Each week aprofessional investor tells MoneyWeek where they'd puttheir money now. This week:Mike Savage, manager, Special Situations Fund, Killik & Co.
The recent geopolitical unrest in north Africa, combined with fear over the Fukushima nuclear situation, has dented the market and spooked private investors. Smaller commodity and oil and gas stocks tend to be vulnerable in such a wider market setback, and the last few weeks have proved no exception. But such a market pullback creates good buying opportunities. Here are three names I have been keen to buy in recent days.
Vatukoula Gold Mines (Aim: VGM) is a gold producer with operations in Fiji. Since buying the historic Emperor gold mine in 2008, the company has pursued a strategy of refurbishing and developing the mine, which has produced nearly seven million ounces of gold over a period of 80 years. Now, by applying modern mining techniques and equipment, management believes it can restore production to historic rates of 100,000 ounces per annum (ozpa) for the 2012 financial year, while cutting cash costs to less than $750 per ounce. A partnership with Fiji Sugar Corporation for the construction of a biomass power station could cut power costs at Vatukoula by more than 50% (or $120/oz) by 2013. In the meantime, a lesser production rate of 75,000 ozpa has been targeted for this financial year. Further upside comes from 19,700 hectares of adjacent exploration licences and an imminent listing on the Toronto Stock Exchange could help the shares too.
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Bahamas Petroleum Corporation (Aim: BPC) is an oil and gas explorer with acreage in the Commonwealth of Bahamas. In 2007, BPC acquired the exploration licences for five blocks covering 15,676 square kilometres, while April 2009 saw a joint venture with Statoil ASA, the Norwegian major, over three blocks in the southeastern area of Bahamian waters, known as the Cay Sal Bank. This covers a further 9,424 square kilometres, but aspects of the deal's terms are yet to be finalised due to a suspension of new licence applications following the Deepwater Horizon oil spill in the Gulf of Mexico. The last Competent Persons Report (CPR), conducted in 2007, indicated 22 leads, with the potential for an average 300 million barrels (MMBbl) in place and the largest structures possibly holding 500 MMBbl. In early February, BPC said seismic reports indicated numerous promising formations that were "significantly larger than previously expected".
The remainder of 2011 is set to excite with the final interpretation of the seismic reports by the end of April; results of the contracting process by the end of the second quarter; and a new CPR report from Ryder Scott towards the end of the third quarter. There is also potential for more news relating to the Statoil partnered licence applications, which would provide further impetus for the business.
Hargreaves Services (Aim: HSP) is a support-services firm with an established position sourcing and supplying solid fuels to British and European energy markets. Its strategy is to work in uncommoditised niche markets, in which added value and profit margin can be driven from the supply of speciality coals, cokes and biomass. We expect three organic growth opportunities to boost the shares: European expansion in speciality coal; the possibility of Tower Colliery in south Wales being reopened; and progress in biofuel electricity generation. Looking further ahead, the group should benefit from a long-term rise in coal prices.
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