Miners strike share price oil

By Peter V O'Brien

Friday 7th May 2004

The dull, sleepy mining sector finally took off in the four months since December.

Share price information for the six New Zealand listed exploration companies is in the table.

Figures for five major, "real" Australian mineral and oil miners are included for comparative purposes.

New Zealand Oil & Gas was the star performer after the announcement that oil was struck in the Amokura-1 well, part of the Tui/Amokura/Pukeko prospects forming the offshore Taranaki Petroleum Exploration Permit (PEP) 38460.

The company had a 20% direct interest in the permit until it farmed out 7.5% to Japan's Mitsui & Co in October, leaving NZOG with 12.5%.

Mitsui would fund up to $5.3 million of NZOG's expenditure in the permit for a year.

Oil was discovered in the Tui prospect last year. Tui is four kilometres southeast of Amokura.

NZOG's activities report for the three months ended March said the company and its joint-venture partners were investigating the potential for combined development of both fields.

The Pukeko prospect was being drilled and was expected to reach its first objective, the "C sands" (oil-bearing sands), in the third week of this month.

Areas known as the D sands (at 3500m) and F sands (3700m) would be intersected before drilling reached the planned depth of about 4200m at the end of May.

NZOG said each of the sands had potential of more than 80 million barrels of oil.

It seemed a combination of Pukeko and whatever was eventually proved in Amokura and Tui could result in a commercially exploitable oil field.

Investors and speculators will always flock to potentially valuable fields, which accounted for the surge in NZOG's share price.

The company had a less glamorous operation in the Pike River Coal Field on the West Coast (71% interest).

Pike River received conditional approval from Conservation Minister Chris Carter in March.

The project involved an underground mine to extract between 600,000 and one million tonnes of cooking coal a year for about 20 years.

NZOG's March quarter report noted demand for cooking coal increased during the period, with a "tight market pushing up prices substantially."

The company's shares performed well but investors have to decide if NZOG's prospects, including those yet to be proved commercially, made the stock "worth" 72¢.

They must also decide whether Austral Pacific Energy's (formerly Indo-Pacific Energy) gas and oil exploration programme onshore Taranaki and its 45% interest in the four billion cubic feet Kahili onshore gas-condensate field warrant a $3.05 share price.

The shares were issued to New Zealand investors in December 2003 at $2 each, on the basis of one share and a half warrant, the latter being exercisable for one year at $2.10.

Austral Pacific and Natural Gas Corporation finalised agreements in January for the sale of gas from the Kahili field.

NGC will build, own and operate a separation plant to process gas and condensate and connect the gas to its pipeline complex.

Kahili gas was expected to be available to the market in mid-year.

Austral Pacific's 2004 onshore Taranaki exploration programme was announced in February.

It compromised drilling four wells, the main targets being "Mt Messenger" sands, where oil and gas were found in two earlier exploration wells.

Investors who subscribed to Austral Pacific's issue at $2 a unit have already gained more than 50%, so they have a buffer against dry wells and other setbacks.

Oceana Gold resulted from Australian group GRD hiving off its New Zealand-based gold interests at the Macraes Flat (Central Otago) producing gold field, the "Frasers Underground" development at Macraes Flat and the Reefton Gold Project on the West Coast.

The three developments were expected to increase Oceana's production from a current 170,000oz a year to about 400,000oz a year in 2006-07.

Oceana listed on March 18 but there was no quick capital gain.

That was understandable, because the company had a production gold mine and goldminers' share prices closely follow the London gold price.

The table shows the latter was at a 2004 low last week.

Capital gains from investment in Oceana should be looked for on a medium-to-long-term basis, related to the gold price and the undoubted potential of the Reefton project.

Summit Resources has been following gold, silver and base metal prospects at Mt Isa, Queensland. Little is likely to happen to the share price until the prospects prove commercial.

The sector went to sleep with the removal of Fletcher Energy, Gold & Resources (Macraes) and other Gold mines (Martha Hill).

Injection of new companies and positive exploration results woke it up.

The revival also revived investor interest, which is worth maintaining, particularly in NZOG, Austral Pacific and Oceana.

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