Today's edition features:
• Jangada Mines (LON:JAN)
"Having rebounded sharply on Friday in response to positive non-farm payroll data, the US major averages were much more subdued yesterday. Trading just above or below the unchanged line through the early morning, the three indices ended mixed to fractionally firmer with no particular conviction ahead of Fed Chair's semi-annual Congressional Testimony. Janet Yellen will be before the House Financial Services Committee on Wednesday before going onto the Senate Banking Committee on Thursday. Her comments could have significantly influence the market's outlook for interest rates, quantitative easing or prospective shrinkage of the Fed's balance sheet ahead of the Central Bank's monetary policy meeting later this month. Scheduled speeches from two FOMC members that are due to precede her later today are also likely to be closely scrutinised. Amongst individual stocks, there were few features although techs put in a mid-morning rally sufficient to offset a round of profit taking amongst Biotechs that was sufficient to drive the Arca sub-sector index down by 1.7% while, elsewhere gold stocks bounced off of six-months lows to leave the Bugs index up by 2.8% as the precious metal itself firmed by US$3.5/oz. Treasuries regained some modest ground, reversing direction of the past week, with the benchmark ten-year yield ending down by 1 basis points at 2.383%. Brent crude also remained weak, edging off to US$46.32 during the European session, only for this to reverse during US hours as the Nymex August WTI recovered 0.4% to US$44.59. Confidence in OPEC's ability to limit global oversupply is likely to remain low, however until Russia can be reined back in along with committed participation in further production cuts amongst less predictable producers, like Libya and Nigeria; these topics due to be discussed at the Organisation's next meeting, which is scheduled for 24th July in Moscow, even if most are convinced such action simply hands global market share to the US shale operators. Tech shares were also the principal driving force across broadly firmer Asian equity markets this morning. Both Japan's Nikkei and South Korea's Kospi indexes were more than half a percent firmer just ahead of their markets' close, while Taiwan's Taiex index spiked more than 1.2% higher. Amongst Chinese equities, Hong Kong's Hang Seng Index gained almost 1.5%, contrasting with the Shanghai Composite which only managed a late recovery into the positive despite firmer metals and coal futures prices; elsewhere in the region, Australia's S&P/ASX 200 was set to finish roughly flat after three sessions of negative performance. The major European bourses yesterday tracked the upward moves of their overnight markets, with all regional indices ending firmer. Demand was led by techs, utility and consumer goods shares despite Eurozone investor confidence moderating in July from its near decade high, according to a Sentix survey published on Tuesday. Investors instead chose to focus instead on strong German export data published by Destatis, the country's Federal Statistical Office, suggested a 14.1% leap in May compared with a year ago in non-adjusted terms, with exceptional demand from outside the European Union; this news buoyed various of its international issues like Bayer, BMW and Merck, although the resurgence of the Euro relative to the US$ following ECB hints of firmer rates is likely to have taken the shine of more recent activity levels. The STOXX Europe 600 index accordingly closed 0.38% up yesterday, with similarly positive moves being registered by both the Xetra Dax and CAC-40. Slightly more lacklustre, the FTSE-100 still managed to closed in the positive, thanks to higher commodity prices generating support for the index's heavily weighted mining stocks like BHP (BLT.L) and Anglo American (AAL.L), while Shire (SHP.L) became its most significant casualty following disclosure of a legal injunction it has slapped on Roche over apparently misleading claims regarding a competing haemophilia drug; in the FTSE-250, support services group, Carillion (CLLN.L), also dived following its profit warning and CEO departure. There are no UK macro releases scheduled for today, although speeches are due from two MPC members, Andrew Haldane and Ben Broadbent. Nothing is due from the EU either, but the US is expected to offer its weekly Redbook Index and API Crude Stocks, its June NFIB Business Optimism Index, May JOLTS Job Openings and Wholesale Inventories, along with Speeches due from the FOMC's John Williams and Neel Kashkari. UK corporates due to release earnings or trading updates include Marks & Spencer (MKS.L), Young & Co's Brewery (YNGA.L), Low & Bonar (LWB.L), Ilika (IKA.L), Galiford Try (GFRD.L), Dechra Pharmaceuticals (DPH.L) and Collagen Solutions (COS.L). European markets are seen taking a half-hearted lead from the overnight markets during this morning's early trading, with the FTSE-100 opening perhaps 10 to 15 points higher."
- Barry Gibb, Research Analyst
Markets
Europe
The FTSE-100 yesterday's session 0.26% higher at 7,370.03 whilst the FTSE AIM All-Share index was down 0.03% at 958.70. In continental Europe, the CAC-40 finished up 0.40% at 5,165.64 whilst the DAX finished 0.46% higher at 12,445.92.
Wall Street
In New York last night, the Dow Jones fell 0.03% to 21,408.52, the S&P-500 firmed 0.09% to 2,427.43 and the Nasdaq gained 0.38% to stand at 6,176.4.
Asia
In Asian markets this morning, the Nikkei 225 had risen 0.52% to 20,186.07, while the Hang Seng firmed 1.18% to 25,802.09.
Oil
In early trade today, WTI crude was up 0.27% to $44.52/bbl and Brent was up 0.32% to $47.03/bbl.
