UK INVESTOR MONEY // SHARES // INTERVIEWS
ISSUE 32 // APRIL 2018
IT’S SHOW TIME!
Speakers schedules Stand locations INSIDE! UK Investor Magazine — 1 — April 2018
Intro
From The Editor INSIDE 3 Bingo in the name of research Chris Bailey
Well this is it. The last issue of this magazine under my
4 UK Investor Show Stand plan
editorship. But that is for another day. This is all about the UK
11 Sarah Montague does not get it Tom Winnifrith
Of course this edition contains a range of articles on non
8 UK Investor Show Main Stage speakers 9 Company Profile: Distil Steve Moore 10 UK Investor Show Break Out rooms 11 SSE should not be boring Chris Bailey
Investor Show on April 21, that is to say in just a few days time.
show matters but the main aim is to give you some idea of the massive range of attractions which anyone serious about shares should enjoy at the QE2 centre in Westminster at the country’s dominant one day event for those interested in shares. In this edition you can see the full main stage line-up with timings on page 8. You can also see the almost eight breakout room presentations on pages 10. Most are by CEOs of listed companies but there are also some sparky panel discussions, notably Big Dave Lenigas, David Bramhill and Jonathan Tidswell on UK onshore oil and gas. Luke Johnson and Nigel
12 Gender pay gap Tom Winnifrith
Wray are also involved in breakout room sessions as well as
13 Three resource shares to buy for March
Paul Scott.
Gary Newman 15 The House View: When will a Black Swan disrupt the markets?
doing main stage and I will be recording a live Bearcast with
The one regular feature missing from this edition is “three shares to sell.” That is because material is being saved for a breakout room bears session I’m doing with Lucian Miers and Matt Earl where we will take apart THREE big name stocks. It will be explosive!
CONTACT US UK Investor Magazine 91 - 95 Clerkenwell Road London, EC1R 5BX E: info@ukinvestorshow.com W: www.UKInvestorShow.com EDITORIAL Tom Winnifrith Editor
On pages 4 and 5 we also include a layout plan of the 130 stands you can see on the day. So now you can plan how you spend April 21. Doors open at 8.30 AM and more than 3,000 folks will be there. We still have a few free investor class tickets left and to get yours go to www.UKInvestorshow.com/tickets using the promotional code MAGUK I look forward to seeing you at the UK Investor Show on April 21 in Westminster. Okay, that’s it. Over & Out. Tom Winnifrith
PS Any tickets booked will be sent by email at once and posted within 24 hours so there is still time to order.
UK Investor Magazine — 2 — April 2018
Don’t bank yet on dank Rank By Chris Bailey
D
o any of the readership base want to admit to still going to the bingo? Well if you do then it is probably at one of Rank (RNK)’s Mecca emporiums as they attracted just shy of 5 million customer visits during its first half year with each punter spending just over twenty quid a visit. Customer visits were down 8% year-on-year though in the stats released a couple of months ago despite the wonderful RNS observation that: ‘Mecca continued with its experiential bingo events (Batty Bingo, Bonkers Bingo and Big Bingo Bash) in the period, these events are not key drivers of profit but are successful in broadening the appeal of retail bingo. Mecca continues to experiment with broadening the reach of retail bingo with a planned Bonkers Bingo themed minicruise, in partnership with P&O Ferries’ I start with this preamble as last week the UK’s self-styled ‘leading multi-channel gaming operator’ had a bit of a shocker in a trading update centred on both key parts of its business going wrong, namely: ‘UK venues businesses have been impacted by weaker than expected visits which have been compounded by two periods of cold weather. Grosvenor Casinos’ underperformance has also been exacerbated by a negative contribution from its VIP players’ Let’s take these in turn. There is no doubt that cold weather is not great news for bingo given the demographic that is entertained by this... game. And the switch to digital play takes time and frankly is not fully offsetting. However, even worse news is coming from the Grosvenor Casino brand which over recent times has been a bigger profit contributor than the bingo business. The comment above sounds to me as if the high rolling customers have actually taken money off Rank. Ooops! This is just how it goes sometimes in gaming businesses. Over time we all know that ‘the House’ tends to win but the ability to keep the overall ship moving forward has had one casualty already with the announcement last month of the CEO deciding to cash his chips in and move to online name Shop Direct.
