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Northland Capital Partners View on the City: Victoria Oil & Gas, AdEPT Telecom, Advanced Computer Software Group plc, WISHBONE GOLD and others

Last updated: 09:51 25 Oct 2013 BST, First published: 08:51 25 Oct 2013 BST

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MINING: Wishbone Gold (LON:WSBN)

WISHBONE II UPDATE: NEW GOLD AND COPPER ANOMALIES DISCOVERED

Hanging Valley Prospect

  • Further exploration at the Wishbone II Project has defined extensions to the polymetallic DAB vein system as well as a parallel vein that returned grades of 1.25% Cu, 0.12g/t Au, 476ppm Mo and 262ppm As.
  • Sampling at the previously discovered Haughton Bluff Creek West vein system returned grades of up to 25.2g/t Au.
  • Stream sediment sampling in the area returned significant anomalous results up to 27.7ppb Au.
  • Wishbone has now defined multiple polymetallic veins and believes that the Hanging Valley Prospect is a high priority target.

Oaky Mill Prospect

  • Significant copper and gold anomalies defined.
  • Samples from 17 outcrops returned grades over 1% with one sample as high as 4.83% Cu and 0.23g/t Au.
  • Stream sediment samples also defined anomalous gold levels 11.7ppb Au.
  • In the west of the prospect, in an area not previously explored, Wishbone detected grades of up to 7.32g/t Au.

Wishbone is now planning to continue to define the surface anomalies for drill targets.

NORTHLAND UK VIEW: Wishbone Gold is making good progress at its projects in Queensland, the Company is now gaining an improved understanding of the structural geology of the area and will now undertake further mapping and surface sampling of the area to clearly define targets for drilling. Work to date has focused on the Wishbone II licence that covers less than a quarter of the Company’s prospective licence holding and significant regional upside potential remains. 

 

TMT: ARCONTECH (LON:ARC)

DIRECTOR SHARE PURCHASES

  • CEO Matthew Jeff acquired an additional 5m shares at 0.14p/share. As a result, he now has a holding of 28m shares, equivalent to 1.83%. 
  • No changes to forecasts, BUY rating or 0.18p price target.

OIL & GAS: VICTORIA OIL AND GAS (LON:VOG)

FY13 RESULTS: CONFIRMS ENCOURAGING MESSAGE OF RECENT OPERATIONAL UPDATE

  • Revenue was $6.9m compared to nil last year last year. EBIT loss was $11.6m compared to $4.5m for FY12. 
  • Average sale to industrial customers were made at $16/mmbtu with prices fixed for 5 years. Total gas sold was 369mmscf an average of just over 1mmscf/d, but the company has now reached 2.4mmscf/d. Condensate volumes of 7,784 bbls added around $815k of revenues.
  • Company expects to reach between 3.6mmscf.d and 4.8mmscf prior to year end.
  • Ramp up in administration cost to $11.2m (FY12: $4.5m) partly reflected that costs are now being expensed as opposed to capitalised during the pre-roll out phase of the projects.
  • Cost of sales excluding royalties was $5.5m but included a $2.3m depletion and depreciation charge. 
  • Company cites the high fixed cost base but this means that additional capacity will enable it to benefit from positive operational gearing. Victoria will be cashflow positive once a brewery comes on line adding up to 2.9mmscf/d of demand.
  • The working capital saw payables decrease significantly, though the company still benefited from working capital management by a net $5.2m in the period.
  • Capex for the period of $9.7m spent but significantly down on the $25.4m spend in FY12 principally in relation to the pipeline. 

NORTHLAND UK VIEW: Victoria Oil and Gas issued a comprehensive statement on 11th October and this morning’s Prelims largely build upon the messages evident there, i.e. it has seen a difficult year with a number of setbacks but the underlying project fundamentals remain sound and the company is close to gaining positive leverage. Victoria should soon feel the positive effect of operational gearing as capacity is rolled out, particularly in relation to a Brewery project. VOG has invested $111m in Logbaba and $59.1m in West Med Russia. We reiterate our earlier comment that we have long liked this project on fundamentals where it remains excellent value. The Cameroon government has been supportive, Douala is a local market hungry for gas supply at attractive prices (currently contracted at $12-$16/mcf with blue chip customers) and Victoria is the only supplier in the country. Long-term term we would expect to see prices normalise but Victoria’s early mover advantage, installed capacity and infrastructure should underpin strong long term returns.

