UK Investor Magazine July 2015

UK INVESTOR MONEY // SHARES // INTERVIEWS

The puzzle of David Lenigas

ISSUE 2 // JULY 2015

Three shares to sell for July

by Tom Winnifith

Three shares to buy for July

by Zak Mir

Buy Gold says Richard Poulden AIM is a casino says Ben Turney

UK Investor Magazine — 1 — July 2015

Intro

INSIDE 4 Three shares to buy for July Zak Mir 8 MySQUAR – Operating In the land of the ‘internet virgin’ Barry Gibb 10 Interview: Neil Ritson of Solo Oil Zak Mir 12 Three stocks to sell in July Tom Winnifrith 14 Ten Golden Rules for Making Big Money with Shares Malcolm Stacey 16 It’s time for gold Richard Poulden 18 Free Investor Events 19 Company of the Month: Sanderson Group Steve Moore

VOTING ON GREECE, ON DAVE Steve Moore is away for a few days watching the tennis. I can see some appeal in the women’s game but it is nothing to do with what must be the most boring spectator sport on this planet. But whatever keeps my long-time associate happy. Thus it falls to me to introduce this second issue of UK Investor Magazine.

In this issue you will find ideas on stocks to buy and stocks to sell from a range of folk, ShareProphets editor Ben Turney on how AIM must be reformed, Richard Poulden on gold—is now the time to buy and our main feature: David Lenigas, hero or villain.

Big Dave is a marmite figure and perhaps the best known CEO on AIM, now that Rob Terry has other matters on his mind. Is he saint or sinner, make your own mind up.

20 The House View: Greece Must Say Oxi

Making money from shares is all about bottom up stock selection.

Or rather it should be. If you get your analysis correct, form a correct view of management and buy at the right price you should make money. Simple.

22 David Lenigas: Saint or serial Sinner?

But in this week of all weeks as the Chinese stockmarket goes from bubble mode to meltdown mode and as Greece has one or two local issues, it is all to easy to forget that the stockmarket is not a beast in its own right just a collection of individual stocks.

Zak Mir

26 Does the London Stock Exchange deserve its licence to regulate AIM? Ben Turney

CONTACT US UK Investor Magazine 91 - 95 Clerkenwell Road London, EC1R 5BX E: info@ukinvestorshow.com W: www.UKInvestorShow.com : EDITORIAL Tom Winnifrith Editor Cover David Lenigas

As it happens I fly to Greece within hours to report on its weekend of destiny, live from Syntagma Square in Athens. Expect a 72 hour blogfest on www.ShareProphets.com But while Greece and China may grab the headlines and all the talking heads will be focussing on the drama and crisis out East that is not what will determine whether your portfolio flourishes or fails.

That will be down to individual stock selection.

Of course if Greece votes Oxi – as I hope it will – and potentially leaves the Euro—as I hope that it will—shares may face a severe initial markdown. The value investor will see that as an opportunity if he or she can add to holdings in good companies at attractive prices.

That is not the same as saying “buy everything on a sell-off” because buying shares in bad companies is not investment but gambling on the bigger fool theory.

Bad companies tend to need to raise fresh equity rather too often and if the wider market slumps that because either uber-dilutive or impossible. Good companies are thus inherently less vulnerable to a wider market sell-off. But can see their shares whacked none the less.

There could be opportunities ahead.

Best wishes​ Tom Winnifrith​ ​ S Check out the speaker line-up for our new show – Gold, Bears & P Traders on November 28th 2015 as it is now pretty awesome – you can see the speakers and book tickets at half price until July 31 HERE UK Investor Magazine — 2 — July 2015

UK Investor Magazine — 3 — July 2015

Zak Mir’s three shares to buy for July

By Zak Mir BUSHVELD MINERALS (BMN): 7.75P TARGET AT 2014 PRICE CHANNEL TOP While it is difficult not to be is a little wary of the current charting position of Bushveld Miner-

als, if only because mining stocks in the minnows area have tended to be disappointing/flash in the pan in terms of the recovery prospects, the construction here of the daily chart in terms of in recent months does suggest that we are looking at a relatively robust turnaround opportunity.

This is said in the first instance in the wake of the extended base for the shares since October, and a series of higher lows revealed since the beginning of April after the floor was put in the previous month towards 2p.

The beginning of the end of the bear run can be seen in terms of the break above the 50 day moving average then towards 2.5p at the end of April, and by the multiple support points at and above this feature that began from the beginning of May.

Indeed, May came in with a bang in terms of the price action end the vertical spike through the 200 day moving average currently at 2.99p. After that we were treated to the near obligatory test for support at the 200 day line, a feat which was accomplished by single intraday bear trap rebound from below this key technical feature.

Since then the stock has surprise in terms of the much higher support points that have been delivered, both of which have been well above the initial May peak at 3.12p. This suggests that we are looking at a situation which is very much in ultra bull recovery mode, with the likelihood being that provided that there is no weekly close back below the floor of a rising trend channel from September/the 50 day moving average of 3.58p, we could be treated to significant further upside.

Just how significant this could be is suggested by the autumn 2014 resistance line projection currently pointing at 7.75p, a considerable premium on where the shares are at the moment just above 4p. Additional weight in terms of the bull argument also stems from the latest bounce off the RSI neutral 50 level to leave it at 55. This position between 50 and 60 is the traditional non volatile entry point for those looking to momentum buy a trading situation. That said, those who wish to see further evidence of significant upside would wait on a break above the 4.6p initial June resistance. Although this would be giving away a sizeable chunk of the potential upside, it would almost certainly lead to a significant acceleration

UK Investor Magazine — 4 — July 2015

in the price action to the upside. The 7.75p upside is seen as being achieved as soon as the next 1 to 2 months.

NETSCIENTIFIC (NSCI): CLASSIC SETUP FOR A 250P TECHNICAL TARGET A couple of years back I wrote the jazzily entitled book “The 49 Golden Rules Of How To Make Money From Technical Analysis. If nothing else it can be said that this was a comprehensive piece of work. But it can actually be said that since then I would probably revise this particular tome to just a handful of rules, with the best of them actually those which combine the different charting or technical triggers.

Indeed, four of them combine on the current daily chart configuration of Netscientific. Here it can be seen how over the past couple of months we been treated to a vertical spike through the 200 day moving average, a test of the 200 day

line now at 149p, then a V shaped bull flag. Finally this is likely to be followed by the run-up to a golden cross buy signal between the 50 day and 200 day moving averages. One sees this series time and again in the best of charting situations, with this year’s star minnow Amur Minerals (AMC) and last year’s big winner, Concha (CHA) both sporting the sequence.

What helps the situation here at Netscientific is the way the bull flag towards 170p had its support coming in at former January resistance around almost exactly the same level.

This example of old resistance coming in as new support is a key aspect in technical analysis and the lack of overlap between the former highs end new lows is only generally seen in the strongest of charting situations. The other fact to note is the

way that the V shaped bull flag we have seen since the end of May seems to be a mid move consolidation of the spike through the 200 day line, with the second part of the move likely to be seen over the next month. This would be expected to be of similar magnitude to the initial break to the upside. All of this would suggest that we should expect Netscientific to hit as high as the top of a rising 2014 price channel at 250p over the nearterm, with only a weekly close back below the 20 day moving average car with 177p likely to even begin to delay the upside scenario. In the meantime, any weakness towards this moving average can be regarded as a buying opportunity, if only to cool off the currently overbought RSI oscillator at 70.

PETROPAVLOVSK (POG): 200 DAY LINE CLEARANCE SHOULD LEAD TO 10P It is clear that any recommendations ventured in Petropavlovsk after the extended bear run that we have seen here would have to be regarded with caution given the way that this company has ruefully punished those long of the shares over the past couple of years.

