UK Investor Show magazine July 2016

UK INVESTOR Start Thinking Recession

MONEY // SHARES // INTERVIEWS

ISSUE 13 // JULY 2016

Three sells to 0p from Tom Winnifrith Charles Barkley of Bluebird Q&A The FCA is not fit for purpose says Lucian Miers Seven PLC dogs spotted by Nigel Somerville UK Investor Magazine — 1 — July 2016

Intro INSIDE 3 Three resource shares to buy for July

Gary Newman 5 Aiden Bishop Q&A Tom Winnifrith 7 Seven Stocks which could be suspended

Nigel Somerville 10 We may be heading for a recession Tom Winnifrith 11 Company of the Month: InterQuest Group

Steve Moore 12 Three shares to sell for July Tom Winnifrith 14 Financial Regulator FCA is Not Fit For Purpose Lucian Miers 15 The anger of those left out since 2008 is a global phenomena Tom Winnifrith 17 The House View

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

In the previous edition of UK Investor Magazine, Comrade Atwater, a left-leaning liberal from the media world of London and I debated Brexit. For the metropolitan establishment such as Atwater it was inconceivable that the great unwashed would not do what they were told by their betters.

Boy did we give the establishment a shock on June 23rd. And it is not over. In this issue I explore how the roots of the anger that saw we the people stick two fingers up to the establishment lie, to a great extent, in the reaction to the crisis of 2008 and that means that the anger will not go away.

But there is another challenge for our new Prime Minister Mrs May: the economy. Before Darren twists his hipster beard and blames Brexit we are just a cork on the wave. The wave is a global downturn and that is not being driven by Brexit. I examine the implications of a recession which many think is unavoidable.

And of course there are share tips throughout the publication.

Buys and sells from Gary Newman, Steve Moore, Nigel Somerville and myself plus a piece from Lucian Miers on the terrifying way the FCA goes after all the wrong folk, in this case him and myself, our crime exposing stockmarket naughtiness.

This magazine is, of course, part of Britain’s top one day investor event, UK Investor Show which takes place on April 1st next year.

That is a Saturday and it is no April Fool. For those snapping up a gold ticket there will also be a pre show event at Saracens RFC on Wednesday 29 March, more on that later.

We will be putting up a new website to allow ticket bookings and also be announcing our first 40 exhibitors and ten big name speakers by the end of the month. It is shaping up to be the best show yet. And since this will be the 16th that Nigel Wray and I have put on we have plenty of comparators!

And so please put those dates in your diaries: April 1 (show), March 29 (pre show event for golden ticket holders). Meanwhile I hope that you enjoy this edition of UK Investor Show Magazine.

Tom Winnifrith Editor

UK Investor Magazine — 2 — July 2016

Three resource shares to buy for July Suggests Gary Newman

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iven the amount of uncertainty in the markets at the moment, and world economy in general, I am being fairly cautious with resource stocks, but there are still a good few that look worth buying.

Some of the larger companies, especially gold producers, have seen some very good rises in recent months, but there are still plenty of smaller companies that appear to be lagging behind and have good upside potential, as long as the commodities that they are producing stay reasonably strong.

One gold miner in particular which appears cheap to me at the moment is Petropavlovsk (POG), especially given that its share price has drifted back from the recent highs of close to 9p and now sits in the mid 7.3p range to buy.

This Russian gold miner has had its share of problems in recent times, but over the past 20 years it has produced in excess of 5.5 million ounces of gold, and in the first quarter of 2016 it produced over 92,000 ounces, with full year production targeting 460,000 ounces.

The company has been focusing on cutting costs, both in terms of production, with all in costs now down 14% to $932/oz, and also admin expenditure which stood at $30.4 million for 2015, 20% lower than the previous year.

The big concern for many here is the amount of debt that the company has, which stood at $610 million net debt at the end of 2015, but following refinancing of its balance sheet via a rights issue that had reduced significantly from the $930 million net debt in 2014. Currently the company is in negotiations with its lenders, with extended debt maturities and a relaxation of covenants expected any time, as June 30 was the most recent date for measuring these.

Although the company has been producing large amounts it has been making heavy losses, which is why its market cap is only around ÂŁ240 million currently, and this is one to buy based on

UK Investor Magazine — 3 — July 2016

where it could head in the future, rather than the problems that it has had in recent times.

trade payables standing at just £522,000 (with receivables of £230,000). It is also debt free.

With more resources being added to replace those being depleted, and a plan in place to continue strengthening the balance sheet, then as long as the gold price stays strong then I would expect Petropavlovsk to do well in the coming months and years from the current share price.

As long as everything goes to plan in terms of time scales and the performance of the product, then I see the current share price of 11.75p as offering good value for the long term.

If you are looking for something a bit different in the resources sector then I believe that Quadrise Fuels (QFI) could well be worth a look.

The company produces an alternative to heavy fuel oil, via its MSAR technology which basically allows the oil to be diluted in water to produce a low viscosity fuel for marine diesel engines, thermal power and steam generation, rather than having to mix it with expensive diluents to create the same effect.

