column Proactiveinvestors column RSS feed en Sat, 29 Aug 2015 04:02:22 +0100 Genera CMS (Proactiveinvestors) (Proactiveinvestors) FTSE 100: Planning for the worst, hoping for the best Fri, 28 Aug 2015 19:00:00 +0100 In the news with RFC Ambrian Metals & Mining, Oil & Gas

Yesterday the oil price bounced 10%. Brent closed at US$47.56/bbl, back to where it was 10 days ago. WTI closed at US$42.56/bbl. US Q2 GDP rose at an annualised rate of 3.7%, substantially beating market consensus expectations and triggering a short covering rally. In the short term, given current global inventory levels, we believe that the Brent spot will trade in a roughly US$40/bbl to US$60/bbl range well into next year. It will continue in this range in 2016 until OPEC acts to cut its quotas (following what is likely to be a protracted and tricky internal OPEC negotiation given the likely increase in Iranian exports).

Rystad Energy put out a press release yesterday in which they said “Due to a lack of growth in North American shale production and increased decline in mature fields, a Brent price as low as US$50/bbl is not sustainable beyond 2016”. They accompanied this press release with the chart below, which we think demonstrates nicely the likely supply dynamics even though there is significant uncertainty about the actual future supply levels at any given oil price.

We estimate that the medium/ long-term mid-cycle price (equal to the marginal full cost of oil supply) is between US$70/bbl and US$80/bbl Brent. Should the current low oil prices continue for an extended period of time (ie should OPEC not act to cut its quotas and production for a couple of years), non-OPEC supply will start to fall in a couple of years’ time, leading to a rally in the oil price towards its marginal full cost of oil supply. So we essentially agree with Rystad Energy’s analysis, although the price may need to stay low beyond 2016 to see a large enough cut in non-OPEC supply to move prices to the marginal full cost of oil production.

In marked contrast,  Michel Della Vigna, head of European Energy Research at Goldman Sachs, said on CNBC at the end of last month “What we've learned from this reporting season is that deflation is accelerating from a cost perspective. Efficiency is improving in all the mature regions and productivity is sharply improving in almost all the shale places in the U.S. With all of that compounds to what we think will be a multi (year) deflationary trend in oil. If we look to the end of the decade, we see oil at $50, as this productivity continues and as costs keep coming down."

Whilst we don’t doubt costs are coming down, and that we are in a multi-year deflationary trend (please see our note The Oil Price — Bottom of the Barrel, March 2015, where we highlighted these trends), we don’t believe that the through cycle marginal full cost of oil supply will halve from its US$100/bbl 2013 level to US$50/bbl by 2020. A 20% to 30% reduction in costs seems more likely as the service companies cut their rates. The competing tension of ever-harder–to-find/ more complex large oil fields vs improved technological efficiency seem unlikely in our view to offer the 50% cut in costs that analysis appears to be suggesting.

Fri, 28 Aug 2015 14:40:00 +0100
The Pay Zone: Oil Price Amec Foster Wheeler, Independent Oil & Gas, Petrofac, Sefton Resources and others..... WTI $42.56 +$3.96, Brent $47.56 +$4.42, Diff $5.00 +46c, NG $2.64 -6c
Oil price

Wow, that was one hell of a week whichever way you look at it. The oil price has picked up from the bottom in no mean fashion, yesterdays rise was the biggest one day rally in six years and WTI will likely be up on the week for the first time in 11. There are a number of reasons for the rally with fundamentals not really being involved that much. True, the inventory stats helped a fair bit as did the US crude production falling to 9.34m b/d day and the US GDP revision was a bit higher than expected at 3.7%.

It was worries about China that started some stories about Opec ‘reexamining’ their stance and more countries called for an emergency meeting, maybe with non-Opec participation. When WTI dipped into the 30’s even the Saudis were apparently taking the notion seriously and today it’s Venezuela calling for a meeting with Russia invited along. Those of you who watched my interview on IGTV on Wednesday or through the link in the blog yesterday will understand what I was trying to get over, no great change in fundamentals but some change in how to deal with the problem right now. I have had many requests to see it again so the link is below, it is also on the website at

Unsurprisingly all of the above led to a proper bout of short covering, with net long positions at a low and shorts having trebled in a month it was like putting petrol on a fire and the rally was significant. Early this morning crude made further gains of nearly another dollar but as I write prices are a touch below last nights close, next bull point is Tropical Storm Erika hurtling through the Caribbean…

Independent Oil & Gas (LON:IOG)
Barely a week goes by without IOG touching base with regards to their finances, today they are updating on money, licences and the Alpha sale and purchase agreement. Right now it seems that the company is pursuing a contractor-led funding approach in order to drill the appraisal well on Skipper late this year. To do this the company has had to discuss matters with the OGA which has resulted in that licence being extended until 31/12/2015, in addition the Blythe licence has been extended until 31/12/2016 provided a draft FDP is submitted by the end of this year. To do all this the sale and purchase agreement with Alpha has had to be extended until 7/10/15 and of course the Darwin loan repayment due next week also needed extending, this is now due on 4/10/15. IOG has many balls in the air as you can see, it looks like everyone concerned with the process is doing all they can to ensure that if it can be done, it will be which is what they deserve.

Sefton Resources (LON:SER)
Sefton has announced that the date for the bankruptcy court hearing is likely to be in October. This case is to contest the motion by James Ellerton and to seek fees, costs and punitive damages against Mr Ellerton for bringing the case ‘in bad faith’. Until this case is sorted it is impossible to judge whether the plans that Sefton has for the future are justifiable although they are I understand still hoping to radically change the business. That is quite a good thing as history such as the association with Ellerton, not to mention having a convicted armed bank robber as a former chairman is probably horrible enough…

It has, as I said at the top, been one hell of a week even on the company front. With a horde of results, each with their own meetings sometimes one felt that one was chasing round various meeting rooms in the city with the same bunch of analysts. It was primarily the oil service sector that was reporting and the second quarter was clearly going to be difficult but I suspect that few of the assembled analysts would have predicted that by the end of the week all shares would have performed so well especially as there was a dividend cut smuggled in there by Hunting. I have reported on most and will do so again in coming weeks as I catch up with managements but there are a few points to mention. On Hunting (LON:HTG) it was interesting that despite a miserable quarter and that divvi cut (sharing the pain) the market decided to reverse the initial price fall and chalk it up around 13% on the day. I suspect that a combination of takeover rumours and positive talk about a recovery each contributed to the rise, either way the shares are 110p off the bottom. Hunting’s appeal is that if and when that recovery does come it will have invested in top of the range plant and product across the globe and should be able to take advantage rapidly. The downside is that the order book, including in the strong subsea areas might diminish more before that recovery comes through…I remain convinced that Hunting has the right model to succeed in the long run.

The takeover stories in the sector were already doing the rounds before this week but when Schlumberger (NYSE:SLB) announced its takeover of Cameron it was assumed that more would follow, who would argue when it is historically accurate that some sort of a recovery happens around two quarters after the nadir, whenever that is….

It is worth mentioning one or two other things that emerged this week, at Petrofac (LON:PFC) news was more upbeat than the market had expected, it seems that NOC’s particularly in the Middle East are not taking their feet off the pedals like IOC’s are and the order book is solid. Cape also delivered the goods as if they were ever going to disappoint, revenue and cash flow was up and of course, the dividend was maintained giving punters a healthy yield to bank away. Even Amec (LON:AMFW) remained upbeat although Samir being Samir was always going to champion the Foster Wheeler acquisition upon which I believe the jury is still out…Finally it is worth mentioning Lamprell (LON:LAM) who tailed in last of the reporters and holding the meeting yesterday lunchtime with much to prove. You will remember that as a big fan of Lamprell, or more specifically Jim Moffat, I had been somewhat concerned that firstly big Jim had announced his retirement last week and secondly that the statement contained some worrying comments about a change of strategy. Fortunately the meeting yesterday tempered almost all the worries that I and some others had, it certainly seems that last weeks words had been, shall we say, been read in a different light to that in which they had been written. So instead of strategy being changed it was ‘tweaked’ and it turns out that worries about two ‘executives’ being on the case are wrongly placed. The ‘executive’ Chairman will build strategic alliances, work on synergies and increase the pipeline in order to improve Lamprell’s recognition as a first rate engineer and fabricator, whilst the Chief ‘Executive’ Officer will continue to run the business, we shall see but the longer Jim Moffat stays on the case the better it will be.

Two other things, one of which is about Kurdistan where yesterday, miraculously timed to coincide with the GKP (LON:GKP) results the MNR released a statement saying that it would start making regular payments to the energy companies and that it had allocated $75m-100m for the first half of September. Whilst this is but a drop in the ocean that is owed to the companies, it is a meaningful gesture and an acknowledgement that things could go on as they had been, the idea of slaying the goose that lays the golden egg is obviously written in the desert…lets hope that GKP now dont go and flog themselves on the cheap and that Tony Hayward ups his exit price as well, Genel is worth so much more than the current price. My interview with Mr Ferrier is in two weeks time so more after that…
Finally I had been expecting something from Nostrum/Tethys by now, the due diligence and the two day rest period has expired in which Nostrum had been expected to bid for the company. With the AGR financing having been despatched and the Nostrum bid seemingly the only remaining game in town, is the sound of silence deafening? As they say, watch this space…

And finally…
Stuart Lancaster named his squad for the RWC yesterday with no surprises, the tricky positions being centre where Burgess gets the nod, and at hooker where I bet he wishes he had someone with the ability to throw the ball into the line-out where he planned it… Also I suspect he wishes Dylan Hartley had just a tiny bit more common sense…

Good to see Usain Bolt cruising the 200m with the double doper trailing in his slipstream, only the camera man managed to bring him down…

It’s the US Open tennis next week and Muzza has been drawn against foul mouthed Aussie Nick Kyrgious, I wonder what he will have to say about Mrs Murray jnr?

Back to the Premiership this weekend with no outstanding matches it seems. Chelski host the Eagles and the HubCap Stealers have the happy Hammers at Anfield whilst the Red Devils go to the Swans. Villa v the Maccams may be hard to watch but the Canaries might fancy their chances at the Saints, just knocked out of the Boropa Cup. The Noisy Neighbours take on the Hornets, the Cherries host the Foxes and at the potteries the Baggies will be seen. Just the Spurs versus the Toffees where Stones is apparently not going anywhere…

A moment of nostalgia today for me, 36 years ago on August Bank holiday 1979 I joined Wood Mackenzie in Queen Street, Edinburgh which turned out to be the start of a fantastic time in the world of oil and gas, I know, I dont look old enough…!

Fri, 28 Aug 2015 12:41:00 +0100
Stewart Dalby: Merger time for the oil sector's minnows Fri, 28 Aug 2015 12:15:00 +0100 De Beers drops rough prices and corporate largess at its worst Commodities

Diamonds and precious stones

So we were all expecting something, but the news that De Beers cut rough prices by an average of 9% certainly grabbed the headlines, coupled with a new marketing the push, De Beers is certainly putting its shoulder into helping the industry. Its is important to note that while the headline value of the sight was between $200m to $250m, we are in a quiet period and it will be interesting to see how the sales in late September and October fare, especially as supply continues to be constrained.

During the week, Kimberley Process published its global 2014 data. Global rough diamond production fell 4% to 124.8Mcts whilst global production value rose by 4% to $14.5 billion thanks to an 8% hike in the average value to $116.17/ct.  Interestingly, Russia has now toppled Botswana as the world’s largest producer by volume and value. 

Precious metals

Well, volatile just does not seen to encapsulate what we have seen this week.

The yellow metal has struggled, slipping around 2.5%, but interestingly global ETF holdings continue to gently increase with another 1% added during the week. With many commentators highlighting technical weaknesses in global equity markets, I am happy to sit tight for now. I cant help feeling as if the storm has not blown itself out just yet.

Some big moves in the PGM basket this week as serious oversupply concerns hit once more. All this despite the South African government (plus other BRIC nations) being advised to use platinum as a reserve currency... ahem, by the CEO of Lonmin !!

Other metals have not fared as well as this week's performances show: Gold: (2.5%), Silver: (5.7%), Platinum: (1.8%), Palladium: (6.3%), Rhodium: (5.5%).

Base metals:

Another week, further volatility, but at least we have the US economic growth being revised up.

I was rather intrigued to see Mr Icahn taking a large stake in Freeport-McMoran. His filing statement helpfully contained a rather utopian vision of addressing "capital expenditure, executive compensation practices, capital structure as well as curtailment of the issuers high-cost operations".

Lets see how he gets on. Successful, and I would imagine a few management teams will be worryingly reviewing their own arrangements.

In the meantime, copper demand in China has spiked up, but sadly, LME inventories also jumped by more than 4% during the week.

I remain of the view that Chinese inventory data remains unclear due to the unwind of various financing deals, uncertain inventories and huge stocks of fabricated/finished/recycled products that are still being worked through the cycle, basically making the industrial metal space very commodity specific right now.

This week's performances: Aluminium: (+1.2%), Copper: +0.6%, Lead: (1.2%), Nickel: (3.0%), Tin: (8.1%), Zinc: +0.8%

Fri, 28 Aug 2015 11:15:00 +0100
Today's Market View Including Beowulf Mining, Bacanora Minerals and Nord Gold Economic News

US – Q2/15 GDP growth revision showed the economy expanded more than forecast during the quarter; although, nearly half of the upgrade was accounted for a by a continuing build-up in inventories.
• The economy grew at 3.7%qoq (annualised), up from 2.3%qoq estimated previously.
• Expectations for a delay in the Fed rate hike as well as a rebound in Asian markets saw US equities performing strongly yesterday.
• William Dudley, president of the New York Fed, said the case for monetary tightening become “less compelling than it was a few weeks ago” amid growing economic uncertainty in overseas markets.
• Among other news, weekly jobless claims posted a decline last week (271k v 277k in the previous week and 274k forecast).
• Economic news due today:
o Jul core PCE (+0.1%mom/+1.3%yoy v +0.1%mom/+1.3%yoy in Jun)

China – Markets climb for a second consecutive day following a massive correction recorded in previous trading sessions.
• On economics side of things, industrial profits contracted for a second straight month in Jul (-2.9%yoy v -0.3%yoy in Jun).

Japan – Unemployment marginally lower and retail sales jump beating estimates in Jul.
• Jobless rate: 3.3%v 3.4% in Jun and no change forecast.
• Retail sales: +1.2%mom/+1.6%yoy v -0.6%mom/+1.0%yoy and +0.6%mom/+1.1%yoy forecast.
• On a less positive front, core inflation (ex food) continues to lag behind official hopes for a stronger rate (0.0%yoy in Jul v +0.1%yoy in Jun and -0.2%yoy forecast).

Germany – Regional inflation reports coming in point to a slowdown in consumer prices’ growth in Aug with nationwide numbers expected later today (-0.1%mom/+0.1%yoy forecast v +0.3%mom/+0.1%yoy in Jul).

UK – Consumer sentiment unexpectedly climbed in Aug to match Jun/15 15-year high (7 in Aug v 4 in Jul and no change forecast), according to the GfK Consumer Confidence index.
• "Rising house price inflation and improving employment growth prospects, combined with falling petrol prices and day-to-day living costs, as well as low interest rates, are translating into high levels of confidence across all major measures," GfK said.
• Separately, Q2 GDP growth confirmed at 0.7%qoq/2.6%yoy, no change from previous estimates.

Switzerland – Beating expectations and avoiding recession, Swiss economy records a 0.2%qoq growth in Q2/15 weathering adverse effects of appreciating currency.
• Estimates were for a quarterly decline following a 0.2%qoq contraction in Q1/15.
• Growth was helped by an increase consumer spending.

Ukraine – The central bank cut the benchmark rate by 3pp to 27% as of today with inflation and declines in GDP running in double digits.
• The economy posted a 55%yoy inflation rate in Jul.
• The announcement follows a debt restructuring deal with international creditors who agreed to a 20% haircut on US$18bn worth of borrowings.

US$1.1302/eur vs 1.1281/eur yesterday. Yen 120.79/$ vs 120.30/$. SAr 13.200/$ vs 13.057/$. $1.541/gbp vs            1.549/gbp
0.717/aud vs 0.716/aud

Commodity News
Precious metals:

Gold US$1,129/oz vs US$1,129/oz yesterday
Platinum US$1,005/oz vs US$998/oz yesterday
Palladium US$565/oz vs US$548/oz yesterday
Silver US$14.43/oz vs US$14.31/oz yesterday

Base metals:
Copper US$ 5,079/t vs US$5,025/t yesterday
Aluminium US$ 1,564/t vs US$1,552/t yesterday
Nickel US$ 9,860/t vs US$9,815/t yesterday
Zinc US$ 1,780/t vs US$1,734/t yesterday
Lead US$ 1,677/t vs US$1,668/t yesterday
Tin US$ 13,800/t vs US$13,745/t yesterday

Oil US$47.2/bbl vs US$44.9/bbl yesterday
Natural Gas US$2.687/mmbtu vs US$2.683/mmbtu yesterday
Uranium US$36.90/lb vs US$36.90/lb yesterday

Bulk commodities:
Iron ore 62% Fe spot (cfr Tianjin) US$55.1/t vs US$55.2/t
Thermal coal (1st year forward cif ARA) US$53.6/t vs    US$52.3/t yesterday

Tungsten - APT European prices $199/mtu (range $192-205/mtu) vs $203.0/mtu on Wednesday

Company News
Bacanora Minerals (LON:BCN) 87pence, Mkt Cap £74.1m – Conditional lithium supply agreement
Bacanora Minerals reports that it has reached a conditional agreement to supply lithium hydroxide from its Sonora Lithium Project in northern Mexico to Tesla Motors’ Gigafactory in Nevada.
• The agreement, which lasts for an initial five year period from the date that Tesla places its first order can be extended for a further five year period.
• Bacanora needs to achieve certain performance milestones and reach Tesla’s product specifications within the next two years and confirm its ability to deliver product in the volumes and timetable required by Tesla.
• Work, including drilling and metallurgical test-work, is currently underway to progress the pre-feasibility work on the Sonora Lithium project which is currently assessing a mine and processing plant with an initial production capacity of 35,000 tpa of lithium compounds and the flexibility to increase production to 50,000 tpa. The pre-feasibility study is scheduled for completion by the end of Q1 2016.
• The company points out that the Sonora Lithium Project Partners (Bacanora Minerals and Rare Earth Minerals) will need “to secure significant financing through debt and / or equity” and that “Tesla has the right to participate in any such financing or other capital transactions.”
Conclusion: The conditional agreement with Tesla Bacanora may prove pivotal for Bacanora in the development of the Sonora Lithium Project. The company now needs to ensure that its pre-feasibility work is tailored to establishing that the project can deliver lithium hydroxide of a suitable specification on time and in the volumes required for Tesla’s needs.

Beowulf Mining (LON:BEM) 2.75 pence, Mkt Cap £11.8m – Half Year Results
• Beowulf Mining has reported a significantly reduced loss of £330k for the first half of 2015 compared to a loss of £1,317k in H1 2014. The 2014 figures include a loss of £777k on derivatives. The company also notes that there were lower corporate overheads, including directors and professional fees following a restructuring of management.
• Cash balances at 30th June amounted to £173k.
• The company is working towards de-risking its Kallak North iron ore deposit in Sweden and in building support of local communities.
• The project lies in an area designated as “An Area of National Interest” for minerals development and the local County Administrative Board has confirmed that “Mining is economically relevant and that the Kallak North project generates economic benefits at local, regional and national levels” and that “The Concession are applied for by the Company creates no conflicts where national interests are considered”.

Nord Gold US$2.80, Mkt Cap US$1,049m – Half year results and guidance update
• Nordgold has reported a 36% increase in EBITDA for the six months to June 2015 to $332.1m and comes after a 24% rise in EBITDA for 2014.
• Operating cash flow rose almost 90% y-o-y to $252.1 and even after a 52% rise in capital expenditure to $107.6m, free cash flow nearly doubled to $141.2m leaving the company with cash of $397.8m and an $81.1m reduction in the level of net debt during H1 to $546.2m
• Revenues rose by 4% to $$640.3m as a 7% rise in gold production to 507,500 oz was partially offset by a 7% decline in average received gold prices at $1205/oz.
• Showing the impact of declining currencies and improvements in operating efficiencies, costs on an all-in-sustaining basis declined by 20% to $722/oz.
• The company has reduced its guidance for all-in sustaining costs for the second time this year to $750-800/oz (from $850-900/oz) and is maintaining is production guidance at 925-985,000oz  for 2015 while indicating that it expects to deliver in the upper part of the range. We note that with first half production of 507,500 oz, this implies that output in the second half could 5-10% lower.
• Guidance for 2015 capital expenditure of US$300m, which includes $95m for the Bouly project in Burkina Faso, remain unchanged.

Fri, 28 Aug 2015 11:07:00 +0100
Broker spotlight: Shoppers' delight Fri, 28 Aug 2015 10:33:00 +0100 Northland Capital Partners View on the City Alexander Mining and Formation Group Alexander Mining (LON:AXM) – BUY*: Subscription
Market Cap: £1.5m; Current Price: 0.6p; Target Price: 2.6p
Raises £295,000 from existing shareholders

  • Alexander Mining has raised £295,000 through the issue of 59,000,000 shares at a price of 0.5p per share to existing shareholders for general working capital purposes.
  • The investors will also receive one option per share, to purchase a share at 2.5p. Both the shares and options have a two year hold period.
  • Ebullio Resources Fund is subscribing for 50,000,000 shares and as a result will hold 60,000,000 shares in Alexander Mining (19%).
  • 1,000,000 shares have also been issued at 0.6p per share to creditors.
  • Following the issue of shares Alexander Mining will have a total on 315,910,288 shares on issue.
  • We have updated our forecasts with the issue price but had already factored a placing into our forecasts and price target so there are only minor changes to our forecasts and no significant change to our price target of 2.6p per share. We maintain our BUY rating.

NORTHLAND CAPITAL PARTNERS VIEW: It is positive to see Ebullio continuing to support Alexander Mining as the Company looks to advance its patented technology towards commercial production. Alexander Mining and Ebullio are working together to evaluate the potential of using Alexander Mining’s technology on the Sivas Copper Project.

Formation Group (LON:FRM) – CORP: Profit share distribution
Market Cap: £14.6m; Current Price: 6.6p
£2m received in cash as part of profit share agreement

  • £2m received in cash as part of the profit share agreement with Sunbel Development Limited and Pinacle Developments Limited in relation to a development property on Streatham High Road, where Formation is entitled to 40% of the net profit.
  • Proceeds will be reinvested by Formation in future property developments.

NORTHLAND CAPITAL PARTNERS VIEW: Formation announced the profit share agreement in July (08/07/15) that relates to a development property at Cromer Court, 9-19 Streatham High Road, London which is being converted from office space to 98 residential units. Under the agreement, Formation advanced £2.4m to continue work on the development and receives 40% of the net profit arising on the development. At the time of the July announcement, the majority of the units had been reserved and it was anticipated that around a half of the units would be completed by the end of August and the balance by the end of September.

Fri, 28 Aug 2015 08:19:00 +0100
Japan & US Data distracts from the facts FTSE 100 Index called to open -10 pts at 6190, still in the upper half of a rising channel through the 2nd half of the week and trading either side of 6200 overnight and into this morning. Bulls will now look to that level as becoming support for another 100pt rally after 6100 was successfully breached yesterday while bears naturally looking to risk-off into the weekend for short opportunities. Watch levels: Bullish 6300, Bearish 6030.

The negative opening call comes despite Asian stock markets tracking another positive performance on Wall Street. Oil rallied by over 10% - the most in 6-years, buoying the energy sector. A commodity price bounce on speculation the Chinese government is to inject more liquidity into its stock market through equity purchases and reduction of USTs to support the Yuan served to calm nerves in the blighted mining sector. Japan’s Nikkei the region’s outperformer.

US stocks soared for the second day in a row – Dow’s losses now erased for the week – as macro-data-inspired optimism about the US economy jumped in to further distract investors from bigger picture worries, not least Asia-Pacific volatility.

UK consumer confidence unexpectedly rose in August to match June's 15-year high, as low inflation and a recent pick-up in wages made Britons more upbeat about their financial prospects.

A busy day on the data front has already seen some good figures coming out of Japan. 9.30am sees UK GDP expected to be flat, while this afternoon we have German CPI and US personal income and spending at 1.30pm and University of Michigan Sentiment at 3pm. A full rundown with consensus can be found on the Live Macro-Calendar

Oil prices soared after the Wall St. Journal reported Venezuela has been contacting fellow OPEC members to push for an emergency meeting, alongside Russia, to prepare a strategy to stop the recent fall in oil prices. Presumably this would include some form of production reduction by Saudi Arabia, which would mean OPEC’s biggest single producer losing some market share while ensuring other, more vulnerable OPEC members are protected from uneconomically low prices. WTI futures now around $43 while those for Brent Crude are trading around $48.

Gold ($1130) edged up slightly overnight but remains under pressure as good data allays fears of global sluggishness, for now. A perceived equity recovery may not last since the outlook for China’s economy remains somewhat bleak.

Fri, 28 Aug 2015 08:13:00 +0100
Email of the day on China and market complexion Email of the day on China and market complexion
The following article, seeking to explain China's recent missteps in handling its domestic stock market, is quite interesting: And congratulations on writing some excellent (& cool-headed) analysis this week
Eoin Treacy's view
Thank you for your kind words and I’m delighted you’re enjoying the commentary. David and I have been working together since the winter of 2003 and I started filling in for him on Comment of the Day in the summers from 2004 when he used to embark on his annual Land’s End to John O’ Groats cycling holidays. Back then you could be reasonably assured of quiet markets during the sleepy summer months but that all changed in the aftermath of the credit crisis when the role of algorithmic traders took centre stage.
Historically, traders use public holidays and vacation periods to initiate counter trend positions in the hope of triggering stops for a quick profit. Computer programs have taken this process to the extreme. The most recent instance was in late July when gold sank to a new low during Asian trading while Japan was on holiday. All too often we now see times most people are on holiday and market liquidity is low fuels volatility and this is particularly true of moves in single stocks.

