Despite a nasty day for the FTSE 100 (down 73 to 5,924) and Dow Jones Industrials (currently down 100 to 12,114) it was a positive day for most of the Contrarian Investor stocks. News that The Bank of England’s Monetary Policy Committee (MPC) had moved a little closer to lifting interest rates when it met earlier this was announced today as Spencer Dale, the Bank's chief economist, joined Andrew Sentance and Martin Weale, who voted for higher rates the previous month, in calling for a rate hike. So the vote to retain U.K. base rates at 0.5% was 6-3. No doubt the MPC will be worried about the rising oil price with its impact on inflation and negative influence on economic growth.
Bowleven (BLVN) had its second day of gains, finishing up 10p at 323p with it being reiterated as a Goldman Sach's conviction buy. Goldman has said that recent share underperformance has created an attractive entry point into the stock - "We view the upcoming drilling campaign offshore Cameroon positively, with recent success at the Sapele prospect helping to de-risk the surrounding acreage,". The target price was cut to 578p from 623p, with drilling at the Cameroon Sapele-1 prematurely halted because of high pressure gas which the drilling equipment was not specified to handle. Things appear to be calming down a little in Cameroon, with President Paul Biya reportedly not running for re-election later this year after 28 years in power.
Xcite (XEL) finished up 6.5p at 344p and even Rockhopper (RKH) was in the blue, up 3p at 235p. Could this be the end of the Rockhopper slide at last? Disappointing to see Weatherly international move up only 2% after the positive comments on the interim results report. The one glitch was the continued slide in Sirius Minerals (SXX) to 13.38p, down 5%.
I took the plunge and bought North Sea oil play, Encore Oil (EO) as it has been on my watch list for a while and around 120p it should be a strong entry point. Didn't want to buy yet another oil company but its North Sea so less risky, oil is going through the roof and frankly I've been struggling to find many decent bets outside of commodity stocks so far.
Wednesday, February 23, 2011
Oil price continues to rise on fears of Africa and middle east contagion
The FTSE 100 is currently down 58 points to 5,929 and the Dow Jones Industrials is down 42 to 12,175 as investors finally start worrying about rising oil prices and its potential impact on economic growth. Brent crude oil is up $3.8 to $109 a barrel.
The closure of oil production and refining in Libya has sent oil prices up to levels not seen for 2.5 years. As Civil war seems a distinct possibility in Libya, with Gaddafi's refusal to step down from power, the reassuring words from OPEC that they can increase supply has done little to reassure oil traders. Talk that Gaddafi may deliberately sabotage Libya's oil field's before he is forced from power as a final act of the "mad dog" hasn't helped sentiment. Troops disloyal to Gaddafi have taken second city Benghazi.
Safe haven's continue to be the flavour of the week with U.S. treasury bonds and gold rising (gold hit $1409 an ounce today) as fear begins to infect investors after weeks of euphoria. Riskier assets like AIM stocks are continuing to be sold off.
Finally, an opportunity to buy stocks for better value after weeks of rises meant there were little cheap targets to be had. This volatility will continue for the foreseeable future until the situation in Africa and the Middle East becomes clearer."Be greedy when others are fearful"!
The closure of oil production and refining in Libya has sent oil prices up to levels not seen for 2.5 years. As Civil war seems a distinct possibility in Libya, with Gaddafi's refusal to step down from power, the reassuring words from OPEC that they can increase supply has done little to reassure oil traders. Talk that Gaddafi may deliberately sabotage Libya's oil field's before he is forced from power as a final act of the "mad dog" hasn't helped sentiment. Troops disloyal to Gaddafi have taken second city Benghazi.
Safe haven's continue to be the flavour of the week with U.S. treasury bonds and gold rising (gold hit $1409 an ounce today) as fear begins to infect investors after weeks of euphoria. Riskier assets like AIM stocks are continuing to be sold off.
Finally, an opportunity to buy stocks for better value after weeks of rises meant there were little cheap targets to be had. This volatility will continue for the foreseeable future until the situation in Africa and the Middle East becomes clearer."Be greedy when others are fearful"!
Sponsors for Contrarian Investor uk
If anyone is interested in sponsoring the Contrarian Investor uk Blog exclusively please contact me at contrarianinvestoruk@gmail.com with the revamp in progress.
Wanted - designer for blog revamp!
I am looking to revamp the Contarian Investor blog/website next month with a brand new look. I would be grateful if those with the necessary experience could contact me with a quote and credentials to contrarianinvestoruk@gmail.com. Thanks
Next Contrarian Investor review
So far on my potential list for the next Contrarian review are:
MeDavinci (MVC) - soon to be Oregon Gold
Motive Television (MTV)
Ceramic Fuel Cells (CFU)
Proteome Sciences (PRM)
Anglelsey Mining (AYM)
Further ideas appreciated! But please tell me why they are undervalued and what is the forthcoming news flow which will rerate the shares. Time is always short!
