18 January 2011
This week: Chariot races ahead, Lifelines preservation, Monitise starts monetising and Sirius gets serious on Potash
African Eagle (AFE 16P / £61.56M)
African Eagle announced (11th January) a significant resource update at its Dutwa nickel project in Tanzania. The upgrade, by independent geological contractors the Snowden Group, places more than three quarters of the Wamangola resource (the larger of the two nickel deposits that make up the Dutwa project) into the indicated category under the JORC code. This is the first indicated resource at Dutwa and signifies a leap forward for the project. Indicated resources can be used to derive formal mineral reserves for the feasibility study now underway, due for completion by Q3 2011. Highlights of the upgrade include: 46.2 million tons or Mt (of the total Dutwa project 98.6 Mt) at 0.93 per cent nickel and 0.03 per cent cobalt now in the JORC indicated category.
Baobab Resources (BAO 18p / £29.91m)
Baobab resources has announced from its Tete iron/vanadium/titanium project in Mozambique that drilling has delineated substantially more mineralization than originally anticipated and consequently additional drill holes are being designed to further test the down dip and along strike extensions.
Due to the wet season arriving early, drilling operations were suspended by mid-December 2010, prior to completing the intended drilling programme. Technical teams and drill rigs are on standby to re-commence as soon as the weather allows. Analytical results from a four-hole drilling cross section in the northern portion of the South Zone prospect show a broad package of heavily mineralised magnetite was delineated. The geophysical survey of the newly-acquired ground to the east of the Massamba Group trend is on schedule to commence during January 2011.
Chariot Oil and Gas (CHAR 227.5p / 329.11m)
The African focused oil and gas exploration Group, which is the wholly owned subsidiary of Enigma Oil & Gas (Pty) Limited, announced an increase of a further 3.1 billion barrels in its estimate of gross un-risked mean prospective resources at its southern license 2714A (the group currently holds licences covering eight blocks in Namibia) Offshore Namibia. Further technical work, including remapping and seismic attribute analysis on the 3D seismic data in which Chariot has a 50 percent interest, identified additional resources. They have therefore significantly increased the estimated chance of success on this prospect from 16 percent to 20 percent. Chariot continues to evaluate other plays in the block, particularly deeper Barremian targets where additional anomalies are indicated. If drilling confirms the predicted oil reserves, Chariot will have very good prospects indeed.
Faroe Petroleum (FPM 216p / £458.68m)
AIM listed independent oil and gas company focusing principally on exploration, appraisal and undeveloped field opportunities in the Atlantic margin announced that it is currently in discussion with Korea National Oil Corporation about ways in which the two companies can cooperate after it purchased a 23 per cent interest in Faroe. KNOC is seeking to increase its production base, which Faroe believes it can help with. A similar agreement is in place with Scottish & Southern Energy which sought to benefit from Faroe’s expertise to identify and acquire producing oil and gas assets in the North Sea.
Last week the Company also announced that it had acquired a 28 per cent interest in the P218 and P588 licences of the undeveloped Perth oil field, which is located 185 kilometres north east of Aberdeen in block 15/21c. The field has been remained undeveloped since its discovery by well 15/21a-7 in 1983, and Faroe is working closely with Deo Petroleum to deal with technical challenges relating to the development of the field.
Faroe has developed into a business that can offer strategic benefits to different types of investors and its acquisition of interest in the P218 and P599 licences demonstrates the Company’s proactive approach to furthering the business.
Frontier Mining (FML 7.38p / £137.24m)
KazCopper LLP, a subsidiary of Frontier, recently announced the formation of a project group to perform the Environmental Social Impact Assessment on its Benkala project. The group is led by Wardell Armstrong International and was formed in late December 2010. It is expected to complete its report in February. This is a key step to ensure that the Benkala project operates in compliance with Equator Principles, a voluntary set of guidelines for determining, assessing and managing social and environmental risk in project financing, which has become a globally-recognised benchmark adopted by most international banks. Frontier has slipped a tad since we wrote on it last week, perhaps after recent share issuances. It is worth keeping a close eye on its merger with US Megatech BVI. In our view, a predicted bullish market in copper for 2011 will offer enormous opportunities for investment.
Lifeline Scientific (LSI 227.5p / £19.19m)
Revenues continued to accelerate at Lifeline’s Organ Recovery Systems business throughout the second half of 2010. In a trading update, Lifeline reports that it expects revenues for the period to come in ahead of market expectations at approximately $23m and that profit before tax is likely to be significantly ahead of expectations due to the high operational leverage. Apparently, not only is the number of LifePorts in use increasing, but the usage and associated disposable sales per unit is also increasing. Lifeline is the world’s leading provider of innovative products and services for organ preservation servicing more than 100 renal transplant centres around the world. The Company’s product development efforts are focused on extending the product line with devices for the preservation of the liver, pancreas, heart and lung of which a liver transporter is the most advanced product.
