Mixed day for Contrarian Investor uk portfolio

Despite an RNS, stating that Bowleven (BLVN) had started on the Sapele-1 sidetrack Sapele-1ST in the Douala Basin, offshore Cameroon, the shares fell 3p to 331p. The aim of Sapele-1ST is to appraise the Deep Omicron oil discovery encountered in the Sapele-1 exploration well. The well is to be drilled to an estimated vertical depth of circa 3,682 metres (4,761 metres measured depth) approximately 2 kilometres from the Deep Omicron oil discovery in the original vertical well. Drilling is expected to take approximately 40 to 50 days. Bowleven also announced that The Vantage Sapphire jack-up rig has now been contracted and the Sapele-2 well will spud around mid March 2011.

Xcite Energy (XEL) dropped 11.5p (3.5%) to 326p after this morning's news that the reserves report would be available at the end of March rather than early in the month. See earlier post: http://contrarianinvestoruk.blogspot.com/2011/02/xcite-energy-reserves-report-delayed.html

On a more positive note, Sirius (SXX) continued its rebound, rising 5% to 13.4p as realisation returns that the stock was oversold on the fall out from last week's Libyan crisis. Copper company, Weatherly (WTI) also rose 4.4% to 12.88p on strong metal prices. Even Rockhopper (RKH) managed a small gain to finish at 233p.

HSBC results subdue FTSE 100

A poorly received set of results from banking group, HSBC, sent the shares down 4.7% and helped the FTSE 100 finish down 7 points at 5,994. The Dow Industrials are currently up 70 to 12,201 as oil weakened marginally to $97 (U.S. WTI).

HSBC more than doubled its profits to over $19 billion (£11.7 billion) in 2010 versus $7.1 billion in 2009,  as bad debt provisions fell, but a reduced return on equity target due to new capital requirements failed to impress investors. Analysts had also hoped for a profit over $20 billion.  Expenses rose nearly 10% to $37.7 billion with the company blaming new bonus taxes , technology spending and increased marketing costs. 

A steadier day overall with events in North Africa calming down somewhat after last week's panic.

Buffett's Berkshire Hathaway issues annual shareholder letter for 2010

Berkshire Hathaway has released its 2010 Annual Shareholder letter (see full letter at http://www.berkshirehathaway.com/letters/2010ltr.pdf).

Some key highlights are:

• The per share book value of Class and Class B stock increased by 13% in 2010. Over the last 46 years, book value has grown from $19 to $95,453, a rate of 20.2% compounded annually (compared with 9.4% for the S&P 500 with dividends included)
• On the acquisition of Burlington North Santa Fe (rail road company) - It now appears this railroad company will increase Berkshire's "normal" earning power by nearly 40% pre-tax and by well over 30% after tax. Berkshire bought the outstanding 77% of Burlington on November 3, 2009, for $100 per share in cash and stock - a deal valued at $44 billion.
• Money will always flow toward opportunity, and there is an abundance of that in America. Commentators today often talk of "great opportunity". But think back, for example, to December 6, 1941, October 18, 1987 and September 20, 2001. No matter how serene today may be, tomorrow is always uncertain.
• Cultures self propagate. Winston Churchill once said "You shape your houses and then they shape you.". That wisdom applies to businesses as well. Bureaucratic procedures beget more bureaucracy, and imperial corporate palaces induce imperious behaviour. (As one wag put it, "You know you're no longer CEO when you get in the back seat of your car and it doesn't move."). At Berkshire's "world headquarters" our annual rent is $270,212. Moreover, the home office investment in furniture, art, Coke dispenser, lunch room, high tech equipment - you name it-totals $301,363. As long as Charlie and I treat your money as if it were your own, Berkshire's managersare likely to be careful with it as well.

On the latter point, I wish more of the fund managers on Wall Street and in London had the same attitude as Mr Buffett and Charlie Munger! The "sage of omaha's" treat for the day is his Diet Coke and steak in the local diner, not Krug and a Michelin star lunch. Less costs = more returns for investors.

The succession to Buffett and Munger is the key question for Berkshire Hathaway investors given their respective, 80 years and 85 years. It will be a hard act to follow. Why can't we have a Berkshire type fund on this side of the Atlantic that could have said to have delivered twice the FTSE All share over decades?

MeDaVinci up 17% today on Express article

I see that MeDaVinci is up 17% today following a positive write-up in the Express on the change to Orogen Gold. Whoops!!

Well it makes my review published at the weekend a little ill timed, I bet the bulls are crying with laughter! However, in fairness to myself, I did point out that the shares would rise short term on the Orogen acquisition noise and PR. But, and this is a big but, I have concerns about this company in general. I guess this is the curse of a blogger, sometimes a review based on all the facts doesn't matter a damn, when private investors pile in on near term sentiment.

But new investors in MVC, please be careful of a "pump and dump", especially with a penny share! Don't just rely on newspaper tips!

Of course, I might be completely wrong on MVC and its going to be a ten bagger. Fair play if it does and good luck to holders. It just doesn't fit the Contrarian Investor uk risk profile. Funny, this AIM share game!

Xcite Energy price fall offers another top up opportunity

So we have a 1 month delay in the reserves.upgrade. Nothing sinister in the RNS. The shares are down 6.5% on the news so its top up time. Bought more at 326p. I am being very greedy, when others are fearful! With 15,000 barrels flowing per day from early 2012, from a North Sea field, seems sensible to me!

Xcite Energy reserves report delayed until end March

Xcite Energy said this morning in an RNS that it hopes to complete an updated reserves report by the end of March, versus the late February or early March timing expected moving the shares down 5 percent at the open.

Xcite said the delay was warranted because it was better to “take the time necessary to maximise the value”. The reserves report will be focused on the first stage production of Bentley, though it will also provide a further update to the resources on a field-wide basis and will allow it to update the Competent Persons Report from 2009 which had indicate reserves of 166 million barrels (109-235 mm barrels).

TRACS (AGR Group) is assessing the Bentley Field, using data from the well 9/3b-6 test conducted in December 2010, which flowed above expectations at 2900 barrels a day despite weather issues and the heavy oil characteristics. The well test also confirmed an oil column which was larger than anticipated, making it likely the reserves report will be good and greater than 250 million barrels.

“The success of the Bentley 9/3b-6 well test requires Xcite to re-assess all material aspects of the reservoir model as the starting point for the input to the reserves report,”

“The information and data available from the well is still in the process of being received and collated and the company intends to use as much of this material as possible for input to the reserves report.”

“The company expects the completion of the reserves report to be around the end of March 2011, but will take the time necessary to maximise the value of the report,”

Looks like a case of waiting a month and trading on any new dips. The prospects for Xcite are superb!

