Exploration Insights

With BHP Billiton’s £75 billion bid approach for Rio Tinto turning hostile, the market is alive with activity. Other deals under way range from JPMorgan Cazenove’s plan for an imminent London float to raise £450 million for Mexican group Fresnillo, the world’s biggest silver producer, to Mongolia-based oil exploration and development concern Petro Matad to list on AIM, with a £35 million market tag.

China’s giant Zijin mining group, which recently signed a memorandum of understanding with promising Philippines-focused copper and gold hopeful Bezant Resources (83.5p), is understood to be raising £700 million in Hong Kong to fund acquisitions. Investors yawned at China-focused AIM counter Griffin Mining’s agreement to buy Toronto-quoted Yukon Zinc in a £45.3 million paper bid to create a group with £100 million cash and annual zinc production of 150 million lbs. Griffin says it has found a second mine at its Caijiaying zinc, lead and gold deposit. At 90p, down from a year’s high of 122p, this former star performer should still fare well over the long term.

Coal remains popular, as price rises start to work through to company finances, as UK Coal showed with a 292 per cent annual pre-tax profit surge to £69 million and a plan to reopen some pits. Recommended by Growth Company Investor at 160p four years ago, the shares are now 456p, at which level partial profit-taking might be prudent.

Coal of Africa, highlighted here at 14p two years ago and again at 92p in March, has surged to 131p on an off-take deal with recently created steel giant ArcelorMittal, which agreed to put £66.7 million into the AIM-quoted company at 11p. Hold on.

Oil and gas finds cheer
Discoveries excite fund managers less, as against current or impending production, than a few years ago, and so the flowing of commercial quantities of gas in testing from Empyrean Energy’s Sugarloaf prospect in Texas has brought cheer to the depressed AIM counter. Empyrean has a 7.5 per cent working interest in a well that has shown daily flow rates of nearly 1.9 million cubic feet of gas; and there are four other wells to be tested too.

That gives speculative spice to Empyrean, at 53p down from 164p two years ago. Meanwhile, US resources entrepreneur Howard Crosby, head of bombed-out TomCo Energy, suggests that the company might have half of 100 million barrels of oil in Israel’s Heletz field.

TomCo, a gamble at 1.73p, hopes to lift production nearly fivefold to 3,000 barrels a day by reworking old wells with modern technology. Perhaps more significantly, the AIM-quoted company claims to have about 230 million barrels of oil shale reserves in the US state of Utah and argues that new treatment processes, devised by Shell, have transformed the economics of oil shale.

Gold groups glister
On the move from AIM to the Full List this year is Russia-focused gold play Peter Hambro Mining (PHM), which increased pre-tax profits 22 per cent to £27.6 million (depressed by a ‘fair value’ change in derivatives and its share of joint venture operations). PHM raised attributable gold production from Far Eastern Russia 14 per cent to 297,300 oz last year. It says it expects to produce between 350,000 and 400,000 oz this year and is determined to increase output much further than that.

Also upbeat about its various exploration projects, the company saw its shares soar from 130p to £17.10 between 2003 and 2006, before slipping back, partly on political concerns about Russia. Now on the up-tick at £13.44, the shares are likely to fare better than many in the sector.

No less ambitious, but at a much earlier stage, is Chaarat Gold Holdings, which floated on AIM with an £8.8 million Canaccord Adams-handled placing at 60p. It has now increased its indicated and inferred resources at Chaarat in Kyrgyzstan 68 per cent to 3.1 million oz, at an average grade of 4.41 grammes of gold per tonne of ore. The tightly held company says that total is likely to be increased by further drilling.

Chaarat has so far raised £20 million before and at flotation, and expects to seek more this year. The company has also funded a pre-feasibility study, due next March. Down at 44.5p, the shares could be worth a medium-term punt.