The Markets
Market opening: Markets are likely to open lower today. FTSE 100 futures were trading 10.10 points down at 7:00 am.
New York: Wall Street declined amid growing concerns over the stalled Greece talks and investors awaiting the upcoming two-day Federal Reserve meeting. An unexpected fall in the industrial production aided the fall. The S&P 500 lowered 0.5%, with industrials leading the losers.
Asia: Discouraging cues from the global indices led the equities lower today. Nikkei 225 shed 0.6% at close, whereas the Hang Seng was trading 0.7% down at 7:00 am, tracking the mainland China index.
Continental Europe: Market ended lower, following the collapse of the bailout talks between Greece and its international creditors on Sunday, thereby escalating fears of a Greek default. Germany’s DAX and France’s CAC 40 fell 1.9% and 1.8%, respectively.
Crude Oil: Yesterday, Brent and WTI crude oil prices decreased 2.0% and 0.7%, respectively. The spread between the two varieties stood at US$3.1 per barrel.
UK small caps: The FTSE AIM All-Share index closed 0.47% lower yesterday at 770.81.
Today’s news
Mario Draghi advices Greece to make the first move
European Central Bank (ECB) chief Mario Draghi stated the ‘ball lies firmly with the Greek government’ to make the first move following the collapse of bailout negotiations with its international creditors. He stated that a strong and comprehensive agreement was the need of the hour. ECB has extended around €118bn to Greek banks in 2015.
Russia’s central bank slashes key interest rates again
Russia’s central bank cut its key interest rate by 100 basis points to 11.5%, marking the fourth reduction in 2015. Meanwhile, the inflation eased to 15.8% in May from 16.9% in March, the bank informed. As of 8th June 2015, the estimated price growth stood at 15.6%.
Company News
MySQUAR – AIM IPO of a Myanmar-based Internet-build group, focussed on Mobile Social Media Services
You may have seen reference in the Financial Times and other press sources of this upcoming AIM IPO in which Beaufort is sole broker.
MySQUAR is a technology group focussed on internet-content build in Myanmar, a country which until recently had been effectively cut-off from the rest of the world. Its first main product now rapidly building users is ‘MyCHAT’, a free to use social media and mobile chat service. The Company has recognised that offering local language and locally-derived content is the best route to acquisition and retention of massed users still very new to the worldwide web. Within a short 15 months its services could be accessible by over 40m residents. MySQUAR is positioned to be the local platform of choice in what will shortly become Southeast Asia’s fastest growing online territory. The Company is expected to have over 1m users by the end of the year with rapid growth continuing into the foreseeable future. With users comes monetisation opportunities, including gaming, news, information, financial and payment services.
Should wish to have more information or are interested in getting involved, please contact your Beaufort Broker on 020 7382 8300 (London) or 0117 910 5500 (Bristol).
Inspirit Energy Holdings (LON:INSP) – Speculative Buy
Inspirit Energy Holdings plc, the AIM listed developer of micro combined heat and power boilers, is pleased to announce that it has commenced construction of its first verification unit boiler. The verification unit is currently being assembled at the Company’s Sheffield development facility and, following final in-house testing, will be shipped to the independent international consultants, Enertek International Ltd (www.enertekinternational.com) for testing conformance with the European Gas Appliance Directive. Enertek specialise in product research, design, development and certification. The purpose of this testing is to accredit the unit for field trial deployment in a commercial, potential customer setting, outside of a laboratory environment.
Our view: Field trials are an essential first step on the route to market for products such as Inspirit’s micro combined heat and power boiler. Inspirit is committed to ensuring that its products meet both our internal quality standards and external certification requirements before being brought to market which, in turn, will build reputation for the brand. The commencement of construction of this verification unit is a major milestone for the Group and paves the way, subject to successful certification, for installation in a commercial setting where it can undergo live field trial testing. As Beaufort has stated in previous research, Micro Combined Heat and Power Systems are a revolution waiting to happen. This giant prospective global and highly addressable market will be increasingly powered by governments striving to comply with, amongst other things, the EU’s 2020 carbon emissions targets. The market has been waiting for a true ‘killer application’ to be put on the table. Inspirit’s high value-added Sterling Engine design does appear to tick this box and its verification by an independent tester is the next step in proving its opportunity. Results from this might be expected by July. Potential rewards, both in terms of own manufacture and external licensing, for Inspirit could become very large indeed. Therefore, we maintain our Speculative Buy rating on the stock.