Contrarian Investor UK company reviews to end February 2011

The following company assessments have been made to February 2011:

• Gulf Keystone Petreoleum (GKP)- http://contrarianinvestoruk.blogspot.com/2011/02/gulf-keystone-petroleum-interesting.html
• Xcite Energy(XEL) -http://contrarianinvestoruk.blogspot.com/2011/01/xcite-energy-should-prove-highly.html
• Range Resources (RRL)- http://contrarianinvestoruk.blogspot.com/2011/02/range-resources-look-to-have-good.html
• Weatherly International (WTI)- http://contrarianinvestoruk.blogspot.com/2011/01/weatherly-international-namibian-copper.html
• MeDaVinci (MVC) (Orogen Gold)- http://contrarianinvestoruk.blogspot.com/2011/02/medavinci-ugly-duckling-could-it-be.html
• Vialogy (VIY) - http://contrarianinvestoruk.blogspot.com/2011/02/vialogy-some-good-technology-but-can-it.html
• Sareum Holdings (SAR) - http://contrarianinvestoruk.blogspot.com/2011/02/sareum-holdings-pharmaceutical-cancer.html

Of the 7 companies reviews, Weatherly, Xcite Energy have made it into the Contrarian Investor UK portfolio, though Range Resources was close.

Fianna Fáil deservedly clobbered in Irish election

The Fianna Fáil party in the Republic of Ireland has been comprehensively ejected from power by the Irish people, having enjoyed a near monopoly on power since the early 1930's - literally a Fianna FAIL! The Irish tax payer has been left with a 85 billion euro bill following the EU/IMF bail out due to Fianna Fáil's decision to underwrite Irish banking debt in 2009. This was a debt built up by reckless residential and particularly commercial property lending whilst Ireland was seen as the "Celtic Tiger". Unfortunately the banks over leveraged themselves, were swamped with bad debts and ultimately had to be nationalised. The party in power failed to control the excesses of the banks and the property industry and eventually the whole rotten state of affairs came close to bankrupting Ireland itself.

To service the massive state liabilities, Ireland's 1.8 million workers has had to suffer draconian cut backs in state spending as well as heavy tax increases. It is difficult to see how the Irish state can fund the interest on the EU/IMF bail out, never mind payback the capital.

It is not difficult to see why the new Irish government (Fianna Gael/Labour Party) will try to restructure these liabilities, but how successful they will be with Germany and France resisting pressure to be seen to be rewarding reckless mistakes of the past, is the $64 million dollar question!

A lesson to us all. When things seem to good to be true, they often are! 

MeDaVinci, ugly duckling, could it be swan with a change to Orogen Mining?

Background

MeDaVinci plc is a UK registered company and is listed on the Alternative Investment Market (AIM) of the London Stock Exchange under the ticker (MVC). It certainly has an action packed history, with it being close to bankruptcy in 2009.

MeDaVinci plc was an investment company focusing on the health and wellness sector. It's objective was to identify and assemble a group of portfolio companies in this sector, building from its investments, ErgoDynamics Applications BV (back pain treatment in the work place), Emotion Fitness Kft (Hungarian Gym business) and Demecal Europe B.V (blood analytics).

During 2009, MedaVinci made a £5.2m loss, and as a result management carried out a review of its business and its portfolio of medical technology investments. In July 2009, the company concluded that its investment portfolio had negligible value, and with its recently established new management team it began to restructure the business. One of its three primary investments, Demecal Europe B.V., the blood analysis technology business, in which the Company took a 30 per cent. stake in August 2007, was placed into bankruptcy by the Dutch Courts on 24 June 2009. Without a fund raising in July 2009 at 0.1p to raise £421,000, Medavinci would have been forced to wind up.

In August 2010, MedaVinci announced plans to acquire unlisted Serbia-focused gold explorer Orogen Gold and change its name to Orogen Mining. Further to this announcement, in September 2010, the company agreed to buy 49% of Orogen for £370,000 in cash, with an option to acquire the remaining 51% over the next twelve months by issuing a 29.2% stake in MedaVinci. Orogen Gold was incorporated in Ireland in April 2010, and its primary interest is in the Deli Jovan gold project, in eastern Serbia. Orogen has the right to earn a 55% stake in Deli Jovan, through an earn-in agreement.

On February 16th 2011, Medavinci announced it was acquiring the remaining 51 percent of Orogen Gold Ltd. John Barry, Ed Slowey and Alan Mooney (directors of Orogen Gold) joined the Medavinci board. In March 2011, Medavinci will change its name to Orogen Gold Plc (ORE) with the objective of being an explorer, appraiser and developer of gold deposits in Europe following a shareholder meeting on 4th March 2011 with the name change and enlarged share capital due March 7th.

The acquisition for £3 million (a reverse takeover), will be raised through the issue of of 315,351,636 new Ordinary Shares.

Assets and Strategy
The Initial focus is on the Deli Jovan Gold Project, a 69 sq km permit-area in eastern Serbia covering two historical shallow underground gold mines (the Rusman and Ginduša Mines), that were last in production pre World War II, and over which Orogen Gold has an Earn-in Agreement. Under the Earn-in Agreement Orogen Gold has the right to an initial interest of 55 per cent. in the Deli Jovan Gold Project if it spends a minimum of C$1.5 million (£945,000) on exploration by 20 June 2012 and a further interest of 20 per cent. upon an additional spend of C$2.0 million (£1.26 million) by 20 December 2013, giving Orogen Gold an aggregate interest in 75 per cent. of the Deli Jovan Gold Project.

SLR consulting as part of the Competent Persons Report (CPR) in February 2011 commented, "Prior to World War II there was extensive gold lode mining down to a shallow depth of 100m at the Gindusa and Rusman mines on the Deli Jovan permit. There are no existing gold production records but judging by the volume and gold grade required to make the mines profitable an unverifiable mention in historical reports that 20 tonnes of gold (625,000 ounces) may have been produced from mines in the area is credible to the author. Since mining ceased at Deli Jovan in 1938 political and economic conditions did not favour narrow lode gold mining in Serbia and the region remained underexplored until conditions began to improve in recent years. In 2011, Serbia is a stable democracy with a good infrastructure and a strong mining tradition to support any prospective mining development."

The initial stage Phase I Exploration Programme, which will comprise surface trenching, re opening and re sampling three underground levels at the Rusman and Ginduša Mines and may also include some diamond drilling. This phase will also include reconnaissance exploration along the eight kilometre trend which includes gold prospects at Cuka Perina and Seliste. Phase 1 works will cost approximately £600,000 (C$950,000) and is expected to take 12 months. The second stage Phase exploration programme will involve driving new underground development with detailed channel sampling intended to confirm lateral continuity of mineralisation. More systematic diamond drilling from the surface is intended to confirm further lateral and depth continuity of the mineralised structures, is expected to cost approximately £1.1 million (C£1.74 million) and to take a further 9 months.

