Tuesday's AIM news: Commodities

Falkland Oil & Gas and Red Emperor Resources were among the 11 AIM-listed commodities companies that updated investors on Tuesday. Read on to see what they had to say.

Bushveld Minerals

Bushveld Minerals (BMN) on Monday gave an operational update on its exploration activities.

Drilling was progressing on the Mokopane iron ore project, with 1,522 metres drilled between 23 April and 31 May 2012 to upgrade the inferred resource to indicated resource and to extend the resource. Samples have been submitted for analysis and the first assay results are expected in late July 2012.

A revised Joint Ore Reserves Committee (JORC) resource on the Mokopane iron ore project is due in the fourth quarter of 2012, with a scoping study expected by the first quarter of 2013. The company has also commissioned a high-resolution airborne geophysical survey over the iron ore and tin project areas, which will include a magnetic and radiometric survey. The survey is expected to start in early July and run for six weeks.

Continental Coal

Continental Coal (COOL) has released an update on the development of its Penumbra export thermal coal mine in South Africa.

Work is nearing completion on the transformers and substation, and tenders submitted for the water reticulation system, water treatment plant and main ventilation fan. The advancement of the twin declines has accelerated to 98 metres in May, up from 79 metres in April for a total distance of 233 metres. Each decline will eventually be 390 metres long and the company expects first coal sales to be made in the early part of the fourth quarter of 2012.

Planned production at Penumbra is 750,000 tonnes per annum (tpa) of run-of-mine (ROM) coal producing 500,000 tpa RB1 quality thermal coal for export from Richards Bay. Penumbra, Continental's third coal operation, has forecast operating costs of 490 South African rand (£37) per tonne as of May 2011.

FoxDavies believes this "should provide a healthy margin even at today's depressed coal prices". However, as part of the debt financing with ABSA Capital, Continental Coal has a hedge for 664,550 tonnes of coal at an average price of 1,057 rand per tonne, providing a margin of $67 (£43) per tonne, according to FoxDavies.

Falkland Oil & Gas

Falkland Oil and Gas (FOGL) was one of the most actively-bought stocks by the users of Interactive Investor as the company announced the execution of a farm-out agreement with Edison International.

Under the terms of the agreement, Edison will farm in and earn a 25% and a 12.5% interest in FOGL's northern area and southern area licences respectively, contributing its pro-rata share of the costs of the 2012 drilling programme. Edison will also pay its pro-rata share of certain historical costs incurred by FOGL during 2011 related to the 2012 drilling programme. Edison's share of historical expenditure, together with the share of the 2012 drilling programme costs, is expected to be about $50 million.

In addition, Edison will make a separate cash contribution to FOGL of $40 million: $20 million on completion of the farm-out agreement and a further $20 million in 2013. In order to obtain the option, Edison had already paid a $3 million non-refundable fee. FOGL will retain operatorship of the northern and southern area licences.

"This farm-out will considerably strengthen FOGL's financial position. In the event that the two exploration wells are drilled within budget it is estimated that on completion of the wells the company's cash balances will not be less than $100 million and they will be available to fund additional exploration work. This may include further drilling and/or the acquisition of 3D seismic," the company assured investors.

The farm-out to Edison has been approved by the Falkland Islands government.

Kea Petroleum

Kea Petroleum (KEA) has issued a positive drilling update, confirming that it continues to make good progress across its exploration blocks in New Zealand.

At PEP 381204, planning was underway for the drilling of Mauku 1, subject to a funding and off-take agreement with Methanex. Local consents are in the process of being finalised with the local Maori Iwi and Waikato Regional Council having already consented to the well and associated construction works. The Mauku 1 well is anticipated to spud in the fourth quarter of 2012.

Jet pumping and swabbing operations have ceased at Douglas-1 and the well is currently suspended for a period of approximately two months prior to the recommencement of testing operations. Formation water, from extensive fractures within the Tikorangi, mixed with fluids lost down hole during drilling operations dominated flow during testing.

Puka-1 in permit PEP 51153, which successfully flowed high-quality oil and gas, is being prepared for the longer-term production testing. Kea anticipates the longer-term testing programme to start within the coming fortnight. The Puka-1 well had reaffirmed the original estimate of gross recoverable resource of one million barrels of oil with a potential upside of up to three million barrels.

Mediterranean Oil & Gas

Miles Donnelly, a non-executive director of the Mediterranean Oil and Gas (MOG), is to step down from the board following the annual general meeting of shareholders on Tuesday.

"Following the completion of a challenging and transformational year for the company, culminating in the appointment of Keith Henry as chairman and Dr Bill Higgs as chief executive, the company has an experienced leadership team with which to develop and grow its exciting portfolio of assets," commented Donnelly.