Beaufort Securities acts as corporate broker to Inspirit Energy Holdings plc
KEFI Minerals (LON:KEFI) – Speculative Buy
Yesterday, KEFI Minerals released Chairman Harry Anagnostaras-Adams’ statement details for the Annual General Meeting. He informed that the company remained on track for gold production in 2017 following the construction commencement in late 2015 and plant commissioning at the end of 2016. Through its Gold & Minerals joint venture, the company has a near-term development proposition for Jibal Qutman where the mineral resources currently stand at 733,045 ounces of gold. The prospect is expected to require low capital outlay along with an ability to generate cash for further financing. At Hawiah, since the grant of exploration licence seven months ago, the company has identified a huge target for precious and base metals. The prospect would be drilled in H2 2015. In Ethiopia, the company obtained full regulatory approval for its 95% beneficial interest in the Tulu Kapi gold project. Subsequent to the overhaul of the development plan, the capital expenditure declined to US$120m from US$290m while the open pit production improved to 1 million ounces from 900,000 ounces. The company has shortlisted financers and project contractors for development commitments in the next quarter.
Our view: In a short span of two years, KEFI Minerals has managed to enhance its Mineral Resources and Ore Reserves from 200,000 oz and nil respectively to approximately 2 million ounces and 1 million ounces. The company is well placed to experience more good news as two of its major prospects – Tulu Kapi and Jibal Qutman – are expected to commence production over the next two years. Kefi is the operator of these two advanced gold development projects within the highly prospective Arabian-Nubian Shield and expects them to be cash generative in the near term. The latest milestones for the company have been the revamping of the Definitive Feasibility Study at the Tulu Kapi and the performance of a detailed Preliminary Feasibility Study for anomaly definition at the Jibal Qutman prospect; a Mining Licence Application has also been drafted for the same. Moreover, the company has appointed Mr Wayne Nicoletto as the Managing Director of KEFI Minerals (Ethiopia) Limited and Group Head of Operations to further strengthen its team. The company has enjoyed unstinted support from the local governments in terms of tax breaks and other permits. Therefore, in view of the company’s rapid progress on its prospects, we reiterate a Speculative Buy on the stock.
Beaufort Securities acts as corporate broker to KEFI Minerals plc
Mariana Resources (LON:MARL) – Speculative Buy
Yesterday, Mariana Resources provided an update on the preliminary animated 3D mineralisation model following the latest high grade Gold-Copper (Au-Cu) drill results at the Hot Maden Project in eastern Turkey. The model incorporates all the seven holes drilled by the company’s joint venture partner Lidya Madencilik Sanayi ve Ticaret A.S. during the Phase II drill program at Hot Maden. The assay results from hole HTD-10 suggest that the Au-Cu mineralised zone extends between the original two scissored discovery holes (HTD-04 and HTD-05), while the hole HTD-11 extends the Au-Cu zone to the south to a current total length of 225m in a north-south orientation. The model also includes the mineralisation zones logged in Holes 12-14 (assays pending) that suggest significant intervals of pyrite-chalcopyrite mineralisation intersected in drill holes HTD-12 and HTD-13. Furthermore, the Au-Cu mineralisation is currently open both up and down dip at several holes and the high grade gold and copper zone is seen to be continuous.
Our view: The latest animated 3D model depicts the continuous high grade Au-Cu body at the Hot Maden prospect along with a surrounding Zinc halo. Moreover, the pending assay results and the scope for mineralization extensions in several directions bodes well for the company as it provides an opportunity for further expansion. The model is expected to be helpful in not only assessing the resource potential but also guiding the search for extensions through better understanding of the mineralization in the area. Meanwhile the visual inspection of the core from HTD-11 has also been quite encouraging. The Hot Maden project was acquired in January 2015 through the acquisition of Aegean Metals Group that fully owns the Hot Maden (Au-Cu) and Ergama (Au-Ag) prospects in Turkey. Additionally, the company possesses other promising prospects in Peru, Argentina, Suriname and Chile. The company’s strategy focuses on acquiring prospective land packages offering the high probability for economic returns. The company’s other successful gold-silver discovery campaigns include Las Calandrias Project and Sierra Blanca Project. Thus, in view of the company’s promising asset base and its track record for previous explorations, we maintain a Speculative Buy rating on the stock.
