The week in Small Caps: Jayex cannabis in NZ, Sayona approved to drill, Bowen increases coking coal target

Afterpay Touch Viva Jayex Healthcare cannabis NZ Sayona Mining drill Bowen coking coal
WEEKLY MARKET WRAP

It’s hard to think of anything more US President Donald Trump could have done this week to unsettle world share markets.

He hurled insults at his NATO allies, saying they needed to put up more money for defence and that Germany was a captive to Russia.

If that wasn’t enough, he confirmed that the US would impose tariffs on a further US$200 billion (A$271 billion) worth of China’s imports.

All of that certainly had an effect, leading to US market falls of almost 1% and rattling commodity stocks after a broad-based metal sell-off during the middle of the week.

Oil prices were also sent tumbling, although this had more to do with Libya restoring its production, sending Brent crude prices down for its biggest single day fall in two years.

Steady week due to stocks with US dollar exposure

However, at the end of the week and despite all of that turmoil the Australian stock exchange had a fairly steady end to the week, down just 0.1% for the week due to some strong individual performances and a stronger US dollar which buoyed the prices of stocks with US exposure.

Blood products and vaccines company CSL (ASX: CSL) was a real highlight, cracking through the A$200 a share mark on Thursday for the first time.

Analysts are expecting a positive earnings season for the company and Citi has already lifted its share target for CSL to A$232 – indicating this week’s 6.3% rise A$204.56 might be repeated.

Afterpay Touch continues to shine

Afterpay Touch Group (ASX: APT) continued its strong run this month, rising late in the week as it continues to make inroads in the US market.

Its shares were up an impressive 10.4% to A$10.98.​

Not all miners were doing it tough due to lower metal prices with lithium miner Pilbara Minerals (ASX: PLS) continuing a stellar two weeks with a 14.4% rise to A$1.07 this week.

Resolute Mining (ASX: RSG) was not so lucky, falling 7.7% for the week to close at A$1.32, after a trading update showed the company wasn’t able to generate a positive cash flow and that its cash balance fell 18% over the last three months to A$113 million.

The A2 Milk Company (ASX: A2M) disappointed investors despite reporting stellar sales growth of 68% and strong pre-tax earnings growth due to softer expectations for the 2019 financial year.

A2 shares were down 2% to A$10.29 on Friday.

Disappointing float for Viva

Another disappointment for the week was the float of Viva Energy (ASX: VEA), which fell 4% to A$2.40 on debut.

Investors paid A$2.50 a share in the float and the shares weakened before closing at A$2.40 by the end of trade.

Despite this somewhat dour start, Viva’s float is the biggest since Medibank Private (ASX: MPL) in 2014 as it raised A$2.65 billion in an initial share offer which gave the company a A$4.86 billion market capitalisation.

Viva has more than 900 Shell-branded service stations and its refinery in Victoria is one of only four in Australia, with global energy trader Vitol retaining a 45% stake in Viva Energy.

Small cap stock action

It was a big news week for several small cap companies, with several releasing game changing company announcements.

Some of the small caps that flashed onto investors’ radars this week are:

Jayex Healthcare (ASX: JHL)

Jayex Healthcare has enjoyed a positive run after inking an agreement that will see it secure a foothold in New Zealand’s embryonic medical cannabis market.

This week, Jayex reported it had signed a binding licence agreement with medical cannabis company MediCann NZ. The agreement paves the way for MediCann to use Jayex’s P2U script processing and BluePoint remote dispensing technologies.

The initial deal is valued at around A$500,000, with additional fees for the software and prescription processing to be agreed at a later date.

MediCann is cashed up after completing its first private capital raising in New Zealand, which enables it to implement its business plan.

Red Sky Energy (ASX: ROG) and Beach Energy (ASX: BPT)

After months of evaluating potential assets, Red Sky Energy announced on Tuesday it had agreed to acquire Innamincka Dome oil and gas operation from Beach Energy.

The deal follows the company’s appointment of Andrew Knox as chief executive officer and managing director.

Innamincka is in South Australia and was closed in 2015 after the oil price fell. The project includes well-maintained shut-in wells and non-producing fields, which Red Sky hopes to restart as soon as possible.

The company plans to fund the acquisition via A$2.2 million capital raising.

Benitec Biopharma (ASX: BLT)

In the biopharma field, Benitec Biopharma secured a licensing and collaboration deal with Axovant Sciences.

The deal allows both companies to collaborate on developing five gene therapy products for treating neurological disorders.

Additionally, Benitec will licence exclusive global rights of tis oculopharyngeal muscular dystrophy drug AXO-AAV-OPMD to Axovant.

Under the licencing deal, Axovant will now assume future development costs of the drug. Once commercialised, Benitec will receive 30% net profit on all sales.

Anson Resources (ASX: ASN)

Anson Resources impressed investors this week after it reported it had produced its first lithium carbonate equivalent from a brine sample at its Paradox project in the US.

Early precipitation test work was undertaken on a 1,000 litre brine sample which was extracted from the Cane Creek 32 well at the project.

The company used an “alternative” “cutting-edge” technology to produce the lithium carbonate, which involved separated the lithium from the brine via an absorption method.

