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The Week In Small Caps: August 27


The Week In Small Caps: August 27

FT Alphaville

In recent months it has been noticeable in the financial media that there has been plenty of stock market bashing. This is not difficult, given that the market is not exactly buzzing, is not much higher than it was 20 years ago, and kicking anyone when they are down sells newspapers. Therefore, it was interesting to read FT Alphaville’s article in the Financial Times. This is not a publication I have found to make the right calls on anything in my 40 years plus experience of it. But it can be useful as a “negative barometer.” This may be the case now. “If the UK stock market is cheap, why doesn’t it go up?” hits a number of points. The conclusion of cheapness, helped from input from JP Morgan (again big name calls are rarely right) is that UK stocks are cheap. The reality is that they may be cheap, but not cheap enough to attract buyers and enough liquidity.

Brexit / Mini Budget

Of course, then we are hit by the political angle, something which given the unashamed centrist / technocrat bias of the FT was bound to be wheeled on. The blame goes to Brexit and the Mini Budget. Naturally, but what part of Brexit or the Mini Budget has been enacted? It is difficult to think of anything, thanks to the Blob. But to be fair, one can acknowledge that sentiment has been hit. The article does point to multinational UK companies being undervalued as compared to their foreign peers, but the sizzle is the Mansion House compact which promises to see major UK fund managers put at least 5% of their cash into Aim / Aquis companies. Just to put you off following in the fund managers’ footsteps we are told by FT Alphaville that Aim / Aquis is deservedly a Wild West, and mentions the car crash of WANdisco.

Aquis / Aim

Given how overregulated  (in a Kafkaesque way) and how expensive it is to be on Aquis / Aim for small, growth companies, it may be this that causes the alleged “Wild West” problems of being listed, and being invested in such companies. Certainly, there are no shortage of sheriffs and marshalls, a.k.a Nomads and corporate advisors, as well as other self-appointed vigilantes who may or may not have any track record of success themselves. Extra layers of managers and regulators rarely go hand in hand with efficiency and enterprise, as recent events at the NHS have reminded us. What can be said is that it is very easy to throw stones from the outside, while those at the coal face are simply trying to get on with the job at a time of high inflation, supply chain issues and a cost of living and political crisis.

Orcadian Energy

While it particularly quiet in the small cap space, in the week leading up to the last Bank Holiday before Christmas, they were some decent features to note for those who were not necessarily focused on being at the beach. One of the groups of stocks who we should always keep an eye on are those who rise without significant news. This is especially true given the so-called RNS speeding tickets, one of the reasons that small caps underperform. We saw that recently with Orcadian (ORCA), when it had to say that it knew of no reason why the stock was flying. Given that it is not the same on the upside when a company is forced to say that there is no reason for shares to be falling, and one could perhaps say this for most of the stock market currently, the present systems perhaps needs to be changed.



Arc Minerals, Aura Energy, Beacon Energy, Canadian Overseas

But even so, there were chunky rises on no news for Orcadian, Beacon Energy (BCE), Canadian Overseas (COPL), Aura Energy (AURA) and Arc Minerals (ARCM). Beacon has already been one of the stocks of the summer after finding oil in Germany, while last month’s JV news and Q2 production numbers may have started to make shorters in COPL think twice about remaining in position. Rather weirdly, shares of ARCM have bounced, but are still lower than when it signed a JV agreement with a subsidiary of Anglo American (AAL), yes that Anglo American. Aura (AURA) looks well placed after the funds raised at the start of the summer, as much as $10.7m, something which should be enough to allow the uranium group to deliver on its strategy.

Powerhouse Energy

Speaking of raising funds, it is still the case that when many small cap companies knock on shareholders doors they are about as welcome as ULEZ. It seems to be a case of damned if they do raise, and damned if they don’t, even though of course one of the main points of being on the stock market is to raise cash. This week we saw waste plastic to hydrogen group Powerhouse Energy (PHE) take advantage of the recent rebound in its shares to raise £1m via the good people at Turner Pope, its broker and their clients. Given the reticence of many in the market to dip their hands in their pockets, this could be regarded as a good move, if not a less stressful one. What is also interesting is that although the shares were placed at 0.5p, they ended the week well above this level, something which may suggest that the bear squeeze which took the stock from 0.4p in June to 0.82p last month, could re-emerge.

Jubilee Metals

As far as stocks with decent operational news was concerned, there were a few standouts too. Jubilee Metals (JLP) has been mysteriously soft in terms of its share price in recent months, stock market conditions notwithstanding. However, there was a reasonable turnaround off the back of the companies update on its South African and Zambia expansion. The company said its long-term chrome processing partnership provides the potential for additional chrome processing capacity of 360 000 tonnes per annum targeting an additional 200 000 tonnes of chrome concentrate and adding an additional 10 000 PGM oz per annum to Inyoni’s profile. This is certainly nothing to be sniffed at and merits rather more than the shares trading at 7.45p when they were nearly double this at the turn of the year, and now the processing facility is good to go. The copper commissioning is set for October, which is helpful given that copper recoveries have exceeded expectations. Overall, one might say that JLP’s RNS communications have in the recent past not fully described the positive, and have rather overdone any negatives. Hopefully, going forward this will change.

Xtract Resources

In the same neck of the woods it was the turn of Xtract Resources (XTR) to celebrate entering into a joint venture agreement with Cooperlemon Consultancy Ltd in terms of two large scale copper exploration licences in Zambia. The 29123-HQ-LEL and 30459-HQ-LEL licences in northwest Zambia have been described as  “highly prospective”, with Kolwezi style mineralisation, in this case implying near surface copper and even cobalt. One would expect this to filter through to XTR’s £12m market cap.

CleanTech Lithium

Shares of CleanTech Lithium (CTL) ended the week up 13%, off the back of a second resource upgrade in two months, in this case at Francisco Basin. The company said the JORC resource increased 74% to 0.92 million tonnes of LCE of which 0.44 million tonnes is upgraded to Indicated, with significant expansion potential. On this basis, and with the company in the run up to an ASX listing, a country which is one of the world’s leading producers, there should be a decent trajectory for the stock here going into the open.

Hydrogen Utopia

Finally, one of the necessities of being a small cap company is that in order to be successful one has to continually pull rabbits out of the hat. These rabbits can be in exploration, contract wins, new IP, FDA approval, or getting on the next bandwagon, be it AI or lithium. A key rabbit though, is management, and this week we were treated to Hydrogen Utopia’s CEO Aleksandra Binkowska managing to tap her Rolodex by appointing Simon Mann, as non-executive Chairman. For those who are unaware, Mr Mann has had experience as a contractor for different Private Military Companies. Hopefully, this backgrounds means he may be able to metaphorically bang heads together to get the roll out of HUI’s waste plastic to hydrogen plants accelerated.

Disclaimer & Declaration of Interest:
The information, investment views, and recommendations in this Zaks Traders Cafe interview are provided for general information purposes only. Nothing in this interview should be construed as a promotion or solicitation to buy or sell any financial product relating to any companies under discussion or referred to or to engage in or refrain from doing so or engage in any other transaction. Any opinions or comments are made to the best of the knowledge and belief of the commentator but no responsibility is accepted for actions based on such opinions or comments. The commentators may or may not hold investments in the companies under discussion.



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