The Markets
Market opening: Markets are likely to open higher today. FTSE 100 futures were trading 3.4 points up at 7:00 am.
New York: Wall Street ended higher after an increase in housing starts and the monthly inflation for June. Upbeat corporate earnings also cheered investors. The S&P 500 moved up 0.1% on Friday and 2.4% for the week.
Asia: Markets started the week on a negative note despite improved house prices in China. The Hang Seng was trading 0.2% down at 7:00 am, whereas the Nikkei 225 was shut for the Marine Day holiday.
Continental Europe: Equities ended mixed as the European Council approved a bridge loan worth €7.16bn to Greece. Meanwhile, Germany agreed to negotiate for the third bailout package. France’s CAC 40 inched up 0.1%, while Germany’s DAX ended 0.4% down.
Crude Oil: On Friday, Brent Crude Oil prices fell 0.7%, whereas WTI crude oil prices remained flat. The spread between the two varieties stood at US$6.2 per barrel.
UK small caps: The FTSE AIM All-Share index closed 0.01% higher on Friday at 756.84. To read our latest research click here.
Today’s news
Greece banks to open after three-week shutdown
Banks in Greece are set to open today, since they closed on 28th June 2015, with a modified withdrawal limit for customers, from €60 a day to €420 a week. Customers can deposit through cheques, withdraw money without an ATM card, pay bills and have access to safety deposit boxes. However, restrictions on transfers abroad and other capital controls remain.
Housing prices rise again in July
According to Rightmove, the asking house prices in the UK increased 0.1% m-o-m in July to £294,542, following a 3.0% jump in June. On a y-o-y basis, the prices reached 5.1% from 4.5%, the agency informed.
Company News
Kefi Minerals (LON:KEFI) – Speculative Buy
On Friday, Kefi Minerals announced the commencement of the final bidding of contracts in Tulu Kapi Gold Project, located in Ethipoia for process plant construction and mine operation. The bidding process follows the completion of preliminary reviews of the recently concluded Definitive Feasibility Study by the Independent Technical Consultants for secured financiers. Kefi Minerals selected contractors from international firms globally, who are ready to contribute for development funding through their contractual arrangements. The shortlisted candidates would be allowed to visit the site from next week and the winning bidders for the same are expected to be declared by next month.
Our view: Kefi Minerals’ flagship Tulu Kapi Gold Project has made further advancement towards production with the commencement of final bidding for the construction and operations of mine. We expect the company to start with the project next quarter and production in early 2017. The company’s prospects are gaining momentum with two major prospects – Tulu Kapi and Jibal Qutman – expected to come online in 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
Legendary Investments (LON:LEG) – Speculative Buy
On Friday, Legendary Investments announced that its investee company, Virtualstock has entered into a contract with a leading NHS Teaching Hospital Trust. The company has a 7% stake in Virtualstock, a company focusing on providing IT solutions. The main aim of the contract is to reduce company’s cost within its supply chain system.
Our view: Virtualstock primarily deals in the online retail sector, makes its first entry into the health sector .This follows the contracts for the contracts for Virtualstock Edge Order Management System and Drop Ship Solutions to Argos and Virtualstock Edge solutions to Maplin earlier in 2015. The value being built within this shareholding is paramount. Legendary Investments continues on its strategy to enter into agreements with companies in different sectors. In addition, its other investee companies Bosques and Amedeo Resources are also on track for creating value for the firm. Amedeo’s offshore vessel yard has now become fully operational, and Bosques also moved a step closer to commercialisation with pongamia seeds producing saplings, ahead of schedule. Therefore, in view of the above developments, we maintain a Speculative Buy on the stock.