Email of the day on oil and oil shares
Hope isn’t a strategy – but what can you tell me about this chart?   It’s the Canadian energy index.  What signs should I be looking for?
Eoin Treacy's view
This has been a very active week in just about all markets but the only emails from subscribers I received in the last two days were focused on the energy market. I chose to publish this one because it’s from a normally very calm person but the stress he is feeling is evident in the wording.

European QE
Eoin Treacy's view

The ECB has not stopped its QE program. In fact the volatility on stock markets only increases potential it will increase its stimulus. The ECB’s Balance sheet remains on an upward trajectory and still has more than €500 billion to go before it gets back to the stated objective of reaching 2012 peak.

Speaking Engagements
Eoin Treacy's view

I’ve agreed to conduct a one-day seminar for UCLA Extension focusing on our approach to behavioural technical analysis. This will be on August 29th. Here is a link to the brochure and the university’s website where you can book a place. The early booking rate of $139 expires on July 29th.

The Chart Seminar 2015
Eoin Treacy's view

Following an encouraging start to the year’s speaking engagements I am looking forward to our events later this year.
We are also available to conduct private seminars and occasionally agree to speaking engagements at investment conferences and professional societies.
With regard to The Chart Seminar, In order to facilitate more venues we are open to partnering with other groups to market the event. If your organisation would like to arrange a seminar either internally or for your clients please do not hesitate to contact us. .
The remaining dates and venue for 2015 is:
November 26th & 27th The Chart Seminar London – The East India Club
If you are interested in any of our remaining venues please contact Sarah Barnes at
The full rate for The Chart Seminar is £950 + VAT. (Please note US, Australian and Asian delegates, as non EU residents are not liable for VAT). The early booking rate of £875 for non-subscribers expires two months ahead of the event start date. Subscribers are offered a discounted rate of £850. Anyone booking more than one place can also avail of the £850 rate for the second and subsequent delegates.

The Markets Now
Here is the brochure for September 28th.
David Fuller's view
I look forward to catching up with friends and subscribers at this Seminar.  Stock markets are in a challenging phase seasonally and these create new opportunities. In addition to the three speakers, September 28th should also be a good time to draw on the considerable experience of delegates.  I am sure we will have some lively discussions, which will continue in the Club Bar following presentations.  I hope attending delegates can stay and have a drink with Iain Little, guest speaker Paul Jourdan and myself. Your guests will also be welcome.

Fri, 28 Aug 2015 08:10:00 +0100
Beaufort Securities Breakfast Alert Motif Bio, Petropavlovsk, Stratex International and Wishbone Gold The Markets

New York: Wall Street extended gains for the second consecutive day, driven by a sharp gain in oil prices and positive data on US GDP. The S&P 500 advanced 2.4%, led by the energy sector stocks.

Asia: Equities are trading higher, tracking the global markets. In addition, recovery in China’s markets boosted buying. The Nikkei 225 added 3.0%, while the Hang Seng was trading 0.3% up at 7:00 am.

Continental Europe: Markets ended in the green amid the release of positive economic data in the US, which increased the prospects for global growth. Furthermore, an improvement in oil prices lifted investor confidence. France’s CAC 40 and Germany’s DAX rose 3.5% and 3.2%, respectively.

Crude Oil: Yesterday, WTI and Brent oil prices jumped 10.3% and 10.2%, respectively. The spread between the two varieties stood at US$5.0 per barrel.

UK small caps: The FTSE AIM All-Share index closed 1.41% higher yesterday at 726.64.

Today’s news

Consumer confidence in UK reaches 15-year high in August

According to GfK, the UK’s consumer confidence index surged to +7 in August from +4 in July, its highest reading in 15 years. The increase is ascribed to house price inflation, improving employment growth prospects, declining oil prices and low interest rate environment.

Company News

Wishbone Gold (LON:WSBN) – Speculative Buy

Yesterday, Wishbone Gold (Wishbone) informed that it raised £250,000 through the issue of 100 million new shares of 0.1p at 0.25p per share. The placing was facilitated by Beaufort Securities. The company made an application for the new ordinary shares to be traded on AIM, and expects an admission on 11th September 2015. Post the issue, Wishbone’s Total share capital would increase to 363.1 million ordinary shares. In future, the company plans to issue more shares in order to change some director and shareholder loans into equity.

Our view: Wishbone is an exploration and acquisition company focused on identifying and developing precious metal assets. The company plans to use money through the issue of shares for its working capital purposes. Furthermore, the conversion of loans into equity would help it to preserve cash for carrying out future projects. As per the recently announced results, Wishbone had a net cash of US$303,790 as of 31st December 2014, more than double the level seen in 31st December 2013. On the operational front, Wishbone continued exploration on the White Mountains in Queensland and has identified significant prospects on the North Queensland Charters Towers Gold Province. Going ahead, the company plans to look for potential acquisitions to enhance its asset base and resources. In view of the overall developments, we reiterate a Speculative Buy rating on the stock.

Beaufort Securities act as corporate broker to Wishbone Gold plc

Motif Bio (LON:MTFB) – Speculative Buy

Half year results released yesterday were largely academic, detailing Total loss for the period of US$1.86m (US$0.55m), while cash and cash equivalents as at 30th June 2015 of US$2.8m (31st December 2014: nil). By comparison, operational highlights for the period were anything but, with the US Food and Drug Administration (FDA) agreed to Phase III trials of iclaprim, while partnering with a global leading CRO for Phase III clinical trials. Since the period end, it has also been granted QIDP designation by the FDA in ABSSSI and HABP, while independent tests by JMI Laboratories demonstrated iclaprim to be effective in vitro against a range of Gram-positive bacteria and 16 times more potent than trimethoprim. A successful placing on 22nd July 2015 raising £22m at 50 pence/share also left the group cash rich ahead of commencing the Phase III trials.

Our view: While the interim results told shareholders little that they did not already know, they do serve as a reminder of exactly why Beaufort is such a supporter of Motif shares. They present shareholders with a genuine ‘bonanza’ opportunity. Management is building exceptional value while making significant progress in preparation for commencing the Phase III trials. Iclaprim is being designed to be administered in hospitals as an intravenous infusion. A most urgent need for novel antibiotics effective against multi-drug resistant bacteria is in the hospital setting where patients often succumb to serious, life-threatening infections that require immediate treatment with the best available antibiotic has clearly been established. In the case of HABP, for example, mortality rates for infected patients are currently between 20% and 50% and, in response, Motif seeks to accelerate its speed to market by targeting commercialisation as a hospital product rather than through the wider medical community. Indeed, given the opportunity already identified in HABP and ABSSSI along with a number of other potential indications, the prospective market value for this novel antibiotic is very large indeed, potentially running in billions of US dollars. The much publicised global need for such new drugs means that iclaprim must already be under review by Big Pharma, with a view to farming-in to Motif’s opportunity in exchange for financing late stage development and subsequent commercialisation. Realistically, such an outcome might be expected before end-2016. The value this will accrue to Motif should then be quite considerable. Beaufort repeats its Speculative Buy rating for Motif Bio and confirms a price target of 110p/share.

Stratex International (LON:STI) – Speculative Buy

Yesterday, Stratex International declared its unaudited interim results for the half year ended 30th June 2015. During the period, operating loss narrowed to £1,182,009 from £1,257,803 in H1 2014. Likewise, pre-tax loss reduced to £1,388,082 against £1,414,518 in the same period last year. The results for the two periods cannot be related as the results in 2014 included the East African operations, which were sold-off to Thani Stratex joint venture in October 2014. The cash balance at the end of the first half stood at £2.5m. On the operational front, the company made significant progress in the Altintepe mine in Turkey and expects to commence production by the end of September. Further, Stratex’s partners at Muratdere have finished a feasibility test on the copper-gold porphyry project.

Our view: The first half of 2015 has been fruitful for Stratex with improved cash position along with production set to commence from the Altintepe gold project. The production from the mine would mark company’s progress to a producer from explorer and project generator. The project is expected to fetch more than 30,000 ounces of gold once the production begins. Further, the company has a diverse range of projects including the Dalafin project in Senegal, the Muratdere project in Turkey, and the Homase/Akrokrere project in Ghana. All these projects have shown exciting exploration opportunities. In addition, Stratex is involved in exploration of gold assets and other high-value base metals across Turkey, East Africa and West Africa that offer scope for an upside potential. In view of the above argument, we maintain a Speculative Buy rating on the stock.

John Laing Group (LON:JLG) – Buy

Yesterday, John Laing Group declared its unaudited results for the half year ended 30th June 2015. During the period, the Net asset value (NAV) advanced 6.6% to £821.7m from £771.1m at end-December 2014, resulting in NAV per share to rise to 224p against 210p. However, pre-tax profit fell to £32.6m from £101.1m in H1 2014 due to reduction in primary investment portfolio and negative foreign exchange movements. John Laing made £54.1m from the sale of investments in project companies. The company’s Total Assets under Management (AuM) increased to £2.1bn from £1.9bn in H1 2014. On the investment front, John Laing has committed overall investments worth £72.1m in infrastructure projects in Australia and Europe. The company also invested in two wind farm investment commitments in the Q2 2015 for £31m in renewable energy with an estimated installed capacity of around 55MW, in Ireland and Sweden. On the operational front, John Laing made steady progress with both the phases of the Manchester Waste investment now operational. The company also reached an agreement with the Victorian Government on 15th June 2015 regarding the cancellation of the East West Link project, resulting in the return of the company’s investment commitment. John Laing declared its first interim dividend of 1.6p per share, to be paid on 30th October 2015.

Our view: John Laing Group is an infrastructure fund that primarily invests in government backed infrastructure projects such as the UK Department for Transport’s Intercity Express Programme, the Manchester Waste projects, New Royal Adelaide Hospital and Denver Eagle P3. The company delivered strong half year results with improved NAV and enhanced investment portfolio. John Laing’s primary portfolio has 13 PPP and five renewable energy projects valued at £357.2m; and 17 PPP projects and three renewable energy projects in the secondary portfolio valued at £339.2m. John Laing is on track to achieve its full-year targets as the market demand remains strong for secondary infrastructure investments. The company’s key projects under construction are advancing as per schedule and the operational projects continue to perform in line with the company guidance. Post its return to the stock market after eight years in February 2015, John Laing is on its way to give its first dividend this October. The company is well placed with substantial financial resources to drive its growth in the UK and other international markets and take advantage of the many opportunities in both the PPP and Renewable Energy sectors. In view of the overall optimism, we maintain a Buy rating on the stock.

Petropavlovsk (LON:POG) – Hold

Yesterday, Petropavlovsk released its interim results for the period ended 30th June 2015. Group revenues fell 34% to US$297.3m driven by reduced gold prices and decline in sales volume. Unsurprisingly, EBITDA also dropped by 35% y-o-y to US$90m resulting in a pre-tax loss of US$26m compared with a pre-tax profit of US$8.3m in H1 2014. Consequently, basic EPS loss from continuing operations was USc0.02 per share, (H1 2014 EPS loss of USc0.10 per share) mostly due to the increased number of shares as part of the refinancing in March 2015. Total cash costs for H1 2015 was US$767/oz 9.4% lower than the same period last year, in part due to the 66% depreciation of the rouble against the US dollar. All-is sustaining costs were US$983/oz down 5% from H1 2014. During H1 2015, gold sales slipped 26% to 230koz with 79% of the group’s production coming from its Pioneer and Albyn mines. Production for H2 2015 is expected to be slightly higher with FY 2015 guidance maintained. Reduction in net debt of US$234m as at 30th June 2015 to US$696m with the Group reiterating its guidance of US$600m by year end.

Our view: During H1 2015, Petropavlovsk experienced a significant decline in revenue that severely limited the company’s ability to generate higher profits on the back of depressed gold prices that marred the company’s bottom line. On the other hand, the company has made significant steps to improve its operational efficiency through stringent cost and capital controls that will enhance profitability in the future. We are particularly encouraged with 25% decrease in Total cash costs to US$598/oz from the Group’s Pioneer mine, despite the average head grade being 1.1g/t. Notwithstanding the poor financial performance for the period on the back of lower gold prices, the Group continues to develop quality assets that underpin its long term growth potential. However, with continued weak gold prices for the near term, we maintain a Hold on the stock for now.

Economic News

UK House Prices

As per Nationwide’s latest report, house prices in the UK increased 0.3% m-o-m in August, following a 0.4% rise in the previous month. The reading missed the market expected growth of 0.4%. On y-o-y basis, the growth rate stood at 3.2% in August, after an increase of 3.5% in July. The reading came better than the market expected increase of 3.1%.

Eurozone M3 money supply

Eurozone’s M3 money supply expanded at an annual pace of 5.3% in July after growing 4.9% in the previous month, beating the market forecast of an improvement to 4.9%, the European Central Bank said yesterday. On a three-monthly average from May to July, growth in money supply stood at 5.1% y-o-y.

US GDP annualised

US GDP grew at an annualised rate of 3.7% q-o-q in Q2 2015, after rising 2.3% in the preceding quarter, the Commerce Department stated yesterday. The second reading beat the market expectations of a 3.2% rise.

US initial jobless claims

The number of Americans filing their first initial claims for unemployment benefits decreased by 6,000 to a seasonally adjusted 271,000 in the week ended 22nd August, the Labor Department stated yesterday. Economists had forecasted a reading of 274,000. Last week’s reading was unrevised at 277,000.

Fri, 28 Aug 2015 08:03:00 +0100
In the News: A company called Wanda, Amazon and ManU Fri, 28 Aug 2015 06:50:00 +0100 Today's Market View Including International Ferro Metals, Lonmin, Petropavlovsk and Stratex International China – Demand for luxury goods may remain intact as middle classes get their money out of market
• Sources suggest that China’s stock market support program has allowed many middle class/income investors to escape the equity market and for these investors to deleverage.  Poorer, less sophisticated, investors in rural areas are thought to have been slow to withdraw funds and may opt to stay with the market.

Economic News

US – The President of the New York Federal Reserve, William Dudley is reported to be saying that the market turmoil and threat of a slowing of the Chinese economy has made the case for a US interest rise in September “less compelling” as international events have added to risks of a slowdown in the US economy.

US$1.1281/eur vs 1.1506/eur last week. Yen 120.30/$ vs 119.41/$.   SAr 13.057/$ vs 13.157/$.   $1.549/gbp vs 1.569/gbp
US$0.716/aud vs 0.712/aud  - 

Commodity News
Precious metals:

Gold US$1,129/oz vs US$1,138/oz  
Platinum US$998/oz vs US$982/oz
Palladium US$548/oz vs US$538/oz
Silver US$14.31/oz vs US$14.54/oz

Base metals:
Copper US$ 5,025/t vs  US$4,992/t -
Aluminium US$ 1,552/t vs US$1,543/t
Nickel US$ 9,815/t unch vs US$9,495/t
Zinc US$ 1,734/t vs US$1,712/t
Lead US$ 1,668/t vs US$1,654/t
Tin US$ 13,745/t vs US$14,050/t

Oil US$44.90/bbl vs US$43.10/bbl
Natural Gas US$2.683/mmbtu vs US$2.686/mmbtu
Uranium US$36.90/lb unch vs US$36.65/lb –

Bulk commodities:
Iron ore 62% Fe spot (cfr Tianjin) US$55.2/t unch vs US$54.9t –
Thermal Coal $52.3 vs $51.8 cif ARA Europe –

- APT European prices $199/mtu (range $192-205/mtu) vs $203.0/mtu on Wednesday

Company News
International Ferro Metals* (LON:IFL)
Suspended on 26.08.15 – Potential sale of FeCr smelter; SA subsidiary calls in Business Rescue Practitioner
• IFL announced yesterday its South African subsidiary, International Ferro Metals (SA) Ltd (IFMSA), entered Business Rescue programme amid challenging market conditions.
• The Business Rescue status allows financially distressed IFMSA to continue operating over the specified period and places a moratorium on creditors and other parties to launch legal claims against its property and assets.
• IFL holds a 98.75% interest in IFMSA which owns the Buffelsfonstein mining and smelting complex.
• The Business Rescue Plan involves a shutdown of loss making furnaces and all mining operations as the Company searches for a buyer for the IFMSA property and 80% interest in Sky Chrome mine (currently suspended) owned by another IFL subsidiary (Purity Metals).
• The Company is currently in discussions with an interested party regarding the assets’ disposal.
• Following the suspension of mining and smelting operations, IFMSA is expected to draw income from the sale of the UG2 chromite concentrate (15ktpm) sourced from Anglo American Platinum Chrome Tailings Retreatment Plant (CTRP).
• The sale process, if successful, is expected to take around six months, the period covered by the Business Rescue programme.
• The parent Company, International Ferro Metals Ltd (IFL), remains solvent and should have enough cash to cover its operating costs during the sale process.
• H2/FY15 (Jun YE) net loss is expected to come in close to the one recorded in H1/FY15 (-R176m) with operations suffering from stubbornly low FeCr prices, inflation pressures, unreliable power supply as well as a brief contractors’ labour action.
• Trading in IFL shares on the LSE were suspended yesterday.
Conclusion: With little hope for a recovery in FeCr market and galloping cost inflation (labour and power, in particular) the Company decided to call in Business Rescue Practitioner to ring-fence assets as the management is looking for a buyer for its SA operations in an effort to realise residual value for its shareholders.
The FeCr market remains well supplied with sufficient industry stocks and weak demand keeping a lid on potential price gains. In stainless steel sector which accounts for c.70% of FeCr annual demand, production slowed considerably primarily driven by weaker output in China (50% of world stainless steel production and c.55% of world FeCr demand). H1/CY15 global stainless steel production saw the first yoy decline (-2.0%yoy) since 2009 led by a decline in Chinese output (-0.8%yoy), according to Heinz Pariser Jul/15 numbers. As a result ferrochrome demand fell 0.8%yoy in the respective period. In reflection of slowing demand, FeCr prices continue to trade at multi year lows: European Benchmark for Charge FeCr Lumpy 52% Cr at US$1.08/lb, a five year low, since Q4/CY14 and Chinese Import Charge FeCr (duty unpaid) 50% Cr at US$0.76/lb, down US$0.02/lb from Jul/15 on CNY devaluation.
On a company level, despite a significant USDZAR depreciation that helps to mitigate the effect of low commodity prices (European Benchmark FeCr is up 7.5%ytd in ZAR terms), labour and power costs’ inflation as well as episodic production disruptions keeping furnaces’ run rates below optimal 90% capacity utilization drive unit operating costs beyond economic levels. Previously, we estimated IFL to break even on net CFO level (ex changes in WC, incl interest payments) at operating costs
The focus now shifts to a value recovery for existing shareholders following a potential disposal of the business. We note that current outstanding debt levels are not particularly high compared to the asset base; although, the latter will significantly depend on agreed price for existing PPE of the Group, which accounts for 2/3s of total assets as of Dec/14.
As of Dec/14 total Group debt stood at R500m (unchanged as of Jun/15) in Bank of China working capital facility maturing in Sep/15 as well as R65m in finance leases and other loans. This compares R2,011m in PPE and R3,060m in total assets.
*SP Angel act as broker to IFL

Lonmin (LON:LMI) 35.5 pence, Mkt Cap £207.3m – Progress on implementing cost reduction strategy
Lonmin has updated the market on the progress of its programme of cost cutting measures through the closure of higher cost production and workforce reductions.
• Over the next two years the company aims to cut out some 100,000 ounces of high cost production at the Hossy and Newman Shafts and other production centres “but in the meantime available resources of Hossy will be mined for value. By the end of 2017 production will have reduced by 100,000 ounces per annum.”
• On the labour front, the company announced in late July that it was aiming to reduce its workforce by 6000. Today Lonmin reports that 1400 employees have left the business and that consultations on further reductions are proceeding on schedule in an environment of “positive and realistic” labour relations.
• These measures have helped Lonmin to reduce its cash costs at the end of July to R10,499 per PGM ounce, within the R10,800/oz target the company set itself. “Underlying cash costs for the full year are expected to remain below the cost guidance of R10,800 per ounce.”
• The company has also engaged a “leading finance specialist”, Ron Series as an advisor to assist the Board while the executive team “focus on running the business, cutting costs and ensuring the most efficient running of our operations.”
Conclusion: Lonmin has moved rapidly to implement its strategy for operating during a potentially extended period of low PGM prices. The initial workforce reductions have already achieved almost a quarter of the target, however we expect that as the more willing members of the workforce leave it will become increasingly difficult to ensure that the reduction targets are achieved while ensuring that the company retains the balance of skills and experience it needs to operate the business under challenging conditions.

Petropavlovsk* (LON:POG) 6.0p, £192.1m – USDRUB depreciation helps to defend earning margins in H1/15; preparing for strong H2/15
Petropavlovsk has today released H1/15 earnings numbers.
• Gold sales totalled 229.7koz at an average realised gold price of US$1,221/oz (H1/14: 310.7koz at US$1,386/oz).
• Revenues at US$297.3m (H1/14: US$453.0m).
• EBITDA at US$90.0m (H1/14: US$139.2m) with EBITDA margin remaining stable at 30% (H1/14:31%) as a fall in gold price has been compensated by an improvement in TCC.
• G&A reduced to US$15.7m (H1/14: US$22.9m).
• Consolidated Net Loss totalled US$81.6m (H1/14: 95.3m) including US$28.9m loss at POG and US$52.7m loss attributed to IRC.
• EPS (POG) was at -2USc (H1/14: -10USc) and EPS (Consolidated) at -3USc (H1/14: -28USc).
• TCC/AISC fell 9%yoy/5.2%yoy to US$767oz/US$983oz (H1/14: US$847oz/US$1,036oz) led by USDRUB depreciation (-66%yoy) with 75% of operating costs being denominated in RUB and an increase in operational efficiencies.
• A decline in TCC/AISC achieved despite a 22% decline in total gold production.
• TCC at Pioneer and Albyn, two major mines expected to account for c.80% of annual gold production, recorded 11%qoq and 34%qoq decreases in TCC through Q2/15 with further declines forecast in H2/15 (Pioneer H2/15 TCC:
• Pioneer to report a more than double increase in grades processed in H2/15 benefiting from rich ores to be developed at Andreevskaya pit.
• Albyn to see a 33% increase in head grades with recoveries expected to remain unchanged or slightly improve.
• TCC are guided to average c.US$600/oz in FY15.
• Production guidance remained at 680koz for FY15 (H1/15: 240.2koz; H2/15 (implied): 439.8koz) with the management maintaining flexibility over its output forecasts depending on the economics of mined ounces.
• Capex spend cut 75%yoy to US$17.8m (H1/14: US$70.2m) with exploration costs accounting for more than 50% of the total and most of development capex spent on expansion of Albyn and Pioneer tailing dams.
• The Company was slightly FCF positive with net CFO (post interest expense) coming in at US$19.8m (excl -US$8.6m reported by IRC) and capex spend totalling US$17.8m (excl. US$44.2m spent by IRC).
• FY15 capex guided at uS$35m, unchanged from previous forecasts.
• Net debt closed at US$US$696m including US$31m cash balance (H2/15: US$48.1m) and US$643m (Dec/14: US$665m) in bank borrowings as of H1/15.
• The Group reiterated net debt guidance of c.US$600m by the end of the year.
• 50koz of gold are currently sold forward at an average price of US$1,201/oz as of Aug/15.
• IRC remains on track to start operations at 3.3mtpa K&S this year with 500ktpa of iron ore concentrate to be produced before year end.
• IRC recorded a significant reduction in operating costs at its Kuranakh operations (H1/15: US$51.1/t (ex changes in inventories); H1/14: US$114/t) with loss before tax (ex impairments) falling to -US$9.6m (H1/14: -US$25.7m).
• The Company booked a US$189.5m impairment at K&S reflecting falling spot iron ore prices and operating costs’ inflation.
Conclusion: The Company reported slightly better EBITDA numbers on better TCC (POG: US$90.0m US$767/oz; SPA: US$84m US$800/oz). While H1/15 was relatively FCF neutral (POG: US$2m; SPA: US$33m (the difference is attributed to cash tax paid (-US$26m) and slightly higher interest expense), the results highlight an improving trend in TCCs benefiting from the USDRUB depreciation and management focus on cost control. With USDRUB continuing to post new losses and 2/3s of annual production flowing through H2/15 mainly driven by output at Pioneer where a 2-2.5 times increase in processed grades and lower waste stripping expected drive unit TCCs <500 oz="" during="" the="" period="" second="" half="" of="" year="" shapes="" up="" to="" report="" a="" significant="" improvement="" in="" cash="" flow="" generation="" contributing="" continuing="" deleveraging="" group="" p="">
We reiterate our BUY recommendation and will be releasing updated earnings estimates shortly.
*SPAngel analysts have visited the Pioneer, Malomir, Pokrovka and Albyn gold mines in Russia

Stratex International plc* (LON:STI) 1.925p, Mkt cap £9.0m – Interim Results and operating update
Stratex International has reported an operating loss of £1.18m for the first half of 2015. This compares with a loss of £1.26m in the same period in 2014. At the pre-tax level losses amounted to £1.39m in 2015 compared to £1.41m last year.
• The company points out that, following the sale of the East African assets to 40% owned Thani Stratex joint-venture and the acquisition of a 34% interest in Goldstone in October 2014 there are marked differences in the shape of the business between the two reporting periods.
• Stratex has, however, focussed on containing costs while maintaining the core exploration activities, mainly at Dalafin in Senegal, where it recently reported that it had outlined a wide and laterally extensive zone of gold mineralisation at Madina Bafe and in the Goldstone properties at Homase-Akrokerri in Ghana.
• Administration costs of £1.14m are 13% lower than for H1 2014 and an impressive 32% below the £1.68m incurred during the first half of 2013.
• Despite weather-related set-backs in the completion of Stratex’s 45% owned Altintepe gold mine in Turkey, where construction has been fully funded by the company’s Turkish partner in order to earn an interest, the mine is expected to produce its initial gold before the end of the current quarter providing Stratex with a regular operating cash flow.
• Also in Turkey, Stratex’s local partner in the Muratdere copper/gold porphyry project, Lodos, has completed a feasibility study demonstrating the economic viability of the project as part of its commitment to earn a 70% interest. Stratex is now “assessing whether to contribute to the continuing development costs, sell its interest, or accept dilution to a royalty position.”
• Stratex also owns a 1% NSR (capped at $20m) in the Oksut project in Turkey where Centerra Gold expects to generate initial gold production in 2017.
• The company is also evaluating additional projects “which we could acquire and accelerate towards production”. “Despite engaging with several targets, we have yet to acquire the right asset at the right price. This task continues and, with the commencement of sustainable operating cash flow, Stratex’s hand should be strengthened in future negotiations.”
Conclusion: Over the next few months, Stratex is developing from a pure and successful exploration company into a more integrated mining company with operating cash flows to help fund its core exploration activities or to deploy into the development of additional projects or acquisitions. The start of operating cash flow should be a watershed for Stratex which should allow Stratex the financial flexibility and independence to consider a range of operating options for the next phase of the company’s development.

