Markets reverse after Libya worries finally unsettle investors

The FTSE 100 moved into negative territory late on in the day finishing down 16 at 5,974 as Wall Street reversed into the red. Worries that the unrest in Libya could spread to other oil producing states worried investors. If one of the Middle Eastern producers had an interruption in supply we could see oil at over $200 a barrel, with a huge negative impact on global economic growth similar to the oil shock of the 1970's following the Arab-Israeli war.

The Contrarian Investor Uk portfolio had a good day with some good timing of trades. I ditched some Rockhopper positions early on whilst still up (finished down 5%) to increase my holding in Weatherly and Solomon Gold. Both were down in the morning but SOLG finished up 7.5% and WTI finished flat. At 12p Weatherly was a great top up opportunity despite the drop in the copper price today. Good to see Xcite staying in the blue, though off its best for the day.

On another note, Sareum Holdings finished down 13% after the 30%+ rise first thing (see my post earlier in the day). MeDaVinci changed its name to Orogen gold today and fell 8% to 0.87p as the new shares were issued to complete the purchase of its Serbian gold prospect.

Plenty of action today for porfolio stocks

Xcite Energy is moving up nicely today to 350p to buy. What a bargain XEL was at 300p early last week. With reserves upgrade due in the next 2-3 weeks I think there will continue to be plenty of upside here.

Amazing that Weatherly Int. is down again today by 3%. Have topped up yet again and now holding a little too many for comfort. But when stock is drifting down like this its a good time to buy. Calling the bottom is an impossible task and 12p feels pretty comfortable.  Same goes for Solomon Gold which is down to 27P to buy. When everyone else loses interest, this is the time to buy, not on the spikes when the momentum investors are back.

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.  

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.

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.