This AIM listed company has taken a big hit to its market value since the oil price crashed back in the autumn of 2014, and since then its share price

Platinum has been one of the top performing commodities in recent weeks, which has been good news for Sylvania (SLP) which I covered last month, and this month I’d suggest taking a look at Jubilee Platinum ( JLP).

Jubilee is at an earlier stage, although it is already producing revenue from chromite concentrate, and is stockpiling enriched platinum containing material ready for processing, and the company

says that it is at an advanced stage of discussions to get that underway.

A platinum and chrome plant is expected to be commissioned by the end of the year, which would also process material from third parties, and a second tailings project is being constructed, which will target 55,000 tonnes of feed material per month.

has dropped from around 40p to the current level of 11.75p to buy.

Quadrise is getting very close to its MSAR fuel reaching the commercial stage and has a number of agreements in place. This includes one with shipping line Maersk, following extensive trials of the product in recent years, and Spanish company CEPSA to produce the fuel at its San Roque facility. It is expected that the fuel will be available imminently, with the commercial rollout taking place throughout 2017.

In addition to that, the company also has an agreement in place with a client in Saudi Arabia to go ahead with a commercial scale pilot demonstration project in which the fuel is produced at a major refinery and then shipped to a power station and trialled in a 400MW generator.

This trial is expected to begin in the next couple of months, and continue into the spring of 2017.

One thing I do particularly like about this company is that unlike so many others on AIM it has actually been making good progress, and without having to heavily dilute its shareholders, with the last equity raise being back in 2014.

Although it made a loss of £2.35 million for the six months up until the end of 2015, it did still have cash of circa £6.5 million, which should be enough for the coming year at least, with

This is all on its 63% owned Tjate project in South Africa, and across the whole licence it has indicated resources of nearly 2 million ounces of platinum, palladium, rhodium and gold, with lots of upside via further exploration and appraisal drilling.

At the Dilokong chrome mine feed rate is exceeding the design capacity by 50%, and is now generating revenue of circa £420,000 following its first full month of production during May, which compares very favourably to the £1.375 million of revenue generated at the last interim accounts for the six months up to the end of 2015.

Those accounts showed that the company made a loss of £4.2 million for the period, but taken in the context of £3.5 million of that being as a result of discontinued operations it isn’t as bad as it looks.

The company has also recently raised $10 million via a secured debt facility, a further $5 million unsecured and $2.5 million in equity, which will pay for work on its projects in the coming months.

With revenue now being generated, and with much more to come in the near future once its other projects are completed, I can see plenty of upside potential from the current market cap of £32 million, and think that the current price of 3.2p to buy offers value.

UK Investor Magazine — 4 — July 2016

Bluebird Merchant Ventures An interview with CEO Charles Barkley

A Q &A conducted by Tom Winnifrith Bluebird Merchant Ventures (BMV) joined the Standard List earlier this year and it has been a bumpy ride so far but CEO Charles Barclay is still optimistic. He takes a few questions from one of his shareholders, Tom Winnifrith.

Tom Winnifrith: Your shares have fallen recently on fears that the license to the Batangas mine in the Philippines might be in jeopardy. Is it?

Charles Barkley: The change in government at their end of June has led to the appointment of Gina Lopez as head of the DENR (Department of Environment and Natural Resources), a person known to have extreme negative views when it comes to all forms of mining. She made many sweeping and contradictory statements. This appointment is affecting all mining companies in the Philippines.

One of those companies is Red Mountain Mining (RMX) which is our partner in the Batangas Gold

Project. Our project is at the stage of gaining an ECC (Environmental Clearance Certificate), a document which has to be signed by the head of the DENR. Whether or not she signs the ECC, we still hold a legally binding contract with Government and the President of their Philippines has promised to honor all such contracts from any industry.

We expect more information and changes leading up to the formal confirmation of her appointment at the end of August however, whatever happens the project can, at worst, be delayed until opinion changes.

TW: You own 25% of Batangas with an option to go to

UK Investor Magazine — 5 — July 2016

b50%. Your partner red Mountain has recently had a change of board and is reviewing all you assets. Could this threaten Batangas?

CB: No. It cannot threaten Batangas.

We cannot predict what the changes in the board of RMX will lead too however it would present us with opportunities which we will evaluate in the light of the industry sentiment and our financial strategy TW: Assuming all goes ahead how quickly might Batangas produce and what will the capex be and how will you fund that?

CB: Batangas can be brought into production in approximately 24 months from acceptance to move to construction. Estimated capex is US$16M. We will examine the financial options at that time and do not rule out any instrument at this stage TW: And how much cash could it then throw off and for how many years?

CB: Red Mountain’s pre-feasibility study predicts US$34M over the first 7 years of operation. I am sure, in your experience, you have noted that most mines exceed their ‘feasible lives’, sometimes many times over. We believe this project will have similar upside.

TW: You have also recently announced the first trade on your copper trading arm? Is it true that trade was with Glencore?

