But after the price of a barrel has fallen back from $70 to around $63, the shares have retrenched. Is that a buying opportunity?

Last week, Tullow reported its first operating profit in three years. It was only a modest one at $22m, and hefty finance costs helped push that down to a bottom-line loss. But, crucially, we learned of free cash flow of $543m, and that will hopefully leave Tullow’s lenders feeling a little less twitchy over the oil firm’s big debts.

After refinancing in November, that debt level still stood at $3.47bn (£2.5bn) at year-end, which is a bit above the company’s current market capitalisation of £2.45bn.

Debt falling

But gearing was “significantly reduced” and is actually not far above the company’s targeted level. And there’s still headroom (including cash) of $1.1bn. I see the chances of a collapse very much receding now, and I don’t think the short sellers are going to win this one.

The prospects for Tullow’s drilling programme are looking good for boosting production over the next few years — Kenya is expected to produce first oil in the early 2020s. Although oil is down a bit, I can see it regaining $70 or higher before too long — and I reckon Tullow Oil shares should do well in 2018, on a forward P/E of 12.

A big crash

Looking at its share price, you could be forgiven for thinking Amur Minerals Corporation (LSE: AMC) is on the ropes. At one stage on Tuesday the price dipped by more than 15%, though as I write it’s come back a little and is 10.4% down at 5.8p.

The price has actually fallen by 55% over the past 12 months, but what lies behind the latest drop?

The company, which delves for nickel-copper sulphide in Russia’s eastern regions, revealed it has taken on a new convertible loan facility to the tune of up to $10m, with an initial $4m to be drawn straight away. Two other drawdowns will be taken, one at 121 days and one at 240 days.

Amur sounds happy with the deal, but the terms of the repayment will surely be behind the market’s weak sentiment in response. Each cash advance is to be repaid in 12 monthly instalments, but if Amur elects not to pay any individual instalment, the lenders can convert that amount into new ordinary shares at any time.

Dilution?

With Amur currently lossmaking, how many of those repayments it will elect to make is an open question. And though the deal is flexible for it, we now have the uncertainty of how much dilution of shareholders’ interests we’ll see. Amur’s market capitalisation is currently around £40m, and the total $10m loan could represent up to around 20% of that.

The share price momentum is not in Amur’s its right now, but what should you do? Buy for a potential recovery or sell and use the cash to buy some Tullow shares?

Well, I wouldn’t buy a tiny ‘jam tomorrow’ stock like Amur anyway, and I already own some Premier Oil shares as my risky hydrocarbon pick — so it’s a choice I can happily ignore.

But Amur Minerals could go either way, and I reckon 2018 could be a crucial year.

The post After today’s 15% drop, is this momentum stock worth selling to buy Tullow Oil plc? appeared first on The Twelfth Magpie.

By contrast, oil and gas exploration company Hurricane Energy (LSE: HUR) has recorded a fall in its valuation of 50% in the last three months. Could it be worth selling in favour of its resources sector peer for the long term?

A positive update

Amur’s update released on Tuesday showed that the company continues to make encouraging progress with its drilling programme. Its drilling now totals 13,142 metres, with 6,006 metres completed at its IKEN deposit and 7,136 completed at its KUB deposit. This means that around 65% of its planned drilling for 2017 has been completed.

Since May, drilling has been focused at the company’s IKEN deposit along the western 1,600 metres of the 2,800 metre-long ISK target, which is in between the IKEN and KUB deposits. Widely spaced holes have confirmed the presence of mineralisation within two distinct pods with a total combined mineralised strike length of around 1,200 metres. Drilling indicates both blocks average in excess of 0.9% nickel and 0.2% copper at average thicknesses of more than 35 metres. Importantly, the thicknesses are suitable for underground mining.

Negative news

Clearly, the drilling update from Amur has been well received by the market. This is in contrast to the recent performance of Hurricane Energy, which on Wednesday announced that it may not progress with its pre-emptive offer for $5m of the company’s shares.