However from a technical perspective the break back above the 200 day moving average currently at 6.34p since the middle of June is clearly a significant positive event.

This is because traditionally above the 200 day line for a stock or market is regarded as being in back bull mode, even if this is only a temporary affair. However, it can be seen that so far the push through the 200 day line, the first since April 2014 has been a clean one end and it is evident the line has not been required to be tested as new support.

While this state of affairs may prove to be a little too good to be true, the message at the moment is that provided there is no break back below the 20o day line, one would be looking to further significant percentage gains. This could mean that the shares hit the top of a rising trend channel from December as high as 10p over the next 1 to 2 months.

Ideally ahead of such a move there will be no break back below the former February resistance at 6.76p. Of course, there is the issue of how commodities prices are going to perform over the

continues on page

6

UK Investor Magazine — 5 — July 2015

continued from page

near-term, something which may affect the recovery here in adverse way. But it would appear that the rally we have seen from the lows at the end of 2014 is one which is company specific rather than a reflection of general market conditions.

Indeed, the darkest hour here was just around Christmas when the shares sank towards the 2p level at worst. Since then we have seen an acceleration higher, especially in the wake of the early February break of the 50 day moving average, a

5

feature which has largely backed the subsequent support points in this situation.

Of course, there will be some who feel that having more than tripled from the lows the shares are a risky proposition, but then the advice would be to look for any dips towards the 200 day line, with only a weekly close back below this feature, also the December support line, regarded as significantly delaying the upside argument.

Get your free copy of Zak Mir’s new ebook, Real Bulletin Board Heroes: The Ten Stocks to Buy for Summer 2015 by clicking here.

UK Investor Magazine — 6 — July 2015

GOLD BEARS &T R A D E R S

Star speakers from the world of commodities and investment including Zak Mir, van Dyke, Jim Mellon, ZakAmanda Mir, Amanda van Dyke, JohnMiddelkoop Hempton and Tom Winnifrith Willem and Tom Winnifrith.

Meet and chat to gold and commodities companies, their CEOs and Chairmen.

Tickets half-price 31 July Tickets half price foruntil limited time.

28 November 2015 QEII Conference Centre, Westminster, London goldandbears.com UK Investor Magazine — 7 — July 2015

MySQUAR – Operating In the land of the ‘internet virgin’

By Barry Gibb

Research Analyst, Beaufort Securities

M

ySquar* is a technology Group focussed on internet-content build in Myanmar. In the online world timing, of course, is everything. The Group has quite clearly seized the country’s ‘first mover’ advantage but also, seemingly uniquely, has recognised that offering local language and locally-derived content, is the only route to acquisition and retention of massed users still very new to the worldwide web. Within a short 15 months its services will be accessible by over 40m residents. MySQUAR is positioned to be the local platform of choice in what will shortly become southeast Asia’s fastest growing online territory.

Myanmar is unique. Amongst the world’s 25 most populous countries, it is the last major territory to emerge from an extended period of enforced isolationism. In 2011, a pro-democracy government wrested power from a series of military juntas that had contrived to suffocate and intellectually deprive a young, but surprisingly literate population, similar in size to the UK, for the previous 50 years.With a view to rapidly propelling the nation into the twenty-first century, a series of economic and political reforms are now being implemented. Importantly, this includes opening up hitherto domestic monopolies and

key markets to international investors. With this in mind, it has recognised that a comprehensive, high speed, nationwide and competitive 3G mobile network is one of the keys to rapidly unlocking the country’s potential.

A rigorous and transparent ‘beauty parade’ saw two 15-year licences allocated to international telcos (Norway’s Telenor and Qatar-based Ooredoo), alongside the incumbent Myanmar Posts and Telecommunications (‘MPT’) and second domestic licensee, Yatanarpon Teleport Co. (‘YPT’).

MPT has since announced a development and

UK Investor Magazine — 8 — July 2015

technology partnership with Japan’s KDDI and Sumitomo Corporation. Without the encumbrance of legacy equipment, technology and cabling, Myanmar is positioned to take one mighty leap from being the world’s third least penetrated mobile market (summer 2013) to having 75% to 80% national 3G/4G-ready coverage by March 2016 (Government target). Tumbling prices of both Android-based smartphones and SIM cards will clearly see Myanmar’s population of ‘internet virgins’ shortly undertake a very rapid catch up with the rest of the APAC. If the first task is to recognise the available scale of this ‘land grab’ opportunity, the second must be to understand exactly how to capture and engender loyalty within a dramatically expanding and hungry online user base. There is clearly much more to making content relevant to a local, hitherto isolated population, than simply generic translation of what to them are largely irrelevant western files.

Taking a cue from its more developed neighbours, MySQUAR has recognised that localisation is the route to rapid acquisition, loyalty and monetisation of massed users in APAC territories still new to the World Wide Web. Having seized first-mover advantage and created a ‘bullet proof’, bespoke platform, MySquar is developing as the venue of choice within Myanmar’s dramatically expanding mobile ecosystem. So what has been its experience to date? User acquisition is now inflating dramatically. Based on current trends, MySQUAR is positioned to capture and retain as much as 30% of the country’s total connected population as early as 2019, as its social networking and gaming offer expands to include a standard portfolio of news, information, financial and payment services. The value of MySQUAR’s opportunity, in what is set to become southeast Asia’s fastest expanding online territory, will then become quite considerable.

*Beaufort Securities Limited acts as Advisor to MySQUAR. MySQUAR announced its Intention to Float through the London Stock Exchange on 20th April 2015.

At Beaufort Securities we offer a bespoke advisory service. Our people are dedicated to the markets day in and day out for one reason and one reason only - to help our clients profit. To discuss your strategies with a broker, please call us on 020 7382 8384.

Beaufort Securities Ltd is authorised and regulated by the Financial Conduct Authority, registered number 155104 and is a member of The London Stock Exchange and ISDX.

Hot Stock

ROCKETS Stoc S toc ks R e a dy to take tak e o ff hotstockrockets.com UK Investor Magazine — 9 — July 2015

Zak Mir Interviews Neil Ritson of Solo Oil

By Zak Mir Zak Mir: AIM listed Solo Oil has a collection of Oil and Gas assets around the world. What makes Solo different from other oil and gas companies of its class?

Neil Ritson: Solo really behaves like a special situations fund. It raises money on the market to invest in opportunities that we come across where we can trust the operator, we like the assets and there is a reason why our capital can be leveraged into a situation. That’s not something that other companies are doing at the moment.

We do it with a group of oil and gas professionals, so this is not an investment group, it’s very much an oil and gas experienced group that’s looking for opportunities and making these investments.

for the growth of gas potential. Probably second to that would be our longer term strategy of getting into Nigeria, onshore in marginal field areas so areas that have already been proven to have oil, but yet to be exploited by the industry, and then far less far flung down in Gatwick. We’re a participant in the recent Horse Hill discovery, both conventional discovery and what now is appearing to be a very major unconventional discovery in that part of the world. So a range of different geographies as you say, but Tanzania is right up at the top.

ZM: Isn’t it ironic that may be the more far flung assets are in some cases more transparent in terms of their worth than the ones closer to home?

NR: Yes, I can see some irony in that.

I think it’s early days for the Weald Basin. We’ve done a play opening well and there is a long way to go before r Mi Zak ZM: Oil & gas, mining, and resources anybody can fully assess the long-term in general have been a risky area, tradivalue of that, but without doubt there is a great tionally speaking. But it seems that most of deal of oil under the southern part of the UK, and the risk derives from the skill or otherwise of the manthe question is how that can be followed up and agement, rather than what is actually in the ground. Is exploited. this a fair point?

