Weatherly International finally gets some positive momentum

Nice 7.5% rise on Copper Miner, Weatherley International (WTI) today to 14p. The markets are beginning to realise that with a market capitalisation of £76 million, WTI is very much undervalued. With copper hitting an all time high and  the Otjihase and Matchless mines gearing up production, there's plenty of news flow in the short term to look forward to. The fact that shareholders will get shares in CAR (China Africa Resources) when it floats on AIM in April has been missed by many. Though the company is close to hitting its 52 weeks high, a share price in the 25p-30p looks reasonable on valuation grounds within the next 2-3 months. There were some chunky buys in the afternoon, several 250K's and 1 million at 16.20 indicating institutional buying.

As a reminder from my previous post on WTI on January 30th, http://contrarianinvestoruk.blogspot.com/2011/01/weatherly-international-namibian-copper.html

SWOT
Strengths
Producing copper assets at  Otjihase (3.2 million tonnes at 1.6% JORC) and Matchless mines (0.7 million tonnes at 1.8% JORC) with minimum 5 year mine life
Copper price strong at close to $9500 per tonne
Low cost of production $3,258 per tonne at Otjihase and Matchless
No exploration risk
$140 million of losses able to offset future production
Good institutional shareholder base e.g. Gartmore and Blackrock
Namibian government large shareholder which may derisk licences etc.

Weaknesses
Success geared to copper price
Activity focused on one country - Namibia (but low risk for Africa)
Blighted history
AIM listed so volatile

Opportunities
Investors in Weatherley will get shares in CAR (China Africa Resource) when CAR is floated in AIM in Spring 2011-  Weatherly will distribute 10% of its 35% shareholding in CAR to its shareholders as a dividend in specie.
Good development pipeline e.g. Berg Aukas, Tschudi open pit
Continued weakening of dollar boosts commodity prices priced in U.S. dollars

Threats
Delay in listing of China Africa Resources
Namibian political situation (considered low risk)
Delays in production ramp up at Otjihase and Matchless copper mines
Further fund raising (low risk due to forward selling contract with Louis Dreyfus Commodities Metals
Collapse in copper demand and price e.g. China

Outlook
If every falls into place during Q1 2011, things look very positive for Weatherley given its undemanding rating and low market capitalisation of just £68 million. With full scale production from Otjihase and Matchless of over 4000 tonnes in 2011 and close to 8000 tonnes in 2012 plus some interesting development projects such as Tschudi coming on stream in 2013 . So this should be a year to put its past mistakes behind it and look forward to 2012 and 2013. If we conservatively assume net profit of $4,500 per tonne of copper in 2012 and production of 7500 tonnes, that would make earnings of $34 million (£21.5 million).

The usual risks of investing in Africa have been reduced by Rod Webster's excellent work in getting the Namibian government to have a large shareholding and thus incentive for future success.

Broker reports following Bowleven Sapele 1 announcement

From proactive investors:
http://www.proactiveinvestors.co.uk/columns/fox-davies-capital/4489/african-aura-miningchaarat-gold-cove-energy-exillon-energy-and-others-feature-in-fox-davies-capital-newsflash-4489.html
http://www.proactiveinvestors.co.uk/companies/news/25295/bowleven-shares-broadly-unmoved-by-sapele-1-exploration-well-disappointment-25295.html

BowLeven shares broadly unmoved by Sapele-1 exploration well disappointment

Monday, February 07, 2011 by Andre Lamberti

BowLeven shares broadly unmoved by Sapele-1 exploration well disappointment

BowLeven’s (LON:BLVN) announcement that the Sapele-1 exploration well in the Douala Basin, offshore Cameroon, was halted due to technical problems only saw a neutral reaction by the market and brokers this morning.

While the stock initially reacted with a slight fall, by late morning it was trading just above the opening level at 358 pence.

The company said Sapele-1 was drilled to a total depth of 4,733 metres. Work was halted due to technical limitations after encountering a high pressure gas reservoir in the Cretaceous. The bottom hole section has been cemented and is now being abandoned in advance of planned appraisal drilling.

