Anglesey Mining Research Notes

Anglesey Mining Research Notes:

None of the following should be viewed as financial advice.

Anglesey Mining (AYM) are a FTSE Main Market listed mining company with a market capitalisation of £9.5m with exposures to three high grade mining/exploration projects in Wales, Canada and Sweden:

- Parys Mountain 

- Labrador Iron Mines 

- Grangesberg 

Parys Mountain:

This is a site that has seen a lot of historic drill work with regards to the deposits of zinc, lead, copper, silver and gold.

Anglesey Mining have planning permission for a 1,000 tonne per day mine, which was granted in 1988, reviewed in 2006 and remains current.

In 1990 Kilborn Engineering completed an independent feasibility study of the project that confirming technical and economic viability of a 1,000 tonne per day (~350,000 tonnes per year) mining and milling operation.

This study was based on a mineable reserve of 1,963,000 tonnes at a grade of 6.43% zinc, 1.30% copper, 3.32% lead, 75 grams of silver and 0.51 grams of gold per tonne and a mine life of seven years.  

In July 2007, Micon International produced a scoping study demonstrating the viability of mining the White Rock area at 500 tonnes per day with a capital expenditure requirement of only £15m and with operating costs of £30.25 per tonne mined.

All of the above doesn't take into account the unexplored prospective areas to the east of these resources.  

A new scoping study for Parys is expected within the next couple of weeks, which will likely improve on the grades suggested by Kilborn Engineering and the 2007 Micon scoping study.

• 
  

Labrador Iron Mines:

Labrador Iron Mines commenced mining and shipping from the James Deposit in 2011 but is currently suspended while they await working capital and development financing. This means that existing rail transportation networks, deep water ports, shipping facilities and planning permission are all in place.

On December 14, 2016, the Company’s Plan of Arrangement was sanctioned by the Court, marking the final legal milestone in the Company’s restructuring process. 

Grangesberg:

Anglesey holds a direct 6% interest in Grangesberg and a right of first refusal over a further 51%.

Extensive existing infrastructure is currently on site and nationally. This means that there's strong potential for sales within Sweden’s domestic markets saving costs regarding handling and shipping.

In September 2014 an NI 43-101Technical Report was prepared by Roscoe Postle Associates Inc (“RPA”) showing a compliant resource estimate for the Grangesberg Mine of 115.2 million tonnes at 40.2% Fe in the indicated category and 33.1 million tonnes at 45.2% Fe in the inferred category.

Overall Investment Analysis:

For me there are several factors that make Anglesey Mining attractive and while the three projects are all attractive for me in particular the Parys Mountain project has the most short term excitement unrepresented in the current share price of the company.

All of the projects are in geographical regions that show high levels of political stability, meaning that no discounts need be applied to Anglesey Mining with regards to potential unaccounted risks. 

In addition all of the projects are either close to being mined or in the case of Labrador Iron Mines suspended from mining while additional capital is being raised. 

The low level of GBP/USD in addition to the generally rising price of metals would only add to the net margin expressed in GBP as the minerals are sold in USD then converted back to GBP. 

Profitability of the Projects:

The most important factor for me here is the potential underling profitability of all of these projects to Anglesey Mining.

Using only Parys Mountain as an example:

As of this week the 6.228MT of total ore would be worth £1091m using spot prices (Zn=£412m; Cu=£336m; Pb=£171m; Ag=£86m; Au=£84m), with an estimated cost of extraction of ~£187m

This would give a positive gain to the balance sheet of £904m, which if represented fully in the current number of shares in the company would give an equivalent share price of £5.23 per share or eighty times the current share price at 6.5p.

Personally, I believe that the soon expected scoping study of Parys Mountain that's currently being finished (all of the metallurgical work is apparently completed) will illustrate a large value gap in the company. This will all be in combination with the low free float in the number of shares meaning that we could likely expect a very fast rise here on the release of said scoping study.

My personal fair value share price here is in the 15-25p range - dependant on what more comes from the new scoping study at Parys or the other interests Anglesey hold.

Dekeloil Research Notes:

NB: I don’t have a licence to distribute financial advice and therefore none of the below should be viewed as a recommendation to buy/sell stock.

General Information:

DekelOil is a low cost producer of palm oil in West Africa, with a market capitalisation of ~£28.5m. 

Feedstock for the Mill comes from several co-operatives and thousands of smallholders, with Dekeloil also owning nearly 1,900 hectares of its own plantations and a world-class nursery with a 1 million seedlings a year capacity. 

Most recently, Dekeloil has acquired the remaining 14.25% of their previously joint owned Ayenouan project, making them the sole 100% owner of the project.

In addition, recent investments have been made in Ayenouan in order to increase the margins of the project by at least 0.5%, increase storage capacity (thus allowing better price hedging) and a reserve boiler to mitigate potential breakdown risks.

Results Overview:

2015 FY (in thousands of Euros)

Revenues: 23,436

Cost of Revenues: (17,998)

Gross Profit: 5,438

General and Administrative: (2,518)

Operating Profit: 2,920

Net Income: 118

For the 2015 Full  year results, it is worth bearing in mind that at that point they only owned 51% of the Ayenouan project, as opposed to the 100% they own now. 