Monitise (MONI 20.25p / £141.47m)
Monitise, which provides an end-to-end solution enabling banks and their customers to undertake banking transactions via mobile phones, released a short trading update with specific reference to the fact that Monitise Europe reached month-on-month cash break-even, in line with targets given during the time of the full-year results for the year to end-June 2010.
Further, the Company announced that it has over 3 million registered customers for its live services, that customer adoption of Smartphone apps continues to grow and that the Global Platform continues to be strong having processed 13 million transactions in December alone.
The last year has seen a number of positive updates and this little update is something that we continue to appreciate.
Nostra Terra Oil and Gas Group (NTOG 0.40p / £6.20m)
Further to last week’s Small Cap Wrap where we reported that NTOG had signed an agreement to acquire a 1 per cent interest in the Vintage Hills prospect, the Company has now announced that it has entered into a second agreement with New Century Exploration Inc (NCEI) to acquire a 3.64 per cent working interest before payout (3 per cent after payout) in the Nesbitt prospect unit, which is located within the producing Woodlawn field in Harrison County, Texas and which will also be operated by NCEI. The Nesbitt prospect is a development project targeting the Middle Pettet limestone formation. Most of the production to date from Woodlawn has been from the Lower Pettet “Crane” Zone. Previous drilling on the Nesbitt acreage has indicated that the Middle Pettet is also oil-bearing and much thicker, though less porous and permeable, that the Lower Pettet, making it an ideal candidate for horizontal drilling. Drilling of the new well is expected to begin in Q1 2011. NTOG’s participation in the first well allows the opportunity to participate in the additional wells on the lease and a further two development wells are planned to fully exploit the Middle Pettet within the Nesbitt unit. NTOG had paid a cash consideration of $52,291 in respect of its budgeted participation in the drilling of the first Nesbitt horizontal well, with an estimated additional $14,145 completion cost. The share price reacted with a rise of 14 per cent on the day of the announcement.
Oilex Ltd (OEX 31.5p / £78.84m)
AIM and ASX listed oil and gas explorer and production Company has advised that the Autoridade Nacional Do Petroleo (ANP) has approved the JPDA 06-103 Joint Venture’s proposal to vary the Production Sharing Contract (PSC) work programme. Under the approved variation the decision to drill the fourth commitment well on the JPDA 06-103 PSC will be at the discretion of the Operator if the third well is unsuccessful. The ANP has also agreed that the PSC may be relinquished if the Operator and the Joint Venture partners decide not to proceed with any further exploration after the third well. The ANP has also agreed to an extension to the exploration term with the primary term now ending on 16 January 2012.
The share price has almost trebled in the last 3 months as Oilex’ focus has improved. The Company is directing its efforts towards opportunities that have the potential to provide an exceptional return on investment on searching for exploration and production assets in India, Australia, and in Southeast and South Asia and near Middle East around the rim of the Indian Ocean. With eight permits/interests in prospective basins, Oilex has rapidly compiled a significant portfolio of oil and gas acreage that has a well-balanced mix of risk and reward.
Oilex’ Managing Director, Dr Bruce McCarthy, said: “Oilex greatly appreciates the assistance and cooperation of the ANP and looks forward to completing the new work programme in the prospective, albeit higher risk northern part of the contract area. The Tutuala Lead, subject to results of the infill 3D seismic survey, has the potential to contain large volumes of oil. The conclusion of the discussions with ANP and the Joint Venture regarding the remaining PSC work programme reflect a practical and pragmatic approach by all parties.”
Plant Health Care (PHC 74.5p / £39.43m)
The crop technology company released a trading update which included the news that revenue for 2010 is to be lower than expectations for the period for a number of reasons including the disposal of a unit, the abandoning of an early ordering program and that it decided to forego upfront licensing payments for a number of its key products. The abandoning of an early ordering program, which was intended to help improve margins, will reduce revenue by $3m, whilst the foregoing of licensing payments has meant revenue reductions of $1m. Further, the sale of the US landscaping business, which brought in revenues of $5.7m for 2010, will have a major impact, although Plant Health Care is confident that each of these initiatives will give the Company more options in the longer term. PHC last issued a profits warning in June, and since then the share price has underperformed. Back in November we mentioned a 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- whilst this was positive news, the trading update is something that may disappoint, though we certainly would like to keep an eye on the impact of these big changes.
