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Beaufort Securities Breakfast Alert :Advanced Oncotherapy, Alecto Minerals, Armadale Capital, Cyan Holdings..

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The Markets
Market opening: The FTSE-100 is expected to start this morning's session around 5-points lower.

New York: Wall Street ended in the red after a volatile trading session in European markets. Investors remained concerned over a slowdown in the global economy and the continuing slump in oil prices. The S&P 500 fell 1.4%, with the materials sector leading the decliners.

Asia: Equities are trading lower, following a huge sell-off in global markets. The yen strengthened against the dollar, resulting in losses for export-driven stocks in Japan. Moreover, the yield on 10-year Japanese bond fell below zero for the first time. The Nikkei 225 shed 5.4%, while the Hang Seng remained closed due to the Lunar New Year holiday.

Continental Europe: Markets ended lower amid investor concerns over the performance of the region’s top banks. Furthermore, the continuing decline in commodity prices exerted pressure on basic resource stocks. Germany’s DAX and France’s CAC 40 dropped 3.3% and 3.2%, respectively.

Crude Oil: Yesterday, WTI and Brent oil prices decreased 3.9% and 3.5%, respectively. The spread between the two varieties stood at US$3.2 per barrel.

UK small caps: The FTSE AIM All-Share index closed 1.30% lower yesterday at 680.90.

Today's news
UK retail sales up in January 2016: BRC
According to the British Retail Consortium (BRC), retail spending in the UK grew 3.3% y-o-y in January 2016, compared with a 1.0% increase in December, the highest rise in four months. On a like-for-like basis, sales jumped 2.6% in January after a 0.1% gain in December. The rise in sales was led by an increase in furniture and home appliance sales. Furthermore, discounts during the New Year season boosted clothing and footwear sales.

Company News

Advanced Oncotherapy (LON:AVO, 7.12p) - Speculative Buy
Advanced Oncotherapy, the developer of next-generation proton therapy systems for cancer treatment, yesterday made two important announcements. One being the realignment of roles and responsibilities of the Executive team, the other being a prospectively far reaching industrialisation agreement with Thales, the giant and highly prestigious French multinational technology design and manufacturing group. The agreement with Thales provides Advanced Oncotherapy with the support needed to move from the first LIGHT system, currently being developed for use at the Company's flagship Harley Street site, to full commercial roll-out and a fully industrialised machine series production. Thales is a well-established manufacturer of high RF energy equipment including klystrons, electron tubes, amplifiers and X-ray detectors, as well as synchrotrons, accelerators and advanced medical imaging equipment. They will offer Advanced Oncotherapy access to Thales's unique execution and engineering skills to manage the transition from prototype to a series production manufacturing line, as well as cost reduction capabilities. As part of the agreement, Thales will undertake the initial engineering studies and test facilities commissioning required to construct the custom-designed series production line. The cost of these activities will be funded by Advanced Oncotherapy and recovered through the retention of 100% gross margin on the initial LIGHT machines produced. In addition, in the future Thales intends to organise the series production so as to drive down costs, whilst operating under an appropriate quality framework. Regarding the directorate, Michael Sinclair, currently Executive Chairman, will become Chief Executive Officer and Executive Chairman; Sanjeev Pandya, currently Chief Executive Officer, will become Executive Vice President for Global Business Development and will remain on the Board of the Company. Nicolas Serandour, currently Chief Financial Officer, will become Chief Operating and Financial Officer.

