The Markets
Market opening: The FTSE-100 is expected to start this morning’s session around 85 points higher.
New York: Wall Street ended in the green, shrugging off losses incurred during the previous week. The rebound in oil prices boosted investor confidence. The S&P 500 rose 1.5%, with the energy sector gaining the most.
Asia: Equities are trading higher, taking positive cues from the Wall Street. In addition, improvement in commodity prices led to gains in energy and airline stocks. The Nikkei 225 advanced 1.2%, as a weaker yen supported export-driven stocks. The Hang Seng was trading 1.6% up at 7:00 am.
Continental Europe: Markets closed mixed. Investors remained cautious after the attacks in Paris, with the travel and leisure sector registering losses. Germany’s DAX rose 0.1%, whereas France’s CAC 40 shed 0.1%.
Crude Oil: Yesterday, WTI and Brent oil prices increased 2.5% and 2.2%, respectively. The spread between the two varieties stood at US$2.8 per barrel.
UK small caps: The FTSE AIM All-Share index closed 0.57% lower yesterday at 728.24.
Today’s news
Eurozone inflation rises in October
As per the estimates published by Eurostat, consumer price inflation (CPI) in the Eurozone grew 0.1% m-o-m in October, after a 0.2% increase in September. The growth was mainly led by a rise in the prices of vegetables and fruits as well as at restaurants.
Company News
Advanced Oncotherapy (LON:AVO) – Speculative Buy
Yesterday, Advanced Oncotherapy (AVO) informed that it has successfully completed the high power testing of two Coupled Cavity Linac (CCL) modules at its facility in Geneva. The modules have been tested at a full power of 7.5MW and full duty cycle at 200Hz. The LIGHT system contains 15 CCL modules, which joined in series would accelerate protons to the high energies necessary to treat radiosensitive tumours. Separately, the company has finished two CCL modules at VDL ETG Projects headquarters and is all set to be delivered to the facility by the end of November.
Our view: The aforementioned update is encouraging for AVO as it finishes testing of CCL at its facility. The result validates the use of modules under necessary environment to provide high energy protons for effective treatment of patients. Last month, the company received second LIGHT purchase order from China, along with the prospect of construction of further four Proton Centres in the country (with an overall cost of around £800m) that will also use AVO technology. The Chinese market provides the company a huge opportunity owing to the rise in newly diagnosed cancer cases and deaths due to cancer in China. Furthermore, AVO has signed a joint venture agreement with CircleHealth to operate the Company’s proton beam cancer therapy centre in Harley Street. The Harley Street facility will house the UK’s first high energy proton beam cancer therapy centre. CircleHealth will take responsibility for all operational and clinical matters at the facility as well as the additional procurement, fit-out and facility testing requirements needed for full commissioning and beyond. In view of the continuous developments surrounding AVO, we believe the company has bright prospects going ahead. Therefore, we continue to recommend a Speculative Buy rating on the stock.
Beaufort Securities acts as corporate broker to Advanced Oncotherapy plc
Eurasia Mining (LON:EUA) – Speculative Buy
Yesterday, Eurasia Mining (Eurasia) informed that it has signed a Heads of Terms (HOT) agreement with OOO Metallurg Complect, a Russian based minerals firm. As per the deal, the company has the right to negotiate to take up to 67% in a gold tailings opportunity, the Semenovsky Tailings Project (STP). The deal offers a six-month period of exclusivity allowing technical study completion, sampling, metallurgical testing and general due diligence. Separately, Eurasia has signed a 3 month option agreement with Metal Tiger (MTR). Under this contract, MTR can participate in the STP and can participate in new projects found by Eurasia. MTR has paid a US$25,000, 3 month, option fee to Eurasia. MTR would pay an extra US$75,000 to Eurasia if it participates in the STP, which would cover the 6 month exclusivity period work programme.
Our view: The aforementioned update provides Eurasia an opportunity to start due diligence and project review of the STP. The results from the initial work have been encouraging with potential gross revenue of around US$57m over the 8.5 year mine life, with net project total cash inflow of nearly US$29m or US$3.5m per annum. Additionally, the net present value of the project is estimated to be US$14m at 10% discount rate and IRR of 65%. Going forward, the company plans to complete a Technico-Economicheskiye-Obosnovaniye (TEO), which is a feasibility study to prove the economic development of the project to Russian Ministries for subsoil use. Post the TEO, the company plans to undertake a sampling programme at STP to allow suitable metallurgical test work and mine scheduling of the ore. Furthermore, Eurasia continues to progress well at its West Kytlim alluvial platinum project, located in Russia. The company has received a production licence award process for the project. Eurasia’s internal geology team has started the exploration work at the site. The results from economic modelling have been positive with confirmation of a mine model. Eurasia is in the progress of creating technical design for the mine and is also contacting external experts. The company has also made a request to the Forest Department for approval of land on the route of the planned power line to site. We believe Eurasia’s progress on track for production to commence in 2016. In light of the above argument, we maintain a Speculative Buy rating on the stock.