Range Resources (RRL 9.38p / 115.43m)
The US focused oil and gas Exploration Company announced that it has acquired an additional 8.19 percent working interest in its East Texas Cotton Valley Project for a total of $148,000 in lease acquisition costs and an overriding royalty retained by the seller. Range’s participating interest in the shallow oil project now totals 21.75 percent. The acquisition will represent an opportunistic investment as Range prepares to spud the Ross 3H horizontal appraisal well in the coming weeks. The acquisition is expected to immediately increase the company’s oil reserves. In regards to Range Resources oil and gas interests in Puntland, the company also announced yesterday that together with its joint venture partners, Africa Oil Corp and Lion Energy Corp, it has entered into amending agreements with the government of Puntland with respect to the Production Sharing Agreements (PSAs) for the Dharoor Valley Exploration Area and the Nugaal Valley Exploration Area. The key amendments under the PSA’s are for the first exploration agreement to be extended for a further 12 months from January 17 2011 to January 12 2012. Also a minimum of one exploratory well is to be spudded in the Dharoor Valley by July 2011, as well as a second exploratory well in the Nugaal Valley or, at the option of Africa Oil, in the Dharoor Valley by September 2011. Now that Range Resources has the green light in Puntland and security matters have all been assessed and understood, drilling should commence soon.
Sirius Minerals (SXX 18.25p / £132.88m)
The Company has announced the acquisition of York Potash Ltd (a private UK company) and the appointment of York Potash’s founder, Chris Fraser, as Managing Director and Chief Executive Officer of Sirius. They also announced the appointment of Andrew Lindsay as Finance Director and Chief Financial Officer of the Company, replacing Jonathan Harrison, who has retired from the Board. The acquisition concerns various agreements to onshore and offshore mineral rights over approximately 600 km2 between the towns of Whitby and Scarborough on the English east coast. Situated in a known high grade potash region with existing operations on an adjacent property, this is established as one of the world’s largest deposits of polyhalite at mineable depths. Polyhalite is a potentially valuable source of Sulphate of Potash (SOP) or potassium sulphate (chemical symbol K2SO4). SOP is a highly sought after premium potash product which trades at a significant premium to conventional “potash” or Muriate of Potash products. Importantly, SOP does not contain chlorine which limits certain applications of MOP as a fertilizer. As consideration for the acquisition, 150 million new Ordinary Shares of 0.25p each in the Company have been allotted (conditional on AIM admission) to the shareholders of York Potash Ltd in consideration for 100 per cent of the issued share capital of York Potash Ltd which, at the closing price of 16.75 pence per share on 14th January 2011, equates to £25.1 million. While the York project is still at the early stages of exploration and assessment, the Directors believe the potential of the project is significant.
Surgical Innovations Group (SUN 6.1p / £23.27m)
Medical device maker Surgical Innovations (SI) who delivered a stunning interim result for the six months ended 30 June last year, has announced in a trading update that it expects to report results for the second half of 2010 that will be in line with market expectations. Last year, sales to original equipment manufacturers such as Teleflex, Gyrus and CareFusion was one of the main drivers behind SI’s performance, and the Company is working on establishing additional contracts this year.
SI continues to invest heavily in product development and has several new devices at various stages of development. The Company is building on the momentum created by its successful “resposable” products concept that combine disposable parts with reusable elements which are demanded by surgeons and procurement managers as cost-effective solutions.
In a separate announcement, SI reports the appointments of two additional members to the Company’s Clinical Advisory Board. We note with interest that one of these, Mr Jon Conroy, is a consultant orthopaedic surgeon specialising in joint replacements and arthroscopic surgeries to the hip and knee. So far, SI’s devices have been for the bariatric surgery market, so this signals the Company’s intention of developing minimally invasive products for the larger hip and knee market.
*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.
11 January 2011
The Small Cap Wrap team is back after the festive break, and wishes all its readers a Happy New Year.
This week: More from Encore, no sweet music from HMV and William Sinclair’s good growth
Anglesey Mining (AYM 58p / £88.83m)
Anglesey’s directors have exercised 2,500,000 share options at an average price of 7.2p per share and have immediately sold them on to Gartmore Investment and another unnamed institution for 56p per share. In addition, the company has raised £1.4 million by placing another 2,500,000 new shares at 56p per share to the same investors. The funds will be used for working capital purposes.