Thu, 27 Aug 2015 11:34:00 +0100
In the news with RFC Ambrian: Antrim Energy, Highfield Resources, Schlumberger and Sierra Rutile INTRODUCTION

In the news: The Oil Services Industry, Highfield Resources (ASX:HFR), Sierra Rutile (LON:SRX) & Antrim Energy (LON:AEY)
Schlumberger (NYSE:SLB) has bid approximately US$15bn for Cameron Intl Corp. Whilst oil company mergers have not taken off recently as was generally expected (Shell’s bid for BG being the obvious exception), as can be seen in this move, mergers amongst oil service companies have gathered pace. The deal should help Schlumberger to become a one-stop shop for oil companies, adding Cameron’s valves, pumps and blow-out preventers to its in-house engineering expertise. This deal follows Halliburton’s US$35bn merger with Baker Hughes. Although The Times is fretting about hefty job losses in the sector, in the short term we believe the consolidation of the service companies should have a positive knock-on effect for oil companies. It should allow the service companies to cut costs more quickly, which will thus get passed on to oil companies given today’s oil price environment. It is true though that over the longer term this increased pricing power for the service companies could lead to higher rates when the good times return. What the Lord giveth, etc.

Meanwhile, Maersk Oil says it will close one of its production units in the North Sea. The Janice installation, which produces 7,000bpd from three UK North Sea oilfields, is targeted for closure in 3Q16.

I see that Highfield Resources, which owns a potash project in Spain, has received debt funding from a syndicate of four European banks. In total, the facility will total €222m, giving the project a maximum debt-to-equity ratio of 65%. The facility has a tenor of eight years (further details remain confidential). This shows that the debt markets are very much open for business for the best projects, and this is how it should be, really. Quality assets and with strong management are the only projects that are going to move forward in this environment. Best to stick with the specialists in natural resources (like RFC Ambrian) as the weakest are culled.


Sierra Rutile — 1H15 Results Sierra Rutile (SRX: AIM: £0.20), the mineral sands producer with operations in Sierra Leone, has announced its financial results for 1H15. The company’s sales mix is dominated by rutile, but also includes ilmenite, zircon and other concentrates. Sales during 1H15 were US$46m (-29% YoY); this was due to lower volumes (rutile -30% and ilmenite +8%) and lower prices (a rutile price of US$809/t, -1.1%). All-in cash costs (net opex, corporate costs and sustaining capex) were US$721/t (+15%).

Reported EBITDA was US$7m and net cashflow from operations was US$11m (after a release of US$5m from working capital). Capex was US$10m, of which US$8m was spent on the Gangama dry mining expansion.

The company ended the period with cash of US$9m and total debt of US$45m (comprising US$22m from the Government of Sierra Leone and US$23m from Nedbank), for net debt of US$36m, unchanged from the end of 2014.

RFC Ambrian Comment: Positively, despite lower-than-planned production during 1H15, the company reiterated that it remains confident of achieving its guidance for production (120-130,000t rutile) and all-in cash costs (US$650-670/t) that were originally stated in January 2015.

It also commented that in spite of the impact of the rainy season on some of the project’s earthworks, the Gangama dry mining project was expected to be delivered on time and on budget, with first production in 2Q16.

The company stated on a conference call to discuss the results that it expected that the ongoing reduction in pigment capacity would lead to lower pigment inventories and that this could have a positive impact on feedstock pricing by 2H16.


Sierra Rutile is the world’s second largest producer of rutile. The company produced 114,000t of rutile in 2014 at operating cash costs of US$646/t, net of by-product credits. Production is derived from dredge and dry mining operations at Lanti, which feed a mineral separation plant that has a capacity to produce 225,000t pa of rutile, and is therefore significantly underutilised.

On 21 April 2015 the company announced that it was to embark on the development of Stage 1 of the Gangama Dry Mining Project. The project is planned to cost US$44m (of which US$8m had been spent by the end of 1H15) and to be completed by 2Q16.

Although Stage 1 will produce an additional 46,000tpa of rutile, the company’s net increase in output will be limited to 20,000tpa owing to reductions in output elsewhere. Stage 1 is planned to have operating costs of just US$295/t during its first five years of operation, reducing the company’s overall total cash costs to US$595/t. Stage 1 is planned to take 12 months to construct at a capital cost of US$44m.

Stage 2 would double output from Gangama to 93,000tpa of rutile and would cost an additional US$33m to develop. Assuming the development of Stage 2 goes ahead, the project has a life in excess of 20 years.

The Stage 1 development is fully funded from cashflow and finance facilities and will include the additional liquidity created by the deferral of repayments on the government debt that was announced on 12 January 2015. Sierra Rutile also has access to a US$30m loan facility from Nedbank that remains undrawn and of which the company only expects to have to draw down US$15m. Also, the company’s 55% shareholder Pala Investments has provided a stand-by facility for another US$15m.


ANTRIM ENERGY*† — 2Q14 Results — Antrim Energy (AIM: AEY, TSX.V: AEN) has released its 2Q14 financial results; these were in line with our expectations. The company had a strong working capital position at the end of the quarter (C$10.4m), including net cash of US$13.5m.

In the announcement the Antrim repeated the results of an evaluation of FEL1/13 (Porcupine Basin, offshore Ireland) prospective resources by McDaniel & Associates Consultants Ltd. The two largest leads (‘C’ and ‘M-3’) represent 42.7% of the total unrisked property best estimate prospective boe resources. They are estimated to have unrisked gross best estimate prospective resources of 126MMbbl oil, 1.9Tcf of gas and 35MMbbl of condensate. Antrim owns 25% of this licence and is thus estimated to have risked mean net prospective resources from these two of 14.8MMbbl of oil, 248Bcf of gas and 5.6MMbbl of condensate. In December 2014 Kosmos prepared a prospect inventory that included several leads previously identified and highlighted three prospects, including two tilted Jurassic fault blocks and a Cretaceous submarine fan. Two of the three prospects were included as leads in the prospective resources evaluated by McDaniel & Associates.

In June 2015 Antrim contracted Offshore Installation Services to plug and abandon permanently three suspended wells on the Fyne Licence and one suspended well on the Erne Licence in the Central North Sea. The well abandonment campaign commenced on 8 July 2015, including six Central North Sea wells from another operator, allowing Antrim to share certain common costs. The first phase of the ten-well abandonment programme was completed on 15 August 2015 and the final phase is expected to be completed in early September 2015. The estimated total gross cost for abandonment of Antrim’s four wells is £5.0m (C$7.9m), with the estimated net cost to Antrim totalling £2.1m (C$3.25m).

RFC Ambrian Comment: The working capital position was as expected. We believe the FEL1/13 prospective resources are large enough to be of interest to most large/mid-cap oil companies and should allow Antrim to farm out part of its 25% interest in the licence for carry on an exploration well once oil market conditions improve.

Thu, 27 Aug 2015 11:26:00 +0100
The Pay Zone: Oil Price Amec Foster Wheeler, Gulf Keystone Petroleum, Hunting Plc, Lamprell and Finally.... WTI $38.69 -71c, Brent $43.14 -7c, Diff $4.54 +64c, NG $2.69 +1c
Another flash blog this morning as there are so many results and meetings that I will have to revert after most, herewith a very quick summary with more to follow after meetings.

The oil price stayed relatively subdued after the EIA inventory stats all but confirmed the API numbers with a draw of 5.5m barrels against consensus of a build of 1m barrels. Yesterday I gave an interview to IGTV in which I reiterated the negative fundamentals for the oil price but made a possible left field case for what just might turn out to be a change in policy for Opec, you can watch it here.

Hunting (LON:HTG)
Results this morning from Hunting were in line with expectations after previous reports and in what was the worst quarter for oilfield service companies particularly in the US. Revenue is of course down and the company reported a loss from operations of $63m, EPS being a loss of 35.5c. Accordingly the dividend was cut from 8.1 cents to 4 cents which came as a bit of a surprise but maybe quite a wise move under the circumstances. I say that as Hunting  is coming towards the end of a series of capital investments in projects which remain under way and will consolidate the company’s operations and ‘position the business for the future’ which includes a substantial expansion project in Singapore which should complete in early 2017. Even with this expansion debt has only risen to $166m and gearing is only 12% so the finances are in pretty good nick and the divvi move probably signals part of the cost cutting which so far has amounted to $41m and a reduction of 25% of the labour force, sharing the pain, so to speak. More after the meeting but not unhappy…

Elsewhere Amec Foster Wheeler (LON:AMFW) are reiterating the mantra of lower revenues, reduced trading margins but with a$50m currency gain due to the strong dollar, again more later.

And Gulf Keystone (LON:GKP)also say that operationally things couldnt be going much better but they are still owed a significant amount in back revenues, today’s statement from the MNR should help. Meeting same time as Hunting which doesnt help so might have more later.

And I will go to the Lamprell (LON:LAM) meeting at lunchtime in order to find out if the ‘review of strategy’ under the current ‘challenging conditions’ is going to affect my bull story, much to glean although word is that the Executive Chairman will not be in attendance…

And finally…
All in one line, Rooney back from the dead with a hat-trick against Club Brugge, England’s women stay in Ashes hunt with a T20 win last night, Usain Bolt v double doper in the 200m later and Stuart Lancaster is to announce the RWC squad at lunchtime

Thu, 27 Aug 2015 09:43:00 +0100
Northland Capital Partners View on the City Motif Bio, Stratex International, SQS Software Quality Systems and James Latham Motif Bio plc (LON:MTFB) – BUY*: Maiden interim results
Market Cap: £54m; Current Price: 50p; Target Price: 114p
Transformational six months
Motif announced its maiden interim financial results for the six months to June 30 2015.
These six months were transformational for Motif.
On 2 April 2015, the Company completed an AIM listing raising £2.8 million at 20 pence per share
Shortly after, the U.S. Food and Drug Administration (FDA) agreed to Phase III trials for the group’s flagship antibiotic iclaprim.
Also, the Company received QIDP designation granted by the FDA for iclaprim - post-period end - giving iclaprim up to ten years of market exclusivity once approved. This allowed the company to then raise £22 million at 50 pence per share to begin funding the Phase III trials.
We maintain our forecasts and reiterate our 114p Target Price.
NORTHLAND CAPITAL PARTNERS VIEW: The year to date has been a truly transformational period for Motif. The company has generated significant shareholder value. We expect this to continue for the foreseeable future. We reiterate our 114p Target Price. BUY.

Stratex International (LON:STI) – BUY*: H115 results
Market Cap: £10m; Current Price: 2.15p; Target Price: 7.8p
Costs reduced while moving to production
NORTHLAND CAPITAL PARTNERS VIEW: Stratex International’s H115 results reflect the Company’s focus on reducing costs and conserving cash while its 45%-owned Altintepe Gold Project, located in Turkey, is advanced to production in 2015 at no direct cost to Stratex. LBT for H115 remained in line with H114 at £1.4m, as a £0.2m reduction in administration expense was offset for by an increase in losses resulting from equity investments. Exploration expense in H115 was £0.5m compared to £1.2m in H114 and net cash was £2m in H115 down from £6.2m in H114 and £3.6m in FY14. Importantly, this is the last set of financials before Altintepe commences production (expected in September) and these H115 results reflect that transition. We expect the H215 results will reflect the ramp up phase of production at the mine and we conservatively assume the mine will produce c. 6,000oz Au in 2015. Production levels are then expected to increase to c. 30,000oz Au in 2016 and c. 40,000oz Au in 2017, generating increased levels of income for Stratex. We maintain our price target of 7.8p for Stratex which is currently 237% above its current market price. We have adjusted our forecasts to reflect our expectations of continued lower administrative costs along with several other minor changes.

Latham (James) (LON:LTHM) – BUY*: AGM statement
Market Cap: £135m; Current Price: 697p; Target Price: 80p
From yesterday: positive start to FY16
Revenue for the first four months increased 7% reflecting higher volumes traded, with more small orders delivered ex-stock. Direct sales have also increased. Margins are higher than the same period last year and also Q4 FY15. Bad debt has returned to more normal levels. Overall trading is in line with expectations.
Demand for both Timber and Panel products continues to improve, although the environment remain competitive. Capacity has been increased for specialist panels with further investment in racking at Hemel Hempstead and Thurrock. Negotiations have commenced for a new site in Yate and management has identified possible sites for the relation of the Wigston site.
Interims are scheduled for November 26th.
No change to forecasts, BUY rating or 800p price target.
NORTHLAND CAPITAL PARTNERS VIEW: Good start to the year with (+7% revenue) growth maintained across Timber and Panel products and an improvement in margins, reflecting a richer product mix as the company gains traction with innovative products, such as Accoya® modified wood and WoodEx engineered timber. These products offer higher gross margin but also enables Latham to differentiate itself in the market. Latham’s customer base spans multiple subsectors and there is little customer concentration and therefore benefits from the general improvement in economic activity. The planned relocation of Yate and Wigston, its two oldest sites, will dip into the Company’s cash reserves over the next three years but the balance sheet remains strong. We maintain our BUY rating and 800p price target.

SQS Software Quality (LON:SQS) – Acquisition
Market Cap: £179.7m; Current Price: 574p
Acquisition strengthens US presence
Acquisition of Galmont Consulting, a software testing consultancy in the US, for up to $22m. The consideration will be satisfied through existing cash resources, debt and the issue of up to 1.2m shares subject to performance criteria over the next 36 months. Initial consideration of $7.0m – split between cash and shares. Earn-out of up to $3m based on year 1 performance with the balance on the 36 month performance.
Galmont operates in the Mid-West of the US with a presence in Chicago, Dallas, New York and Kentucky. The acquisition complements SQS’s existing strength across the Banking, Financial Services and Insurance (BFSI) and Manufacturing sectors and adds capability in government and healthcare. In FY14, Galmont recorded revenue of $17.1m and PBT of $1.1m. The enlarged US business (existing SQS operations, Trissential acquisition and Galmont) had $62m in pro forma revenue.
NORTHLAND CAPITAL PARTNERS VIEW: Further strengthening of SQS’s US operations following April’s Trissential acquisition and Galmont also moves SQS into more government and healthcare work. There is an ongoing shift towards independent software testing and SQS is well positioned to capitalise meanwhile its focus on managed services is improving revenue visibility and margins.

Thu, 27 Aug 2015 08:17:00 +0100
Sighs of relief in the West as China continues to wobble FTSE 100 Index called to open +110pts at 6120, reclaiming 6000 support with 3 days of rising lows looking to test and overcome a hitherto resistive 6100. Note however the daily RSI plateauing just above oversold territory indicating a dearth of momentum this morning. Optimists betting on a bullish ascending triangle to convert to a rising channel while Bears looking to jump on waning momentum and ride continued macro-worries.
Watch levels: Bullish 6220, Bearish 5990.

The positive opening call comes as Asian stocks tracked the biggest gains in U.S. equity markets in four years following a two-week selloff that drove stock valuations to their lowest since 2012. Chinese companies listed in Hong Kong led gains, while the Shanghai Composite remained true to its nature and pretty much the opposite to its Asia-Pacific peers, experiencing extreme volatility this morning (-ve to +ve in quick succession). Careful now.

As mentioned, US stocks bucked a six-day losing trend on Wednesday, posting the biggest percentage gains in almost 4 years. The usual ‘signs of strength in the US economy’ and a Federal Reserve that’s loathe to push the big red rate hike button easing concerns about potentially forthcoming market shocks. As if we need any of those right now.

In Greek Bailout news, Alexis Tsipras said that the time has come (again) for the Greek people to decide on his record, also ruling out a return to the Drachma – which was never a choice for Greece apparently. What was a choice for Greece then? Has this all just been a waste of time? #confused.

In focus today we have US jobs and GDP data looking for improvement across the board while pending home sales this afternoon looking to go positive on the month while slightly contracting on the year.

Crude inventories in the US tanked by 5.45m barrels in the week ending 21 Aug, the biggest one-week decline since June according to the latest round of data from the EIA. With expectations of a rise of 2m, that’s pushed up the oil price this morning on reduced supply – WTI futures went up 2% to $39 (still worryingly sub-$40) while those for Brent Crude posted an unsurprisingly similar advance to $44.

Gold ($1127) off its highs as capital makes its way back into equity markets, but finding support in Fed chief Dudley’s dovish comments of yesterday, keeping the dollar from surging upwards too much.

Thu, 27 Aug 2015 08:15:00 +0100
Email of the day on what pundits are saying Email of the day on what pundits are saying
Lowry's, the oldest TA firm in the business, is telling it's (mainly institutional and family) clients that any further weakness warrants moving to a fully defensive posture, selling all non-defensive equities. They are calling this a bear market with the potential to go to 2040 as a last hurrah.
Leithold told it's (similar) clients on Friday to sell down to a 30% invested level - sounded like they are keeping the highest dividend defensives, if I understood right.
David Rosenberg is still pretty bullish, arguing that US and North American economics except commodities are still good.
Jim Cramer gave his audience a pretty long list of stuff to sell today (autos, commodity companies, gpro, ge, dd, railroads except UNP. Cramer likes AAPL, FB, AMZN, NFLX, GOOGL.
How quickly sentiment can shift...
CNBC anchors are still cheerleading for the Fed to come to the rescue. Each new day is a new day of hope for same.
Larry McMillan turned intermediate-term bearish when the market broke 2040.
Of course the Elliott Wave guys are now predicting that this will be the biggest bear market since 1929 (hmm, have they said that before?)...
John Murphy (who seems to use indicators and classic TA patterns a lot (wrote books on same), but seems to rely on EW for longer-term stuff) says:
"Stocks have entered wave 4 correction -- 2015 downturn closely matches 2011 Correction which bottomed in October – to keep the long-term uptrend intact, last October’s lows have to hold – VIX index surges to new 2015 high."
The Fast Money traders on CNBC are split with 1 bull who said yesterday "I guarantee the bottom is in", 3 bears and 1 bearish-wait-and-see-where-it-goes.
And with that, we'll wrap up the sentiment-influencers report.
Eoin Treacy's view
Thank you for this summary of what various analysts and pundits are saying. It’s quite a range of opinions but perhaps the most important takeaway is that market action has forced people to announce an opinion and big calls receive a lot of attention in a competitive media environment. Let’s split the market down into short, medium and long-term chart facts.

Interesting charts
Eoin Treacy's view

Nikkei-225 – The Index experienced a steep decline over the last week but found at least near-term support in the region of 18,000 but a sustained move back above 19,200 will be required to signal a return to demand dominance beyond current scope for a continued bounce.

Email of the day on Royal Dutch Shell
Hi Eoin, I love my daily read of your great service.
What is your opinion on Royal Dutch Shell, I am under water by about 30% not counting dividends.
Eoin Treacy's view
Thank you for this question which is sure to be of interest to other subscribers and I’m delighted you’re enjoying the service. The steep decline in a large number of sectors, particularly energy has left a lot of people in a similar dilemma. My first thought is that with a share yielding 7.71% today it would be rash to ignore the dividend even if the yield was lower when you purchased it.

Email of the day on technological innovation:
This addresses concerns you have voiced about technological change (our ongoing Third Industrial Revolution) leading to the potential disappearance of jobs. The same concern was voiced during previous periods of rapid change in technology. A quote from the article :
"Technological change increased the demand for other types of labour that were complementary to the new technologies. So, for example, large numbers of supervisors and managers were needed for the vast new factories and companies. Product innovation created completely new markets which demanded completely new types of job."
The article goes on to say that economists at the time could not conceive of the jobs that would appear and my sense is the same is true today.
The real issue for us all is adaptability. Didn't Darwin say something about this?
Eoin Treacy's view
Thank you for this email and the associated article. The question is not whether some people will lose their jobs due to their skills becoming obsolete because that is already happening. Rather we need to monitor how many new jobs are being created in new sectors as they emerge. Generalisation, adaptability, non-linear thinking, problem solving and creativity represent the buzzwords for the labour force of the next decades because relatively unskilled jobs, heavily regulated by unions are going to less common. People have always followed a “needs must” approach to work and the pace of automation is unlikely to change that.

Email of the day on my personal portfolio August 26th 2015
Hello Eoin, I read your daily post, and look forward to seeing one of your seminars in the future. I'm curious, you recently opened up a long commodities position, and I also see multiple closings due to breakeven stops. Do you continue long broad commodities, or have you sold or been stopped out of the position? Thank you
Eoin Treacy's view
Thank you for this question which others may have an interest in.

Speaking Engagements
Eoin Treacy's view

I’ve agreed to conduct a one-day seminar for UCLA Extension focusing on our approach to behavioural technical analysis. This will be on August 29th. Here is a link to the brochure and the university’s website where you can book a place. The early booking rate of $139 expires on July 29th.

The Chart Seminar 2015
Eoin Treacy's view

Following an encouraging start to the year’s speaking engagements I am looking forward to our events later this year.
We are also available to conduct private seminars and occasionally agree to speaking engagements at investment conferences and professional societies.
With regard to The Chart Seminar, In order to facilitate more venues we are open to partnering with other groups to market the event. If your organisation would like to arrange a seminar either internally or for your clients please do not hesitate to contact us. .
The remaining dates and venue for 2015 is:
November 26th & 27th The Chart Seminar London – The East India Club
If you are interested in any of our remaining venues please contact Sarah Barnes at
The full rate for The Chart Seminar is £950 + VAT. (Please note US, Australian and Asian delegates, as non EU residents are not liable for VAT). The early booking rate of £875 for non-subscribers expires two months ahead of the event start date. Subscribers are offered a discounted rate of £850. Anyone booking more than one place can also avail of the £850 rate for the second and subsequent delegates.

The Markets Now
Here is the brochure for September 28th.
David Fuller's view
I look forward to catching up with friends and subscribers at this Seminar.  Stock markets are in a challenging phase seasonally and these create new opportunities. In addition to the three speakers, September 28th should also be a good time to draw on the considerable experience of delegates.  I am sure we will have some lively discussions, which will continue in the Club Bar following presentations.  I hope attending delegates can stay and have a drink with Iain Little, guest speaker Paul Jourdan and myself. Your guests will also be welcome.

Thu, 27 Aug 2015 08:10:00 +0100
Beaufort Securities Breakfast Alert Herencia Resources, HSS Hire Group, International Greetings, WPP group and others The Markets

Market opening: Markets are likely to open lower today. FTSE 100 futures were trading 92 points down at 7:00 am.

New York: Wall Street ended in the green after declining for six consecutive days. The positive data on durable goods order and comments from a Fed official citing possibility of a delay in interest rate hike boosted investor sentiment. The S&P 500 surged 3.9%, led by the information technology sector.

Asia: Equities are trading higher, taking cues from the US market. Furthermore, the People’s Bank of China (PBOC)’s decision to infuse US$ 21.8bn into the financial system lifted investor sentiment. The Nikkei 225 added 1.1%, while the Hang Seng was trading 1.9% up at 7:00 am, tracking the Chinese market.

Continental Europe: Markets ended in the red amid growing concerns over China’s economic health. Investors closely eyed the developments related to the Fed’s decision on interest rate hike. France’s CAC 40 and Germany’s DAX shed 1.4% and 1.3%, respectively.

Crude Oil: Yesterday, WTI and Brent oil prices fell 1.8% and 0.2%, respectively. The spread between the two varieties stood at US$4.5 per barrel.

UK small caps: The FTSE AIM All-Share index closed 2.09% higher yesterday at 717.06.

Todays's News

Mortgage approvals in UK rise to 17-month high in July

The total number of loans for house purchases in the UK increased 11% y-o-y to 46,033 in July, the highest since February 2014. The improved numbers clearly indicate recovery in the UK’s housing market.

US interest rate hike unlikely in September

William Dudley, a Federal Reserve official, informed an interest rate hike is unlikely in September due to slowdown in China’s economy. However, he raised the possibility of a hike later this year after the conditions improve

Company News

Herencia Resources (LON:HER) – Speculative Buy

Herencia Resources, the Chile focused mineral exploration and development company announced yesterday results from its surface sampling program on its advanced Picachos copper project located in central Chile. The company has identified numerous high grade mineralised areas adjacent to the proposed open pit mining operations. Results were based on a hand-held XRF (x-ray fluorescence) analyser used on surface samples at the 40M Shaft East, Flor del Bosque, La Nipa, Santa Rosa and southern tenement areas. High grade results from the 40M Shaft area as well as mapping of additional mine workings confirm the continuity of mineralisation at shallow levels. Previous drilling results had identified high grade zones at depth such as DDH14003 (see RNS 18 Dec. 2014), which returned 117m grading 1.14% Cu (from 182m) including 18m grading 1.53% Cu (from 184m), 9m grading 2.02% Cu (from 193m), 16m grading 1.5% Cu (from 213m), 10m grading 1.95% Cu (from 254), 10m grading at 2.0% Cu (from 268m) and 11m grading 2.21% Cu (from 288m). The area around Shaft 40M, previously modelled as waste, had the highest readings at 24.8% Cu. Extensive geological and structural mapping in conjunction with the surface sampling program confirms the shallow copper mineralisation over a strike length of 1,200m.

Our view: We are encouraged with the consistent and high grade mineralisation from Shaft 40M and surrounding area. Whilst more detailed work is required in order to prove up any additional resources, preliminary results are encouraging given that the area was previously modelled as waste within the proposed pit shell. The surface sampling results could potentially have a significant impact on the overall economics at Picachos. In view of the above results, we reiterate a Speculative Buy on the stock.

