The Markets
Market opening: Markets are likely to open higher today. FTSE 100 futures were trading 27.10 points up at 7:00 am.
New York: Wall Street rebounded to close modestly higher amid mixed domestic data releases. The S&P 500 gained 0.3% yesterday, but declined 0.24% in Q2 2015.
Asia: Equities are trading higher despite Greece’s failure to repay the IMF. Meanwhile, China’s official manufacturing PMI stood at 50.2 in June. The Nikkei 225 added 0.5%, as the Bank of Japan’s quarterly Tankan survey indicated higher optimism among the country’s large manufacturers. The Hang Seng was closed for a special Administrative Region Establishment Day holiday.
Continental Europe: Markets declined sharply, as developments regarding Greece’s repayment of €1.6bn to the IMF remained in focus. Poor inflation data in Eurozone and further aided the fall. France’s CAC 40 and Germany’s DAX fell 1.6% and 1.3%, respectively.
Crude Oil: Yesterday, Brent and WTI crude oil prices improved 2.5% and 2.0%, respectively. The spread between the two varieties stood at US$4.1 per barrel.
UK small caps: The FTSE AIM All-Share index closed 0.07% higher yesterday at 755.68.
Today’s news
UK GDP for Q1 2015 revised upwards
According to the Office for National statistics, UK’s GDP growth for Q1 2015 was revised to 2.9% y-o-y from 2.4%. On a q-o-q basis, the GDP growth was revised to 0.4% from the previous 0.3%. The improvement was primarily led by a 4.5% rise in real household disposable income during the quarter.
Greece fails to repay IMF
Greece became the first Western economy to default on its repayments to the IMF after failing to repay €1.6bn yesterday. For the country to receive any financial aid from the IMF, Greece needs to clear the arrears.
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 it has agreed to sell its wholly owned Ghanaian focused subsidiary Ensign Resources and its Asheba asset to Taoudeni Resources, a private West African exploration business. Hummingbird acquired the Asheba deposit as part of the acquisition of the Yanfolila gold project from Gold Fields last year, but was viewed by management as a non-core asset. Hummingbird will continue to focus on the near term development of the Yanfolila project in Mali as well as the longer term Dugbe deposit in Liberia. Details of the transaction include Hummingbird receiving a 10% equity interest in Taoudeni Resources and a gold discovery bonus of US$1/oz in 500,000oz increments.
Our view: Based on historical results from Gold Fields, Asheba has a non-JORC compliant gold resource of 176,000oz grading 1.8g/t. Hummingbird does retain the right to buy back a 10% interest in the project for US$7m upon publication of a Feasibility Study by the buyer. Hummingbird will be able to participate with any additional exploration discovery and development without any capital commitment. With the 1.8Moz Yanfolila project continuing towards near term production and the 4.2Moz Dugbe project providing additional upside, we maintain a Speculative Buy rating on the stock.
Beaufort Securities acts as a corporate broker to Hummingbird Resources plc
Jubilee Platinum (LON:JLP) – Speculative Buy
Jubilee Platinum, the Mines-to-Metals company, announced yesterday the second of three tranche payments to acquire 100% of the Company’s subsidiary, Pollux Investment Holdings from Lipsoset Propriety for a consideration of ZAR4.0m (GBP 0.207m). The second tranche payment is to be satisfied by the issue of 9,879,470 ordinary shares at a price of 2.1p per share. Pollux holds the exclusive right to beneficiate the platinum group metals from the platinum bearing chrome tailings at ASA Metals (DCM Platinum Project). In addition, the company has received two funding offers for the completion of both platinum surface deposits (DCM and Hernic PGM projects) and management is currently reviewing the offers. Moreover, the company has received offers for the acquisition of its non-core, non-platinum assets. Jubilee also announced that it will issue 16,971,461 ordinary shares on behalf of its subsidiaries Braemore Resources, RST Special Metals and Pollux, at an average price of 2.1p in lieu of debt for services totalling GBP0.356m towards the developmental and implementation of the platinum beneficiation strategy.
