Small Cap Wrap: Month: November 2010

AIM Breakfast - Archive

23 November 2010

This week: Baobab moves the goal posts, Herencia goes for Golder, National Milk delivers and Sinclair’s growing success

3D Diagnostic Imaging (3DD 8.5p/£14.49m)
3D Diagnostics which owns the protected rights to a technology platform with a number of significant potential commercial products, announced its move from PLUS and its admission to AIM and a placing to raise £2.71m at 6p per share.  The Company, which is currently focused on the production of medical equipment for the detection of dental caries/decay (through its CarieScan Ltd business), has an agreement in place with Patterson Dental, which is thought to be the largest supplier of dental products in North America, to distribute a handheld Carie detection product for use by dental practitioners across the US and Canada. 3D is in the process of putting together a 15 strong sales force based in the US to facilitate sales, though Patterson themselves have committed significant effort to the relationship by covering a good deal of the marketing costs.
CarieScan’s product retails at approximately $4,000 of which $1,850 goes to the Company (at a cost of $470 per unit). Further revenue is to be generated by disposable sensor attachments, which CarieScan sells for $1.22 per unit and which cost approximately $0.87 to produce.
The sophisticated and reliable qualities of the product (which has 93 per cent sensitivity and specificity levels), together with the Company’s desire to establish itself in the lucrative North American market before moving on other territories, suggest great opportunities for 3D Diagnostics. One to get your teeth into.

African Eagle (AFE 6.38p/£24.53m)
We last wrote about AFE in the Small Cap Wrap of 12th October 2010 (price then 5.38p) when they gave a resource update on their Dutwa project. In order to focus on that project, a nickel deposit in Tanzania, the Company has now announced that it has sold its non-core uranium division to Jacana Resources Ltd for A$1million in shares and cash. AFE will transfer all uranium holdings from its Lunga project in Zambia to the private Australian company in exchange for A$200,000 in shares – 20 per cent of Jacana’s share capital – on signing the agreement. It will subsequently receive a further A$300,000 in shares and A$500,000 in cash or shares when Jacana IPOs, which is planned for 2011. The news has been well received in the London market and the shares moved up a little in response.

Arian Silver Corporation (AGQ 31p/£84.71m)

AIM listed silver exploration, development and production company with a focus on projects in the silver belt of Mexico, has announced the commencement of a new 10,000m drill programme at its 100 per cent owned San Jose Property, Zacatecas, Mexico. The drill programme, which will complement the previous two drilling campaigns, is aimed initially to delineate additional areas of high grade mineralisation and to upgrade existing resources, between the Santa Ana and Guanajuatillo resource areas along the San Jose Vein. One drill rig has commenced drilling at San Jose, and a second drill rig will be mobilised and operational shortly. The previous two drilling campaigns delineated JORC and NI 43-101 compliant resources of approximately 43 million ounces of silver, 120 million pounds of lead and 250 million pounds of zinc within only approximately 10 per cent of the known strike length of the SJV within the concession area.  Arian has also contracted to purchase a semi-mobile laboratory, which is being sourced by Stewart Group’s Geochemical & Assay. It is anticipated that the laboratory will be fully set up within approximately 6-8 weeks in a secure area on the mine compound at San Jose.
Since we last wrote in early November on Arian, almost £40m has been added to the market cap. Arian Silver’s greatest potential lies in the scope, through further drilling and exploration, to add significantly to its assets in the ground. The mining plan based on the present resource and which will extract only the highest grade ores will generate income for four years, but this should be sufficient to finance most of the drilling required to expand the resource by a substantial amount, perhaps 10-fold, providing significant long-term upside potential for the shares.

Baobab Resources (BAO 12.25p/£19.55m)
The Company, which has mineral projects in Mozambique, announced on Wednesday 17th November that its application to alter the boundary of exploration licence1035L, one of three licences comprising the Tete iron/vanadium/titanium project, has been successfully executed, adding that the alteration opens up additional magnetite targets for exploration in 2011. The licence, which overlies the Massamba Group trend, has been adjusted by relinquishing 7,000ha of tenure (not considered prospective) to the west and acquiring 7,000ha to the east. The newly-acquired ground, which includes the Tenge and Ruoni prospects, comprises a series of magnetite-limenite ridges and recently completed sampling has returned head grades averaging 48.9 per cent Fe. New Resolution Geophysics have been contracted to complete a high resolution aeromagnetic and radiometric survey of the new area in December 2010 / January 2011. The area could also be prospective for coal and consultants have been called in to complete a preliminary assessment of the basin.

Berkeley Mineral (BMR 6.58p/£40.60m)
Interest in Berkeley Mineral Resources continues to explode along with its market capitalisation – now over five times that when we first commented in May this year. Share turnover reached over 120m on two days last week, after another placing (at 3.5p – with warrants at 9p) to raise £6.6m which the company says now completes ‘substantially’ all the funding it needs to construct and commission its Kabwe treatment plant. Previous fundings were to complete purchase of the tailings dumps, with plant funding envisaged to be via partnerships, bank lending, or take-off agreements. Now, while there is an extra 23 per cent share dilution, take-off discounts and bank interest won’t be paid. As well as the new higher warrant conversion price, private investors liked an indication that – apparently for the first time – the placing was with ‘institutional’ investors. Completion of the tailings dumps acquisition is now expected ‘in the next few weeks’.

On the back of this news, we continue to echo the sentiment that it would make sense for an existing producer to mothball their expensive mining machinery and source zinc from BMR’s Kabwe operations, which projections have shown will have a cost of production close to the bottom of the range.

Corin Group (CRG  48.25p / £20.64m)
Leading manufacturer and supplier of orthopaedic devices last week provided an interim management statement, where it was revealed that sales for the Company had grown by 7 per cent in the four months to the end of October, compared to 6 per cent for the first half of the year. Though metal-on-metal hip products have faced and continue to face some decline (knee product sales have also faced some pressure through the lack of competitiveness of its existing total knee portfolio), sales of the Company’s range of non-metal-on-metal hip products, including Metafix, Minihip and Trinity products has continued to grow strongly with 25 per cent growth in sales in the four months to the end of October. Further, operations in Australia have continued to perform very strongly, with growth in LARS sales.
Peter Huntley, Corin’s Chief Executive, commented:”We are particularly pleased to see that our new products are continuing to make good progress whilst the growth in LARS sales, especially in Australia, remains very strong.”

Faroe Petroleum (FPM 173.75p/£303.34m)
AIM listed independent oil and gas company focusing principally on exploration, appraisal and undeveloped field opportunities in the Atlantic margin announced that it has raised £62.2m through the placing of 37.72 million shares at 16p per share. Proceeds of the placing will be used to appraise and pre develop recent discoveries, increase the Company’s exposure to exploration upside by taking larger equity stakes and committing to new wells, and the acquisition of appraisal and production assets. The Company has also entered into an agreement with Scottish and Southern Energy (which has taken a 5 per cent stake in the enlarged share capital of Faroe for £18m) to work together to identify and acquire producing oil and gas assets in the North Sea.
Graham Stewart, Chief Executive of Faroe Petroleum plc, commented: “The agreement with SSE is an important step forward for Faroe, as we pursue our strategy of growing production revenues to support our extensive exploration activities. The partnership’s combined expertise and relationships across the market, provide a unique opportunity to acquire high quality oil and gas production and benefiting from respective strengths.”

Frontier Mining (FML 6.5p/£59.63m)
FML, the gold and copper exploration and development company focused on Kazakhstan has announced the signing of a $4million loan facility with HSBC Bank Kazakhstan for its Benkala project. The loan is for a period of 3 years and is provided to KazCopper LLP, the Company’s 50 per cent owned joint venture which manages the Benkala Copper development project. It will be issued in two tranches and is solely for the purchase of capital equipment for the Benkala project. The first tranche has begun to be transferred and the second is dependent on existing mining equipment being collateralised in favour of HSBC, which should be completed by early December.
HSBC and Frontier have an indicative agreement that additional funding may be provided to KazCopper for the Benkala project up to a total value of $15million, provided that the Company achieves certain conditions as laid down by HSBC.
Erian Sagadiev, CEO of Frontier comments “We are now on a clear path to fully fund Benkala launch, provided we successfully fulfil the requirements of HSBC in the upcoming few months”.

GGG Resources (GGG 12.75p/£37.08m)
After raising £7.5m last week, the AIM quoted mining exploration company and its joint venture partner Auzex Resources announced the commencement of the resource definition drilling stage of the Bullabulling Gold Project. Most drilling is in the 2.3 km zone between the Bacchus and Phoenix pits as this area has the majority of reserves defined. Work has started on the first 5,000 meter Reverse Circulation drilling programme targeting historic high grade intersections beneath the Bacchus North pit. A second drill rig, which is due to start next week, is targeting the conversion of current inferred resources into indicated and measured resources which in turn should allow a JORC compliant reserve to be established for the project. In order to upgrade the current resource category, additional bulk density measurements are underway with particular emphasis on primary ore.
A couple of complications of the project have been identified. One of the problems is that, despite the fact that there are several high grade intersections in the Bacchus Deep area, too few are to be included in the current resource. Moreover, other than the main drilling area, work has been planned in the Bonecrusher area in the northern part of the tenement where all holes from previous drilling work will have to be re-drilled for the resource in this area to be classified as indicated and measured. We look forward to the initial results from the drilling at the end of the year.

Herencia Resources (HER 2.125p/£20.7m)
As we have reported numerous times the next major milestone for Herencia is to move the Paguanta zinc-lead-silver-gold project in Northern Chile into a feasibility study.  The Company has just announced that it has appointed Golder Associates as the Preferred Consultant to undertake the feasibility study.  Golder is already familiar with the project having completed the scoping study in 2008 as well as other technical work.  The feasibility study is scheduled for completion in the fourth quarter of next year.

Huntsworth (HNT 72.5p/£168.34m)
The global public relations and healthcare communications group announced the interim management statement this week. Management believe its earnings are in line with expectations for 2010, 65 per cent of 2011 revenues are already committed and the balance sheet remains robust. Some revenue has moved from 2010 into next year therefore it is expected that 2010 revenues will be below expectations.
The winning of a few juicy global clients, especially in its Grayling brand, contributed to the organic growth of the group worldwide. All other divisions of the group have also exhibited growth.
Huntsworth also announced some changes to the Board. Colin Adams will join the Board as Group Finance Director in April 2011 when Tymon Broadhead, the current Group Finance Director and Company Secretary will step down from the Board and leave the Company. The company is confident that Colin Adams will play an important role in taking the group to the next stage of development and we wish them good luck!

Judges Scientific (JDG 410p/£17.13m)
Following the strong performance during the first half of the year, Judges Scientific is expecting favourable results for the financial year to 31 December 2010. The newly acquired Sircal Instruments  also has been performing strongly and contributes to the overall performance of Judges Scientific. The directors believe that adjusted earnings are likely to exceed current market expectations.

Recently, the scientific instrument maker, has grown through a series of acquisitions in specific engineering fields, and it is great to see expectations being consistently beaten.