In its ‘First Take’ report prior to the market open, Evolution Securities said the failure of the Sapele-1 well to make an outright discovery in the Cretaceous will probably see the shares come off this morning.

“However, the forward plan of appraising the Tertiary discoveries already announced, in what are likely to be in more optimal locations, and the addition of an extra drilling rig from February onwards makes the BowLeven story an attractive one in our view.
“The shares have weakened from 400p earlier this year but we think there will be additional weakness today. We would look to pick them up though around the 320p mark,” Evolution said.

Investment bank Matrix called the news an “overall neutral announcement”. 

“After an extended gap since the last announcement, it is hardly surprising to find that the well has encountered some difficulties. It is encouraging (though not really conclusive) that oil has now been interpreted in the shallower Epsilon, but disappointing that the all important Tertiary testing will have to wait for another well. Still, with two rigs operating in the area and the Tertiary and Cretaceous potential now identified, but only just scratched, we maintain our BUY rating,” it said.

Matrix has a 450p target on the stock.

African Aura Mining,Chaarat Gold, Cove Energy, Exillon Energy and others feature in Fox-Davies Capital Newsflash

Monday, February 07, 2011

Bowleven (BUY, £4.50) (LON:BLVN, 357p, ▲ (2.29%)) announced that the Sapele-1 exploration well drilling in the Douala Basin to TD of 4,733m. Drilling was halted due to technical limitations after encountering a high pressure gas reservoir in the Cretaceous. The bottom hole section has been cemented and is now being abandoned in advance of planned appraisal drilling.  The Sapele-1 well location was selected to intersect multiple independent exploration targets from the proven Tertiary fairway down to the deeper Cretaceous fairway from a single location.  On 10 January 2011, Bowleven advised that further Cretaceous targets had been identified beneath the original planned target depth of the well (4,450m) and the plan was to deepen the well. The well was drilled to a TD of 4,733m before drilling was halted due to a rapid influx of very high pressure gas. Consequently, logging of the interval was not possible and the bottom hole section is being abandoned. Based on an initial analysis of the major step change in pressure encountered and the interpretation of the seismic, it is considered that the well may have encountered a significant hydrocarbon column in the Cretaceous.  Further analysis of mudlogging and wireline data, together with gas chromatograph ratio analysis, has confirmed oil shows were encountered within thin sands in the upper part of the Cretaceous Epsilon Complex.  Further interpretation and calibration of the well and seismic data is required to assess fully the implications for Cretaceous volumetrics.   The Sapele-1 well has further highlighted the significant potential of the Douala Basin, with hydrocarbons encountered in both the Tertiary and Cretaceous fairways.  The stratigraphic nature of the Sapele-1 discoveries requires that further evaluation and appraisal is required to establish their scale and commerciality. Accordingly, the next step, subject to approval by the joint venture, is appraisal drilling to delineate the Tertiary discoveries.  Due to mechanical issues as a consequence of having to abandon the lower hole section it has been decided to carry out testing in the immediate appraisal well.  An extensive drilling programme is being planned for 2011 across the Etinde Permit.  As a result, Bowleven has contracted an additional jack-up rig which is expected to be mobilised from towards the end of February 2011.

Comment: The announcement of a deeper discovery is excellent news, although no details are available at this stage that could enable us to put a value on it. The stock having drifted from its recent highs, it is likely to respond well as further details are provided by management in a conference call this afternoon. We continue to believe in the upside potential of the off- and onshore Douala Basin and maintain our recommendation and price target.

Second try at ARM short following results

After an unsuccessful short on chip designer, ARM Holdings (ARM), in mid-2010, I am trying to make a profit by selling the shares this time round at £6.15. Q4 2010 results were strong with revenues of £407 million for the year, up 34% year on year, which was well above forecasts. Underlying 2010 profits jumped by 73% to £167.4m.

On the news, the management team have been heavily selling shares. Chief executive Warren East sold 290,000 shares at 574.69p each, Finance director Tim Score sold 197,250 shares at 581.5p each, 2/3 of his shares. Finally, Executive director, Mike Inglis sold his entire holding of 196,000 shares at 574p.

