The Markets
Market opening: Markets are likely to open higher today. FTSE 100 futures were trading 10.50 points up at 7:00 am.
New York: Wall Street declined after Greece’s creditors rejected the country’s reform proposal. The encouraging economic data on the domestic front was largely ignored by the investors. The S&P 500 lost 0.7%, with materials declining the most.
Asia: Equities are trading lower on negative cues from global markets, as the Eurogroup meeting ended without any deal yesterday. The Nikkei 225 offset yesterday’s gains to fall 0.5%, while the Hang Seng was trading 0.6% down at 7:00 am.
Continental Europe: Markets ended in the red after Greece failed to convince its international creditors about the reform proposal. France’s CAC 40 shed 0.2%, while Germany’s DAX declined 0.6% following the release of discouraging IFO data.
Crude Oil: Yesterday, Brent and WTI crude oil prices decreased 1.5% and 1.2%, respectively. The spread between the two varieties stood at US$3.2 per barrel.
UK small caps: The FTSE AIM All-Share index closed 0.08% higher yesterday at 770.96.
Today’s news
Mortgage approvals in UK rise in May 2015: BBA
The British Bankers’ Association (BBA) stated mortgage approvals for house purchases climbed to 42,530 in May 2015, a 14-month high, vis-à-vis 42,020 in April 2015. The approvals were up 4% y-o-y. The rise in approvals indicates the housing market continues to perform well after the general election in May.
Car production in UK increases in May 2015: SMMT
According to the Society of Motor Manufacturers and Traders (SMMT), total car production in the UK rose 2.3% to 119,338 in May, led by a 13.3% increase in the number of models built for the British market. However, the number of vehicles built for export marginally declined by 0.2% to 94,546.
Company News
DekelOil Public (LON:DKL) – Speculative Buy
Yesterday, DekelOil announced its final results for the year ended 31st December 2014. During the period, the company reported revenues of €10.0m and EBITDA of €0.2m. The production for the nine months of operations to 31st December 2014 stood at 14,242 tonnes of crude palm oil (CPO) and 2,504 tonnes of kernels. The company commissioned a 60 tonne per hour mill in February 2014 that has been operational for nine months of the period. Meanwhile, three more off-take agreements were secured with domestic customers to attain an aggregate of four customers in the local sales book. The company also received investment from Nubuke in February 2014, thereby increasing its institutional shareholder base. Beyond the period, the monthly CPO production for January-April 2015 has already surpassed the 14,242 tonnes of CPO produced in FY 2014, following the implementation of a new logistics strategy. The monthly production for April stood at 4,818 tonnes of CPO. Moreover, the company signed a contract to construct and commission the kernel crushing plant (KCP), which is expected to be operational at Ayenouan in Q4 2015. Apart, DekelOil plans to hold its AGM on 16th July 2015 in London.
Our view: The year 2014 saw DekelOil transform into an operator of productive, cash generative and vertically integrated palm oil project. CPO production during the period January and April 2015 has already surpassed 2014’s total and the kernel plant remains on course to commence operations in Q4 2015. The components of the KCP installation at Ayenouan project have already been shipped from Malaysia. Once operational, the new KCP is expected to add a significant revenue stream to the project by enabling the sale of palm kernel oil and animal feed for the local market at the factory gate. With an initial capital expenditure of €1.1m, the KCP seems to offer an attractive return on the investment as the follow on benefits would far outweigh the costs involved. Meanwhile, plans are underway to roll out Guitry, the company’s second vertically integrated palm oil project in the Ivory Coast. DekelOil has more than met its historic targets – exceeding production targets earlier than expected, as well as building the Mill within the stipulated budget. In addition, West Africa continues to attract the attention of major palm oil developers who are looking to secure future expansion. The company is strongly placed for growth with a defined growth strategy. We believe that the valuation does not reflect this success and there is a considerable scope for upside potential. Therefore we retain our Speculative Buy rating.