National Milk Records (NMRP 34.5p/£2.54m)
PLUS-quoted leading supplier of dairy and livestock services has announced strong interim results for the six months ended 30 September 2010. Revenue has risen to £6.35m (2009: £6.2m) while profit before tax has increased significantly to £457,000 (2009: £82,000). The company believe that the strong result was achieved by both organic growth and growth through strategic alliances with synergistic companies.
Its strong performance resulted from the diversification of the product portfolio. The newly launched Silent Herdsman – a fertility aid that can significantly improve the efficiency of reproductive operations within the herd during the insemination process – could contribute substantially to revenue growth. Besides this, National Milk Records, National Milk Laboratories and National Livestock Records all provide vital service to milk buyers and the whole dairy industry and keep being important revenue sources.
Management believe that with dairy herds increasing in size, National Milk Records can well take advantage of this opportunity and aim to expand in its Irish market by signing a 50-50 Joint Venture with Progressive Genetics, a farming cooperative in the Republic of Ireland, to provide independent payment testing in the Irish dairy industry.
National Milk Records  recently announced a reorganisation of its share capital in order to reduce the number of shareholders on the Company’s register to a level more consistent with a company of NMR’s size. The approval of Shareholders at a General Meeting of the Company is expected to be held on 24 November 2010, and we will report the outcome shortly.

Oilex Ltd (OEX 15.5p/£27.29m)
Oil and gas producer Oilex announced that it has entered into a farm in agreement with Apache Northwest Pty Ltd on the WA-388-P Joint Venture. The WA-388-P permit is located on the North West Shelf – offshore Western Australia, and it contains seven prospects ranging in potential size from 0.3 to 2.8 trillion cubic feet of prospective gas resource. Stena Clyde has been contracted to drill the first exploration well, which is expected to spud in early 2011 and Apache has agreed to pay 100 per cent of that plus 100 per cent of the well test costs in order to keep a 40 per cent interest in the WA-388-P permit. Oilex retains an 8.4 per cent interest in the permit after finalising the farm in and Apache will replace Oilex as the permit operator. The farm in of Apache will allow Oilex to retain exposure to the WA-388-P permit’s high potential and at the same time preserving cash for work in India and the development of their core asset, the Cambay Low Permeability Eocene reservoirs in Gujarat. We are monitoring the news flow from this oil and gas stock and will update news on the development of its Joint Venture.

OMG (OMG 36p/ £24.59m)
AIM listed technology group announced last week that it has won Popular Science’s ‘Best of What’s New’ Award in the gadgets category for its Vicon Revue camera which takes photographs automatically without user intervention. The camera is most commonly used by medical researchers as an aid for people with memory impairment, but is seen as having great potential in a number of different application areas such as market research, documentaries and art projects. The technology was developed by Microsoft Research in Cambridge in 1999, and last year Vicon signed an agreement to manufacture and sell the technology worldwide. The wide applicability of this product is not only one that has resulted in it being an award winner, but also shows the potential for generating significant revenues for the Company.

Plant Impact (PIM 24.5p/£11.19m)
Plant Impact, the developer of sustainable and ecologically-sound products to combat environmental plant stress and improve crop productivity, announced last week that it signed a distribution and evaluation agreement with Cebeco Meststoffen BV covering the Company’s InCa, PiNT Ca, PiNT K and Alethea K products. The day after signing he agreement, the company announced that the Brazilian Ministry of Agriculture granted national product registrations for InCa, PiNT Ca, PiNT K and Scope. Two good announcements in one week; well done PIM!

Petroceltic Intnl (PCI 12.25p/£246.76m)
In the Small Cap Wrap of 30th March 2010 we reported that PCI had raised funds, partly to support the company’s appraisal programme in Algeria. On the 17th November 2010, the Company announced that it has commenced appraisal drilling operations on the Isarene permit in Algeria. The drilling began at the AT-4 well on the Ain Tsila discovery on November 16th. A programme of 4 wells is planned, focused on the large Ain Tsila gas condensate discovery made in 2009. Petroceltic is the Operator and has a 75 per cent equity interest. Partner Sonatrach has the remaining 25 per cent interest. The wells are being drilled as part of a two-year appraisal extension programme awarded to PCI following the gas discovery.

Sarantel Group (SLG 1.625p/£4.7m)
In addition to production orders received a few weeks ago for it’s new Iridium antenna for the Shout Nano, Sarantel has been awarded a contract to provide custom developed dual-frequency antennas to a major US defence contractor.  This antenna will address an existing and large market and the Company expects sales to have a material impact on revenues next year.  Sarantel also announced that it has signed an agreement with a US defence contractor for the development of a custom antenna solution for portable military satellite communications.  When performance counts, communication device manufacturers come to Sarantel for their antennas.

Stellar Diamonds (STEL 6.88p/£9.57m)
AIM quoted diamond mining and exploration company focused on West Africa this week provided an operations update for the bulk sampling programme that is currently underway at the 100 per cent owned Tongo Kimberlite Dyke project in Eastern Sierra Leone. Approximately 500 tonnes has been collected from a 60m section of the Dyke 1 region, and the objective of the programme is to yield between 1,000 to 2,000 carats for the purposes of grade and valuation. Stellar’s previous mini bulk sampling results of the region indicated returned grades of 100 carats per hundred tonnes at $144 per carat. Construction of the Company’s diamond processing facility is almost complete, with first results expected sometime in early 2011.
Karl Smithson, Chief Executive Officer, commented:”… With the recent commencement of drilling at the Company’s Droujba kimberlite pipe in Guinea and the ongoing bulk sampling at Tongo in Sierra Leone, Stellar is delivering on its strategy of developing its portfolio of kimberlite diamond projects.” Rich pickings, perhaps, for Stellar Diamonds.

Synchronica (SYNC 16.75p/£15.60m)
International provider of push email, instant messaging and social networking services, announced last week that it has reached a milestone of 60 operators in its customer base, whilst the addressable user base that it serves has been increased by 43 per cent since June 2010. Much of this has come about as a result of the successful acquisition of competitor iseemedia. Amongst the new customers are live installations with two of the largest mobile operators in India- a market which currently has over 670 million mobile phone users and is seeing growth of approximately 10 million new users per month.
Carsten Brinkschulte, CEO of Synchronica, comments: “In June we announced that we had signed our fortieth mobile operator customer. I’m thrilled that in less than five months, we’ve been able to grow this to sixty, and that we’ve been breaking into the fast-growing mobile market of India and expanding our leading position in Africa… Following the current deployment phase, we are going to be focussed to expand the take-up rate of our solutions in the installed base.”
The acquisition of iseemedia was completed last month, which whilst growing the addressable user base, is also intended to enhance Synchronica’s product with the integration of iseemedia’s patented document transcoding technology.

William Sinclair (SNCL 110.5p/£18.29m)
The manufacturer and distributor of products for the retail and professional horticultural markets announced that it has bought the assets and trade of Growing Success Organics (GSO), which is a specialist of environmentally friendly garden care products, for an undisclosed sum. The Company expects the GSO range to generate sales of £3m during the year to 30 September 2011 and believes margins can be improved as a result of significant synergies. Interestingly, prior to the acquisition, William Sinclair and GSO had already put together a distribution agreement to increase the number of outlets at which the GSO products could be sold. An interesting addition that reinforces our belief that this is a good growth story.

The Junior Mining Sector
The action in Berkeley Minerals shows what can happen when a miner begins to approach production and acquires the credible means to do so. There are plenty of others now in a similar position to that of BMR six months ago, with their market ratings boosted by a commodities sector, parts of which such as gold, have been roaring away.
Ratings are often boosted further by any plans to move from PLUS to AIM, as for example in the case of Ascot Mining (ASMP.PL) and Oracle Coalfields (ORCP.PL).
The former announced a placing with well respected fellow-miner Red Rock Resources (RRR) to continue the funding for its Costa Rican gold operations, which pushed the shares from 25p to 45p in the first two hours of trading on Friday 19th November. We would not recommend chasing the shares, because although profits will undoubtedly rocket when the mine starts up, we think some over-ambitious initial profits forecasts have been put out into the market.
As for Oracle Coalfields, the move to AIM will provide the substantial funding it will need to develop its rich Thar coalfield in Pakistan where a desperate need for electricity has enabled Oracle to sign early take-off agreements with proposed new power stations nearby. Valuing the shares must await a bankable feasibility study currently in progress and the terms of any fundraising, but 5.5p was seemingly attractive for another, successful, stable-mate of Red Rock Resources, namely Regency Mining (RGM), to take a 20 per cent stake on November 12th.
Given the number of these juniors now starting to move, investment companies like Starvest (SVE) shouldn’t be overlooked.  It has been invested in some of those we mention since their early days, and after great success up until 2007, went through a torrid time when the commodities crash and the credit crunch decimated its investees’ prospects of ever becoming real miners. But in recent months its investment in Beowulf Mining (BEM) has risen over 8-fold; its investment in Red Rock resources over 7-fold; and that in Oracle Coalfields over twice. With a portfolio of over 20 early stage companies (mostly, but not all, miners) it can be worthwhile following, as its share price often lags behind those of its investments.

*A corporate client of Hybridan LLP

The Hybridan Small Cap Wrap is a weekly review of some of the most interesting small cap stories of the past week.  Our review will usually be of those companies whose market capitalisations are less than £50m although we may occasionally cover larger companies.

17 November 2010

This week: Angel flies, don’t be confused by Charaat, joining the dots at dotDigital and a hole new game for Polo?

Angel Biotech (ABH 0.22p/£4.67m)
Further to the announcement issued by ReNeuron Group (RENE 4.9p/£21.45m) today, Angel, the biopharmaceutical contract manufacturer, announced that the stem cells being used in the ReNeuron Phase I clinical trial for disabled stroke patients are being produced at Angel’s Edinburgh facility. The Company has been ReNeuron’s manufacturing partner for over three years and is producing the GMP grade ReN001 stem cell therapy for stroke under a previously announced contract. The ground breaking Phase I clinical trial is being conducted at the Southern General Hospital in Glasgow. Gordon Sherriff, Chief Operating Officer of Angel said: “Angel is very pleased to be manufacturing the ReN001 stem cell product for the clinical trial.   This is a world first, an important landmark in the development of cellular therapies and a tribute to the dedication of the ReNeuron and Angel team.”
ReNeuron is a leading, UK-based stem cell therapy business.  It is applying its novel stem cell platform technologies in the development of ground-breaking stem cell therapies to serve significant and unmet or poorly-met clinical needs.   Angel is in the process of increasing its manufacturing capacity and is expanding its Business Development team. This is a direct response to the continuing demand for Angel’s products and to help capitalise on growth in the EU and US advanced biologics market. Given that most of 2010 budgeted business has been signed, as has a large proportion of the business budgeted for 2011, Angel is well worth a punt.

Baobab Resources (BAO 11.75p/£18.75m)
BAO, an iron ore, base and precious metals explorer with a portfolio of mineral projects in Mozambique, has announced that drilling results to date are beginning to reveal the greater potential of its South Zone prospect. Following the release of results from the first three step-out, reverse circulation (RC) drill holes at South Zone in October, the Company has now released results for an additional five holes. Four of the five holes returned grades in excess of 30 per cent Fe, compared to a previous average grade estimate for the South Zone calculated at 28.5 per cent. BAO intends to release an updated resource statement for South Zone in January 2011 to JORC standards.
The Company has also announced a JV with North River Resources plc (NRRP 4.25p/£25.34m) to develop a magnetite and phosphorous project in Mozambique. The agreement to develop North River’s Muande project will allow BAO to consolidate its position in the Tete region of Mozambique, where it is developing its own iron and titanium project. Under the terms of the agreement, BAO has agreed to spend at least US$650,000 on drilling at Muande over 12 months to earn a 60 per cent interest in the project. BAO also gains the exclusive right to conduct a preliminary feasibility study of Muande and an option to undertake a normal feasibility study and lift its stake to 90 per cent.