Beaufort Securities acts as corporate broker to Herencia Resources plc

HSS Hire (LON:HSS) – Speculative Buy

Wednesday morning, HSS produced half year results in line with guidance issued in the pre-close trading update issued 29 June 2015. Group revenue was up 12.1% to £146.4m (H1 14: £130.6m), with organic growth of 10.6%, while adjusted EBITDA was flat at £28.9m (H1 14: £28.9m), due to the IPO and new branch start-up costs. Loss before tax of £14.1m (H1 14: £11.1m loss); reduced financing costs partly mitigate Adjusted EBITA movement, producing an underlying basic and diluted loss per share of 4.45p (H1 14: 6.03p). Management also declared an interim dividend of 0.57p per share, payable in October 2015. It detailed its expectation for a continued growing market share through H2, despite variable market conditions, noting that while July was in line with management expectations; trading has been softer in August. As a result, 2015 revenue growth (full year) is now expected to be in the range 8 – 11% and earnings for the full year now expected to be below current market expectations.

Our view: Not a glorious start! This is HSS’s second profit warning just six months after Admission. The share price has tumbled dramatically from the 210p Offer price as bemused investors demand clarity as to exactly what is going wrong. Surely, with booming construction and refurbishment being sustained right across the UK and Ireland, trading condition can rarely have been better? Not so according to management, who consider market conditions ‘remain soft’, therein reducing their full year outlook despite apparently still gaining market share. Narrowing the focus down, we can see OneCall and HSS Training slowing in Q2, with organic growth halving to 6.2% on the previous period driven by reduced activity from key accounts; by comparison, the Specialist business registered 20% l-f-l growth in the first six months, significantly more if acquisitions are also included. So what next? While gross profits rose 9% on last year, a sharp move back to operating losses also reflected investment in strategic investment (including drag from branch rollout) and higher depreciation due to demand-led investment. Given that the effects will linger in the second half, a reduction in consensus revenue growth of 5% and a virtual halving of 2015 EPS to around 4.4p now appears realistic. That said, the tumbling share price has now taken this on board, which begs the question whether investors might anticipate some form of pay-back during 2016E and 2017E. Here the brave will give management the benefit of the doubt. Less emphasis on market share and more on key customer service, means capital additions could fall quite sharply going forward, during which time both debt and operating costs could be trimmed by £10m or so. Targeting 11% revenue growth for both 2016E and 2017E, suggests earnings could recover to 7.7p and 11.6p for the two prospective years. Multiples of 11x followed by 7.2x, together with dividend yields of 2.5% and 3.4%, the shares are now at a level where value might be found again. Risks remain, however, until management has proven it has the ability to both outperform its underlying market and second-guess its peers. Beaufort reflects this in moving it rating from Buy to Speculative Buy.


Yesterday, WPP released interim results for the six months ended 30th June 2015. Revenues were up 6.8% to £5.84bn; and 4.9% on like-for-like (LFL) basis. Net sales rose 5.2% to £5.04bn; and 2.3% on like-for-like (LFL) basis. Reported billings increased 5.0% to £23.16bn. WPP experienced strong growth across geographies and business sectors. The company’s PBIT increased by 7.6% to £669m, thanks to a 0.3 margin point expansion in net sales margin. Reported profit after tax jumped 51.7% to £601m, reflecting net exceptional gains. Headline diluted EPS stood at 33.5p, up 14.7% over the previous year. WPP completed 25 transactions in the first half; six acquisitions and investments were in new markets and 19 in quantitative and digital. The company revised its forecast for the full year to expect LFL revenue and net sales growth of over 3%. WPP declared an interim dividend of 15.91p per share.

Our view: WPP, the world’s biggest advertising company and owner of JWT and Ogilvy & Mather, posted strong results. Though, growth in China had been weak in the second quarter, demand in mature countries helped offset the decline. The company remains confident of achieving its full-year sales target. CEO Martin Sorrell is bullish on China prospects, where it employs nearly 16,000 people. In light of the above, and the company’s superior position in key markets, we reiterate our Buy rating on WPP.

Carillion (LON:CLLN) – Buy

Yesterday, Carillion reported its half yearly financial results for the six months ended 30th June 2015. During the period, the company’s revenues jumped 21% to £2.25m from £1.9m due to the surge in the new contracts in 2014. The underlying profit from operations improved 16% to £112.5m whereas the pre-tax profit increased 11% to £84.5m. Consequently, the company’s underlying earnings per share enhanced 8% to 15.0p. On the operational front, the new first-half orders plus probable orders declined to £1.0bn from £3.2bn owing to the suspension of public sector contract awards due to the UK General Election, whereas the overall secure orders plus probable orders stood at £17.1bn. In addition, the company has Framework contracts worth up to £2.5bn. Carillion’s pipeline of contract opportunities also increased to £40.5bn from £39.2 bn. Moreover, the company’s revenues visibility for 2015 was 96% at the end of the period, up from 93% in 2014.

Our view: Carillion continued to perform well in the first half of 2015, mirroring the impact of the company’s smart moves during the economic downturn when it consolidated its market position. The high margins, strong revenue and cash flows are an outcome of a number of major new contracts win in 2014. Going ahead, we expect the company to achieve its target for the year owing to rise in the number of orders, an increase in pipeline contracts and an expected improvement in market conditions. In view of the above argument, we reiterate a Buy rating on the stock.

International Greetings (LON:IGR) – Speculative Buy

Yesterday, International Greetings provided a trading update for the first quarter ended 30th June 2015. During the period, the company’s sales and customer order levels were in line with the management expectations. The company informed about several new initiatives in the US comprising a phased investment in a US manufacturing facility. On the other hand, the company received a 2015 Christmas commitment from a drugstore chains to feature in over 7,500 stores. Moreover, a range of creative play products are also expected to be launched in Autumn 2015 with a chain of over 8,000 discount stores. International Greetings also entered into a licensing contract with Coca Cola Enterprises, Disney for the Star Wars franchise. Also, the latest National Geographic licensed product offering gift packaging, gifting and stationery across categories would be promoted in over 3,000 additional stores in the US. The company expects to continue performing in line with the guidance despite the impact of the weak Euro and Australian Dollar exchange rate.

Our view: The above updates indicate that the International Greetings are well positioned to continue its growth in a profitable manner. The company is benefitting from strengthening cross regional customer relationships and also from the exciting new licensing arrangements. The company’s management team has got a shot in the arm with the appointment of the new CEO Gideon Schlessinger. Meanwhile the management continues to look around for opportunities to grow both organically and through well considered acquisitions. A widespread geographic reach provides varied revenue streams with diversification benefits. Thus, eyeing the overall performance of the company on all counts, we reiterate a Speculative Buy on the stock.

Economic News

US MBA mortgage applications

US mortgage applications edged up 0.2% in the week ended 21st August after rising 3.6% in the prior week, the Mortgage Bankers’ Association said yesterday. Refinance index fell 1.0%, while the gauge of loan requests for home purchases rose 1.7% over the week.

US durable goods orders

US durable goods orders rose 2.0% m-o-m in July following a revised increase of 4.1% in June, the Commerce Department said yesterday. The reading came better than the economists’ expectations of a 0.4% decrease. The orders excluding transportation equipment improved 0.6% m-o-m in July, after a 1.0% rise in June. The reading came ahead of the market expected 0.3% increase.

Thu, 27 Aug 2015 08:03:00 +0100
The Pay Zone: Oil Price Andes Energia, Aminex, Circle Oil, Cape and others WTI $39.31 +$1.07, Brent $43.21 +52c, Diff $3.90 -55c, NG $2.68 +3c
Oil price

Crude prices rallied a touch yesterday with a variety of reasons being proffered, the weak dollar as the Jackson Hole meeting starts today to decide on when interest rates are to rise seemed as good a start as any. If you believe that the dollar strength has run its course for the time being we may be near the bottom. Elsewhere the reports of the Whiting refinery coming back onstream earlier than expected would have boosted WTI and demand for local crude. The big news of course came by way of the API inventory stats, analysts had been going for a build of around 1m barrels so we shouldn’t have been surprised to see a draw of 7.3m barrels, watch out for tonight’s EIA numbers to frank the form.

I have been taking a look at what might change in the oil market now that we are back down at the lows, this week’s news from China has potentially changed things if you believe that their economy is faltering, a view I dont necessarily share. However what it might do is to precipitate some change in policy from Opec and give the cartel a chance to ‘suspend’ its latest drive for market share. There is no doubt that even the Saudis are feeling the pinch as is reported in a number of papers at the moment. To save face I can see that some sort of deal may be cobbled together, it would need to be wrapped appropriately of course but Opec rescues the world sounds quite nice.

The fundamentals remain weak, current strategy has been premised on someone blinking first, some people thought it would be the US shale operatives but it was never going to be them, particularly when costs fell by up to 40% and banks preferred to roll with the debts rather than put them into Chapter 11. Worries about overproduction from the Opec heavyweights continue as they fight to dominate the cartel before Iran returns to the fray, nobody is backing off at the moment it seems. Last week the Saudi Foreign Minister visited Moscow and whilst discussions were of a general nature they definitely revolved around oil. Conventional wisdom states that Russia cannot afford to cut production, but as a leading investment manager suggested to me recently, if by cutting output modestly, total revenue might actually rise, particularly if done as part of a concerted effort. What says that in answer to the recent calls for an emergency meeting, the Saudis acquiesce, agree an Opec cut back as a temporary measure and invite Russia to attend as an observer at which stage they add a meaningful token as a gesture to the Middle East? Flights of fancy maybe but at some stage someone will blink and current problems in China may be a precursor to action from Opec, an unholy alliance maybe but stranger things have happened…

Cape (LON:CIU) - Redhall gives you wings…
Another good set of figures from Cape as Joe Oatley and team get to grips with the company. As is the case with any service company at the moment the conditions are described as challenging but with revenue, profit, cash flow and EPS all up in the period this is undoubtedly a cracking set of figures. Add to that an order book up 24% at £800m at its highest for four years and you get a maintained dividend that might not have been imaginable last year. As one might expect not all geographies are firing on all cylinders, the UK North Sea is seeing pricing pressure and project downscaling but elsewhere the UK looks ok particularly with good contract wins from BP and Exxon.  Azerbaijan is good as is most of the MENA area with the KSA and Qatar demand high and Kuwait prospects ‘moving forward’. Asia is pretty mixed led by an awful Aussie iron ore market but that was more than offset by the Wheatstone project ramping-up and good performances by the Thailand and Philippines businesses.

Cape has surely turned the corner and the progress made is tangible and substantial, the balance of the business is sound and the focus on operational efficiency belies the nature of the market which is  a credit to the management. Despite weaknesses in the North Sea and in iron ore a number of divisions have stepped up to the mark and margins are stable and may yet increase in some areas. Yielding over 6% on a maintained 14p dividend which I dont consider a burden, this stock is surely too cheap and a lock away despite the traumas of the sector.

Andes Energia (LON:AEN)
This stock has been a favourite for a long time and today has announced that it has raised $9m in a placing and subscription to fund its drilling campaign and $10m to pay off a bond, all at 25p. Andes has an exciting work programme over the next two years in the Vaca Muerta and elsewhere in South America in which it is partnered by some industry heavyweights and is worth keeping on the radar screen.

Aminex (LON:AEX)
Its been a hard graft but it does look like Aminex are close to delivering first gas from Kiliwani North ‘within the current quarter’ after a long wait. They say that the Kiliwani North GSA is expected in the ‘near future’ and if all goes well they will get under way with the appraisal programme at Ntorya. As I said recently I am hoping to get an update with Jay before long and will report back after that.

Schlumberger (NYSE:SLB) has announced that it is acquiring Cameron in a $12.74bn cash and shares deal. The bid at $66.36 a share is a 56.3% premium to last nights close, the shares have fallen by 42% in the last year. There will be more deals like this and on the day that Transocean (NYSE:RIG) passed the dividend will surely start to sort the men from the boys in the oilfield services sector.

If my maths are correct it is deadline time for the Tethys Petroleum (TSE:TPL) potential  bid by Nostrum (LON:NOG), after due diligence expired yesterday with a two day limit by tomorrow morning all will be revealed…

Faroe (LON:FPM) have announced that Shell (LON:RDSA) has spudded the Portrush exploration well in the Norwegian North Sea in which they have a 20% stake. It is only 10 km away from the Fjord field in which Faroe has a 7.5% stake and is one of only a number of exciting prospects that it will drill in the next few months.

IGas (LON:IGAS) has announced that its new CFO will be Julian Tedder, an experienced E&P operator and in todays AGM statement appears plenty upbeat  about prospects which is probably appropriate given how much more interesting life must be looking now.

More problems in Morocco for Circle Oil (LON:COP) for whom nothing seems to be going right at the moment. This time they appear to have had problems on the KSS-A onshore Morocco and ‘unexpected lithology above the primary objectives’ meant the well was P&A’d. I now know why my meeting with the company was cancelled and hasn’t been rescheduled…

And finally…
Not a good night for Celtic as they went down 2-0 to Malmo and will not qualify for this years Champions League, maybe the jam tarts next year… Tonight it’s the second leg for Man Who who travel to Club Brugges 3-1 up from the first leg which was a bit flattering.

The big boys are now all in the Clueless Cup and in last nights draw the tie of the round turned out to be the Gooners going to old enemy Spurs. Other notable fixtures are Villa v Birmingham in another local derby whilst the Tractor Boys will go to the Theatre of Dreams and unlucky Maccams drew the Noisy Neighbours out of the hat…

Ahead of tomorrows squad announcement from Stuart Lancaster it appears that Danny Cipriani hasn’t made the cut and will miss the World Cup.
And at the World Championships both Usain Bolt and double doper Justin Gatlin have qualified for tomorrows 200m final, only one of those is worthy of note…

Wed, 26 Aug 2015 16:07:00 +0100
Today's Market View Including Asiamet Resources, Herencia Resources and International Ferro Metals China – base metals steady despite sales to cover margins in China
Precious metals pull back as crisis unfolds.  Fear of contagion may push gold higher
• China cut interest rates yesterday by 0.25bp to 4.6% to help the broader economy work through effects of stock market correction
• Policy makers have given support to equities and are now focussing their attention on support for the underlying economy.
• We see China’s stock market moves and the economy as ‘not’ so well correlated but there is strong potential for a collapsed stock market to slow domestic consumption and GDP growth
• China has spent around $200bn supporting equities and another estimated $200bn on currency support with little impact other than bailing out investors.
• Oil and precious metals fell again with oil hammered down by oversupply and gold sold to cover margin calls
• Growth in China is likely to slow further and this will impact the global economy particularly if China exports more low cost goods as domestic demand falls
• We suspect the Chinese authorities have decided to let the market find its own level.  They have given investors sufficient time to bail out and any remaining sellers were either too slow or are possibly larger stockholders who shouldn’t be selling into the market under its current restrictions.  As they say, Beijing is a long way away!
• Repricing of assets looks natural in China as the market finds a better fundamentally supported level.

Oil – ‘the best cure for low oil prices is low oil prices’,
Yes, it’s our favourite expression for this market
• Some observers seem surprised that Saudi Arabia is continuing to oversupply the market with oil.
• The strategy seems clear, to drive down oil prices with oversupply till higher cost producers collapse at which point OPEC will be better able to manipulate prices higher
• The major iron ore producers have a similar strategy but without the ability to use a cartel to manipulate prices higher again.
• There are other political benefits to low oil prices, Russia which supported conflict in Syria and Ukraine, is heading for economic collapse and low oil prices are helping Western nations to recover economic growth with lower energy costs and low inflation.
• High oil prices accelerated the drive towards alternative power sources, electric cars etc.. now low oil prices are needed to draw consumers back to oil products

Panama – the Panama Canal is reported to have sprung a leak and it’s going to take more than a small Dutch boy to fix this one

Economic News

US – Consumer confidence at the highest level since Jan according to the Aug Conference Board report.
• The index climbed to 101.5 this month, from 91.0 in Jul and 93.4 forecast, led by strengthening labour market.
• With the survey completed before Aug 13, results do not include recent developments in wold financial markets.
• On a separate note, new home sales posted a 5.4%mom increase in Jul, recovering from a 7.7%mom decline in Jun.
• Property prices’ growth slowed down in Jun with the S&P/CS index up 4.97%yoy v +4.99%yoy in May and +5.10%yoy forecast.
• Markit services/composite PMIs: 55.2/55.0 in Jul v 55.7/55.7 in Jun.
• Economic news due today:
o Jul durable goods/ex transport (-0.4%mom/+0.3%mom v +3.4%mom/+0.6%mom in Jun), Jul capital goods orders ex air/defence (+0.3%mom v +0.7%mom in Jun)

China – A lending rate and reserve requirement ratio (RRR) cuts fail to return confidence in Chinese equity markets.
• The PBoC yesterday announced it will cut the one-year lending rate 25bp to 4.6% and decrease the RRR by 50bp to 18% for most big banks.
• More than 1tn CNY (US$156bn) worth of outstanding margin loans have been closed on the Shanghai and Shenzhen exchanges from the Jun peak of 2.27tn CNY.
• Consumer sentiment hit the highest level since May/14 in Aug; although, the study was carried before the CNY devaluation on Aug 11 and a subsequent sell-off in equity markets.
• The Westpac MNI China Consumer Sentiment Indicator: 116.5, up 2.0 points from Jul.

Japan – Small and medium sized businesses’ confidence came in at 48.8 in Aug highlighting challenging outlook for the sector.
• The last time the measure have been seen above 50 was back in Mar/14, a month before th government hiked the sales tax to 8% from previous 5%.

Switzerland – Market expectations for the economy to have slipped into recession in Q2/15 on the back of stronger currency weighing on exports and weak manufacturing growth.
• Estimates are for a 0.1%qoq contraction following a 0.2%qoq decline in Q1/15.
• The data are due on Friday.

US$1.1506/eur vs 1.1549/eur last week. Yen 119.41/$ vs 119.66/$.   SAr 13.157/$ vs 13.117/$.   $1.569/gbp vs 1.580/gbp
US$0.712/aud vs 0.719/aud  -  Any delay to the US Fed rate rise may stem the flow of funds into the use and allow the US dollar to weaken

Commodity News
The EU is reported to be investigating ‘anticompetitive behaviour in precious metals spot trading’
• Maybe the EU would like to investigate Gordon Brown’s sale of gold into the spot market in a series of very public auctions
• Perhaps also the EU could look into the manipulation of copper prices lower in the recent bear raid, blamed on a series of leveraged Chinese funds.
• The gold market has moved on, so maybe the EU could investigate something more current and more relevant to global markets.

Precious metals:
Gold US$1,138/oz vs US$1,148/oz  
Platinum US$982/oz vs US$986/oz
Palladium US$538/oz vs US$555/oz
Silver US$14.54/oz vs US$14.79/oz

Base metals:
Copper US$ 4,992/t vs  US$4,955/t -
Aluminium US$ 1,543/t vs US$1,538/t
Nickel US$ 9,495/t unch vs US$9,490/t
Zinc US$ 1,712/t vs US$1,719/t –
• Chinese zinc demand will continue growing but at a slowing rate given large per capita consumption base and the transformation in the nation’s steel industry, according to China Nonferrous Metals Industy Association (CNIA).
• Local demand per capita is already more than double global per capita consumption suggesting it would be hard to sustain growth rates recorded in previous years.
• “Annual consumption of zinc was 14.2% in 2000-2010 and then fell to 6.4% in 2010-2014,” the CNIA said.
•  The CNIA says China is past its steel production peak with estimates for steel demand to range between 680-700mt through 2016-2020. This compares with 738mt consumed in 2014.
• Weaker steel production/demand will weigh on demand for galvanized steel products, accounting for c. 60% of China’s total zinc consumption.
• Zinc demand to grow 3.1%yoy to 6.55mt this year with production to post 12.5%yoy increase to 6.3mt.
Lead US$ 1,654/t vs US$1,658/t
• Chinese production is expected to remain stable through 2015 as a drop in primary supply (-3.7%yoy, 3.06mt) is likely to be compensated by an increase in recycled lead output (+7.5%yoy to 1.65mt) on CNIA numbers.
• Lead demand is expected to climb 2%yoy to 5.05mt.
Tin US$ 14,050/t vs US$14,195/t

Oil US$43.10/bbl vs US$43.40/bbl
Natural Gas US$2.686/mmbtu vs US$2.670/mmbtu
Uranium US$36.65/lb unch vs US$36.50/lb –

Bulk commodities:
Iron ore 62% Fe spot (cfr Tianjin) US$54.9/t unch vs US$54.7t –
Thermal Coal $51.8 vs $51.5 cif ARA Europe –

Tungsten - APT European prices $203/mtu (range $196-210/mtu) vs $205.0/mtu last week

Company News
Junior miners – weathering financial storms
• There has been much talk about the impact of lower commodity prices on the earnings of large cap miners over the past week but what of the junior miners?
• Juniors are as much affected by market sentiment as by lower metals prices and one could argue that the majors have been catching up with the juniors on the downside.
• Smaller mining companies are seeing substantial benefits from lower currency levels in commodity producing regions with gold mining likely to see some resurgence in Australia and South Africa.
• FOREX: the South African rand, Australian dollar, Chile Peso etc have all fallen dramatically with the fall in major commodity prices
• OIL:  lower oil and related energy prices are also a great benefit for remote mining companies with fuel often accounting for a third of all operating costs. Oil prices are now just 42% of where they were yoy.
• Cost reductions:  The South African rand has fallen 24% yoy and the Aussie dollar is also 23% lower yoy.  Other inputs like reagents and services should have also fallen in price indicating to us that miners could, and we emphasise could in theory slash around a third off their cost base with relatively little effort.  Many juniors have already pared their cost base and are well incentivised to keep costs down.
• Explorers:  many junior explorers should be more affected by the longer term outlook, where BHP and Glencore recently reaffirmed positive forecasts for demand growth.  Sentiment affects the availability of finance but the London market has been robust in its support of junior miners despite an understandable lack of interest from the major institutions.  New, expert, funds have sprung up with mandates for longer-term mine financing and these are now supporting projects which offer value and near term cash flow potential.
• Gold stocks make up a large part of the Junior sector and picked up with the rise in gold price.  Demand for physical gold is strong as seen in recent figures but the paper market has failed to recoup recent losses despite financial chaos in Shanghai Equities and its potential contagion into other financial and business areas.
• Gold is generally sold off at the start of a crisis as the metal is sold to cover margin calls and repay leverage on falling stocks.  The metal then tends to pick up as investors look for safe haven investments with gold used as for both short term and longer term investment.  We believe we are still on the starting blocks of a potential crisis.
Conclusion:  With BHP suffering from lower oil, copper and iron ore prices and Glencore having a tough time in base metals and Agriculture we are of the view that many smaller miners are less affected.  Commission a mine right now will be tough going but most mines take on price protection to protect prices and cash flows for debt repayment through their early years.  While this low in metals prices is tough on the profits of the large and mid-cap producing miners like First Quantum many small-caps which are looking to develop new mines will be looking ahead to better commodity prices and a better financing environment going forward.

Asiamet Resources (formerly Kalimantan Gold) (LON:ARS) 1.3 pence, Mkt Cap £6.5m – Shallow zone of high grade copper mineralisation at Beruang Kanan
Asiamet Resources reports that its current drilling programme identified a zone of shallow, high grade copper mineralisation, which may allow the company to develop a low-stripping ratio starter pit  within its Beruang Kanan copper project in Central Kalimantan.
• Assays from hole BKM31850-02 show an 11 metres wide section at an average grade of 2.96% copper from a depth of 6 metres, including 2m at an average grade of 9.26% copper. This intersection displays similar mineralisation to that encountered approximately 125m further south in hole BK058 and “Significantly, the continuity of strong near-surface mineralisation previously reported in historical drill holes BK02 (93m @0.75% Cu, …) and BK03 (79m @0.89% Cu ) has been confirmed in drill holes BKM32550-03 … and BKM32550-04two individual intersections and drill hole BKM32550-04 (125.3mEOH) reported three individual intersections of moderate to high grade copper mineralisation.”
• Follow up drilling is underway at a closer drilling density to improve confidence in this newly identified high grade zone.
• This drilling is part of a planned 6,500 metres, 80 holes resource evaluation drilling programme which is now almost 70% complete with 53 holes totalling 4425.5m drilled to date. The programme is now expected to be completed by mid-September, two months ahead of schedule. As a result, the company is expecting to complete an update to its resources estimate by “late September or early October”. Scout drilling of the BKS, BKW and BKZ targets will continue during September using a single rig.
Conclusion: The discovery of a near surface zone of copper mineralisation has positive implications for the economics of a future mine development project at Beruang Kanan if it can provide a high grade starter pit with a low stripping ratio. Management is taking a prudent approach in following up this zone with a closer spaced drilling pattern which should be able to establish the continuity of mineralisation.  We look forward to further drilling results and to the forthcoming resource update.

Herencia Resources (LON:HER) 0.135p, Mkt Cap £5.1m – Additional copper mineralisation identified at Picachos
Herencia Resources has announced that a programme of geological and structural mapping, sampling to the east of the 40M Shaft and Santa Rosa mine and XRF surface sampling on its Picachos Project in Chile has confirmed shallow copper mineralisation over a strike length of more than 1200 metres. Much of the mineralisation is located within or close to the proposed Picachos open pit.
• Additional mapping of old mine workings and the recent surface exploration programmes appears to “confirm the continuity, at shallow levels, of the copper grades seen in diamond drill hole DDH14003 which returned 117m at 1.14% copper from 182m”. Herencia Resources is optimistic that the deeper level mineralisation encountered in drilling “can extend all the way to surface”.
• The results of the sampling and of the structural interpretation also show that “the area of the proposed open pit immediately to the east of the 40M shaft which was previously modelled as waste could be potential high grade mineralisation”.
Conclusion: Herencia Resources exploration continues to locate additional mineralisation at Picachos and is fast tracking mine development with an objective of starting production during H2 this year. As the reinterpretation of an area previously thought to contain waste shows, the limits of the mineralisation have yet to be established, however, and this may make mine planning difficult if the company is to avoid sterilising areas which subsequently prove to be mineralised.