Analysis:

Most importantly for me has been Dekeloil’s full buyout of the Ayenouan project. The third quarter results (of which they had 85% ownership at the time of publication) suggest that revenues and production are set for another record year with Executive Director Lincoln Moore saying: “we remain on course to report another record full year performance in terms of CPO production.”.

Within the backdrop of rising palm oil prices (see chart below) and a now fully developed 100% working interest in the project, the net margin to Dekeloil should significantly increase in the next full set of results, but more importantly in the following quarterly updates, where we should begin to see this feed through into the underlying performance of the company.

Palm Oil Chart:

Moreover, selling produce in euros, they have been not only hedged against the weakened pound, but will be a beneficiary, as they have many administrative costs denominated in pounds sterling. Also now the company is in a state of gross and operating profit having been reached, the dilution risk here as a prospective shareholder seems low and I like the way the company is currently re-structuring its debts to achieve a lower level of interest due.

The move in palm oil of +18.7% since October and the move of only +3.5% in Dekeloil is a major indicator to me that the wider market has not acknowledged fundamental changes in the business in favour of Dekeloil.

Overall, the implied margin growth and thus expected profit increase from having ownership over 100% of the Ayenouan project suggest to me that the current market capitalisation of £28.5m undervalues the forward growth of the business. In addition, the upward trending prices do not 

Starcom Systems Financial Analysis

None of the information below should be viewed as financial advice.

Data:

Financial information prior to the FY 2014 results was not included due to a move from accrual accounting to cash accounting and some figures in this report have been rounded for ease of use.

Starcom Report in USD	Revenue/Million USD	Recurring SAS Revenues/Million USD	Operating Loss/Million USD	Operating Loss As A % of Revenue	Cash Used in Operations/Million USD	Cost of Sales/Million USD
Yr End December 2014	5	1.3	2.9	58.00	0.831	2.49
Six months to June 2015	2.64	0.793	0.691	26.17	0.261	1.48
Yr End December 2015	5.1	1.6*	1.6	31.37	0.4	1.9**
Six months to June 2016	2.5	0.845	0.613	24.52	0.2	1.55
Yr End December 2016	-	-	-	-	-	-

*1.18m Revenues after cost of sales and administration expenses.

** Does not include a 1.1m decrease in inventories.

Analysis:

While the data collected above is useful for achieving a comparative understanding of Starcom’s historical performance year on year, it’s significantly more useful to analyse this data in acknowledgment of the company’s more recent achievements. 

The below quotes are taken mainly from the 2015 FY results:

• “we remain cautiously confident that second half revenues should comfortably exceed the first half and therefore that annual revenues will exceed last year’s"
• “The Company is hopeful that it will return to profitability during the year ending 31 December 2016 by converting its strengthening pipeline into growing sales across the product range.”
• “the recurring income flowing from the Company's SAS monthly fees is also expected to grow, and should reach nearly a third of the total revenues. This is a stable and high margin source of income for the Company that is gradually becoming the foundation for covering most of the overheads of the business.”
• Raised £150,000 in late November in response to “investor demand” and £300,000 in mid October.
• Collaboration deal agreed with SATO for North American market.
• New contract signed with Pinnacle for Kenyan market.
• New product launches for: Helios Hybrid, Watchlock Pro and Kylos Air.

Cash Position:

The use of only £200,000 cash in the six month period to June 2016 is a clear indication that major savings initiatives have taken place in the company, which will ultimately assist in making the company profitable in the near term.

Moreover, having raised a total of £450,000 (of which £150,000 was to meet investor demand) in October and November, it suggests that the likelihood of another raise in the short term is very low, which will support investor morale at these levels. Furthermore, the time gap between now and the placing of the shares suggests that any flippers of the placing are likely out of the stock now.

Revenues:

Recurring SAS revenues amounted to $1.6m in in the FY of 2015 and with these representing a very high margin product to the company, their growth in tandem with regular sales places upwards pressure on the overall product margins of the company (38% as of H1 2016).

In fact, the break down at the end of the 2015 FY report suggests that the SAS products had a profit margin of 73.8%, which is expected to only grow now that the system is fully in place and requiring less investment.

Revenue from sales moved up inline with expectations in FY 2015 ad with an evermore diversifying sales base to work from these are expected to both continue and expand at a faster rate as collaborations with SATO pay off. 

In addition to this, the publicly available data from Gurtam.com suggests that ~150 units have been sold in December via the Russian distributor for Starcom. Moreover, in July there were approximately 1,000 registered units online via Gurtam and this figure is now ~2150, illustrating the major push up we should hopefully see in SAS recurring revenues and pure sales revenues.

Operating Losses and Cost of Sales:

The operating loss year on year from 2014-15 was down 45%, in part due to a significantly reduced cost of sales, which fell 24%, but also due to major savings being made on general and administrative expenses, including a saving of $200,000 in management salaries.