Week Ahead (28/10/2013)

View from the trading desk

Markets have rebounded strongly since the resolution/can-kicking of the US debt crisis. Wednesday’s disappointing US jobs data did little to dampen optimism as the markets once again took a negative economic release as a positive with regards to the timing of tapering. Tapering expectations are likely to continue to be a major market influence in coming months. Progress on the corporate front is reasonable if not exceptional, as evidenced by jobs data, though overall confidence remains positive. Elsewhere, China’s Q3 increase in GDP (+7.8%) was its strongest performance this year that comforted markets. Eurozone continued to show signs of recovery with composite PMI at an expansionary 51.5 but below expectations of 52.5 and down on September’s 52.2. Spain’s exit from recession is another positive sign, though the recovery, as elsewhere, remains fragile. In the UK, confidence is comparatively high given a robust manufacturing performance as highlighted in the latest CBI survey that suggests annualised growth of 3%. Market valuations look full, particularly in the US, but stock market confidence seems pretty robust and a slew of IPOs are due.

Sales & Research thoughts

TMT – This week saw a successful Northland Capital/Beaufort Securities tech seminar with presentations from Advanced Oncotherapy (LON:AVO), Starcom* (LON:STAR), Macromac (LON:MACC) and Globo (LON:GBO). The mood amongst tech companies remains reasonably upbeat with better trading and investor interest helping to drive share prices that is, in turn, facilitating fund raising to enable expansion organically and through acquisition. Amongst the bellwethers, the standout Q3 licensing performance at ARM (LON:ARM) was overshadowed by a lower growth rate on royalties, the key element behind the company’s heady rating. Management cited an inventory correction on high-end smartphones and Q3 suggests the smartphone market is becoming more segmented, including some commoditisation. The high licence revenue points to a brighter midterm royalty growth outlook, however, as ARM penetrates more markets and 64-bit designs take hold. Q3’s IMS from Computacenter (LON:CCC) reiterated strong performances and good outlooks in the UK and Germany (excluding the three onerous contracts) but no sign of improvement in France. 

Next Tuesday sees interims from AdEPT Telecom* (LON:ADT) and we expect an update on the 3,000 business customer contracts that were acquired from Bluebell Telecom August. AdEPT has high levels of process automation that result in sector leading revenue per employee and operating margin statistics and it is able to take on contract bases without expanding the operating cost base. The acquisition will have pushed up debt levels but strong cash conversion will quickly erode this. AdEPT has also been gaining momentum in the public sector through the ESPO and JANET frameworks.

Interims from Advanced Computer Software (LON:ASW) are scheduled for Wednesday. H1 revenue is expected to be no less that £99m (+74%) and adj. EBITDA of £22m (+67%). Net debt has ballooned to £50.9m (FY13 net cash: £30.9m) following the acquisition of Computer Software Holdings. We will be looking for an update on the integration process and further acquisition ambitions.

Mining: Gold and silver soared this week up 4% to $1,333/oz and 5.3% to $23/oz respectively with weak US jobs data, increasing investor expectation that the Fed will not begin easing its QE programme until the end of Q114. Nickel was also up 3.7% to $14,580/t with concerns that Indonesia, the world’s biggest nickel producer, may halt the export of unprocessed ore next year once the Government ban comes into effect at the start of Q1.

The ban would likely cause a collapse in Indonesia’s mining industry as the country only has a small number of smelters. No Government support, low commodity prices and high energy costs have meant that few companies have been willing to invest the necessary significant capital to expand the local smelting industry. As Indonesia is also a leading exporter of tin, we could see price inflation for both metals unless the ban is lifted.

 

 

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