The Markets
Market opening: The FTSE-100 is expected to start this morning's session around 36-points lower.
New York: Wall Street extended gains for the fifth consecutive session as oil prices continued to rally amid hopes that OPEC producers would freeze production to support oil prices. The S&P 500 rose 0.1%, with the energy sector gaining the most.
Asia: Equities are trading lower after weak trade data from China dampened investor sentiment. The Nikkei 225 fell 0.8%, as Japan’s economy contracted at an annualised pace of 1.1% in Q4 2015 and a strong yen led to losses for export stocks. The Hang Seng was trading 0.5% down at 7:00 am, tracking the Chinese market.
Continental Europe: Markets ended in the red as investors digested mixed corporate earnings and lower economic outlook from China. In addition, focus remained on the outcome of the European Central Bank’s policy meeting due later this week. Germany’s DAX and France’s CAC 40 shed 0.5% and 0.3%, respectively.
Crude Oil: Yesterday, Brent and WTI oil prices increased 5.5% each. The spread between the two varieties stood at US$2.9 per barrel.
UK small caps: The FTSE AIM All-Share index closed 0.20% higher yesterday at 703.88.
Today's news
UK retail sales increase marginally in February : BRC
According to the British Retail Consortium (BRC), like-for-like retail sales in the UK increased 0.1% in February after rising 2.6% in January. Among the individual components, the sales of housewares and furniture surged, while food and clothing sales slumped. Total sales rose 1.1% y-o-y in February vis-à-vis 3.3% growth in January.
Company News
Northcote Energy (LON:NCT, 0.07p) - Speculative Buy
Northcote published yesterday a very positive Lutcher Moore #20 production update (at Shoats Creek). LM #20 has produced 200 barrels of oil per day over the last 3 days and the operator is aiming to sustain a 200 to 225 bopd rate. It believes that this rate will maximise long term recoveries by minimising decline rates. The nature of the Frio formation (relatively shallow sands with a water drive) is that if managed properly, wells can have a long life with low decline rates (sub 5% per annum). If pulled too hard, water can become an issue. The current water cut at LM #20 is 30%.
Our view: Northcote has a 55.3% net revenue interest in LM#20 so 200 bopd is 100 barrels of revenue for shareholders and production costs should be less than US$15 per barrel. If LM#20 can sustain production around 200 bopd, demonstrating the low decline, conventional nature of the Frio, and if Northcote has success at the next well, Shoats Creek has potential to be a very exciting and profitable story. There are a number of high grade drilling targets across the Shoats Creek property and we expect Northcote to develop more wells in 2016. Details of its development plans will be published in the coming weeks. In the meantime, we maintain a Speculative Buy rating on the stock.
Beaufort Securities acts as corporate broker to Northcote Energy plc
KEFI Minerals (LON:KEFI, 0.37p) - Speculative Buy
KEFI has published good results from a preliminary economic assessment for underground mining at Tulu Kapi. As a standalone project the study shows an NPV of US$44m at a US$1250/oz gold price, and when combined with the open pit, Tulu Kapi's NPV increases to US$200m, or US$150m attributable to KEFI's 75% ownership. Other highlights include 165koz of production from open pit and underground in the early years which at US$1250 gold should generate US$96m of operating cash flow per annum. The underground mine is based on non-compliant reserves of 1.3Mt grading 5.17g/t, a 76% conversion rate from resources.
Our view: Although this study is a Preliminary Economic Assessment and not a feasibility study, it demonstrates that an underground mine at Tulu Kapi is a distinct possibility and it would add significant value to the project and KEFI shareholders. We also note that management believes the underground resources will be expanded significantly with more drilling along strike and down dip. There are some inferred resources in the plan which need upgrading while more detailed mine planning and engineering work is required. Nonetheless this is good news, we maintain our Speculative Buy rating on the stock.
Beaufort Securities acts as a corporate broker to KEFI Minerals plc
Ariana Resources (LON:AAU, 1.13p) - Speculative Buy
Ariana Resources, the gold-silver exploration and development company with several projects in Turkey and a technology-metals subsidiary in Western Australia, announced yesterday an update to its JORC-compliant mineral resource estimate for the Kizilcukur project following a recent drill programme in Turkey. The Kizilcukur project lies outside of the Red Rabbit joint venture with Proccea Construction and is 100% owned by Ariana. Based on a 1,598m reverse circulation (RC) drilling programme Ariana has increased the mineral resource estimate by 100% to 308,000t grading 2.11g/t Au and 73.4g/t Ag (inferred and indicated). The updated resource is largely defined within three shallow (40-90m deep) open-pit shells and has the potential, if developed, to add 18 months to life of mine at Kiziltepe. Additional exploration exists along strike and on sub-parallel vein splays. Kizilcukur is located 50km by road from Ariana’s 50% owned Kiziltepe mine and as announced on 18 November has a mining permit is in place.