Beaufort Securities acts as corporate broker to Eurasia Mining plc
Ferrex (LON:FRX) – Speculative Buy
Ferrex, a resource development company, announced today that it has entered into an agreement to acquire 100% of Chaffers Mining, a private Australian gold company. Chaffers currently has a five year toll milling agreement in place with Norton Goldfields to mine certain defined gold deposits located on Norton’s leases, located 30km from Kalgoorlie in Western Australia. Ore will be treated through Norton’s nearby Paddington processing plant. The gold deposits host historical resources of 5,741,155t grading 1.97g/t containing 363,599oz and are on granted mining leases located within 25km of the Paddington plant. Under terms of the acquisition, Ferrex will issue £465,000 in shares at a deemed price of 0.5p to acquire 100% of Chaffers and an additional £465,000 in shares on production of 10,000oz of gold at the 30 day VWAP to announcement of successfully completing the milestone. In addition, Ferrex will pay all processing costs and a 22% royalty to Norton on gold recovered. Chaffer’s executive Peter Hepburn-Brown will be appointed as non-executive of Ferrex and Peter George as Chief Operating Officer.
Our view: We are encouraged with Ferrex’s strategy of acquiring additional low-cost, near term cash producing assets. We believe that the Chaffers acquisition fits this criteria, given that the deposits are located on granted mining leases and a processing plant located nearby Ferrex should be able to generate modest cash in the near term. While more detail is required to evaluate mining costs, we note the potential of generating cash without need for capital outlay, Ferrex expects to produce some 20,000 to 30,000oz of gold per annum at all-in sustaining cost of A$900/oz (US$638/oz), excluding royalties. Management will initially focus on shallow laterite and oxide deposits to generate revenue rapidly and then evaluate potential underground opportunities such as the Prince of Wales deposit, which hosts a historic resource of 154,000 grading 8g/t. We view this announcement as a significant milestone for the company while it continues to develop the Nayega project into a 250,000tpa manganese export operation. We look forward to the full details of the Nayega DFS and modified process flow route upon finalisation of third party due diligence and receipt of the mining permit. Ferrex has identified that production could commence within nine months of the mining licence being issued. In the meantime, we maintain our speculative buy on the stock.
Beaufort Securities acts as corporate broker to Ferrex Plc
Galileo Resources (LON:GLR) – Speculative Buy
Galileo Resources, the exploration and development mining company, announced today that it has signed a binding and exclusive Memorandum of Understanding (MoU) with Shirley Hays – ipk (Pty) and Shirley Hayes to earn-in and acquire an 80% interest in the Concordia Copper project located in the northern Cape Province of South Africa. Under terms of the MoU, Galileo can earn-in 51% of the project by spending ZAR10m (£0.5m) over a 14 month period and a further 29% interest can be earned through an issue of 30M ordinary shares of Galileo at a price at time of issuance following completion of the 51% earn-in. The Concordia project covers a large copper mineralised area within a historically prolific copper mining district. Galileo has identified five potential mineralised open pits within the Concordia project covering 36,372 hectares. The initial work programme will focus testing for flaws and opportunities, design of open pits using various cut-off grades to optimise tonnages and grades as well as carry out preliminary metallurgical testwork and economic assessment.
Our view: We are encouraged with the potential for a world-class copper deposits within the well-known O’Kiep mining district in the northern Cape Province. Galileo now has access to a large database including 123,00m of drill hole data and will begin to evaluate the potential copper resources within the Concordia project under a 30 day due diligence period. In the meantime, we maintain our speculative buy on the stock.
