Steve Eisman - is he the greatest Contrarian investor of all time?

I am currently reading a great book called the BIG SHORT by Michael Lewis, who also wrote the best seller, Liar's Poker. It tells the fascinating story of those who bet against the real estate bubble and made billions in 2009. Like the book by Andrew Ross Sorkin, "Too big to fail", it tells of the out and out greed of Wall Street which helped prime the world for a financial armageddon in 2008/2009.

A fascinating part of the book is the commentary about Steve Eisman, who went all in whilst working for Deutsche bank betting against the CDO's (collaterised debt obligations) which underpinned the sub-prime mortgage bond market. CDO's were in effect the insurance that brokerages used to protect themselves against default on bond debt and most of the Sub-prime bonds were protected by American Insurance giant AIG which had to bailed out by the American tax payer with $85 billion in September 2008 after the U.S. property market turned sour. At one point he was over $20 million in the red on his short positions in real estate companies and shorting CDO's, he ultimately made billions of dollars during the financial collapse of 2008 and 2009.

Highly recommended reading for those interested in the funs and games that went on behind the scenes during this last great episode in our financial history which very nearly led to the Great Depression Mark 2.

Pension annuity rates for men likely to fall with European Court of Justice ruling

The Euopean Court of Justice (ECJ) ruled earlier in the week that insurers cannot charge different premiums to men and women because of their gender from December 2012. The ECJ said "Taking the gender of the insured individual into account as a risk factor in insurance contracts constitutes discrimination."

This means that women can no longer be charged lower car insurance premiums than men, and pension annuity rates will fall for men. Men could see an 8% reduction in annuity rates, but women could see a 6% rise and the cost of life assurance could increase by 20% for women but fall by 10% for men.

It seems another barmy European legislative decision given that women live longer than men, meaning that they receive a higher income  per year from their annuity than women with the same sized pension fund.  This means mens retirement income will fall dramatically come December 2012. Until recently, annuity rates have fallen dramatically in the age of low interest rates, this is another hammer blow for pension returns. A £ 100,000 annuity for a man aged 65 and a female aged 60 (joint life, 2/3rds widow’s pension and level payments) pays a gross income of £6,700 per year. This is the highest annuities have been since August 2004 when the same annuity was paying £6,500. Annuity levels fell as low as £5,921 in February 2006. This still means to have an income of £20,000 in retirement requires a pension pot of close to £300,000 and most in the U.K. will not have anything even close to that in private or company pensions.

How the European court can call differences in prices for men and women for their insurance is a breach of human rights is plain crazy. It is a fact that men and women live on average to different ages and have different risk profiles when it comes to things like driving. What next, I ask myself!!

Portfolio review of the week - 5th March 2011

After being in positive territory for much of the day, the FTSE 100 fell back towards the close as the DOW Jones moved firmly into the red. The FTSE 100 closed down 15 at 5,990, down 0.2% on the week. The Dow Jones Industrials finished down 88 at 12,170, but still up 0.3% on the week.

Rising crude oil on continued turmoil in Libya worried investors. WTI (West Texas Intermediate) crude moved close to $105 a barrel (up 6.7% on the week) and Brent Crude moved above $116 a barrel as reports came in that that clashes between Gaddafi's forces and rebels were occurring at the Ras Lanuf, a major oil terminal, in Libya. On a positive note, the U.S. unemployment rate dropped to 8.9% in February, the lowest rate in almost two years, with the addition of 192,000 jobs. But investors are concerned that corporate earnings growth may be curtailed by the extraordinary rise in the oil price in recent weeks. It seems likely that the U.S. Federal Reserve will maintain low interest rates to maintain economic growth despite concerns about inflationary pressures. 

It has been a week of fairly heavy trading in the Contrarian Investor UK portfolio as I have tried to free up funds to take advantage of the plunge in the share price of Xcite Energy mid-week to around the £3 mark, which was a buying opportunity not to be missed. I sold some Sirius Minerals (fortunately at the week high) and my Encore Oil position to fund Xcite. Overall a much better week after an awful February, with the market seemingly wanting riskier stocks in AIM again after weeks of selling off.

Xcite Energy (XEL) - Xcite had a great finish to the week, closing at 339p, up 8.5p on the day. On Wednesday the shares flirted with the £3.00 level on false rumours that the forthcoming reserves report was being "fixed" and that the flow test completed in December was flawed. It was a classic "bear raid" with the shares being pushed down by the market makers. On Thursday we saw the inevitable bounce and after buying heavily on the dip, I took some profit yesterday. I have tucked a good chunk away in my SIPP (Self Invested Personal Pension) at £3.01, since with production only 10 months away (at 15,000 barrels a day), this share will be going 2-3 times higher I am sure. In the medium term (i.e. less than a month) we are likely to see the Reserves Report and then the CPR (competent persons report). A great lesson for investors not to get spooked by nonsense rumours on the bulletin boards. Be sceptical of anyone, even if they appear "in the know".