Headlines
Taylor Review: UK should end cash-in-hand economy
The author of a government review into work practices is calling for the end of the "cash-in-hand economy". Matthew Taylor, whose report is out on Tuesday, said cash jobs like window cleaning and decorating were worth up to £6bn a year, much of it untaxed. Instead, the work should be paid through "payment platforms". The review, commissioned by Theresa May, also tackles low-paid work, zero hours contracts and the gig economy. Mr Taylor, who is chief executive of the Royal Society of Arts and a former Tony Blair advisor, is set to call for cash jobs to be paid through platforms such as credit cards, contactless payments and PayPal. This would make it harder for customers and workers to avoid paying tax.
Source: BBC News
Company news
Jangada Mines (LON:JAN, 5.50p) – Speculative Buy
Jangada Mines, the recently AIM-listed natural resources company developing South America's largest and most advanced platinum group metals (PGM) project, announced today an updated JORC (2012) compliant resource estimate. The updated estimate confirms the historical resource, compiled by Amplats, and now contains 109Mlb of Ni and 23Mlb of Cu grading 0.214% and 0.045%, respectively at the Company's Pedra Branca PGM project in Ceará State, north-eastern Brazil. This adds to the existing 23Mt grading 1.3g/t (2PGE + Au) containing 0.95Moz of platinum, palladium and gold from surface. When considering palladium equivalent (Pd Eq) the overall grade increased 61% from 1.3g/t to 2.1g/t Pd Eq based on current spot prices. The Pedra Branca project comprises four main deposits and management is focused on bring the easily accessible high-grade surface oxides from the Curiu and Esbarro deposits into trial production during 2018. At current spot prices and excluding refinery costs, the Ni and Cu mineralisation could potentially add US$22.4/t to the value of ore extracted.
Our View: This is the first of many updates we expect from Jangada Mines as it continues to develop the multi-commodity Pedra Branca project. The potential Ni and Cu by-product credits could significantly add to the economics of the project given that these metals can be easily extracted and processed at no extra cost. The at surface high-grade oxide layer is amenable to low-capex and opex costs with the potential to produce a PGM-bearing concentrate through a simple gravity separation and floatation process. We look forward to further updates regarding the occurrence of cobalt, chrome and rhodium as well as continued developments as the Company progresses towards trial mining in 2018. In the meantime, we maintain a Speculative Buy rating on the stock.
Beaufort Securities acts as corporate broker to Jangada Mines Plc
Carillion (LON:CLLN, 117.10p) – Hold
The leading international integrated support services business yesterday issued a 2017 first half trading update and strategic review, while also notifying shareholders regarding a change in management. It noted that H1'2017 revenue is now expected to be similar to that in 2016 at approximately £2.5bn, although operating profit will be lower than expectations primarily due to phasing of Public Private Partnerships (PPP) equity disposals, which are now expected to be in H2'2017. While detailing its strong work-winning performance, with £2.6bn of new work secured in H1, including £2.1bn in support services, it also confirmed progress made against strategic objectives set at full year results, with cost reduction underway and disposal of 50 per cent of the economic interest in the Group's business in Oman, Carillion Alawi, for an immediate cash consideration of £12.8m. Deterioration in cash flows on a select number of construction contracts led the Board to undertake an enhanced review of all of the Group's material contracts, however, with the support of KPMG and its contracts specialists, as part of the new Group Finance Director's wider balance sheet review. This review has resulted in an expected contract provision of £845m at 30 June 2017, of which £375m relates to the UK (majority three PPP projects) and £470m to overseas markets, the majority of which relates to exiting markets in the Middle East and Canada; the associated future net cash outflows in respect of these contracts is £100m-£150m (primarily in 2017 and 2018). As a result of the enhanced contracts review and the strategic actions below, reflecting difficult markets and exits from certain territories, Carillion issued revised full-year guidance, with revenue now expected to be between £4.8bn and £5.0bn and overall performance expected to be below management's previous expectations. Separately, Carillion announced that Keith Cochrane had been appointed as Interim Group Chief Executive, while a search is undertaken for a permanent appointee. Falling on his sword, Richard Howson has stepped down as Group Chief Executive and from the Board, although he will stay on for a period of up to one year to support the transition.
Our View: Painful! Deterioration in cash flows on construction contracts, combined with a working capital outflow due to a higher than normal number of contracts completing and not being replaced by new starts, means H1'2017 average net borrowing is now expected to be £695m (Full year: 2016: £586.5m). The actions put in place in March 2017 to reduce net borrowing have accelerated and now include disposals to exit non-core markets and geographies to raise up to a further £125m in the next 12 months, further annual cost savings to be quantified as part of the strategic and operational review and suspension of 2017 dividends suspended resulting in a cash saving of approximately £80m. The reality is, however, that this will almost certainly be insufficient, not just to keep its operations afloat but also to salvage reputation amongst its international client base. The lack of a permanent CEO, a hefty debt burden with further anticipated outflows plus extent of provisioning, all serve as a warning that its operations are both sub-scale and under-capitalised to satisfy the Board's previous wide-ranging ambitions. The deep hit on Carillion's share price yesterday reflected the market's understanding that the Board needs to embark on a relatively near-term fund-raising exercise to re-build its balance sheet ahead of undertaking a phase of restructuring and re-pointing its core expertise. What could emerge could be a leaner and, fitter, albeit rather less ambitious, operation. The passage there, however, is fraught and riddled with potholes. In the meantime, investors who had been holding for income will be seeking an exit, as will index funds who might anticipate the Group's prospective demotion from the FTSE250. Beaufort downgrades its recommendation on Carillion shares from Buy to Hold while waiting for these steps to get underway.