Metals & Mining, Oil & Gas
INTRODUCTION
In the news: Hummingbird Resources (LON:HUM)
A second Japanese nuclear reactor has been turned on in the Kagoshima Prefecture. Kyushu Electric Power Co has reactivated the No 2 reactor at the Sendai complex about a month after the No 1 reactor was restarted to much fanfare in the industry.
According to The Japan Times, nuclear power will account for 20-22% of Japan’s total electricity supply by 2030. This compares with roughly 30% before the Fukushima disaster, so any restart programme is going to be slow. About 100 anti-nuclear protesters gathered in front of the Sendai facility yesterday; the programme is definitely contentious in Japan. In a glaring missed opportunity, The Guardian reported that only 70 protesters showed up. What was it thinking? This was such an opportunity for it to big-up its view that our energy needs can be supplied by magic dust and (possibly) fairies.
In other papers, The Times is having a bit of a China-fest. This comes ahead of the state visit to the UK by President Xi Jinping. A headline reads: ‘Nuclear Deal with China is Threat to UK Security’. It seems that George Osborne’s hoped for deal for China to help fund EDF’s Hinkley Point C reactor followed by a unilateral Chinese operation to build new reactors in Essex and Suffolk is a threat to our national security. The paper cites senior military and intelligence figures for this. The point is that CNNC, which is under central government control in China, could build “back-doors” into computer systems; these could then disable the plants were there to be a diplomatic incident between the UK and China.
The newspaper goes on to report that the US is worried about the UK’s increasing ties with China. It quotes a chap called Paul Dorfman of University College London’s Energy Institute. He said: “No one else in Europe would cut this deal. America wouldn’t dream of letting China have such a part in its critical national infrastructure. The idea the UK is prepared to do this is, frankly, astounding.” Gosh. Well, in truth, the US is paranoid about just about everybody. The Chinese tech company Huawei is banned from operating in the US, but we allowed it to build a massive R&D facility practically next door to GCHQ in Cheltenham, which at least gives me some confidence that the Chinese are not spying on everything we do. China has increased its investment into the UK by 85% pa over the past five years and will hit an estimated £105bn over the next decade. Investment is dominated by energy infrastructure, transport and — predictably —real estate in London. So enamoured have I become by our new found relationship with China, I’m thinking of selling my dodgy (and highly polluting) German car and buying a Chinese model instead. I’m looking at the FAW Lubao CA6410, which has something vaguely familiar about it.
Just to remind you that we initiated coverage of Hummingbird Resources*† yesterday with a BUY rating and a target price of 45p: Hummingbird Resources — Redefining the Upside, 15 October 2015. Our valuation suggests that, in a base case, the Yanfolila Project in Mali more than underpins the current share price, and that the potential to add mineable material at that project and the considerable optionality at Dugbe 1 in Liberia are not currently being valued by the market.
Key catalysts include the completion of funding and resource additions. We believe that key catalysts for the share price include: satisfaction of the outstanding conditions precedent for Yanfolila development financing draw-down, which the company aims to achieve by the end of the year; and the likely additions to mineable resources at the project. We also believe that a re-scoping exercise for Dugbe 1, comprising both the Tuzon and Dugbe F deposits, has the potential to outline a deliverable project. We will be marketing Jim Taylor and Imogen Whiteside on this piece. Please let us know if you would like a call or a one-on-one meeting.