Beaufort Securities Breakfast Alert: Alecto Minerals, Cyan Holdings, Galileo Resources, MySQUAR Limited, Stellar Diamonds
Date
8/29/2016 3:47:36 AM
(MENAFN- ProactiveInvestors - UK) Beaufort Securities, Tue
Markets
Europe
The FTSE-100 finished yesterday's session 0.44% lower at 6,828.54, whilst the FTSE AIM All-Share index closed 0.29% higher at 788.79. In continental Europe, markets ended in the red after oil prices retreated on reports that Iraq would boost oil exports. In addition, losses in mining stocks hurt investor sentiment. Germany's DAX and France's CAC 40 shed 0.5% and 0.2%, respectively.
Wall Street
Wall Street ended slightly lower, as a fall in oil prices exerted pressure on energy stocks. Investors adopted a cautious approach ahead of Federal Reserve (Fed) Chief Janet Yellen's speech at the annual central banker's meeting on Friday. The S & P 500 fell 0.1% during yesterday's trading session.
Asia
Equities are trading lower as investors speculate whether the Fed would increase interest rates this year. The Nikkei 225 declined 0.6% as a stronger yen led to losses for export-driven stocks. The Hang Seng was trading 0.4% down at 7:00 am.
Oil
Yesterday, Brent oil prices declined 3.4% to US$49.16 per barrel, while WTI prices dropped 3.0% to US$47.05 per barrel.
Headlines
No negative effect of Brexit on tourism in UK in near term
According to the World Travel and Tourism Council (WTTC), Brexit would not affect the UK's tourism sector in the near term. The organisation expects the sector to grow 3.6% over the year vis-à-vis the projected 3.1% rise in tourism globally. However, the WTCC said that fewer jobs would be created in the long term.
Company news
Alecto Minerals (LON:ALO, 0.09p) – Speculative Buy
Alecto Minerals, the African-focused gold and base metal exploration and development company, announced yesterday that it has signed a non-binding letter of intent (LOI) with Ashanti Gold (AGZ.V) to complete a Pre-Feasibility Study (PFS) for the Kossanto East gold project in Western Mali. Ashanti will have a 36-month period to complete the PFS and earn-in up to 65% of the project or else pay US$4m to Alecto within 90 days of the deadline for the PFS. Kossanto East has as JORC compliant mineral resource estimate of 6.72Mt grading 1.14g/t for an aggregate of 247,000oz of gold with significant exploration upside.
Our view: The announcement of an agreement with Ashanti is a significant result for Alecto and reveals the potential for continued gold mineralisation at the Kossanto East project. With Ashanti's expertise and exploration dollars at work we look forward to updates as the PFS develops. Alecto can now continue to focus on the development its Matala and Dunrobin gold projects in Zambia whist its JV partners (Randgold, Ashanti (potentially) and Kola Gold) manage its Mail assets. In the meantime, we maintain a Speculative Buy on the stock.
Beaufort Securities acts as a corporate broker to Alecto Minerals PLC
Cyan Holdings (LON:CYAN, 0.21p) - Speculative Buy
CyanConnode, the world leader in narrowband RF mesh networks for Omni Internet of Things communications, yesterday announced its half yearly results for the six months ended 30 June 2016. Financial highlights included revenue of £1,029,526 up more than five-fold on last year's comparative (H1'2015: £157,328), an operating loss of £2,858,715 (H1'2015: £2,289,524), basic and diluted loss per share of 0.04p (H1'2015: 0.05p) and cash/cash equivalents £2,370,504 (H1'2015: £628,069). Operational highlights included delivery against two contracts worth £1.5 million to Enzen Global Solutions, a transformational £10 million purchase order for smart metering for Iran, a follow-on order for a further 5,000 meters from Larsen & Toubro for Tata Power in India and agreement with JST Group to distribute smart metering technology in Thailand. Perhaps even more significantly, post-period Cyan completed the acquisition of Connode Holding AB, providing a smart metering contract with potential revenues of up to £37 million for the UK Smart Metering Implementation Programme; a pipeline of commercial opportunities in Europe and Asia; along with a fully-developed standards-based (IPv6/6LoWPAN) technology platform. Additional working capital funding of £4.3 million was also raised for the enlarged CyanConnode group, supported by institutional investors.