Beaufort Securities acts as corporate broker to DekelOil Public plc
Kefi Minerals (LON:KEFI) – Speculative Buy
Yesterday, Kefi Minerals announced the completion of the Definitive Feasibility Study (DFS) for the year 2015. The study is now being reviewed by the Independent Technical Consultants to the financiers who are formally considering participation in the syndicate for the development funding arrangements in Q3 2015. The key highlights of the DFS suggest that the gold production has remained unchanged at 960,000 ounces (oz) over 13 years with an average of 95,000 ounces per steady-state year and the all-in sustaining costs stood at US$780/oz. The initial funding requirement for the project is nearly US$120m and would be arranged though US$100m of secured debt-based finance and US$20m of equity finance, in addition to an equity investment of US$65m to the project to date. In April 2015, the company executed the Tulu Kapi Mining Agreement with the Ethiopian Government that included an undertaking to the government to target the commencement of construction in late 2015. KEFI was granted a Mining Licence valid for a renewable period of 20 years, along with all major permits for the development and operation of the Tulu Kapi mine.
Our view: In the recent past, Kefi has managed to make concrete progress towards production and remains on track to start mine construction by the end of this year. The support from the Ethiopian government has been encouraging and the completion of the DFS and an advanced stage project financing bodes well for the company. 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 NPV of the Tulu Kapi project is estimated to be US$156m at a discount rate of 8%, provided that the production starts in 2017. With the current market capitalisation approximately £14m, we expect a significant upside going forward. Thus we reiterate a Speculative Buy on the stock.
Beaufort Securities acts as corporate broker to Kefi Minerals plc
Kibo Mining (LON:KIBO) – Speculative Buy
Yesterday, Kibo Mining informed that it has received encouraging preliminary results from an independent Airborne Geophysical Data Interpretation carried out over its Haneti project in central Tanzania. Data processing and interpretation was carried out by Spinifex Geophysics of Perth, using the recently acquired high resolution data from the Geological Survey of Tanzania. The geological structure of the Ni-Cu-PGM prospective Haneti-Itiso Ultramafic Complex (HIUC) confirmed its continuity over 80 kilometres of strike length. In addition, a number of areas were identified within the HIUC with similar magnetic and gravity signatures that may form the targets for follow-up exploration. In addition, the interpretation identified a new target zone of ultramafic rocks over a strike length of approximately 30 km for follow up exploration.
Our view: The preliminary results from the data interpretation have significantly enhanced Kibo’s understanding of the geological structure of the Haneti project. The company is well placed to relinquish areas of no ultramafic target rocks, prospective for Ni-Cu-PGM style mineralisation. The interpretation results suggest that the HIUC is comprised of a number of attenuated and folded ribbons of ultramafic rocks within the general granite-gneiss country rock which will assist geological interpretation and help focus exploration on areas with best potential. Recently, the company signed a Joint Development Agreement (JDA) with SEPCO III for the completion of the Definitive Feasibility Studies and development of the Mbeya Coal to Power Project (MCPP). We view the encouraging inputs from the survey as a significant milestone and expect the pace of the exploration work to increase as well. The latest results reconfirm our belief in the significant potential of Haneti and its considerable prospectivity. In view of the progress to date, we maintain a Speculative Buy on the stock.
Beaufort Securities acts as corporate broker to Kibo Mining plc
Eurasia Mining (LON:EUA) – Speculative Buy
Yesterday, Eurasia Mining provided an update on the progress of the mining license application at the West Kytlim prospect. The license has been approved by the Ministry of Natural Resources and has been submitted to the office of Prime Minister (Russia) for final authorisation. Rosnedra, the federal mineral licensing agency, carried out the detailed work on the application. The Prime Minister’s office has accepted the application and requested additional updated information related to the ownership of the project, as of June 2015. The company has supplied the requisite documents. The Licence submission includes all the reserves defined by the company to date and as recorded within the Discovery Certification notice.
Our view: The acceptance of the mining license application by the Prime Minister’s office is good news from the company’s stable and signifies that all relevant Russian approvals along with the necessary documentation are in place. The company is now awaiting the final nod from the Prime Minister to obtain the mining license for the West Kytlin project. Once granted, the company is most likely to accelerate the project following the preparing for the production and provisioning phase at the asset that has been underway. With the above developments, we can comfortably say that the company is progressing in the right direction. The outlook for the West Kytlim looks positive in view of the economic benefits and the accelerated move towards production. Eurasia Mining also remains optimistic that the mineralization at West Nittis and at Loipishnune in Monchetundra can be developed into a significant asset. Separately, the company’s other business operations in Eurasia continue to make progress and we look forward to further encouraging updates. Thus in view of the above, we retain a Speculative Buy on the stock.
