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Beaufort Securities Breakfast Alert including Ariana Resources, Armadale Capital, Alecto Minerals, Orogen Gold and others

Published: 08:03 18 Nov 2014 GMT

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The Markets

Market opening: Markets are likely to open higher today. FTSE 100 futures were trading 23.5 points up at 7:00 am.

New York: The S&P 500 gained 0.1% to reach a new high. Investors ignored weak industrial production in the US to focus on comments from European Central Bank’s President Mario Draghi regarding unconventional measures to boost a sagging European economy.

Asia: Markets are trading mixed on reports of a snap election in Japan and a delayed hike in sales tax. On the other hand, the focus remained on a greater-than-expected fall in new home prices in China. The Nikkei increased 2.2% at close, whereas the Hang Seng was trading 0.9% down at 7:00 am.

Continental Europe: Equities ended in the green after the ECB Chief reassured additional stimulus measures for the Eurozone, including the purchase of sovereign bonds. France’s CAC 40 and Germany’s DAX advanced 0.6% each.

Crude Oil: Yesterday, WTI and Brent Crude Oil prices declined 0.2% and 0.1%, respectively. The spread between the two varieties stood at US$3.7 per barrel.

UK small caps: The FTSE AIM All-Share index closed 0.01% lower yesterday at 716.41. To read our latest research click here.

Today’s news

David Cameron warns of impending global crisis

The UK’s Prime Minister David Cameron urged parliamentarians to hold firm on economic policies to secure a better future for the country. He stated the economy has responded well to the tough measures undertaken thus far, however the worrying signs from the Eurozone cannot be ignored.

Fed meets bank representatives to discuss LIBOR alternatives

The Federal Reserve met with 15 banks as well as US and foreign regulators in New York to discuss the development of an alternative risk-free rate to LIBOR for use in derivative contracts. The meeting follows recommendations by a group of international regulators on the Financial Stability Board in July.

Company News

Strat Aero (LON:AERO) – Speculative Buy

Yesterday was the first day of dealings on AIM for Strat Aero. The Group, a revenue generative international aerospace services company currently focused on the provision of training solutions, management systems and consultancy services to the international aviation market, announced the Admission of its issued share capital to trading on AIM. It followed the completion of a placing of 8.13 million new Ordinary Shares at 8 pence per share to raise £650,000 before expenses, giving the Company a market capitalisation of approximately £6.2m on Admission at the Placing Price. The funds raised will be used to provide working capital for the Company’s existing and future business opportunities, particularly in relation to the fast growing Unmanned Aerial Systems (‘UAS’) market. The Group operates three divisions in UAS Pilot Training and Services, Aviation Software, Products and Services & Aviation Management and Consultancy Services. Through these services, Strat Aero offers a unique opportunity to gain exposure to anticipated exceptional growth for the unmanned aerial vehicle market (’UAV’) and also to the wider aerospace industry. The potential uses for UAVs in both the public, governmental and commercial sectors are highly varied, ranging from the delivery of goods by retailers to the monitoring of wind farm turbines and remote oil and gas fields, and search and rescue operations. With a unique fully equipped UAV pilot training centre in Roswell and a co-operation agreement in place with a leading US defence contractor and the US Government’s NREL, Strat Aero is ideally placed to seize part of this rapidly growing market and to become the ‘go-to’ provider of bespoke UAV training and solutions.

Our view: As far as drones are concerned, there are two certainties for the coming decade. Firstly, a dramatic and unsated international proliferation across a broad range of different systems – both for military and commercial roles and; Secondly, in tandem with a partial opening of national and international skyways to such unmanned aerial vehicles, the imposition of a new and strictly enforced Code of Conduct on all operators by aviation authorities and homeland security departments. Somewhat reminiscent of the early days of the motor car, the exceptional number of expensive UAV crashes and hazardous incidents being incurred can largely be put down to pilot error, rather than equipment failure. Training and licensing, using both computer simulation and hands-on tuition, will become mandatory requirements. This opens a significant new market opportunity. Well-connected first movers, like Strat Aero, should find themselves ideally positioned to secure significant long-term contact work and, very importantly, at the forefront of the emerging regulatory and training requirement of a developing industry. Existing contracts and MOUs with defence companies, government bodies and educational establishments already won by the Group provide a flavour for the opportunity, and are even expected permit this lean operation to produce a net profit in 2015. Beaufort initiates research on Strat Aero with a Speculative Buy recommendation with a price target of 14.0p per share.