Interestingly the operating loss as a percentage of revenues in FY 2014 was 58%, compared to 31.37% in FY 2015 and more recently 24.52% in H1 2016. This suggests that the move to profitability could come very soon, as it’s clear that losses are being absorbed at a faster rate as the company progresses.

Moreover, this fits in with the company’s expectation that “it will return to profitability during the year ending 31 December 2016”.

Summary:

• A more than 50% reduction of cash in operations  between FY 2014 and FY 2015 suggests that the BOD are making significant progress in reducing the company’s outgoings and that they stand a good chance of meeting their expectations of reaching profitability by the end of 2016.
• Rising high margin SAS revenues will feed through into the overall sales margin for Starcom, pulling their overall margin significantly higher as more units come online.
• Compared to FY 2014, FY 2015 saw a 45% drop in operating losses, suggesting that at the current rate of business growth, a move to profitability should occur soon (bar black swan events).

For a relative valuation compared to other companies in the same sector, I would direct people to work I’ve done previously on price to sales ratios:

https://twitter.com/ProAIMTrader/status/778126679898263552

Starcom Systems Cash Position Explained

Disclaimer: I don't have a license to distribute financial advice and therefore this should be viewed as being for entertainment purposes only.

Starcom Cash Position Explained:

It's been notable that since the company's interim results this week there has been a lot of question about the company's cash position. I hope to be able to clarify this in this short blog:

On the face of it, cash of $46,000 admittedly doesn't look too appealing, however when you dig further into the background the apparent lack of a need for cash becomes clearer.

SAS revenues in the first half year came to $845,000 (this is effectively an electronic online data management platform for tracking systems) and now the system is in place I am told this is pure profit on the bottom line - these revenues are expected to increase in the second half of the year and are gathered monthly.

These latest results cover the six month period ending in June, so if we assume that they don't grow their SAS revenues (to keep the maths simple) then in the period since the end of June they will have taken in a further $281,666 over July and August:

$845,000/6 =$140,833

$140,833*2 =$281,666

Although remember in your own calculations that they are expecting SAS revenue to grow in the second half of the year, so you can probably increase this on paper.

Now the company also stated that they used net cash of $200,000 in the half year, so if we take this monthly figure ($200,000/6) multiplied by two to cover the months of July and August away then we have an effective cash balance of:

$281,666-$66,666

= $215,000

Furthermore, you have to add on to this figure extra sales referred to in the results:

"The new version of the Watchlock known as Watchlock Pro was effectively only launched into the market during July 2016, yet some sales have already been booked following the launch." 

Realistically, factoring in a small level of SAS growth and say a modest $25,000 of sales since the results takes us to a cash position of ~$250,000-300,000, in my opinion.

Food for thought...

The Masked Stock Trader

Starcom Systems Interim Results (07/09/2016)

Disclaimer: I don’t have a licence to distribute financial advice and thus the following work should be viewed as being for entertainment purposes only.

Starcom Interim Results (07/09/2016)

This post is a summary of the last set of interim results for Starcom Systems, which can be found here:

http://www.lse.co.uk/share-regulatory-news.asp?shareprice=STAR&ArticleCode=7zpp0hjo&ArticleHeadline=Interim_Results

Apologies if this is slightly garbled and if I’ve accidentally repeated sections. The coloured bullet points are all taken directly from the RNS above, which I would encourage people to read fully. 

Positives: 

Cash requirements only ~$200,000 for the first half of the year, with much of this likely being down to the:

- Major savings of 26% in general and administrative expenses were achieved

SAS revenues are very strong (in the weak half of the year too):

- The first half results include $845,000 of SAS revenues which continue to show growth. These SAS revenues were not at their full potential in the first half due to customer delays in activating the software. We believe this will be rectified in the second half, resulting in further growth in SAS revenues. 

Decreased operating loss to $440,000 (~18% of revenue) from $500,000 in the previous half year.

Negatives:

The only negatives here are that margins and revenues were both slightly down relative to the first half of 2015:

- Revenue for the period of $2.5m (H1 2015: $2.6m)

- Gross margin of 38% (FY 2015; 40% and H1 2015:44%)

Regardless of this, regarding their gross margin the company commented that:

- We also expect the gross margin to improve as SAS revenues normalise. 

Moreover, the underlying effect of this has clearly been offset with cost reductions elsewhere in the overall business pipeline, as we can see from the loss reduction from $691,000 to $613,000:

- Loss for the period after tax reduced to $613,000 (H1 2015: $691,000)

Also, it looks as though the Kenyan deal has been slower to implement than expected, delaying some of the revenue generated via SAS, but the company expects this to:

- “change during the second half of the year”

Assuming this happens, we can expect (as I talk bout more below) for revenue to be backloaded in the year, meaning their next results should look very nice.

Market Maker’s Positioning:

This section might be better understood with a look at this brief explanation/example of a market maker’s job:

https://twitter.com/ProAIMTrader/status/771390679259967489

In the month prior to these results being released, I’d been of the opinion that market makers had positioned their proprietary trading desks somewhere between flat and long Starcom stock. Being able to almost always sell in volumes multiple times above Normal Market Size (NMS) at premiums to the advertised bid price made me suspect that they were positioning this way.