Charles Barkley, CEO tonne (US$100,000 - 250,000 per month) when he reaches this level. This of course is also dependent on the grade of the ore arriving at the plant On a flat playing field getting to these levels will take about 6 months.

TW: And how profitable could it be?

CB: See above.

Once we have fine tuned this business model we will replicate it in other areas in the Philippines and the wider South East Asia.

TW: A lot of investors fear that London listed mining juniors are run by incompetents. What makes your manCB: We supply a local smelter in the Philippines. agement team different?

Glencore is the majority owner of the smelter CB: Our management team of 3 has over 120 TW: How quickly can this operation ramp up? years of experience across the breadth of mining and processing. We have managed, reopened, deCB: I think that I need to explain what we are doing signed and built mines for a number of companies. in order to answer this question and the next one.

We all live in the area we work in and don’t sit in Our model is simply this. We facilitate with our remote capitals of the world. We all have invested finance (in the form of secured loans),and exper- in the company’s future. tise, local partners to set up proper processing of We are NOT an exploration company and our the ore that they purchase from small scale operastrategy going forward is to augment our portfotions. We buy the product and sell it to the smelter. lio with near term production projects that suit the The Chinese have been engaged in similar models strategy and do not fly in the face of the local senfor decades however, to the best of our knowledge timent we are the only western company to operate this way. We set ourselves apart because we are looking TW: It has been suggested that a number of early into optimize the return to all stakeholders from the vestors who bought in at 3p have broken lock ins and miner to the processor. dumped shares. Is this true? Why will you not name and shame these pond life?

Thus we have no connection to the mining, or the processing once it is properly established.

CB: There is one person who has done this however we see no benefit in naming this person. We will As to the ramp-up that depends on the plant just ostracize him in the future owner who we assist in explaining the economics of his plant and show him how to optimize.

TW: Where do you see the shares going on a 1 year view and why?

The plant we have assisted this time has a capacity to treat a maximum of 1500 tones per month CB: We hope the shares will settle above the IPO and we hope he will build up to this level. His bot- price and gain about 20 percent by next April. Our tleneck is the supply of ore at the right grade for prime share mover will be our achievements howhis, and our, economics. ever, as you know, we cannot predict the vagaries of retail buys and sells.

We expect to generate approximately 500 tonnes of copper per month excluding gold and Financial Investigative Media Limited, which produces silver credits at a margin of US$ 200 - 500 per this magazine, owns shares in Bluebird.

UK Investor Magazine — 6 — July 2016

AIM CHINA SPECIAL

Seven Stocks which could be suspended and see shareholders lose 100% Investigation by Nigel Somerville

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or last November’s issue of UKI Magazine I was asked to name seven stocks which could see trading suspended and where shareholders could lose 100%. Four were from the ShareProphets AIM-China Filthy Forty – of which two duly obliged shortly afterwards as a result of the Nomad walking and were subsequently booted off the Casino when no other firm would take up the reigns. Of the other three, one has just been suspended for failing to get its accounts out on time.

I am asked for a new septic seven, and with the reporting season just finished on the Filthy Forty, where better to look?!

But first a brief resume on the original seven.

Two delisted and a third suspended: three from seven seems not a bad hit rate. But as a short portfolio the performance was rather better (although I very much doubt that many of them were possible to go short on).

The delistings were Auhua Clean Energy (ACE) and JQW ( JQW) so that is two wipe-outs. The suspension is Rurelec (RUR) pending accounts to December 2015. We shall see about that, but with a suspension price of 0.825p versus 1.225p at the start of November that is a 32% drop and questions remain as to whether the company will survive an ongoing cash-crunch.

The remaining four are Golden Saint Resources (GSR) whose accounts show that it was insolvent at year-end, but still limps on. Amazingly the shares are up by about 50%, the one gainer from the original seven. Kenmare Resources (KMR) was a token main market pick and its shares are down by about a third, as the company has worked on a refinancing. The two remaining AIM-China plays, Jiasen ( JSI) and MoneySwap (SWAP) are down by 50% and 66% respectively, to make an average performance in seven months of minus 43%.

UK Investor Magazine — 7 — July 2016

And so I am asked for a new seven, six of which come from the AIM-China Filthy Forty. Choosing is getting trickier as the forty has now seen half of its constituents delisted (mostly being booted off after a Nomad resignation: there were fourteen cases last year) and another four are currently suspended (one without a Nomad). So what’s left?

Jiasen ( JSI) is apparently a manufacturer of wooden doors and posh panelling. It spent months claiming in RNS after RNS to have 1400 and then 1500 employees – a claim quietly dropped after a site visit by our secret share shopper. The company is drowning in cash, even in a bad year last year claims to have been profitable and with the shares down to just 3p they trade on a PE of about 0.5. Read that again: a PE of 0.5! They trade at a whopping discount to cash, to c u rrent net assets, to earnings – just about every metric you can think of is on a joke rating.

Yet the company scrapped the full year dividend.