Our view: Jubilee Platinum continues with its strategy of fast tracking both of its surface platinum processing projects. Management expects production from the DCM platinum and Hernic PGM projects during 2016, targeting 42,000 ounces of PGM’s. We are encouraged with the financing offers received for the surface processing projects as well as the cash offers for Jubilee’s non-platinum assets and eagerly await details of these offers. Once executed, funding from the cash offer from the non-platinum assets could be applied towards further acceleration and growth of the platinum surface projects. As such, we reiterate our Speculative Buy on Jubilee Platinum.
Beaufort Securities acts as corporate broker to Jubilee Platinum plc
Karelian Diamond Resources (LON:KDR) – Speculative Buy
Karelian Diamond Resources, the diamond exploration company focused on Finland, announced today results from the mineral chemistry analyses on its Riihivaara Kimberlite in the Kuhmo area of Eastern Finland. The analyses were conducted by the Geological Survey of Finland and indicate that the Riihivaara Kimberlite has the right geochemical conditions to host diamonds. A 20kg sample collected from the discovery pit returned abundant eclogitic garnets (Type 1) which tend to be associated with diamonds. Similarly, G10 harzburgitic garnets were identified, which also tend to be associated with diamonds. Moreover, analysis of kimberlite chromites reveal a high percentage (18%) of diamond inclusion type chromites indicating that the kimberlite has a high potential to host diamonds. In addition, the identification of ilmenites suggest derivation from a low-oxygen environment, which is important for the growth and preservation of diamonds.
Our view: Based on the results to date, the Riihivaara Kimberlite has the potential to be diamondiferous. Geochemical and petrographic analyses confirm the kimberlite is an olivine-rich, micaceous kimberlite that is similar to the Company’s diamondiferous Seitapera Kimberlite. We are encouraged with the indicator mineral populations which suggest that the right geochemical conditions existed for the Riihivaara Kimberlite to be within the diamond stability field. As such, we reiterate a Speculative Buy on the stock.
Beaufort Securities acts as a corporate broker to Karelian Diamond Resources Plc
Alecto Minerals (LON:ALO) – Speculative Buy
Alecto Minerals, the exploration company focused on West and East Africa, announced today, with regret and immediate effect, the resignation of Non-Executive Chairman, Mark-Wellesley-Wood. Mr Wellesley-Wood is leaving the Board to focus on new work commitments following his recent reappointment to the Board of Mwana Africa. Alecto’s Board will now consist of three Directors: Toby Howell, who will assume the role as Non-Executive Chairman, Mark Jones as Chief Executive Officer and Dominic Doherty as Operations Director.
Our view: Following the recent placing Alecto is well positioned for the rest of 2015 and into 2016. As we understand, Alecto is currently advancing discussions with a consolidated approach for the development of its Kerboulé gold project in Burkino Faso and its Kossanto East gold project in Mali. Management is also actively evaluating other opportunities to achieve its objective of generating revenues through production. We maintain a Speculative Buy on Alecto Minerals.
Beaufort Securities acts as a corporate broker to Alecto Minerals plc
Strat Aero (LON:AERO) – Hold
Strat Aero, the international aerospace services company focused primarily on the provision of training solutions, management systems and consultancy services to the international aviation market, yesterday released final results for the period ended 31 December 2014. The Group, which was Admitted onto AIM in November 2014, reported progress in all three strategic divisions, Unmanned Aerial Services (‘UAS’), Aviation Software, Products and Services and Consultancy Services. FY revenues of US$630,685 including US$23,910 from the AIM software and US$606,775 from aviation management and consultancy services notably Air Fujairah US$191,750 and Air Arabia US$134,000. Capt. Russell Peck, CEO of Strat Aero, said: “The steps we have taken during the year under review have placed us in a strong position to deliver on our objective to build a leading multi divisional aviation services company exposed to high growth sectors, such as the rapidly emerging UAV market. With a unique fully functional UAV training centre in Roswell, New Mexico and co-operation agreements in place with leading partners, including a US defence contractor and government departments in the US and Europe, we have a strong platform from which we can continue to build our one stop service offering covering all aspects of UAVs from training pilots to securing regulatory clearance and rolling out operational and maintenance contracts.