ZM: Moving to the more exotic climes, I understand NR: There is a significant amount of risk in the that the situation in Tanzania carries a degree of politground in terms of geology and so on as with ical uncertainty. This is even though it is probably one mining. But yes, I am sure that there is a lot of of the more stable regions in Africa historically. How do truth that goes along with the theory that good you expect this to be resolved? management teams with the right expertise deliver the best results. I’m not sure it’s very much NR: I think that we’re always in areas which have different from any other industry, but it’s certainsome above ground risk when we’re in Africa and ly true of oil and gas.

Tanzania, as you say, a relatively stable country.

But it is a new oil nation, or at least a gas nation, ZM: It would appear that the market still does not fully and that comes with teething problems in underappreciate the potential of some of your more far flung standing how the industry functions and getting assets. Which one is the most important to you currentin place the necessary governance and mechaly, and how would you rank the relative importance of nisms for handling natural resources on this scale. the different geographies you own?

Now we’re onshore. Our gas discovery is close to a pipeline which is to be connected up to Dar es NR: By far the most significant asset in terms of Salaam and that makes this relatively low risk, but potential is the assets that we hold in Tanzania. still a new oil country that needs to get its proObviously that is quite remote and has a set of cesses sorted out and that comes with probably challenges above and below ground that makes it delay as much as anything else. I think there are quite interesting to us, and certainly is a hot area obviously a range of risks, but the one I would UK Investor Magazine — 10 — July 2015

pick out is that this sort of thing takes some time to bed down and to get it all squared away.

ZM: The word delay is not something that private investors generally appreciate. They are traditionally a very impatient crowd. Is this something you have to factor in, or does it actually affect some of the key decisions you make regarding your company’s strategy?

Our approach there is always to go into onshore areas with relatively low cost structures so that the downside cycles are mitigated against by the very nature of the sorts of assets we’re participating in, so we’ve been around in the oil industry a long time, we are seeing many cycles. I’ve lost count of the number of cycles in oil price that I’ve lived through, and so our plan is to pitch at the lower end of the cost spectrum so that low oil prices don’t adversely affect us. Obviously high prices, by contrast, lead to a very positive outcome.

NR: I think the difference it makes to us is as a non-operator, we don’t control the day-to-day activities or the newsflow that comes from those.

So where we are headed, and we’re not quite ZM: I was speaking to one of your contemporaries there yet, is to have a range of different averecently and he appears very keen on acquiring othnues ongoing in Solo, our portfolio, so that er companies / assets, at what he sees as being there is something happening somewhere bargain basement levels. In contrast, all the time. Delays are almost inevitapresumably shareholders or prible when you do business in Africa, and vate investors would be very keen particularly new jurisdictions in the oil if you just got the resources out of and gas space, are smoothed out over the ground as quickly as possible, time. We would expect those delays. so there is cash generation. Isn’t this It’s very difficult to predict them and, issue something of a conundrum at as you say, the retail market into the moment? which Solo plays is inherently impatient for newsflow and our solution NR: I think there is a balance to be to that, given our overall strategy struck in all of these situations, and as an investment company, is to there are opportunities. Solo has got broaden and widen the portfolio to take advantage of opportunities so that there is something going when they arise, be they one-offs or Neil Ritso on. There is interesting newsflow be they industry wide. We are looking n from one of our ventures almost all the very hard at the moment at a number time and we’re not dependent on a single event, of opportunities and at the same time or a single country delivering to a timeframe bemaking sure that the operators in our cause that’s very hard for us to both manage and other ventures, particularly in Tanzania at this predict. critical time, are delivering and we’re getting our cash flow from those. There is definitely opporZM: So you are basically in a position where you are tunity in the current market for those who have spinning various plates. But at least that mitigates the the financial strength to pursue it. risk of any one situation being delayed or having an adverse performance in the near term?

ZM: There are some companies who are private investor favourites who are sitting on rather large assets.

NR: Yes, absolutely. We do intend to be a portfoBut they do not have the cash to get the resource out of lio company. Our portfolio is still very much in the ground. Are you in this position currently, or can the growth phase, and we would also, you know you operate on your own rather than needing a helping as the portfolio expands, see some churn in that. hand from a bigger play?

There are things where we’ve made investments, a value point has been reached and we would look NR: We are always in the market for some helpto exit and re-deploy that capital into a new vening hands on our bigger projects, but I think at ture, so yes, very much a portfolio. the moment we’re very much set up to deal with the portfolio that we’ve got. What we’re perhaps ZM: How much is the future of Solo Oil dependent on more concerned about is partner drag. If any of the oil price heading higher from current levels? our operators or partners are not as well funded as they need to be that can be an additional deNR: Because most of our short-term opportunity laying factor. But it’s something we can intervene lies in gas, and gas in Tanzania as we’ve talked, on, and we’ve made some changes to our capital then probably less so than some of our peers. We injection into projects in order to make sure that are looking at fairly stable gas prices dictated by our objectives are met when others are perhaps a the local market, and there isn’t much substitulittle bit more stretched. tion possibility in that market so we’re not overly exposed to the oil price at the moment. Longer Again, there is that overhang on the market at the term, as our projects in both the UK and in Nigemoment, but in a low priced world people don’t ria develop, then clearly the oil market is going to have the capital to spend, but we can access capibe a factor. tal when we need to and we’re not overstretched.

UK Investor Magazine — 11 — July 2015

Three stocks to sell in July

By Tom Winnifrith So the FTSE has taken a Greek bath in recent days it is time to go indiscriminately bottom fishing? Er…no. The leading Index may be down from almost 7100 to 6600 but given the outlook for corporate earnings growth over the next year it is far from cheap. And among the smaller companies there have been some wild old moves and some of the big risers suggest to me that greed has not entirely left the building.

As it happens the AIM resources sector has actually had a good run so far in 2015. After three dreadful years it was inevitable that it would eventually see some sort of bounce.

Gaining 20% after you have lost 95% is not much of a consolation anyway.

But some of the mining stocks seem to be way ahead of themselves and for the bears they now present an interesting opportunity. Where else to start but with:​ ​ You cannot be Sirius (SXX) which amazingly appears to have planning consent from the folks on North Yorks Council – which I gather is somewhere in the grim Northern welfare safaris – to build a vast potash mine.

There may be riders and caveats attached to the consent but basically Sirius has got the green light to go ahead. And its shares have raced ahead to 22p valuing Sirius at a stonking £500 million.

Now please do not think that I dismiss the project out of hand. The mine is roughly 1500 meters deep and workers need to descend by very long shafts. The video proposes mining with continuous mining equipment (long-wall coal would be an analogy - but coal is never mined that deep).

Longwall equipment is expensive to maintain.

But it is not the operating cost that is the immediate issue although high costs will reduce the ultimate NPV, it is raising the cash to build the mine I the first place that is the immediate challenge.

We are not talking chickenfeed here – I would guess that the total cost will be c£1.75 billion and that we will not see the first Potash produced until 2021. That cash will come from a combination

of debt, offtake agreements but also equity so the dilution will be material.​ I would not even bet against a modest keep the lights on placing before we even get to the Sirius (geddit?) fundraising stage.

Given all of that the current market cap seems to be discounting an awful lot of future good news already. It seems the shares are riding a wave of post planning euphoria and that the serious risks ahead are not discounted. This has to be a sell.​ ​At the other end of the scale there are a raft of mining juniors which can only be described as the living dead. The market knows they are bust, they know they are bust, even the Bulletin Board Morons know that they are bust. It may seem harsh to kick a man when he’s down but as my pal Evil Knievil says, that is the best time to kick him.​ ​ Frankly there are several dozen such zombies I could have picked upon but why not pick on a company that I have been bearish on for two years and which is staring at the trap door – Sovereign Mines of Africa (SMA) which at 0.25p is valued at £700,000 but is in effect worthless. The last statement of its financial position was clear:​ ​During the last 14 months, our relentless search for sources of finance to continue our drilling programme at the Mandiana Gold Project has so far proved unsuccessful The situation was made more challenging by the ebola outbreak in Guinea which curtailed exploration activity throughout the country and made an already difficult task of finding a partner very challenging.

