Here's our choice of some of the best investments for investors wishing to spice up their portfolios. All offer significant upside potential, which is vital. There's no point accepting high risks just for moderate gains; the potential returns must be correspondingly high.
Some of the companies listed also offer more assured, less binary elements to their business, which we have sought to reflect through a 'binary rating'. A company whose prospects depend almost entirely on the outcome of one event will have a high binary rating whereas a company with other strings to its bow will have a lower binary rating.
■ Binary rating: High
■ Current price: 12p
■ Potential high: 20p+
■ Potential low: 0p (or cash value)
The vast oil and gas potential of the Kurdistan region of northern Iraq has been much in the news recently, with Heritage Oil merging with Turkish company Genel Enerji, Addax Petroleum being taken over by Chinese energy giant Sinopec and Kurdistan exporting oil from 1 June via the main Iraq-Turkey pipeline.
All this activity has of course been driven by Iraq's enormous oil and gas potential. Iraq is estimated to hold the third-largest hydrocarbon reserves in the world based on historic data, and these reserves may turn out to be even larger once evaluated using up-to-date information.
Aim-traded Gulf Keystone is looking to get in on the action. It began drilling on the Shaikan block, in which it holds a 75 per cent interest as operator, in late April, taking great care to avoid spudding the well (commencing drilling) on Saddam Hussein's birthday. Shaikan is located between the large producing Taq Taq and Tawke fields with which Heritage and Addax are involved, and any success is likely to totally transform the company. First results from Shaikan are expected by the end of August.
Other activities
Gulf Keystone holds a 20 per cent interest in the Akri-Bijeel block, on which it also hopes to drill a well before year-end. Furthermore, under a recent deal Middle East-based private investment fund ETAMIC merged into Gulf Keystone interests in two new Kurdistan exploration blocks in exchange for a 50 per cent stake in Gulf Keystone. This gives Gulf Keystone three further rolls of the Kurdistan dice, assuming it can finance its participation, should Shaikan fail. Additionally, the company has an interest in proven reserves being developed in Algeria, although it recently announced an intention to sell these and place all its chips on Kurdistan.
■ Binary rating: High
■ Current price: 88p
■ Potential high: 200p+
■ Potential low: 30p
The UK gas market is very short of storage capacity and Portland is seeking to develop what would be the UK's largest onshore gas storage facility. The insecurity of European gas supplies sourced from or routed through Russia has been starkly evident in recent winters as Gazprom's disputes with Ukraine have escalated to leave many European countries shiveringly undersupplied. The UK could face a similar situation during a prolonged cold spell.
Portland has secured full planning permission for its flagship project on the Isle of Portland. This is a major achievement since the drawn-out planning process has hindered many gas storage projects. The Portland project will be able to store 35bn cubic feet of gas in 14 salt caverns, and is scheduled to be available at full capacity in 2016 or 2017 – provided it can raise the £450m of necessary finance. This is where the problem arises.
Since suspending its first financing attempt last November, Portland has opened a new data room and changed its project finance adviser. Portland also faces a race against the 2012 Olympics. If, as seems increasingly likely, the company is unable to construct the necessary pipelines across Weymouth Bay before Olympics-related sailing trials take over the area in 2011, the project could be delayed by a further year, even if it secures funding in the near future.
Other activities
Portland has a second project at Larne Lough in Northern Ireland, where it is aiming to submit a planning application in late 2009 and targets first gas operations in 2014. However, all eyes remain firmly fixed on Portland Island. The company remains the classic high-risk play and its shares could fly should it secure project finance.
FALKLAND ISLANDS OIL EXPLORERS
■ Binary rating: Very high
■ Current price (Falkland Oil & Gas (FOGL)): 97p
■ Potential high: 300p+
■ Potential low: 0p (or cash value)
Falkland Oil & Gas, Desire Petroleum, Rockhopper and Borders & Southern, the four Aim-traded explorers hunting for oil in the South Atlantic, offer some of the purest forms of this type of high-risk investment. Their fortunes are heavily geared to high-impact exploration of a remote, little-explored frontier region that could hold more oil than the North Sea.
