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Beaufort Securities Breakfast Alert: Cyan Holdings PLC, Ortac Resources Ltd, Solo Oil PLC, Xtract Resources PLC

Beaufort Securities Breakfast Alert:  Cyan Holdings PLC, Ortac Resources Ltd, Solo Oil PLC, Xtract Resources PLC

Today's edition features:

• Mineral & Financial Investment Limited (LON:MAFL)

• Ortac Resources (LON:OTC)

• Solo Oil (LON:SOLO)

• Xtract Resources (LON:XTR)

• CyanConnode Holdings (LON:CYAN)

 

"US equities yesterday enthusiastically reversed the declining trend of the past week, taking the S&P-500 and Dow Jones to new record highs, while the recently punished Nasdaq chalked up the largest rise as bargain hunters searched for oversold situations. Apple, for example, made a good recovery after having declined for the previous six sessions. Closing at their best levels of the day, buying confidence was clawed largely from a display of strength amongst overseas markets whose foundations had been established during early morning trade in Asia. A prediction from New York's Federal Reserve President, William Dudley, that the current inflationary pause will eventually give way to higher wages within a tightening labour market, pushing it back closer to the Central Bank's 2% target, also helped boost confidence. Steel stocks were a feature, climbing further off the seven-month low it set last Thursday, at one stage driving the NYSE Arca Steel Index up as much as 2.1%. This particular rally followed Commerce Secretary Wilbur Ross telling Bloomberg that President Trump intends to take "bold action" to address the national security risks posed by steel imports. Semiconductor, biotechnology, and banking stocks also found good buying interest, moving higher along with most of the other major sectors. Inevitably enough, Treasuries pulled back into negative territory, countering initial strength and lifting the yield on benchmark ten-year notes up by 2.7 basis points at 2.178%. The Nikkei Stock Average jumped almost 1% this morning to a fresh 22-month high as the yen fell, though other Asia-Pacific markets were quietly mixed. Following broad gains Monday, for example, South Korea's Kospi and Hong Kong's Hang Seng eased fractionally, while Australian traders took profits on recent S&P/ASX 200 gains, while the Shanghai composite was all but unchanged. Oil prices were slightly higher in Asia after hitting fresh seven-month lows in New York, with investors doubting how effective the production cuts being led by by Saudi Arabia and Russia can actually be. European markets also put in a good performance on Monday, led by led by industrials, oil & gas and basic materials stocks. The STOXX Europe 600 rose 0.89%, scoring its biggest one-day percentage gain since April 24 after French President Emmanuel Macron's upstart party scored a strong majority during Sunday's parliamentary elections, even if they were marked by a record low voter turnout. Presently riding on a high, he is expected to table his least popular, business friendly reforms within his first 100 days, in order to gain international respect which, by this time next year, should have translated into stronger economic growth. This sentiment reflected in strong performances by both the CAC-40 and Xetra Dax, which led equity gains around the Bloc. UK shares fully participated yesterday, despite a nervous trading environment created by the start of Brexit negotiations. Traders were not deterred by the latest terror-related incident in North London, but warmed to increased anticipation that a softer, more business-friendly Brexit will be the eventual outcome. As a result, the FTSE-100 enjoyed its best session since 9th June, finding demand in the same sectors that lead the European indices, while retailers also staged a good recovery after having been excessively sold on Friday in response to Amazon's proposed acquisition of Whole Foods Market Inc. Although the UK is not scheduled to release any major macro statistics today, both the Governor of the Bank of England, George Carney, and the Chancellor of the Exchequer, Phillip Hammond, are scheduled to make speeches at a Mansion House breakfast event commencing at 08:30hrs BST, after the latter had been forced to delay setting out his view on the UK economy at last week's annual dinner in response to the tragic tower block fire in Kensington. Traders in particular will be keen to hear anything more regarding the opportunity for the UK and US to establish a free-trade agreement following Liam Fox's the joint appearance with Wilber Ross yesterday at a US government-run investment conference just outside Washington, although such a bilateral agreement clearly cannot be concluded until the UK is no longer part of the European Union. The EU is due to publish its April Current Account data, while the US offers the same statistic for Q1'2017, Weekly Redbook and API Crude Oil Stocks; speeches are also scheduled from the Fed's Stanley Fisher and FOMC's Robert Kaplan. The UK reporting season is now slowing, so there are fewer scheduled earnings or trading updates to anticipate; just Wolseley (WOS.L), N. Brown Group (BWNG.L), RWS Holdings (RWS.L) and Accsys Technologies (AXS.L) are due this morning. Overall, however, European equities appear set to open in an upbeat mood once again this morning, although gains will be limited after yesterday's strong movement. The FTSE-100 is seen moving between flat and 10 points up in early trading."

- Barry Gibb, Research Analyst

 

Markets

Europe

The FTSE-100 finished yesterday's session 0.81% higher at 7,523.81 whilst the FTSE AIM All-Share index was up 0.77% at 978.87. In continental Europe, the CAC-40 finished up 0.90% at 5,310.72 whilst the DAX finished 1.07% higher at 12,888.95.