"During this period the company's balance sheet has been rebuilt and Guendalina has successfully been brought on stream, resulting in substantially increased gas sales and providing positive cash flow from our operations. The conclusion of today's successful annual general meeting provides an appropriate occasion for me to step down."

Oracle Coalfields

Oracle Coalfields (ORCP) has signed a joint development agreement with the Karachi Electric Supply Company (KESC) to supply coal and water through its 80%-owned Sindh Carbon Energy Limited.

The agreement supersedes the memorandum of understanding signed at the end of 2009. The company will supply a 300 megawatt coal-fired power station which KESC will construct, adjacent to Oracle's planned mine in the Thar coalfield in the Sindh province of Pakistan.

The power plant could be increased to 1,100 megawatts, but no details of pricing or volume were given in the announcement.

Red Emperor Resources

Red Emperor Resources (RMP) has raised approximately AU$75,000 (£48,000) after receiving notice to exercise unlisted options over 250,000 ordinary shares at an exercise price of 30 Australian cents per share.

Application has been made for admission of the newly-issued shares to trading on AIM, which is expected to occur on or around 27 June 2012.

Following admission of these shares, the oil and gas exploration company with interests in Puntland (Somalia) and Georgia will have 258,734,221 ordinary shares in issue.

Rialto Energy

Rialto Energy (RIA) has awarded the Front End Engineering Design (FEED) for Gazelle Field Development Project to Petrofac (PFC).

The work will be carried out in Petrofac's Woking, UK office and is expected to be completed in October 2012. Initial production from the platform is expected to be around 8,000 barrels of oil per day (bopd) and 100 million standard cubic feet per day (mmscf/d), ramping up in a phased approach to include other existing discoveries in the block.

Rialto has signed an agreement with Vantage Drilling Company to use the Sapphire Driller jack-up rig for its proposed 2013 drilling programme on the CI-202 Block. The Sapphire Driller, which is currently on a long-term contract in Cote d'Ivoire, is anticipated to be handed over to Rialto during the course of the first quarter of 2013. "[The rig] will fast-track the appraisal of the liquid's potential across the entire CI-202 Block," commented analysts at FoxDavies.

"This [award] lends confidence to the company's target of commencing production from the field in early 2014. Updates on the development progress will be the key share price driver in the near to medium term," stated the analysts.

"Ongoing drilling of three wells on the block coupled with progress on the Gazelle Field Development means we believe this stock should be on investors' watch list."

San Leon Energy

A technical evaluation of San Leon Energy's (SLE) Siciny-2 well in the SW Carboniferous Basin of Poland has proved a "huge upside potential".

More than 265 metres of continuous core were collected across three prospective intervals in Siciny-2 which were previously identified in the Siciny-IG1 well. Siciny-2 had continuous gas shows throughout the Carboniferous interval.

The company is currently acquiring a 220 square kilometre 3D seismic survey over the Siciny-2 well location and surrounding prospective area. An extremely thick, highly gas-saturated sandstone interval was encountered between 3,200 and 3,520 metres. Additionally, between 2,870 and 3,110 metres, a thick tight gas-saturated interval was encountered in sandstones and interbedded shales.

In addition to the two deeper tight gas intervals, the well encountered three potential prospective, highly fractured organic rich shale intervals with a total gross thickness of 430 metres between 2,065 and 2,610 metres.

"These results underline not only management's understanding of the regional geology, but the prospectivity of the Polish Carboniferous play in general," stated FoxDavies. "While further testing will be required, the play is significantly derisked."

It reiterated its 'buy' recommendation and 60p price target.

Sefton Resources

Sefton Resources (SER) has signed a £15 million equity financing facility with Darwin Strategic.

"There has been mutual agreement that a £15 million facility would be more appropriate for the company. A letter of intent was signed recently for a £10 million facility," the company said.

FoxDavies pointed out that the announcement of the facility should enhance investor confidence as it would provide much-needed development flexibility, which should see the company close 2012 in a better position than it started.

"With an extensive work programme which should be fuelled by results from Dr Farouq Ali's steam flood report on Tapia, and an updated competent person's report on both California and Kansas, the opportunity for further growth remains significant," it stated.

Wessex Exploration

Wessex Exploration (WSX) has appointed Malcolm Butler as a non-executive chairman of the company with immediate effect.

Butler has over 25 years as an "explorationist" and senior executive in the worldwide oil and gas business before taking on a secondary role as an investment banker. He was responsible, as chief executive, for the initial public offering of two UK oil companies on the London market.

"We are delighted Malcolm has agreed to join the company, and anticipate that Wessex and Malcolm will grow together as a very successful oil and gas exploration company," said managing director Frederik E. Dekker.

VSA Capital's Malcolm Graham-Wood looks at the strengths, benefits and risks for commodities companies in the region in: Tanzania: Unlocking the commodities potential.