Encore Oil (EO.) - Though the North Sea explorer announced it had spudded two wells this week, I have sold my position in Encore on Friday at a profit to increase my holding in other portfolio stocks, notably Weatherly International. I believe Encore is a great stock to own, but having analysed the current market capitalisation, exploration upside is needed to drive a further appreciation in the share price i.e. the oil finds to date support the current share price, but there does seem to be a big discount. I will buy back in on any weakness since its drilling prospects look enticing. 

Weatherly International (WTI) - A bit of a sell of in Namibian copper producer, Weatherly, late in the week meant it was time to increase the holding. With over 4000 tonnes of copper due to be produced by the company this year (with a selling price of over $9000 a tonne), revenues will begin to increase significantly in the second half of the year. In addition there is considerable upside from projects due to come on stream within the next 18-24 months. I am struggling to see why WTI is not significantly higher than 12.5p, especially when its operations are in a relatively benign part of the world (and the Namibian government own nearly 9% of Weatherly derisking further). I guess a watch and wait on this one for now!

Solomon Gold (SOLG) - A big sell off in Solomon Gold this week meant it hit 26p. I have been initiating a position this week on this decline and believe the company offers good value given its exploration prospects. (see previous post - http://contrarianinvestoruk.blogspot.com/2011/03/solomon-gold-solg-is-based-in-brisbane.html)

Rockhopper (RKH) - Good to see a nice 6% bounce to 246p as the big seller finally seems to be out of the way and the results from the 14/10-4 well loom ever closer. I bought a little more yesterday as the momentum on this stock finally seems to be turning positive after a drop of more than 40% after the 14/10-3 well in February. 

Bowleven (BLVN) - A very strong week for Cameroon oil explorer Bowleven, with the shares rising 7% on the week to 359p. A couple of weeks ago they had dropped below £3.00, and were completely oversold given the prospects. A Goldman Sachs conviction buy addition finally turned the corner and its been up ever since. I took the opportunity to sell some BLVN to invest in SOLG, RKH and WTI.

Sirius Minerals (SXX) - Nothing new to report on Sirius. A volatile week though with the shares closing at 14p, 7% rise on the week. They hit 15.5p on Wednesday, triggering a sell which was invested in Xcite Energy.  

Rupert Cole (CFO Xcite Energy) Interview March 4th 2011

Link below to Rupert Cole (CFO Xcite Energy) March 4th 2011:

Rupert Cole of Xcite Energy believes there’s still significant upside on asset value

Friday, March 04, 2011

http://www.proactiveinvestors.co.uk/companies/stocktube/686/rupert-cole-of-xcite-energy-believes-theres-still-significant-upside-on-asset-value-.html

Key highlights from Cole:
Well - outstanding success, beyond public conservative modelling assumptions
New reserves assessment report - model has to be rebuilt from scratch with increased in place volumes, and enhanced reservoir performance demonstrated from well test. Usually 6-9 months timeline, trying to complete in 3 months. Says categorically that reserves assessment has not bee done, nothing to hide. Targeting for end March Doing things as quickly as possibly can, but robust and efficient assessment for first stage production. Maximise value for shareholders. Don't get hung up on a particular date.
Value of Bentley - $1 billion company is reflection of asset value. Still significant upside in asset value and therefore share price. $4-5 per barrel asset price, target is $10-15.
Director sales at £3.84 - rebalance personal asset sheets, reasonable thing to do

Topped up on Weatherly International

With Weatherley (WTI) dropping today to 12.25p to buy, I have taken the opportunity to buy more. After buying Xcite around £3 a couple of days ago, I have taken a little off the table (plenty left there).

WTI is a favourite because :

• Copper production is already happening at the company's Matchless and Otjihase mines
• Forward sales already contracted to with Louis Dreyfus Commodities commencing in May 2011 at a fixed price of US$9,750/tonne. (total forward sales of 1,925 tonnes), 20% of anticipated production from May 2011 for 17 months.
• China Africa Resources flotation expected in April/May 2011 (WTI shareholders will receive shares in the new company)
• Blackrock now hold 16% of the company

Range Resources drops back a little after going into orbit this week

Range Resources (RRL) went to 24p intraday yesterday and even at todays price of 20.5p, they are up nearly a third on the week. RRL came off the boil by 7% today (and was a lot lower earlier) after the company issued an RNS with a letter they sent to the ASX exchange in response to the share price increase earlier in the week. It is amazing to think that the 52 week low was 3p and at the end of 2010 the shares were 6p. The market capitalisation is now £285 million. Any piece of news seems to send RRL up over 10%. Disapointed not to have been in on the ride back in early February, but even for me a little on the higher risk side. C'est la vie! See below:

4th March 2011 
 
 
The Manager 
Company Announcements 
Australian Securities Exchange Limited 
Level 6, 20 Bridge Street 
Sydney NSW 2000 
 
 
By e-lodgement 
 
RE: PRICE QUERY 
 
I refer to your letter dated 3 March 2011 in relation to the recent change in 
price of the Company's securities and respond as follows in line with the 
numbers of your letter. 
 