MeDavinci (MVC) - soon to be Oregon Gold
Motive Television (MTV)
Ceramic Fuel Cells (CFU)
Proteome Sciences (PRM)
Anglelsey Mining (AYM)
Further ideas appreciated! But please tell me why they are undervalued and what is the forthcoming news flow which will rerate the shares. Time is always short!
Proactive investors article on Weatherly
From Proactive Investors: http://www.proactiveinvestors.co.uk/companies/news/25803/weatherly-international-upbeat-on-2011-25803.html
Weatherly International upbeat on 2011
Weatherly International (LON:WTI) expects first sales revenues in March after restarting production “at an opportune time given the current climate of high copper, and precious metal prices”.
In its interim report the company said that it will now increase its exploration efforts to add to its JORC compliant inventory of 623,645 tonnes of copper.
The company was focused on returning to production during the period after placing its Namibian mines on care and maintenance in 2008. The decision was influenced by the recent surge in copper prices, which have jumped from US$2.80/lb in June 2010 to the current US$4.30/lb.
Concentrator and the mines have now been fully commissioned and are operational.
Forward sales have so far covered about 20% of the output from central operations for first 18 months of production at average weighted price of US$9,500 per tonne with first sales revenues expected next month.
The board has authorised forward selling of up to 35% of the company’s output from the mines for a period of 18 months.
The report was met with a positive response from investors as shares in Weatherly climbed 3% in early deals.
The business kept its losses to US$3.7 million in the six months to 31 December 2010, comprising operating losses before depreciation of US$3.2 million associated with the cost of maintaining and redeveloping the mines, depreciation charges of US$1.6 million, and profit of US$1.1 million from disposal of Kombat and other property.
Cash in the bank at 31 December stood at US$15 million following a share placement to raise £4.45 million (US$7 million) in November.
In its interim report the company said that it will now increase its exploration efforts to add to its JORC compliant inventory of 623,645 tonnes of copper.
The company was focused on returning to production during the period after placing its Namibian mines on care and maintenance in 2008. The decision was influenced by the recent surge in copper prices, which have jumped from US$2.80/lb in June 2010 to the current US$4.30/lb.
Concentrator and the mines have now been fully commissioned and are operational.
Forward sales have so far covered about 20% of the output from central operations for first 18 months of production at average weighted price of US$9,500 per tonne with first sales revenues expected next month.
The board has authorised forward selling of up to 35% of the company’s output from the mines for a period of 18 months.
The report was met with a positive response from investors as shares in Weatherly climbed 3% in early deals.
The business kept its losses to US$3.7 million in the six months to 31 December 2010, comprising operating losses before depreciation of US$3.2 million associated with the cost of maintaining and redeveloping the mines, depreciation charges of US$1.6 million, and profit of US$1.1 million from disposal of Kombat and other property.
Cash in the bank at 31 December stood at US$15 million following a share placement to raise £4.45 million (US$7 million) in November.
Taking advantage of silly valuations on Xcite and Rockhopper
Lets look at Rockhopper (RKH) first :
Market capitalisation = £600 million at 231p a share.
Cash in bank = £200 million
Proven reserves = 170 million barrels of oil @ $5 dollars a barrel = $850 million (£524 million at £1=$1.62)
Cash + reserves = £724 million, i.e. £124 million greater than market cap
The market is pricing Rockhopper at less than the oil it has found at Sea Lion plus cash. it is highly unlikely that all 7 wells due in 2011 will be unsuccessful i.e. there is reserves upgrade. Lets not forget that Brent crude hit $108 a barrel.
The lets look at Xcite (XEL):
Market capitalisation = £550 million at 346p a share
Cash in bank = approx £25 million
Proven reserves = 166 million barrels = $747 million @ $5 a barrel (plus discounting by 10% since heavy oil at Bentley)= £461 million.
Assuming pessimistic CPR upgrade in reserves to 200 million barrels = $900 million @$5 a barrel and heavy oil discount= £555 million
Xcite is currently priced on the basis of a 200 million field at only $5 a barrel with no upside from the CPR or on the future exploration licenses. As a reminder on the Xcite story, here's my post from January: http://contrarianinvestoruk.blogspot.com/2011/01/xcite-energy-should-prove-highly.html
After selling a big chunk of Xcite a couple of weeks ago on the takeover rumours I have bought a nice slug first thing today together with Rockhopper. Hopefully fundamentals will finally prevail on these stocks. I also bought more Weatherly International (WTI) on interim results as the story is now very compelling (http://contrarianinvestoruk.blogspot.com/2011/01/weatherly-international-namibian-copper.html).
Market capitalisation = £600 million at 231p a share.
