The Markets
Market opening: Markets are likely to open flat today. FTSE 100 futures were trading 0.90 points up at 7:00 am.
New York: Wall Street continued to advance for the second consecutive day on renewed expectations of a resolution between Greece and its creditors. Moreover, better-than-expected domestic economic data cheered investors. The S&P 500 rose 0.7% yesterday, led by the financial sector.
Asia: Equities are trading higher, tracking the positive lead from the Wall Street. The Nikkei 225 added 1.0%, as a weaker yen supported exporters. The Hang Seng was trading 0.4% up at 7:00am when it opened after a holiday.
Continental Europe: Markets ended strongly positive, as Greece’s Prime Minister Alexis Tsipras reportedly made some concessions on reform proposals, fuelling speculations of a deal between Greece and its creditors. Germany’s DAX and France’s CAC 40 advanced 2.2% and 1.9%, respectively.
Crude Oil: Yesterday, WTI and Brent Crude Oil prices declined 4.2% and 2.5%, respectively. The spread between the two varieties stood at US$5.1 per barrel.
UK small caps: The FTSE AIM All-Share index closed 0.83% higher yesterday at 761.92.
Today’s news
Carney raises concern over impact of Greek crisis
In the Bank of England’s financial stability report, Mark Carney warned against the impact of Greece exiting the Eurozone despite the UK’s limited exposure to the country. He expects the contagion to spread to other countries where the UK has higher exposure and may prompt a greater market adjustment that would test the market liquidity.
Moody’s cuts Greece’s rating to Caa3
Moody’s downgraded Greece’s bond rating to Caa3 from Caa2 on the country’s impasse with its creditors and resulting uncertainty surrounding Greece’s future in the Eurozone.
Company News
Kibo Mining (LON:KIBO) – Speculative Buy
Yesterday, Kibo Mining provided an operational update for Q2 2015 to outline the current status of the company activities. During the period, the company signed a Joint Development Agreement with SEPCOIII to take its Mbeya Coal to Power Project (MCPP) to the next stage of development. The MCPP is fast approaching financial close and considerable negotiation and planning has taken place in this regard. Elsewhere, pre-feasibility study commenced for the Imweru project while exploration objectives for Haneti project for the year 2015 were confirmed, following the analysis of the latest high resolution aerial geophysical data. The company’s two joint venture programmes, Morogoro and Pinewood, have commenced with the Morogoro exploration programme. Results are awaited for the Morogoro soil sample batch that was submitted for laboratory analysis. A review and update of the current Pinewood Project technical reports is in progress for further field work. Meanwhile, the operational expenses remained within budget and the financings provided a solid underlying cash position to the company. Discussions remain in progress with third parties for participation in the company’s various assets.
Our view: Kibo Mining has entered an interesting phase in its development cycle with substantial progress across its asset portfolio. The MCPP power development project has advanced greatly in terms of partner participation and superior planning, thereby providing an opportunity for the development of a major power generation asset in Tanzania. The preliminary results from data interpretation have significantly enhanced Kibo’s understanding of the geological structure of the Haneti project. Kibo is negotiating with several parties for participation in its assets that may bolster the company’s prospects further. The company’s underlying financial position has been further strengthened by the conversion of warrants by Metal Tiger in January and thereafter by the additional funds raised from secondary placing. We expect the pace of the exploration work to increase in view of the considerable prospectivity of the company’s assets. Thus we retain a Speculative Buy on the stock.
Beaufort Securities acts as corporate broker to Kibo Mining plc
Ortac Resources (LON:OTC) – Speculative Buy
Yesterday, Ortac Resources informed that it has raised £600,000 through the placement of over 705 million new ordinary shares at a price of 0.085p each. The shares are expected to be admitted to the LSE AIM on or around 7th July 2015. Following the placement, the company’s expanded share capital stands at over 3.5 billion ordinary shares. The placing allows the company to exercise its call option and subscribe for a further US$600,000 secured convertible loan note in Zamsort Limited, thereby increasing its interest in the share capital of Zamsort to 19.35%. The balance of the funds raised from the Placing not used to acquire additional secured convertible loan notes of Zamsort will be used for working capital purposes.
Our view: Ortac Resources has ensured further acquisition of interest in the Zamsort Limited with the above fundraising. Ortac’s significant stake into the target firm has exposed it to the upside from the Zamsort licenses that are located in north west Zambia, and have an estimated oxide resource of 16.59Mt @ 0.94% copper equivalent. The license area is prospective for copper and cobalt and also contains nickel and molybdenum according to the historical findings. Moreover, the large prospecting license (LPL) covers an area of approximately 995 sq. km and is owned 100% by Zamsort and includes 7 of the top 10 high priority exploration targets. Thus given the attractiveness of Zamsort licenses, we feel there is room for a meaningful addition to the company’s stock price in the near future. We recommend a Speculative Buy rating.
Beaufort Securities acts as corporate broker to Ortac Resources plc
Kefi Minerals (LON:KEFI) – Speculative Buy
Yesterday, Kefi Minerals provided a quarterly operational update on its activities in Ethiopia and Saudi Arabia for the three months ended 30th June 2015. In Ethiopia, the company signed a mining agreement with the Ethiopian government for the Tulu Kapi project. The updated ore reserve was estimated at 15.4Mt (million tonnes) at 2.12g/t (gram per tonne) Au, containing 1.05Moz (million ounces)and the completed a Definitive Feasibility Study (DFS) put the total gold production at 960,000oz over 13 years life of mine. The all-in sustaining cost for the project is projected to be US$780/oz, with an initial funding of US$120m, a significant decrease from the 2012 DFS. Discussions are underway to optimise schedule for development funding in Q3 2015. Site due diligence has been completed and all the households to be resettled this year have selected their new host lands. In Saudi Arabia, the preliminary economic assessment evaluating a potential heap leach operation on a potential open cut mineable resource of 6.6Mt at 0.95g/t Au, containing 201,600oz, was completed at Jibal Qutman. The updated mineral resource stood at 28.4Mt at 0.80g/t Au, containing 733,045oz. At Hawiah, an initial 53-trench surface sampling programme was completed and the exploration highlighted a large drilling target of 2,000m lateral and 300m vertical extent. Also, the company completed a placing of £2.9m at 0.8p per share to fund all pending activities for the development of for Tulu Kapi.