We’ve seen this all before, with previously departed companies from Fujian Province in China (like Jiasen) turning out to be frauds and investors lost the lot after the respective Nomads resigned and the shares were booted off the Casino. The massive piles of cash never existed, was explained away or just stolen and the joke ratings applied the market proved to be correct. I expect the outcome with Jiasen to be the same, so I’m reckoning on an eventual Nomad resignation and thus Jiasen remains on the list.

I am keeping MoneySwap too, as it is teetering on the brink of collapse. There is a rescue bailout refinancing which has been proposed at just $0.002 per share – around half of last week’s closing share price. But there are many hoops to jump through to get it over the line and the company warns that if the plan fails then it is lights out Ibiza.

So the risk here is a suspension pending clarification.

Five new contenders. Hmmm….

Taihua (TAIH) closed on 1 July at 0.85p mid (down a whopping 55%) having released its FY15 numbers after-hours on reporting deadline day of June 30. That in itself is a bad sign, The Going Concern statement was laced with a material uncertainty by the auditor – which also qualified its opinion on the accounts in relation to some trade receivables. The company has had profit warning after profit warning as its plantation of Forsythia has suffered plague

upon plague of bad weather and production has ceased on another of its products because it is uneconomic. In short I reckon there is no earnings visibility at all and the company needs to raise cash – hardly an easy task in the face of a market capitalisation of just £0.7 million. My expectation here is a Nomad resignation or a suspension pending clarification. Take your pick.

China New Energy (CNEL) also reported on deadline day and its shares duly crashed by around 50% by the close on 1 July. As far as I can see the accounts suggest that the company is insolvent even after a rampfest which allowed it to get a fundraising away in the weeks approaching publication of results at a 25% discount – the shares going to an “institutional” investor which promptly dumped the stock. The Red Flags in the accounts are all over the place: cash tied up, earmarked for settlement of court proceedings, corporate governance issues (the “independent” NED seems to control a partner of the company which has all sorts o f business lined up for it, although delivery of contracts seems less than timely), a contract which saw China New hand over Eur 250,000 to the customer – apparently as an investment, but which saw no shares in return, strange looking loans, a Going Concern statement containing a material uncertainty. This just looks an accident waiting to happen: as with Taihua, there seems to be a twin risk of suspension pending clarification or a Nomad resignation.

Asian Citrus (ACHL) has suffered the seven plagues on its orange-growing plantations and seems to be heading for insolvency. It has binned one plantation altogether and operations at another have recently been suspended. Its reporting period is to June so we will have to wait for the latest disaster story, but with a history of endless profit warnings and the cash heading out of the door the question seems to be when, and not if, it will run out of money. So this looks to me like one for a suspension pending clarification before 2016 is out.

Aquatic Food (AFG) reported calendar 2015 numbers which just look too good to be true: the shares are on a PE of about 0.5, trade at a massive discount to cash, to net assets, to net current assets. Indeed, the company could close itself down and after all the payables and receivables have

UK Investor Magazine — 8 — July 2016

settled it could hand out four times the current share price and still have £10 million left over. Oh, and just for good measure the results RNS carried the Going Concern statement from the previous year. Oops. The market doesn’t believe a word of this, and has been proved right before with Filthy Forty companies. I don’t believe it either, and just like Jiasen and a series of previous China Frauds before it, the question for me is for how long the Nomad will take to throw in the towel.

I’d love to include LED Holdings (LED) but its shares have been suspended since mid-December pending publication of results which finally came out almost six months late with an audit disclaimer as well as a material uncertainty in the Going Concern statement. It is still suspended – now pending interims which are three months late. Eastbridge Investments (EBIV) would have made it too but alas it was suspended on a Nomad resignation on 1 July. Drat. So do I turn to Northwest Investments (NWIG), the AIM investment company which doesn’t invest? It has, after all, been on the Casino for six years, having listed in 2010 with about £3 million in the bank and has 15 employees but has yet to invest a cent, and two thirds of the cash has now gone.

No: I’ll go for Igas (IGAS) which has at time of writing someone trying to buy, via a Dutch Auction, its secured bonds which are set to go into default imminently. My guess here is that the existing bondholders will be happy to take the cash and the buyer wants Igas’ assets. Igas hasn’t a hope of paying off the bonds (short of the House of Saud falling) and I fear that the shareholders will end up with nothing in the wake of a bond default.

So a suspended pending clarification is the risk.

We’ll see how this latest septic seven performs in the months ahead, but none is a share you need to own. With some it is a simple investment risk, with others it is perhaps the risk of fraud which might occupy the mind. Of course, as the patrician twit Mr Chris Gibson-Smith assured the LSE AGM last year, there is no problem of fraud amongst the Chinese companies trading on AIM. That is why there 14 Nomad resignations out of our Filthy Forty just last year whilst others disappeared for failing to publish accounts. So nothing to worry about there, then.

