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Beaufort Securities Breakfast Alert: Eurasia Mining, Kibo Mining, Aureus Mining, BHP Billiton, Joules Group, Whitbread

Beaufort Securities Breakfast Alert: Eurasia Mining, Kibo Mining, Aureus Mining, BHP Billiton, Joules Group, Whitbread


The FTSE-100 finished yesterday's session 0.36% higher at 6,226.55, whilst the FTSE AIM All-Share index closed 0.12% lower at 721.12. In continental Europe, markets ended higher as investors cheered recent polls favouring Britain to stay in the EU. The market rally was led by gains in banking stocks. France’s CAC 40 and Germany’s DAX advanced 0.6% and 0.5%, respectively.
Wall Street
Wall Street ended in the green as investors digested comments from Fed Chair Janet Yellen stating the Fed would remain cautious in raising interest rates. Meanwhile, investors await the Brexit vote later this week. The S&P 500 rose 0.3%, with the energy sector gaining the most.
Equities are trading mixed amid growing uncertainty surrounding Britain’s vote on whether it would remain in the European Union (EU). The Nikkei 225 fell 0.6% as a stronger yen exerted pressure on export-driven stocks. The Hang Seng was trading 0.6% up at 7:00 am.
Yesterday, WTI oil prices fell 1.1% to US$48.85 per barrel, while Brent oil prices decreased 0.1% to US$50.62 per barrel.

UK factory orders strengthen in June
As per a survey by the Confederation of British Industry, the order balance in the UK rose to -2.0 in June from -8.0 in May, better than the market expectation of -10.0. However, a measure of export orders remained steady at -14.0. Additionally, the agency forecasts factory orders in the three months ahead to improve to +23.

Company news

Eurasia Mining (LON:EUA, 0.52p) - Speculative Buy
Yesterday Eurasia announced that mining has started at its alluvial platinum operation in Russia. Management is calling this lower tonnage phase the “start up operation” as it’s designed to process the first 277,000 m3 of a 13.8 million m3 resource. Assuming the start up phase goes well, operations will be expanded significantly and would include three wash plant sites. The mine build and mining are being done by an experienced Russian contractor called SK Region-Story. According to the agreement, revenue from platinum sales will be split 70:30, with Eurasia receiving 30% and SK Region-Story receiving 70%. SKRS is also responsible for providing all the capital equipment and funding the cost of developing the mine. Eurasia is responsible for continuing exploration work and selling the platinum concentrates.

Our view: This is clearly very good news for Eurasia Mining shareholders. As Eurasia’s CEO Mr Schaffalitzky commented, it’s impressive how quickly SKRS has mobilized equipment 600km and started mining. It suggests SKRS are a competent and motivated operator. We expect further newsflow describing progress at the alluvial platinum operation (West Kytlim) culminating in first production and sales during 2H16. We maintain our Spec Buy recommendation.

Beaufort Securities acts as a corporate broker to Eurasia Mining plc

Kibo Mining (LON:KIBO, 5.0p) - Speculative Buy
Kibo Mining, the exploration and development company focused on energy and mineral projects in Tanzania, announced yesterday an update on the latest progress with regard to the main work streams for the Mbeya Coal to Power Project (MCPP). Following the completion of the Definitive Power Feasibility Study (4 May, 2016), Kibo has completed the EPC specification and bid procurement process as well as a successful pre-bid procedure with partner SEPCOIII, as required in the Joint Development Agreement. The Definitive Mining Feasibility Study is on track for completion by the end of June 2016 and we note that logistic and pit optimisation studies have been completion focused on the mining equipment required to operate a 1.6Mtpa coal mine. Mine design process is ongoing and a mine plan and schedule is expected upon completion of the feasibility study. Budget quotes for mining EPC and contracting have been received are currently being evaluated. The Environmental and Social Impact Assessment (ESIA) was formally accepted and officially registered with Tanzanian Government on 19 May 2016, since then the socio-economic consultation and specialist field work stage have been completed. The company is finalising the hydrology study.