Contingent on success in Phase I, a Phase II Exploration Programme will commence which will include diamond drilling and new underground development and sampling to determine whether there are sufficient gold reserves to support an initial two to three years of production. Once in production the intention is to fund the blocking out of new resources from cash-flow and this will involve extending underground headings to determine grade and drilling to establish continuity in the lodes. It is estimated that Phase II will cost £1.25 million (C$1.97 million) and will take 12 months

In 2010, SRK assessed the Deli Jovan project and made the following conclusions that "SRK considers it likely that a small scale mining operation can be established and sustained at Deli Jovan using handheld pneumatic drilling equipment. The current constraints on operations are the unknown processing recovery and the limited information on the continuation of the ore zone outside the known working areas. The target of 30,000 ounces per annum as set by Deli Jovan Exploration d.o.o ("DE") could be achieved, on the condition that the historically reported widths and grades can be substantiated by the DE exploration programme."

Financial
On 9 August 2010, the company raised £842,000, before expenses, through a placing of new Ordinary Shares at 0.2p per share. In December 2010, the Company raised a further £1.5 million, before expenses, by way of a placing of new Ordinary Shares at 0.4p per share. As of December 2010, the company had £1.546 million in cash. The net proceeds of the placings were intended to be used to fund both stages of the Company's Phase I Exploration Programme at the Rusman and Ginduša Mines.

It was interesting to see that "Under the terms of the Placing Agreement, Xcap Securities plc has used reasonable endeavours to procure subscribers for the Placing Shares and will receive a commission on the gross funds that they have raised. In addition, Xcap has been granted warrants over 5 million new ordinary shares exercisable within 5 years of the date of Admission, at an exercise price of 0.4p per share."

The company unapproved share option Plan was set up in February 2011. Share options, conditional upon Admission, were granted on 16 February 2011 over 240,000,000 Ordinary shares at 0.95p per share, which vest as to 50 per cent. on the first anniversary and the balance on the second anniversary on the satisfaction of certain performance conditions.

Total number of Existing Ordinary Shares 1,353,660,817
Number of Deferred Shares in issue 73,599,817
Acquisition Consideration Shares 315,351,636
Total number of Ordinary Shares in issue immediately following Admission 1,669,012,453

Shares in issue will increase by 23.2% following Orogen aquisition
Market capitalisation of the Company following Admission £15,855,618 (from offer documents) - but assuming a share price of 0.8p = £13.3 million

The Company's audited results for the 9 months ended 31 December 2010, the Company's new accounting reference date, were announced earlier today. The Company generated £0 income in the 9 months ended 31 December 2010 (12 months ended 31 March 2010: £nil) and a loss after tax of £435,000 (12 months ended 31 March 2010: £662,000). The Company had cash of £1,546,000 and net assets of £2,223,000 as at 31 December 2010. Since 31 December 2010, the Company has continued to trade in line with the expectations of the Board.

On 9 August 2010, the Company stated that, on exercise of the Option, it would be its intention to undertake a share consolidation of the Ordinary Share Capital. Since that date the share price of the Company has risen from 0.2p (the price at which the placing was undertaken) to 0.78p. The company has stated that "The Board however, will continue to review whether, in the future, a share consolidation would be in the best interest of Shareholders.

The share price is currently 0.82p (52 week range  0.23-1.26p) giving a market capitalisation of £11million.

Management team
Directors:
Adam Reynolds (Executive Chairman)

Paul Foulger (Finance Director)

Michael Nolan (Non-Executive Director)

Glyn Hirsch (Non-Executive Director)
Michael Hough (Non-Executive Director)

Proposed Directors:
John Barry (Non-Executive Chairman)
Edward Slowey (Chief Executive Officer)
Alan Mooney (Finance Director)

In March 2011, Paul Foulger, Glyn Hirsch and Michael Hough will stand down from the Board, Adam Reynolds will become a non executive director and the Proposed Directors will be appointed to the Board.

Adam Reynolds, Executive Chairman (aged 48)
Began his career as a stockbroker before moving into investor relations. In 2000 he established Hansard Group plc, a financial PR firm, listing it on AIM in November 2000, before jointly leading a management buy-out of the business in 2004. Adam is also the chairman of Porta Communications plc, a non-executive director of EKF Diagnostics plc and a director of Wilton International Marketing Group.

Reynolds took over from Rob Westerhof, who headed Philips's Asia, North American and Medical Systems business during a 35-year career at the Dutch electronics giant and who later resigned from Medavinci in 2009 following its financial difficulties. Excutive Chairman, Peter Teerlink, also resigned on 25 March 2009.

Michael Nolan, Non-Executive Director (aged 48)

Nolan is a Chartered Accountant and has worked in the resources industry for 16 years. He is currently chairman of Vancouver-based Rathdowney Resources Limited, a private natural resources company operating in Ireland and Poland, Finance Director of AIM-traded Cove Energy plc and a Director of AIM traded Tiger Resource Finance plc. He acted as chief executive officer of AIM-listed mining company Minmet Plc from 1999 to August 2007. He also serves on the board of several resources exploration and investment companies.

Note re. Minmet - http://www.independent.co.uk/news/business/news/minmet-auditor-deloitte--touche-refuses-to-sign-off-2008-accounts-1935132.html

Paul Foulger, Finance Director, Glyn Hirsch, Non-Executive Director and Michael Hough, Non-Executive Director intend to stand down from the Board upon completion of the acquisition of Orogen. Paul Foulger will remain as Company Secretary following completion.

John Barry (aged 55)
John Barry has worked in the exploration and mining industry since 1988 and has consulted to the industry as a Qualified Person on a range of gold and base metal deposits in Europe, Africa, Australia and South-East Asia. He has degrees in Geology from The State University of New York and The Pennsylvania State University and an MBA from the Edinburgh Business School at the Heriot-Watt University in Scotland. He has worked for over 20 years on a range of gold and base metal deposits in Europe, Africa, Australia and Asia and has been involved in the discovery, sourcing and supervision of feasibility studies on multi-million ounce gold deposits in Ghana (Ahafo), Tanzania (Nyanzaga) and Mali (Yanfolila). He is currently Chief Executive of Vancouver-based Rathdowney Resources Limited which is involved in base metal exploration in Europe and he is Exploration Director of Sovereign Mines of Africa plc, exploring for gold in sub Saharan Africa currently focused on Guinea.

He has extensive experience in the specialist areas of mineral exploration, project management and the technical and financial appraisal of mineral exploration and mining projects. He is a professional member in good standing of the European Federation of Geologists, the Institute of Geologists of Ireland and the AusIMM, and therefore qualifies as a competent person under the terms of the VALMIN Code and by reciprocity, Canadian National Instrument NI43-101.

