column Proactiveinvestors column RSS feed en Mon, 03 Aug 2015 22:20:39 +0100 Genera CMS (Proactiveinvestors) (Proactiveinvestors) LVMH’s life of luxury LVMH is the world’s largest and most diversified luxury goods business with 70 brands and a retail network of over 3,300 stores.  The Fashion & Leather Goods division generates over half of profits and includes Louis Vuitton.  Luxury demand has positive drivers but is currently seeing a slowdown in Chinese sales.     

Bernard Arnault is France’s richest man and is the Chairman and CEO of the French luxury goods giant LVMH.  Mr Arnault’s family has a majority of the voting rights in LVMH despite owning only a 46.6% stake.

This structure appears to have worked out well for investors in LVMH with Mr Arnault having grown the company successfully. LVMH is currently the only luxury goods firm that is present in all sectors of the luxury market.

LVMH revenue split in 2014

Source: LVMH factsheet

LVMh’s diversification helps reduce the exposure to any one brand and therefore makes it less exposed to a shift in fashion.  This is important given the mixed fortunes of companies like Mulberry, Prada, Coach and Michael Kors.

The long-term investment case for luxury goods is based on the resilient nature of the brands and growing demand.  In the Wines & Spirits division the allure of Hennessy, KRUG, Moet & Chandon and Dom Perignon is unlikely to fade. 

Growing demand is mainly driven by Asia but across the world the “rich are getting richer.”  The luxury goods can also be very profitable as customers focus on prestige and brand quality rather than the price.

LVMH share price: the €86bn Luxury goods group has delivered

LVMH’s profit drivers

In terms of profits and the Fashion & Leather Goods division generated 56% of LVMH’s profits in the first half of 2015.  The Wines & Spirits division contributed 16.3% of profits and then Selective Retailing came in at 14.5%.

The Fashion & Leather Goods division made up only 35.5% of first half revenue and so has strong profit margins.  It is the key division that investors focus on for the sales performance and the reception for brands at fashion shows. 

Source: LVMH investor presentation

The weakness of the euro from early 2015 has served to bolster revenue and profits in euro terms.  In the first half of 2015 only 22% of revenue was invoiced in euros while 31% was invoiced in US dollars and 8% in Hong Kong dollars.

Recent trading: Organic revenue growth picks up

Turning to recent trading and organic sales growth reflects the underlying business performance.  It is defined as revenue at constant exchange rates and excludes the impact of any acquisitions or divestments.

LVMH’s organic revenue growth was 9% in 2012, 8% in 2013 and had slowed to 5% by 2014.  Part of the weakness was due to the anti-corruption campaign introduced by the new Chinese leadership.   

The first quarter of 2015 saw organic revenue growth at LVMH come in at only 3% but it rebounded to 9% in the second quarter.  As such organic revenue growth in the first half of 2015 came in at a respectable 6%.

LVMH picks up the pace in Q2

Source: LVMH investor presentation

The Fashion & Leather Goods division saw 1% organic revenue growth in the first quarter but this increased to 10% in the second quarter.  This has helped bolster investor sentiment given that it generates the majority of profits.

LVMH points to a “strong creative dynamic” at Louis Vuitton under Nicolas Ghesquiere.  This is highlighted by the success of the Monogram collection, new leather lines and well received collections at fashion shows.

The Wines & Spirits division saw a 1% fall in organic revenue in Q1 but this reversed to a 5% gain in Q2.  The other three divisions either saw momentum pickup or remain flat in the second quarter from the first quarter.

Looking towards the second half of 2015 and the momentum should remain in place given strong marketing and sales expenditure.  In the first half of 2014 this was €5.48bn but in the first half of 2015 it had increased to €6.6bn.

Financial performance

The weak euro meant that reported revenue was up 19% in the first half on a year ago to €16.7bn.  However, higher marketing and sales expenditure pushed the operating margin down to 17.7% from 18.4% in the first half of 2014.

This meant that the profit from recurring operations increased by “only” 14.7% in the first half of 2015 on a year ago to €2.95bn.  The balance sheet remains robust with the net debt to equity ratio at 25% at mid-2015.

Summary and valuation

LVMH offers exposure to the luxury goods sector with less of the potential issues that rivals are exposed to.  Its product diversification has helped it to offset weakness in any one market and the business is also geographically diversified.

At the same time the Fashion & Leather goods division generates the majority of revenue and is dependent on “remaining in fashion”.  Key division brands include Pink, Loewe, Louis Vuitton, Mark Jacobs, Berluti, Dona Karan and Givenchy.

In terms of management the leadership of Bernald Arnault has kept the family controlled group at the forefront of its industry.  It has also served investors well with the shares performing strongly in recent years.

Turning to the valuation and the luxury goods sector tends to trade at a premium to the market due to its profitability.  LVMH is on a forecast P/E of 22X for 2015 which falls to 19.7X for 2016 and then 17.7X for 2018.

This is not expensive versus the luxury goods sector as a whole and looking further out the P/E falls to 15X by 2019.  The long-term track record of LVMH and its strong brands suggest that the shares will deliver over the long-term.

This report was produced by Fat Prophets Senior Analyst, Andrew Latto

Mon, 03 Aug 2015 13:20:00 +0100
The Pay Zone: Oil Price, Afren, BG Group, Petroceltic International, Trinity Exploration & Production and others.... WTI $47.12 -$1.40, Brent $52.21 -$1.10, Diff $5.09 +30c, NG $2.72 -5c
Oil price

Last month was not pleasant for the oil price, WTI lost $12.35 or 20.8% of its value whilst Brent shed $11.38 or 17.9%. All the problems have been well documented here and elsewhere but Reuters have confirmed my thoughts that Opec produced 32m b/d in the month, up 140/- b/d. A combination of factors led mainly by countries getting in before the Iranian crude supplies kick in were responsible. Over the weekend the Iranian oil Minister again suggested that they would export around 500/- b/d more as soon as sanctions are lifted and 1m b/d ‘within months’ of that date.
Other factors include a continued sell-off by hedge funds and other traders, particularly in WTI which might explain the monthly fall as exposure to that marker halved on the month to 105,199 lots which is a five year low. Finally on Friday the rig count showed an overall fall of two units to 874 but in oil the number was up by 5 to 664 rigs.

Afren-Time for the Feds? (LON:AFR)
On Friday Afren finally gave up the ghost and called in the administrators after it failed to get more funds from the Bond Holders. Although the situation received a handful of vague comments in the weekend press I am astonished that it appears that no investigative journalist has taken up this alleged breach of management responsibility  and attempted to expose what might be a huge can of worms. I am aware that some shareholders are attempting to take action and they should be encouraged, as so far I have also not seen activity from  the appropriate authorities who should be considering launching a criminal investigation going back some way. So many questions appear to have been raised it is difficult to cover up, such as whether directors ‘ignored’ a perfectly reasonable bid for the company, the status of companies within and under the Group umbrella and the transfer of assets therein. Time for action?

Trinity Exploration & Production (LON:TRIN)
Whilst I am on the subject of companies going into administration it looks pretty terminal for Trinity which someone described to me this morning as being between two hard places with a rock on top. Although today’s announcement says that  ‘the Company has agreed a further extension to the moratorium on principal repayments, relating to Trinity’s outstanding debt balance of US$13.0 million with its lender, until the 21st of August 2015′ I am not convinced that there is any way out for the company. At this price deck, as they say, Trinity is almost certain to be another casualty of the recent oil price weakness with probably more to come if companies are honest, today’s market cap of Trinity is just £5m…

Both Exxon (NYSE:XOM) and Chevron (NYSE:CVX) missed the whisper on Friday with the former posting profits down 52% and the latter down 90%. Chevron has more of an immediate problem on capex management as it has a number of mega projects completing which limits their ability to cut costs in the short term. Exxon actually upped output by 3.6% in the quarter but that hardly impacted on a horrible period upstream.

BG (LON:BG.) announced this morning that the 6th FPSO has started up in the Campos Basin offshore Brazil. The production is now 300/- barrels of oil a day and 16m cubic metres of gas daily and the FPSO can store 1.6m barrels of oil.

Petroceltic (LON:PCI) has announced that it has pulled its potential $175m bond issue ‘as terms were not acceptable to the company’ but it will continue discussions with ‘selected potential investors’. Given what we have seen above I suspect that it might be a tricky set of discussions…

ENOC has raised the bid for Dragon from 750p to 800p after being out-stared by Baillie Gifford and Elliott Capital Advisors who could have clearly been more than just a fly in the ointment with their blocking 13.1%. Having lived and worked in Edinburgh I can vouch for the fact that you take on the BG’s at your peril as has been proved here…
And it seems that the Serious Fraud Office have been visiting the offices of Soma Oil & Gas who have been doing a lot of very expensive seismic work offshore Somalia. Chaired by former Tory leader Michael Howard, founded by Afren co-founder Basil Shiblaq,who is ‘Executive Deputy Chairman’  with Robert Sheppard, a senior advisor to BP as CEO, Soma has ambitious plans in an area which a number of industry experts rate quite highly.

And finally…
The cricket did indeed go into the third day and with the Aussies setting over 100 it kept the crowd amused until tea-time. This series has been something of a pendulum, heres hoping it doesnt go back the other way at Trent Bridge on Thursday. It does however call into question why test matches should start on a Wednesday as many fans with tickets for Saturday would have been cursing the authorities…

Worcester opening bowler Joe Leach took a hat-trick with his first three balls of the match against Northants and ended up on the losing side, would you believe it?

Football started in Scotland with newly promoted Hearts winning a thriller against the Saints 4-3, Celtic duly won and there were wins for Dundee, Motherwell and Aberdeen. The Gooners beat Chelski in a friendly at Wembley after the Chelski women had won the FA Cup Final against Notts County the day before.

Mon, 03 Aug 2015 12:34:00 +0100
Today's Market View Including Herencia Resources, Metminco and Ormonde Mining Economic News

US – The weakest growth in labour costs through Q2 in 33 years took the US dollar lower and gold prices off five-and-a-half years lows on Friday.
• Employment cost index: +0.2% in Q2/15 v +0.7% in Q1/15 and +0.6% forecast.
• The Fed is closely watching labour earnings numbers in an effort to assess the strength of the economic recovery ahead of the rate hike widely expected to happen this year.
• Economic news due this week:
o Monday: Jun PCE deflator, Fed preferred measure of inflation (+0.2%yoy v +0.2%yoy in May)
o Tuesday: Jun factory orders (+1.7% v -1.0% in May)
o Wednesday: Jul ADP employment data (+210k v +237k in Jun), Jun trade balance (-US$42.9bn v –US$41.9bn)
o Thursday: Weekly jobless claims (273k v 267k in the previous week)
o Friday: Jul NFP (+225k v 223k), unemployment rate (5.3%, unchanged), weekly earnings (+0.2%mom/+2.3%yoy v +0.0%mom/+2.0%yoy in May)

China – Manufacturing fell more than forecast after having been revised downwards from initial estimates and hit the lowest level since Aug/12.
• Markit manufacturing PMI came in at 47.8 in Jul, down from 49.4 in Jun and 48.3 forecast.
• The final reading marks a revision of preliminary estimates released previously (48.2).
• “Staff numbers at Chinese manufacturers declined for the 21st consecutive month.”
• “Renewed fall in both total new work and new export orders led manufacturers to cut production.”

Germany – Manufacturing recorded a marginal slow-down in the rate of expansion in Jul but remained “broadly in line with the long-run series average”.
• Markit manufacturing PMI: 51.8 in Jul v 51.9 in Jun and
• Regarding new orders, the domestic economy was the main driver of new order growth with foreign demand reporting the first decline since Jan/15. Although the contraction in new export orders was marginal overall.

France – Manufacturing slipped back sub-50 mark implying production contracted through Jul, though a marginal pace.
• Markit manufacturing PMI: 49.6 in Jul and 50.7 in Jun and
• Both domestic and export new orders remained subdued.
• Unlike in Germany where output prices increased, prices charged by producers recorded a 17th consecutive monthly decline in France.

Italy – Manufacturing posted the best results among major Eurozone economies in Jul as stronger demand drove employment, capital investment and output prices up.
• Markit manufacturing PMI: 55.3, the highest in 55 months, in Jul v 54.1 in Jun.
• New orders climbed both in domestic and export markets.
• Employment growth pace was among the fastest over the past 15 years.

Russia – Manufacturing remained in a contractionary mode through Jul marking a third consecutive monthly <50 reading based on Markit PMI data.
• Manufacturing PMI: 48.3 in Jul from 38.7 in Jun.
• “Operating conditions in Russia’s manufacturing sector continued to deteriorate during July, reflective of soft demand which undermined production and new order intakes. Jobs continued to be lost, while firms reduced their inventories at a market and accelerated pace,” the report read.

US$1.0982/eur vs 1.0954/eur last week.   Yen 124.08/$ vs 124.21/$.   SAr 12.684/$ vs 12.744/$.   $1.564/gbp vs 1.558/gbp
US$0.729/aud unch vs0.728/aud. 

Commodity News
Precious metals:

Gold US$1,095/oz vs US$1,082/oz yesterday
Platinum US$982/oz vs US$979/oz –
Palladium US$614/oz vs US$614/oz  – 
Silver US$14.73/oz vs US$14.60/oz  –

Base metals:
Copper US$ 5,173/t vs  US$5,244/t –
Aluminium US$ 1,605/t vs US$1,634/t –
Nickel US$ 10,695/t unch vs US$10,990/t
Zinc US$ 1,889/t vs US$1,949/t –
Lead US$ 1,675/t vs US$1,711/t  –
Tin US$ 16,185/t vs US$16,030/t   –

Oil US$51.70/bbl vs US$52.60/bbl
Natural Gas US$2.754/mmbtu vs US$2.783/mmbtu
Uranium US$35.25/lb unch vs US$36.00/lb –

Bulk commodities:
Iron ore 62% Fe spot (cfr Tianjin) US$53.90/t unch vs US$51.50t –
Thermal Coal $55.8 vs $56.5 cif ARA Europe –
Tungsten - APT European prices price $220.0/mtu unch vs $225/mtu

Company News
Herencia Resources (LON:HER) 0.18p, Mkt Cap £6.4m – Discussions to merge Picacchos copper project with existing copper mining assets
• The company has announced that it is in discussion with an established Chilean copper mining company, the Errazuniz Group, with a view to merging Herencia’s Picachos open pit copper project with the nearby underground mining and processing operations of Errazuniz’ Tambillos copper mine.
• The Tambillos operations comprise two underground mines and a 1mtpa capacity processing plant approximately 10km north of Picachos.
• At this stage, the two companies have signed a non-binding memorandum of understanding and although there is no assurance that a deal will be concluded, Herencia’s Managing Director, Graeme Sloan, commented that “both parties clearly see the opportunity for immediate value-add, and if the spirit and co-operation we have seen in recent discussions and due diligence is anything to go by, we are optimistic that an agreement can be achieved prior to the end of 2015.”
• The Picachos project has yielded some high grade near surface intersections of copper and silver and the announcement indicates that the current proposals originated from discussions between the two companies over the possibility of using surplus treatment capacity at Tambillos to treat ore from Pichaos. Herencia announced an MoU for toll treating ore at Tambillos in September 2014.
• Previous reports by Herencia indicated that they were proposing to complete a mining feasibility study in mid 2015 with a view to fast-tracking mine development at Picachos -
• Conclusion: There appears to be a convincing operating logic to a combination of Tambillos with Picachos to create a mid-tier Chilean copper producer, however, at this stage there is no indication of the potential terms though no doubt these matters ure under detailed discussion. We will await further news with interest.

Metminco (LON:MNC) 0.26 pence, Mkt Cap £6.4m – Quarterly Report and revised Los Calatos development strategy
Metminco’s quarterly report focuses on the changes to the proposed mine development of the Los Calatos deposit in Peru previously announced.
• The decision to move from the earlier plan involving large scale open pit and underground mining to a smaller scale underground mining operation focussed on sub-level caving has substantially reduced capital exposure to develop a mine which was originally expected to cost $1.5bn, later scaled back to $1.32bn.
Metminco’s new plan, which still requires substantial infill drilling and engineering work, will mine at 25% of the rate originally envisaged (6mtpa vs 24 mtpa) to produce 46% of the copper output (45 ktpa vs 98.4 ktpa) at around half the capital expenditure ($650m vs $1.32bn). Mine life has been reduced from 34 years to 17 years.
• Cash operating costs are reported to be slightly (7%) higher at $1.20/lb after by-product credits.
• The revised plan generates an after tax NPV of $285m at an 8% discount rate and has a 5.3 years payback.
Metminco shows 30th June cash balances of A$2m (US$1.5m).
Conclusion: Metminco has developed a more robust project at Los Calatos as a result of scaling back the throughput and capital expenditure to mine higher grade ore over a shorter period. This pragmatic approach to optimising project development is welcome.

Ormonde Mining* (LON:ORM) 2.05 pence, Mkt Cap £10.2m – Dr. Kerr Anderson
• It is with great sadness that we learn today of the sad and untimely demise of Ormonde Mining’s Managing Director, Kerr Anderson.
• Kerr Anderson was a highly professional geologist who steered Ormonde Mining from early stage exploration to becoming a mine developer at its Barruecopardo tungsten project in Spain. He will be deeply and sincerely missed by those who knew him throughout the mining industry.
• SP Angel extends its deepest sympathy to Kerr’s family and to his colleagues at Ormonde Mining.
*SP Angel act as broker to Ormonde Mining

Mon, 03 Aug 2015 10:46:00 +0100
Hybridan Lifesciences wrap: Epistem Holdings, ImmuPharma, Motif Bio, Synergy Healthcare and others Risers

Eden Research (LON:EDEN)
On 20 May, the natural micro-encapsulation company signed an agreement with a
Sumitomo-related company and Sipcam (Italy and Iberia) to evaluate two new
products targeting additional important crop diseases. This follows Sipcam taking an
exclusive licence to Eden's first product (3AEY) in 2014, for the treatment of botrytis.
This product will be launched following the completion of the EU product registration
allowing the sale and use of 3AEY on grapes against botrytis, initially, across the
Southern EU zone. This authorisation was granted on 26 May.
Botrytis is a widespread fungal disease that causes grey mould on most fruits and
vegetables often leading to the rapid loss of commercially viable crops. The average
losses from affected crops account for around 20% of the total harvest, costing in
the region of 10-100 billion euros worldwide. The market size for Botryticides is
around $300m per annum. Eden received a further regulatory boost on 25 June
receiving notice that geraniol and thymol are now exempt from the maximum residue
level under European regulations.

MotifBio (LON:MTFB)
On 28 May, the clinical stage biopharmaceutical company specialising in developing
novel antibiotics, announced it had received notification that the FDA was in
agreement with Motif's Phase III clinical development programme for iclaprim, a
broad-spectrum antibiotic designed to be effective against multi-drug resistant
bacteria. On 15th July, Motif announced an addition to its scientific advisory board:
Dr. Thomas M. File a renowned expert in infectious diseases, Chairs the Division of
Infectious Diseases at Summa Health System, Akron, Ohio, is Professor of Internal
Medicine and Master Teacher, and the Chair of the Infectious Disease Section of
Northeast Ohio Medical University. On 22 July, Motif announced that it had received
Qualified Infectious Diseases Product designation for acute bacterial skin and skin
structure infections, and also for hospital acquired bacterial pneumonia, thereby
satisfying the final condition of the £22 million placing which was announced on 23
June 2015 .

Tiziana Lifesciences (LON:TILS)
On 7 May the clinical stage biotechnology company focused on targeted drugs to
treat diseases in oncology and immunology, announced that it had exclusively
licensed a novel anti-cancer stem cell agent, capable of targeting aggressive tumour
forming cells originating from the breast, pancreas, colon and prostate, from Cardiff
University scientists. Under the terms of the agreement, Tiziana will fund £50,000
per year for a research project at the University focused on building the structure
activity relationships around OH14 and to improve the activity of this series of
compounds. Additionally, Tiziana will pay to the University milestone payments up to
c.£2 million and pay royalties on sales of any licensed products developed as a result
of the project. If certain milestones are achieved Tiziana will also pay one per cent
of its enterprise value to the University in the event of a trade sale of Tiziana to a
third party. This agreement is Tiziana's second with the University following the Bcl3
licensing agreement in January 2014. The company announced FY2014 results on 5
June showing a loss of £3.6m and rounded off with the below outlook.
“All of the Company's programmes address areas of significant unmet medical need;
either as a potential new approach to metastatic cancer with Bcl-3 or stratification of
patients to provide more personalised treatment with the "TOP 20", to new molecules
to help sufferers of thymic and other cancers (milciclib), or a fully human monoclonal
antibody with potential application in a number of autoimmune and inflammatory
diseases (foralumab). Now with the latest in-licensing of anti-cancer stem cell
technology from the University of Cardiff (c-FLIP) the Company has an innovative
research portfolio with two clinical assets. These programmes will use the funds
raised in the March and April 2015 fundraisings to reach the individual programme's
inflection points.”

Avacta (LON:AVCT)
On 18 May, the global provider of proprietary diagnostic tools, consumables and
reagents for life sciences, announced that it had entered into a collaboration,
licensing and option agreement with Moderna Therapeutics. Under the terms of the
agreement, Moderna will make an upfront payment of $500,000 which provides
Moderna exclusive access to Affimers against certain targets which may be extended
to include additional targets by a further payment. Moderna will also make certain
payments to Avacta for research services to deliver pre-clinical development
milestones. Moderna has the option to enter into exclusive license agreements for
selected therapeutic Affimer candidates for clinical development and in each case
Avacta will be entitled to milestone payments. The total value of these payments
could reach several tens of millions of dollars. Avacta is also entitled to royalties in
connection with future product sales. The pre-close trading update of 7 July included
an update on product development suggesting that Affimers could become a leading
bio-therapeutic platform with key competitive advantages over both antibodies, and
also over other non-antibody protein scaffolds.
On 15 July, Avacta announced a conditional placing at 1.25p raising £22m, in order
to initiate several more in-house pre-clinical drug development programmes and to
develop a small range of platform technologies for half-life extension, targeting and
combination therapies.

Scientific Digital Imaging (LON:SDI)
On 14 May, the Group focused on the application of digital imaging technology for
use in life sciences, healthcare, astronomy, and art conservation, announced an
update on trading for the 12 month period ended 30 April 2015. All product lines and
sales territories contributed to growth in turnover in the second half of the financial
year. As previously announced at the half year, the Company actively controlled costs
throughout the year. The Board expects reported profit before tax to be in line with
management expectations, with earnings adjusted for reorganisation costs ahead of
previous management expectations. The full year Apr 2015 results showed revenue
flat at £7m and adjusted operating profit move from a loss to £393k in the black.
Having raised over £500k during the year, the Board anticipates that Opus
Instruments and Artemis CCD will continue to make positive contributions to SDI and
the new Synoptics products released in 2015, together with a more focused sales
strategy, will result in continued growth.


Epistem (LON:EHP)
In May, the personalised medicine and biotechnology company announced that the
National Institutes of Health and the National Institute of Allergy and Infectious
Diseases had completed its evaluation of the University of Maryland Baltimore
response to its request for proposals for Radiation/Nuclear Medical Countermeasure,
for which Epistem’s Preclinical Research Services division acts as a sub-contractor,
and this proposal had not been selected for an award. These activities had typically
generated revenues of circa £1m per annum. Epistem fully expects to continue to
tender and work on other Nuclear Medical countermeasure developments. In June
Epistem announced the issue of 492k shares in respect of an earnout to Visible
Genomics relating to the receipt by the Company of regulatory approval in India for
its Genedrive® TB molecular diagnostic test.

Advanced Oncotherapy (LON:AVO)
The developer of next generation proton therapy systems for cancer treatment
announced results for the year ending December 2014 with losses nearly doubling
to £7.5m reflecting the acceleration of its development activities. In July Advanced
Oncotherapy announced that the second Coupled Cavity Linac unit had been
manufactured and delivered to the Company's testing facility in Geneva. As well as
this, the company announced that Howard de Walden Estates Limited, which in
January 2015 granted a 50 year lease to the Company for the Harley Street site, had
agreed to expand the agreement beyond the 8,000 sq ft space agreed in the original
lease. This would allow the company to develop a Proton Therapy Centre on the
same site but with an extended footprint, offering potential operators a larger overall
facility to manage.

Immupharma (LON:IMM)
In June, the specialist drug discovery and development company announced that Dr
Sylviane Muller the key inventor of Lupuzor™ and Research Director at Centre
National de la Recherche Scientifique had received "The CNRS Medal of Innovation"
for her discoveries made on the mechanism of action of Lupuzor™ and its
applications to other autoimmune diseases. The following month it was announced
that Immupharma had announced that details for the drug’s Phase III trial had ‘gone
live’ on Key European and US sites have now been identified and it
is anticipated that about 15 sites in the US and 20 sites in Europe will be enrolled.
Recruitment could be completed during the summer of 2016. Patient dosing is
expected to commence this autumn. ImmuPharma has also signed a Term Sheet
with a US investor for a proposed private placement to fund the clinical trial. The
initial instalment of funding consists of a convertible loan of US$2,000,000 plus
additional capital of up to $12,000,000, at the Company's discretion, subject to
certain criteria, over a two year period.
On 29 July Immupharma disclosed the sad news that Richard Warr, Chairman, had
passed away. An interim Chairman, Dr Franco Di Muzio had been in place since 6
May due to Richard Warr’s poor health.

Synergy Health (LON:SYR)
The global provider of specialist outsourced support services to health-related
markets announced on 29 May that the recommended combination of Synergy with
STERIS was to be blocked by the US Federal Trade Commission, and that the parties
would be contesting this decision. A proposed Court Meeting to seek approval for
modification of the Scheme to extend the long-stop date to 31 December 2015, was
later postponed from 11 June to 24 September. The company also posted final results
on 2 June (FY March 2015). Revenue was up 7.5% to £408.8m, adjusted PBT 6% to
£58m and operating cash flow 1.6% to £99.6m. As a result of the proposed
combination with STERIS Corporation, the Board chose not to pay an interim
dividend, and is not proposing to pay a final dividend (2014: 14.20p). The Board will
continue to keep its dividend policy under review.

Benchmark Holdings (LON:BMK)
On 23 June, the international aquaculture genetics, animal health, technical
publishing and sustainability science business, announced its Interim Results for the
six months ended 31 March 2015. Revenue increased by 30% to £19.8m but EBITDA
from Trading Activities fell by £1.4m to £1.2m. The trading period included a
successful secondary capital raise in December 2014 raising £70m (gross) of new
equity at 85p. The outlook stated that despite the adverse financial impact from
aggressive generic competition to the Salmosan product line, mitigation measures
have been successfully established, and the Group has become strategically more
robust through the creation of the new Breeding & Genetics division which is
performing well. The Technical Publishing division is now moving into profitability.
Continued and significant investment in R&D and a pipeline of new animal health
products bodes well for the future growth and stability of the business.

Mon, 03 Aug 2015 10:01:00 +0100
ServicePowers into the black, Sareum powers towards Phase 1 and MX Oil power drills for oil BOOM Half Yearly Report, COG New Research, CRU Preliminary Results, FEVR Interim Results, HCM Innovation Patent, IVO Investments, JRIC Half Yearly Report, MJW Launch of Naked Wines, MARL* Resource Estimation, MXO* Drilling Commences and Director Dealing, NAK Final Results, PEG* Trading Update, SAR* CHK1 Update, SDI Final Results, SVR Trading Statement, STAF Interim Results, SNX Interim Results

*A corporate client of Hybridan LLP

A full archive of previous weeks’ Small Cap Wraps can now be viewed on

The Hybridan Small Cap Wrap is a weekly review of some of the most interesting small cap stories of the past week. Our review will usually be of those companies whose market capitalisations are less than £50m although we may occasionally cover larger companies.

Audioboom Group (LON:BOOM)
Audioboom, the leading spoken-word audio on-demand mobile platform, announced its unaudited interim financial results for the six months ended 31 May 2015, another period of continued growth in its active userbase and content partners. KPIs & financial highlights showed that over 4m registered users (Nov 2014:3.14m), with over 3,000 active content partners (Nov 2014: over 2,000) and 1.5m total mobile app installs since launch. Revenue was up to £46k (5 months ended 31 May 2014:£24k) and cash at period end of £6.19m (as at 31 May 2014:£3.06m). Operational highlights showed a successful marketing campaign and content deal with Russell Brand, an in-vehicle deal with AUPEO! and app integration with Apple CarPlay and Android Auto and a Nobex Radio partnership agreement.

Cambridge Cognition Holdings (LON:COG)
Cambridge Cognition Holdings, which specialises in computerised neuropsychological tests including those enabling the early detection of dementia, welcomes a number of new scientific posters presented this week at the Alzheimer's Association International Conference in Washington, D.C. Collectively the scientific posters highlight the sensitivity and effectiveness of the Company's latest healthcare technology innovations and clinical trial assessment systems including the new Cantab Connect Prodromal Alzheimer's product. This cloud-based clinical trials product aids the development of effective treatments and interventions for prodromal Alzheimer's, the earliest stage of dementia. The Company presented the latest data from global studies using iPad-based Cantab technology for cognitive testing in clinical trials. One study illustrates the use of Cantab to detect and measure amnestic mild cognitive impairment, a slight but noticeable decline in cognitive abilities, including memory. The initial clinical diagnosis of MCI can be unstable, with the degree of cognitive impairment rapidly worsening in some people. This research used Cantab technology to predict stable versus transient MCI in patients over a short period of time to demonstrate the sensitivity and specificity of the tests to this early stage of the disease.

Coral Products (LON:CRU)
Coral Products, UK specialists in the design, manufacture and supply of injection moulded products, announced its preliminary results for the year ended 30th April 2015. Progress has been seen for a consecutive year with group revenue at £17.43m (up by 1.2 percent from 2014) and underlying profit at £1.16m (up by 130.2 percent from 2014). An increase has also been seen in underlying basic earnings per share to 2.12p (75 percent growth in the year). The market for plastic food containers continues to grow in the UK with sales rising to £7m in 2015, up from £6.1m in 2014. This has encouraged Coral Products to increase their range of food packaging products. Better valued products have been given to Coral Products after the successful integration with Tatra Plastics Manufacturing Limited in July 2014. This means Coral Products are able to offer the wider range of products that are needed due to the sales increase of plastic food containers. Recycling product sales fell from £1.8m in 2014 to £1.2m in 2015. This was below the company’s expectations. Therefore, waste management continues to be to an area of future spending for Coral Products.

Fevertree Drinks (LON:FEVR)
Fever-Tree, the world's leading supplier of premium carbonated mixers for alcoholic spirits by retail sales value, announced its Interim Results for the period ended 30 June 2015. Financial highlights showed revenue was up 62 percent to £24.1m (H1 2014: £14.9m), with gross margin of 50.5 percent (H1 2014: 51.1 percent). Adjusted EBITDA was up 68 percent to £7.2m (H1 2014: £4.3m) with a strong balance sheet with net cash at period end of £7.9m. Operational highlights showed a new UK Off-Trade listing in Morrisons, continued strong growth in Ginger Beer sales in USA and the launch of the new 150ml can format.

Hutchinson China MediTech (LON:HCM)
Hutchison China MediTech  announced that Shanghai Hutchison Pharmaceuticals Limited (SHPL), its prescription drug joint venture, has been granted an invention patent in China covering the formulation for the best selling prescription drug of Chi-Med for the treatment of cardiovascular diseases, She Xiang Bao Xin pill (SXBXP), until 2029, twenty years from its original filing date. SXBXP is the most important prescription drug product of SHPL with sales in 2014 of $138.8m (2013: $123.6m).  SXBXP represents 90 percent of current SHPL sales and has grown at a compound annual average growth rate of 29 percent per year since 2007.  It underpins the commercial operation of SHPL of over 1,700 medical representatives and marketing staff who manage the distribution and sales of SXBXP in approximately 13,500 hospitals, covering over 80,000 physicians, in China. SXBXP was first approved for use in cardiovascular diseases in 1983 and subsequently enjoyed 22 years of proprietary commercial protection under the then regulatory system in China.  In 2005, SHPL was able to attain "Confidential State Secret Technology" status protection on SXBXP, as certified by China's Ministry of Science and Technology and State Secrecy Bureau which extended proprietary protection of SXBXP until late 2016. 

