Small Cap Wrap featuring OMG, TyraTech, Shepherd Neame and Summit

This week: OMG! A new superhero franchise, Designs on Europe, TyraTech re-order, Cheers! Shepherd Neame breaks records and Summit makes progress in a difficile market

African Eagle (AFE 5.38p/ £20.68m)

African Eagle Resources (LON:AFE) last week announced an important resource update. The Company has seen a 13 per cent increase to 917kt in contained nickel metal of the JORC inferred resource at Dutwa Project. There is a 6 per cent increase in average Ni grade to 0.93 per cent Ni and 4 per cent increase to 0.96 per cent in nickel equivalent grade after cobalt credits. Resources in each different ore type are delineated for the first time. There is also potential for a further 8-10m tonnes of ore at Ngasamo. The drilling for the bulk ore sample is well ahead of schedule. Whittle optimisation and revision of project economics is now underway. Comprehensive, second-stage metallurgical test work on the bulk sample is expected to commence in December.

Allied Gold Ltd (LON:AGLD) (AGLD 31.75 p / £330.24m) 

Allied Gold is a fast growing Pacific Rim gold producer with production, exploration and development projects in Papua New Guinea (including the Simberi gold mine) and the Solomon Islands (the Gold Ridge mine).  Simberi is an open-pit operation with a 2.2Mtpa processing plant that produced over 64,000 oz Au in the year to 30 June 2010, with 75,000 oz to 80,000 oz expected this year. Gold Ridge, which was effectively acquired at the end of 2009, is undergoing development works with the aim of producing 120,000 oz Au in the year to end June 2012. Allied Gold has just released its September production level of 18,000 oz Au, in line with management guidance. The throughput at the mill during the quarter was 560,000 tonnes at a grade of 1.09 g/t, a recovery rate of 91.3 percent and a cash cost of US$660 per ounce (subject to inventory adjustment and final review). The quarterly numbers and full production report will be published within the next couple of weeks. Although production costs per ounce cannot be described as cheap, the management’s projections for production increases over the next few years should ensure an avid investor following.

Beowulf Mining (LON:BEM) plc (BEM 10.5p/£16.78m)

The Company (listed on AIM and in Sweden) is a traded mineral exploration company which owns several exploration projects in Sweden has announced the first complete assay results for the 15 holes drilled as part of the programme on its wholly-owned Kallak (North) Iron Ore deposit in northern Sweden. The results confirm extended iron mineralisation, with several 100m sections having iron mineralization of over 30 per cent Fe. They also have planned diamond drilling over 35 holes at Kallak south due to commence in mid-October 2010 with the first assay results expected by the end of Q4 2010. JORC classification will be sought for the Kallak South deposit following completion of the drilling programme. Recent ground magnetic 3D models indicated substantially larger presence of mineral iron ore resource at Kallak South the at the north deposit.

Company chairman, Clive Sinclair-Poulton says that, with the results from the north deposit and the anticipated results from Kallak South along with the 140m tones so far recorded at Ruoutevare gives the Company confidence in Beowulf becoming a “major player in the European iron ore sector”.

Last week the Company announced a placing (of 6,956,521 shares) at 5.75p per share, raising £400,000. The net proceeds will be used to further finance the planned drilling campaign at the Company’s two major iron ore projects, Kallak and Ruoutevare, the assessment of potential opportunities for commercial expansion and general working capital purposes. The shares were placed with both new and existing investors.

Designcapital (LON:DESC) (DESC 11p / £6.89m)

AIM listed investment company dedicated to high-end contemporary furniture design has made a few announcements over the last few weeks; first its results for the six months ended 30 June 2010 and second Michael Hosie has joined the Board of the Company after having acted as CFO since the Company's shares were admitted to trading in January 2008. This high-end furniture play put out results that were markedly improved on the previous year; having reduced the operating loss to £1.2m (30 June 2009: £2.4m), the performance was in line with the Board's expectations. It would appear that the commercial restructuring is progressing well with a growing sales pipeline in line with management's expectations for 2011. We look forward to the opening of the first international showroom of Artelano in Mayfair, London. Designcapital aims to become a major pan European design focused investment company.