Cash in bank = £200 million
Proven reserves = 170 million barrels of oil @ $5 dollars a barrel = $850 million (£524 million at £1=$1.62)
Cash + reserves = £724 million, i.e. £124 million greater than market cap
The market is pricing Rockhopper at less than the oil it has found at Sea Lion plus cash. it is highly unlikely that all 7 wells due in 2011 will be unsuccessful i.e. there is reserves upgrade. Lets not forget that Brent crude hit $108 a barrel.
The lets look at Xcite (XEL):
Market capitalisation = £550 million at 346p a share
Cash in bank = approx £25 million
Proven reserves = 166 million barrels = $747 million @ $5 a barrel (plus discounting by 10% since heavy oil at Bentley)= £461 million.
Assuming pessimistic CPR upgrade in reserves to 200 million barrels = $900 million @$5 a barrel and heavy oil discount= £555 million
Xcite is currently priced on the basis of a 200 million field at only $5 a barrel with no upside from the CPR or on the future exploration licenses. As a reminder on the Xcite story, here's my post from January: http://contrarianinvestoruk.blogspot.com/2011/01/xcite-energy-should-prove-highly.html
After selling a big chunk of Xcite a couple of weeks ago on the takeover rumours I have bought a nice slug first thing today together with Rockhopper. Hopefully fundamentals will finally prevail on these stocks. I also bought more Weatherly International (WTI) on interim results as the story is now very compelling (http://contrarianinvestoruk.blogspot.com/2011/01/weatherly-international-namibian-copper.html).
Weatherly International Interim results RNS
Weatherly International (WTI) have just issued their interim report, all looks on track with excellent prospects. Top class company! The dividend from the China Africa Resources (CAR) AIM flotation in April will be most welcome.
RNS Number : 6695B
Weatherly International PLC
23 February 2011
Summary highlights for the six months ended 31 December 2010
Financial
· Cash at bank US$15 million as at 31 December 2010
· Net assets of US$32.1 million as at 31 December 2010
· Cash at bank US$15 million as at 31 December 2010
· Net assets of US$32.1 million as at 31 December 2010
Corporate and operational
· Successful restart at Central Operations
· US$7.0 million loan from Louis Dreyfus
· Share placement raising £4.45 million (US$ 7.0 million) in November 2010
· Sale of Kombat mine completed, US$3.2 million received in total
Post Half Year End
· Concentrator and the mines have now been fully commissioned and are operational
· Forward sales of approximately 20% of the output from Central Operations for first 18 months of production at average weighted price of US$9,500 per tonne
· First sales revenues expected March 2011
· Contract awarded to drill the Tsumeb tailings as prelude to a full feasibility study
Chairman's statement
Half Year Statement
We are pleased to report Weatherly's results for the half year ended 31 December 2010.
During this period we recorded a loss of US$3.7 million comprising operating losses before depreciation of US$3.2 million associated with the cost of maintaining and redeveloping the mines, depreciation charges of US$1.6 million, and profit of US$1.1 million from disposal of Kombat and other property.
Cash in the bank at 31 December, 2010 totalled US$15 million.
During this period our focus has been on the next stage of development of our Company. This involves not only returning our mines to production in accordance with our programme, but laying the foundations for further development and corporate growth.
Our plans for reopening the mines have involved the recruitment of senior staff and the strengthening of the boards of our operating companies in Namibia with some significant appointments. We have recruited Craig Thomas as Chief Operating Officer and two non-executive directors, Titus Haimbili and Frans Ndoroma, who join Cleophas Mutjavikua on the boards of our operating companies. We have been able to move quickly into production as a result of the measures taken to maintain the mines in good order since production ceased at the end of 2008.
We also entered into an off-take agreement with Louis Dreyfus Commodities Metals Suisse SA ('Louis Dreyfus Commodities') who also provided US$7.0 million of funding for the project.
With copper prices at a high level, the Board has adopted a cautious approach to risk management and has authorised forward selling of up to 35% of our output from the mines for a period of 18 months. To date we have contracted to sell approximately 20% of our projected output in two tranches: the first at US$9,260 per tonne and the second at US$9,750 per tonne. We shall continue to monitor copper prices and projections in the context of our overall strategy which is to guarantee minimum levels of revenue from our mines, particularly during the critical start-up period.
In November we undertook a placement of our shares raising £4.45 million (US$7.0 million) which also served as a catalyst to reshape our shareholder base. We are pleased to welcome all our new shareholders. Blackrock who participated in the placement and were allotted 12 million shares have now taken their total holding in the Company to 65.6 million shares (12.25%) having acquired a large part of the Dundee Precious Metals Inc shareholding.
Operational Update
Central Operations
Mining at Otjihase and Matchless has been under way since January and the company is now pleased to announce that all parts of the mine have been fully commissioned. This includes the concentrator, conveyor hoists and all of the machinery that is necessary to make the mine fully operational. Delivery of the concentrate to Walvis Bay is imminent and the first revenue is expected to be received in March. We believe that we have the right management, contractors and framework in place to sustain a viable and profitable operation which will serve as the platform for the future development of the Company.