When it then became apparent that the offer was almost always very thin (200,000 shares maximum on a normal day) prior to a negotiated trade, I feel that on a balance of probabilities the market makers had stock held long in Starcom.

In the last three or four days however, I suspect that much of this long stock was de-risked to create a flat book prior to the interim results released today (hence the block selling some spotted at certain points of higher volume hitting the offer prices in the market).

After the somewhat inevitable initial drop all AIM companies seem to get on their results day, we saw decent sized buys appear (initially sporadically) that helped to even out the early selling from loose holders. So far the market has since then been pretty balanced for the rest of the day, although again, it was noticeable that the shares on offer were limited so sub 400,000 and by the end of the day more large buyers had pulled us back into the strong support zone between 3.25/3.50p. 

Moving forwards, I think that it’s likely that market makers would look to reposition themselves net long again on Starcom stock for a few reasons:

• The free float is quite small and there are a lot of sticky holders, meaning that a small amount of buying shift the stock significantly.
• The outlook discussed below is very positive regarding the second half of the year, so on expectations trading volumes leading in to that period should be increased.
• One of the stickier holders is almost always topping up on dip, so momentum is generally upwards.

Fundamental Outlook/Analysis:

On balance, I would say that there are significantly more positives going forwards than negatives. in particular, the company’s own forward (implied) guidance regarding the second half of the year is particularly useful for current investors:

• Strong sales pipeline for H2 
• “…there are a number of sales opportunities being pursued, including following the launch of Watchlock Pro, which are expected to lead to a significant improvement in the second half of the year."
• As in previous years, we expect most of the second half revenues to fall into the fourth quarter.
• There are some fairly significant sales opportunities being examined both in the US and elsewhere. 
• we remain cautiously confident that second half revenues should comfortably exceed the first half and therefore that annual revenues will exceed last year’s
• We have recently signed a small trial order under this system through our Miami office and are hopeful that larger orders will follow. 
• We have also received very positive interest from distributors in Asia and South America.
• We have now achieved recognition by a few major insurers whereby, in the case of valuable cargoes being shipped in containers, the cost of the Tetis is effectively offset by a waiver issued by the insurance company

Even though the gross margin has fallen from 44% to 38% compared to the first half of 2015, in this line of business, with the current cost levels being so low, you only need a small percentage extra business for that to have a significant impact on your overall earnings and profitability.

Also, with the operating loss being only 18% of their total revenues in the period, when you project revenue forwards and adjust for a stronger second half there’s quite a good chance of the company (in my opinion) generating a profit by the full yearly results.

Furthermore, with a company like Starcom in the growth phase of its business model, the above excerpts from the RNS suggest that a reasonable contract from a major would have a very significant impact on their underlying profitability. Much of this is (in my opinion) still likely to be generated in part from their tie ups with majors like Assa Abloy, Cambridge Security Seals or SATO.

I'll likely add to this piece as I continue my research here, so keep an eye out for changes (although i expect the majority is on here now).

For further fundamental reading and detail on the above business I suggest people look at these:

• http://themaskedstocktrader.blogspot.co.uk/2016/05/starcom-systems-research-report.html
• http://www.share-talk.com/share-news/lse-share-talk-steve-shares-5th-august-2016/

Central Rand Gold Ltd Research Report

DISCLAIMER: I have no licence to distribute financial advice and thus, the following material should not be considered as such.

Central Rand Gold Ltd Research Report

Basic Information:

EPIC: CRND

Market Capitalisation: £3,610,000

Shares in Issue: 141,400,341

52 Week High: 25.13p

52 Week Low: 2.30p

Normal Market Size: 30,000 Shares

Bid (at time of writing): 2.75p

Ask (at time of writing): 2.80p

Spread: 1.82%

Central Rand Gold Limited is listed on both AIM and the JSE.

Company Description:

Central Rand Gold Limited is a gold exploration and production group assets at various stages of development in the Central Rand Goldfield on the southern outskirts of Johannesburg.

Central Rand Gold received its first New Order Mining Right from the South African Department of Mineral Resources in August 2008 and also has seven New Order prospecting rights. Altogether these rights cover an area of approximately 280 square kilometres.

The company works closely with Zhejiang Golden Machinery Plant (ZGMP) who are one of China's largest private mining machinery manufacturers. ZGMP clients rank amongst the world's largest gold and base metals producers, including ZiJin Mining, Jiangxi Copper, Zhongjin Lingnan. 

ZGMP are industry leaders in crushing and grinding circuits, mixing and flotation equipment, concentration and filtration equipment and hydrometallurgy equipment. 

Furthermore, ZGMP can provide ancillary goods and services to its clients including engineering services, building materials, metallurgy, nonferrous metal, electric power, chemical industry and other basic industries. 

Board of Directors:

Chief Executive Officer: Lola Trollop

Interim Chairman: Mr Nathan Taylor

Recent News:

In order to avoid potential confusions, the below positive and negative points are both my personal opinions, but are taken as specific quotes from the news releases in question. The most important parts are in bold text.