Our view: Yesterday’s announcement reveals the multiple work streams that are simultaneously underway during the process of completing the Integrated Bankable Feasibility Study (IBFS) for the Mbeya Coal to Power project. We look forward to completion of the Definitive Mining Feasibility Study and note that all technical work required for the IBFS is drawing to a close. In the meantime, we maintain a Speculative Buy on the stock.

Beaufort Securities acts as a corporate broker to Kibo Mining PLC

Aureus Mining (LON:AUE, 4.0p) - Speculative Buy
Yesterday, Aureus Mining (Aureus) closed tranche 1 of the equity financing with MNG Gold Jersey Limited. Aureus raised US$15m through the issue of 59,533,674 new common shares at a price of 3.21p per share. The company has submitted an application for these shares to be traded on AIM and admission would take place on 22nd June 2016. The new shares would rank pari passu with its existing shares. After the issue of the new shares, Aureus’ share capital would have 601,350,246 shares. Aureus expects to complete the second tranche, wherein US$15m is anticipated to be raised, upon clearance by the Toronto Stock Exchange.

Our view: Aureus receiving funds from tranche 1 of the financing agreement with MNG Gold is a positive development. This would strengthen Aureus’ balance sheet and help meet working capital requirements for the New Liberty Gold Mine in Liberia. In addition, the funds would be used to lower outstanding balances payable to creditors. Aureus delivered a strong performance in Q1 2016, recording robust revenue and production. Mining activities continued, with preparations for the forthcoming wet season well underway and an additional mining fleet (comprising five Komatsu HD785 haul trucks and a PC1250 excavator) being deployed in May 2016. The company is capitalising on the process plant’s production stoppage to complete the scheduled plant maintenance and boost ore stockpile. The firm expects this to help it to recover from the anticipated production loss later in the year. Aureus has progressed well in all aspects related to the project; given the significant potential of this project, we are optimistic about favourable production results from the company in the near future. Thus, we maintain a Speculative Buy rating on the stock.

BHP Billiton (LON:BLT, 847.70p) - Hold
Yesterday, BHP Billiton provided an update on its coal business. Mike Henry, President Operations Minerals Australia, disclosed that the company is looking for opportunities to increase the competitiveness of its coal operations in terms of costs and volumes. BHP Billiton’s coal business has delivered more than US$3bn of productivity gains since 2012 and is targeting another US$600m by the end of 2017. The company plans to expand the coal business by releasing low-cost, latent capacity as well as by exercising high-quality growth options if market conditions call for it.

Our view: The update highlights the plan formulated by BHP Billiton for its coal business to enhance returns by reducing costs, increasing productivity and releasing latent capacity. The company has been working to build a strong portfolio to endure the negative impact of challenging market conditions. We appreciate BHP Billiton’s efforts to improve its coal business. Nonetheless, the outlook for the coal sector remains bleak, with a slowdown in some developing and emerging economies supressing demand. We maintain a Hold rating on the stock.

Joules Group (LONJOUL, 190.0p) - Speculative Buy
Joules Group PLC, a British premium lifestyle brand, yesterday announced a trading update for the 52 week period ended 29th May 2016. Unaudited Group revenue of £131.3 million increased by 12.7% compared to the prior period (53 weeks to 31 May 2015). Against the comparable 52 week prior period, Unaudited Group revenue increased by 14.2%. Retail sales for the period increased 11.0% to £93.7 million (2015 - 53 weeks) and Wholesale sales increased 17.6% to £37.2 million (2015 - 53 weeks). On a geographic basis, UK sales increased 11.6% to £118.1 million of Group revenue and International sales increased 24.7% to £13.2 million of Group revenue. International now represents just over 10% of Group revenue. Results are anticipated to be in line with management expectations. The Group will make its preliminary results announcement for the 52 weeks ending 29th May 2016 on 7th September 2016.

Our view: The Company was admitted to AIM on 26th May 2016 at a placing price of £160p. Since that announcement the following Institutions announced declarable holdings: Old Mutual (5.3%), Henderson (6.4%), Lloyds Banking Group (7.1%) and Standard Life (5.1%). This has been a year of great progress in further developing Joules as a lifestyle brand across multiple sales channels both in the UK and internationally. There appears to be a clear growth strategy of increasing customer value; rolling-out UK stores; accelerating international growth; and delivering product extensions. The energy, skill and commitment of the Joules team and the unique design of its products underpins this strategy. The Company remain confident in continuing to deliver further growth as a listed company. These numbers, whilst in line with expectations, demonstrate the strength of the offering against a tough environment and we assign a Speculative Buy on the Company.