Today the shares hit £6.10, up 18% on the week and 200% in the last year.The ratings for forward price/earnings are very demanding at 57. Though the shares are highly rated because of they are a key designer of smart phone chips, they have shot up because of continued takeover rumours. Given the shareholder sales news, this now seems very unlikely in the short term. President of ARM, Tudor Brown, has said in an interview last week that speculation that the company could become a takeover target is misguided and ignores the importance of the chip designer staying independent, "ARM's architecture has become ubiquitous in the mobile market, where it licenses its technology to chip makers, but does not build chips of its own, keeping it away from direct competition with its customers. All of our first-line customers are competitors with each other and we we manage this sort of unholy alliance ... and we manage that through being independent and equal to them all,"

I will keep a tight 10% stop loss on this short and see how things go. Second time lucky on ARM, but less luck than pure fundamentals!

Bowleven Sapele 1 update - lots of uncertainty but new rig contract announced

An RNS has just been released by Bowleven (BLVN) for the Cameroon Sapele 1 well (Block MLHP-5, Etinde Permit). Excellent news that a new rig has been contracted from this month but little visibility of what hydrocarbons have actually been discovered in the Cretaceous due to wire line logging not being possible as a result of gas. Markets do not like uncertainty and it will be some time before we have further news on what is down in the Cretaceous, gas or oil. However, oil finds have been confirmed in the upper sections of the drill which gives good support to the current price. The rumours of technical problems circulating in the City were therefore correct which explains the dive in the share price when it hit around the £4 mark, it would have been appropriate for the company to issue an RNS to clarify statements made in investor briefings.

Highlights were:

• Drilled to a total depth (TD) of 4,733 metres. Drilling was halted due to technical limitations after encountering a high pressure gas reservoir in the Cretaceous. Logging of the interval was not possible.
• Oil, condensate and gas confirmed as present in the Cretaceous and the well may now have encountered a significant hydrocarbon column at target depth

• Further analysis of mudlogging and wireline data, together with gas chromatograph ratio analysis, has confirmed oil shows were encountered within thin sands in the upper part of the Cretaceous Epsilon Complex. 
• Bowleven has contracted an additional jack-up rig (the 15K rated Vantage Sapphire Driller) which is expected to be mobilised from Gabon towards the end of February 2011. The contract contains a programme of three firm wells plus one contingent well

The new rig will have better capability to deal with the high pressure gas which has hindered this drill.

Just to make sure we have a sleepless night on Rockhopper rumours....dreaming of oil or water!

The frenzy continues to build on the Rockhopper bulletin boards. Can't beat the Falklands Islands oil adrenaline! Going to be an interesting week, one way or the other.

Here's a selection of top posts, stirring the rumour pot. Decide for yourselves, whether its nonsense! Conjecture is fun, even if it turns out to be utter XXXX!!!

Its easy to ignore the rumour mill....but a few of the rumours turned out to be true on Rockhopper's Sea Lion discovery and Desire Petroleum water fiasco.

iii 21.36 Hot off the press incoming FI news....GC trader

FI airbridge return flight to UK held over until tomorrow departure...
weather conditions are good...
no technical issues with plane...
decision to delay flight made once plane landed in FI with incoming rig workers...
apparent lockdown for those homeward bound rig workers on the beach...
controlled and monitored calls home to inform of flight delay only...

hmmm... now just why would the FIG do that unless the pending news is HUGE...!!!

drum roll....

http://www.youtube.com/watch?v=waSTPa0BVpg&feature=fvw

I like a good conspiracy theory me...

ADVFN 7" insulated - Granny7 advfn colebrooke1972

Granny7 - 6 Feb'11 - 17:18 - 15243 of 15243

The 7" casing that shipped out to the OG was insulated so should help in achieving better flow rates...if they find enough to test!