Electrum Resources (LON:ECR) (ECR 1.42p/£4.73m)

The latest announcement from the Company (the ‘old’ Mercator Gold (LON:MCR) – MCR) gives details of their projects in Argentina– Sierra de las Minas and Los Aquirres. ECR holds a 100 per cent interest in both.

Sierra has a number of small-scale historic gold mining areas and shows potential for relatively near-term production. Historic results showed values of up to 153.9g/t gold and 9.4 per cent copper. Sampling found nearly half of c.350 samples to be anomalous in gold. Previously gathered data is being used for the evaluation programme (recommended by MPH Consulting Ltd of Toronto) with ground activities expected to commence “within four weeks”. The Company is also in negotiation to acquire additional concessions in the Sierra area.

Los Aquirres is much smaller but both projects are considered to be gold-prospective with possibility of the presence of other base metals. Both areas have good infrastructure connections already in place.

Patrick Harford, MD, says that Argentina remains relatively unexplored and adds “we are very excited about the potential of the (two) projects and a rapid work up of exploration targets potentially appropriate for accelerated progression to the mining stage will commence shortly”.

Epistem Hldgs Plc (LON:EHP) (EHP 352.5p / £27.97m) UK biotechnology Company last week announced its preliminary results for the year to the 30 June 2010. The 2009/10 financial year saw Epistem continue to build on last year’s strong performance. The year’s results saw an impressive 45 per cent increase in year-on-year turnover to £5.7m (2009: £4.0m) and a growth in after tax profit to £0.3m (2009: £0.1m). Cash reserves at the end of the period were £5.4m (2009: £3.7m). Epistem’s fee for service revenues grew by 10 per cent to £2.5m (2009: £2.3m). Its Biomarker revenue growth was marginally increased over the year at £0.8m (2009: £0.7m). To boost this division, the Company announced rebranding Biomarkers to Personalised Medicine (biomarker and diagnostic technologies) which expands on the Biomarker technology to provide a newly created Point Of Care offering. At an Analysts meeting, Epistem unveiled its point of care molecular diagnostic platform Genedrive, which targets a rapid molecular diagnostic assessment (sub 30 minutes) for use in clinics, hospitals and surgeries. Validation of the new Genedrivesystem is now underway, with beta site clinical testing expected to start towards the end of this year with the launch of the device anticipated in the first half of next year.  Epistem would like to see its Genedrive become the gold standard of diagnostics, initially in oncology and sexually transmitted diseases. The Novel Therapies division’s collaboration with Novartis continued to develop over the year with the division reporting its first full year revenue of £2.4m (2009: £1.0m). New drug targets are continuing to emerge, with the Novel Therapies division positioning itself to create a pipeline of early stage development targets.  Matthew Walls, CEO, cautioned on the Novartis collaboration at the Analyst meeting saying that the timing was difficult to judge in terms of the general progress of the license and development opportunities and that such an agreement “takes time”.

In our view, Epistem is a well-managed biotech that develops drugs and biomarkers and provides contract research services to drug development companies. We like the model of a fee-for-service business that pays for its own in-house R&D. We look forward to Epistem’s next update in February 2011.

Gulfsands Petroleum (LON:GPX) (GPX 317.5p/ £384.74m)
The oil and gas production, exploration and development company with activities in Syria, Iraq, Tunisia, Italy and the U.S.A., has provided an update on the Company's operations at Block 26, Syria, where Gulfsands holds a 50 per cent interest and is operator. Analysis of the core along with the wire-line logs in Yousefieh South indicates that the well encountered a gross 11.5 meter (net 10.8 meter) column of oil bearing reservoir within the Massive formation. Drilling and evaluation of the new Khurbet East Field development programme well is expected to start anytime now and requires approximately 30 days to complete. Combined production from the Khurbet East and Yousefieh fields has reached approximately 21,000 bopd. Moreover, due to the large remaining drilling inventory in Block 26 the Company has signed a contract for a second drilling rig. Commissioning of the 22 km oil pipeline linking the Khurbet East EPF with the oil export facility at Tal Adashas has been completed and oil is now being transported to Tal Adas via the new pipeline.      

