Our Outlook for 2019 – Part 1

2019 (1)
Which firms could be the big small market opportunities in 2019?

This year has been a difficult one for many junior UK-listed companies. Geopolitical turmoil and a commodity bear market have rattled stocks across many sectors. Meanwhile, a lack of AIM liquidity has done little to help businesses looking to boost their shares with strong newsflow. Here, we highlight several firms that have seen their shares decline this year and look at why this could change in 2019.

Harvest Minerals (HMI)

What have shares done?

Harvest has seen its shares fall from highs of 22.8p in May to their current 9.25p.

What’s its current market cap?

£17.3m.

What was cash at last count?

In its results for the year ended 30 June 2018, Harvest had a cash balance of $15.5m.

What’s next?

This year has seen Harvest begin commercial production of its KPfertil fertiliser. It has secured several significant sales and requisite government approvals.

The company is now gearing up to increase its pipeline across Brazil massively. To do this, it has bolstered production capacity at its Arapua site and strengthened its sales and marketing team. A trial is also ongoing to demonstrate the long-term benefit of replacing traditional fertiliser. Finally, it is boosting its product storage capacity, which will allow work to continue further into the rainy season.

The business must continue to build on the momentum and strong base it has now established. If it can do this, then 2019 could turn out to be a real game-changer.

ECR Minerals (ECR)

What have shares done?

ECR dropped from highs of 1.3p in January to a low of 0.6p in June. After some volatility, it has since settled at its current 0.7p.

What’s its current market cap?

£2.3m.

What was cash at last count?

As at 31 March 2018, the business had a cash balance of £701,499. However, it released a £680,000 strategic financing update this week. Here, it said it has sufficient working capital against enhanced operational plans to last until at least Q2 2020.

What’s next?

Recent months have seen ECR announce considerable progress at its gold licences in Victoria, Australia. In particular, it has identified the potential for a rare bulk tonnage gold operation at its Creswick licence. Meanwhile, it has determined a significant gold system at its Baillieston licence. Notably, last month also saw Newmont Mining, one of the world’s largest gold producers, apply for a permit next door to Baillieston.

Newmont’s vote of confidence supports ECR’s considerable operating progress. As such, we will be keeping an eye out for news flow in the New Year. Indeed, in this week’s update, the firm said it plans to carry out extensive exploration programmes in Victoria and 4,000m of RC drilling. It will also review acquisition opportunities in strategic and precious metals.

Metal Tiger (MTR)

What have shares done?

Shares in Metal Tiger peaked at 3.4p in August. Since then, they have fallen considerably to their current 1.2p.

What’s its current market cap?

£16.5m.

What was cash at last count?

As at 30 June, Metal Tiger had cash and cash equivalents of £736,800. However, the firm has made considerable operational progress since. It will be worth keeping an eye out for an updated figure. This should be due soon.

What’s next?

This year has seen Metal Tiger sell off its stake in the T3 project to JV partner MOD Resources. Like most of Metal Tiger’s portfolio, T3 is located in Botswana’s Kalahari Copper Belt (KCB),

As part of the deal, the two businesses have started a new JV focused on exploration in the KCB. The venture holds permits covering 8,000km2 of ground in the prospective area.

Metal Tiger also bought a large stake in a business called Kalahari Metals earlier this year to strengthen this position further. As a result, Metal Tiger now has the most direct and indirect exposure to the KCB in the world.

Early exploration results from Metal Tiger’s new JV have been encouraging. It will be interesting to see if the business can gain enough traction to prompt a market re-rate in 2019. If the KCB offers as much potential as Metal Tiger appears to believe, then it could be a real value driver moving forward.

Summit Therapeutics (SUMM)

What have shares done?

Summit has not had a good year. Shares fell off a cliff in June from 195p to 36.9p. They have recovered slightly to sit at 20.3p.

What’s its current market cap?

£14.8m.

What was cash at last count?

The company had cash and cash equivalents of £13m on 31 October 2018. However, earlier this week it announced that it would raise $25m by selling American Depositary Shares in a private placement.

What’s next?

As we have noted before, the biotech firm fell by as much as 80pc in July. This came after it revealed that it had discontinued its treatment for Duchenne Muscular Dystrophy. Despite this setback, the firm has been working to move forward. It is now focusing on the development of the three antibiotics left in its pipeline.

This week, the business announced a whopping $25m placing. The funds will support a critical phase three clinical programme for ridinilazole. This is an antibiotic for colon infection C. Difficile. Unlike similar medications, it does not cause damage to natural gut flora during treatment. The money will also advance studies for the treatment of gonorrhoea.

As Summit has demonstrated, investing in pharma businesses can be a bit like roulette. This is because these businesses often completely hang on the outcome of trials and the whim of regulators. If this is of interest, then Summit’s ambitious work programme could generate some significant share price movement.