Avacta (AVCT 1.24P / £17.81m)
Provider of high value technologies and services to the pharmaceutical and diagnostics markets announced that it made its first sale and installation of the Optim system to the US, which is the biggest market for the product. Optim is designed to accelerate and reduce the cost of drug development through early stage analysis of drug compounds, which helps identify the best candidate drug compounds for development and optimum processing conditions. Optim is capable of delivering such information at least 10 times faster than any other approach, whilst the single-use sample holder feature of the product is expected to lead to significant recurring consumable revenues. In November last year the Company announced very positive final results for the period to 31 July 2010. With news of sales to the US market and the Company’s results, 2011 could be very interesting indeed for Avacta.
Bahamas Petroleum (BPC 13p / £128.36m)
Following up on last year’s seismic data indicating the potential of super-giant traps of hydrocarbons on the Company’s licences in The Bahamas, the Company has engaged Osprey Navigation to perform a close grid 2D seismic survey in order to define drillable targets and resource potential in place.
Beowulf Mining (BEM 41.75p / £66.72m)
In October 2010 we wrote on the commencement of a drilling programme for Beowulf’s wholly owned Kallak South iron deposit, and subsequent to this the Company has announced drilling results which confirm the presence of an estimated 400 million metric tonnes of iron ore of similar type and quality to that encountered at the Kallak North deposits. An international consultancy group has started work to complete an independent JORC compliant resource estimate for the Kallak North deposit schedule to be completed in late Q1 2011. Preliminary results indicate the presence of more that 175 million tonnes of iron ore, however significant additional tonnages of iron ore are anticipated from planned future drilling as its total extension is not currently defined. Both deposits at Kallak are estimated to contain more than 600 million tonnes of high quality iron ore. These latest drilling results clearly demonstrate Kallak’s considerable potential worthwhile for investment.
Cove Energy (COV 97.25p / £477.49m)
Cove Energy, the East African oil and gas exploration company announced (just before Christmas) that the Bedford Dolphin drillship has arrived on location at the Tubarao well site and said that drilling is expected to take 6 to 8 weeks. We mentioned in the Small Cap Wrap of 30th November 2010 that gas had been discovered on the Lagosta prospect and this drillship has been moved following cessation of operations on that discovery which has been suspended to allow for future flow testing.
John Craven, CEO of Cove Energy said “Cove is excited by the continuous exploration and appraisal programme planned for 2011 and beyond…….and we look forward to announcing results (from Tubarao) as and when appropriate”.
Encore Oil (EO. 136.5p / £398.91m)
Encore reported that it had successfully drilled the Varadero exploration well to a total of 5,205 feet measured depth, having encountered excellent quality hydrocarbon bearing reservoir sandstones at 4,020 feet of measured depth. Initial analysis indicated the discovery of a 400 feet hydrocarbon bearing interval with a calculated net pay of 106 feet, and analysis of logs from the wireline sampling has revealed sands with porosities of 33 per cent and of excellent quality.
Alan Booth, EnCore’s Chief Executive Officer, commented: “This is an excellent result at Varadero which further supports our view that Block 28/9 likely contains a series of accumulations in Tay “injectite” sands. We are becoming increasingly confident that the seismic data directly highlights the presence of high quality injectite reservoirs in Block 28/9 which, to date have all proven to be hydrocarbon bearing.”
The well will now be plugged and abandoned, with the Galaxy II rig now being moved to the Burgman prospect. This is excellent news, and the Company continues to demonstrate its active approach to drilling.
Enegi Oil (ENEG 21.5p / £18.88m)
Enegi Oil, a western Newfoundland focused oil and gas company announced that, for the year ended June 30, it made a narrowed pretax loss of £1.3m (against a loss of £17.2m in FY2009) on revenue unchanged at £0.1m.The decrease in losses in 2010 is due to two main factors: In 2009, as a result of the poor outcome from drilling activities, the Group took an impairment charge of £13.35m on its fixed assets and no impairment was deemed necessary in 2010.The Group’s operating subsidiary, PDIP Production Inc, realised discounts of £874,000 upon satisfaction of a number of its creditor arrangements.
The Company raised £2.9m during the period through the placing of shares in September and December 2009 at 5p and 10p respectively.
Forte Energy (FTE 8.56p / £49.88m)
The uranium and rare earth metals company has released additional assay results from drill holes at the Company’s uranium project in Mauritania. So far, 27 holes out of 120 drilled have been processed enabling the Company to start a more detailed geological interpretation of the project’s geology. Moving forward, a more detailed study of the origins of the high grade core will be undertaken as part of the resource modelling process once all assays are received.
