W Resources PLC – Having Strong Fundamentals in Place to Expand Production

W Resources PLC (LON: WRES) is FTSE AIM All-Share listed Exploration and Production Company, which is engaged in gold and copper production. It has assets in Portugal and Spain.

Recent News

22 July 2020: The Company signed a series of guaranteed loan facilities with Spanish banks. The new facility for a five-year term each includes - loan for €400,000 from Bankinter S.A.; loan for €120,000 from BBVA, and loan for €500,000 from Caja Rural de Extremadura. Besides new facility, the Company also extended the existing facility, which comprises of CaixaBank’s €300,000 overdraft facility (extended from 30 May 2020 to 4 June 2025), and BBVA’s €300,000 overdraft facility (extended from 18 June 2020 to 18 June 2025).

Q2 Production Update


(Source: Company Website)

In this update, the Company affirmed that second quarter of FY20 was challenging due to emergency shutdown in April after Covid-19 pandemic. While tungsten recoveries have lagged, tin recoveries have been high. With the guidance of Danilo Diaz as plant manager and Director Pablo Neira, plan utilization has substantially improved in Spanish operations. The Company implemented cost reductions initiatives to stay resilient. The Group also reported that the demand for ammonium paratungstate (APT) in the United States and Europe has been affected by the effects of COVID-19; however, it is expecting tungsten prices to be trending stable to higher in the near term.

Share Price Performance


1-Year Chart as of 24 July 2020, after the market close (Source: Refinitiv, Thomson Reuters)

W Resources PLC’s shares closed trading at GBX 0.1575 on 24 July 2020, down by 17.11% against the last day closing price. Stock 52 week High and Low were GBX 0.4479 and GBX 0.091, respectively.

From the technical standpoint, 14-day RSI is currently in the oversold zone, which means there is a good potential for a short term rebound in the stock price.
 
Risk Assessments

The profitability of the Company remained in negative territory in FY19, and the disruption in operations due to Covid-19 can pose significant liquidity risk. Moreover, the currency fluctuations and volatility in demand can affect commodity prices. The Company considers that the price of tungsten is an area of potential risk, while the tungsten recoveries lagged in Q2 FY20.

Conclusion

During the FY19, the revenue increased to €0.4 million (2018: €0.2 million), driven by an increase in the mineral exploration revenue for the period. The loss for FY19 stood at €2.9 million in FY2019 (2018: loss of €4.5 million). The market conditions in which the Company operates is strong, which will increase the financial performance and bring operational balance. The Group’s La Parrilla project in Spain is amongst the largest and low-cost tungsten mine globally, which will help in delivering earnings growth in coming years. In Spain, COVID-19 shutdown for mining operations has been lifted, but full-scale operations are still on hold. The Company had completed the T2 expansion, a world-class tungsten project at La Parrilla. W Resource Plc’s La Parrilla project is now fully funded and under full project development. Overall, the Group seems to be well-placed for the coming’s months.

In order to navigate through the current challenging environment, the Company has secured additional financing and extended existing lines of facilities, which will provide substantial working capital at low-interest cost.

Therefore, based on the above rationale, we have given a "Speculative Buy" recommendation on the stock, at the closing market price of GBX 0.1575 (as on 24 July 2020).

Victoria Oil & Gas PLC – Terminated the Supply Pact with ENEO

Victoria Oil & Gas PLC (LON: VOG) is a FTSE AIM All-Share listed producer and distributor of gas. It is involved in the exploration, production, and distribution in Cameroon.

Recent News

3 July 2020: The Company’s wholly owned subsidiary, Gaz du Cameroun S.A. has terminated the gas supply agreement with ENEO Cameroon S.A. due to poor payment record.

Trading Update (as on 25 June 2020)

In this update, the Company reported that unaudited revenue for CY19 (calendar year 2019) stood at US$20.6 million (2018: US$10.8 million). The unaudited revenue to 31 May 2020 stood at US$8.6 million while it was US$8.7 million last year for the same period. As at 31 May 2020, cash and cash equivalents was $5.0 million (31 May 2019: $15.7 million). As of 31 May 2020, the gross receivables outstanding from ENEO was $15.5 million. During the Q1 FY20, the Company reported a solid performance from operating divisions.

Share Price Performance

 
1-Year Chart as of 24 July 2020, after the market close (Source: Refinitiv, Thomson Reuters)

Victoria Oil & Gas PLC’s shares closed trading at GBX 3.48 on 24 July 2020, down by 2.80% against the last day closing price. Stock 52 week High and Low were GBX 16.50 and GBX 2.48, respectively.

From the technical standpoint, 14-day RSI is currently close to an oversold zone, which means there is a good potential for a short term rebound in the stock price.
 
Risk Assessments

The overdependence on the key customers like ENEO can cause substantial problems for liquidity and profitability. Moreover, the increasing political uncertainties and uncertain regulatory environment can impact the ability to execute commercial transactions. Also, the demand and supply disruption during Covid-19 can pose a risk to commodity prices.

Conclusion

In the financial year 2019, the Company’s top-line performance has improved. Further, the Company is proceeding with the facilities enhancement project to reduce the backpressure on the reservoir. The Company has two capital projects on the Logbaba project, which might complete this year and potentially add to reserves and deliverability. The gross estimated cost for the projects is $1.5 million. During a challenging time, the Company continues to maintain a prudent approach to run the business. Looking forward, ease in lock-down and a steady recovery in the global economy in the second half of 2020 could give support to the gas utility companies. The Company has recently restructured the management by hiring a new Chief Executive Officer, which should provide fresh vision to the Company in the future. The Company has maintained a responsible fiscal discipline which shall help them in navigating through the challenging period.

Therefore, based on the above rationale, we have given a "Speculative Buy" recommendation on the stock, at the closing market price of GBX 3.48 (as on 24 July 2020).
 
 
*The “Speculative Buy” recommendation is valid for the current price as covered in the report (as on 27 July 2020).

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