Fox Davies Capital Update featuring Gem Diamonds, Hochschild Mining, Falkland Oil And Gas, Roxi Petroleum, Sterling Energy, Pathfinder Minerals, Metminco, 3Legs Resources

Mining News

Gem Diamonds (LON:GEMD) (GEMD LN, 279p, ▼ 0.7%)) has posted strong FY’12 results with revenue of US$396 million, up 49% from 2010, underlying EBITDA of US$180 million and Basic EPS (continuing operations) of 47 US cents, up 213%. Key driver for the business was the record production (112,367ct, +24%) and grade (1.62 cpht, +35%)at Letšeng which included the 550 carat Letšeng Star which sold for US$16.5m and helped push average price per carat from US$2149 in FY’10 to US$2,776 in FY’11. Development at Ghaghoo, Botswana continues with 21% of the US$85 capex already spent and first diamond production is expected in 2013. Meanwhile, at Letšeng, project Kholo which was approved in November should increase production to 180-200kcts by mid 2014 at a cost of US$280m.

Hochschild Mining (LON:HOC) (BUY, 592p) (HOC LN, 475.3, ▼ 2.7%) FY’11Results were positive. Although revenues of $987.7m (+31%) were in line with our expectations, EBITDA US$563.4m (+42%) vs. US$493.5m, NPAT US$165.9m (+75%) vs. US$141.4 and EPS US$0.49 (+75%) vs. US$39.4 all exceeded our own forecasts. FY12 will be key for Hochschild as, although production is forecast to fall to 20m attributable silver equivalent ounces compared to 22.6m in FY’11, construction will commence at Inmaculada and Crespo which have the potential to increase production by 10Mozpa.

Metminco (LON:MNC) (MNC LN, 11.13p, ▼ 1.1%) FY11 Results highlighted the A$70.4m raised during the year to fund exploration at Los Calatos and Mollacas, acquire the remaining interest in Mollacas, Vallecillo and Loica and remove Barrick’s option to buy back 51% of Los Calatos. At Los Calatos, the initial 34,200m drilling program was completed in December and a 100,000m infill drilling program is currently underway whilst at Mollacas, a 2,250m diamond and 1,154m RC drilling programme were finished for the resource upgrade and metallurgical test work to be completed in preparation of the Feasibility study later this year. Cash at year end was A$44m.

African Eagle (AFE LN, 6.13p, ► 0.0%) report positive leaching test work on its Dutwa nickel project indicated it is amenable to atmospheric pressure tank acid leach and the company in collaboration with Lycopodium are developing the preliminary Dutwa process flow sheet, to be modelled in the pilot plant test programme, scheduled to commence in 2Q’12.

Pathfinder Minerals (LON:PFP) (PFP LN, 3.13p, ► 0.0%) Have given an update on its High Court injunction in the English Courts. General Jacinto Soares Veloso, J.V. Consultores Internacionais Limitada and Diogo Jose Henriques Cavaco have accepted the jurisdiction of the English court and agreed not to attempt to cancel or annul IM Minerals shares in Companhia Mineira de Naburi SARL. A date for the trial in the UK to resolve this won’t be until 1 October at the earliest. However, no date has yet been set for the Mozambique court process to resolve ownership of the actual mineral sands licenses..

Oil and Gas News

3Legs Resources (LON:3LEG) (3LEG LN, 67.5p, ▼ 0.7%) – Operational update: Highlights include - Baltic Basin: The Company announced that ConocoPhillips has given notice to exercise its call option over the Company’s three western Baltic Basin concessions, which will give ConocoPhillips 70% equity interest and operatorship in all three concessions. The company will retain a 30% WI. Consortium has plans to drill one vertical well on one of the three western concessions in the 2H12, with the option to drill a horizontal section later. It also reported cash and cash equivalents of £48.1 million as at Feb 2012. Positive update, as ConocoPhillips intention to exercise its call indicates the prospectivity of the block. Further, we can expect traction in the exploration programme given Conoco access to technology and funds.

