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In the news: Base Resources, Global Petroleum & Cardinal Resources

Published: 12:54 25 Jul 2016 BST

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Global Petroleum*†

LON:GBP| 1.75p | US$4.6m | Speculative Buy
June 2016 Quarterly Report
Global Petroleum has released its quarterly report for the period ending 30 June 2016. Cash outflows for the period totalled US$0.7m, leaving the company with a healthy balance sheet of US$10.2m in cash, and it remained debt-free. Operationally the company is now nearly eight months into the two-year extension on its Namibian exploration licence, covering offshore Blocks 1901B & 2010A in the Walvis Basin. The licence was extended on 3 December 2015, and the company is currently in the process of evaluating and interpreting reprocessed 2D seismic data shot over the blocks as per the revised work programme agreed with the government. The company is also planning for additional 2D infill seismic data to be shot over the block, probably in 2017.

The company advised that is continuing to progress the process to obtain the four exploration licences in offshore Italy, which commenced in 2H13. In terms of M&A, whilst the company has continued in negotiations with a number of counterparties, it re-asserted that it was highly selective about the quality of assets in which it would be prepared to make an investment in order to ensure value delivery for shareholders.

COMMENT: Global’s strategy of cash conservation continues to allow the company to withstand market volatility, with steady climbs in the US rig count, slower-than-expected inventory erosion and a rise in OPEC production (up 300,000bpd in June) serving as the latest downward pressures on the oil price. This comes after a brief rally to a nine-month high of over US$50/bbl in early June; it fell back to a 75-day low of US$44/bbl today. However, we maintain our belief that this may represent a positive point in the cycle for Global to deploy its cash should it isolate a suitable opportunity, and believe newsflow on transaction activity would be well received by the market.
The company continues to believe that modest oil price forecasts (LT consensus of US$63.5/bbl relative to the 2011-June 2014 average of US$110/bbl) are leading to a readiness for parties to transact on more realistic metrics. We calculate the EV/2P multiple for African assets with disclosed attributable resources has averaged 3.0x since the beginning of the oil price slide in 3Q14; this contrasts sharply with an average of 10.5x for 2013-mid-2014 and 11.7x for 2012. We understand the company remains focused on asset quality, fundability and near-term value accretion in identifying the most suitable counterparty. We reiterate our Speculative Buy recommendation on the stock.

Namibian licence extension to December 2017 for a minimum work commitment — The original terms had entailed a commitment for the company to drill one well during this two-year extension period, but it has negotiated a revised Minimum Work Programme to enable cash conservation in the current market conditions. This will entail seismic reprocessing and the acquisition of 800km of long offset 2D over the retained acreage (after a mandatory 50% relinquishment of the area on transition to the extension period).
Seismic and gravity work on Namibian acreage to date indicates syn-rift oil play potential — As a condition of the initial one-year licence extension (to December 2015), Global was required to undertake further modelling of existing seismic and gravity data, which increased confidence in the presence of both reservoir and source rocks within the company’s acreage. Since the licence was issued in November 2010, the company has acquired 2,000km of high definition 2D seismic data, confirming the presence of two large structures and other potential leads, as well as reinterpreting 2,800km of existing seismic data. The company operates the Namibian acreage with an 85% WI; finding a partner to accelerate exploration activity has proved challenging due to both unsuccessful drilling results in the region (21 dry wells drilled up to 2014 off the SW African coast) and oil price headwinds.
Permitting process for Adriatic exploration licences continues to progress — The company first published its permit applications in September 2013, and submitted EIA documentation at the end of May 2014. The company remains uncertain as to when these permits may be awarded in light of the 20-month delay thus far from EIA documentation submission, but highlights a recent uptick in exploration interest in the Adriatic as a potential catalyst for the process to move forward.
Strong cash position of US$10.2m with a debt-free balance sheet gives it an advantage relative to peers — Following cost-cutting initiatives to reduce corporate G&A, cash outflows for the quarter totalled US$0.66m, leaving the company with US$10.17m at its end. Hence, with a market cap of US$4.64m, the company has a negative EV of US$(5.53m). The company thus remains well funded to progress the work programme at its Namibian licence, in addition to considering M&A activity. The company advised that, whilst it has been holding detailed negotiations with a number of potential counterparties, many are constrained by cash and access to capital.

Cardinal Resources†††
ASX:CDV | A$0.39 | US$87m
108m @ 1.62 g/t from Surface at Namdini in Ghana
Cardinal Resources has announced assay results from the second of the shallow up-dip RC holes at its Namdini gold exploration project in northern Ghana. The hole was drilled around two-thirds of the way up the 900m-long zone of mineralisation that has been targeted to date. The results included:
• Hole NMRC470-784 — 108m @ 1.62 g/t from surface, including 43m @ 2.52 g/t
Assay results were reported to be pending from nine diamond drill holes and eleven RC drill holes, which will provide a steady stream of additional information over the coming weeks.
A ground geophysics (ground magnetics and IP) programme has commenced over an area measuring 6km by 4km. This is aimed at identifying drill targets on strike from Namdini and also in potential sub-parallel structures. Results from this are expected before the end of September.
Cardinal is well funded, having recently raised A$22m/US$16m at A$0.29/share (a quarter of which is subject to shareholder approval that will be sought in August). RFC Ambrian acted as co-manager to this placement.
COMMENT: This hole demonstrates the presence of good grade material extending from surface, which bodes well for future operations. Results from the hole are very similar to those reported four days ago from the first up-dip hole to be reported, which was drilled around 400m to the south.
Drill results from the project to date outline a broad mineralised zone over a strike length of 900m, with an average width of up to approximately 300m, within which there are multiple mineralised zones that generally grade in the 1.0-1.5 g/t range. Gold is hosted mainly within volcanoclastics and diorite. The company plans to undertake further infill drilling to tie these zones together, with the goal of completing a maiden resource statement for the project by the end of this year. In the interim, the current programme is planned to allow the estimation of an exploration target by the end of 3Q16.
We continue to believe that Namdini has the potential to host a multi-million ounce gold deposit.

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