Tsumeb Tailings
We are undertaking a formal investigation into the feasibility of copper production from the old tailings dump at Tsumeb. We are examining this urgently as it provides the potential to exploit an existing resource and increase our copper production with relatively low investment. Accordingly, we have awarded a contract to Dump and Dune, a South African company, to mobilise at the beginning of March, 2011. The Tsumeb tailings dump comprises residues from the old Tsumeb mining operations and contains an historical (non-compliant) resource of 16mt grading 0.71% copper. It is also known to contain significant concentrations of lead, zinc and silver. The company has engaged consultants Coffey Mining to prepare a resource statement and report that will comply with the AIM requirements. Sedgman Engineering, who is currently managing the Tschudi feasibility study, has also been engaged to determine the most suitable retreatment process that can take advantage of the existing Tsumeb concentrator and infrastructure.
Tschudi Feasibility Study
The open pit-able resource at Tschudi remains a key element in our strategy for increased copper production. Currently the base case is to produce around 10-13,000tpa of copper over a life of at least ten years.Metallurgical testwork is continuing at the AMDEL laboratories in Perth under the auspices of Study Managers, Sedgman. Results to date support the development of a stand-alone open pit operation based on either heap leaching the transitional ores followed by flotation of the primary ores or simply flotation of both ore types. Final selection of the processing route is awaiting the results of column leachwork that has been running since last year and the latest round of flotation testwork. With high precious metal prices, the recovery of silver has become an increasingly important element in determining the preferred metallurgical route.
China Africa Resources Plc
In January we signed the Implementation Agreement with East China Mineral Exploration and Development Bureau ('ECE'), for the newly formed jointly managed company, China Africa Resources Plc ('CAR'). We are now working on the detailed documentation required for the listing. This transaction, when completed, will involve the distribution of 10% of the entire share capital in CAR to our shareholders as an in specie dividend. This will leave Weatherly with a 25% interest in a very exciting growth opportunity with an ambitious Chinese partner.
Exploration
The company intends to accelerate its planned extension drilling of the Tschudi syncline. By doing so, it may be possible to incorporate any significant increases in the resource into the feasibility study without unduly delaying the final report. Drilling of Tsumeb West and other areas contained in the exploration licence is scheduled for later in the year.
Appointments
With so many projects going forward we are now in a position to recruit top mining executives to strengthen our team across the full range of our activities. We have appointed Dominic Claridge, an experienced mining engineer, to oversee the development projects at Tsumeb, Tschudi and Berg Aukas (on behalf of CAR). With an increased focus on exploration we shall be making a further appointment to oversee our exploration activities in Namibia. We are also recruiting an experienced mine manager for Central Operations to support the excellent work carried out by Craig Thomas, our Chief Operating Officer. These are all key appointments that will support the future development of the Company.
Outlook
The company is now back in production at an opportune time given the current climate of high copper, and precious metal prices. We have an excellent pipeline of projects and a more than capable team of people to see these projects to fruition. We shall be increasing our exploration efforts with the aim of adding to our already substantial JORC compliant inventory of 623,645 tonnes of copper. The spin-out of CAR with one of China's largest mineral groups, ECE, offers enormous opportunity and we are still hopeful that there will be an early resolution to our involvement in the Tambao manganese project in Burkina Faso. All in all, 2011 promises to be a very exciting year for the company.
Xcite Energy has further drawdown on equity drawdown agreement
RNS just released from Xcite Energy that it is getting another £5 million from the SEDA (Standby equity drawdown agreement) with Yorkville. No sign of that CPR RNS that we have all been waiting for. Incredible to think that the Xcite share price was where it is today before the December 2010 flow test, which was a break or break for the Bentley field. Mmmm...
23 February 2011
THIS ANNOUNCEMENT IS NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION IN OR INTO THE UNITED STATES
TSX-V, LSE-AIM: XEL
23 February 2011
Xcite Energy Limited
("Xcite Energy" or the "Company")
Drawdown on Equity Line
Xcite Energy announces that it has drawn down on its Standby Equity Distribution Agreement ("SEDA") with YA Global Master SPV Ltd ("Yorkville") in the amount of GBP5 million (CAD$7.975 million). This draw down has been undertaken at a price of GBP3.38 (CAD$5.40) per share and will result in the issue of 1,480,754 ordinary shares of no par value in the capital of the Company (the "New Ordinary Shares") to Yorkville.
Subject to the terms of the SEDA and except in accordance with Canadian securities laws and with prior written approval of the TSX Venture Exchange, the shares issued to Yorkville under this draw down may not be sold or otherwise traded on or through the facilities of the TSX Venture Exchange or otherwise in Canada or to or for the benefit of a Canadian resident until the date that is four months and one day from the date of issue.
Application will be made for the admission to AIM ("Admission") of the New Ordinary Shares upon approval of the share issue by the TSX Venture Exchange. The New Ordinary Shares will rank pari passu with the Company's existing issued Ordinary Shares.