It remains, however, our view that Mandiana still has the potential to become a tier-one gold mine particularly with the addition in November 2013 of the Mandiana South exploration concession. We have a JORC-compliant inferred resource of 610,000 ozs of gold in very deep oxides averaging 1.2g/t (cut-off 0.3g/t gold), including 420,000 ozs having an average grade of 2.3g/ton (cut-off 1g/t gold) and the drilling so far has only covered less than 10% of the potential strike.

For the last eight months your Board has been seeking a strategic partner to fund the necessary and

UK Investor Magazine — 12 — July 2015

contingent expenditure to advance the project to a definitive feasibility study.

Although a partnership deal has not yet been concluded, your Board remains hopeful that an acceptable transaction can be concluded in the near future.

Bearing in mind this strategy, we have renewed the Mandiana permits this March in order to protect your company’s assets.

The financial statements have been prepared on a going concern basis as set out in note 3.

At 31 May the Company had cash resources in the order of £100,000. This is expected to provide sufficient funds until a refinancing can take place on the assumption that future exploration expenditure will be funded by a future partner. ​ ​Ends ​ Cashburn last year was c£15,000 a month so I reckon death could be achieved by November.

No-one is interested in funding the project and the cash will at some stage this fall just run out.

This company is toast. A dodo. A Norwegian parrot.​ Away from mining the third sell is Quindell (QPP) currently suspended at 124p valuing it at £625 million. The shares are suspended because Quindell has yet to fully unpick the frauds in its

2011-2014 accounts. So the numbers will show red ink all over the shop.​ ​That is not the real problem.

Quindell has said it will pay a 100p dividend thanks to the windfall it got from selling its bent legal services division to the Australian fools at Slater & Gordon. It will then be left with c£50 million cash which it will need to fund the hotchpotch of other frauds and loss makers it retains. But there is now an official FCA enquiry into Quindell which will almost certainly result in a large fine being levied.

There is also a class action underway which will be costly to defend and may well see Quindell forking out nine figure damages. And until both issues are resolved it would be hard for Quindell to pay any dividend.​ ​So at best that dividend will be deferred and it could well be reduced by quite a lot, indeed in theory almost wiped out. Since Quindell’s other businesses are worthless and indeed arguably have a negative NPV since they will never generate cash, the maximum value of Quindell is 100p per share. But the fines and legal claims could wipe much if not all of that out. And so if and when Quindell shares are unsuspended they are a sell with an initial target of 60p.​

Tom Winnifrith’s

5 mo de l por tf ol i o s : Growth Income Gold Recovery Penny Shares

S u b s c r i b e t o day

newsletters.advfn.com/tomwinnifrith UK Investor Magazine — 13 — July 2015

Ten Golden Rules for Making Big Money with Shares

By Malcom Stacey 1) DON’T TRY CATCHING A FALLING KNIFE When a share’s value plummets, there’s a temptation to believe you’re looking at a bargain which should be snapped up straight away. Yet there’s always a good reason why a share topples backwards.

And as more traders do some late research, the price is likely to wilt even more. So always wait till you’re fairly sure the share has hit bottom before you buy in the hopes of a rally.That usually means kicking your heels at least week before you think of piling in.

2) RIDE YOUR WINNERS AND DITCH YOUR LOSERS You’re sitting on a big profit after your shares rises, as you always knew it would. But taking your profits now could be killing the goose that lays golden eggs. If a share keeps on rising, it is a sound company. And the chances are that, unless there is a drastic change of management, the share’s value will increase over time.

But if a share loses 10% or more on your buy-in price, you should consider cutting your losses.

Yes, the share my recover, but often a failing firm just keeps on failing. You made a mistake. So what? Swallow your pride and sell now.

they seem over-burdened with borrowings, then avoid the shares. Profits will never grow fast if too much money goes towards paying off interest and the capital sum.

4) LOOK FOR ENTERPRISES WHOSE PROFITS GROW YEAR ON YEAR We are not talking about annual revenue here.

Many companies, with limited prospects, grow their income all the time, while they’re outgoings multiply even faster. This is not a healthy situation. Look for companies whose profits grow steadily. The very best firms to invest in are those who’s annual gains have risen every time for at least five years.

5) BUY SHARES IN COMPANIES WITH TOP MEN OR WOMEN AT THE HELM There are some bosses with terrible reputations. They’re overwhelming shortcomings are all too often exposed on Shareprophets. com. But some firms are run by whiz-bang entrepreneurs and business wizards. I’m thinking about legends like Jerry Robinson and Richard Branson. If the head of a firm you fancy is all over Google, collecting plaudits from the respectable sources, it’s likely that the company will go from strength to strength.

3) SHUN SHARES IN COMPANIES WITH BIG DEBT

6) THE TREND IS YOUR FRIEND

Many firms have debts, especially smaller outfits which are researching and developing new products. But compare their debts with similar firms. If

There are some highly successful share traders who prosper by doing the opposite of what other traders do. They’re known as ‘Contrarians’. But

UK Investor Magazine — 14 — July 2015

you need to be a almost a genius to pull it off time after time. It’s far safer to follow the trend. For example, If we are in a bull market, it’s best to buy rather than sell shares. And vice versa.

Similarly, if a company keeps on rising every day for a week that is a trend. Respect this trend and buy, until the pathway reverses, which, at some point, it inevitably will. Then start selling until the next sea change. Do not buck the trend - unless you have good information that the herd isn’t likely to have.

7) LOOK FOR THREE DIFFERENT SOURCES BEFORE YOU BUY It’s not wise to rely on just one source before investing your money. A tipster may the best in the business, one who writes on this exquisite site, for example. But he or she will occasionally make mistakes. We all miss something from time to time.

So if you read what sounds like a marvellous tip, check the internet for other mentions. You might find a newspaper which also likes the share. But you still need one more recommendation. Ask one of your mates with an interest in shares to check over the fundamentals.

If they also like the stock, you now have three sources for believing the share will rise. Now you can go ahead. Don’t worry if your little search takes time. When a share tip is out there, there’s usually an unseemly rush to buy, forcing prices up. That surge will die away and the price will soon fall bit. That’s the time to buy.

8) NEVER INVEST MORE THAN 10% OF YOUR SHARE MONEY IN ONE COMPANY If the worst comes to the worst and a firm you’re supporting bites the dust, a 10% loss, though nasty, is bearable. It will soon be made up, if the rest of your portfolio continues to head north in a reasonable fashion.

But I once knew of a bloke who put all his assets into one share. That company was BT, which is doing quite well, now. But I seem to recall that it was not always so successful. Could you live with the possibility, however remote, of losing all your money overnight.

By sticking to my 10% or under rule, this catastrophe can’t happen and you’ll never be tempted to leap out of a 20-storey window.

9) NEVER AVERAGE DOWN MORE THAN ONCE.

If a share falls and we think the selling isn’t justified, we can buy more stock at the cheaper price.

This brings down the average cost of all your shares in the company. Consequently, it’s now easier to recoup your loss and hopefully make a bigger profit.

But I also believe in not catching a falling knife (tip number 1) which averaging down really is. So it’s not a good idea to average down more than once. This is easier said than done, because, if the share continues its descent, then our conviction that the share is being oversold become even more compelling.

However, it might be that there is something going on which you, as an armchair investor not at the coal face, do not know about. So, after just one purchase of more shares at the cheaper price, call a halt to your buying and simply await events.