Imperial Innovations Group (LON:IVO)
Imperial Innovations Group, has completed a £3m investment in Concirrus Ltd a leading Internet of Things (IoT) solution provider based in London. Imperial Innovations now holds a 28.6 percent stake in the Company. Concirrus was founded in 2012 by Andrew Yeoman (CEO) and Craig Hollingworth (Corporate Development) who came directly out of the telematics and communications industries. Andrew (formerly with Trimble Navigation) and Craig (formerly with Orange, O2 and Masternaut), identified an opportunity to launch a company providing fully integrated business solutions built on a scalable cloud-based platform. This platform enables customers to gather and analyse IoT data and use it to improve, disrupt and create innovative businesses and processes. Last year the Company provided connected solutions in a range of business applications, including asset monitoring, predictive maintenance, fleet management and vehicle insurance, whilst at the same time winning awards from Gartner, Nexus, Scale-Up London and TechMarketView. Concirrus was also featured by both the Sunday Times and the Daily Telegraph for its contribution to the IoT. The £3m investment into Concirrus complements Innovations' growing ICT portfolio. The funding will allow Concirrus to build out its suite of products for the vehicle insurance market and fund expansion of the sales team to capitalise on existing channel partnerships. The company also announce that it has completed a £1m seed investment in Inflowmatix, a water network data analytics company recently spun out from Imperial College London. Innovations now holds a 42.5 percent stake in the company. Inflowmatix provides water flow and pipe health analytics to water utilities worldwide, enabling network operators to continuously monitor, diagnose and manage hydraulic instabilities, leading to reduced bursts, leakage and operating costs, whilst also enabling prioritised network maintenance. 

Japan Residential Investment Company (LON:JRIC)
Japan Residential Investment Company, a closed-ended company established to make and hold investments in residential property in Japan, presented its unaudited consolidated financial results for the six months ended 31 May 2015. Profit for the period increased 9.9 percent to £7m, reflecting value growth in the underlying assets.  In Yen terms, profit for the period rose 17.5 percent. Unrealised valuation gains on investment property totalled £3.5m (2.9 percent of NAV) for the six months ended 31 May 2015. Portfolio value increased 1.4 percent in Yen terms over the six months ended 31 May 2015, compared with 1.8 percent over the comparative six month period. Investment property values rose 3.1 percent during the twelve months ended 31 May 2015 on a like-for-like basis. Underlying profit rose 2.4 percent on the back of higher revenues and lower administrative expenses.  In Yen terms, underlying profit per share increased 9.5 percent.

Majestic Wine (LON:MJW)
Majestic Wine, the UK's largest wine specialist with 213 stores and the owner of Naked Wines, the online crowd funded wine retailer, announced that it has launched Naked Wines' Click & Collect service offering across the UK, enabling its 150,000 'Angel' customers the option of collecting their wine free of charge from their local Majestic store. Following the acquisition of Naked Wines in April 2015 and in line with the strategy to share the complementary strengths of both businesses, Majestic Wine has been trialling Click and Collect in 22 stores across the UK for Naked Wines' customers. To-date over 2,900 orders have been placed using the Click & Collect service. As a result of the success of this trial and positive feedback that has been received, the service will now be rolled out across the country to all 213 Majestic Wine stores. For no extra charge, Naked Wines' customers can now choose to collect their delivery from any of Majestic's stores, which will hold Naked Wines' customers wine for up to five days. Alternatively, customers can still opt for home delivery, and in either case can select their preferred delivery day.

Mariana Resources (LON:MARL)*
Mariana Resources is reported further high grade gold-copper (Au-Cu) intercepts from the ongoing drill program at the Hot Maden Project, eastern Turkey.  Assays have now been received for drill holes HTD-15 through HTD-17 confirming continuity and further increasing the size and confidence in the Au-Cu mineralised zone including the high grade core. HTD-15: 117.3m at 13.9 g/t Au + 2.0 percent Cu from 216.0m downhole including 22m at 46.2 g/t Au + 3.1 percent Cu (306.0m 328.0m). HTD-16: 100.7m at 2.3 g/t Au + 1.8 percent Cu from 332.3m downhole including 14.7m at 7.7 g/t Au + 2.0 percent Cu (333.3m - 348.0m).HTD-17: 83m at 13.4 g/t Au + 3.9 percent Cu from 51.3m downhole including 16.0m at 34.5 g/t Au + 2.2 percent Cu (98.0 - 114.0m). HTD-18: (Assays Pending) Hole HTD-18 was drilled as the "step back" to HTD-15 and intersected the main mineralised zone over 93m from 313m downhole. The significant Au-Cu intercept from hole HTD-15 confirms the vertical continuity of the mineralised zone previously intersected in HTD-10, and similarly, the results from drill hole HTD-16 extend the Au-Cu mineralisation previously intersected in holes HTD-5 and HTD-13 a further 50m down dip.  Massive sulphide mineralisation was also intersected in HTD-17, the scissor hole to their original discovery hole HTD-04, and confirms a minimum true width of at least 50m for the main mineralised zone. Based on the overall excellent results at Hot Maden to date Mariana has independently engaged RungePincockMinarco (RPM), a global leader in mining advisory and consulting services, to commence work on the preparation of a National Instrument 43-101 compliant mineral resource estimate for the Hot Maden gold-copper project.  RPM's will carry out an initial data validation phase and site visit, before progressing on to the mineral resource estimation phase. The mineral resource estimate for Hot Maden is expected to be completed by early Q4, 2015.

MX Oil, the oil and gas investment company, announced that drilling has commenced of the Aje 5 production well located in the proven Aje Field on the OML 113 licence offshore Nigeria.  Once Aje 5 has been drilled and completed, which is expected to take approximately 70 days, the rig will proceed to re-enter and complete the Aje 4 well.  These two wells represent the first of a three phase development programme of Aje. Phase 1 is targeting first oil in December 2015 and peak gross production of 41 API oil from these two wells is expected to reach 11,000 bopd, as stated in the June 2015 Competent Persons Report (CPR). The CPR also states that Phase 2 is targeting an increase in gross production to 19,000 bopd from an additional two well development.  As announced on 13 July 2015, MX Oil has agreed to invest in a 5 percent revenue interest in OML 113 via Jacka Resources. The Scarabeo 3 semi-submersible rig was mobilised from its location near Lagos, Nigeria to conduct the drilling of the two wells, Aje 5 as a new production well followed by Aje 4 as a re-entry production well for Phase 1 of the development.  Aje 5 is a twin to the legacy Aje 2 well which was production tested at the Cenomanian level in 1997, flowing approximately 3,700 bopd.  Aje 5 is being drilled from a seabed location close to Aje 4 in 300 meters water depth. MX Oil also announced that on 27 July 2015 Andrew Frangos, Chairman of MX Oil, purchased 2,250,000 shares in the company totalling £87,750.

Nakama Group (LON:NAK)
Nakama Group, the recruitment consultancy working across the UK, Europe, Asia and Australia providing staff for the Web, Interactive, Digital Media sectors, IT and Business Change, announced its preliminary results for year ended 31 March 2015. Financial highlights showed that group revenue increased by 24 percent to £21.7m (2014:£17.5m), leading to a profit before tax of £0.29m (2014: loss £0.12m). Net fee income (NFI) improved by 22 percent to £5.3m (2014:£4.4m) and NFI percentage remained stable at 25 percent (2014:25 percent). Revenue across the APAC region increased by 18 percent to £6.3m (2014:£5.3m) driven by the continuing shortage of skilled talent within specialised markets - on a constant currency basis, the increase would have been 28 percent. Revenue across the UK region increased by 27 percent to £15.5m (2014:£12.2m) due to an increase in contractors on site and EBITDA increased to £0.55m (2014:£0.23m). Operational highlights showed a new London office with increased space for growth, the appointment of a regional direction for the Singapore office and a regional manager for the Sydney office. Sales consultants increased to 67 at year end, with the appointment of Group head of people and culture alongside the initiation of a global internal learning and development training programme, to better streamline and unify Nakama working procedures and HR requirements across the breadth of their offices and to the benefit their multi-cultural workforce.

Petards Group (LON:PEG)*
Petards, the developer of advanced security and surveillance systems, provided an update on trading following the end of its financial half year on 30 June 2015. The Group has continued to trade profitably in line with the Board's expectations for the six months ended 30 June 2015.  Margins for the first half of the year will be significantly higher than those for the corresponding period in 2014 on lower revenues, reflecting the changed product mix which last year included a substantial amount of lower margin hardware deliveries to the MOD in respect of the RAF's SMRE project. Petards' interim results for the six months ended 30 June 2015 will be announced on 8 September 2015.

Sareum Holdings (LON:SAR)*
Sareum, the specialist cancer drug discovery and development business, is pleased to announce that the discovery and biological characterisation of the CHK1 inhibitor CCT245737 has been published in the peer-reviewed journal, Oncotarget. CCT245737 is the clinical development candidate discovered in the joint research collaboration between Sareum, The Institute of Cancer Research, London, and Cancer Research Technology.  The intellectual property associated with the project was licensed to the CRT Pioneer Fund (CPF).  CPF and Sareum are investing to take the project into Phase I clinical trial before commercialisation. The journal paper describes how oral delivery of CCT245737 boosts the effectiveness of conventional chemotherapies and could be used to treat lung and pancreatic cancers. Most chemotherapies work by damaging the DNA of rapidly dividing cells. But in response, cancer cells activate a molecule called CHK1 which delays cell division and gives cancer cells time to repair their damaged DNA. Scientists continue to believe that blocking CHK1 could stop cancer cells from repairing DNA damage and prevent them from becoming resistant to the cell-killing effects of chemotherapy. The research paper describes the techniques used to assess the method of action of CCT245737 in human cancer cell lines as well as its effect in in-vivo models, and demonstrated that it potently blocked CHK1. The drug is scheduled to begin first-in-human clinical trials in patients with lung and pancreatic cancers - two cancers with low survival rates that continue to resist currently available treatments.

Scientific Digital Imaging (LON:SDI)
Scientific Digital Imaging, the group that designs and manufactures digital technology products for use by the scientific community, through its Synoptics brands (Syngene, Synoptics Health, Synbiosis and Syncroscopy), the Artemis CCD brands (Atik Cameras and Artemis CCD Cameras) and the Opus Instruments brand (Osiris), announced its final audited results for the year ended 30 April 2015. Financial Highlights showed revenue remaining constant at £7m (2014:£7m), with increased gross margin at 59.2 percent (2014:57.1 percent) and a reduction in other administrative expenses to £3.7m (2014:£4.0m) leading to an operating profit of £59,000 (2014: £1,000). Operating profit for the year came in at £0.39m before costs of reorganisation, acquisition and fundraising costs and share based payments (2014:£57,000). Operational Highlights showed cost restructuring and change in commercial strategy for Synoptics continuing to take effect and a £0.5m new equity investment. Synoptics, Opus Instruments and Atik have shown increased sales revenue in H2 across all sales territories contributing to a growth in their turnover and profitability.

ServicePower Technologies (LON:SVR
ServicePower Technologies, a market leader in mobile workforce management software, is pleased to provide an update on trading for the six month period ended 30 June 2015. Trading for the half-year is in line with management expectations and is also ahead of the same period last year. Total revenues for the six months to 30 June 2015 are expected to amount to £7m (of which 81.5 percent is recurring in nature), compared to £6.2m for the same period last year and £6.5m for the last six months of 2014. The Company expects to report a gross profit for the half-year of £3.4m (H1 2014: £2.7m), a LBITDA of £0.2m including £0.1m in extraordinary expenses and £0.2m in IT cloud transition costs (H1 2014 LBITDA: £0.7m) and a net loss of £0.6m (H1 2014: net loss £0.9m) including the accrued interest that was converted as of 30 June 2015, as announced on 30 June 2015. Cash at 30 June 2015 was £0.7m prior to the receipt of the £0.75m short term loan, as announced on 30 June 2015. For the second half of the year, the directors anticipate a return to profit, and given the Company's working capital cycle and the redemption and conversions of the convertible loan notes, this will be accompanied by a significant improvement in the cash position.

Staffline Group (LON:STAF)
Staffline, the Staffing and Employability organisation, providing people and operational expertise to industry, announced its Interim Results for the six months ended 30 June 2015. Financial highlights showed revenues were up 42.9 percent to £297.2 m (H1 2014: £208.1m), leading to a gross profit up by 77.2 percent to £42.0m (H1 2014: £23.7m) and an underlying profit before tax up 56 percent to £10.1m (H1 2014: £6.4m). Interim dividend also increased by 50 percent to 7.5p (H1 2014: 5.0p). Operational highlights showed the acquisition of A4e Ltd in April 2015 for £34.5m significantly expanded Employability division, and a record first half within Staffing division with 32 new OnSites opened in H1, more than one a week with a total now at 267 sites (H1 2014: 212).

Synectics (LON:SNX)
Synectics, a leader in the design, delivery and management of integrated security and surveillance systems for the world's most demanding security environments, reported its unaudited interim results for the six months ended 31 May 2015. Revenue was up to £32.6m (2014: £31.8m), leading to an underlying profit of £0.5m (2014: underlying loss £(2.5)m), but a loss before tax £(0.1)m (2014: £(2.6)m). Net debt at 31 May 2015 was £2.8m (30 November 2014: £6.1m; 31 May 2014: £5.1m) with the order book at £32.1m (30 November 2014: £28.6m; 31 May 2014: £32.9m).

Mon, 03 Aug 2015 09:44:00 +0100
In the news with RFC Ambrian, North River Resources INTRODUCTION

In the news: North River Resources (LON:NRRP)

Like great poetry, a good RNS should be distilled to the basics. This creates focus, transforming the English language into a simple and pure form of beauty and emotion. The following from James Beams of North River Resources† sits right up there with Shelley, Keats and Betjeman. In just a couple of lines Beams has taken something seemingly mundane and given it a breathtaking clarity of purpose (he is helped by the subject matter though). Just sit back and enjoy this one:

  • “North River, the AIM-quoted resource company focused on the Namib Lead-Zinc Project in Namibia, announces that it has appointed RFC Ambrian Limited as its sole broker.”

Takes the breath away, doesn’t it? I'm feeling quite overcome. We are certainly enjoying our new relationship with North River, and have done some ad hoc marketing for James over the last couple of weeks. We will do a proper roadshow the week after the August Bank Holiday (ie, when everyone is back at their desks).

The feedback so far has been really good. Investors like the story. The project is what is known as ‘deliverable’: it’s a brownfield deposit in a good jurisdiction with low upfront capex, a high IRR with a quick payback for a commodity that is performing well and is sought after. What’s not to like?

As mentioned last week, we are all down in Sydney for our annual RFC Ambrian Staff Conference. This may explain why the note is being published a bit earlier in the day than normal. As far as London is concerned, I wrote it hours ago. Just in case anyone back there thinks this is some sort of jolly that involves long lunches in great restaurants overlooking Sydney Harbour, they can think again. We are here to work. Jim Taylor and John van Eeghen are with Steve Allen down in Kalgoorlie for Diggers & Dealers until Wednesday. Charlie Cryer should be pitching up early tomorrow morning and will be available with Kim and myself for meetings in and around town. Talking of which, the pair of us need to get going to our next lunch appointment...

Mon, 03 Aug 2015 09:19:00 +0100
Northland Capital Partners View on the City Amino Technologies, Sunrise Resources and Starcom Plc Sunrise Resources (LON:SRES) – SPECULATIVE BUY*: Bay State update
Market Cap: £1.5m; Current Price: 0.3p
Drilling to commence this month

  1. Sunrise Resources has received the required consent from the US Bureau of Land Management to commence drilling at the Bay State Silver Project, located in Nevada.
  2. The programme will be permitted for up to sixteen drill pads and multiple holes can be drilled from each drill pad.
  3. The first phase will comprise of three holes at a 150m-200m spacing to test the below the existing workings. One hole is planned to test the area where Sunrise recovered bonanza silver grades from underground.
  4. Sunrise is now in the final stages of reviewing drilling contractor bids and aims to commence drilling this month.

NORTHLAND CAPITAL PARTNERS VIEW: It is positive to see Sunrise Resources fast-tracking its drill programme at the Bay State Silver Project. Should the initial drill programme define high grade mineralisation over significant incepts, as has been indicated from the limited sampling done to date, it will be a transformational development for the Company. The large volume of drill pads that have now been permitted should allow the Company to define a JORC compliant mineral resource estimate from a second drill programme, should the results from phase 1 be favourable.

Amino Technologies (LON:AMO) – BUY: Increased forecasts & price target
Market Cap: £119.2m; Current Price: 69.5p; Target Price: 210p (from 150p)
Interims & acquisition: Transformational deal

The proposed $73m acquisition of Entone and associated £21m fundraising represents a significant step for Amino Technologies. Entone, a provider of broadcast hybrid TV and connected home products, broadens Amino’s product set, substantially expands its North American footprint and consolidates a direct competitor. There is obvious execution risk associated with such a large transaction and the acquisition has emptied Amino’s cash reserves but we would argue that the opportunity outweighs this risk. There is scope for Amino to accelerate its revenue growth but also bring to bear its strong operational efficiency to the Entone business and thereby drive margins. The proposed acquisition is significantly earnings’ accretive in FY16. We maintain our BUY rating and upgrade our price target to 210p on the basis of revised forecasts.

Starcom (LON:STAR) – CORP: Directorate Change
Market Cap: £3.7m; Current Price: 3.9p
Avi Engel appointed as Non-Executive Director

  1. Avi Engel appointed as Non-Executive Director.

NORTHLAND CAPITAL PARTNERS VIEW: Mr Engel has over twenty-five years’ experience of public companies and was previously the CEO of AIM listed Pilat Media Global and led its sale to SintecMedia in 2014 for US$100m.

Northland Capital Partners Monthly Summary – August 2015
Retreat to the beach

The traditional summer doldrums look unlikely this year. Although the Greek situation appears to have reached some sort of short term respite, attention has shifted to the gyrations of the Chinese stock market and the more general outlook for the world’s second largest economy. The Shanghai stock market saw the second-biggest fall in its history at the end of July and China’s ‘National Team’ of state institutions that had been leading market rescue efforts is reportedly scaling back its intervention. Many had viewed the bubble and correction in Chinese equities as something of a minor irrelevance and it is fair to say that the Chinese market has a number of unique features and authorities have taken a variety of misguided steps. That said, the scale of intervention by the authorities has rekindled scepticism about the economy’s purported 7% growth rate and whether China’s hybrid mode of central planning and market forces is sustainable. This has resulted in further weakness in commodity prices. Second, the looming prospect of a US rate rise, possibly as early as September, is driving dollar strength. These are both putting emerging markets under pressure. Higher M&A activity and continued share buyback has also driven bond issuance and yields are ticking back up. The beach might be the safest place to be.

  • Mining: April’s positivity for London listed Mining and Exploration companies (60% gaining value) and May (46%) now seems like a long time ago. In June, 75% of miners were flat or down and July saw further deterioration with 85% flat or down as commodity prices continue to fall on the back of a strengthening US dollar and a weaker Chinese economy. This month we initiated coverage on Sunrise Resources (SRES.L) and Botswana Diamonds (BOD.L) with SPECULATIVE BUY* ratings. We also upgraded our forecasts and maintained our price target for W Resources (WRES.L, BUY, PT 1.1p) following the Company’s definition study. We also upgraded both our forecasts and price target to 7.8p (from 6.8p) for Stratex International (STI.L, BUY*) following the publication of the feasibility study for the Öksüt project where Stratex has a 1% royalty.
  • Healthcare: Our top Healthcare pick, Motif Bio* (MTFB.L) raised £22m to support the development of its novel flagship antibiotic, iclaprim. The drug is set to fill a major market void in the battle against antibiotic resistance. If approved, iclaprim could achieve over $1bn/year in sales. We maintain our BUY rating and 114p price target. Antibiotic resistance is a major public health concern, with close to 50,000 deaths annually across Europe and the US attributed to the problem. Despite this looming crisis, the global pipeline of novel antibiotics is insufficient, creating an opportunity for specialist drug developers.
  • Consumer/Leisure: Higher taxation in both online and land based gambling is driving sector consolidation. Ladbrokes (LAD.L) and Gala Coral (Private) have struck a merger that will create the largest LBO business in the UK. However, the deal, more importantly, in our view is about driving online scale to compete with the likes of William Hill (WMH.L) and with Jim Mullen at the helm of the new entity emphasis will be placed on expanding the online operation. Playtech (PTEC.L), that provides technology to both operations and has an equity stake in the new entity, is a good way to gain exposure without being subject to gaming taxes. Elsewhere, the battle for Bwin.Party Digital (BPTY.L) by GVC Holdings (GVC.L) and 888 Holdings (888.L) is reaching an endpoint. Despite a revised offer from GVC at 122.5p 888’s offer looks more attractive and with lower execution risk attached to it for Bwin shareholders. Finally, a further increase in the GVC offer risks diluting the dividend, and this gives GVC limited room to manoeuvre.
  • TMT: M&A activity continued with Aveva (AVV.L) proposing an innovative reverse takeover with Schneider Electric whereby it will acquire Schneider Software and receive £550m in cash in return for Schneider Electric getting a 53.5% stake in the enlarged group. The consideration cash plus excess cash on Aveva’s balance sheet will be distributed – around £10 per share. The enlarged business will be much more diversified in terms of products and industry verticals. Amino Technologies (AMO.L, BUY, PT 210p) also proposed a significant acquisition of its competitor Entone Inc plus a £21m fund raising. The acquisition will substantially increase Amino’s scale, particularly in North America.
Mon, 03 Aug 2015 08:13:00 +0100
China data weighs on commodities; Greece to reopen FTSE100 Index called to open -25pts at 6670 having found resistance at 6700 on Friday and it remaining a hurdle overnight. Last week’s supportive rising lows are just about keeping the rebound from 6500 alive, however, a breakout at is 6800 needed to overcome falling highs from end-May/early Jun and the 200-day MA if 7000 is to be revisited. Updated watch levels: Bullish 6715, Bearish 6640.
The negative opening call comes after more disappointing PMI data from China added to concerns of a deepening slowdown, although it sounds like more stimulus could be on its way for the world’s #2 economy, while commodities remain under significant pressure with oil and copper resuming their southerly trends.

US markets closed mixed on Friday amid confusion about when the Fed might raise interest rates after disappointing US Employment Cost Index data (lowest growth since 1982) which it is argued reduces the likelihood of a September hike even if the Fed’s Bullard said he was not concerned, seeing the ‘economy in good shape’. Elsewhere, US Consumer confidence and the Chicago PMI were mixed. Stocks in Energy-related names were weak on a lower oil price and poor earnings reports from Exxon-Mobil (XON) and Chevron (CVX) while the Baker Hughes US rig count fell slightly.

Asian markets largely lower overnight with low commodity prices continuing to weigh and following declines on Wall St. amid US rate rise confusion (poor macro data, hawkish commentary from the Fed’s Bullard). More weak manufacturing data from China (July Caixin PMI hitting a 2-year low at 47.8 while official manufacturing growth stalled in the same period, remaining at a 5-year low of 50) dampened investor sentiment further as PBoC stats director Sheng said that pressure on the Chinese economy will continue through the remainder of 2015.

Margin trading on the Chinese stock market declined to its lowest level since 17 March, compounding losses on the Shanghai Composite and leading to talk of fresh, pre-emptive stimulus measures from the government to keep the 2015 growth target within reach.

Elsewhere in Asia, Australia continued to feel the commodities bite but did post some encouraging macro data – manufacturing activity back to expansion in July while new orders and manufacturing employment recovered slightly, though both remain in contraction territory. Japan’s Nikkei is being helped up by its own PMI reading which came in at a 5 month high 51.2, remaining above the breakeven level (50) for the third consecutive month.

The Greek stock exchange is set to reopen -20% this morning (if the Global X FTSE Greece 20 ETF is anything to go by), although with some restrictions for both domestic and foreign investors, 5-weeks after being closed following the nation’s bailout referendum. Bailout talks between Athens and Creditors continue in a ‘good climate’ with the aim to reach a deal before Aug 11 in order to be able to honour a 20 Aug €3.2bn ECB debt payment deadline.

Note HSBC (HSBA) results this morning delivering profits +10%, which beat expectations and confirmed the sale of its Brazilian business for $5.2bn. There is also talk of the Chancellor considering starting to sell down the UK’s 78% bailout stake in RBS (RBS) as early as today, although he might wait until after the summer. Note Germany’s Commerzbank (CBK) almost tripling Q2 profits.
In focus today – European Manufacturing PMIs seen confirming mixed fortunes in Europe (Germany growing, France in contraction) while US Personal Income & Spending growth is seen slowing. US PMI Manufacturing expected solid along with ISM Manufacturing.

The number of operational US oil rigs increased in July, rising once more as oil producers swallow hard and get on with drilling in the face of low prices that look set to remain so for some time. WTI (currently $46) fell 20% in July, its worst performance since October 2008 while Brent ($52) joining its US cousin in reacting in mind to global oversupply.

Gold ($1096) spiked briefly above $1100 over the weekend before pulling back to trade in a range just below that level. Fears of a return to pre-2009 sub-$1000 levels allayed somewhat for the time being but continued USD strength is expected to continue to punish the yellow metal. Support  now around $1092, resistance $1098.

Mon, 03 Aug 2015 08:06:00 +0100
Beaufort Securities Breakfast Alert Armadale Capital, Inspired Energy, Motive Television, Parkmead Group and others The Markets

Market opening: Markets are likely to open lower today. FTSE 100 futures were trading 17.70 points down at 7:00 am.

New York: Wall Street ended in the red amid disappointing corporate earnings. The decline in commodity prices also hurt market sentiment. The S&P 500 fell 0.2%, with energy stocks losing the most. For the week, the markets improved 1.2%.

Asia: Equities are trading lower following a slump in the commodity markets. The drop in China’s purchasing manager index (PMI) to a two-year low in July further weighed on investor confidence. The Nikkei 225 fell 0.2%, while the Hang Seng was trading 0.9% down at 7:00am.

Continental Europe: Markets ended higher, tracking an improvement in the euro and positive reported earnings. France’s CAC 40 and Germany’s DAX advanced 0.7% and 0.5%, respectively.

Crude Oil: On Friday, WTI and Brent Crude Oil prices declined 2.9% and 2.1%, respectively. The spread between the two varieties stood at US$5.1 per barrel.

UK small caps: The FTSE AIM All-Share index closed 0.13% higher on Friday at 751.16. To read our latest research click here.

Today’s news

Greek financial markets to open today

Greek financial markets are set to open today after a five-week suspension, as the country enforced capital controls to reach a deal with creditors. Investors are permitted to buy only if they use funds transferred from abroad, cash-only deposits or money from existing brokerage accounts. Foreign investors are also allowed, provided they were active before controls were imposed.

Company News

Armadale Capital (LON:ACP) – Speculative Buy

Armadale Capital, the investment company focused on natural resource projects in Africa, announced today that a review of all previous metallurgical testwork has supported the development of a two Phase process route for gold recovery at its 678,000oz Mpokoto gold project in the Katanga Province of the Democratic Republic of the Congo. Armadale is targeting a 25,000oz of gold per annum over an initial nine year life of mine beginning in H1 2016m, with an average operation cost of US$647/oz. Based on the results, Phase 1 of the proposed recovery will process weathered and strongly oxidised ore through scrubbing, milling and a batch Knelson concentrator to recover the free gold and flotation to be used on the Knelson tailings with the concentrate being intensely cyanided. Phase 2 will involve the processing of transitional and fresh ore with a regrind ball mill added to grind the flotation concentrate and a Carbon-In-Leach (CIL) circuit will be added to leach the flotation tailings. Armadale expects the recoveries between 88% and 90% on the weathered ore and 84% on the transitional and fresh ore prior to the CIL circuit being added. Further testing will be completed to determine the effect of adding the CIL circuit to the treatment of the transitional and fresh ore.

Our view: Armadale continues to technically de-risk the Mpokoto gold project as it progresses towards production in 2016. A previously announced drill programme is to start imminently and could add additional resources to the existing 678,000oz. More importantly, with an agreement in place with Africa Mining Services to fund develop, construct and operate Mpokoto, the project is progressing rapidly. Thus in view of the progress to date, we maintain a Speculative Buy on the stock.

Beaufort Securities acts as broker to Armadale Capital PLC

Motive Television (LON:MTV) – Speculative Buy

On Friday, Motive Television informed that it’s fully owned subsidiary Motive Television Services has modified the service level agreement (SLA) with Sagemcom Broadband SAS of Rueil-Malmaison, France. The modifications to the SLA were made to change the definition of the NLS Library and include Motive software required for the 4K UHD competences in Sagemcom devices for Digiturk. The company gets a license royalty from Sagemcom based on the number of devices manufactured using Motive technology, while the specific terms of the SLA and licensing agreement remain confidential.

Our view: Motive’s changes to the SLA would increase the number of products produced by Sagemcom resulting in a rise in the royalty received. Earlier, the company also amended SLA with long-standing customer Digiturk to upgrade and extend the Content Express™ platform, providing a one-stop shop for digital terrestrial broadcasters, satellite, DTT cable pay television platforms, and Internet OTT content providers to offer new services. As per the latest reports, more than 190,000 set top boxes comprising of Motive’s technology have been used by Digiturk’s subscribers. The above improvements along with the recent BYOD partnership and an anticipated re-launch of TabletTV, are likely to maintain the growth momentum for the company. Thus, in wake of these developments, we maintain a Speculative Buy rating on the stock.

Beaufort Securities acts as broker to Motive Television Plc

Inspired Energy Holdings (LON:INSE) – Speculative Buy

On Friday, Inspired Energy announced the completion of its acquisition of Wholesale Power UK Limited (WPUK), for an initial consideration of £2m through a cash payment of £1.5m and the issue of 4.6 million new ordinary shares in the capital of Inspired Energy. An additional sum of £0.75m is to be paid in three instalments of £0.25m each, if certain financial performance parameters are met for the years ending 31st October 2016 and 31st October 2017. WPUK is an energy procurement consultant from Blackpool providing energy solutions to UK corporates. Post the acquisition, the company’s corporate book order would surpass £20m. The consideration shares would rank pari passu in all respects and an application has already been made to London Stock Exchange for the admission of shares to AIM for trading, following which the company’s total share capital would be 433.4 billion ordinary shares of 0.125p each.

Our view: Inspired Energy’s acquisition of WPUK complements its plan of making strategic purchases to expand its range of services. The company is expected to improve its offerings to the core corporate customers by delivering them the best possible advice to reduce their energy costs and generate substantial savings. The acquisition also provides Inspired Energy an easy entry into new industry segments including leisure and logistics. Inspired plans to leverage on the highly skilled and experienced team of WPUK to increase its customer base and improve its market position. Earlier this year, Inspired Energy delivered strong results owing to its growth in corporate division and significant additions to the SME division. Going ahead, we expect the company to deliver strong earnings owing to its strong fundamentals and plans to seek attractive acquisition targets to spearhead its growth programme. In view of the overall optimism, we reiterate a Speculative Buy rating on the stock.

Beaufort Securities acts as broker to Inspired Energy Holdings plc

Parkmead Group (LON:PMG) – Speculative Buy

On Friday, Parkmead Group declared that it has been granted three new licences covering three offshore blocks in the second tranche of UK’s 28th Licensing Round. Two of the above licences are located in West of Shetland, to be operated by Parkmead with the help of its partners Atlantic Petroleum and Dyas. The first of them is Block 205/13 (Parkmead 56% and operator) located to the east of Parkmead operated Block 205/12, having crucial Davaar prospect. The second is the Block 205/19b (Parkmead 43% and operator) located to the North of Parkmead’s current West of Shetland blocks, comprising the huge Cretaceous Eddystone prospect. The company’s third licence is Block 48/8b (Parkmead 50%) located around 20km south east of the Babbage gas field in the Southern North Sea, to be operated by its partner Atlantic Petroleum. The block has seven prospects, with Selene as the most important one. The grant of these licences follows Parkmead’s award of six licences covering nine offshore blocks in the first tranche of 28th Round awards.

Our view: The 28th Round awards have proven to be successful for Parkmead as now it possesses a total of 12 offshore blocks in the UK following the grant of the new licences. These blocks would add to the company’s present solid asset base of oil and gas and are expected to improve the exploration prospects along with development of its main Perth-Dolphin-Lowlander (PDL) oil hub. In addition, the company plans to take advantage of its technical expertise in these regions as it has previously worked in these regions with considerable success in the Southern Gas Basin with gas discoveries at Platypus and Pharos. Going ahead, Parkmead plans to look for additional acquisition opportunities to maintain its market in the challenging oil sector. In view of the above argument, we reiterate a Speculative Buy rating on the stock.