Tuesday, February 22, 2011
Vialogy - some good technology but can it make money?
Following my request for further investment ideas outside the usual commodity plays, several readers have recommended AIM listed ViaLogy (VIY).
The company was originally founded in 1999 with the help of a small UK listed incubator, BioProjects International backed by investment guru, Jim Slater, and Angel investor Terry Bond. BioProjects ultimately merged with ViaLogy in 2003.
ViaLogy has signed a master services contract with a major oil company for it to appraise the QuantumRD system.
Funding
ViaLogy raised £1.25 million in January 2011 through the placing of 41,666,664 new ordinary shares at a price of 3p per share. The proceeds of the Placing will be used in the further expansion of the company's energy prospects.
Intellectual property
This company has eleven US, and three European patents, that are based on a quantum algorithm which immensely improves the detection of minute signals in noisy backgrounds. These patents originally arose as a result of the work done at California's NASA jet propulsion laboratories, who were trying to filter out weak signals sent back from spacecraft back to Earth from background interference.
Originally Vialogy tried to develop technology in several areas such as border security and surveillance systems before focusing on the oil and gas sector with its QuantumRD system in 2008. This was able to identify the density and extent of oil deposits as well as potential new drill targets. The key is active signal processing of seismic data; ViaLogy applies proprietary software that adds a synthetic signal to the seismic processing and analysis sequence. Whereas conventional seismic processing seeks to suppress noise that typically obscures a signal, Vialogy software creates synthetic quantum mechanical noise as the active signal. ViaLogy is the first and only company currently capable of extracting information from conventional seismic data using interferometric active signal processing. The company claims that the technology is 10-100 times more effective at detecting signals in noisy environments than standard passive signal processing techniques.
In February 2010, the technology was successfully used to identify a target well in the Strawn Field of the central Texas Permian basin – a region where 18 wells had been drilled previously, 15 of which turned out to be dry. In addition, ViaLogy has successfully completed its technology demonstration project on an offshore prospect for a global non-US major oil exploration company.
In February 2010, the technology was successfully used to identify a target well in the Strawn Field of the central Texas Permian basin – a region where 18 wells had been drilled previously, 15 of which turned out to be dry. In addition, ViaLogy has successfully completed its technology demonstration project on an offshore prospect for a global non-US major oil exploration company.
ViaLogy has signed a master services contract with a major oil company for it to appraise the QuantumRD system.
Funding
ViaLogy raised £1.25 million in January 2011 through the placing of 41,666,664 new ordinary shares at a price of 3p per share. The proceeds of the Placing will be used in the further expansion of the company's energy prospects.
The number of shares in issue is 733,941,998 with a market capitalisation of £28 million. The current share price is 3.88p (52 week range 3.13-6.75p).
SWOT
Strengths
QuantumRD technology has had promising results in oil and gas sector projects to date
Good patent coverage
Appraisal deal signed with major oil company
Appraisal deal signed with major oil company
Weaknesses
Long history of "jam tomorrow" to investors and little to show so far for all the promises
AIM listed and penny share volatility
Limited financial firepower
No major institutional shareholders
Opportunities
Oil getting harder to find and exploration companies looking to increase success rates given expensive drilling contracts
Threats
More fund raising likely within 12 months
Major deal not completed with partner company as promised to start generating substantial revenues
Share outlook
Investors in Vialogy have had to be patient, with constant promises of jam tomorrow. The fact that Jim Slater is an investor seems to have enticed private investors into this stock. It is encouraging that the company seems to be getting traction on its Quantum RD system with the oil and gas industry but the sector is highly conservative when its comes to adopting new technology on a widespread basis. Constant placings with institutional investors are always unwelcome, the last one being at the start of 2011.
2011 could well be Vialogy's year if the constant promises of adoption of the QuantumRD technology come to anything. Terry Bond, the company's Chairman now needs to deliver. If the share price drops lower towards the placing price of 3p, this could be interesting, but I think only a small investment would be prudent so early in the evolution of this story. The NASA technology story always makes a company like this stand out from the crowd, but patents don't always mean a booming share price!
Sea of red today as fear stalks market
The FTSE 100 managed to regain some of its poise late in the session, finishing down 18 at 5,997 after being much further in the red in the morning. Worries about the Libyan crisis and poor results from retailer Walmart were offset by good consumer confidence numbers from the U.S. and encouraging news on a budget surplus in the U.K. last month. Looks like the VAT rise to 20% and the increase in capital gains tax from 18 to 28% is finally swelling the Treasury coffers!
