Share price: 703p
Market capitalisation: £1,250m
Share price triggers:
■ Final permitting
■ Exploration results
De-risked by:
■ Sizeable reserves
■ Major permitting hurdles overcome
■ Progress on financing
European Goldfields has for years been striving to secure permitting to bring into production two development projects in Greece (Skouries and Olympias) and one in Romania (Certej). The company has submitted environmental impact studies on all the projects and remains hopeful of receiving final permitting by the end of this year.
Crucially, the projects have passed their respective critical approval hurdles, which required favourable political support, and have thus been significantly de-risked. The remaining hurdles to permitting should be of a processing rather than a political nature, and therefore less prone to uncontrollable delay.
Permitting would unleash three sizeable projects.
■ Skouries is a large gold (3.9m ounces) and copper (800,000 tonnes) deposit that could support a 20-year mine life.
■ Olympias is a phased project to refurbish and expand a high-grade gold (3.6m ounces), lead (1.2m tonnes) and silver (52m ounces) mine. The start-up capital required is moderate since the necessary infrastructure still exists from previous operations.
■ Certej is a gold (2.4m ounces) and silver (17.3m ounces) deposit that was, until recently, mined on a small scale by the Romanian state mining company.
The Stratoni lead-zinc-silver mine in Greece is currently producing on a small scale.
European Goldfields largely ignored exploration while embroiled in the politically-sensitive permitting processes, but has recently refocused on adding to already considerable reserves. Management has identified a number of attractive targets on existing properties, which could be developed at relatively low cost by sharing plant and facilities. Most notably, the company believes that the Piavitsa prospect in Greece could be an "Olympias lookalike" based on historical drilling. The company has been awarded a drill permit to explore the Greek licence area that hosts its Skouries, Olympias and Stratoni projects.
European Goldfields has received formal letters of commitment from a consortium of banks to underwrite a $135m (£87.8m) development finance package for Certej, and continues to evaluate financing options for Skouries, which may involve an equity issue.
Share price: 174p
Market capitalisation: £285m
Share price triggers:
■ Exploration discoveries
■ Licence acquisitions
De-risked by:
■ Strong management and technical team
■ Excellent exploration track record
■ Many bites at the exploration cherry
As a frequent driller of high-impact exploration prospects, Faroe Petroleum has long been one of our favourite Alternative Investment Market-traded explorer producers. The company has moderate production from gas assets in the southern North Sea, although its greatest attractions lie further north in the Norwegian sector of the North Sea and further west from there towards the Shetland and Faroe Islands, in a region called the Atlantic Margin.
Faroe's substantial asset portfolio is targeting some very large oil and gas prospects. This offers the potential of significant – potentially transformational – upside on striking oil or gas, as demonstrated by a recent run of four successive drilling discoveries. Such an exceptional performance demonstrates strong technical and geological skills, and it is the quality of Faroe's technical team that lets it partner on projects with much larger companies.
These partnerships allow Faroe to take relatively small stakes – typically 10 to 30 per cent – in a larger number of prospects than its capital would support if it were to acquire larger licence interests. Yet, because the prospects tend to be large, even smaller stakes can provide substantial upside.
One of the main advantages of this strategy is that the company is not overdependent on any single well result. Many explorers' shares get hammered by drilling disappointments but Faroe should prove more resilient to the drilling failures that inevitably form part of every exploration campaign. What's more, the company is able to drill high-impact wells on a regular basis – around five a year – which increases the chances of making discoveries and maximises the company's visibility.
Faroe's shares have performed strongly since the company started finding hydrocarbons late last year. It is in the middle of a drilling campaign targeting several of the most attractive and largest prospects in its portfolio, so there could be a lot more upside to come.
Share price: 112p
Market capitalisation: £263m
Share price triggers:
■ Production rises
■ Acquisitions
De-risked by:
■ Lower-risk development bias
■ Fast-growing production
■ Strong balance sheet
North Sea-focused Ithaca Energy was transformed by drilling the successful Stella appraisal well in spring 2010, which added significantly to reserves at the discovery. With production increasing at its Beatrice and Jacky fields, the company raised $150m through a placing and secured a new $140m borrowing facility. Combined with growing cash flow from operations, these new funds have removed any remaining concerns over whether Ithaca would be able to finance its ambitious work plan. The company is now fully financed to accelerate development of several projects offering substantial production upside.
