Small Cap Wrap featuring Arian Silver Corp, Ascot Mining and Encore Oil

This week: Arian has scope for silver lining, Ascot off to the races and Encore, Encore, two new licenses  

African Minerals Ltd (LON:AMI) (AMI 444p/£1210.24m)

The Company has updated again on progress on the due diligence process at its Tonkolili project in Sierra Leone. AMI has been informed by Shandong Iron & Steel Group that Shandong is making progress on the due diligence process but both parties have agreed to extend the date for completion to November 10^th. Completion had previously been expected by 20^th October. On the basis that the target date of 20^th November for signing the Subscription Agreement and Off-Take Agreement was based on the due diligence being completed by the October date, it is reasonable to assume the signing won’t take place in November. In their September update, the Company said that the due diligence was progressing “slower than planned” and cited logistical issues of coordinating the process between China, Europe and Sierra Leone. It would appear those ‘issues’ are still present. All that said, as the revised date is just over a week away it would appear that the DD is indeed close to being completed and further signings/progress should indeed be imminent. The market will be keenly awaiting the announcement.

Arian Silver Corp (LON:AGQ) Corporation (AGQ 19.25p/£51.55m)

AIM listed silver exploration, development and production Company with a focus on projects in the silver belt of Mexico last week reported that commercial production has commenced at the Company's 100 per cent-owned San Jose mine in Mexico, with ore being stockpiled for delivery to the mill. New underground development to reach the Santa Ana block, the first of three target blocks identified for the contract mining programme, is currently progressing well. It is anticipated that the first transportation of the Santa Ana material to the mill will take place in approximately three weeks.  Arian recently raised gross proceeds of £3.9m at 18p per share and expects positive cash flow by the last quarter of 2010. Arian Silver’s greatest potential lies in the scope, through further drilling and exploration, to add significantly to its assets in the ground. Resources identified so far relate to only 10 per cent of an identified 20 km of silver veins (also containing economic amounts of lead and zinc) at its flagship San Jose mine.  The mining plan based on the present resource and which will extract only the highest grade ores will generate income for four years, but this should be sufficient to finance most of the drilling required to expand the resource by a substantial amount, perhaps 10-fold, providing significant long-term upside potential for the shares. 

Ascot Mining (ASMP.PL 26p/£10.58m)

Gold production has begun at Ascot Mining’s Chassoul Mine in Costa Rica.  In recent days the Company updated the market that the commission period following a trebling of the milling capacity to 150 tons per day at the Chassoul Mine has been completed and that the plant is functioning well. Production is targeted to hit 1,200 ounces of gold per month within in sixty to ninety days. The board pointed out that the pouring of dore gold is planned for the third week in November and then continuing at regular intervals. Further increases are planned through the delivery of supplementary ore from Ascot’s other nearby mines. At the current gold price and production costs of well under $500 an ounce, Ascot could make a $1m a month after costs, which makes the market capitalisation of £10.6m look far too low. In the past the Company may have disappointed investors but the shares have begun to move upwards and now seem to beg the attention of investors. Ascot Mining off to the races. 

Avacta Group Plc (LON:AVCT) (AVCT 0.94p/£13.5m)

Avacta (a provider of innovative, high value technologies and services to the pharmaceutical and diagnostics markets) announced an order from the world's largest biopharmaceutical developer for an Optim 1000 system. Optim is the Company's analytical technology, filling a significant gap in the market by providing detailed analysis using only very small sample volumes and designed to reduce risk in biopharmaceutical development and help drug companies bring their products to market quicker and at lower cost. For competitive reasons, the name of the customer was not disclosed. As part of its sales drive in the key US market, Avacta has agreed also to place Optim units into the biopharmaceutical research laboratories at the prestigious Universities of Kansas and Colorado. Both universities interact extensively on a commercial level with the biopharmaceutical sector in the US and are highly influential in this research area.  These units will be applied to commercial projects and to train scientists from US biopharmaceutical companies raising the profile of Optim and hopefully aid sales generation.