Operational, Financial, Corporate & Board Update (1)

Positives:

“The Company has entered into a binding Joint Venture Tolling Agreement (the "Tolling Venture") with a third party supplier of ore for the sourcing and processing of gold-bearing material through the metallurgical plant at Central Rand Gold.” 

“the Company's metallurgical plant of a minimum of 18,000 tonnes per month, commencing from July 2016. The plant currently has capacity for up to 20,000 tonnes per month and the intention of the parties in the Tolling Venture is to fully utilise that capacity.”

“the Company is presently assessing further joint venture opportunities within the region surrounding the Company's metallurgical plant.  In this regard, the Company is engaging closely with its strategic partner Zhejiang Golden Machinery Plant (“ZGMP")."

“In relation to the surface joint venture opportunities currently under review, the Company is working with ZGMP to optimise the existing metallurgical plant with the objective to increase tonnage throughput and efficiencies.”

“CRG continues to identify and analyse further open pit and surface opportunities and retains the option to re-access such areas if commercially viable.”   

“The Company notes that there are several private sector companies that have developed water treatment processes to extract valuable elements from the AMD for application and commercial sale to the fertilizer and construction industries.  The by-product of such water treatment processes is potable water, which may be sold to industry and municipalities.  The Company will continue to monitor these developments to determine if there is an opportunity for CRG to participate in the development and application of these private sector water treatment processes.  The Company will continue to keep shareholders informed of any updates. The Company will ensure that background information relating to these developments is uploaded to the Company's website over the near term.”

Negatives:

“The Company has worked hard to identify and exploit various surface accessible resources over the past 18 months since the flooding of the Central Basin caused the suspension of the underground operations.”

“due to recently experienced grade variability from the surface operations, the Company has decided to cease open pit mining operations for the immediate period and will focus on rehabilitation of opened up areas, as well as processing material under the Tolling Venture. Notwithstanding this course of action, CRG continues to identify and analyse further open pit and surface opportunities and retains the option to re-access such areas if commercially viable.”   

“It is also contemplated that one or more of the Joint Venture opportunities will require a capacity expansion to be conducted at CRG's metallurgical plant.  The size and cost of this capacity expansion is still being considered by CRG and ZGMP.  Once the necessary financial modelling and engineering design work has been completed, ZGMP has proposed that it manufacture and supply the capital goods from its facilities within China.  As contemplated by the MOU signed with ZGMP in 2014, the Company can elect to pay ZGMP through the issuance of new ordinary shares in Central Rand Gold rather than in cash, subject to the required shareholder approvals and applicable rules and regulations. This option would have the benefit of reducing balance sheet strain while aligning the interests of Central Rand Gold and ZGMP.”

“As announced on 11 April 2016, the Board believes this to be the latest strategy from Puno to frustrate the operations of the Company.  The Board considers the Application to be without merit and has engaged legal advisers to defend the action. Shareholders will be kept fully informed as the matter progresses.”

Bridge Funding Facility with Bergen Global (2)

Investment of up to US$4 million zero coupon convertible securities, comprising of an initial tranche of US$598,000 with the ability for up to an additional US$3.5 million to be provided by mutual consent. 

In addition, the Company has today undertaken a subscription to raise US$200,000 through the subscription of 4,620,005 new ordinary shares (the "Subscription Shares) at an issue price of 3.0 pence per ordinary share (the "Issue Price") (the "Subscription").  The Subscription Shares have been conditionally subscribed for by two high net worth individuals including an existing shareholder. The investors are not related to Bergen. The Issue Price represents a premium of approximately 20% per cent. to the closing price of 2.50 pence per ordinary share on 6 June 2016.

Proceeds to be used for general working capital purposes and capital improvements to the Company's milling circuit

Expected News:

Once again, in order to avoid potential misrepresentation on my part these are quotes taken from the most recent RNS’.

“the Company is engaging closely with its strategic partner Zhejiang Golden Machinery Plant (“ZGMP”)." (1)

“Representatives from ZGMP will be onsite at CRG in early June 2016 to progress these opportunities to an investment decision stage. As soon as the Company, in consultation with ZGMP, has finalised the preferred strategy it will update Shareholders with necessary details.” (1)

“CRG continues to identify and analyse further open pit and surface opportunities and retains the option to re-access such areas if commercially viable.” (1)

“The Company will continue to monitor these developments to determine if there is an opportunity for CRG to participate in the development and application of these private sector water treatment processes.  The Company will continue to keep shareholders informed of any updates. The Company will ensure that background information relating to these developments is uploaded to the Company's website over the near term.” (1)

“The Board is presently working with two parties regarding potential acquisition opportunities within Sub-Sahara Africa.  Whilst discussions are at a preliminary stage, both opportunities exhibit characteristics which the Board considers appealing, namely near term cash flow potential and low capital start-up costs. The Board will continue to advance these opportunities and will advise the market as and when discussions are finalised.” (1)

“Discussions regarding the size, structure and timing of the ZGMP Investment remain ongoing but are expected to be finalised in the near term.” (1)

“The Company also eagerly awaits the judgement of the Supreme Court regarding the long running dispute with Puno relating to the shareholder funding provisions relating to the operation of Central Rand Gold SA.  The Company and its Counsel remain confident of the strength of case and will keep Shareholders fully informed as the matter progresses in the Supreme Court.” (1)

“The Company will make an announcement each time any Convertible Securities are converted in whole or in part and will specify in such announcement the relevant conversion price, which will be, at Bergen's election: (a) 90% of the average of five daily volume-weighted average prices of the Shares on AIM during a specified period preceding the relevant conversion and (b) £0.0372.” (2)

Fundamental Analysis:

The latest two RNS’ from the 7th June 2016, contain many positive factors that, in my opinion, will contribute to a substantial re-rate in the share price of CRND from the current price range.

