Robert Tyerman’s Exploration Insights

Copper has been outshining gold of late. Supply continues to be tight and the market is digesting US giant Phelps Dodge’s move for a  £22 billion acquisition of Canada’s Falconbridge and Inco.

This would create the world’s largest quoted copper producer and No. 1 nickel miner. It has revived speculation about Chile-focused copper producer Antofagasta at 406p, now controlled by the Luksic family.

AIM counter Weatherly International has agreed a £26 million shares-and-cash deal to buy productive but debt-strapped Ongopolo Mining and Processing of Namibia. Weatherly is strong at 14.75p and could go further, though partial profit taking might make sense. The same applies to South China Resources (see page 12), recommended by Growth Company Investor in January at 8.88p and now 21.25p on the strength of South China’s promising Danfeng copper, zinc and molybdenum project.
       
Slick movers in oil

‘Black gold’ continues to be strong, with demand firm and future supply growth uncertain. This has helped push Tullow Oil up to 377.5p on Ugandan drilling cheer – five times our 2003 recommendation – and JKX Oil & Gas to 395p, nearly nine times our suggestion of three years ago. Cashing some in might be prudent, but keep plenty.

In February, Growth Company Investor suggested a gamble in AIM-quoted Meridian Petroleum at 14.25p for its US gas prospects. Talk of a potential one trillion cubic feet of gas in Alabama’s Warrior Basin has sent the shares to 22.25p and could propel them further.

Victoria Oil and Gas shocked investors with a 10 per cent resource downgrade for its West Medvezhye project in Russia.  Growth Company Investor recommended Victoria at 64p early last year, but suggested partial profit taking at 240p in May. They have now slumped to 92p and are unlikely to recover in the short term – a timely reminder of exploration sector risk.

Watch out for Dominion Petroleum, planning a £33 million AIM float through broker Insinger, to advance deals in Tanzania covering potential resources ranging from 104 million to 1.4 billion barrels of oil equivalent.

Gems on offer

Hefty losses at Regal Petroleum do little to restore the reputation of controversial former boss Frank Timis, though ‘early stage’ bid talks from a potential suitor – presumably betting on a legal win over disputed Ukrainian assets – have lifted the once-£5 shares to 70p. But his City fan club remains.

Timis chairs Sierra Leone Diamonds, suggested by Growth Company Investor as a speculation at 54p in November. The price has reached 192.5p on bullish production estimates and an offer at 275p for Timis’s 34 per cent from 6.2 per cent shareholder Audley Investment Partners. 

Timis has at this stage rejected Audley, which said it intended to tender next year for another 20 per cent at 275p. More developments are on the cards.

At Mano River Resources, diamond, gold and iron ore prospector in the same region, chief executive Tom Elder foresees potential weekly revenues of £600,000 in 18 months. He envisages eventual £14 million annual cashflow from diamond joint ventures with BHP Billiton, Petra Diamonds and South Africa’s Trans Hex in Sierra Leone and Liberia and its KGL gold joint venture in Liberia.

Mano has a big iron ore deposit in Liberia and is talking to Mittal Steel. The shares, at a depressed 10.5p, could soon be due a re-rating.