Edward Slowey (aged 60)
Edward Slowey is an economic geologist in the minerals sector. He is currently Managing Director of a private, London-based junior explorer, Silvrex Limited, with gold projects in Africa and also continues to undertake independent consulting assignments covering a range of commodities. Previously he had been attached to the CSA Consultancy Group working out of London and Dublin as Project Manager responsible for independent review, valuation and due diligence in mining and exploration, covering base metals, bulk commodities, precious metals and diamonds in Europe, Africa, Asia and America. Work included completion of Competent Person's Reports and 43-101 independent reports for the AIM, OFEX (now PLUS) and TSX markets. Other roles undertaken in a consultancy capacity include Exploration Manager, Russia for AIM-listed Eurasia Mining Plc, as well as minerals project management through feasibility studies, including at the giant Sukhoi Log gold deposit in Siberia. He has also worked in the Balkans on a range of base metal projects, primarily in Macedonia and Kosovo.

Previously, he managed the Irish exploration arm of Rio Tinto over a 12-year period, focussing on base and precious metals in carbonate, volcanic and metamorphic terrain. This work led to the discovery of the small, high-grade Cavanacaw gold deposit in Northern Ireland. Prior to that, he worked as an exploration geologist in Ireland for a Canadian junior company and as an underground mine geologist at the world class Navan zinc-lead deposit. He holds a geology degree from University College, Dublin and is a professional member of the Institute of Geologists of Ireland and the European Federation of Geologists.

Alan Mooney (aged 60)

Alan Mooney has worked in the natural resource sector since 2001 with Cove Energy plc, Minmet plc, Tiger Resource Finance plc, GoldQuest Mining Corp and Rathdowney Resources Limited. He was previously divisional CFO at Sonae SA, Portugal's largest commercial group. Prior to that he worked with Continental AG the German tyre manufacturer and was Finance Director of their operations in the UK and in Portugal. He also worked in Mergers and Acquisitions at Continental's headquarters in Hanover, Germany and formally as Chief Accountant at their Irish tyre manufacturing plant. He speaks Portuguese, German and French. He is a Chartered Accountant and MBA. He trained with PWC in Dublin.

Key timings

Reopening of Deli Jovan mine - March 2nd 2011

Shareholder general meeting to approve acquisition of Orogen Mining - March 4th 2011

Admission of new shares and change in company name to Orogen Mining - March 7th 2011

SWOT

Strengths

• Renewed and clear corporate strategy - to be a European mineral explorer and producer
• Serbian Deli Jovan Gold Project (the Rusman and Ginduša Mines), have had historical gold production, albeit pre-Second world war
• Able to finance 1st stage of mine development up to Q1 2012 using £1.5 million cash following placings in 2010

Weaknesses

• Checkered history with significant losses under its old guise as a healthcare company.
• Production 3 years away and currently no income.
• Size of Deli Jolan mine unclear (SRK have commented that "The current constraints on operations are the unknown processing recovery and the limited information on the continuation of the ore zone outside the known working areas. ")
• Penny share status - bid/offer spread issues, more market maker manipulation, increased volatility
• Management team not A grade - some worrying links with companies which have had issues e.g. Minmet, Slowey and Mooney close to retirement
• Xcap has been granted warrants over 5 million new ordinary shares exercisable within 5 years of the September 2010 placing, at an exercise price of 0.4p per share
• 240 million shares issued as part of share option plan at 0.95p (The options will vest as to 50 per cent in March 2012 and the balance in March 2013)

Opportunities

• Strong gold price which is likely to rise further over the next few years
• Consolidation of shares
• Institutional support
• Further exploration upside - From the CPR Feb 2011 written by SLR consulting-  There is a high probability that other gold occurrences are present under soil cover elsewhere on the property, which may be located by a combination of geological mapping, soil geochemistry and ground geophysics and would merit investigation by drilling. As the soil cover in much of the large prospective area appears to be less than a couple of metres thick, soil geochemical sampling could well locate new prospects for investigation. There is also scope for geophysical investigation, especially Induced Polarization (IP) surveys on selected areas where disseminated pyrite similar to that occurring in the known gold veins is anticipated, especially in the vicinity of the old mines and mineral occurrences. Lacking the capability of diamond drilling the work of previous times had to rely on finding gold in outcrop or under shallow cover. New discoveries to be made following improved, modern methods may be as good as or better than known prospects.
• Sale of Hungarian gym business (Emotion Fitness) with a book value of £200,000

Threats

• Further fund raisings at a discount to begin mine development programme
• Acquisition allows up to 1.25 billion additional shares to be issued without shareholder approval (1,669 012,453 in issue when company becomes Orogen)
• Exploration permits have been renewed annually in respect of the Deli Jovan Gold Project since 2006. The new permit is valid until 5 October 2011 and the Company would expect the permit to be renewed on its next anniversary. Annual permit renewals add to uncertainty.

Upon completion of the Acquisition and the allotment of the Consideration Shares, the Directors will have the authority to allot 750,000,000 Ordinary Shares (representing approximately 44.94 per cent. of the Enlarged Issued Share Capital) for cash on a non pre-emptive basis.

Whilst the Directors have no current intention of issuing further Ordinary Shares (other than pursuant to the warrants already granted and the options under the Share Option Plan as set out in paragraph 13 above), they believe that it is important to have the flexibility to issue up to a further 500,000,000 new Ordinary Shares without seeking prior Shareholder approval.

Share outlook

It is commendable that the management team has rebuilt MVC after it brush with bankruptcy in 2009. Its new strategy of focusing on mineral exploration is a huge departure from its previous focus on health and wellbeing which was less than successful. 

The Deli Jovan Gold Project in Eastern Serbia offers plenty of potential but production is not likely until 2014 at the earliest. With £1.5 million in the bank, the company has enough funds for the 1st phase of the mine development during 2011 and early 2012.

It is a shame that the board decided not to proceed with the share consolidation since at 0.8p, the bid/offer spread is large relative to the share price. AIM stocks are high risk but at the sub penny level, volatility can be huge. 

The share capital will enlarge by 23.2% when the additional shares are listed to complete the acquisition of Orogen on March 7th. I would anticipate that the share price is depressed by this additional listing (even with the additional assets added to the company) until further news emerges from the Deli Jovan project. The placings in 2010 were completed at 0.2p and 0.4p, so the current 0.8p level is a significant premium. No doubt the publicity of the new companies listing on AIM may bring in some new private investors. I am interested to hear any counter views why the share price should increase in the short term.