All four offer massive upside potential, although the chance of total failure is also high. Oil and gas finds in large frontier basins themselves generally demonstrate binary characteristics – the explorers are likely either to find nothing or they will find a lot.
The Falklands area splits into two distinct provinces: the North basin and South basin. The British Geological Survey has commented that the highly oil-prone nature of the Falklands source rock could have produced (and expelled, so much of this is now unrecoverable) some 60bn barrels of oil in the North basin alone.
Oil majors Shell, Amerada Hess and Lasmo drilled six wells in the North basin in 1998, of which five had oil shows and one also had gas shows. Although none of these wells was considered commercial, they confirmed the existence of an active hydrocarbon system. No wells have yet been drilled in the South basin, which heightens the risk facing Falkland Oil & Gas and Borders & Southern, the two operators exploring here.
Rockhopper's recent announcement of the first Falklands 'discovery' caused much excitement even though it emerged from the reinterpretation of a well drilled over a decade ago rather than a recent drilling success. However, despite experts estimating this discovery could hold 1,600bn cubic feet of gas, Rockhopper has decided not to develop this immediately.
This highlights the logistical challenges of commercialising hydrocarbon finds in such a remote location. In Rockhopper’s case, there is no nearby market for gas and transporting it by pipe or in liquid form requires considerable capital investment.
Deciding how best to commercialise an oil or gas discovery might prove a nice problem to have. With drilling rig availability looking increasingly less of a problem as the low recent oil price has deterred many exploration projects, the first roll of the Falklands oil dice could take place within a year.
Other activities
The four explorers are pure Falklands plays. Borders & Southern has expressed an interest in exploring other frontier regions but hasn't yet identified any suitable areas offering undrilled, high-impact potential.
■ Binary rating: High
■ Current price: 29p
■ Potential high: 100p+
■ Potential low: 10p
Biotech company Antisoma has created a portfolio of innovative tumour and cancer treatments, of which ASA404 is the real key, or as broker Charles Stanley Securities puts it, ASA404 offers "genuine blockbuster potential". ASA404's method of fighting cancer (it shuts down the blood supply to tumours, thereby killing tumour cells) suggests it could be used in many solid tumour types, and the broker estimates that sales in lung cancer alone could exceed $1bn (£0.6bn).
Encouraging results from early trials led Novartis to enter into a broad partnership worth up to $890m. ASA404 is currently undergoing two pivotal Phase III studies, the first results from which are expected in 2010.
Phase III is the most extensive and hardest to pass of the clinical trials facing new drugs before they are passed to the regulators for final approval. As a rule of thumb, only around half of drugs pass Phase III trials, although of those that do, most are then approved by the regulators unless there have been fundamental flaws in the trials.
Phase III clinical trials are invariably critical for smaller pharmaceutical companies and particularly so for Antisoma: some analysts believe it may need to raise further funds, and would obviously benefit from being able to do so against a backdrop of positive trials results. ASA404 is therefore at a critical stage, particularly given that cancer trials can be notoriously difficult to predict with confidence.
Other activities
Antisoma has a reasonably broad and balanced clinical pipeline. However, ASA404's potential contribution is so significant that its successful passage through Phase III trials is for practical purposes a binary event.
■ Binary rating: Medium-high
■ Current price: 19p
■ Potential high: 60p
■ Potential low: 4p
San Leon is a relative newcomer to Aim having floated in September 2008. A diversified portfolio promises near-term production from Holland and the US (2010) and Italy (2011), although it is the company's licences in Morocco that offer the highest binary upside.
Most exciting is San Leon's substantial oil shale play in Tarfaya, Morocco, which could yield multi-billion barrels of oil. The massive scale of the deposit was demonstrated by Shell in the 1980s, but proved sub-commercial when the oil price dipped to $10 a barrel.