Beaufort Securities acts as corporate broker to Legendary Investments plc
Frontier Resources International (LON:FRI) – Speculative Buy
On Friday, Frontier Resources conditionally placed 58,571,428 new ordinary shares at a price of 0.35p per share to raise £205,000 gross, to fulfil the company’s immediate working capital requirements. The company raised the money as an additional funding after the conditional subscription by AGR Energy Limited No. II and parties was not completed as planned. Following the issue of the Placing Shares, the Company’s enlarged share capital would consist of 224,001,934 Ordinary Shares, with voting rights. The Placing Shares would rank pari passu with the existing ordinary shares in issue and the admission is expected to take place on 24th July 2015. The placement was facilitated by the company’s broker, Beaufort Securities.
Our view: The successful fundraising bodes well for the company especially after the AGR Energy Limited No. II and parties could not complete the subscription as planned. The proceeds ensure that the company is able to carry out its operations seamlessly. Recently, the company informed that it likely to proceed with drilling without the need for a 3D seismic survey at Block 38 in Oman and it seeks to enter into farm-out discussions with Middle East-based partners for the same. This would not only attract important potential partners, but also limit Frontier’s risk exposure in the asset. The company’s strategy looks promising as it boasts of significant technical know-how for oil and gas exploration and development in the Middle East and Southern Africa region. In view of the great potential of these assets and an aggressive exploration strategy of the company, we maintain a Speculative Buy rating.
Beaufort Securities acts as corporate broker to Frontier Resources International plc
Motif Bio (LON:MTFB) – Speculative Buy
Motif Bio plc., the clinical stage biopharmaceutical company specialising in developing novel antibiotics, on Friday announced that the U.S. Food & Drug Administration (FDA) has designated iclaprim, a broad-spectrum antibiotic designed to be effective against multi-drug resistant bacteria, as a Qualified Infectious Diseases Product (QIDP) for hospital acquired bacterial pneumonia (HABP). The Group requested QIDP designation for Iclaprim for two serious and life threatening infections, HABP and acute bacterial skin and skin structure infections (ABSSSI). QIDP designation has been confirmed for HABP and an additional administrative step has been requested by FDA in order to confirm QIDP designation also for ABSSSI. Motif has already complied with the requested additional administrative step and is awaiting confirmation from FDA, expected within the next few days. The Directors, having consulted with the Company’s regulatory and legal advisers, are confident that QIDP designation for ABSSSI will be granted.
Our view: Friday’s news represents another important milestone for iclaprim. QIDP designation, provided under the Generating Antibiotic Incentives Now Act (GAIN Act), makes iclaprim eligible for certain incentives, including priority review and fast track designation. Upon its ultimate approval by the FDA, iclaprim will be eligible for an additional five-year extension of Hatch-Waxman exclusivity, for a total of 10 years of market exclusivity, starting from the date of its New Drug Application (‘NDA’) approval. On 23 June 2015, the Company announced a £22 million placing conditional upon the Company receiving the grant of QIDP status for iclaprim not later than 24 July 2015 and upon shareholders approving the resolution at the General Meeting on 10 July 2015. The shareholder resolutions were approved at the General Meeting. This is clearly a very exciting time for Motif. Given the opportunity already identified in HABP and ABSSSI together with a number of other potential indications, the prospective market value for this novel antibiotic is very large indeed, potentially running in billions of US$. The much publicised global need for such new drugs means that iclaprim must already be under review by Big Pharma, with a view to farming-in to Motif’s opportunity in exchange for financing late stage development and subsequent commercialistion. Realistically, such an outcome might be expected before end-2016. The value this will accrue to Motif should then be quite considerable.
Providence Resources (LON:PVR) – Speculative Buy
On Friday, Providence Resources released an additional technical update on its Frontier Exploration Licence (FEL) 2/14. The exploration site is operated by Providence (80%) on behalf of its partner Sosina Exploration (20%), located 220km off the west coast of Ireland at a water depth of 2,500m. The company has moved its focus from the Druid prospect to the recently acquired Polarcus MC3D seismic reflection data. The latest evaluation was on the on the pre-Cretaceous section within FEL 2/14, which established the presence of a large, ultra-deep north-south orientated pre-Cretaceous structure (Diablo Ridge). The Diablo Ridge is a large rotated fault block with an internal reflectivity that is consistent with a Mesozoic sedimentary section. The data reveals in detail imaging of the ridge which shows 120 sq km of TWTT (Two Way Travel Time) closure at the Base Cretaceous level with the crest of the ridge estimated to lie at around 6,000 m BML (Beneath Mud Line). The Diablo Ridge’s crest showed market escape feature which appears to be connected to overlying ‘Drombeg’ and ’Druid’ prospects.