The lack of major institutional support and also the make up of the board gives me some cause for concern. There are no "heavy hitters", no one under 40 and some board members have associations with some less than successful entities, it smacks some what of an "old boys" club with lots of mutual directorships and connections. Rather in bringing the team from Orogen who are on the verge of retirement, some high calibre, fresh blood would have been welcome.

There are also a lot of extra shares hitting the market in the next few years - director share options, Xcap warrants and the board is able to issue a significant amount of extra shares (up to 1.25 billion) without shareholder approval.

It would make an amazing story for Orogen Gold to be a 10 or even 100 bagger in 3 years time, but with the current market cap at c. £11 million, it would be prudent to wait for the 1st phase of development of the Deli Jovan mine to be completed during 2011 before diving into the shares, in order to verify the size of the prize. A sub-penny share is always going to be high risk!

So unfortunately another share which Contrarian Investor UK will not be adding to the portfolio for now. I will be watching the acquisition  and name change in March with interest and also for the mine development to progress. 

Portfolio review of the week - 26th February 2011

On Friday the FTSE 100 finished up 81 points at 6,001, down 1.3% on the week. The Dow Jones Jones Industrials finished up 62 points, or 0.5%, at 12,130, a 2.1% fall for the week and the worst since mid August 2010. Shares rebounded on Friday as the oil price stabilised and the markets began to be reassured that the Libya's 2.5% contribution to global oil supplies could be covered by other oil producers and that Colonel Gaddafi's position was becoming increasingly precarious. The U.K. market declined less than across the Atlantic because of the greater number of oil and defensive stocks in the FTSE 100.


The U.K. market was thrown into turmoil yesterday as the London Stock exchange computer system crashed for 4 hours, meaning trading was suspended for most of the morning.To coincide with the LSE problems, the revised Q4 2010 GDP figures were released by the Office of National Statistics showing a revised 0.6% decline in the U.K. economy (versus previous estimates of 0.5%).


Despite the market panic in the middle of the week, the Contrarian Investor UK portfolio had mixed fortunes but I took some opportunities during price dips to top up on Xcite Energy (XEL) and Weatherly International. I also bought into another North Sea oil company, Encore Oil for the first time (EO.). 


Xcite Energy (XEL) - Xcite had a good rise on Friday and finished the week at 346p, a 1.8% decline. There have been some reassuring noises that a farm in or placing may not be needed to bring the Bentley heavy oil field into production. The interview published by Rupert Cole (CFO) indicates that any fund raising will be on Xcite's terms not on the institutions and that they have several options open to them (http://contrarianinvestoruk.blogspot.com/2011/02/xcites-cfo-cole-confirms-partner-may.html). 


An update from British American offshore (Rowan Companies) who are currently constructing Xcite's rig, the Rowan Norway also confirms delivery of the rig is due June 2011, with operations starting in the North Sea in November 2011 (with the transit time from the Duabi construction site). Looking at the SEDA (standby equity drawdown agreement), there is insufficient funds remaining to complete the final $30 million instalment due on delivery in June. Therefore it would be anticipated that the company would need alternative funds by this date. With the CPR (competent persons report) due early in March, it is inevitable that Xcite will leverage this report to find the funds its needs and this is not necessarily a discounted placing. As I have stated before, using a bank loan or bond offer seems possible. Either way, went it went back below £3.40 this week, it was a great buying opportunity.


http://www.rowancompanies.com/_filelib/FileCabinet/PDFs/Offshore-CM.pdf?FileName=Offshore-CM.pdf
Rig is under construction with delivery expected in June 2011. Contract executed for combined drilling and production operations with an initial term of 240 days followed by a one year priced option in the low $250s. Production fee of $1 per barrel of oil produced is also payable during the initial term. Customer is required to provide security for the initial term totaling $60 million by the date of shipyard delivery of the rig. The first installment of $15 million was received on February 17, 2011. The second $15 million installment is due February 25, 2011, with the final installment of $30 million due upon delivery of the rig from the shipyard. Rig is expected to commence operations in November 2011.
Rockhopper (RKH) - Another bad week the falklands oil explorer, with the shares dropping 12% to 233p. I have covered the fact earlier in the week that the current market capitalisation (£600 million) is daft with what the RKH have already discovered at Sea Lion (http://contrarianinvestoruk.blogspot.com/2011/02/taking-advantage-of-silly-valuations-on.html). But this frontier explorer is out of favour, and the private investor stampede has moved onto pasteur's new for now! With drilling results from the 14/10-4 well due around mid-March, it is inevitable that this share should starting perking up in a couple of weeks time. Hopefully 230p is the new base, but you never know with a Falklands oil stock!


Encore oil (EO.) - I took the opportunity to buy into North Sea oil explorer, Encore Oil this week, given the company prospects and news flow over the next few weeks. There was talk of a takeover this week by Premier Oil, but this seems a bit far fetched.

Encore own a 16.6% interest in the Cladhan North Sea licence with Sterling Resources (73.4%) and Dyas (10%). Drilling is expected to commence within the next few days at Cladhan (Blocks 210/29a & 210/30a) with the flotilla of vessels apparently on its way. The Burgman prospect is expected to spud any day soon using Encore's contracted rig the Galaxy II.

Sirius Minerals - Another terrible week for potash company Sirius, with a 15% to 13p. No bad news, such sentiment. Topped up a little at 12.5p and now we wait!

Bowleven (BLVN) - Bowleven had a good week with the share reiterated as being on Goldman Sachs conviction buy list, despite rumours of issues in Cameroon which now seem to have been largely diffused. Goldman has said that recent share underperformance has created an attractive entry point into the stock - "We view the upcoming drilling campaign offshore Cameroon positively, with recent success at the Sapele prospect helping to de-risk the surrounding acreage,". The target price was cut to 578p from 623p, with drilling at the Cameroon Sapele-1 prematurely halted because of high pressure gas which the drilling equipment was not specified to handle.The shares rose 5% on the week to 335p.

Weatherly International (WTI) - The interim results this week had plenty of encouraging news from this Namibian copper company (http://contrarianinvestoruk.blogspot.com/2011/02/weatherly-international-interim-results.html). Topped up on WTI. I have great confidence that we will see Weatherly shares significantly higher within weeks.

Market moves up after London Stock Exchange closes for 4 hours

With oil prices stabilising as the end game in Libya seems close as regards Gaddafi, markets responded nicely with the FTSE 100 up 90 points to 6,006 and the Dow Industrials is up 65 to 12,130.  Lots of gains across the board. Some degree of risk appetite has undoubtedly returned with a lot of the AIM stocks that have bombed in the last week bouncing., for example, Kurdistan oil explorer, Gulf Keystone was up over 10%.

The London stock exchange was down all morning after a new software system which was installed 2 weeks ago, sprang a glitch. Hopefully when the LSE merge with the Canadian TSX, they can use their software!

