Small Talk: Madagascar Oilgets set to bring its island story to AIM
Monday 22 November 2010
If there is one thing that AIM market investors don't lack, it's options in the oil industry. The growth index boasts a variety of opportunities to put money in the black stuff. And this week, it will witness the debut of another, this one offering exposure to resources in the island nation of Madagascar.
The somewhat unimaginatively named Madagascar Oil is expected to list in the coming days, looking to raise around £50m. The cash will go towards showing the commercial viability of the company's heavy oil deposits at its onshore Tsimiroro field, on the western side of the island. The company acquired its interest there in 2004, and has conducted tests confirming Tsimiroro's fitness for a steam flood development (where steam is pushed in to loosen up and extract the heavy oil). The method has been around for a while, with the oil giant Chevron's Kern River steam flood project in California providing a good analogue.
Madagascar would then look at options to bring the field into production, which is expected to cost around $1bn to $1.5bn. This is where it gets interesting, as the company has a number of options, including the potential sale or a farm-out agreement where a bigger player comes in.
Beyond Tsimiroro, Madagascar also has a "bitumen mine" operation at the Bemolanga site some 170km from the island's western coast; it is similar to oil sands, but the company says the extraction process at Bemolanga is different. In 2008, France's Total E&P farmed into the project for a 60 per cent share for $140m and became the operator of the joint venture.
That's the business story. But before we move on, it is worth noting some political developments that could potentially weigh on sentiment around the shares.
Last week, dissenters within the Madagascar army threatened to topple the island's government. The authorities announced late Saturday that the revolt had ended without bloodshed after 16 officers surrendered, but the market will no doubt want to keep an eye out for any negative developments.
The nervousness was evident on Wednesday when the news drove nickel prices – the island is home to the Ambatovy nickel project, which is expected to be completed early next year – on the London Metal Exchange.
Prices jumped 5 per cent, and though that was partly pinned on factors such as bargain-hunting and weakness in the dollar, analysts acknowledged that Ambatovy – and thus tension about situation in Madagascar – had also offered support.
Surging coal spurs deal activity
While we're on the subject of commodities, it's worth pausing to take note of the recent surge in activity around coal. Last week alone, the UK market saw more than $6bn (or around £3.75bn) in coal-related deals. First there was Vallar, the cash shell led by financier Nat Rothschild, which announced a complex $3bn transaction that will see it join forces with Indonesia's powerful Bakrie family to create a new London-listed coal play, Bumi Plc. Then, later in the week, we had Western Coal Corp, the Toronto and AIM-listed metallurgical coal business, which was the subject of a $3.3bn bid from US peer Walter Energy.
The scramble is down to surging demand from Asia, as countries such as China and India seek resources to power growth. Indeed, a cursory glance at the numbers is enough to explain the scramble for the black stuff.
In India, coal imports stood at more than 73m tonnes this year – 24 per cent higher than the prior year. But – and this is the key point – they are forecast to rise to 135m tonnes by 2012. The demand is driven by a growing economy with expanding power needs, as more than half of India's electricity plants depend on coal.
Over in China, steel production continues to rise, feeding that country's demand for metallurgical coal, which happens to be Western Coal's primary offering.
Last year, for example, China imported 34m tonnes of coking coal, which is one of the grades of metallurgical coal used in steel production. That was up almost five times on 2008.
The latest data from the China Iron & Steel Association also help in understanding the boom in deals in the coal sector. The figures show that the country's steel sector produced significantly more crude steel in the first 10 days of November than in late October. In absolute terms, output stood at 1.601m tonnes per day, against 1.564m tones in the last 11 days of October. No wonder analysts expect even more in the way of coal-related deals.
Ready for kickoff at River Park FC
From mining and oils to another big business – gaming. In particular, social gaming, a segment that has received a shot in the arm thanks to the surge in social networking, with more than 200 million people a month playing games on the Facebook website alone.
We R Interactive is among the crop of companies seeking to cash in on this trend. This outfit based in Clerkenwell, London boasts some impressive backers, including Working Title films co-founder Eric Fellner and ITV's Fru Hazlitt.
It last week unveiled what it bills as the first-ever point-of-view football game, I Am Playr, which puts gamers in the boots of a player at a fictional football club that it has called River Park FC.
Given its backers, We R's calling card is its expertise in films. The company uses that knowledge to build more lifelike social games – a natural step forward, given the sophistication of gaming consoles like Sony's Playstation.
"With I Am Playr we are splicing film and game. Film gives us the ability to build characters and bring a more visceral feel to the interactive experience," We R co-founder and former head of development at Eidos, David Rose, said.
Mr Fellner, who has produced a number of big films in his time, including Notting Hill and Four Weddings and a Funeral, said: "This is a very exciting space in media right now. I Am Playr shows what the next generation of entertainment looks like."
The game is out in January, and will be available on Facebook. Keyboards to the ready then.
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