Berkeley Mineral (BMR 7.08p/43.69m)
Since our comment on November 2nd, BMR’s shares have performed even more strongly on heavy volumes, and have briefly approached 7p – close to what we felt was a level at which option placees at 3p might be tempted to cash a quick profit. The share strength is despite the fact that the final signing to acquire the Kabwe tailings dumps (which must ensure that BMR will incur no liabilities for the environmental rehabilitation on other parts of the Kabwe complex that the Zambian government wants to achieve) is still dragging on.
We have since realised that the LME zinc price (at $2,500/tonne) is now $600/tonne higher than when various profit projections were made a few months ago. Although (with production planned to be in the form of concentrate) not all this will fall to the bottom line, a substantial proportion will. Accordingly it is now possible to see that lifetime profit and cash generation over the 11 years envisaged to exploit the Kabwe dumps will be some 90 per cent higher than original projections. So BMR’s fair value share price must surely rise too. It is not surprising therefore, that although BMR issued a statement saying that it knows of no reason for the strength in its shares, rumours have surfaced that someone is stalking the company. It would certainly make sense for an existing producer to mothball their expensive mining machinery and source zinc from BMR’s Kabwe operations, which projections have shown will have a cost of production close to the bottom of the range.

Charaat Gold Holdings (CGH 51.5p/£75.72m)
Chaarat Gold is an exploration and development company operating in the Kyrgyz Republic. The Company’s main activity is the development of the Kiziltash and Tulkubash projects situated within the Middle Tien Shan Mountains of Kyrgyzstan which form part of the Tien Shan gold belt. The Company has a JORC compliant mineral resource of 4.0Moz at a grade of 4.14 g/t gold across both deposits. The Company is currently in the process of compiling a Pre-Feasibility study on the Kiziltash project and a Definitive Feasibility Study on the Tulkubash project. Chaarat’s objective is to become a low cost gold producer targeting production of over 200,000 ounces per annum by early 2014 from the Kiziltash project with first production from the smaller Tulkubash project in early 2012.

Following on from the announcement of a £2.6m share placing at 46p per share with ASVI Inc., a Malaysia-based mining support services company, Chaarat announced a positive drilling update. Despite the Company’s confusing wording within their latest statement (from which we quote “The Main project contains two parallel zones of gold mineralisation; the Main zone and the Contact zone….To avoid confusion  between the Main project and the Main zone, the Main project will now be known as the Kiziltash project…The  Main  zone  is  one  of  the  two  major zones which comprise the Kiziltash project…The  Main zone has been delineated over a strike length of 4 kilometres.  It has been further sub-divided into seven Project Areas”), we find the update very positive.  As set out in the announcement: “the mineralization (of the Main Zone) seems to be consolidating and the results suggest it is thickening at depth. The importance of these results goes well beyond their addition to the current 4.009 million ounces JORC compliant resource. There is now a long strike of relatively wide mineralisation within three areas in the Kiziltash project which supports the Company’s plan to build a significant underground operation”. Despite the rather verbose RNS, we believe that it is well worth investors spending time to understand the Company’s announcements, and its prospects in particular.

Designcapital (DESC 14p/£8.88m)
The AIM listed investment company dedicated to high end contemporary furniture design, has raised £190,000 through a placing at a price of 11 pence per share. One warrant to subscribe for one new ordinary share has been issued with each new Placing Share issued at the placing price.  The net proceeds of the Placing will be used entirely to expand the Company’s operations: both to purchase the lease on designcapital’s first showroom outside of Paris, in London, and to enable the Company to equip the showroom up to the highest standards.  The showroom is expected to open in February 2011 for the Artelano brand owned by designcapital.
Located in Dover Street in the heart of Mayfair, London, the showroom will sell products designed specifically for Artelano (the internationally acclaimed and leading French design company of contemporary furniture founded in 1972 and since 2008, subsidiary of designcapital), by such internationally recognised designers as Patricia Urquiola, Piero Lissoni, Christophe Pillet, Shin Azumi and Eric Gizard along with more recent “signatures”, such as, Ora Ito, Francesc Rifé and Patrick Naggar. Artelano will initially target the French ex-patriot and professional community living in London, which has the largest population of French nationals outside of Paris. AltaGamma, the trade association for the Italian luxury industry, has estimated recently that the growth rate of the high-end “design” segment of the furniture market is expected to rise by 6-8 per cent per annum over the next few years. As well as looking to sell product into the affluent and ‘high net worth’ markets of London and the South East of England, the Company intends to expand its already well-established Parisian contracts business, Forum Diffusion, into the UK to offer consultancy services and supply high end contemporary furniture into the commercial market.
Frédéric Bobo, Executive Chairman, commented: “We are delighted to open and launch our Dover Street showroom, which we see as a key stage in our growth strategy. The showroom provides a superb opportunity to demonstrate how designcapital can unlock and exploit markets such as London, as the first outside Paris in a number of major cities across Europe, with the objective of quickly becoming a major pan European, design focused investment group.”

dotDigital Group (DOTP 1.325p/£16.48m)
PLUS quoted digital marketing company last week announced final results for the period to 30 June 2010. Results for the period were most impressive, with like-for-like revenue growth of 43 per cent and profits growth of 48 per cent.
These results have come about through the aggressive growth strategy that the Company has been conducting. The SEO business is one that dotDigital has focused on in particular during the period, having acquired NetCallidus Limited. They have been able to combine the activities of dotSEO (dotDigital’s existing SEO platform) and Netcallidus into one single functioning business in the hope of generating new synergies and efficiencies, though this particular acquisition has had little impact on the financial results for the period given that it was completed shortly before the financial year end. The Company continues to seek acquisitions in the areas of Mobile, Word of Mouth Marketing, Surveys, Analytics, Usability testing, and Research.
DotDigital also sees strong opportunities for organic growth and has won the National Business Awards Best Growth Strategy Award in recognition of the Company pursuing client acquisition through a mixture of online marketing, attendance at road shows and through increasing the level of cross selling to clients through focused account management and provision of complimentary and adjacent services- client numbers have been growing at a rate of 100 new clients per month.
With a healthy set of results, a growth strategy that seeks to develop the Company’s portfolio of service offerings and a proposed move to AIM, we see great prospects for this marketing company.

GGG Resources (GGG 13p/£29.51m)
AIM quoted mining exploration company announced a placing of 63,829,781 new ordinary shares at a price of 11.75 pence per share to raise gross proceeds of £7.5m. The company will utilize the funds to strengthen its cash position and to fund future exploration activities outside the 2km mining feasibility study area. The company also plans to fast-track its half-owned Bullabulling project into gold production within 24 months.
With an inferred gold resource of 1.98m ounces in Bullabulling – a former open pit gold mine in Western Australia – GGG Resources is expecting some promising results on the project following the placing.

Goldplat (GDP 14p / £15.7m)
The AIM quoted gold producer has announced details of its intended exploration programme on the Nyieme Gold Project in Burkina Faso. We last wrote on the Company back in October when the Company reported positive diamond drilling results from Nyieme, and efforts since then have been focused on ensuring a suitable and effective plan is in place for exploration.
The programme includes diamond drilling across 11 new target areas of interest, tight grid soil sampling, trenching and reverse circulation drilling.  Those 11 new target areas have been selected using existing data from Sanu Resource’s previous exploration campaign which involved an extensive 400 x 400m soil sampling grid with follow up 200 x 50m grids, regional geological mapping, rock sampling and a limited geophysical survey- Goldplat’s programme will focus on a 5km long north-south trending geological boundary between instrusives and metasediments. Soil sampling field work and trenching are due to begin in January 2011, with 33 trenches being planned that should result in a total of 3,250m of drill. The total cost of this phase of the exploration programme is estimated to be in the region of $850k.
This is a positive update which demonstrates the committed approach being taken by the Company to explore the opportunities at hand.

Gulfsands Petroleum (GPX 343p/£417.01)
The Company has released an update on Block 26, Syria, where it enjoys a 50 per cent interest and acts as operator.  After a lengthy tender process General Petroleum Corporation of Syria has been selected for the US$129m construction of the Central Processing Facility (CPF) to be built at the Khubet East oil field on Block 26. The CPF has been designed to handle a throughput of 50,000 barrels of source material per day, giving an output of 33,000 barrels of oil per day. The construction price is a little higher than originally envisaged by the Company, but reflects a change to the initial plan to allow a ready expansion of the facility. From the rest of the update, the only newsworthy element is the delay to drilling at the Twaiba-1 location due to damaged sustained to the rig and the uncertainty over the timing of delivery of necessary replacement parts.

Herencia Resources (HER 2.72p/£26.52m)
Following the upgrade to the Paguanta Mining Inventory in October, the company announced a significant increase to the Project’s NPV by using spot commodity prices for zinc, lead and silver as at 5 November 2010. Using a discount rate of 8 per cent, 100 per cent project value, a capital cost of US$56m and assumed gold revenue of US$1000/oz (0.26g/t at 50 per cent), the model used by Golder Associates Pty Ltd for the 2008 Scoping Study has produced an updated project NPV of US$90.4m. Golder has reviewed the new parameters of the model and believes that the input variables and results are reasonable for scoping level scenarios.
The company also conducted sensitivity studies using the revised inventory number and latest commodity prices. The Post-Feasibility Study case generated a NPV of US$139.5m and the Upside Case generated a NPV of US$139.5m. Both cases include additional capital allowances for drilling of 5,700m. An increase in tonnage and grade and improved commodity prices makes the Paguanta project promising.

IS Pharma (ISPH 82p/£29m)
The fast growing and profitable international specialty pharmaceutical company has announced strong interim results for the six months ended 30 September 2010. Revenue has risen by 10 percent to £6.5 m while gross profit has increased by 21 per cent to £4.5 m. The company has achieved a gross profit margin of 68 per cent and a pre-tax profit of £1.1 m. Its strong performance resulted from the enhancement of the product portfolio. Episil and Aquoral, the latest complementary supportive oncology products, are expected to generate more revenue in the remaining half of the financial year and beyond.  The newly launched treatment for Essential Tremor, Mysoline 50mg, will also provide sales growth for the company. The completion of the Volplex and Isoplex Distribution and Sale Agreement in June 2010 allowed the company to expand its product range even further.
Apart from strong growth figures, the company also announced the intention to pay a dividend – which is something new in the history of the company. The CEO of IS Pharma sees this as part of their growth strategy. In response to the expanding product range and the growth requirement of the company, IS Pharma announced that it has raised another £12.5m through the placing of 15,625,000 shares at 80 pence per share following the placing with Abingworth LLP in October, which raised £3.6m.IS Pharma is well positioned for further growth.