Most of the stocks in the Contrarian Investor UK portfolio are having a good day, Bowleven, Sirius, Weatherly, Encore are all up, the only exception is Rockhopper which is down a couple of pence. Nice to see Xcite Energy up 2.5% today after yesterday's top up. Now I need to see some RKH action, up, not down!

Lloyds makes first profit since U.K. tax payer bail out

Lloyds Banking Group (LLOY) has just announced its first annual profit, since the government rescue. In 2008 at the height of the financial crisis, the Labour government brokered a deal whereby the U.K. tax payer injected capital in return for a 41% stake in an enlarged group which included HBOS (Halifax Bank of Scotland).

For 2010 it made pre-tax profits of £2.2bn, compared with a £6.3bn loss in 2009 and higher than consensus estimates of £2 billion. Bad debt was down to £13bn, from £23bn the previous year.

Things seem to be improving faster at Lloyds than RBS and with its signficant share of the U.K. mortage market as a result of the HBOS integration the future is probably bright unless the housing market is dented by interest rate increases later in the year. It is worth remembering that Lloyds and HBOS would never have been able to combine because of competition issues in normal circumstances.

Xcite's CFO Cole confirms partner may not be needed to develop Bentley field

Various sources have now published details of an interview with Rupert Cole (CFO of Xcite Energy) conducted on Wednesday. He makes the statements that "...believes Xcite can undertake the development without bringing in a partner and possibly without raising fresh equity.", ""I wouldn't rule it out, I wouldn't rule it in either," he said when asked if the company was planning a fundraising, adding that he was encouraged by approaches from institutions willing to lend to the company."

So it looks like an equity placing is not a done deal and if it is done it will be Xcite's terms not the institutional investors, i.e. not at a big discount to the current price. It is not unfeasible that Xcite may choose to borrow the money required to develop the field or use its Bentley Alliance partnership. I am sure that the management team is as keen as anyone not to dilute their substantial share holding giving shares away at a discount. Its worth reminding that at 340p or so, Xcite is only at a small premium to the share price pre-flow test back in December. 

With production starting early next year at a hefty 15,000 barrels per day (an upside target of 60,000 has been stated by Xcite management before), $ will be flowing into the Xcite coffers very quickly, particularly with Brent Crude oil over $100 a barrel. With this cash flow due in early 2012, Xcite could securitise this cash flow against a bond at a fixed coupon (interest rate). The fact that the Bentley field is in the North Sea should make it easier to bring a bank onboard to provide the necessary investment.

Hopefully this will be the bottom and we can look forward to a ramp up in the share price as the CPR document publication moves ever closer. I couldn't resist topping up at 338p yesterday.

INTERVIEW-Xcite confident on Bentley oil field development
Wed 23/02/2011 17:44
http://www.selftrade.co.uk/news-information/news.php?fullview=1&idNews=9569037&submit=

* CFO says development could require fresh equity

* Targeting first oil in Q1 2012

By Sarah Young

LONDON, Feb 23 (Reuters) - Xcite Energy XELL.L is confident it can undertake a major oil field development off the east coast of Scotland without bringing in a partner, it said on Wednesday, as it looks to become one of the biggest independent oil companies in the North Sea.

"We're not of a mind to farm-down ... There's no reason that we can't deliver this and bring the field into production," Chief Financial Officer Rupert Cole said in an interview.

Xcite's management estimates its Bentley field in the northern North Sea could hold up to 200 million barrels of recoverable oil, a reserve base which would propel it into the top ranks of London-listed independent oil companies alongside Premier Oil PMO.L and Enquest ENQ.L .

Independent oil companies, increasingly dominant in the North Sea as oil majors such as BP BP.L put fields up for sale, are helping to revive the oil province. ID:nLDE71L18J

British oil production is forecast to decline more slowly over the next five years with investment in the North Sea rising in 2011 compared with the previous two years. ID:nLDE71L181

Bringing a substantial oil field like Bentley into production is a costly process for a company with no cash flow, but Cole believes Xcite can undertake the development without bringing in a partner and possibly without raising fresh equity.

"I wouldn't rule it out, I wouldn't rule it in either," he said when asked if the company was planning a fundraising, adding that he was encouraged by approaches from institutions willing to lend to the company.

FIRST OIL

The company, whose shares have soared over 700 percent in the last 12 months since a well returned better than expected results in late 2010, is targeting first oil from an initial production plan in the first quarter of next year.

"The strategy for Xcite has always been to eat this elephant a bite at a time," Cole said.

The first stage will be followed by further development plans once the company starts to generate cash flow, estimated by Cole at an initial $300 million to $400 million over the first two to three years from production at a forecast rate of 15,000 barrels of oil per day.

(Editing by Greg Mahlich)

((sarah.young@thomsonreuters.com; +44 207 542 7717; Reuters Messaging: sarah.young.thomsonreuters@reuters.net))

Keywords: XCITE/

Gaddafi loses control outside Tripoli and oil price turns down

Gaddafi's hold on power in Libya is slipping with reports that his authority is now confined to parts of Tripoli.Towns to the west of the capital have fallen and all of the east is firmly in opposition hands.

Gaddafi blamed the revolt on al-Qaida leader Osama bin Laden, and said the protesters were fuelled by hallucinogenic drugs.

Saudi Arabia is in discussions to increase its oil output to offset any loss of production in Libya. Recently U.S. WTI crude is down 0.5% to $97 a barrel (Brent crude is now flat on the day at $111, after spiking earlier to $120 a barrel). Traders were spooked when talk of a Face Book campaign to hold a day of action in Saudi Arabia took hold, but so far only a few hundred people have registered.

Algeria has officially lifted its 19-year-old state of emergency, according to the national Algerian Press Service. The action lifts restrictions on freedom of speech and assembly imposed to combat an Islamist insurgency. Worries that Algeria and Tunisia could join the turmoil was of particular concern given the gas pipelines which serve Europe cross these countries.

Gulf Keystone dropping like a rock

Gulf Keystone (GKP), the Kurdistan focused oil explorer has been tumbling in recent days. It is currently down 10% at 132p. As I wrote in my review of GKP earlier in February (http://contrarianinvestoruk.blogspot.com/2011/02/gulf-keystone-petroleum-interesting.html) , I was concerned about the political and legal risks and at 180p, it had gotten ahead of itself.

Despite a rising oil price, GKP is dropping as fears continue to grow that factions in Kurdistan may try and break away from Iraq. Also that the contracts that the semi-autonomous government has signed may be torn up leaving foreign oil companies with nothing more than pieces of paper.

