Exploration company could strike coal

By Graeme Dickson
Updated: 11:58 EDT, 8 December 2010

Suggesting to buy three resource based ideas in a row could be considered dangerous, but given they have on average risen by 22 per cent over the last three weeks, perhaps one more commodity focussed equity idea will be acceptable given the current sentiment:

Edenville Energy (EDL), previously known as Gemstones of Africa Group, is a £32 million market cap exploration company specialising primarily in coal and uranium projects in Tanzania.

The company has recently commenced a 1,000 metre drilling programme to gain a better understanding of the sub surface geology at its Rukwa Coalfields site in Southern Tanzania.

The drilling will take approximately three weeks to finish before any results are revealed.

The run-up to this point could create meaningful gains for shareholders given the market's appetite for low priced resource shares.

The size of the resource is currently not known, but the thermal coal is supposedly highly calorific suggesting it emits plenty of energy, ideal for power stations along with industrial uses such as cement and paper production.

The company had just £881,000 at the end of June this year, so a fund-raising is almost inevitable by the time the Edenville issues its preliminary results in March next year.

A chief driver in the share price will inevitably come from the drilling results, but as witnessed recently, the market has regained its appetite to chase well-funded exploration plays.

Additionally 87.6 per cent of this stock is in major shareholders hands and unless these shareholders are willing to let go of a few shares, the limited liquidity will ultimately lift the share price provided there is net buying activity.

As per the Weatherly suggestion, this idea is high risk especially when dealing with African exploration plays with limited financial resources and no clear indication about the size of the resource.

Update

Weatherly International (WTI) – suggested to buy last week at 8.1p, the shares have performed very well in the short-term, closing yesterday at 10.125p. The company is gearing itself for production at one of its projects for the first quarter of next year and one would hope to see this share price trading closer towards 20p prior to the first pound of copper being produced.

Chaarat Gold (CGH) – suggested to buy at 51.5p, the shares closed yesterday at 61.5p. The price of gold is certainly helping the performance notwithstanding the exciting prospects for its two main prospects. Hold for now and ideally we will see the shares close above 63p to confirm a break-out.

Geiger Counter (GCL) – suggested to buy at 85p, the shares closed yesterday at 103.5p. Keep holding for now but hopefully we will see this share trading at 120p in the near future. Raise the stop to 93p.

Avanti Communications (AVN) – suggested to buy at 655p, the shares closed yesterday at 735p, after the Hylas 1 satellite had a successful launch. Don't get put off by the directors' sales as they have plenty of remaining stock and options to keep them motivated. Raise the stop to 675p.

Avon Rubber (AVON)– tipped as a buy at 161.5p, the stock closed yesterday at 217.5p. This is performing to plan and one would expect resistance at 240p in the short-term. Raise the stop to 200p.

Toumaz Holdings (TMZ) – tipped as a buy at 8.625p, the stock has slipped to 7.25p. The company will likely be required to raise cash at some stage within the next six months. The prospects are very exciting so keep holding for now.

Renewable Energy Holdings (REH)– tipped as a buy idea at 16.25p, it closed yesterday at 15.25p. Yesterday's net asset value equated to 35.5p a share, still too big a gap to ignore.

Bowleven – tipped as a buy at 177.25p, the stock closed at 354.25p yesterday, a 99.85 per cent gain. The company is likely to release news regarding current drilling before Christmas. Raise the stop to 317p.

IQE – tipped at 24.25p, the stock closed yesterday at 45.75p, a 88.6 per cent gain. Keep holding for now but keep the stop at 43.5p.

Tissue Regenix – suggested as a buy at 16p, the stock has slumped to 10.75p. Keep holding despite the disappointing performance.

The material for this report comes from Alpha Terminal. The writer does not hold any shares or derivatives in the above mentioned companies except Renewable Energy Holdings, Bowleven and Weatherly International. Some clients of Optiva Securities hold shares in the above mentioned companies.