 1. The Company is not aware of any information concerning it, that has not 
    been announced and which, if known, could be an explanation for recent 
    trading in the securities of the Company; 
 
 2. Not applicable; 
 
 3. Range recently announced a number of key milestones for the Company across 
    its development and exploration assets, including; 
 
    - the securing of the drilling rig for its Georgian exploration program; 
 
    - anticipated mobilisation of the Georgian drilling rig expected March 
      2011, and planned spudding in April 2011; 
 
    - commencement of drilling at the East Texas Cotton Valley Project; and 
 
    - successful fracture stimulation of the lower two zones on the Russell 
      Bevly well, with the upper two zones to follow later in March 2011. 
 
It is anticipated that further updates on the Company's activities will be made 
with respect of its assets over the coming weeks as events occur, as indicated 
in the recent announcements from the Company. 
 
The Company also notes that its Executive Directors have been in London on a 
promotional visit, further increasing the awareness and activities of Range to 
a wide range of the London investment community, at a time of increased 
activity across the Company's portfolio of assets. 
 
Since the release of the announcements referred above, the share price has 
increased significantly (with volume) on its AIM traded shares (with ASX 
following). 
 
 4. The Company confirms that it is in compliance with the ASX Listing Rules. 
 
 
Yours faithfully 
 
Peter Landau 
Executive Director 
Contacts 

Sareum Holdings soars 170% on pre-clinical CHK 1 study

Sareum Holdings (SAR) is currently up 170% on news from its CHK-1 inhibitor in Colon Cancer. Potential investors should remember that this is a very early stage pre-clinical study and secondly I would bet that Sareum have a fund raising on this news. I wouldn't be surprised to see it lower by the end of the day. Exciting stuff for investors who bought at 1p though. See my previous review on Sareum : http://contrarianinvestoruk.blogspot.com/2011/02/sareum-holdings-pharmaceutical-cancer.html

Research Update: Positive Chk1 Programme Model Studies

 (AIM: SAR)   4 March 2011


                              SAREUM HOLDINGS PLC
                                   ("Sareum")

             Research Update: Positive Chk1 Programme Model Studies
Sareum,  the specialist cancer  drug discovery business,  is pleased to announce
positive  results from  pre-clinical in-vivo  efficacy studies  from their joint
research  collaboration with Cancer Research  Technology Limited ("CRT") and The
Institute of Cancer Research ("The ICR").

A  recent  colon  cancer  pre-clinical  model  study  carried  out  by  The  ICR
demonstrates  that the combination of a  collaboration Chk1 inhibitor, dosed via
the   oral   route,   in   combination  with  a  chemotherapeutic,  gemcitabine,
demonstrates a greater than two-fold reduction in cancer growth rate compared to
treatment with the same dose of gemcitabine without the Chk1 inhibitor.

Further   pre-clinical   in-vivo   studies  for  the  programme  show  that  the
collaboration Chk1 inhibitor, dosed alone, can reduce cancer growth in models of
AML  (acute myeloid leukaemia) and  neuroblastoma (a childhood cancer).  Certain
cancers, such as these, are believed to be dependent on Chk1 for survival.

The  joint research collaboration with the  ICR and CTR targets Chk1 (Checkpoint
Kinase  1). Chk1 is  important in  controlling a  cancer cell's  response to DNA
damage, which may be a consequence of the cancer itself, or intentionally caused
by chemotherapy or radiotherapy.

Sareum's CEO, Dr Tim Mitchell, commented:

"These  are exciting advances,  demonstrating efficacy of  our Chk1 compounds in
several cancer models. Studies on additional models are on-going. We believe the
results  from  the  recently  conducted  studies  will significantly enhance the
licencing  package and assist  the collaboration in  selecting the best compound
for development into a clinical trials candidate".

Solomon Gold seems to have solid potential with a bit of fortune

Solomon Gold (SOLG) is based in Brisbane, Australia but listed on AIM in the U.K.. Its shares first began trading in 2006. The Company acquired Acapulco Mining and Central Minerals in late 2009 and early 2010.

The company has a portfolio of projects in the Solomon Islands (Guadalcanal and Fauro), Queensland , Australia (Rannes and Mt Perry).

Projects
Mt Perry
At Mt Perry, located in South East Queensland, the company is investigating an area of approximately 1,500square kilometres hosting over 50 historic mines and workings near Newcrest's Mt Rawdon Gold Mine.  Mt Perry has yielded potentially economic drill intersections on nine of the ten prospects tested to date.

The area lies adjacent to Lihir Gold’s 100kozpa Mt Rawdon Gold Mine on the intersection of two major geological fault structures; the Mt Perry and Darling Lineaments. Several high grade vein style and lower grade high tonnage porphyry style gold targets have already been identified by mapping sampling, geophysics and exploration drilling.The mineralised target zones at Mt Perry extend over a 20km north-easterly corridor from Augustine West in the south west to the New Moonta mines in the north-east. Sulphide mineralised breccias with variable gold, silver and base metals, with occurrences of uranium characterise the Augustine to New Moonta trend. Copper-molybdenum porphyries with gold and zinc anomalous halos lie in the south of the project area and merge with the 7km long strongly mineralised Chinamans Creek – Reids Creek – Spring Creek – Regans target immediately to the north. In the northern part of the project area, gold mineralisation is characteristically low in sulphide minerals and similar in style to gold rich intrusives of north-west America.

