A record breaking oil discovery, a junior searching for the source of the Yukon Gold Rush, a lithium major with an under the radar project and an Africa-focused miner proving up the giant of all giants…
The upside for all these companies is in exploration… and it is in taking these projects from discovery to proving up resources where investors can make huge gains.
Oil prices remain depressed for now, but when they bounce back, companies who have just proved up new discoveries that are profitable even at today’s prices will soar.
Gold remains the pre-eminent, time-tested safe-haven asset for hedging against macroeconomic upheavals—but even better if you find a junior explorer who’s probably just found the original bedrock source of the Gold Rush in the Yukon. It’ll be ripe for a takeover once it’s proved up.
Lithium—the hottest metal in the world right now—is becoming an increasingly crowded space, but there’s one huge project that’s off the radar because it’s in a geographical location we don’t naturally associate with major lithium production. It’s not Nevada, and it’s not the Lithium Triangle of Argentina.
So let’s look at 5 stocks that have great upside from massive discoveries and exploration potential right now:
#1 Exxon Mobil (NYSE:XOM)
Just last week, this supermajor said it had discovered yet more oil offshore Guyana, in the Payara reservoir. This means the company is looking at a total discovery of around 500 million barrels of oil equivalent—and that’s commercially viable. The discovery was made at the Payara-2 well, and the news just keeps getting better and better for Exxon.
The company’s Stabroek Block in Guyana is truly massive—a whopping 6.6 million acres, with estimated recoverable resources of up to 2.75 billion barrels.
Exxon owns 45 percent in the project, and is the operator, while Hess owns 30 percent and China’s CNOOC owns 25 percent. Exxon owns its share through its subsidiary, Esso Exploration and Production Guyana.
If the 2.75 billion barrels doesn’t do enough for you without a means of comparison, consider this: The massive Thunder Horse discovery in the Gulf of Mexico had estimated recoverable reserves of around 1 billion barrels.
So Exxon’s Guyana project is a giant of giants.
(Click to enlarge)
And it’s not the only thing Exxon’s got going in Guyana: It’s also got a discovery at Liza Deep. The Liza discovery should come online by 2020 with a floating production storage offloading vessel (FPSO), capable of producing 120,000 bpd, but more likely shooting for a 100,000 bpd.
Just in the first phase of Liza production, Exxon is targeting 450 million barrels of oil. And the development costs are said to come in at less than $10 per barrel. So even with depressed oil prices, this sounds great.
But the bigger story here is that the exploration upside remains phenomenal, and even more so when you consider that oil projects in Guyana are attractively economical. And this venue looks set to enjoy a real oil boom in a matter of years.
For a huge company like Exxon, which has maturing fields with declining production, the huge wins in Guyana are timely, indeed.
In the world of discoveries just waiting to be proved up, there’s nothing more spectacular on the small-cap scene that this company: It’s backed by a Canadian billionaire and mining finance legend, and led by a famous geologist who’s exploring for the historical bedrock source of the Yukon Gold Rush.
The Company, Klondike Gold, is drilling right now. They’ve already drilled 30 holes, and are fully funded to drill another 50 at least, and it’ll all be done by mid-October.
But let’s back up just a bit …
This is the Yukon territory, the same place where one of the biggest gold rushes in history took off in 1896. The same place where over the years 20 million ounces of “placer” gold have been pulled from the district’s creeks and stream gravels. But, until now, no one’s been able to get a lead on the bedrock source of all this gold.
Geologist Peter Tallman thinks he has, thanks to geological genius and much more help than his historical pick axe. He’s armed with the most advanced drones that can fly over and find the sweet spots in this forbidding terrain, along with geophysical surveying tech and on-site x-ray analysis of samples.
It has been only three years since Canadian billionaire and key Klondike shareholder Frank Giustra recruited him to take over this company and get to the bedrock source of gold.
Majors like Gold Corp. (also built up by Giustra), Kinross and Barrick have recently swooped in on the Yukon to take advantage of new technology that can get to the heart of the gold rush.
But they always let juniors do the discovery work. Then they buy them out and make their shareholders rich.
It’s already happening …
#3 Apache Corporation (NYSE:APA)
Apache isn’t doing well at the moment, but it’s turnaround will be based on new projects. It just brought its Callater North Sea subsea tieback on stream—and that was ahead of schedule. It only discovered this six-well tieback to its Beryl Alpha facility in 2015. It was one of three fields they discovered. The other two were Seagull and Corona—all in the same area. And it was all territory Apache bought from Exxon in 2012 for $1.4 billion.
So, even though Corona was discovered first, Callater is already online, pumping at a rate of 19,000 boe/d (70 percent oil and natural gas liquids). Corona should come online mid-next year, with another 5,000-10,000 boe/d net to Apache.