Frontera Resources Corporation (FRR 5.62p / £7.61m)
The oil and gas exploration company operating in emerging markets has obtained a one-year revolving credit facility of up to $2 million in a related party transaction. The funds will be used for ongoing operational and working capital requirements. Frontera is applying modern production methods to old productive fields with extensive potential currently at the Shallow Fields Production Unit on Block 12 in the country of Georgia.
Frontier Mining (FML 7.75p / £143.98m)
In our last Small Cap Wrap we reported on Frontier’s round of fundraising through the issuance of ordinary shares regarding the proposed acquisition of the Benkala Copper Deposit in northern Kazakhstan currently under development and the Maminskoye Gold Deposit in the southern Ural region of Russia. On the 31 December 2010 the company continued fundraising by issuing 873,215,000 new ordinary shares or 47 per cent of the enlarged issued share capital of Frontier. However the transfer of title of the remaining 50 per cent interest in the US Megatech BVI, which owns the Benkala Copper Project, currently held by Coville to Frontier is subject to receipt of consent to the transaction from the Kazakhstan Ministry of Industry and New Technology (MINT). Frontier has taken legal charges over all the outstanding shares of US Megatech BVI. Once the consent for the acquisition has been received from MINT, both projects will be owned 100 per cent by Frontier. It is worth keeping a close eye on Frontier’s merger with US Megatech BVI. A predicted bullish market in copper for 2011 will offer enormous opportunities for investment.
Herencia Resources (HER 3.7p / £46.20m)
Herencia will commence a 15,000 meter diamond drilling programme at the Paguanta zinc-lead-silver-gold project in Northern Chile in the last week of February. While initially targeting the high copper and silver grades at the Doris prospect, work will follow on targeting the porphyry-copper potential at the La Rosa prospect and subsequently by in-fill drilling of the Patricia mineral resource in order to upgrade the inferred mineral resource estimate.
HMV (HMV 25p / £105.90m)
This is the first time we write on HMV, the retailer of pre-recorded music, video, electronic games and related entertainment products. The Company provided an interim management statement covering the Christmas sales period, which brought news of a planned closure to 60 of the Company’s stores following a disappointing sales period- an 11.9 per cent fall in the 5 weeks to January 2011 for the UK market and 10.2 per cent for the overseas market. Management seems to place much of the disappointing results on the poor weather together with the already challenging industry conditions in which HMV operates- both reasonable rationale, but store closures suggest a heavier weighting with the challenging industry conditions and the underlying troubles currently faced by the group.
Whilst sales at Waterstones (part of the HMV Group) have improved, the Company expects its full year earnings to come in at the lower end of market expectations, which currently range from £45m to £60m – expectations with which we agree, and perhaps the markets too, with the Company’s share price closing 19 per cent lower on the day that the interim statement was made.
Matra Petroleum (MTA 4.05p / £43.13m)
The Russian oil and gas exploration and production company has been awarded a 20 year production licence for the Sokolovskoe field in the Orenburg Oblast.
Max Petroleum (MXP 21.25p / £96.04m)
Max Petroleum, focused on Kazakhstan has updated the market on its activities in the Blocks A&E Licence area, stating that initial test results from the Cretaceous reservoir in the UTS-1 discovery well indicate a 55 metre oil column with 31 metres of net oil pay. Perforations at depths ranging from 120 to 128 metres and 155 to 158 metres produced 26 degree API gravity crude oil on pump at indicative rates of approximately 24 barrels of oil per day during a brief clean up period. The duration of the test was limited due to government regulations and the well will be placed on a 90-day long term production test after all the necessary government approvals are obtained in the next few weeks. Based on a probable oil/water contact at 161 metres as indicated by revised petrophysical analysis and current mapping, the potential oil in place for the reservoir is estimated to be between 85 and 135 million barrels of oil. Other, similar fields in the Pre-Caspian basin report recovery factors between 20 to 30 per cent of original oil in place. Long-term testing and pressure analysis combined with confirmation drilling and a new seismic survey focused on these shallow reservoirs will be needed to more accurately define recoverable oil reserves. Enhanced recovery techniques, such as water flooding, may also be needed to improve recovery from such shallow depths with low reservoir pressure. A full update will be made as soon as testing is complete, which is expected in the next several weeks.
