Today’s edition features:
- Great Western Mining Corporation (GWMO.L)
- Jubilee Platinum (JLP.L)
- Katoro Gold (KAT.L)
- ValiRx (VAL.L)
- ANGLE (AGL.L)
- Diversified Gas & Oil (DGOC.L)
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"By yesterday’s close, US equities had recovered most of their deep opening losses; the three major averages nevertheless still ended in the red with the Nasdaq once again leading the downward charge. Picking up on earlier weakness in the Asian and European markets as they considered Janet Yellen’s policy statements following Wednesday’s widely anticipated 25bp hike, US traders were also reacting to the continuing slew of cautionary economic data, including reports from the Labor Department showing a bigger than expected drop in initial weekly jobless claims and a surprise fall in import prices for the month of May, reflecting a steep decline in fuel prices, both of which economists had predicted to move in the opposite direction. Coming hard on the heels of yesterday’s similarly disappointing consumer prices and retail sales, Fed policymakers clearly find themselves with a policy conundrum. Indeed, futures now even go as far as suggesting there is a 50% chance no further rise at all this year. And, as we know, the one thing markets hate more than bad news is, uncertainty. While highly valued techs became the obvious candidates for profit taking, the wider market also inflicted significant damage on the steel sector, while retail, housing and biotech also found significant sellers although some interest was found in defensives like Tobacco. Oil majors also remained under pressure around the globe following Tuesday’s smaller than expected inventory decline. Treasuries gave back some the ground taken yesterday, with the yield on the benchmark ten-year note rising 3.5 basis points to 2.173%. Gains amongst export stocks in the face of a stronger U.S. dollar helped lift stock markets across Asia this morning. Pivoting on the Yen’s relative weakness, the Nikkei’s large caps registered region’s strongest performance as the BoJ left its ultra-easy policy unchanged while maintaining hefty monetary stimulus; elsewhere, rebounds from falls earlier in the week were seen in the Hang Seng and S&P/ASX 200, leaving just the Shanghai Composite nursing minor losses. At one stage yesterday, rattled European investors had pushed the STOXX Europe 600 to its lowest point in 2 months, with techs, telecoms and consumer services shares suffering the worst. Tracking the US recovery, however, the Xetra Dax and CAC40 rallied during their last 90 minutes of trading, to allow the benchmark to recoup almost half its losses by the close. UK equity markets suffered worse. The Bank of England, as expected, left rates unchanged, although three of the eight members delivered hawkish votes as weak UK retail figures added to fears over slow wage growth and a pick-up in consumer inflation. With a minority government frantically trying to secure control of the House and the imminent commencement of Brexit talks, it is clear that Governor Carney will do his best to remain accommodative, even if his 2% CPI target has now been well and truly breached. This was probably the reason why Sterling gave back some of its recent gains yesterday. But while the internationally-weighted FTSE100 managed to stage a late recovery to close down 0.74%, the more domestically orientated FTSE250 fell also almost three-times as much, registering its biggest one-day drop so far this year. US$-earners like Ashstead and HSBC fared reasonably well, but by more locally-dependent operators like Next and M&S suffered after a shocking warning from DFS punished consumer stocks, while the housebuilders also gave back much of Wednesday’s gains. Macro data due from the UK today amounts to only the BoE’s quarterly bulletin. The EU, however, provides its May CPI and Q1 Labour Costs. The US offers May Building Permits, Housing Starts and Labor Market Conditions, along with its June Michigan Consumer Sentiment Index. UK corporates due to release earnings or trading statement include Tesco (TSCO.L), SThree (STHR.L), and Record (REC.L). News that Greece’s creditors have agreed to release the next tranche of its EUR86bn bailout will spur confidence amongst European investors this morning, although the reality is that it only puts off a final decision on relieving the country’s crushing debt burden until August next year. London appears set to gain modestly this morning, with the FTSE100 seen rising 10-15 points in opening trade. "
– Barry Gibb, Research Analyst
The FTSE-100 finished yesterday’s session 0.74% lower at 7,419.36 whilst the FTSE AIM All-Share index was up 1.14% at 962.33. In continental Europe, the CAC-40 finished down 0.50% at 5,216.88 whilst the DAX finished 0.89% lower at 12,691.81.