Rannes Project
The Rannes project is 140km west of Gladstone, Queensland, Australia with a 22km long prospective zone in a 200km long trend on the eastern edge of Queensland's Bowen Basin in the same geological setting as Newcrest's 100,000 ounce per year Cracow Gold Mine.  This extensive exploration licence position hosts three mineralised projects at Cooper, Rannes Central and Police Camp.  The exploration area is believed to host mineral systems which are geologically similar to the Carlin trend in Nevada USA.  At Rannes Central, the Company has encountered potentially economic mineralisation in five different prospects targeted to yield at least 1 Moz.  A maiden 200,000 ounces has been defined to date at the Crunchie Prospect.

Guadancanal
The Guadancanal project is 30km south of the Capital Honiara, Solomon Islands
Over the period from 2005 to 2008 the Company set about an intensive program of fieldwork involving detailed mapping and sampling of known prospects. At Valehailali, Sutakiki, 32m at 9.45g/t gold was encountered in a peripheral skarn system. In 2009, the Company entered into the Venture Agreement with Newmont, the Guadalcanal Joint Venture (“GJV”). The aim of this initiative was to refocus the exploration program from the diversionary high grade vein search to porphyry exploration. Newmont can earn 51% of the Guadalcanal project area by expending US$6million by 4 March 2012, and may elect to spend a further US$6million within a further two year period to earn an additional 19% interest (a maximum potential interest of 70%).

Newmont has proposed an extensive 2011 work program budgeted at US$6million on Mbetilonga, Sutakiki, Kuma and Central during 2011, including a planned 5,600m (3,500m at Mbetilonga and 2,100m at Sutakiki) drilling program.

Fauro Island Project
The Fauro Island project is 380km northwest of the Capital Honiara, Solomon Islands. SOLG own a 100% owned Prospecting Licence on Fauro Island Project which was granted on 20 November 2009 for a period of three years and covers 70km2 (granted) of mineralised volcanic rim on the western side and a further 67km2 (licence extension application) on the eastern side, over Piru and Masamasa Islands. The Fauro Project area covers the remnant rims of a volcano which gave off silica and gold rich mineral fluids as the volcano waned. These fluids soaked into porous and absorbent volcanic rubble known as breccias and agglomerates and precipitated gold and sulphide minerals. Copper and molybdenum sulphide mineralisation are evident in porphyry bodies in the core of the volcanic complex. Alluvial gold is known to be common in the streams draining the Fauro prospects on the western side of the volcanic rim.

Management
The management team hold 17% of SOLG shares.  
Nicholas Mather (Chief Executive Officer)Cameron Wenck (Non-Executive Chairman)Brian Moller (Non-Executive Director)John Bovard (Non-Executive Director) Dr Robert Weinberg (Non-Executive Director)

Nicholas Mather graduated in 1979 from the University of Queensland with a B.Sc. (Hons, Geology). He has 25 years' experience in exploration and resource company management in a variety of countries. He was managing director of BeMaX Resources NL (an ASX-listed company) from 1997 until 2000 and instrumental in the discovery of the world class Ginkgo mineral sand deposit in the Murray Basin in 1998. As an executive director of Arrow Energy NL (also ASX-listed) until his resignation in 2004, he drove the acquisition and business development of Arrow's large Surat Basin Coal Bed Methane project in south-east Queensland. He was managing director of Auralia Resources NL, a junior gold explorer, before its USD23 million merger with Ross Mining NL in 1995. He was a non-executive director of Ballarat Goldfields NL until 2004, having assisted that company in its recapitalisation and requotation on the ASX in 2003. He was also founder and Chairman of TSX-V listed Waratah Coal Inc until its $130m takeover by Minerology Pty Ltd in December 2008. He is also Chief Executive of ASX-listed D'Aguilar Gold Limited and is a non-executive director of ASX-listed Bow Energy Limited.
Cameron Wenck is a financial adviser and company director with over 18 years' experience in the financial services industry. Earlier in his career Cameron worked for the London stockbrokers Scrimgeour Vickers and chartered accountants PricewaterhouseCoopers.

Future news flow
February 2011 – Drilling and assay results from Perry, Rannes and Fauro. Resource upgrade at Rannes and maiden resource at Mt Perry
March 2011 – Fauro dilling results. Perry and Rannes drilling

Project updates
Kauffmans-Homestead Prospect - Rannes
On the 28 February 2011, SOLG announced a Maiden Resource Estimate at its Kauffmans-Homestead Prospect at Rannes of 203koz of gold and silver, bringing a total Inferred Resource for Rannes to 404koz.  The Kauffmans-Homestead Prospect lies within the Rannes Project, in Central Queensland, Australia and a major asset of its 100% owned subsidiary, Central Minerals Pty Ltd.  The estimates were compiled by Hellman & Schofield Pty Ltd, an independent geological consultancy, and have been classified as Inferred for reporting under the JORC Code for Reporting of Mineral Resources and Ore Reserves widely accepted as a standard for professional reporting purposes.