As development (as opposed to exploration) projects where drilling has already confirmed the presence of oil or gas, these projects carry lower risks than exploration, yet they have the potential to increase production significantly over the next few years. While development projects are not without risk, management has a successful track record of growing output significantly from the Beatrice and Jacky fields.
Athena is a key project, along with the recently drilled Stella. The company could bring Athena into production next year, and analysts estimate this could double production net to Ithaca of currently just over 5,000 barrels of oil equivalent per day (boepd). Stella could be in production in 2012, which could lift production further to over 20,000 boepd net to Ithaca in 2013.
Ithaca is also acquiring certain North Sea gas interests from GDF-Suez at a cash cost of £11.25m. These include producing assets and assets offering further development potential. Although the deal isn't expected to complete until late this year, it will be effective from the start of 2010, which will boost both production and cash flow in the year.
Ithaca plans to set out its busy 2011 work programme early in the fourth quarter of 2010, which could boost the shares, as could further confirmation that the key development projects remain on time and on budget.
Share price: 65p
Market capitalisation: £345m
Share price triggers:
■ Resource expansion
■ Feasibility study
De-risked by:
■ Huge iron ore resource
■ Financing agreement
■ Sales agreement
Bellzone Mining is developing the huge Kalia iron ore project in Guinea, west Africa. Drilling has already identified a resource of 3.74bn tonnes and the project is targeting annual production of 50m tonnes of iron ore. The current resource is based on drilling over a 6km length of ore body. With total mineralisation stretching over 39km, management estimates that the total resource could reach 13bn tonnes, which gives the Kalia project global significance.
Iron ore, mostly used in steel-making, is in huge demand, particularly from China and other developing countries as it's a vital commodity for building infrastructure. However, because iron ore projects, like other bulk commodity projects, involve shifting huge quantities of material often large distances from mine to port, the viability of many iron ore projects depends more on access to infrastructure than on mining considerations. The infrastructure investment in such projects can stretch to billions of dollars as miners need to construct roads, railways, ports and storage facilities. This can result in substantial deposits remaining undeveloped or suffering lengthy delays.
Bellzone has significantly de-risked the Kalia project by signing a landmark deal with China International Fund (CIF) to provide both the finance for the project and a sales outlet. Under the agreement, CIF will effectively finance the entire Kalia project, including some $2.7bn for the rail and port infrastructure and $1.2bn to develop the mine, in return for which CIF will secure rights over all the mine's production at market price.
The signing of an infrastructure accord with the Guinea government gives Bellzone exclusive access to an infrastructure corridor leading from its licence to the coast. The agreement with CIF gives Bellzone a non-dilutable 10 per cent interest in the infrastructure, at no cost, which should in due course provide additional income from other miners paying to share the railway. First production is targeted in 2014 at 20m tonnes a year and output is expected to ramp up to 50m tonnes a year in 2018.
Share price: 8p
Market capitalisation: £34m
■ Share price triggers:
■ Feasibility study
■ Clarity on funding
De-risked by:
■ Huge coal resource
■ Joint venture with CNOOC
■ Power-hungry local market
Altona Energy holds licences over 2,500 square kilometres of the Arckaringa coal basin in power-hungry South Australia. These licences hold some 1.3bn tonnes of coal determined to internationally-recognised 'JORC' standards, within an overall deposit of potentially 7.8bn tonnes. The vast resource and properties of the coal offer the potential for substantial coal-to-liquids operations (liquid fuels are easier to transport than coal) plus power generation.
Analysts estimate that Altona's resource could support mining at the rate of 10m tonnes of coal a year. This volume of coal could yield 10m barrels a year of ultra-clean fuel (mainly diesel) and generate 560 megawatts (enough to power around 250,000 homes) of exportable power, according to analysts. If only half of the 7.8bn tonnes resource target ultimately proves recoverable, that would still support a project life of nearly 400 years.
The scale of the project will demand capital investment running into billions of dollars, which looked like being a major obstacle for Altona until it announced a joint venture with state giant China National Offshore Oil Corporation (CNOOC).