In New York last night, the Dow Jones fell 0.07% to 21,359.9, the S&P 500 eased 0.22% to 2,432.46 and the Nasdaq shed 0.47% to 6,165.5.
In Asian markets this morning, the Nikkei 225 had risen 0.64% to 19,958.21, while the Hang Seng rose 0.37% to 25,659.27.
In early trade today, WTI crude was up 0.07% to $44.49/bbl and Brent was up 0.11% to $46.97/bbl.
Tesco recovery gathers pace in the UK
Tesco is cementing its recovery in the UK after its first-quarter sales growth beat expectations. Like-for-like sales – which strip out the impact of new stores – rose by 2.3% in the three months to 27 May, boosted by demand for fresh food. Analysts had expected a rise of 2.2% after Tesco reported an increase of 0.7% in the fourth quarter. Tesco will face shareholders on Friday who are expected to query a pay deal awarded to chief executive Dave Lewis. Mr Lewis was given £142,000 to help him move to a house closer to Tesco’s headquarters. This was on top of his £4.1m pay packet.
Source: BBC News
Great Western Mining Corporation (GWMO.L, 1.40p) – Speculative Buy
Great Western Mining Corporation (GWMC), the mineral exploration company focused on copper, gold and silver deposits in south-western Nevada announced today that it has raised £1.15m through the issue of 92M new ordinary shares at a price of 1.25p per share. Proceeds will be used for resource definition drilling on the Company’s M2 Sharktooth Exploration Target as well as for general working capital purposes. As part of its current Scoping Study, the Company recently updated its resource for the M2 prospect to 17Mt grading 0.525% Cu (0.2% Cu cut-off) with 23% of the resource categorised as Indicated. This is a significant increase from the 22 February 2017 Inferred resource estimate of 4Mt grading 0.542% Cu (0.2% Cu cut-off). In addition, independent consultants, WT Cohan & Associates Inc., have a provided an Exploration Target of between 18Mt to 116Mt with grades between 1% Cu and 1.75% Cu beneath the M2 Sharktooth Peak. The Sharktooth zone estimate was extrapolated from geological cross-sections, with the zone being previously identified from reconnaissance mapping, surface sampling and two discovery holes drilled in 2014.
Our View: The above placing allows the Company to accelerate its exploration plans for the M2 copper-gold prospect. We are encouraged with the recently announced increase in resources for M2 and look forward to drill results on the promising Sharktooth zone as well as completion of the scoping study. Exploration results to date have shown favourable geology for iron oxide copper-gold (IOCG) mineralisation. As such, we maintain a Speculative Buy on the Stock.
Beaufort Securities acts as a corporate broker to Great Western Mining Corporation plc
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Jubilee Platinum (JLP.L, 4.38p) – Speculative Buy
Jubilee Platinum announced that its Hernic operation is now fully up and running. The plant has achieved design capacity of 55kt per month and produces a fine chrome concentrate and a separate PGM (platinum group metals) concentrate. 55,000 tonnes per month equates to 1,900 tonnes per day or 660,000 tonnes per annum. This is a major operation and the largest of its kind in the world.
Our View: Hernic is Jubilee’s flagship operation and it reaching full capacity should lead to significant increase in Jubilee’s income which was previously from Dilokong alone. Jubilee has also secured the high grade and probably highly valuable PlatCro project and is in final stage due diligence on the Australian copper opportunity. It also stated in the RNS “We are actively pursuing further opportunities in platinum and base metal processing and will keep the market updated on progress made in this regard.” All good news and plenty of earnings accretive activity. We maintain our Speculative Buy recommendation.
