Range Resources, a client of yours, has become a hugely popular stock over the last 18 months. What has that company got right and how does that fit in with your view of what investors are looking for in junior resources companies?
There is almost a magic formula which involves an element of production that throws off some cash flow, which enables you to pay your bills and gives you the leverage to raise more money and go and drill some nice low risk, high impact exploration targets. Not many companies fit into that particular mould but you can get there with some very astute deal making. A small company with production enabling it to spend on exploration is very rare. Range Resources have done this but you can’t do it overnight. You go back to the beginning of 2010 and their share price was less than 4p. The market got excited about some exploration assets they had in Puntland, and obviously Puntland still hasn’t drilled yet, but in the meantime they were able to use the cash they had to get into some production assets in Texas. That was all about timing, skill and judgment.
A distressed partner drops out, wells can’t be drilled, so you come in with a couple of million dollars and you say: ‘I’m your man’ and then the drilling commences. You have to be opportunist, you have to know where the opportunities are because simply buying production is a very expensive game, you have to have something extra on top of that. With that they bought into Texas and then they started shaping up the Georgia prospect and then Puntland is getting closer, although it is a slow process. In all that time they didn’t drill an exploration well but now they are, the time is right and they haven’t put a foot wrong really. Trinidad was a great deal, we are really impressed with Trinidad. Straightaway, they have got the cash from a share placing, they have got a 21 well development programme – and this is still an oil junior. They have got exploration wells going down and they are still producing in Trinidad and Texas, what a cracking, diversified portfolio. It is a great example of what you can do to get your market cap up by a factor of 10, which is what they did. You need a little bit of serendipity, sometimes you need the cards to fall in the right way for you, but that was astute deal making and now they are drilling bang on the right time and scouring the world for good assets.
Ah well! Might try a cheeky punt on Supergroup once I have a chance to do a bit of research on them.