International Ferro Metals* (LON:IFL) – Stock suspended pending news.
International Ferro Metals Limited (IFL) confirms that the Financial Conduct Authority (FCA) has granted a suspension of the listing of its fully paid ordinary shares (IFL Shares) on the Official List with effect from 7.30am on 26 August 2015. The IFL Shares will be suspended from trading on the main market of the London Stock Exchange with effect from the same date and time.
• A further announcement will be made in due course.
*SP Angel act as broker to IFL

Wed, 26 Aug 2015 11:15:00 +0100
In the news with RFC Ambrian: Herencia Resources, Almonty Industries and Peninsula Energy INTRODUCTION

In the news: Almonty Industries (CVE:AII), Peninsula Energy (ASX:PEN & Herencia Resources (LON:HER)

We are marketing Lewis Black, the President and CEO of Almonty Industries, in London next week. We are keen to set up one-on-one meetings and conference calls for our audience overseas. Almonty is currently acquiring Woulfe Mining with a view to becoming the third largest tungsten producer in the world and the leading one outside China (China produces around 80% of the world’s tungsten). The merging of Almonty and Woulfe Mining would imply a combined market share of some 40% of the ex-China market, so this is going to be a serious player. The group will have combined operations in the stable jurisdictions of Spain, Australia and (from Woulfe) South Korea. It would have a market cap of C$66m.

Almonty’s existing assets are Los Santos and Valtreixal in Spain and the Wolfram Camp mine in Australia. The company’s flagship production hub at Los Santos in Spain has delivered strong results since Almonty assumed ownership in 2011 and turned the asset around. It has been able to increase recoveries by 40%, deliver cost savings of 25% and increase contained tungsten by about 25%. As a result, Los Santos generated revenue of US$27.6m and EBITDA of US$17.9m for the 12 months ending 31 March 2015. This allowed the company to pay a dividend last year. A similar turnaround process is underway at the Wolfram Camp mine in Australia. These two assets currently produce more than 1,800tpa of tungsten.

The announcement of an agreement between Almonty and Woulfe came on 8 July 2015. Through this Almonty will acquire all of the outstanding common shares of Woulfe in an all-share deal by way of a court-approved plan of arrangement that is expected to close in early September 2015 (subject to the satisfaction of certain conditions, etc). The latest feasibility study for Woulfe’s Sangdong Tungsten Project in South Korea was published in July 2015. It demonstrated a highly robust project with a low-case pre-tax NPV8% (at US$15,000/t) of US$130m and a payback of 1.7 years on pre-production capex of US$62.7m. Sangdong is expected to produce 4,393tpa of WO3 concentrate over a 9.5-year LOM.
This is a unique company. Please let your RFC Ambrian representative know if you would like a meeting.

Peninsula Energy†† — Two Additional Uranium Sales Contracts — The ASX-listed company advancing uranium projects in Wyoming and South Africa has announced that it has entered into two new uranium sale and purchase agreements with major US power utilities. The contracts cover up to 1.935Mlb U3O8 and deliveries will commence in 2016. The base prices of the contracts were reported to be in line with the term contract prices for 1H15.

RFC Ambrian Comment: The signing of two more sales contracts with US utilities further helps the security of sales volumes at attractive prices relative to current uranium spot pricing. These two contracts take total volumes under sales contracts to 3.9Mlb U3O8. We estimate that the overall average base sales price of its current contract portfolio is around the mid-US$50s, a significant premium to the current spot uranium price of US$36/lb. Prices can be expected to increase over time as a result of the escalation clauses that are included in typical sales contracts.

We continue to expect that key catalysts for the re-rating of the company’s shares include the commencement of production at the Lance Project and the listing of its shares on the NYSE-MKT, which it is aiming to achieve during 4Q15. The current timetable is for the commencement of commissioning is by around the end of September, with the commencement of solution mining and uranium production then subject to the receipt of final production approvals from the State and Federal authorities. Submissions for these approvals were made on 23 July 2015 and the company is hopeful that approvals will allow production to commence by the end of October 2015 and first sales during 1Q16. We reiterate our Buy rating and target price of A$0.040; it is currently at A$0.027.

Herencia Resources† — High-grade Results from XRF Surface Sampling at Picachos — The AIM-listed company focused on multi-commodity exploration and development in Chile has released results from ongoing XRF surface sampling at its flagship Picachos Copper Project. Sampling was undertaken to the east of the 40M Shaft and Santa Rosa mine, with multiple new zones of surface mineralisation being identified.

A number of the new areas sampled lie within the proposed Picachos open pit, and at the 40M Shaft area surface mineralisation was detected immediately up-dip of deeper Cu mineralisation highlighted by prior drilling work. This indicates that the area of the planned open pit directly to the east of the 40M Shaft that had formerly been modelled as waste may in fact contain mineralised material. Values of up to 24.9% Cu were detected by the hand-held XRF sampling programme at the 40M Shaft area.

Coincident with the sampling programme, the company has undertaken a geological and structural mapping exercise. This has shown shallow copper mineralisation to extend over a strike length of 1,200m, from south of the 40M Shaft through Flor del Bosque to La Nipa. A similar structure has been identified stretching between Santa Rosa and the 40M Shaft East.

RFC Ambrian Comment: This information confirms the potential of the area to the east of the 40M Shaft Area to host mineralisation within the zone previously modelled as waste. If confirmed by drilling this would boost the project’s economics. While XRF surface sampling is a useful and cost effective method of determining the presence of mineralisation, it is worth noting that it should not be relied upon to give a representative indication of the overall grade of the area, and we await further work to provide quantitative estimates.

Currently the Picachos Project has a maiden JORC-compliant resource of 10.7Mt at 0.61% Cu and 5.6 g/t Ag, with a 0.1% Cu cut-off (containing 65,000t Cu and 1.0Moz Ag). The resource includes a higher-grade core of 3.4Mt at 1.12% Cu and 9.6 g/t Ag, with a 0.85% Cu cut-off (containing 38,000t Cu and 1.0Moz Ag), which is believed could underpin the first 3-5 years of open-pit mining at the site. The resource has only been estimated over a small portion of the Picachos tenements to date, with most drilling undertaken to a maximum depth of 100m, and mineralisation remaining open in all directions.

We continue to see the signature of the MOU with the Errazuriz Group as encouraging for Herencia, providing the opportunity to merge Herencia’s copper assets with Errazuriz’ nearby operating Tambillos mines. Tambillos comprises two underground operations and — importantly for Herencia — a 1Mt nameplate treatment plant with excess capacity. Synergies would be achieved through feeding lower-cost Picachos ore to the Tambillos plant, with the potential for plant expansion in the mid-term. The JV MOU was signed following original discussions over the option to toll treat Picachos ore from at the Tambillos plant. While the prospective terms are yet to be made public, the parties have announced their hope to finalise the agreement by end-2015. We consider that securing an in-country JV partner with processing capacity and added scale could represent a positive strategic move for Herencia; however, until terms are finalised it is not possible to determine the impact on the company’s value.

Wed, 26 Aug 2015 11:10:00 +0100
Buy H-shares to position for macro improvement ahead Buy H-shares to position for macro improvement ahead
Thanks to a subscriber for this report which may be of interest. Here is a section:
H-shares dropped below the earlier index bottom on 8 July and reached a two-year low. Currently, the MSCI China index trades at 8.4x 12-month forward P/E, at a 28% discount to the 10-year average (Figure 3). The non-financial MSCI China is now at 11.8x; if we exclude the 26x valued Tencent, non-financials would be at only 10.4x. Based on current index levels, the implied H-share equity risk premium stands at an elevated 8.3% vs. a 10-year average of 5.4% (Figure 4), suggesting that investors may have priced in some pretty bad scenarios; in other words, for market valuations to slide further, the actual situation would need to be a lot worse than investors thought.
Apart from low valuations and low investor expectations, H-shares also look oversold technically speaking, with the 14-day RSI of the HSCEI falling to 16 (Figure 5), implying that selling pressure may have been exhausted in the near term. In addition, based on empirical observations since the Global Financial Crisis (Figure 6), current valuations of 8.4x may provide visible valuation support to the MSCI China index. We note that today is the second day with more than Rmb8bn net inflows (> 60% of daily quota) to buy A-shares via the northbound Shanghai-HK Stock Connect (Figure 2).
Eoin Treacy's view
A link to the full report is posted in the Subscriber's Area.
The Chinese government has stopped intervening to support the mainland stock market but has cut interest rates and the reserve requirement at banks which suggests they are taking a more broad-based approach to supporting the wider economy than the simply the stock market. This is a positive development for the banking sector in particular. The stock market extended its decline today, and while the removal of artificial supports have increased volatility the market will also return to a status quo quicker as a result.

Musings from the Oil Patch August 25th 2015
Thanks to a subscriber for this report by Allen Brooks for PPHB. Here is a section:
This analyst made a couple of other interesting observations. He said he questioned E&P management teams about their view of the level for oil prices that would generate returns similar to those earned when crude oil was at $90 a barrel and finding and development costs were much higher than today’s. In his view, the consensus was that $60-$70 a barrel is the “new $90 a barrel” oil given lower well costs and improved corporate efficiencies. He also said that producers acknowledged that returns were “skinny” with crude oil in the low $40s a barrel. We aren’t sure what “skinny” equates to, but we suspect not much profit, if any at all.
We were interested in his other observation, which dealt with how producers are coping with the current environment. He said that producers seemed to be reverting to the “1980’s playbook.” What does that mean? How about drilling within cash flow and attempting to hold production flat. What novel concepts! What someone who didn’t live through the ‘80’s and ‘90’s might not understand is that the playbook resulted from there not being cheap capital and private equity money available then. In fact, following the demise of Continental Illinois Bank in Chicago and Penn Square Bank in Oklahoma City, commercial banks almost outlawed energy lending in the 1980’s as it was considered too speculative, so there was virtually no new capital available. Today, we live in a world driven by easy money policies globally, meaning zero interest rates, which contributed to the high oil prices of 2009-2014 and the surge in capital flowing into private equity funds. A recent quote from economist and money manager Gary Shilling highlights this phenomenon and its damage to the energy industry. He said:
“The oil optimists noted that earlier high oil prices, aided by low financing costs, had pushed up production, especially among U.S. frackers. Low prices, they reasoned, would curb production, especially since fracked wells tend to be short-lived and the cost of drilling new ones exceeded the depressed prices. But a funny thing happened on the way to $80 oil: The rally stopped dead in its tracks at about $60 in May and June, then slid to the current $42, a new low. “Me? I'm sticking with my forecast of $10 to $20 a barrel.”     
Eoin Treacy's view
A link to the full report is posted in the Subscriber's Area.
This Service is not bullish of oil prices over the medium-term and we have been vocally proclaiming how much of gamechanger shale oil and gas are for years. However $10 - $20 is an aggressive forecast even in an environment where major producers such as Saudi Arabia and Iran are competing for market share and prices are working on a ninth consecutive week to the downside.

Bonds Avoid the Chaos of Other Markets
This article by Lukanyo Mnyanda and Aidan Gregory for Bloomberg may be of interest to subscribers. Here is a section:
The slowdown in China’s economy and tumbling commodities are stoking deflationary concerns, with a measure of euro-area inflation expectations for the next year signaling a potential return to deflation.
The euro-area one-year inflation swap rate, a market gauge of the outlook for consumer-price growth over that period, was at minus 0.012 percent, after falling to minus 0.057 percent, matching the lowest since February, according to data compiled by Bloomberg.
“The extent to which government yields rise is probably less than people once thought because of those lower inflation expectations,” said Nicholas Gartside, London-based chief investment officer for fixed-income at JPMorgan Asset Management. “Bonds have two classic enemies -- higher growth and higher inflation. Both of those are weaker right now.”
Eoin Treacy's view
Yesterday’s action on global stock markets which saw an early sell-off whose ferocity took traders and investors by surprise was pegged back before the close. In a change of tack today’s bounce was completed retraced today suggesting this is still a very nervous market environment. The majority of bonds futures had rallied in early trading in response to the panicky environment in stock markets but gave up the entire advance by yesterday's close and pulled back sharply today.

Speaking Engagements
Eoin Treacy's view

I’ve agreed to conduct a one-day seminar for UCLA Extension focusing on our approach to behavioural technical analysis. This will be on August 29th. Here is a link to the brochure and the university’s website where you can book a place. The early booking rate of $139 expires on July 29th.

The Chart Seminar 2015
Eoin Treacy's view

Following an encouraging start to the year’s speaking engagements I am looking forward to our events later this year.
We are also available to conduct private seminars and occasionally agree to speaking engagements at investment conferences and professional societies.
With regard to The Chart Seminar, In order to facilitate more venues we are open to partnering with other groups to market the event. If your organisation would like to arrange a seminar either internally or for your clients please do not hesitate to contact us. .
The remaining dates and venue for 2015 is:
November 26th & 27th The Chart Seminar London – The East India Club
If you are interested in any of our remaining venues please contact Sarah Barnes at
The full rate for The Chart Seminar is £950 + VAT. (Please note US, Australian and Asian delegates, as non EU residents are not liable for VAT). The early booking rate of £875 for non-subscribers expires two months ahead of the event start date. Subscribers are offered a discounted rate of £850. Anyone booking more than one place can also avail of the £850 rate for the second and subsequent delegates.

The Markets Now
Here is the brochure for September 28th.
David Fuller's view
I look forward to catching up with friends and subscribers at this Seminar.  Stock markets are in a challenging phase seasonally and these create new opportunities. In addition to the three speakers, September 28th should also be a good time to draw on the considerable experience of delegates.  I am sure we will have some lively discussions, which will continue in the Club Bar following presentations.  I hope attending delegates can stay and have a drink with Iain Little, guest speaker Paul Jourdan and myself. Your guests will also be welcome.

Wed, 26 Aug 2015 08:21:00 +0100
Northland Capital Partners View on the City Churchill Mining Churchill Mining (LON:CHL) – SPECULATIVE BUY*: Director appointment
Market Cap: £38m; Current Price: 28.5p
From yesterday: Hari Kiran Vadlamani

  • Hari Kiran Vadlamani had joined Churchill Mining as a Non-Executive Director. Mr Vadlamani is the nominee and controlling shareholder of Cause First Ventures that holds 17,550,018 shares (13.22%) plus 825,000 warrants in Churchill.

NORTHLAND CAPITAL PARTNERS VIEW: Mr Vadlamani is an entrepreneur who operates in the energy, hospitality, education amongst other sectors.  He has significant experience of the AIM market as he is a Non-Executive Director of AIM listed Greenko Group and was a co-founder of KSK Power Ventur, also AIM quoted.

Wed, 26 Aug 2015 08:13:00 +0100
China's economy on an intravenous drip FTSE 100 Index called to open -60pts at 6020 having made it back above 6000 Tuesday. Daily RSI still indicating upside appetite while we note yesterday's bounce lost considerable momentum at 6100, pulling back 156 pts, and the index remaining under pressure in pre-market futures trading.  Bulls looking for 6000 to hold and 2 short hops above 6080 and 6125 while Bears will look to yesterday's bearish looking candle to spook the markets one more time. Watch levels: Bullish 6100, Bearish 65900.

The negative opening call comes as Tuesday’s recovery on bargain hunting consolidated late yesterday with volatility well and truly still alive in the markets this week. This despite what should have been a heart-warming symphony from Beijing as the PBoC announced its latest round of interest rate and reserve requirement ratio (RRR) cuts, which should add much needed liquidity to the markets. And encourage banks to lend lots of money to vulnerable retail investors so they can trade the stock market.

US stocks stayed in positive territory for much of Tuesday, collapsing in the final hour of trading with Dow Jones in particular going from +440pts mid-session  to -200pts at close, contributing to a sixth straight day of losses for US markets.

In Fed news, October is now being suggested as the next opportunity to raise US interest rates from record lows. Presumably, we’ll see either the current or some other big picture issue push back lift-off yet again unless the Fed changes the way it assesses the economy’s readiness. You’d need some big cojones to set the rate rise ball rolling right now, but consensus appears to favour getting on with it. Watch this space…

Asian stock markets traded mostly higher overnight in volatile trade as the region digests the PBoC cutting the RRR and benchmark rates. The exception to the rule, of course, being China’s very own Shanghai Composite, currently -3%. Note, of course, lower rates and RRR take effect from today.

With the Greek debt crisis at one stage putting the future of the Euro in doubt, the European single currency looks like it’s providing a port in a storm for haggard investors seeking a safe haven as the USD weakens on doubts that the U.S. Federal Reserve will raise interest rates this year has given the euro a boost, climbing as it has 10% against the global reserve currency since March this year.

In focus today we have US MBA Mortgage applications and Durable Goods Orders coming out at lunchtime while all eyes will surely remain on the tentative situation in the markets as a whole. The only bit of ‘good’ macro-news thus far having been the artificial shoring up of China’s economy by its government.

Gold ($1137) now back in 2-day downtrend following yesterday’s swift move back into equities as bargain hunters showed that appetite for risk was not totally destroyed on Monday. $1140 this morning’s key watch level on the upside while $1130 a target for those pleased with China’s moves to inject liquidity into its stock market.

Wed, 26 Aug 2015 08:11:00 +0100
Beaufort Securities Breakfast Alert Antofagasta Plc, DekelOil, Falkland Oil and Gas, Sirius Minerals and others The Markets

Market opening: Markets are likely to open higher today. FTSE 100 futures were trading 92 points up at 7:00 am.

New York: Wall Street ended in the red after a volatile trading session yesterday, despite positive data on new home sales and consumer confidence. Moreover, investors ignored Chinese central bank’s decision to cut interest rates to stabilise the markets. The S&P 500 fell 1.4%, dragged down by utility stocks.

Asia: Equities are trading higher amid stability in China’s markets due to the People’s Bank of China (PBOC)’s decision to cut interest rates. Furthermore, a rise in oil prices boosted investor confidence. The Nikkei 225 added 3.3%, while the Hang Seng was trading 0.1% up at 7:00 am.

Continental Europe: Markets ended higher on bargain hunting by investors. In addition, PBOC’s move to cut rates by 25 basis points, along with an increase in the money available for lending, fuelled buying. Germany’s DAX and France’s CAC 40 jumped 5.0% and 4.1%, respectively.

Crude Oil: Yesterday, WTI and Brent oil prices improved 2.8% and 1.2%, respectively. The spread between the two varieties stood at US$3.9 per barrel.

UK small caps: The FTSE AIM All-Share index closed 2.09% higher yesterday at 717.06.

Today’s news

China’s central bank cuts interest rates

Yesterday, PBOC reduced its one-year benchmark lending rate by 25 basis points to 4.6%, its fifth rate cut since November 2014. The central bank also reduced the reserve requirement ratio by 0.5%. These measures are aimed at boosting the markets and improving economic conditions.

Company News

DekelOil (LON:DKL) – Speculative Buy

Yesterday, DekelOil Public Limited provided an update regarding its progress towards becoming a certified producer of palm oil in line with the standards set by the Round Table for Sustainable Palm Oil (RSPO). RSPO is a globally recognised certification standard for sustainable palm oil and DekelOil has been a member of the organisation since 2008. The company plans to become the first RSPO certified, fully functioning producer of crude palm oil in Cote d’Ivoire and to be among the first in West Africa. The Mill is anticipated to be certified first with the Company’s oil palm estates to be certified within three years of the completion of the Mill certification. The company has also engaged with an Oxford based consulting company, Proforest, to seek assistance for implementation of social environmental programmes to prepare its Milling operations and oil palm estates for certification. A certification committee has also been formed to implement the detailed action plan prepared by Proforest.

Our view: DekelOil is likely to be benefitted by the successful membership application with RSPO as it will give the company an edge over its peers as a responsible and credible palm-oil producer. The progress update comes on the back of DekelOil’s recent appointment as an approved supplier to a World Bank-backed programme. Both these developments demonstrate the increasing recognition the company’s projects are receiving from key international organisations. Of late the company has also upgraded its facilities at the Ayenouan palm oil project with the construction of the new Kernel Crushing plant. In addition, DekelOil’s upgradation of the logistics system has given a major boost to the company’s overall efficiency in receiving the feedstock for processing. Further, West Africa seems to be a promising destination for palm oil developers and continues to attract those who are seeking future expansion. Going ahead, we expect a sharp rise in the company’s profitability due to combined production from the existing plants and the new KCP. In view of the above argument, we reiterate Speculative Buy on the stock.

Beaufort Securities acts as corporate broker to DekelOil plc

Antofagasta (LON:ANTO) – Hold

Yesterday, Antofagasta released its interim results for the period ended 30 June 2015. Group revenues fell 31.4% to US$1.79bn driven by reduced copper prices and decline in sales volume. EBITDA dropped 48.6% y-o-y to US$561.6m and the pre-tax profit decreased to US$297.3m from US$820.6m. Consequently, basic EPS from continuing operations was USc8.8, a decrease of 72% from H1 2014. Net cash costs for H1 2015 were US$1.53 per pound, 4.8% higher than the same period last year. During the period, copper sales slipped 15.5% to 290kt, similarly gold sales fell 15.3% to 106koz however, molybdenum sales increased 37.5% to 4.4kt. Meanwhile, copper production declined 12.9% to 303.4kt, largely due to lower grades and lower throughput and recoveries at Los Pelambres. Group gold production was 112.5koz 9% lower than H1 2015 however, molybdenum production was higher at and 4.7kt compared with 3.3kt in H1 2014 on the back of higher grades being mined during Q2. Among the growth projects, Antucoya’s first production was delayed to the end of Q3 2015 due to commissioning issues related to the crushing circuit. As a result, Group full year production guidance was reduced to 665kt from 695kt. Construction is underway at the Encuentro Oxides project, with production expected in late 2016. Feasibility study on the molybdenum plant at Centinela was completed with first production expected in Q1 2017. During the period Antofagasta acquired a 50% interest in the Zaldivar copper mine in Chile from Barrick Gold for a total consideration of US$1.0bn in cash and is expected to be accretive to Antofagasta’s earnings and cash flow per share. Although down from USc11.7 per share in H1 2014, the Group declared a H1 2015 dividend of USc3.1 per share, representing a 35% pay-out ratio of H1 2015 net earnings.

Our view: During H1 2015, Antofagasta experienced a significant decline in revenue that severely limited the company’s ability to generate higher profits on the back of depressed copper prices that marred the company’s overall growth prospects. On the other hand, the company has made efforts to improve its operational efficiency and reduce mining costs to enhance profitability. Despite the poor performance for the period, company continues to hold world class assets that underpin its long term growth potential. Thus in view of weak global demand for copper, we maintain a Hold on the stock.

Sirius Minerals (LON:SXX) – Speculative Buy

Yesterday, Sirius Minerals released an update on the approval process for the York Potash Project. The company has received permission for four out of the five planning applications submitted to the local authorities. In addition, Sirius has been granted permission for the mine and mineral transport system and the materials handling facility from Redcar and Cleveland Borough Council (RCBC). The Scarborough Borough Council permitted the company for temporary construction accommodation and a Park and ride facility. In addition, Sirius also got operational Park and ride facility from the North York Moors National Park Authority (NYMNPA). The company expects the decision for the mine and mineral transport system planning application from the NYMNPA to be approved by September.

Our view: Sirius Minerals is a potash development company focused on the York Potash Project in the UK. The Project has a JORC compliant Probable Mineral Reserve of 250 million tonnes of 87.8% polyhalite. The aforementioned update takes the company a step closer towards completion of the Project. Recently, Sirius Minerals renewed its take-or-pay supply contract with one of its prevailing agri-business customer for the supply of 1.5 million tonnes per annum of polyhalite. The renewal increased company’s offtake agreements to a total of 3.1 million tonnes per annum and an extra 4.8 million tonnes per annum from other deals. It also reinforces the fact that the quality of polyhalite supplied by Sirius Minerals is of a high grade. In view of the high demand, Sirius Minerals is now planning to expand its annual production of polyhalite from 6.5 million tonnes to 10 million tonnes. Therefore, we maintain a Speculative Buy rating on the stock.

Falkland Oil & Gas (LON:FOGL) – Speculative Buy

Yesterday, Falkland Oil and Gas released its interim results for the six months ended 30th June 2015. During the period, the company’s loss from operations was little changed at US$2.156m compared with US$2.2m a year ago. However due to changes in the net finance income the loss for the period expanded to US$2.0m from US$1.3m. Consequently the loss per share widened to 0.37c from 0.24c. On the operational front, the company discovered two oil wells in the North Falkland basin. On 5th April 2015, Zebedee well oil and gas discovery encountered 27.5 metres of net oil-bearing reservoir and 17.5 metres of net gas-bearing reservoir. On 28th May 2015, Isobel Deep oil discovery was drilled up to a depth of 2,527 metres, where the bottom 24 metres of the well consisted of oil bearing F3 sands. Going forward, the company expects to release the results of the ongoing operations at the Humpback exploration well in September 2015. In addition, Mr John Martin was appointed as Non-Executive Chairman in June 2015.

Our view: The first six month of 2015 proved to be highly successful for the company owing to significant advancement on the exploration front. In the North Falkland Basin, FOGL has announced two material oil and gas discoveries comprising Zebedee well and Isobel Deep oil discovery. Meanwhile, the drilling on the Humpback prospect continues to advance without any hindrance and may throw up some exciting results in September. In addition, despite the gloom in the oil industry, the company has the freedom to continue the exploration of its assets as it remains fully-funded with no near-term liquidity risk. We believe the move would pay-off handsomely in the long-run when the oil sector stabilizes. Thus, eyeing the interesting discoveries till now and the unexplored potential, we maintain a Speculative Buy rating on the stock.

Poundland (LON:PLND) – Sell

The UK Competition and Markets Authority (‘CMA’) yesterday published its preliminary findings in relation to its Phase 2 review of the proposed acquisition of 99p Stores Ltd (“99p Stores”) by Poundland. The CMA has provisionally concluded that the merger may not be expected to result in a substantial lessening of competition and has therefore provisionally cleared the anticipated acquisition of 99p Stores by Poundland. Poundland management stated that it welcomed the CMA’s provisional conclusion and is studying the report’s findings in detail. Management also noted that it looks forward to working further with the CMA ahead of the publication of the full review in October.