The most bullish pice of news is regarding the recent placing and the creation of the convertible securities at a significant premium to the current share price of the company. logic follows that in order for these to have been written at a significant premium, the note holders and recipients of the placed shares must believe that there is significantly bullish news to be announced and that news flow is expected to pick up in order to support the share price.

The list of expected news flow above suggests that one of the next pieces of news to come will be regarding the ZGMP investment in the capital infrastructure of the company. 

Moreover, further details on the Puno court case are expected soon in combination with news on potential acquisitions within Sub-Saharan Africa.

The negative news in the above RNS’ seems to be a hangover from the flooding of their underground operation. The good news is that much of this seems to be countered by the joint Tolling venture to process at least 18,000 tonnes per month of gold ores.

Overall, the clear funding at a premium in conjunction with a variety of positive news items expected in the short term, makes Central Rand Gold Limited a highly attractive investment at the current levels. 

Technical Analysis:

Beginning on the longer term time frame of five years above, you can see that the company has effectively been priced to go bust for the past six-nine months. This means that a technical rebound in the region of 100-200% from the current levels is not only easily achievable, but with the surrounding of positive funding news arguably quite likely once key resistance levels at 3p have been broken. The 10p level stands out as the first key target for a medium term holder of the stock.

On the shorter time frame of six months, you can see how the expansiveness of volatility to the upside on the 7th June firmly broke the 3p resistance level, but that a short term pull back has more recently taken us back to the 2.5-2.75p spread.

Pull backs often happen around key resistance levels and invariably make it easier to break the level on the next attempt, as the price action is less impeded by trapped buyers exiting at a loss.

The high volume on this breakout of the upper Bollinger Band is especially  exciting as it suggests that this isn't a false breakout as has previously happened.

The above chart is useful for showing the RSI movement through the 50 level, which in my experience is invariably a better user of the indicator than using it to judge extremes of price action. This is a firmly bullish move that suggests momentum has turned in the shorter term periods towards the upside.

References:

1. http://www.lse.co.uk/share-regulatory-news.asp?shareprice=CRND&ArticleCode=yra8qt0l&ArticleHeadline=Operational_Financial_Corporate__Board_Update
2. http://www.lse.co.uk/share-regulatory-news.asp?shareprice=CRND&ArticleCode=8xl0gzsk&ArticleHeadline=Bridge_Funding_Facility_with_Bergen_Global

Starcom Systems Research Report

Starcom Systems Research Report UPDATE:

Since my initial report was posted, I can confirm Miton have reduced as much as they intended to for the time being. The recent holdings RNS at 5% was indicative of this and my initial thoughts were then corroborated by information I've received privately, confirming that they've finished reducing. 

Moreover, as Miton had shares at 20p, 8-10p and 4p the likelihood is that they will be unlikely to liquidate any of their current holdings until at least after 4p has been strong on the bid.

Starcom Systems Research Report

The below information isn't to be classed as financial advice and apologies for the out of order references - Blogger seems to disagree with the system I had! 

Also, new information may be added to this report over time, as I add to my research.

Business Description (5):

Starcom Systems are an AIM listed company providing tracking systems for transportation, container, construction, utilities, telecoms, and pretty much anything high value items you might want to track.

They operate globally delivering bespoke solutions across eighteen countries.

Business Partners (5):

Some of the more notable partners and clients of Starcom Systems:

• Partner with Porsche for dealer fitted tracking systems.
• Watchlock (a joint venture owned by Swedish ABbloy - world’s largest lock manufacturer by volume).
• SATO Global Solutions (Owned by SOFTBank - Japan)..
• Cambridge Security Seals (global leader in tamper evident seals).
• Great Brand.

Products (4):

The Watchlock: These were initially autonomous locking systems and the new Watchlock Pro is a significant improvement on version one thanks to the latest GPS and GSM technologies and a new version of the microprocessor with an extended battery life.

Both Mul-T-Lock and Starcom Systems will be actively marketing this new version during 2016 and customer feedback so far has been very positive. With a wholesale price that is 21% lower than the first version, it is hoped the Watchlock Pro will begin to contribute to overall sales in a meaningful way during 2016.

HELIOS: A  family of tracking products comprising standard units marketed at under US$100/unit with monthly fees of $1-3 for the monitoring of vehicles, including motorbikes, linked to GPS telecom services. As the market for HELIOS is highly competitive, Starcom Systems accepts, in many cases, a low margin on the initial hardware order but are able to secure a high margin and recurring revenues.