There's plenty of good shares in the nice and secure North Sea before you start putting your money into Iraq (Encore, Nautical, Xcite etc.) . The risk/reward is in favour of the sellers at the moment. Institutions are selling and it would not be surprising to see this below 120p. If you compare two Frontier explorers, GKP with RKH, the latter is far less risky as its assets are more secure and there is no litigation hanging over it. Even if RKH is in the South Atlantic, its still UK sovereign territory!

Big day of earnings U.K. Market

2010 Losses at RBS were double that expected at £1.1 billion, though the operating profit before write downs was £1.9 billion, compared with a £6.1 billion loss in 2009. Bad debt losses were £9.3 billion versus nearly £14 billion in 2009. The shares are down 3% to 46p.

British American Tobacco (BATS) reported pre-tax profits up 5% to £4.3 billion. Volumes were down 2% overall to 708 billion with a 1% decline in the Americas, and 8% lower in Western Europe, but these were offset by higher prices. The operating margin grew 2% and earnings per share grew by 6% to 145p. The total dividend increased 15% to 114p and a £750 million share buy back was started. The shares are down 2.5% to £23.54, with disapointment about the size of the share buy back (presumably smaller fund acquisitions).

Centrica (CNA) waz flat at 334p, after announcing pre-tax profits of £2.8 billion, up from £1 billion a year ago. Revenue was broadly flat at £22 billion. British gas added 267,000 customers in 2010, despite a  7% price increase. They said  wholesale gas prices rose substantially in the final quarter of 2010, meaning a lower margin.

Brent crude oil hits $119

Brent crude oil for April delivery went up as high as 6% this morning, $17 in the last week. Worries about Libya and possible contagion to other oil producing states were behind the rise. No one wants to be left short if things kick off in the Middle East, triggering panic buying. Its incredible to think that oil dropped to close to $20 during 2009.

FT.com February 23rd - Bowleven and Encore Oil

London small caps: Broker upgrade boosts Bowleven
By Bryce Elder
Published: February 23 2011 19:39 | Last updated: February 23 2011 19:39


Bowleven rose 3.2 per cent to 323p after Goldman Sachs added the oil explorer to its “conviction buy” list on valuation grounds. Investors were putting no value to Bowleven’s drilling campaign due to start at the Etinde field offshore Cameroon, even though success had the potential to lift the stock above £10, the broker said.

Encore Oil was up by 3.7 per cent to 120½p following press speculation that Premier Oil would agree a bid of around 220p per share for its North Sea peer before May.

“First up, it would be bizarre, in our view, if two companies had agreed a price for a deal and then waited for up to two months to announce it,” said RBS analyst Phil Corbett, who also doubted whether Encore’s exploration portfolio would be of interest to Premier. “Given the market tends to place much greater value on exploration than the industry, and Premier’s only major foray into corporate acquisitions in recent years was through the distressed sale of Oilexco, we would discount these reports for now,” he said.


Source: http://www.ft.com/cms/s/0/eb2119da-3f7e-11e0-a1ba-00144feabdc0.html#axzz1ErFqLn2A

Guardian - Oil price could hit $220 a barrel

Oil price 'could hit $220 a barrel'

Experts at Japanese bank Nomura raise spectre of doubling in oil price if unrest in Libya continues

• • Share78
  • 
  • 

• Simon Goodley and Terry Macalister
• guardian.co.uk, Wednesday 23 February 2011 18.57 GMT
• Article history

Traders work the crude oil options pit at the New York Mercantile Exchange on 23 February. Oil prices soared as unrest in Libya continued. Photograph: Mary Altaffer/AP

The continuing violence in Libya and fears that the unrest will spread to other parts of north Africa and the Middle East could create the biggestoil shock since the first Gulf war, analysts have warned.

Up to half of Libya's oil production is now estimated to have been shut down as a result of the crisis engulfing the country – creating supply concerns that pushed the price of Brent crude above $110 a barrel, now experiencing its biggest three-day gain in a year.

Commodity analysts at Japanese bank Nomura raised the possibility that prices could perhaps hit $220 a barrel. In a note to clients the bank warned: "The closest comparison to the current unrest in the Middle East and north Africa is the 1990-1991 Gulf war. If Libya and Algeria were to halt oil production together, prices could peak above $220 a barrel and Opec spare capacity will be reduced to levels seen during the Gulf war and when prices hit $147 in 2008."

The alarmist view was partly backed up by Marco Dunand, chairman and co-founder of Swiss energy trading group Mercuria Energy. Dunand predicts that oil could rise above $150 a barrel, if the unrest continues to spread.

"I don't want to over-hype things, but there are scenarios under which oil could go above $150 without a doubt and those scenarios are to do with stability in the Middle East if things start spreading," he said. Dunand reckoned $150 was a "20% possibility".

Surging oil hit world stock markets, with the FTSE 100 closing down 73.23 points at 5924 and the Dow Jones trading down around 93 points at 12,119 as London traders went home.

Economists typically reckon that a $10 a barrel increase in the price of oil knocks about half a percentage point from global GDP growth. However, in a more measured note, Julian Jessop of Capital Economics said: "We continue to expect oil prices to drop back sharply later this year. In part this is because we think that Libya will be both the first and the last of the major oil producers to see significant disruption (and indeed that the Gaddafi regime itself will fall soon), allowing the risk premium to fade away."

The situation in north Africa and the Middle East, and the knock-on effect on the price of oil, is causing others to reconsider the issue of energy security.

Andrew Horstead, risk specialist at energy and carbon management company Utilyx, warned of the dangers of being too energy dependent on the Middle East. "The unrest we're seeing in Libya is already having an impact on oil supply but the real issue will come if the trouble spills over into Saudi Arabia," he said. "The rise in oil has also hit European gas markets, with UK gas prices for winter delivery rising 9% in a little over two weeks, while there are reports that Libyan gas supplies to Europe have also been stopped.

"The closure has sent jitters through a market already nervous about the potential disruption to Europe-bound liquefied natural gas (LNG) through the Suez Canal. The developments in north Africa and the Middle East highlight just how interconnected the energy market is and how the UK's energy supply is at the mercy of events happening in other countries. It's essential that more emphasis is placed on producing energy within the UK if we are to secure our energy supply."

Last Caterpillar earnings call points to solid 2011 global economic recovery

It was interesting to read the last Caterpillar (CAT) conference call, made in late January to accompany the Q4 2010 results. I have highlighted some of the key bits below from the transcript of the earnings call. Given Caterpillar manufactures machines and other equipment for the construction and mining sector it is considered to be a litmus test for the state of the global economy, Caterpillar is a key company to follow. During 2009 its share price collapsed to around $20, it is now $100 - incredible for a 5 bagger with such a mega cap company! 

