Markets
Europe
The FTSE-100 finished yesterday's session 0.23% lower at 7,487.81, whilst the FTSE AIM All-Share index was up 0.38% at 1,038.66. In continental Europe, the CAC-40 finished 0.01% lower at 5,493.63 whilst the DAX was 0.09% higher at 13,229.57.
Wall Street
In New York on last night, the Dow Jones closed 0.36% lower at 23,348.74, the S&P-500 fell 0.32% to end at 2,572.83 and the Nasdaq finished 0.03% weaker at 6,698.96.
Asia
In Asian markets this morning, the Nikkei 225 was down 0.02% at 22,006.72 and the Hang Seng was 0.15% lower at 28,293.6.
Oil
In early trade today, WTI was 0.17% lower at $54.06 per barrel and Brent was down 0.2% at $60.78 per barrel.
Headlines
Bank of England believes Brexit could cost 75,000 finance jobs
The Bank of England believes that up to 75,000 jobs could be lost in financial services following Britain's departure from the European Union. I understand senior figures at the Bank are using the number as a "reasonable scenario", particularly if there is no specific UK-EU financial services deal. The number could change depending on the UK's post-Brexit trading relationship with the EU. But the bank still expects substantial job losses. Many jobs will move to the continent. The Bank of England has asked banks and other financial institutions, such as hedge funds, to provide it with contingency plans in the event of Britain trading with the EU under World Trade Organisation rules - what some have described as a "hard Brexit". That would mean banks based in the UK losing special passporting rights to operate across the EU. The EU could also impose other "locations specific" regulations such as where trading in trillions of pounds worth of euro-denominated financial insurance products has to be based. That could mean trading jobs moving to Paris or Frankfurt. There have been a number of studies on the potential employment impact of Brexit. A poll of more than 100 finance firms by Reuters suggested the number of job losses would be just below 10,000 in the "few years" following Brexit. I understand the bank believes the 10,000 jobs figure is likely on "day one" of Brexit if there is no deal. The Brussels-based think tank, Bruegel, said that over time 30,000 jobs could move to the continent or be lost as London's financial sector shrinks.
Source:BBC
Company news
Andalas Energy & Power (LON:ADL, 0.04p) - Speculative Buy
Andalas has announced a change to its board. Paul Warwick is retiring, Dave Whitby has taken on the role of Chairman and Simon Gorringe is now CEO.
Our view: This looks to be a slight streamlining of the board, a net positive. Importantly Dave Whitby will still be very much involved. Paul Warwick commented that Dave Whitby "has been essential to delivering Pertamina as our partner, which I believe is a unique achievement for a start-up and creates a great platform for the future, which he will continue to develop in his role as Chairman". We maintain our Speculative Buy recommendation, believing that the shares are significantly undervalued and that the share price hasn't reflected recent positive news.
Beaufort Securities acts as corporate broker to Andalas Energy & Power plc
Jangada Mines (LON:JAN, 5.12p) – Speculative Buy
Jangada Mines, a natural resources company developing South America's largest and most advanced platinum group metals (PGM) project, announced results from a Scoping Study on its Pedra Branca project in north-eastern Brazil. Overall, results confirm that Pedra Branca is an economically robust project based on production of 34,000oz pa of PGM + Au from a shallow open pit operation (1.1Mt pa), low initial capex (estimated at US$38.2m) and a payback period of 1.3 years. Consultants, GE21 Consultoria Mineral, have complied the study based on a 13-year life of mine with a very low stripping ratio of 1.07x and an average grade of 1.22g/t PGM + Au with associated Co, Cu, Ni and Cr by-product credits. Based on the above parameters and the following prices (Pd US$849/oz, Pt US$1,214/oz, Au US$1,280/oz, Co US$60,500/t, Cr US$2,480/t, Cu US$6,779/t and Ni US$11,840/t) an NPV of US$158.4m with an IRR of 80.5% was calculated assuming a 10% discount rate. As previously announced, Pedra Branca has a JORC (2012) compliant resource estimate of 23.1Mt grading 1.28g/t (Pd, Pt and Au) and contains an attractive suite of potential by-product credits including Ni, Cu, Co and Cr. 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 in early 2018.