Our view: It was always something of a surprise that the CMA should decide to refer Poundland’s proposed take-over of 99p Stores. After all, barrier to entry in the poundshop ‘fixed-price-discounting’ sector are virtually nothing; there is no USP, which effectively means that the complications of a monopoly situation could never be created. If one shop closes or is taken over, a competing operator can set up very rapidly at minor cost with an almost identical stock offer vending, naturally, the same price (give or take a penny). High streets across the UK (particularly in the tier 3 and 4 towns and cities which are the natural home of the poundshop) are in such surplus that a new entrant can typically get 2 years rent free just to move in. Indeed, this is the trouble. Sector saturation is approaching and annual l-f-l growth for the quoted players is likely to fall down close to just 1% by the end of this year, as they jostle with private players such as Poundworld, Home Bargains, Poundstretcher, TJ Morris, G&B etc., along with hundreds (nay, thousands) of sole traders competing for exactly the same customers. Having fallen sharply from the crazy heights being achieved in Q1’15, since July Poundland shares rebounded somewhat, as the market began to anticipate a positive outcome from the CMA. While yesterday’s news certainly provides some temporary relief, particularly given that the agreed purchase price/store is about one-sixth of the value awarded to each of Poundland’s units, sector woes will now force a phase of on-going consolidation. Of course, Poundland does have a high profile brand, greater buying power and an altogether more sophisticated operation than most peers, but nevertheless will now face a series of hefty costs associated with closures, redundancies and integration of the ‘to be acquired’ units. The bottom line is that while poundshops have become a long-term fixture of UK high street, the sector is now close to going ex-growth as saturation approaches and defensive barriers are increasingly erected by national supermarket chains and other established discounters. On this basis, Poundland’s forward adjusted FY2016E consensus rating of around 25x is just asking too much. Beaufort recommends using the recent rally as an opportunity to lighten holdings. Sell.

RSA Insurance (LON:RSA) – Hold

Yesterday, RSA announced that it has received an all-cash offer from Zurich Insurance. The offer, at 550p per ordinary share, values the 305-year-old company at £5.6bn. As per the takeover offer proposed, RSA ordinary shareholders also get to retain the right to receive the 3.5p interim dividend announced by the company on 6th August. Zurich Insurance has time until 22nd September to hammer out a formal deal.

Our view: The proposed deal values RSA at a significant 25% premium to its market price of July 27, the day on which news about a takeover offer from Zurich Insurance first resurfaced. The deal is good news for shareholders of RSA, which until a few years ago, was battered by a series of profit warnings and an accounting scandal. With a new owner in the form of Zurich Insurance, Europe’s fourth-largest insurer by market value, RSA can look at significant business growth, both in the home turf and beyond. We recommend a Hold.

Economic News

Germany GDP

German GDP growth expanded 0.4% q-o-q in Q2 2015, unchanged from the preliminary estimate and Q1 2015 reading, the Federal Statistics Office said yesterday. Meanwhile, private consumption and government spending grew 0.2% and 0.3%, respectively. On a y-o-y basis, GDP grew 1.6%, in line with the market expectations and previous month’s reading of 1.6%.

Germany IFO

The business climate index for Germany rose to 108.3 in August from 108.0 in the previous month, the survey results from IFO institute revealed yesterday. The reading came ahead of the market expectation of 107.6. Executives’ expectation index dropped to 102.2 from 102.3 in the previous month, ahead of the market expected reading of 102.0. The current assessment index increased to 114.8 from 113.9, higher than the expected reading of 113.9.

US new home sales

New home sales in the US improved 5.4% to a seasonally adjusted annual rate of 507,000 units in July, the Commerce Department said yesterday. The annualised sales figure for June was revised down to 481,000 from the previously reported 482,000. Economists had expected new home sales to increase at a faster pace of 5.8% to an annualised rate of 510,000.

US consumer confidence index

As per the Conference Board, US consumer confidence index rose to 101.5 in August, from an upwardly revised 91.0 in July. Economists had forecasted a drop to 93.4.

Wed, 26 Aug 2015 08:03:00 +0100
Today's Market View Including Ortac Resources, Premier African Minerals, Sirius Minerals, Antofagasta and others Central bankers holed up at Jackson Hole
• Central bankers have plenty to talk about this week at Jackson Hole in their annual jamboree.
• Central Banks used to be regarded as low key and venerable institutions, now they are steering financial markets in ways not seen before.

Dow falls >1000 points, its biggest fall ever and then recovers
• The Dow Jones, the US industrial companies index recovered after its biggest ever fall yesterday but recovered much of its loss by the end of the day
• The S&P 500fell by 5.3% but recovered to record a loss of 3.9% by the close.
• The FTSE closed 4.7% down on the day.

Metals prices – ‘has the sky fallen in on our heads?’
• The world is ever more interconnected as with problems in China likely to impact companies in the west
• Cheap good from China / Asia have suppressed manufacturing margins and inflation in the West for many years – will this come to an end?
• Chinese investors are racing for the exit as the stock market refuses to find much other than state-ordered support.
• There is talk of a ‘new normal’’ but we do not believe we are yet in the new normal of slower Chinese growth and that this still needs to be established.
• Fundamentally, China is supporting thousands of inefficient and unproductive state companies.
• Government strategy has been to merge these enterprises with their competitors, force some management change and to IPO the resulting companies on the Shanghai market to raise cash for the government and reduce their dependency on the state.
• The strategy would have worked in a higher growth environment but killing corruption and tightening credit conditions has stalled growth for construction and other industry.
• China is likely to bring in some stimulation to rescue its corporate strategy and may even cut rates to support this move. This might have some unintended consequences.
• The Fed is still likely to raise rates in accordance with its plan and is unlikely to be deterred unless US growth stalls.
• Fundamentally, metals prices should be bottoming out with mines cutting uneconomic production and the potential for deficits to develop in base metals next year.
• We are looking for a ‘new normal’ of slower Chinese growth to still consume metals inventories in zinc, nickel and lead next year with copper relatively well balanced
• SRB buying could easily move metals into deficit territory if the SRB swings into action.

Flu Vaccine – successful trials for a new type of flu vaccine could eliminate the need for annual vaccinations
• If this vaccine is successful then global productivity could see a material benefit along with reduced healthcare costs.

Tube strike rescheduled for 8th & 10th September
• Nice of those lowlife union officials to move the strike to dates when they can disrupt even more journey’s for hardworking Londoners

Economic News

US – Dennis Lockhart, a voting FOMC member and the president of the Atlanta Fed, sticks with the view the Fed should start raising rates this year.
• Next FOMC meeting is on Sep 16-17.
• Economic news due today:
o Jun S&P/CS property index (+0.1%mom/+5.1%yoy v -0.2%mom/4.9%yoy), Aug Markit services PMI (55.1 v 55.7 in Jul), Jul new home sales (+5.8%mom v -6.8%mom in Jun), Aug consumer confidence (93.4 v 90.9 in Jul)

China – Equities continued to fall marking the sharpest four-day decline since 1996 on expectations the government will not be looking to provide market support measures.
• Shanghai Composite Index declined 7.6% on the day taking total losses to 22% in the last four days.
• The currency continued to depreciate with the PBoC setting the midpoint rate at 6.399 per USD, 0.2% weaker than the previous fix of 6.386.

Germany – Ifo business confidence and current situation indices measuring economic sentiment among German executives beat expectations posting an increase in Aug.
• Business confidence: 108.3 v 108.0 in Jul and 107.6 forecast.
• Current situation: 114.8 v 113.9 in Jul and 113.9 forecast.
• Final Q2 GDP growth numbers come in line with expectations (+0.4%qoq/+1.6%yoy, co change from preliminary readings) driven by exports.

China Metals Exchange boss abducted by angry investors in dawn raid
• Hundreds of investors grabbed Shan Jiuliang, head of a minor metals exchange in China and handed him over to police.
• The Fanya Metals Exchange had raised funds to buy minor metals such as Indium and Bismuth to support financial products by offering high interest and highly liquid products.
• When metals prices pulled back the investment schemes effectively collapsed.  The exchange was backed by a number of minor metals mining companies based in China.
• The exchange bought several year’s worth of supply for some minor metals and had paid premium prices.  Traders are reported to be pushing prices of these metals lower in anticipation of forced selling of the exchange’s stockpiles.
• This might be a great time for China’s State Reserve Bureau ‘SRB’ to step in, to rescue investors and acquire cheap metal
• We suspect the exchange may be holding some of the more common Rare Earth Elements.

US$1.1549/eur vs 1.1483/eur last week. Yen 119.66/$ vs 120.50/$.   SAr 13.117/$ vs 13.208/$.   $1.580/gbp vs 1.571/gbp
US$0.719/aud vs 0.725/aud - Yen and Euro continues to rise as Chinese shares continue their collapse, many by their daily 10% limit
• US dollar weakness continues on expectations for postponement of Fed rate rise
• South African rand smashed through key resistance levels yesterday in significant weakening of the currency despite USD weakness

Commodity News
Precious metals:

Gold US$1,148/oz vs US$1,156/oz  
Platinum US$986/oz vs US$999/oz
Palladium US$555/oz vs US$590/oz
Silver US$14.79/oz vs US$15.06/oz

Base metals:
Copper US$ 4,955/t vs  US$4,932/t - Chinese copper ore and concentrates imports fell slightly in Jul but remain 10.8% up in the first seven months of the year.
• Weaker shipments in Jul (-2.3%mom/+7.2%yoy) were led by lower deliveries from Chile (-12%mom/+52.3%yoy) and Australia (-51%mom/-46.7%yoy).
Aluminium US$ 1,538/t vs US$1,525/t
Nickel US$ 9,490/t unch vs US$9,715/t
Zinc US$ 1,719/t vs US$1,731/t
Lead US$ 1,658/t vs US$1,649/t
Tin US$ 14,195/t vs US$14,700/t

US$43.40/bbl vs US$43.80/bbl
Natural Gas US$2.670/mmbtu vs US$2.637/mmbtu
Uranium US$36.50/lb unch vs US$36.40/lb –

Bulk commodities:
Iron ore 62% Fe spot (cfr Tianjin) US$54.7/t unch vs US$54.8t –
Thermal Coal $51.5 vs $51.6 cif ARA Europe –

- APT European prices $203/mtu (range $196-210/mtu) vs $205.0/mtu last week

Company News
Antofagasta (LON:ANTO) 555p, Mkt Cap £5.47bn – Half Year Results 
• Antofagasta reports a 31% drop in first half revenues to $1,786m as a result of a 15.5% reduction in copper sales volumes (resulting from shipping delays due to adverse weather combined with reduced commodity prices for copper and by-product metals. Copper prices were down 17% at $2.51/lb.
• Copper production was also adversely affected by lower production at Los Pelambres, where the impact of lower grades were exacerbated by the actions of protesters which resulted in the loss of some 8000 tonnes of copper production during Q1.
• The company is maintaining its previously announced reduced production guidance of 665,000 tonnes of copper production for 2015.
• Cash costs of US$1.88/lb are in line with 2014 and overall operating costs of $1,224m were $284m (19%) lower than in 2014 with $198m ascribed to cost reduction and the balance of $86m resulting from volume reduction.
• EBITDA declined by US$ 48.6% to US$561.6m as a result of the lower revenues, partially offset by the cost reductions.
• Operating cash flow of US$808m declined by 31% but aided by the $947m sale of the Water Division, Aguas de Antofagasta, the balance sheet remains strong with attributable net cash of $1,031m after capital expenditure of $596m (down 22% from $767m in H1 2014).
• Antofagasta has declared an interim dividend of 3.1 cents/share (2014 11.7 cents/share) representing a 35% payout of the 8.8 cents of earnings (2014 31.2 cents/share) from continuing operations.
• The new 70% owned Antucoya copper oxide mine, located approximately 45 km east of the Michill operation, is currently being commissioned with initial production expected towards the end of Q3. The $1.9bn project remains within budget with total capital expenditure up to 30th June 2015 reported as $1.8bn.
• The expansion of the Centinella concentrator to 105,000 tpd capacity is continuing and although the project has been delayed due to the unexpectedly heavy rains in the Atacama Desert during March, the project is now expected to be completed early in 2016.  Capital expenditure on the expansion project amounted to $413m as of 30th June – approximately 80% of the total $520m budget.
• Antofagasta is also evaluating and reviewing a further expansion at Centinella via the construction of a second 90,000tpd concentrator starting in 2019 to deliver an additional 140,000 tpa of copper production with 150,000 oz pa of gold and 3000 tpa of molybdenum at a pre-feasibility capital cost estimate of $2.7bn.
• The company is also evaluating a possible “brownfield” expansion of the Los Pelambres mine which would increase the daily ore throughput from the current 175,000 tonne rate to 205,000 tonnes at a cost of $1.6bn to increase annual copper production by 90-95,000 tonnes.
Conclusion: Antofagasta has been impacted by the weaker commodity prices but has a strong balance sheet to withstand this phase of the commodity cycle. A pipeline of expansion projects positions the company to “maintain our competitive position in this challenging environment and when the copper cycle begins to recover, we will enjoy healthy margin growth.”

BHP Billiton (LON:BLT) 10.01 pence, Mkt Cap £55bn – Cost savings support drive to maintain 50% EBITDA margin
• BHP are making the best out of a worsening environment.
• The sale of South 32 ejected some higher cost assets back on 18th May and the divestment of some US oil and fracking assets is also helping to maintain margins.
• Some serious cost cutting slashed $2.7bn off BHP’s enlarged cost base realising some $4bn in annualised cost savings when combined with unit productivity benefits.
• Underlying attributable profit came in at $6.4bn matching the consensus forecast for £4bn of earnings.  Attributable profit fell to $1.91bn including $1.6bn losses from discontinued operations and $2.9bn of exceptional items.
• Earnings are forecast to fall to £3bn for the next financial year but could fall further given the company’s sensitivity to lower oil, iron ore and copper prices.  We would expect the market to downgrade expectations for FY H1 2016 and for the full year unless there is a marked recovery in commodity prices.
• Sensitivities: given that commodities prices are significantly lower than those seen over the past 12 months to end June, BHP will see some further negative impact.
• Oil prices if maintained at current levels are $9/bbl lower than the $68/bbl seen by BHP for the past year.  This could knock some $1.3bn off earnings though the sale of a number of higher cost assets should help offset  this impact.
• Iron ore prices are around $6/t lower than the average for last year though the company reckon they will cut iron ore costs to $15/t from $19/t.  The result is for a potential approximate $296m hit to the division.
• Copper prices are significantly lower than seen in BHP’s last financial year resulting in a potential negative adjustment of $1.6bn.  Management are focussed on cutting costs with a 15% potential cost reduction at Escondida.
• Dividend:  BHP have increased the dividend in accordance with their progressive dividend policy.  There is no suggestion this is under threat just yet but dividends will come at the expense of lower capital investment in the group
Conclusion:  There will be some gains to be made from weaker currencies, particularly a weaker Australian dollar and Chilean peso and we do expect to see further significant benefit from corporate cost initiatives.  Management have done well to maintain EBITDA margins at >50% but will struggle in today’s lower commodity price environment.  BHP remains a leading miner with an exceptional low cost base.

Fortescue – suffers 88% fall in profits
• Fortescue and other higher cost iron ore miners are suffering in this lower price environment for iron ore.
• The miner which is known for its higher cost production was always going to be a casualty of the race to grab market share by the big three iron ore majors.
• Fortescue is cutting costs and capex but may also have to restructure debt and raise new cash to survive a prolonged period at current price levels though Fortescue’s ceo, comments the company is very comfortable in its ability to meet its debt commitments.
• But if iron ore prices fall to average $40/t then Fortescue could face a $5bn shortfall in 2019.
• Fortescue reckons it can cut its direct mining and processing costs to a third of levels seen in 2012, a move which might be very necessary for corporate survival.
• The fall in the Australian dollar will help Fortescue in the meantime as will much needed deflation in mining sector costs across Australia.

Ortac Resources* (LON:OTC) 0.055p, Mkt Cap £1.9m – Ortac exercising Zamsort Call Option
• Ortac reports that it has now exercised its call option with the private Zambian mining and exploration company, Zamsort for a further US$600,000 of Secured Convertible Loan Notes (the No. 2 Loan Notes).
• As with the previous Loan Notes, these pay an annual interest rate of 8% and “upon conversion of the loan notes, Ortac’s potential shareholding in Zamsort would be 19.35% of the issued share capital of Zamsort.” Ortac is in discussions with Zamsort to potentially increase its interest further.
• Ortac has now invested a total of $1.2m in Zamsort which hold a prospective copper/cobalt mining and exploration licence at Kalaba in north-west Zambia some 40 km from First Quantaum Minerals’ Trident project.
• Zamsort has renewed the small scale mining licence over a 4 sq km area within the wider exploration area of 999 sq km and is engaging a drilling contractor to complete diamond and reverse circulation drilling over the area proposed to be mined over the next 2 years in order to gain increased confidence in the mineral resource.
• The current resource estimate, which has been prepared internally by Zamsort and does not meet the international reporting standards (though it has been registered with the Zambian Geological Survey and Ministry of Mines) stands at 16.59m tonnes at an average grade of 0.94% copper equivalent.
• Metallurgical testing is underway at the Copperbelt University in Kitwe and terms from a preferred mining contractor are being assessed.
• In the wider licence area, the company has prepared a programme of geochemical sampling and drilling “to test and confirm the targets previously identified by former operators.”
Conclusion: Ortac has been actively following up on its initial investment in Zamsort and is clearly sufficiently impressed to be increasing its investment.
*SP Angel acts as Nomad and broker to Ortac Resources

Polymetal International (LON:POLY) 467p, Mkt cap £1,997m - Semi-annual results highlight a12%/16%yoy reduction in TCC/AISC
• Revenue fell 11%yoy to US$648m on the back of weaker gold (-7%yoy) and silver (-18%yoy) prices with gold and silver sales little changed.
• TCC fell to US$552/oz (of gold equivalent), down 12%yoy, driven by a significant depreciation in USDRUB rate and operational efficiencies.
• AISC declined 16%yoy to US$786/oz benefiting from lower TCC and a reduction in exploration and maintenance capex at operating mines.
• Adj EBITDA totalled US$297m, down 4%yoy, with EBITDA margin improving to 46% (H1/14: 43%) on lower operating costs.
• Underlying Net Income came in at US$118m, down 5%yoy.
• Underlying EPS was at 28cents, up from 26cents in H1/14.
• An interim dividend declared of 8c/sh representing 30% of Underlying EPS.
• FCF totalled US$77m versus US$29m in H1/14 with H2/15 cash flow generation expected to further improve on stronger sales including de-stockpiling at Mayskoye and weaker USDRUB.
• Annual production guidance reiterated at 1.35moz GE with TCC/AISC brought down by US$50/oz from previous estimates to US$525-575/oz and US$700-750/oz, respectively.
• Net debt closed at US$1,231m, down US$18m from YE14, as of Jun/15.

Premier African Minerals (LON:PREM) 1.7p, Mkt Cap £11.6m – RHA plant modifications complete
Premier African Minerals has provided an update on the progress of its RHA tungsten operation in Zimbabwe.
• The company has now implemented previously announced modifications to the process plant which are intended to deliver the design capacity of 16 tph of ore at a mean diluted feed grade of 0.8% tungsten trioxide and produce 5,800 mtu of tungsten concentrate per month. [An mtu or metric tonne unit represents 10kg of product].
• The company is now exploring “the upper tonnage limits of the plant in excess of 16 tons per hour”.
• Shipments of concentrate are expected to resume from 28th August following the plant modifications.
• The modifications are anticipated to produce an increased “percentage of higher grade fines concentrate over the coarse concentrate, with a probable overall increase of total tonnage of concentrate produced.” We suspect that this strategy may result in reduced overall recovery rates, although with the high feed grades planned for the RHA plant this may well be a worthwhile trade off.
•  The company also comments that it is able to set up its plant to produce grades of tungsten trioxide concentrate ranging from below 50% to “marginally in excess of 70%” and that it is targeting output at the lower grade as it considers that in the present pricing regime “any penalty for any lower grade concentrate is more than offset by the benefits of lower production costs and a greater tonnage of concentrate produced”.
• At the current price of the benchmark APT (ammonium paratungstate) of US$203/mtu, the company believes that it can secure a concentrate price, after discounts, of between $120-130/mtu implying a discount of 35-40%. Although the exact level of discounts are seldom disclosed for reasons of commercial confidentiality, this discount is larger than the 20-25% discount generally assumed for higher (65%) grade concentrates.
Conclusion: Premier African Minerals is in the process of getting its RHA tungsten concentrate plant up and running and following plant modifications is looking at producing larger volumes of lower grade concentrate to address the impact of lower benchmark prices.

Sirius Minerals (LON:SXX) 16.25p, Mkt cap £359m - Four of five decision notices received with the final one expected before the end of Sep/15
• Decision notices formally approving submitted planning applications are being received by Sirius.
• Four of five notices have been received so far including:
• The mine and mineral transport system (MTS) approval from RCBC (Redcar and Cleveland Borough Council);
• The material handling facility (MHF) from RCBC;
• Accommodation and a Park and ride facility from Scarborough Borough Council;
• Operational Park and ride facility from the NYMNPA (North York Mors National Park Authority)
• The mine and MTS decision notice from the NYMNPA should be arriving before the end of Sep/15 following a successful ruling on the application in Jul/15.
• The remaining application permission outstanding is for the harbour facilities at Teesside and is currently with the Planning Inspectorate under review. The final decision is due no later than summer 2016. The permit should not affect the development schedule for the York Potash Project.

Tue, 25 Aug 2015 12:15:00 +0100
In the news with RFC Ambrian: Cobalt International INTRODUCTION

In the news: Cobalt International (NYSE:CIE)
At last, something good has come from working with natural resources stocks over the last couple of years. While the rest of the financial world seems to have been caught unawares that all was not well with the Chinese economy, we have been seeing this coming like the proverbial slow-motion car crash for at least 18 months. Many of the companies we favour have already factored this into their plans, so we do not expect the current ‘Armageddon’ to have too many negative repercussions on our space.

Talking of which, in a positive piece of oil and gas news, Cobalt International has announced that it has agreed to sell its 40% interest in Blocks 20 & 21, offshore Angola, to Sonangol E&P for US$1.75bn. Cobalt’s share price rose 10% yesterday, the only ‘green’ oil and gas ticker on my Bloomberg screen. At the end of 2014 Cobalt’s total West African capitalised oil and gas costs (which would have included its interest in the Diaman-1 well, Gabon) were US$1.25bn. The company has expensed around US$100m of exploration costs over the last three years. This is indeed a rare occurrence: a company creating value from an exploration programme in the current oil price environment!

Tue, 25 Aug 2015 10:14:00 +0100
Buy the dip? Buy the dip?
Eoin Treacy's view

In a bull market buying the dips is a winning strategy and is a policy that gains ever more credence as evidence compounds that it generates outsized returns. Investors and traders with orders in the market well below Friday’s close had favourable short-term buying opportunities today, which lent further evidence to the view that buying the dips works. However we also know that at some point buying the dips will not work so the big question is whether this is one of those occasions?
At The Chart Seminar we define a Type-2 top as a massive reaction against the prevailing uptrend. It often occurs following a loss of momentum or a wedging characteristic but the massive reaction is the defining characteristic. The speed of the decline is unnerving because participants have so little time to react. Many are often left casting around for reasons to explain the move. Those using mental stops are left asking whether it is better to sell at a potential bottom or to wait for a rally. Many people with stale bull positions are less likely to participate in bargain hunting because the impact on their average buy prices would be too much of burden.

China Traders Say Stock Intervention Misguided Amid Slowdown
This article by Cindy Wang for Bloomberg may be of interest to subscribers. Here is a section:
The Shanghai Composite Index plunged 12 percent last week, erasing all bar one point of the rebound from July’s $4 trillion selloff. For CMB International Securities Ltd. and KGI Securities Co., the gap between the growth outlook and China’s stock valuations, which are the highest among the world’s biggest markets, means further declines are inevitable.
While the benchmark stock gauge still traded 57 percent above the levels of a year earlier through Friday, data from industrial output to exports and retail sales depict a deepening slowdown. China’s first major growth indicator for August showed the manufacturing sector is at the weakest since the global financial crisis.
The government is “trying to defy market forces at overvalued levels,” said Daniel So, a strategist at CMB International Securities in Hong Kong. Policy makers should “focus on helping the real economy instead of the stock market,” he said.
Eoin Treacy's view
The Chinese administration picked the 3500 level on the Shanghai Composite as a level they were willing to defend in July. At the time the level coincided with the 200-day MA but other than that was an arbitrary figure which was high relative to the levels the Index had traded at over the preceding six years. The Index fell through 3500 this morning and the big question for tomorrow’s trading will be whether the government will continue to defend that level or pick an easier to achieve target lower down.

BlackRock Sees Europe Buying Opportunity as Share Rout Overdone
This article by Stephen Morris for Bloomberg may be of interest to subscribers. Here is a section:
“While European growth is likely to remain lower than in the U.S., given the size of the discount and the fact that the major risk associated with Greece has been temporarily removed” suggests that equities in Europe “once again look attractive,” Koesterich wrote. “At this point, the selling may be overdone, especially since investors may be exaggerating Europe’s exposure to China.”
A stock rout has spread through the U.S. and Europe, erasing more than $5 trillion from global equity markets and pushing German stocks into a bear market. The selling is driven by fear the slowdown in China is worse than expected after the world’s second-largest economy unexpectedly devalued the yuan on Aug. 11. Commodities fell to a 16-year low and emerging-market currencies weakened to record levels.
“Companies exposed to global trade, particularly in Germany, have been singled out for special punishment,” Koesterich said. “German equities are now trading at less than 12 times forward earnings and 1.5 times book value, roughly a 45 percent discount to the U.S.”
“The selling has restored value to certain parts of the market,” he said.
Eoin Treacy's view
European equities remain more likely than not to continue to benefit from the ECB’s largesse with its QE program still due to run for another year. However while this is a positive medium-term consideration it is not driving equities prices at present.

Speaking Engagements
Eoin Treacy's view

I’ve agreed to conduct a one-day seminar for UCLA Extension focusing on our approach to behavioural technical analysis. This will be on August 29th. Here is a link to the brochure and the university’s website where you can book a place. The early booking rate of $139 expires on July 29th.
The Chart Seminar 2015
Eoin Treacy's view

Following an encouraging start to the year’s speaking engagements I am looking forward to our events later this year.
We are also available to conduct private seminars and occasionally agree to speaking engagements at investment conferences and professional societies.
With regard to The Chart Seminar, In order to facilitate more venues we are open to partnering with other groups to market the event. If your organisation would like to arrange a seminar either internally or for your clients please do not hesitate to contact us. .
The remaining dates and venue for 2015 is:
November 13th & 14th The Chart Seminar London – The East India Club
If you are interested in any of our remaining venues please contact Sarah Barnes at
The full rate for The Chart Seminar is £950 + VAT. (Please note US, Australian and Asian delegates, as non EU residents are not liable for VAT). The early booking rate of £875 for non-subscribers expires two months ahead of the event start date. Subscribers are offered a discounted rate of £850. Anyone booking more than one place can also avail of the £850 rate for the second and subsequent delegates.