Berkeley Group Hldgs (LON:BKG) Mineral (BMR 4.48p/£26.52m)

BMR’s share price has been making erratic but upward progress since our comment on 11^th May 2010 at 2.28 pence, as the company continues to wrap up the contracts it is signing for the Kabwe minerals dump. It would appear that there seems to be no reason why the shares won’t reach the 8p or so that analysts were forecasting, on a DCF basis, when zinc prices were some 15 per cent below today’s level.  But while 8p is the correct valuation for some 550m shares in issue, there are now over 600m as institutions take up the 3p warrants they received when subscribing a few months ago at 1.5p. So there is a danger they will cash their profits some time soon.

Cluff Gold Plc (LON:CLF) (CLF 115p/£141.41m) 

AIM listed West African-focused gold mining company, has announced a £9.375m private placement by Macquarie Bank Limited. The placing price represents a premium of 14.2 per cent to the closing middle market price of 102 pence per share. As a result of the Placing, and following Admission, Macquarie will hold a 6.14 per cent interest in the issued share capital of the Company. The funds will be used to implement a more aggressive exploration drilling campaign targeting the significant sulphide potential at both Kalsaka and Angovia, whilst increasing the mine lives at both projects, and further developing the exploration opportunities at Baomahun. With its breadth and experience in the mining sector, Macquarie’s investment is a vote of confidence in the Company and the quality of their assets.   

Desire Petroleum (LON:DES) (DES 92p/£314.9m)

Desire Petroleum, an oil and gas company wholly focused on the North Falkland Basin, saw its share price gush upwards by 50 per cent (to just over 100p) on Wednesday of last week as speculation that the Company had struck oil at their Rachel well swirled around the markets. This despite the fact that the Company had announced only 5 days earlier that it didn’t find any oil at the prospect. Investors have been enthused by Falkland’s exploration since May of this year when Rockhopper (RKH) announced that it had struck oil at its Sea Lion prospect. On Thursday of last week the Company announced that the Rachel sidetrack well had reached its measured depth of 3,418 meters on Wednesday and the process of pulling out of the drill hole was underway and, once that was complete, logging operations would commence and an announcement would be made when the logging results are known. On Monday of this week, the Company announced that, due to wellbore stability issues, it was not possible to reach the target depths in the first wireline logging run. The hole is now being cleaned out ready to make a further attempt. The share price has drifted back from the exuberance of last week but not that much really, given the hope vs. fact scenario.

Discovery Metals Ltd (LON:DME) (DME 74.5p/£225.14m)

In our Small Cap Wrap of 30^th March 2010 we mentioned that the Bankable Feasibility Study (BFS) at its Boseto Copper Project in north-west Botswana was expected and that, along with other news flow, should augur well for the share price which at the time was 47.5p. The Company announced last Friday  that the BFS is now completed and presented an NPV (5 years) at $251million averaging 34,400tpa of copper production at a C1 cash cost of $1.28/pound. The Boseto Development Plan has an NPV (15 years) at $375 million averaging 36,400tpa of copper production at a C1 cost of $1.23/pound. The payback for both studies is less than two years after production commences which is scheduled for 1H 2012. Mobilization of the Boseto site access road contractor will commence “within days” and the (fixed-price) plant construction contractors, Sedgman, were given notice to proceed.

The Initial Ore reserve statement released 21.8 million tons at 1.4 per cent copper and 18.2 grams per ton silver.The seven Ngamiland prospecting licenses, which include Boseto, were renewed for a further two-year period to September 30^th 2012.Discovery Metals has A$36.3 million cash and no debt. With these announcements and work ‘on schedule’ the future continues to look bright for Discovery.

Eden Research (EDE 11.5p/£7.10m) 

Leading UK agrochemical development company, which is focused on the development and commercialisation of terpene-based encapsulation technology for agricultural and non-agricultural uses, announced that it has signed an exclusive licence with Stockton Agrimor AG based in Switzerland for its nematicide product across Latin America and Mexico. The Stockton Group is a company that operates worldwide to develop and distribute high quality crop protection products. Eden will receive an upfront licence fee of $125,000 within the 12 months plus an annual royalty payment upon the commencement of sales.