So the shorter-term mood music is not the greatest. Rank is fortunate to have relatively little debt and we all know that both the weather and the success quotient of ‘the House’ will turnaround but honestly I would not pay more than x8 operating earnings for that given. It has talked today about ‘full year operating profit to be in the range of £76 million-£78 million’ but, with the prelims miles away in August, anything can happen shorterterm. I note on the longer-term chart that around 160p has been a point of support/resistance a few years back and this level is consistent with my preferred earnings multiple. So I would chill at the moment, await a share price closer to this level and free up some time to do something else...like going to the bingo in the name of ‘research’. Don’t worry, you know I will write it up fully here if I do!
Chris Bailey puiblishes Financial Orbit. This article first appeared on ShareProphets.com
UK Investor Magazine — 3 — April 2018
Exhibitor’s Floorplan Stall no Company African Ba*ery 24 Alba Mineral Resources 79 Alexander Mining 9 Alliance Pharma 49 Ama: Global Investors 18 Amryt Pharma 21 Angus Energy 11 Argo Blockchain 127 Ariana Resources 107 Ascent Resources 39 Asiamet Resources 6 Avacta Group 126 Belluscura 25 Big Sofa Technologies 58 BigDish Ventures 86 Block Commodi:es 115 Bluebird Merchant Venture 87 BMR 42 Botswana Diamonds & Connemara Mining Company 84 Cadence Minerals 83 Cambridge Cogni:on 13 Catenae Innova:on 112 Chapel Down 47 Chapel Down 52 Clean Invest 125 CODE Inves:ng 50 Coinsilium 63 Coinsilium 64 Columbus Energy Resources 54 Concepta 85 Congress 19 Cornhill Capital 68 Crusader Resources 23 Curzon Energy 93 Dis:l 78 Eco Atlan:c Oil & Gas 129 ECR Minerals 57 EGR Broking / Sharelink 120 Erris Resources 53 Eurasia Mining 108 Europa Metals 94 FairFX 119 1
67 80 5 22 45 75 72 20 98 89 2 7 132 133 3 26 44 104 100 77 34 99 1 65 88 90 55 96 97 38 106 130 92 102 110 14 48 17 113 60 101 70 71
Falanx Group First Sen1nel Fox Marble Franchise Brands Galileo Resources Gate Ventures Genedrive Plc Georgian Mining Corpora1on Gfinity Greatland Gold Harriman House Harvest Minerals and Jangada Mines Highlands Natural Resources Highlands Natural Resources ImmuPharma JP Jenkins Jubilee Pla1num Karoo Energy KEFI Minerals Kibo Mining Kodal Minerals Learning Technologies Group Lionsgold and Goldbloc Metal NRG Metal Tiger Minoan Group NEX Exchange Obtala Obtala OneView Op1Bio1x Papua Mining Paternoster Resources PCG Entertainment Phynova Plas1cs Capital Plutus Powergen PowerHouse Energy Group Premier African Minerals Primary Bid Reach 4 Entertainment Red Rock Resources Regency Mines 2
82 28 43 123 36 51 12 105 121 122 95 103 10 109 15 134 135 59 81 114 62 29 56 41 73 74 61 37 40 131 91 116 35 8 66 111 76 128 16 4 46 117 118
Riverfort Global Capital RockRose Energy Rose Petroleum Savita SDX Energy Shard Capital Partners Share Talk ShareProphets ShareScope ShareScope ShareSoc SkinBioTherapuAcs Solo Oil and Gas Sosandar StockomendaAon Stockopedia Stockopedia Stranger holdings Sure Ventures Sweet Cart Symphony Environmental Technology TechFinancials Tekcapital Tern The Global Group The Global Group ThinCats Thor Mining Tiger Resource Finance Token CommuniAes Turner Pope SecurAes Two Shields Investments UMUTHI Healthcare Union Jack Oil ValiRx Vast Resources Victoria Oil & Gas Vox Markets WANdisco Wishbone Gold Xtract Resources YOLO Leisure Zenith Energy
69
Zinc Media Group 3
27 31 32 33 118 124 125
UK Investor Magazine — 4 — April 2018
UK Investor Magazine — 5 — April 2018
Greedy BBC trougher Sarah Montague just does not get it - her words betray her false sense of entitlement Writes Tom Winnifrith
T