Our view: Yesterday’s agreement with Thales tells investors two things: (i) That the signing of an agreement with such a highly prestigious global operator, that generally might not be expected to even open the door to small pre-prototype technology developers, underlines both parties’ confidence that the LIGHT system will be successfully developed during 2016 before moving to commercial production the following year and, (ii) That management is taking the forward initiative regarding the successful exploitation of its highly protected IP. As has been explained in numerous research documents, Beaufort’s commercial scenario for LIGHT is that the cost, safely, operational and size advantages its brings to the world of proton therapy, will effectively render ‘first generation’ systems all but obsolete; its development will also very significantly expand the international market for such systems from some US$2.5bn annually right now, to a figure potentially ten-times as large as LIGHT becomes the obvious successor to the similarly-priced but now relatively antiquated X-ray radiation systems that have a global installed base in excess of 20,000 units. In this respect, LIGHT uniquely faces a giant and accelerated global opportunity. To service this successfully, it will require the near-term facilitation of huge manufacturing and marketing support, which would require several years to independently create at significant expense. As Beaufort considers AVO to primarily be a medical technology designer of excellence, which will inevitably need to control its own small scale (relative to its potential international opportunity) manufacturing through which it would be able to develop and evolve successive generations of the LIGHT system, the volume manufacturing, distribution and servicing of its devices would be best done by external independent parties. The obvious choice for such a role being, of course, the existing ‘first generation’ manufactures who already have the right assembly, testing and support facilities in place. They would, of course, be required to pay royalties for the right to produce (possibly between US$2m and US$4m for a typical 3-bay LIGHT system), which would generate very significant income for the Group as output ramps up in coming years. The fact that AVO management has seen fit to put such a manufacturing agreement in place with Thales is, almost certainly, to create its own production and development facility; it is also a convenient way to remind the various ‘First Generation’ producers (Mitsubishi, IBA, Varian, etc.) that AVO could, if necessary, go it alone and so any licensing arrangements agreements that might be reached will not be up for negotiation. This places AVO is an exceptionally strong position and highlights the exceptional value of its technology. This will become increasingly clear as AVO moves toward demonstrating its first full scale prototype during H2’2016. With this in mind, the ‘moving around of the senior management chairs’ simply marks the shift in the business from focusing on the development of the first LIGHT system, to the ongoing commercial roll-out of its game-changing technology. Beaufort remains a very enthusiastic supporter of Advanced Oncotherapy and repeats its Speculative Buy recommendation on the shares.

Beaufort Securities acts as corporate broker to Advanced Oncotherapy plc
Alecto Minerals (LON:ALO, 0.08p) - Speculative Buy
Yesterday, Alecto Minerals announced that its wholly-owned subsidiary Caracal Gold Mali SARL had signed an agreement with Randgold Resources to form a joint venture (JV). The JV would conduct exploration and development work at the company's 137-sq-km Kossanto West gold project in western Mali that covers the Kobokoto Est and Koussikoto exploration permits. According to the agreement, Randgold would fund all costs up to the completion of a pre-feasibility study (PFS) on the project. Randgold and Alecto would hold 65% and 35% participating interests in the permits, respectively. After the completion of the PFS, all costs will be split between the JV firms in the ratio of their participating interests. The permits will be held by Caracal until the JV forms a new company (NewCo) for the development of a mine. All relevant permits would be transferred to NewCo. JV partners are likely to hold 90%, in the ratio of their participating interests in the JV, followed by the Malian government (10%).

Our view: The JV with Randgold is an important landmark in Alecto's growth story. Randgold is a key developer of world-class gold projects in West Africa. The JV would engage in exploration at the company's vast and prosperous gold project in Mali. Randgold would provide financial aid and expertise to rapidly move forward the development of the project. Meanwhile, the company remains focused on obtaining production from the Zambian gold project, Matala. Overall, Alecto is well placed with a diverse set of projects and resources to attain long-term growth. Therefore, we maintain a Speculative Buy rating on the stock.

Beaufort Securities acts as corporate broker to Alecto Minerals plc
Armadale Capital (LON:ACP, 3.38p) - Speculative Buy
Yesterday, Armadale Capital (Armadale) released the preliminary results of the feasibility study for Phase 1 of the Mpokoto Gold Project in the Katanga Province of the Democratic Republic of Congo. The study was focused on the shallower oxide portion of the resource. The key highlights of the study include total revenues of US$138.6m, with average annual revenues of US$30.8m at a gold price of US$1,250/oz (ounce) and average annual pre-tax net operating profit of US$11.14m. Open pit mining for Phase 1 has been planned for a period of four years to produce an average 24,900 oz of gold per annum. Capital costs totalled US$25.15m, with operating costs of US$792/oz. Pre-tax net present value (NPV) for Phase 1 stood at US$19.05m based on a discount rate of 5% and a gold price of US$1,250/oz and internal rate of return (IRR) of 44%. Moreover, expanded scoping study has shown that Phase 2 has an additional NPV of around US$20m. The study also revealed substantial upside potential from unweathered ore at 30m depth that is Phase 2 of the project.