SAGA (LON:SAGA, 212.50p) - Buy
Yesterday, Saga released a trading update for the period between 1st February and 20th June 2016. The company remains on track to achieve its targets for the year ending 31st January 2017. Saga performed well in its core insurance and travel units. The company made investments for expanding its emerging businesses. Saga undertook initiatives to make its business more customer friendly. The company would declare its interim results on 21st September 2016.

Our view: Saga has started the year on a positive note, with all divisions performing strongly. The company continued expanding in its emerging business due to timely investments. Saga maintained its simple, efficient operating model, implementing the Quota Share agreement and the motor panel. The company is progressing well to achieve its target set at the preliminary results on 19th April 2016. We are encouraged by Saga’s progress in the year to date and look forward to further updates. Therefore, we maintain a Buy rating on the stock.

Whitbread (LON:SAGA, 4,170.28p) - Buy
Whitbread, the owner of the Premier Inn, Costa Coffee and varieties of restaurant chain, yesterday provided trading update for the 13 weeks ended 2 June 2016 (‘Q1 FY2016’). Against prior year (Q1 FY2015), during the period, Premier Inn advanced Total sales by +8.0% and like-for-like (‘LFL’) sales by +2.1% driven by hotel extension programm. Restaurants grew total sales by +1.4% and LFL sales by +0.2% slightly ahead of a soft pub restaurant market outside the London, while Costa expanded both total sales and LFL sales by +11.5% and +2.6% respectively. Overall, Group total sales for the Q1 rose +8.0% whereas LFL sales improved +1.8%. Against a strong comparator (Q1 FY2015), Premier Inn LFL Revenue per available room (‘RevPAR’) for the quarter fell -0.5% as a result of substantial hotel extension programme. Total RevPAR reduced by -1.2%, with occupancy declined -1.5% year on year to 79.1%. On the operational front, Whitbread opened 474 room for Premier Inn, 2 new sites for Restaurants and opened 94 Costa stores worldwide. Whitbread’s CEO, Alison Brittain commented “Although it is early in our new financial year and despite current market conditions, with the benefit of our cost efficiency programme we remain confident of making good progress for the full year”.

Our view: Whitbread delivered resilient progress in the first quarter despite a weaker UK hotel market, particularly in London where RevPAR declined -1.6% for the total market and fell -3.5% for the Midscale and Economy market. While the major extension programme for Premier Inn has diluted its RevPAR due to higher number of rooms, it supported LFL sales and contributed to +2.1% growth, ahead of the consensus analysts’ Q1 estimate of +1.6%. Costa’s performance, on the other hand, was more encouraging as it advanced total sales by +11.5%, with LFL sales up +2.6% (consensus: +1.9%) recovering from the disappointing Q4 FY2015 result of +0.5% LFL growth that the Group blamed on lower footfall and an unusually warm winter. The Group remains on schedule to open 4,000-4,500 new hotel rooms, 230-250 Costa stores worldwide and has increased its target installation of Costa Express machines to at least 1,250 for this year. Although the Group has seen a tougher trading environment recently in China, international system sales (EMEI and Asia) grew by +11.5% to £88.3m. We believe the long term global opportunity for Costa and this remains one of the most exciting parts of the Group going forward. Whitbread’s share price movement in June to date largely replicates the overall FTSE100 performance, in which companies with significant overseas exposure nevertheless have suffered from cautionary sentiment in the face of polling anticipating a BREXIT majority. Considering its price still underperforming the FTSE100 with its Costa business saw encouraging improvements over the last quarter, Beaufort retain its Buy rating on the stock.

Economic news
Germany ZEW survey
The Centre for European Economic Research/ZEW reported that the German economic sentiment rose to 19.2 in June from 6.4 in the previous month. Meanwhile, the gauge of current gained 1.4 points to reach a five-month high of 54.5 in June.

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