Solomon is targeting a resource in excess of 2Moz of gold at the Rannes Project. The Company expects additional regular updates in regard to the drilling programs and further resource upgrades due to improving weather conditions going into winter and the availability of additional drill rigs. The Kauffmans prospect should be mineable by open cast making the mining simpler and it is possible that a strike length of some 1.5km may emerge if mineralisation joins with Homestead and Shilo gold prospects near by

Fauro
On 18 February 2011, announced the completion of the first diamond drill hole on the Meriguna Prospect, with encouraging mineralisation and initial assay results from the first 83m of the hole.  The IP survey on the Fauro Island Project has commenced over the identified Prospects. The survey will cover a total area of 11km² over the identified Prospects: Ballyorlo, Kiovakase, Meriguna, Bataha, Ballteara and Northern Fauro The Meriguna Prospect is part of the Fauro Island Project which is in the Northern Solomon Islands, just south east of Bougainville and is 100% owned by Solomon Gold.

Guadancanal
On 14 February 2011, the company announced that rock chip samples taken from the Mbetilonga Project have returned high grade copper and gold results.  NVL Solomon Islands Limited, a subsidiary of Newmont Mining Corporation, Solomon Gold's partner in Guadalcanal, has advised of the 2011 work program for the Guadalcanal Joint Venture, spending US$6.03million on a program including 5,600m of drilling on Mbetilonga, Sutakiki, Kuma and Central during 2011, including a planned 5,600m (3,500m at Mbetilonga and 2,100m at Sutakiki) drilling program.

Financial
In July 2010, Solomon Gold undertook a placement of 33.1 Million Shares at £0.05 to Raise £1,654,455.  In October 2010,  it placed 54.02 million shares at £0.28 to raise £15.1 million. The funds raised were be used to continue the progression of the Company's exploration program at Fauro in the Solomon Islands in 2011, including extensive mapping, sampling, trenching, geophysics and a 9,900 metre drilling program.  In addition funding would be available for  drilling Rannes and Mt Perry Projects in Queensland.  Nick Mather, Chief Executive of Solomon Gold, subscribed for 1,116,071 Placing Shares in the Placing. Following completion of the Placing and Admission, Nick Mather holds 37,706,233 ordinary shares in the company representing 13.45% of the enlarged issued share capital of the Company following the Placing.

The Company now has 281,772,521 fully paid ordinary shares and 2,600,000 options on issue. Current market capitalization is £80 million at 28p per share (52 week range 5p-53p).
SOLG intend to spend $A 21 million in 2011 on exploration activities (Newmont will spend approximately $6 million).

SWOT
Strengths

• Diverse portfolio of assets in Solomon Islands and Australia
• Well funded following £15 million placing in October 2010
• Active drilling programmes in Guadancanal, Fauro, Rannes and Mt. Perry
• Management team has 17% of shares so vested interest in company success
• Institutional support – Baker Steel and Regent Pacific
• Joint venture with Newmont mining in Guadancanal
• Management are targeting a 2moz resource within the Rannes prospect area which if economically mineable could be transformational

Weaknesses

• AIM share volatility
• Exploration risk

Opportunities

• Preparing for ASX Australia listing in second half 2011 (documentation being drafted)
• Strong gold price ($1,418 an ounce)
• Potential for Newmont Mining to increase cooperation on other projects

Threats

• Potential does not translate into economically recoverable reserves

Share outlook
Solomon Gold’s shares are currently trading at 27p, giving a market capitalization of £76 million (52 week range 5p-53p). At the current price they are trading below October 2010’s placing of 28p which raised £15 million for the company’s current exploration and appraisal programme. Though the shares once hit over 80p intra-day after the initial Fauro Islands discovery they have drifted down in recent months and have traded in a 25-35p range.

The Fauro project remains the most risky, but Guadancanal and Rannes (Australia) offer the most certain upside to the current share price. The fact that Newmont mining are working in a joint venture with Solomon on Guadancanal gives reassurance and less funding risk. Solomon are targeting 2 million ounces at Rannes alone, which could mean a 3 times upside to the share price. Initial exploration results have been encouraging on both these projects.