10) AVOID SECTORS THAT PROBABLY FACE A BLEAK FUTURE I don’t invest in hoiiday package purveyors. As the population comes ever more internet-wise, people will arrange their own holidays abroad, saving cash on flights and hotel accommodation.

Travel package firms will, in my view, become almost redundant.

Don’t buy shares in any set-up with ‘Cloud’ in the name. There’s just too much competition.

In fact, be wary of most technology companies as they can so easily be rendered out of date, by better ideas elsewhere.

I avoid shares in High Street stores. Internet shopping will become more popular, while High streets will become less attractive.

ONE BONUS TOPICAL TIP OIL TOGETHER NOW. Buy shares in big oil companies as it will be a long time before substitute energy becomes as cheap as oil and more available. Also, the price of oil will soar soon, after the recent downturn. And if it doesn’t, oil companies will be taken over by bigger fish, shooting up the share price.

But don’t support oil companies with low reserves or which have yet to find any black stuff.

Oil is becoming ever more difficult to find and extract and the explorers so often don’t find any at all. So the share price will continue to fall after you buy.

Malcolm Stacey has been writing about shares for more than 20 years. His first book “The Armchair Tycoon” was first published in 1998 but a revised 2014 e-version is now available. To obtain a FREE copy fill in the form HERE

UK Investor Magazine — 15 — July 2015

To all World Gold Investors: “I’m Sorry.... for the past, .... but this time it’s different”

By Richard Poulden

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ot a pretty picture...

To anyone who invested in gold in the last few years this graph says it all. The gurus have called the precious metals market consistently wrong. Doug Casey, Jim Rickards, Eric Sprott, Peter Cooper, me; the list is long.

And now a number of these people are saying that we are at the bottom for gold...actually pretty much what they were saying in 2011: “foothills of the next rally” and so forth. Very much what I said in July 2012 when we floated Wishbone Gold and for a while there, towards the end of 2012, it looked as though we were right...but no, down it went and has been bouncing along the $1200$1400 ever since: and on Friday it closed at $1200.

People now look back with scorn at Peter Schiff, CEO of Euro Pacific Capital who predicted $5,000 an ounce gold back in 2009 and Hsi Han

Pin of Standard Chartered who pitched it at the same level in 2011. I think they were just a few years ahead of the curve...

THIS TIME IT IS DIFFERENT… There are some valid arguments for a rise in price but I am not going to walk you through the technical analysis of the producer prices having a floor of $1,100 or the BBC telling you that the Greek crisis has led to the current minimal rise in gold: you can read all that elsewhere. There are also many predictions of “$1,400 gold” by the end of the year (even the UK Daily Telegraph and CNBC are in on this one). But the real reason that “this time it is different” is because the Chinese are showing their hand at last as regards what they intend to do with the world financial system and this will have major implications for gold.

I wrote at the beginning of the year about the

UK Investor Magazine — 16 — July 2015

new financial institutions China was creating: New Development Bank:

$200bil

20,000mt? Whatever the number is it will be substantially above the currently declared number and will almost certainly state that China is the largest holder of gold in the world.

Asian Infrastructure Investment Bank

$100bil*

It was 1971 when the US dollar was de-linked

The Silk Road Fund

$ 40bil*

$340bil

*China contribution only

Well, the assets of the IMF in SDR’s is around $309bil; The World Bank is $223bil; Asian Development Bank is $163bil.

So in the space of 24 months China has put in place new financial institutions, which, with contributions mainly from China, have nearly 50% of the assets of the existing major international financial institutions of the West.

Since then we have seen the rush to join the AIIB where all major players in the world economy are now members except America and their poodles, Japan and Taiwan.

China’s competitor to SWIFT, CIPS (China International Payment System) launches in September; which is convenient for those countries such as Russia and Iran where Western (or rather American) sanctions exclude them from the SWIFT system. The EU has, rather to my surprise renewed the sanctions against Russia until the end of January 2016. Of course no one in Brussels cares that the Greeks objected but I would have expected them to listen to France which also came out in opposition. This is significant as it pushes Russia further into the arms of China and helps consolidate the new monetary and trading block.

GOLD BACKED CURRENCY OF THE FUTURE? The Chinese have made no secret of the fact that they want the Renminbi to account for an increasing percentage of world trade.

It looks increasingly likely that the Renminbi will join the IMF SDR basket of currencies which puts it in an exclusive club of the US$, GBP£, Euro€ and the Japanese¥.

In order to join the IMF SDR club, all the participants are supposed to declare their reserves of foreign currency and....gold. This presents an interesting question. When China last declared its gold reserves it stated that they were 1,084mt but that was in 2011 and we know that at todays date it is wrong: they have stated that they purchased over 1,000mt in 2013 alone.

So when China does come to declare its gold holdings what will they be? 5,000mt? 10,000mt?

from gold and the last link of world currencies to any sort of independent store of wealth disappeared. Since then the purchasing power of these fiat currencies has collapsed (see charts).

China has hinted very strongly that once the RMB is established as a currency of choice for world trade then there will be some link to gold.

The image below is of a billboard in Thailand on the way into downtown Bangkok from the airport: the message could not be clearer.

THE CONCLUSION FOR GOLD: A LONG GAME People often say that China has always played a much longer game than the west and I believe that is true. What we are seeing at the moment is the next stage of China’s takeover of the world financial system. They have created their own rivals to the IMF and the World Bank, their SWIFT equivalent goes live in a few months time and the Bank of China has joined the group which sets the gold price.

BUT THERE IS STILL SOMETHING MISSING… China has been accumulating gold on an unprecedented scale and that suggests to me that they either see it as a store of value or that they are going to ensure that it becomes an unrivalled store of value.

Without a link to gold the RMB is just another fiat currency attempting to gain a foothold on the stage of world trade.

Although that foothold is expanding (see charts below) and by 2030 the Chinese economy will be substantially the largest in the world, there is an additional dimension.

China’s vast accumulation of gold suggests

UK Investor Magazine — 17 — July 2015

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that in parallel to their establishing the RMB as the world trade currency of choice they will also move to offer at least partial gold backing of the currency thus ending the brief near 50 year reign of fiat currencies.

It is unlikely that China will move on this until the RMB is part of the IMF SDR and also a major part of world trade. The reason simply being that they cannot move alone as without other currencies and commodities tied to the RMB, if it was the only currency backed by gold it would soar in value against other world currencies thus destroying China’s export markets.

So if China moves on these plans where would it place the price of gold? Recently Bloomberg published an article saying that with current stocks of gold in the world and RMB in circulation it would require gold to trade at US$64,000 per oz. It was of course meant to be sarcastic; yet another snide comment at how stupid the

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Chinese are to think of dominating the world economy. Yet actually it is Bloomberg that is stupid. All that their calculations require is a reset in the value of the dollar and since the U.S. currently needs to borrow around $1.5tril per year to keep the show on the road that could easily happen.

More realistic however is to view the $5-10,000 per oz range as perfectly probable over a 5 year time frame as China repositions itself in the world economy. It is China’s plans, more than any other factor, which underpins the medium and long term price of gold.