Beaufort Securities acts as corporate broker to Strat Aero plc

Ariana Resources (LON:AAU) – Speculative Buy

Yesterday, Ariana confirmed the presence of mineralised sub-volcanic porphyry at the Kepez prospect in the Kiziltepe Sector of the Red Rabbit Project. The porphyry has been extended over 2km by 1.8km as part of a 5km diameter volcanic caldera, where mineralisation occurs in intensely altered zones and epithermal veins in the periphery of the porphyry. Rock-chip grades up to 383 grams per tonnes (g/t) of silver (Ag) and 41.8 g/t of gold (Au) were found in the area. A 1.1km by 0.2km zone of quartz-sulphide mineralisation cuts across the porphyry with grades up to 0.1 to 0.5 g/t of Au. Notably anomalous alternate zones of molybdenum and antimony also run in and around the porphyry centre. On the other hand, based on the geophysical and the geochemical data, areas have been marked for initial drilling which are accessible without any permission. Kepez prospect is expected to commence production in 2015.

Our view: The extension of the porphyry resource of the Kepez prospect in the Red Rabbit Project considerably enhances the future prospectivity of Ariana’s multi-million ounce gold deposits in Turkey. Extensive planning is currently underway to improve the economic fundamentals and augment the resource base through acquisitions. Moreover, exploration activities have been advanced through joint venture (Eldorado Gold) and strategic investment (Tigris Resources). The company possess the requisite geoscientific expertise to rapidly develop new porphyry and epithermal deposits in western Turkey where it has substantial presence in WAVE Province. Given the above positives, we are certain that the company is well positioned to unlock the value of the highly attractive asset and therefore retain our Speculative Buy rating.

Beaufort Securities acts as corporate broker to Ariana Resuorces plc

Armadale Capital (LON:ACP) – Speculative Buy

Yesterday, Armadale was granted four Mining Licences, including the Mpokoto Gold Project in the Katanga Province by the Ministry of Mines of the Democratic Republic of the Congo. The licences are valid for an initial term of 30 years, starting 30th September 2014. The licenses may be renewed for further terms of 15 years each after the initial term. Mpokoto Gold Project has a current total mineral resource of 678,000 ounces (oz) of Au at the rate of 1.45 g/t Au and a cut-off grade of 0.5 g/t. The expanded scoping study estimates the post-tax net present value at US$55.3m, with a discount rate of 8% and a gold price of US$1,250/oz.

Our view: Grant of a full mining permit over the Mpokoto Gold Project marks an important milestone in the continued progress of the project to the development stage. The updated mineral resource estimate and the low-cost operations bode well for Armadale in a dynamic commodity pricing environment. Recently, the company associated with a renowned institutional investor to put together a solid economic structure in place and ensure seamless development of its projects. Addition of high growth natural resources prospects in Africa with near-term potential of cash flow enables the development of a vibrant portfolio. With remarkable assets like Mpokoto gold exploration, KwaZulu Natal coal operations and Witwatersrand acid drainage projects we believe the company is poised for a significant upside. We reiterate our Speculative Buy rating on the stock.

Alecto Minerals (LON:ALO) – Speculative Buy

Yesterday, Alecto Minerals entered an agreement with Kaizen Discovery to acquire 100% interest in Gazelle Resources, including the Kerboulé Gold Project, located in the northern Burkina Faso. The project covering 399.5 sq. km was acquired for an initial consideration of £350,000 to be satisfied through the issue of 54.9 million ordinary shares of 0.01p each at a price of 0.6364p per share by Alecto. Deferred consideration of US$1.5m would be paid in shares or cash, at the sole discretion of Alecto. Wide gold mineralisation zone in the range of 5 metres at 3.74 g/t Au to 40 metres at 1.94 g/t Au have been found across the tenure. Additionally, high grades in the range of 29.12 g/t Au and 188.11 g/t Au, have been reported at the Kerboulé site.

