30/07/2023

De-Banking

The de-banking scandal has been a financial markets related affair to provide some excitement at a time of year when this can be rather pedestrian. On the face of it one might conclude that the allies have scored a victory, with Natwest / Coutts found out. However, as we have seen since the Populist movement started around a decade ago, the direction of flow is only one way. It would appear safe to assume that the Orwellian / Kafkaesque era we are in is unstoppable, and no dissent is possible. We were reminded of this as ULEZ made it through the High Court. Well, of course it did. There is an analogy with the Poll Tax. It will be interesting to see whether this generation can remove ULEZ? It is going to be tough. We not only have politicians imposing their unvoted will on us, but as de-banking shows, big corporates also telling us how to live as well.

The Reckoning

As far as the stock market has been concerned, the idea that interest rates and inflation have peaked puts it ahead of the curve of reality. There is still the reckoning of the cost of living crisis / re-mortgaging at higher rates, for the consumer to grapple with later this year. The latter in particular could still be messy. However, as we have seen as far as the small caps have been concerned this week, there were seven companies up 100% or more, and another nine up 50% or more.

Wishbone Gold (WSBN) managed to “bag” in the wake of its announcement on July 17, where the aftermath of its revelation that the completion of its gravity survey in the Cottesloe Project area, showed results highlighting the prospectivity of the asset. This was encouraging as until now the market has been distinctly non-plussed by most things that the company has said regarding what it has under the ground. One would presume that with the market cap of the stock recently approaching just £3m, even the cynics may have decided that there was value there.

Another positive delayed reaction was delivered at Cap-XX (CPX). Here the shares were flagged by interest on Twitter, or should one say X? The trigger apparently came a couple of weeks ago when the designer and manufacturer of supercapacitors and energy management systems, said that a patent infringement claim from none other than Tesla (TSLA) has been delayed until December. Presumably, bulls of Cap-XX, which seems rather confident of winning, will be hoping this will be a firm market from now until December.

One of the better fundamental rules of the stock market is to regard companies whose shares rise in the wake of a placing as particularly bullish situations. This point was illustrated during the week in the case of business-to-business company providing video streaming solutions, Aferian (AFRN). As well as a premium price placing of £4m, there was director buying, major shareholder buying, and Miton stepping up to the plate to take its shareholding up to 17%. AFRN shares were up 70% on the week.

There were also a couple of solid charting wins this week. Upland (UPL) has looked to be a charting buy since the unfilled gap to the upside on July 24. This completed a bear trap gap reversal formation, which tends to be one of the strongest stock set ups, as the gap higher indicates that the degree of buying has caught the market by surprise. The ZaksTradersCafe call here when the stock was still near 0.7p was that the stock could hit as high as 0.95p by the end of August. As things have turned out, the shares hit 1.12p by the end of this month. The fundamental trigger at the end of the week was that the company said it was making significant progress towards assessing an onshore rig capable of developing block SK334 in Sarawak, Malaysia.

Up nearly 50% this week was specialist multi-sector chemicals company Graft Polymer (GPL), which has previously been flagged here as a potential recovery situation. Apart from the rationale that there are not many speciality chemicals companies with a market cap of just £2m, it can be seen that GPL has had the bit between its teeth as far as rolling out its strategy in recent weeks. This week’s news was that it has signed a distribution agreement with US veterinary products company Inter-Technologies Inc. Graft said that this is a major step forward in expanding the penetration of the company’s GraftBio products into the Veterinary Food Supplements market in the USA. Of course, making it big in the USA, is usually a game changer for any UK small cap company.

Another minnow rubbing shoulders with greatness this week was Mila Resources (MILA). Its shares were up nearly 50% on the week as it entered into an option agreement with LBM (Aust) Pty Limited, a subsidiary of Liontown Resources Limited (ASX: LTR), granting Liontown the option to explore for lithium on the Kathleen Valley Licence Area in Western Australia. The sizzle here, apart from the validation of the Kathleen Valley project, is that Liontown is a A$6bn company, so MILA certainly has a decent sugar daddy to take it forward.

Speaking of sugar daddies in mining, they do not get much bigger than Rio Tinto (RIO). Earlier this month the company took a premium share price 15% stake in Malawi focused exploration group Sovereign Metals (SVML).  The cash from Rio will be used to develop the Rio Tinto will be used develop SVML’s Kasiya rutile and graphite project. This week Sprott added to its stake in SVML, and the stock was up 17% on the news. But given that the shares traded as high as 50p plus last year, versus 27p now, the market has been rather slow to react, especially given the Rio angle.

Another stock where the stock market reaction has not been perhaps what it should in the wake of a solid update has been Arrow Exploration (AXL). This week’s announcement from the CN-2 well revealed that after it was spud last month, The company has completed testing well in the Ubaque formation which has approximately 60 feet of net oil pay. The market appeared to be concerned that the C7 sand had a high water cut on the CN2 well. The C7 sand is the main producer on all 6 wells so far, all of them have a water cut. However, punters appear to have missed the fact that it is water pressure is that drives the oil out of the ground, and this is the reason the field is so prolific. The point is illustrated by the way AXL has 3 sands to produce from. The company immediately rotated to produce from the Ubaque, a huge pool of oil which will add significantly to reserves. A new reserve report will be published in September, and one would imagine that the run up to this will return the shares from 19.25p where they are now, up to 26p (the May peak) and beyond.