The w/e's Airbridge turned back, for some reason, so was delayed in getting to the FI's...weather has been very good.

iii "borgo22" 14:22 

" Strike confirmed

Egypt developments bode well for safety of a North Sea investment

Latest news are reporting that the Egyptian Vice President Omar Suleiman is in talks with the Muslim Brotherhood to form a new government. I am inclined to be worried about the Muslim Brotherhood controlling this key gateway to the world's trade. The canal has the capacity to handle 2.2 million barrels of oil a day while that of the adjacent Suez-Mediterranean Pipeline is 2.3 million barrels, according to Goldman Sachs Group (actual volumes in 2009 were a combined 2.1 million barrels because of cuts in production by the Organization of Petroleum Exporting Countries). For one I am happy to be holding a large investment in the North Sea rather than in the middle East. The price of oil is unlikely to be moderated significantly with this news.

From the BBC web site (http://www.bbc.co.uk/news/world-middle-east-12313405)

The Muslim Brotherhood, or al-Ikhwan al-Muslimun, is Egypt's oldest and largest Islamist organisation.

Founded by Hassan al-Banna in the 1920s, the group has influenced Islamist movements around the world with its model of political activism combined with Islamic charity work.

The movement initially aimed simply to spread Islamic morals and good works, but soon became involved in politics, particularly the fight to rid Egypt of British colonial control and cleanse it of all Western influence.

Today, though officially banned and subject to frequent repression, the Ikhwan lead public opposition to the ruling National Democratic Party of President Hosni Mubarak, who has been in power since 1981.

While the Ikhwan say that they support democratic principles, one of their stated aims is to create a state ruled by Islamic law, or Sharia. Their most famous slogan, used worldwide, is: "Islam is the solution".

Inflation, strong services and manufacturing data point to interest rate increases

Strong data from the services sector, which now makes up 75% of the U.K. economy (and 80% of jobs), a resilient manufacturing base, and inflation way above target makes interest rate increases likely as we move into 2011. Despite negative GDP growth in Q4 2010, the services data from January has given reassurance that the winter weather causes the dip in the economy and that a further period of contraction was unlikely. Consumer confidence remains weak with VAT (Value added Tax) increasing in January adding to the tale of woe for households, partly as a result of tax rises but also huge increases in fuel and food costs during 2010 and 2011. The UN released data last week that a basket of food commodities was not at an all time high, and Brent Crude went as high as $103 a barrel due to the potential impact on the Suez Canal due the Egyptian crisis.

Expectations are that U.K. interest rates will rise 0.25% in April or May, with further increases in the Autumn, with a 1.25% rate by the end of 2011. Good news for savers, bad for borrowers! The Bank of England MPC (Monetary Policy Committee) meets on February 9th and 10th. It is considered unlikely that the Committee will increase rates at this meeting, but given the data flow and the headline rate of inflation at 3.7%, which is double the BOE target, increases won't be far away.

Arbuthnot's Youngson take on Xcite Energy

FROM PROACTIVE INVESTORS
http://www.proactiveinvestors.co.uk/companies/news/25128/xcite-energy-city-analyst-looks-ahead-to-bentley-fields-important-milestones--25128.html

Xcite Energy: City analyst looks ahead to Bentley field’s important milestones

Tuesday, February 01, 2011 by Jamie Ashcroft

The recent horizontal appraisal well and flow test proved that the Bentley field could be commercial. Now Xcite is preparing a new CPR which is expected to increase recoverable reserves

Xcite Energy (LON:XEL, TSX-V:XEL)  is likely to become one of the top three independent oil firms in the North Sea as it pushes ahead with the development of the Bentley field, according to Arbuthnot analyst Dougie Youngson.

The recent horizontal appraisal and flow test was one of AIM’s big stories in 2010. For investors the proposition was both clear and binary. 

Xcite was already sitting on substantial oil-in-place volumes between 109 - 235 million barrels. However it is heavy oil (10 to 12 degree API) and the big question was whether or not Xcite would be able to recover sufficient volumes to make the oilfield development commercially viable.

So Xcite drilled the all important 9/3b-6 well, which would conduct a flow test from a horizontal well section across 1,800 feet of gross reservoir.