Beaufort Securities acts as a corporate broker to Jubilee Platinum plc
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Katoro Gold (KAT.L, 4.50p) – Speculative Buy
Katoro Gold, the Tanzania focused gold exploration and development company, announced yesterday that the Imweru drill programme has commenced two months ahead of schedule. The first four drill holes have been completed quicker than expected and the first batch of assay samples have been sent for analysis. In addition to assay samples, RC (reverse circulation) samples and a portion of the core from the diamond drill holes have been prepared to satisfy the metallurgical requirement of the pre-feasibility study. These samples will be sent to South Africa for analysis. The Imweru gold deposit has a JORC-compliant mineral resource estimate of 515,110oz of gold comprising 82% in the Inferred and 18% in the Indicated categories.
Our View: Management has wasted no time in the continued development of the Imweru gold project through its additional drilling campaign. Whilst the Tanzanian Government has received a lot of attention regarding pending changes to its mining code and the current ban on exports of gold concentrate, we note this has no impact on Katoro given Imweru’s early stage of development. We look forward to results from the assay and metallurgical samples as Katoro works through the pre-feasibility study on Imweu project. In the meantime, we maintain a Speculative Buy recommendation on the stock.
Beaufort Securities acts as a corporate broker to Katoro Gold plc
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ValiRx (VAL.L, 2.12p) – Speculative Buy
The clinical stage biotechnology company, yesterday provided an update on the clinical development of ValiSeek Limited, the joint venture between ValiRx and Tangent Reprofiling Limited. ValiSeek was formed to progress the novel cancer treatment drug, VAL401, into clinical trials for the treatment of lung cancer and other oncology indications. Since its last clinical update on 8 March 2017, ValiSeek has now reported continued progress of the Phase II clinical trial of VAL401 in the treatment of non-small cell lung cancer, with the completion of its patient recruitment phase. It has decided there is no requirement for further enrolment and now intends to undertake continuous measurement of outcomes of existing participants, while commencing analysis of the results to date. Data from a total of 8 enrolled patients will be compared to case-matched untreated patients from the same clinics, providing a minimum comparison of a 20-subject cohort.
Our View: An important milestone! The protocol allows a preliminary datalock after collection of all ‘Day 15’ pharmacokinetic samples. Now that recruitment is complete, the data checking and database formation for these figures is underway, after which they will be passed to the analysis team; data processing and analysis is expected to be returned in Q3. Given that it allows dosing of patients for up to six months, the trial remains on track to be completed by the year-end, following which further data processing and analysis will be performed. These studies oversee the clinical application of principles based on effective therapeutic management of the molecule; safety data seen to date appears comparable to that expected and the Board now await its formal analysis of the data. This positive news once again underlines the fact that ValiRx investors are getting an awful lot for their money! Two significant trials in advanced Phase II and I/II with a follow-on pipeline with a market cap of just £3m for goodness sake! The Group operates a low-risk, high return model that is shareholder friendly in the respect that it seeks to crystallising value, before reaching the costlier phases of the development. It routinely provides shareholders with tangible progress between modest funding rounds, the latest fundraising now financing its two lead candidates with respect to additional patient/centre recruitment, trial dosing and product manufacturing out to September. Comparisons with peer groups with similar clinical portfolios, or early stage partnership deals with big pharma seeking entrance into such therapeutic areas, suggests a significant valuation gap has opened. ValiRx shares presently recognise none of the value created over the past 18 months, nor the depth of its therapeutic pipeline. While it is understandable that the market remains concerned regarding the Group’s prospective funding needs, it should also recognise that a potentially near-term Big Pharma development collaboration for either VAL201 or VAL401 would likely be at a multiple of the Group’s current capitalisation. Beaufort reiterates its Speculative Buy rating on the shares with a price target of 6.5p.
