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The Three Issues Of The Day

It is customary to take a nod to the real world at the beginning of the Week in Small Caps, perhaps just to remind us that life is not all about punting on the market. Perhaps in some ways it was therapeutic but at this week’s conservative party conference, Prime Minister Rishi Sunak decided that it is not inflation, economic growth, and mortgage rates that are the real issues of the day, Instead, it is a man being a man, a woman being a woman, ending smoking in stages, and getting rid of the useful section of HS2 that could really turn this country around. One hopes all of this works. If this is the kind of speech a Prime Minister makes, I know why I never made the grade.

Who Killed The AIM market?

We all know that Video Killed The Radio Star. It would be great to know who or what is killing the AIM market. It is not exactly been a great week for the AIM market (down 35% in just five days), something that comes off the back of months of the mainstream media highlighting how many companies are either delisting or leaving the London market for the US.

Indeed, unlike the majority of what is written elsewhere, I have tried to look on the bright side not only in terms of what could be done to alleviate this crisis, but also not act merely in a celebratory fashion off the back of knowing that bad news sells.

Even before one starts on the state of AIM at the moment, the whole structure seems to be wrong, and in some ways was doomed from day one nearly 30 years ago. AIM started in the 1990s bull market small cap companies could absorb costs, and indeed all the red tape and bureaucracy that we have now was far less than anyone could have dreamed of at the end of the last century.

Companies all across the small cap space have to wade through the treacle of massive over regulation, audit, legal and accounting costs, that leave them hamstrung effectively even before the first share price update on the stock market. Ideally, just to be on AIM one needs to be making at least £1 million a year just to cover the PLC costs in a comfortable fashion.

This obviously explains why the authorities have moved in the last couple of years to raise the bar in terms of market cap, so companies on the market can afford to be there. Nevertheless, moving the goal posts as we are now in a bear market, has made life very uncomfortable for the incumbents. It obviously makes it a massive deterrent for anyone thinking of an IPO.

Heading For The Exit

At the very least we will see more companies leaving the market, and it will take a long time for new stronger companies who can bear the cost of listing, regulation, and of being on the market to come forward, if they do so at all. Perhaps the biggest killer though is the fact that many companies have to raise at least £1,000,000 a year just to cover their costs, and raising even more than a nominal amount in current store market conditions is a challenge given current liquidity issues.

Horizonte Minerals

The negative poster child of the week was obviously Horizonte Minerals (HZM), where its fundamental misses would in normal times have perhaps have resulted in a 20% or 30% markdown for the shares. This is in contrast to the near 90% tumble that the stock delivered. Indeed, even those attempting to catch the falling knife would have found it difficult to do the trade between say 16p and 25p that was an offer a couple of times after the meltdown occurred. Missing on funding and missing on timelines is clearly a sin, but not one that deserves rolling away years of good work, and in the case of Horizonte eroding the value of what is essentially as good a project in Arguaia this weekend, as it was seven days ago.

Hummingbird / Cadence

What the market typically does in the wake of a bolt from the blue as we have seen in Horizonte, is to mark down the share prices of companies that are seen to be analogous. This so-called read across has heard companies like Hummingbird Resources (HUM) and Cadence Minerals (KDNC), indeed markdowns arriving whether mining companies producing or otherwise, or whether their funding or timelines have been affected or not in the recent past. For instance, Hummingbird is fast becoming a serious multi commodity multi jurisdiction play, and Cadence only recently accelerated its timelines on the Amapa iron ore project. It is to be hoped that when the dust settles, hopefully after a sobering October, we shall see valuations and share prices get back on track.

Oracle Power

The topic of funding also reared its ugly head at Oracle Power (ORCP) where a deeply discounted cash raise upset the market in this highly followed retail investor play. The company has done its best to diversify itself away from the Coal project in the Thar Desert, Pakistan, which it has had for many years. It has moved into what looks to be an attractive gold play in Australia that could be sold on at any time if need be, as well as a right on the zeitgeist hydrogen project in Pakistan. All of these could be company makers. But in the current climate with investors fixated on cash, or the lack of it, rather than being listed on the stock market helping a company, it can be regarded as a hindrance.

Canadian Overseas

It was the same story regarding the C word, in this case C for cash, that pulled the rug from under Canadian Overseas (COPL), raising money at a diminished share price. Arguably given that its woes have been in place even while crude oil was trading over $100 a barrel, even fans of the company would have to admit that the company should have got its ducks in a row during the good times.


Safestyle (SFE) also received the red pen treatment during the week continuing a painful stock price decline from over 30p at the start of the year to just 2.75p now. It confessed to needing further cash, as if you could not tell that from the trajectory of the shares. Of course, the company is in an area of discretionary spending, windows and doors, that is not going to exactly flourish at a time when people are concerned about paying their mortgage and the price of eggs.

Non Dilutive Funding

If we can learn anything from the example of the companies above it is perhaps a mixture of management either being behind the curve or not being able to get on top of their funding issues at a time where the ability to raise money on the stock market is at its worst in living memory. Those who can find sources of cash from non dilutive private origins may be able to hold their head above the water until the worst is over. Unfortunately, that rather underlines the state the market is in at the moment.


Of course, not everything was doom and gloom this week, even with a 35% fall for the AIM index. There were some bright lights, arguably one of the brightest came in the form of ValiRx (VAL) whose shares rose over 80% during the week. This is despite the life science company focusing on early-stage cancer therapeutics and women’s health having to put out a speeding ticket RNS on Friday, saying that it knew of no reason for the share price rise. I would suggest that amongst the dozens of changes that the AIM market needs to deliver, the easiest one would be to get rid of the rule that a company has to put out a RNS to explain why it shares are doing so well. This is especially because it does not happen very often, and after all they go through on a they should be allowed to enjoy at least the odd share price rise. In fact I did highlight the chart breakout for the shares through 6p at the start of the week – they peaked at 17p.. Perhaps that should have been in the RNS? “Our shares rose because of a break of the 50 day moving average.”


For Zanaga Iron Ore (ZIOC) it would appear that the stock rose off the back of the market feeling that where there was smoke there was fire. In the case of this company it was the granting of options to the management near 5p that resulted in the shares approaching the 10p level at the end of the week. Once again, the chart was revealing the possibility of a rise with an unfilled gap to the upside at the end of last week being highlighted in the Bulletin Board Heroes charting video. It would seem that even in the toughest of market conditions certain technical setups do still come up with the goods.


In the last week of September I was fortunate enough to interview the CEO of Orcadian (ORCA), Steve Brown. This week the North Sea-focused oil and gas development company said it had raised £350,000 via issuing 2.9 million shares at 1p. By the end of the week the shares closed up 78% at 25p, with the company vowing to be as non dilutive as possible to shareholders. This along with the way that Mr. Brown is clearly somebody who is passionate about what he does, and came across very well in the interview, once again underlines that it is not all gloom and doom at the small end of the stock market.

IMC Exploration

With IMC (IMC) we were reminded of another piece of stock market red tape and bureaucracy the waste time and money for all those concerned. But at least the prospectus for the company has been approved and the shares celebrated with the one third rise on the week. Perhaps shareholders in Caracal Gold (GCAT) will receive a similar bump when the long-awaited prospectus there finally gets the thumbs up.