Yesterday's trading: The rise of Heritage Oil

By Geoff Foster for MailOnline
Updated: 04:02 EDT, 16 June 2009

Already light years ahead of its January level of 225p, Heritage Oil continues to go like the clappers. It is well on the way to becoming the stock of the year.

With almost six months gone, the shares are already 140% higher and with a place in the Footsie elite beckoning by the fourth quarter following its planned merger with Genel Energy, of Turkey, rampant bulls are predicting they could gush a further £3 or more.

Buyers yesterday chased Heritage further 40.5p higher to 546p. It followed news of a proposed placing of up to 25.4m shares, or 9.8%, of the group's share capital, to raise cash in order to accelerate development of its core areas of focus, namely Uganda and Kurdistan.

Analysts said that Heritage was due to run out of cash in early 2010 and has uncertain cash flows from oil sales from Kurdistan. The placing, which will be masterminded by JP Morgan Cazenove and hopefully priced at a small discount to the prevailing price, does not alter the terms of its proposed merger with Genel, which will create an oil producer focused in Iraqi Kurdistan worth around £3.4bn.

The new company will be called Heritage and have combined and proved probable reserves of 308m barrels of oil. It will be the largest mid-sized oil exploration company in the Footsie after Tullow Oil, 45p down at 912.5p, and Cairn Energy, 101p off at 2358p.

Heritage's major discovery is in the Kurdistan region of Iraq. The Miran West strike is estimated to have between 2.3-4.2bn barrels of oil in place and have recoverable reserves of up to 3bn barrels.

Miners were mangled as commodity prices took a pasting because of the stronger dollar. Lonmin was the day's biggest casualty at 1,300p, down 141p. Not for the first time, the group announced that its Number One Furnace in South Africa has been shut down, following problems on Sunday. A full repair of the vessel is likely to take around 30 days. Evolution reiterated its sell recommendation and target price of 760p.

Lonmin's shareholders are entitled to feel aggrieved having subscribed to a £303m rights issue at 900p a share a month ago. They had a dividend payment flushed down the loo too.

Rio Tinto lost 216p to 2900p amid reports that Chinese regulators may block any deal with BHP Billiton, 42p easier at 1443p. BHP yesterday axed 150 jobs in South Africa. The Footsie was given a kicking as fund managers either took some money off the table or just kept their powder dry. Market-makers called it sharply lower at the outset and after some nervous punters baled out, the index fell away to finish 115.94 points down at 4,326.01. The FTSE 250 slumped 197.84 to 7,493.52.

Wall Street rubbed salt into London's wounds, trading 200 points easier in early trading following disappointing New York manufacturing data.

Selling ahead of today's trading statement dragged leisure group Whitbread 38.5p lower to 850p.

A Citigroup upgrade to buy from hold gave drugs giant AstraZeneca a shot in the arm. The shares climbed 21p on a dull day to 2650p. The broker lifted its target price to £29 from £25 and said the rating is undemanding despite longer-term risks.

Trading uncertainties left electricals retailer DSG International 2p cheaper at 25p. Department store chain Debenhams, which recently raised £300m in a placing at 80p, ran into sellers and closed 4 .75p off at 78p. Buyers continued to dig in at GCM Resources, an old special situations favourite of broker Killik, sending the stock up a further 25.75p to 131.5p.

The group holds coal licences on the Phulbari project in Bangladesh and at the end of 2008 Bangladeshi elections paved the way for a more sympathetic government for potential development of Phulbari.

Yesterday, parliamentarians and energy sector officials began examination of a draft coal policy at a four-day session in Bangladesh. Hopes are high the project will get the green light. Polo Resources, which holds 28% of GCM, eased 0.175p to 4⅝p.

Tower Resources fell 1.5p to 2.25p after abandoning operations on the Iti-1 exploration well in Uganda Licence EA5. Stratex International firmed .25p to 2⅞p after signing a memorandum of understanding with Turkish construction and mining company, NTF Insaat Ticaret, to form a joint venture company to develop the Inlice and Altintepe gold projects. Fox-Davies Capital's target price is 7p.

• Penny share punters chased Vphase ½p higher to 7⅞p on hearing the company has achieved a CE certification for its voltage stabilisation product. It can now start trials with partners Scottish and Southern Energy and British Gas. Ambrian Capital says it marks the completion of one of the most important milestones for the company during 2009. It allows the company to commercialise the product in Europe. Buy.