The Markets Now
Here is the brochure for September 28th.
David Fuller's view
I look forward to catching up with friends and subscribers at this Seminar.  Stock markets are in a challenging phase seasonally and these create new opportunities. In addition to the three speakers, September 28th should also be a good time to draw on the considerable experience of delegates.  I am sure we will have some lively discussions, which will continue in the Club Bar following presentations.  I hope attending delegates can stay and have a drink with Iain Little, guest speaker Paul Jourdan and myself. Your guests will also be welcome.

Tue, 25 Aug 2015 08:22:00 +0100
The Pay Zone: Oil Price: Petrofac WTI $38.24 -$2.21, Brent $42.69 -$2.27, Diff $4.45 -51c, NG $2.65 -3c

Petrofac (LON:PFC)
A very short blog this morning as it is likely to be this week with so many results and meetings going on.

Petrofac has announced its results which under the ‘challenging’ circumstances appear to be pretty robust. I am attending the meeting shortly and of course will comment afterwards should anything material change but on the face of it the numbers dont give too much cause for concern.

Revenue is up 25% as OEC projects move to the execution phase which means that as expected profits will be seriously 2H weighted and interim profits were down 4%. ECOM new orders were $6bn year to date and show a ‘healthy pipeline’ and the backlog is $20.9bn up from the December number of $18.9bn. With the ECOM backlog up 14% at 17.8bn showing ‘excellent revenue visibility’ CEO Ayman Asfari is remarkably upbeat. Laggan-Tormore is finally getting behind them but not without one last farewell with another £30m of costs before they finally escape those shackles. With Stella now on target for production n ext year and significant cost savings things might have been a lot worse. I’m sure some analysts will pick up on an increase in debt from $0.7bn to $1bn which is for Stella and the offshore vessel but it looks manageable although the vessel stirs some strong feelings amongst followers.

As I said more later, but the divvi is held at 22c and the statement is as confident as it could be, others reporting this week are unlikely to be quite so solid but so far the UK stocks have avoided the minefield we might have expected.

Tue, 25 Aug 2015 08:20:00 +0100
Northland Capital Partners View on the City Premier African Minerals and Tavistock Investments Premier African Minerals (LON:PREM) – SPECULATIVE BUY* RHA update
Market Cap: £13m; Current Price: 1.9p
Plant modifications installed and loan accounts registered in Zimbabwe

  • The modifications to the RHA processing plant (08.07.15) have now been installed and the plant is now expected to operate at the design tonnage. At present, fine tuning and optimisation is continuing.
  • Based on the current APT price of c. US$203/mtu, Premier African Minerals believes a higher volume and lower grade production schedule will generate higher returns at the mine. Prem is in discussion with its offtake partners regarding this strategy. Darwin Strategic has consented to lower the Conversion Trigger of the existing loan notes from 60% to 50% WO3 in the concentrate, allowing the Company to proceed with this strategy.
  • At US$203/mtu Prem expects to receive between US$130/mtu and US$120/mtu. Opex has risen above the US$89/mtu expected, due to additional costs, processing plant delays and expedited pit development. Opex is expected to fall as larger tonnages are processed and recoveries improve.
  • Concentrate shipments are expected to resume from 28/08/2015.
  • Prem’s loans to RHA have now been registered with the Zimbabwe Reserve Bank and foreign exchange approvals have been granted for the repatriation of debt payments (US$9.5m) from Zimbabwe to Prem.
  • Prem plans to further beneficiate the wolframite concentrate from RHA.

NORTHLAND CAPITAL PARTNERS VIEW: Premier African Minerals appears to be getting over the teething issues associated with the ramp up of new plant. Design deficiencies meant that the plant could not accept the designed tonnage and up to 40% of the feed was rejected as oversize and stockpiled. Prem expects to process the stockpile this week and then will continue to process run-of-mine ore. The continued fall in the ammoniumparatungstate price (APT) and increase in opex will squeeze margins in the near term but opex is expected to reduce as the plant ramps up. Importantly Prem’s loans to RHA have now been registered ensuring that the Company can recover its capital expense. We note that Prem has indicated it plans to further beneficiate the wolframite concentrate at RHA which could lead to the production of a higher value product.

Tavistock Investments (LON:TAVI) – CORP: Finals
Market Cap: £17.0m; Current Price: 5.87p
Considerable progress in building an integrated financial services business

  • Revenue of £5m for the 15 month period (the comparator period was when the company operated its now discontinued software business) with a post tax loss of £0.9m and EBITDA loss of £0.4m. Group was established last May with the acquisitions of Tavistock Partners, an IFA, and Tavistock Wealth, an investment management business. Net assets of £11.4m with £4.7m in cash (following February’s £3.3m raise).
  • Strategic commercial relationship with Novia Financial last September whereby Tavistock Wealth has endorsed Novia as a preferred wrap platform and Novia will introduce advisers to Tavistock on a selective basis. Novia also invested £250k in shares and provided a £750k unsecured convertible loan facility.
  • In October, Tavistock Wealth launched a discretionary fund management service. It now manages £150m on behalf of 1,800 clients. In February, Tavistock increased its geographic reach and operational scale through the acquisition of Standard Financial. In March, it took on various books of client relationships through the acquisition of Cornerstone Asset Holdings and in May acquired Duchy Independent Financial Advisors, a West Country IFA.
  • 236 financial advisers from Financial Limited have now transferred to the newly established Tavistock Financial network. Together with the Tavistock Partners network, Duchy IFAs and new joiners, Tavistock now has more than 270 advisers looking after 65,000 clients with more than £3bn assets under advice.

NORTHLAND CAPITAL PARTNERS VIEW: Considerable progress made during the year as the company looks to build an integrated financial services business with a number of acquisitions made. Management is now focused on integrating those acquisitions, establishing the necessary infrastructure (including the deployment of automation software) and the increasing the uptake of investment management services to generate profits and a dividend stream. The market remains fragmented and there is scope for further acquisitions.

Tue, 25 Aug 2015 08:13:00 +0100
Global Growth? Try Global Sleuth! FTSE100 called to open +80pts at 5995 after a terrifying global equity sell-off Monday that saw Wall St. in particular fall by over 1000pts before rallying. FTSE found support at 5860, bulls looking to regain 6000 support while bears getting ready to ride another sell-off. Watch levels: Bullish 6100, Bearish 5750

The positive opening call comes with little consolation after what happened yesterday – FTSE100 closing down 250pts amid a wider global equity rout that’s saw Wall St. lose 1000pts after the US open.
US stocks suffered their worst session in four years on Monday, with markets spooked by concerns about the global economy and the prospect of interest rate hikes. Treasuries meanwhile were bolstered by the losses seen at the open of Wall Street as US equities fell sharply.

Elsewhere, Fed’s Lockhart said he expects the normalization of monetary policy to start sometime this year and to proceed gradually with rates remaining low for quite some time. USD appreciation, Yuan devaluation and the further decline of oil prices are complicating factors in predicting the pace of growth, however.

Asian stocks rebounded overnight from early losses as a recovery in US futures helped soothe investor sentiment and fears about the falls on China's stock market – the curious case of the Shanghai Composite bucking the Asian trend to extend recent losses, now down 600pts on yesterday’s open.

Steep slides in equity markets and fears of a China-led slowdown in emerging economies are upending hopes in much of Europe that strong global growth and a weak euro would boost the region’s limp recovery. Oxford Economics’ Ben May stating that “The Eurozone is very vulnerable to shocks.”

With the Greece can kicked a bit further down the road, Europe’s economic drivers have moved east to faltering emerging markets and west to a limp US recovery – a little limper than policy makers there would like. Where will the world’s growth engine fire up now?

In focus today will be the global indices! Will they recover? Is this just the beginning of something much bigger?

Data-wise we have German IFO business climate, current assessment and expectations looking flat to slightly softer in August, while US highlights include new home sales and consumer confidence this afternoon looking positive, while Richmond Fed manufacturing activity is set to be down in August.

The oil spotlight now firmly on Saudi Arabia as Crude prices continue to plunge – Brent now at $43 while US Light well below a widely slated psyche level at $38. The question now raised is this: Could the world’s largest exporter of oil now move to restrain production in the hope of stabilizing prices and protecting its OPEC comrades, but at the expense of market share?

Gold holding below 7-week highs $1170, tracking USD and global market volatility and hence lacking direction. If this morning’s equity rebound turns out to be more short covering, look for a re-test of $1700 while a continued stock market recovery could spell downside for the yellow metal. Keep an eye on those emerging market currencies though.

Tue, 25 Aug 2015 08:08:00 +0100
Beaufort Securities Breakfast Alert Advanced Oncotherapy, Costain, Motif Bio, Ortac Resources and others The Markets

Market opening: Markets are likely to open higher today. FTSE 100 futures were trading 97.20 points up at 7:00 am.

New York: Wall Street ended in the red amid growing concerns over economic slowdown in China and a sharp fall in oil prices yesterday. The S&P 500 shed 3.9%, with energy stocks declining the most.

Asia: Equities are trading lower, tracking losses in the global markets. Moreover, the rout in China’s markets impacted investor sentiment. The Nikkei 225 fell 4.0%, and the Hang Seng was trading 1.3% down at 7:00 am.

Continental Europe: Markets ended lower as the sell-off in China’s markets spread to other global markets. Furthermore, the continued decline in oil prices hurt investor sentiment. France’s CAC 40 and Germany’s DAX plunged 5.4% and 4.7%, respectively.

Crude Oil: Yesterday, Brent and WTI oil prices decreased 6.1% and 5.5%, respectively. The spread between the two varieties stood at US$4.5 per barrel.

UK small caps: The FTSE AIM All-Share index closed 4.10% lower yesterday at 702.40.

Today’s news

IMF official says China not yet in crisis

According to Carlo Cottarelli, Executive Director with the International Monetary Fund (IMF), China is currently not in a crisis, but is reacting to overall problems in the global economy. He further stated that the country’s monetary policies have been expansive in the past few years; thus, it is a necessary adjustment for the economy.

Company News

Advanced Oncotherapy (LON:AVO) – Speculative Buy

Advanced Oncotherapy, the developer of next-generation proton therapy systems for cancer treatment, yesterday announced that the two Coupled Cavity Linac (‘CCL’) modules that form part of its proprietary proton accelerator called Linac Image Guided Hadron Technology (or ‘LIGHT’) are now ready for high-power testing at the Company’s facility in Geneva. These two modules will be tested at high power by using the Radio Frequency (‘RF’) Power Units provided by ScandiNova and Toshiba and it is the first time two CCL modules will be tested together. The finished LIGHT system will incorporate ten CCL units (15 CCL modules) in total and combined in a series will accelerate protons to the high energies required to treat radiosensitive tumours in a clinical setting. Ensuring that the CCL units were ready for high-power testing was a key milestone in the Company’s timetable provided to shareholders in November 2014, and this marks another successful stage in the process of delivering the first working LIGHT system.

Our view: High-power testing of LIGHT’s individual components and modules at this stage is a crucial demonstration of their ability to perform to specifications. Initial low power testing has shown that they perform to expectations and it is realistic to expect that the successful conclusion of these tests to build confidence that the CCL modules can work under the required conditions to deliver the high energy protons required to treat patients effectively. Results from this work should be expected during Q4’15, before moving onto to running the modules in series as a bank of accelerators. Once demonstrated, the most significant technological hurdle will have been successfully negotiated, leaving only a number of less challenging barriers ahead. While Beaufort considers that the FDA could potentially hinder product approval for rather longer than might presently be anticipated, the extent of interest from other non-dependent territories (in particular that presently being shown from China) suggests the Group is likely to be overwhelmed by demand for LIGHT as soon as commercial units become available. The enormity of this opportunity and the market potential it presents has already been significantly detailed in Beaufort initiation research of September 2014 and subsequent updates. In simple terms, if AVO delivers exactly ‘what it says on the tin’, the operational and cost advantages LIGHT offers will effectively render first generation proton therapy devices all but obsolete. Its principal limitation would then become simply its capacity to deliver to a global opportunity that will grow dramatically beyond its current US$2.5bn size, as it will also become the natural replacement for the more antiquated X-ray radiation machines that are installed in huge numbers around the globe. Given such an outcome, of course, major international competitors wishing to remain in the game will almost certainly be willing to pay a handsome price, one way or another, to get their hands on AVO’s proprietary technologies. Advanced Oncotherapy plc remains one of Beaufort’s key investment picks for 2015.

Beaufort Securities acts as corporate broker to Advanced Oncotherapy plc

Ortac Resources (LON:OTC) – Speculative Buy

Ortac Resources, the exploration and mine development company, announced today that it has exercised its call option agreement (detailed 30 March 2015) with the private company Zamsort Limited, registered in Zambia and holds prospective Cu-Co mining and exploration licences in the Zambian Copper Belt. On 30 March, Ortac entered into the option after subscribing for secured convertible loan notes, convertible into a 10.71% stake in Zamsort. The exercise of the Option by way of a further US$600,000 secured convertible loan note (the No.2 Loan Notes), takes the total invested by Ortac in Zamsort to US$1.2 million and, upon conversion, Ortac’s potential shareholding in Zamsort would be 19.35% of the issued share capital of Zamsort. In the meantime, Zamsort’s small scale mining licence over a 4km sq area (Kalaba Cu-Co deposit) has been renewed for a period of 10 years commencing 1 July 2015. Moreover, a significant amount of work has been including metallurgical testwork, mine site survey, review of mining and drilling contracts and a preliminary design for the demonstration processing plant which could begin construction in Q3 2015 pending results from the metallurgical testwork.

Our view: We are encouraged in the rapid pace of development since Ortac’s investment in Zamsort and the aim to establish a demonstration processing plant at Kalaba by year end. Ortac is providing technical support as Zamsort continues to progress the Kalaba project. Representative samples with an average grade of 1.83% Cu and 0.23% Co are currently undergoing metallurgical testwork. A drill programme comprising reverse circulation combined with diamond drilling is currently being planned in order to define a mineral resource at Kalaba. We look forward to updates on the potential plant design as well as continued exploration results within the highly prospective Zambian Copper Belt. In the meantime, we maintain a Speculative Buy on the stock.

Beaufort Securities acts as corporate broker to Ortac Resources plc

Motif Bio (LON:MTFB) – Speculative Buy

Motif, the clinical stage biopharmaceutical company specialising in developing novel antibiotics, yesterday announced the topline results of an independent report from microbiology specialists, JMI Laboratories. The report shows that iclaprim is effective in vitro against a range of Gram-positive bacteria, including Staphylococcus aureus, one of the key causes of acute bacterial skin and skin structure infection (‘ABSSSI’) and hospital-acquired bacterial pneumonia (‘HABP’). The recently completed laboratory study tested iclaprim against more than 2,000 bacterial strains, including 1,178 strains of Staphylococcus aureus collected in 2014 from patients in the U.S.A., Europe, Asia Pacific, and Latin America. Iclaprim was found to be 16-fold more potent than trimethoprim, the only other antibacterial dihydrofolate reductase inhibitor (DHFRi) administered alone in today’s market. The tests were conducted according to Clinical and Laboratory Standards Institute (CLSI) methods. CLSI develops clinical laboratory testing standards based on input from and consensus among industry, government, and health care professionals around the world.

Our view: These in-vitro results are genuinely impressive and develop confidence in iclaprim’s ability to successfully treat life threatening infections where currently available treatments are not fully effective due to resistance or side-effects. Reported minimum inhibitory concentrations (‘MICs’) demonstrate that iclaprim is active against Staphylococcus aureus at very low concentrations. The MIC50%, the minimum concentration of iclaprim required to kill 50% of tested bacteria, was 0.06 mcg/ml and the MIC90%, the minimum concentration of iclaprim required to kill 90% of tested bacteria, was 0.12 mcg/ml. Comparing this to data for other antibiotics against the same 1,178 strains of Staphylococcus aureus, 1 mcg/ml of vancomycin and 1 mcg/ml of linezolid was required to meet the MIC50% and MIC90% levels. Against methicillin-resistant Staphylococcus aureus (MRSA), iclaprim was also highly active: the MIC50% was 0.06 mcg/ml and the MIC90% was 0.5 mcg/ml. Given the opportunity already identified in HABP and ABSSSI together with a number of other potential indications, the prospective market value for this novel antibiotic is very large indeed, potentially running in billions of US$. The much publicised global need for such new drugs means that iclaprim must already be under review by Big Pharma, with a view to farming-in to Motif’s opportunity in exchange for financing late stage development and subsequent commercialisation. Realistically, such an outcome might be expected before end-2016. The value this will accrue to Motif should then be quite considerable. Beaufort repeats its Speculative Buy rating for Motif Bio and confirms a price target of 110p/share.

Costain (LON:COST) – Buy

Yesterday, Costain, along with its joint venture partners VINCI Construction Grands Projets and Bachy Soletanche, announced that it has won a £605m contract for the East works package of the Thames Tideway Tunnel in London. Costain, which has a 40% share in the joint venture, is expected to complete its part of the project in 2023. The Thames Tideway Tunnel is a major new sewer that will help prevent the discharge of 20 million tonnes of sewage into the River Thames each year.

Our view: The Thames Tideway Tunnel contract is a significant win for Costain and reflects its technical expertise. Just last week, the company declared its results for the half year ended 30th June 2015, with pre-tax profits rising 25% y-o-y to £11.4m resulting in an EPS of 9.6p. It also mentioned of an order book worth £3.7bn, 16% higher than H1 2014. Given the continuous addition of contracts, firm order book and strong financials; we believe the company would maintain its superior position in the market. We maintain a Buy rating on the stock.

Bunzl (LON:BNZL) – Buy

Yesterday, Bunzl declared its results for the half year ended 30th June 2015. During the period, the revenues jumped to £3.1bn from £2.9bn in H1 2014. Pre-tax profit rose 11% to £147.1m leading to a rise in EPS to 32.1p from 27.5p. On the operational front, the company completed several acquisitions to enhance its portfolio. The purchase of Tillman was agreed upon in December followed by Quirumed, a Spanish health-care company during January. Further, the company added three more companies to its list in March, including, Janssen Packaging, a firm involved in the distribution of expert packaging materials for the e-commerce, fashion and fulfilment sectors, Emballages Maska, involved in sale of cleaning and hygiene supplies to distributors and Prescott, engaged in distribution of clean and hygienic products to consumers in construction, property management and healthcare sectors. The company also acquired certain small companies towards the end of half year to further strengthen its position. Separately, the company informed about the acquisition of four new companies yesterday. In addition, Bunzl declared an interim dividend of 11.75p, up 7% to be paid on 4th January 2016.

Our view: Bunzl delivered strong half yearly results led by organic growth, improved operational efficiencies and acquisition of firms. The company continued on its plan to buy value accretive businesses in different sectors to enhance its portfolio and expand its global operations. In line with its long-term plan, Bunzl yesterday informed about the acquisition from four different industries in the US, Colombia, Canada and France. The company seems to have good potential that is well supported by its acquired firms and strong cash position. Bunzl is well placed with strong pipeline of opportunities and ongoing discussions to acquire extra firms during the year. Thus, in view of the above developments, we reiterate a Buy rating on the stock.

Meggitt (LON:MGGT) – Buy

Yesterday, Meggitt informed that Meggitt Training Systems has been awarded a three-year, US$25m contract from Public Works Government Services Canada on behalf of the Department of National Defence. The contract entails providing in-service support to the Canadian Armed Forces for the company’s Small Arms Trainer (SAT) and Indirect Fire Trainer (IFT). The contract also includes operator and maintenance support for related training activities.

Our view: The contract win is a major boost for Meggit and comes on the back of the recent acquisition of Cobham’s businesses by the company’s MPC division. In January, Meggitt had purchased aerospace engineering company Precision Engine Controls Corporation for US$44.2m to widen its industrial valve capability. Meggit has an impressive track record of supplying weapon simulation to the Canadian Armed Forces. Now it will provide SAT simulator system to support individual and group training across the spectrum of security operations whereas its IFTs would be used to train soldiers in forward observer, fire direction centre and mortar crew skills proficiency. Thus in view of these acquisitions and the recent contract wins by the company; we retain our Buy on the stock.

Tue, 25 Aug 2015 08:02:00 +0100
The Pay Zone: Oil Price San Leon Energy, Aminex, Trinity Exploration & Production, Wentworth Resources and others..... WTI $40.45 -87c, Brent $45.46 -$1.16, Diff $5.01 -47c, NG $2.68 -8c
Oil price

Oil closed sharply down again on Friday, the prices above showed a drop of $2.66 or 6.2% for WTI and $3.73 or 7.6% for Brent. Friday’s PMI data from China disappointed the market as did the US numbers, thoughts of a September rate rise in the US are receding although not certain, Friday’s Jackson Hole meeting should provide more and hopefully from Stanley Fischer who is the mechanic rather than the oily rag.

This morning things have got worse with markets falling dramatically, led by China for whom the bell apparently tolls, equities and commodities have fallen together and with the tide down it is possible to see who has shorts on, so to speak. In oil, things have not changed, the fundamentals are still weak and WTI is $38.94 and Brent $43.62 as I write and with the rig count showing a rise of two oil units last week and WTI net length down another 17% over the same period there is little sign of support. Labor Day is only two weeks hence and after that refineries will take less crude for a while,  chances of any real draw in crude stocks are diminishing and Opec is in disarray.

It is this point that one should consider as a possible, only possible area to grasp at a straw or two, with Iran saying at the weekend that an emergency Opec meeting might be ‘effective in stabilising the price’. So whilst the world wrestles with deflation and a serious lack of growth, demand falling even at current prices might lead to a face-saving act of goodwill from the Saudis should they wish to do so. It wouldnt help the strategy of regaining market share of course and there is no sign of production restraints from the US or Russia but if it looks serious enough to warrant such a meeting it may just happen. Those long positions at a five year low indicate that the market is a one way bet at the moment, despite the fundamentals being awful it may just be worth investigating what would happen if the Saudis called an emergency meeting and a lot of shorts had to be covered in a hurry….

San Leon Energy (LON:SLE)
On a day when there is red ink all over the market and in the oil sector especially, the sight of San Leon up by 15% is a lighthouse in the fog of despond for investors. The company has announced this morning that they have received an approach from a ‘possible offeror that may or may not lead to an offer being made’. Whether or not this leads to anything and who might be the potential bidder we will have to wait and see but there is little doubt that on the simplest cash flow analysis, buying this company on the stock market may be cheaper than doing the hard graft yourself, particularly as the market for gas in Europe hasn’t heard of the world markets catastrophes.

Gulf Keystone (LON:GKP) has appointed Tory MP Nadhim Zahawi as their ‘Chief Strategy Officer’ whatever that means but either way it seems like common sense and Mr Zahawi appears to have connections in all the right places. Results on thursday for GKP and I am scheduled to meet Mr Ferrier in two weeks time…

I dont cover Wentworth Resources (LON:WRL), mainly as I have never managed to get a meeting with management but the news out last week that they had put first gas into the transnational pipeline in Tanzania seems to be positive. Gas is apparently coming from two wells with a further three to come onstream shortly, if anything changes on meeting the management I will update in due course….

If my counting is right then today is Due diligence D-Day for Tethys Petroleum (Tethys Petroleum), I seem to remember that Nostrum (LON:NOG) now have two days to decide whether or not to put the bid formally on the table…

Aminex (LON:AEX) has announced that it has tidied up its Egyptian interests thus avoiding having to pay for operational costs of its SM-2 well. By selling its APEL holding to Petrosino for a nominal consideration it will receive a 1% gross overriding royalty after costs have been borne. In Tanzania the company are slowly making progress, time for a chat with Jay I think.

And Trinity Exploration & Production (LON:TRIN) shares  are also up today as they announce that their debt has been rolled over until September 11th and that the final sales process is still under way. I have spoken to a number of optimists who believe that Trinity will come through this but at the current price deck I find it quite difficult to make it add up to much…

And finally…

Wasn’t it nice to see Usain Bolt, after a summer of injuries and a dodgy semi-final, lower the colours of double doper Justin Gatlin at the World Championships yesterday? You know that Lord Coe has got a job on his hands when the world tunes in to an event in the hope that an ‘athlete’ if one can call him that, gets beaten in an event that he should not be competing in… Much more exciting was seeing Jess Ennis win her gold and there was proper sympathy for Katarina Johnson-Thompson who’s time will surely come. With Mo Farah getting his gold and more to come lets hope that the spirit of 2012 can be recreated in Beijing.

The most up and down Ashes series for many a year concluded yesterday with The Aussies winning the last test and yet handing over the Urn, as Ben Gregory will also do shortly. Having been at Trent Bridge a different side turned up at The Oval, totally unable to get back in the groove. There are a number of things to sort out, firstly I would make it a mandatory dropping offence  from the team for any bowler who takes a wicket with a no-ball but then it would help if the umpires called a few.. The opening position is available again after a batsman averaging 16 after four matches decided to play an obscene shot to a rank long hop and holed out, Alex Hales scoring 180 odd hasn’t done his chances any harm at all.

With The Gooners playing the HubCap Stealers tonight the early season tables can change dramatically but the Noisy Neighbours are clearly miles ahead of anybody else so far. With Chelski labouring to a win at The Baggies and Man Who looking very poor against Whocastle on Saturday I suspect more transfer activity to come, particularly as Pedro scored on debut.  Elsewhere the Eagles beat Villa, and there were draws between the Foxes and Spurs, the Canaries and the Potters whilst the Maccams actually got a point against Swansea not to be sneezed at. The Cherries got their first win with a closely fought win in a 7 goal thriller at the Hammers.

And at Spa, Lewis managed to hold on securely to win with Nico just behind, the championship lead building nicely.