Motive Television (MTV 1.02p / £12.37m)
The digital television technology, software and services provider yesterday announced that it has successfully enabled the broadcasting of 3D television content to a set-top box using its Bestv software over the digital terrestrial television (DTT) transmission system. The service, called “3VOD” by Motive, has been successfully deployed by Italian broadcaster Mediaset in Italy, demonstrating the versatility and utility of the Bestv software for DTT broadcasters. So far, 3D broadcasting has only been available in high-bandwidth pay-tv on satellite and cable platforms. Now, using Bestv, terrestrial broadcasters can make the jump to value-added premium services. Since we last wrote on this Company in mid December, the share price has put on 0.2 pence per share. The Board is confident that its disruptive technologies position Motive as a solution provider that can offer TV Anywhere, anytime to the industry.
Nostra Terra Oil and Gas Group (NOTG 0.345p / £5.35m)
NTOG has announced that it has signed an agreement with Houston-based New Century Exploration Inc to acquire a 1 per cent APO (after payout) working interest in the Vintage Hills prospect unit in Brazos County, Texas, within the established Giddings field. Development will initially target the prolific Austin Chalk which has shown to be divided into four separate horizontal reservoirs, with no vertical communication. The only vertical well drilled on the prospect (Agnello No1) produced modest amounts of oil and gas but, more importantly, proved all four of the Austin Chalk zones to be oil-bearing. The Agnello No2 well was drilled horizontally and produced over 190,000 barrels of oil and 1.2 billion cubic feet of gas from one of the zones, known as Middle B. A horizontal well will be drilled into the Upper B reservoir later this month, followed later by the Lower B and A zones. The Vintage Hills prospect is in line with the strategy of securing interests in relatively low-risk, high return and rapid payout assets in established producing areas of the U.S.
Plethora Solutions Holdings (PLE 8.88p / £4.82m)*
Plethora Solutions, the specialty pharmaceutical company, has seen share price weakness of late on the back of a tip sheet SELL which doesn’t appear to give the full picture in our opinion. The full picture and recent news from PLE states that two further products were launched before the year-end in The Urology Company, bringing the number of product launched to 11 for the year, ahead of the Company’s original target of 6 to 9. The Urology Company was set up to provide a financial balance to the intermittent but substantial income from milestone and royalty streams generated from partnered development assets. The most advanced projects in Plethora’s development portfolio are now embedded with partners. PSD502, for the treatment of premature ejaculation, has completed its clinical development and is now controlled by Shionogi. PSD503, a potential treatment for stress urinary incontinence, is under option to a major global pharmaceutical company. We like the highly derisked model: speciality pharma products selling on the market coupled with blue sky upside from already partnered drug development programmes, at no further cost to Plethora. The strong and experienced management team has a strong track record of product identification and development. The Company announced that it raised £850,000 which was admitted to trading on AIM on 21st December 2010. Plethora is well funded and we believe will continue to provide good news flow in the short and medium term. We see recent share price weakness as a great buying opportunity.
SeaEnergy (SEA 26.25p / £18.14m)
AIM Listed offshore wind Energy Company announced that Moray Offshore Renewables Ltd (MORL) has signed three agreements for lease with The Crown Estate. MORL is a joint venture, 25 per cent owned by SeaEnergy’s subsidiary – SeaEnergy Renewables Limited, and 75 per cent owned by EDP Renewables. These agreements will further offshore wind power generation developments at three specific sites in the outer Moray Firth. MORL proposed sites are within the Eastern Development area of zone 1 of The Crown Estates Third round offshore wind leasing programme. The sites will have a combined capacity of 1000 – 1,140MW and are expected to supply enough power for around 750,000 homes. Being part of the Eastern Development is a key milestone for SeaEnergy, as it is the first phase of a two-phase development plan. Together with the Western Development area when completed will deliver around 1500MW of capacity. SeaEnergy has been up and down over the last three months, although has made some upward progress and seems to be on a positive track currently.
Serabi Mining (SRB 41p / £18.36m)*
AIM- listed gold exploration company announced that NCL Brasil Ltda has issued an updated version of the technical report from September 2008, in respect of the Palito Gold Mine and the surrounding Jardim Do Ouro exploration tenements. The previously declared resources were not re-estimated in light of limited mining and additional drilling on the Palito Mine- they remain as measured and indicated resources of 224,272 ounces (gold equivalent) and inferred resources of 443,956 ounces (gold equivalent). The updated report proves a key milestone in applying to dual list ordinary shares on the Canadian Stock Exchange. This will assist in creating greater liquidity in the ordinary shares, which will provide all shareholders with increased flexibility to trade ordinary shares. In early December, Serabi announced a placing with warrants to raise gross proceeds of £3.54m at a price of 3.515 pence per share and then towards the end of the year was granted shareholder approval at a General Meeting for a consolidation of the ordinary shares on the basis of 1 new ordinary share for every 10 existing ordinary shares. The Company’s target is to establish a resource of 1.5m ounces (gold equivalent). Investors can continue to look forward to an interesting series of news flow over the foreseeable future.