JD Sports (LON:JD.) – Buy

On Friday, JD Sports released a trading update for the first half of 2015. The company delivered strong results, with the like-for-like sales surpassing the management’s estimates. However, JD Sports reported slight decline in margins in the Euro denominated business owing to the weak Euro. The company expects its pre-tax profit for the year to be around £110m, 10% ahead of the market expectations. JD Sports would declare its results for the half year ended 1st August 2015, on 16th September 2015.

Our view: JD Sports has started the first half on a positive note aided by improving economic scenario and optimistic business conditions. The company’s results were driven by exclusive premium brand offerings that continue to attract customers and suppliers alike. Further, JD Sports’ high standards of visual merchandising provided a robust platform for profitable growth, at home and international markets. Overall, JD Sports is well poised financially as well as operationally to deliver robust revenues and earnings growth for the entire year. We believe that the improving macroeconomic scenario and rising real wages in the UK would help the company maintain its earnings growth rate for the rest of the year. Therefore, we retain a Buy rating on the stock.

Lloyds Banking Group (LON:LLOY) – Hold

On Friday, Lloyds declared its half yearly results for the six months ended 30th June 2015. During the period, the total income for the company increased 2% to £9.0bn led by a 6% rise in the net interest income to £5.7bn. The underlying profit advanced 15% to £4.3bn and the statutory pre-tax profit jumped 38% to £1.2bn, despite charges of £1.4bn for PPI and £660m relating to the disposal of TSB. The company’s overall profit for the period advanced 32% to £925m and the underlying earnings per share improved 0.5p to 4.6p in H1 2015. Net lending was up 5% to £1.5bn and net interest margin for the full year improved to around 2.6%. On the operational front, the company continued to invest in the digital division and simplifying operating processes by automation to improve customer satisfaction. In addition, the company remains on track to deliver the targeted savings of £1bn by the end of 2017. Meanwhile, the company also completed the sale of TSB to Banco Sabadell to fulfil its commitment to the European Commission ahead of the mandated deadline. The UK government’s stake in the company reduced to less than 15% as of 15th July 2015. The company expects the other income to remain almost unchanged and the cost to income ratio to decline for 2015. The company also declared an interim dividend of 0.75p per share amounting to £535m.

Our view: The upbeat half result is testimony to the fact that the company is finally out of its recessionary days and heading towards attaining complete ownership of its banking operations. As on 15th July 2015, the UK government had reduced its stake in the company to less than 15%. Lloyds had run into trouble during the financial crisis of 2008, following which, the UK government stepped in and bailed it out in return for a 39% stake. Since late 2013, the UK government gradually began to reduce its stake in the bank in order to restore its complete private ownership. Recently, the bank signalled a return to normal operations with a profitable year and declaration of a dividend. Moreover, the bank also made several changes to the future strategies by offloading several non-core business assets and streamlining the focus to its key business territories in six countries from 30 earlier. Lloyds Bank introduced several process changes comprising more efficient and customer friendly systems. However, consideraing that Lloyds is already a mature player in the banking sector (particularly in the UK), and is going through a major transformational phase, we are a little uncertain of a dramatic upside change in its growth prospects. We retain a Hold on the stock.

International Consolidated Airlines (LON:IAG) – Hold

On Friday, International Consolidated Airlines (IAG) announced its results for the half year (H1) ended 30th June 2015. The revenues for Q2 2015 advanced 11.2% to €5,656m with the passenger unit revenue increasing 5.0%. Operating profit for the half year jumped to €555m from €230m in H1 2014 and advanced to €530m in Q2 2015 (Q2 2014: €380m). The pre-tax profit for H1 rose to €412m from €155m in H1 2014 leading to a rise in EPS to 15.8p from 4.2p in the previous year. The fuel and non-fuel unit costs for the quarter declined 3.0% and 3.2%, respectively. The total cash on 30th June 2015 stood at €6.4bn as compared to €1.4bn at end of 2014. On the operational front, IAG announced the take-over of Ireland’s Aer Lingus Group for a consideration of €1.4bn. IAG is offering €2.55 a share in an all-cash deal, involving a share offer and a cash dividend of five European cents per share. IAG and AERL Holding waived the 90% acceptance condition and confirmed the Offer is now unconditional as to acceptances.

Our view: IAG delivered strong half year results owing to the reduced costs and improved passenger count. The company made most of its earnings in the second quarter due to sharp drop in oil prices that led to lower costs. Owing to its strong balance sheet, IAG has planned to acquire Aer Lingus Group to improve its market share in European belt. Further, IAG plans to add 8 Airbus Group SE A350 long-range jets for Iberia to change older planes, and add five A330 wide bodies to increase the capacity of Spanish carrier. However, the company’s share prices have risen considerably in the past one year, thereby providing limited scope for upside potential. In addition, the company’s bid to acquire Aer Lingus is still witnessing some uncertainty with Ryanair’ formal commitment to sell its almost 30% stake in Aer Lingus. We would like to wait and watch the impact of the acquisition of the company’s future prospects and therefore maintain our Hold rating on the stock.

Economic News

Eurozone CPI estimate

Consumer price inflation (CPI) in the Eurozone increased 0.2% y-o-y in July following a similar reading in June, and was in line with economists’ projections, as per the estimates published by Eurostat on Friday. Core prices, excluding those of energy, food, and tobacco, improved 1.0% y-o-y, missing the market expectations of an increase of 0.8%.

US Chicago purchasing manager

The Chicago purchasing managers’ index (PMI) improved to 54.7 in July from a reading of 49.4 in June, missing the expected reading of 50.8, data from MNI Indicators suggested on Friday.

US University of Michigan sentiment

The US University of Michigan’s consumer sentiment index for July decreased to 93.1, from a 96.1 in June, data indicated on Friday. Economists expected a reading of 94.0. The consumer expectations index, which closely forecasts the direction of consumer spending, fell to 84.1 from 87.8, whereas the current economic conditions index declined to 107.2 from 108.9.

Mon, 03 Aug 2015 08:01:00 +0100
Strategic review sparks interest at Centrica Sat, 01 Aug 2015 07:00:00 +0100 In the news with RFC Ambrian, Global Petroleum, Burey Gold and Peninsula Energy INTRODUCTION

In the news: Peninsula Energy (ASX:PEN), Burey Gold (ASX:BYR) & Global Petroleum (LON:GBP)

Quarterly reports are out for Peninsula Energy††, Burey Gold†† and Global Petroleum*†; they’re coming thick and fast. The quite excellent Peninsula Energy†† told us that construction at the Lance ISR Uranium Project is on schedule. RFC Ambrian was instrumental in raising A$69m in cash for this, so it’s always heartening to see money being spent well. Gus Simpson is also working towards listing Peninsula on the NYSE in a clear attempt to get some US institutions and retail investors on its shareholder register. Global’s news was not dramatic, as observed by Stuart Amor below.
Burey Gold†† is also out with its 2Q15 report. You can read more about Peninsula and Burey in Jim Taylor and Imogen Whiteside’s comments below. If you want to go further and see Burey face-to-face, I’d suggest you rock over to the Sprott Symposium in Vancouver. I have been sent a wonderful picture of Mark Gasson and Klaus Eckhof manning the stand there. This team is relentless in getting its story in front of investors. It also helps that Klaus is able to hypnotise potential investors into buying shares by placing them into some sort of 1960’s psychedelic trance with his Austin Powers-like shirt and tie combination.


Peninsula Energy†† — June Quarterly Report — The ASX-listed company advancing uranium projects in Wyoming and South Africa has released operating and financial reports for the June quarter. The report reflected the progress that the company is making towards bringing its Lance Project in Wyoming into production and the ongoing exploration at its Karoo Project in South Africa.

Key items in the report included the fact that construction of the plant at Lance and the wellfield development remain on schedule, deep disposal well test results were very positive, aquifer pump tests were successful for Mine Unit 1 and the resulting wellfield data package was submitted to the State and Federal regulators for final production authorisation.

Corporately, the company stated that it is continuing to work towards listing on the NYSE and that it is working on securing additional term sales contracts.

The project is being constructed using the A$69m cash raised during 4Q14. A total of A$12m was spent during the quarter on exploration, development and associated capex. Total cash outflows during the quarter were A$13m, which reduced the cash balance to A$36m at the end of June 2015. Debt was limited to A$1m.

It expects development expenditures to increase to A$15m during 3Q15.

RFC Ambrian Comment: As we have commented on the developments noted in the quarterly previously, we are taking this opportunity to recap on the project’s background and its outlook. At 54Mlb U3O8, the resource at Lance is the largest in North America. The company plans to develop the project in three stages to a production rate of 2.3Mlb pa, potentially by 2020.

Stage 1 is based on the development of the Ross Permit Area and is planned to ramp up to a nominal production rate of 0.7Mlb pa. The total development cost of the project was estimated to be US$54m, of which US$43m remained to be spent at the end of 2014.

Construction of Stage 1 commenced at a low level in 4Q13 and ramped up in 4Q14 following the completion of the project funding package. Plant construction is planned to be completed in August and the planned wellfield development should allow production to commence in September 2015 (subject to timely final production approvals from State and Federal authorities). In turn, this would allow first sales of uranium from the project to be made in 1Q16.

We maintain our BUY rating and target price of A$0.04. Our TP is derived from a risked SOTP NAV assuming a long-term realised uranium price of US$60/lb, a discount rate of 8% and a 0.9x multiple of the NAV for the Lance Project to account for the risks associated with project delivery. We also note that the planned completion of a listing on the NYSE in 4Q15 would coincide with the expected commencement of production of Lance, which should help to increase the visibility of the company.

Burey Gold†† — 2Q15 Report and Positive IP Survey at Giro — The ASX-listed gold exploration company that is conducting a successful exploration programme at its 55%-owned Giro Gold Project in the north-eastern DRC has announced its June quarterly activities and cashflow report and also the results of an Induced Polarisation (IP) survey at the project.

As we have commented on the operational developments during the quarter, we focus on the results of the IP survey, which was conducted over an area of 4km by 2km, covering the Giro prospect.
The results of the survey indicate the presence of a 3km-long chargeability anomaly that is coincident with, and larger than, the area of significant drill results drilled at the Giro Prospect. The figure below shows the processed data over an area of 3km by 2km, and the insert in the top right of the figure shows the raw data over the full 4km by 2km survey area.

The survey was also reported to have been successful in mapping NW-orientated structures that host high-grade gold veins; these have been the subject of historic and current mining activity in the area.

RFC Ambrian Comment: The results of the IP survey clearly indicate an anomaly over an area of 3km by 0.3km. IP surveys are used to map the resistivity and chargeability of the subsurface; they are particularly useful in identifying massive sulphide deposits, and are also sensitive enough to detect disseminated sulphide occurrences.

This anomaly is generally coincident with the drilling undertaken to date on this area of the licence. Drilling has been seen on six main drill lines covering a strike length of 1.2km, for which results are available on four lines (over a strike length of approximately 800m), with results on Lines 8 & 9 to the north pending.

Therefore, the suggestion that the main zone of mineralisation extends to the south beyond the current area of drilling, over a strike length of 3km, is significant for the potential of the project. Also, we note that Burey has undertaken a significant amount of drilling on Lines 1A, 2, 5 & 9 that are to the north east of drilling to date and the IP anomaly; if positive, this would open up a significant area of additional potential that may not be hosted in the same sulphide mineralisation as that suggested by the IP anomaly.

Further work is being done to process the data from the survey, which should help to confirm dip direction and structural controls on mineralisation. Once completed, this will allow a follow-up drill programme to be designed to test mineralisation further.

The company acquired a 55% indirect interest in this project in October 2014 from third parties and has a first right over a further 10% interest. The remaining 35% is held by the state-owned Sokimo organisation. The project covers an area of 610km2.

At a price of A$0.025, the company has a market cap of A$17m/US$13m. At the end of June it had net cash of A$0.4m (cash of A$0.8m and debt of A$0.4m) having had cash outflows before finance of A$2.2m and having added A$2.7m net cash from finance during the quarter.

Fri, 31 Jul 2015 11:42:00 +0100
The Pay Zone: Oil Price, Empyrean Energy, Independent Oil & Gas, BG Group, Parkmead Group and others.... WTI $48.52 -27c, Brent $53.31 -7c, Diff $4.79 +20c, NG $2.77 -10c
Oil price

A very quiet day in the oil markets with traders telling me that there were few influences which meant that prices moved a bit with a drift at the end. Even supposedly bullish comments from the Opec Secretary General in Moscow were unable to boost prices. In fact his statement that increased demand would provide support for the oil price even with potential supply from Iran was rather dismissed by the market as over optimistic.

Empyrean Energy (LON:EME)
I have been watching Empyrean from a distance for a while and encouraged by a number of readers and the IR firm I took the opportunity to meet with CEO Tom Kelly whilst he was in London this week. Empyrean is a profitable, at these prices, oil and gas company whose primary asset is a 3% interest in the Sugarloaf AMI in the Eagle Ford, Texas shale play. Sugarloaf is operated by Marathon and EME has current net daily production of 1,216 boe from its 729 net acres with 231 wells producing in a development capable of 1,000 wells. The resource base is substantial with the most recent figures showing a 63% increase in 1P to 5.78 MMboe with NPV 10 of $43.8m and a 94% increase in 2P to 12.64 MMboe and NPV 10 of $121.7m. The primary reason for such a meaningful increase is down to the successful appraisal of the Austin Chalk which has meant that it has moved from contingent resource status to reserve status. With the Lower Eagle Ford shale and the Austin Chalk formation significantly increasing reserves it is likely that this will be added to in due course by the Upper Eagle Ford which could be another significant upside to the reserve/resource base. It is worth noting that the upgrade for the Austin Chalk is massively value added as the metrics are improved for next to no cost, very little infrastructure and no exploration wells are needed as the operator already has this in place.

Financially EME is sound, it has up to a $50m  loan from Macquarie Bank in place which although has warrants attached might make it dearer than other debt it makes it a lot cheaper than any equity raise at these levels, it has strong cash flow and with costs falling dramatically profitability remains intact at current oil prices. Indeed with such a good quality asset that delivers robust project economics and with scope for upside into the bargain the outlook is seemingly attractive.

So my initial view of the value of EME has to be positive, as with a market cap of only £13m and 1P of 5.78 MMboe and 2P of 12.64 MMboe it is clearly money in the bank. Indeed with a possible reserve update to June 30th giving further headroom on debt and the potential of upside in the Upper Eagle Ford further down the road then surely the shares are hugely undervalued. I often talk about bigger companies being able to buy reserves on the street more cheaply than they can drill for them and this is a classic example, even Marathon must have the slide rule out at some stage.

BG Group (LON:BG.) had interim results this morning and EBITDA of $1.37bn was down 48% but clearly the market assumes that the Shell bid will go through, as I do. Production in Brazil and Australia has doubled and the former is now over 150/- b/d.

Conoco (NYSE:COP) also had results yesterday and disappointed the market coming in with a loss of 15 cents against the whisper of plus 6.

The IOG (LON:IOG) saga continues with an announcement today that the equity issue due to be finalised today with the debt in two months looks likely to be delayed and both fundings will now be completed in mid-August, the debt side coming in more quickly.

Parkmead (LON:PMG) has announced that it has received three new licences in the 28th round with two in the West of Shetlands and one in the southern North Sea.

And finally…
The test match at Edgbaston has only been going on for only two days and at one stage yesterday looked like tickets for today would be redundant. Still not done and dusted…
Its the Charity Shield or whatever it is now called on Sunday and will be only a warm-up game for Chelski and the Gooners. Last night saw the Saints win 3-0 against Vitesse Arnhem while the Hammers made life difficult by surrendering a 2-0 lead to draw 2-2 and having one player and the manager sent off. Aberdeen lost 2-1 away at Kairat Almaty but would hope to win back at home.

Fri, 31 Jul 2015 11:34:00 +0100
Stewart Dalby: Algy Cluff’s coal-to gas project gains momentum Fri, 31 Jul 2015 11:20:00 +0100 Today's Market View Including Rare Earth Minerals, Berkeley Resources, Antofagasta and Nord Gold Greece – The IMF may not be joining the EU latest financial rescue package for Greece.
• The Fund highlighted Athens’ high levels of debt and bad record of implementing reforms which disqualify Greece from the a third IMF bailout.
• The situation is aggravated by the fact that Germany is unlikely to secure parliamentary approval without the IMF participating in the programme.
• The Fund will considering taking part once Greece has “agreed on a comprehensive set of reforms” an Eurozone bailout lenders have “agreed on debt relief”. The latter was strongly opposed by Angela Merkel.

Economic News

US – Q2/15 GDP numbers released yesterday showed the economy climbed 2.3%qoq while Q1 data was revised to 0.6%qoq growth (from -0.2%qoq estimated previously).
• Estimates were for the 2.5%qoq increase.
• Consumer spending (+2.9%qoq) and an increase in exports (+5.3%) drove growth and more than offset soft business spending on equipment.
• Positive GDP numbers saw the US currency higher with gold and oil prices trading lower.

Japan – Inflation remains subdued by low commodity prices keeping it significantly below central bank 2% target rate.
• Core inflation (ex food prices) climbed 0.1%yoy in Jun versus no change forecast. That was the lowest rate of inflation in two years.
• The so-called “core-core” inflation (ex food and energy) rose 0.6%yoy in Jun, up from +0.4%yoy  in May.
• Another disappointing report showed household spending fell 2.0%yoy in Jun compared with a 4.8%yoy  increase in May and +1.9%yoy forecast.
• While unemployment rate ticked up to 3.4% last month from 3.3% in May.

Mozambique – water levels approaching critical levels at the Cahora Bassa and Kariba Dams where water levels are said to be not far above 
• This is due to inadequate rainfall levels through 2014/2015.
• On the positive side this might be a great time to repair the foundations / footings to the Kariba dam which are suffering from excessive erosion from the plunge pool.
• As if that wasn’t enough the dam walls are said to be suffering some weakening of the structure due to a slow chemical reaction within the concrete which is weakening its composition
• The Cahora Bassa Dam

US$1.0954/eur vs 1.0967/eur yesterday.   Yen 124.21/$ vs 124.18/$.   SAr 12.744/$ vs 12.624/$.   $1.558/gbp vs 1.561/gbp
US$0.728/aud unch vs0.730/aud. 

Commodity News
Precious metals:

Gold US$1,082/oz vs US$1,086/oz yesterday –
Platinum US$979/oz vs US$986/oz –
Palladium US$614/oz vs US$620/oz  – 
Silver US$14.60/oz vs US$14.68/oz  –

Base metals:
Copper US$ 5,244/t vs  US$5,265/t –
Aluminium US$ 1,634/t vs US$1,653/t –
Nickel US$ 10,990/t unch vs US$11,100/t – Vale sees “positive signs” developing in Q2/15 including an increase in Chinese imports of ferronickel and unwrought nickel, a decline of stainless steel scrap discounts in Europe and an improvement in transaction prices for non-LME nickel. “We expect better (nickel) prices for the fourth quarter.”

Zinc US$ 1,949/t vs US$1,942/t –
Lead US$ 1,711/t vs US$1,710/t  –
Tin US$ 16,030/t vs US$16,000/t   –

Oil US$52.60/bbl vs US$53.80/bbl
Natural Gas US$2.783/mmbtu vs US$2.847/mmbtu
Uranium US$36.00/lb unch vs US$36.00/lb –

Bulk commodities:
Iron ore 62% Fe spot (cfr Tianjin) US$51.50/t unch vs US$51.20t –
Thermal Coal $56.5 vs $56.4 cif ARA Europe –
Tungsten - APT European prices price $220.0/mtu unch vs $225/mtu – No change to tungsten this week, prices still skewed by the sale of poor quality material.
• Wolf Minerals reckon some material is coming off the market which might lead to slightly tighter supply, though this may be wishful thinking

Ferrochrome - Baosteel and Tsingshan Group have reduced their ferro-chrome bid prices for August.
• The summer slowdown and potential for further pollution related shutdowns for stainless steel producers has made buyers more cautious and led to an increase in producer inventories.
• Baosteel is offering around 101c/kg in China.  Baosteel is also reported to have halved its purchase volumes

Company News
Antofagasta (LON:ANTO) 565p, Mkt Cap £5.6bn – Antofagasta to buy 50% of Zaldivar mine for $1bn from Barrick
• Antofagasta is buying 50% of the Zaldivar copper mine from Barrick for $1,005m.
• The transaction should complete this year and with a $980m cash payment followed by five annual payments of $5m starting in 2016.
• Antofagasta plan to use cash on the balance sheet and for the deal to be earnings accretive.
• Zaldivar is a large-scale open-pit, heap leach operation in Northern Chile.
• Production around 100,000tpa of copper.
• Cash cost of US$1.79/lb net of by-product credits.
• Pre-tax profit US$244m in 2014.
• Reserves:  2.5mt proven and probable.
• LOM:  14 years with upside potential.
• Zaldivar gross assets: US$1.4bn.
• This is a meaningful transaction for Antofagasta and helps to deleverage Barrick at a time of lower gold prices and ahead of a potential US interest rate rises.
• The two companies have a long history together of cooperation which stated with Peter Monk’s (founder and former Chairman of Barrick) association with the former Chairman of Antofagasta.
• Barrick and Antofagasta acquired Tethyan Copper some years ago for its giant Reko Dik copper project in Pakistan, though its location proved difficult from a legal and logistical perspective.
• We would not be surprised to see further co-operation between Barrick and Antofagasta going forward.
• Antofagasta recently guided the market to 665,000t of copper production for the year down from 710,000t previously due to a delay in ramp of Antucoya mine.
Conclusion:  This is a great time to acquire copper mining assets as gold producers look to restructure on lower gold prices and to deleverage ahead of impending US interest rate rises.

Berkeley Resources (LON:BKY) 17.5pence, Mkt Cap £31.6m – name changed to Berkeley Energy
Berkeley Energy (LON:BKY)
Berkeley Resources has changed its name to Berkeley Energy.
• The new name better reflects the company’s focus on the development of a new uranium mine in Salamanca, Spain.
• We expect the recent appointments of Paul Atherley and Hugo Schumann to help develop new momentum within the company and its investor base.
• The team are busy integrating results from Zona 7 into the uranium resource for future development with the mine plan
• The Mines Department in Salamanca are well acquainted with mining having issued permits in recent years to the Los Santos and Barruecopardo mines and are seen as proactive and supportive when it comes to assessing projects within the region.

Nord Gold US$2.9, Mkt Cap US$1,067m – Gross secures construction permit
• The open-pit heap leach Gross project located close to operating Neryungi mine in Yakutia secured all necessary permits to commence construction.
• Works expected to start late 2015/early 2016 (subject to Board approval) and cost US$260m over a two year construction period.
• The mine is forecast to supply 12mtpa producing c.230koz with a 17 year mine life.
• Mineral reserves are estimated at 4.5moz with additional 8.6moz contained in mineral resources.
• Pilot stage operation demonstrated good heap leach recoveries (82.5%) at the irrigation period of 150 days for -40mm ore.
• The latest FS completed in 2015 showed an IRR of 25% at a long term price of US$1,100/oz and 40% at US$1,250/oz.
• The company is considering various financing options for the project at the moment.
• In the meantime, Gross will continue to operate in a pilot phase producing 35koz in 2015 using existing facilities at the Neryungri mine. The Company plans to spend US$8.5m on detailed design works at Gross this year.

Rare Earth Minerals (LON:REM 0.9 pence, Mkt Cap £63m – Kiran Morzaria, ceo, appointed to board
• Rare Earth Minerals, a David Lenegas, company has appointed its ‘official’ ceo Kiran Morzaria to the board.
• Kiran is currently a director of Bacanora Minerals, Academy Minerals, API Technology, Panguma Diamond.  He has previously held board positions with Vatukoula Gold, Solo Oil, Lonrho Limited and a subsidiary of Bacanora Minerals.
• Kiran is described by close associates as a good technical man.

Fri, 31 Jul 2015 10:37:00 +0100
Great Short Seller of China Suddenly Turns Bullish Great Short Seller of China Suddenly Turns Bullish
Here is the opening of this interesting article from Bloomberg: Jon Carnes is about the last person on Earth you’d expect to turn bullish on China’s stock market.
This is a man who built his career on wagers against Chinese companies, bets so successful that one analyst ranks the 41-year-old among the best short sellers worldwide -- more effective than industry giants from Carson Block to David Einhorn. Carnes’s bearish research caused such a stir in 2011 that he fled China and had to fight off fraud allegations. The ordeal landed one of his colleagues in a Henan province prison.
So when Carnes says he’s now an advocate of investment in China Inc. -- with a 111 percent rally forecast for the Shanghai Composite Index -- it’s worth paying attention. His optimism is all the more striking given it comes at a time when many international money managers are turning bearish, put off by what they see as bubbly valuations and unjustified government intervention to prop up share prices after a $4 trillion rout.
For Carnes, the bull case is simple. The stock market’s surge to a seven-year high in June caught most Chinese investors by surprise, and they’re determined not to miss the next buying opportunity. In a country where household wealth surged to an estimated $21 trillion last year, less than 10 percent of the population is invested in equities.
“A lot of people missed out on the bull market,” Carnes said by phone from his office in Vancouver. “This violent correction is a huge buying opportunity for them.”
David Fuller's view
The short-term bull point for China is the amount of liquidity that the government may be willing to deploy in an effort to lift its stock market, for which Shanghai A-Shares are the most important Index.  Inevitably, that will be controversial, not least as many people will question the use of considerable reserves for this purpose.  Would it be to save face, increase confidence and buy investor loyalty?  Probably, but this form of Chinese style QE may not be the best policy for GDP growth.

Email of the day 1
On, “it is sometimes somewhat difficult for me to get your meaning”:
Hi David, as a relatively new subscriber, it sometimes is somewhat difficult for me to get your meaning. For example, today you repeat your view that there is a non-trivial risk of a 10% correction. On the other hand, yesterday you went long the DAX. So, do I follow your words or your action if I want to understand your feelings about the market? Or is it a matter of different time frames?
David Fuller's view
Welcome to Fullermoney and thank you for your email on a matter of clarification.
There is plenty of information in Comment of the Day and Audios, so it can take a while to become fully familiar with the service, although Eoin and I try to avoid ambiguities in our commentaries.  Additionally, we know that not every subscriber will be reading and listening to everything that we post on the site.  However, just like the Chart Library, Comment of the Day and the Audios are there for when you wish to dip into them.
Yes, I do think that Wall Street is overdue for a 10%+ correction.  That will probably be more of an opportunity than a problem, but it may unsettle people who are not expecting it.  This weekly chart of the S&P 500 has been amazingly consistent, but is losing upside momentum, so it would not take much of a temporary increase in supply relative to demand to pull it lower.  Moreover, most other stock markets around the world have already experienced 10%+ corrections this year.  I believe I made this point in Wednesday’s Audio, and perhaps on other occasions in recent weeks.
Personally, I would rather buy something I like follow a correction, rather than near the highs, especially if it has seen a significant advance. One of the reasons why I repurchased DAX for a trade is that it was well off its high, and near the trend mean represented by the 200-day (40-week) MA.

Email of the day 2
On the biotech sector:
Dear Mr David, I guess I have really missed the boat after so many months of gains. Do you think the bio tech sector is still a good buy at the moment for medium to long-term investors? Thanks and have a great weekend ahead.
David Fuller's view
Thanks for your interesting question of general interest.
This item continues in the Subscriber’s Area.

How Cheap Oil Is Fueling a Surge In New Factories
Here is the opening of this topical article from Bloomberg:  America's energy rebirth is the gift that keeps on giving for the economy. But this year, it's more about construction than drilling holes in the ground.
While the collapse in oil and gas prices since the middle of last year caused energy companies to slash investment in oil wells, Thursday's report on second-quarter GDP showed an interesting dynamic taking shape — investment in factories has been running full bore.
It may be surprising on the surface, given that manufacturing has simmered down this year on the heels of a weaker global economy, but spending on all types of production facilities increased at a 65 percent annualized pace in the second quarter. That was almost enough to offset a 68 percent plunge in investment in wells and mines that marked the biggest drop in 29 years.
Outlays for factory-related structures jumped even more from January through March -- surging at a 95 percent pace. Over the last four quarters, investment in plants increased an average 64 percent, the strongest since records began in 1958.
David Fuller's view
We have heard far more about slowdowns in the oil and gas industries, and obviously not just in the USA.  However, is this surge in factories evidence that the benefits of cheaper energy are now beginning to be realised?
This item continues in the Subscriber’s Area.

Pariah status
Eoin Treacy's view

This has been an extremely difficult period for mining companies, not least as the major iron-ore and diversified mega-cap companies have ramped up supply into a falling market in order recapture market share. From an investor’s perspective, one is left with a dilemma. Many are asking whether it is better to hold on in the hope prices will recover. Others have been disappointed in their attempts to buy only to see prices fall even further. Against a background where technology shares such as Apple, Google, Amazon and Facebook have accounted for the majority of stock market returns this year, underperforming sectors such as commodities have fallen into relative obscurity.

Thync review: Where we just say yes to a drug-like, brain-zapping wearable
This article by Will Shanklin for Gizmag may be of interest to subscribers. Here is a section:
The key is the locations of the pads: Thync believes it's found the right target areas to tweak your brain's natural stress responses in one direction or the other. One strip is designed to produce a calming effect ("calm vibe") while the other strip makes you feel more alert ("energy vibe"). And each "vibe" also has three sub-categories within it, varying in intensity and length of time.
It's like choosing a workout program, only instead of doing squats or lunges, the technology does the work for you. You just sit there and enjoy the results.
If this all sounds pretty far-out, like something a burned-out space junkie would be using in an 80's-era sci-fi novel, we completely understand. But for me, it works exactly as advertised, either relaxing or energizing me (or both) – not only while I'm using it, but for several hours afterwards.
Skeptics will also be quick to question whether Thync is just an expensive placebo effect. And while this is only one person's experience and opinion – take it as you will – I don't see how there's any way that's the case with me. If this is a placebo, then all the pot, caffeine and meditation I've ever tried must be as well.
Eoin Treacy's view
This product would appear to claim many of the same benefits as electroshock treatment but with more nuanced application and without the amnesia associated with the more violent treatment. Thync is still a privately held company but if the product does as it says and represents a non-chemical treatment for stress and lack of motivation then an IPO will be a potentially attractive proposition.

Coffee drinkers beware: Brazil coffee harvest set to decline again
This article by Vladimir Pekic for Beverage may be of interest to subscribers. Here is a section:
Brazilian coffee growers will collect just 44.28m sacks (60Kg) of coffer in 2015, the second lacklustre harvest in a row for the world’s largest coffee producer and exporter.
The result was unveiled this month in the second annual coffee crop forecast for 2015 published by Brazil’s National Supply Company (Conab). The state-run institution warned that the 2015 harvest would be 2.3% lower than the 45.34m sacks harvested in 2014.
“If the latest forecast announced by Conab proves correct, this will be the third consecutive season in which coffee production in Brazil drops” warned Brazil’s Advanced Research Centre in Applied Economics (CAPEA) in a June 11 release.
Nonetheless, the international Coffee Organization said that coffee prices continued their decline even after the latest Conab forecast – as speculation over the current 2015/16 Brazilian crop suggests that the market has no immediate supply concerns. Indeed, one major trading house has already forecast a global supply surplus for 2015/16.
Eoin Treacy's view
This is an El Nino year and it has certainly been hotter and muggier in Los Angeles this year than last as a result of the weather phenomenon. This graphic of Pacific Ocean temperature comparing this year to the strong 1997 event suggest that we can anticipate additional extreme weather events through the end of the year. This has the potential to act as catalyst for agricultural commodity prices so they are worth watching.

Email of the day on saving the Audio
Just wondering how I can get podcasts so that I can listen to offline?
Eoin Treacy's view
Thank you for this question which may be of interest to other subscribers. If you visit the Subscriber’s Audio page you’ll see a Save button next to each audio. Right click on that button and it will allow you to save the audio to whichever folder you wish for listening to offline later.

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.

Fri, 31 Jul 2015 08:19:00 +0100
Northland Capital Partners View on the City Stratex International and DiamondCorp Stratex International (LON:STI) – BUY*: Öksüt royalty update
Market Cap: £6.3m; Current Price: 1.35p; Target Price: 7.8p (from 6.8p)
From yesterday: Centerra complete positive feasibility study

  • Forecasts upgraded, BUY rating maintained and price target increased to 7.8p (from 6.8p).

