The Markets
Market opening: The FTSE-100 is expected to start the session around 6-points higher this morning.
New York: Wall Street ended in the green as an improvement in oil prices lifted energy stocks. Meanwhile, investors await the Fed’s decision on the interest rate in the policy meeting today. The S&P 500 rose 1.1%, with the energy sector gaining the most.
Asia: Equities are trading higher, taking positive cues from the Wall Street. The Nikkei 225 added 2.6%, led by the financial sector. The Hang Seng was trading 2.1% up at 7:00 am, tracking the Chinese market.
Continental Europe: Markets ended higher, led by rebound in oil prices and the positive economic data released yesterday. France’s CAC 40 and Germany’s DAX rose 3.2% and 3.1%, respectively.
Crude Oil: Yesterday, WTI and Brent oil prices increased 2.9% and 1.4%, respectively. The spread between the two varieties stood at US$1.1 per barrel.
UK small caps: The FTSE AIM All-Share index closed 0.31% higher yesterday at 719.52.
Today’s news
UK inflation turns positive in November
As per the Office for National Statistics, the UK consumer price index (CPI) rose 0.1% in November, which is its first positive reading in four months, from last month’s reading of -0.1%. The improvement in prices was led by transport costs and alcohol and tobacco prices.
Company News
Jubilee Platinum (LON:JLP) – Speculative Buy
Jubilee Platinum, the Mine-to-Metals specialist, focused on platinum mining and recovery, announced yesterday that it has executed the Co-Operation Agreement with Hernic Ferrochrome Limited to process Hernic’s surface platinum-bearing chrome tailings. The Agreement replaces the heads of agreement signed on 19 January 2015 and allows Jubilee the exclusive right to beneficiate the chromite and PGMs contained in the Hernic tailings. The Hernic agreement is the second of Jubilee’s platinum projects, the first of which is the ASA Chromite and PGM recovery project with commissioning expected in February 2016. The combined surface projects have a targeted annualised production capacity in excess of 900,000 tons.
Our view: Jubilee Platinum continues with its strategy of fast tracking both of its surface platinum processing projects with a combined processing target of c80,000t per month of tailings. We view the above announcement as an important milestone for the Company and look forward to the construction and commissioning of the chrome and platinum processing plant. Despite the downward pressure on platinum prices, we believe Jubilee has the technical expertise and facilities to become a significant low cost PGM producer in the near term. We also note the low risk associated with processing surface tailings compared with conventional mining. As such, we reiterate our Speculative Buy on Jubilee Platinum.
Beaufort Securities acts as a corporate broker to Jubilee Platinum plc
Motif Bio (LON:MTFB) – Speculative Buy
Motif Bio plc, the clinical stage biopharmaceutical company specialising in developing novel antibiotics, yesterday announced that clinical trial supplies in the form of sterile ampoules of iclaprim have been manufactured. Following Quality Assurance release, these supplies will be shipped to clinical trial sites. These activities enable Motif to remain on target to complete the two, previously announced Phase III ABSSSI trials in H2 2017. iclaprim, is being developed for the treatment of the most common and serious bacterial infections such as acute bacterial skin and skin structure infections (‘ABSSSI’) and hospital acquired bacterial pneumonia (‘HABP’), including those caused by resistant strains such as MRSA (methicillin-resistant Staphylococcus aureus). Iclaprim could be ready for commercialisation in 2018.
Our view: This news represents the passing of another important milestone for Motif. The Group was able to utilise commercial-scale batches of the API (or ‘Active Pharmaceutical Ingredient’) that it acquired earlier in 2015 as part of its merger with Nuprim Inc. As a result, the complexity and costs usually associated with the manufacture of clinical trial supplies in sufficient quantity for large Phase III trials have been significantly cut, while also ensuring it remains on track to complete its two ABSSSI trials during the second half 2017. This is the point at which commercial interest and the true value created through this development will become clear. Against the background of a looming crisis in the antibiotic world, commercial interest in antibiotics has recently taken off. Yet valuating such clinical stage opportunities remains far from an exact science. While discount cash flow and other such financial methodology could create a valuation for iclaprim, the size of the prospective opportunity (which potentially runs into billions of dollars in revenues) more often than not is seen to befuddle such an approach. In which case, peer group comparisons possibly provide a more realistic assessment. Paratek Pharmaceuticals, Inc. (NASDAQ: PRTK), appears to be the closest peer to Motif, having a similarly advanced antibiotic development product in Phase III trials and comes with a similar history. Right now, Paratek, is valued at around US$350m, or almost four times the current market capitalisation of Motif Bio. Beaufort retains its Speculative Buy recommendation on Motif Bio with a price target of 110p/share.