Sirius Minerals (SXX 13p / £94.65m)
Sirius Minerals, a potash mining group, announced on Christmas Eve that its wholly-owned subsidiary, Dakota Salts LLC, has acquired a further 1445 net mineral acres of lease areas adjacent to its existing properties in North Dakota. The Company now controls some 10,090 net mineral acres of lease areas overlying the Williston Basin, having an overall land position of 21,492 gross mineral acres within North Dakota. No financial details (of the latest acquisition) have been disclosed. The selling (multiple, unconnected) owners of the acreage received nominal cash payments per minerals acre with royalty payments due on mining production. This is quite normal for the industry.
Solomon Gold (SOLG 31p / £87.20m)
AIM listed gold and mineral exploration company provided a positive operations update for the Fauro project, which is 100 per cent owned by the Company. Surface trench sampling showed 26 meters at 5.30 grams per tonne of gold and 16 meters at 1.40 grams per tonne of gold in Meriguna, with trenching in the area now covering an area of 400m by 250m. Trenching of the Kiovakase prospect showed 16 meters at 1.40 grams per tonne of gold. Further, after having announced the appointment of UPD Solomons Limited as a drilling contractor back in November (which we mentioned in our Small Cap Wrap), drilling of Meriguna started on the 23 December 2010, with a planned length of 450m- this is the first hole of the proposed continuous 9,900m diamond drilling program over the Fauro Island project area, that will be explored through 2011. We look forward to further exciting operational updates over the course of the program.
Sterling Energy (SEY 71.5p / £156.85m)
Sterling Energy, the independent oil and gas exploration and production company announced that operations have been conducted at the Sangaw North block in Kurdistan to remove the hydrocarbon gas, containing 0.5 per cent hydrogen sulphide, which had entered the well bore. The gas influx has been contained, removed from the well bore and flared. The drill pipe in the well bore has been adversely affected by the hydrogen sulphide, with the steel becoming brittle and prone to fracturing. As a consequence, retrieving the drill pipe (that had parted at a depth of 850 metres) has proved challenging. The drill pipe is being recovered in lengths of between 1 and 120 metres and recent operations indicate that the structural integrity of the pipe is improving with depth. If the rate of pipe recovery does not remain sufficiently high, the Company may decide to abandon the existing well bore at the depth of the remaining drill pipe, drill a new bore and the re-drill the remaining section to the planned casing point. At this stage, the Company is unable to provide an estimate of the length of time this could take and the share price has drifted to the current level from 81.5p, where it closed on the day before the announcement. Any positive news on the success and completion of this operation should give the share price a lift.
Synchronica (SYNC 31.75p / £29.56m)
The AIM listed company which develops and provides mobile device management and synchronisation solutions issued a number of announcements over the festive period. The Company has won a contract order that will see Mobile Gateway 5 being offered with the Media-Tek based handsets of a top 10 Indian handset manufacturer, which will see Synchronica receive royalties in excess of US$1m with a minimum of US$250,000 of service fees during the first year. The solution will provide India users with a Blackberry like service with access to functions such as mobile email, calendar/contacts synchronisation, and instant messaging as well as connectivity to social networking sites and RSS feeds. This represents the Company’s third big contract in the Indian market, after installations with two of the largest mobile operations in India; having acquired iseemedia in October 2010 (86 per cent of iseemedia’s shares were acquired at the time, with the remainder having been acquired at the end of December 2010).
A second contract win was also announced during the period, the signing of an agreement for a mobile operator network in the Middle-East worth US$1.5m in the first year alone. This includes US$216,000 of recurring support and maintenance for the life of the licences. These announced orders continue to demonstrate the strength of Synchronica’s product, and growth of the Company’s footprint.
Toledo Mining plc (TMC 25.5p / £10.59m)
The Philippines based nickel exploration and development company is one step closer to start mining operations at the Ipilan project on the island of Palawan. After Toledo’s subsidiary has had its Strategic Environmental Plan and Environmental Compliance Certificate ratified, only the Definitive Mine Feasibility document requires an official sign off before mining operations can commence, which the Company expects to happen in the second quarter of this year. Toledo has also raised £1.9 million in new share capital from existing shareholders.