Wall Street

In New York last night, the Dow Jones rose 0.68% to 21,528.99, the S&P-500 added 0.83% to stand at 2,453.46 and the Nasdaq gained 1.42% to finish the session at 6,239.01.

Asia

In Asian markets this morning, the Nikkei 225 had added 1.13% to 20,294.57, while the Hang Seng fell 0.08% to 25,903.82.

Oil

In early trade today, WTI crude was up 0.02% to $44.21/bbl and Brent was up 0.11% to $46.96.

 

Headlines

Brexit negotiations: Barnier rules out 'concessions'

The EU's chief negotiator said there would be "substantial" consequences from Brexit after the first round of talks with the UK. Michel Barnier said he was "not in the frame of mind to make concessions or ask for concessions". UK Brexit Secretary David Davis said talks got off to a "promising start". The UK appears to have conceded to the EU's preferred order for the talks which will mean trade negotiations do not begin immediately. Mr Davis and Mr Barnier gave a joint press conference after day one of the talks in Brussels. The initial focus will be on expat rights, a financial settlement and "other separation issues".

Source: BBC News

 

Company news

Mineral & Financial Investment Limited (LON:MAFL, 15.88p)

Mineral & Financial Investment (MAFL), the metals and mining focused investment company, announced yesterday that TH Crestgate, a private investment company in which MAFL holds a 49% interest, has released the first assay results from its new drill programme designed to expand the current resource at the Lagoa Salgada project in Portugal. The 13,400ha Lagoa Salgada project is a polymetallic deposit with a preliminary resource estimate of 4.5Mt grading 2.79% Pb, 2.85% Zn, 0.34% Cu, 53.43g/t Ag and 0.81g/t Au for the LS-1 Zone. The first of six planned drill holes (LS MS-01) intersected 88m grading 11.85% Zn Eq., including gold rich zones of 2m grading 30g/t Au and 16m grading 3.3g/t Au. TH Crestgate has an exploration target of between 8.0Mt and 10.0Mt on the LS-1 Zone. Assay results from the Central Sector located SE of the LS-1 Zone were also reported, drill hole LS ST-03 intersected 11 different massive sulphide intervals in association of strongly sericite alteration. In addition to the LS-1 Zone and the Central Sector mineralisation Lagoa Salgada hosts at least 16 other gravimetric anomalies which have yet to be fully tested.

Our View: TH Crestgate recently increased its ownership to 100% ownership of the Lagoa Salgada, which allows for much greater flexibility in management of the project. We are encouraged with the assay results from the first drill hole of the current drilling campaign which continues to suggest that Lagoa Salgada is a large mineralised system with potentially numerous ore zones. We look forward to further drill results and the subsequent resource update for the LS-1 Zone. In the meantime, we maintain a Speculative Buy on the Stock.

Beaufort Securities acts as a corporate broker to Mineral & Financial Investment Limited

 

Ortac Resources (LON:OTC, 3.38p) – Speculative Buy

Ortac Resources, the diversified mineral exploration and mine development company, announced yesterday an update on its investment in Casa Mining, a private company developing the Misisi gold project in the DRC. Following conversion of the Company's recent US$2m convertible loan note, Ortac would hold approximately 45% equity interest. Casa has engaged African Mining Consultants (AMC) to provide an updated JORC-compliant inferred resource on the Akyanga deposit which now stands at 1.0Moz of gold with an average grade of 2.27g/t Au (cut-off grade of 1.5g/t Au). The relatively high cut-off grade used by AMC demonstrates a robust >2g/t Au orebody using a range of gold prices. Casa Mining holds the rights to three mining licences within the Misisi corridor located in the South Kivu province of the DRC. Since 2009, over US$30m has been spent identifying the 60km long gold corridor with multiple prospects having been drill and trench tested returning significant gold intercepts. Mineralisation on the Akyanga remains open and will be investigated with an upcoming drill programme.

Our View: As a major shareholder in Casa Mining, the above announcement is positive news for Ortac. The updated resource for the Akyanga deposit demonstrates the robust nature of the ore body. When using a 0.5g/t Au cut-off the inferred resources increased by 350,000oz to 1.6Mt grading 1.65g/t Au. We are encouraged with the potential for additional resources and look forward to further updates on the project. We also note the potential for larger scale gold production within the highly prospective Misisi corridor located c 150km south of Banro's 1.6Moz Twangiza gold mine. As such, we maintain a Speculative Buy rating on the stock.

Beaufort Securities acts as corporate broker to Ortac Resources plc

 

Solo Oil (LON:SOLO, 0.31p) - Speculative Buy

Solo's partner Aminex has published a progress update over its two Tanzanian gas projects, Ntorya (Ruvuma basin) and Kiliwani North. Solo also published a short statement, noting that it will be seeking a farm-in partner at Ntorya once the 25 year development licence has been granted. At Ntorya, Aminex is actively working with the Tanzanian Petroleum Development Corporation (TPDC) to develop an early production system (supplying gas to local major industry). The longer term plan would be to tie in to the national pipeline system. Aminex is also preparing for Ntorya 3 drilling. With recently collected Ntorya 2 data and further analysis, it is updating its Ntorya basin model and looking for deeper targets with oil potential. Meanwhile at Kiliwani North, production has averaged 15 million cubic feet per day this year.