ITM Power (ITM 55p/£60.41m)
This past week, the Company has announced two further additions to its Hydrogen On Site Trials (HOST) of its high pressure refueling unit (HFuel) – Tarmac (the UK’s largest quarrying company and a leading supplier of construction materials) and The Commercial Group (UK’s largest privately owned office services company). With such a growing list of participants, the technology will certainly be put to the test and the Company will benefit hugely from the results and feedback from the trials.

Landkom International (LKI 7.5p/£32.63m)
The Ukrainian producer of agricultural commodities has completed its winter planting campaign and announced its crop sales result.
Winter planting has increased by 35 percent from 2009, reaching a total of 28,856 hectares, with the majority of the planted land (69 percent) being in the Company’s western region. Planted areas include 12,862 ha of rapeseed, 13,149 ha of winter wheat, 1912 ha of winter barley, 435 ha of mustard, 292 ha rye and 206 ha of forage crops.
The Company has benefitted from rising commodity prices over the year, with average sales prices achieved including feed wheat at $173 per tonne; sunflower at $451 per tonne and soybean at $398 per tonne on an ex works, ex VAT basis. Landkom has not sold any maize to date but is hoping to achieve optimum pricing in the future. Tighter cost control makes this possible by allowing the majority of crops to be stored so that they can be sold when the best pricing opportunity comes up.
This successful winter planting campaign will allow Landkom to achieve higher acreage for harvest in 2011. The improvement in operating efficiency and cash flow management also puts Landkom in a position to achieve higher profits.

MediaZest (MDZ 0.38p/£0.63m)*
AIM listed creative digital out-of-home advertising company and audio-visual integrator last week announced that Touch Vision Limited, a wholly-owned subsidiary, has an existing contract for the supply of audio-visual equipment to three large purchasing consortia which has been extended by a further year to 31 December 2011. The purchasing consortia are the North Western Universities Purchasing Consortium, Crescent Purchasing Consortium, and Advanced Procurement for Universities and Colleges in Scotland. Together they cover 676 institutions, with a combined annual AV spend of approximately £1.8m in the year to 31 July 2010. TouchVision is one of five suppliers under these agreements.
MediaZest exploits both digital and conventional display technologies to create products used in marketing, branding and (mainly) educational establishments. There has been a rebound in trading from February 2010 and this recovery has continued. The company is better placed than ever to see profitable growth with fast rising net cash balances. The current year (to March 2011) opened strongly following a revival in orders as advertising budgets were unfrozen and client enquiries rebounded. The completion of the cost cutting phase of the strategy is being followed by a stronger selling drive and a more realistic and commercially focused product range, all aimed at producing profits from the business.

Milestone Group (MSG 1.12p/£1.43m)*
AIM listed digital solutions and technology agency gave a trading update last week. While the Company has developed a pipeline of opportunities, these are not being converted into sales as quickly as anticipated.  That being said, the Company has though seen increased interest in the JumpStart Wireless technology and is in early stage discussions with a number of interested parties with regard to the commencement of trials of the technology.  In addition, the Company also announced that it has raised £201,969 at 1.13 pence per share from a private individual. The proceeds of the placing will be used to provide working capital and to reduce the Company’s liabilities which, as at the 30 September 2010, had reduced slightly from the interim period end.  The placing certainly puts Milestone on firmer financial footing from which to exploit the many opportunities that it has available as part of its full digital service offering.

Minera IRL (MIRL 90p/£107.53m)
Having closed its recent C$32.6m share offering, Minera has issued an additional 4,250,296 shares to its placing agents as a result of the “Green Shoe” over allocation of shares in the placing – an indication of strong interest and demand from investors. Additionally it has released its third quarter results to end September showing sales up 42.5 percent to US$7.8m; a gross profit of US$4.7m (up 47.6 per cent) although the quarter overall showed a loss of US$1.7m after tax due to the write off of previously capitalised exploration expenditure for the relinquished La Falda and Killincho projects. In conclusion a positive statement and we expect further encouraging reports from the Company over the forthcoming months.

Patagonia Gold (PGD 29.75p/£201.05m)
Further to our note in the Small Cap Wrap of 10th November 2010 where we reported the drilling results at the COSE Gold-Silver project, the Company has now announced that the construction of the 50,000 ton heap leach pad (HLPAD) at the Lomada de Leiva Project is progressing ahead of schedule with the completion of earthworks and civils.
The Project is located on the La Paloma property block 40 kilometres to the south of the town of Perito Moreno in Argentina. The first stage of the project consists of constructing HLPAD and plant which, based on 70 per cent recovery, is estimated to yield 2,200 ounces of gold for the first six metre loading. Construction of the concrete footings and base area for the processing facility is in progress and is scheduled for completion with commissioning planned for early Q1 2011.

Plant Health Care (PHC 72.5p/£38.37m)
After our timely comment on the Company in July following the June profits warning and the marketing and development agreement with Syngenta, the shares have underperformed. Despite the recent announcement of the strengthening of the relationship with Syngenta – with the signing of a research agreement to evaluate and possibly develop Plant Health Care’s Harpin protein as a foliar spray in combination with a number of Syngenta’s major products – we are still of the view that we would need to see evidence of sales growth before becoming more positive on the stock. It appears to us to be a slow growing season for the share price at the moment.

Polo Resources (POL 5.23p/£127.07m)
The takeover of Caledon by the Chinese company Guangdong Rising Assets Management Co. Ltd (GRAM) appears to be on the last lap, with the completion of GRAM’s due diligence and receipt of the advice from the Australian Government’s Foreign Investment Review Board that it has no objections to the potential transaction. Only the authority of the necessary Chinese Governmental body(ies) is required before the deal can be agreed.  Unlike some potential purchasers from China, GRAM has experience of completing international mining investments (for example they acquired a large shareholding in PanAust, the ASX quoted Southeast Asia gold and copper miner) and so should be experienced at obtaining this official go ahead.
Not wanting to rest on its laurels, Polo has already embarked on its next investment project.  The current Company has secured an option to purchase 70 per cent of the issued share capital of MinFer Holdings Limited, which owns a number of iron ore projects in a well known iron ore district in Brazil, and it is hoping to acquire the remaining 30 per cent in the near future. We would expect that once it has the balance Polo will commence an initial aeromagnetic survey appraisal of the assets in order to make an informed decision as quickly as possible as to whether to exercise the option – which has less than 90 days to run. So expect a continuing news flow from this exciting company.

Pulse Group (PGRP 1.4p/£1.26m)
PLUS listed leading digital market research agency in Asia last week held its AGM and made a statement that it was pleased to have reported a maiden profit for the year just ended. Pulse is a Malaysian based, digital marketing research agency. The group is achieving strong growth and cash generation as the 2010 results show. It is at the forefront of radical secular changes in the industry, based on the move to digital, and on its leading position in the fast growing Asian market research business. Recent major contract wins have boosted its prospects and it is attracting major international clients. The group has confirmed that it is likely to make small strategic acquisitions. Most importantly, the results show that the group’s growth strategy is being realised.
Pulse also announced a positive update on its activities yesterday, with two pieces of “new news” in it. It made reference to its current pipeline of multi-phased contracts worth US$2.2m to be carried out regionally for a major Japanese advertising agency in 2010 and 2011. The extended parts to this contract are new, having successfully completed a first stage project with this agency. Pulse also referred to the launch of the Pulse Foundation, which allows survey respondents to redeem incentives for donations to a choice of over 100 charities across the Asia-Pacific and Middle-East regions.  The charity scheme was launched last week and is a nice piece of news for Pulse. The strong trading performance in 2010 and the forecast growth have yet to be included in the share price.

Rockhopper Exploration (RKH 315p/£812.83m)
The North Falkland Basin oil and gas exploration company announced interim results for the six months to 30 September 2010. Pretax losses for the period have increased to $27.5m (2009: $1.6m loss), though this was largely due to the exploration and evaluation costs following the decision to impair the amounts capitalised in respect of the wells drilled on the Liz and Ernest Prospect- the group’s decision to change from the a full cost to a successful efforts accounting policy for the year ended 31 March 2010 has accelerated the timing of the recognition of these losses. The period also saw a placing of shares which raised cash of $68.1m, therefore helping the cash figure at period end to reach $48.4m (2009: $4.6m).
At an operational level, the Ocean Guardian drilling rig has been on hire throughout the period and has been drilling on either the licences that Rockhopper operates or has been farmed into. During the period the Company also announced that the Sea Lion well had been spudded and an oil discovery was declared on the 6 May 2010. Rockhopper recently announced the successful flow test of its Sea Lion Discovery, and funds raised during the period will enable the Company to progress appraisals and evaluation work.

Seeing Machines Limited (SEE 3.25p/£13.19m)
Seeing Machines, a developer of advanced vision based industrial systems, announced that it has been awarded another contract for its DSS driver monitoring system to be installed in the haul truck fleet at a mine in Chile. The contract includes the fit-out of 32 haul trucks at two mine sites for an existing client, though the Company are unable to announce the specifics of the mining company or the site involved as a result of confidentiality agreements. This adds to the spate of contracts won over the last 6 months, and reinforces the point that the core DSS offering continues to provide an attractive safety feature to mining companies around the world. The Company’s strong pipeline of opportunities across Australia, Africa and the Americas, both with existing and potential clients, together with the flexible application of this increasingly demanded technology, suggests great possibilities. Seeing is certainly believing.

Shanta Gold Limited (SHG 27.5p/£49.19m)
The Company has announced the appointment of Paul Heber as non-executive Director. Heber is well known and respected in the city and is also a director of LonZim PLC and Savoy Investment management (where he advises an international client base). Shanta has also released encouraging results from the third drilling campaign at Chunya, including additional holes drilled at the Black Tree Hill prospect and from Shamba, its recently discovered prospect target. With the results indicating patchy and discontinuous deposits at Black Tree and narrow and low(er) grades on average at Llunga, the best results were obviously from Shamba. All in all however, the results were positive and would indicate that an increase in the resource base is foreseeable in the future.

Silence Therapeutics (SLN 10.5p/£29.39m)
Published in a peer-reviewed scientific journal – Clinical Cancer Research, Silence Therapeutics announces positive findings on its lead RNA interference (RNAi) drug candidate, Atu027. With a proven ability to inhibit the expression of molecules that contribute to the progression of cancer and metastasis formation (PKN3), Atu027 also demonstrated the ability to inhibit various key biological processes that contribute to the dissemination and formation of pulmonary metastases in a murine breast cancer metastasis model. Being one of the most clinically advanced RNAi therapeutics in the area of oncology, Atu027 may stand out as a potential candidate for cancer treatment since metastasis is directly linked to high rates of mortality in cancer patients. The study also showed that Atu 027 appears to interrupt the metastatic processes that involve blood flow to the lung. Silence Therapeutics thus concluded that apart from modulating the tumour vasculature itself, Atu027 may also target the pulmonary vasculature.
With these promising results, we look forward to completion of its Phase 1 study with Atu027 in the early second half of 2011.