Our view: Ariana continues to add to its resource base along the Sindirgi gold corridor in western Turkey which could extend the current mine life at the Kiziltepe mine. We note that Ariana will be able to sell its wholly owned resource ounces into the Red Rabbit JV for three times its exploration costs as well as maintain its 50% ownership as outlined in the JV agreement. Given Ariana’s continued exploration success within the highly prospective Sindirgi region as well as its near-term production at Kiziltepe, we maintain a Speculative Buy rating on the stock.
Beaufort Securities acts as corporate broker to Ariana Resources plc
Fox Marble Holdings (LON:FOX, 12.75p) - Speculative Buy
Fox Marble, the AIM listed company focused on marble quarrying and finishing in Kosovo and the Balkans region, yesterday confirmed that of the €2,000,000 order placed through Fox Marble's new long-term distribution agreement entered into with Eboracum Limited, as reported in the Company's announcement dated 21 January 2016, the Company has received an advance payment of £300,000 (€390,000). This advance reflects the material on hand that is ready for shipment, for which delivery is now expected to commence. The balance is payable prior to further shipments. The Group also announced that the first blocks extracted from the Malesheva quarry in Kosovo have been processed and samples have been distributed to potential buyers. In addition to the milk-white marble known as Illirico Bianco, the quarry has been found to contain a light, silver grey marble, known as Illirico Selene. Slabs of both types have been cut and polished in Carrara and are attracting a positive response already. The Company has opened the quarry in such a way that both stone types can be extracted to fulfill demand.
Our view: FOX, of course, has had more than its fair share of ‘teething problems’ over the past couple of years. While January’s operational update projected disappointing full year 2015 revenues of only €230,000 it did, at least, hold out expectations for a considerably better 2016. Given its recent history of false starts, together with the concerns regarding economic activity in key buying zones like China, Middle East and North America, the shares chose instead to follow the continuing downward trend being set by mining groups worldwide. Today’s news, however, confirms that Group’s current €3.5m order book remains in place, with advance payments now having been received from major distributors like Banyan and Eboracumand. More importantly, with Malesheva coming on stream together with commissioning of the new factory by end-H1’2016, it can be expected to grow quite considerably more before the year closes. Against this, the fact also remains that the Group’s business opportunity, with what must rate as one of the world’s most exciting portfolios of high grade on-surface dimensional stone, to supply a giant and highly fragmented international customer base is enormous. Its management is capable and the business remains cash rich, while most capital costs have already been committed. Beaufort anticipates little further significant expenditure going forward into 2017. Labour and transportation costs are low, yet even amid global economic concerns, demand for premium marble continues to increase while pricing remains firm and rising. The putting in place a comprehensive distribution network covering the key international markets (like North America, Middle East, China, India etc.), possibly remains the final piece to complete the overall jigsaw. Assuming management is making such arrangement, however, there should be little to stand in the way of the Group continuing a quite dramatic improvement in visibility and depth of its order book in coming years. These earnings, in turn, should be capable of dropping rapidly to the bottom line, of which the management has already indicated its willingness to distribute in the form of dividends. Beaufort retains its Speculative Buy rating on Fox Marble.
Altona Energy (LON:ANR, 0.85p) - Speculative Buy
Yesterday, Altona Energy informed that it has concluded all the enquiries made by HMRC. This was in relation to potentially underpaid tax estimated at £790,000 regarding the fees paid on a gross basis to a company controlled by a previous board member. Altona holds no outstanding liabilities to HMRC now. The company had earlier made a provision of £790,000 against this liability in FY 2014 and FY 2015. Altona would now release this amount for the FY 2016.
Our view: The closure of the HMRC enquiry is an important development for Altona. Recently, the company reported good results for the half year ended 31st December 2015. Altona narrowed its losses and reduced its overheads by 55%. The company completed the renegotiation of the joint venture (JV) agreement with Sino-Aus and Wintask, and received the first contribution of AUD$0.6m from Wintask for the JV. Meanwhile, Altona plans to commence operations at the Arckaringa site in South Australia during 2016. The Arckaringa project comprises 7.8 billion tonnes of coal deposits. Altona enjoys a distinct cost advantage for coal gasification and synthetic fuels production, along with favourable project location and support from the local government. Thus, given the developments in 2015 and bright prospects going forward, we maintain a Speculative Buy rating on the stock.