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| Improved outlook for miners
** FTSE Fledgling is made up of UK companies listed on the main market that are too small to be included in the FTSE All share index |
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In a growth phase
Talks step up a gear Getting more out of British Gas
Rough diamond prices improving Acquisition number two Drilling to begin in April Lease portfolio bounces back Setback at coal projectIn December 2009 we reported that Daun Consulting Limited (DCL), a Singapore-based business and finance company acting as agent for the buyer Coal Investment Equity, was going to put up a $1m deposit to do due diligence on the Kalimantan Gold IBP Coal Project in East Kalimantan. Daun has failed to make the payment and now this exclusive due diligence period has expired; but the board was able to point out that recently the Company has been approached by three parties interested in acquiring the coal concession, two of which have submitted formal expressions of interest. After 4,600 metres of drilling on the concessions, a potential deposit of 270 million tonnes of between 4,894 and 5,376 kcal/kg coal has been indicated. At the Company’s porphyry copper prospect in the KSK CoW Copper Concession in Indonesia, the results of reprocessing airborne magnetic data of the area, using advanced inversion techniques, identified multiple buried magnetic bodies. This seems to have attracted the attention of three major mining companies, two of which remain in discussions with Kalimantan Gold after data reviews and site visits. The Directors appear to be looking for a joint venture deal or direct investment in this project that will fund deeper drilling to confirm the existence of what is believed to be a large magnetic body, which has been calculated to be 800m in diameter and 1,000m deep. In's and Out's from the Bridge Hall CFD Desk Featured stocks1pm (OPM)
Directors dealingsDirectors dealings can provide a useful insight The above list of transactions represents a selection of the directors' buys and sells reported last week |
In recent weeks, Royal Dutch Shell has been seeking to buy gas reserves in Australia to feed demand for power in China. The Group is looking to build up its share of the Aussie liquefied natural gas (LNG) market and seems to be achieving this at a lower price than has been paid by its competitors. Certainly, its takeover bid for the Australian operations of Arrow Energy along with its partner Petrochina, makes good strategic sense. Last week, the board announced that Shell was entering a new period of growth with upstream production expected to hit 3.5 million barrels of oil equivalent per day in 2012, which would represent an 11% increase from 2009 production levels. Looking further ahead, the Group is assessing more than thirty five projects, with reserves totalling eight million barrels of oil equivalent, which they see as sustaining upstream growth until 2020. As these new projects come on stream, the board expects to see a dramatic increase in cash flow from operations of over 80% at $80 a barrel, which should allow for a more generous dividend policy. To improve financial returns, the downstream interests will be shrunk to improve profitability and to this end, refining capacity is to be reduced by 15% and retail markets cut by 35%. However good this all sounds, a lot of this was not new; and although growth in production is expected beyond 2012, no numbers were given. It does serve to reiterate the view that Shell looks to be offering stronger growth prospects than BP, which was highlighted in late February by broker Collins Stewart. 
Hopes, that junior biotech Henderson Morley might conclude a deal shortly concerning the intellectual property rights of its ionic contra-viral therapy (ICVT) human portfolio, rose considerably on the announcement that a Letter of Intent (LOI) had been received from KMS Therapeutics, a specialist drug development company. This LOI paves the way for further discussions where the main points are: a nine week period of due diligence ending 14 May 2010, a license agreement which will provide payments up to $5m based on certain milestones, an initial $1.3m upfront, a double digit percentage royalties payable on commercialisation and KMS assuming all costs for patent protection from the date of licence. KMS was set up by a number of the senior executives from Merck Generics, which included the former CEO Hans Klakurka and the ex-Global R&D Director Steve Self. Andrew Knight, Executive Chairman of Henderson Morley said: "That these negotiations have moved to a detailed and formalised LOI is very encouraging for both parties. We look forward to ensuring that the due diligence proceeds as quickly as possible. "This Company was one of the biotech stocks featured in Bridge Hall Stockbrokers" "Tips for 2010" research report.
It would seem that there is scope for renewed growth expectations at Centrica, the integrated energy company that operates in both the UK and North America. Apart from the domestic and business gas and electricity supplier British Gas, Centrica also owns Direct Energy, which is one of North America's largest energy and energy-related services providers. In recent days, brokers have been increasing their forecasts after Centrica's bosses outlined some racy targets, which include increasing operating profits at British Gas by 30% over the next three years, mainly by cross-selling energy and services to customers. Alongside growing British Gas, the board strategic priorities are to deliver value from growing the upstream business, build an integrated North American business and improve operating performance and make better investments to gain superior financial returns. Broker Nomura has raised its forecasts and moved its target price up from 340p to 370p. Following a series of upgrades, the consensus forecast is that in 2010, the Group will make a pre-tax profit of £1,856m, which is worth 22.63p per share in earnings and will put the shares on a forward PE of 13 times, which looks undemanding if the board can hit their new growth targets.