Software Radio Technology (SRT 41p/£40.29m)
SRT, the developer and supplier of maritime identification and tracking technologies reported interim figures for six months to 30th September 2010 showing a post-tax profit of £1.33m vs. a loss of £31,000 for the same period a year earlier. Subsequent to the figures, the Company has announced a placing of new shares to raise £2.5m.
SRT is seeing increasing demand for its Automatic Identification System (AIS) and the funds raised will allow the Company to accelerate planned product development and improve product delivery times. One new product, MOB (man over board), will now be launched in 2011 instead of 2012 as originally planned.
As a result of “significant” institutional demand in the placing, certain existing shareholders will be selling part of their existing holdings to various institutional shareholders at the placing price of 40p. The sellers include the Chairman, Simon Rogers, who will be selling 2.2m shares. After the new shares are admitted to trading, he will hold 14.1 per cent of the enlarged share capital.
Clearly, with the new products coming online and existing national mandates (to have the AIS), there are plenty of opportunities for the Company to grow further. One to keep a track of.

Solomon Gold (SOLG 30.75p/£86.21m)
Solomon Gold, the gold and mineral exploration company, has provided an operations update and has announced the appointment of a drilling contractor for the Fauro drilling campaign in the 100 per cent owned Fauro Island Project. UPD Solomons Limited has been selected to commence a 9000m core drilling program, which will initially focus on areas of high grade mineralisation within the broad gold zones at Meriguna. The drill will subsequently move on to Kiovakasa and Ballyorlo.
Assay results have also been very positive. At the Kiovakase Prospect, the highest gold rock chip was 50.2g/t and the highest soil gold sample came in at 4.2g/t. At the Meriguana prospect the highest gold rock chip was 48.6 g/t whilst the highest soil gold sample was 3.1g/t. The Company is currently considering suitable contractors to complete a ground geophysical induced polarisation survey over the key porphyry targets, which will be used to assist in the detection and mapping of mineral deposits.
With a spate of healthy updates, Solomon continues to provide support to its strong belief in the sites it continues to explore. Expect further updates on this one soon.

Spiritel (STP 49.5p/£8.76m)
Daisy Group  has made a cash offer of 51.5 pence per share for SpiriTel. This represents a premium of 13.2 per cent over the closing price of 45.5 pence per share on 9 November 2010. The valuation of SpiriTel’s share capital on a fully diluted basis is approximately £27.3m. Being part of the acquisition, Daisy will assume £6.1m of existing bank debt of the SpiriTel The Directors of SpiriTel consider the terms of the offer to be fair and reasonable and recommend that SpiriTel Shareholders accept the Offer
Through the acquisition, Daisy can not only benefit from the strong representation of SpiriTel in the mid-market, but also from its newly awarded accreditation of Mitel’s partnership and its £5m contract with Punch Taverns. Upon efficient integration of SpiriTel into Daisy’s business, Daisy is hoping to enhance its data hosting capabilities, its sales team and its systems and maintenance division.

Stellar Diamonds (STEL 6p/£8.36m)
AIM quoted diamond mining and exploration company focused on West Africa announced this week the commencement of a 20 hole drilling programme in the diamond bearing Droujba Kimberlite pipe in Guinea.  Stellar has signed an agreement with E-Global Drilling Corporation for the drilling programme over the Droujba , which will sample batches of 200kg of the Kimberlite core and will be consigned to the Saskatchewan Research Council laboratory in Canada  for microdiamond analysis, which will then be used to undertake diamond grade modelling work.
Karl Smithson, Chief Executive Officer, commented: “We are very pleased to commence the drilling programme on the Droujba pipe. Over the next few months we will be defining the geological model of the pipe to a depth of 150m and collecting representative samples for microdiamond analysis by the Saskatchewan Research Council laboratory in Canada.
Stellar Diamonds recently raised £1.9m through a share issue, which attracted a high level of interest not only from existing shareholders but also from a number of new investors. The recent news on the commencement of the drill programme in Droujba is one that should be appreciated by the markets – rich pickings, perhaps, for Stellar Diamonds.

Strategic Natural Resources (SNRP 15.75p/£14.82m)
SNRP has announced a restructuring and consolidation of the black economic empowerment (BEE) shareholding in its 74 per cent owned subsidiary, Elitheni Coal. Acharnian Mining, Elitheni’s wholly-owned subsidiary has entered into a conditional share purchase agreement with Rapitrade 644 (Pty) Ltd, replacing original loans. The 26 per cent BEE shareholding was split between Vuwa (21 per cent) and Mr Msutu (5 per cent). Only 4 per cent had actually been paid for (by Vuwa) with the balance being in the form of loans to Vuwa and Mr Msutu by Acharnian. The terms of the agreement are that Acharnian will re-sell the remaining 22 per cent formerly held by Mr Msutu and Vuwa (but not paid for) to Rapitrade for approx. £2,001,000 to be satisfied by the payment by Rapitrade to Acharnian of c. £1.37m and a simultaneous interest-bearing loan of c. £637,000 by Acharnian to Rapitrade.

In addition to the agreement, Rapitrade has subscribed for 10m new ordinary shares at 13p per share, raising an additional £1.37m, meaning that the Company will be in receipt of c. £2.37m cash and with a further £637,000 receivable under the terms of the loan.Finalising and consolidating the BEE holding (and getting paid for it) is a significant achievement for the Company and along with being ‘freed’ from their IPSA contract (see Small Cap Wrap 26th October 2010) puts the Company in a better position and will enable the speeding-up of the development of Elitheni. The deadline for implementation is 2014.

ValiRx (VAL 0.26p/£0.91m)
AIM listed life science Company with a focus on cancer diagnostics and therapeutics for personalised medicine last week gave a trading update and announced a placing.  The disposal of ValiBio followed the Board’s strategic decision to focus operations on building value in its anti-cancer lead drug candidates VAL 101 and VAL 102 and companion diagnostics, as well as building its home self-diagnostic businesses. VAL101 AND VAL102 continue to progress towards first-in-man trials with the support of Eurostar funding.  In parallel, during the last 12 months, the Company has launched a range of home self-diagnostic kits that screen for high prevalence conditions, such as diabetes, urinary infections, high cholesterol, among other serious conditions. The Directors are pleased to report that sales of these products are in line with expectations and continuing to show an upward trend.  Additionally, this range is being expanded in the course of the next quarter and the Directors look forward to generating incremental revenue as a consequence. In addition, the Company has raised £255,000 by way of a placing at 0.1875p per share to be able to progress more quickly the development of its anti-cancer lead drug candidates VAL 101 and VAL 102.
ValiRx’ current share price does not adequately reflect the near term potential for its commercialized and growing diagnostics business and seems to discount the innate value of its drug discovery business.  We believe that ValiRx deserves a substantially higher valuation based on the prospects for its already and soon to be launched SELFcheck and screening products and the embedded value in its budding pipeline.

*A corporate client of Hybridan LLP

The Hybridan Small Cap Wrap is a weekly review of some of the most interesting small cap stories of the past week.  Our review will usually be of those companies whose market capitalisations are less than £50m although we may occasionally cover larger companies.

10 November 2010

This week: Design Capital tables a significant contract, Polo gets a whole lot better, things are going (ba)rite for Sunrise, and Tristel is looking to clean up

Angel Biotech (ABH 0.23p/£4.88m)
AIM listed biopharmaceutical contract manufacturer has announced plans to increase manufacturing capacity and is expanding its Business Development team. This is a direct response to the continuing demand for Angel’s products and to help capitalise on growth in the EU and US advanced biologics market. Angel has seen four new projects and five contract extensions since July 2010 that total more than £250,000- this represents approximately 70 per cent of budgeted revenues for 2011 with a total forward order book of more than £4m.
To increase the Company’s manufacturing capacity, it is seeking to acquire a mothballed GMP-Standard facility which when fully commissioned will potentially increase the capacity by 5-fold. In support of this increase Angel has hired Andrew Carver and Susan McKee into its Business Development team to help the Company reach out to new companies developing advanced therapy medicinal products, such as stem cell therapies and other live biological products. Given that most of 2010 budgeted business has been signed, as has a large proportion of the business budgeted for 2011, Angel is well worth a punt.

Avacta (AVCT 0.86p/£12.43m)
Provider of innovative, high value technologies and services to the pharmaceutical and diagnostics markets announced its results for the year to 31 July 2010 and showed revenue up 120 percent to £2.07m (2009: £940,000) and an underlying operating loss reduced to £1.53m (2009: £1.81m), giving a loss per share of 0.15p (2009: 0.28p) on the increased number of shares.  The confident statement accompanying the announcement highlighted that the core contract services businesses achieved revenue growth of 74 percent to £1.64m and a year end cash balance of £1.43m (2009: £880,000). The CEO commented that sales are beginning to progress with the September appointment of Isogen as their distribution partner in Europe already bearing fruit and that the Company is “poised to transition from three years of intense product development to the commercialisation of its innovative products”.
Our only cautionary comment to investors would be that with a year end cash of £1.43m against a historic burn rate of c. £1.8m to £2m, the new acquisitions and the distribution initiatives need to generate cash quickly – otherwise the Company will be returning to the stock market to ask for more. Having said that, when the time comes we would hope that the management will have some positive news on sales growth to support a further fund raise.

Design Capital (DESC 14p/£8.9m)
AIM listed Investment Company dedicated to high-end contemporary furniture design has announced the winning of a significant contract by its Paris based subsidiary, Forum Diffusion to supply furniture to the Ministere des Affaires Etrangeres et Europeennes. Initially the contract is for €845,166, however the Company anticipates an increase of the order to approximately €1,100,000 in due course. This contract win supports the Company’s view that it will see a return to a level of sales not seen since the acquisition of Forum for €1m in April 2008. This increase in sales and a reduction in operational costs, means that we expect Forum to return to profitability in early 2011.

Epistem (EHP 390p/£30.94m)
UK biotechnology Company last week announced that it has been reappointed for up to five years to provide preclinical testing services as a subcontractor to the U.S. National Institute of Health’s Radiation Department which has been awarded to the University Of Maryland School Of Medicine in Baltimore. This UMSOM programme is funded by the NIH’s National Institute of Allergy and Infectious Diseases, and aims to identify and develop new treatments for use in the event of a radiological or nuclear incident. From the first subcontract commencing in 2006, Epistem received approximately $3.5m to develop models and evaluate novel drugs that can treat the effects of radiation damage to the gastrointestinal tract. The new five year subcontract is expected to extend and grow the scope of the collaborative relationship. Epistem’s role is to provide specialized gastrointestinal models to assess the efficacy and mode of action of new drugs entering the programme. The CEO of Epistem commented: “This fresh contract covering five years will allow us to progress successful candidate drugs, in addition to developing models to assess treatments for the delayed effect of radiation damage.”

Hutchison China MediTech (HCM 567.5p/£293.60m)
Chi-Med, the pharmaceutical and healthcare company based primarily in China, has announced that its subsidiary, Hutchison MediPharma, has raised approximately US$12.5 million via a private investment from Mitsui & Co. The money raised will be used to support continued development of Hutchison’s substantial pipeline of internally developed R&D programmes. Under the terms of the agreement, in return for the cash investment, Mitsui will receive new convertible preference shares giving Mitsui 12.2 per cent of the enlarged share capital of Hutchison MediPharma. Taro Inaba, the General Manager, Global Investment Department at Mitsui, said “we see great potential for this company and are very proud to become an investor”.
We last wrote about the Company in our wrap of 21st September 2010, since when the share price and market cap have risen approximately 34 per cent and this latest event suggests there is still some way to go.