oday’s bleating member of the liberal elite is Sarah Montague who until last year had to struggle to survive on just under £150,000. Now she gets more having switched from Today to The World at One. Please #MeToo Montague bleats that she was “furious” when she discovered she earned less than men at the BBC. Also less than the other female presenter on Today but that is an aside. We poor saps the taxpayer might feel furious that we get sent to jail if we don’t pay the license fee to pay such gargantuan wages to both men and women at the BBC, sums most of us can only ever dream of earning. That thought does not occur to the ridiculous Montague bleating to the Sunday Times who states: Before the list (of staff pay) was published I had thought there might be some moral high ground from taking less of the licence fee than others. What a fool I was. I felt nothing of the sort. Instead I felt a sap. For years I had been subsidising other people’s lifestyles. Ends Think about that for a second, the use of the word subsidy. If Ms Montague had indeed been subsidising even more grossly overpaid men like fake news specialist Jon Sopel she would have been paying them money. But she was not. There is a subsidy here. BBC news as a whole pays way over market rates for a commodity business with no shortage of applicants. And thus it is subsidised by a poll tax levied on all of us, the license fee. We who earn a fraction of what Ms Montague or the loathsome Sopel earn - must subsidise them both. Montague’s sense of entitlement means that she just does not appreciate that. Worse still her journalism is lazy and unthinking - regurgitated group think. She starts her bleating thus: Finally we are talking about pay. You can criticise the gender pay gap figures for being too crude a measure of potential discrimination and for diverting attention away from equal pay but at least it has prompted us to open up about our earnings.
Ends. Hmmmmmm. It seems some folk - notably women on six figure salaries round at the BBC talk about nothing else and have been for many months. She says that the gender pay gap figures are “too crude a measure of potential discrimination.” No, Sarah, using examples of companies such as Ryanair (branded “an offender” by the BBC) and the Crown Estate, I explain in simple language HERE why the data produced was utterly meaningless. But lazy journalists and virtue signalling politicians used it none the less to suggest that women earned far less than men for doing the same jobs as a result of discrimination. The conclusion and indeed the underlying premise are both utterly false but the meaningless data was used - notably by BBC journalists - to argue otherwise. If Montague is not intelligent enough to realise that then my resentment, as a license fee payer, for having to subsidise her salary grows that bit more intense.
This article first appeared on TomWinnifrith.com.
UK Investor Magazine — 6 — April 2018
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newsletters.advfn.com/tomwinnifrith UK Investor Magazine — 7 — April 2018
Main Stage
The Global Group UK Investor Show 2018 Main stage speaker schedule
Time Slot
DuraBon
09.00 -‐ 09.10 10 min 09.11 -‐ 09.41 30 min 09.42 – 10.17
35 min
10.18 -‐ 10.25
7 min
10.26 – 10.56
30 min
10.57 – 11.04
7 min
11.05 – 11.40
35 min
11.41 -‐ 11.48
7 min
11.49 – 11.59
10 min
12.00 -‐ 12.30 30 min 12.30 -‐ 13.15 45 min 13.15 -‐ 13.50 35 mins 13.51 – 13.58
7 min
13.59 – 14.24
25 min
14.25 – 14.32
7 min
14.33 – 15.03
30 min
15.04 – 15.34 30 min
Main Stage Lucy and Nigel Wray open The Global Group UK Investor Show with Dr Johnny Hon Featuring a Chapel Down Sabrage performance and Woodlarks video Nick Leslau and Tom Winnifrith on the Big Macro Trends: Is property finished and a house price crash inevitable? Luke Johnson: Am I a dinosaur? Will it all be different this Mme in 2018? Dragons' Den Session 1 with Nigel Wray, Tom Winnifrith and Steve Moore (Galileo Resources, Tern, Bluebird Merchant Ventures, Reach4Entertainment, Ariana Resources)
Nigel Wray, Paul ScoO and Dr Paul Jourdan: In discussion on how to make money from value invesMng Dragons' Den Session 2 with Nigel Wray, Tom Winnifrith and Gary Newman (African BaZery Metals, Xtract Resources, Coinsilium, WANdisco, PowerHouse Energy Group)
Ed CroR: Data mining for stock market profits Dragons' Den Session 3 with Nigel Wray, Tom Winnifrith and Steve Moore (ECR Minerals, Europa Metals, FairFX Group, Red Rock Resources, Vast Resources)