UK Investor Magazine — 18 — July 2015

company of the month

Sanderson Group

The rise, fall and now rise again of shares in Sanderson Group plc

By Steve Moore

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rom over 70p to sub 10p to back towards 70p, the followNow specialising in multi-channel retail and manufacturing ing explains the rise, fall and now markets in the UK and Ireland, rise again of shares in Sanderson recently announced results for Having joined and become Chief ExecGroup plc (SND)… the six months to 31st March utive in 1995, now Executive Chairman 2015 showed adjusted earnings The company listed on AIM on 16th Christopher Winn led a management per share nudging higher to December 2004 at 50p per share and buyout in 1999 and, following restruc2.2p, a £3.95 million net cash following maiden results and an acquituring, the 2004 listing of the business position and an order book sition the shares rose to more than 70p focused primarily on UK commercial of £2.84 million (2014: £2.47 before an October 2005 warning that the markets and retaining the Sanderson million). There was noted “a company had “experienced a slowdown in Group name. good level of confidence that discretionary spend from its existing custhe group will continue to make tomers particularly in the manufacturing further progress and deliver sector”. This led the shares back towards trading results in line with marthe listing price, at where they stabilised ket expectations” and a stated and commenced 2008 at 47p… continuing commitment to a Appointed CEO on the recent results However, acquisition activity had led to progressive dividend policy saw announcement, Ian Newcombe has an approaching £12 million net debt posithis increased by 12.5% to 0.90p over 30 years’ experience in software tion and, as macro nervousness ratcheted per share. and IT services and became Managing up, the share price began to again decline Director of the now multi-channel House broker, Charles Stanley, despite the company seeking to reassure sales division of Sanderson in 2005. is forecasting earnings per share that cash flows remained strong and that its of 4.7p and a dividend per share “proven business model generates approxof 1.9p for the full-year, rising to imately 50% of revenue from pre-contract5p and 2p next year, whilst added annual software licences and support ing “we suspect it is nevertheChartered Accountant and Finance services”. less capable of achieving faster Director Adrian Frost joined SanderThis reassurance was reinforced in growth as its SME customers beson in 2000, shortly after the manearly August 2009 when an extended debt agement buyout, and worked closely come less cautious on the econfacility with Royal Bank of Scotland was with the board in restructuring the omy”. This also reflects the tone announced – and the shares started a steady former group into three separate of a post-results chat I had with recovery aided by improving trading mobusinesses. He rejoined the current management and though, now mentum. This was accelerated in January group in May 2005. at 67.5p, the shares are perhaps 2012 when the company announced an unlikely to race ahead in short £11.7 million sale of its high street retail order, they still have the look of business, returning it to a net cash position. a solid long-term investment.

UK Investor Magazine — 19 — July 2015

the house view

Greece Must Say Oxi On Sunday Greece votes in a referendum the like of which we have never seen anywhere before anywhere. There will be living reporting all weekend from Athens on www.ShareProphets.com

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he vote is whether to accept terms offered by the IMF and ECB to obtain new loans (to repay old ones) or to tell the bankers where to stick it. We believe that Greeks should vote Oxi, No, to tell the banksters to go to hell.

If Greece votes Oxi she will certainly go bust. The banks will go bust. And there will be short term pain.

But with a new – weak currency, the New Drachma, Greece can start again. Suddenly it will be cheap to buy assets there, to invest in Greece and to take a holiday there. That will create real jobs which will reduce unemployment, cut the emigration of the young and in due course allow the Government to let staff go as there will be opportunities in the private sector. There will be a recovery.

ing the worst recession in history even worse.

He young will leave in ever greater numbers.

Greece already has an average age of 45 and it is rising steeply. A few more years of austerity and there will be no young people left to care for the old, let alone to pay the taxes that keeps the state going. And Greece will be locked into the Euro making it unable to compete to attract investment and tourists in a way that it could with a new weak Drachma.

A yes vote so desired by the increasingly fascistic leadership of the EU would see the democratically elected Government of Alex Tsipras fall to be replaced with folks the EU can order around. It would lead to a scorched earth economic policy which will destroy and hope or future that Greece might have.

The alternative is too dreadful to contemplate. Greece will labour under debts until 2057. That is if it repays which it cannot. In reality it will never clear the debts. In addition the Government will be forced to introduce new taxes, cut the state payroll and cut pensions so mak-

We are sure the Greeks were nervous in 1821 as they took the first steps to independence. The first few years were brutal and painful but it was worth it.

Greece should think back to 1821 and vote Oxi on Sunday

UK Investor Magazine — 20 — July 2015

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David Lenigas: Saint or serial Sinner?

By Zak Mir

Zak Mir: My last interview with you was in November.

At that time it appeared those in the market were losing faith in terms of what was around Horse Hill. I suggested people gave the situation the benefit of the doubt and got stick on social media. But would you say that things have actually improved since then? What is your take on the whole perception of it?

David Lenigas: Well, nothing has really changed.

What we set out to do was drill a well next to a previous Esso oil show find where they have actually drilled two wells in Horse Hill in the early 60s and Collendean Farm-1. They hit good indications - or good shows of oil, as they call it - in the Portland. We went out to drill one of the deepest wells in that part of England for decades.

But what we were trying to do with this well was to drill it using the world’s most modern up-todate techniques and the well went pretty much on plan. The technology that was used took longer and was a lot more expensive. It takes a while to interpret and process that sort of technology, what’s now used, which people didn’t use 10, 20 years ago so nothing has really changed, though.

The optimism has always been there from our side.

ZM: But the big numbers you read in the press in terms of what is under there, presumably some of it will be recoverable. The only other barrier is obviously the cost of recovering it.

DL: Well, the concept of recoverability is really dependant on the flow testing work that we’re going to be doing. If you look at the Weald Basin - and Moose mentioned it earlier - there are quite a number of producing wells in the Weald Basin still today. We have four producing wells in the Weald at Avington, Horndean, Brockham and Lidsey - which is just off the Weald Basin.

So those wells have been producing in the Weald now for 30 or 40 years so there is oil in the Weald.

From a recoverability perspective that is really dependent on the flow test work. What we’ve done is we’ve been working with global groups like Nutech and now Schlumberger to assess the potential around Horse Hill-1 well and how that impacts on the Horse Hill licenses and the general region. They are the world’s best at working out the best way to complete and flow test these sorts of projects and how best to put a development plan together.

ZM: There is a lot of jargon there which perhaps nor-

UK Investor Magazine — 22 — July 2015

mal people in the street won’t be able to understand. But if you are a shareholder in the several companies which are related to Horse Hill…

DL: Well, the syndicate, we call it, the brave people who raise the money to go and drill a well in England when people basically don’t want wells drilled in England, yes.

ZM: We understand there’s a lot down there.

DL: You’ve got be careful; there’s a lot of oil in place within the structures, right.

ZM: Exactly, so I was going on to say…

DL: Yes. ZM: …is there any guess now? We’ve had two decent reports saying that there’s sizeable potential there.

What sort of percentage can we actually get out of the ground?

DL: Zak, it’s too early to say that. Until you actually flow test and then you go and drill further wells and maybe horizontal drilling or whatever our experts advise as next steps that we can get through from the government’s perspective with

respect to future well planning, it’s a process. It all takes time - particularly onshore UK. ZM: So maybe a year down the line we’ll have a better view?

DL: After the first flow test we’ll have a lot better view. What we’ve also been working with, with the knowledge that we’ve now got from these two major groups is where we actually want to flow test. When we first drilled the well the easy thing was, ‘Look, we’ve found some oil in the Portland that’s looking great’. The Portland is a quite pervasive producer of oil in the Weald Basin anyway.

Obviously there’ll be different testing regimes for different types of structures. But we found oil in place in a lot of the structures in the Horse Hill-1 well from in the Jurassic all the way from the Portland, all the way down through the layers.

There are a lot of zones to now test.

ZM: But recoverability could be anywhere between let’s say 5% and 80%?

DL: Well, if you look at the Nutech report they had some analogies because a lot of this stuff you

David Lenigas – The case for the Prosecution

By Tom Winnifrith​ ​ ig Dave Lenigas is a charismatic larger than life figure but he is in reality nothing more than an Aussie stock promoter. He does not create wealth for anyone other than City advisers, himself and associates – investors always get screwed.

Lenigas rarely promotes businesses that generate cash. In fact most do not even generate sales.