Mariana Resources (MARL 40p/£63.39.43m)
Mariana has released positive exploration results from its wholly-owned Las Calandrias gold-silver project that has led the Company to increase its drilling campaign from 10,000 metres to 15,000 metres.  Geophysical ground studies supported numerous high priority drill targets in untested domes including a new target at Calandria Norte parallel to and 300m to the north of the Las Calandrias bonanza vein with rick chips yielding up to 116g/t gold and 65g/t sliver, a 2km x 1km dome complex extending up to 300m in depth 1.8km northwest of the Calandria Sud gold-silver deposit and a 2km x 350m anomaly within a 1.5km epithermal vein structure. John Horsburgh, Chairman, stated: “These results clearly highlight the excellent potential of the dome fields at Las Calandrias to contain multiple mineralised zones with scope for both bonanza and bulk mining gold targets.”

National Milk Records (NMRP 29.5p/£2.17m)
PLUS-quoted leading supplier of dairy and livestock services has announced a reorganisation of its share capital in order to reduce the number of shareholders on the Company’s register to a level more consistent with a company of NMR’s size. Since its formation, NMR has managed to reduce the number of Shareholders to 24,500. However, the Directors remain concerned at the number of Shareholders who appear to be no longer actively engaged with the Company. For example, of the Company’s 24,500 Shareholders, only 247 returned their proxy cards for the 2009 AGM.
The Company is proposing the Consolidation and Sub-division which will reduce the register from the current 24,500 Shareholders to around 6,500.  It will allow significant cost savings in printing and postage and will also allow them to engage with their remaining Shareholders more regularly and more effectively. It will also make the administration costs of paying any dividend in the future more appropriate to the actual distribution. The reorganisation is subject to the approval of Shareholders at a General Meeting of the Company to be held on 24 November 2010.

One Media Publishing Group (OMPP 2.25p/£2.06m)
PLUS quoted One Media Publishing Group, which is involved in Business to Business music and video rights, has signed a new music catalogue deal. One Media has acquired the rights on a royalty sharing basis for the distribution of over 300 tracks of easy listening music performed by 25 various artists. The acquisition includes performances by Englebert Humperdink, Dionne Warwick, and The Righteous Brothers, amongst others. The catalogue was acquired for an initial consideration of $6,000 plus an onward royalty. All tracks will be distributed by The Orchard, the world’s largest digital music distributor and One Media’s digital partner and soon will be available for downloading from around 250 music downloading websites, including iTunes and Amazon. Given the positive updates released over the last month, we feel there are further gains to be had by a Company that has developed the knack of signing new digital content.

Ortac Resources Limited (OTC 1.39p/£24.11m)
AIM listed exploration and development company focussed on the development of precious metal projects in Europe, announced the appointment of Mr. David Paxton as a Non-executive Director with immediate effect.  Mr. Paxton has vast experience in the mining industry. This appointment is designed to further strengthen the Ortac board as it moves into its next phase of development focussing on the Kremnica Gold Project in Slovakia.  Ortac CEO said: “David is a respected figure with extensive experience in both the gold sector and investment markets, and I am confident that his considerable industry and business acumen will prove an invaluable addition to our board.”

Pan African Resources (PAF 10.75p/£152.6m)
The Precious Metals miner which owns the Barberton Mines in South Africa and a gold exploration site in the Manica province of Mozambique has signed an agreement to commence construction of a processing plant to produce platinum group metals concentrate. The formal Chrome Tailings Retreatment Plant (CTRP) agreement with International Ferro Metals SA Ltd will enable Phoenix Platinum Mining Ltd (PAF’s wholly-owned subsidiary) to construct and commission a CTRP in the Bushveld Complex in the North West Province, 50km east of Rustenburg.
A CTRP is a surface processing plant that extracts platinum group metals comprising 60.9 per cent platinum, 21.9 per cent palladium, 16.9 per cent rhodium and 0.2 per cent gold, from chrome tailings. The construction of the CTRP will begin immediately, will full production anticipated by end 2011. The consideration (£7.2 million), payable to IFM, will be funded from existing cash resources. CEO Jan Nelson said: “This project is in line with our stated strategy of only developing low cost, high margin and long life projects. The completion of the CTRP will bolster our operating cash flows and enable our company to continue its policy of dividend payments without hampering further growth.”

Patagonia Gold (PGD 30p/£202.70m)
The Company has announced “exceptional” drilling results on the Cap-Oeste South East (COSE) Gold-Silver project in the Santa Cruz Province, Argentina. High grade gold and silver continues to be encountered on the COSE project located 2 kilometres along strike from the Cap-Oeste gold and silver resource including drill hole CSE-047 which intersected 5.00 metres at 162.78g/t gold and 8,622.0g/t silver. The mineralization remains open in all directions. The share price closed at 21.25p on the day before the announcement. Further confirmation of the ‘exceptional’ results should be well received by the market.

Polo Resources (POL 5p/£121.48m)
Following the resignation of Stephen Dattels as Non-Executive Director from (and therefore as Polo’s representative on) the board of Caledon Resources, we were not surprised to see the announcement of a firm bid approach for the Australian coal miner at an appealing level  – although the timing was a little quicker than we would have thought. The approach at £1.12 per share by Guangdong Rising Assets Management Co., Ltd (which is subject to Chinese Authority approval) is a significant improvement on the 68p bid approach in the summer. With just over 62m shares and £2.5m of the convertible loan note (convertible at 47.5p), the rise in the Caledon share price from 71p (when we last wrote on Polo on November 2) to 98p has added over £18m to Polo’s NAV – or nearly 20 percent to its market capitalisation on that date. Polo has also released its results for the year to 30 June 2010 which highlighted the current NAV per share of 6.86p and a cash balance of US$67m. With the share price of GCM Resources (Polo’s other significant investment) also advancing, there would seem to be more to come for shareholders.

Sarantel Group (SLG 1.6p/£4.65m)
Sarantel has received production orders for its new second-generation Iridium antenna from NAL Research Corporation who will incorporate it into the new Shout Nano which is a really cool handheld, global, two-way satellite messaging and personal tracing device.  A few months ago, Sarantel received production orders for Inmarsat’s new phone.  When performance counts, communication device manufacturers come to Sarantel for their antennas.  Maybe Apple should take notice.

Sunrise Resources (SRES 1.32p/£3.30m)
Sunrise Resources is a diversified mineral exploration and development company with an experienced and respected board of directors. The Company’s basic modus operandi is to explore for a range of minerals in different geographic regions across varying stages of resource development.
The Company recently announced the results of exploration and metallurgical testing for Derryginagh, County Cork, Eire, detailing both the identification of “significant additional strike potential well beyond the limits of the existing mine workings” and “high grade barite concentrate meeting the chemical specifications for the highest value natural barite fillers” from samples taken from the existing mine.  The Company is understandably excited about the project’s prospects. Taking the Company as a whole, Sunrise appears to be a small nimble prospector that has accumulated not only some apparently highly prospective real estate, but also the means to pay for resource development through mining the barite “cash crop” – thereby alleviating the need to resort to tapping the market for exploration and development funding. We are excited about the prospects of this mining minnow and will be avid followers.

Tristel (TSTL 63.75p/£21.13m)
Manufacturer of infection control, contamination control and hygiene products, announced that it has raised £3.9m through the issue of 6,842,105 shares at 57p per share. The placing appears to have been timely given that only last month Tristel issued a set of very healthy final results for the year to 30th June 2010, with revenue increasing by 28 per cent to £8.75m and profit before tax increasing by 34 per cent to £1.72m.

With the Company looking to grow its global operations, the recent fund raise should help it to realise its ambitions. Production capacity at the Company’s Snailwell facility is set to be doubled, whilst it intends also to manufacture sterile packed products (for use in clean room environments) and expand into the Pharmaceutical, Cosmetics and Toiletries market having recruited a sales team in this area earlier on in the year. Funds will be used also to reduce the Company’s bank borrowings and restructure royalty payments (it currently pays a royalty of 5 per cent of net sales to Bruce Green, which it intends to halve through a one-off payment of £700,000 whilst also introducing a fixed term for the contract and eliminating all consultancy fees). Whilst the Company has a strong foothold in the UK, international sales are becoming an increasing focus for the Company in its expansion path, having recently started sales in the German market, and having gained regulatory approval for sales of a number of its products in China. With healthy performance for the year and a placing that was heavily subscribed (a number of directors also participated), Tristel looks to be in good control of its prospective opportunities.

Wasabi Energy (AIM admission on 3rd December 2010)
This renewable energy company has announced a £4.9m placing at 1.1p per share, and AIM admission, which is due to take place on 3rd December 2010 (the placing shares represent some 23.8 per cent of Wasabi’s existing share capital). The Company is listed on the Australian Stock Exchange, though its intention to place on AIM is one that we think will help diversify the Company’s investor base. Wasabi invests in projects and companies that offer potential solutions to global sustainability challenges and has taken a number of strategic positions in innovative energy and resource based ventures. These include a 94.9 per cent stake in Global Geothermal Limited, a 50 per cent stake in Aqua Guardian Group and a 23.3 per cent stake in Australian Renewable Funds.
Whilst the bulk of the proceeds will be used to commercialise the Kalina Cycle technology, the Company also intends to set aside £1.2m for future working capital, whilst spending smaller amounts on repaying and providing (to Aqua Guardian Group) loans. The business model appears most fascinating and we look forward to seeing how it progresses on AIM.

Goldman Sachs initiates coverage of E&P Stocks
Goldman has initiated coverage of a number of UK E&P stocks and sees 47 per cent average upside to its expanded universe, citing high return potential and a pick-up in M&A activity. Goldman selects companies with high oil price leverage and exposure to unconventional assets. AIM stocks among the newly-covered names include: Nighthawk Energy (HAWK), initiated with a BUY recommendation; Amerisur (AMER), BUY; Cove Energy (COV), NEUTRAL; Desire Petroleum (DES), BUY; Ithaca Energy (IAE), NEUTRAL; and Rockhopper (RKH), BUY .

*A corporate client of Hybridan LLP

The Hybridan Small Cap Wrap is a weekly review of some of the most interesting small cap stories of the past week.  Our review will usually be of those companies whose market capitalisations are less than £50m although we may occasionally cover larger companies.

02 November 2010

This week: This week: Arian has scope for silver lining, Ascot off to the races and Encore, Encore, two new licenses

African Minerals (AMI 444p/£1210.24m)
The Company has updated again on progress on the due diligence process at its Tonkolili project in Sierra Leone. AMI has been informed by Shandong Iron & Steel Group that Shandong is making progress on the due diligence process but both parties have agreed to extend the date for completion to November 10th. Completion had previously been expected by 20th October. On the basis that the target date of 20th November for signing the Subscription Agreement and Off-Take Agreement was based on the due diligence being completed by the October date, it is reasonable to assume the signing won’t take place in November. In their September update, the Company said that the due diligence was progressing “slower than planned” and cited logistical issues of coordinating the process between China, Europe and Sierra Leone. It would appear those ‘issues’ are still present. All that said, as the revised date is just over a week away it would appear that the DD is indeed close to being completed and further signings/progress should indeed be imminent. The market will be keenly awaiting the announcement.