Beaufort Securities acts as corporate broker to Galileo Resources plc
Strat Aero (LON:AERO) – Speculative Buy
Strat Aero plc, the AIM listed international aerospace Company focused on the rapidly emerging Unmanned Aerial Vehicle (UAV) sector, announced that its affiliate, Emerging Technology Ventures Inc. (ETV), a US group which specialises in bringing together and developing integrated technology solutions for both military and civilian unmanned system market sectors, has agreed to become a member of NASA’s research collaborative for the Unmanned Aerial Systems Traffic Management (UTM) programme. ETV, along with its Autonomous and Unmanned System Cluster (AUSC) partners, which Strat Aero is an affiliate member of (see our comment of 10 November 2015), will work with NASA as part of the UTM programme to develop an air traffic control system for low altitude UAS operations in the US. The UTM programme engages industry, academia, and government in developing an air traffic control system to safely enable UAS operations in low altitude airspace across the US. This is one of the most significant limiting factors for the growth of the UAS industry in the commercial sector, including key Strat Aero inspection services for wind farms, cell towers, bridges and dams, as well as precision agriculture. The AUSC was founded by Cliff Hudson in partnership with the Otero County Economic Development Council and with the support of the City of Alamogordo, New Mexico as part of Emerging Technology Ventures, Inc. public-private business model. Operations have been established on a 47 acre campus in Alamogordo, close to the heartland of US Military & Homeland Security operations in central USA. NASA and its collaborative team will test the algorithms and UTM capabilities to safely enable low altitude operations and operational requirements for wind/weather integration, airspace design/geo-fencing, sense-and-avoid/separation management, demand/capacity imbalance management, contingency management, and enabling requirements such as communications, navigation, and surveillance. During the UTM’s development, NASA will collaborate closely with the Federal Aviation Administration. NASA’s short term goal is to safely enable initial low-altitude UAS operations as early as possible while a long term solution to accommodate increased demand with highest safety, efficiency, and capacity is developed and deployed.
Our view: This is an important invitation to join the NASA working group enabling Strat Aero Group to be at the leading edge of worldwide UAS regulation development. This further deepens Strat Aero’s ability and credibility to offer compelling full UAV solutions to large international businesses, as laid out in the Company’s strategic plan. A compelling development and an invitation from Strat Aero’s affiliate ETV. We reiterate our Speculative Buy stance.
Beaufort Securities acts as corporate broker to Strat Aero plc
Premier Oil (LON:PMO) – Speculative Buy
Yesterday, Premier Oil (Premier) informed that it has agreed to sell its Norwegian business, Premier Oil Norge to Det norske oljeselskap ASA for a cash consideration of US$120m. The deal awaits government approval and is expected to be complete by 2015.
Our view: The aforementioned sale of business is in line with Premier’s plan of actively managing its portfolio of assets. The company plans to use the proceeds to pay down its debt. Furthermore, as per a recent update on its operational activities, the company delivered resilient performance despite the difficult conditions in the energy market. Premier finished summer maintenance activities and resumed production at normal levels. The company hedged around 60% of liquid production in H2 2015 at US$92/bbl and 30% of expected production in 2016 at US$68/bbl. A new project, Solan, in the British North Sea, is set to commence oil production in Q4 2015. Similarly, the Catcher project is expected to commence in 2017. The company’s remains cash rich with no debt maturities until 2017. As a result of cost savings made by Premier, it expects full year operational expenditure to be around US$16 per barrel of oil equivalent (boe). Additionally, Premier recently received grants in Blocks 2 and 7 in Mexico’s Round 1 auction, providing an easy and cost-effective entry to a region known for its abundant oil and gas resources. Going forward, the company plans to seek for acquisition to enhance its asset base and also dispose non-core assets where it can generate value. In light of the above argument, we maintain a Speculative Buy rating on the stock.
Rockhopper Exploration (LON:RKH) – Speculative Buy
Yesterday, Rockhopper Exploration (Rockhopper) informed that the first gas production to the network has commenced from the Civita gas field located in the Abruzzo region of onshore Italy. The field is operated by the company and has a 100% working interest. The field would be commissioned at a rate of 12,500 standard cubic metres (scm) per day and is expected to increase to around 25,000 scm per day by November end. Rockhopper expects production in Italy to average more than 100,000 scm per day in 2016. In addition, the company expects revenue of US$9m in 2016 from Guendalina and Civita at current gas prices and exchange rates.
Our view: The commencement of gas production from the Civita gas field is a positive news for Rockhopper. The company completed the production task on time and within the budget, reflecting strong technical and executional capabilities of Rockhopper. Additionally, the preliminary estimates on revenue and production have been encouraging. Furthermore, Rockhopper continues to progress at its Guendalina gas field, as it successfully reached its target depth of 3,276m. The company expects revenues of approximately US$7.0m from Guendalina gas field in 2016. Going forward, Rockhopper plans to invest in the Greater Mediterranean and North Africa region, which would further enhance the company’s resources. We believe Rockhopper has long-term growth potential and would pay-off handsomely when the oil sector stabilizes. In view of the above argument, we retain a Speculative Buy rating on the stock.
Economic News
US empire manufacturing
The US Empire State manufacturing index for general business conditions improved to -10.74 in November from a reading of -11.36 in October, the manufacturing survey by the Federal Reserve Bank of New York revealed yesterday. Economists had expected a reading of -6.50.