It was planning to provide shareholders with the opportunity to subscribe for shares following its $530m fundraising. This was intended to be at an offer price of 32p per share, but since the announcement the company’s stock price has now fallen to below that price level. As such, the firm will no longer press ahead with the pre-emptive offer, unless its volume weighted average share price is above 32p during the next week.

Looking ahead

While the news released by Hurricane Energy has not had a negative impact on the company’s share price, it shows how poor its performance has been from an investment perspective. Certainly, a weaker oil price and a share placing have been at least partly responsible, but investors seem to be somewhat uncertain about the company’s outlook.

This is in contrast to the recent performance of Amur. Clearly though, the mining company remains relatively high risk and dependent on news flow regarding the success of its drilling programme. As such, both it and Hurricane Energy could be relatively volatile places to invest. That means other, larger, resources stocks could be more attractive for risk-averse investors. In terms of their potential rewards though, both stocks could deliver improved share price performance in the long run.

The post Can this 10%+ riser beat Hurricane Energy plc? appeared first on The Twelfth Magpie.

This is good news for Sirius Minerals (LSE: SXX), since it’s going to be reliant on funding from investors and lenders in order to get its potash mine in Yorkshire off the ground. Clearly, the project has huge long-term potential. Food production is set to be one of the major growth areas over the coming decades as the world’s population is expected to rise by around a third by 2050. And although modern farming techniques are becoming increasingly efficient, more effective fertiliser could produce higher yields and become invaluable.

Thus far, the potential for Sirius Minerals’ polyhalite fertiliser is strong. Crop studies have been generally positive and there appears to be significant demand. The question mark looks to be around the financing of the project. While raising £1bn-plus following a brighter period for commodity prices may be easier, risk-averse investors may wish to invest in companies that are already profitable given the high degree of uncertainty likely to continue in the commodity sector.

Long-term rewards

Also benefitting from rising commodity prices this year has been Rockhopper (LSE: RKH). The oil price has almost doubled from its February low of $28 per barrel and in the long run there could be more to come. Exploration spend has fallen in recent months as cutbacks have been made across the industry and this means that with demand likely to rise in future as the emerging world becomes increasingly oil-dependent, the oil price could rapidly rise.

This would be good news for Rockhopper and now that it has merged with Falkland Oil & Gas, it has a stronger asset base. This could yield high long-term returns for the company and with its latest update showing that it has $110m of cash on its balance sheet, as well as an increase in production from its Mediterranean assets, Rockhopper appears to be a sound buy for investors seeking small-cap resources plays.

Long road ahead

Meanwhile, shares in Amur Minerals (LSE: AMC) have disappointed in 2016, falling by around 48% year-to-date. That’s despite the company releasing positive news flow regarding its Kun-Manie prospect. In fact, today Amur Minerals said that it has completed almost half of the planned drilling for its 2016 Maly Kurumkon-Flangovy drill programme at the site. It expanded the pipe at its step-out drilling following the receipt of results from its first drill hole last month.

Clearly, Amur has a long way to go before it becomes a profitable business, but the Kun-Manie prospect has considerable potential. However, with investor sentiment being weak (Amur’s shares are down by a further 6% today) and a number of other resources stocks being cheap and highly profitable, there may be better options elsewhere.

The post Are Sirius Minerals plc, Amur Minerals Corporation and Rockhopper Exploration plc the best small-cap resources stocks around? appeared first on The Twelfth Magpie.

Still, if you do your research and spend time carefully choosing the most attractive small-caps, the returns available can be life changing.

Redt Energy (LSE: RED) is just one small-cap that may have the potential to revolutionise your portfolio’s returns. Formally known as Camco Clean Energy, Redt develops energy storage technologies, and while the company is still in its early stages, there’s been plenty of positive news flow over the past 12 months.

Redt is planning to ramp up the production of its liquid vanadium energy storage units over the next two years and as the company develops its manufacturing capacity, the cost of production per unit is expected to decrease considerably.