Another dreadful day for the Contrarian Investor UK portfolio with all the stocks down and with the oil stocks feeling the pain despite the rising oil price. It was nice to see Bowleven finally rebound to finish up 2% at 313p after falling below £3 this morning. I couldn't resist a top up at £3 with so much news to come from its Cameroon Sapele-1 well and other drilling activities. As for Rockhopper, I am gob smacked it is now at 232p after yet another 6% fall so I am well down on this. Fortunately there is no rush to sell at these levels, i'm holding firm for the results of the 14/10-4 well in mid-March. Crazy that its dropped £1.50 since the 14-10/3 well result and yet Goldman Sachs has its target price over £6. Institution selling plus private investors fearing for their lives. What's with the nonsense about a Sea Lion duster!! What next? Glad i derisked on Xcite last week with anothet 9p fall. Had far too much in Xcite until a couple of weeks ago. Shame I put some of it in Rockhopper, we're all human!!!
Another dreadful day for the Contrarian Investor UK portfolio with all the stocks down and with the oil stocks feeling the pain despite the rising oil price. It was nice to see Bowleven finally rebound to finish up 2% at 313p after falling below £3 this morning. I couldn't resist a top up at £3 with so much news to come from its Cameroon Sapele-1 well and other drilling activities. As for Rockhopper, I am gob smacked it is now at 232p after yet another 6% fall so I am well down on this. Fortunately there is no rush to sell at these levels, i'm holding firm for the results of the 14/10-4 well in mid-March. Crazy that its dropped £1.50 since the 14-10/3 well result and yet Goldman Sachs has its target price over £6. Institution selling plus private investors fearing for their lives. What's with the nonsense about a Sea Lion duster!! What next? Glad i derisked on Xcite last week with anothet 9p fall. Had far too much in Xcite until a couple of weeks ago. Shame I put some of it in Rockhopper, we're all human!!!
AIM sell off intensifes on news from Libya
Brent crude hit $108 a barrel today on fears on the disruption of supply from Libya. The FTSE 100 is currently down 40 points to 5,975 but was down over 70 points earlier in the session.
My AIM oil and commodity stocks took the change in sentiment badly with Xcite, Bowleven and Rockhopper all deeply in the red and trading below fundamental value. A combination of fear, stop losses being triggered and profit taking all took their toll. I didn't think I would be able to buy rkh at 225p and blvn less than 300p. But that's AIM for you, extreme volatility is the norm and you need to plan for it and have cash on the sidelines for weeks like this.
Monday, February 21, 2011
Sareum Holdings - a pharmaceutical cancer development company that's more of an acorn than an oak!
On average it costs more than $1 billion and takes more than seven years to undertake clinical trials and win regulatory approval before a new drug can be marketed. Only one out of every six (16%) drugs developed ever makes it to marketing approval. With this in mind and with poor productivity from their own internal research and development activities, major pharmaceutical companies are increasingly looking at smaller external development entities to license products from.
AIM listed, Sareum Holdings (SAR) is focused on finding new development compounds to treat cancer for future potential development with third party drug companies.
Development focus
Sareum is focusing research on drugs that target the biochemical processes which control cell growth and division in cancerous tumours including
SKIL® (Sareum Kinase Inhibitor Library) is Sareum’s drug discovery technology platform that has so far produced the Company’s Aurora+FLT3, Aurora+ALK VEGFR-3, FLT3 & TYK2 kinase cancer and auto-immune disease research programmes. SKIL can also generate drug research programmes against other kinase targets.
The Company’s other cancer programmes; targeting Aurora+FLT3, Aurora+ALK and VEGFR3 kinases are being evaluated in in-vivo efficacy models. In February 2011, the Company announced significant progress against AML (acute myeloid leukaemia, the most common form of adult leukaemia) in its Aurora+FLT3 programme. A recent study for the programme showed that the leukaemia regressed to such an extent that no detectable cancer could be found in any of the cases treated (ten in total) with a Sareum compound. By comparison, leukaemia increased five to fifteen fold in the study examples
treated without Sareum’s compound. At six weeks following treatment, no detectable cancer could be found in two of the ten examples dosed with the Sareum compound. In the remaining eight examples, the average time taken for the leukaemia to reappear and increase 5-fold was six weeks, compared
to two weeks in the untreated cases. This study compares very favourablywith similar studies published in the literature for the Aurora kinase inhibitors that are currently in clinical trials.
Funding
Sareum undertook share placings at 0.2p in August and December 2010 to raise £450,000, before expenses. In February 2011 a further £500,000 was raised at 1p a share. The funds raised will be used to progress the Aurora+FLT3 programme, and provide working capital for the foreseeable future.
Cash at bank at the end of December 2010 was £621,000, compared to £740,000 at the end of 2009. Losses on ordinary activities (after taxation) of £258,000 were £37,000 lower than in 2009.
Though Sareum’s portfolio of developments looks to have potential, finding a development partner will not be easy as it sounds without early clinical evidence confirming the commercial opportunity for a licensee . It is encouraging that results from the Aurora+FLT3 programme seem to have shown benefit in Leukaemia but the trial size was still very small being a phase I study. I am surprised that the company has not beenmore aggressive in getting funding to undertake more significant early stage research, but this may be a reflection of sentiment towards small pharmaceutical developers after so many recent failures of UK biotechs.