Anglo African Oil & Gas (AAOG)

What have shares done?

Shares sat at 15.5p in April, but a long series of delays and financing concerns have turned off investors. The company is now selling at 6.9p a share.

What’s its current market cap?

£12.3m.

What was cash at last count?

The company had a cash balance of £6.5m as at 30 June, but this preceded a great deal of operational turmoil.

What’s next?

The key to Anglo African’s decline has been two disruptions – one major and one minor – to the drilling of a well at its Tilapia field in the Republic of the Congo. To cover the delays, the firm entered into a £5m convertible loan note financing facility with Sandabel Capital. The so-called ‘death spiral’ agreement received a mixed response from the market.

It is worth remembering why Anglo African is targeting Tilapia, which it calls ‘potentially transformational’. The well is focusing on various horizons including an undeveloped discovery in the lower Mengo sands. This includes an 8.1MMbbls gross contingent resource expected to produce c.500bopd per well.

In an update this week, Anglo African said it had intersected three of the well’s initial targeted horizons. The firm said each encountered hydrocarbons in line with its geological model. It will now continue drilling towards the Mengo horizon.

Many will have been put off Anglo African for good as a result of this year’s turmoil. However, some continue to stick with the business on the belief that its fundamental remains unchanged. If the company can deliver on its forecasts, then this contingent could be rewarded handsomely.

Prospex Oil & Gas (PXOG)

What have shares done?

Shares have declined since January from 0.7p to 0.24p each.

What’s its current market cap?

£2.9m.

What was cash at last count?

The business had £489,497 in the bank as at 30 June 2018.

What’s next?

Prospex focuses on high impact onshore and shallow offshore European opportunities with short timelines to production. It acquires undervalued projects with multiple, tangible value trigger points that it can realise within a year of acquisition. It then applies low-cost re-evaluation techniques to identify and de-risk prospects.

This week saw the company increase its stake in the Tesorillo project in Spain from 2.5pc to 15pc. The site could be a game-changer. Indeed, it contains a known gas discovery with estimated gross unrisked prospective resources of 830Bcf at the best estimate. It is also expected to offer more than 2Tcf of upside.

Prospex also owns a 50pc position in Suceava in Romania where it recently commenced gas production. Finally, it holds a 17pc stake in the Podere Gallina Permit in the Po Valley region of Italy. Here, it is helping to advance the Podere Maiar gas discovery through the permitting process towards first production.

This year has seen management bolster its position in the firm considerably. Moves like this provide a significant vote of confidence. Can Prospex continue to establish itself in 2019?

Coro Energy (CORO)

What have shares done?

Coro’s decline has not been quite as dramatic as some other companies on this list. It has fallen from 4.2p a share in September to its current 2.3p.

What’s its current market cap?

£16.9m.

What was cash at last count?

In its latest results, the business said its cash stood at €14.1m as of 30 June 2018.

What’s next?

As we wrote last week, the business is only just beginning to launch into its efforts to become an established mid-cap Asian oil & gas player.

Earlier this year, it made its first move into Asia. It bought a 42.5pc stake in the Bulu production sharing contract offshore east Java for $12m in cash and shares. The fully-funded acquisition pushed Coro’s shares up by 12pc. It includes the Lengo gas field, which contains gross 2C resources of 359Bcf recoverable dry gas and total 3C resources of 420Bcf.

Meanwhile, earlier this month, it agreed to conduct a joint technical study over a Malaysian block called 2A. This will be completed with a firm called Petroleum Nasional Berhad, or Petronas.

It will be interesting to see where the company’s experienced management team takes this strategy next year.

UK Oil & Gas (UKOG)

What have shares done?

The divisive business sat at 4p in January. It now sells for 1.25p a share.

What’s its current market cap?

£69.9m.

What was cash at last count?

As at 31 March 2018, cash and cash equivalents stood at c.£4.5m. Check again when the business releases its next results imminently.

What’s next?

As many will know, UKOG is firm with the most substantial individual stake in the Horse Hill oil field in Surrey’s Weald Basin. This year has seen the site’s operator Horse Hill Developments announce that it considers the site’s Portland oil field to have commercial potential following an extended well test programme. Up to three production wells and two pressure support wells are planned for the area in 2019.

With the news following considerable delays, the excitement that UKOG enjoyed from its earlier days has now disappeared. Shares barely moved on the commercial discovery.

However, the firm claims that key well HH-2 has a strong targeted sustainably daily Portland production rate of 730-1,080bopd. Those who still believe in the firm are likely holding out for some serious progress next year, as works towards production moves forward.

Jeff Mortimer, director of investment strategy at BNY Mellon Wealth Management

The author was remunerated but does not hold shares in the companies 


Categories: Bulletin