Arian Silver Corporation (AGQ 19.25p/£51.55m)
AIM listed silver exploration, development and production Company with a focus on projects in the silver belt of Mexico last week reported that commercial production has commenced at the Company’s 100 per cent-owned San Jose mine in Mexico, with ore being stockpiled for delivery to the mill. New underground development to reach the Santa Ana block, the first of three target blocks identified for the contract mining programme, is currently progressing well. It is anticipated that the first transportation of the Santa Ana material to the mill will take place in approximately three weeks.  Arian recently raised gross proceeds of £3.9m at 18p per share and expects positive cash flow by the last quarter of 2010. Arian Silver’s greatest potential lies in the scope, through further drilling and exploration, to add significantly to its assets in the ground. Resources identified so far relate to only 10 per cent of an identified 20 km of silver veins (also containing economic amounts of lead and zinc) at its flagship San Jose mine.  The mining plan based on the present resource and which will extract only the highest grade ores will generate income for four years, but this should be sufficient to finance most of the drilling required to expand the resource by a substantial amount, perhaps 10-fold, providing significant long-term upside potential for the shares.

Ascot Mining (ASMP.PL 26p/£10.58m)
Gold production has begun at Ascot Mining’s Chassoul Mine in Costa Rica.  In recent days the Company updated the market that the commission period following a trebling of the milling capacity to 150 tons per day at the Chassoul Mine has been completed and that the plant is functioning well. Production is targeted to hit 1,200 ounces of gold per month within in sixty to ninety days. The board pointed out that the pouring of dore gold is planned for the third week in November and then continuing at regular intervals. Further increases are planned through the delivery of supplementary ore from Ascot’s other nearby mines. At the current gold price and production costs of well under $500 an ounce, Ascot could make a $1m a month after costs, which makes the market capitalisation of £10.6m look far too low. In the past the Company may have disappointed investors but the shares have begun to move upwards and now seem to beg the attention of investors. Ascot Mining off to the races.

Avacta (AVCT 0.94p/£13.5m)
Avacta (a provider of innovative, high value technologies and services to the pharmaceutical and diagnostics markets) announced an order from the world’s largest biopharmaceutical developer for an Optim 1000 system. Optim is the Company’s analytical technology, filling a significant gap in the market by providing detailed analysis using only very small sample volumes and designed to reduce risk in biopharmaceutical development and help drug companies bring their products to market quicker and at lower cost. For competitive reasons, the name of the customer was not disclosed. As part of its sales drive in the key US market, Avacta has agreed also to place Optim units into the biopharmaceutical research laboratories at the prestigious Universities of Kansas and Colorado. Both universities interact extensively on a commercial level with the biopharmaceutical sector in the US and are highly influential in this research area.  These units will be applied to commercial projects and to train scientists from US biopharmaceutical companies raising the profile of Optim and hopefully aid sales generation.

Berkeley Mineral (BMR 4.48p/£26.52m)
BMR’s share price has been making erratic but upward progress since our comment on 11th May 2010 at 2.28 pence, as the company continues to wrap up the contracts it is signing for the Kabwe minerals dump. It would appear that there seems to be no reason why the shares won’t reach the 8p or so that analysts were forecasting, on a DCF basis, when zinc prices were some 15 per cent below today’s level.  But while 8p is the correct valuation for some 550m shares in issue, there are now over 600m as institutions take up the 3p warrants they received when subscribing a few months ago at 1.5p. So there is a danger they will cash their profits some time soon.

Cluff Gold (CLF 115p/£141.41m)
AIM listed West African-focused gold mining company, has announced a £9.375m private placement by Macquarie Bank Limited. The placing price represents a premium of 14.2 per cent to the closing middle market price of 102 pence per share. As a result of the Placing, and following Admission, Macquarie will hold a 6.14 per cent interest in the issued share capital of the Company. The funds will be used to implement a more aggressive exploration drilling campaign targeting the significant sulphide potential at both Kalsaka and Angovia, whilst increasing the mine lives at both projects, and further developing the exploration opportunities at Baomahun. With its breadth and experience in the mining sector, Macquarie’s investment is a vote of confidence in the Company and the quality of their assets.

Desire Petroleum (DES 92p/£314.9m)
Desire Petroleum, an oil and gas company wholly focused on the North Falkland Basin, saw its share price gush upwards by 50 per cent (to just over 100p) on Wednesday of last week as speculation that the Company had struck oil at their Rachel well swirled around the markets. This despite the fact that the Company had announced only 5 days earlier that it didn’t find any oil at the prospect. Investors have been enthused by Falkland’s exploration since May of this year when Rockhopper (RKH) announced that it had struck oil at its Sea Lion prospect. On Thursday of last week the Company announced that the Rachel sidetrack well had reached its measured depth of 3,418 meters on Wednesday and the process of pulling out of the drill hole was underway and, once that was complete, logging operations would commence and an announcement would be made when the logging results are known. On Monday of this week, the Company announced that, due to wellbore stability issues, it was not possible to reach the target depths in the first wireline logging run. The hole is now being cleaned out ready to make a further attempt. The share price has drifted back from the exuberance of last week but not that much really, given the hope vs. fact scenario.

Discovery Metals (DME 74.5p/£225.14m)
In our Small Cap Wrap of 30th March 2010 we mentioned that the Bankable Feasibility Study (BFS) at its Boseto Copper Project in north-west Botswana was expected and that, along with other news flow, should augur well for the share price which at the time was 47.5p. The Company announced last Friday  that the BFS is now completed and presented an NPV (5 years) at $251million averaging 34,400tpa of copper production at a C1 cash cost of $1.28/pound. The Boseto Development Plan has an NPV (15 years) at $375 million averaging 36,400tpa of copper production at a C1 cost of $1.23/pound. The payback for both studies is less than two years after production commences which is scheduled for 1H 2012. Mobilization of the Boseto site access road contractor will commence “within days” and the (fixed-price) plant construction contractors, Sedgman, were given notice to proceed.
The Initial Ore reserve statement released 21.8 million tons at 1.4 per cent copper and 18.2 grams per ton silver.The seven Ngamiland prospecting licenses, which include Boseto, were renewed for a further two-year period to September 30th 2012.Discovery Metals has A$36.3 million cash and no debt. With these announcements and work ‘on schedule’ the future continues to look bright for Discovery.

Eden Research (EDE 11.5p/£7.10m)
Leading UK agrochemical development company, which is focused on the development and commercialisation of terpene-based encapsulation technology for agricultural and non-agricultural uses, announced that it has signed an exclusive licence with Stockton Agrimor AG based in Switzerland for its nematicide product across Latin America and Mexico. The Stockton Group is a company that operates worldwide to develop and distribute high quality crop protection products. Eden will receive an upfront licence fee of $125,000 within the 12 months plus an annual royalty payment upon the commencement of sales.
Clive Newitt, Managing Director of Eden Research, said:
“Further to the announcement of the agreement with Certis Europe BV, the licence agreement with Stockton means that we have tied up another significant market for our nematicide. This leaves the USA and Canada to be out-licensed for which we are already negotiating with a number of potential partners…”
Last week the Company announced that it felt it was in a position to move to the AIM market during 2011, which is certainly bolstered by the news of this licence deal that demonstrates confidence in the Company’s product and provides for a potentially healthy stream of royalty payments.

Encore Oil (EO. 115p/£336.08m)
In the recent 26th Seaward Licensing Round EnCore has been offered two licenses covering six blocks.  These licenses have been offered under traditional terms with a drill or drop option.  EnCore intends to become operator of all blocks with 100 percent equity in those blocks in the proximity to the Catcher oil discovery and 50 percent equity in those blocks in proximity to the Tudor Rose heavy oil discovery and the Buffalo prospect.

Faroe Petroleum (FPM 177p/£309.02m)
AIM listed independent oil and gas company focusing principally on exploration, appraisal and undeveloped field opportunities in the Atlantic margin announced that it has been provisionally awarded four new exploration licences west of Shetland under the UK 26th Licensing Round. Grouse is a large structural prospect post-basalt in a new exciting exploration play in the west of Shetland area. Balblair and Ardberg are large structurally controlled prospects on the north Corona Ridge. Aileen – the west of Shetland Traditional licence is situated to the east of the Company’s Tornado discovery.  Aileen is a significant prospect in a relatively unexplored play on the west side of the giant Clair field. Faroe has major equity interests in these new licences and they are in strategically significant locations, in which the team has considerable knowledge and in particular on the Corona Ridge where they had exploration success last year with the Tornado discovery. The new licences are continuing evidence of the team’s relationships and ability to create successful and exciting licence applications.

Herencia Resources (HER 1.35p/£13.14m)
Continued surface sampling at Herencia’s Doris prospect at the Paguanta zinc-lead-silver-gold project in Northern Chile has generated more high-grade copper and silver assay results.  Some samples returned assay results of up to 5.1 percent copper and 359 parts per million silver in the western part of the target, some 400 meters away from the previously announced high-grade surface assay results.  Doris is fast becoming a high priority copper-silver drill target for Herencia, and the company is planning a geophysical survey to commence possibly as early as December.  The Doris prospect is in addition to the company’s Patricia zinc-lead-silver-gold discovery which is currently the subject of a feasibility study.

Ithaca Energy (IAE 140p/£356.89m)
Listed in London on AIM and in Canada on the TSX, Ithaca Energy Inc and its wholly-owned subsidiary Ithaca Energy (UK) Ltd, an independent oil and gas company with exploration, development and production assets in the UK sector of the North Sea, announces that it has been successful with its application in the latest (26th) round of the UKCS (UK Continental Shelf) Seaward Production License Round, thereby expanding the Company’s portfolio in the Greater Stella Area. The Company only applied for one block and has been awarded Block 29/10d and is a neighbor to the Hurricane discovery (Block 29/10b) and the Stella and Harrier discoveries (30/6a). Ithaca has indentified one large structure within the block, known as Helios, which was drilled in the late 1960s when gas and condensate was recovered from the Andrew sand formation, the equivalent and principal reservoir of the Stella discovery. More work is needed to define an appraisal well on Helios. Extensive 3D seismic data has already been acquired over the block and the Company has 2 years to decide whether to drill or drop the block.
Joint venture partners in the application for the block were Ithaca (68.33 per cent) and Dyas UK Ltd (31.67 per cent). (Dyas is a wholly-owned subsidiary of the largest privately owned conglomerate in the Netherlands, SHV Holdings NV.)

ITM Power (ITM 54p/£59.32m)
Another week, another participant for the Company ‘s Hydrogen On Site Trials (HOST) of its high pressure refueling unit (HFuel), with Southampton City Council being the latest addition and third local authority to join the group.  In addition, the Company signed a Memorandum of Understanding with the Building Research Establishment (“BRE”) to progress its development of hydrogen technology for the building industry. By integrating the design of hydrogen energy systems into the building design process, ITM Power and BRE will identify building solutions that are truly green. It is expected that zero carbon footprint home designs and a demonstration home will result from the collaboration. The above news and the announcement of share purchases by the CEO, Dr Graham Cooley and NED Professor Roger Putnam should be positively received by shareholders.
Additionally, the Company has received a £108,000 grant from the Carbon Trust towards development of fuel cells as a result of excellent power density results achieved from its patented hydrocarbon membrane materials. Carbon Trust’s analysis has shown that increases in power density of a fuel cell offer the greatest opportunity for fuel cell system cost reduction. The grant is providing funds towards the cost of a five month project which aims to demonstrate the performance across the same family of materials in a fuel cell. ITM will also benefit from accessing the Carbon Trust’s knowledge and industry network. ITM is now seeking partnerships with commercial end users to provide input to the development process.