Our view: The newly acquired low-cost, yet advanced and prospective Kerboulé Gold Project is likely to provide tremendous opportunity for Alecto to expand its mineral resource base. An excellent location and a fully equipped exploration camp at Kerboulé, add to the attractiveness of the project. Addition of this exciting prospect reinforces Alecto’s strategy of acquiring diverse assets and unlocking value at low-cost. In view of the above, we remain confident of the company’s ability to transform its smart acquisitions into attractive joint venture opportunities and therefore reaffirm a Speculative Buy rating on the stock

Horizon Discovery (LON:HZD) – Speculative Buy

Horizon Discovery announced that the Horizon CombinatoRx division has entered into an agreement with a leading pharmaceutical company to profile a lead oncology asset within a five-month period for a consideration of £469,000. The CombinatoRx division provides the cHTS platform and Chalice analytics software to its partners, to screen and assess thousands of complementary drug combinations. Horizon had bought CombinatoRx division from Zalicus in June 2014.

Our view: Since its acquisition in June 2014, Horizon CombinatoRx has proved to be a great buy, placing itself amongst the more profitable ventures for Horizon Discovery. The division has added yet another impressive contract to its tally after bagging a prominent US$450,000 agreement with a major US pharmaceutical company last month. The award of multiple contracts in a short span of time has added more credibility to the company’s ability to generate upbeat earnings and subsequent returns for its shareholders. Expansion at a rapid pace makes it an opportune time to invest in the company. In view of the above we retain our Speculative Buy rating for the stock.

Orogen Gold (LON:ORE) – Speculative Buy

Yesterday, Orogen provided an update on its diamond drilling programme at the Mutsk Gold Project in Southern Armenia. Supplementary step-out drilling on southern profile enhanced the extent of the gold-bearing zone to almost 100m. Since 14th October 2014, five diamond drill holes have been completed and limited assessment was carried out on two earlier holes as well. Hole OG14-32 crossed a strongly altered zone from 16m to 56m downhole depth covering an area of 13.8m with 1.20 g/t of Au including 9.0m grading 1.5g/t of Au. Hole OG14-35 cut many gold intercepts over 109m interval including the widest alteration zone of 134m length. Gold-mineralised intervals of 10m and 9.8m assaying 0.67g/t of Au and 0.78g/t of Au, respectively, were also encountered. Hole OG14-22, previously thought to be unmineralised, showed a 3.6m interval grading 0.71g /t of Au near the base. The company plans to continue drilling till the closure of the weather window to further define the gold discovery.

Our view: The discovery of new alternate zones, in addition to the thickest mineralisation zone yet seen at the Mutsk project, could prove to be a game-changer for Orogen. A positive return on the initial capital investment in the project has helped in creating great value for shareholders. Furthermore, banking on the expertise of its directors, the company plans to build a solid pipeline of gold exploration and development opportunities worldwide to strengthen its competitive position in Europe. Volatile gold prices may impact the company’s revenue growth but a carefully designed hedging program should be able to offset the effect. In view of the above, we retain our Speculative Buy rating on the company.

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Economic News

US empire manufacturing

The US Empire State manufacturing index for general business conditions increased to 10.16 in November from 6.2 in October, the manufacturing survey by the Federal Reserve Bank of New York revealed yesterday. The estimated reading for the month was 12.0.

US industrial production

Industrial production in the US inched down 0.1% m-o-m in October after a revised increase of 0.8% in September 2014, as per the Federal Reserve. Analysts expected the output to rise 0.2%. However, manufacturing output, a key component of industrial production, grew 0.2% m-o-m, matching a similar revised rise in September. Mining and utilities output fell 0.9% and 0.7%, respectively.

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