Golden Shares: Nigel Wray and Tom Winnifrith put their cash into the two cheapest shares in London for Woodlarks Mining Session: Chaired by Brian Kinane with Paul Atherley, Richard Poulden, Dominic Frisby and Anthony Manini Lunch Break Chris Bailey Interviews Vin Murria, the Queen of Tech Dragons' Den Session 4 with Tom Winnifrith, Steve Moore and Darren Atwater (Anglo African Agriculture, OpMBioMx Health, BigDish Ventures, Connemara Mining Company, Plutus Powergen)
What is Blockchain and is Bitcoin a Bubble?: Chaired by Dominic Frisby with Malcolm Palle, Jonathan Bixby, Tony Sanders, Bob McDowall and Ralph Hazell Dragons' Den Session 5 with Tom Winnifrith, Brian Kinane and Steve Moore (Papua Mining, Stranger Holdings, Big Sofa, OneView, Botswana Diamonds)
Dr Johnny Hon: Why there are so many China frauds on AIM and how to make money from Chinese shares Tom Winnifrith takes apart the Neil Woodford myth and asks the quesBons Neil won't answer
15.35 – 16.00 16.01 – 16.08
25 min 7 min
Tea Break Dragons' Den Session 6 with Tom Winnifrith, Steve Moore and Gary Newman (Falanx, Karoo Energy,
16.09 – 16.59
50 min
Mark Slater, Britain's top fund manager, on what he's buying and selling and why
1
ImmuPharma, Thor Mining, Bezant Resources)
UK Investor Magazine — 8 — April 2018
company profile Distil plc An investment worth drinking to? By Steve Moore
H
aving commenced 2018 approaching 2.5p, shares in Distil plc (DIS) slumped somewhat, before recently recovering back above 2p. However, at current levels - a market capitalisation of circa £11 million - is there value here? This AIM-listed company owns brands in a number of areas of the alcoholic drinks market; spiced rum (‘RedLeg’), gin (‘Blackwoods Vintage’), vodka (‘Blackwoods’, ‘Blavod Original Black’, ‘Diva’) and vanilla cream liqueur (‘Jago’s’). Latest results were for the six months ended 30th September 2017, emphasising “we are pleased to report that our key brands have outperformed each of their respective categories”. With increased “investment to extend our reach directly with consumers at festivals and at the point of sale… we increased marketing funds to cover development costs of our new Blackwood’s vintage and new packaging across the Blackwoods Gin and Vodka range”, and “despite lapping prior year pipeline fill in major retailers”, loss was reduced to £21k from £66k on revenue 23% higher at £0.82 million. Cash (net) was £0.69 million and current assets over liabilities £1.20 million. There has subsequently been a third quarter trading update, noting top-line growth of 19%, supported by a 11% increase in brand marketing investment. This was again noted to be against a comparative “significant pipeline fill in national retailers”, though the company was also, re. its gin, “pleased to report increased listings in four major UK retailers amounting to an additional 520 retail outlets coming through in the spring” and “in the US we revised our target distributor list to allow a combined approach and discussions are underway with a shortlist of suitable companies”. Overall, “the outlook for the final quarter to the end of March 2018 remains positive with full year out-turn forecast to be in line with market expectations”.
That is for a profit of £0.15 million on revenue exceeding £2 million – and then rising to £0.35 million on £2.5 million for the now current year. The latest did also admit “a highly competitive market”, but there looks good growth and brand value potential here. Certainly at least one to watchlist as a potential long-term growth investment.
Management Executive Chairman Don Goulding previously held senior management roles in the UK and internationally with industry major Diageo - including Managing Director Diageo UK. He joined as a non-executive in 2010 and took on his current role in November 2011. Finance Director Shaun Claydon is a corporate financier and business adviser with over 15 years lead advisory and main board experience. He joined in January 2015. Non-executive Director Mark Quinn has experience including from having been MD of Soho Estates, owner of the largest estate of licensed premises in central London.