Our view: The above results demonstrate that Pedra Branca has the potential to become a commercially viable mine with a significant return on the initial investment. Although the platinum price used in the study is higher than spot price, we note that Pedra Branca is dominantly a palladium deposit and the Pd price used in the study is 11% lower than spot price (US$849/oz versus US$957/oz). As such, we would expect no significant change in the NPV when considering current platinum prices. The above study captures the robust economics of the Pedra Branca project as a near surface operation with low-capex and opex costs with the potential to produce a PGM-bearing concentrate with significant by-product credits through a simple gravity separation and floatation process. We are encouraged with the results from the Scoping Study and look forward to completion of PFS in Q4 2017 as well as metallurgical testwork as the Company continues to fast track Pedra Branca towards trial mining in early 2018. In the meantime, we maintain a Speculative Buy rating on the stock.
Beaufort Securities acts as corporate broker to Jangada Mines Plc
KEFI Minerals (LON:KEFI, 4.48p) – Speculative Buy
KEFI has published new financial projections based on latest plans for higher 1.9 to 2.1 million tonnes per annum throughput at Tulu Kapi. Gold production is expected to average 144koz over the first 3 years, and payback is approximately 3 years using $1250/oz. The extra capacity will allow satellite deposits to be mined (additional upside) and provide more flexibility e.g. processing lower grade material when the gold price allows. The key metrics are a leveraged IRR of 60% and NPV (8%) from the start of production of $131m. Annual EBITDA averages $72m over the first 3 years. Possibly the most important item is that the required KEFI equity is estimated to be only $20m, and some of this could be found as project level funding. The RNS also states that KEFI continues "to prepare for finance closing with mandated financier Oryx Management Limited and the other consortium members the Government of Ethiopia, Ausdrill and Lycopodium". We believe financial close will happen in 1Q18.
Our view: Tulu Kapi has been optimised to maximise KEFI shareholder returns (both existing and new), for quick payback, but also to exploit satellite gold deposits. Obviously it is no coincidence that KEFI announced a large scale exploration programme last week. These are very attractive financial returns, especially given KEFI's current market value and modest equity capital requirements. We reiterate our Speculative Buy recommendation.
Beaufort Securities acts as corporate broker to KEFI Minerals plc
Prairie Mining (LON:PDZ, 32.50p) - Speculative Buy
Prairie has published its quarterly update which summarises various work programmes during the period including geo technical drilling and initial demolition works at Debiensko. At Jan Karski momentum is really building. During the period China Coal continued with its Feasibility Study, which is near completion and will result in Chinese debt funding. As Prairie's CEO said this morning "we are nearing completion of all requisite studies required to facilitate already advanced discussions with Chinese debt providers".
Our view: Jan Karski is close to securing debt funding, and will produce a high value coking coal product in a region where coking coal is regarded as a critical material. We are understandably very excited about the prospects for Prairie and it's share price. Jan Karski is already the most advanced coking coal project in the Northern Hemisphere and over the next few months its value will be be further recognised by both the investment and mining industry. We reiterate our Speculative Buy recommendation.
Beaufort Securities acts as corporate broker to Prairie Mining plc
Diversified Gas & Oil (LON:DGOC, 81.75p) – Speculative Buy
Diversified Gas & Oil plc ('DGO'), the US based oil and gas producer, yesterday provided its trading update. The Group said the acquisition of assets from Titan Energy ('Titan') announced in June is now wholly completed, and has also largely concluded the initial integration of the Titan assets into its operations to now operates approximately 17,000 wells in total. The Group confirmed that it continues to improve operating efficiencies, reducing costs and improving gross margins. Since completing the Titan acquisition, in September 2017, the Group achieved further operating costs reduction of -8% to US$7.14/Boe against US$7.73/Boe reported for the 6 months ended 30 June 2017 ('H1 FY2017'). Adjusted EBITDA margins accordingly, improved to 44% in September 2017 against 35% in H1 FY2017. The Board of DGO said it anticipates to release a further market update at the year end.