As such all have a perpetual need to raise capital via share issuances. And this leads Mr Lenigas into making statements which are at best ultra aggressive, one thinks about the exaggerated claims made about the Horse Hill properties or the projections made for boiler company Inspirit, or

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at worst slam dunk untrue. In this category one thinks of the tweets claiming that 3G seismic had been undertaken at Horse Hill. It had not.

Inevitably it is private investors who buy into the promote in the secondary market and who are screwed by the subsequent placing to City insiders.

And there are worse charges. It appears that the LonRho business which Mr Lenigas ran but then sold was, shall we say, not perhaps the best run enterprise and left the purchasers with a few nasty surprises. Former Tory Minister Sir Richard Needham accused Lenigas of returning the company to the “unacceptable” image it once had.

Just now and again a Lenigas created business delivers real gains for investors. If you bought at the right time you may have made money but that makes you a lucky trader. Even LGO cannot be said to have created massive real asset growth or value and it is the best of a bad bunch.

Lenigas has been a director of more than 140 companies and well over a dozen on AIM. Right now he is focussing on just three: Rare Earth Minerals, UK Oil & Gas and Afriag but that trio of loss makers nets him pay of £268,000 a year.

Lenigas has personally done well from AIM. Sadly those following his investments have done rather less well.

UK Investor Magazine — 23 — July 2015

compare basins to other basins where people are already having dealt experiences with. Nutech came up with some numbers of potential recoverability. But at the end of the day, it’s still just potential until you actually conduct the flow tests.

ZM: You can’s make any comment?

DL: No. Zak, I’m a mining engineer, not a petroleum guy. Now, if you had Steve Sanderson or some of the other guys sitting in this seat they might be able to give you a bit more of an articulate answer to that. But I actually can’t answer; it’s not in my field of expertise.

ZM: Obviously recent events have raised hopes, and make it appear we are looking at something game changing for the UK. DL: Well, that was the message I tried to get out on 9 April. When we put out the Nutech results of the Horse Hill-1 results, one of the key findings that we found in this well - and this is the news releases and in the public domain. The original assessment, going back to BGS results of the

potential of the oil in place in the Weald, is noone ever thought that the Jurassic sequences in the Weald were mature enough to be oil hosting.

The work that Steve Sanderson, who’s the CEO of UKOG, and the people that have been working with him have determined is that the whole structure has been uplifted by about 5000 odd feet, which means that where potentially the Weald could’ve been mature has actually been lifted up into something that’s a lot more gain-able. We’re talking oil in place coming in at around about 2000 plus feet.

The original models were derived on really old data, using old technology. There haven’t been a lot of wells drilled in the Weald full stop. We’ve been looking at from UKOG’s perspective, with Nutech and with Schlumberger in the last couple of months, what wells have been drilled? What sort of information is available from those wells?

The logging techniques that are used today are completely different from the logging techniques used even ten days ago. It wasn’t that long ago

David Lenigas – The case for the Defence

By Tom Winnifrith​ ​ ell’s teeth most of Big Dave’s companies are in mining and oil. Over the past few years those AIM sectors have absolutely cratered with many firms going bust and investors losing everything.

No-one ever suffers a wipe-out with Big Dave.

Yes the BD portfolio might not have shown absolute gains over the past three years but relative to the sector this man is sex on legs.

Yes Big Dave is not reticent about singing the praises of his companies. Perhaps he can get a little overenthusiastic at times but would you rather own shares in a company run by some camera shy accountant who never pushed the stock but just

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let it drift as no new investors were attracted?​ ​By definition investing in oil and mining exploration plays as well as emerging market and technologies is high risk. Anyone who goes into a David Lenigas stock regarding it as part of their bluechip sleep sound portfolio has only themselves to blame.

Having said that, Lenigas stocks have outperformed their wider AIM peer group materially.

Okay, give the dire performance of most AIM resources stocks that is not that hard but to have beaten what is his benchmark is a major plus point. And the reason that Lenigas has achieved that is – oddly- the reason that many lambast him.

That is to say, love him or loathe him, no one can deny that while many AIM promoters struggle to raise cash, Lenigas appears to find it remarkably easy.

And that means that a Big Dave company never goes down to the wire and has to do a last gasp deeply discounted rescue bailout or, worse, actually goes bust. Lenigas companies have survived a bear market far better than most and so when a bull market returns, shareholders may really start to cash in at last.

For now, they should thank him for doing so much better than almost all of his peers – many of whom pay themselves far more for achieving far less.

UK Investor Magazine — 24 — July 2015

Windows didn’t even exist; it was all done manually.

So the potential is significantly different because the models have changed. If you look at the Schlumberger news release that UKOG put out, even Schlumberger - who have done previous work in the Weald - say that the knowledge that they’ve now got from Horse Hill-1 well rewrites a lot of their original thinking as well, which is one of the reasons why Schlumberger is working with us to assess not only the Horse Hill-1, the Horse Hill licenses but around Horse Hill to work out what the potential oil in place is for the Weald Basin in a wider sense.

ZM: Most traders and investors are understandably obsessed by share prices. Do you think in general the market has a fair assessment of these valuations for say, UKOG, and the other companies? Do you think it is a fair reflection of what is going on there?

DL: Zak, it’s not my job to determine the share price; my job is to run the business. We’ve got some great people; we’ve got some of the world’s leading consultants working on it. We’re just going to keep going. You guys work out what the share price does. This market is a strange place; it is controlled by market makers, long, shorts, margin traders. The market is a strange place and if I even tried to put my head around the market these days, you’re just going to call it wrong.

So Zak, we just keep working with the plan.

We’ve got two of the world’s biggest groups particularly in this sort of field working with us.

Our view is the more independent views you get, it’s good science. We’re talking a rewrite of something that has historically by the BGS been regarded as being locked in concrete. If you’re going to come up with a different model then you need to have good science behind it.

ZM: You called the low in the oil price earlier this year…

DL: Well, I’m not an expert on that but I just thought…

ZM: You got it right!

DL: Well, no, I also said that the oil price would be back up by the end of March or April, I think, Brent at about $70. I nearly got there.

ZM: Well, it was quite impressive. I didn’t believe you at the time, but though, let the man speak and let’s see what it does. But does the oil price affect your project?

DL: We’re going to proceed with this project because this is a project for the longer term, right?

If I was worried about the oil price I would’ve stopped. But what a low oil price has done is it’s enabled us to be more acquisitive on more projects in the Weald. Our Northern Petroleum acquisition bought us into a lot of licenses in the Weald. It also bought us into production. Most people still seem to forget that UK Oil and Gas Investments is actually an oil producer here in the

UK. Now, our stated objective is to focus on the Weald Basin in production and exploration so it just created opportunities for us. I can’t remember the exact number. I think we put in a news release, since UK Oil and Gas was renamed from its old defunct shell we’ve done 23 acquisitions in 18 months in the south of England. There’s no reason why we’re not going to stop pursuing the concept of getting a bigger exposure in the south of England; that’s our mandate.

ZM: Presumably some of the people whom you bought off would now be kicking themselves?

DL: Well, they do it for their own corporate reasons. Northern were focusing on other things. I put an offer on the table, they accepted it. Some of the other players that we’ve taken increased holdings in particular bits of acreage in the Weald, we put an offer on the table, they accepted; willing buyer, willing seller. The low oil price enabled us to do that. If the oil price was still £100 a barrel we probably wouldn’t be sitting here talking about having interests in eight license areas within the Weald - and we’re still looking at more.

ZM: I asked on Twitter for some questions to ask you here today. The most polite one is probably that you are involved in many different areas. How do you actually cope with that? Can you successfully divide up your time?