LiDCO Group (LID 18.25p/£31.75m)
LiDCO recently announced their results for the six months to 31 July 2010 highlighting a 7 percent increase in sales to £2.66m (2009: £2.29m) with revenues excluding the USA (which was skewed by a large stocking order in 2009) growing by 33 percent. Gross profit margin was up 19 percent to £1.80m with a gross margin of 68 percent (2009: 61 percent) and the overall operating loss was reduced significantly to £0.58m (£1.19m). CEO Terry O’Brien commented “With sales up 7 percent in the first half and costs reduced we continue our progress towards profitability. We expect the second half to be stronger still and the outlook for sales growth remains very positive.” Although cautionary tones were applied to market conditions in Continental Europe, it is the UK and USA markets that are of most significance to the Company – as they accounted for 74.5 percent of total sales in the half year – and for these areas, the comments on future prospects were encouraging for shareholders, with particular mention of the US sales pipeline building momentum.

Mariana Resources (MARL 37.25p/£59.03m)
South America is increasing as an area of interest for mining investors. However, despite its history as a notable source of metals (both precious and base), the Continent is relatively under-represented in the junior mining and exploration sector on AIM and is of less interest to analysts and investors as a result. Thus it would seem advantageous to us to increase the number of companies we review that operate in this region, to uncover undervalued situations.

Mariana Resources Ltd is an exploration and development company with an extensive portfolio of gold, silver and copper projects in Argentina and Chile. In the Deseado Massif epithermal gold-silver district in the Santa Cruz province of southern Argentina, the Company has the Las Calandrias gold-silver discovery, a 70 percent interest in the Sierra Blanca silver-gold prospect, a joint venture (49percent) with Hochschild Mining (51 percent) at Los Amigos and a 160,000hectare prospective exploration portfolio. The Deseado Massif hosts several advanced projects and major mining companies, including AngloGold Ashanti, Pan American Silver and Goldcorp of Canada. In the Catamarca Province in Northern Argentina, Mariana has an option to acquire the La Borita porphyry copper prospect, whilst in north-central Chile the Company has a joint venture with the US based international mining and natural resources company Cliffs Natural Resources Inc., to explore for Iron Oxide-Copper-Gold deposits (‘IOCG’) along the highly prospective Atacama Fault Zone in a 92,000km² area that includes the 44km² Buenaventura and 46km² Perro Chico IOCG projects.

Mariana has a number of exploration initiatives underway, including a 10,000m drilling programme for the Las Calandrias project, a 2,000m drill programme of the Buenaventura IOCG deposit and exploratory drilling at La Borita copper prospect, Catamarca, North West Argentina. So expect a steady stream of news flow over the coming months (the latest news is of a new 600m target trend identified at Las Calandrias parallel to the La Calandria Vein that yielded float sample assays of up to 116g/t gold and 65g/t silver) . Finally, Management has stated that it intends to list on the TSX in Q4 2010/Q1 2011. All in all, there could be an exciting few months ahead for the company and its shareholders.

Max Petroleum (MXP 19.5p/£88.06m)
AIM listed oil and gas exploration and development company focused on Kazakhstan, has announced that the UTS-1 exploration well on the Uytas prospect has reached a total depth of 827 metres. Electric logs and oil shows observed while drilling indicated potential pay zones in the well, including eight metres of estimated net oil pay in the Jurassic formation between 331 and 339 metres in depth, and six metres of estimated net oil pay in the Triassic section between 785 and 800 metres in depth. The Company expects to commence testing the well in approximately one month using a work over rig upon receipt of the required government approvals. After running production casing in the well, the drilling rig will move on to drill the Sekir West prospect. This testing should verify what the Company believes could be a significant post-salt discovery.

Media square (MSQ 12.75p/£4.61m)
Media Square, the marketing Company, announced interim results for the 6 months to 31st August 2010. The Company has benefitted from an 8.9 per cent increase in revenue to £25.6m (2009: £23.5m) and reduced its pre tax loss to £1.5m (2009: loss of 2.87m). Broken down across the Company’s segments, Advertising, PR & Research continues to drive the majority of revenue growth (17 per cent growth to £14.9m), though the Design segment took a downward route (8.8 per cent decrease in revenue to £5.2m). Whilst the Company continues to operate a high net debt amount, which currently stands at £20.5m, it has been able to sign a new bank facility that provides preferable terms.

We last wrote on the Company, just under a year ago when we noted the difficulty faced by the Company as a result of the downturn, though these interim results demonstrate that the restructuring programme (enacted in 2007) is certainly leading the Company in the right direction.

Minera IRL (MIRL 83.5p/£72.51m)
Minera is listed on AIM, the TSX and the Peru Stock Exchange in Lima. Its aim is to build a network of mines across Latin America and become a mid-tier gold producer. In furtherance of this goal, it is endeavouring to extend the mine life and optimise production at its Corihuarmi deposit in Peru, develop the Don Nicolas gold resource within the Deseado Massif, Santa Cruz, Argentina through to production (targeted for late 2012) and prove up the highly prospective early stage Ollachea prospect, also in Peru.
Recently the Company announced the Escondido discovery in Patagonia, situated along the lease boundary with Mariana Resource’s Calandria Sud discovery, where a gold and silver outcropping breccia occurrence of some 700 metres in length and approximately 100metres in width was uncovered. Like Matriana Resources, we expect a flow of positive news over the forthcoming months.

Plexus Holdings (POS 55.5p/£44.5m)
Plexus is expanding its oil services business to Australasia with a contract to supply Apache Energy Australia with the POS-GRIP wellhead technology and mudline casing support equipment.  After the recent BP disaster in the Gulf of Mexico there is an increased awareness and demand in the industry for safer and improved operating practices, and Plexus’ innovative wellhead engineering technology is seen as a solution.  With Apache as an anchor customer we expect Plexus to be able to build a substantial business in the region.

Polo Resources (POL 3.98p/£96.7m)
It appears that Polo may have a win-win situation with regard to its investment in Caledon Resources – either the coal company is taken over, or it achieves a historically high level of ongoing coal production. Caledon Resources, 27.64 percent owned by Polo Resources, issued their September quarterly update detailing a 34 percent quarter on quarter increase in coal production. Additionally an ongoing target production rate of 700kt per annum (58kt per month) was stated as being sustainable – although December will be lower due to power infrastructure and haulage system upgrades. A production rate of this level would be welcomed by investors who have been disappointed previously by the company undershooting stated targets. Probably more importantly for most shareholders is the additional statement that Caledon remains in discussions regarding an indicative approach for the whole of the issued share capital of the company.  As a result of these ongoing discussions, Polo has agreed to extend the A$4m and £18m loan facilities to Caledon in return for an additional facility fee of £550,000.

Rockhopper Exploration (RKH 306.25p/£589.65m)
Rockhopper’s shares continue on their roller-coaster – this time as a side-show of Desire’s drilling on the next-door well, Rachel. Having proved dry on a direct vertical, Rachel drilling has been ‘side-tracked’ to what Desire thinks is a better-looking target.  Last Wednesday Desire reported drilling complete and ‘tests underway’, but on Monday November 1st, Rockhopper reported that drill problems had prevented achieving target depth. So, for the last part of the week, both shares gyrated as rumours abounded that rig personnel were suggesting Rachel had shown ‘something’, and this week will nervously await a re-drill! All we can say with certainty is that anything might happen in the next weeks to wrong-foot whatever we write here.
Meanwhile, Rockhopper has announced that its seismic programme to re-evaluate the field will not complete until April next year. That announcement seems a recipe for yet more share gyrations, although – to regain some objectivity – it was reported last week that most of the 7 analysts following Rockhopper think its present share price is underpinned by what it has found so far. One or two are suggesting also that the geology of the N Falklands basis still has a lot of potential for more discoveries. Since we last wrote on the Company a week ago, the market cap has increased by over £15m.

Touch Group (TOU 1.62p / £2.63m)*
AIM listed international business-to-business publishing group last week announced that it had formed a licensing agreement with Doctors.net.uk, the UK’s largest and most active network of medical professionals. The agreement will provide Doctors.net.uk’s over 180,000 members with access to articles and content, across the majority of key clinical specialities that are published by the Company’s range of healthcare journals and websites. The agreement will mean enhanced UK circulation of Touch Briefings’ pan European and US journals. Touch produces in total 62 journals, 44 of these have been produced for over three years. The total “averaged” annual revenue figure for these 44 journals is in excess of £2.7m.  In addition, Touch is generating reprint revenue from these journals which this year alone will be in excess of £750,000. We keep watch for further updates on the Company’s trading, certainly the worst is behind it, and it can look forward with renewed confidence.

Tower Resources (TRP 3.58p/£36.11m)
Tower Resources, the oil and gas exploration company with interests in sub-Saharan Africa, principally in Uganda and Namibia, announced that it has raised £660,000 through a placing of 22 million shares at 3 pence per share. We anticipated the raise last month when we wrote on the Company as it was looking to raise funds to meet the projected cost of working capital requirements- which is especially important given the important and positive developments made by Tower recently.   In Namibia, licence 0010 has been completed and the quality of the data is deemed excellent- independent experts have confirmed the world class potential of the prospect and a well may now be drilled within the next 18 months. Such prospects are extremely rare in the industry. Total EMV for Tower’s 15 percent share of Licence 0010 has been estimated as $696 m (£0.44/share). In Uganda the EA5 licence still has significant potential value for shareholders, as the second well results in Uganda provided sufficient reasoning for the Company to carry on into the third and final exploration period.  Particular interest should also be paid to the fact that a number of institutional investors have participated in the placing, as have some of the Company’s directors- Peter Taylor, Peter Blakey and Jeremy Asher purchased 3.05m, 3.05m, and 1.5m shares respectively. Investors take a great deal of comfort from management participation in Company placings, and we see no reason why this should not be the case here. This is one company with a great deal of resource.

Verona Pharma (VRP 10.25p/£24.47m)
AIM listed Biotechnology Company focused on the research, discovery and development of new drugs for the treatment of chronic respiratory diseases, has initiated its clinical trial of VRP700, an innovative treatment for chronic cough, in Florence, Italy, with the treatment of the first patient. The trial is expected to be completed during the first quarter of 2011, depending on patient recruitment and the efficacy of the drug. The mechanism of action of VRP700 is presumed to involve the suppression of cough initiating signals originating at cough sensory nerve endings located in the lungs via a novel mechanism. If the trial is successful, Verona will work to identify and develop a second generation of compounds with an improved profile.
Verona has increased over 2 pence per share since we last wrote on the Company in June, which is indeed £5m onto its market cap. Verona currently has three potential drug treatments under development and continues to look for other possible drug development opportunities aimed at the respiratory and inflammatory diseases markets. Management is very credible and despite the share price rise, the company still looks extremely undervalued.

*A corporate client of Hybridan LLP

The Hybridan Small Cap Wrap is a weekly review of some of the most interesting small cap stories of the past week.  Our review will usually be of those companies whose market capitalisations are less than £50m although we may occasionally cover larger companies.