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The End of the Day Wrap provides a summary of the most interesting articles published by Proactive Investors during the day, including all of the main stories and exclusive interviews with executives.
PROACTIVE NEWS SUMMARY: Chariot Oil & Gas, Cluff Gold, Rio Tinto, London Mining, Ferrex, GemfieldsJune 20 2012, 4:44pm
One of today’s in-depth articles by proactive Investors was dedicated to one of today’s top performing stocks in London markets, Chariot Oil & Gas (LON:CHAR), which rallied 15 percent to 99.75 pence in afternoon trade.
According to broker Merchant Securities, investors are underestimating its chance of success with the upcoming Nimrod exploration well.
Analyst Brendan Long believes this is a hangover of last month’ failed Tapir South exploration well.
But Long points out that, unlike wholly-owned Tapir South, the Nimrod venture is being guided by major partners Petrobras and BP - owning 30 and 45 per cent respectively.
And he says the geology between the two prospects is so different they could practically be located on different continents. Also at an estimated 4.9 billion barrels of potentially recoverable oil it is a much larger prospect than Tapir South (estimated at 604 million barrels prior to drilling).
Long says that investors are suffering from an emotional bias, following last month’s disappointing result – he claimed investors may be influenced by events that have left a strong influence on an investor’s memory.
“Due to the dry hole at the Tapir South prospect, in our opinion, the financial markets are unlikely to take a purely scientific approach to the pricing of Chariot shares.
“Based on the only recallable drilling experience for Chariot (Tapir South), the estimate of the chance of success for Nimrod would be nil.”
An assessment of the prospect a year ago, by Netherland Sewell and Associates, estimated that Nimrod had a 24 per cent chance of success.
Mechant’s own in-house estimate gives the prospect a 14.4 per cent chance, and Long says that at 86.75p (yesterday’s close) the market is pricing in just a 4.1 per cent chance of success.
Cluff Gold (LON:CLF) also did well today after unveiling "significant" drilling results from its Yaoure project in the Ivory Coast.
The findings further confirmed the area's potential and the report was welcomed by investors and analysts.
As at midday, the firm's shares were up over four per cent, changing hands at 70.25 pence.
Cluff told how a new zone of shallow gold mineralisation was uncovered, which reveals gold mineralisation across a strike-distance of 650 metres from west of the central pit to east of the area previously operated by Compagnie Miniere d'Afrique.
The finds confirm the potential for a large sulphide deposit below the oxide deposits at Yaoure, and show the existing sulphide ounces can be significantly increased this year.
For this reason, the company is increasing the number of diamond drill rigs to four from three to rapidly test the upside potential.
These will step out along the 1.9km length of the target area and test up to 0.9 km across the strike for parallel ore bodies.
Analyst Asa Bridle at broker Seymour Pierce rates the stock a 'buy' targeting a price of 136 pence.
He said Cluff was re-examining this former oxide/heap leach project which was put on to care and maintenance in 2011 to see if a new operation is justified.
He noted that the presence of sulphide ore below the oxide material had always been known about.
"Today's results help to increase the width of the known mineralisation while metallurgical work to date has shown gold recoveries from the sulphide material between 95-97 per cent," he said.
Meanwhile, Seymour Pierce says it expects Chinese steel producers to keep replenishing their stockpiles as spot iron ore prices continue to edge higher today.
It comes after news that China’s output neared record highs earlier this month.
The broker sees it as a “restocking episode” after recent lows as Chinese buyers are tempted back into the market.
China’s daily crude steel output was up two per cent to 1.999Mt in the first ten days of June according to the China Iron and Steel Association.
This is not far off the records seen back in May when the run-rate hit 2.045Mt.
Spot iron ore prices edged higher on the whole today, as it looks set for a ninth consecutive day of gains.
The Platts 62 per cent Index rose to $138.5 per tonne, while the Steel Index had it up nearly half a per cent at $136.6.
It is the longest rally in seven months as traders added to their positions, banking on strong demand continuing from China.
Seymour Pierce analyst Matthew McDonald said: “Of interest is that prices were up $2 per tonne overnight on offers for cargoes from Brazil, which we see lifting the iron ore benchmark price again.”
They will have been buoyed by the news that Rio Tinto (LON:RIO) is injecting a further US$3.7 billion into its iron ore business in Australia.
The mining giant raised the stakes in the Pilbara region of Western Australia today with plans to expand production by as much as 25 per cent, taking annual output to 353 million tonnes.
It also plans to invest US$501 million into infrastructure in Guinea in a bullish statement this morning.
The company touted China as the main reason behind the expansion plans as it estimates steel production at the global superpower will grow from 700 million tonnes a year to around a billion tonnes annually.
Rio’s optimism on the outlook for iron ore will undoubtedly have struck a chord with investors.
Fairfax analyst John Meyer reckons the move signals "confidence in the long-term prospects for iron ore".
Some traders, however, have suggested that prices may level off soon.
A number of iron ore companies could benefit from the news as long as demand remains high.
London Mining (LON:LOND) is on Credit Suisse’s hit list and should be well placed to withstand any fall in demand according to the broker.
It put the Sierra Leone-focused company alongside Rio and BHP Billiton (LON:BLT) as a target stock that offers “a strong combination of defensive margins, volume growth and attractive valuation”.
We also covered today’s news from Gemfields (LON:GEM), which said it saw “solid overall demand” for emeralds and beryl put up for auction earlier this month in Jaipur, India.
It made a “healthy” US$9 million from its latest sales, bringing the running total to almost US$78 million in the current financial year.
A total of 10.85 million carats of mainly lower quality stones were offered, with 3.47 million sold.
The company’s ethical Zambian emeralds were sought after, though Gemfields reported some weakness in demand for the very lowest quality grades.
Chief executive Ian Harebottle said: “General economic instability typically has a greater negative impact on the lower quality grades than it does on the higher quality material, the latter often being seen as a store of value in times of uncertainty.
“This effect was clearly seen at this auction, where demand for the lowest quality grades was indeed weaker than it has been for some time.
“However, due to the company's strong cash position and operational performance, Gemfields was not obliged to sell lots at sub-optimal prices and is confident in the long term value of these gems.
“Overall, the on-going appetite for better grades remains firm and ensured that Gemfields was able to deliver another set of encouraging auction results thanks to our positive momentum, the success of our marketing initiatives and the consistency of the emeralds produced at our Kagem mine.
“In addition, the results are particularly pleasing given that a large supply of rough emeralds recently entered the Indian market from other sources, creating an isolated period of considerable supply which is not sustainable and which bodes well for future auctions"
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