DL: I’m not CEO of these businesses. If you look at a way a public company - or most companies - run, the CEO runs the business. He has a team of people behind him whether it’s consultants, finance people, whatever. My job is I am typically the chairman of these companies, the silly guy who stands out there and says, ‘Guys, this is the project we’re going to go for. How are we going to put this together? Put together a team and execute it’.

Everyone keeps going, ‘How are you splitting all your time with all this stuff?’ I’m the chairman of this stuff, yes? Beneath the chairman level is the operational level. Now, as I said earlier I’m just a humble mining engineer. But I’ve got some pretty good visions about where I want to see some of these things going à la Rare Earth Minerals and AfriAg. Everybody wants it all to happen yesterday and quickly because people are typically traders in this lower-end market cap stuff. If you sit there thinking about traders, you just do your head in, but I have plenty of time because I’ve got really good lieutenants.

ZM: You said to me a while back that Afriag was possibly the project you are most excited about.

DL: Yes, AfriAg is proceeding just nicely, thank you. But it’s one of those things that we’re flying product, we’re transporting product. We report growth in the business every six months. We report significant things as they come about. But right now it’s building a business as you build a

UK Investor Magazine — 25 — July 2015

Does the London Stock Exchange deserve its licence to regulate AIM?

By Ben Turney

T

he Alternative Investment Market celebrated its twentieth birthday on 19 June. To much fanfare, the London Stock Exchange congratulated itself on two decades of hosting “the world’s most successful growth market”. The headline figures crowed that AIM has hosted over 3,600 companies and raised £92billion in new and further issues, since its formation. The accompanying research report from Grant Thornton concluded AIM’s contribution to national GDP is the equivalent of £25billion each year. These numbers made for entertaining promotional spin, but the muted media response suggested the message largely fell on deaf ears. There are serious flaws running through the heart of AIM and unless these are addressed it is doubtful AIM will make it to thirty.

AN INVESTMENT RIDDLE – WHAT IS HIGH GROWTH BUT FALLS IN VALUE? AIM’s two most noticeable problems concern its lack of growth. Starting first with the AIM AllShare Index and the chart below is telling, even to the most inexperienced investor;

20 Year History of the FTSE AIM All Share Index SOURCE: https://uk.finance.yahoo.com

Since its inception in June 1995, when it launched at 1,000, the AIM All-Share Index has fallen by 23.5%, to close at 765.88 prior to publication. After getting swept up in the euphoria of the dotcom boom, at the turn of the Millennium, the index promptly collapsed in the ensuing crash and has failed to make any significant headway in the last fifteen years.

Supporters of AIM will claim that companies leaving this market, to join the London Stock Exchange’s main board, skews this view of performance. While the loss of the top performers will have a negative

impact, this only tells a small part of the story.

What is far more troubling about the AIM AllShare Index’s inability to gain traction is the lack of genuine value-generating progress across the 800 or so companies, which have been listed on this market for four years or more. In many instances these “businesses” are little more than cash cows for directors’ salaries and professional fees. Were it not for AIM’s chief redeeming feature, its ability to attract funding, most (if not all) of the long-termers listed on this market simply wouldn’t exist.

There is a serious question to ask here about capital misallocation in the British economy. While Grant Thornton claims that AIM contributes the equivalent of £25billion each year to British GDP, did it take into account in its findings the wanton value destruction experienced by so many private investors in AIM stocks?

There is no suggestion in the report this has been factored in. Instead Grant Thornton chose to focus on AIM’s ability to attract risk capital, but even this saving grace is on the wane.

This brings us to the second obvious problem facing “the world’s most successful high growth market”.

Funds raised through new issues are in severe longterm decline.

According to the latest statistics for AIM released

UK Investor Magazine — 26 — July 2015

by the London Stock Exchange, by the end of May this year the amount raised by companies in new issues has only been £258.6million across twenty-four companies. If this trend continues for the rest of the year, this will be the worst year AIM has experienced for amounts raised for new issues since 2001.

This must be a particular cause for concern to the London Stock Exchange, not least because 2014 was the best year for new issues since the start of the Financial Crisis in 2008. In total, 118 new companies came to market last year raising £2.6billion. This was over double the best year in the preceding six, though still 25%-40% of the amounts raised in 2005, 2006 and 2007.

Were it not for 2014’s bumper influx of new issues AIM’s long-term decline would be starting to look terminal. With the economy meant to be gaining in strength and the worst of the Credit Crisis supposedly behind us, more questions should have been asked at the end of June why AIM isn’t welcoming more applicants?

LOSING FAITH IN THE CASINO “I’m concerned that 30% of issuers that list on AIM are gone in a year. That feels like a casino to me and I believe that investors will treat it as such.” —US securities regulator Roel Campos, March 2007 Although Campos’ comments about AIM drew a furious response from London at the time, his words proved prescient. In investing terms AIM is as far removed from the traditional buy and hold approach as one could imagine. Holding AIM stocks for the medium to long-term is investment suicide.

Consistent success is driven through speculatively trading sentiment or, increasingly it seems, by plain old cheating and market abuse.

While the London Stock Exchange might claim Campos’ comments were ill judged, given the relatively small number of companies that actually fail in this market, this counter-argument masks a more uncomfortable truth. Thanks to the prevalent bucket shop mentality in the lower reaches of AIM, it is extremely hard to fail as a listed company. Deeply discounted placements, accompanied with the issue of billions of shares, are the order of the day. More often than not the participants in these placement flip their stock to make a quick turn, offloading worthless paper onto an unsuspecting public. This has fostered an ever-growing number of zombie companies on AIM, which stand little to no chance of turning their fortunes around. Leeching on precious risk capital, the only discernible purpose of these businesses is to pay directors’ salaries and advisors’ fees. Perhaps that

is what Grant Thronton was referring to when it talked of AIM’s annual £25billion contribution to GDP? TIME TO END THE ROGUES’ PARADISE The perceived lack of regulatory oversight and policing of market participants is perhaps the greatest challenge now facing AIM. The market’s structural problems are clear for all to see, but until the authorities get to grips with the endemic corruption that seems to have become acceptable practice on AIM, how can the investing public trust any company listed here?

While there are plenty of honest entrepreneurs, executives and advisors on AIM, the number of “bad apples” is unacceptably high. From Antipodean paper salesmen, to Chinese frauds and back to Rob Terry, recent years have proven, beyond doubt, how easy it is to cheat on AIM. There is a rulebook and there are meant to be mechanisms to protect shareholders and uphold the integrity of the market. Sadly there is very little evidence of substantial enforcement. There is the occasional whisper that a Nomad has been censured or a director has had a smack across the knuckles, but for a market like AIM to work, regular and public examples need to be made of rule breakers, if for nothing else than “pour encourager les autres”.

When informed of clear breaches of is rulebooks (for companies and for nominated advisors), the London Stock Exchange’s AIM Regulation Team hides behind the bureaucratic Catch-22 that it can’t publish its activities because these are, by their very nature, market sensitive events.

This is an absurd line to take. If someone is caught cheating, investors surely have the right to know.

How else are they meant to assess their investment risk if they aren’t aware that they are about to place their money into the hands of crooks?

This is the question the London Stock Exchange doesn’t want to be asked or to answer. As a commercial company, the London Stock Exchange’s primary concern is to generate revenue and profits. The total number of companies listed on AIM has settled at around 1,100 for the last five years. Despite the manifest problems gripping this market, this hasn’t yet translated into red ink on the London Stock Exchange’s bottom line. So long as it continues to generate consistent income from AIM, what motivation does it have to pursue reform?

The answer is very little, but unless the London Stock Exchange is willing to accept there are problems with its little flagship, it will be harder to justify its suitability to self-regulate.

UK Investor Magazine — 27 — July 2015

UK Investor Magazine — 28 — July 2015