Yesterday, Rio Tinto announced that it signed a US$4.4bn project financing agreement for developing the Oyu Tolgoi underground mine in Mongolia. The investors include international financial institutions and export credit agencies, representing the governments of the US, Canada and Australia, along with 15 commercial banks. The company would continue to update the feasibility study, along with revised capital estimates, and secure essential permits.
Our view: Rio Tinto securing financing for its Oyu Tolgoi mine marks an important milestone in its growth story. The underground expansion of the mine is among Rio Tinto’s major projects. As per estimates, Oyu Tolgoi holds 2.7 million tonnes of recoverable copper and 1.7 million ounces of recoverable gold in reserves. Once the mine is operational, it is expected to produce around 430,000 tonnes of copper and 425,000 ounces of gold annually. Meanwhile, the company’s aluminium business continues to progress well, as it anticipates reduced costs and capital expenditure by the end of 2015. The division has also raised its production levels for various compounds as part of its sustained measures to enhance productivity. Recently, Rio Tinto received approval for its US$1.9bn Amrun project at the Cape York Peninsula in North Queensland, Australia. The company holds 1.49 billion tonnes of bauxite reserves and 1.91 billion tonnes of resources in the Cape York area. The Amrun project involves one of the world’s high-quality bauxite deposits, which is expected to generate lucrative returns for the company. We believe Rio Tinto is well placed with adequate resources and assets to face the tough situations ahead and maintain its market position. Therefore, we reiterate a Buy rating on the stock.
Tullow Oil (LON:TLW) – Buy
Yesterday, Tullow Oil announced that its Etom-2 well in Block 13T (Northern Kenya) holds 102 metres of net oil pay in two separate columns. The objective of setting up the well was to explore the Etom structure in an untested fault block identified in a recent 3D seismic survey. The company completed the Ngamia Extended Well Test in Block 10BB, which produced around 38,000 barrels of oil. The five completed zones of Ngamia-8 were tested at a combined rate of 2,400 barrels of oil per day (bopd), and all except the lowest zone produced oil naturally. Tullow Oil operates both Blocks 13T and 13BB with 50% equity and partnered by Africa Oil Corporation with 50% share.
Our view: The aforementioned update is a positive development for Tullow Oil. The Etom-2 well witnessed over 100 metres of oil pay in the best reservoirs in the basin so far. The company has identified significant potential in the unexplored part of the block, including the Erut and Elim prospects, and plans to explore further. Furthermore, the results at the Block 10BB have been encouraging, with improved production levels. As per the recently reported first-half results of 2015, Tullow’s cash position is expected to strengthen, as the planned restructuring program is anticipated to yield cost savings of US$500m over the next three years. Moreover, an operational update exhibits that the gas exports have increased to around 100 million standard cubic feet per day (mmscfd) and the oil production has regained previous levels. Tullow Oil plans to deleverage the business, with greater emphasis on major developments, and phase out the non-core assets. In light of the above argument, we maintain a Buy rating on the stock.
Economic News
UK PPI
The UK producer price index (PPI) output fell 0.2% m-o-m in November, after a 0.1% drop in October, the Office for National Statistics said yesterday. Economists had forecasted a PPI output fall of 0.1% for the month. On y-o-y basis, output prices were down 1.5% in November, following a decline of 1.4% in October.
Germany ZEW survey
The Centre for European Economic Research/ZEW reported that the German economic sentiment rose to 16.1 in December from 10.4 in November. Meanwhile, the gauge of current situation rose to 55.0 in December from 54.4 in the previous month.
US empire manufacturing
The US Empire State manufacturing index for general business conditions improved to -4.6 in December from a reading of -10.7 in November, the manufacturing survey by the Federal Reserve Bank of New York revealed yesterday. Economists had expected a reading of -7.0.
US CPI
US consumer price index (CPI) remained flat in November, after a 0.2% rise in October, the US Bureau of Labour Statistics stated yesterday. This was in line with the market expectations. Core consumer prices, excluding food and energy, rose 0.2% m-o-m in November, following a similar increase in October.