Frenzied investors poured into the stock ahead of the pivotal well.  In anticipation the shares soared, rising a staggering 550 percent from 65 pence in August to its peak at 425 pence per share as the testing results were announced on 21 December 2010.

The Xcite team conducted multi-rate flow tests, culminating in a final stabilised flow rate of 2,900 stock tank barrels of oil per day.

Ultimately the flow test proved that Xcite would be able to draw up enough of the heavy oil to make the resource commercial.

With all that Xcitement now behind us where does the company go from here? 

First and foremost Xcite and its partners - a group collectively known as the Bentley Alliance which includes AMEC and BP - are working on a new competent persons report (CPR).

Youngson reckons the CPR will boost the field’s current reserves.

“The next major piece of news should be the updated CPR, which we are expecting in late February or early March,” Youngson told Proactive Investors.

He adds: “If you strip out the weather problems that they had, drilling was better than expected and the flow test results were much better than expected as well,” Youngson added.

“So the CPR is going to be pretty interesting because it will see some of the contingent resources moving up into reserves and we’ll get a better feel for how big the project is actually going to be.

“Certainly the higher end of (current) expectations is probably a reasonable assumption.”

Arbuthnot rates Xcite as a ‘strong buy’ with a 600 pence target – which implies around 65 percent upside from the current price of 362 pence per share.

The analyst stressed that the updated CPR will provide the basis for the field’s development plan and drilling is likely to start in the fourth quarter of 2011.

Youngson adds: “If (Xcite) starts drilling early enough we may see a little bit of production this year, but it is really about development drilling and the subsequent ramping up of production into 2012.”

Xcite and the Bentley alliance are considering how they will fund the initial development phase, which will ultimately lead to first oil in 2012.

In the meantime it is keeping its finances in order and revising certain development contracts.

Just this morning it extended a binding letter of intent (LOI) for a production rig - the original LOI was first announced in November and it has been extended twice since then. 

It has been extended by mutual consent to 11 February 2011, with no amendment to the existing US$4 million termination fee payable by Xcite in the event it does not enter into a definitive agreement by this date.

Xcite also secured more short-term funding with a £5 million draw down on its Standby Equity Distribution Agreement (SEDA) with Yorkville Advisors’ investment fund YA Global Master SPV Ltd.

Once the project financing deals are taken care of, the alliance will press ahead with oilfield development.

Xcite shares will have been the standout success story among the portfolio’s of some plucky investors. The stock truly transformed over the past twelve months. This time last year Xcite shares were changing hands at around 40 pence.

While the year began slowly the spudding of the appraisal well sparked investor interest in September. Just a few short weeks later a better than expected drilling update from the well’s vertical section took this interest up another gear.

The vertical pilot section of the well encountered a larger than expected oil column towards the end of October.

Xcite shares finally broke through the 300 pence level in early December, after testing the level a few times in mid-November. The stock reached a new high at 332 pence on 3 December 2010. 

On 21 December Xcite shares rallied sharply as the company announced the news of the successful flow results. The stock hit a new high in of 425.25 pence in intraday trading.

Since then some, quite understandable, profit taking saw the stock pull back to the current level of around 360 pence. With a series of important milestones ahead, it looks like there might be more to come from this popular oil junior.

Plenty of rumours with Rockhopper and some look credible

Interesting the rumours on the iii.co.uk bulletin board on a Rockhopper oil strike from a respected poster with a good history. Now the pieces are falling in to place why others "in the know"in the City advised topping up last week, though I considered Rockhopper at the upper end of risk compared with my other holdings. I hear a couple of guys from one of the brokers were down in Stanley....and leaking some interesting emails. Some are bull, but one or two look credible with respect to supplies moving out to the Ocean Guardian rig which would only be used if there was hydrocarbon shows. Looks like it may be a nice surprise early next week, or someone's put a hell of a smokescreen in the square mile!