Solomon Gold feels a little like Range Resources (RRL). In other words, plenty of upside from a diversifIed range of exploration assets but with a good dose of risk on some of them. Arguably the fact that Solomon Gold has assets in stable parts of the world versus Range’s key asset in Somalia, makes SOLG feel slightly more comfortable and therefore investable (RRL's recent share price rise has been incredible by the way! When I wrote my review on Range in early February the share price was 16p, yesterday it hit 24p. SEE http://contrarianinvestoruk.blogspot.com/2011/02/range-resources-look-to-have-good.html

Private Investors in SOLG seemed to have lost interest despite the news flow due over the next 2 months. This is not surprising with all the excitement over in the oil sector e.g. Caza, Range, Chariot etc. But lets not forget, gold is still hot and hitting all time highs at the moment ($1,418). If SOLG can deliver on their promises, this company looks very interesting. I bought some for my Contrarian Investor UK portfolio on Tuesday and topped up at the close yesterday on continued weakness in the share price.

Sense finally returns to Xcite Energy

After briefly hitting close to £3 again this morning, Xcite Energy (XEL)
has finally rallied from its lows to rise as much as 19p to 323p (6%).

The shorters have been out in force over the last few days. They hunt in
packs using the bulletin boards to feed false rumours into the market. Supposed expert posters were questioning the work that Schlumberger had done on the flow test in December and whether the CPR would be delayed again because it hadn’t been done properly and the classic yesterday that
the oil actually wouldn’t flow because it was too viscous at ambient North
Sea temperatures. In other words, the drilling experts, Schlumberger had
been complete monkeys and made a hash of it.

Then there was the conspiracy theories that the board were keeping market
sensitive information to themselves and that the reserves upgrade would be
below expectations and that they had change supplier (to TRACS) to massage
the figures. Oh, I almost forgot the rumour that they were planning a
massively discounted rights issue at £2.50. All complete XXXX of course!

So the inexperienced investors think “oh, maybe the rumours are true, I’ll
sell at £3.00 and put my money into something else which is going up (e.g.
Range)”. Those posters on iii.co,uk and LSE boards must be “in the
know”. A classic Bear raid! Of course, by the time they’ve sold and moved
into something else, that's goes down as well. Get the weak to sell and the
shorters feed off the frenzy. When they’ve got their man, they switch and
start buying. Whilst the sheep were selling the last few days, I’ve been
topping up. Not putting up with any market maker or shorter nonsense! Hope
they’ve closed their shorts now!!?

Previous post on ITV reminds me to have courage in your conviction

The 2 main holdings in my portfolio, Xcite Energy (xel) and Weatherly (wti) aren't exactly performing at the moment.

In fact, you can say that Xcite's performance has been dire. In the last 3 weeks the share price has dropped by nearly a pound, or 25%. From excessive optimism about a takeover, now there is excessive pessimism as we flirt with the 300p level. As i posted, earlier today, I really liked ITV back in January 2010, purely on a fundamentals. I bought at 58p, watched the shares go below 50p and then sold from boredom around 60p a couple of months later. The shares hit 93p yesterday! Yes you would have to hold a year to have this gain, but it does demonstrate that if you have done the research and bought for the right reasons, patience can be your friend.

I first bought Xcite Energy in November 2010, on the basis that it had an excellent prospect in the North Sea. Of course then it was risky, since Conoco had failed to make the field flow in the 1980's. In December, Xcite proved the oil could be flowed at a good rate. Risk removed, yet at 308p right now, we are not much higher than pre December. In Q4 the Rowan Norway rig arrives on the Bentley field, in early 2012 the company will be producing 15,000 barrels a day and the field is 100% owned by Xcite. I have been buying on this latest sell off, I'm sure patience will be rewarded.

As for Weatherly, its the same story. There's not been a great deal of movement on this AIM copper play (its the only one on AIM). Though production is gearing up nicely to over 4000 tonnes of copper in 2011 and Blackrock now 16% of the company, the shares are going no where fast. Stuck at 11-12.5p for weeks. However, on a fundamental basis this has to go higher, hence I am buying on any opportunity and it is now my no.2 holding.

In summary, my ITV experience has taught me again to stick with conviction contrarian buys. Buffett employs this with great success, when he likes a stock he buys more during periods of opportunity. He bought Coke when everyone else was selling during the Classic Coke disaster in the 1990's (when they launched a sweeter formula to rival Pepsi, but soon had to change back after a consumer backlash from loyalists of the original flavour). His dividend payment per share is now higher than the purchase price!

ITV hits 93p, shame I sold!

I was very positive about TV company ITV (ITV) early last year (see post from Jan 7th 2010) - a classic contrarian play! Back them, nearly every broker was damning the company saying it was doomed but with the Croizer/Norman combination it looked a no-brainer. The shares hit a new high yesterday of 93p on earnings upgrades and it is likely that it will reenter the FTSE 100 this year. Damn annoying I sold in the second quarter of 2010. Lesson to myself, more patience sometimes!!

THURSDAY, JANUARY 7, 2010

ITV looks good play on advertising recovery

ITV revenues look to be strong in January (up 6.5% versus 3% for the total TV market) as revenues from advertisers floods in (source Aegis group),

With Archie Norman taking the helm at the company and a strong rebound in media expenditure looking likely, and Goldman Sachs adding ITV to its conviction buy list with a 70p target,  now seems to be a good time to invest in ITV.