Sterling Energy (LON:SEY) (UNDER REVIEW) (SEY LN, 44.5p, ▼ 0.5%) – Reported 2011 full year results: Highlights include –Net profit of $18.4mm (2010 $5.8 mm), production at 629 bopd (2010: 654 bopd), cash and equivalents at $115mm. In 2012 the company plans to commence the drilling programme on the Ntem block to evaluate the large prospects, identified from 3D seismic, subject however to the lifting of force majeure. The company has expressed its intention of expanding its oil & gas portfolio through acquisitions across Africa and the Middle East. Sterling has a strong cash position with no leverage on the balance sheet. It remains fully funded for the 2012 exploration programme. Acquisition of a new asset and lifting of force majeure on the Ntem block offers near term catalysts. The management team is experienced, and have a track record at unlocking value within companies. We will be reviewing our recommendation and target price.

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Falkland Oil And Gas (LON:FOGL) (BUY, 250p) (FOGL LN, 65.5p, ▲8.0 %) Unknown Party Farms-in. The Company has granted an as yet undisclosed party the right to Farm in to its acreage, which is expected to be exercised within the next 2 months. FOGL will retain licence operatorship; the counterparty would farm-in to 25% of the FOGL licence areas and would contribute its pro-rata share of the 2012 drilling programme, comprising two exploration wells; the counterparty would also pay its pro-rata share of certain historical costs incurred during 2011 related to preparation for drilling this year. The costs incurred are estimated to be $68mm gross. In addition the counterparty would make a cash contribution of $40mm; $20mm on completion (expected to be prior to the spudding of the Loligo well) and $20mm in 2013. This is good news for FOGL as it not only dilutes the Company’s risk exposure, but adds value to the Company. The favourable terms of the proposed deal should provide FOGL with greater financial flexibility as it presses ahead with its drilling programmes later in the year.

Roxi Petroleum (LON:RXP) plc (RXP LN, 6.13p, ▲ 14%) KNOC KNOC! The Korean National Oil Corporation (KNOC) has agreed to pay an initial cash consideration of $5mm and to invest a further $25mm in the BNG Contract Area work programme in return for a 35% interest in the BNG Contract Area license. The BNG Contract Area is believed to contain over 30 prospects and a further 7 leads, with the prospect ranged in size from 3 to over 80mm bbl, with a total aggregate gross resource potential of over 500mm bbl of Best Estimate Prospective Resources. The Company announced last week that oil shows were encountered in its BNG prospects and this deal is well timed for the Company. KNOC has proven development experience in Kazakhstan and the BNG Contract Area has significant upside potential. The funding provided by KNOC should allow Roxi to explore some of the deeper horizons in the Area and thus continue to unlock the asset’s potential.

Chariot Oil & Gas (CHAR LN, ▼ 4.3%) Company Final Results which includes a Placing. The Company announced its audited final results for the ten months ended 31 December 2011. During and Post Period Highlights include; Completing a Placing in April 2011, raising US$140 million net to execute exploration programme; increased gross mean un-risked prospective resource potential from 13.9bn bbl to 20bn bbl (12.5bn bbl net to Chariot); prospect and lead inventory increased from 12 prospects and 6 leads to 15 prospects and 16 leads. Farm-out agreement signed with BP Plc. ("BP") in Southern Block 2714A with BP committing to carry Chariot's first exploration well costs and to pay for past costs incurred in exchange for 50% of Chariot's equity interest in the block; farm-out agreement signed with Petroleum Geo-Services ASA ("PGS") in Central Blocks 2312A&B and N/2 of 2412A&B with PGS acquiring a 10% equity interest in return for funding 50% of 3,500km² 3D seismic acquisition, which was completed in February 2012. Placing for gross proceeds of ~£31mm (approximately ~$49mm) announced today. The Company is embarking on an extensive drilling programme as the Company matures its assets through the development cycle. The coming year will be a transformational year, with the drilling either proving concept, or underlining future prospectivity.

Oilfield Services News

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