Gordon Gecko, Wall Street and some great quotes

The DVD of WALL STREET 2, Money never sleeps has just come out and it reminded me what a great film, Oliver Stone's original Wall Street (1987) was, with the anti-hero, Gordon Gecko played by Michael Douglas. Strangely enough, Gecko was one of the reason's I originally got interested investing, funny given he's such a nasty piece of work! 


Here are my favourite Gecko quotes:
"The point is ladies and gentlemen that greed, for lack of a better word, is good. "


"Ever wonder why fund managers can't beat the S&P 500? 'Cause they're sheep, and sheep get slaughtered. " - HOW TRUE!!!


"If you need a friend, get a dog."


"Lunch is for wimps!"

Portfolio review of the week - 5th February 2011

The Dow Jones Industrials ended the week up 2.3% after a 30 point rise on Friday to 12,092 and the FTSE 100 closed the week at 5,997, a rise of 2% for the week.

A mixed non-farm payroll jobs report yesterday gave the markets confidence that the U.S. Federal Reserve would not move quickly to raise interest rate or curtail the quantitative easing programme where it creates money to buy government bonds and other financial assets, in order to increase the supply of money in the economy. Since early 2009 the U.S. government has spent or committed $2.3 trillion dollars to this programme. The theory is that by buying bonds and taking them off the market, the Federal Reserve pushes up their prices and push down their yields which mean lower interest rates for borrowers and encourages spending. In addition, it encourages investors into stocks and corporate bonds which offer higher returns than government bonds and hence it is generally good for investors. The downside of the programme is that it creates inflationary pressure in the economy since in effect the central bank is printing money. The Bank of England has also spent £200 billion on quantitative easing.

On the Contrarian Investor UK portfolio front its been a relatively stable week with just a couple of small additional purchases in Rockhopper Exploration (RKH).

Xcite Energy (XEL) - Xcite finished at £3.62, after a 6p rise on Friday but down 8p for the week. The revised rig deadline of February 11th is now the focus with the speculation behind the delays in signing with British American offshore for the Rowan Norway Jack-up rig intensifying. I agree with the view that it is strange that that the contract signing has been delayed for the second time when the cost and specification of Rowan Norway have been known for so long.  I am sure there is something underlying this further postponement - either waiting for early visibility of the CPR (Competent persons report) which will move oil resources to official reserves which is due for publication late February or early March, or a farm in deal or even takeover with a third party. It would be very surprising if the weeks of extra delays are just due to lawyers bickering about contractual terms. t is also interesting that Xcite called on the SEDA (Standby equity drawdown agreement) for an additional £5 million this week, is this drawdown needed for the rig? With February 11th not aware, all will become clearer this week.

Bowleven (BLVN) - Cameroon oil explorer Bowleven had a better day yesterday with a 2.3% rise to £3.57 giving a flat week. No news to report on this one but the Sapele 1 drill update cannot be far away.

Rockhopper (RKH) - A 5% rise on the week but no leaks at all from the progress of the 14/10-3 North Falklands basin well. It's a case of watch and wait.

Weatherly International (WTI), Sirius Minerals, (SXX) Angel Mining (ANGM) -Again nothing to report but I am surprised that an update on gold shipping has not been forthcoming from Angel given it was expected in January. A reasonable 4% rise on WTI as we await further news on the listing of CAR (China Africa Resources) on AIM which is due in April and which WTI shareholders will get an automatic holding.

Next step should be more interesting on the RNS front, potentially we have - Xcite Energy (rig news), Angel (gold shipment update), Bowleven (Sapele 1 update) and most importantly Rockhopper (14/10-3 well update). Hopefully more to write about next week!

Imagination Tech (IMG) - Unfortunately this fell through a stop loss and position closed.

U.S. jobs data shows recovery

Non farm payroll data just released at 1.30pm shows that U.S. unemployment rate fell to 9.0% in January against an expected 9.5% rate, as nonfarm payrolls rose by
36,000, against expectations of a 140,000 gain.

It shows that the U.S. economy continues to improve, with over a million jobs created since thespring of 2010. Wall street futures are up on the news which is seen bymarket watchers as a key data point.