Position initiated at 58p.

 

Ben Bernanke indicates U.S. interest rates will stay low

The pound hit a thirteen month high against the U.S. dollar of $1.63, as the U.S. Federal Reserve Chairman, Ben Bernanke, said yesterday that that the bank would keep rates “exceptionally low” for an “extended period”. He also said the Fed would be ready to increase the programme of quantitative easing (where the Fed buys bonds) if necessary in order to maintain economic growth. The news helped to move U.S. stocks into positive territory, as the period of "easy money" looks like continuing for some time yet.

A further weakening in the U.S. dollar means that commodities, which are priced in dollars, will continue to rise, adding to inflationary pressures.

New Weatherly Investor presentation March 2011

Link to new Weatherly International (WTI) investor presentation (March 2011):

http://www.rns-pdf.londonstockexchange.com/rns/1215C_-2011-3-1.pdf

Production of copper is forecast to be 4200 tonnes in 2011 and 7900 in 2012 from the Matchless and Otjihase mines (see page page 21). This equates to $41.5 million this year (at $9900/tonne) and $78 million in 2012.

Blackrock confirmed with 16.7% stake in WTI.

In summary - strong revenue and profit growth, strong institutional support

(see previous summary http://contrarianinvestoruk.blogspot.com/2011/01/weatherly-international-namibian-copper.html)

Middle East unsettles markets again and Xcite Energy takes the brunt of rumour mill

Oil is currently up nearly 3% to just shy of $100 a barrel (WTI Crude), its highest level since the middle of 2008 on fears of an escalation of violence in the middle East and its potential impact on supply. Sentiment wasn't helped as U.S. Federal Reserve Chairman Bernancke said high oil prices could dent a global economic recovery. Gold hit a record high of $1,432, up 22 dollars on the day as the flight to safe havens continued. The FTSE 100 was hit with a drop of 58 points to 5,936, whilst the Dow Industrials is down 137 points to 12,089.

The Contrarian Investor UK portfolio had plenty of action today.

Xcite Energy (XEL) collapsed another 5% to 311p. Rumours abound about reasons for the delay in the reserves upgrade and Competent Persons Report (CPR). Conspiracy theories are circulating that management are hiding something with the shift to TRACS rather than RPS energy to complete the reserves report. Like the rubbish that we saw on the bulletin boards pre-flow test like the Betty Knutsen saga, its almost certain to be complete fiction. The supposed "guys in the know" are spooking ordinary investors to sell shares at daft prices. Market Makers are taking the Michael!!

Then we have the funding issue. Again lots of talk by derampers that Xcite will have a massively discounted placing to fund the Bentley field development. As a reminder from last weeks Reuters interview with Rupert Cole (CFO) - ""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," "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. See my previous post at http://contrarianinvestoruk.blogspot.com/2011/02/xcites-cfo-cole-confirms-partner-may.html.

I believe 311p is a crazily low price because:
1. Xcite are It is already sitting on substantial oil-in-place volumes of between 109 and 235 million barrels as confirmed by the last CPR - probable 170 mm barrels (which is a legal document). The Bentley field is in the North Sea, no political risks.

2. A new reserves report is due in late March - the 9-3b/6 well flowed at the top end of expectations (2900 barrels per day) and the vertical pilot section of the well encountered a larger than expected oil column towards the end of October 2010. RNS of 31st December said  “In addition to the successful well flow test announced on 21 December 2010, high quality downhole pressure, temperature and sample data has been safely recovered following a 36 hour shut in and build up period after the flow test.” It would be expected that we will looking at 250-300 million barrles.

3. A rig has been contracted from British American offshore (Rowan Norway) and is due for delivery in June and be in operation in October or November

4. Production of 15,000 barrels per day is due to start in early Q1 2011. Upside of 60,000 barrels per day. Field life of 12-15 years.

5. The Bentley field has full infrastructure support through the Bentley alliance which includes BP and Amec.

Enough said really. This feels like pre flow test days when the price was oscillating like crazy on unfounded rumours. I bought then in the dark days when the derampers were calling a "duster". Now I am buying on equally dark days....and hoping for brighter days ahead. But less hope, more conviction!

Fellow North Sea explorer, Encore Oil (EO.) announced today it had spudded two wells. The Cladhan appraisal well 210/30a-4, in which it has a 16.6% interest, was spudded yesterday evening in Northern North Sea Block 210/30a. EnCore's is partnered Sterling Resources (39.9%), Wintershall (33.5%) and Dyas UK (10%). Drilling is expected to take around 40 days, using the Transocean Prospect semi-submersible rig.

EnCore also announced the Burgman exploration well 23/9-4 in Central North Sea Block 28/9 was spudded this morning. It is a joint venture with Premier Oil (PMO), Wintershall, Nautical Petroleum (NPE) and Agora Oil & Gas. The well is exploring the Tay and Cromarty sands and is expected to take approximately 25 days. In addition it will also drill a deeper, Jurassic aged Fulmar sand target. The shares dropped 1% to 119p.