What Doug Oberhelman and Ed Rapp say about 2011 is a good test of the likely strength of the global economy, and on the whole they are positive about growth particularly in the U.S.. Despite all the turmoil in the Middle East and Africa, lets not forget that corporate profits are strong this year and the U.S. Federal Reserve is pumping in hundreds of billions of dollars into the economy through the QE2 (quantitative easing) programme where they buy treasury bonds to aid liquidity and hence stimulate economic growth and reduce interest costs.

Chairman and CEO, Doug Oberhelman

Group President and CFO, Ed Rapp

2010 sales and revenues were $42.6 billion. That's a $10 billion or a 31% increase from 2009. Profit per share was $4.15, a significant increase from $1.43 in 2009, as we reported it, and $2.18 a share in 2009, excluding redundancy costs. 

With that in mind, our outlook for 2010 sales and revenues is to exceed $50 billion and profit to be near $6 a share. Key points related to the outlook for the top line include our expectation of continued positive economic growth in the developing world overall. While we don't expect those economies to grow quite as rapidly as they did in 2010, they should still grow fast enough to support an increase in machine sales. We expect world growth and relatively tight commodity supply to continue to provide a very positive environment for our Mining customers. Demand for Mining remains strong and we would expect Mining sales to increase in 2010.

Over the past quarter, we've become somewhat more positive about economic growth in the developed economies of North America, Europe and Japan. And we're now expecting the U.S. economy to grow about 3.5% in 2011. We're expecting continued growth in our Machine sales in developed economies despite our expectation of a relatively weak recovery in construction spending. That's because we believe that customer fleets have deteriorated over the past few years. End-users in the U.S., Europe and Japan cut their machine purchases more than construction activity declined, particularly in 2008 and 2009.

While machine sales in the developed world improved in 2010, it was from a very low base, and we don't believe the increase was enough to stop the deterioration of fleets. Cat dealer rental fleets are a good example. In 2010, dealers purchased significantly more new machines for rental fleets than they did in 2009, but despite that, fleet size declined in 2010 and the average age of machines in their fleets went up. In short, for Machines, we expect continued growth in sales in 2011, continuing growth in the developing world, some economic improvement, coupled with an increasing need to refresh customer and rental fleets in the developed world and positive conditions for mining.

The outlook for Engines isn't quite as positive. We expect 2011 Engine sales to improve, but most of our top line improvement will be Machinery. We expect sales of reciprocating engines for oil and gas, electric power and industrial applications will continue to improve, but later cycle areas like turbines and engines for large marine applications are expected to decline.

We expect profit again to be near $6 a share, an increase from $4.15 in 2010 and above the 2008 record of $5.66 a share. And recall, the $5.66 from 2008 included large favorable tax items that resulted in a tax rate that year near 19%. So on a before-tax basis, we expect to do even better than the headline number would indicate relative to the prior 2008 peak.

The most significant reason for the expected profit improvement from 2009 is higher sales volume. We do, however, expect continued negative sales mix in 2011, with Machines growing faster than Engines. While we expect the mix to be negative, the year-over-year impact should be less than 2010.

We expect a small improvement in price realization, coupled with material costs that we expect to remain relatively flat in 2011.

We also expect variable labor and burden efficiency to continue to improve. We're expecting an increase in period manufacturing costs, and that's a result of higher volume and implementation of a number of initiatives to increase capacity. The capacity initiatives are programs that we announced in 2010 such as mining capacity in the U.S. and India; excavator capacity in the U.S. and China, a new engine facility in China for 3500 Series engines; and a new backhoe and loader facility in Brazil. In addition to capital, these capital investments will drive expense in 2011. We have to push them forward. We need more production capacity to be ready for 2012 and beyond.

Now in addition, R&D expense is expected to rise about 20% in 2011. And again, primarily related to the continuing implementation of emissions requirements, SG&A expense should rise modestly in 2011, and mostly activities to support higher sales, SG&A as a percent of sales should continue to decline. We expect a slightly higher tax rate, mostly from an unfavorable geographic mix of profits from a tax perspective, and we're using a 28% rate.

Finally, the outlook includes bridge financing costs of about $50 million related to Bucyrus and some additional costs related to the integration planning that I mentioned earlier. From an incremental margin standpoint, we're expecting about 25% of incremental operating profit on incremental sales and revenues in 2011. Now that 25% number excludes acquisitions, and in that context, it excludes EMD because it wasn't in our numbers in 2010 for the full year.

Okay, to summarize, 2010 was the first year of sustained recovery from a tough year in 2009. 2011 looks better and we're expecting record profits. We're investing in capacity increases around the world to be prepared for 2012 and beyond, including substantial investment in the U.S. Of the $3 billion of capital expenditures in our forecast for 2011, more than half are being invested in the United States. 2010 cash flow was also good news as well. Our Machinery and Engines operating cash flow was an all-time record at $5.6 billion. Our debt-to-capital ratio dropped from over 47% at year-end 2009 to 34.8% at year-end 2010. And we raised our dividend again in 2010. In fact, for 17 consecutive years, Caterpillar has paid higher dividends to stockholders. Machine sales to end-users improved throughout 2010 and ended the year strong. And finally, excluding acquisitions, we increased our total workforce by about 19,000 people in 2010, with about 7,500 in the U.S. In a tough employment environment, we added about 15% to our total U.S. workforce, and that includes full-time employees and our flexible workforce.

Still hanging on there in Sirius Minerals but surely time for turn

It feels like Sirius Minerals has been falling for ever, with the share price hitting just over 13p today. In mid-January all seemed to well with the price moving over 21p, following news of the York Potash acquisition. Every was celebrating what a great company Sirius was and how the potash price was going into orbit , now  "doom and gloom" pervades the bulletin boards. Investors are fearing a return to the days of 2p, which wasn't that far away in 2010. The board seem to be desperately trying to hold up the share price with the odd RNS, but short term holders aren't convinced and the price drifts ever lower. The market makers are happy to move the price down to try and attract some buyers, but if nothing else they attract some sellers as stop losses are breached, confidence collapses, fear grips the heart of private investors etc. etc.

I am well down on Sirius on my remaining positions after making some money back in January. I am a believer that the Sirius story is genuine and not some sort of smokescreen to "screw" the stupid private investor. The company has built a good collection of potash assets around the world and Dakota and NE England give plenty of hope for the future. Yes it is disappointing that a deal with the Chinese may not materialise in Australia but that is not a reason for Sirius to move back to 2p. I am holding despite the ugly red mark on my account and trust the board to deliver on the "potash dream" over the next 18 months. SXX is not a 1 month story, it will play out over the next 12 months. Investors must have patience and forget the doom mongers on the bulletin boards. Of course I may be wrong, and we  will again head sub 10p, but my bet is once the African/Middle East crisis is over, we are more likely to see 20p than 2p!