Our view: Smart metering is the answer! The true extent of the problem facing utility groups worldwide is not widely understood. The International Energy Agency calculates that 'non-technical' losses (largely meaning theft or power diversion as well as, to a lesser extent, equipment malfunction and billing errors) represent around 17% of total global energy production. In some developing territories, in fact, this can approach half of total generation whereas, by comparison, developed nations now urgently need to attain much greater demand response management. Indeed, the World Bank has demonstrated that it is three-times cheaper for utilities to save 1kWh of electrical energy by improving network efficiency than investing in new capacity. Such tasks are now the single most pressing issue for utilities groups worldwide and, demonstrably, smart metering is the complete solution. Cyan Holding's eyes are wide open to this developing scenario and, now combined with Connode, has positioned itself with a global 'future-proof' solution, to fully participate in the international upsurge in smart meter installation. Its business model has evolved into one capable of enjoying high SaaS margins, recurring IP royalties while also fully participating in the coming 'Internet-of-Things' revolution, together with prospective global leadership in narrowband RF mesh communication, CyanConnode finds itself ideally position to capitalise on the world-wide move toward energy grid management modernisation. Participating in the UK's SMIP and having received a £10m order from Iran, the Group has clearly passed the inflection point from which its participation in all things 'smart' (from metering through to cities) looks reassured. Expect momentum and activity levels at CyanConnode to take a series of rapid upward steps in the coming years. Beaufort retains its Speculative Buy recommendation on Cyan Holdings.
Beaufort Securities acts as corporate broker to Cyan Holdings PLC
Galileo Resources (LON:GLR, 1.02p) – Speculative Buy
Galileo Resources, the exploration and development mining company, announced yesterday an update on its Concordia Concession in the Northern Cape province of South Africa. The Concordia project covers an extensive area within the historically prolific Okiep Copper District. Minxcon Consulting, an independent mining and geological consulting firm, has completed an exploration desktop study identifying seven high-priority target areas and 27 prospective target areas based on modern re-interpretation of historical data. The seven high priority targets have potential for shallow mineralised zones. These targets plus the additional 27 prospective targets host conceptually 798.55Mt of which 50% are estimated to be mineralised with a mean grade of 0.57% Cu.
Our view: While results of the desktop modelling of all the target areas are considered non-compliant and conceptual in nature, they do confirm the presence of Cu mineralisation within the Concordia concession. The completion of the desk top study will help Galileo identify key mineralised structures and trends throughout the area. We are encouraged with the initial results and the potential for additional shallow deposits within the well-known Okiep mining district. We look forward to the next stage of exploration with ground-based geophysical surveys and ultimately resource definition drilling. In the meantime, we maintain our speculative buy on the stock.
Beaufort Securities acts as corporate broker to Galileo Resources PLC
MySQUAR Limited (LON:MYSQ, 3.36p) - Speculative Buy
MySQUAR, the Myanmar-language social media, entertainment and payments platform whose principal activity is to design, develop and commercialise Myanmar-focused internet-based mobile applications, yesterday announced that its latest game launched on 2nd August 2016, MyFish, has attracted in excess of 500,000 registered users in its first three weeks and is already generating revenue of US$600 to 800/day, at a gross profit margin of approximately 44%. The Company anticipates that MyFish - just one of many games planned - should achieve revenues of US$1,500 - 2,000/day within two months of launch. MyFish, which works on both Android and IOS devices, simulates fish hunting in a highly imaginative format involving 50 different types of fish. The game is run on the 'freemium' model, which allows free play up to a certain level, after which players have to pay for purchasing in-game assets such as virtual coins, gold and weaponry that enhance their fish hunting capability. MySQUAR's partners (telcos and cash top-up partners) collect the money paid by gamers and pay it to MySQUAR. A new game, Invincible Sword, is to be launched in September 2016 and the Company intends to continue to release new games at a rate of approximately one game every two months.