Tom Winnifrith’s

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newsletters.advfn.com/tomwinnifrith UK Investor Magazine — 9 — July 2016

We may be heading into a recession Writes Tom Winnifrith

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ere in the UK, every time there is a hint of bad economic news the liberal media rushes unthinkingly to blame Brexit. It is a sign both of how economically illiterate are the economics correspondents of the mainstream press but also an indication of their clearly defined agendas. Such judgments also make the mistake of believing that the cork can determine the direction of the wave on which it bobs. The cork, in this case, is the British economy, the wave is the global economy.

You see the trend of economic growth is slowing not just in Britain but in every single G7 country.

You cannot blame Boris Johnson for a slowdown in demand for business goods and services in Ontario, Nevada or Fuijian Prince China, although the BBC will try its hardest to do just that. But a clear slowdown is underway across the planet..

The reasons are numerous. For starters the way we have “recovered” from the financial crisis of 2008 has been by slashing base rates to zero and printing funny money. That has encouraged some quite reckless borrowing and in the end shaky enterprises based on leverage always topple. There was a study out from S&P the other day suggesting that global corporate debt will race ahead from $51 trillion today to $75 trillion by 2020 but already S&P is seeing material increases in defaults. More loans may be extended as banks decide to lend more to those already drowning in debt but in the end those drowning will go under. That cycle is already turning.

Easy debt has also encouraged both consumers and businesses across the developed world to bring forward future purchases. Hence the US is seeing record auto sales even though real post property cost disposable incomes are not increasing for the vast majority of its citizens. Businesses have also used cheap credit to build up inventory and bring forward capital purchases. This may be

a short term “economic fix” but capital mis-allocation based on easy credit is no long term solution to anything. There is a limit to how many new cars one wants and you can only buy in a certain number of new production lines. Again it seems as if the world is reaching a point where the short term fix runs out.

The boom and bust cycle that is an inherent feature of capitalism is in large part driven by psychology. When we think we are getting a bargain or that we must buy then we are optimistic and the economy grows to a point where it has over-expanded. Then psychology changes and we realise that there is no rush to buy that new car, that a house purchase should be deferred as prices are falling then we all switch into deferral mood which only makes the downturn more vicious. Fallling prices become a self fulfilling prophecy.

And that brings us to the real problem for the central bankers. Base rates are already at almost zero, the printing presses for funny money have already been run at full tilt. In other words the Central Bankers just have no ammunition left.

There are no big bazookas in their weapons closet.

So as the Global Economy turns down there may be nothing they can do to stop this.

Deustche Bank said that there is s 60% chance of the US heading into recession. No doubt the BBC would blame that on Donald Trump as well as Brexit. But in fact it makes little difference who is in the White House. The US economy is just a rather bigger cork on the same wave as the British economy. If the US heads into the red that is a sign that the whole world is heading for recession.

My view is that Deutsche is being unduly optimistic. But then with its balance sheet it probably needs to be. Yes, we could well have another Euiropean Banking crisis this year as well. Things may look bleak now. They may well look a lot bleaker soon.

UK Investor Magazine — 10 — July 2016

company of the month

InterQuest Group Mea culpa, what now?

By Steve Moore

Chairman Gary Ashworth

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pologies. In the April show edition of this magazine I wrote on UK recruitment group InterQuest (ITQ) as a share tip for 2016 starting to perform – the shares having risen from 82p to a then circa 90p. However, a 27th June “trading update ahead of its interim results for the six months to 30 June 2016 which will be announced on 6 September” has had a significant adverse share price impact here...

This update noted clients delaying hiring decisions in the run up to the EU referendum and that, post that result, the company now “expects trading conditions in the wider recruitment sector to remain challenging for at least the remainder of the current financial year”.

Although emphasising some protection from wider recruitment trends due to a focus on hardto-find niche candidates in growing sectors of the digital economy, “the company now expects that group net fee income and EBIT for the current financial year will be materially below market expectations”.

Unsurprisingly, this has had a significant adverse share price impact – with the shares swiftly crashing from 81.5p to 45p. However, there are signs that things are not as bad as the share price reaction suggests.

The company’s experienced Chairman, Gary Ashworth, noted that “operationally the company is in good shape but at this current time forecasting the impact of political and market developments is challenging and the management team have made a cautious assessment of the circumstances”.

This suggests this something of a pre-emptive profit warning and the company is expected to continue to generate sufficient cash to maintain the dividend and reduce net debt – for 2015, these respectively 3p per share (after earnings per share of 10.5p) and reduced by £2.33 million to £6 million.

That results statement also noted that “we are witnessing acute skill shortages for technologies that will enable our clients to either augment or transform their operating model to capitalise on the new digital economy. This demand is having an upward impact on salaries as well as permanent and contract recruitment margins”.

At a current 47.5p, the prospective dividend yield is thus 6.3% and although the latest update highlights that visibility is currently a clear issue here, the company looks soundly enough based to weather the current storm. I again apologise for how this has turned out thus far but, based on the above, my stance on the shares now is, at worst, strong hold.