A key example here is the Pinnacle contract in Kenya signed in December 2015. The client's main interest was to monitor speed in vehicles and enable a quick and real time reports. The initial orders have been placed and already delivered and paid for. Regular monthly shipments have commenced and are expected to continue during 2016 and beyond.

Last year Starcom Systems developed a new version called the Helios Hybrid with the advantage of being able to utilise cellular and satellite communications for tracking continuity across large and remote areas. This is a niche market enabling a significantly higher unit price and recurring prices than the standard models and consequently higher margins.

TETIS: These are products to both monitor and safeguard container traffic. Many other prospective customers are in discussion with Starcom Systems regarding these products which not only monitor location but also temperature, humidity and light penetration to detect the sudden opening of the container. Given the millions of containers shipped around the world Starcom Systems only need a small percentage to achieve a large profit from the industry.

Competing products exist but are more expensive and take much longer to install.

The strategic partnership with Contguard in the US, allows us to offer services including a complete monitoring service and rental services on a per trip basis.

Many large end users welcome the provision of such services which avoid upfront capital expenditure and this business model is expected to play a larger part in the future for this product range.

KYLOS: The Kylos Compact Device is a sophisticated portable GPS tracker designed to monitor and determine the location of assets and possessions as well as providing a means to keep family members and pets safe. Sales of this unit are slowly building since its launch two years ago.

SAS: All the units are sold with connection to a central user friendly tracking software platform which can be either owned and operated by the user or by a third party. Monthly fees vary according to the product that is connected to the SAS control hub and generate recurring revenues to Starcom Systems. As the sales and install base of all units increase, it is hoped that these revenues will increase too, in absolute terms and as a percentage of total revenues. Being 100% software, this product no longer requires significant R&D investment and is therefore a major contributor to profitability.  

Company Financials (3):

General:

Market Cap: £3.74m

Shares in issue: 135,830,680

52 Week High: 8.38p

52 Week Low: 1.25p

30 Day Average Volume: 941,297

Bid: 2.25

Ask: 3.00

It’s worth noting that in reality the live spread is significantly tighter than this, but that recently the official spread has been widened by the market makers for seemingly no apparent reasons.

Recent Results (4):

-  Revenue for the year of US$5.1m (2014: US$5.0m)

-  Gross margin of 40% (2014: 50%)

-  Loss for the period significantly reduced to US$1.8m (2014: US$2.8m)

-  Overheads reduced by 27%

-  Total assets of $6.77m (£4.67m)

“The Company is hopeful that it will return to profitability during the year ending 31 December 2016 by converting its strengthening pipeline into growing sales across the product range.  In particular the gradual take up of Tetis and the new Watchlock Pro should contribute to this increase in sales, most of which we anticipate in the second half of the year.”

Director Credentials (much of this can be found on Starcom’s website):

Avraham (Avi) Hartmann (CEO):

• Founder of Mobiltel Communication Services in 1996 and served as its CEO until it was bought-out by Pelephone, in 1999.
• During this period he created a development and sales infrastructure which defined, developed, and marketed a GPS-based location product for vehicles, which was the first product of its kind in the country to use GPS technology.
• In 2005, together with Doron Kedem and his son, Uri, he founded Starcom Systems.

Avi Engel:

• Currently a private investor, company adviser and a non-executive director, Avi founded and led Pilat Media Global plc. as its CEO for twelve years until its sale for $100 million in March 2014.
• Prior to that Avi was the CEO of Pilat Technologies International, also AIM listed and an HR services and software company.
• With 25 years of public company experience on AIM and the TASE, Avi is deeply familiar with what it takes to strategize for long term shareholder value creation.
• Avi holds B.Sc. in Industrial and Management Engineering from the Haifa Technion and an MBA from the Tel Aviv University.

Michael Rosenberg (Non-Executive Chairman):

• Michael Rosenberg began his career in 1957 with the merchant bankers Samuel Montagu and Co Ltd, where he subsequently joined the board in 1972.
• Left banking to co-found United Medical Enterprises Ltd, which provided management services and equipment services to hospitals internationally.
• Michael became chairman of the British Healthcare Export Council (now known as A.B.H.I.) and led a number of trade missions overseas.
• Michael was a shareholder and later chairman of what is now known as Numis Securities Plc from 1989 to 1999.
• He has held a number of chairman and non-executive positions on the board of AIM-quoted companies, including Catalyst Media Group pl(current) and previously,Dori Media Ltd Pilat Media Global plc, Photon Kathaas Productions Ltd and Amiad Water Systems Ltd.
• In 1994 Michael was awarded the OBE for services regarding trade with Hong Kong and has previously served as chairman of the DTI's committee on trade with Hong Kong and as a director of the China Britain Business Council.

Director Shareholdings:

Avraham (Avi) Hartmann: 20,711,168

Avi Engel: 498,334

Michael Rosenberg: 1,395,000

Uri Hartman: 22,111,166

Doron Kedmem: 22,111,166

Total Shares Held By Directors = 66,826,834

Total Number of Shares = 135,830,680

Directors Holding = 49.19% of the total issued shares.