According to management, there’s already plenty of interest in the units from industrial groups, and City analysts expect big things over next two years. Sales of just £3.4m are expected this year but for 2017 analysts have pencilled-in sales of £18.5m, a staggering growth rate of over 400%. The City expects Redt’s pre-tax loss to narrow significantly over the next two years falling to £1.2m for 2017 with a profit expected in the years after.

With such an impressive growth rate on the cards, Redt could be one company to watch going forward.

Debt deal

The market seems pleased with a debt restructuring deal announced by Iofina (LSE: IOF) this morning with shares in the company rising by 10% in early trade. The restructuring deal will see the maturity date of Iofina’s existing convertible debts of $20m extended to 2 June 2019, and interest rates will be lowered from 6% to 5%. What’s more, to help with cash flows under the terms of the new agreement accrued interest will be rolled up into the loan principal so it can be paid at maturity.

Along with this new debt deal, one of Iofina’s existing creditors Stena Investment has agreed to extend an additional $10m credit line to the company to finance expansion plans. The details of this new credit deal are expected to be finalised within the next 30 days.

When it comes to small-cap investing, it’s often best to avoid the companies with high levels debt as if things don’t go to plan, shareholders will have to foot the bill for the company’s excessive spending. For example, right now if Iofina’s existing loans were converted, the debt would equate to around 45% of the group’s existing share capital.

A long way to go

Early-stage miner Amur Minerals (LSE: AMC) is another high-risk play. The company is still in the early stages of developing its nickel/copper Kun-Manie prospect in Far East Russia. Even though recent drilling results showed a higher grade of ore than was initially expected, Amur has a long road ahead of it before it can bring the mine into production. Indeed, last year the company informed the market that it would cost an estimated $312m to develop a permanent access road to the nearest suitable rail line for Kun-Maine.

With a market cap. of only £25m, Amur is facing the prospect of taking on a near-crippling amount of debt just to fund the construction of the access road.

The post 3 potential ten-baggers? Redt Energy plc, Iofina plc and Amur Minerals corporation appeared first on The Twelfth Magpie.

Avanti’s management also announced today that demand for its High Throughput Ka band satellite capacity in Europe, the Middle East, and Africa has been strong, particularly in the large telecommunications and government sectors. With demand for its services robust, Avanti is confident that it will be able to hit its revenue growth target of 50% year-on-year for the year to the end of June, some much-needed good news for the company’s shareholders.

Rocky period 

Over the past 12 months, Avanti’s investors have been taken on a wild ride as the company’s share price has collapsed by around 60% since mid-May last year. And year-to-date, shares in Avanti have lost around 50% of their value as investors have become concerned about the company’s financial position and its ability to hit growth targets. Indeed, City analysts expect the company to report substantial losses for the next two years, and it remains to be seen if Avanti can survive long enough to book a profit eventually. 

Analysts expect the company to report a pre-tax loss of £51m for the year ending 30 June and a pre-tax loss of £33m for the following year.

Speculative pick 

Shares in Amur Minerals (LSE: AMC) had a rough start to the year but have begun to make back some of their losses in recent trading days. Year-to-date the company’s shares have lost around 36% of their value and since the beginning of June last year, the shares have lost a staggering 90% of their value. However, in the last week, the company’s shares have started to recover some lost ground and are up around 16% since Monday.

Amur is still in the early stages of exploring its flagship Kun Manie nickel copper sulphide project located in the far east of Russia and it will be several years before this asset starts production and generates a return for shareholders. 

With this being the case, Amur is a high-risk opportunity. The company still has a whole mine to build and finance. If you’re going to buy into Amur’s nickel copper sulphide project, it’s best to do so as part of a well-diversified portfolio so if the company fails, you don’t lose your shirt.

The post Is the reward worth the risk with Avanti Communications Group plc and Amur Minerals Corporation? appeared first on The Twelfth Magpie.

But by the same token, surely the best time to buy such companies is when prices in their sectors are staging a comeback, as they’re more likely to reward us with multi-bagger gains than the FTSE 100 giants.

