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Beaufort Securities Breakfast Today Including: Armadale Capital, Premier African Minerals and Black Mountain Resources

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The Markets

Market opening: Markets are likely to open higher today. FTSE 100 futures were trading 9.5 points up at 7:00 am.

New York: Wall Street drifted lower after St. Louis Fed President signalled an earlier-than-expected rise in interest rates. Meanwhile, a poor set of economic data raised concerns of a downward revision to US GDP in Q2 2014. The S&P 500 slid 0.1%.

Asia: Equities are trading lower today as weak consumer spending data from the US erased gains arising from upbeat Japanese inflation reports. Nikkei dropped 1.4%, pushed further down by a stronger yen. Hang Seng was trading broadly flat at 7:00 am.

Continental Europe: Concerns of a potential rate hike in the US in early 2015 led to a sell-off in equities. Banking stocks added to the losses after disappointing updates from BNP Paribas, Barclays and Standard Chartered. Germany’s DAX and France’s CAC 40 declined 0.6% and 0.5%, respectively.

Crude Oil: On Thursday, prices of Brent and WTI crude oil dropped 0.7% and 0.6%, respectively. The spread between the two varieties stood at US$7.4 per barrel.

UK small caps: Yesterday the FTSE AIM All-Share index closed 2.19 points (+0.28%) higher at 780.29

Today’s news

UK witnesses sluggish house price growth in June

Today, survey results by Hometrack indicated UK house prices edged up 0.3% m-o-m in June, registering the slowest pace of growth since January 2014, after rising 0.5% in May. Demand remained unchanged, while the number of property listings increased 1.9% during the month.

Consumer confidence in the UK reaches a nine-year high

Gfk’s monthly survey revealed the gauge of UK consumer confidence rose to 1.0 in June from 0.0 in May, recording the highest reading since March 2005. There was an improvement in the index tracking future outlook for the economy, whereas the indicator for future personal financial situation declined in June.

Company News

Armadale Capital (LON:ACP)

On late Wednesday, Armadale Capital announced conversion of its ~ZAR3.3m debt into shares of Mine Restoration Investments Limited (MRI) at ZAR0.05 per share, resulting in receipt of 66 million MRI shares. This move is part of the debt-to-equity conversion by MRI’s lenders. With this conversion and issue of 1 million shares to Justin Lewis in place of directors’ fees, Armadale’s holding in the company would increase to 249.3 million (29.9% of MRI’s share capital).

Our view: This debt-to-equity conversion is likely to strengthen MRI’s balance sheet, ensuring a smooth flow of its future activities such as building up of additional plants and scaling up its in-house technology. MRI’s coal briquetting plant at the Vaalkrantz Colliery region in South Africa is expected to reach a nameplate capacity of 5,000 tonnes a month by July this year. These set of developments bode quite well for Armadale too, whose stake in MRI is currently valued at approx. ZAR25m. Besides, Armadale’s ongoing drilling programme and other work at the Mpokoto project is expected to result in a strong resource upgrade in the coming period, which would place it as an attractive low-cost gold development prospect. The recent stake purchase in the Australia-listed Redcliffe Resources has diversified Armadale’s overall portfolio risk, besides providing exposure to the latter’s high-grade copper assets. In light of all these positives, we reiterate a Speculative Buy rating for the stock.

Black Mountain Resources (LON:BMZ)

Black Mountain Resources reported recovery of around 118 channel samples from the New Departure mine, including 48 from the Blue Dot level, last week, as a part of its strategy to complete a 3-D mine model. These samples have been sent to a laboratory in Nevada, with results expected in coming weeks. Black Mountain’s lead geologist at the mine found some clear sulphides on the main haulage level. Samples collected from the Blue Dot Level, which would access the Bonanza Zone and Main Zone mining blocks at New Departure, were encouraging. Last year, samples from the Blue Dot Level had returned silver grades up to 5,194 grams per tonne (g/t). The stock declined 5.6% yesterday.

Our view: Initial indications from the recent channel samples at the New Departure mine have been positive. Upcoming results of these samples are likely to contribute towards mine planning going forward. The company is yet to finalise the funding arrangements to back its planned set of activities, which include completion of the 3-D model and finalising the toll treat agreement with a local mill. Lack of financing had stalled the progress of its operations in the last quarter as well. Given the lack of appropriate funding arrangements (leading to hindrance in operations), future prospects of the company look bleak and therefore we recommend a Sell.

Premier African Minerals (LON:PREM)

Yesterday, Premier African Minerals declared results for the year ended 31st December 2013. With revenues yet to kick-start, operating losses more than doubled to US$4.7m, owing to US$2.1m impairment in the carrying value of its assets after a review and higher administrative costs. However, loss per share contracted to 1 cent from 3 cents as the number of shares in issue increased around nine times after the acquisition of ZimDiv Group. Premier acquired 42% interest in AgriMinco Corp. (ANO) following sale of its Togo and Mali subsidiaries to ANO, which gave the company access to the latter’s Danakil potash property in Ethiopia. Premier acquired ANO’s 30% stake in the property in May 2014, which was later sold to Circum Minerals Ltd in return for a US$2.5m bridging loan, 2 million new Circum shares (valuing US$1.4m) and cash consideration of US$5m. Premier also issued shares approximating CAD1m to ANO. Premier is looking for low cost capital alternatives that could result in an early production from the RHA Tungsten mine in Zimbabwe. Meanwhile, the company is also reviewing feasibility of a pilot plant at the Zulu Pegmatite prospect for its further development.

Our view: Payment of the remaining US$4m from Circum, due in parts in 2014 and 2015, would significantly strengthen Premier’s cash position. Last month, the company had announced a massive 152% jump in total resources at the RHA Tungsten project to 2.7 million tonnes (Mt) with a composite grade of 8.7 kilograms per tonne (kg/t) of tungsten oxide (WO3). Strong asset dealing strategies and substantial development of the key projects offer a strong upside to Premier. We maintain a Speculative Buy.

Economic News

US initial jobless claims

Initial jobless claims in the US declined by 2,000 to a seasonally adjusted 312,000 in the week ended 21st June, the Labor Department said yesterday. Previous week’s claims were revised upwards to 314,000 from a prior reading of 312,000. Economists had expected a sharper decrease to 310,000. The four-week moving average of claims edged up by 2,000 to 314,250 during the week.

US personal income and spending

The Bureau of Economic Analysis reported the US personal income advanced 0.4% m-o-m in May, meeting market forecast, after rising 0.3% in April. Personal spending increased 0.2% m-o-m in May, after staying unchanged in April. Economists had expected a higher jump of 0.4% in spending.

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