Clive Newitt, Managing Director of Eden Research, said:

"Further to the announcement of the agreement with Certis Europe BV, the licence agreement with Stockton means that we have tied up another significant market for our nematicide. This leaves the USA and Canada to be out-licensed for which we are already negotiating with a number of potential partners…”

Last week the Company announced that it felt it was in a position to move to the AIM market during 2011, which is certainly bolstered by the news of this licence deal that demonstrates confidence in the Company’s product and provides for a potentially healthy stream of royalty payments.

Encore Oil (LON:EO.) (EO. 115p/£336.08m)

In the recent 26^th Seaward Licensing Round EnCore has been offered two licenses covering six blocks.  These licenses have been offered under traditional terms with a drill or drop option.  EnCore intends to become operator of all blocks with 100 percent equity in those blocks in the proximity to the Catcher oil discovery and 50 percent equity in those blocks in proximity to the Tudor Rose heavy oil discovery and the Buffalo prospect.

Faroe Petroleum Plc (LON:FPM) (FPM 177p/£309.02m)               

 AIM listed independent oil and gas company focusing principally on exploration, appraisal and undeveloped field opportunities in the Atlantic margin announced that it has been provisionally awarded four new exploration licences west of Shetland under the UK 26th Licensing Round. Grouse is a large structural prospect post-basalt in a new exciting exploration play in the west of Shetland area. Balblair and Ardberg are large structurally controlled prospects on the north Corona Ridge. Aileen - the west of Shetland Traditional licence is situated to the east of the Company's Tornado discovery.  Aileen is a significant prospect in a relatively unexplored play on the west side of the giant Clair field. Faroe has major equity interests in these new licences and they are in strategically significant locations, in which the team has considerable knowledge and in particular on the Corona Ridge where they had exploration success last year with the Tornado discovery. The new licences are continuing evidence of the team's relationships and ability to create successful and exciting licence applications

Herencia Resources (LON:HER) (HER 1.35p/£13.14m)

Continued surface sampling at Herencia’s Doris prospect at the Paguanta zinc-lead-silver-gold project in Northern Chile has generated more high-grade copper and silver assay results.  Some samples returned assay results of up to 5.1 percent copper and 359 parts per million silver in the western part of the target, some 400 meters away from the previously announced high-grade surface assay results.  Doris is fast becoming a high priority copper-silver drill target for Herencia, and the company is planning a geophysical survey to commence possibly as early as December.  The Doris prospect is in addition to the company’s Patricia zinc-lead-silver-gold discovery which is currently the subject of a feasibility study.

Ithaca Energy (IAE 140p/£356.89m)

Listed in London on AIM and in Canada on the TSX, Ithaca Energy Inc (LON:IAE) and its wholly-owned subsidiary Ithaca Energy (UK) Ltd, an independent oil and gas company with exploration, development and production assets in the UK sector of the North Sea, announces that it has been successful with its application in the latest (26^th) round of the UKCS (UK Continental Shelf) Seaward Production License Round, thereby expanding the Company’s portfolio in the Greater Stella Area. The Company only applied for one block and has been awarded Block 29/10d and is a neighbor to the Hurricane discovery (Block 29/10b) and the Stella and Harrier discoveries (30/6a). Ithaca has indentified one large structure within the block, known as Helios, which was drilled in the late 1960s when gas and condensate was recovered from the Andrew sand formation, the equivalent and principal reservoir of the Stella discovery. More work is needed to define an appraisal well on Helios. Extensive 3D seismic data has already been acquired over the block and the Company has 2 years to decide whether to drill or drop the block.

Joint venture partners in the application for the block were Ithaca (68.33 per cent) and Dyas UK Ltd (31.67 per cent). (Dyas is a wholly-owned subsidiary of the largest privately owned conglomerate in the Netherlands, SHV Holdings NV.)