Our View: Progress continues at Ntorya, albeit in meeting rooms in Dar es Salaam, on computers, and in the laboratory. As Neil Ritson (CEO) puts it "Work on commercialising the Ntorya gas-condensate discovery continues to advance with a view to both short and longer term monetisation of the significant accumulation proven by the Ntorya-1 and -2 wells". An Early Production System will most likely involve a gas pipeline directly supplying energy hungry industrial plants (e.g. cement) located in southern Tanzania. We look forward to progress updates on this work and maintain our Speculative Buy recommendation.

Beaufort Securities acts as corporate broker to Solo Oil PLC

 

Xtract Resources (LON:XTR, 0.01p) – Speculative Buy

Xtract Resources announced yesterday that its wholly owned subsidiary Explorator has agreed to a mining contractor deal with Omnia Mining and Moz Group for its Manica alluvial mining concession in Mozambique. The contractors are already active in the area and will focus on the western half of the alluvial deposit on the Manica licence with initial mining to take place in September. The agreement provides for monthly payments against monthly run-of-mine performance. A minimum capacity of 220kt per month (2.6Mt per annum) is targeted. Based on a gold price of 1,250/oz and assuming capacity of 220kt per month, the expected monthly revenue to Explorator is US$165,000.

Our View: The above announcement is good news for Xtract shareholders as the agreement could provide significant cash flows. Under terms of the agreement, Explorator will receive a base net price per tonne of ore processed with additional incremental payments for any increase in the gold price above US$1,250/oz. We look forward to further updates as management is currently negotiating the eastern half of the Manica alluvials and continues to evaluate the potential development of the Manica hardrock deposit. In the meantime, we maintain our Speculative Buy rating on the stock.

Beaufort Securities acts as a corporate broker to Xtract Resources PLC

 

CyanConnode Holdings (LON:CYAN, 0.14p) – Hold

CyanConnode, the world leader in narrowband radio mesh networks, yesterday announced that it has received a follow-on order for a further 10,400 smart meters from Larsen & Toubro ('L&T') in India. The purchase orders are part of a framework agreement between Tata Power Mumbai ('Tata Power') and L&T, announced in December 2016. CyanConnode will provide communications hardware and software for the implementation of its narrowband RF mesh Advanced Metering Infrastructure ('AMI') solution for 10,400 smart meters for Tata Power consumers in Mumbai, bringing the total orders to date to 25,100. Tata Power currently has over 2.6 million consumer customers, including over 670,000 in Mumbai. CyanConnode's AMI technology provides two-way communications between the consumer's meter and the utility, enabling automated meter reading, regular and accurate billing as well as providing customers with energy consumption information. CyanConnode's Executive Chairman, John Cronin, commented "India continues to be a core market and the Company is in a leading position with an established in-country team and partner eco-system. The Indian government's approved UDAY scheme, which aims to deliver the financial turnaround for utilities, has a target to install 35 million meters by 2019".

Our View: Beaufort remains a strong supporter of CyanConnode's business plan. The Group has spent over a year laying technological and international foundations to ensure it captures a significant role in the huge developing and long-term smart metering market. The details of yesterday's follow-on order and last Thursday's contract extension in Bangladesh (from US$5.4m to US$9.3m) both provide positive endorsement regarding value the Group's AMI solutions can create. That said, however, optimists might also have been hoping to see even more, possibly in the form of significant new orders from new international customers, building in the process evidence that the Group's product offering is indeed capable of becoming recognised as one of the 'industry standards'. While Beaufort continues to believe this can be achieved in the medium-term, it is not presently satisfied that the Group's existing order book and activity levels provide adequate visibility to hit its (Beaufort's internal) revenue targets for either 2018E and 2019E. In the meantime, monthly cash burn remains uncomfortably high; given the expanded Group infrastructure and international marketing efforts, operational burn will have risen from the £588k recorded in 2016A to, perhaps, an average of £750k for 2017E. Beaufort's internal estimates had also considered that by the end of 2017E, CyanConnode might be capable of generating its first positive monthly cash returns, but this now also looks somewhat optimistic. Wisely, management has already bolstered its balance sheet with last April's £3.2m raise but, after adding this the 2016A year-end cash/near-cash balance of £3.9m, it still appears that the cupboard may be bare by the end of this year. Given that management found itself rather more comfortably operating with a reasonably large cash-cushion over the past year, the Board could seek relatively shortly to bolster its balance sheet with a further equity placement, rather than going right to the line; at the same time, market watchers might also consider whether they should reset downward their current expectations for prospective revenues and profits. Confidence will undoubtedly return once new lumpy contracts start to emerge and activity levels pick up within the existing pipeline; as it broadens its international customer base, CyanConnode's technology and market position will also hold significant attraction for larger conglomerates that wish to operate in this developing sector. That, of course, is somewhat further out, and meanwhile Beaufort has decided to take the cautionary step of downgrading its recommendation from Speculative Buy to Hold while awaiting further developments.



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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