Mon, 24 Aug 2015 13:17:00 +0100
In the news with RFC Ambrian: The Oil Price INTRODUCTION

In the news: The Oil Price
This turmoil in commodity prices is really playing into the hands of RFC Ambrian’s oil and gas analyst Stuart Amor. He predicted at the beginning of March that Brent oil prices would fall from over US$60/bbl to US$40/bbl this summer in his piece The Oil Price — Bottom of the Barrel, March 2015. His analysis is clearly still relevant today, so I would recommend you take a look and arrange a meeting with Stuart if you haven’t already done so. Sentiment in the oil market has turned very bearish, with the US rig count rising over the last few weeks and the worries about the effect of the lifting of sanctions on Iran.

According to the IEA, global OECD industry stock levels are at all-time highs. Given the level of global crude and product inventories today, Stuart now believes that the Brent spot will trade in a roughly US$40-60/bbl range for the rest of this year. It should continue in this range in 2016. This is only likely to change after OPEC acts to cut its quotas (and this would imply protracted and tricky internal OPEC negotiations given the likely increase in Iranian exports).

Some very good news, particularly for our Australian cousins. The BBC has commissioned five (sic) more series of the hit, copper mining-based period drama Poldark. I can’t wait! I’ll try and cover any plot developments as best I can.

Mon, 24 Aug 2015 11:12:00 +0100
Today's Market View Including Minera IRL, SolGold, Stellar Diamonds, Tri-Star Resources and others Equities collapse as confidence in Chinese growth falls
• The Shanghai equity market crashed 8.5% today despite new rules to allow its main state pension scheme to invest up to 30% of its net assets in Equities for the first time
• Chinese factory activity is falling as seen in the Caixin / Markit manufacturing PMI which fell to 47.1 from 47.8 on Friday.
• The big problem for China’s authorities is that 80% of China’s investors are individuals managing their own portfolios many with leverage.
• Millions of Chinese investors are watching the collapse of all or part of their life savings despite repeated government action to support the market including a ban on short selling and limits on larger investors selling stock.
• HK’s Hang Seng is down 5.2% on the day and other markets are also pulling back
• The UK FTSE 100 has fallen 2.4% so far today with the large cap miners taking most of the pain.
• The IMF claimed there is ‘No crisis’ at the weekend and Capital Economics reckon the slowdown in China is not a bad as markets suggest.
• So, when should we start buying back into the big miners?
• We expect the Chinese government to bring in some form of economic stimulus to rescue the market

Gold prices rise as crisis deepens

Nazi gold train reported to be discovered in tunnels in Poland
• Two men are reported to have discovered a Nazi train carrying gold in tunnels in mountains near the town of Wroclaw in Ploand.
• The train is said to have left the town of Wroclaw in 1945 travelling south west before disappearing into the hills around Walbrzych.
• The train is thought to be in tunnels dug by the Nazis in the region which had a network of rail tracks.

London – underground strikes planned for Wednesday and Friday
• Unions claiming to represent tube drivers have ordered strikes for Wednesday and Friday.
• The action starts at 6:30 on Tuesday night and will effectively cripple the network for four days
• The strike is over demands which could lead to a 6.5% increase in already expensive rail fairs.
• Tube driver salaries start at £49,673pa rising to £50,000-60,000pa plus 43 days annual leave.
• They work just 36 hours a week and get even more time off if some desperate commuter trying to get home on an overcrowded tube throws themselves under their train.
• The union is demanding a cut in working hours to 32 hours a week, a four day week for the same full time salary, night bonus payments to be paid forever and night time payments to be paid on lines which are not even opening at night.
• What’s more is most trains drive themselves these days leaving the driver with the onerous task of opening and closing the doors.

Economic News

US – Economic news due this week:
• Tuesday: Jun S&P/CS property index (+0.2%mom/+5.1%yoy v -0.2%mom/4.9%yoy), Aug Markit services PMI (55.6 v 55.7 in Jul), Jul new home sales (+5.8%mom v -6.8%mom in Jun), Aug consumer confidence (93.4 v 90.9 in Jul)
• Wednesday: Jul durable goods/ex transport (-0.4%mom/+0.4%mom v +3.4%mom/+0.6%mom in Jun), Jul capital goods orders ex air/defence (+0.4%mom v +0.7%mom in Jun)
• Thursday: Q2 Preliminary (2nd reading) GDP (+3.2%qoq v +2.3%qoq (1st reading)), Weekly jobless claims (275k v 277k in the previous week)
• Friday: Jul personal spending (+0.3%mom v +0.0%mom in Jun), Jul core PCE (+0.1%mom/+1.3%yoy v +0.1%mom/1.3%yoy in Jun)

China – Equity indices post heavy losses amid a widespread sell off in developed and emerging markets.
• The benchmark Shanghai Composite is down 8.5% today with all 2015 gains now erased.
• The Shenzhen Composite index fell 7.6%.
• Expectations for monetary stimulus from the PBoC over the weekend did not materialise which made many to question the determination of Beijing to support the market.
• Monday sell-off follows a nearly 12% drop recorded through last week.

Japan – Shinzo Abe said that it was acceptable for the Bank of Japan to miss its 2% inflation target.
• Previously, the Bank said growth in prices will accelerate to 2% in two years’ time from Apr/13.
• Lower commodity prices and oil prices, in particular, made the BoJ revise its forecasts for 2% inflation rate to come in around Sep/16.
• The currency is up 2.4% so far today.

Greece – A third of Syriza lawmakers declined to accept a new bailout deal leaving the party to form a new anti-austerity leftwing party ahead of snap general elections to be held next month.

US$1.1483/eur vs 1.1243/eur last week.   Yen 120.50/$ vs 122.96/$.   SAr 13.208/$ vs 12.9037/$.   $1.571/gbp vs 1.571/gbp
US$0.725/aud vs0.732/aud – US dollar weakness continues on expectations for postponement of Fed rate rise
• South African rand smashes through key resistance in significant weakening of the currency despite USD weakness

Commodity News
Precious metals:

Gold US$1,156/oz vs US$1,152/oz on Friday - 
Platinum US$999/oz vs US$1026/oz
Palladium US$590/oz vs US$608/oz
Silver US$15.06/oz vs US$15.38/oz

Base metals:
Copper US$ 4,932/t vs  US$5,041/t
Aluminium US$ 1,525/t vs US$1,553/t
Nickel US$ 9,715/t unch vs US$10,170/t
Zinc US$ 1,731/t vs US$1,775/t
Lead US$ 1,649/t vs US$1,688/t
Tin US$ 14,700/t vs US$15,350

Oil US$43.80/bbl vs US$46.13/bbl
Natural Gas US$2.637/mmbtu vs US$2.722/mmbtu
Uranium US$36.40/lb unch vs US$36.40/lb –

Bulk commodities:
Iron ore 62% Fe spot (cfr Tianjin) US$54.8/t unch vs US$55.52t –

Steel – A number of stainless and special steel mills have been asked to reduce/halt production between Aug 20 - Sep 5 in order to guarantee air quality during the military parade.
• The event is organised to commemorate the 70th anniversary of the victory of WWII as well as the second Sino-Japanese War.
• The troop parade will be held in Beijing on Sep 3.

Thermal Coal $51.6 vs $52.4 cif ARA Europe –
Tungsten - APT European prices price $203/mtu (range $196-210/mtu) vs $205.0/mtu last week

Ferrochrome – Prices hit the lowest level recorded since the launch of the MB charge chrome index in 2012 on Friday last week.
• The price fell 1c to 76c/lb on the back of the devaluation of the yuan.
• High carbon prices in Europe are reported to stand at 89-95c/lb, the lowest in two years.

Company News
Anglo American (LON:AAL) 694 pence, Mkt Cap £9.7bn – Sale of the Mantoverde and Mantos Blancos copper mines
Anglo American reports that it has reached agreement for the sale of its in interest in Anglo American Norte SA to a consortium of investors led by Audley Capital Advisors and including Orion Mine Finance.
Anglo American will receive an initial $300m in cash and future payments of up to an additional $200m, dependant on factors such as the performance of the LME copper price and the possible future extension of the sulphide resource at the Mantoverde mine.  In addition to Mantoverde, assets include the Mantos Blancos copper mine.
• Describing the sale as a good outcome for Anglo American, Chief Executive Mark Cutifani said that “we are focusing our diversified portfolio on our largest and most value accretive assets, which include the Los Bronces and Collahuasi copper mines in Chile and the Quellaveco copper project in Peru.”

Avocet Mining (LON:AVM) 3.0 pence, Mkt Cap £6.3m – Reduced first half losses and lowering of production guidance for 2015.
Avocet Mining report a reduced loss for the six months to June 2015 of $37.66m (2014 loss of $46m). The company produced 11% fewer ounces of gold (39,859oz vs 44,798oz) as a result of complex metallurgy and the impact of the strike at Inata, but was able to reduce cash production costs by 18% to $1021/oz (from $1246).
• The complex metallurgy of the Inata orebody which consumes additional reagents and is variable in its treatment characteristics has led the company to reduce its gold production guidance for 2015 to 75-80,000oz from earlier estimates of 86,000oz.
• Cost saving initiatives, including adjustments to mining plans and “resizing the expatriate and local workforce” have helped to contain and reduce costs “however, the fall in the gold price from a high of over US$1300 per ounce in February to below US$1100 in July has partially offset these successes.”
• Capex was resuced to $2.7m from $6.9m in 2014
Conclusion: The inata mine continues to face challenges and is also facing the impact of lower gold prices – the reduced production guidance target reflects these challenges.

BHP Billiton (LON:BLT) 10.01 pence, Mkt Cap £55bn – Expect collapse in results tomorrow as outlook worsens
• BHP is due to report final results tomorrow with a significant fall in earnings to around £4bn for the year with potential to fall further to £3bn for FY 2016.
• The full year results will reflect better times in the FY H1 when prices and premiums were better softening the blow of the second half to end June which will show the impact of falling prices in almost all divisions.
• BHP is being hit hard by the collapse in oil, coal, copper and iron ore prices and looks set to suffer further towards the year end as lower prices should continue to force margins lower.
• Worse still failing production levels in oil and across a range of metals means that unit costs are likely to have risen.
• Copper, iron ore and thermal coal performed better for the first nine months of the year but everything else suffered.
• Iron ore failed to meet ambitious production targets and its 5% production increase will be more than offset by the collapse in iron ore prices earlier this year.
• Cost cutting; Andrew Mackenzie, BHP’s ceo will have to cut more fat off BHP’s once lardy cost base to restore shareholder value.
• Mackenzie, being a Scotsman, may also prefer to cut its dividend to conserve cash .
• Writedowns:  BHP recently took a US$2.8bn writedown in its oil business mainly on the Hawkville field, the balance on Petrohawk.
• The company will also take a £1.3bn writedown on the demerger of South 32 earlier this year.
• Capex:  capital expenditure will be under threat and maybe BHP’s plans to invest US$1.5bn in Onshore US through FY 2016 could be under threat
• Oil prices are now at such low levels that BHP will be under strain in its offshore oil and gas business

Minera IRL (LON:MIRL) 3.4 pence, Mkt Cap £7.8m – Removal of the interim CEO
Minera IRL reports that “the Board has unanimously voted to remove Diego Benavides from the position of Interim CEO” the announcement goes on to say “The company is also investigating allegations of impropriety received through its recently implemented and independently managed Whistleblower hotline. The investigation will be overseen by the Company’s independent members of the Board, Doug Jones and Robin Fryer.”
• The reasons for the removal of the interim CEO are not specified, however, the inclusion of the references to unspecified impropriety in the same announcement will inevitably drive speculation that the two are linked.
• Since the untimely demise of the founder, Courteney Chamberlain earlier this year, Mineral IRL has faced challenges in restructuring its management against a background of friction with local community groups in the vicinity of its proposed new 100,000 oz pa gold mine development at Olachea.
• Earlier this month, Mineral IRL reported that “The Community has raised concerns about the status of the Company's plans to reorganize its management structure to better serve the stakeholders, and the specific role of certain individuals within the Company. This situation was also reported by the Community to the Puno press on 14 August 2015.”  This led the company to postpone the start of a proposed 5000 metre drilling programme and to delay the negotiation of an EPCM contract to advance the mine development.
• It is unclear at the moment whether the departure of Mr Benavides resulted from this community pressure, was the result of the separate internal investigations mentioned above, or some other, unrelated cause.
Conclusion: Whatever the outcome of the continuing investigations, management is being diverted from its efforts to finance and develop the new Ollachea mine and is facing pressure from external groups. We hope for a speedy resolution of the current situation and a focussed effort to restore community relations and get mine development and financing back on track.

SolGold* (LON:SOLG) 1.9 pence, Mkt Cap £14.4m – New target within Cascabel license offers prospect of further discovery
SolGold today report the identification of a new potential copper porphyry target at ‘Aguinaga’ on the Cascabel license in Ecuador.
• Aguinaga is 3km away from the Alpala Central copper porphyry deposit into which SolGold have drilled 12 deep drill holes.
• A second drill rig has now arrived to speed up drilling and to test outlying targets within the Cascabel license area.
• The team have run geophysical and soil sampling surveys over the Aguinaga area.  Assays off the 100m x 100m soil grid show elevated copper, molybdenum and zinc.
• The gold and copper / zinc ratio is also said to ‘support an inferred porphyry centre characterised by higher temperatures of mineralisation’.  ‘The low manganese in soil that flans the central copper zone to the north and south is related to intense late-stage hydrothermal alteration.  This is reported to be typical of metal zonation around porphyry copper-gold deposits.
*SP Angel acts as Nomad and Broker to SolGold. An SP Angel analyst has visited the Cascabel project.

Stellar Diamonds (LON:STEL) 0.45 pence, Mkt Cap £3.7m – PEA Study on the Tongo Project, Sierra Leone
• The company reports the outcome of an independent Preliminary Economic Assessment of the surface and underground mining potential of its Tongo Project in Sierra Leone.
• The study, which was conducted by Paradigm Project Management, indicates that development of the Tongo 1 kimberlite dyke by both surface and underground mining to a depth of between 300 to 400 metres could produce a total of 956,000 carats of diamonds over an 18 year mine life.
• Estimated diamond values of $270/ct and operating costs of $108/t are estimated to generate a pre-tax IRR of 31% and a pre-tax NPV of $53.2m at a discount rate of 10%.
• The initial 4 years of production from open-pit mining requires estimated capex of $24.8m to produce approximately 117,800 carats over the first 3 years of open pit mining with a further 838,000 carats of production from predominantly underground mining in years 4 to 18.
• The company indicates that it sees potential to extend mine life through deeper mining on the Tongo 1 dyke and/or the possible mining of a further 3 kimberlite dykes known on the licence, though we suspect that additional exploration may be required to demonstrate the full resource potential of these additional areas..
Stellar Diamonds was granted a two –year extension to its exploration licence in July and this should allow time for completion of the Environmental and Social Impact Study which is already well advancesd and for submission of a mining licence application.
Conclusion: The capex required to get Tongo 1 into production is relatively modest and if the diamond values of $270/ct assumed in the study can be achieved or exceeded, the project should generate robust returns from the open pit phase and help to fund the underground phase of operations.

Tri-Star Resources* (LON:TSTR)  0.115 pence, Mkt Cap £9.7m  - Update on the Roaster Funding
• The funding structure for the roaster has now been fully agreed with definite agreements in place with Bank Nizwa for US$40m of senior debt.
• In addition, mezzanine funding of US$15m has been put into place as expected.
• The equity contribution by the three partners will be pro-rated for the US$15m of equity as expected.
• The payment for the first two tranches of the sale of the Intellectual Property into SPMP totalling US$4m is to be received by Tri-Star on financial close.
• This will be offset against the US$6m equity contribution required by Tri-Star.
• A final tranche of US$2m will be available from the IP sale when the pilot plant for the roaster is commissioned.
Conclusion: With financial close secured, work can start on the roaster. We anticipate construction of the roaster of 18-20 months from financial close giving scope for production of 20,000 tpa of antimony metal and trioxide. Tri-Star is now well positioned to exploit the favourable economics of the antimony market as a speciality metal and be the first roaster outside China, built to EU standards. We continue to see upside in the shares and remain buyers.
*SP Angel acts as Nomad and Broker to Tri-Star Resources

Mon, 24 Aug 2015 10:57:00 +0100
Northland Capital Partners View on the City Connemara Mining, Mediazest and Motif Bio Motif Bio plc (LON:MTFB) – BUY*: Further pre-clinical evidence for iclaprim
Market Cap: £56m; Current Price: 52p; Target Price: 114p
Efficacy of iclaprim confirmed in laboratory study

  • Motif announced top-line results of an independent report from microbiology specialists JMI Laboratories.
  • The report shows that iclaprim is effective in vitro against a range of Gram-positive bacteria, including Staphylococcus aureus, one of the key causes of acute bacterial skin and skin structure infection (ABSSSI) and hospital-acquired bacterial pneumonia (HABP) - the two indications iclaprim is to be tested against in phase 3 trials.
  • The recently completed laboratory study tested iclaprim against more than 2,000 bacterial strains, including 1,178 strains of Staphylococcus aureus collected in 2014 from patients in the U.S.A., Europe, Asia Pacific, and Latin America.
  • Iclaprim was found to be 16-fold more potent than trimethoprim, the only other antibacterial dihydrofolate reductase inhibitor (DHFRi) administered alone in today's market.
  • The report demonstrated that iclaprim is active against Staphylococcus aureus at very low concentrations.
  • Finally, iclaprim was also shown to be highly active against methicillin-resistant Staphylococcus aureus (MRSA).

NORTHLAND CAPITAL PARTNERS VIEW: The JMI report re-confirms that iclaprim is effective in vitro against a range of Gram-positive bacteria. Importantly, it demonstrates that the drug is effective against methicillin-resistant Staphylococcus aureus (MRSA), which is particularly important in treating ABSSSI and HABP, where currently available treatments are not fully effective due to resistance or side effects. We reiterate our 114p Target Price.

MediaZest (LON:MDZ) – CORP: Finals
Market Cap: £2.0m; Current Price: 0.195p
FY15 hit by project slippage; better start to FY16.

  • Revenue declined 15.7% to £2.5m following the delayed completion of a project into FY16 but the loss before tax remained unchanged at £0.7m reflecting lower interest and administrative costs. Net debt was £453k (FY14: net cash of £68k) with operating cashflow outflow partly offset by January’s £438k placing. Shareholder loans included a £114k short term facility that was put in place for a delayed project – this was repaid in April.
  • Successful launch of MediaZest Retail Analytics with two initial customers secured. New clients for its traditional AV business included Hyundai/Rockar, The Post Office, Ted Bake and Pfizer. Additional work was secured with Samsung, Kuoni, HMV and work with Adidas has resumed in FY16. MediaZest’s project with Hyundai/Rockar for the car dealership at the Bluewater shopping centre won the Retail Week award and has been shortlisted for a Point of Purchase Advertising International Award.
  • Positive start to FY16 with new client engagements with Ted Baker and Adidas along with ongoing projects including The Post Office and Hyundai/Rockar. A wide range of these opportunities are on a roll out, ‘business as usual’ basis, and management believes these should lead to sufficient revenue to move MediaZest to consistent profitability.

NORTHLAND CAPITAL PARTNERS VIEW: Top line decline reflects the lumpy nature of MediaZest’s business with the slippage of the completion of a project hitting FY15 numbers. Management is looking to address this by increasing the breadth and depth of the client base and also through products such as MediaZest Retail Analytics. The latter provides good incremental revenue and better visibility but it is a new product and it will take time to gain commercial traction. Balance sheet remains fairly tight but shareholders have been consistent supporters. The outlook remains positive - MediaZest is a proven AV innovator and the retail sector continues its investment in AV technology.

Connemara Mining Company (LON:CON) – CORP: Inishowen update
Market Cap: £1m; Current Price: 1.75p
Defines gold-in-soil anomalies for follow up trenching

  • Connemara Mining Company has completed a 700sq m soil sampling programme over the area that contained most of the boulders that were determined to have high grade gold contents during the previous exploration programme (26/06/2015).
  • Grades up to 0.46g/t Au were identified and an area has been defined for follow up trenching.

NORTHLAND CAPITAL PARTNERS VIEW: Connemara Mining Company’s early stage exploration programme at Inishowen continues to produce encouraging results. This latest soil sampling programme defined gold-in-soil anomalies that appear spatially associated with quartz vein boulders (float) that have grades up to 15g/t Au.

Mon, 24 Aug 2015 08:11:00 +0100
Beaufort Securities Breakfast Alert GlaxoSmithKline and Starcom The Markets

Market opening: Markets are likely to open lower today. FTSE 100 futures were trading 127 points down at 7:00 am.

New York: Wall Street declined amid increasing growth concerns over China’s economy and a sharp fall in oil prices. The S&P 500 shed 3.2% on Friday, with information technology and energy stocks leading the laggards. The index fell 5.8% during the week.

Asia: Equities are trading lower, tracking losses in global markets. Furthermore, the continued rout in China’s markets impacted investor sentiment. The Nikkei 225 fell 4.6%, while the Hang Seng was trading 4.7% lower at 7:00 am.

Continental Europe: Markets ended sharply lower on worse-than-expected Chinese PMI data. In addition, the uncertainty in Greece following the resignation of Alexis Tsipras concerned investors. France’s CAC 40 and Germany’s DAX dropped 3.2% and 3.0%, respectively.

Crude Oil: On Friday, Brent and WTI oil prices decreased 2.5%, and 1.7%, respectively. The spread between the two varieties stood at US$5.0 per barrel.

UK small caps: The FTSE AIM All-Share index closed 1.50% lower on Friday at 732.40.

Today’s news

UK’s economy to grow at faster pace

According to the Confederation of British Industry (CBI), the UK’s economy is expected to grow 2.6% in 2015 compared with the earlier estimate of 2.4%. Furthermore, the agency revised the growth forecast for 2016 to 2.8% from 2.5%. The improvement in economic outlook is ascribed to growth in household spending, better wages, low inflation and higher investments.

Beaufort Investor Evening, Thursday 10th September 2015 (London)

Book your ticket to attend our next investor evening at the exclusive City of London Club on Thursday, 10th September 2015 now! This event will feature presentations from FOUR exciting companies, all with interesting stories to tell.

Company News

Starcom (LON:STAR) – Hold

On Friday, Starcom announced its interim results for the six months ended 30th June 2015. Revenues for the period remained flat at US$2.64m (H1 2014: US$2.63m) owing to a low sales of the new products and tougher price competition on existing products. This also resulted in a modest decline of the gross margin to 44% from 48% in H1’2014. Loss for the period, however, improved by 30% to US$691,000 from $985,000 H1 2014 amid the Group’s on-going effort to reduce its operating expenses. Total operating expenses fell by US$130,000 and management expects to save a further US$400,000 in the second half. Starcom raised US$701,000 from a placing of 11,875,000 new ordinary shares in June 2015 to provide additional working capital. Re-engineering of its Watchlock developed in partnership with Mul-T-Lock is in line to be launched in Q4 2015, for which the Group has entered into a new distribution arrangement with a large Middle Eastern organisation.

Our view: Given such an innovative and seemingly unique product portfolio, together with obvious international need for such offerings, it remains a surprise that Starcom has not been able to achieve and sustain quite significant sales growth. Valuable as it is, at this stage of the Group’s evolution, investors most certainly do not want to learn that cost elimination was the principal feature of the reporting period. While the business model generally appears sound, as evidenced by its high margin SAS revenue stream accounting for almost one-third of Total during the first half, the key to much greater product familiarity and widespread adoption can only be marketing and distribution. New arrangements in the Middle East are likely to boost sales in 2016 while others in Asia, perhaps bearing fruit a year or two later, suggest some positive steps are being taken. That said, the fact that the Watchlock JV with Assa Abloy (Mul-T-Lock) has failed create the bonanza opportunity anticipated suggests that the international buyers, despite very obvious benefits, still need convincing of the need for new technologies within their security equipment purchases. While Starcom is likely to continue to introduce exciting new product ideas and refinements to its range, management might also recognise that its limited budgets create a need to re-invent its approach to market. Rather than the traditional build and sell model it could, for example, concentrate instead on offering design and manufacturing rights to larger industry players with significant market reach, in exchange for royalty plus share of web-based service fees. This could be one means by which the Group might capture its much larger international product opportunity before the regular flood of copy-cat producers saturate buyers with more competitive pricing. Never simple to effect, but such an initiative could revitalise a share price that otherwise may be stuck in the doldrums for an extended period. Beaufort retains its ‘Hold’ Recommendation.

GlaxoSmithKline (LON:GSK) – Buy

On Friday, GlaxoSmithKline (GSK) entered into an agreement with Novartis Pharma AG, a subsidiary of Novartis AG, for divestment of its rights in ofatumumab for auto-immune indications. Novartis Pharma had previously acquired the rights to oftatumumab for oncology indications. As per the terms agreed on Friday, Novartis Pharma will pay a Total of US$1.03bn to GSK for the transaction. Novartis Pharma would make an upfront payment of US$300m, followed by US$200m on commencement of phase III and remaining payments of US$534m on realization of other milestones. Novartis Pharma would also pay royalties up to 12% to GSK on future net sales of ofatumumab in auto-immune indications. The deal is subject to regulatory norms and is expected to complete by the end of 2015.

Our view: GSK is focusing on main therapy areas comprising HIV, vaccines, oncology, cardiovascular, immune-inflammation and respiratory diseases, to drive future growth. The divestment of rights in oftatumumab was in line with the above strategy, and would help the company generate sufficient funds and enhance shareholder value. GSK has also been making good progress; the company recently received approval for mepolizumab as a supplementary maintenance treatment for severe asthma with eosinophilic inflammation. GSK also delivered solid half year results led by strong performances in all its three segments. Owing to the expected increase in demand particularly in the emerging countries and the recent streamlining of company’s portfolio, we expect GSK to improve its earnings and generate stable returns for shareholders. We maintain a Buy rating on the stock.

Economic News

US manufacturing PMI

The final Markit PMI for the US fell to 52.9 in August, the lowest reading since October 2013. The economists’ had expected a reading of 53.8, unchanged from July.

Eurozone consumer confidence

The gauge of Eurozone consumer confidence increased to -6.8 in August, after a reading of -7.1 in July, the European Commission said on Friday. The markets had expected a reading of -6.9.

Mon, 24 Aug 2015 08:02:00 +0100
Could the FTSE 100 be headed below 6,000? Sat, 22 Aug 2015 09:03:00 +0100 Engines warming at Rolls Royce Sat, 22 Aug 2015 07:00:00 +0100