ITM Power (LON:ITM) (ITM 54p/£59.32m)

Another week, another participant for the Company ‘s Hydrogen On Site Trials (HOST) of its high pressure refueling unit (HFuel), with Southampton City Council being the latest addition and third local authority to join the group.  In addition, the Company signed a Memorandum of Understanding with the Building Research Establishment ("BRE") to progress its development of hydrogen technology for the building industry. By integrating the design of hydrogen energy systems into the building design process, ITM Power and BRE will identify building solutions that are truly green. It is expected that zero carbon footprint home designs and a demonstration home will result from the collaboration. The above news and the announcement of share purchases by the CEO, Dr Graham Cooley and NED Professor Roger Putnam should be positively received by shareholders. 

Additionally, the Company has received a £108,000 grant from the Carbon Trust towards development of fuel cells as a result of excellent power density results achieved from its patented hydrocarbon membrane materials. Carbon Trust’s analysis has shown that increases in power density of a fuel cell offer the greatest opportunity for fuel cell system cost reduction. The grant is providing funds towards the cost of a five month project which aims to demonstrate the performance across the same family of materials in a fuel cell. ITM will also benefit from accessing the Carbon Trust’s knowledge and industry network. ITM is now seeking partnerships with commercial end users to provide input to the development process.

Lidco Group (LON:LID) (LID 18.25p/£31.75m)

LiDCO recently announced their results for the six months to 31 July 2010 highlighting a 7 percent increase in sales to £2.66m (2009: £2.29m) with revenues excluding the USA (which was skewed by a large stocking order in 2009) growing by 33 percent. Gross profit margin was up 19 percent to £1.80m with a gross margin of 68 percent (2009: 61 percent) and the overall operating loss was reduced significantly to £0.58m (£1.19m). CEO Terry O’Brien commented “With sales up 7 percent in the first half and costs reduced we continue our progress towards profitability. We expect the second half to be stronger still and the outlook for sales growth remains very positive.” Although cautionary tones were applied to market conditions in Continental Europe, it is the UK and USA markets that are of most significance to the Company - as they accounted for 74.5 percent of total sales in the half year – and for these areas, the comments on future prospects were encouraging for shareholders, with particular mention of the US sales pipeline building momentum.

Mariana Resources (LON:MARL) (MARL 37.25p/£59.03m)  

South America is increasing as an area of interest for mining investors. However, despite its history as a notable source of metals (both precious and base), the Continent is relatively under-represented in the junior mining and exploration sector on AIM and is of less interest to analysts and investors as a result. Thus it would seem advantageous to us to increase the number of companies we review that operate in this region, to uncover undervalued situations.

Mariana Resources Ltd is an exploration and development company with an extensive portfolio of gold, silver and copper projects in Argentina and Chile. In the Deseado Massif epithermal gold-silver district in the Santa Cruz province of southern Argentina, the Company has the Las Calandrias gold-silver discovery, a 70 percent interest in the Sierra Blanca silver-gold prospect, a joint venture (49percent) with Hochschild Mining Plc (LON:HOC) (51 percent) at Los Amigos and a 160,000hectare prospective exploration portfolio. The Deseado Massif hosts several advanced projects and major mining companies, including AngloGold Ashanti, Pan American Silver and Goldcorp of Canada. In the Catamarca Province in Northern Argentina, Mariana has an option to acquire the La Borita porphyry copper prospect, whilst in north-central Chile the Company has a joint venture with the US based international mining and natural resources company Cliffs Natural Resources Inc., to explore for Iron Oxide-Copper-Gold deposits ('IOCG') along the highly prospective Atacama Fault Zone in a 92,000km² area that includes the 44km² Buenaventura and 46km² Perro Chico IOCG projects.

Mariana has a number of exploration initiatives underway, including a 10,000m drilling programme for the Las Calandrias project, a 2,000m drill programme of the Buenaventura IOCG deposit and exploratory drilling at La Borita copper prospect, Catamarca, North West Argentina. So expect a steady stream of news flow over the coming months (the latest news is of a new 600m target trend identified at Las Calandrias parallel to the La Calandria Vein that yielded float sample assays of up to 116g/t gold and 65g/t silver) . Finally, Management has stated that it intends to list on the TSX in Q4 2010/Q1 2011. All in all, there could be an exciting few months ahead for the company and its shareholders.