Brighter prospects

Look at Amur Minerals (LSE: AMC), for example, whose share price has been in a bit of a slump — at 4.8p as I write, Amur shares are down 90% from their high point in June 2015. But the latest independent update on the Kubuk nickel-copper deposits at the firm’s Kun-Manie project, just published a few days ago, has increased the likely available resources again. Amur now says the total measured and indicated resources at the mine in the far East of Russia have doubled since April 2015, and this latest step concludes the evaluation phase of Amur’s Definitive Feasibility Study.

There is, of course, still a long way to go, but any progress in the prices of nickel and copper will surely help. Both have been picking up, though both have dropped back a little of late — but if metals prices really have bottomed out, the prospects for Amur will surely have brightened a little.

Oil opportunity

With the price of a barrel of Brent crude getting ever closer to the magic $50 mark, the future for Xcite Energy (LSE: XEL) must be looking a little rosier too. Xcite shares are down over the past 12 months, to 14.9p, but we’ve actually seen a 32% recovery since a recent low on 20 January.

Sustainable profits from Xcite aren’t expected before 2018, and there will be plenty of debt that needs to be serviced before then — in fact, when its full-year results were released in March, the firm told us it was in talks with bondholders in order to “develop financial flexibility” regarding bond payments due on 30 June.

With Xcite’s reserves update issued the same day looking pretty positive, the chances of the firm getting its finances sorted for the longer term are looking increasingly good to me — although it’s clearly still only for those who can handle a bit of risk.

Shiny

Platinum is one of those precious metals that has uses other than just sitting around looking shiny, and the price of the stuff has been picking up lately, to $1,055 per ounce at the time of writing. And that hasn’t done Jubilee Platinum (LSE: JLP) any harm at all, with Jubilee shares having more than doubled in the past 12 months — they’ve been on a bit of a slow fall for a few months recently, but an operational update on 12 May gave the shares a boost, and they stand at 3.3p today.

The chrome recovery plant operated by subsidiary Jubilee Tailings Treatment Company is now fully operational and has achieved a sustainable processing capacity that’s 30% ahead of expectations. Production of 6,000 tonnes of chromite is targeted for May, rising to 8,000 tonnes in June, and that surely makes Jubilee shares that bit more attractive.

The post Is it time to buy Amur Minerals Corporation, Xcite Energy Limited and Jubilee Platinum plc? appeared first on The Twelfth Magpie.

Positive outlook

A key reason for this is the company’s opportunity to build a major potash mine near York, with the £1bn+ project set to be delivered in two stages and having the potential to return significant levels of profitability in the coming years. Clearly, a black bottom line is a long way off, but with Sirius Minerals having experienced positive results from crop studies for its polyhalite fertiliser, and  aiming towards signing supply agreements, its medium term outlook remains positive.

Perhaps the major risk on the horizon for the company is financing. With investors nervous about the wider resources sector, fund-raising may prove to be more challenging than previously thought. As such, now may not be the most opportune moment to buy Sirius Minerals, but sizeable share price gains still cannot be ruled out if news flow is positive.

Superb potential for gain

Whilst shares in Sirius Minerals have soared this year, fellow resource-focused company Gulf Marine Services (LSE: GMS) has slumped by 52%, as a lower oil price has started to bite. The operator of self-propelled and self-elevating support vessels is forecast to report a net profit which is 18% lower in the current year than it was last year, which is clearly disappointing. However, with earnings forecast to rise by 28% next year Gulf Marine Services could see a step change in investor sentiment over the medium term.

With Gulf Marine Services trading on a price to earnings growth (PEG) ratio of just 0.1, it seems to offer superb capital gain potential. In fact, a doubling of its share price is on the cards and while its outlook is highly uncertain,  and its share price is likely to be volatile, Gulf Marine Services seems to offer a very enticing risk/reward ratio for long term investors.

Substantial resource

Meanwhile, Amur Minerals (LSE: AMC) today announced that the independent resource update of the Kubuk nickel-copper deposit at its Kun-Manie project in Russia has been completed by SRK Consulting. This is the next step towards Amur completing the definitive feasibility study (DFS), with it now set to develop a comprehensive mine design and production schedule. Furthermore, Amur has a substantial resource from which to define reserves for the DFS having doubled the measured and indicated resource at Kun-Manie in the last year.

