Wise investments in times of market uncertainty

Market volatility is the phrase of our times. Geopolitical tensions, global economic slowdown and calls for new social orders have been shaking up markets all around the world. Global currencies, currently driven down by complex international affairs, are the main factor affecting market dynamics. In the UK, questions around Brexit and turbulent domestic politics have been the primary movers of sterling in recent months. A combination of all these factors is likely to keep markets volatile for the foreseeable future.

Uncertainty is constantly plaguing the investment world, with market downturns occurring frequently. However, it is important to remember that market setbacks are typically followed by recoveries and, when managed wisely, can represent opportunities rather than pitfalls. Investors who position themselves to take advantage of these movements can even benefit from uncertainty and volatility.

Investment trading can seem like a daunting task at times like this. In the latest episode of Cassiopeia Tv Channel FinancialFox, IR specialist Stefania Barbaglio interviews Angelos Damaskos, CEO and Investment Adviser at London-based Sector Investment Managers Limited, to talk about how best to navigate the waves of uncertain markets and the best investment options in the current situation.

Angelos is indeed very familiar with the investment world. Before setting up Sector Investment Managers Ltd, Angelos had 14 years’ investment banking experience with major banks in London, concentrating on natural resources. For 10 years, he was responsible for structuring the European Bank for Reconstruction and Development’s equity and debt investments in commodities, oil transport, food processing and retail projects in Russia, Ukraine and the Balkans. He also managed a portfolio of EBRD assets in the Balkans, Russia, Ukraine and Central Asia, including corporate restructuring and debt recovery.

The Oil & Gas market is transforming

The energy market is being re-shaped by pushes for renewable energy and concerns about climate change. Alternative energy sources have gained prominence in the market, while more traditional methods are losing their share.

It is undeniable that the oil market has suffered a downturn over the years as the economy moves away from fossil fuels, with the boom in US shale production in 2014 pushing prices down and leading to a difficult recovery. While Angelos believes that there are attractive oil and gas opportunities still to be explored in Latin America, West Africa, and Oceania, he says the global outlook for the oil market remains uncertain.

While the future may seem dubious for oil prospects, gas is increasingly gaining the spotlight in the UK’s energy mix. Because of its properties, gas is a more appealing source. There are some interesting UK companies focusing on gas operations and serving the domestic energy demand.

From Full Fact, 2018

Precious metals are the best investment

In terms of opportunities in volatile markets, Angelos is confident that precious metals are the soundest options. Exposure to precious metals is important to safeguard your investment in times of slower economic growth, especially in China and other emerging markets.

Angelos is positive about prospects for gold: “I have been a long-time bull for the gold price.” The main catalyst for gold price rises is geopolitics, says Angelos, as gold is seen as an important alternative investment to equities and a safe haven asset.

The role of gold in the current turbulent scenario should not under-estimated. Analysis of gold performance shows that it holds major importance at times of global currency unpredictability, often the direct result of political battles and fragile macroeconomic climates. Last week, gold prices performed well, amid European recession risks arising from US tariffs imposed on the EU and more tensions in the ongoing US-China Trade war. Gold is likely to remain with further gains in this scenario.

Bloomberg chart showing gold-backed ETF growth

Angelos is also bullish on other precious metals, especially silver, which follows the uptrend of gold and goes even higher, showing more upside potential: “When gold is on the uptrends, silver trends to outperform it.” Orchid Research is expecting a ‘strong’ rebound for silver in October, according to Kitco News.

Of the base metals, which are crucial elements in the supply chain for technology products and gadgets, Angelos says copper is the most important, and one to watch. Copper is versatile and has many applications across various industries, although the slowdown in the Chinese economy could bring a negative effect to its market.

His valuable advice for investors: “A very sensible, well diversified portfolio should have strong allocation to safe haven assets, particularly gold and silver. It should also have some exposure to senior miners, with solid operations with long-standing records of production, as well as exposure to junior companies that are growing in the industry, because these are the companies that control the assets that will be the future supply of the commodity market.”