Our view: The results of the preliminary study at the Mpokoto gold project have been encouraging and validate its commercial value. Mpokoto has a total mineral resource of 678,000oz gold (Au) from 14.58 million tonnes (Mt) @ 1.45g/t Au at a cut-off grade of 0.5g/t. Project economics demonstrated from the study have been robust, with a high NPV, a low cost, and a good IRR. Furthermore, additional scoping study proved the enormous potential of the second phase of the project. The company has now shifted its focus to finalizing the funding for the project from its partner, A-MCS, with whom Armadale has already commenced talks.. The company will start construction once it has finalized this funding programme. Armadale plans to look for further options to optimize the project and increase the overall resource base. Considering the above developments, we maintain a Speculative Buy rating on the stock.

Beaufort Securities acts as corporate broker to Armadale Capital PLC
Cyan Holdings (LON:CYAN, 0.14p) - Speculative Buy
Cyan, the integrated system and software design company delivering mesh based flexible wireless solutions for utility metering and lighting control, this morning announced receipt of an initial purchase order from telecommunications contractor Micromodje for a 2,000-unit smart metering implementation, which will be fitted into street cameras in the Islamic Republic of Iran. This initial purchase order is worth £67,000 with an upfront payment of £50,000. The order from Micromodje is for the supply of Cyan's CyLec Advanced Metering Infrastructure solution, which includes RF modules, data concentrator units, head-end software licenses, software installation services and an annual software maintenance agreement. The order was placed only a couple of weeks after international sanctions were lifted on Iran on 16 January and is believed to be one of the first orders secured by a UK business, with support from the specialist UK Trade and Investment team. The first units were delivered at the start of last week and were successfully deployed in a two-day period for a proof of concept in Iran. The Cyan HES has been installed on a Micromodje server and the Cyan end to end solution is providing meter readings every 30 minutes as well as the ability to connect/disconnect supply. The solution has been demonstrated to Micromodje's Iranian customer. The proof of concept had to be ready for a demonstration to government officials as part of the Victory Day of the Iranian Revolution celebrations on 11 February in Tehran.

Our view: Micromodje is a system integrator with a wealth of experience in delivering solutions for government contracts and has recently been expanding its core capabilities to include the emergent Internet of Things connectivity markets. It will act as a distribution agent of Cyan's smart metering hardware and software in Iran, whilst providing a complete turn-key service for the fulfilment of the deployments. Timing is excellent, given the lifting of economic sanctions on 16th January. The combined Cyan team from India and the UK exceeded the customer's expectations by deploying the proof of concept pilot in only two days and this order from Micromodje shows its confidence in the Group's enabling technology. Micromodje and Cyan have now commenced discussions on a larger purchase order for smart electricity metering solutions to be deployed within Iran, leaving Cyan management optimistic for longer-term opportunities in the delivery of smart metering technology, enhancing the quality of service for energy utilities and other customers across Iran. The potential for Cyan has being highlighted by a published Iran Government estimate detailing a requirement for as many as 33 million smart electricity meters. Beaufort retains its Speculative Buy recommendation on Cyan Holdings.

Beaufort Securities acts as corporate broker to Cyan Holdings plc
DDD Group (LON:DDD, 1.62p) - Speculative Buy
DDD yesterday announce that it has entered into an agreement with Arisawa Manufacturing Company Ltd. for an US$800,000 Secured Loan ("Loan"), pursuant to the existing authorities granted to the Board of Directors. The Loan is secured by the Company's US 2D to 3D conversion patent number 6,477,267 and its international counterparts. The net proceeds (approximately US$795,000) to be used to finance business development and licensing activities for the Group's new TriDef SmartCam and UPix products and additional intellectual property licensing activities. The Loan has an annual interest rate of 10%, payable at the end of each calendar quarter. It is repayable on or before 30th June 2016 or as otherwise mutually agreed between the Company and Arisawa. Arisawa is currently a holder of 15.7% of the existing issued ordinary share capital of the Group. The transaction is a related party transaction for the purpose of AIM Rule 13.