NORTHLAND CAPITAL PARTNERS VIEW: Centerra Gold’s positive feasibility for the Öksüt Gold Project has had a positive impact on our valuation of Stratex International by increasing our valuation of Stratex’s 1% royalty over the project to US$7.8m from US$5m. The feasibility study will result in total production over the life of mine of 895,000 ounces of gold, in-line with our previous forecast. However, this production will occur at higher average annual rate of 127,000oz Au over the principal seven years of mine life (average of 155,000oz Au in first four years) compared to our previous assumptions of c. 75,000oz Au over twelve years of mine life. The timing of first production has been pushed back by around one year compared to our previous forecasts but increased returns expected from the higher annual volumes in the near/medium-term outweigh any negative effect. We also consider the completion of the feasibility study to be an important de-risking event for the project and as a result we have reduced our development risk discount for the project to 25% from 50%.

Thor Mining (LON:THR) – CORP: Quarterly update
Market Cap: £1.6m; Current Price: 0.04p
Plans to advance the portfolio in H215

  • Molyhil Molybdenum Project: Thor reduces capex cost by 8% to A$64m. Discussions with potential project finance and off-take continue.
  • Pilot Mountain Molybdenum Project: Thor planning initial exploration.
  • Spring Hill Gold Project: Thor has scheduled a reverse circulation drill programme and is continuing to evaluate the potential for near-term production.

NORTHLAND CAPITAL PARTNERS VIEW: Thor Mining is continuing to advance both the Spring Hill Gold Project and its two tungsten projects. With the Company expecting further progress on the development financing for Molyhil in the near-term and the potential for upside at Spring Hill resulting from the use of fire assays and a drill programme to test the potential for the linkage of the Hong Kong lode and western main lode, Thor Mining looks good value at these levels.

DiamondCorp (LON:DCP) – BUY: Lace update
Market Cap: £44.6m; Current Price: 11.9p; Target Price: 16.6p
Minor development delays that have no material effect on our price target
Development work on the Upper K4 kimberlite remains close to schedule though the underground tunnel development is progressing slower than planned for safety reasons associated with the fractured ground located close to the old workings.
The K6 development kimberlite continues to be processed and the higher grade K4 development kimberlite is now also being processed.
The conveyor belt tunnel is now connected from the production level to the surface. The belt is 99% fabricated and 75% installed. The final installation has been delayed due to additional safety protection systems required by the Department of Mineral Resources.
The slower development rate means costs are averaging R44,193/m compared to a budget of R37,000/m
Forecasts updated, BUY rating and price target maintained.
NORTHLAND CAPITAL PARTNERS VIEW: We had already factored in delays to the start of production in our forecasts and price target as they are very common at this stage in a mine’s development. As a result, we do not need to adjust our forecasts or price target for DiamondCorp based on the delays. However, the increased development costs, resulting from the delays as well as, additional capex associated with items that are expected to enhance the mine economics have lead us to make an increase to our capex expectations for FY15. This has led to a minor downgrade to our forecast net debt position but has no material effect on our price target of 16.6p per share. Importantly the recent £5.27m raised in a placing and open offer should provide the Company will all the required funds despite the increased development costs.

Fri, 31 Jul 2015 08:14:00 +0100
IMF playing good or bad cop? FTSE100 Index called to open +15pts at 6685, holding its rebound from 6500 lows towards recent highs 6815. Trendline of rising support at 6670 could allow for test of 6700, equating to 61.8% retracement of recent declines. However, beware falling highs and 200-day MA at 6765. Updated watch levels: Bullish 6705, Bearish 6645.

The positive opening call comes despite forecast-beating European Q2 results, which would otherwise underpin recovery sentiment into the week-end, being offset by several US and EU corporates (incl. Peugeot, Audi, Ford, CAT, Siemens, VW) explicitly highlighting a slowing China as a risk to future growth.

On the Greek front, PM Tspiras will hold an emergency Syriza party congress in September to try and regain control of the more radical left-wing coalition party members opposing current bailout talks, adding to risk of re-elections. The IMF is also piling pressure on both Athens and Eurozone creditors, saying bailout deal can’t be done without ‘specific and clear agreement on lightening Greek debt’. The wheels coming off deal already? It’s possible the Greek stock exchange could reopen Monday.

In the wake of the Fed update, note USD recovery to near recent highs on speculation the US Central Bank is moving closer to a rate hike which has given Asian stocks a boost but weighed on the key commodities space overnight with oil headed for its worst monthly drop this year.  It’s also been another volatile equity session in Shanghai, while US markets closed little changed on mixed earnings (Amgen beat but P&G, Facebook and WholeFoods weighing), Q2 GDP growth missing forecasts, falling commodities prices and China jitters.

Asian bourses traded largely higher overnight following late Thursday rallies on Wall St. and despite a strong US dollar continuing to pressure the commodities sphere. Mixed Japanese macro data kept gains muted (Nikkei flat) with CPI coming in a little better than expected, but only a little, highlighting the fact that the BoJ’s inflation target remains some way off.

In spite of continuing super-QE, low oil prices (set to continue in the mid- to long-term?) are likely to be stifling inflation growth in both Japan and the US. Other Japanese prints into the mix included a slightly higher unemployment rate (missing consensus) and lower household spending (well below expectations).

A weak Chinese open also provided a market headwind into Friday’s session with considerable volatility in the Shanghai Composite, as the relationship between the country’s stock market and economy at large continues to be analysed. The belief is that fundamentals in the world’s #2 economy are not supportive of current equity valuations. Aussie stocks positive on a temporary respite for commodities and the prospect of further weakening of the AUD in the wake of US Fed interest rate hike chatter.

In focus today will be Eurozone Unemployment and Consumer Price Inflation (CPI) at 10am with forecasts for a tick down in the former and confirmed positive albeit sub-target readings for the latter. In the afternoon, we have the Chicago PMI at 2.45pm and Uni of Michigan US Consumer Confidence at 3pm with improvements seen in both.

Oil prices under pressure…again….following an impressive go at a rally on Wednesday (both WTI ($49) and Brent ($52) putting on $1 a barrel). Nonetheless, crude prices are set for their biggest monthly drop this year as the bear market takes hold and global supply glut worries continue (Iran deal, Iraq exports up, US inventories above 5-year seasonal average). All this prompted OPEC’s Abdullah al-Badri to all but demand that prices go back up again. Saudi Arabia starting to feel the pinch then?

Some Gold ($1084) watchers now looking at a return to pre-2009 sub-$1000 levels as the yellow metal fails to shine as a  safe haven, investors likely preferring interest bearing assets like US treasuries as the USD surges back towards 21 Jul highs and beyond. Support  holding around current level $1084 but week-long falling highs providing bearish near-term outlook

Fri, 31 Jul 2015 08:10:00 +0100
Beaufort Securities Breakfast Alert Hummingbird Resources, Ferrum Crescent, Merlin Entertainments, Frontier Resources International and others The Markets

Market opening: Markets are likely to open lower today. FTSE 100 futures were trading 1.20 points down at 7:00 am.

New York: Wall Street ended flat amid mixed corporate earnings. Lower-than-expected GDP numbers for the second quarter hurt the investor sentiment. The S&P 500 closed at 2,108.6.

Asia: Equities are trading higher, tracking global markets and shunning the losses in Chinese stocks. The Nikkei 225 added 0.2%, while the Hang Seng was trading 0.5% up at 7:00am.

Continental Europe: Markets ended marginally higher on upbeat corporate earnings. Reports that the IMF may not participate in Greece’s third bailout capped gains. France’s CAC 40 and Germany’s DAX advanced 0.6% and 0.4%, respectively.

Crude Oil: Yesterday, prices of WTI and Brent Crude Oil declined 0.6% and 0.1%, respectively. The spread between the two varieties stood at US$4.8 per barrel.

UK small caps: The FTSE AIM All-Share index closed 0.14% higher yesterday at 750.17. To read our latest research click here.

Today’s news

IMF wary of joining the third Greek bailout

The International Monetary Fund (IMF) said it may not participate in the third Greek bailout owing to the country’s increasing debt and bad record of executing economic reforms. In the absence of IMF, Greece would require additional funds from other sources to meet their short term financing needs.

Company News

Hummingbird Resources (LON:HUM) – Speculative Buy

Hummingbird Resources, the gold exploration and development company with assets in Mali and Liberia, announced yesterday that an application has been made for 11,068 shares to be admitted to trading on AIM pursuant to the exercise of warrants. The warrants have an exercise price of 33 pence per share and will rank pari passu with Hummingbird’s existing ordinary shares. Admission to trading on AIM is expected to take place on 3rd August 2015; following admission the issued share capital of Hummingbird will be 106,951,831 ordinary shares of 1 pence each.

Our view: While the exercise of 11,068 warrants represents only 0.1% of the issued share capital we are encouraged with the application and support for the company. On 10 July 2015, an application was also made for 28,207 new ordinary shares of 1 pence each through the exercise of warrants at the same exercise price of 33 pence per share. Despite the current gold market sentiment and potential headwinds in the near term, we expect Hummingbird to generate sufficient margins given its estimated all-in-sustaining cost of US$733/oz for its Yanfolila project in Mali. In the meantime, we maintain a Speculative Buy on the stock.

Beaufort Securities acts as corporate broker to Hummingbird Resources plc

Frontier Resources International (LON:FRI) – Speculative Buy

Yesterday, Frontier Resources released an update on its operational activities in the Owambo Basin, Namibia. Frontier’s licenese comprises two blocks 1717 and 1817 covering an area of around 18,933 sq km, where the company is the operator having 90% working interest whereas NAMCOR, the Namibian National Oil Company, has a 10% interest. Recently, the company finished a data exchange of high resolution airborne magnetic data along with a technical analysis, in a huge area near the blocks. The process was taken up by Exploration Technology in Houston, Texas, who found the sediment thickness in the area by calculating and mapping the depth to the basement rocks, and also identified local geologic trends in the subsurface. The technology, along with gravity and seismic data helped Frontier discover drillable structures on its block in Oman. The data collected is currently being combined with the existing database over blocks 1717 and 1817 having magnetic, gravity and seismic data. The data stored along with the earlier findings from the acquired gas survey would help in defining unusual features seen on the seismic, especially in the sparsely drilled regions.

Our view: Frontier’s latest operations in the Owambo Basin have been fruitful as the new data collected would improve the understanding on existing blocks as well as help in finding regions requiring extra seismic data before drilling. Earlier, the company informed of continuing drilling activities without the need for a 3D seismic survey at Block 38 in Oman and is planning to enter into farm-out discussions with Middle East-based partners for the same. The company’s strategy looks encouraging as it is expected to attract potential investors and also limit Frontier’s risk exposure in the asset. Going ahead, Frontier’s prospects remain encouraging as it expects to start its production in Oman using its existing well and seismic data. In view of the above argument, we maintain a Speculative Buy rating on the stock.

Beaufort Securities acts as corporate broker to Frontier Resources International plc

Ferrum Crescent (LON:FCR) – Speculative Buy

Yesterday, Ferrum Crescent provided an update on its quarterly activities and cash flow report for the period ended 30th June 2015. The company completed a bankable feasibility study (BFS) on its Moonlight Iron Project that includes planned future mining and beneficiation of the Moonlight Deposit for the production of high grade concentrate. This concentrate would be transported to a pellet manufacturing centre located in Thabazimbi in Limpopo Province, South Africa, to produce direct reduction and blast grade iron pellets for sales purposes. Several potential South African buyers were identified for the same. Ferrum has planned activities with the infrastructure providers for power, water, rail and port. The company has also planned the next BFS phases starting with the development of full ore reserves in terms of JORC (Joint Ore Reserve Committee) by conducting drilling over zones A, B and C. On the corporate front, Ferrum completed private placement in May 2015 and raised £0.5m gross. The company also entered into a Memorandum of Understanding (MOU) with Principle Monarchy Investments (PMI), where the latter may acquire up to 39% of Ferrum Iron Ore (Pty) Ltd (FIO), the Group’s Project holding company for ZAR142m, with a payment of ZAR30m. Post the payment of this amount the MOU would become legal, and the parties would enter into a new shareholders’ agreement for FIO.

Our view: Ferrum made significant progress in this quarter following the successful conduction of BFS for the Moonlight project and signing of MOU to strengthen the project. The company has already located the site for its mining activities for the assignment and has commenced the work on its pit design. Ferrum plans to use the latest drilling data to enhance the model for the mine and DR pellet centre at Thabazimbi. Its collaboration with PMI would bring in local expertise with the help of its connection with major engineering groups and institutions in South Africa. Further, the company’s marketing team has identified the target market segment to help in making the products as per the local needs. Overall, Ferrum is strongly positioned to benefit from its projects and is well placed to create additional value for its shareholders. In view of the above optimism, we maintain a Speculative Buy rating on the stock.

Beaufort Securities acts as corporate broker to Ferrum Crescent plc

Royal Dutch Shell (LON:RDSA) – Buy

Yesterday, Royal Dutch Shell declared its unaudited results for Q2 2015 and H1 2015. The company’s revenues decreased to US$3.4bn in Q2 2015 compared to US$5.1bn in Q2 2014 whereas the quarterly earnings excluding identified items (upstream, downstream and corporate and non-controlling interest) declined 37% to US$3.8bn. The CCS (current cost of supplies) EPS dipped to 0.61p in Q2 2015 from 0.97p in Q2 2014. The company’s cash flow from operating activities (CFO) reduced to US$6.1bn in Q2 as compared to US$8.6bn in Q2 2014. Royal declared a dividend of US$0.47 per share and US$0.94 per American Depositary Share, similar to Q2 2014. The company distributed dividends worth US$3bn in Q2 2015 with US$0.7bn settled under the Scrip Dividend Programme. On the operational front, Royal announced the acquisition of BG Group, the British oil and gas producer for a consideration of US$70bn in April 2015. In a separate announcement, Royal provided an update on its recent developments and combination with BG Group. The company kept its dividend commitment unchanged at US$1.88 per share in 2015 and at least US$1.88 per share in 2016 and also declared share buy-back programme of US$25bn between 2017 and 2020. Royal plans to reduce the operating costs by 10% to US$4bn with an expected 6,500 job cuts in 2015 along with a decrease in capital investment to US$7bn in 2015, 20% lower than the last year.

Our view: Royal delivered below par results majorly driven by the decreasing oil prices in the past few months. However, the company’s recent plans to reduce its operating costs by cutting 6,500 jobs and also decreasing its capital investments would help Royal remain competitive in a challenging environment. In addition, the company’s recent acquisition of BG Group is progressing well with timely regulatory filings and integration. Post the completion of transaction, we expect the company to cut spending in exploration re-structure its capital allocation and achieve better economies of scale owing to a good asset base. The company has been impacted by an industry wide problem but remains fundamentally strong to deliver good results in the long term owing to the recent measures taken. Therefore, we reiterate a Buy rating on the stock.

Merlin Entertainment (LON:MERL) – Buy

Yesterday, Merlin declared its interim results for the half year ended 27th June 2015. The company’s revenues increased 6.6% (constant currency) to £544m whereas the like-for-like (LFL) revenues advanced 2.8%. Growth was primarily led by rise in LFL revenues in the LEGOLAND Parks Operating Group and Midway Attractions Operating Group by 6.0% and 2.9%, respectively. However, the trading in theme parks group was impacted by the accident of Alton Towers Resort, with the LFL revenues for the segment declining by 2.0%. During the period, Merlin’s pre-tax profit rose to £49m from £40m in the previous year, resulting in an EPS of 3.5p against 2.8p last year. The net financing costs reduced 28.4% to £22m owing to the refinancing and £110m reduction in debt declared earlier. On the operational front, Merlin opened a lot of new attractions including Midway – New ‘Star Wars’ at Madame Tussauds London and Berlin, LEGOLAND Parks – LEGO ‘Friends’ in LEGOLAND Windsor, Florida and California, and Resort Theme Parks – The ‘Oblivion’ at Gardaland. The company transformed its theme parks to destination resorts as it opened a 152 room new themed hotel at LEGOLAND and a new 125 lodge ‘Enchanted Village’ at Alton Towers Resort. Merlin also opened six new Midway attractions in 2015 at different locations in London. Further, the company has three new parks in development stage in the LEGOLAND segment in Dubai (Q3 2016), Japan (Q2 2017) and Korea (2018). In addition, the company also announced an interim dividend of 2.1p, 5.0% higher than the previous year.

Our view: Merlin Entertainment delivered strong half yearly results owing to strong performances from LEGOLAND Parks Operating Group and Midway Attractions Operating Group. The company’s reduction in the financing costs helped them offset the impact of the recent accident in Alton Towers Resort. In addition, the company has committed support to the injured and plans to implement extra safety norms to improve its services. Further, Merlin continues to grow in its other segments by successfully launching two parks in the US and expects to expand further in new markets. Overall, Merlin seems to have a long term growth potential in view of its new attractive theme based parks that are complemented by the rising number of visitors. We believe the impact of the incident at Alton Towers Resort would be short-lived and the company would bounce back to high earnings once again as it remains the largest European entertainment company. Therefore, we maintain a Buy rating on the stock.

Millennium & Copthorne (LON:MLC) – Buy

Yesterday, Millennium and Copthorne announced its half year (H1) and quarterly (Q2) results for the period ended 30th June 2015. The company’s RevPAR increased 4.0% to £68.28m in H1 2015 largely due to higher average room rate. Overall revenues for H1 2015 jumped to £404m from £380m in H1 2014, and the revenues for the quarter rose 4.9% to £215m, led by an improvement in the US and Australasia regions. Australasia was the fastest developing region with a 15.9% upsurge to £45.90m in H1 2015, steered by higher occupancy and average room rate. The US segment saw a 7.1% increase to £73.7m for H1 with support from Novotel New York Times Square, progress in regional US, especially at the Millennium Harvest House Boulder, Millennium Knickerbocker Hotel Chicago and The McCormick Scottsdale. However, the company’s Asian segment witnessed a 10.3% decline owing to reduction in both occupancy and average room rate. Millennium’s pre-tax profit advanced 6.9% to £62m in H1 2015 resulting in an EPS of 11.2p against 9.4p in the previous year. LFL revenue and pre-tax profit H1 2015 increased 0.5% and 2.9%, respectively. The company has also declared an interim dividend of 2.08p in line with the previous year. On the operational front, Millennium completed refurbishments on the third to fifth floor guestrooms at Millennium Bailey’s Hotel London, with the remaining areas planned to be complete by October 2015. Meanwhile, the renovation work at Millennium Alaskan Hotel Anchorage is complete and it is now re branded as The Lakefront Anchorage.

Our view: Millennium is on the growth track with enhanced top line revenues led by substantial improvements in the major markets it serves. The rise in the RevPAR is a positive sign and with improving economy, better results may be expected in the upcoming quarters. Going ahead, the company plans to improve its service through further refurbishments of its major assets to enhance customer experience. We believe the company has good prospects owing to its huge asset base located globally and continuous measures taken to improve its services. In view of the overall optimism, we reiterate a Buy rating on the stock.

Economic News

Germany unemployment change

The number of people without a job in Germany increased by 9,000 on a seasonally adjusted basis to 2.8 million in July, the Federal Labour Agency said yesterday. Economists had forecasted unemployment to drop by 5,000 for the month. The seasonally adjusted unemployment rate remained unchanged at 6.4% in July.

Eurozone consumer confidence

The gauge of Eurozone consumer confidence declined to -7.1 in July compared with -5.6 in June and came in line with the preliminary estimates, the European Commission said yesterday. However, the economic confidence index improved to 104.0 in July from 103.5 in June, and the measure of industry confidence rose to -2.9 from -3.4.

Germany CPI

According to Destatis, Consumer price inflation (CPI) in the Germany stood at 0.2% m-o-m in July following a decline of 0.1% in the month of June and was in-line with economists’ projections. On y-o-y basis, consumer prices rose 0.2% y-o-y, following a 0.3% increase last month.

US GDP annualized

US real GDP grew at an annualised rate of 2.3% in Q2 2015, after rising a revised 0.6% in the preceding quarter, the Commerce Department stated yesterday. The reading came behind the market expectation of 2.5%.

US initial jobless claims

Initial jobless claims in the US increased by 12,000 to a seasonally adjusted 267,000 in the week ended 25th July, the Labor Department reported yesterday. Last week’s claims remained unrevised 255,000. Economists’ had expected a higher increase to 270,000. The four-week moving average fell to 274,750 from the previous week’s 278,500.

Fri, 31 Jul 2015 08:05:00 +0100
Alastair Ford: Was the mining supercycle ever anything more than promotional hot air? Thu, 30 Jul 2015 14:30:00 +0100 In the news with RFC Ambrian, Anatolia Energy and Berkeley Resources INTRODUCTION

In the news: Anatolia Energy (ASX:AEK& Berkeley Resources (LON:BKY)

Jim Taylor and Imogen Whiteside have articles below about Anatolia Energy and Berkeley Resources. Anatolia, which is pushing ahead with a merger with the US-based URI, has released a quarterly activities report, while Berkeley has June quarterly results out. Berkeley has recently been a star performer in the uranium space, and has just put out some significant announcements regarding permitting progress at Salamanca in Spain.

We have a new recruit at RFC Ambrian this week. Jonathan Stephens has joined us as Senior Adviser in the London Corporate Finance department. Jonathan has over 18 years of investment banking experience, with ten of these focused on the mining industry, most recently as a Managing Director at RBC Capital Markets. Jonathan joins our team to offer long-term, specialist advice to help clients both address current markets and identify future opportunities. He can be contacted on +44 20 3440 6800 or at


Anatolia Energy — 2Q15 Activities Report — The ASX-listed uranium developer and explorer based in central Turkey has released an activities report for the June 2015 quarter. The key development for the quarter involved the agreed merger between the company and Uranium Resources Inc (URI); this will create a group primarily focused on bringing Anatolia’s Temrezli Project to near-term production. URI has a portfolio of uranium projects in Texas and New Mexico, including two 0.8Mlb pa processing plants in south Texas and a number of ISR projects. Under the all-share agreement, Anatolia shareholders have been offered 0.06579 URI shares for each share they own. At a share price of US$0.86/URI share and an exchange rate of US$0.73/A$, this values each AEK share at A$0.078, representing a 21% premium to its last close.

Operational developments for the quarter include the progression of environmental permitting at Temrezli, with the final EIA Permit expected to be issued in 4Q15. The Phase 2 drilling programme at the Sefaatli prospective satellite project demonstrated continuing strong grades, with a third prospect (Akcami) identified, where drill testing is planned.

RFC Ambrian Comment: Operating cash outflows were of A$1.8m for the quarter, and the company drew down A$1m of the A$2m convertible loan facility provided by URI to fund near-term cash requirements (at a 12% coupon, convertible into AEK shares at A$0.08/share until December 2015). This left Anatolia with a cash balance of A$1.9m at quarter-end, with projected cash outflows over the coming quarter of A$1.9m and A$1m of the debt facility remaining to be drawn. We anticipate the combined group’s balance sheet would be bolstered by URI’s cash position, which stood at US$8.4m as at end-March 2015.

In our piece Anatolia Energy — Announces Merger with Uranium Resources Inc, 4 June 2015 we revised our valuation to allow for: the likely decrease in the capex requirement (due to cost efficiencies and processing synergies with URI’s Rosita plant); the improved access of the combined group to capital; and the value of URI’s existing portfolio. Adjusting our TP/NAV risking from 0.45x to 0.60x to allow for this improved access to capital, and assuming that Anatolia shareholders account for 41% of the combined group on an equivalent basis, our TP moved from A$0.20 to A$0.16, a 150% premium to the last close of A¢0.064.

Berkeley Resources (to be renamed Berkeley Energy) — June Quarterly Report and Background — The Spain-focused uranium exploration and development company announced its June quarterly results yesterday. This gives us the opportunity to present a brief profile of a company that we believe has potential for significant value addition through the expected continued advancement of permitting and the integration of the high-grade Zona 7 deposit into the overall Salamanca Uranium Project.

RFC Ambrian Comment: Although this is not a ‘new’ story, we suspect that the company has been revitalised following a number of recent developments, particularly the appointment of Paul Atherley as MD in mid-June and also the announcement a week ago of some significant permitting progress. These positive developments have been reflected in a very strong share price performance over the last couple of months; it has almost doubled from A$0.21 at the start of June to its current level of A$0.35. We are encouraged by these developments and believe that this is a stock to watch.
In brief, the company owns a 100% interest in the Salamanca Uranium Project, located in central western Spain. The project holds three licence areas; two of these (Alameda and Retortillo) have been the focus of attention to date.

The company completed a scoping study on the project in November 2012 and a positive PFS in September 2013. The project comprised shallow, low strip ratio, open-pit mining and heap leaching using on/off pads to produce an average of 2.7Mlb pa U3O8 over an initial mine life of 11 years (production averaged 3.3Mlb during the first seven years). C1 cash costs were estimated at US$24.60/lb and pre-production capex of US$95m to develop the Retortillo deposit and the plant, with a further US$74m required in Year 2 to develop the Alameda satellite deposit and to achieve steady-state production.

The PFS was based on the development of the Retortillo and Alameda deposits and their then resources of 34Mlb U3O8 at a grade of 424ppm. Additional resources at the time outside of these two deposits and the scope of the PFS totalled a further 27Mlb.

A DFS is currently underway on the Salamanca Project (the Alameda and Retortillo deposits), but — significantly — scoping studies are also underway into the integration of Gambuta (a deposit on the company’s third licence area, 145km from Retortillo) and, more importantly, the shallow, high-grade Zona 7 deposit (on the Retortillo licence).

The Zona 7 resource was updated in November 2014, increasing from 3.6Mlb to 30.1Mlb, at a grade of 589ppm (39% higher than the average grade of the Retortillo and Alameda deposits used in the PFS), increasing the total project resource by 43% to 88Mlb. We believe that the integration of Zona 7 into the project has the potential to improve project economics further. An infill and extension drill programme is underway on Zona 7, with the aim of delivering an updated resource statement during September.

Given its European location, mine permitting is always going to be a sensitive issue. However, there is a well-defined process for permitting and the project is based on an area that was mined for uranium by a Spanish state entity in the past. The Mining Licence and the Environmental Licence have already been granted for the Salamanca Project, and applications for the remaining permits have been lodged with the authorities. The company plans to submit initial documents for the permitting of Zona 7 in 4Q15.

The company is well funded, with cash resources of A$13m at the end of June 2015. It has a current market cap of A$63m and an EV of A$50m/US$37m.

Thu, 30 Jul 2015 11:17:00 +0100
SP Angel Morning Oil & Gas Sirius Minerals, Wolf Minerals Limited, Gem Diamonds and Ferrum Crescent US – The Fed kept timing of the 2015 rate increase open.
• The economy is said to have been growing stronger since last meeting in Jun with firmhiring and improved husing market activity.
• “The labour market continued to improve, with solid job gains and declining unemployment. On balance, a range of labour market indicators suggests that underutilization of labour resources has diminished since early this year,” the Fed said.
• Regarding the pace of future rate increases the Fed said it needs to see “some further improvement in the labour market” with signs that inflation is moving back to its two percent objective over the medium term.
• There are two job reports scheduled to come out before the next Sep FOMC meeting.
• Should employment post strong results there is an increasing chance the Fed will move with the first rate hike in Sep.
• US equity markets closed higher on the back of the Fed announcement.
• Economic news due today:
o Q2 GDP (+2.5%qoq v -0.2%qoq in Q1/15), Q2 core PCE (+1.6%qoq v +0.8%qoq in Q1/15)

Japan – Industrial production expanded at the fastest rate in the last year rebounding from a decline posted in May.
• Industrial output: +2.0%yoy in Jun v -3.9%yoy in May and +1.3%yoy forecast.
• On a less positive note, most of the increase was led by a build-up in inventories.

Germany – Inflation accelerates in major regions with the country-wide estimate due later today.
• Prices in Saxony, Brandenburg, Hesse and Bavaria climbed 0.2%mom in Jul, up from no change and up to -0.2%mom recorded in Jun.
• Inflation: +0.3%mom/+0.1%yoy v -0.2%mom/+0.1%yoy in Jun.

Spain – GDP growth accelerated to the strongest reading since Q4/07
• The economy registered the eighth consecutive quarterly increase.
• GDP: +1.0%qoq/+3.1%yoy v +0.9%qoq/+2.7%yoy in Q1/15 and +1.0%qoq/+3.2%yoy forecast.
• A separate report showed the economy slipped deep into deflation (-1.6%mom/-0.1%yoy v +0.2%mom/+0.0%yoy in Jun and -1.5%mom/+0.1%yoy forecast).

Brazil – The central bank raised the benchmark rate 50bp to 14.25pp, the highest level in nine years.
• The move marks the seventh consecutive hike in the latest monetary tightening cycle amid strong inflation running at an 11year high.
• Inflation currently stand at 9.25%, more than twice the government’s target of 4.5%.

Kenya passes Mining Law
• The senate has passed a new mining bill which was long awaited.
• The government is to be a given a free carry of 10%.
• Firms will also be required to sell 20% of their shares on the Nairobi Bourse to raise capital.
• Royalty rates of 6%.

US$1.0967/eur vs 1.1039/eur yesterday.   Yen 124.18/$ vs 123.70/$.   SAr 12.624/$ vs 12.590/$.   $1.561/gbp vs 1.559/gbp
US$0.730/aud unch vs0.731/aud. 

Commodity News
Precious metals:

Gold US$1,086/oz vs US$1,097/oz yesterday –
Platinum US$986/oz vs US$987/oz –
Palladium US$620/oz vs US$622/oz  – 
Silver US$14.68/oz vs US$14.67/oz  –

Base metals:
Copper US$ 5,265/t vs  US$5,313/t –
Aluminium US$ 1,653/t vs US$1,657/t –
Nickel US$ 11,100/t unch vs US$11,330/t –
Zinc US$ 1,942/t vs US$1,978/t –
Lead US$ 1,710/t vs US$1,732/t  –
Tin US$ 16,000/t vs US$16,300/t   –

Oil US$53.80/bbl vs US$52.70/bbl
Natural Gas US$2.847/mmbtu vs US$2.844/mmbtu
Uranium US$36.00/lb unch vs US$36.00/lb – Japan to restart two reactors in the next two weeks.  It might take a while for uranium stocks to come down but uranium might prove to be one of the better commodities to invest in going forward.  China is also due to commission a number of new reactors.

Bulk commodities:
Iron ore 62% Fe spot (cfr Tianjin) US$51.40/t unch vs US$51.20t –
Thermal Coal $56.4 vs $56.7 cif ARA Europe –
Tungsten - APT European prices price $220.0/mtu unch vs $225/mtu – No change to tungsten this week, prices still skewed by the sale of poor quality material.
• Wolf Minerals reckon some material is coming off the market which might lead to slightly tighter supply, though this may be wishful thinking

Company News
Ferrum Crescent (LON:FCR) 0.475 pence, Mkt Cap £2.9m – Quarterly focussed on activities at the Moonlight Project
• As previously reported the company is working on its BFS for the iron ore deposit at Moonlight.
• The company are looking into developing a high grade pellet product for the local market.
• Further work includes: Infill drilling is to be undertaken to establish a JORC Reserve, decision on whether bulk sampling is required, final beneficiation and pellet design and discussions with infrastructure providers.
• The company completed a private placement to raise £0.5m and a MOU in place with Principle Monarchy Investments to acquire up to 39% of the project.

Gem Diamonds (LON:GEMD) 135 pence, Mkt Cap £186m – H1 2015 Trading Update
• Letseng; The company recovered 50,019 carats over the first half with Q2 seeing improvement in recovered grades of 1.64 cpht against 1.57 cpth in Q1.
• Production is down 7% from the same period last year.
• Ore treated was down 3% to 3.1Mt with waste stripped up 15% to 11.4 Mt.
• Higher waste stripped is expected to realise in higher grade ore being mined in the Satellite pipe.
• Plant 2 Phase 1 upgrade was completed on schedule but resulted in shutdown of 19 days reflected in the lower ore treated.
• Plant 2 is said to be operating well and on track to meet improved head grades.
• 67% of the ore treated came from the Main pipe and 33% from the Satellite pipe.
• Carats sold over the period were down 15% to 46,961 carats.
• As previously reported, the number and composition of the Letseng tenders have been change with 8 tenders being held instead of 10.
• Four tenders were held during the period with an average price of US$2,264/carat down 3% on the same period last year.
• 237 carats were put into the manufacturing at a rough value of US$3m with US$6.9m in polished inventory at the end of the period.
• Ghaghoo: 132,125 tonnes were treated from Level 0 as work continued to establish production in Level 1.
• Once tonnage can be recovered the plant can achieve its capacity of 60,000 tonnes a month.
• A total of 32,283 carats have been recovered with 8 diamonds larger than 10.8 carats including a 41 and 35 carat diamond.
• In July a 48 carat blue diamond was found.
• Sales from Ghaghoo in July achieved US$4.9m or US$165 per carat.
• At the end of the period, the Group had US$83.8m cash on hand with US$75m attributable to Gem Diamonds.
• The Group has drawn down US$34.2m of available facilities.
• The overall diamond market continues to remain challenging with high inventory levels and continued liquidity concerns.
Conclusion: Operations are in line with expectations. Letseng stones continue to perform with the average carat value only down 3% against 10% for companies such as Petra Diamonds which have a broader distribution of stones across their mines. The overall diamond market remains difficult with most diamond producers continuing to cite high polished inventory levels and continued liquidity concerns. Production from Ghaghoo remains slow but it is good to see scope for bigger stones and particularly the scarcer coloured stones.