UK Investor Magazine — 9 — April 2018
Breakout Rooms
ECR Minerals
Chaired by Chris Bailey: David Lenigas (Anglo African Agriculture), Kevin Foo (Victoria Oil & Gas), Andrew Bell (Red Rock Resources)
Asiamet Resources
15.20 -‐ 15.40
20 mins
15.40 -‐ 16.00
20 mins
Eurasia Mining
AAAP
Angus Energy
Big Sofa
16.00 -‐ 16.20
20 mins
ThinCats
Metal Tiger
Solo Oil
PCG Entertainment
16.20 – 16.40
20 mins
Georgian Mining CorporaNon
FairFX
Kefi Minerals
Minoan Group
UK Investor Magazine — 10 — April 2018
Will the FTSE-100’s most boring company be allowed to be interesting? By Chris Bailey
Y
ou may disagree with me (and feel free to post your selections in the comments below) but I think the FTSE-100’s most boring company is...Scottish & Southern Electricity (SSE). I introduced this concept back in November, where I also observed that a proposed bit of consolidation in its core power supply/distribution business might actually provide something to write about other than an ultra-tedious dedication to the dividend (and very limited - if any - capital growth). As I observed back in November: ‘Don’t worry I know the hare and tortoise fable and my own investment style is hardly rabid but shoot me now if I make this one a top ten portfolio position at any time before the age of 85...’ This month’s trading update will be a big tick in the box for the yield munchers as the company observed that ‘SSE continues to target an annual increase in the full-year dividend for 2018/19 that is at least equal to RPI inflation’ but I was more interested in hearing what it had to say about the deal. And surprise of all surprises...they might be nobbled on it. Actually you can blame the Germans. In a transaction so complex I am not quite sure I fully understand it, the German utility behemoths E.ON and RWE (via their spin-out called Innogy - yes, weird names, weird companies) have done a little corporate deal with the net result that their UK units will not have co-shareholders. Now this is a bit of a problem as it was the RWE/Innogy division that SSE was hoping to combine with. And given when I last counted there were six players of reasonable size in the UK electricity, gas and related power supply market...I am not sure threeinto-one (in terms of linked corporate ownership) really goes. SSE acknowledges this today with the observation that: ‘The planned demerger of SSE’s GB household energy supply and services business remains on course but its timing, if approved, is not certain’ Too right! And without that you go back to that grinding dividend focus and top of the charts ranking in the Chris Bailey Most Boring FTSE100 Company charts. Now the government and competition regulators may bitch about all this but
let’s not forget all of this is because the government is intervening aggressively and heavily in the UK power markets. Chat about price caps, tariffs constraints, allowable returns on all that jazz has gone way beyond the utility regulation that has existed for much of the post Privatisation epoch. In my view the worries about higher prices, the impact of renewable power subsidies on bills and brownouts/blackouts in the future as the incentive to invest is low due to very constrained allowable returns is a function of the market not being given enough freedom. As SSE itself also notes: ‘Furthermore, within 2018/19, the impact and timing of the Domestic Gas and Electricity (Tariff) Cap Bill, if enacted, is unclear’ In short the government has got the market it deserves...and potentially less competition, innovation and investment to boot. Fortunately the message quietly seems to be getting through. Personally I would let the deal go through and encourage companies to invest via that most oldfashioned of motives: profit. Now that would make SSE quite interesting although if you want to play this theme the company to buy surely would be Centrica (CNA) whose shares have been simply horrid of late but have a bit more get up and go about them than their Scottish ancestry peer. In the meantime if you are a SSE shareholder you can go and collect your dividend. The excitement!
Chris Bailey puiblishes Financial Orbit. This article first appeared on ShareProphets.com
UK Investor Magazine — 11 — April 2018
The Stupidity of Newcastle University Prof Alison Stenning on the Gender Pay Gap are our kids really taught by folk so dumb? Writes Tom Winnifrith
R
ight now Professor Alison Stenning, a professor of Social & Economic Geography is considering her next strike action in
support of maintain the ludicrously generous taxpayer funded pension scheme of which she is a member. She is also tweeting such absurd nonsense on the gender pay gap that I despair that our kids are paying £9,000 a year to be taught by folks this stupid. Hell’s teeth if you teach economic geography you should have some understanding of data? But the good Prof seriously reckons that the 19% gender pay gap at her University is meaningful data and allows her as a woman to claim that she is “working unpaid from 22 October.” As I explained in THIS PODCAST referencing the two extreme cases of RyanAir ( a 72% pay gap in favour of men) and The Crown Estate (3.1% in favour of women) the headline data is utterly meaningless. It certainly does not mean that men and women with the same experience, doing the same hours and at the same grade at Newcastle University or anywhere else are not earning the same wage.
part time female employees than men because although paternity rights now match maternity rights more women than men opt to go part time to look after kids. As a part time worker with a wife who works full time, I am the only Dad when I go to play classes with my son, in a room of 30 adults, that is just the way society is.