Beaufort Securities acts as a corporate broker to ValiRx plc
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ANGLE (AGL.L, 72.25p) – Speculative Buy
ANGLE, the specialist medtech company focused on cell separation technology, Parsortix system, for detection and harvesting of cancer cells in the blood, yesterday announced that researchers from Queen Mary University of London’s Barts Cancer Institute (‘BCI’), using ANGLE’s Parsortix system, have found a rare cell, known as a megakaryocyte, in the blood of prostate cancer patients and discovered that the number of these cells in the blood are highly correlated to patient survival. Megakaryocyte is a large bone marrow cells in the blood which produce platelets for blood clotting. It has never been linked to cancer prognosis before, but the presence of these rare cells was found to be strongly connected to patient survival, where greater the numbers of megakaryocytes, better the outcomes for prostate cancer patients. The research demonstrated that Parsortix system not only shown to be capable of harvesting mesenchymal circulating tumour cells (‘CTCs’), which are linked to a poor patient outcome, but also megakaryocytes, which are linked to a favourable patient outcome. BCI researchers have shown that combining these two factors enables the identification of patients, who are “10 times more likely to die” of their disease in the short-term. This knowledge may enable targeted treatment, potentially improving patient outcomes not only in prostate cancer, but potentially other cancers too. ANGLE’s Founder and CEO, Andrew Newland, commented “The findings of this study are of great medical potential, demonstrating an ability to identify patients most at risk of aggressive prostate cancer and a higher rate of mortality and consequently most in need of intensive treatment”. Lead researcher at Barts Cancer Institute, Dr Yong-Jie Lu, commented “Parsortix has shown the potential to detect more severe cancer cases where the patient is likely to die sooner, with a simple blood test, thereby providing information which may enable clinicians to provide different treatment for their patients, potentially extending lives of those battling with cancer”.
Our View: More positive news for ANGLE! Prostate cancer is the most common cancer in the Western men and the fourth most common overall, with more than 1.1 million new cases recorded in 2012 (Source: BCI, WCRF International). The research showed that the use of Parsortix system has a potential of identifying patients with aggressive prostate cancer. Moreover, investigation of megakaryocytes in patient blood also opens up a whole new area for cancer research, where presently, ANGLE’s patented Parsortix system is the only system that has been demonstrated to be capable of harvesting megakaryocytes, potentially attracting more global cancer research institutions to purchase Parsortix system for research use. Parsortix is a non-invasive liquid biopsy which not only enables cancer detection but also harvests the CTCs for personalised cancer care. The research findings further demonstrate the effectiveness and unique capabilities of Parsortix System in analysis of cancer through a simple blood test. The 90% of cancer-related deaths are due to metastasis (cells that have left the original tumour and spread via blood as CTCs), while current methods to detect metastasis are costly and expose patients to radiation. Unlike many other systems, the Parsortix system captures all types of CTCs including ‘EMTed’ CTCs, which was unable to capture using many other systems, ‘EMTing’, megakaryocyte and mesenchymal. The number of ‘EMTed’ CTCs linked to poor patient survival, while the presence of ‘EMTing’ CTCs was closely correlated with whether the patient’s cancer had become metastatic. Megakaryocyte and mesenchymal also play an essential role in the process of metastasis. Yesterday’s positive news gives the potential to provide clinically relevant information to advise treatment decisions. ANGLE’s goal is to seek sector approval and endorsement of its unique solution to be a key participant in the rapidly growing multi-billion dollar liquid biopsy market. Even ahead of this, in FY2016, adoption of Parsortix into its customers’ routine laboratory practice is growing, evident from a substantial increase in revenues from Parsortix cassette sales, which rose more than 500% from last year. The Group also noted that there are further 20 prospective customers evaluating the systems with a view to purchase. Having announced the completion of patient enrolment for its first clinical application for Parsortix in two clinical studies in ovarian cancer: ANG-001 in Europe (200 patients) and ANG-003 in the United States (200 patients), the major event that investors are now waiting for is its headline data which is on track to report during Q2 2017. Beaufort’s financial model expect ANGLE achieving only relatively limited revenues and remaining in quite deep losses in FY2017, before ramping sharply upward toward the end of 2018 to become cash flow positive for the first time during H1 2019. Based on a cash position of around £5.5m by the end of the April 2017 and assuming the R&D tax credit is received, Beaufort considers the Group will be in the position to demonstrate a strong sales growth trajectory and modest positive earnings before tapping shareholders once again for additional funding. In light of its ongoing positive progress, Beaufort reiterate its Speculative Buy rating on the Share.