Cassiopeia Services does not offer investment advice. It is very important to obtain professional advice when seeking investment opportunities. Each individual circumstance requires a specific plan that suits the investor’s needs and profile.

CASSIOPEIA INVESTOR SYMPOSIUM: AUTUMN EDITION — NATURAL RESOURCES

Angelos Damaskos will also be attending and giving a short speech about opportunities in the mining sector at our upcoming investor symposium in central London.

Registrations are free and open via Eventbrite: https://www.eventbrite.co.uk/e/cassiopeia-investor-symposium-tickets-73161204131

Rockhopper Exploration: Is The ‘Love’ Returning?

Originally published at http://rockhopperexplorationisthelovereturning.home.blog on September 19, 2017.

Rockhopper Exploration is a well-funded AIM listed full-cycle E&P company with its heart in two places: the Falklands islands (RKH 2010 Sea Lion Discovery & Development story with significant upside) and the Greater Med’ (Recent revenue and cash flow story with upside associated)

Share price: 23.50

RKH’s half-year results published last week have been glossed over by investors who still believe nothing is going to happen here anytime soon or before 2018. However, as we all know in investing, the best time to back a company is when the stock is not hot. It would appear that solid, dormant stock can yield big rewards when it wakes up. Sound Energy (SOU) is an example of a re-rate after their Moroccan Discovery, although the re-rate is usually accompanied by lots of news.

The stock fell from 38.50 mid-2016 to 18.50p in August this year and is now back up, trading at over 23p. Bear in mind that it was trading above 150p in 2014 and even higher before, during the Golden Age for Oil. The fall in the share price was clearly correlated to the oil price volatility, which dropped significantly over the last 3/5 years. It’s important to understand the complexities of this fall from grace which was exacerbated by the presence of an institutional seller, which has now been cleared.

https://www.bloomberg.com/quote/CL1:COM

Evident signs of RKH resurrection are all there (see Half year report-Highlight):

  • Material increase in production & revenues
  • operating and general/administrative costs both down
  • Sales of Italian projects and new venture opportunities (corporate activity)

In his recent Presentation at Proactive Oil Capital, CEO and co-founder Sam Moody outlined RKH strategy over the next 12–18 months with priority to progress on the Sea Lion development.

“The Sea Lion project is our primary focus now as we aim to be in a position to sanction the project during 2018.”

The company is focused on progressing Sea Lion in the Falklands, described as “one of the big 5 biggest nondeep water discoveries,” and “a well-appraised and world-class material asset”, which has an expected sanction in 2018. Confidence in the project has increased, particularly with the operator Premier Oil (PMO) — RKH 40% stake & PMO holds 60% — also concentrating on its debt renegotiations and both parties now working on a funding package comprised of senior debt financing from Export Credit Agency (ECA) ($800 million ~£605.5 million) and vendor financing ($400m).

How profitable is Sea Lion?

We must remember that Sea Lion was independently audited by ERCE (May 2016) to contain over half a billion barrels of recoverable oil as best estimate, with upside to 900mmboe in the already discovered reserves base: low-risk upside, and those are recoverable oil numbers. Next door to Sea Lion, in the relatively low-risk near- field exploration prospect, there are between 200,000 or 500,000mln, a clear case of exploration upside.

Let’s not forget that Rockhopper has an excellent track record of finding oil in this space. The company has up to today drilled about 12 wells in the Sea Lion area, 10 of which have been successful. Phase III of which RKH has a greater ownership than Sea Lion also has the potential to be another 1bn barrel discovery, although issues with the blow out preventer on the Eirik Raude rig prevented this from being properly extrapolated into ERCE’s figures.

Developing Sea Lion

The Front-End Engineering Design, (FEED) which is the basic engineering which comes after the Conceptual design or Feasibility study for the Sea Lion Phase 1 project was largely completed in 2016 with expected capex to fall from $1.8 billion to $1.5 billion, with life of field costs now reduced to $35/barrel.