Our view: There can be no doubt that Strat’s global market opportunity is absolutely giant. The Group’s obvious ‘first mover’ advantage also means that it is now collecting a very long pipeline of enquiries and prospective business from governments, civilian institutions and the military. The US administration, for example, is presently taking steps toward an opening of US airspace for Unmanned Aerial Vehicles (‘UAV’), from which the Federal Aviation Administration suggests a new market worth as much as US$100bn could eventually be created in its territory alone. Strat’s shares, however, were punished severely yesterday as it became apparent that its Board was finding it difficult to accurately predict the pace of development of its marketplace and exact timing of firm incoming orders. While this had been alluded to already in last month’s trading update, and cannot be considered particularly unusual in a new and developing market place (where the customer finds it hard to keep pace with product evolution with the regulator is persistently ‘behind the curve’), investors still appeared somewhat shocked. In the event, the Board confirmed first half of 2015 had developed slower than expected with revenues for the period to date being ‘considerably lower than management expectations’. Although it is clear that enquiries/proposals currently in hand do significantly exceed Beaufort’s 2015E revenue forecast of £8.6m, the bureaucratic process of converting these into contracted work suggests slippage experienced during the first half is now unlikely to be made up in the second. As a result, Beaufort considers it prudent to cut the Group’s estimated full year revenue forecast by more than half to just US$4.0m which, in turn, implies Strat will now report losses of some US$0.5m for the period. Recognising the booming opportunity faced by Strat and its recent investment in infrastructure and facilities, Beaufort’s forecasts for 2016E and 2017E presently remain unchanged, although tangible reassurance in the form new and longer term military/civilians contracts need to be forthcoming before the current period end in order to sustain this confidence. Beaufort has cut its recommendation on Strat Aero to ‘Hold’ while awaiting improved visibility for next year.
Beaufort Securities acts as corporate broker to Strat Aero plc
San Leon Energy (LON:SLE) – Speculative Buy
Yesterday, San Leon Energy announced its audited final results for the year ended 31st December 2014. Total comprehensive loss for the year stood at €34.4m against €25m in 2013 and the total assets contracted to €281m from €308m a year ago. The company’s cash and cash equivalents at the end of period were €1.8m and it also raised £29m after the period. On the operational front, the Palomar Natural Resources farmed into the Rawicz conventional field and the Siekierki tight gas field for US$20m and a 65% working interest. A horizontal multi-fracced well has been fully designed and engineered at the Lewino-1G2 in the Gdansk W concession in Poland’s Baltic with farm-out discussions underway. The company also initiated a three well shallow drilling programme in the Karpaty area and Permian Basin in Poland. Timahdit oil shale license, onshore Morocco revealed positive results from core sampling and bench test retorting. The company also signed a Memorandum of Understanding with Chevron Lummus Global to upgrade the shale oil to synthetic crude. In addition, San Leon made preparations to drill the first well in the conventional Tarfaya license onshore Morocco that is expected to spud in early Q3 2015. The SM-1 well offshore Morocco recovered high quality oil during drilling and testing but did not achieve sustained flow and was plugged and abandoned. The company made significant efforts to reduce costs and exited Germany and Slovakia as part of the asset optimization strategy. Together with PNR, San Leon is in advanced stages of the planning and design of several development scenarios focused on bringing the Rawicz gas field online in early 2016. The company expects to generate cash flow from 2016, starting with the Rawicz gas field, followed by Siekierki, and then joined in 2018 by the Barryroe oil field, offshore Ireland.
Our view: 2014 was a significant year for San Leon Energy as its Rawicz-12 well on the Rawicz gas field in Southwestern Poland, tested at a highly successful 4.5 million standard cubic feet per day and may commence production in 2016. In July 2014, the company entered an agreement with Palomar Natural Resources around its Rawicz and Siekierki fields that involved significant work programmes and positioned San Leon for near-term production. The company moved considerably closer to production and cash flow, that was further aided by the placing in June 2015. Meanwhile San Leon’s others prospects seem to be gaining momentum following the spudding of the Gierałtowice prospect and the oil discovery at the Sidi Moussa block in Morocco. The financial backing from the Toscafund Asset Management and its increased stake in San Leon, further reaffirms our faith in the company’s ability to drive growth in future. Thus in light of the above developments, we retain a Speculative Buy on the stock.