Wolf Minerals (LON:WLFE) 15.75 pence, Mkt Cap £127.5m – Quarterly update shows Drakelands mine commissioning on track
• Wolf Minerals reports that commissioning of the Drakelands tungsten mine in Devon is progressing well, is on track, “the flow sheet is working as envisaged” and that the contractor is to hand over the plant to the company following a Performance test in August.
• This puts Wolf Minerals on course to make initial deliveries of tungsten concentrates to its customers in September and ramp-up the operation to full capacity by early next year.
• Operations are currently permitted to operate a 7 day week schedule as a test to determine whether the 5.5 day per week conditions included in the permits can be relaxed on a permanent basis. If this can be achieved, the company would effectively gain around a 25% increase in the capacity, currently 345,000 mtus of tungsten trioxide per year, without meaningful additional capital expenditure.
• Grade control drilling of the upper 20m of the deposit, which will supply the first 18 months of production feed, has shown a “close alignment to the ore reserve model used in the feasibility study.” This should provide confidence that there will be few unforeseen surprises in the ore feed during the initial period of production.
• Commenting on the state of the market for the benchmark intermediate product, ammonium paratungstate (APT), the company points out that “The average APT Price published by Metal Bulletin for the quarter was US$242/mtu (FOB Europe), a 14% reduction from the average price for the previous quarter, and some $118/mtu lower than when construction commenced in March 2014”.
• The company goes on to note that some supply has left the market and “New supply from projects outside of China is expected to be limited for the next few years which may result in a tighter supply scenario.”
• Cash at 30th June amounted to A$34.4m.
Conclusion: Wolf Minerals is reaching the end of the construction and commissioning of the UK’s first new major metal mine in over forty years. The whole 16 months process appears to have gone smoothly and although tungsten prices are under significant pressure, the low cost nature of the Drakelands mine at Hemerdon should insulate the company to some extent and leave Wolf Minerals well placed to benefit from any future upturn in prices.

Sirius Minerals (LON:SXX) - 17 pence, Mkt Cap £370m – Results for year to 31st March
Sirius Minerals reports a loss of £9.6m (0.5p/sh) for the year to 31st March. The company ended the year with cash of £26.6m (net £24.7m).
• Post year end events focus on the receipt of the landmark planning permission to develop the mine, mineral transport system and materials handling facility which should allow the development to proceed and should require the focus to shift away from permitting to project engineering and financing.
• The final decision for the development of the Harbour Facilities at Teeside is due from the Secretary of State by the summer of 2016.
• The company has made substantial progress on a number of marketing initiatives and crop trials to demonstrate the effectiveness of the polyhalite product for a number of crops including tomatoes and potatoes.
• The company has secured “take-or pay” agreements with a number of entities including fertiliser distributors in South and Central America and has agreed on research initiatives with the Tanzanian Ministry of Agriculture for the use of polyhalite in Tanzania.
Conclusion: Sirius Minerals has now achieved most of its permitting and only the port development  permit remains outstanding. The focus has now to move onto development  and in particular to financing the £1.7bn project.

Thu, 30 Jul 2015 10:26:00 +0100
The Pay Zone: Oil Price Independent Oil & Gas, Victoria Oil & Gas, Royal Dutch Shell, Amerisur Resources and others WTI $48.79 +81c, Brent $53.38 +8c, Diff $4.59 -73c, NG $2.89 +6c
Oil price

WTI rose for the first time in five trading sessions yesterday after a set of inventory stats yet again flummoxed Wall Street’s finest. The EIA numbers came in with a stock draw of 4.2m barrels with the teenage scribblers having crayoned in a small rise, better luck next time kids. Seriously though, as I mentioned before, these numbers really needed to be a draw and a draw at Cushing was also a big help. To carry through any sort of rally in the crude price the market needs to see stocks drawing probably through to Labor Day and beyond but this is at least a start.
The other slightly better piece of news came from Saudi Arabia who are seeming to flag a modest cut in production in September, this is due to lower domestic demand at the end of the summer and wont help market that much as exports are unlikely to tumble.

Shell (LON:RDSA)
Shell reported Interims  this morning and they certainly beat my expectations with a clean 2Q number of $3.8bn down from $6.1bn on 2014 2Q. Obviously upstream was sharply down but even that figure was offset by lower costs and depreciation charges. Downstream was a fair bit better than I had expected, beating Q1 and showing an improved financial performance and higher refining margins which we had all spotted. Gearing is a respectable 12.7%, down a touch on this time last year. On dividends, the company scotched the bogey of any idea of a cut by saying that it would be ‘at least maintained’ and as for the share buy back it stays at $25bn between 2017-2020, not something BP (LON:BP.) could afford.

As one might expect costs are coming down everywhere, this year operating costs are down by $4bn with more to come and as for capex it too is down, by $7bn or 20% to $30bn. Lots on the BG ‘combination’ which is moving ahead steadily and of course cost savings are at the forefront, bigger than previously expected with $2.5bn a year from 2018 onwards and $30bn of asset sales between 2016-18. The deal will reshape the combined company and with its mantra of ‘grow to simplify’ will downsize numbers of but increase the size of international projects as it takes on fewer,higher value projects. Shell says that it will remain prudent through the downturn with the capacity to pay ‘attractive’ dividends to shareholders over the long term. As I have said before recently, despite the sector being out of favour and recent performance by Shell to be dire, I would be adding to holdings at these levels on a long term view supported by a yield well over 6%.

Anadarko (NYSE:APC) pleased the market yesterday with market beating earnings of 12c, even being in the black was a surprise to some analysts. With production up and costs down, APC is probably a reflection of what the attitude is to lower oil prices, Opec or no Opec…
Cape (LON:CIU) has announced a contract award from BP for work on the Clair Ridge project worth £9.8m, a long standing client, this is further reason why I am convinced that faith in this top quality management team will be rewarded.

I went to TipTV yesterday to update on a number of stocks where important milestones are taking place so if you are interested in Independent Oil & Gas (LON:IOG), Pantheon (LON:PANR), Bowleven (LON:BLVN) , Victoria Oil & Gas (LON:VOG)  or Amerisur (LON:AMER) just click on the link below or go to the blog website on

And finally…
The fairground ride that is the latest Ashes series continues, yesterday it was the Aussies turn to bat with sticks of rhubarb and were all out for 136. The interesting stat is that at Lords England were castigated for being bowled out in a humiliating 37 overs, the duration of the Australian innings yesterday….36.4 overs…Anderson took 6-47, not bad for a man who was being written out of the series a few days ago. Many more twists and turns in this one I suspect.

Celtic got a respectable 0-1 away last night at Qarabag and will hope to cruise leg two whilst tonight the happy Hammers continue the slog by hosting Astra Giurgiu of Romania at fortress Upton Park…

And of course we couldnt finish without paying respects to the voice of racing, Sir Peter O’Sullevan who died yesterday at the age of 97, a true great in his world over many years.

Thu, 30 Jul 2015 09:35:00 +0100
Fed Says Labor Market Improves as It Moves Toward Rate Rise Fed Says Labor Market Improves as It Moves Toward Rate Rise
Here is the opening of this topical article from Bloomberg: Federal Reserve policy makers said the job market has made further gains, keeping them on a path to raise interest rates this year for the first time in almost a decade without providing a clear signal on the timing of liftoff.
“The labor market continued to improve, with solid job gains and declining unemployment,” the Federal Open Market Committee said in a statement Wednesday in Washington. It dropped the modifier “somewhat” from its description of the decline in labor-market slack.
With Chair Janet Yellen and her fellow policy makers saying their decisions are “data dependent,” the focus turns to figures on growth, jobs and inflation that will help determine whether the Fed raises rates in September, as many economists expect, or later in the year.
“The committee is keeping the door open for rate hikes later this year, not necessarily opening it further or closing it,” said Michael Gapen, chief U.S. economist for Barclays Plc in New York and former Fed Board economist. “Labor markets have improved further, and they need to see a little more improvement to be ready to go.”
Stocks extended gains, with the Standard & Poor’s 500 Index climbing 0.7 percent to 2,108.57 as of 4:08 p.m. in New York. Treasuries remained lower, with the 10-year note yielding 2.28 percent, up three basis points, or 0.03 percentage point, from late Tuesday.
David Fuller's view
The Fed, while still data dependent, is predictably preparing stock market investors for the quarter-point rate hike that it would like to introduce this year.  In addition to US economic data, there are two other factors which could influence the decision in favour of either September or December.
This item continues in the Subscriber’s Area.

Submarine Killers: India $61 Billion Warning to China
Here is the opening of this informative article from Bloomberg: In a dock opening onto the Hooghly River near central Kolkata, one of India’s most lethal new weapons is going through a final outfit.
The Kadmatt is a submarine killer, bristling with technology to sniff out and destroy underwater predators. It’s the second of four warships in India’s first dedicated anti-submarine force -- a key part of plans to spend at least $61 billion on expanding the navy’s size by about half in 12 years.
The build-up is mostly aimed at deterring China from establishing a foothold in the Indian Ocean. It also serves another goal: Transforming India’s warship-building industry into an exporting force that can supply the region, including U.S. partners in Asia wary of China’s increased assertiveness.
“India’s naval build-up is certainly occurring in the context of India moving towards a greater alignment with U.S. and its allies to balance China,” said David Brewster, a specialist in Indo-Pacific security at the Australian National University in Canberra. “India wants to be able to demonstrate that Beijing’s activities in South Asia do not come without a cost, and Delhi is also able to play in China’s neighborhood.”
China showed its growing naval prowess when it deployed a nuclear-powered submarine to patrol the Indian Ocean for the first time last year, while a diesel-powered one docked twice in Sri Lanka. India says another Chinese submarine docked in May and July in Pakistan, which is reportedly looking to buy eight submarines in what would be China’s biggest arms export deal.
The U.S.’s Seventh Fleet has patrolled Asia’s waters since World War II and is backing India’s naval expansion. On a January visit to New Delhi, President Barack Obama pledged to explore ways of sharing aircraft carrier technology. The two countries also flagged the need to safeguard maritime security in the South China Sea, where neither has territorial claims.
David Fuller's view
There has been considerable concern over Communist China’s rapid military expansion during the last decade, not least concerning its maritime and island claims within the South China Sea.  These claims are clearly not based on international maritime agreements, including the United Nations Convention on the Law of the Sea.  Consequently, in the South China Sea alone, China is in dispute with Brunei, Taiwan, Malaysia the Philippines and Vietnam, and proceeding on a might is right basis. 
These countries would like to see the United States remain a presence in the region.  The US, in turn, has a strong alliance with Japan, and now increasing also with India, which it sees as potentially the fastest growing regional power.  India, which also has a longstanding boarder dispute with China, will almost certainly receive at least technological assistance from the US in developing its navy.  This will help India’s economy to grow, as it aims to export naval equipment to allies within the Asia Pacific region and beyond.
Clearly, as the Asia Pacific region develops there will be a considerable increase in military strength, led by India and Japan, mainly in response to China.  This is not without some risk, and thus it always was.  However, a balance of power, which, incidentally Europe does not really have with NATO, is also a restraint on territorial ambitions. 

Alarm Bell Rings in Tokyo at Rapid Rise in German Exports to China
Here is the opening of this topical article from Bloomberg: As if Japan didn't have enough economic problems to overcome, officials in Tokyo have identified another worrying trend: lagging export growth to China.
Rapid gains in German shipments to China have caught their attention, with exports from the European powerhouse doubling in value since 2008 and reaching 74.5 billion euros ($82.5 billion) last year.
Japanese sales to China, the nation's biggest trading partner, crept up by just 3.3 percent over the same period. Japan still holds a solid lead though, with to 13.4 trillion yen ($109 billion) worth of shipments to China in 2014.
David Fuller's view
With all of the European Union’s recent and perennial economic problems, it is easy to lose site of a key fact.
This item continues in the Subscriber’s Area.

Thu, 30 Jul 2015 08:10:00 +0100
Northland Capital Partners View on the City Accesso Technology group, Kromek and Corero Network Security Kromek Group plc (LON:KMK) Final results
Market Cap: £30m; Current Price: 27.5p
Revenue increased 36% YoY

  • Kromek announced its final audited results for the year ended 30 April 2015.
  • Revenue increased 36% to £8.1m (2013/14: £6.0m)
  • Gross margin increased to 69% (2013/14: 65%)
  • Loss before tax was reduced to £3.1m (2013/14: £4.3m loss)
  • Cash and cash equivalents at 30 April 2015 were £1.2m (31 October 2014: £2.9m; 30 April 2014: £6.6m).
  • Also announced today, Kromek entered into an agreement to raise £9m through a Firm Placing and up to a further £2m through an Open Offer at a price of 25p per share, representing a 29% discount to the previous market price.

NORTHLAND CAPITAL PARTNERS VIEW: Kromek’s sales leapt forward, achieving 36% YoY growth. Moreover, management reported good visibility on the group’s order book, with contracted revenues for the year ahead currently totalling 60% of the group’s expectations for the year. Also, the group significantly strengthened its balance sheet, having raised up to £12m in a Firm Placing and Open Offer.

accesso Technology (LON:ACSO): Trading update and contract extension
Market Cap: £117m; Current Price: 535p
FY15 in line but expects outperformance FY16 and FY17

  • Management has reiterated guidance for its performance for FY15 (consensus EPS 20.5p) but believes that, given the momentum across the business, FY16 will be ahead of expectations (23.6p) and FY17 will be materially ahead.
  • Signed an exclusive long term agreement with long term customers Merlin Entertainments for a fully hosted online ticketing and eCommerce systems across Merlin’s global portfolio. The initial contract term is for seven years and includes the installation and deployment of the hosted accesso Passport ticketing system. Installation will occur over three years and include more than 100 attractions.

NORTHLAND CAPITAL PARTNERS VIEW: Encouraging trading update and securing Merlin on a multi-year and multi-site basis increases revenue visibility. Shares have been weak over the past quarter (down 12%), that has brought the rating more into line with other technology providers with a hosting element at 26.1x FY15 and 22.7x FY17. We continue to believe the leisure industry will continue to invest in new systems and accesso is well placed to benefit.

Corero Network Security (LON:CNS): Profit warning and proposed fund raising
Market Cap: £12.3m; Current Price: 10.6p
DDoS opportunity growing but sales cycle lengthening

  • Growing number of service provider trials for SmartWall Threat Defense System (TDS) supports the outlook for a better H2 but the longer sales cycle for larger opportunities will impact FY15 results. H1 highlights include a SmartWall order worth >$500k from a US service provider as well as customer wins across multiple target market (service providers, hosting providers and on-line enterprises) and a partnership with Verisign.
  • Proposed fundraising to raise up to £5.0m at 10p per share. The proceeds will be used to support SmartWall TDS sales and marketing activities in Europe and the US and further product development. Management expect to achieve positive cash flows in H2 2016.
  • Directors have considered its AIM listing and decided to remain listed on AIM at the present time but will continue to assess the appropriateness.

NORTHLAND CAPITAL PARTNERS VIEW: Commercial traction for Corero’s SmartWall TDS remains frustrating. The threat posed by DDoS attacks is growing and is well understood and Corero is winning in competitive situations but sales cycles are long and the company requires additional funding (net cash at December was $6.0m). Jens Montanana (39.5%) has proven himself to be a supportive shareholder in the past.

Thu, 30 Jul 2015 08:07:00 +0100
Cautious Fed leaves door ajar for September hike FTSE100 Index called to open +20pts at 6650 with the rebound from 6500 lows having broken above 1-week falling highs and retraced 50% of the declines from 6815 early last week. Trendline of rising lows offers support around 6630 while test of 6650 as we write bodes well for recovery towards 6815 July highs. Updated watch levels: Bullish 6660, Bearish 6625.

The positive opening call comes as Asian stocks follow their US counterparts higher - extending their bounce - after the US Federal Reserve said it was closer to a rate hike this year thanks to an improving labour market, keeping the door open for a September hike even if inflation remains sub-target and additional data points or external factors (Greece, China) could see it hold off until year-end.
A bounce by oil on higher US inventories and potential Saudi production cuts is also helping along with a stronger USD Index (set for biggest monthly gain since March) following the Fed update and better than expected earnings reports (Facebook, Hitachi, NTT Docomo), although Samsung did miss forecasts on disappointing Galaxy sales.

US stocks closed higher for a second day helped by the positive economic assessment by the Fed, the bounce in the oil price and on the whole decent earnings reports.

Japan’s Nikkei higher thanks to weaker JPY and industrial production data beating expectations. Australia’s ASX higher, led by miners and commodity price strength and despite Building Approvals plunging, with the data cooling fears of an overheated property market. Note Chinese bourses mixed as intervention continues to prop up a burst equity bubble.

While things might seem quiet on the Greek front, with final bailout negotiations only just getting started, note PM Tsipras facing new challenges from Syriza hardliners over the third bailout which could see him lose parliamentary majority although he vows not to be blackmailed. A tech glitch has also resulted in the Athens stock exchange remaining closed through next week.

In focus today – German Unemployment at 8.55am Eurozone Confidence and Business Climate indicators at 10am, German Consumer Price Inflation at 1pm and then US jobless claims and GDP updates at 1.30pm. Results from a plethora of US corporates including Amgen (AMGN), Colgate Palmolive (COL), Fiat-Chrysler (FCAU), P&G (PG) and Marriot International.

Oil saw renewed strength yesterday which could trim is biggest monthly loss this year following an unexpected drawdown in US stockpiles and reports that Saudi Arabic will reduce production which gave renewed hope of a rebalancing of the global supply/demand dynamic. Note US Light Crude broke >$48 to test $49.5 while Brent broke >$53.7 to test $54.5.

Gold looks set for its worst month since 2013 with the Fed outlook and resulting stronger USD (albeit with a 12hr delay) seeing it fall back to test $1085 having been sideways around $1095 for 3 days. Are we headed back to recent 5.5yr lows of $1077? Safehaven far from safe?

Thu, 30 Jul 2015 08:02:00 +0100
Beaufort Securities Breakfast Alert Eurasia Mining, Northcote Energy, Sky Plc, Taylor Wimpey and others The Markets

Market opening: Markets are likely to open higher today. FTSE 100 futures were trading 2.50 points up at 7:00 am.

New York: Wall Street moved up for the second day after the Fed decided to leave the interest rate unchanged. An improvement in commodity prices boosted investor sentiments. The S&P 500 advanced 0.7% driven by the energy sector.

Asia: Equities are trading higher. The Nikkei 225 gained 1.0% amid positive corporate earnings and after the industrial output in Japan increased to 0.8% in June. The Hang Seng was trading 0.2% up at 7:00 am, tracking the stocks in China.

Continental Europe: Markets ended in green following strong corporate earnings results. Investors also kept a close watch on the closure of the two-day FOMC meeting seeking signals of change in interest rates. France’s CAC40 and Germany’s DAX increased 0.8% and 0.3%, respectively.

Crude Oil: Yesterday, WTI and Brent Crude Oil prices improved 1.7% and 0.2%, respectively. The spread between the two varieties stood at US$5.4 per barrel.

UK small caps: The FTSE AIM All-Share index closed 0.03% lower yesterday at 749.16. To read our latest research click here.

Today’s news

UK retail sales growth slows in July: CBI

According to the Confederation of British Industry (CBI), sales balance in the UK slowed for the second consecutive month, dropping to +21 in July from +29 in June, missing the economists’ expectations of an increase to +30.

Company News

Eurasia Mining (LON:EUA) – Speculative Buy

Yesterday, Eurasia Mining announced the re-commencement and acceleration of development studies at its Monchetundra PGM licence area. In 2010, the company had discovered high grade platinum and palladium mineralization near the surface in the West Nittis area of Monchetundra licence, followed up by confirmatory drilling in 2013. These results had confirmed the presence of ‘Hanging Wall’ Copper-Platinum Group Metal, (copper-PGM) type ore. The company plans to submit a feasibility study later this year or early in 2016, to the government agency Rosnedra to obtain a Discovery Certificate. The planned work includes a drilling programme to calculate the resources and sufficient core samples for metallurgical testwork. Additional drilling for hydrogeological tests will be carried out, as well as for base-line environmental sampling.

Our view: The resumption of exploration work at the Monchetundra licence augurs well for Eurasia Mining. Moreover, the receipt of a Discovery Certificate is likely to improve the intrinsic value of the project and may propel the company to expand into the open unlicensed ground if the mineralization extends there. On the other hand, the company recently obtained a mining permit for its West Kytlim alluvial deposit in the Urals in Russia. We remain hopeful that the company would present a detailed development plan for West Kytlim in the near term and Monchetundra has the potential to transform into a significant asset. Thus in view of the above developments, we retain our Speculative Buy rating on the stock.

Beaufort Securities acts as corporate broker to Eurasia Mining plc

DDD Group (LON:DDD) – Speculative Buy

Yesterday, DDD Group announced the renewal of its license agreement with Samsung Electronics. The agreement has been extended till the end of 2016 for the use of DDD’s TriDef® 2D to 3D technologies with Samsung’s 3D video processing chips, also used in Samsung’s Smart TVs and various Samsung 3D consumer products.

Our view: DDD extended its license with Samsung for the seventh successive year to provide them diverse 3D content for a variety of 3D TVs. Earlier this year, the company also entered into a agreement for its TriDef® SmartCam™, an innovative real time background replacement solution for current Windows PC applications, with SplitmediaLabs for use in its popular XSplit Broadcaster and XSplit Gamecaster application. This partnership is expected to bring the TriDef® SmartCam™ abilities to a new and quickly growing audience that is hooked onto game video sharing, mainly on Twitch and YouTube. Going ahead, the company plans to focus on the development of 3D sensor market and 2D streaming market along with extending their services to technology clients. In view of the above argument, we maintain a Speculative Buy rating on the stock.

Beaufort Securities acts as corporate broker to DDD Group plc

Northcote Energy (LON:NCT) – Speculative Buy

Yesterday, Northcote announced that the company in collaboration with its Joint Venture (JV) partner Gaia Ecologica, has formed a JV entity Mayan Drilling Fluids SAPI de CV( JVCO) for the development of a remediation facility, in Tabasco, located in Mexico. The company is the funding partner with 51% equity in the JVCO and Gaia, the operating partner with 49% stake. In addition, Northcote would also incur all the initial expenditures for the execution of Mayan’s business plan and would be entitled to 85% of distributable cash flow till pay-out along with 9.0% internal rate of return (IRR) on its investment. Post the implementation; the profits would be distributed based on equity ownership. During the phase1 of the project, the JVCO would build and commission the facility in the first six months, at a projected cost of less than US$1m. The facility would operate the entire day with a capacity to handle more than 700tonnes per day, having the potential to increase based on the growth in demand. The facility is expected to operate in the price range of US$60 to US$100 per ton of waste treated, similar to the plants in South Texas. Juan Osmon, the President of Gai would serve as President of Mayan Drilling Fluids, and Randall Connally to represent Northcote on the Board. In a separate announcement, the company informed that Randall Connally, CEO of the company acquired 9,523,809 ordinary shares at an average price of 0.16p per share.

Our view: Northcote’s decision to setup a remediation facility follows its future roadmap to invest heavily in the Mexican energy sector. The company has designed the development strategy in such a manner that the site would start generating cash flows just after its commission. Further, the site is located close to the port reducing the distance that oil and gas operators would require to transport their waste for remediation. The facility increases the diversity of Northcote’s services and would keep them competitive in an industry which has witnessed sharp movements in commodity prices. Going ahead, the company expects to increase its activities in fast growing Mexican energy sector and expand the operations to Indonesia to extend the company’s international presence. In view of the above developments, we maintain a Speculative Buy rating on the stock.

Beaufort Securities acts as corporate broker to Northcote Energy plc

Taylor Wimpey (LON:TW.) – Buy

Yesterday, Taylor Wimpey declared its results for the half year (H1) ended 28th June 2015. The revenues for the company increased to £1,335.3m from £1,190.1m in H1 2014, led by a rise in total house completions to 5,842, up 2.6% and a 9.2% y-o-y upsurge in total average selling price to £225,000.Taylor’s operating profit margin advanced 310 basis points to 19.2%, leading to a pre-tax profit of £238m against £178.4m in the previous year. The net cash for the company soared 342% to £87.6m, prompting a hike in EPS to 5.8p from 4.7p. During the period, Taylor’s return on net operating assets improved 540 basis points to 23.2% and the tangible net asset value per share increased 11.5% to 82.1p. Further, the company announced an interim maintenance dividend of 0.49p to be paid on 2nd October 2015 and also proposed a cash return of £300m payable in July 2015. On the operational front, Taylor acquired 3,620 high-quality plots in the UK short term land market and converted 5,666 plots from the strategic pipeline. The company was selected by the Ministry of Defence along with Dorchester Regeneration to develop Prince Phillip Barracks in Bordon, Hampshire, to construct 2,400 new homes over the next 15 years. Taylor’s order book currently has 8,120 homes with a total value of £1,859m. Further, the company also contributed £166m to local communities to provide local infrastructure, affordable homes, public transport and education facilities.

Our view: Taylor delivered strong half yearly results owing to the improvement in house completions and an increase in average selling prices. The company continues to expand with the current scale of landbank at 77,000 plots, and plans to target additional sites with minimal capital and risk. Taylor’s recent partnership with Dorchester Regeneration is expected to be fruitful owing to the size of the project, low initial investment leading to low land risk, thereby reducing the exposure to overall market fluctuations. The company continues on its plan to increase shareholder value as it announced £300m cash return to shareholders in July 2016. Overall, the company’s prospects look good with a huge order book aided by improving macroeconomic conditions. In view of the above argument, we reiterate a Buy rating on the stock.

Sky (LON:SKY) – Buy

Yesterday, Sky released its full year results for the twelve months ended 30th June 2015. During the period, the company’s statutory revenues surged 34% to £9,989m and the EBITDA improved 13% to £1,738m. On an adjusted basis, the revenues expanded 5% to £11,283m and the operating profit was up 18% to £1,400m. Pre-tax profit increased 6% to £1,196m. However, the basic earnings per share declined 2% to 56.0p. On the operational front, the company added 973,000 new customers, up 45% y-o-y and reported 4.6 million new paid-for subscription products. Region wise, the company continued to grow in the UK, Ireland, Germany, Austria and Italy. During the period, the company also secured many rights deals and also made progress with its original content. The company premiered Fortitude drama series and the Italian political drama 1992, across all five territories and the fifth series of HBO’s Game of Thrones was launched exclusively to Sky customers across all markets. The newly commissioned dramas include The Last Panthers, The Young Pope, and a new co-production with HBO and Canal+. The company successfully bid for Premier League’s tender process in the UK, and won the rights to telecast 126 live Premier League matches a season from 2016 to 2018. Sky’s NOW TV continued to witness good progress with transactions totalling almost 1.5 million for the year. On the innovation front, Sky has tried to bring forward best range products and services to its customers through investments in Sky Box Sets, launch of a brand new Sky Online service in Germany and enhancing its digital capabilities in service, among others. The company also proposed a full-year dividend of 32.8 p per share, up 3% y-o-y.

Our view: Sky’s revenues and profits swelled for the year as the customers responded well to the quality and breadth of the content offered by the company. The combination of BSkyB, Sky Deutschland and Sky Italia in November last year has significantly benefitted the company as the expanded business provided additional leverage to operate on a greater scale. With an aim to become the one stop shop for the home phone, broadband, TV and mobile bundles, the company experimented with innovative services to produce and distribute content to its growing digital audience. Sky launched some extremely successful original drama series and aims to provide better content quality with the telecast rights for the Premier League. On the other hand, the company continues to seek value propositions among start-ups to service its intention of higher market share. In view of the above, we believe that the company would remain a strong player in the European media industry and therefore reiterate a Buy rating on the stock.

British American Tobacco (LON:BATS) – Buy

Yesterday, British American Tobacco (BATS) declared its unaudited results for the H12015 ended 30th June 2015. The company’s revenues increased 2.4% at constant rates of exchange to £6,962m, led by improvements in the American and Western Europe regions. However, the revenues at current exchange rates declined 5.9% to £6,398m because of the adverse exchange rate movements. BATS’ cigarette volume declined 2.9% to 322billion as against the anticipated decrease of around 3.5%. On the other hand, the cigarette market share in key markets continued to improve owing to an increase in the Global drive brands volume of/by?? 6.0%. The company’s profit from operations rose 3% (constant currency) to £2,533m resulting in an EPS rise to 142.4p from 93.3p in H1 2014. BATS declared an interim dividend of 49.4p, 4% higher than the previous year to be paid on 30th September 2015. On the operational front, the company invested US$4.7bn in cash to maintain its 42% stake in its associate Reynolds American as part of its acquisition of Lorillard. BATS also signed an agreement to acquire TDR, a leading independent cigarette manufacturer in Central Europe, for a consideration of €550m. Further, company’s e-cigarette brand Vype continued its strong performance in the UK. BATS also launched Vype e Tank in July this year with a range of liquids.

Our view: BATS delivered good results despite pressure of volatile currencies and challenging market conditions. The company has constantly worked to improve its product range as it continued to make changes to its existing products with a range of flavours and varying nicotine content. BATS’ expects the final approval of its latest acquisition of TDR by October this year. The deal would enhance company’s product portfolio and expects to benefit from the well established brands, enriched local leaf processing abilities and good relationships with distributors in these markets. Further, the company plans to develop a variety of tobacco heating products and expects to perform a market test in this year. BATS continued on its plan to increase dividends y-o-y as it announced an interim dividend of 49.4p to be paid later this year. We believe, the company is on track to deliver strong performance for the entire year owing to its huge range of products and global reach. Therefore, we reiterate a Buy rating on the stock.

Economic News

US MBA mortgage applications

US mortgage applications increased 0.8% in the week ended 24th July following a 0.1% increase in the previous week, the Mortgage Bankers’ Association said yesterday. Refinance index improved 1.6%, while the gauge of loan requests for home purchases dipped 0.1% over the week.

UK mortgage approvals

The British Bankers’ Association (BBA) stated mortgage approvals for house purchases climbed to 66,582 in June, from an upwardly revised 64,286 in May. The economists had forecasted a figure of 66,000. The rise in approvals indicates the housing market continues to perform well after the general election in May.

US FOMC rate decision

The US Federal Reserve Open Market Committee (FOMC) retained the benchmark interest rate at a record low of 0-0.25%.

Thu, 30 Jul 2015 07:59:00 +0100
Today's Market View Including Eurasia Mining, SolGold, Antofagasta, Berkeley Resources and others Economic News

US – House prices growth slowed in May despite some regions registering double digit increase.
• S&P CS 20 city index: -0.18%mom/+4.94%yoy v -0.03%mom/+4.95%yoy in Apr and +0.30%mom/+5.60%yoy forecast.
• Despite continuing recovery in the housing sector prices the proportion home ownership in the US has continued to decline and is now at the lowest level since 1967.
• Market commentators point to the tight supply of new homes driving up prices.
• On a separate note, consumer confidence fell sharply in Jul with the CB sentiment index at the lowest since Sep/14.
• The Conference Board consumer confidence: 90.9 v 99.8 (revised from 101.4) in Jun and 100.0 forecast.
• “A less optimistic outlook for the labour market, and perhaps the uncertainty and volatility in financial markets prompted by the situation in Greece and China, appears to have shaken consumers’ confidence,” the CB said.

China – A little of positive news in a raft of soft data released recently.
• Consumer sentiment improved in Jul with the Westpac MNI China Consumer Sentiment Indicator climbing to 114.5 in Jul from 112.3 in Jun.

Germany – Consumer confidence stabilised in Aug following softer set of data in Jul driven by concerns over a potential Grexit.
• GfK consumer confidence index: 10.1, unchanged from Jul and forecasts.
• The index hit a record high of 10.2 in Jun this year.