Looking ahead, Amur could become a highly profitable mining play in the long run and therefore its share price could feasibly double. However, it remains a relatively small and high-risk business, which is still some way off delivering a sustainable black bottom line. And with the mining sector being so cheap at the moment, there may be better risk/reward opportunities available elsewhere.

The post Can Sirius Minerals plc, Amur Minerals Corporation and Gulf Marine Services plc double in a year? appeared first on The Twelfth Magpie.

Shares in Nighthawk Energy (LSE: HAWK) have fallen by as much as 11% today despite the company releasing positive news flow regarding its financial situation. The US focused oil development and production company has received an extension to certain loan covenants under the company’s Reserves Based Loan. This is to allow Nighthawk further time to agree to possible amendments to the covenant and debt repayment provisions of the loan in light of anticipated financial results.

The covenants have been waived until 28 April and encouragingly for Nighthawk’s investors, it expects that new banking arrangements will be in place at or before that time. Clearly, though, this is a highly uncertain time for Nighthawk and even though today’s update is positive, and the company has the potential to deliver improved profitability in the long run, it may be prudent to await further information regarding its borrowing situation before piling in. After all, with a falling oil price causing further misery for the resources sector, the risks appear to outweigh the potential rewards.

Upbeat growth potential

Also updating the market today was Amur Minerals (LSE: AMC). The nickel-copper sulphide mineral exploration and resource development company has completed the full restock and mobilisation of all newly purchased mobile equipment to its Kun-Manie project in Eastern Russia. This positions the company to undertake and continue its development of the project towards the completion of its definitive feasibility study.

Despite this, Amur’s share price has fallen by over 5% today. That could be due to a weaker wider resources market, but it provides an indication of how volatile smaller companies such as Amur can be. However, even when such volatility is factored in, Amur’s long term profit growth prospects remain very upbeat and its potential rewards for investors are substantial. However, with the resources sector offering a number of deeply discounted mid and large operators which are highly profitable, there may be better options available elsewhere.

Margin of safety

One such company is BP (LSE: BP). The oil and gas major has a highly diversified asset base and even though it has paid out $billions in compensation claims for the Deepwater Horizon oil spill in recent years, it still benefits from excellent financial standing which will stand it in good stead during the present commodity downturn.

Looking ahead, BP is expected to grow its bottom line by around 2.5 times in the next financial year. While this forecast is highly dependent upon the price of oil and gas during that period, BP’s current valuation seems to offer a sufficiently wide margin of safety to merit investment right now.

For example, it trades on a price to earnings growth (PEG) ratio of only 0.1 and this indicates that it offers long term growth potential at a reasonable price. So, while not being risk free, BP seems to have an appealing mix of high potential rewards and more financial stability than many of its smaller sector peers.

The post Do BP plc, Nighthawk Energy Plc And Amur Minerals Corporation’s Risks Outweigh Their Potential Rewards? appeared first on The Twelfth Magpie.

Decent-value buy

Netplay has had to negotiate regulatory changes that saw betting and gaming duties rise to £3.8m this year from £0.5m in 2015. The company more than offset the rise by slashing marketing expenses by £4m with a more targeted strategy, and also by reducing operating and administrative costs.

Netplay has a strong balance sheet with £10.8m of corporate cash and no debt, putting it in a good position for pursuing acquisitions as well as organic growth. Management recently looked at purchasing the Football Pools business from Sportech, but decided against entering a sealed-bid auction process, which suggests the board are only interested in doing the right deals at the right price.

Trading on 13.8 times last year’s earnings at a share price of 10.5p, and with cash representing 3.7p a share, Netplay appears a decent-value buy. A dividend yield of 6.3% (which excludes the special) is an added attraction.

Good business but rich rating

Lighting firm FW Thorpe (LSE: TFW) released half-year results this morning, and also saw its shares rise (up 7% as I write). Like-for-like earnings were 7.5% higher, but actual earnings rose 14% thanks to the contribution of an acquisition.