UK Investor Magazine — 11 — July 2016

Three shares to sell in July The best time to kick a man is when he is down

By Tom Winnifrith

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s the great bear raider Evil Knievil once noted “the best time to kick a man is when he is down.” And thus all three stocks appearing below have featured in this column before. In all three cases I first started kicking when they were ailing but pretending otherwise. There was still the bombast, the swagger, the huffy puffy and pompous interviews with the FT, Edison or others assuring investors that all was well. Of course it was not.

Now it is clear, in all three cases, that all is not well. The shares have collapsed. But this is the joy of maths. The shares may be 90% or more down already. But in all three cases if you go short the upside is anywhere between 80% and 100% and right now this are risk free bear trades. There is no recovery from here. All three men are down so get kicking.

I start with perennial favourite Avanti Communications (AVN) which has, under the stewardship of the bombastic David Williams been run into the ground. Williams trousered well over $1 million last year including huge bonuses.

Bonuses for what you may ask since Avanti has always missed all its targets as it guzzled cash.

Avanti says that a “strategic review” is underway which is AIM-speak for “we are screwed.” And it is.

Simply to keep going the satellite firm needs to get another $70 million of debt to add to its existing c$550 million debt pile. Since Avanti’s existing bonds now yield well over 20% who on earth would pony up new bonds and on what terms? Well we know that one term is that Avanti must raise c$50 million of equity. Unfortunately that is about the same as the current market cap of the jam tomorrow pie in the sky outfit.

Avanti’s satellites in space and under construction have a value for another satellite business - a replacement cost value. Sadly that is way less than the current outstanding debt. Hence the logical way out here is, that since Avanti is clearly either in default on its bond covenants or dam close to it, for a predator to offer xp in the pound for the bonds - equating to the replacement cost - and take ownership of the assets. Bondholders will take a haircut but that is largely discounted already.

Equity holders lose everything. That is not and that is why the shares are a sell.

Next up is Gulf Keystone (GKP) which has already announced its debt for equity swap. That sees shareholders left with c5% of the company or c15% if they take up a $25 million open offer at 0.89p. So by implication the oil explorer would, at 0.89p, be valued at $250 million with bond holders ( who do not want to own penny shares and so are clear sellers) owning 85% of the equity.

Most of that equity (66% of the enlarged) would be with a class of bondholders who would - much to their surprise I suspect - get all their cash back if they could sell at 1p.

UK Investor Magazine — 12 — July 2016

Post the D4E swap Gulf would have net current assets post urgent capex needs of more or less nothing. It would however generate free cashflows ( after interest and tax) of perhaps $60 million per annum. As a generous soul I shall ignore maintenance capex which will probably devour a third to a half of that and so value the business on four times cashflows which is pretty generous by long term sector norms . That implies a valuation of c 0.85p per share;.That is a generous valuation because I a man whose spirit is overflowing with the milk of human kindness. Just don’t tell anyone as I have a reputation to preserve.

So one has a massive overhang of stock (66% of the equity) which will want out at anything north of a penny and a fundamental value of 0.85p (if we are generous). Yet, thanks to a bear squeeze and the unrivaled stupidity of Bulletin Board punters on resource stocks, the shares now trade at 4.9p.

If you can get borrow this is an opportunity not to be missed.

Finally, IGAS which has also featured here before and more than once. Its shares are now down to 12.25p valuing the company at £36 million. IGAS has admitted that it will breach covenants on its outstanding bond mountain shortly and a mystery bidder has swooped in to buy c30% of those bonds.

Notwithstanding that the bonds still trade at a deep discount to par. That is telling you something.

Surely by now oil investors have learned from

Afren, Petroceltic, Circle Oil and Gulf Keystone what happens next? One suspects that if they have not then Trinity Exploration and XCite Energy will be providing further lessons from the swamp of debt very shortly. IGAS may as an entity have a future but it will be a future with different owners.

The only question is whether the bond owners offer equity holders a morsel ( see Gulf Keystone) or whether they just take the lot. There is no obligation on them to be generous. As such IGAS is an easy sell. The “option value” and target price here is perhaps 1p.

Hot Stock

ROCKETS Stocks Ready to take off hotstockrockets.com UK Investor Magazine — 13 — July 2016

Financial Regulator FCA is Stalinist and Not Fit For Purpose Writes Lucian Miers

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hen Gotham City published its now infamous report on Quindell, a copy of which was sent to the FCA and the Serious Fraud Office, it was OVER a year later that any action was taken and this despite a high profile campaign against it by Tom Winnifrith Shareprophets and, to a far lesser extent, Dan McCrum at the FT which, in the case of Shareprophets, included many specific allegations of fraud and open exhortations to the FCA to do something about it.

But for a huge stroke of good fortune that saw Slater & Gordon acquire Quindell, almost certainly bankrupting itself in the process, Quindell would have failed completely without a shadow of doubt.

I know that Tom warned the regulators at the FCA with specific information on Quindell, evidence of fraud, on numerous occasions. The PWC report into Quindell has demonstrated that what Tom said was fraud was indeed fraud and the FCA did nothing about it. Yes absolutely nothing.