Sirius Minerals (SXX) popped nicely again today with an 11% gain to 14.88p. After buying last week I took some profit to invest in Xcite Energy. I am sure further gains are ahead, but Xcite is just too tempting at 311p,

Bowleven (BLVN) also had a good day, finishing up 6p at 338p. I sold a tranche earlier in the day at over 340p. This stock has risen nicely since the Goldman Sachs conviction buy report last week, it was less than 300p little more than a week ago.

I took the opportunity to increase my stake in Rockhopper (RKH) and also bought into Solomon Islands and Australian gold explorer, Solomon Gold (SOLG) which is now trading at 28.5p (which is only 0.5p higher than the £15 million October 2010 placing). I am finishing a Contrarian Investor review on the company and I hope to post it in the next day or two. Time is tight these days! I was trading SOLG late in 2010, but it has dropped back below 30p and I like the prospects for this company with its varied portfolio of gold assets, particularly in the Ring of Fire area in the Solomons.

From III.co.uk Conversation with Jon Dale

Fowlertheprowler 16.57 iii.co.uk xcite board

I am happy to post the following feedback from a conversation I had with Jon Dale yesterday late afternoon.

He knows who I post as and he has my personal details (address etc) so I can be authenticated and brought to task if I relay false information. Also for the record I currently hold 60,000 shares and only plan to add over the next few months when the opportunities allow.

I will keep it short and simple:

ISSUE ONE - Appointment of TRACS for Reserves Report

I asked why the apparent change regarding regarding the appointment of Tracs (part of APR Group) to complete the Reserves report as opposed to RPS Energy...

The explanation was absolutely reasonable and logical. Firstly, as the RNS clearly states, Tracs were appointed as independent third party engineers in the second half of 2010. In other words, their involvement is nothing new and in no shape or form a panic reaction.

Secondly, Jon pointed out that due to the amount of work RPS have already carried out for Xcite over a long period of time, it was felt that their independence could be compromised / called into question and that appointing Tracs would overcome this issue. That is not to say that RPS lack credibility, on the contrary, but what it does do is show that the Xcite BOD want the reserves report to be above reproach in terms of the perception of it from the City and other investors. This a good thing.

ISSUE TWO - Is a Placement about to be announced in tandem with Report

I asked if the slight delay in the report due to an imminent placement. Of course, Jon cannot answer this question and I have always found his conduct to be 100 per reputable and professional. However, I made the point that I assumed a fundraising was imminent. At this point Jon echoed Rupert Cole's recent comments (which are on the public record) that this assumption should not be necessarily made. Read into this what you will.

ISSUE THREE - Xcite will never move to production - they will be takenover first...

This has never been my assumption, as many of you will know, although I sit in the minority camp on this one with many very well informed posters convinced that Mr Kew has no intentions of managing lots of staff as potentially the North Seas second largest independent oil producer.

Of course Jon cannot mention any talks even if there were any, but he was very convincing when he stated that it is they every intention to bit by bit prove up the Bentley field and extract oil from here....making the point that it is when the oil is extracted commercially that the true value will be unlocked.

ISSUE FOUR Share price expectations.....

My views in this area mirror Jon's. He made the point that it is not realistic to expect all of the possible contingency resources (385 million barrels perhaps by 2014 - my opinion here not Jon's) to be converted into reserves in one go in the approaching report. That is not to say that some will be allocated. However, as an investor the most sensible course is to view the progression of the share price on a long term trajectory with value being unlocked on an incremental basis as bit by bit the enormous potential of the Bentley field (and beyond..) is realised.

Whilst Jon was in no way dismissive of private investors he did make the point that if a few pi's sell off because of a lack of understanding of the a process that has been clearly communicated and because of unrealistic expectations (ie 200 million booked into reserves by April!!!) there is not a lot that Xcite can do about it.

Finally Jon shared all of our disappointment with current reaction to the share price, but he did not seem unduly fazed by it and why would he be!

Conclusion - Be patient and you will be rewarded. If you can't afford to leave money in for 12-18 months you should not be investing in an oily that has not gone into production yet...

Make of the above what you will and I'm sure some will weave conspiracy theories into it, but I will continue to hold and hope to fill my SIPP with these when I have converted my company pension.

The daffodils may not be dancing yet (funnily enough none of mine have flowered yet this year), but I am confident they will be joyful, radiant and triumphant by spring next year.

Patience will be rewarded.

As for the Saudi question, I can't control events in the Middle East and yes there is a risk that a big prolonged spike in the oil price could tip the world into the recession which would result in a large drop in oil price. This would of course have a detrimental effect short term on Xcite. However, I put this to you all, if regimes are toppled do you really think they will turn the oil taps off and refuse investment and development from the major oilies? Surely, they will want to rebuild their infrastructure, lay the foundations for a civil society, share the oil wealth around the citizens. The motivation to boost the state coffers will be hugh. If it leads to a more inclusive less corrupt and more equitable society in the middle east I can wait a few years for my fortune!

NM