Beaufort Securities acts as corporate broker to Eurasia Mining plc
Faroe Petroleum (LON:FPM) – Speculative Buy
Yesterday, Faroe Petroleum provided an operational and drilling update. The company commenced follow up drilling operations in its Pil/Blue 2014 discoveries, a boomerang exploration in the vicinity, and a shell operated exploration well to test the Portrush prospect in the PL793 licence, both located in the Norwegian Sea. The Portrush exploration is believed to benefit from reduced rig rates. Furthermore, the results of the Portrush exploration shall be included in the upcoming concept selection and development decisions in the greater Njord and Draugen areas. The Group’s production beat forecasts to result an average of 11,324 boepd (barrels of oil equivalent per day) during the period of 1st January to 31st May 2015. During this period, the equivalent operating cost per barrel of oil was approximately US$22, signifying lower costs and higher throughput. The high promise shown by the wireline campaign on the Schooner and Ketch fields (UK) production, continued at better than forecast rates. In addition, the first of two infill wells in Norway saw a good initial performance.
Our view: Faroe managed to post robust operating results, despite sector instability aided by continued reduced oil prices. The average production remained high and is believed to ascend with several drilling prospects in the pipeline. Moreover, a strong financial position enables them to be at a vantage point to take advantage of attractive opportunities. The initiation of the follow-up drilling programme on the notable Pil and Bue discoveries of 2014 along with the Boomerang exploration well, located in the same license is expected to deliver an enhanced performance. Besides, the Shell-operated Portrush prospect, a short-term exploration, too looks promising. Hence, we believe that Faroe is in a strong position with significant proven resources and has the potential to add considerable additional value. We reiterate our Speculative Buy rating.
Armadale Capital (LON:ACP) – Speculative Buy
Yesterday, Armadale Capital announced that it plans to commence a 2,500m Reverse Circulation drilling programme in late July and undertake further analysis of the geological work conducted to-date in order to increase the current 678,000oz gold (Au) resource at the Mpokoto gold project. The project’s commercial production is targeted to commence in H1 2016. The newly identified exploration targets are aiming an additional 120,000 to 150,000 oz Au from 2.4Mt (million tonne) to 3.0Mt at a grade of 1.25 to 1.5g/t (gram per tonne) of Au. In addition, the extensions of high grade mineralisation in sheared altered mafic rocks were intersected in drill hole MPDD0064 along with laterally continuous zones of mineralisation. The results of further drilling are expected to enhance the current economic fundamentals of the project that has a current total mineral resource of 678,000oz Au from 14.58 Mt @ 1.45g/t Au at a cut-off grade of 0.5g/t.
Our view: Armadale progressed well on its major assets during 2014 with principal focus on the Mpokoto gold project. Now, the commissioning of a further 2,500 drilling programme to assess the exploration targets, is likely to significantly enhance the current pit models and economic fundamentals of the project. Mpokoto has demonstrated a post-tax net present value of US$55.3m along with rapid advancement towards production in H1 2016. The continuous growth in the scope and magnitude of the Mpokoto Gold Project further strengthens our belief in Armadale’s future prospects. Moreover, the Africa Mining Contracting Services group has proposed to provide US$20m of financing, for the development, construction and operation of Mpokoto. Thus, in view of the above and the company’s diversified projects including the KwaZulu Natal coal operations and Witwatersrand acid drainage projects, we are confident of a significant upside potential. We reiterate a Speculative Buy rating on the stock.
Economic News
Germany IFO
The business climate index for Germany fell to 107.4 in June from 108.5 in the previous month, the survey results from IFO institute revealed yesterday. The reading missed the market expectation of 108.1. Executives’ expectation index dropped to 102.0 from 103.0 in the previous month, performing worse than the expected reading of 102.4. The current assessment index slipped to 113.1 from 114.3, below the expected 114.1.
US MBA mortgage applications
US mortgage applications increased 1.6% in the week ended 19th June after declining 5.5% in the prior week, the Mortgage Bankers’ Association said yesterday. Refinance index jumped 1.8%, while the gauge of loan requests for home purchases rose 1.2% over the week.
US GDP annualized
US real GDP contracted at an annualised rate of 0.2% in Q1 2015, in line with the market expectations, after rising 2.2% in the preceding quarter, the Commerce Department stated yesterday. The reading came better than the flash estimates of a 0.7% drop for the quarter.