UK – GDP growth accelerated in Q2/15 driven by gains in services and manufacturing sectors.
• Numbers were in line with estimates coming in at +0.7%qoq/+2.6%yoy v +0.4%qoq/+2.9%yoy in Q1/15.
• Services and industrial production were up 0.7% and 1.0%, respectively.
• Construction growth was flat while agriculture fell by 0.7%.
• In addition, net trade weighed on growth numbers falling by 0.6% amid a 5.9% of GDP current account deficit.
• “Clearly the economy remains worryingly imbalanced, with domestic consumers providing the main driver of growth and exports once again acting as a drag,” Markit said.
• A separate report showed London property prices together with rents went up in Jun.
• Prices climbed 9.2%yoy while rents averaged £699, up 13.3%qoq.

South Africa – haemorrhaging mining jobs as producers cut back shafts and production at major mines
• South Africa is heading for tough times as producers move to cut production, shafts and jobs.
• Many of these jobs are destines never to return as producers move to focus on core production and effectively abandon old workings.
• The capital cost and safety issues in reopening deep level underground operations means these shafts when shut are not likely to reopen.
• Around 10,000 jobs are to be lost in the short term but we would not be surprised to see 20-30% out of a total workforce of 440,000 at risk over the next 12 months.

Zambia - Power restrictions to the mining industry in North Western Province of Zambia
First Quantum Minerals notices of ‘force majeure’ on Kansanshi and Sentinel operations
• Zesco, the Zambian state-run power company has imposed restrictions on power supply to mines in the North West Province.
• As a result, First Quantum Minerals has received notices of ‘force majeure’ on its operations at Kansanshi and Sentinel operations.
• Power allocations to Kansanshi have been reduced by around 24% to 117 megawatts from 153 megawatts while supply to Sentinel has been cut to 42 megawatts from 55 megawatts.
• Both operations are now operating at reduced capacities and First Quantum Minerals comments that it “is unable to provide estimates on the length of the supply reduction or its impact on production.”
• The power disruption, which had been on the cards since early July, stems from reduced hydroelectric power generation as a result of low water levels during the current drought.
• So far, there do not appear to be comments on the power supply situation from other operators in Zambia including Glencore, Barrick and Vedanta.

US$1.1039/eur vs 1.1064/eur yesterday.   Yen 123.70/$ vs 123.65/$.   SAr 12.590/$ vs 12.587/$.   $1.559/gbp vs 1.557/gbp
US$0.731/aud unch vs0.731/aud.  US dollar strengthens vs the Euro but falls vs sterling.  Currency traders are waiting on Fed comments due later today.
• Emerging market currencies send at least one currency index to its lowest level since 1999
• We are surprised the South African rand has not yet fallen further.  The currency looks due to fall further as production cuts and job losses hit the economy

Commodity News
Precious metals:

Gold US$1,097/oz vs US$1,096/oz on Friday – We expect some Chinese investors to sell gold to cover margin calls and stock loans.
• China’s determination to protect its public markets has been a saviour for many investors who overleveraged at higher equity price levels.
• Chinese net imports via Hong Kong dropped 48%mom and 8%yoy to the lowest levelsince Aug/14 according to the latest HK customs.

Platinum US$987/oz vs US$983/oz –
Palladium US$622/oz vs US$619/oz  – 
Silver US$14.67/oz vs US$14.62/oz  –

Base metals:
Copper US$ 5,313/t vs  US$5,225/t – Week long strike at Chuquicamata continues to affect Codelco’s operations.
• Chuiquicamata, the largest division in the Codelco portfolio (340kt produced in 2014), is reported to have halted operations after protested blocked road access to the mine yesterday.
• Despite reports that Radomiro Tomic faced “various difficulties” as 800 contract workers joined protests in the region, the Company said seven of its eight divisions were operative.
• Salvador remains closed as the mine “was taken over by workers of contractors companies”.
• The mine produced 54kt in 2014, accounting for c.3% of total Codelco production.
o Freeport may cut copper production as prices fall.  The company is in the process of renewing its export permits in Indonesia after the previous one expired on Jul 25.

Aluminium US$ 1,657/t vs US$1,649/t –
• Rusal, accounting for c.7% of global production, reiterated its plans to cut existing capacity by an additional 200ktpa in the next 12 months while keeping idled smelters offline.
• While ex-China producers  have been rationing production for years now in response to weaker commodity prices, China continue to ramp up capacities.
• The world’s largest producer expects to bring 4-4.5mt of new capacity in FY15.
• Alumina prices fell through the US$300/t level for the first time since the start of estimating the Index in Aug/10.

Nickel US$ 11,330/t unch vs US$11,230/t –
Zinc US$ 1,978/t vs US$1,945/t –
Lead US$ 1,732/t vs US$1,712/t  –
Tin US$ 16,300/t vs US$15,850/t   –

Oil US$52.70/bbl vs US$52.80/bbl
Natural Gas US$2.844/mmbtu vs US$2.778/mmbtu
Uranium US$36.00/lb unch vs US$36.15/lb – Japan sue to restart two reactors in the next two weeks.  It might take a while for uranium stocks to come down but uranium might prove to be one of the better commodities to invest in going forward.  China is also due to commission a number of new reactors.

Bulk commodities:
Iron ore 62% Fe spot (cfr Tianjin) US$51.20/t unch vs US$51.10t –
Thermal Coal $56.4 vs $56.7 cif ARA Europe – China may slap additional restrictions on the quality of coal imports according to Wood Mackenzie.
• Its an easy statement to believe as Chinese power consumption falls away and as China increases domestic gas production
• A move to tighten import quality may not only improve air quality but will serve to help protect China’s struggling coal industry
• Currency weakness in emerging markets is lowering coal production costs versus domestic costs in China as China’s currency has strengthened with the US dollar increasing the price pressure on Chinese commodity producers.
• Chinese coal producers have been slow to close resulting in rising surpluses within China.  Wood Mackenzie reckon the market may not return to balance till 2022 for thermal coal and by 2020 for Metallurgical coal.
• Metallurgical coal prices in China are around US$80/t
Tungsten - APT European prices price $220.0/mtu unch vs $225/mtu – Price change expected this afternoon

Company News
Antofagasta (LON:ANTO) 574 pence, Mkt Cap £5.6bn - ~Q2 Production Report and Full year production downgrade
• Copper production for the quarter was up 7.2% to 157 kt giving year to date production of 303.4 kt down 12.9%.
• Copper sales for the quarter were 142.2 kt down 3.9% and down 15.5% year to date at 290.1 kt.
• Gold production was down 4% for the quarter at 55.1 koz and down 9.1% year to date at 112.5 koz.
• Molybdenum production was up 23.8% to 2.6 kt and up 42.4% at 4.7 kt.
• Cash costs for the group before by-product credits was up 5.5% at US$1.93/lb and flat year to date at US$1.88/lb.
• Net cash costs were up 11.9% for the quarter at US$1.6/lb and up 4.8% to US$1.53/lb.
• Los Pelambres produced 90,600 tonnes of copper in Q2 2015 up 15% due to higher throughput up 19.6% at 181.5 kt.
• Year to date production was down 14% to 169.4 kt as a result of lower thoughput and expected lower grades and recoveries.
• At Centinel copper production was 58,000 tonnes 4% lower for the quarter and 7.7% lower year to date as a result of lower throughput and grades.
• At Michilla production was 8,300 tonnes 13.7% higher due to higher grades and 32.8% down to 15,600 tonnes year to date due to lower throughput.
• At Antucoya first production has been delayed due to unexpected levels of dust in the secondary and tertiary crusher circuits and issues related to the tripper in the tertiary circuit.
• First production is now expected to be at towards the end of the third quarter
• Realised prices for copper were up 7.3% for the quarter at US$2.63/lb and down 17.5% year to date at US$2.54/lb.
• The provisional pricing movement for copper, gold and moly for the first half will be a negative US$113.1m, US$2.8m and US$12.1m respectively.
• Production has been guided to 665,000 tonnes from 710,000 tonnes previuously expected as a result of the delay in ramp of Antucoya of around 40,000 tonnes.
Conclusion: The delay in the start of Antucoya is the main reason for the production miss but overall the mines are performing well and recovering from a poorer first quarter. The main driver to performance will be a recovery of copper prices.

Berkeley Resources (LON:BKY) 17.5pence, Mkt Cap £31.6m – Quarterly update focuses on activities at Zona 7
• The company has provided an update on the activities at its Salamanca Uranium Project in western Spain where an infill drilling programme is underway on the Zona 7 resource.
• The 101 hole programme totalling 6,500 metres is aimed at upgrading the existing higher grade resource at Zona 7, which currently has an inferred estimate of 23.2m tonnes at an average grade of 589pm (approximately 0.06%), to the indicated level, and at investigating possible extensions of the mineralisation along strike towards the southwest and along the western boundary.
• Initial results of the Zona 7 drill programme are scheduled to be reported in mid-August and the new resource estimate including the balance of the results are expected to be reported in September.
• Zona 7 lies around 10km from the proposed processing plant, where the company recently cleared the first stage of the permitting process when it secured a favourable report from the Nuclear Safety Council. The company is well advanced in the preparation of the documents required to apply for the Authorisation for Construction of the process plant.
• The Zona 7 resource is higher grade than other deposits within the project area and Berkeley Resources is re-shaping its development strategy for the Salamanca Uranium Project to bring Zona 7 to the fore. Documents for the application to permit Zona 7 are being prepared and will be submitted in Q4 2015.
• Salamanca Province is mining-friendly jurisdiction which has an existing tungsten mine in operation at Los Santos and recently approved the development of a second mine at Barruecopardo and as a result of these and other projects, the local regulatory authorities are familiar with, and well versed in, the process required to approve mining activities. Although Berkeley Resources is addressing a different commodity, this local expertise with the Mines Department should stand the company in good stead as the permitting process progresses.
Conclusion: The recent appointment of a new MD at Berkeley Resources, the pending resource upgrade at Zona 7 and the advancement of permitting applications all show an increase in the momentum of activity at Berkeley Resources -  we look forward to the upgraded resource estimate in September.

Eurasia Mining (LON:EUA) 0.9p, mkt cap £11.2m – Restarting drilling at Monchetundra copper- PGM project
Eurasia Mining reports plans to restart drilling at its Monchetundra copper PGM project in Russia’s Kola Peninsula. A drilling programme focussed on the West Nittis area in 2013, identified a zone of PGM mineralisation with associated copper over an area of approximately 1100m by 700m.
• The previous drilling work showed copper grades up to over 2% and gold grades ranging up to 2g/t in addition to platinum and palladium. The intersections reported from the historic drilling were at depths shallower than 100 metres, typically less than 3metres wide, but ranged as high as 18.4m.
Eurasia Mining now plans additional drilling “to allow the calculation of resources and sufficient core samples for metallurgical testwork. Additional drilling for hydrogeological tests will be carried out, as well as well as for base-line environmental sampling.”
• This additional work is intended to allow Eurasia Mining to prepare a feasibility study which can be submitted to “the government agency Rosnedra in order to seek the award of a Discovery Certificate. It is expected that the submission will happen late this year or early 2016.”
Conclusion: In May this year, the company announced plans to undertake further drilling and prepare a Competent Persons Report on its West Kytlim project in the Urals. We noted at the time that this might require further funding, despite the exercise of warrants earlier this month raising approximately £375,000, today’s announcement of plans to drill at Monchetundra must further increase the pressure on the company’s financial resources.

Sable Mining (LON:SBLM) 0.5 pence, Mkt Cap £5.5m – Met Test work at Nimba
• The company has results from metallurgical test work for two premium grade products being investigated for the project.
• The two potential products from Nimba are a lump product of 63.33% Fe and fines product of 62.11% Fe.
• The high quality product is said to be sustainable for a 10 year mine life exclusively from Plateau 2.
• Tests have been completed to determine the mechanical and thermal properties of the proposed lump product benchmarked against the BHP specification for their Newman High Grade (NHG) and MAC products.
• The TI (Tumble Index at 81.4 versus NHG at 85) and AI (Abrasion Index at 11.5 versus NHG at 10) show greater susceptibility to disintegration during handling than BHP products.
• The product compares well on the RI (Reductibility Index at 71 versus 56 for NHG) which measures the rate of reduction from iron oxide to iron.
• The overall value in use is expected to achieve a premium for the product.
Conclusion: Against a weak iron ore price environment doing work that is not too expensive to establish better scope for the product makes sense. However, getting this to development continues to present a challenge unless the company can make a significant improvement to the operating costs reported in the PFS of US$44/t FOB.

SolGold* (LON:SOLG) 2.3 pence, Mkt Cap £17.5m – Conference presentation highlights progress at Cascabel
SolGold has posted a new video conference presentation onto its website
• The link can be found at
• Given recent developments at the Cascabel project and the identification of additional mineralisation relatively close to surface in Hole 12 as well as Hole 1 the presentation should be all the more interesting
*SP Angel acts as Nomad and Broker to SolGold. An SP Angel analyst has visited the Cascabel project.

Wed, 29 Jul 2015 10:38:00 +0100
SP Angel Morning Oil & Gas LGO Energy, Northcote Energy, JKX Oil & Gas and Nighthawk Energy Headlines

Northcote Energy (LON:NCT) – Mission Creep – Reprise: While we applaud the move to diversify, we still believe that the move is too soon in the Company’s development, but at this stage, net free cash flow is more important than its origin, and on that basis, you can’t fault the investment – if it makes money.
LGO Energy (LON:LGO) – Time for Pudding Eating: Now the programme is in its development phase, it should continue to deliver results, which in turn will precipitate the unwinding of the Company’s discount between its inherent asset valuation and its “market worth.” In that respect, the proof positive of the investment that the Company has made is now in the “pudding’s” eating, i.e. production, reserves and cash flow growth.
NightHawk Energy (LON:AWK) – Update Provides Better Clarity on Management Approach: To that end, we believe that today’s update delivers more value for the Company in what is says about the management’s current approach, rather than the actual cash and economical value derived from the operations commented on.
• JKX Oil and Gas (LON:JKX) – Headwinds Set to Ease a Little: We believe that today’s Company announcement will provide significant headwinds for the Company, but that the outlook, despite the recent decline in geopolitical stability, is significantly more buoyant that the current “market worth” gives it value for, especially when you set this against the backdrop of the positive comments from Ukraine’s Energy Vladimir Demchishin.

News Items

Northcote Energy (LON:NCT) – Mission Creep – Reprise
Today the Company has announced that it has established “Mayan Drilling Fluids” the JV vehicle that the Company intends to use to execute its oil cuttings recycling business. We have said previously that:
We believe this mission creep has come too early in the Company's development and manpower and financial resources are too scant to be able to effectively grow the business. While we have no doubt as to the opportunity, at this stage of the cycle, cash flow, opposed to top line growth, is more important.
and given that the decline in the oil price will have a number of competing effects, namely: (i) create opportunity to invest, both in the service segment and the upstream business; and (ii) squeeze the service providers, we believe that the investment in the environmental remediation could go either way.
While we applaud the move to diversify, we still believe that the move is too soon in the Company’s development, but at this stage, net free cash flow is more important than its origin, and on that basis, you can’t fault the investment – if it makes money.

LGO Energy (LGO LN – 1.50p) – Time for Pudding Eating
Today’s news from the Company continues to underline not only the opportunity that exists within Trinidad, but also the solidity of LGO’s structured engineering led approach to the development. We have said previously that:
While other independents have larger positions in Trinidad, the application of engineering know-how has revitalised we believe has made LGO Energy the stand out operator in Trinidad, which continue to be reflected in the unwinding of its the discount between its inherent asset valuation and its “market worth.”
Although this programme has taken some time to get here, the results of preparatory drilling and subsequent development drilling have started to bear the fruits of its investment, not only in reserves upgrades, but also in free cash flow generation.
Now the programme is in its development phase, it should continue to deliver results, which in turn will precipitate the unwinding of the Company’s discount between its inherent asset valuation and its “market worth.” In that respect, the proof positive of the investment that the Company has made is now in the “pudding’s eating,” i.e. production, reserves and cash flow growth.

NightHawk Energy (LON:HAWK) – Update Provides Better Clarity on Management Approach
Today’s news, while not a blockbuster, continues the Company’s theme of looking within its own portfolio to unlock value and maximise cash generation. That the Company is able to maintain current production levels is a solid step forwards, but in the regard, there is a growing sense of the need to get the next stage of development right.
The Company needs to ensure there is sufficient production, even at depressed oil prices, to meet its obligations and have sufficient in reserve to grow the business, preferably coincident with an uptick in oil prices.
Getting the development plan right such that it is coincident with an uptick in oil prices is more luck than judgement, but the remainder isn’t, and in this respect focusing on maintaining current production levels is essential, and will ensure that the management team retains maximum flexibility.
To that end, we believe that today’s update delivers more value for the Company in what is says about the management’s current approach, rather than the actual cash and economical value derived from the operations commented on.

JKX Oil and Gas (JKX LN – 15p) – Headwinds Set to Ease a Little
Today’s update was always going to be ugly given the challenges in Ukraine from the political situation and the changes that the government has made to the fiscal terms, and in that respect, it hasn’t disappointed.
Previously we have commented that:
The Outlook has brightened, but risks still remain, especially with respect to its Russian and Ukrainian acreage. The Company's diversification strategy is now more important than ever, and any cash resources available, after a buffer has been accumulated, should be directed towards that aim.
and for us, today’s announcement is reconfirmation that not only is the diversification strategy is on track, but that there is a reintensification of the focus on cash flow, which is all important, not only for the Company’s continued future, but investors’ access to the economic benefits of the Company’s operations.
In this respect, and in our opinion something which overshadows todays announcement by the Company, is the news (reported on Upstream) that Ukraine’s Energy Minister Vladimir Demchishin has voiced cautious optimism that independent gas producers in the country will be able to boost output by a third after authorities approve a significant reduction in the gas production tax.
We believe that today’s Company announcement will provide significant headwinds for the Company, but that the outlook, despite the recent decline in geopolitical stability, is significantly more buoyant that the current “market worth” gives it value for, especially when you set this against the backdrop of the positive comments from Ukraine’s Energy Vladimir Demchishin.

Wed, 29 Jul 2015 10:14:00 +0100
Shard Market Eye - Macfarlane Group has steady growth, with strategic development opportunities Macfarlane Group (LON:MACF)

Steady growth, with strategic development opportunities
Macfarlane Group is the leader in its chosen market, generates cash (in part
through the modest capital employed in its operations) and is growing through
both organic and acquisition-led expansion. The Packaging division (82% Group
sales) exhibited organic growth of 4% in 2014, accelerating into 2015. Our
estimates allow for reversion to the lower rate, though we see no evidence of
a slow-down. Indeed – at the margin – there are specific drivers to accelerating
the growth rate. EBITA margins are exhibiting a modestly upward trend.

Strong financial footing: Stable gross margins of between 30.2% and 32.0%
have been achieved in the past five years and indeed in 2009, under a more
difficult business environment, 32.4% was achieved. This robust gross margin
base, allied to top line expansion and controlled costs, imparts upward
momentum to EBITA margins.

Growth: The acquisitions of 2014 enhance the steady and rising organic growth.
The AGM in May stated that 6% organic growth was achieved for the Packaging
Distribution division, with minimal growth in Labels, translating to 5%
Groupwide. The UK economy is a driver to these metrics, but it is noteworthy
that approaching 20% sales are to the growing and demanding UK internet
retailing sector and Macfarlane is also growing its national accounts.

Valuation comparables: Packaging drives a key comparator, RPC, which stands
on 16.8x historic PE and 11.5x historic EV/EBITDA. RPC is a manufacturer not
distributor and is a larger business, with a higher margin model, thus not entirely
comparable – but illustrates that Macfarlane’s rating is far from demanding.
Risks: Macfarlane has a £13.9m pension deficit. There is a conservative balance
sheet and the growth, allied to cash generation, has high visibility levels.
Investment summary: The leading market share, 13% CAGR in PBT over the
past five years and modest 1.3x EBITDA/debt ratio provides a robust platform
upon which to expand, including via newer growth areas and acquisitions.

Strategic positioning

Macfarlane’s proposition, in its dominant packaging distribution division, is to at least maintain its gross margins whilst positioning itself to capture growth within a market which is robust albeit not intrinsically high growth. Macfarlane holds a UK market share of some 20% in packaging distribution. By optimising returns from its established national infrastructure, Macfarlane is leveraging growing top line and growing EBITA margins from its established market positon.

Group revenue derives 97% from the UK. It has modest exports (in the Labels business) and small operations in Sweden and Ireland, with a small level of US sales. The Group derives 82% sales from packaging distribution; the remainder is equally spread between the design/manufacture of packaging products (for protection of higher value items) and the design and printing of labels for the fast moving consumer goods market.

It operates 18 Regional Distribution Centres (“RDCs”) providing a national network to support customers’ packaging fulfilment needs. Macfarlane buys in product from the manufacturers such as DS Smith, Sealed Air, and so forth – hence this division is a distributor not manufacturer. Each Centre is separately assessed as a profit generator. In addition the Group operates four specialist manufacturing centres, two in Packaging Design and Manufacture and two in Labels.

Macfarlane was founded in 1949 and has built its leading share in the UK packaging market primarily organically but also by a series of smaller acquisitions of established local businesses. Macfarlane is the only dedicated national operator.

Recent growth has been a mix of additional sales to existing clients, new customer wins (organically, over and above the circa 4% pa attrition in customer numbers) and acquisitions – in that order of size quantum.

In 2006, Macfarlane embarked in an acquisition programme, re-launched in 2012. Between 2006 and 2008 Macfarlane acquired three regional protective packaging specialists and successfully integrated them to the UK network. The two most recent acquisitions, Network (September 2014) and Lane (May 2014), add just over £10m annual sales and comprise Wolverhampton and Reading based businesses – both being well-established and (particularly for the former) with strong product innovation.

Strategically, Macfarlane is positioned to optimise growth and predictability, hence the judicious use of acquisitions to optimise the benefits of the national network which is in place and the close monitoring of each RDC and tight control of costs.



Macfarlane has a well-established market share in a market which is relatively competitive and exhibiting modest growth. As previewed in the Board’s Outlook comment accompanying the 2013 results announcement, starting from Q4 2013 and as 2014 progressed, the trading background modestly improved.

Overall sales growth was 4% in 2014 but an exit rate of 6% in Packaging Distribution was achieved and appears to be being maintained. Our numbers allow for a more modest growth, to be conservative.

Towards October /November 2015, visibility as to a continuation of this recent higher rate of growth will increase significantly. This is because we note that both with the expansion in internet retailing and also to a degree with the Network business acquired, there is a slightly increasing trend towards Q4 seasonal bias. Internet retailing visibility is reasonably strong well ahead of Christmas – circa early November.

The market is expecting another year of good, steady progress.


One key driver to the organic sales growth is National Accounts, which was a healthy 14% in 2014. As yet National Accounts is a modest proportion of the total. Internet Retail is around a fifth of sales and this has potential to outpace group-wide growth, albeit 2013 growth in this area was a relatively modest 3%. Manufacturing operates in an environment of flat to declining demand, but we consider that Macfarlane can counter pricing pressure and may seek incremental opportunities for example in export as well as UK markets.

Our estimates are predicated on 3% organic revenue growth (i.e. 4% in Packaging, nil in Manufacturing), albeit we consider the 2015 outcome should be in excess of this level and that 1H15 is likely to see an outcome in the region of 4-6%.

We note 2012-2015E sales CAGR is 5.1% and on a per share figure the basis is 1.8%. Whilst we consider our 2015E revenue figure to be conservative, we would seek a rise in the 1.8% per share revenue CAGR as the fuller benefits of the acquisitions, exposure to growth areas and a generally supportive macro-economic background are felt.


EBITA margin growth has derived in recent years from cost control, allied to leveraging the established group network, capturing as much incremental gross margin (be it derived through organic growth or acquisition) as possible.

Stable gross margins of between 30.2% and 32.0% have been achieved in the past five years and indeed in 2009, under a more difficult business environment, 32.4% was achieved. Gross margins within Manufacturing Operations have improved as 2014 progressed, due to the focus on composite transit packaging. Our model assumes flat gross margins but there should be scope for upside.

After strong cost rises in 2010 (which were broadly passed on to the market),
input cost trends have been muted. Generally changes in cost are shared with
clients, within a modest time delay. This translates to EBITA margins of between
3.5% and 4.3% in the past five years (3.5% in 2011 and 4.3% in the 2014 period).
Consensus estimates are for EBITA margins of 5.0% in the current year, with
5.2% 2016.

Margin trends, particularly at EBITDA and EBITA levels are rising. Importantly, to
a degree this is assisted by the Group infrastructure being in place to support
the national network and so, particularly with growth enhanced by judicious
acquisitions, the overhead coverage ratio is a figure we would anticipate
becoming increasingly efficient.

In addition to the greater coverage of overheads, assisted by acquisitions and
organic growth, there is a target to improve performance of each Regional
Distribution Centres. Macfarlane stated in its 2014 Accounts: “In 2014 we had
13 of our 18 RDCs performing above the target return on sales level of 5%. The
remaining 5 RDCs continue to demonstrate improvements that indicate their
ability to achieve the target return on sales.” For reasons of 1) confidence on
margins on a centre-by-centre basis, 2) top line momentum, 3) benefits of
recent acquisitions, we consider our model to be making conservative
assumptions. It should not be overlooked, however, that most markets being
supplied are showing modest if any growth.


Forecasts are sensitive to the performance of the recent acquisitions which are
trading in line with expectations and have been integrated well, both being
established, successful businesses.

Cost inputs may see a time lag between Macfarlane’s paying of the changed costs and clients reflecting this in their buying prices. These costs are paper and polymer, both of which showed rises but where the trend in 2015 has tended to be a slight reversal of some of the rises.
Strong Sterling is not a significant issue, as pricing reflects trends which include the global nature of physical packaging input costs but Macfarlane slowly and steadily is capturing some of the ‘service’ value added provided over and above the physical product.

Macfarlane states examples with certain customer ‘case studies’. In any case, Macfarlane is the market leader and indeed customers’ find that the physical packaging cost (ie the Macfarlane products) comprises some 20% of total packing/storage/ damages etc costs. Macfarlane is deepening customer relationships through ‘consultancy’ advice.

Macfarlane also has instigated and is broadening pan-European partnerships, which would have the effect of reducing risk in two regards. This enables Macfarlane – especially with its national accounts – to offer robust pan-European solutions. It also is treating the UK as less of an island regarding global packaging customers.

Investment Conclusion

Through a balance of organic and acquisition growth, annualised PBT has grown 15% CAGR over the past six years. The markets addressed are relatively stable but low-growth and fairly competitive. Macfarlane has a strong competitive position thereby ensuring reasonably high visibility of robust gross margins.

  • PBT growth is driven by the leverage of the existing strong market presence as regards ability to:
  • Enhance sales without proportionate rise in costs of the UK-wide network
  • Continuing the focus on growing sub-segments
  • Continuing the cash generative nature of the business model
  • Investing that cash into tuck-in acquisitions, delivering an explicit programme
  • Some equity has been issued, to accelerate the point above, but we see no need for significant issuance in the short/medium term.

In this context, we note from the 2014 accounts: “Following the acquisition of Network Packaging, the Company undertook a share placing to provide additional funds for its acquisition programme. The placing was well supported by new and existing institutional investors”

The dividend is set to continue steady growth and the pension deficit issue is not one to compromise any of the growth drivers. The balance sheet and cash generation are robust. EBITDA and free cash flow are steady. The 2014 free cash flow reduction is entirely resulting from investment into the pension fund.

Valuation and comparables:

Valuations have risen from a low point of 17p in July 2012. At that stage the shares stood on a PE (to current year (i.e. forward rating) PE 5.0x; EV/EBITDA 3.7x vs current PE 9.3x; EV/EBITDA 6.6x (to 2015E)

We note the rise in EV/EBITDA (i.e. the reduced apparent attractiveness in valuation) for 2014, which is in part a statistical feature only. This stems from the rise in EV as a result of acquisitions, which led to a rise in debt at year end but a partial year’s trading benefitting the revenue account. 2015 sees the benefit of the full year’s trading.

Packaging drives a key comparator, RPC, which stands on 16.8x historic PE and 11.5x historic EV/EBITDA. RPC is a manufacturer not distributor and is a larger business, with a higher margin model, thus not entirely comparable – but illustrates that Macfarlane’s rating is far from demanding. 


The information above is published solely for information purposes and is not to be construed as a solicitation or an offer to buy or sell any securities, or related financial instruments. It does not constitute a personal recommendation as defined by the Financial Conduct Authority ("FCA”) or take into account the particular investment objectives, financial situations or needs of individual investors. The information above is obtained from public information and sources considered reliable. This is a marketing communication document and has not been prepared in accordance with legal requirements designed to promote independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research. Although Shard Capital Partners LLP is publishing the research, it is not restricted from dealing in the stock. Please note risk warning section on our website with regards high risk AIM shares. If you are unsure of the suitability of share dealing specifically for you then you should contact an Independent Financial Adviser, authorised by the Financial Conduct Authority.

Wed, 29 Jul 2015 08:55:00 +0100
The Pay Zone: Oil Price, Hurricane Energy and Tullow Oil WTI $47.98 +59c, Brent $53.30 -17c, Diff $5.32 -76c, NG $2.82 +3c
Oil price

A very short blog again this morning, company news is thin on the ground and I am off to TipTV to run through a few stocks.
A bit mixed yesterday, the market sort of followed the greenback which is not surprising and the news from China seemed a little better, at least not much worse. What got WTI going a bit, but hardly followed through this morning, were the API inventory stats which showed a draw of 1.9m barrels of crude oil and was very much needed, tonight’s EIA numbers will be vital and must be a draw at this time of year.

Tullow (LON:TLW)
Nothing new from Tullow in its interim statement this morning in which the numbers were in line with expectations and production guidance as previously documented. The ‘re-setting’ of Tullow continues and the $500m of cost saving over three years is on target. Tullow is in new low territory, an experience it is sharing with others in this latest oil price weakness but with its exploration portfolio and good West African production when the oil price ticks up it will surely outperform.

Hurricane (LON:HUR)
More about Hurricane soon as I have another meeting coming up with the company and indeed the good Dr Trice has agreed to be interviewed as my next CEO victim on TipTV. Today they announce that they have been awarded two blocks in the 28th offshore round and they are particularly significant. One is where the company has identified a new basement prospect which they have provisionally named Warwick and is analogous to Lancaster, West of Shetlands, the other is a possible extension of the company’s Lincoln prospect. The awards are on a drill or drop basis and the company, whilst continuing with the key farm-out of Lancaster, are looking ahead as the leaders in the development of the UK’s significant basement targets. Hurricane has cash enough to run the business well into next year even without any farm-out activity and looks very interesting at these levels. More after aforementioned meeting with the company.

And finally…
The Edgbaston Test starts today and England are forced into a change with Steven Finn likely to replace the injured Mark Wood. The Aussies will be full of confidence after Lords where Mr Strauss unsuccessfully tried to ‘manage’ the game by fixing the pitch, a spectacular failure and if Clarke wins the toss it may be a long wait in the pavilion for the English team…
Celtic are in action again tonight in the Champions League qualifiers playing their first leg against Qarabag at home.

Wed, 29 Jul 2015 08:31:00 +0100
Northland Capital Partners View on the City Quartix Quartix (LON:QTX): Interims
Market Cap: £109.8m; Current Price: 233p
H1 inline – growth across UK, France and US

  • Revenue +24% to £9.2m with fleet sector revenue +17% to £6.2m and insurance revenue +43% to £3.0m. Operating profit +8% to £2.7m, adj. PBT +9% to £2.7m and adj. EPS +9% to 4.67p. Interim DPS of 2p. Net cash of £0.8m (FY14: net debt of £0.2m), having paid a maiden dividend of £1.4m in May.
  • New fleet installations +44% to 10.733 units and fleet subscription base +12% to 66,806 vehicles with active customer base +13% to 7,150 – attrition on a 12-month basis at 10%, below the industry average (14%). Strong growth in the US following its investment programme albeit from a low base. Insurance installations +64% to 25,438.
  • Total installation of 36,171 new tracking systems in H1 (+58%) and 22% increase in recurring revenue in fleet sector to £5.7m. Growth in new installations in the fleet business across UK, French and US markets and via direct and indirect channels. Growth in insurance was driven mainly by two new projects. One will come to an end in Q3 but another project is expected to start before year end.

NORTHLAND CAPITAL PARTNERS VIEW: Good set of interims with growth across the UK, French and US markets. The latter is at an early stage but the initial signs are encouraging. The company’s subscription revenue model provides good levels of revenue visibility and Quartix’s attrition rate is comfortably below the industry average. Shares have spiked since the trading statement at the start of the month and are now trading at 24.8x FY15 and 20.7x FY16 that assumes good growth.

