The Markets
Market opening: Markets are likely to open higher today. FTSE 100 futures were trading 70 points up at 7:25 am.
New York: Wall Street ended in the red following the release of weak Chinese manufacturing data. Moreover, mixed economic data releases in the US hurt investor sentiment. The S&P 500 fell 3.0%, dragged down by the energy sector.
Asia: Equities are trading lower tracking the global markets. The slowdown in the Chinese economy created a negative sentiment among investors.The Nikkei 225 fell 0.4% and the Hang Seng was trading 0.7% down at 7:00 am.
Continental Europe: Markets ended lower amid concerns over China after it reported low manufacturing PMI in August. In addition, a sharp decline in oil prices dented investor confidence. France’s CAC 40 and Germany’s DAX shed 2.4% each.
Crude Oil: Yesterday, Brent and WTI oil prices decreased 8.5% and 7.7%, respectively. The spread between the two varieties stood at US$4.2 per barrel.
UK small caps: The FTSE AIM All-Share index closed 0.57% lower yesterday at 730.67.
Today’s news
Manufacturing PMI in UK falls in August
The UK’s manufacturing PMI slipped to 51.5 in August from 51.9 in July, as per the data from Markit and the Chartered Institute of Purchasing & Supply. The reading was below the market forecast of 52.0. The decrease in PMI was ascribed to a strong pound, weak sales in the Eurozone and a slowdown in China.
Company News
Stratmin Global Resources (LON:STGR) – Speculative Buy
Stratmin has announced today a farm-in agreement with Bass Metals (Bass), an Australian listed (ASX) resources company, for Bass to acquire up to 35% interest in the Loharano Mine and processing operations of Stratmin for an investment of £2m in two tranches, for an initial interest of 25%. The agreement also allows for Bass, subject to the successful completion of the Initial Investment by 30 November 2015, to acquire, at its sole discretion, a further 10 per cent interest in Graphmada Mauritius* prior to 31 December 2015, for a consideration to be determined by reference to the share price of StratMin at the time of the election to exercise the option.
The collaboration with Bass provides StratMin with a cost effective mechanism to access the sophisticated graphite investor base in Australia. The ASX currently has a number of listed graphite project developers and producers with a combined market cap in excess of A$1 billion. The ASX has active graphite stock trading, major institutional investor participation and equity research coverage on the sector from a number of international banks and broking houses. By partnering with Bass, StratMin is gaining exposure to this market and an efficient source of development capital. As the only successful new greenfield graphite mine developer, StratMin, and its Graphmada Mauritius subsidiary, are a differentiated opportunity in the Australian market.
(*Bass to invest £2 million in Graphmada Mauritius, the 100 per cent owned subsidiary of StratMin, which in turn is the 100 per cent owner of Graphmada S.A.R.L. the license holder and mine operator of the Madagascan assets.)
Our view: This transaction enables the Company to fund the group with investment at a substantial implied premium to the current share price and demonstrates a strong endorsement of our strategy. This is an excellent way forward for Stratmin and we applaud management for its execution.
Working with Bass is a cost effective entry to the very sophisticated graphite and renewable energy investor base in Australia without the cost of a dual listing. Further, this transaction reduces the funding risk going forward for StratMin by giving it access to a large and active graphite investor pool and gives the Company the confidence to look at more significant transactions going forward. Stratmin have an opportunity now to capitalise on the early mover status they have gained and whilst most of the peers are focused on completing feasibility studies and cost cutting, together with Bass, Stratmin can work on expanding production from Loharano and developing new opportunities. We reiterate our Speculative Buy.
Beaufort Securities acts as corporate broker to Stratmin Global Resources plc
Northcote Energy (LON:NCT) – Speculative Buy
Northcote announced test results at the Shoats Creek Field in Louisiana at its Lutcher More 20 well (93% interest). The well encountered circa 10-12 feet of pay with an estimated 20% porosity. The total cost through testing is estimated at US$813,750 to Northcote. On 24th August 2015, Northcote perforated five feet of the pay-zone from 5018′ to 5023′. After allowing the well to clean-up, Northcote has run 7 tests under jet pump at various choke and pressure sizes and based on a 24hr period the results equate to in excess of 260 barrels of oil and 500 mcf of natural gas per day (or 340 barrels of oil equivalent per day). Northcote believes that the positive well results add two to three drill locations to its previously announced 8 well drilling inventory and it intends to have an updated reserve report prepared for Shoats Creek and the Frio formation which it will announce to the market in due course. Northcote has submitted an application for a permit in relation to an additional Frio location to the Louisiana Department of Natural Resources. Northcote is having discussions with potential natural gas purchasers and intends to add necessary infrastructure to sell natural gas to third-party purchasers as part of its overall field development plan.
