Exploration Insights by Robert Tyerman

Current uncertainties, about Chinese growth and factors closer to home, are not stopping investors from backing several smaller resource companies

Falklands-focused explorer Argos Resources has listed on AIM after raising £22 million at 31p to probe the 1,126 sq km production licence PL001 in the North Falkland Basin.

Argos suggests the seven prospects so far identified within its licence area could potentially hold between 747 million and 1.75 billion barrels of unrisked, recoverable oil, in licence areas explored and drilled by AIM companies Rockhopper Exploration and Desire Petroleum. Now 35p, they could reward a punt, as could Circle Oil at 33.25p after tapping investors for £43 million at 30p for projects in Morocco and Egypt.

Colombia-focused oil and gas company PetroLatina Energy has raised $11.5 million (£7.4 million) from two key shareholders – private equity-backed investment group Tribeca Oil & Gas and chief executive officer Juan Carlos Rodriguez – to fund exploration in Colombia’s Tisquirama licence, as well as half of the Putumayo-4 block and, since last month, two new blocks in the Middle Magdalena and Llanos basins. At 51.25p, the shares have speculative potential.

Meanwhile Fiji-focused Vatukoula Gold Mines has raised £7.4 million at 1.85p for further exploration. The AIM-quoted company, steered by entrepreneurial chief executive officer David Paxton, says it has cash and cash equivalents of about £12 million to spend on prospects in the South Pacific island’s mineral-rich Tavua Caldera region, leaving £1.6 million ‘to strengthen its balance sheet’.

Lately, Vatukoula has been exceeding its production forecasts and, at 1.92p, the shares are a potentially rewarding gamble.

Egyptian cheer for Dana

Oil and gas producer Dana Petroleum says it has discovered a new oil field at North Zeit Bay in the Gulf of Suez. The fully listed company indicates that a drill stem test at its Fin-1X exploration well produced an average flow rate of 1,049 barrels of oil a day from this onshore prospect, which is only 3 km from another recent discovery, Lorcan, which had a flow rate of 4,714 barrels per day in June. 

Dana, which currently produces from 36 oil and gas fields in Egypt, the UK, Norway and Holland, maintains that the Fin-1X discovery, together with the Lorcan find, confirms that ‘this area will be very attractive to develop’.

Highlighted by Growth Company Investor at £10.65 early last year, Dana shares now change hands at £17.16 and, while partial profit taking might be prudent, it could be worth holding on to a chunk for potential future gains.

Avocet’s new focus 

Avocet Mining targets annual gold production of 220,000 oz after lifting interim output 74 per cent to 97,747 oz and achieving a £10 million profits turnaround. AIM-listed Avocet turned a $4.5 million (£2.9 million) loss into $11 million pre-tax profits in the six months to June, on turnover up 70 per cent to $92.1 million.

The new Inata mine in Burkina Faso, West Africa, contributed 51,063 oz to the total, at a cost of $569 an ounce, against an average sale price of $1,170 an ounce. Inata, which produced nearly 11,500 oz of gold in June alone, is now the principal focus, where the company cites 900,000 oz of gold reserves and potential resources of 1.6 million oz and aims to double reserves and production there in two years.

Avocet sees falling production and rising costs at former mainstays Penjom in Malaysia and North Lanut in Indonesia, and is reviewing options for disposing of them for perhaps £120 million. At 119.75p, the shares, despite previous disappointments, could now repay a strong-nerved medium-term punt.