AIM listed, Sareum Holdings (SAR) is focused on finding new development compounds to treat cancer for future potential development with third party drug companies.
Sareum was founded in August 2003 by Dr Tim Mitchell, Dr David Williams and Dr John Reader as a spin out from Millennium Pharmaceuticals' Structure-Based Discovery Department. Following an initial private investment, the company was successfully admitted to the Alternative Investment Market (AIM) of the London Stock Exchange in October 2004.
In 2008, the company restructured its business to concentrate solely on its internal cancer drug discovery programmes. It is based in Cambridge, U.K..
In 2008, the company restructured its business to concentrate solely on its internal cancer drug discovery programmes. It is based in Cambridge, U.K..
Development focus
Sareum is focusing research on drugs that target the biochemical processes which control cell growth and division in cancerous tumours including
- Checkpoint Kinase 1 (Chk1)
- Aurora Kinase (Aurora)
- FMS-like Tyrosine
- Kinase 3 (FLT3)
- Anaplastic Lymphoma Kinase (ALK)
- Polo-Like Kinase (PLK)
- B-raf
Once a solid cancer tumour reaches a certain size, it needs to be connected to the body's blood and lymph systems to receive nutrients and remove waste. Vascular Endothelial Growth Factor Receptor 3 Kinase, (VEGFR-3, sometimes referred to as Fms-like Tyrosine Kinase 4, FLT4) is importantly involved in the generation of new blood and lymph vessels to a tumour. VEGFR-3 is also involved in the control of metastasis whereby the cancer spreads around the body, which is the main cause of death in cancer patients. Many cancer cells are highly dependent on fatty acid levels of which Fatty Acid Synthase (FASN) is a key regulator.
Sareum’s lead development product is SAR-020106 that has been developed as a CHK1 inhibitor in conjunction with the Institute of Cancer Research and Cancer Research Technology. CHK1 is a serine/threonine kinase involved in regulating cell cycle checkpoint signals that are activated in response to DNA damage and DNA errors caused by defective replication. Activated CHK1 phosphorylates a number of downstream targets, which promote cell cycle arrest in S and G2/M phases of the cell cycle. There is now strong evidence that CHK1 inhibition may selectively sensitise p53 deficient cancer cells to genotoxic cancer therapies, through abrogation of the S and G2 checkpoints. Therefore CHK1 inhibitors may provide a therapeutic strategy for enhancing current genotoxic anticancer therapies. SAR-020106 has been shown to increase the activity of other anti-tumour agents in-vivo e.g. Irinotecan
SKIL® (Sareum Kinase Inhibitor Library) is Sareum’s drug discovery technology platform that has so far produced the Company’s Aurora+FLT3, Aurora+ALK VEGFR-3, FLT3 & TYK2 kinase cancer and auto-immune disease research programmes. SKIL can also generate drug research programmes against other kinase targets.
The Company’s other cancer programmes; targeting Aurora+FLT3, Aurora+ALK and VEGFR3 kinases are being evaluated in in-vivo efficacy models. In February 2011, the Company announced significant progress against AML (acute myeloid leukaemia, the most common form of adult leukaemia) in its Aurora+FLT3 programme. A recent study for the programme showed that the leukaemia regressed to such an extent that no detectable cancer could be found in any of the cases treated (ten in total) with a Sareum compound. By comparison, leukaemia increased five to fifteen fold in the study examples
treated without Sareum’s compound. At six weeks following treatment, no detectable cancer could be found in two of the ten examples dosed with the Sareum compound. In the remaining eight examples, the average time taken for the leukaemia to reappear and increase 5-fold was six weeks, compared
to two weeks in the untreated cases. This study compares very favourablywith similar studies published in the literature for the Aurora kinase inhibitors that are currently in clinical trials.
Funding
Sareum undertook share placings at 0.2p in August and December 2010 to raise £450,000, before expenses. In February 2011 a further £500,000 was raised at 1p a share. The funds raised will be used to progress the Aurora+FLT3 programme, and provide working capital for the foreseeable future.
Cash at bank at the end of December 2010 was £621,000, compared to £740,000 at the end of 2009. Losses on ordinary activities (after taxation) of £258,000 were £37,000 lower than in 2009.
