INTRODUCTION
In the news: Metminco (LON:MNC) & Global Petroleum (LON:GBP)
We still have a few slots free next week for investors to meet with William Howe, the CEO of Metminco*†. We are taking meetings in London over 27-28 July. The company recently updated the market on its Los Calatos and Mollacas projects, and by the time of the meetings Metminco should have the results of a new mining study. This will mean the company will be primed to lay out its roadmap for value creation over the next 12 months and beyond.
Metminco’s flagship asset is Los Calatos, a copper porphyry project in southern Peru. The 2013 study completed by SRK demonstrated contained metal within a mine design of 6.6Mt Cu and 0.32Mt Mo. Cash operating costs, net of by-product credits, were expected to average US$1.06/lb of copper over the life-of-mine, putting the company in the lowest quartile of global producers. Metminco has a market cap of just US$6m, with US$1m in cash and is debt free. Metminco will shortly release its re-worked mine study, which is assessing a high-grade approach that should lead to a dramatic reduction in capex, perhaps by as much as 50%. It should also see the value per tonne of mined ore increase as it opts to leave the more marginal material in the ground.
The re-cut economics of the project to fit the current market environment should help to highlight its merits and development credentials. With the company having such a low price tag, being debt free and getting no value for its other projects (Mollacas and Vallecillo), we believe that it is currently very attractively priced. Please let us know if you would like to catch up with William.
OIL & GAS EQUITIES
Global Petroleum*† — Asset Review, Acquisition Update and Corporate Cost Reduction — The AIM-quoted and ASX-listed oil and gas company engaged in Africa and the Mediterranean has announced an update regarding the positioning of its assets, strategy and corporate cost reduction programme.
Asset Status
The company has extended the Initial Work Period on Namibian offshore Blocks 1910B and 2010A, where it holds an 85% interest, to December 2015. As a condition of the extension, the company has been undertaking further modelling and interpretation on existing seismic and gravity data, and has announced that results are highly encouraging regarding the offshore hydrocarbon potential. Global has indicated that recent work has increased confidence in the prospectivity of the Namibian acreage, specifically in the potential for a deepwater syn-rift oil play. The company intends to re-engage with the Namibian Government regarding progressing exploration work on the acreage.
The company’s permit applications for four contiguous exploration areas in offshore Italy are currently progressing towards EIA documentation approval. This was initially submitted at the end of May 2014, after the Permit Applications were first published in September 2013. Global highlighted the fact that EIA approvals have recently been granted by Italian authorities to other E&P players with long-standing licence applications in the Adriatic, which the company views as highly encouraging in the context of its own application process.
Regarding the Juan de Nova permit in the Mozambique Channel, Global has now elected to withdraw. This comes largely in the light of a lack of progress in the permit renewal process since application to the French authorities in August 2013, and an ongoing lack of visibility as to when any conclusion might be reached.
Acquisition Strategy & Cost Reduction
The company remains financially robust relative to its peer group. In addition to being funded to progress work on its Namibian acreage and its Italian interests, subject to licence awards, the company is well placed to consider M&A activity. Global has advised that it has been holding discussions with various parties regarding value-accretive opportunities, with a view to concluding a near-term acquisition.
Global has also implemented measures to reduce the corporate cost base to reflect oil price weakness and the time commitment involved in reviewing M&A opportunities. A significant element of the reductions has been to the cash compensation to the board and management.
RFC Ambrian Comment: We do not consider the withdrawal from the Juan de Nova permit represents a material loss in value to Global; we had not ascribed a risked NAV to the prospect due to the ongoing uncertainty regarding permitting renewal and the timing of any prospective work programme. Our fair value for the company remains unaffected.
The cost cutting initiative reinforces the company’s commitment to financial conservatism, which has reaped rewards thus far as it has retained a strong balance sheet relative to its peers. As of 31 March, the company had US$13.5m of cash and a debt-free balance sheet. Hence, with a market cap of US$5.4m, the company has a negative EV of US$(8.1)m. Furthermore, the extension of the Initial Work Period on the Namibian licence has alleviated the near-term capex burden of a commitment to drill, as will be required on during the second period.
The company indicated that achievable acquisition metrics are becoming increasingly favourable to buyers in light of the ongoing market weakness, and believes it can deliver good value for shareholders. We look forward to further updates on potential acquisition activity.
We reiterate our Speculative Buy recommendation.