Morning Mumble: Shorts, Savannah Petroleum & all that glitters is not just gold!

Good Morning, what a delight waking up to sun rising...Pets at Home (sinking) hitting all-time low's AO. (AO World), doing the same with obvious results. AO.'s lack of support is a knife catchers void currently. Taking the first of a few positions in Morrison's on the basis of the appointment, which acknowledges the severity of the situation. A well-timed and considered appointment, (note: I bet Andrew Higginson wrote his own ticket as well!) Andrew Higginson to become Chairman (MRW) in 2015.

Its hoped people were able to watch the dispatches programme on Supermarkets. Its nothing that was not already known but well put together, more importantly, it shows the changes ahead for retailers. Will endeavour to find parties a link in due course.

Nautical Petroleum is coming back, no not being spun out of Cairn but...Savannah Petroleum Intends to float on Aim. The Company appears to pushing the exploration, appraisal and anticipated eventual development and production of conventional oil deposits located in the R1/R2 PSC area. Now it was my understanding that China National Petroleum Corporation (CNPC) had the rights to this Agadem Field on an exclusive basis (awarded 7 years ago). So whilst digging away in the press releases for the Niger Government, I found this: Press release (Niger Government) Ministers Meeting 06th June 2014 Scrolling down to page 3 (see below highlighted in red),

III. AU TITRE DU MINISTERE DE L’ENERGIE ET DU PETROLE.

Le Conseil des Ministres a examiné et adopté le Projet de décret portant approbation du Contrat de Partage de Production (CPP) entre la République du Niger et la société Savannah Petroleum, relatif au bloc R1&R2.

Ces deux (2) blocs représentent une portion de 50 % du bloc d’Agadem, objet de l’autorisation exclusive de recherche pour hydrocarbures accordée en 2007 à la société CNPC-NP-SA.

For those of us without schoolboy French:

III. UNDER THE MINISTRY OF ENERGY AND OIL.

The Council of Ministers considered and adopted the Draft Decree approval of the Production Sharing Contract (PSC) between the Republic of Niger and Savannah Petroleum Company, on the block

R1 & R2.

These two (2) blocks represent a proportion of 50% of Agadem block, subject to the exclusive exploration license for hydrocarbons granted in 2007 to the company CNPC-NP-SA.

I’ve highlighted the item in red that contradicts my thinking that the CNPC already has the rights. Perhaps CNPC have consented to this move, but more so, what happens to their current operations/exploration activities. Perhaps I’ve missed that the CNPC/Savannah Petroleum have done a deal? However, check through the Government announcements for Niger, there’s no such approval for changes or ratification to a deal. One shall wait and see if there's more clarity. Should this item not be disclosed as there is a potential conflict. Are CNPC aware of the award, albeit they will be with noise Savannah Petroleum's intention to join AIM. Perhaps Strand Hanson will be able to clarify this as the NOMAD, whom I shall call in due course. 

Back to the news, Gem Diamonds comes in a trooper today with a trading update which is very positive indeed. For those seeing that all that glitters in not gold but diamonds, then this bodes well. I commented on the fnancial changes in the Diamond Market (contraction of financing & Anglo American's (Read as De Beers) new sales contracts which bodes well for greater stability in the market. 

I'll let the highlights do the talking:

Letšeng delivers exceptional performance

·       80% increase in Letšeng's revenue*to US$ 147.8 million compared to H1 2013

·       29% increase to 54 678 in carats recovered compared to H1 2013.

·       14% increase to 53 799 in carats sold* in the first five tenders of 2014, compared to H1 2013.

·       58% increase in average value per carat of US$ 2 747* achieved for the first five tenders of 2014, compared to H1 2013.

·       37 rough diamonds achieved a value in excess of US$ 1.0 million each.

·       77 rough diamonds achieved a value in excess of US$ 20 000 per carat.

·       5 rough diamonds achieved a value in excess of US$ 60 000 per carat.

·       A total of 311 rough diamonds greater than 10.8 carats in size were sold.

·       Three exceptional quality +100 carat diamonds - a 162.02 carat, a 161.31 carat and a 132.55 carat, were sold for US$ 11.1 million, US$ 2.4 million and US$ 7.5 million, respectively.

·       Tonnes of ore treated up 6% on H1 2013.

The downside is there is still no clarity on the size of any potential dividend to enable a fair assessment of value, with cash of US$ 114 million cash as at 30 June 2014 (approx £67m) the market may get over excited at the potential of 36 pence in dividends. The company has certainly turned a corner…With a debt facility of, 390 Million Maloti (don’t get too excited) its roughly $36M/£21M (approx), there’s head room to reward the patient investor.

With Ghaghoo;s first sale of diamonds scheduled before the year end there’s potential upside. To quote: “The first diamonds produced during the commissioning of the plant have, as anticipated, been of a significantly higher quality and average size than those mined during the exploration phase. A 20 carat and two 10 carat diamonds have been recovered from the first 2 400 carats recovered as at end of June 2014. This compares to the largest diamond recovered in the exploration sampling of 7 carats. During the development of the production level there has been a greater quantity of water encountered than indicated by the exploration drilling. Steps have been taken to deal with this and it is not anticipated that there will be any impact on the planned production targets for 2014.”

One expects GEMD to make further highs today on the back of this update…the risk being more clarity on the dividend policy and diamond prices…albeit with greater stability as the leverage has been reduced in the sector to stop it over cooking on speculation. It would appear the play today is short Petra Diamonds whom appears overvalued based on GEMD’s update. Petra’s trading update (28th July 2014) yesterday wasn’t the most positive. When considering the potential of GEMD…

One will watch with interest the impact of the Ebola Virus on various producers, the News Agencies appear much faster than the AIM companies whom should be informing us.

Atb Fraser

Awaiting the news of the Burford Bonds before discussion!