Shale oil is a form of 'immature oil' that exists in plentiful supply globally. The great challenge with shale oil is that its recovery has to date proven extremely difficult. Expensive and environmentally damaging techniques tried by oil majors have included inserting electrodes into the ground to heat shales to very high temperatures and distilling oil to the surface.
Under the guidance of non-executive director and leading oil shale authority Dr Jeremy Boak, San Leon has secured exclusive regional rights to an in-situ vapour extraction technology that promises to be cheaper and more environmentally friendly than previously tried technologies. San Leon's technology has been proven to work under laboratory conditions but still needs to be proven on a commercial scale. The company plans to begin site testing in early 2010. If successful, the pilot will be extended into full-scale production that could generate massive returns.
Morocco provides further binary potential by way of the substantial Tarfaya and Zag conventional oil basins. The company is undertaking seismic survey programmes and plans to drill exploration wells on both basins in 2010.
Other activities
Development assets are expected to provide security through near-term cash flow from next year, with the Narciso field in Italy potentially generating revenue of $60m from 2011. However, all this will pale into small change should the oil shale trial succeed.
■ Binary rating: Medium-high
■ Current price: 8p
■ Potential high: 15p
■ Potential low: 3p
EMED has been suffering a tortuous permitting process trying to bring Spain's largest copper deposit, Rio Tinto, back into production. The mine closed in the late 1990s due to low metals prices and poor management by the then co-operative owners. However, as demonstrated by previous operations, the mine has the potential to generate substantial cash flow over a 10 to 15-year period.
EMED still needs to raise finance to restart mining at Rio Tinto, although with much of the infrastructure intact, the costs are relatively low for an operation of this scale. Much more challenging has been securing the necessary permits and arranging commercial settlements of historical claims against the property, and it is these processes in which the company is currently mired.
The local government is particularly sensitive to EMED's plans and capability following the poor management of the former co-operative owner. However, with considerable local support for the restart, which would provide around 400 jobs in a region suffering high employment, the consensus is that EMED will obtain the necessary consents and clearances, the main uncertainties being timing and terms. The company expects to be able to restore production within six months of receiving permitting and settling outstanding claims.
Non-binary offsets
EMED continues to evaluate a gold project in Slovakia, on which it hopes to announce a 1m ounce resource by the end of the year, although the company might struggle to finance the development of this project without cashflow from Spain. EMED also holds a 32 per cent stake in fellow Aim junior KEFI Minerals.
■ Binary rating: Low-medium
■ Current price: 171p
■ Potential high: 200p+
■ Potential low: 160p
European Goldfields is a well-financed diversified miner with large reserves, although its progress, like EMED's, is currently constrained by painfully slow permitting. The company's most valuable asset is Skouries, a large copper (800,000 tonnes) and gold (3.9m ounces) deposit in Greece that should support a 20-year mine life. Although the scale is large, mining and processing are relatively simple and low risk, and the location has the necessary infrastructure.
Mine economics are robust and a cash balance of $170m (at 31 December 2008) takes much of the strain off the financing process. Major components for the Skouries plant are ready for shipment and the mine could be producing from 2011, if the company can secure the necessary permits.
Outstanding permitting is also constraining Olympias, a three-phase project to refurbish a high-grade gold-lead-zinc-silver mine in Greece, and Certej, a gold (2.4m ounces) and silver (17.3m ounces) deposit in Romania.
At Olympias, infrastructure exists from previous mining and the company is selling concentrate and residual material. A second phase of resuming underground mining and third phase of building a gold plant would support a doubling of mining rates at Olympias. Certej, though smaller than the flagship Skouries project, has attractive economics and could also be producing from 2011.
Other activities
By far the least binary of the featured companies, the upside potential is substantial whereas the downside is largely shielded by a diversity of projects, the fact European Goldfields already has a mine in production at Stratoni (albeit producing lead, zinc and silver rather than the gold) and has a cash balance that underpins a third of its market value.