Vedanta Resources (LON:VED) – Hold
Yesterday, the Vedanta Resources announced the merger between Vedanta Limited and Cairn India. The key highlights of the merger suggest that all the minority shareholders of Cairn India would receive one equity share in Vedanta Limited for each equity share held by them and one redeemable preference share in Vedanta Limited with a face value of INR 10. The company’s strategy remains unchanged with focus on growth, development and long-term value to shareholders. The company expects the transaction to be completed by CY 2016 subject to approval from shareholders of Vedanta Limited, Cairn India and Vedanta, and the Indian High Court and stock exchange among others. Following the transaction, Vedanta’s ownership in Vedanta Limited is expected to decrease to 50.1% from its current 62.9% shareholding. Cairn India and Vedanta Limited minority shareholders would own 20.2% and 29.7% stake in the enlarged entity, respectively.
Our view: The acquisition of Cairn India marks Vedanta’s plans to adopt a simpler structure through the merger of its Indian subsidiaries. The merger announcement comes amid declining commodity and oil prices that have hurt the prospects of Vedanta and Cairn India, respectively. The deal would consolidate the company’s position to fulfil its long term goal of creating of sustainable value to its shareholders through increased economies of scale, stronger balance sheet and diversified portfolio risks. Of late, Cairn India has been Vedanta’s best-performing operating unit, primarily due to its highly profitable oilfields in western India. However, the company’s overall production in the last fiscal was marred the planned shutdown and some unplanned interruptions. Barring record production of Zinc and Aluminium over the year, the company’s other divisions failed to impress. Thus in view of the uncertainty surrounding the company’s prospects, we maintain our Hold rating on the stock.
Falkland Oil & Gas (LON:FOGL) – Speculative Buy
Yesterday, Falkland Oil and Gas Limited announced that it had spudded the Humpback exploration well on 13th June 2015. The company has a 52.5% working interest in the well located on the PL012 that targets the Humpback prospect. The estimated time for drilling the well is approximately 65 days and several stacked reservoirs in the Cretaceous Diomedea fan complex would be tested. The Humpback well is located in a water depth of approximately 1,260 metres and is expected to reach a total depth of 5,350 metres. The company would provide a further update once the logging is completed. FOGL is partially carried through the costs of this well by Noble Energy, the Operator, and has a paying interest of 27.5%.
Our view: Humpback is located in the Fitzroy sub-basin, having a total, combined, prospective resource of over one billion barrels of oil. The commencement of drilling at the prospect may unearth important resources that may add to the company’s overall reserves potential. Recently, the company discovered oil at the Isobel Deep in the North Falkland basin following the findings at the Zebedee well. The sightings considerably de-risked the entire Isobel / Elaine fan complex due to the confirmed presence of an oil prone hydrocarbon system marking the exploration success rate of 9 out of 11 wells in licences PL004 and PL0032. Moreover, FOGL acquired the Mediterranean Oil and Gas to diversify into the Mediterranean and East African basin from its major operations in the Falkland basin and also obtained a 40% interest the in the offshore Block 9 in Croatia. The company’s partners have contracted the Ocean Rig owned Eirik Raude, a deep-water harsh environment semi-submersible rig, for the multi-well drilling programme in 2015. With a strong balance sheet, the company enjoys a comfortable position to progress with the development of its assets. Given the overall optimism surrounding the company, we expect a strong upside in future and reiterate a Speculative Buy for the company.
Economic News
US empire manufacturing
The US Empire State manufacturing index for general business conditions declined to a negative 2.0 in June from a positive 3.1 in May, the manufacturing survey by the Federal Reserve Bank of New York revealed yesterday. The economists had expected a reading to improve to 6.0.
US industrial production
Industrial production in the US fell by 0.2% m-o-m in May, after witnessing revised decline of 0.5% in April, the Federal Reserve announced on Friday. The unrevised declined for the previous month was 0.3%. Markets, on the contrary, were expecting output to rise by 0.2%.