Max Petroleum (LON:MXP) (MXP 19.5p/£88.06m) 

AIM listed oil and gas exploration and development company focused on Kazakhstan, has announced that the UTS-1 exploration well on the Uytas prospect has reached a total depth of 827 metres. Electric logs and oil shows observed while drilling indicated potential pay zones in the well, including eight metres of estimated net oil pay in the Jurassic formation between 331 and 339 metres in depth, and six metres of estimated net oil pay in the Triassic section between 785 and 800 metres in depth. The Company expects to commence testing the well in approximately one month using a work over rig upon receipt of the required government approvals. After running production casing in the well, the drilling rig will move on to drill the Sekir West prospect. This testing should verify what the Company believes could be a significant post-salt discovery.

Media Square (LON:MSQ) (MSQ 12.75p/£4.61m) 

Media Square, the marketing Company, announced interim results for the 6 months to 31^st August 2010. The Company has benefitted from an 8.9 per cent increase in revenue to £25.6m (2009: £23.5m) and reduced its pre tax loss to £1.5m (2009: loss of 2.87m). Broken down across the Company’s segments, Advertising, PR & Research continues to drive the majority of revenue growth (17 per cent growth to £14.9m), though the Design segment took a downward route (8.8 per cent decrease in revenue to £5.2m). Whilst the Company continues to operate a high net debt amount, which currently stands at £20.5m, it has been able to sign a new bank facility that provides preferable terms.

We last wrote on the Company, just under a year ago when we noted the difficulty faced by the Company as a result of the downturn, though these interim results demonstrate that the restructuring programme (enacted in 2007) is certainly leading the Company in the right direction.

Minera Irl Ltd (LON:MIRL) (MIRL 83.5p/£72.51m)

Minera is listed on AIM, the TSX and the Peru Stock Exchange in Lima. Its aim is to build a network of mines across Latin America and become a mid-tier gold producer. In furtherance of this goal, it is endeavouring to extend the mine life and optimise production at its Corihuarmi deposit in Peru, develop the Don Nicolas gold resource within the Deseado Massif, Santa Cruz, Argentina through to production (targeted for late 2012) and prove up the highly prospective early stage Ollachea prospect, also in Peru.

Recently the Company announced the Escondido discovery in Patagonia, situated along the lease boundary with Mariana Resource’s Calandria Sud discovery, where a gold and silver outcropping breccia occurrence of some 700 metres in length and approximately 100metres in width was uncovered. Like Matriana Resources, we expect a flow of positive news over the forthcoming months.

 

Plexus Hldgs (LON:POS) Holdings (POS 55.5p/£44.5m)

Plexus is expanding its oil services business to Australasia with a contract to supply Apache Energy Australia with the POS-GRIP wellhead technology and mudline casing support equipment.  After the recent BP (LON:BP.) disaster in the Gulf of Mexico there is an increased awareness and demand in the industry for safer and improved operating practices, and Plexus’ innovative wellhead engineering technology is seen as a solution.  With Apache as an anchor customer we expect Plexus to be able to build a substantial business in the region.

Polo Resources Ltd (LON:POL) (POL 3.98p/£96.7m) 

It appears that Polo may have a win-win situation with regard to its investment in Caledon Resources Plc (LON:CDN) – either the coal company is taken over, or it achieves a historically high level of ongoing coal production.Caledon Resources, 27.64 percent owned by Polo Resources, issued their September quarterly update detailing a 34 percent quarter on quarter increase in coal production. Additionally an ongoing target production rate of 700kt per annum (58kt per month) was stated as being sustainable – although December will be lower due to power infrastructure and haulage system upgrades. A production rate of this level would be welcomed by investors who have been disappointed previously by the company undershooting stated targets. Probably more importantly for most shareholders is the additional statement that Caledon remains in discussions regarding an indicative approach for the whole of the issued share capital of the company.  As a result of these ongoing discussions, Polo has agreed to extend the A$4m and £18m loan facilities to Caledon in return for an additional facility fee of £550,000.