The field will be developed in, at least, 2 phases: the first phase will target 220mmboe recoverable and the second phase at about 300mmboe recoverable. Both Rockhopper and Premier are also in negotiations with the Falklands Islands Government (FIG) regarding the fiscal, environmental and regulatory matters associated with the project. We should hear from them after the general election on 9 November 2017. Those elements would make the project more attractive to potential farm-in partners, which we know is part of the strategy.

Greater Mediterranean pays the bills

Rockhopper’s Med’ portfolio, which comprises interests in Egypt and Italy, has been crucial for the company as it provides operational cash flows which are covering H1 G&A costs.

Egypt (acquired cheaply in mid-2016) has provided stable production and cash flow to continue in H2. Italy has been a slower. The Guendalina field in North Adriatic, ENI operator (320boe/d), which although entering in the decline phase, still provides significant cash flow over the medium term; Civita (130boe/d) will be sold to Cabot Energy (CAB LN) with a deal to be completed towards the end of 2017. Ombrina Mare has been a “pain in the ass, “ and RKH has commenced international arbitration proceedings against the Italian authorities. The arbitration could provide significant value in recovering considerable monetary damages.

The upside in the Italian portfolio is in Monte Grosso in southern Italy, which is the largest undrilled onshore project in Western Europe. The asset could be a potential company maker with a 1 in 4/5 Chance of Success (COS) and 250M barrels of recoverable oil. RKH has a 23% interest with partners ENI and Total.

Strong balance sheet to support growth

Amid a volatile and challenging oil market, the strength of RKH is its strong balance sheet with US$62.5 million cash in the bank and no debt, which can cover H2 capex and give the flexibility to bring in new assets which can add production and enhance cash flow It has been stated that “multiple” material new ventures are also under review and, with the current privileged financial position, RKH is definitely well-positioned to strike a great deal.

Market Guru Zak Mir’s Verdict

Rockhopper (RKH): 35p Broadening Triangle Target

Although the fundamentals of Rockhopper have been testing the patience of investors for quite some time, it would appear that the log jam in terms of the price has finally been broken. This is said not only in the wake of the push back above the main 17p — 20p 2017 support zone, but also above the 200 day moving average now at 22.14p.

The fact that this recovery of the 200 day line has occurred via an unfilled gap to the upside suggested significant positive momentum, and most likely a bear squeeze. All of this could possibly take the stock as high as 35p over the next 3–4 months, which is the top of a broadening triangle that can be drawn in from as long ago as the beginning of the year. Only a weekly close back below 20p would really cast lasting doubt on the recovery argument here at Rockhopper. The gap higher through the 200 day moving average hints that a seller has been cleared.

City Oil Guru Malcolm Graham-Wood from Malcy’s Blog more positive on RKH “Rockhopper has always been a bit of a slow burner regarding recommendation as repeatedly mentioned in justifying bucket list inclusion, but now I do think that things are on the move and, if the current discussions on financing prove successful, then maybe we are closer to pressing the go button.” Peel Hunt upgrade with target price to 40p (from 25p)

Mid Cap City Broker Peel Hunt has recently upgraded its RKH valuation based on the confidence in a funding package secured for the Sea Lion development in the near term, as well on the general reduction of costs and risk. “In our view, the market has not yet fully appreciated how advanced these discussions are and the potential for the project to make meaningful progress over the next 12 months. Therefore, Rockhopper has remained overlooked and we believe the shares represent a significant opportunity at current levels. We upgrade our recommendation to Buy and set our target price at 40p, a 40% discount to Risked NAV. “

The upside at the current trading price of 23p could be significant. Reading Oil Analyst reports, it is clear that Sea Lion is not included in the share price as there is still uncertainty around when Premier will press the button on production. It might be a slow burner, as Malcy said, but when it comes to the boil, all looks highly promising, with share prices likely to rocket.

WATCH THIS SPACE and AWAIT NEWS