Miners and oil & gas explorers account for a big chunk of the London stock market's smaller-cap stocks, especially on the Alternative Investment Market. Three such companies accepted the Investors Chronicle's invitation to present to an audience of almost 80 private investors in March. An event overview can be found in the promotional video below along with each company's presentation which can be seen in full.
Tethys Petroleum
The only one of the trio presenting to be listed on the main market, Tethys is also the only company quoted in London with assets in Uzbekistan, Tajikistan and Kazakhstan. In both Uzbekistan and Kazakhstan the company has existing production, whereas Tajikistan - an altogether less developed country - has rich and largely untapped exploration potential. The operating environment is challenging owing to the remoteness of some fields, but the construction of new rail lines and pipelines could materially enhance the profitability of the producing assets.
Cluff Gold
Cluff is a well-known name in resources circles, as Africa veteran Algy Cluff has been successfully building and selling extractive companies for four decades. Cluff Gold's main theatre of operations is in west Africa and consists of three operations: Kalsaka, a producing mine in Burkina Faso, generates cash flow to help finance mine development at Baomahun in Sierra Leone and exploration at Yaoure in Cote d'Ivoire. Baomahun, which the company owns outright, is set to pour first gold in 2014 and could produce 135,000 ounces a year. In the longer term, the company hopes to produce half a million ounces a year.
San Leon Energy
San Leon is a pioneer in European shale gas, and director of exploration John Buggenhagen devoted much of his presentation to the development of the industry here. Shale gas has revolutionised the US gas market, but exploitation is at a much earlier stage here and some commentators are reading too much into some indifferent early results. Mr Buggenhagen asserted that shale has a strong future in Europe (most obviously Poland, where San Leon is active) but that it will take some time to develop. San Leon also has operations in Albania and Morocco.
How to choose small-cap resource shares
Martin Li, the IC's small-cap resource specialist, outlined the things he looks for when analysing small mining and oil and gas companies. Exposure to key commodities is one factor: gold, iron ore, coal and oil are among his favourites, but more esoteric elements include tungsten and fluorspar. Another theme is consolidation - Cove, Ithaca and Wessex are all currently the subject of bids. In terms of geography, Martin was particularly keen on west and east Africa, the Falklands, Namibia. Potential share price catalysts could include approvals, fundraising, 'farm-in' deals, rig mobilisation and resource upgrades. Dry holes, dilutive fundraisings and missed deadlines are all share price killers. Martin finished by naming some of his favourite high-risk and low-risk exploration plays - full details in the presentation
The outlook for commodity prices
Jonathan Eley, the IC's editor and a former non-ferrous metals specialist, explained why commodity prices have risen from all time lows at the start of the 1990s to all-time highs at the end of the noughties. The main factor has been the astonishing development of China, which is in the most metal-intensive phase of its urbanisation. The pace of increase in energy usage has been more moderate, but will continue to increase as the economy moves towards consumption. Meanwhile, supply growth has been restrained and average ore grades and deposit/reservoir sizes shrinking. Central banks have stopped selling their gold, removing another source of supply. Although better technology could increase supply in some commodities (notably gas), China's urbanisation could have another 20-30 years to run, underpinning long-term demand.