Our view: User account numbers going like gangbusters! Based on current and historical growth, the Company now states it '…confidently expects to have 5 million registered users across MySQUAR's different applications by the end of 2016'. Myanmar's young population, of course, is new to mobile online gaming that has gripped western audiences for a number of years now. MySQUAR's new games introductions benefit hugely, of course, from the Company's expanding MyCHAT user base. They are displayed and advertised on MyCHAT, being Myanmar's unique local language chat and social media networking application, and are programmed to allow MyCHAT users to log in using their MyCHAT accounts. The games therefore can quickly grow their user base at a minimal marketing cost and provide an ideal demonstration of the power the brand name can now wield over such a large and loyal consumer group. CEO, Eric Schaer put it very succinctly by noting "We are very pleased that our strategy with mobile gaming has been proven correct and is now providing strong revenue. We are confident that as we release more games we will continue to grow the revenue from this line of business. Leveraging this revenue stream through our agreement with MyPAY will increase our profit margins. There is strong demand for accessible entertainment. Our experience so far indicates that our programme of game roll-outs will become very valuable to the company." Further to this, management is also currently negotiating a commercial agreement with a VoIP technology provider, and both sides are working on technical integration of their respective services. The voice calling business - similar to a highly successful counterpart in Cambodia - is targeted for launch in the 4th quarter of calendar 2016. Thankfully none of these projects significantly build on operating costs, while still rapidly monetising their opportunity. This all suggests Myanmar's unique, local language social media operator can more than deliver on its promises. Based on recent progress, the Company has the very real potential to be achieving monthly break-even or better before the end of the current financial year. This is something that is unlikely to have been missed by its numerous and very cash-rich global peer group, who remains determined to continue ensnaring players in virgin territories that have successfully participated in an online user 'landgrab'. In this respect, MySQUAR now appears quite dramatically undervalued; Beaufort has set a price target of 21.0p/share and repeats its Speculative Buy recommendation.
Beaufort Securities acts as corporate broker to MySQUAR Limited
Stellar Diamonds (LON:STEL, 7.12p) – Suspended
Yesterday Stellar Diamonds published further information regarding the potential reverse takeover offer which led to the suspension of trading on 19 August. The Company has agreed to a proposed transaction with Octea Mining to combine Stellar's Tongo diamond project with Octea's adjacent Tonguma diamond project. The proposed transaction, if completed, would be classified as a reverse takeover under AIM rules and therefore would require the publication of an admission document and also be subject to shareholder approval. As such, the Company's shares will remain suspended until either an admission document is submitted or the proposed transaction is withdrawn. In addition, the proposed transaction is conditional on Stellar raising a minimum of US$25m to fund the project into production and entering into a final and binding transaction documentation with Octea.
Our view: We note that the combined inferred JORC-compliant resource would be 5M carats brought under a single mining operation with the average diamond value of US$193/carat for Tonguma and US$270/carat for Tongo and a further 8M carats has been estimated as an exploration target on the Tonguma licence by independent consultants. We look forward to a revised mine plan and an updated resource estimate for the enlarged project in due course. The Tonguma project has a 25-year mining licence in place and an existing 50t per hour processing plant whilst the Tongo mining licence is in the application stage. Combined, the two licences would cover a number of high-grade and high-value kimberlite dykes with the potential in-situ values of up to US$560 per tonne. Investors should base their investment decision on the back of the revised mine plan and assuming all necessary conditions have been met for the proposed transaction.
Beaufort Securities