It’s good timing, since Apache is seeing steep losses compared to its peers. It’s next big turnaround point should be the scale-up of the Alpine discovery, which isn’t going to happen near-term—so this is a longer-term bet.
But Alpine could contain up to 3 billion barrels of oil and massive amounts of natural gas. It will take a lot of money to prove it up, but there is a ton of potential upside here. So far, the discovery of Alpine has had a negative effect on Apache’s shares, but that’s why this is the contrarian play. If they prove this up, it will be the definitive turnaround.
Shares are trading now at around $45, with a 52-week-low of $43.24 and a 52-week-high of $69.00.
(Click to enlarge)
#4 Rio Tinto Plc (NYSE:RIO)
This story is all about lithium—a metal for which demand is not only visible, it’s palpable.
• According to Macquarie Bank (ASX:MQG), the share of lithium demand from electric and hybrid vehicles alone is due to surge from 10 percent in 2015 to 33 percent by 2021.
• Battery manufacturing capacity will triple in the next four years, according to Bloomberg.
• ‘Mr. Lithium’, Joe Lowry says demand should double between now and 2020, driven by the massive battery market, producers are in no position to keep up with this in the medium or long term.
• Volkswagen says the situation is desperate, and the industry needs 40 gigafactories. The auto giant foresees a huge shortage of batteries by 2025.
Global mining giant Rio Tinto has seen its first-half profits more than double from the same period last year, thanks to a rebound in iron ore prices. The headlining news, though, is the company’s move to return $3 billion to shareholders, $2 billion of which will go to dividends, and $1 billion to share buybacks.
But one catalyst we’re looking at here is a story you might not have heard yet. Rio’s Jadar lithium and boron deposit in Serbia is poised to be a major growth project for the mining giant, and it’s hoping to start construction in 2020, and production in 2023. Right now, it’s waiting for the approvals to move ahead. It’s likely to get them in the current political environment. In fact, Rio just signed an MOU with the Serbian government, so the approval process is in full swing.
(Click to enlarge)
Serbian Jadar would be the only unapproved medium-term growth project Rio has, and all said and done, it would be one of top-three lithium producers in the world.
Rio says the project has enough lithium to supply more than 10 percent of global demand.
#5 Randgold Resources Ltd. (NASDAQ:GOLD)
Africa-focused Randgold Resources saw a 53 percent spike in half-year profits, and it’s even got over $572 million in cash on hand after paying shareholders a $94-million dividend.
The big news is a large discovery in Côte d’Ivoire, which some are calling the “most exciting” gold prospect in West Africa.
Here, the latest drilling results from Randgold’s Boundiali permit in the Fonondara corridor showed a “massive system” of multiple mineralized shears, extending for 50 kilometers. It’s another giant among giants, if they can prove it up.
But unlike Apache, this pick isn’t dependent on proving this discovery up alone. The balance sheet already looks solid, and it would seem that the company will achieve its full-year production guidance of 1.3 million ounces, at a cost of below $600 per ounce.
Randgold has another mine in Côte d’Ivoire, as well—Tongon, and it’s also declared a second dividend. Elsewhere in Africa, Randgold is exploring the fragile Democratic Republic of Congo (DRC) with good results so far. And its Sofia satellite deposit could boost growth prospects for the Massawa project in Senegal, which is in the feasibility study stage and which has a mineable reserve of some 2.6 million ounces of gold.
(Click to enlarge)
Bottom line: This company has a massive exploration pipeline with formidable upside, and a pretty sharp track record of success.
Hess Corporation (NYSE:HES): We’re also considering Hess because it’s a partner in the massive Guyana discovery, operated by Exxon.
CNOOC (NYSE:CEO): Chinese CNOOC also owns a 25 percent share in the Guyana project. There are a lot of catalysts here, including the fact that its BD gas field in Indonesia just started production.
By Joao Peixe
Legal Disclaimer/Disclosure: This piece is an advertorial and has been paid for. This document is not and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe for any investment. No information in this Report should be construed as individualized investment advice. A licensed financial advisor should be consulted prior to making any investment decision. We make no guarantee, representation or warranty and accept no responsibility or liability as to its accuracy or completeness. Expressions of opinion are those of Oilprice.com only and are subject to change without notice. Oilprice.com assumes no warranty, liability or guarantee for the current relevance, correctness or completeness of any information provided within this Report and will not be held liable for the consequence of reliance upon any opinion or statement contained herein or any omission. Furthermore, we assume no liability for any direct or indirect loss or damage or, in particular, for lost profit, which you may incur as a result of the use and existence of the information, provided within this Report.