Our view: Providence Resources latest technical update has revealed positive results with confirmation on the presence of large pre-Cretaceous Diablo Ridge with a unique crestal fluid escape feature. The Ridge is located paleogeographically, which is similar to the recent Statoil-operated pre-Cretaceous oil discoveries on the Canadian conjugate margin in the Flemish Pass Basin. Going ahead, the company plans for further work in the site to identify the exploration potential of the ridge which will likely improve the prospects from the region. Further, the company has recently recognised several shallow buried Cretaceous four-way dip closure at the Newgrange prospect and also improved its capital position by raising US$28m through a combination of open and institutional offer. In view of the above optimism, we maintain our Speculative Buy rating on the stock.
Caledonia Mining Corporation (LON:CMCL) – Speculative Buy
On Friday, Caledonia Mining informed that it has filed of an updated technical report with a summary of its revised preliminary economic assessment (PEA) for the Blanket mine in Zimbabwe. The PEA comprises inferred mineral resources considered quite speculative geologically; hence assessment of economic considerations is needed to categorize them as mineral reserves. The PEA was initially commissioned last year to Minxcon Ltd to complete a scoping level study. The original study defined the project to a depth of 750 metres and included an extension below 750 m level to 1,080m level. On request of the Ontario Securities Commission, Minxcon has revised the PEA to consider the expansion project below 750 m as a separate project. Therefore, the revised PEA would conduct the economic analysis on a stand-alone basis assuming that Caledonia would need to raise further funds for expansion. However, Caledonia expects to fund these expenses from cash flows of its existing mines. The net present value (NPV) of the project was estimated to be US$65m at a real discount rate of 8.36% and the internal rate of return (IRR) for the project stood at 42%. The Company now awaits acceptance of the new PEA and technical report.
Our view: Caledonia Mining expects an approval over its new PEA which is likely to improve its prospects. An approval on the separate project to extend below 750m is expected to increase its resources owing to the huge depth which will be accessible to the company. We expect the production to increase towards the second half of the year owing to the completion of the tramming loop on 22 Level in June that would increase the underground haulage capacity and development activity. In addition, the latest results showed that the company improved its cash reserves despite a challenging gold price environment in the previous year. The recent reduction in the Zimbabwe royalty rate to 5% from 7% continues to benefit Caledonia. In view of the above argument, we reiterate a Speculative Buy on the stock.
Economic News
US housing starts
US housing starts increased 9.8% to a seasonally adjusted annual rate of 1.174 million units in June, after declining a revised 10.2% in the previous month, the Commerce department said on Friday. Housing starts were reported at a revised 1.096 million units in May. The reading missed the market expectation of 1.11 million units.
US CPI
US consumer price index (CPI) growth declined to a seasonally adjusted 0.3% m-o-m in June from 0.4% in the preceding month, the US Bureau of Labour Statistics stated on Friday. Economists had forecasted a reading of 0.3%. Core consumer prices, excluding food and energy, edged up 0.2% in June, following a 0.1% increase in the preceding month, and were in line with the market forecast.
US University of Michigan sentiment
The US University of Michigan’s consumer sentiment index for July decreased to 93.3, from a 96.1 in June, data indicated on Friday. Economists expected the reading to rise to 96.0. The consumer expectations index, which closely forecasts the direction of consumer spending, declined to 85.2 from 87.8, whereas the current economic conditions index decreased to 106.0 from 108.9.