Beaufort Securities Breakfast Today Magnolia Petroleum, Sunrise Resources and Tomco Energy


The Markets

Market opening: Markets are likely to open higher today. FTSE 100 futures were trading 15 points up at 7:00 am.

New York: Wall Street was closed on account of Presidents’ Day holiday.

Asia: Equities are trading higher. Japanese market received a big boost after the Bank of Japan (BoJ) decided to maintain the pace of its economic policy and extend the special loan facilities for one year. The Nikkei surged 3.1%. The Hang Seng reversed some of its earlier gains to trade 0.1% down at 7:00 am.

Continental Europe: Markets closed marginally lower amid light trading volumes and ongoing political concerns in Italy. However, a strong rally in mining stocks capped the decline. Germany’s DAX and France’s CAC 40 edged down 0.1% each.

Crude oil: On Monday, Brent Crude Oil prices edged up 0.1%, whereas WTI oil price index remained closed. The spread between the two varieties stood at US$8.9 per barrel.

UK small caps: Yesterday the FTSE AIM All-Share index closed 3.15 points (+0.36%) higher at 878.61

Today’s news

BoJ loan programme extended for one year

Today, the BoJ announced its decision to maintain the pace of its monetary easing programme at the current rate of ¥60-70trln. Besides, the central bank announced doubling of a funding tool to ¥7trln and entitled financial institutions to borrow funds up to an amount twice the net increase in their lending. Moreover, the expiry of both schemes was extended by one year.

Alex Salmond asserts Scotland’s right to keep the pound

On Monday, Alex Salmond, First Minister of Scotland, revealed the intention to retain the sterling pound currency even after Scotland separates from the UK. Salmond further opined that an independent Scotland would enjoy similar rights to use the pound as in the UK. This follows comments from the Westminster politicians that after independence, Scotland would not be able to share the currency and other assets across the UK.

Company News

Magnolia Petroleum (LON:MAGP)

Yesterday, Magnolia Petroleum announced its participation in a drilling exercise of eight wells on a lease operated by Devon Energy in Oklahoma. The eight wells will be drilled on the same spacing unit in Oklahoma as the Marion 1-23 HW well. The first four wells of the Marion 1-23 HW spacing unit would be drilled to the Mississippi Lime formation while the other four (including the Marion) would be drilled to the lower lying Woodford. Currently, the Marion 1-23 HW is drilling to the Woodford and has selected Magnolia to take part in the Rothermel 2MH well. The company has a 4.1% net revenue interest and 5.4% working interest in the Rothermel well. The estimated cost of the project is US$3.7m with Magnolia’s share expected at US$198,486. The stock advanced 4.6% yesterday.

Our view: The drilling of eight wells on the same spacing unit in Oklahoma is good news for Magnolia shareholders as it has the potential to increase the number of drilling locations on the leases held by the company in Oklahoma. We concur with COO Rita Whittington that more and more operators would do the same in Oklahoma, targeting the Mississippi Lime and Woodford. Given the strong base of 60 wells under development stage and the association of well known partners such as Devon Energy, we think there is a meaningful upside available in the company. We retain our Speculative Buy rating on the stock.

Sunrise Resources (LON:SRES)

Following the announcement of commencing its 2014 exploration programme at the Cue diamond project in Western Australia, Sunrise Resources has further expanded its project portfolio and acquired two groups of mineral claims in Nevada (US) offering copper, gold and industrial minerals. The company took over 61 claims spread over an area of 5 sq km on the border of Mineral and Nye counties in Nevada, enriched with the industrial mineral diatomite. Currently, Nevada together with California accounts for approximately 750,000 tonnes of diatomite (40% annual world production). Industrial Minerals Magazine is currently listing the price for calcined filter-aid grade diatomite at US$575-640/tonne FOB US Plant. In addition to this, Sunrise Resources has claimed six areas of outcropping oxide-copper mineralization located within the large Walker Lane mineral belt. This mineral belt has abundant gold and silver deposits and has generated over 50 million ounces of gold. The stock closed 9.1% up in yesterday’s trade.

Our view: The exploration programme of Sunrise Resources has definitely gathered pace. Few days back, the company announced commencement of current year’s exploration programme at the Cue Diamond project in Western Australia. Yesterday, the company announced the acquisition of two groups of mineral claims in Nevada¬-a significant producer of industrial minerals. With an accelerated pace of its exploration programme, good set of commercialisation opportunities and strong pipeline of new project acquisitions, we anticipate a busy period for the company. We retain our Speculative Buy rating on the stock.

TomCo Energy (LON:TOM)

TomCo Energy has submitted its Ground Water Discharge Permit application to the Utah Division of Water Quality (DWQ). This is a crucial move for the company to obtain all the essential permits required for commercial production. The tentative decision for TomCo’s Ground Water Discharge Permit is expected to be published by DWQ. Further, the company would request for a 30-day public comment period around mid-2014, although it could be granted earlier. The final approval of TomCo’s Ground Water Discharge Permit would be based on the public comments received.

Our view: We believe TomCo is well positioned to progress and obtain all remaining relevant permitting required by Utah State law to start commercial production at the Holliday Block prospect, which is expected to hold approximately 126 million barrels of reserves in its main tract. Given the strong resource potential, rapid progress at the Holiday block, and the highly experienced management team, we retain a Speculative Buy rating on the stock.

Economic News

UK Rightmove house prices

Yesterday, Rightmove released the latest edition of its house price index. Average property asking prices in the UK advanced 3.3% m-o-m to £251,964 after rising 1.0% in January. On y-o-y basis, prices were up 6.9% compared to 6.3% in the prior month.

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