Keras Resources (LON:KRS) – CORP*: Acquisition and intention to list on ASX
Market Cap: £8.4m; Current Price: 0.625p
Consolidation of Warrawoona Greenstone Belt
Keras Resources is to acquire 100% of the Klondyke Gold Project from Arcadia Minerals, as well as, acquiring the right to mine and option to purchase the contiguous tenements from Haoma Mining (HML). This means the Company has secured control over the Warrawoona Greenstone Belt.
The Klondyke Project has a JORC compliant mineral resource estimate of 374,000oz Au at a grade of 2.08g/t Au. The resource only comes from 2km of 7.5km of mineralised strike and there are numerous other high-grade historic mines on the project including; Warrawoona Queen and Klondyke Queen with historic mined grades of 37g/t and 40g/t, respectively. Keras has acquired the project for A1.42m (£0.8m) in cash and through the issue of 100,000,000 shares at the prevailing market price. The vendor will retain a 2.5% gross revenue royalty capped at A$3.5m.
The contiguous and proximal licences contain three historic mines; Fieldings Gully, Coronation and Copenhagen, with the upside potential demonstrated by high-grade drill results. Fieldings Gully has a historic non-compliant resource of 18,266oz at a grade of 1.8g/t Au. Keras will have a five year right to mine for A$250,000 (£145,000) and the irrevocable right to acquire the project within a five year period for A$1.25m, A$500,000 in cash and a convertible note for A$750,000 with the right to convert into shares in Keras at the 30 VWAP post this announcement.
Keras has designed a four phase work programme to confirm historic results and assess the feasibility of a standalone open pit gold mine. Phase 1 will consist of an initial mapping and drill programme to upgrade the current Klondyke resource and in-fill the current Haoma tenement, which is located between the two parts of the resource. Phase 2 will consist of extension drilling to the west. Phase 3 will follow up on existing intercepts at Copenhagen and a review of the data at Fieldings Gully and Coronation. Phase 4 will be a pre-feasibility study.
To finance the acquisition, Keras has secured a US$2m debt package with a consortium led by Riverfort Global Capital that is repayable in six months at an interest rate of 10% biannually with a 5% commitment fee and a 5% implementation fee. The investors will also receive 25% warrants of the principal amount with a two year term and a strike price 130% above the 5 day VWAP on the closure of the deal.
At the existing Wycheproof tribute mining project, operations are continuing ahead of schedule and under budget. The Company expects to produce around 900oz Au at an AISC of A$1,400oz with the current Australian gold price at A$1,750/oz Au.
The Company plans to list on the ASX and is undertaking a Board restructure and plans to appoint an Australian Chairman. Roy Pitchford has stepped down with immediate effect and James Carter will step down from the Board but continue as CFO. Brian Moritz has signalled his intention to resign once another Chairman is found.
NORTHLAND CAPITAL PARTNERS VIEW: A very positive development for Keras Resource as the Klondyke acquisition and HML agreement could potentially lead to the Company becoming an owner-operated gold miner. Simultaneously, the Company has also secured non-dilutive finance to pay for the acquisition. A restructuring of the Board cements the transformation that the Company has gone through recently from explorer to gold miner.
TechFinancials (LON:TECH) – BUY*: Interim results
Market Cap: £8.9m; Current Price: 13p; Target Price: 27p
Strong 1H16 confirms turnaround
TechFinancials (LON:TECH) produced a significantly improved first half performance and better than that reported at the time of the trading update in early August, and it confirms the turnaround of the trading platform (B2C) business in particular. Group revenue was +34% YoY, to c. US$9.9m. Overall gross margin improved by c. 400bps to 75% as a result of higher revenues in both businesses and EBITDA almost doubled +98% YoY, to c. US$1.1m as the benefits of increased margin and relatively lower growth of some costs played a role in boosting profits. Furthermore, the balance sheet is in healthy shape as the business produced c. US$0.5m of cash during the 1H16. As a result, net cash as at the end of June 2016 was US$3.6m (cash balance US$3.9m), which provides the support needed to continue to grow the business.
In the core software licensing business (B2B) revenue was +34% YoY, to US$5.4m (US$4m), 400bps higher compared to the growth rate in software licensing revenue in FY15. The trading platform business (B2C), where performance was particularly impressive, has turned a corner on the back of management initiatives in FY15 and where revenue was +35% YoY, to US$4.5m (US$3.3m).
Operationally, the DragonFinancials partnership, with OptionFortune Trade Limited, a B2C options trading platform focused on the Asia Pacific region has successfully been operating from the start of the year and is playing a key role in the turnaround of the trading platform (B2C) business. On 8 June TechFinancials transferred c. 3.9m shares at 27p (US$1.54m) to be held in escrow, as the initial consideration for control of the JV. At the start of the 2H16 TECH also launched its Contracts for Difference (CFD) platform following on from the launch of mobile and the Forex (spot) platforms.
The outlook statement reads well where trading across both divisions in the 3Q16 is going well and in line with market expectations. Furthermore, in the 2H16 management will focus on further integrating operations with Optionfortune in order to increase its profitability. No changes to our forecast for now but clearly given the strong 1H16 performance our US$1.6m EBITDA forecast for FY16E looks very well underpinned. Furthermore, the healthy net cash position on the balance sheet places the stock on an undemanding EV / EBITDA multiple of 4.6x FY16E falling to 2.7x FY17E EBITDA, which in our view significantly undervalues the business.
NORTHLAND CAPITAL PARTNERS VIEW: A strong 1H16 performance from TechFinancials, in particular in the trading platform business, which has turned the corner is trading profitably once again and the news should be well received by the market today. Product expansion should further aid future growth with the Forex, CFD and mobile platforms now operational over and above traditional binaries. Furthermore, the business looks well placed to outperform FY16 expectations and is trading on less than 5x current year EV / EBITDA which is an attractive entry price at current levels. We reiterate our BUY rating and 27p price target.
Savannah Resources (LON:SAV) – CORP: Oman update
Market Cap: £16.9m; Current Price: 4.4p
High-grade Copper over broad zones at Mahab 4 and Maqail South
An additional six drill holes have been completed at the Block 4 and 5 properties in Oman.
At Mahab 4 and Maqail South broad zones of high-grade copper have been defined, with results including 15.18m at 4.02% Cu and 0.3g/t Au from 62.5m (16B5DD012); 25.63m at 2.66% Cu and 0.1g/t Au from 49.37m (16B5DD001); and 20.55m at 3.09% Cu and 0.1g/t Au from 48.95m (16B5DD001A).
At the Bayda target additional drilling suggests a larger lower-grade deposit with 33.4m at 0.69% Cu and 0.1g/t Au from 87m (16B4DD003).
Drilling continues and is due for completion Q316, with an updated mineral resource estimate expected to be completed in Q416.
NORTHLAND CAPITAL PARTNERS VIEW: Another set of positive drill results for Savannah Resources from its Omani Copper Project. Savannah is around half way through its latest drill programme at Blocks 4 and 5 but already the programme has delivered significant results that highlight the projects potential beyond the existing mineral resource estimate of 1.7mt at 2.2% Cu.