Fox-Davies Capital believes the political risk attached to the Kurdistan Region in Iraq - where Gulf Keystone Petroleum (LON:GKP) operates - will disappear as soon as a new government is installed in Baghdad.
Elections took place in March 2010. The recent entry of Marathon Oil (NYSE:MRO) in Kurdistan and farm-ins announced in October 2010 are a sign that the political process is nearing an end, according to the broker.
The comments were included in FD Capital's 'Daily Monitor' a day after Gulf Keystone denied it had received a takeover approach.
The speculation of an imminent takeover drove the share price to an all time high of 202.75 pence before the company’s late afternoon regulatory announcement denied the rumour. Subsequently the day’s initial 6% gain reversed.
The stock was trading at around 188 pence at midday today, having been close to the previous closing level throughout the session.
"For the past 3 years or so, the political standoff meant that Kurdistan has been a fertile ground for independents, as majors were precluded by Baghdad to enter, and we believe that it is getting close to becoming the hunting grounds of majors as they scramble to buy a piece of the action," FD Capital said.
"Gulf Keystone’s strategy of proving up as much of the resources in the shortest amount of time is the right one to maximise the value of a potential offer and the acceleration of the exploration activities following the recent placing is spot on," it added.
The survey results from Mariana Resources’ (LON:MARL) Las Calandrias project offer tantalising information on the value that drilling could potentially deliver over the next three months, according to finnCap analyst Joe Lunn.
Earlier this morning, the company announced very encouraging geophysical exploration results that identified high priority drill targets in the untested rhyolite domes on the Las Calandrias gold project in southern Argentina, consequently it decided to expand its drill programme to 15,000 metres from 10,000 metres.
The analyst said that the 50 percent increase to the drilling campaign is positive for Mariana, and the exceptional potential in the untested area is providing the underlying reason for the expansion.
“The results show multiple areas of potential mineralisation,” Lunn said.
“While bonanza gold drill results from high grade shoots and veins often capture the headlines, we think that the low grade bulk tonnage style of mineralisation present at Calandria Sur can be just as rewarding from an economic perspective.”
“Mariana has established very early in the exploration strategy for Las Calandrias the importance of geophysical information to optimise drill targets.”
“We think that the prospectivity of the untested goldfields at Las Calandrias has been significantly enhanced this morning.”
Lunn values Mariana at 48 pence per share.
Northland Capital Partners - the brokerage formerly known as Astaire Securities - examined Sunrise Resources (LON:SRES) after yesterday’s positive metallurgical testwork results from the Derryginagh barite mine in Ireland.
Subsequently the broker now expects Sunrise to encounter higher grade material at the project.
Northland Capital said that the statement confirmed potential on two parameters, in relation to quality and potential to economically develop material and in relation to the wider prospectivity of the area in terms of strike extension
“It is encouraging that low cost separation was applied to produce high grade material even from low grade samples which bodes well for the potential of higher grades expected going forward,” said the broker.
In what Northland also called “encouraging”, a high grade barite concentrate meeting chemical specifications of the highest value natural barite fillers was produced from the samples.
Sunrise will now carry out infill gravity surveying to define sites for trenching and/or drilling and a concept study will be initiated to define the parameters for an economic mining operation.
Northland is now looking forward to the establishment of commercial parameters in the coming months, which would bring more clarity to project economics and serve as a catalyst for the valuation of both the project and the company.
Northland said that the upcoming concept study will help establish the necessary thresholds for an economic project such as operational expenses (opex) and capital expenses (capex) and annual production against prevailing market dynamics.
The broker report also noted that the low capitalisation of Sunrise would be addressed by cashflows from the Derryginagh project.
Northland also looked at Churchill Mining (LON:CHL), saying that even with aggressive discounts and modest coal price projections, 25% of the East Kutai project would be worth nearly double the company’s current share price.
According to the broker, the recent feasibility study brought few surprises, giving the project a net present value (NPV) of US$1.8 billion and anticipating capital expenditures (capex) of US$1.6 billion.
The NPV of US$1.8 billion translates to £12.6 per share before tax.
Northland said that with sensitivities taken into account, a very conservative coal price projection of US$39/tonne compared to the US$47/tonne used for the study and a “more aggressive” 12% discount, 25% of the projectwould be worth 223 pence compared to the current share price of 113 pence.
East Kutai has a JORC reserve of 961 million tonnes (Mt) from a total JORC resource of 2.7 billion tonnes from only two of four licences.
The broker note also drew investors’ attention to the fact that East Kutai’s resource is of high quality sub-bituminous, low ash and low sulphur thermal coal, which it said was “world class.”
Moreover, Churchill is targeting the booming markets of India and China as well as the domestic market in Indonesia, making it unlikely that it will experience problems with finding customers for its production.
Edison Investment Research issued an upbeat note on Baobab Resources (LON:BAO) in light of its latest drilling results, highlighting that the stock is trading at a substantial discount to the value of its mineral resources.
The equity research specialist refined its in-house resource estimate for the Massamba Group trend, at the Tete iron-vanadium project in Mozambique, to 339.7 million tonnes at 27.1 percent iron, following the latest batch of drilling results - released on 20 October 2010.
“Baobab’s shares are currently trading at a level that gives the company an enterprise value equivalent to US$2.00 per JORC-compliant resource tonne of iron based solely on its current resource of 47.7Mt at 25.3%,” Edison analyst Charles Gibson said.
The analyst emphasised that this is a substantial discount to an industry average of US$3.53 per tonne.
“Simply being rated at the industry average valuation would imply a 66% increase in Baobab’s share price to 18.24p.”
Furthermore Gibson took this a step further stating that the valuation would rise again should the official resource grow to Edison’s estimate.
It would be 72.54p based on the current US$2.00 per tonne resource valuation, and it would reach 127.79p with a re-rating to the industry average.
“Even taking into account likely dilution as a result of future equity issues, this reduces to no less than 55.62p per share at current prices.”
Baobab shares currently trade at around 10.5 pence.