One of the reasons for the sclerotic attitude of the regulators is that their resources are wasted on pointless activities. In the case of the Gotham report I suspect that far too much energy was wasted on discovering its author and the extent to which he had profited, with a view to taking action against him, and far too little time was spent on examining the veracity of the claims.

I have been writing to AIM regulation and the FCA on the odd occasion for many years now highlighting easily verifiable examples of fraud amongst a host of companies, the vast majority of which have subsequently failed. Environmental Recycling (formerly 3DM) looks like it has gone to the wall ELEVEN years after a host of warnings to the authorities went unheeded allowing halfwit tipster Michael Walters to pump it to his followers.

Sister company Eden Research IS STILL blithely misleading investors despite regulators being giv-

en chapter and verse on the mechanics of the deception.

I have recently received two letters from the FCA. Tokens of thanks perhaps for years of service?

A request for help in tracking down Mr. Papadimitrakopoulos, former Globo CEO? (Is he hiding out with Winnifrith in his homeland, plotting his next AIM IPO?) Unfortunately not. Letter One was a request for a record of my dealings in InternetQ prior to a damning (and accurate) report on Shareprophets in early December last year.

Given that Globo (headquarters 800 yards from InternetQ, same sector) has been exposed just weeks prior to that report and also that Tom Winnifrith had published a most excellent bearcast listing numerous InternetQ red flags in October of that year was it any wonder that a lot of smart money was short of the stock? Did that not occur to the halfwit regulators?

Letter Two informed me that the FCA will be taking no action “at this time” It also deemed it “appropriate” to draw my attention to the fact that insider dealing is a criminal offence. (You don’t say.

I never knew that) So this is how this august body spends its precious resources. How depressing.

Maybe the new regime can change things so that in future it may be of some use. Is it too much to ask that the FCA does not try to nail those who expose fraud for crimes they have not committed but instead goes after real fraudsters who steal money from investors?

Tom Winnifrith comments on this scandalous abuse by the FCA giving more detail and comment HERE Infamous Bear Raider Lucian Miers will be among the keynote speakers at UK Investor on April 1 2017.

UK Investor Magazine — 14 — July 2016

The anger of those left out since 2008 is a global phenomena Writes Tom Winnifrith

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here is much commentary in the USA about the revulsion that so many folks feel for the three intertwined pillars of the status quo of the establishment: the political class, the big businessmen who fund/buy that class and the media pundits who take the political/business spin without question. I would perhaps add a fourth pillar, the banksters, but perhaps they are rolled into business fat cats. The massive distrust and resentment of these people seems to be evident across the West. That Americans may well vote for Donald Trump who is, shall we say, not exactly the new Abraham Lincoln, is a sign of this, Brexit was another as is the rise of the frightful Marine Le Pen in France.

And so we come to the coronation of Theresa May as Britain’s new Prime Minister. And it was a coronation. There was not vote of party members she was picked as a result of Tory MPs voting. One might accept that she was the only sane choice as the other candidates were tainted by the stench of treachery (Gove), hypocrisy and jiggy wiggy issues (Crabb), plain stupidity and honesty issues (Loathsome) or just being seen as a perennial no hoper (Fox). But none the less her appointment is not a great day for democracy. It will be seen as another Westminster stitch up. And it was.

The media reported on high drama. With the selection of another Oxbridge financier as our new PM and then of a cabinet reshuffle with one public school educated Oxbridge person with zero real life experience swapping jobs with another from the same background. With one or two exceptions to this ( David Davis) nothing really changed. May’s

silly words about a new direction were either nonsensical or just plain old clap trap. But the media pundits loved it and spun it as a move this way or that.

This weekend in the more fashionable parts of London those same media pundits, the spinners and the political classes and their bankster pals will mingle at parties and will still be chatting about nothing other than the Westminster drama before returning to their seven figure valued residences.

As they contemplate their secure six figure salaries they look forward to the Bank of England cutting rates again to keep the asset bubble going. Perhaps Theresa May really does think that a housing and bond/stockmarket bubble is the same as real Wealth creation and that somehow her magic wand can make the bubble be shared out in a way that helps those on the other side of the tracks, folks in the North or who don’t own such assets? If she does she is kidding herself. The country is not fooled.

For all the media spin about how post Brexit this country has become racist hotbed where EU citizens are terrified to stay, the reality is that migrants continue to come to the UK every day notwithstanding all those vain pledges by the last Home Secretary, Mrs T May, to curtail the flow. It is hard to see her replacement, the posh dimwitted and poisonous Amber Rudd, promoted as a triumph of gender over inability, making the situation any better.

The pissed off folks of Britain who mistrust every word that class status quo says; who experience some of the downside issues of immigration such

UK Investor Magazine — 15 — July 2016

as wage pressure and reduced access to healthcare provision but none of the many upsides and, above all, who have not shared in the asset bubble, created by the fiscal and monetary policies introduced to combat the banking crisis if 2008, view life in the Westminster bubble rather differently.