Our view: The well has substantially exceeded the company’s pre-drill expectations in multiple areas including thickness of pay-zone, oil cut and daily rates achieved during testing. Northcote used the very best geological and engineering consultants as well as latest thinking in the techniques and equipment available for development of this formation. The company believes this outcome validates that Shoats Creek has substantial development potential and underscores the original rationale for the acquisition of this company-making oil and gas asset. The well should pay out investment in approximately 10 to 12 months at a US$40 oil price based on sustainable production in the range of 200 to 250 barrels of oil and associated natural gas. This result is materially significant for Northcote, and at least 2.5x current levels of production of boe, excluding the potential of further upside on future Shoats Creek drilling. We continue to recommend Northcote as a Speculative Buy and with this announcement we believe the company has plenty of upside.
Beaufort Securities acts as corporate broker to Northcote Energy plc
Strat Aero (LON:AERO) – Hold
Strat Aero, the international aerospace group focused on the rapidly emerging Unmanned Aerial Vehicle (‘UAV’) sector, yesterday announced the appointment of Mr. Paul Ryan to the Board as a non-executive Director focused on strategy. Mr Ryan has 20 years of transactional, commercial and regulatory experience in the telecommunications and ICT sectors with international blue chip entities, during which he has been involved in transactions with a value in excess of US$10 billion. He will be responsible for business development and the implementation of a more expansive strategy focussed on building a vertically integrated UAV offering, covering all aspects of the value chain, including the provision of innovative software platforms, hardware and pilot training services, both military and commercial. Mr Ryan has been working with the Group for the past few months to broaden Strat Aero’s established presence in the UAV sector and provide a fully integrated service offering. The Board has recognised that the opportunity in the sector is continuously widening and as a result is looking to further strengthen its management team with similar high calibre professionals with international blue chip commercial experience. Additionally, in line with an expanding strategy, it is assessing a number of potential partnership and acquisition opportunities which would transform the Group’s activities and offering.
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. Paul Ryan’s proven expertise and track record can be expected to support its ambition to secure such work going forward. Strat’s shares, however, have been severely punished since release of its Finals at the end of June, when it declared it was having trouble accurately predicting the pace of development of its marketplace and exact timing of firm incoming orders. While this had been alluded to already in the previous month’s trading update, and should not 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 appear not to have recovered from this shock. Unfortunately yesterday’s statement failed to provide any further visibility on the trading background already provided, namely that the 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 provide scope for a significantly upward leap in revenues for several years to come, 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. Following release of its 2014 Finals, Beaufort cut its current year revenue forecast for Strat to just US$4.0m which, in turn, implied 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’s recommendation on Strat Aero is unchanged on ‘Hold’ while awaiting evidence of improved visibility for next year.
Beaufort Securities acts as corporate broker to Strat Aero plc
Mariana Resources (LON:MARL) – Speculative Buy
Yesterday, Mariana Resources (Mariana) provided an update on the ongoing drilling at Hot Maden project, located in Turkey. As per the results from the resource extension programme, the company received three complementary assays from its JV partner Lidya Madencilik Sanayi ve Ticarte S.A for three drill holes including HTD-18, HTD-20, and HTD-22. The HTD-18 drill includes 108.2m at 3g/t Au and 1.3% Cu from 292m including 12m at 6.4g/t Au and 2.8% Cu from 330m and 9m at 12.4g/t Au and 0.8% Cu from 384m. The HTD-20 contains 88.5m at 1.8g/t Au, 2.3% Cu and 1.9% Zn from 1.5m including 3.5m at 12.5g/t Au and 5.7% Cu from 48.5m. The HTD-22 comprises of 43.8m at 7.7g/t Au and 1.2% Cu from 342.2m including 13.8m at 23.3g/t Au and 1.6% Cu from 98m. Mariana also found two exploration holes (HTD-19 and HTD-21) from the exploration drilling. The HTD-19 hole includes 12.1m at 2.1g/t Au and 0.7% Cu from 209.3m and 36m 4.3% Zn and 13.3m at 7.75% Zn from 271m and the HTD-21 comprises of 64.1m at 0.8g/t Au and 0.3% Cu 140ppm Mo from 103.4m including 0.8m at 9.6g/t Au and 0.4% Cu from 157.9m.
Our view: Mariana is an exploration and development company with an extensive portfolio of gold, silver and copper projects in South America and Turkey. The aforementioned update follows company’s maiden mineral resource estimate (MRE) of 2.9Moz Au eq grading 10.9g/t Au eq (based on current spot prices and weighted average) on its Hot Maden project in north-eastern Turkey. The results from the exploration have been encouraging with substantial potential for mineralization. Further, the deposit contains significant zinc (Zn) mineralisation that was excluded from the initial mineral estimate. The improvement in zinc grades that Mariana is witnessing in the North and emergence of elevated molybdenum assays would further enhance the project. We look forward to further drill results and the forthcoming technical report from this potentially world class deposit. In view of the overall developments, we maintain a Speculative Buy rating on the stock.