The strong performance, and £22m cash and no debt on the balance sheet, have persuaded Thorpe’s board to pay a 2p a share special dividend on top of a 1.2p ordinary dividend.

Thorpe is a old family-run business, and the board tends not to be gushing about performance and prospects: thus, underlying growth was generally “solid rather than astounding” and management is “cautiously optimistic” about the rest of the financial year.

Thorpe’s shares have had a strong run, and while this is a company I very much like, the current share price of 236p gives a rich rating of 22.6 times trailing 12-month earnings and yield of 1.6% (excluding the special dividend). Not a price at which I’m rushing to buy.

Risky and speculative

News this morning from Amur Minerals (LSE: AMC) didn’t get the positive response from the market that the results from Netplay and Thorpe received. The shares of the nickel-copper explorer with projects in the far east of Russia are down 2.3%, as I write.

Nevertheless, the news was positive. The company reported that it had completed the annually-constructed 350km ice road to its Kun-Manie project and begun the restocking of the site for its 2016 drilling programme. Amur also said it anticipates being able to release results soon showing a successful conversion of 2015’s targeted Inferred resource area to Indicated and to have successfully added 400 metres of Inferred resource.

Given the stage of development and the geo-political location, Amur remains a risky and speculative proposition, well outside my personal comfort zone.

The post Should You Buy Netplay TV Plc, FW Thorpe plc And Amur Minerals Corporation On Today’s News? appeared first on The Twelfth Magpie.

Is the market is rerating these stocks for a brighter future, or is there a risk that prices will slide again?

Amur Minerals

Amur Minerals was one of Friday’s biggest risers, climbing as much as 20%. The catalyst for the gains was news that Amur has signed a non-binding agreement with the Russian government’s Far East and Baikal Region Development Fund.

Amur hopes that this state-backed fund will contribute to the cost of building its proposed Kun-Manie nickel copper sulphide mine. The firm plans to do 15,000m of drilling during the coming summer season, as it works to prepare a Definitive Feasibility Study (DFS). This will be used to try and secure funding for the mine development.

The Kun-Manie asset seems promising and there looks to be a reasonable chance that Amur will make a success of it. But there are still a lot of unknowns, and financing could be tricky. Friday’s deal was only a non-binding agreement. There are no guarantees.

Amur shares have fallen by 50% over the last six months. In my view they remain highly speculative.

Xcite Energy

North Sea explorer Xcite Energy is in a race against time. The firm must find an investor willing to refinance its debts and back the development of its Bentley oil field. The problem is that Xcite has to repay $139.05m of bonds in June 2016. The group doesn’t have this cash.

In better market conditions, Xcite might find a buyer for Bentley, which has proven and probable reserves of 265m barrels of oil. Costs are falling too. In a recent update, Xcite said that development costs had fallen to $30 per barrel.

However, the reality seems to be that the market isn’t interested. If things don’t change, I expect Xcite to default on its bonds in June. For a potential buyer, it will make sense to wait until then, in order to be able to buy Bentley’s barrels as cheaply as possible.

Because of the risk of a bond default, I think Xcite shares could end up going to 0p. In my view, the recent gains could be a good selling opportunity.

Premier Oil

Shares in Premier Oil have risen by 125% from their January low of 19p. The firm’s 2015 results were no worse than expected and operating costs have been cut by 25%. Premier’s deal to acquire the North Sea assets of E.ON has also been well received.

The production from the E.ON assets is well hedged and will generate valuable cash flow. The additional earnings this provides will also increase the amount of headroom available on Premier’s debt covenants.

However, this may not be enough. Premier has net debt of $2.2bn and chief executive Tony Durrant warned in the firm’s results that if oil prices stay low, “further relaxation of covenants may be required”.

In my view this is a big risk to shareholders. Premier may end up needing to issue new shares to repay some of its borrowings. For this reason, Premier looks too expensive to me at the moment.

The post Are Further Gains Likely At Amur Minerals Corporation, Xcite Energy Limited & Premier Oil PLC? appeared first on The Twelfth Magpie.