Vatukoula Gold Mines (VGM 171. 5p / £141.73m)
AIM listed gold producer yesterday announced its unaudited preliminary operational results from its 100 per cent owned Vatukoula Gold Mine in Fiji for the first quarter ended 30th November. The ore mined and delivered increased 12 per cent to 80,914 tonne from 72,444 in the previous quarter. The grade delivered was 6.48 g/t, a reduction from the previous quarters
8.81 g/t, as a result of planned increased development which resulted in lower grade development ore being mined and delivered. Underground development increased by over 100 per cent to 5,457 metres (2,650 metres in the previous quarter). Accelerated underground development is scheduled until May 2011 in order to increase production to achieve the target 100,000 ounce per year annualised rate. David Paxton, CEO of Vatukoula Gold Mines, commented: “Alongside the mine development programme, a new major surface exploration program to explore additional potential has been started. We intend to start a new underground exploration program early this year. The mine has purchased a new exploration drill rig that will be used to explore in the mine area as well as our prospecting areas. Further information on the exploration efforts will be provided to shareholders in the coming weeks in a separate news release.” Mine net operating earnings for Q1 were recorded at £3.2m down from £5.5m in the last quarter. The average gold price realised for Q1 was US$1,314 per ounce, up from US$1,199 per ounce realised in the previous quarter. The result of this increase gave the mine similar revenue figures compared to last quarter even with the lower gold sales. The Company is in the process of preparing the necessary documentation for a North American quotation and it is hoped that this can be achieved in the first half of calendar 2011. We last wrote on Vatukoula in August 2010 when the market capitalisation was £80m less than the current £150m market cap. We continue to see the Company as well financed, and expect continued good news on the production ramp up along with positive exploration results to drive the share price higher over the forthcoming 12 months.
ViaLogy (VIY 4.34p / £30.04m)
A provider of geophysical imaging and hydrocarbon sizing services to global oil and gas customers has successfully completed a technology demonstration project on an offshore prospect for a global non-US exploration and production company. They have been perceived as beyond the scope of conventional processing and analysis technology, and as a potential tool in reducing exploration and production risks. It marks ViaLogy’s first application for an undersea prospect and reinforces QuantumRD’s (assists clients in de-risking prospects to generate drilling targets, position offsets and enhance recovery) value for complex offshore and onshore prospects. ViaLogy also reports discussions with a leading non-US national oil company following its preliminary evaluation of QuantumRD, to apply the technology to an offshore prospect for full operational analysis and de-risking of expensive wells. Furthermore, strategic partnership discussions have begun with a leading O&G service company. If successful, such a partnership could offer opportunities to global markets.
William Sinclair (SNCL 172.25p / £28.51m)
William Sinclair announced preliminary results for the 12 months ended 30th September 2010. Results were most promising with profit before tax up by 66 per cent to £2.06m (2009: £1.24) and net debt being eliminated leaving net cash of £1.81m (2009: £7.04m). Sales revenue for the year was £48.5m, which was a 4.7 per cent increase on the year- whilst sales to the construction industry were down somewhat, a sizeable increase in sales of top soils to the Olympic sites. The Company’s balance sheet also looks particularly healthy with net assets of £17m (2009: £16m) at the end of the period.
Sinclair’s management are of the belief that the horticultural industry is recession resistant, and the results demonstrate somewhat that this may well be the case. When we last wrote on Sinclair we reported on the Company’s acquisition of Monro Horticultural Limited’s premium decorative aggregates business. With further acquisitions sought, there is no doubt that the Company is growing ahead of its peers.
Industry Update- Retail Sector
Our return from the festive break prompts us to comment on the retail sector, which was expected to benefit from the post new year VAT rise, though faced difficult weather conditions. Whilst the weather seemed to have a part to play in performance, a number of the companies that announced poor earnings (including HMV and Clintons) seemed to emphasize its impact, whilst others, such as Marks and Spencer, although affected by the snow (which some estimate to have lost the Company up to £70m in revenue), may have traded quite strongly as a result changes in the mix of sales. Some retailers, such as Morrisons which does not have an online arm and was expected to suffer, has not used the weather as an excuse, advising that shoppers who couldn’t make it to stores would have depleted supplies at home before coming back in store to perform a large re-stock. JJB Sports Plc on the other hand announced plans to raise £31.5m this year to help stave off the effects of the recession and poor weather, with funds being used to assist the Company trade in the short-term only. The concoction of Christmas break events appears to have had mixed fortunes for retail companies, and whilst many used the looming VAT rise as a tool to drive Christmas sales, it appears many may not have benefitted as they expected.
*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.