Asiamet Resources (LON:ARS) – Speculative Buy
Yesterday, Asiamet Resources (Asiamet) declared its unaudited interim results for the half year ended 30th June 2015. During the period, the company incurred a loss of US$5.4m (H1 2014 – loss of US$234,495). The loss is attributed to impairment of US$3.9m on the acquisition of the Beutong copper-gold project in Indonesia. On the operational front, resource infill and expansion drilling was completed on seven of the twelve planned 100m spaced lines and one of the three planned 50m infill lines at the Beruang Kanan Main (BKM) project on the KSK Contract of Work in Central Kalimantan. The results established mineralization in most parts of the deposit and extended the mineralization on sections BKM31650, BKM31750, BKM31850, BKM31950 and BKM32050. Further, the company is looking for various options for divesting the Jelai epithermal gold scheme in North Kalimantan or entering into a partnership. Separately, Asiamet approved Stock Option Plan, granting 6,000,000 Incentive Stock Options to Directors and 3,650,000 Options to employees and consultants. The options are exercisable between 31st August 2015 and 31st August 2020 at an exercise price of US$0.05 per share.
Our view: The first half of 2015 has been fruitful for Asiamet with acquisition of Beutong Project in Indonesia and improved operations. The company’s continued efforts to evaluate the BKM project have shown positive results with establishment of deposits in various parts. Asiamet also found higher grade copper-gold deposit at the Beutong porphyry deposit. Going forward, Asiamet expects to find a potential acquirer or partner for Jelia gold project which would enable it to focus on the two core copper projects. The company plans to carry out metallurgical test work to assess the economic potential of the BKM deposit. We believe the company could report strong results for the year 2015, backed by its solid asset base and continuous efforts to enhance its resource potential. Therefore, we reiterate a Speculative Buy rating on the stock.
Vmoto Limited (LON:VMT) – Speculative Buy
Yesterday, Vmoto Limited (Vmoto) declared its results for the half year ended 30th June 2015. During the period, revenues soared 57% to US$24.9m as total units sold went up 13% to 41,503. Units sold to international customers jumped 68% to 7,211. EBITDA rose 264% to US$2.1m and the statutory NPAT surged 379% to US$1.0m. The underlying NPAT advanced 122% to US$1.6m resulting in an EPS of 0.79 cents against 0.19 cents in H1 2014. Gross cash stood at US$11.1m (31st December 2014: US$3.8m). On the operational front, the company expanded its presence in China as it opened more than 43 outlets including company owned stores and third party distributors. It also moved into new markets in Denmark, Malaysia and Vietnam. During the period, Vmoto developed internet based retail sales platform and was also appointed as a distributor for the UK and Irish markets. The company successfully raised US$8.9m by an oversubscribed placement to existing and new institutional and sophisticated investors in Australia and the UK.
Our view: Vmoto delivered solid performance in the first half with strong growth in revenue. Vmoto’s efforts for the past three years to transform into a leading global electric two wheel company are finally bearing fruitful results. The company has focused on enhancing its production and distribution capabilities to support growth for the future while looking for potential customers across the world. The increased share from global markets marks the shift in the company’s sales mix to higher sales margins. Vmoto’s appointment as distributor for the UK and the Ireland is expected to boost its accessibility and brand name in the global markets. Since the second half of the year is historically stronger than the first, we expect the company to build on its growth momentum. Further, the company expects to launch the online sales platform very soon. This move is likely to improve the sales volumes and rise in the consumer traffic. In view of the above optimism and company’s improving global brand name; we reiterate a Speculative Buy rating on the stock.
Economic News
Germany unemployment change
The number of people without a job in Germany fell by 7,000 on a seasonally adjusted basis to 2.79 million in August, the Federal Labour Agency said yesterday. Economists had forecasted a decrease of 4,000. The seasonally adjusted unemployment rate was unchanged at 6.4% in August.
Germany manufacturing PMI
As per the data released by Markit, the final manufacturing PMI of Germany for August stood at 53.3, versus a reading of 53.2 in July. The reading came ahead of the market expected 53.2.
Eurozone manufacturing PMI
Manufacturing PMI for the Eurozone fell to 52.3 in August, from July’s 52.4, final data from Markit showed yesterday. The reading missed the market expected rise to 52.4.
UK mortgage approvals
UK Mortgages approvals for house purchases rose to 68,764 in July from 67,069 in June, the Bank of England informed yesterday. The analysts were expecting loans to rise to 68,100. Net mortgage lending stood at £2.79bn in July, the highest in seven years.
US manufacturing PMI
The final Markit PMI for the US stood at 53.0 in August, ahead of the preliminary estimates and market expectations of 52.9. The final US PMI for the month of July was recorded as 52.9.
US construction spending
US Construction spending increased 0.7% m-o-m to an annual rate of US$1.08tr in July, as per a report released by the US Commerce Department. Economists expected spending to rise 0.6% during the month.
US ISM manufacturing
US manufacturing PMI fell to 51.1 in August from 52.7 in July, as per the Institute of Supply Management (ISM). Economists forecasted a reading of 52.5. The index for new orders slipped to 51.7 from 56.5 in the previous month. While, the employment index dropped to 51.2 from 52.7 and the prices index decreased to 39 from 44 in the previous month.