To give an example. Professor Alison Stenning says she is part time. So for a 0.5 post as a Prof she may earn £30,000 per annum (probably more). A man who is a full time Prof would earn £60,000 per annum. In the case of this pair there is a 50% gender pay gap and that is how it will show up in the overall Newcastle data the good Prof cites. But it is meaningless as in reality there is equal pay for equal work.
The other reality is that there are just more
Heck Newcastle may be a bastion of sexism. I don’t know. But what anyone who crunches data with any academic rigour can see is that this Prof has arrived at a ludicrous conclusion based on data she really should know tells her nothing. And she is teaching this sort of way of thinking to our kids? Newcastle geography students should be asking for a refund.
This article first appeared on TomWinnifrith.com.
UK Investor Magazine — 12 — April 2018
Three resource shares to buy for April By Gary Newman
C
ommodity shares tend to go through cycles relating to whereabouts they are along the journey which takes them from explorer to producer, but plenty of investors fail to take that into account.
commodity prices. There are a few companies which fit the bill at the moment, and although not a traditional natural resources stock, Berkeley Energia (BKY) would be high on my list.
You will generally tend to see a big spike in the share price – the smaller the company the more pronounced it tends to be – when it first makes a discovery. The exact details of what and how much it has found don’t always determine just how crazy the market will go. Then reality sets in that the company is still at a very early stage and there is a lot of work to be done to prove up what it has found, and that work will need financing. So, during this period you will tend to get spikes as more pieces of the jigsaw come together, along with dips, often coinciding with fundraising activity, and this is of course assuming that all goes well at the appraisal stage. Many of these small companies never actually make it to the next stage, which is proving up the economic model, and obtaining finance and the relevant permissions to make it production. Of course a few companies do end up getting bought by a larger outfit, but these cases are actually pretty rare – in the majority of cases if a large company had wanted that particular licence in the first place then it would have secured it in preference to a tiny AIM outfit that no one had heard of before! Once all the hard work has been done and a lot of the risk has been mitigated, for some inexplicable reason you often see private investors selling up rather than waiting a year or two to reap the rewards, and that can lead to dip or stagnation in share price, before it finally gets moving again in the run up to production getting underway. That impatience from investors can lead to some good buying opportunities for anyone who is prepared to hold for a few years – these companies can do well in an ISA or SIPP - and often the downside risk at this point is fairly low, barring geo-political risk or a sudden collapse in
Barring some sort of sudden disaster – either in the construction of its Salamanca mine in Spain, or similar to Fukushima in Japan, which hit the whole sector hard – it is hard to see how this won’t be producing uranium within the next year or so. All of the necessary government approvals and project finance is already in place – via a deal with the Oman sovereign wealth fund – and mine construction is already underway, with first production targeted for 2019. This will make Berkeley one of the lowest cost producers in the world and it is expected to produce around 4.4 million pounds of uranium per annum, and the project has an initial life of around 14 years, but with the potential to increase that via further exploration/appraisal. Projected prices for uranium going forward – no one knows for sure but I am quite bullish on uranium, given the lows it is now at compared to where it had been not so long ago ($20 compared to $70) – give a forecast for average annual net profit of $116 million over the first ten years. Considering the company is currently trading at a market cap of around £129 million, I would suggest that there is plenty of upside from todays’ share price of 47p
UK Investor Magazine — 13 — April 2018
to buy. Regular readers here will have to forgive me for mentioning an old favourite of mine again, but it is hard to ignore Hurricane Energy (HUR) when
sector with large resources in the ground actually make it to production. There are a few on AIM that I do think have the potential to join them and which could have big things ahead, but these are much earlier stage outfits and the biggest difference is that their projects are yet to gain funding. One which I like from the point of view of it already having sizeable reserves and being involved in a metal which I think will perform very well in the coming years, is Horizonte Minerals (HZM) and its nickel interests in Brazil – plus it also has