Wed, 29 Jul 2015 08:14:00 +0100
UPS impressed but will Fed-ex-plain rate timing more FTSE100 Index called to open +35pts at 6590 with the bounce from 6500 support taking the index back above 6550 and to Monday’s highs overnight. Sideways since we are now test falling highs from 21 Jul highs with the next hurdle being 6600. Watch levels: Bullish 6605, Bearish 6545.

A positive opening call comes after a stable Asian session as typical apprehension sets in ahead of the latest US Federal Reserve monetary policy update and with China shares still under pressure despite stable/positive macro data. News that Greek stock market could reopen Thursday is adding to optimism on the latest bailout as negotiations with senior creditor representatives start today.
Investors on the one hand worried the US Fed will point to a September/Q3 rate hike and an imminent start to interest rate normalisation, but on the other hand hopeful ‘external events’ such as Greece and China allow it hold off for longer (Q4/Q1). A glance at recent USD basket weakness suggests later rather than sooner, however, whatever the Fed says is likely to lead to market volatility given the importance of USD as a currency and Fed as a central bank post-crisis.

US markets closed 1% to the good, putting an end to their longest losing streak since January thanks to continued bargain hunting from recent lows, better than expected Q2 results from global growth barometers United Parcel Service (UPS) and Ford (F) and pharmaceutical giants Pfizer (PFE) and Merck (MRK) and a rally by Energy and Raw Material producers along with the bounce in Oil and Copper. Note Twitter (TWTR) results beat, but progress assessment and outlook soured sentiment.

A more chilled out China and late in the day gains on Wall St. set the tone for Asian bourses overnight amid assurances from the Chinese government that it would continue to stabilise the market (in its own special way, no doubt…). Shanghai composite currently down 1% - nothing on the near 8% losses seen on Monday but still obviously under pressure. Spooked (not to mention margined to the hilt) retail investors keen to follow the cues from the China Securities Finance Corp, widely believed to be already selling off the holdings it bought to shore up the market way ahead of a 4,500 target for the Shanghai Comp. that was set by the government on 4 July.

In what is essentially separate news from China, consumer confidence as a whole came in +1.9% in July bringing it back to last year’s levels just before housing market and economy worries surfaced. Most household finances led the increase (immune to stock market woes?) while those in tier one cities (more likely to be exposed to swinging equities) suffered a little. Other equities in the region mixed with Japan’s Nikkei down but the Aussie ASX  in the green following a temporary improvement in the commodities sphere that boosted Anglo-Australian mining stocks. Note we stress the word ‘temporary’ here with an impending US Fed policy statement more than likely to prolong the agony currently felt by those in basic materials.

In focus today aside from the Fed update this evening will be UK Consumer Borrowing and Mortgage Approvals data this morning, forecast stable and growing respectively. In the afternoon, watch out for US Pending Home Sales after yesterday’s weak S&P data and Friday’s New Home Sales plunge. On the results front results from Facebook (FBK) will be looked to after Twitter’s disappointment, while Hilton (HLT) and Mastercard (MA) may offer signs on consumer and business confidence.

Oil prices remain pressured ahead of today’s US Fed policy meeting with expectations of an imminent US rate hike and results from oil majors showing drawdowns in production and capex cuts causing market indecision (evident in yesterday’s spinning top candle on the Brent Crude chart). Both Brent ($53) and US Light ($48) appear to be waiting around support for fresh drivers.
Gold ($1097) so far unable to breach resistance just below $1,100, although rising lows since 25 July could help it break that level today. More likely, though will be the prospect of US interest rates going higher in 2015 taking attention off the non-interest bearing safe haven in favour of US treasuries.

Wed, 29 Jul 2015 08:12:00 +0100
Hedge-Fund Billionaires Bet on London as Revival Gathers Pace Hedge-Fund Billionaires Bet on London as Revival Gathers Pace
Here is the opening of this of this insightful article from Bloomberg: London’s fund industry is bouncing back, and U.S. billionaires Steven A. Cohen and Ken Griffin are grabbing a piece of the action.
Griffin’s Citadel and Millennium Management, a hedge fund run by Israel Englander, have bulked up in London, where asset growth is outpacing the U.S. Point72 Asset Management, the family office that oversees Cohen’s wealth, is plotting a return to Europe’s financial hub by year-end, said a person with knowledge of the matter.
London lost ground with hedge fund investors earlier this decade as taxes rose on the highest earners and Europe’s debt crisis roiled markets. Now managers say trading opportunities are multiplying and dealmaking is picking up. Europe attracted $12.5 billion in the first half of the year, while funds focused on the U.S. had net outflows, according to a report from eVestment, a firm that tracks hedge funds.
“This is the first time London has looked really exciting for hedge funds since the European debt crisis in 2011,” said Ray Nolte, chief investment officer of SkyBridge Capital. The New York-based firm plans to boost investments in European hedge funds that seek to profit from events such as corporate restructurings, mergers and share sales.
The rebound is driving up demand for office space in Mayfair and other districts where hedge funds congregate. The industry’s growth contrasts with the bloodletting at Europe’s biggest banks, which are slashing thousands of jobs and closing trading desks in the face of tougher capital requirements.
David Fuller's view
Successful hedge fund managers may not be popular – they inspire too much envy.  They also vote with their feet, moving to where they can do business and avoid confiscatory taxation.
A 50% tax rate and the threat of a ‘mansion tax’ by Liberal Democrats in the last coalition government was more than enough to drive them away.  The recent and unexpected Conservative majority victory in the last General Election, followed by George Osborne’s top income tax reduction to 45%, signalled that Britain was once again open for business.  That is obviously good for the country because there can be no widespread prosperity without wealth creation, which leads to more successful companies and more jobs. 

Email of the day
On Fanuc:
Hello friends, hope all is ok at the magical London. Fanuc results were not so good and forecasts were lowered, at least according to the figures showed at the company’s website. I was surprised by the US$/Yen they were forecasting for this FY: 116. Any thoughts? Thank you! Best wishes to all of you.
David Fuller's view
Many thanks for this thoughtful email.  I am pleased to say all is well with the Fullers in London and the Treacys in Los Angeles.
Here is a link to Fanuc’s website, which you have already seen, but I include it for the other subscribers interested in this leading industrial robotics company with a global presence.  China’s slowdown in factory automation appears to be the main factor behind Fanuc’s reduction in its annual profit forecast.
This item continues in the Subscriber’s Area, and includes both price charts and an article. 

The Weekly View: The Wall of Worry: Why we Remain Bulls
My thanks to Rod Smyth for the latest of his excellent timing and strategy letters.  Here is a particularly interesting paragraph:
A “melt-up” – a move to a higher level of valuation of what we expect to be modest earnings growth – seems more likely to us than a meltdown.  Judging by flows into funds, retail investors have not reduced their holdings in fixed income despite very low yields.  Should they do so, because bond yields rise and/or they see better return potential from stocks, there is a case over the next 18 to 24 months for some exuberance.  Our Weekly Chart shows that, as we expected, the pace of the advance, while still positive, has already slowed significantly – a response to slowing earnings and the end of Quantitative Easing, in our view.  Last week the S&P 500 closed near its primary up-trend, presenting investors with cash as an attractive entry point, in our opinion.  We expect the S&P 500 to break out to new highs by year-end as investors increasingly move money into stocks and out of low-yielding bonds and cash.
David Fuller's view
Well, there you have it – another typically clear and unhedged view from RiverFront.  I do not know anyone who has had a better track record on the US stock market over the last few years than Rod Smyth and his colleague Michael Jones.
The rest of this letter, posted in the Subscriber’s Area, is well worth your perusal.  

My personal portfolio
A trade reopened:
David Fuller's view
Details and charts are in the Subscriber’s Area.

Minimum Wage Wars
Thanks to a subscriber for this article by Sydney Williams at Monness, Crespi, Hardt & Co., Inc which may be of interest. Here is a section:
The numbers suggest that a large percentage of minimum wage jobs are the teen-age children of middle class and upper-income families. Many of the rest are starter jobs – the kind we all remember when first we went to work. Estimates are that an increase in the minimum wage to $15 per hour will cost 500,000 jobs. I suspect it may be more.
Technology has already replaced many service-sector jobs. In some restaurants, one can order on I-Pads. Technology has replaced many secretarial jobs. The internet has made it easier to form a corporation and it has reduced the time for research. Travel agents have become an endangered species. The President has suggested that the servicing of smaller 401K and IRA accounts should be automated. Three weeks ago, when my wife was recovering from a fall, robots delivered medicines to her hospital floor. Technology will continue to replace jobs. It is one reason why STEM jobs have been the best paying for recent college graduates. David Brooks wrote recently in the New York Times: “If you raise the price on a worker, employers will hire fewer and you’ll end up hurting the people you meant to help.”
When New York Governor Andrew Cuomo signaled his support for the higher minimum wage, he disingenuously said: “You cannot live and support a family of four on $18,000 a year in the state of New York.” (The State of New York’s minimum wage is $8.75 per hour.) His statement was purely political, as were similar endorsements from Hillary Clinton, Bernie Sanders and Martin O’Malley. There are few families of four dependent on a sole provider making the minimum wage. Those jobs, as I wrote, are mostly held by the young – teenagers or young people starting a career. It is jobs, not raising the minimum wage that will help the poor. Raising the minimum wage will not narrow the income gap. It will cost jobs and force some businesses to close. It is not the panacea it is claimed and it detracts from the real task – job creation.
Eoin Treacy's view
I went to visit a sewing factory in the San Fernando Valley a few weeks ago. They have 15 workers and specialise in sewing which is still almost all done by hand. This is true of the industry globally. The garment industry is people intensive and wages are about $10 an hour which is above the minimum wage but less than the $15 that will need to be paid in Los Angeles County from 2018. The company survives by doing small runs for singers and YouTube stars who need the work done fast and have high margins. Los Angeles has a large garment district and there are a lot of factories.

JPMorgan Just Cornered The Commodity Derivative Market, And This Time There Is Proof
Thanks to a subscriber for this article from Zero Hedge which may be of interest. Here is a section:
So in summary, this is what we do know:
In Q1, JPM cornered the commodity derivative market, with a total derivative exposure of just over of $4 trillion, an increase of 1,691% from just $226 billion in one quarter!
What we don't know is:
why did the OCC decide to effectively eliminate its gold derivative breakdown by lumping it with FX,
why there was a 237% increase in the total amount of precious metals (which include gold) contracts in the quarter, from $22.4 billion to $75.6 billion
We have sent an email requesting much needed clarification from the Office of the Currency Comptroller, although we are not holding our breath.
Eoin Treacy's view
A large number of investment banks have closed or sold their commodity trading operations as prices declined and speculative interest migrated. JPMorgan and Citigroup have stepped into that void and now occupy outsized positions in the commodities derivatives market.
Musings from the Oil Patch July 28th 2015
Thanks to a subscriber for this edition of Allen Brooks’ ever interesting reports for PPHB. Here is a section:
The scenario Mr. Faber outlines reflects one of our underlying beliefs, which is that the commodity boom of the first decade of the new century has spurred a significant commodity output expansion, fueled by the easy money policies of the United States, and now followed Europe, Japan and China. The capacity expansion is leading to a long-term decline in commodity prices that will benefit consumers rather than producers. This trend is long-term, and at times may appear not to be working because of near-term news and economic events. However, over 5- and 10-year periods, macro trends will drive investment returns.
In a presentation we gave at a 2010 Decision Strategies Oilfield Breakfast meeting, we offered this view on the macro trend for energy. We suggested that the past trend that benefitted energy producers would shift to benefitting energy consumers. For example, petrochemical companies benefit from lower-priced and readily-available natural gas and natural gas liquids supplies while producers struggle with extremely low natural gas prices. In that presentation, we attempted to crystalize our view by suggesting an investment trade for the next decade even though we were no longer in the business of researching and recommending stocks at that time. Our suggested trade was to buy Honeywell (HON-NYSE) and sell ExxonMobil (XOM-NYSE). THIS SHOULD NOT BE CONSIDERED AN INVESTMENT RECOMMENDATION.] We decided to see how this trade has developed. The chart in Exhibit 9 shows the stock prices for the past five years, in which Honeywell has outperformed ExxonMobil.
Our point in bringing up this trade is to highlight that what often appears evident in the near-term about industries and companies often changes as time enables new fundamentals to play out. In this case, remember that in 2010 the energy industry had just emerged from the 2008 financial crisis and 2009 recession that cut energy demand and caused oil and gas prices to collapse. In 2010, oil prices had rebounded and were on their way to multiple years of oil prices of $100 a barrel. Remember when the head of Chevron (CVX-NYSE) described $100-a-barrel oil as “the new $20-a-barrel oil”? Presently, that assumption appears questionable, but it is quite possible the statement may still prove accurate. If not, then the future for oil and gas will not be like the past. The challenge is to determine what the future might look like and how best to capitalize on changing energy industry and investment trends.
Eoin Treacy's view
A link to the full report is posted in the Subscriber's Area.
The Supply Inelasticity Meets Rising Demand bull market that began in 2002/2003 succeeded in delivering additional supply and perhaps more importantly the capacity to increase supply. More than any other factor this has contributed to the decline in prices evident in the industrial metal complex as well as energy futures.
For nearly a decade David and I have been banging the drum that unconventional oil and gas would be game changers for the energy sector and that consumers would be the greatest beneficiaries. Nothing has happened to change that view. 

Eoin personal portfolio: in-the-money stops triggered
Eoin Treacy's view

Details of these trades are posted in the Subscriber's Area.

Email of the day on my talk at UCLA on August 29th
Will your presentation at UCLA be available on the member site? Thank you,
Eoin Treacy's view
Thank you for your interest in my upcoming talk. I’ll prepare a PowerPoint. It will not have a transcript and will be primarily for illustrative purposes but yes I will post it in the Subscriber’s Area.

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.

Wed, 29 Jul 2015 08:05:00 +0100
Beaufort Securities Breakfast Alert Domino's Pizza, GKN, Melrose, Next Plc and others The Markets

Market opening: Markets are likely to open lower today. FTSE 100 futures were trading 7.20points down at 7:00 am.

New York: Wall Street ended in the green amid marginal improvement in commodity prices and slight recovery in China’s stock markets. In addition, investors focussed on the Fed’s two-day monetary policy meeting. The S&P 500 advanced 1.2%, led by the energy sector.

Asia: Equities are trading mixed amid continued volatility in China’s stock markets. However, some steps undertaken by Chinese regulators and the central bank to address investors’ concerns positively impacted sentiment. The Nikkei 225 dropped 0.1%, whereas the Hang Seng was trading 0.2% up at 7:00 am.

Continental Europe: Markets ended higher, led by positive corporate earnings results. Germany’s DAX and France’s CAC increased 1.1% and 1.0%, respectively.

Crude Oil: Yesterday, Brent Crude Oil prices fell 0.3%, whereas WTI crude oil prices improved 1.2%. The spread between the two varieties stood at US$5.3 per barrel.

UK small caps: The FTSE AIM All-Share index closed 0.19% higher yesterday at 749.16. To read our latest research click here.

Today’s news

House prices at three-month high in England and Wales

House prices in England and Wales increased 5.4 % y-o-y in June after a 4.6% rise in May. Moreover, the prices jumped 1.1% m-o-m in June following a 0.1% m-o-m gain in the previous month. The average price for a property improved to £181,619 in June from £179,591 in May.

Gertjan Vlieghe appointed to BoE’s rate-setting panel

Chancellor George Osborne appointed Gertjan Vlieghe, a partner and senior economist at hedge fund Brevan Howard, as the new external member on the Bank of England’s (BoE) Monetary Policy Committee. Mr. Vlieghe replaces David Miles, who recently spoke in favour of a rise in rates.

Company News

Petards Group (LON:PEG) – Speculative Buy

Yesterday, Petards Group released its trading update for the half year ended 30th June 2015. The company’s profitability was in line with the Board’s expectations, with substantial improvement in margins in comparison to the previous year that may be ascribed to the modified product mix. Last year, the benefits from these changes were offset by lower margin hardware deliveries to the MOD in view of the RAF’s SMRE project. Further, Petards would declare its interim results for the first half on 8th September 2015.

Our view: Petards strong results complement its plans to become highly profitable and cash rich. The company’s performance follows its over 100% rise in orders from MOD, Siemens, Bombardier and Hyundai Rotem along with higher number of contracts from its existing and new customers. Petards received orders worth £3m after a five-year framework deal with Siemens Mobility for the supply of Petards train related products and services. Further, the company plans to avail new opportunities in its relatively small scaled division of Emergency Services. Petards’ expects its second half to be in line with its expectations largely due to its strength of contracts and pre-orders. Going ahead, we believe the company has bright prospects owing to its increased number of contracts and higher customer acquisitions. Therefore, we maintain a Speculative Buy rating on the stock.

Melrose Industries (LON:MRO) – Buy

Yesterday, Melrose Industries declared its interim results for the half year ended 30th June 2015. The company’s continued operations revenue decreased 28% to £117.7m. The continuing group (excluding Elster) made a pre-tax loss of £4.1m as compared to a profit of £12.2m in the previous year. Melrose net debt stood at £742m with 2.7 x leverage. The company also declared an interim dividend of 2.8p, to be paid on 3rd September 2015. On the operational front, Melrose proposed the sale of its Elster Business to Honeywell for a total consideration of £3.3bn, implying 3.1 times Elster’s 2014 revenue. Honeywell would be transferred extra £0.9bn in view of the pension obligations consisting of the company’s FKI UK and McKechnie UK defined benefit pension plans. The company plans to return over £2bn to shareholders with the proceeds from the sale.

Our view: Melrose proposed sale of its Elster Group is in line with its business strategy of buying, improving, and selling. The company’s Elster business was bought in August 2014 and underwent several operational changes since then. The deal seems attractive in view of the huge one-time payment to be received apart from earlier-than-anticipated return on investment. Over the past 10 years the company has created over £2bn shareholder value and plans to return more than £2bn to shareholders using the cash from the sale. Meanwhile, the company continues to invest in research and development to enhance the earnings from its Brush group. The first set of generators in China are nearing completion and testing phase for delivery is expected to be completed by this year. Going ahead, we expect Melrose to have better opportunities as it seeks its next acquisition and continues to increase the shareholder wealth. In view of the above argument, we reiterate a Buy rating on the stock.

Next (LON:NXT) – Buy

Yesterday, Next released its trading update for the half year ended 25th July 2015. Overall, the company’s sales were better than expected and slightly ahead of the 0%~ 3% range suggested in March. Next’s full price sales increased 3.5%, with 1.7% from the opening of profitable new space. During the period, full price sales for retail group moved up 0.8% and the directory division was 7.5% higher. The company’s total sales, including markdown, improved 3.3%, with the total stock for the end of season rising by 4.8% over the previous year. Next plans to pay a special dividend of 60p per share on 2nd November 2015. The company has also revised its full year (ending Jan 2016) sales guidance range to 3.5% to 6% from previous estimates between 0.4% to 6.7%,with the pre-tax profit to remain in the range of £805m~£845m. Further, Next would declare the interim results on 10th September 2015.

Our view: Next’s improved sales in the first half have laid the foundation for a solid financial year ahead. The company looks fundamentally strong as it upgrades its sales and profitability estimates for the full year ending January 2016. Over the past two years, the company has distributed over £1bn to investors in form of special dividends and share buybacks. Going ahead, the company is expected to further improve its earnings and boost shareholder value. Moreover, the improving macroeconomic factors, lower inflation and rising wages, resulting in higher disposable income, are also likely to favour the company’s outlook. Therefore, in view of the overall optimism, we retain a Buy on the stock.

Domino’s Pizza (LON:DOM) – Buy

Yesterday, Domino’s Pizza announced its interim results for the half year (H1) ended 28th June 2015. The system sales for the company increased to £426.7m from £375.0m (H1 2014) led by like-for-like (LFL) sales improvement of 10.3% in the UK to £378.8m. The app-based sales continued to advance and took over the desktop sales, recording 51.6% sales. During the period, the underlying operating profit rose 30% to £32.1m resulting in an underlying EPS of 15.3p against £11.6p last year. The net cash balance stood at £19.2m (loss of £3.7m in H1 2014) prompting a hike in the interim dividend per share to 9p from 7.8p last year. In addition, the statutory revenue for Domino’s increased 7% to £157.3m leading to statutory pre-tax profit to £25.4m from £19.7m previous year. On the operational front, the company opened 24 new stores with 21 of them in UK and 3 in Switzerland, taking the total store count to 916. Domino’s enhanced its performance in the international business by lowering the losses in Germany to £1.8m from £4.7m last year owing to the improving economic scenario and also made changes to the operations in Ireland. Further, the company made investments to upgrade its digital channels and online ordering systems.

Our view: Domino’s Pizza delivered outstanding results owing to record online sales and upsurge in LFL sales in UK and Switzerland. The company continued to expand through the opening of 21 new stores that are likely to provide a platform for future growth. Additional investments worth £1.4m to the digital platform proved fruitful for the company as the App based sales led the distribution channel. Recently, a new mobile web app was launched that is expected to enhance consumer experience with its responsive design, easy navigation, upgraded content and optimal viewing. The initial response to the same has been encouraging and Domino’s expects improvement in sales going ahead. In addition, Domino’s plans to come up with the feature of saved favourite baskets to reduce order taking time. Overall, Domino’s has good prospects as it takes continuous steps to improve customer usage and plans to come up with new stores this year. In view of the above developments, we reiterate a Buy rating on the stock.


Yesterday, GKN released its half yearly results for the six months ended 30th June 2015. During the period, the company’s organic sales increased 1% to £3,853m and the trading margin improved 10 basis points to 9%. Pre-tax profit for the period rose 4% to £307m and the earnings per share was up 1% to 14.5p. However, on reported basis, the pre-tax profit stood at £212m, down 5%. The company declared an interim dividend 2.9p for the period, up 4% while its free cash flow stood at £21 m. On the operational front, GKN Aerospace won new work packages exceeding US$2.3bn over contract lives. The commercial aerospace witnessed a growth of 2% while the military segment declined 4%. GKN Driveline got annualised new and replacement business worth £460m and enhanced its trading margin to 8.3%. In addition, GKN powder metallurgy won annualised new and replacement business worth £90m with a trading margin improvement to 11.8%. On the other hand, GKN Land Systems organic sales slid 8% primarily due to challenging agricultural equipment markets. In a separate announcement, the company informed about the acquisition of, Fokker Technologies, specialist aerospace supplier, from Arle Capital for an enterprise value of £499m.

Our view: GKN’s half yearly performance has been impressive and the strong commercial order book has set the momentum for the remainder of the year. GKN Aerospace’s 2015 organic sales are expected to be broadly flat with majority of growth coming from the commercial aerospace division. Its other divisions including, GKN Driveline and GKN Powder Metallurgy are expected to continue to grow organically owing to the expected expansion in the global light vehicle production. With all the major divisions exhibiting a good performance, the company remains well positioned to witness decent growth in the global markets. Thus in view of the above, we retain our Buy rating on the stock.

Provident Financial (LON:PFG) – Buy

Yesterday, Provident Financial declared its interim results for the half year ended 30th June 2015. The adjusted pre-tax profit for the company increased to £126.6m from £94.1m in 2014 leading to rise in adjusted EPS to 70.4p against 54.2p in 2014. The company’s Vanquis Bank steered the growth as it reported a pre-tax profit of £88.5m, up 29.6%, owing to customer numbers and average receivables growth of 15.5% and 23.2%, respectively. Provident successfully repositioned its Consumer Credit Division (CCD) and registered a 2.7% improvement in pre-tax profit to £38m. Provident’s smallest segment Moneybarn pre-tax figures stood at £9.4m, a 38.2% increase over the previous year, and a 44.4% rise in customer numbers. Meanwhile, the return on assets improved to 15.6% from 14.9% in 2014 primarily due to positive repositioning of the home credit business. Provident’s interim dividend per share rose by 15.0% to 39.2p. On the operational front, the company made investments to develop Satsuma, an online direct repayment loan product and also invested to improve its customer acquisition programme. Provident is fully funded till May 2018 with gearing remaining the same at 2.4 times as of December 2014.

Our view: Provident’s all the three segments delivering positive results helped them post increased first half profits. The company’s Vanquis Bank has helped it cement its position in the relatively under-served non-standard credit card market, by concentrating on returns instead of growth. The investment in customer acquisition programme has been successful with the first half new bookings 11.9% up compared to the previous year. Satsuma, latest product in the CCD segment has shown good development with a customer count of 45,000 and receivables order of £11.6m. Overall, the company is well placed in terms of both resources and capital generation and is expected to generate better results. Further, improving household incomes and better cost of living would complement the growth prospects of the company. Therefore, we reiterate a Buy rating on the stock.

Economic News


According to the Office for National statistics, UK’s GDP grew 0.7% in the Q2 2015, in line with the market expectations, following a rise of 0.4% in the previous quarter. On a y-o-y basis the GDP increased 2.6% matching street expectations. The expansion was attributed majorly to the services sector growth of 0.7% in Q2 2015.

US consumer confidence index

As per the Conference Board, US consumer confidence index declined to 90.9in July, from a downwardly revised 99.8 in June. Economists had forecasted an increase in the reading to 100.0.

Wed, 29 Jul 2015 08:01:00 +0100
In the news with RFC Ambrian, Base Resources and Plateau Uranium INTRODUCTION

In the news: Base Resources (LON:BSE) & Plateau Uranium (CVE:PLU)

We had a quarterly operational update from Base Resources*† (ASX:BSE / LON:BSE) this morning. This showed that everything is moving in the right direction. Improved throughput and recoveries have delivered an overall 9% QoQ increase in production, including a 16% QoQ gain in rutile production. Base has also seen record sales volumes across all products. Operational components of the Kwale Project Debt facility completion test have been successfully passed, while the first repayment of US$11m of the debt facility has been completed. More good news came from the receipt of the first Kenyan VAT refund, which commenced earlier this month. There was also an announcement that Keith Spence has been appointed as Chairman. You can read more detail from Jim Taylor and Imogen Whiteside below.

The team also comments below on Plateau Uranium. Plateau is fronted by CEO Ted O’Connor, ex Cameco, and Chairman Ian Stalker. The company has begun updated PEA work on the Macusani Plateau Uranium Project in the Puno region of southern Peru. This work is being done by GBM Engineering and Wardell Armstrong. The mineral resource estimate to be used is 51.9Mlb at 248ppm U3O8 (Indicated) and 72.1Mlb at 251ppm U3O8 (Inferred) using a 75ppm uranium cut-off. There is also a higher-grade resource of 32.8Mlb at 445ppm U3O8 (Indicated) and 45.9Mlb at 501ppm U3O8 (Inferred) using a 200ppm cut-off. The updated PEA is expected in 3Q15 and we will be looking to roadshow Ted and Ian in London in September.


Base Resources*† — Quarterly Operational Update — The ASX- and AIM-listed mineral sands producer that is focused on its Kwale operations in Kenya, has released a quarterly operational update for the period ending in June 2015. With tonnage mined stable at 2.3Mt for the quarter and heavy mineral grade remaining elevated at 9.2% as mining proceeded through a high-grade area of the Central Dune, record production levels were achieved for ilmenite (113,500t), rutile (19,500t) and zircon (6,500t). Ilmenite production rose 7% QoQ, while respective gains for higher-value rutile and zircon were more than double this at 16% and 20%.

In parallel with record production figures, Base achieved record quarterly sales figures across all three product lines. Ilmenite sales rose 17% QoQ to 121,700t, rutile 67% to 25,400t and zircon 47% to 7,600t. Over 100,000t of product was bulk loaded from Base’s Likoni port facility for direct shipment to customers. The company has also continued to make sales for immediate delivery into the Chinese market from its in-country warehouse.

The company has now passed all operational requirements for achieving ‘project completion’, as assessed by a combination of continuous 90-day physical and economic tests. The achievement of project completion will both allow the distribution of cash from the project to corporate level and prevent default under the project debt facility.

RFC Ambrian Comment: Both production and sales figures were clearly highly encouraging, leaving the company with a strong cash position of A$40.9m (unrestricted) and A$6.5m (restricted). Revenue for the quarter stood at A$47.6m, up 45% from the March quarter’s A$32.8m. Achievement of the project completion tests should also improve financial flexibility for the company, enabling cash to be drawn from the project to the corporate level.

Re-profiling of the debt facilities would free up project cashflow for business growth, with near-term commitments including the US$32m required to be deposited into a debt service reserve account by the end of September this year. This is intended to cover the second scheduled repayment of US$25m and an interest payment of US$7m in December 2015. Currently, some 55% of the outstanding debt is repayable over three years and the remainder over five years, and we estimate initial debt repayments would run at approximately US$56m pa until maturity of the first facility, with interest being payable at Libor +5.5% after project completion. We consider a rescheduling of the entire project debt over a five-year timeframe would prove less restrictive to project cashflow.

We reiterate our Buy recommendation, with a target price of A$0.40. We will provide an update upon further review.

Plateau Uranium — Commencement of Updated PEA Plateau Uranium (formerly Macusani Yellowcake), the Peru-focused uranium explorer, has announced that it has commenced work on updating the PEA for its uranium properties, located on the Macusani Plateau of south-eastern Peru. This follows an increase in the resource estimate on the back of the acquisition of the Minergia projects from Azincourt Uranium in September 2014, and the integration of the updated mineral resource estimates into a consistent platform following the removal of prior property boundaries.

The company has contracted consultants GBM and Wardell Armstrong to produce the updated PEA for the open-pittable acid leach project, and has engaged with both parties to initiate mining scenario planning and production and processing modelling work. The financial model will be updated accordingly over the coming months.

Alongside this, the company has been making ongoing progress with permitting discussions, holding monthly meetings with a committee formed with the Peruvian mining and nuclear authorities. Despite the lack of project precedents, we understand the government has expressed support thus far, as has the local community, and the company hopes for IEA involvement in drawing up regulation.

RFC Ambrian Comment: We consider that the acquisition of the Minergia portfolio, over which Cameco previously held a joint venture, has been a positive move for Plateau, and the increase in the resource base should enable a significant improvement to project economics.

The January 2014 PEA already demonstrated operating costs on a highly competitive position within the cost curve of US$20.57/lb, generating an opex margin of over 40%, even at the current uranium price of US$36/lb. The company expects operating and capital costs will be further improved within the updated PEA through the combined use of contract mining, lower fuel costs and higher cut-off grades. Improved leach cycle time, process recoveries and acid consumption are also expected. The company anticipates operating costs as per the updated PEA of well below US$20/lb, and a reduction in upfront capex from US$331m to under US$250m. An additional reduction in the sustaining capital figure of US$228m is also expected from the prior 2014 PEA.

We understand the company is aiming for a similar ten-year mine life and 5Mlbpa U3O8 production rate from the enlarged resource and will seek to demonstrate robust project economics at a conservative US$50/lb contract uranium price (as per the current environment).

Tue, 28 Jul 2015 13:04:00 +0100
Today's Market View Including Serabi Gold, Leed Resources, Berkeley Resources and Aquarius Platinum First Quantum Minerals notices of ‘force majeure’ on Kansanshi and Sentinel operations
• Zesco, the Zambian state-run power company has imposed restrictions on power supply to mines in the North West Province.
• As a result, First Quantum Minerals has received notices of ‘force majeure’ on its operations at Kansanshi and Sentinel operations.
• Power allocations to Kansanshi have been reduced by around 24% to 117 megawatts from 153 megawatts while supply to Sentinel has been cut to 42 megawatts from 55 megawatts.
• Both operations are now operating at reduced capacities and First Quantum Minerals comments that it “is unable to provide estimates on the length of the supply reduction or its impact on production.”
• The power disruption, which had been on the cards since early July, stems from reduced hydroelectric power generation as a result of low water levels during the current drought.
• So far, there do not appear to be comments on the power supply situation from other operators in Zambia including Glencore, Barrick and Vedanta.

Economic News

US – Core durable goods orders beat estimates in Jun offering a positive set of numbers before the FOMC starts its two-day policy meeting.
• Although, an increase in orders has come on top of a downwards revised May reading.
• Core durable goods orders: +0.8% v -0.1% (revised from +0.5%) in May and +0.5% forecast.

China – Shanghai Composite was down more than 4% in early morning trading before recovering some of losses and closing -1.7%.
• The bounce from low for the day was led by shares in state owned banks which some analysts suggest might have been the target of state-directed buying in the market.

France – Unemployment climbed by 1,300 people in Jun, stabilizing at around 3.55m, according to the French Labour Ministry.
• The total is up 4.7%yoy.