Our view: The quarter gone by proved to be very fruitful for Kefi Minerals as the company’s flagship Tulu Kapi project made material progress towards production and remains on track to start mine construction by the end of this year and gold production by 2017. 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. With the current market capitalisation approximately £14m compared with an NPV of US$156m at a discount rate of 8% for the Tulu Kapi project, the company seems to be significantly undervalued. We expect a considerable upside in the share prices going forward and therefore reiterate a Speculative Buy on the stock.
Beaufort Securities acts as corporate broker to Kefi Minerals plc
Tullow Oil (LON:TLW) – Buy
Yesterday, Tullow Oil issued an update on the operational activities and a trading guidance for the financial year to 30th June 2015. During the period, the company’s oil production in West Africa averaged 66,500 bopd (barrels of oil per day), with major contributions from Jubilee (105,000 bopd gross)and non -operated portfolio. In March 2015, the final commissioning of the onshore gas processing facility was completed and the subsequent gas exports from the Jubilee field averaged around 80 mmscfd (million square cubic feet per day). Tullow plans to drill two additional Phase 1A wells and the first of these, J-37, has commenced drilling. The TEN Project continues to make good progress and remains within budget and on schedule for first oil in mid-2016. Tullow increased the guidance for West African production to 66,000-70,000 bopd from 63,000-68,000 bopd. In East Africa, progress is being made on the decision regarding the route of the export pipeline and it is expected that the Governments of Kenya and Uganda would shortly agree on the preferred routing which is likely to enable the next phase of work. In Europe, working interest gas production for the first half of 2015 was within guidance averaging 8,100 boepd. This includes the impact of the completion of a Netherlands gas asset sale on 30th April 2015 to AU Energy. Average working interest production guidance in Europe, after adjustment for the asset sale, was 6,000-8,000 boepd from 6,000-9,000 boped. In Norway, Tullow completed the Bjaaland exploration well in May with only residual oil shows encountered. In the Caribbean-Guyanas, Tullow has been very active maturing its exploration opportunities in the region. The company plans to release half yearly results on 29th July 2015.
Our view: Tullow Oil took several fruitful steps to ensure that the company remains on a firm financial footing and the results are evident from the good progress across the board. The company’s key oil producing assets in West Africa performed strongly and the production forecast for 2015 has also been upgraded accordingly. The TEN Project remains within budget and on track for first oil in mid-2016. Development in the East Africa for export pipeline routing has been encouraging. Moreover, recently the company received a favourable ruling in the CGT dispute settlement leading to the withdrawal of legal proceedings regarding from the Ugandan High Court and its International Arbitration claim. To combat the adverse impact of the low oil prices leading to projections of lower profits, the company has shifted focus to but the company’s focus to the high quality, low cost production assets in West Africa that may sustain even at the low oil prices. The company’s share prices were penalised for an industry wide problem of reduced oil prices such that it swung to losses in 2014 for the first time in 15 years. The lower share prices are not justified in view of the strong asset base and sound fundamentals and therefore we retain a Buy on the stock.
Economic News
Germany manufacturing PMI
As per the data released by Research Group Markit, the final reading for the manufacturing PMI of Germany for June stood at 51.9, in line with the preliminary estimate but better than May’s reading of 51.1.
Eurozone manufacturing PMI
Manufacturing PMI for the Eurozone rose to 52.5 in June, its highest reading since April 2014, from May’s 52.2, final data from Markit Economics showed yesterday. The reading was in line with the market and flash estimates.
UK manufacturing PMI
UK manufacturing PMI decelerated to a 26-month low of 51.4 in June from a revised reading of 51.9 in May, data from the Markit Economics and Chartered Institute of Purchasing & Supply showed yesterday. The reading came below the market forecast of 52.5.
US MBA mortgage applications
US mortgage applications dropped 4.7% w-o-w in the week ended 26th June after rising 1.6% in the preceding week, the Mortgage Bankers’ Association said yesterday. Refinance index fell 5.2%, while the gauge of loan requests for home purchases slumped 4.1% during the week.
US ADP employment change
Jobs in the US private sector expanded 237,000 in June, after a revised increase of 203,000 in May, above the consensus estimate of a gain of 218,000, ADP reported yesterday. The services sector added 61,000 jobs in June, whereas jobs in the goods sector inched up by 12,000.
US manufacturing PMI
The final Markit PMI for the US stood at 53.6 in June, ahead of the preliminary estimates and market expectations of 53.4. The final US PMI for the month of May was recorded as 54.0.
US construction spending
US Construction spending increased 0.8% m-o-m to an annual rate of US$1.036tr in May, as per a report released by the US Commerce Department. Economists expected spending to rise 0.4% during the month. The upbeat growth was partially ascribed to private construction spending, which rose 0.9% to an annual rate of US$752.4bn.
US ISM manufacturing
US manufacturing PMI advanced to 53.5 in June from 52.8 in May, as per the Institute of Supply Management (ISM). Economists forecasted a reading of 53.2. The index for new orders rose to 56.0 from 55.8 in the previous month, while the production index slipped to 54.0 from 54.5 in May. Meanwhile, the employment index jumped to 55.5 from 51.7 and the prices index remained unchanged at 49.5.