Partnering approach
Sareum does not see itself as a pharmaceutical company and therefore has no intention to undertake a full programme of clinical studies to see a drug compound to market or put such a drug through a regulatory process. Sareum's strategy is to partner early stage programmes with large pharmaceutical companies. On their website they declare they are willing to do a licensing deal on the following basis:
- Sponsored research whereby Sareum research costs are covered in exchange for programme ownership. The parties jointly out-license at a pre-agreed point
- Research collaboration with a major partner on a jointly nominated target. The partner supports research costs of project and has first option to license the programme at a pre-agreed point
- Straight license deal of a Sareum wholly owned programme at a pre-defined stage of development, e.g. Preclinical candidate nomination
SWOT
Strengths
Good molecular targets which have a key role in cancer tumour development
Management team has strong expertise in this area
Weaknesses
Relatively weakly funded - around £1 million cash
Products are early stage development so probability of success is very low (only 1 in 6 development compounds make it to market on average)
Limited clinical data on key development molecules
Opportunities
Large pharma companies are actively seeking development products for in-licensing
Cancer (oncology) market is large and growing
Threats
Financial institutions only funding UK biotech/development companies with strings attached e.g. large discounts on placings
Licensing deals may be on big pharma terms meaning potential of royalties on sales rather than large up front payments
Share outlook
Sareum’s share’s currently trade at 1.5p (52 week range 0.22p-2.48p), with a market capitalisation of £22 million (shares in issue 1,450,597,713). With around £1 million (£621,000 end of December plus £500,000 placing in February) of cash remaining means that it likely that institutions will tapped again for funds, probably in the second half of 2011, after the February fund raising at 1p. This means more dilution for private investors who cannot take place in a placing unlike a rights issue.
Strengths
Good molecular targets which have a key role in cancer tumour development
Management team has strong expertise in this area
Weaknesses
Relatively weakly funded - around £1 million cash
Products are early stage development so probability of success is very low (only 1 in 6 development compounds make it to market on average)
Limited clinical data on key development molecules
Opportunities
Large pharma companies are actively seeking development products for in-licensing
Cancer (oncology) market is large and growing
Threats
Financial institutions only funding UK biotech/development companies with strings attached e.g. large discounts on placings
Licensing deals may be on big pharma terms meaning potential of royalties on sales rather than large up front payments
Share outlook
Sareum’s share’s currently trade at 1.5p (52 week range 0.22p-2.48p), with a market capitalisation of £22 million (shares in issue 1,450,597,713). With around £1 million (£621,000 end of December plus £500,000 placing in February) of cash remaining means that it likely that institutions will tapped again for funds, probably in the second half of 2011, after the February fund raising at 1p. This means more dilution for private investors who cannot take place in a placing unlike a rights issue.
Though Sareum’s portfolio of developments looks to have potential, finding a development partner will not be easy as it sounds without early clinical evidence confirming the commercial opportunity for a licensee . It is encouraging that results from the Aurora+FLT3 programme seem to have shown benefit in Leukaemia but the trial size was still very small being a phase I study. I am surprised that the company has not beenmore aggressive in getting funding to undertake more significant early stage research, but this may be a reflection of sentiment towards small pharmaceutical developers after so many recent failures of UK biotechs.
Major pharmaceutical companies will seek to extract a hard bargain on any licensing deals with royalty based model on sales rather than large upfront payments to derisk their investment (why pay up front, when this means increasing the risk for the licensee company). This could mean that significant revenue from royalties may be a decade away given it takes 7-10 years to bring a new drug to market. Assuming of course it succeeds, and 84% of drugs fail!
Of course this share might well double just on the “froth” following announcements relating to its development pipeline but then again it might half if results are disappointing. This is the way with early stage drug development. With less than a £1 million in the bank, Sareum can’t afford many failures. I won't be buying Sareum for the Contrarian Investor UK portfolio but its been a good opportunity to review the company's prospects. Sareum - an acorn that may one day grow into an Oak tree, but could be a long time growing!
Of course this share might well double just on the “froth” following announcements relating to its development pipeline but then again it might half if results are disappointing. This is the way with early stage drug development. With less than a £1 million in the bank, Sareum can’t afford many failures. I won't be buying Sareum for the Contrarian Investor UK portfolio but its been a good opportunity to review the company's prospects. Sareum - an acorn that may one day grow into an Oak tree, but could be a long time growing!
Coming soon to Contrarian investor uk
Just putting finishing touches to posts on Sareum (sar), Vialogy (viy). Hopefully ready.tonight all being well.
Sense of realism finally hits stock markets
After all the worrying developments from the Middle East, rising inflation concerns both here and in China, oil above $100 a barrel, a bloated U.S. Deficit, Eurozone debt worries and weakening consumer sentiment it was always a surprise that the FTSE was still above 6,000 and the S&P 500 hit a level double its March 2009 low last week. The Ftse 100 fell 64 points today to 6,019 with the big banks falling nearly 4% over worries about European debt. U.S. markets were closed due to President's day.
The Contrarian Investor UK portfolio got a battering with Bowleven dropping to 307p, a pound of its recent highs and Rockhopper finishing at 250p, a drop of close to 140p in the last 3 weeks. Xcite continues to drift lower as we await the CPR document to 344p, it was trading at 400p to buy less than 2 weeks ago on takeover rumours. Now the rumours are more of a 350p institutional placing. Its been a bad month, roll on March!
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