US$1.1064/eur vs 1.1074/eur yesterday.   Yen 123.65/$ vs 123.53/$.   SAr 12.587/$ vs 12.612/$.   $1.557/gbp vs 1.552/gbp
US$0.731/aud unch vs0.729/aud.  US dollar weakened due to ongoing collapse in Chinese equity markets and contagion with HK and US markets falling in sympathy

Commodity News
Precious metals:

Gold US$1,096/oz vs US$1,102/oz on Friday – Chinese net imports via Hong Kong dropped 48%mom and 8%yoy to the lowest levelsince Aug/14 according to the latest HK customs.
• We note, gold inbound shipments through Hong Kong is not the single shipment route to the mainland China.
• In particular, Shanghai Futures Exchange and Shanghai Gold Exchange import gold directly.

Platinum US$983/oz vs US$984/oz –
Palladium US$619/oz vs US$625/oz  – 
Silver US$14.62/oz vs US$14.74/oz  –

Base metals:
Copper US$ 5,225/t vs  US$5,225/t – Freeport is in the process of renewing its export permits after the previous one expired on Jul 25.
• “We had scheduled shipment but don’t want to break laws so we are discussing with the government getting an export permit as soon as possible,” the Company said.
• The Company is planning a US$2.3bn investment in capacity expansion at the Gresik copper smelter.
o Codelco temporarily suspends its Salvador division, the smallest in the Group, on the back of protests by contractors.

Aluminium US$ 1,649/t vs US$1,647/t - Alumina prices fell through the US$300/t level for the first time since the start of estimating the Index in Aug/10.
• The Alumina Index has declined around 15% in the last two months.
• The downward trend is led by an abundance of supply rather than by the lack of supply, traders say.
• Production hit 120mt in the last 12 months, up from 116mt in the previous 12 months.
• Most of the increase is attributed to China as domestic output climbed to 59mt over the last 12 months, up from 51mt in the previous period.
• North American imports of aluminium are reported to have climbe 32.5%yoy to 536mlbs in May with most of the material coming from China.
• This brings the total for the first five months of the year to 2.61bnlbs, up 25.4%yoy.

Nickel US$ 11,230/t unch vs US$11,080/t –
Zinc US$ 1,945/t vs US$1,944/t –
Lead US$ 1,712/t vs US$1,710/t  –
Tin US$ 15,850/t vs US$15,425/t   –

Oil US$52.80/bbl vs US$54.50/bbl
Natural Gas US$2.778/mmbtu vs US$2.759/mmbtu
Uranium US$36.15/lb unch vs US$36.15/lb –

Bulk commodities:
Iron ore 62% Fe spot (cfr Tianjin) US$51.10/t unch vs US$51.10t –
Thermal Coal $56.7 vs $56.8 cif ARA Europe –
Tungsten - APT European prices price $220.0/mtu unch vs $225/mtu – price change as spreads widen

Company News
Aquarius Platinum (LON:AQP) 7 pence, Mkt Cap £105.5m – Quarterly Production Results
• Attributable production was up 5% quarter on quarter at 88,803 PGM oz and 6% from the same time last year.
• Production from Kroondal was up 5% and 6% respectively at 56,012 oz.
• Mimosa was up 5% and down 1% respectively at 30,018 oz.
• PlatMile was up 9% on the previous quarter at 2,773 oz.
• A weighted average prices of US$1,006/oz was achieved for the quarter down 4% from the previous quarter and down 16% from the same time last year.
• Cash cost are running at US$763/oz down 4% on the previous quarter and up 20% on the same time last year.
• Kroondal continues to perform well on costs down 4% on the previous quarter and down 2% from the same time last year in rand terms.
• During the quarter the Kroondal work force is said to have maintained a positive outlook.
• The market for PGMs remains weak with palladium remaining particularly weak.
• Platinum imports in China fell for the second straight month in May down 15% month on month but have risen modestly since then.
• Palladium imports into China fell for the eight straight month with imports down 27% year on year and 36^ month on month.
Conclusion: These numbers look respectable in terms of production and costs. End markets still remain weak with weak demand from China particularly for palladium not helping prices.
Labour relationships appear to have stabilised which should keep supply coming – demand needs to pick up to help prices.

Base Resources (LON:BSE) 6 pence, Mkt Cap £33.8m – Quarterly Operational Update
• For the quarter the company produced 206,123 dmt of HMC in line with the previous quarter and giving a total of 751,285 dmt for the full year.
• Production of Ilmenite was up to 113,476 dmt up 7.3% on the previous quarter with production above design capacity at 109%.
• Rutile production was up strongly by 16% over the previous quarter as a result of higher throughput and recoveries of 98%.
• Zircon produced was 6,484 dmt was up 20% on the previous quarter with average recoveries up to 62% from 54% in the previous quarter.
• Further improvements are being made to the zircon circuit to improve recoveries with a design level of 78%.
• Average mined ore remained high at 9.2% HMC as mining continued through the high grade Central Dune ore body.
• Tonnage mined remained steady throughout the quarter at 2.3 Mt.
• 100,000 tonnes was shipped directly to customers in China in small quantities to satisfy demand from smaller scale customers.
• Costs per tonne for the quarter for the combined products was US$97/t against US$11/t for the previous quarter.
• Pricing pressure continues in the pigment market as producers compete for market share resulting in weak prices for high grade titanium dioxide feedstock including rutile.
• Ilmenite prices improved over the quarter as supply from Chinese producers was cut back.
• Zircon prices remained stable due to discipline supply from major suppliers.
• On the first June Base made its first principle payment of U S$11m on its Kwale Debt Facility.
• The company is currently looking to refinance its current debt facility.
• The company is due US$25m in VAT payments from the Kenyan tax authorities which they are trying to expedite.
• Unrestricted cash stood at A$40.9m at the end of the quarter with restricted cash of A$6.5m.
• Debt drawn stood at US$224m.
Conclusion: Operationally all appears to be going to plan at Base Resources – however, end markets remain relatively weak and the company still has a high level of debt relative to equity.

Berkeley Resources (LON:BKY) 17.25pence, Mkt Cap £31.1m – Changing name to Berkeley Energy
Berkeley Resources is proposing to change its name to Berkeley Energy.
• It’s a sensible move first, because as a company with a uranium project in Spain it’s a mining / energy business and second because the name has often been confused with the lesser company Berkeley Mineral Resources, where the family of Masoud Alikhani recently agreed to return around £1m of assets to the company.  Mr Masoud Alikhani is reported to have Alzheimers, though this did not appear to stop him from remembering to syphon funds out of the company not so long ago.
• Thankfully Berkeley Resources, soon to be Berkeley Energy is a far better and more respectable company.
• We like the look of and prospects for the Salamanca project in Spain and see the recent appointment of Paul Atherley, formerly of Leyshon Resources as a positive move for the company.
• The recent release of a favourable report by the Nuclear Safety Council allows for the construction of preliminary infrastructure works to access the plant and is binding for the Ministry of Industry, Energy and Tourism.  This was the first step in a three stage process needed to gain an operating permit for Berkeley’s proposed plant.
Berkeley Resources already has an ‘Exploitation Permit’ for its Retortillo Project and this together with the Alameda, Zona 7 and Gambuta deposits make up the larger Salamanca Project.

Leed Resources* (LON:LDP) 0.05p, mkt cap £1.6m - Corporate Update - High Mannor quarry and wall panel business further investment and update
Leed Resources report their further investment in the High Mannor quarry and wall panel business in Perth, Australia which sells under the brand ‘Cultural Limestone’.
• Construction activity continues at a pace in and around the Perth area and this should drive demand for ready made stone wall panels.
• The panels, which are ready made reconstituted stone walls, replace the need for builders to use bricklayers to build perimeter walls mainly on new housing developments.
• The walls lift easily into place and fit directly onto foundations enabling a quick and simple instillation.  They are also allot less easy to steal than the stone blocks they replace.
• Leeds Resources are ramping up the production of walls through the use of additional moulds for the wall panels .
• The company are investing a further A$480,000 (approx. £230,000) in Battalion International Limited (“Battalion”) taking its total investment in Battalion loan notes to A$1.68 million.
• The investment is part of a A$1.3m increase in Battalion’s convertible notes with the new notes being issued on identical terms to the notes referred to in the announcement of 8 January 2015.
• This takes Battalion’s total loan notes to A$4.55m.
• The additional funds are to enable Battalion’s subsidiary, the quarry and panel company, High Mannor Pty. Limited to introduce a second generation of reconstituted limestone wall panels into the Western Australian construction industry.
• Leeds recently took delivery of a second batch of five moulds and twenty mould bases for making wall panels at the High Mannor quarry just north of Perth.
• Production facilities have been upgrade and the moulds pre-tested with wall panel production now in progress.  First deliveries and instillation of instillation of ready made wall panels are expected in  August.
• A significant new contract for wall panels has been received with more contracts in discussion.
• The new funds also strengthen High Mannor’s working capital position for the sale of additional panels at a time when other investors were also keen to support the business
• If Leed’s loan notes are converted the company would hold 18.4% of Battalion which currently holds a 61% interest in the equity of High Mannor rising to 76% if Battalion’s loan notes are also converted. 
• The investment takes Leed Resource’s total commitment to A$1.88m (£1.08m) in convertible notes paying a 12%pa interest rate.  This rises to 14% after two years if not converted. 
Leed Resources received its first £15k coupon from its investment in April and expects the second in July.
• WA Housing market:  Commitments for new housing construction in Western Australia was strong last year according to the Australian Bureau of Statistics indicating ongoing depth and strength in the market and good demand for building materials for some time to come.  Building approvals have pulled back in Western Australia reflecting a fall in confidence but last year’s record approvals still means the market should be strong for some time.
Conclusion:  The high interest rate on the loan notes make this investment look compelling.  Ongoing construction activity in the Perth area appears to run counter to the dramatic loss of earnings seen in the mining industry in Australia.  However, the Australian construction market appears to have good ongoing growth potential and might continue to run counter to the mining sector making investment in Leeds’ Resources a more robust investment in the sector.
* SP Angel acts as nomad and broker to Leed Resources

Serabi Gold* (LON:SRB) 3.875p, Mkt Cap £25.4m – Q2 production results
• The company reports that it produced 8,237 ounces of gold from its Palito and Sao Chico mines in Brazil during Q2, bringing the total gold output for H1 to 15,626 ounces.  The company’s guidance of 35,000 oz of gold output  in 2015 at an all-in- sustaining cost of between US$900-950 per ounce is maintained.
• In 2015, Serabi Gold expects to produce 28-29,000 ounces of gold from the Palito mine and from treating the stocks of flotation tailings accumulated during 2014.  In addition, the company is looking for a further 6-7,000 ounces of production from the Sao Chico operation located approximately 23 km south-west of Palito.
• The plant processed 33,729 tonnes of ore at an average grade of 8.28 g/t gold during the quarter at a recovery rate of around 93%. This is a marked improvement of the 86% recovery achieved during Q1.
• Sao Chico, which is expected to achieve full commercial production later this year, generated 783 ounces of production, mainly from lower grade development ore, during the quarter which implies a significant ramp up at Sao Chico during the second half of the year.
• Two development levels have now been established at the 216 and 182 metre levels at Sao Chico and the first production stope on the upper level was started during June while the lower level is still under development.
• The company notes that of the 600 metres of development on the first level, “250metres of the development, divided in four distinct ore zones, having been in high grade ore. As is the case in most vein mines, drilling alone does not provide the full story and it is underground ‘on lode’ development that ultimately defines the ore blocks.” The presence of 4 distinct mineralised zones should ultimately provide operational flexibility underground but suggests that production will need to be well controlled.
Conclusion: Serabi Gold has moved ahead with development at the high grade Sao Chico deposit while the Palito mine and tailings stockpiles provide a stable underlying production base for the company. As Sao Chico moves from development into full scale production and starts to produce higher grade ore from production stopes, output should continue to improve during the second half of the year.
*An SP Angel analyst has visited Serabi’s Palito gold mine and other properties

Tue, 28 Jul 2015 11:20:00 +0100
SP Angel Morning Oil & Gas Edge Resources, Petrel Resources and Baron Oil Headlines

Edge Resources* (LON:EDG/CVE:EDE ) – BUY (11p/C$0.22) – M&A Opportunities Given Support: While this is good news for the Company, and bolsters the near-term outlook, especially in the context of the recent weakening in the oil price, the impact on the outlook is of greater impact than the cash amounts involved. Consequently, we are reiterating our BUY Recommendation and 11p/C$0.22 Target Price.
Baron Oil (LON:BOIL) – Moving Forwards: While today’s news in real terms has little impact on the overall prospectivity of the assets at this stage, we believe that this news should have a positive impact on the share price, and see the share value rise.
Petrel Resources (LON:PET) – Tano Relief in Sight: While there are still a significant number of steps required before the block’s prospectivity can be fully elucidated, the central tenet that a company must have access to the economic benefits to consolidate them is finally being resolved.

News Items

Edge Resources* (EDG LN/LON:EDE)  – M&A Opportunities Given Support
Today’s news that the Company has completed a C$0.5mm placing at C$0.08, which represents a premium to the prevailing market price. While the amount raised is inconsequential, the fact that it was raised at a premium is a statement of intent.
We have no doubt that the transaction types that have been indicated are yet to be executed, we believe that the M&A market remains buoyant and there continue to be significant opportunities, not only in the Canadian market.
While this is good news for the Company, and bolsters the near-term outlook, especially in the context of the recent weakening in the oil price, the impact on the outlook is of greater impact than the cash amounts involved. Consequently, we are reiterating our BUY Recommendation and 11p/C$0.22 Target Price.
Baron Oil (BOIL LN – 0.72p) – Moving Forwards
Today’s news from the Company that the planned oils seep study on Block Z-34 will proceed as planned towards the end of the year is good news not only for advancing the prospectivity of the block, but investors in the Company too, as it marks the first steps that the Company has taken absent the tutelage of past CEO, and as such should be doubly welcomed, especially as he was such a positive force in shaping the Company.
While today’s news in real terms has little impact on the overall prospectivity of the assets at this stage, we believe that this news should have a positive impact on the share price, and see the share value rise.
Petrel Resources (LON:PET) – Tano Relief in Sight
Today’s news will be a welcome relief for shareholders, as it clears up significant uncertainty that has surrounded one of the Company’s more significant assets. That said, there is still the issue of the next steps on the forward programme, but here too the Company will be provided with a significant amount of relief in that the clock starts again.
While there are still a significant number of steps required before the block’s prospectivity can be fully elucidated, the central tenet that a company must have access to the economic benefits to consolidate them is finally being resolved.

Tue, 28 Jul 2015 09:37:00 +0100
There Is No Need to Panic About Falling Chinese Stock Markets There Is No Need to Panic About Falling Chinese Stock Markets
Here is the opening of this topical article by Roger Bootle for The Telegraph: Ever since China started to grow very rapidly, there have been those who have seen it as heading for a fall. Today is no exception. By contrast, I believe that it will continue to grow strongly for many years to come — albeit not quite so fast as before —and with a few bumps on the way.
The latest source of worry has been the performance of the stock market. Since June 12, the Shanghai Composite Index has fallen by 20pc. At one point it had fallen by a third. On occasions the index has fallen by as much as 7pc in one day. There has been widespread anxiety, in China and outside, that these sharp falls might cause not only financial chaos but also a severe hit to the real economy.
These fears are grossly overdone. Even after recent falls, the stock market is still up by about 100pc over the past year. Indeed, it is up by a quarter from the beginning of this calendar year. So the notion that massive losses on stocks are going to cause a plunge in the Chinese economy looks far-fetched.
As it happens, the stock market is not that significant in relation to China’s economy. The ratio of tradeable equities to GDP is running at just under 30pc. In most economies, including other emerging markets, the equivalent figure is over 100pc. Moreover, only one in 30 Chinese people owns shares directly, compared with about one in seven in the United States. And for all the popular enthusiasm for shares, China’s share owners are, on the whole, rich. They are unlikely to want, or be forced, to scale back their spending by incurring stock market losses. Nor is the equity market important as a channel for companies to raise finance.
One major concern is the degree of leverage in the market and the possibility of brokerages getting into trouble. More important than this, there is the embarrassment factor.
Via the state media, the Chinese government has encouraged people to invest in equities – right up to the moment the market crashed. This made policy-makers look inept and is one of the key reasons why they have stepped in to support the market.
David Fuller's view
This article was written yesterday, so before today’s biggest drop by China’s Shanghai A-Shares Index since 2007.  Might this have changed Roger Bootle’s mind?
This item continues in the Subscriber’s Area, where a PDF of Roger Bootle's article is also posted.

Martin Spring: On Target: A European Success Story
My thanks to this knowledgeable and highly experienced author for his perspective on the global financial scene.  This issue opens with a good look at Denmark, an outstanding performer among European stock markets.  Here is the beginning of a topical section: Why Global Economic Growth Is Sluggish:
There’s bullish talk about a coming pick-up in global economic growth, but for the moment, the signals are negative. Trends in the global economy look increasingly ominous.
Global trade is sluggish. In the first four months of the year, it rose only 2 per cent in volume terms, fell 12 per cent in dollar terms, year-on-year. Exports of Asian countries that are particularly sensitive indicators are looking awful.
Investment in expanding productive capacity is weak. The gap between new orders and stocks held by manufacturers is the poorest in three years.
Inflation is trending downwards in the US, Europe, China and Japan, with the rise in consumer prices in purchasing-power terms down over the past two years from 3 per cent to 1.2 per cent.
The OECD – the think-tank of mature economies – has cut its forecast for growth this year from 3.7 per cent to 3.1. The US is only expected to grow 1.1 per cent according to the Atlanta Fed’s latest GDP Now model. Europe and Japan are forecast to deliver minimal growth, while the most dynamic constituent of the world economy, China, is losing momentum.
Of course, there are some positive factors to counter the gloom. The fall in oil prices, by improving users‟ spending power, is adding 0.25 percentage points to economic growth. Central banks show no sign of retreating from their extreme money and credit creation policies to stimulate growth. In the US unemployment continues to fall, wage gains have started to gain traction, the housing market is looking better.
David Fuller's view
This is an interesting section and Martin Spring gives plenty of reasons why he still thinks global GDP growth will remain weak for many more years.  He could be right and obviously no one knows for sure.  I have repeatedly said in recent months that if may take two or three more years before we see a clear improvement in global growth.  Fortunately, the more enlightened governments and central bankers understand the challenge.  They are also addressing it, from the USA to India and obviously many more countries.
They are also doing so in an environment of globalisation and accelerating technological innovation.  These changes are not without significant challenges, but the long-term benefits are likely to be far greater.  We already see this in so many areas, from the development of increasingly influential corporate Autonomies, to lower energy costs, and previously unimaginable developments in biotechnology.  This is not just a limited or theoretical net gain for mankind.  Look at the increasing growth in the world’s middle classes over the last decade and counting.        
Martin Spring's On Target is posted in the Subscriber's Area.

Giant Air-Sucking Machines Could Be the Solution to Carbon Dioxide Problem
Here is the opening of this article from Business Insider’s Tech section:  This company wants to solve global warming using giant fans.
Canadian company Carbon Engineering is building machines that suck carbon dioxide out of the air by pulling it through a fluid, where it can either be discarded or recycled to be used as fuel.
Trees do the same thing, but the fan machines would ideally be built in areas where you couldn't plant trees, such as deserts, Popular Science reported.
Technologies have already been developed for capturing carbon dioxide from smokestacks before it reaches and pollutes the atmosphere, for example. But Carbon Engineering plans to do it by capturing CO2 that's already in the air, like emissions from cars, trucks, and planes.
David Fuller's view
I am glad that people are addressing the challenge but this project sounds noisy, cumbersome and with too many moving parts to be efficient. 

Teva to Buy Allergan Generic-Drug Unit for $40.5 Billion
This article by Chitra Somayaji and David Wainer for Bloomberg may be of interest to subscribers. Here is a section:
Allergan, which makes the blockbuster wrinkle treatment Botox, said Sunday it would buy the biotech company Naurex Inc., which is developing a fast-acting antidepressant. The $560 million all-cash transaction is expected to close by year-end.
Teva expects its Allergan transaction, which both boards backed unanimously, to close in the first quarter of 2016 and boost earnings per share. Also today, the company raised its earnings per share estimate for 2015 to between $5.15 and $5.40, up from an earlier forecast of $5.05 to $5.35. Earnings per share were $1.43 in the second quarter, Teva said.
Teva had been pursuing a $40.1 billion deal to buy Mylan since April, a merger rejected by Mylan management as culturally unfit. Last week, Mylan’s independent foundation exercised an option to acquire shares that let it control half of the company in a move that rendered Teva’s attempt to win over a majority of its shareholders much more difficult. Abbott Laboratories, Mylan’s top shareholder, in June said it backed Mylan’s plan to avoid being taken over by Teva.
Bloomberg reported on July 25 that Allergan was exploring a breakup of the company, including the possible sale of its generics business.
Mylan is pursuing Dublin-based Perrigo, a campaign that may now get fresh impetus as pressure mounts to become bigger. Perrigo, which makes prescription and over-the-counter drugs, has thus far rebuffed Mylan’s $33 billion offer.
Mylan will continue its pursuit of Perrigo and expects that Mylan shareholders will vote “in the next several weeks” to support a purchase, the company said in a statement. Perrigo shares rose 2.4 percent in premarket trading as of 6:55 a.m. in New York.
Teva, which had accumulated a 4.6 percent stake in Mylan ahead of a potential legal battle, said today it will “review its options” on the holding.
Teva may have a key advantage in integrating Allergan’s generic business because its own head of generics, Siggi Olafsson, formerly led that business at Allergan. Olafsson was brought in to Teva after leaving Actavis Plc, which switched its name to Allergan after agreeing to buy the maker of Botox in November 2014 for $66 billion.
Eoin Treacy's view
M&A activity both within the pharmaceutical sector and the health insurance sector has accelerated this year and particularly over the last month. Increasing competition to capture market share has been given fresh impetus by the risk that ultra-low borrowing costs might not be on offer indefinitely and that a failure to act now will result in companies becoming targets themselves. 

Japan Banks Seen Reporting Gains in Fees, Overseas Lending
This article by Gareth Allan and Shingo Kawamoto for Bloomberg may be of interest to subscribers. Here is a section:
Prime Minister Shinzo Abe’s efforts to stimulate the economy through monetary easing helped to spur bank lending while also lowering borrowing costs. Loans at city banks have risen for 2 1/2 years, according to the Bank of Japan. The average interest rate on new loans was 0.801 percent in
May, close to a record-low 0.767 percent last August, BOJ data show.
“While domestic lending grew in the first quarter, tighter loan spreads will constrain profit growth,” Yasuhiro Sato, chairman of the Japanese Bankers Association, said at a news briefing on July 16. He expects overseas lending to keep expanding and doesn’t see any change in the direction of interest margins yet.
Overseas Expansion
Sato is also chief executive officer of Mizuho, which said this year that it’s buying North American loans from Royal Bank of Scotland Group Plc for $3.5 billion. Sumitomo Mitsui last month agreed to purchase General Electric Co.’s European buyout- lending unit for about $2.2 billion. Mitsubishi UFJ’s main lending arm is considering acquiring a bank in Indonesia, the Philippines or India, Asia-Pacific CEO Go Watanabe said in an interview last month.
Eoin Treacy's view
Quantitative easing is positive for the banking sector because it creates an incentive to borrow and invest not least among banks themselves. Despite the loss of purchasing power in the Yen, the availability of credit has allowed Japanese banks to invest in their overseas operations which flatter consolidated earnings. This is likely to continue considering the Bank of Japan’s commitment to persistent easing.

Could Next-Gen Reactors Spark Revival In Nuclear Power?
Thanks to a subscriber for this informative article from National Geographic focusing on next generation nuclear. Here is a section:
“We’ve been talking with the national labs about it,” she says, noting the Department of Energy has a new loan guarantee program for advanced nuclear reactors. “There’s really good buy-in from DOE for developing a wide range of technologies.”
Even if all goes well, Dewan says, it will take at least a decade to develop a commercial molten salt reactor. She’s optimistic it will happen and welcomes the work of other nuclear startups.
“It’s so cool how much new development is occurring,” says Dewan, the grown-up version of the sixth grader who managed to produce light by connecting a water wheel to a generator. “It makes me excited for the industry.”
Eoin Treacy's view
I posted a similar article from the Brookings Institute in February  which also talked about the potential of new reactor designs to change the nuclear industry beyond recognition. These are big ideas and will require big money to help realise them but the potential for a truly ground breaking innovation is worth the investment. The problem right now is that there is not a great deal of appetite for energy investment in any shape as oil prices trend lower and budgets are slashed. 

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.

Tue, 28 Jul 2015 08:21:00 +0100
Northland Capital Partners View on the City Clontarf Energy, James Latham, Octagonal Plc and Petrel Resources Bwin.Party Digital (BPTY): M&A
Market Cap: £918m; Current Price: 111p
Competing bids

  • BPTY is subject to competing bids from rival online gaming businesses. GVC Holdings (GVC.L, NR) and 888 Holdings (888.L, NR) have placed rival bids to acquire BPTY.
  • GVC’s 122.5p offer (25p cash and GVC shares) implies a consideration of c. £1bn split into £206m cash and £805m GVC shares. Management also outlined raising an additional £150m to cover restructuring costs. We estimate GVC would therefore issue 226.5m shares at around the current price, and added to the existing 61m shares outstanding we would arrive at c. 287.5m shares post deal. We estimate on a proforma basis, including the minimum cost savings of €135m and also taking POC tax in the UK into account on the Bwin side, the combined business could generate EBTIDA of c. €285m (£204m) or 70p of EBITDA per share with current consensus forecasts at c. 55p per share it implies there is c. 30% upside to profits on a per share basis. We estimate the dividend at c. 75% of this would be c. 53p per share not too dissimilar to the current annualised quarterly dividend. Though a dividend yield of c. 12.5% would be achieved.  
  • 888’s 104p offer (39.5p cash and 888 shares) implies a consideration of c. £859m, split (£326m cash and £533m shares). The cash consideration to BPTY shareholders is c. 60% higher compared to the GVC revised offer. We estimate 888 would issue 333m new shares at 160p taking the total outstanding shares post deal to 690m shares. We estimate on a proforma basis including cost savings of $70m and also taking into account POC tax in the UK applied to both Bwin and 888 the combined business could produce c. $235m (£152m) of EBITDA or 22p of EBITDA per share. Current consensus forecasts for 888 standalone is c. 12p per share which appears to take POC exposure into account. This points to c. 80% upside on a per share basis.

NORTHLAND CAPITAL PARTNERS VIEW: Taking the two rival bids into account we estimate BPTY shareholders are likely to derive more benefit from a 888 offer compared to the GVC offer from an earnings enhancement point of view. 888’s offer we estimate should derive greater profit per share uplift to BPTY shareholders despite a smaller amount ring fenced for expected cost synergies. Furthermore, we see lower integration and migration risk on the 888 deal despite an impeccable track record from the GVC management team when Sportingbet was acquired and integrated into GVC. GVC offers investors a higher ongoing dividend yield compared to 888 however the risk in our view is higher when compared to 888’s offer. 

Clontarf Energy (LON:CLON) - CORP & Petrel Resources  (LON:PET) – CORP:
Clontarf Energy: Market Cap: £0.4m; Current Price: 1.8p
Petrel Resources: Market Cap: £2.9m; Current Price: 2.9
Ghana update Pan Andean to reapply for exploration licences

  • Pan Andean Resources, 60%-owned by Clontarf Energy and 30%-owned by Petrel, has agreed with the Ghanaian authorities that it will reapply for an exploration licence over 1,500 plus sq km of acreage in the Tano Basin, offshore Ghana. The licence is over revised co-ordinates that were agreed by the parties concerned in October 2014. Pan Andean has been given assurances that the application will be expeditiously processed.

NORTHLAND CAPITAL PARTNERS VIEW: While progress to date has been gradual in resolving the dispute over the Tano 2A licence, should Pan Andean secure the large licence area in the Tano Basin it would have a significant positive impact on both Clontarf and Petrel.

Latham (James) (LON:LTHM) – BUY*: Placing of existing stock
Market Cap: £136m; Current Price: 702p; Target Price: 800p
From yesterday: Placing of existing stock

  • International Plywood (Importers) Ltd has disposed of its entire holding of 900,000 ordinary shares, equivalent to 4.6% of the issued share capital, at 660p/share with new and existing investors.
  • Northland Capital Partners acts as Nomad and Broker to James Latham.
  • No change to forecasts, BUY rating or 800p price target.

Octagonal (LON:OCT) – CORP: Q1 update
Market Cap: £8.4; Current Price: 1.5p
From yesterday: Strong Q1 revenue growth

  • Following the Q1 KPI update (07/07/15), management has provided a financial update for Global Investment Strategy UK (GIS), its global settlement and safe custody services subsidiary where it acquired 90% outstanding stake at the end of June. Q1 revenue was £1.34m and net operating profit was £0.5m. There was a 50.3% increase in total settled transactions in Q1 to more than 30,000 and more than 120 new clients were added.
  • GIS had FY15 revenue of £3.3m, representing 30% growth, and generated an £0.5m operating profit.

NORTHLAND CAPITAL PARTNERS VIEW: Strong start to FY16 with growth in total settled transactions and the addition of new clients. The majority of GIS’s business is derived from settlement and safe custody services and there is considerable scope to grow both these revenues and its ancillary services.

Tue, 28 Jul 2015 08:15:00 +0100
Bounce or trounce? FTSE100 Index called to open +30pts at 6535 having found support around 6500 overnight following an extension of the recent sell-off to 327pts (-4.8%) from mid-July’s 6815 highs. Note said support just above 9-month rising lows at 6475, meaning potential for correction to be over and due a bounce, however, breakout >6550 likely required before bullishness returns. Watch levels: Bullish 6555, Bearish 6480.

The positive opening call comes despite Chinese stocks delivering another highly volatile session (slump, pare losses, slide, pare losses again), with bargain hunting, strength in banking stocks from market intervention (mass buying/injection, investigating ‘malicious selling’; losing control?) and a rebound by Copper helping, but uncertainty still rife as the market adjusts to bursting of stimulus-led and margin debt-fuelled equity bubble.

US markets closed lower, extending their declines (first 5-day losing streak in 6 months) on concerns Chinese stock market intervention being pared, weakness in European bourses, a disappointing downward revision for May’s US Durable Goods Orders ex-transport and anxiety ahead of the Fed FOMC update tomorrow evening which could provide markets with the clearest signal yet on the timing of the first US rate rise in 9 years.

Asian bourses followed China lower overnight after Monday’s equity rout (the sharpest one day crash in 8 years with losses the equivalent of Italy’s entire equity market). Efforts by the PBoC to shore up the market have led to margin debt reaching $1.2tn as investors the world over fear the peoples’ government is losing control of the situation. It was never really in control though, was it? Things look to have stabilised somewhat this morning while ‘volatility’ will certainly be the term of the day in Asia.

While Metals are showing some resilience with Copper bouncing from a 6yr low thanks to Chinese government assurances that it would continue to work to stabilize its stock market after the recent rout, note oil still under pressure extending bear market decline (down >20%) due to global supply glut (Iran about to return; US stockpiles forecast to grow) and USD bounce.

In focus today will be the UK’s GDP update with expectations for an acceleration in growth from 0.4% to 0.7% in Q2 which could have a knock on for Bank of England rate rise forecasts and thus the GBP. Any updates on Greek bailout negotiations (low level talks) likely to attract much attention given ECB rejection of stock exchange reopening proposals and IMF calls for debt relief.

In the afternoon we expect US House Price data to have been solid in May, the US PMI Services and Richmond Fed index to tick higher, although Consumer Confidence may have dipped. Note US Q2 results from heavyweights Ford (F), Merck (MRK), Pfizer (PFE), Twitter (TWTR) and global growth barometer UPS (UPS).

Oil prices still near four month lows, under pressure as are many commodities as confidence wanes in China’s economic health, about which the current stock market wobbles say very little, incidentally. Now officially in a bear market with global supply glut concerns, the prospect of another big player in Iran entering the market and a US Dollar still too strong to boost demand in any meaningful way making the short term outlook pretty dire.  Brent currently $53 while US Light Crude at $47.

Gold ($1097) off 25 July lows but still hovering near its lowest levels since 2010. While turmoil in Asia should be bolstering the yellow metal on uncertainty, the prospect of a coming US interest rate hike is keeping investors from the non-interest bearing safe haven’s door for the time being.

Tue, 28 Jul 2015 08:11:00 +0100