still, good progress was achieved in H1 despite a challenging operational and political backdrop, with floods and power outages impacting output, while more recently the re-imposition of Argentine pricing controls for crude oil has weighed on the shares. Our estimates and price target remain under review while we update our model for the temporary pricing controls and the investment pivot towards gas. Argentine presidential elections in less than a month will continue to influence investor sentiment, although President’s shares have already been heavily impacted.
Companies: President Energy