Rockhopper Exploration (LON:RKH) (RKH 306.25p/£589.65m)

Rockhopper’s shares continue on their roller-coaster - this time as a side-show of Desire’s drilling on the next-door well, Rachel. Having proved dry on a direct vertical, Rachel drilling has been ‘side-tracked’ to what Desire thinks is a better-looking target.  Last Wednesday Desire reported drilling complete and ‘tests underway’, but on Monday November 1^st, Rockhopper reported that drill problems had prevented achieving target depth. So, for the last part of the week, both shares gyrated as rumours abounded that rig personnel were suggesting Rachel had shown ‘something’, and this week will nervously await a re-drill! All we can say with certainty is that anything might happen in the next weeks to wrong-foot whatever we write here.

Meanwhile, Rockhopper has announced that its seismic programme to re-evaluate the field will not complete until April next year. That announcement seems a recipe for yet more share gyrations, although – to regain some objectivity - it was reported last week that most of the 7 analysts following Rockhopper think its present share price is underpinned by what it has found so far. One or two are suggesting also that the geology of the N Falklands basis still has a lot of potential for more discoveries. Since we last wrote on the Company a week ago, the market cap has increased by over £15m.

Touch Group (LON:TOU) (TOU 1.62p / £2.63m)*

AIM listed international business-to-business publishing grouplast week announced that it had formed a licensing agreement with Doctors.net.uk, the UK's largest and most active network of medical professionals. The agreement will provide Doctors.net.uk's over 180,000 members with access to articles and content, across the majority of key clinical specialities that are published by the Company's range of healthcare journals and websites. The agreement will mean enhanced UK circulation of Touch Briefings' pan European and US journals. Touch produces in total 62 journals, 44 of these have been produced for over three years. The total "averaged" annual revenue figure for these 44 journals is in excess of £2.7m.  In addition, Touch is generating reprint revenue from these journals which this year alone will be in excess of £750,000. We keep watch for further updates on the Company’s trading, certainly the worst is behind it, and it can look forward with renewed confidence.

Tower Resources (LON:TRP) (TRP 3.58p/£36.11m)

Tower Resources, the oil and gas exploration company with interests in sub-Saharan Africa, principally in Uganda and Namibia, announced that it has raised £660,000 through a placing of 22 million shares at 3 pence per share. We anticipated the raise last month when we wrote on the Company as it was looking to raise funds to meet the projected cost of working capital requirements- which is especially important given the important and positive developments made by Tower recently.

In Namibia, licence 0010 has been completed and the quality of the data is deemed excellent- independent experts have confirmed the world class potential of the prospect and a well may now be drilled within the next 18 months. Such prospects are extremely rare in the industry. Total EMV for Tower's 15 percent share of Licence 0010 has been estimated as $696 m (£0.44/share). In Uganda the EA5 licence still has significant potential value for shareholders, as the second well results in Uganda provided sufficient reasoning for the Company to carry on into the third and final exploration period.

Particular interest should also be paid to the fact that a number of institutional investors have participated in the placing, as have some of the Company's directors- Peter Taylor, Peter Blakey and Jeremy Asher purchased 3.05m, 3.05m, and 1.5m shares respectively. Investors take a great deal of comfort from management participation in Company placings, and we see no reason why this should not be the case here. This is one company with a great deal of resource. 

Verona Pharma Plc (LON:VRP) (VRP 10.25p/£24.47m)

AIM listed Biotechnology Company focused on the research, discovery and development of new drugs for the treatment of chronic respiratory diseases, has initiated its clinical trial of VRP700, an innovative treatment for chronic cough, in Florence, Italy, with the treatment of the first patient. The trial is expected to be completed during the first quarter of 2011, depending on patient recruitment and the efficacy of the drug. The mechanism of action of VRP700 is presumed to involve the suppression of cough initiating signals originating at cough sensory nerve endings located in the lungs via a novel mechanism. If the trial is successful, Verona will work to identify and develop a second generation of compounds with an improved profile.

Verona has increased over 2 pence per share since we last wrote on the Company in June, which is indeed £5m onto its market cap. Verona currently has three potential drug treatments under development and continues to look for other possible drug development opportunities aimed at the respiratory and inflammatory diseases markets. Management is very credible and despite the share price rise, the company still looks extremely undervalued.

*A corporate client of Hybridan LLP