Our view: The affiliate licensing program for DDD's new TriDef SmartCam products continues to deliver promising results, while end user reaction is very encouraging with strong growth in downloads and an increasing awareness amongst larger prospective licensees and partners. The Group's release of its UPix social photography app in the Google Play store is also anticipated for later this month, which should further demonstrate the applicability of its newest solutions to large growth markets. With momentum behind the new 2D products, DDD is also planning to place more emphasis on its wholly owned GenMe Inc. subsidiary to accelerate the commercialization of the new products. The additional capital raised in this round will strengthen resources as it strives towards operating cash break-even. Inevitably in such circumstances, timing can never be precise and reasonably high cash burn will likely continue to place a near-term strain on the balance sheet as the Group rolls out and refines 2D applications, appoints licensees and undertakes end-user marketing. But given the market size for gamecasting/video conferencing that is forecast to deliver growth from hundreds of millions of existing end-users, potential shareholder rewards remain very large indeed. Beaufort retains its Speculative Buy recommendation on DDD Group.

Beaufort Securities acts as corporate broker to DDD Group plc
Kibo Mining (LON:KIBO, 4.12p) - Speculative Buy
Yesterday, Kibo Mining (Kibo) announced the completion of the first phase of the Mbeya coal-to-power project (MCPP), an integrated bankable feasibility study (IBFS). The highlights of the study include the successful integration of three primary MCPP feasibility study work streams and the completion of meetings with all key government stakeholders. Shangoni Management Services has formally been appointed environmental consultant.

Our view: The completion of the first phase of the IBFS is an encouraging development for Kibo. The company is making good progress on all key work streams, including its mining definitive feasibility study (MDFS), its power definitive feasibility study (PDFS), its environmental impact assessment (EIA) and IBFS. The successful completion of each study will expedite the completion of the MCPP. Meanwhile, the company is about to finalize a power purchase agreement for the MCPP with Tanzania Electric Supply Company (TANESCO). Recently, Rukwa Coal Limited, a wholly-owned subsidiary of Kibo, received three new prospecting licences in southern Tanzania, which contains the 109Mt Mbeya coal mineral resource. This will allow Kibo to test for a possible extension to the current resource and/or the discovery of additional satellite deposits. We expect the MCPP project to gather further momentum as the feasibility study is presently advancing at a great pace and is approaching completion. Given the above positive developments, we maintain a Speculative Buy rating on the stock.

Beaufort Securities acts as corporate broker to Kibo Mining plc
Mariana Resources (LON:MARL, 1.85p) - Speculative Buy
Mariana Resources Ltd reports that exceptionally high grade; near-surface gold-copper mineralisation continues to be intersected in drilling along extensions to the Hot Maden Mineral Resource. Importantly, the latest results include the best gold-copper intersection to date with none of the eight holes reported representing resource infill drilling. The Company reported exceptional gold-copper mineralisation intersected in near-surface Resource Extension Drilling at the Hot Maden Project. Key intercepts include: HTD-34: 71.0m @ 32.7 g/t Au + 1.9% Cu from 55m downhole. Including 22.0m @ 83.9 g/t Au + 1.8% Cu from 89m downhole. HTD-35: 63.6m @ 14.5 g/t Au + 3.4% Cu from 46.8m downhole. Including 21.0m @ 38.9 g/t Au + 5.1% Cu from 85m downhole. The Resource Extension Drilling at Hot Maden is ongoing with one diamond drill rig and the rate of drilling is now expected to be accelerated shortly with the addition of a second rig. Systematic metallurgical test work on the Hot Maden gold-copper mineralisation is now underway, with the initial focus being on crushing / grinding studies, gold-copper recoveries, and flow sheet definition. Completion of a maiden Preliminary Economic Assessment (PEA)* for the Hot Maden Project remains on track for late Q3 2016 / early Q4 2016. * A "PEA" is a study other than a pre-feasibility study or feasibility study which includes an economic analysis of the potential viability of mineral resources - Canadian Securities Administrators (CSA).