West African diamond mining and exploration company Stellar Diamonds reversed into West African Diamonds in February. This deal was accompanied by a £5m fundraising and shares were consolidated on a 1-for-5 basis. With Stellar came the Mandala Diamond Mine in Guinea, where production has exceeded 64,000 carats since mid-2009, including a 37 carat fancy yellow stone. Between May 2009 and February 2010, 60,800 carats from Mandala were sold for $1.7m, which works out at an average price of $29 per carat; however the latest sale in early March recorded an average price of $42 per carat. The new money raised includes funds to further develop the Bomboko Diamond Mine in Guinea, to increase production levels and improve recovery. Since July 2009, Bomboko has produced 2,562 carats, including a 16 carat gem quality stone, but recently the grade has more than doubled, following the adoption of improved mining and grade control measures. Three diamond sales totalling 1,816 carats from Bomboko has seen the prices paid per carat progressively increase from $114 to $126; as 55% run-of-mine are gem stones, which average more than half a carat. Near term production forecasts at the Mandala and Bomboko Diamond Mines of 12,500 carats and 2,000 carats per month respectively, are expected to be met, helped by the purchase of additional mining equipment. A sixteen foot pan plant and Flow Sort X-Ray machine at Bomboko, is planned to be installed in the second quarter. At the same time, Stellar is assessing the next exploration and development work at its kimberlite diamond projects at Tongo in Sierra Leone and Droujba in Guinea.
February saw Green Compliance make its first move in putting together a group which helps businesses to meet increasing legislation concerning: water, pest control, fire protection and Energy Performance Certificates; a strategy for which the board has already raised £10m to fund. Acquisition number one was CEA Link, which gave Green Compliance an established software platform to be used to tender for energy certification and other compliance-based work. Last week, investors learned about acquisition number two, which is the proposed purchase of Waterchem Limited, for an initial consideration of £5.534m, made up of £4.0m cash plus the balance in loan notes and shares; together with a deferred consideration dependent on future performance capped £4.0m. Waterchem is involved in providing water hygiene and water treatment services to facilities management companies, hospitals, universities and local authorities; and through a wholly owned subsidiary Towerite, provides independent risk assessment in order to comply with the Approved Code of Practice for Legionella Control guidance provided by the Health and Safety Executive. In 2009, Waterchem made a pre-tax profit of £1.435m on revenue of £7.6m. The deal constitutes a reverse takeover due to its size and so will need the approval of shareholders at a General Meeting on 31 March. John Prowse, CEO of Green Compliance commented that “Waterchem is the first significant acquisition following the shift in the Company’s strategy towards building a business focused on “blue collar” compliance markets. Waterchem’s long history and strong reputation in the area of water hygiene is hugely valuable addition to our group and provides a natural fit with our business strategy going forward..” 
Beowulf Mining offers investors exposure to a variety of metals through its planned exploration strategy into one of Europe's more politically stable countries. In early March, its Consultants demonstrated that the Company's Kallak iron ore project in Sweden had achieved commercial viability ahead of a pre-feasibility study and thus merited a full feasibility study, which will all add value to this project. Following the publication of that report, both of the Beowulf's iron ore deposits at the Ruoutevare and Kallak project have now been shown to be amongst the largest known remaining unexploited iron ore deposits in Scandinavia, with each containing substantial resources of iron ore close to the surface that could be mined using open pit methods. The Ruoutevare Magnitite Project covers 850 hectares and lies 1,100km north of Stockholm, which has a JORC compliant Inferred Mineral Resource of 140 million tonnes grading 39.1% iron, plus titanium and vanadium. Nearby lies the Kallak Magnetite Project, where the board have just announced the signing of a drilling contract, which will involve 3,500 metres of diamond drilling over 35 holes and is set to begin in April, with first assay results expected by the end of the second quarter. Previous work by SGU indicated an estimated mineral resource of 120 million tonnes of iron ore, with grade varying between 35-42% iron. Following this drilling programme a JORC classification will be sought. Clive Sinclair-Poulton, Executive Chairman said that: “In the Raw Material Group’s recent conceptual study on Kallak it was recommended that we start a drilling programme to further define the quantity and quality of the asset. Following our recent £1m (gross) fundraising we are now in a position to start this programme while retaining full ownership of this attractive asset. The letter of intent with Ludvika demonstrates our intention to conduct a similar drilling campaign on Ruoutevare later this year. We are very positive regarding the next stage of our operations at both projects.”
A trading update from 1pm, the specialist asset finance provider for SMEs, highlighted improvements in levels of new business in the months since October when the board reported that an unusually high number of lease agreements had been terminated, most of which stemmed from customers going bankrupt. Despite this better operating performance, the board believes that 1pm will report further losses in the second half (six months to 31 May 2010). After a fall in the overall value of the lease portfolio in the first half, the lease portfolio is now growing again. This update was accompanied by news that 1pm has raised £1.15m at 0.07p share by issuing 1,640 million new shares, which will end up with 3,159 million shares in issue. Three directors invested a total of £363,440 in this placing, which looks like a highly bullish sign. Michael Johnson, Chairman, commented: “During what has been a difficult period for the financial services sector we have demonstrated that 1pm has shown great resilience. We are delighted with the interest shown in the placing and believe that the significant levels of funds raised will strengthen the Company considerably. There are signs that business levels are now increasing and the proceeds of the placing will allow us to write more business, improve lending margins and accelerate our return to profitability.” 
The Bulls have wrestled the Bears into the wilderness for now and the market continues to push ever higher. Since the beginning of March the market has forgotten what a negative day seems to look like, those days have been a very rare beast. The two questions, that I mentioned last week, will still be at the forefront of any brokers mind’s, several traders stance's may now be turning round and denting there trading accounts. |
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