Our view: Delivering on its promises. Having no real peers in London, DGO's opportunistic management initially met a degree of scepticism when first quoting on AIM in Q1'2017 and detailing a unique proposition to rapidly expand its operations. Through acquisition and reverse-takeover of low cost, very long life conventional production assets considered surplus to requirements of Appalachian shale operators, it has however quickly established operational scale that demonstrates high cash generation from low-risk, low cost onshore assets, which is immediately returned to shareholders in the form of dividends. Yesterday's trading Update simply confirmed the acquisition of Titan has completed and that the initial integration of assets is largely concluded with management optimising performance and reducing costs. As such, the Titan acquisition is said to be immediately accretive to Group EBITDA. At Group level and in line with its strategy, DGO achieved a further operating costs reduction to US$7.14/Boe and improved adjusted EBITDA margins to 44%. Looking ahead, the performance in the second half is expected to show further improvement as various operational synergies from acquisition will come through. On the basis of management's confirmation that overall trading remains in line with current market expectations, this suggests FY2017E revenue of around US$46.5m, EBITDA of US$18.5m and adjusted fully diluted EPS of 2.2US cents. Following recent share price strength, the shares are now valued at FY2017E and FY2018E P/E multiple of 49.0x and 25.5x, along with dividend yield of 3.7% and 6.4%, respectively. With Group's strong balance sheet, it is well resourced for further potential acquisitions, where the Group is currently being spoiled of choice as the large independent Oil & Gas company are keen to offload the conventional assets to a capable operator who can maintain production so that it can retain the licenses to the unconventional shale reservoirs. Given positive progress to date, Beaufort reiterate its Speculative Buy rating on the Share with a price target of 95p per share. The visibility provided by DGO's operations makes the shares suitable for both income and growth investors.
Millennium & Copthorne (LON:MLC, 596.00p) – Hold
Millennium & Copthorne ('Millennium'), the multinational hotel group, yesterday provided its trading update for the 9 months ended 30 September 2017. During the period, the Group's revenue per available room ('RevPAR') increased by +11.5% to £82.41 against the comparative period (9 months ended 30 September 2016). In constant currency basis ('CER'), RevPAR grew by +4.0%, driven by increases in occupancy (+2.2%) and average room rate (+0.8%). Like-for-like ('LFL') RevPAR rose by +1.4%, supported by strong growth in London (+5.2%) and New York (+1.1%), partially offset by decline in Asia (-2.1%) and Rest of Europe (-0.2%). The Group's total revenue increased by +12.5% to £748m (CER: +4.5%) with pre-tax profit of £118m, up +15.7% (CER: +8.3%). Net debt at the period-end stood at £668m (Dec 2016: net debt £707m).
Our view: Millennium's performance during Q3 FY2017 was broadly in line with expectations, although the market's principal focus of late has been with respect to the possible recommended cash for the Group. Fair operational progress continued to be made on a constant currency basis; RevPAR in Q3, for example, rose +2.5%, total revenue grew +4.8% and pre-tax profit increased +17%. These results also benefitted from exchange gains of some £1m during Q3. Regionally, the US and Australasia recorded strong RevPAR growth for the period, while its year-to-date figure additionally benefitted from an increased contribution from Millennium Hilton New York One UN Plaza (previously known as ONE UN New York) which was partially closed for refurbishment during the same period last year and newly added Grand Millennium Auckland hotel at the end of 2016. Excluding these two properties, however, LFL hotel revenue was flat compared to the same period last year. Post the period, for the 3 weeks ended 21 October 2017, the Group's RevPAR in constant currency was up +1.8% (+9.1% reported RevPAR) with Regional US (excluding New York) growing strongly (+7.0%), offset by weakness in London (-1.7%), Rest of Europe (-5.0%), Singapore (-5.3%) and Rest of Asia (-0.8%). The growth of RevPAR in both New York and Australasia slowed to +7.5% and +16.2% (Q3 FY2017: +9.9% and +19.7%), respectively. On a LFL basis, Group RevPAR was +0.7% (Q3 FY2017: +0.3%), helped by strong growth in New York (+3.3%) and Australasia (+8.0%). The Group is currently under Bid situation from Agapier Investments Limited (a company indirectly and wholly-owned by City Developments Limited, who already own 65.20% of Millennium) for the remainder of issued ordinary share capital of the Group for a proposed cash offer of 552.5p per share (including 7.5p per share special dividend upon offer being unconditional), valuing the Group around £1.8bn. Given Independent Directors of Millennium consider the financial terms of the Proposed Offer to be fair and reasonable, we see little scope for materially improved offer. Given such situation, Beaufort continue to recommend shareholders to Hold.