These numbers can be confirmed in the 24th March 2016 RNS (2)

Institutional Shareholdings:

Notably Milton Group  also hold 16,926,666 shares, representing 12.5% of the issued shares (6).

Appetite for Raising Funds:

Holding almost 50% of the company it’s not in the interest of the board members to issue shares like confetti as some AIM companies do and thus I get the impression that unless it’s totally necessary for the progression of the business then they won’t.

Moreover, at the recent AGM one attendee reportedly said how Michael Rosenberg had said that the company had enough cash to to continue with the current plans for at least the rest of 2016 and that while he couldn’t guarantee the need not to raise funds, he suggested that the only scenario he could foresee for doing so would be if they required more working capital to fill a very large order.

Recent News:

• US Investment Bank and Market Maker Stifel begins to quote prices for STAR.
• Placing of shares with the board of directors and institutions to raise money to market and launch Watchlock (2).
• Final Results (4)

Expected News:

• WatchLock April Launch Update (2)
• Updates on sales of all products (4)
• Progress reports on the Sato joint venture and penetration into the US market (4)
• News on further joint ventures across the globe

GPS Tracking Sector Value

With the industry set to reach a value of $3.5bn in 2019 (1), only a small percentage of this market space is required to achieve a significant upside to the current market capitalisation of the company.

Fundamental Analysis:

The majority of the reasons to be bullish on Starcom Systems will stem from them simply being a manufacturer and primary distributor of what will likely become a ubiquitous product across many industry sectors.

In addition, the heavily invested board of directors will add to the market’s confidence in the company succeeding in the long term - this isn’t a business designed to rip off shareholders through continual dilution of equity!

Their strong underlying business model combined with a rapidly growing industry makes it quite likely that the recent share price momentum to the upside will continue, with the technical outlook corroborating this argument.

The major brands and companies Starcom Systems work alongside are a further testament to their prowess in business. A significant example is Sato Global Solutions, which has yearly revenues in excess of $900m and yet approached Starcom Systems as a joint partner!

Moreover the statement in the 11th March final results (4) that: “The Company is hopeful that it will return to profitability during the year ending 31 December 2016 by converting its strengthening pipeline into growing sales across the product range.  In particular the gradual take up of Tetis and the new Watchlock Pro should contribute to this increase in sales, most of which we anticipate in the second half of the year.”, suggests that the company is likely running at a profit now and that the next set of results will be significantly improved from the last set.

These factors in combination with the company’s low level of director lent debt, make it a very exciting company (especially considering that the market capitalisation of the company is only £3.5m) in the near and medium terms with regards to their potential growth prospects.

The addition of US market maker and investment bank Stifel to quoting the shares has also led me to suspect that their sales and trading departments are advertising Starcom Systems shares to their private clients, or that a potential takeover bid/acquisition could be being processed by a US based company.

The multi-level architecture of Stifel in combination with how they have been mostly bidding for stock since commencing the quotation of Starcom Systems shares, certainly has led me to suspect that there are large private/institutional buyers circling around Starcom Systems - with an average daily volume of only around 900,000 shares at the moment your profitability only making markets is heavily limited as a new entrant.

Technical Outlook:

Macro Time Frame:

• Clearly the macro time frame is a technical story of a sell down in the stock followed by a recent rally from the major lows.
• This rally has coincided with a turn in some of the major moving averages, notable the 20 day moving average and its two standard deviations that make up the bollinger bands in the chart.
• At these levels this is a very oversold stock from which you would expect a continuation of the trend (the backbone concept of technical analysis) in the current upwards direction.

• On the sixth monthly time frame we can clearly see the reversal from the 52 week low at 1.25p and the subsequent rise to the 2-3p range.
• The bollinger bands are notably beginning to tighten - often seen before an expansive upwards move in volatility - suggesting that the market is currently trading sideways awaiting new buying or selling pressure.
• In particular, the previous resistance at 2.5p is now the current support level for the stock moving forwards, with support also sitting strongly at 1.6p and 1.5p.

• On the three month time frame we can clearly see that a consolidation pattern is forming through a bullish pennant, which usually precedes an expansive upwards move in the new upwards trending market.
• The target from a break of this pennant would be the 5p level, which conveniently sits inline with the next large resistance level.
• The only real negative here is that the volume can be reasonably low, making it a possible challenge to gain liquidity in large size for some.

References:

1. https://www.abiresearch.com/press/gps-tracking-devices-to-break-35-million-in-2019/
2. http://www.londonstockexchange.com/exchange/news/market-news/market-news-detail/STAR/12752199.html
3. http://www.lse.co.uk/SharePrice.asp?shareprice=STAR&share=starcom
4. http://www.lse.co.uk/share-regulatory-news.asp?shareprice=STAR&ArticleCode=h5fx7bud&ArticleHeadline=Final_Results
5. http://www.starcomsystems.com/partners/case-studies
6. http://www.lse.co.uk/share-regulatory-news.asp?shareprice=STAR&ArticleCode=9z5gqbxg&ArticleHeadline=Placing_and_Directors_Dealings