talking about companies soon to reach production and which could be on the cusp of big things. In this case I can see why some may have become disenchanted with it, given some previous unrest in the boardroom and amongst larger holders, and the way in which project funding was obtained, via a mixture of equity and convertible loans – it did however manage to raise $520 million, which is no mean feat given the market conditions and size of the company. Some will also argue that it is hardly cheap, given a current market cap of £725 million, at a share price of 37p, when you consider that at the moment it doesn’t produce anything at all. Based purely on booked reserves it also looks expensive, as taking its six year early production system model for Lancaster, that gives just 37.3 million barrels of 2P reserves, and means they are currently being valued at around £20 per barrel in theory. But that doesn’t give the full picture, as the EPS is designed as a way of reaching production in a quick and economical way, and those reserves are backed by 486 million barrels of 2C contingent resources which will come into play further down the line. On top of that you also have some large resources in the 2C category at its other discoveries, Lincoln and Halifax, with 504mmbbls and 1,200mmbbls respectively. This also isn’t one that you are going to have to wait around in for years for anything to happen, if it ever does, as first production of around 17,000bopd is targeted for H1 2019. The fact that only two such companies spring to mind – certainly in terms of being funded and with large projects coming online within the next year or so – is a good indication of just how many (or more accurately, few) in the oil and mining
cobalt. Its Araguaia project has contained nickel reserves of more than 430,000 tonnes and the feasibility studies carried out so far suggest that any mine there would be very profitable even at current prices or lower, given annual output of 14,500 tonnes. Given where it is operating, the infrastructure that is in place or being built, and some of the other outfits operating there such as Vale, I would expect that one of them would want to get involved and would fund the $350 million needed to get it to production in return for a share of the project. The latest feasibility study is nearing completion and production is still being targeted for 2021, although that could prove to be optimistic, as is often the case with these companies. The first stage of the Araguaia project alone would be huge for this company, but in addition it also has Vermelho a few years further down the line, plus expansion to the original project which would be funded via cash flow from production. All of that is still a long way off and plenty could go wrong along the way, but given the stage that it has reached and the economics, I can certainly see value from a share price of 4p and market cap of £57 million, as a speculative play and despite the risks, given the huge upside if things go even remotely to plan.
UK Investor Magazine — 14 — April 2018
the house view The question is which black swan will upset the markets
W
e have consistently argued here that the stockmarket is overvalued. Cheap money, QAE and general irrational exuberance mean that anyone “buying the market” today is paying an unjustifiable and massive premium to book value, to
the net present value of the future cashflows of its constituent companies and is a paying a PE that simply cannot be justified by the pedestrian earnings growth on offer. Of course markets can defy gravity for a long time but not forever. The question is therefore what will spook a much needed correction? Take your pick. Events in Syria could create the biggest downside of all if they escalate and go global. In such a scenario the value of your portfolio is the least of your worries. Hopefully, a more likely black swan is the effect on an over-borrowed consumer and corporate world of a sharp increase in interest rates. Brexit and the threat of a Jeremy Corbyn Government add to the black swans potentially heading our way in the UK. In the US, the Trump regime is not the most stable. In Europe there is always the chance of the EU starting to fall apart and the PIIGS nations are not out of the woods yet - their banks are still bust though we like to pretend otherwise. The Chinese economy remains a mystery with debts we cannot imagine and capital misallocation rife. How would some sort of crash out East in the real economy affect world economic growth? Not for the better, we suggest. There are no doubt other black swans which could trigger a correction. By their nature you do not always know what a black swan event will be until it hits you. Or perhaps we will be hit by a flock of black swans or maybe just a pair. So the question is not so much if the market will correct but when and what will trigger it. It is a great unknown. But now, more than ever the prudent investor will have a healthy weighting of cash and will not be betting heavily on high risk situations, highly leveraged investments or those where there is a clear and looming funding need. Be careful out there. UK Investor Magazine — 15 — April 2018
Saturday 21st April 2018 | London Save the date!
UK Investor Magazine — 16 — April 2018