Kenmare Resources (LON:KMR) (KMR 18.97p/ £455.94m)

On Friday 8^th October 2010 a settling pond adjacent to the Kenmare Moma Mine breached its southern wall. This caused a non-toxic discharge of water, sand and clay that flowed through part of the nearby village of Topuito. As a result of the accident, mining operations have been suspended. Currently, the Kenmare team, local community and Government officials are working together to locate the missing child, make the area safe, assist with evacuation of the affected population and assess any possible injuries or damage caused. It is believed that approximately 115 households have been impacted by the flow of water, sand and clay. Kenmare will fully investigate the incident and will also co-operate with the authorities in this regard.  

Landkom International (LKI 7.38p/ £32.08m) 

Ukrainian producer of agricultural commodities last week announced its harvest results for wheat and the completion of its rapeseed planting campaign. The Group has harvested 9,882 tonnes of winter wheat from 3,278 hectares (ha) of its core land in the western Ukraine, losing 18 per cent of its winter wheat cultivated area. The Group has also harvested 8,478 tonnes of spring wheat from 2,797 ha, incurring losses of 21 percent of its cultivated area. The Group announced costs for winter and spring wheat being an estimate of $420 per ha (ex VAT) and $400 per ha (ex VAT) respectively.  Therefore, the Group needs to obtain sales prices per tonne of $165 (ex VAT) and $158 (ex VAT) for its winter and spring wheat to achieve a neutral gross margin on its wheat plantings. 

Rapeseed planting has been successfully completed with a total of 12,862 ha being planted in the Group’s western and central modules. The overall result of the wheat harvests are in line with the Board’s expectations given the adverse weather conditions in the latter part of the harvest period.

Norseman Gold Plc (LON:NGL) (NGL 59.25p/ £117.08m) 

Australian based gold production and exploration company Norseman Gold has raised £11.25m in a private placing of 25,000,000 new ordinary shares at a price of 45p each. This represents a 13 per cent discount to the shares’ closing price previous day of 51.75p. Monies raised will be used to bring its North Royal Open Pit into production in December. Chief Executive Barry Cahill said that the open pit operation at North Royal in Western Australia will begin producing small amounts of ore in January 2011 and should add about 20,000 troy ounces of production in the financial year ended June 2011, bringing Norseman's total production for the year to 105,000 ounces of gold.

Omg (LON:OMG) (OMG 26.75p/ £18.27m) 

The AIM listed technology group has announced a contract win with Guardian Media Entertainment (GME) to develop animated content for a new superhero franchise. GME will produce the Guardian Project franchise; compelling tales of good vs. evil based on 30 superhero guardians (one to represent each NHL team) told across a variety of content delivery mediums including television, print, social media, Jumbotron and more. They work in collaboration with Stan Lee- creator of many legendary franchises including Spiderman, Iron Man Group (LON:EMG), The X-Men, The Incredible Hulk, The Fantastic Four and others. In order to accommodate a challenging delivery schedule, HOM chose to render final animation in the Unreal Game engine which generated a tremendous volume of effects very quickly and also provided an incredibly high quality output.

Shepherd Neame Limited (SHEP 832.5p/ £95.38m)

PLUS quoted Kent-based brewer and pub operator, announced preliminary results for the year ended 26 June 2010. Turnover is up 5.4 per cent to £115.4m (2009: £109.5m), profit before tax is up 25.5 per cent to £8.7m (2009: £6.9mand EPS are up 11.6 per cent to 49.9p (2009: 44.7p).  Net cash inflow before financing is £9.4m.  The Company benefited from recent investments in new pubs, bottling line and new IT systems. Key sales indicators are strong:  total beer volume up 4.8 per cent; own beer volume up 3.8 per cent to 233,000 brewer’s barrels; same outlet like-for-like managed sales up 0.7 percent and average income per tenanted pub up 1.3 per cent. 

The Company's achievements were recognized by winning the Coutts Family Business of the Year Award for companies with a turnover of more than £25m. This has been a successful year for Shepherd Neame. They have achieved record turnover, record beer volume and strong net cash inflow against a background of a weak UK economy and challenges facing the industry.