Our view: The drill hole, HTD-34, represents Mariana’s best hole to date and, together with HTD-35, the drilling continues to deliver ounces outside of the reported mineral resource estimate. The high grade intercepts have delivered significant mineralisation 100m closer to surface from discovery Hole HTD-05. Drilling to date is successfully delineating the limits of the resource to the east and west whilst leaving the potential open at depth as well as north and south. Importantly, extension and exploration drilling planned for February is expected to ramp up with a second drill rig scheduled to commence drilling soon. This is much anticipated as it will hopefully extend the strike of the resource zone to the south and north. In addition, the Company report that the PEA is on track for completion later this year with studies firmly underway. We look forward positively to February's planned activity, and retain our Speculative Buy stance.

Stratmin Global Resources (LON:STGR, 2.88p) - Speculative Buy
Yesterday, Stratmin Global Resources (Stratmin) informed that on 1st February 2016, Consolidated Resources agreed to provide an unsecured loan facility of up to A$200,000 to Graphmada Mauritius, the company’s 93.5% subsidiary. So far, £24,212 has been drawn down. The funds availed under the facility are free of interest rate. Consolidated Resources has expressed interest in about 11.10% of the issued share capital of Stratmin. David Premraj would represent Consolidated Resources on the board of Stratmin.

Our view: The receipt of an unsecured loan facility from Consolidated Resources enables Stratmin to seamlessly continue expanding its operations in Loharano. This facility follows the company’s completion of its first funding tranche of £0.5m from ASX-listed Bass Metals. The funding provided by Bass Metals in the past few months led to improvements at Loharano operations. In addition, Stratmin has ordered a new power supply solution for the plant and a new diesel generator. The company also plans to seek further funding from Bass Metals this year. We look forward to more progressive developments from the Loharano operations during the year. Therefore, we maintain our Speculative Buy rating on the stock.



Important Risk Warnings and Disclaimers 

This report is published by Beaufort Securities Ltd ("Beaufort Securities"). Beaufort Securities Ltd is Authorised and Regulated by the Financial Conduct Authority and is a Member of the London Stock Exchange. 

RELIANCE ON THIS NOTE FOR THE PURPOSE OF ENGAGING IN ANY INVESTMENT ACTIVITY MAY EXPOSE YOU TO A SIGNIFICANT RISK OF LOSING ALL OF THE FUNDS, PROPERTY OR OTHER ASSETS INVESTED OR OF INCURRING ADDITIONAL LIABILITY. 

This document is not an offer to buy or sell any security or currency. This document does not provide you with individually tailored investment advice. It has been prepared without regard to the your financial circumstances and objectives The appropriateness of a particular investment or currency will depend on your individual circumstances and objectives. The investments and shares referred to in this document may not be suitable for you. 

This research is non-independent and is classified as a Marketing Communication under FCA rules. As such it has not been prepared in accordance with legal requirements designed to promote independence of investment research and it is not subject to the prohibition on dealing ahead of the dissemination of investment research in COBS 12.2.5. However Beaufort Securities has adopted internal procedures which prohibit analysts from dealing ahead of non-independent research, except for legitimate market making and fulfilling clients' unsolicited orders. 

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Beaufort Securities may effect transactions in shares mentioned herein and may take proprietary trading positions in those shares, and may receive remuneration for the publication of its research and for other services. Beaufort Securities may be a shareholder in any of the companies mentioned in this report. Accordingly, this document may not be considered as objective or impartial. Additionally, information may be available to Beaufort Securities or the Group, which is not reflected in this material. The remuneration of the author of this report is not tied to the recommendations on any shares mentioned nor to the any transactions undertaken by Beaufort Securities or any affiliate company. Further information on Beaufort Securities' policy regarding potential conflicts of interest in the context of investment research and Beaufort Securities' policy on disclosure and conflicts in general are available on request. Please refer to http://www.beaufortsecurities.com/important-info. 

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