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Diversified Gas & Oil (DGOC.L, 64.50p) – Speculative Buy
Diversified Gas & Oil Plc (‘DGO’), the US based gas and oil producer, today resume the trading of its existing ordinary shares on London Stock Exchange at 08:00am. This follows the publication of new Admission Document today which outlines the details of the Acquisition of certain gas and oil assets of Titan Energy, LLC, originally announced on 5 May 2017. The Group confirmed yesterday that the sale and purchase agreement has now been finalised. Such acquisition remains conditional on shareholder approval at a General Meeting to be held on 30 June 2017. Proposed acquisition of Titan Energy’s producing gas and oil assets is based in the Appalachian Basin, principally in the states of Ohio, Pennsylvania, southern New York and northeast Tennessee. Cash consideration of US$84.2m (c.£66.1m) will be funded through a new US$110m 3-year Senior Secured Loan Facility provided by Angelo, Gordon & Co with a US$35m (c.£27.5m) raised through a Placing of 39.3 million new ordinary shares at 70p per share. The Placing will take place in two tranches; 11.4 million firm Placing Shares have been placed to raise US$10.1m, the remaining 27.9 million conditional Placing Shares are placed conditional on approval by Shareholders. On a separate announcement, the Group announced that the Board is recommending a final dividend in respect to FY2016 of 1.99 US cents (c.1.56 pence) per share to be paid on 31 July 2017. DGO’s CEO, Rusty Hutson, commented “We are delighted to have successfully raised the funds required to close out this transaction. We are grateful to the existing and new shareholders who participated in the Placing, and see the strong demand witnessed throughout the process as validation of our growth strategy and business model”.
Our View: There were number of good announcements. Firstly, the Group has successfully raised US$35m (c.40% of the Group’s current market cap) at Placing price of 70p per share, representing some 8.5% premium to the suspension price in a heavily oversubscribed Placing. This demonstrates the strong confidence and support from its existing shareholders, as well as from new institutional investors who sees the opportunity in the Company’s future. Secondary, the Group recommended a final dividend of 1.56p for FY2016, in line with its stated dividend policy of ‘not less than 40% of operating free cash flow’. Thirdly, upon approval of the Acquisition by the shareholders, the Company will be producing from licences held by production over a total area of approximately 1.6 million acres, an increase of some 42%. It increases Proved Developed Producing reserves by approximately 36.7 mmboe to 60.5 mmboe. Overall gross oil and gas production will increase from approximately 5,400 boe to 18,291 boe; comprised of; gross gas production more than triple to approximately 17,367 boepd, and 69% increase in gross oil production to approximately 931 bopd. The Board confirmed that the new wells will be immediately accretive to EBITDA, while anticipating that the synergies from the enlarged operations will lower its operating costs below the level of US$8.26 boe achieved in FY2016. The Acquisition is expected to boost Company’s cash flow, which means shareholders will be significantly rewarded in the form of dividend that is currently forecasted to yield around 7.7% in FY2018E based on enlarged share capital, while along with debt facility, also supporting its additional acquisition opportunities in the region. Last week, DGO announced its results for the FY2016 which it recorded revenue of US$18.3m (+53%), operating profit of US$22.4m (+387%) and income before tax of US$32.5m compared to a loss of US$413,000, against the comparative period (FY2015). The Group has a track record of generate profitability in a low commodity price environment, 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. Should the oil and gas prices go up (or attractive M&A opportunities cease), the Group can switch to the infill drilling to drive organic growth within the diverse portfolio that it has acquired. Given encouraging progress being made and strong future prospects, DGO remain far too cheap on both peer group and DCF assessments for both income and growth investors. Beaufort reiterate its Speculative Buy rating on the Share with a price target of 95p per share.
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Barry Gibb, Kazunaga Senga, Sheldon Modeland, Charles Long & Ben Maitland
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During the three months to end-May 2017, the number of stocks on which Beaufort Securities published recommendations was 196, and the recommendations were as follows: Buy – 77; Speculative Buy – 100; Hold – 17; Sell – 2.
Full definitions of the recommendations used by Beaufort Securities in its publications and their respective meanings can be found on our website here.
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