Arria NLG (LON:NLG) – Speculative Buy
Yesterday, Arria NLG announced its interim results for the six-month period ended 31st March 2015. Revenues almost tripled to £904,000 from £330,000 resulting from a surge of 150% in the number of clients and reflecting the full impact of the termination of the 2014 Shell contract. Operating costs excluding amortisation and share based payments charges declined 41% to £2.3m owing to a reduction in non-recurring transaction costs relating to the flotation that concluded in the prior period, as well as the right-sizing of the operating cost base following the flotation. Consequently, the net losses decreased 51.3% to £2.5m. In addition, Arria concluded its capital raising of £408,000 through private placements from existing shareholders in February 2015 and £3.08m via issuing convertible loan notes in October 2014. It further concluded a fundraising of £1.9m through convertible loan notes and issuance of unlisted warrants, besides receiving an early payment of the £1.8m of loan notes from Ikonic. The other key developments included the extension of the existing license with the UK Met Office by a year for optimising UK Met Office’s search engine and entering into a new agreement with MeteoGroup UK to develop a weather report module for two regions in Europe. Arria also announced the retirement of Simon Small as Executive Director.
Our view: Arria’s half yearly revenues nearly tripled in comparison to the previous year owing to the tremendous increase in client engagement. Contributing to this organic growth was the successfully concluded capital raising programmes addressing near to medium-term working capital requirements of the company besides providing stability and support to its current operations. The setback caused by the sudden annulment of the 2014 Shell contract was offset by the increase in total number of client relationships to ten and counting. Moreover, the company expanded its offerings by entering into several agreements. The new agreement with Meteo Group to develop a weather report module for two regions in Europe, extension of the agreement with the UK Met Office to optimise the search engine enhancing the quality of content, and pilot engagement with the UK arm of a global financial services group to deploy Arria’s reports are an indication of its strong positioning in the market. Therefore, in view of the above, we reiterate a Speculative Buy rating on the stock.
AFC Energy (LON:AFC) – Speculative Buy
Yesterday, AFC Energy published its quarterly newsletter for the quarter ended June 2015. During the quarter, AFC signed an agreement with Bangkok Industrial Gas Co. Ltd. for an initial 10MW of installed AFC fuel cell capacity in three phases. Further, the company signed an MOU with Dubai Carbon Centre of Excellence to assess the deployment of 300MWfuel cell in Dubai by the end of 2020. The company also stated its intent to achieve the installation of 1GW fuel cell capacity by the end of 2020. Additionally, AFC made progress towards completion of the POWER-UP project – a stationary alkaline fuel cell power plant in Stade, Germany. The company also stated that it was working to educate the stakeholders about the benefits of stationary fuel cells as a clean, reliable and sustainable energy source.
Our view: The year 2015 has been a good one for AFC Energy so far. Realizing, the viability of the business with its strong long-term growth potential, the company has announced several new projects. Recently, the company announced a strong pre-tax profit in its latest set of half-year results, indicative of the fact that its investments are beginning to bear fruit. The timely completion of the POWER-UP project would also augur well for the performance of the company in the future. In view of the strong project pipeline and the growth potential in the fuel cell market, we retain our Speculative Buy rating on AFC Energy.
Economic News
Germany unemployment change
The number of people without a job in Germany fell by 1,000 on a seasonally adjusted basis to 1.97 million in June, the Federal Labour Agency said yesterday. Economists had forecasted unemployment to drop by nearly 5,000 for the month. The seasonally adjusted unemployment rate remained unchanged at 6.4% in June matching the market expectations.
Eurozone CPI estimate
Consumer price inflation (CPI) in the Eurozone stood at 0.2% y-o-y in June, following a 0.3% rise in the previous month, as per the estimates published yesterday by Eurostat, the EU’s statistical office. The reading matched the market expectations. Core prices, excluding those of energy, food, and tobacco, eased to 0.8% y-o-y, compared with 0.9% in May.
US Chicago purchasing manager
The Chicago purchasing managers’ index (PMI) climbed to 49.4 in June from 46.2 in May, slightly behind the expected reading of 50.0, data from MNI Indicators suggested yesterday.
US consumer confidence index
As per the Conference Board, US consumer confidence index rose to 101.4 in June, from a downwardly revised 94.6 in May. Economists had forecasted a drop to 97.4.