Summit Corporation (SUMM 2.5p/£4.16m)*

The Company released its financial results for the half year to 31 July 2010 demonstrating a tight control on costs and highlighting further advances from a number of its compounds and the Seglin Technology Platform. On the results, the bank balance of £4.5m compares with a reduced cash burn rate of c. £260k per month going forward before taking account of any revenue or grant awards (which amounted to £430k in the first 6 months of this financial year). The business is funded until at least the end of 2011. Discussions are in progress with a number of household names amongst the pharmaceutical companies regarding the development partnering and potential commercialization of SMT 19969 (targeting C. difficile) and SMT C2100 (malignant melanoma), as well as advance conversations under CDA concerning the licensing of Seglins from Summit’s Seglin Platform. The future looks very encouraging for revenue generation going forward.

Summit also released a very positive update detailing the establishment of proof of concept in non-clinical efficacy studies for SMT 19969 and the demonstration of its superior position in relation to existing treatment options in the fight against C. difficile. This Wellcome Trust funded proprietary programme to develop a new class of antibodies to treat the life-threatening bacterium that is responsible for 5 times more deaths than MRSA has made significant progress. SMT 19969 has shown it has “the potential to become a front line therapy, with superiority over existing treatment options”. The Company could be well on track for its first major pharmaceutical success.

TyraTech (TYR 25p/£11.6m)

TyraTech, which develops pesticides for human, animal and environmental health has announced a “significant” re-order of the Company’s co-branded Terminix Safeshield product from Terminix International, the largest professional pest control company in the world. This is the second re-order received under the relationship (with Terminix) announced in February of this year. (This is consistent with our note in the Wrap of 6^th July where we stated that “we expect to see increasing revenues from the Company’s partnering model this year….”.) This will represent a significant increase in product volume from 2010 and shipping will commence in Q4 2010 and will continue through 2011. Chairman Alan Reade sees the order as a “step change” in volume sales for TyraTech and builds on the success of the product in the US.

In our Small Cap Wrap of 21^st July 2010 we wrote “Trading in TyraTech shares has been somewhat cumbersome due to their Regulation S status which restricts their marketability and requires physical settlement.  There is now good news for current and prospective owners of TyraTech as the company is creating a second line of stock that will be unrestricted with trading symbol TYRU.  All eligible shareholders will be contacted and invited to convert their holding to the new line which should start trading around the end of August with settlement through the CREST system.  One less irritation should help increase liquidity in TyraTech’s shares.” The first line of unrestricted stock (479,117 shares) listed on AIM on 27^th August 2010.

Valirx Plc (LON:VAL) (VAL 0.35p / £1.20m)*

Further to the announcement towards the end of September concerning the sale of its Belgian subsidiary, the Company has confirmed its completion and the receipt of the first installment (of four equal amounts, 90 days apart) of US$100,000.

William Sinclair (SNCL 111.5p/£18.46m)

William Sinclair announced a good trading update on 7 October. Despite the level of rain in July and August (that may have dampened investors’ enthusiasm) the Company has comfortably built up stock levels ahead of the sales season as its efforts to develop peat drying capabilities have obviously borne fruit.  Further, margin improvements have been achieved through both the efficiency programme and the growth in sales of the peat-free product, sold under the Horizon brand.  The demand for Sincroboost Plus, the peat substitute, is outstripping supply and so production is being increased. All in all, a good growth story. 

Nickel Price (US$23,750/t)

The Nickel price has begun to show some legs of late, with the price per tonne reaching US$25,000 before falling back a little to US$23,750 currently. The reason appears to be that the concern at the beginning of the year that rising stocks would keep a lid on prices has given way to an increasing view that forecast production levels previously announced by a number of companies (and Vale New Caledonia and Sherritt International in particular) will prove optimistic. Both these companies are endeavouring to employ high pressure acid leaching (HPAL) to produce the metal from nickel laterite ore bodies, but are encountering continuing problems. Commentators have voiced reticence with regard to HPAL as an attractive and economic method of nickel production, despite the billions of dollars that the industry has spent trying to perfect the process. Whilst we are of the view that HPAL will eventually succeed, we would prefer to point investors towards nickel sulphide plays. Amur Minerals Corp (LON:AMC) of course is the Company we know best that fits this bill.