Outside the world of the status quo there may be some who will give Mrs May a chance, who buy into the media spin for now. But their patience will not take long to snap. Most of those who were angry on June 23rd are still angry and with good reason. They see that nothing has changed and nothing will.

The “insurgency” of those left out from the good times is a global phenomenon. Nothing has changed in the past week to suggest the UK has done anything to address this. When Laura Kuenssberg and her BBC colleagues talk of a divided nation their analysis is a simplistic one based on rich versus poor which does not factor in asset bubbles, old fashioned left vs right as if those terms mean anything. The trouble is that the media pundits and mainstream outlets are in fact part of that divide, they sit firmly on one side of the barricades staring out at an angry mob they despise and fail

to understand.

For so long if a member of the great unwashed questioned immigration they were automatically classed by the elite as a big or a racist. For the elite immigration was just a nil brainer and a given, it was a good thing. The elite effectively closed down any debate and made it clear that they despised anyone who dared raise the issue. Perhaps the elite sneer at the rest of us a bit less openly but across the West they still sneer in private. And we know that.

The anger of the people is not going away. It may well sweep Donald Trump to power - as he is the candidate of the people, crooked Hillary is the candidate of the establishment. That same anger may well cause other countries to leave the EU. Goldman Sachs, big business and the (beneficiary of EU cash) BBC may love the EU and do well out of the EU but across Europe ordinary folks feel they are not at the party, they just pay for it. If anything the anger is mounting.

This is a longer version of an article that first appeared on www.TomWinnifrith.com

TOM WINNIFRITH EXPLAINS HIS NEW BOOK - GET A FREE COPY NOW About fifteen years ago I penned an introduction to a book on how the brave new world of the internet was revolutionising the world of shares. Looking back at that book it all seems rather dated now.

Oh, and the book, though glossy, was pretty piss poor. It is no great surprise to me that it managed to avoid become a best seller.

One of the great novelties of share trading at the turn of this century was the Bulletin Board, then hailed as a forum where private investors could exchange ideas and analysis and also well sourced gossip.

What could possibly go wrong with this idea which was meant to give private investors a real edge allowing them to compete with City players on an almost level playing field when it came to share trading?

Fifteen years later we all know that Bulletin Boards have not really worked out that way. The playing field is not level, the City still has the edge. But perhaps that is in part because a good number of those attracted to Bulletin Boards display traits and repeatedly make mistakes which consign them to perennial loss making.

I am not saying that all bulletin board users act, in investment terms, like morons.

Most Bulletin Board users seem civil and sensible which only makes me wonder what they get out of exchanging ideas with complete lunatics. For Bulletin Boards clearly attract far more than their fair share of utter loons.

The vociferous minority, the true Bulletin Board Morons will over and over again demonstrate the biggest mistakes that investors make. And so if you want to avoid making the most common mistakes in the buying and selling of shares, I have written a new short book based on the collective lack of wisdom of those morons.

If you are reading this online you can get a complimentary copy of “The 22 mistakes all investors in shares must avoid (Don’t be a Bulletin Board Moron)” at ShareProphets.com UK Investor Magazine — 16 — July 2016

the house view

Buyer Beware!

A

ll the truisms of the stockmarket appear to have been thrown out of the window in the past few weeks. Sell in May and go away - well that would have cost you a packet so far in 2016.

Political uncertainty is bad for shares. We have that in spades across the West yet equities have raced ahead. And it seems as if the more bad news we have the more shares race ahead. We suggest that you do not get caught up in this madness.

The bad news is good news cycle we have seen before. Whereas a few weeks ago we were being warned that UK interest rates would increase if we voted for Brexit, that was always just part of Project Fear. How bank of England Governor Mad Mark Carney has avoided the sack for his role in that remains something of a mystery But it is now clear that across the world, policy makers are considering not a tightening of monetary policy but rate cuts in response to a global economic slowdown. Negative interest rates...coming soon at a bank near you.

And this has cheered on the bulls although the idea that one should pay for the privilege of lending to fiscally reckless Governments across the West is, if one steps back to consider it for a few

moments, just sheer madness. But with shares in most Western market at or near all time highs this is not a time when some folks view the glass as half full rather than half empty they just shout “buy the bloody glass”. Rational thought and fear have both left the building, greed is everywhere.

The IMF, last week, published new growth forecasts for the World’s major economies. Despite Brexit THE growth economy in Europe is the UK. So much for the lies the IMF published before the vote. But even in the UK forecasts for growth have been slashed and given the negative trends the odds on a global recession are shortening big time.

Against such a backdrop it is hard to see corporate earnings growth meeting either the top down or bottom up forecasts of market analysts. Earnings visibility in most sectors is poor.

And thus equity prices are at all time highest, PEs and yields imply pretty stunning earnings growth yet earnings growth is forecast to be pedestrian at best and all the risks to those forecasts are on the downside. At a rational level the stockmarket is a sell. Pro tem the bulls are on a coke fuelled buying rush and thus equities defy gravity. That is just not sustainable. Caveat Emptor!

UK Investor Magazine — 17 — July 2016