After a year of paper losses, shares in gas group CNR now show a 28% gain
INVESTORS who followed Midas’s tip last September to buy shares in Cluff Natural Resources have endured a brutal year. We tipped the stock when it stood at 3.625p. Soon after, the shares started to slump and by early this year they stood at a little over 1p, where they languished for much of the year.
Then last month the stock soared and currently stands at 4.65p. Having nursed an on-paper loss for 12 months, Midas’s recommendation is now showing a 28 per cent gain. In early September the shares hit an all-time high of 7.7p.
We did warn that shares in such a small and illiquidly traded company might be volatile, and so it has proved.
The past two months have seen some good and rather bad news for the group.
The company, founded and headed by North Sea oil veteran Algy Cluff, had been planning to use a technique called underground coal gasification. UCG involves finding underground coal reserves and heating them to create coal gas.
It is a technique that could create cheap gas at a time when security and cost of supply is a key factor in the UK energy economy.
We warned that the major obstacle to this scheme was planning and that Scottish authorities could block the proposal. And ten days ago they did just that. SNP Ministers decided the technology needed more research and blocked its immediate use.
But despite this major setback for the company’s most radical growth plan, the shares have stayed well above the price at which we recommended them.
The sustained price is based on CNR’s less radical business, which is more traditional. This side of CNR owns five drilling licences for the North Sea, and recent drilling reports showed its conventional sites could hold up to 3trillion cubic feet of gas – roughly enough for a whole year of consumption in the UK.
Extraction will require huge investment and Cluff himself has called for more support from the Government, suggesting that subsidies for offshore wind farms could be cut to find money to support gas exploration and extraction.
Meanwhile, CNR continues to make losses – £660,000 in the first six months of this year – but these were slightly lower than for the same period last year.
Midas verdict: Readers who bought CNR last year may have spent much of the past 12 months cursing Midas under their breath. Hopefully, they feel rather happier today. The question now is whether to take profits or hold on.
The blocking of CNR’s ambitious UCG plans is a significant blow and removes one leg of the group’s potential we highlighted last year. However, the conventional business now looks far more promising. The warning over high volatility in such small company shares still stands.
At the current price Cluff Natural Resources is a hold. But keep a close eye on the shares. If they shoot up again to 7p or more, consider selling and taking what would be a 100 per cent profit.