Anson reported other good news with the Utah regulatory body approving the company’s application to lease 15 acres of industry land near Paradox.

The company was also given permission to relocate its industrial lease to abut the Cane Creek well pad, giving Anson 25 acres for brine extraction and an in-field pilot plant for creating lithium carbonate.

Sayona Mining (ASX: SYA)

Lithium explorer Sayona Mining attracted a lot of interest this week after the Western Australian Government granted it approval to begin drilling at its Mallina project in the region’s renowned Pilgangoora district.

Initial drilling will be carried out at the Area C prospect, which returned up to 4.6% lithium from preliminary rock chip sampling.

In addition to the drilling permission, Sayona will also receive a 50% rebate from the WA Government for its drilling costs – up to a A$150,000.

Sayona plans to drill at its other tenements in the region including the Tabba Tabba project, which, combined, cover about 1,780sq km.

Meanwhile, Sayona also reported its had begun exploring at its Tansim lithium project in Canada.

Bowen Coking Coal (ASX: BCB)

Metallurgical coal explorer Bowen Coking Coal published an increased exploration target for its Mt Hillalong asset in Queensland’s Bowen Basin.

The new target was a result of a comprehensive review into available historic exploration data.

Xstract Mining Consultants conducted the review, which involved amalgamating all available data across the project’s tenements. The consultants also created a geological model as well as a clear pathway to advance Mt Hillalong.

As a result, Bowen Coking Coal has boosted its exploration target for the asset up to 409 million tonnes coking coal and low vol PCI.

The exploration target includes the Rangal and Moranbah coal measures and estimates initial open pit operations for both zones.

Bowen Coking Coal plans to drill up to five holes at the project to firm up a JORC-compliant resource.

Galilee Energy (ASX: GLL)

Galilee ended the week with more cash in its pockets after reporting it had raised around A$5.66 million before costs via a placement to sophisticated investors.

The company issued 14.155 million shares at A$0.40 each, which was a 9% premium to the company’s 15-day volume weighted average price of A$0.367.

However, it was a 4.8% discount to the company’s closing price of A$0.42 on Friday 6 July.

Funds from the placement will be directed into advancing the Glenaras coal seam gas project in Queenland’s Galilee Basin.

Galilee claims Glenaras hosts one of the largest uncontracted gas resource on Australia’s east coast.

Fremont Petroleum (ASX: FPL)

Fremont Petroleum boosted its acreage at its wholly-owned Pathfinder oil property in Colorado’s Denver-Julesburg Basin.

The acreage was expanded by 10.9sq km and brought the company’s entire project area to 78.9sq km.

However, the company stated the acquisition terms were confidential because it was pegging up more leases.

It did state the extra acreage was secured on “favourable terms” and that it brought “considerable value” to the company.

The Pathfinder project is found in one of the US’ oil fields.

Real Energy Corporation (ASX: RLE)

Real Energy Corporation is rapidly advancing its Windorah gas asset in Queensland, with the company announcing this week it was preparing to start a fracture stimulation program at the project.

Diagnostic fracture injection testing (DFIT) has wound up on the Tamarama-3 well, with the company claiming results to-date were consistent with pre-drill assessments.

Real Energy managing director Scott Brown said completion of the DFIT ticked off another key operational step at the Windorah.

The company which aims to develop an estimated 13.7 trillion cubic feet of gas-in-place resources to supply Australia’s east coast market.

Real Energy is targeting pilot production from its three Tamarama wells next year. Once pilot production has been established, Real Energy stated it plans to develop six more wells near the existing site.

EHR Resources (ASX: EHX)

EHR Resources offered the market an update on its drilling progress at the La Victoria gold-silver project in Peru.

The company reported the first hole at the Rufina prospect had been finished and preparations were advancing to begin drilling the San Markito target.

EHR has secured a 10% stake in the project and is earning up to 25% by funding exploration.

The initial 10% was secured after EHR conducted a first phase reconnaissance program, which produced notable intersections such as 3.4m at 7.31 grams per tonne gold, 1.6m at 4.31g/t gold and 1m at 4.31g/t gold.

In this current campaign, 4,000m will be drilled overall at Rufina Eastern and San Markito prospects.

Additionally, EHR has pinpointed 18 major targets to investigate in the near future.

Endless Solar (NSX: ESCLV)

Endless Solar is developing a new solar-powered technology that can heat water as well as provide heating and cooling to homes and businesses.

The company is advancing the Cool Solar air conditioning system that uses solar-heated water to generate cool air.

According to Endless Solar, the electric compressor in conventional air conditioners can be replaced with solar-powered thermal compressors.

The technology’s hot water injection system pumps hot water at such a high velocity it causes hot and cold water to be created as by-products.

Since it was incorporated in 2006, Endless Solar has installed thousands of solar hot water systems across Australia.

The week ahead

There are a few Australian data highlights this week, with the most important being June employment report on Thursday and also tourism and business sales data.

Internationally it is a busy week with Chinese economic growth, investment, production, retail sales and house price data adding some numbers to the unfolding US-Chinese tariff war.

In the US, retail spending, housing, industrial production and the US Fed’s Beige Book will all be closely watched.

The US Federal Reserve chair Jerome Powell’s testimony before the US Senate Banking Committee could also create some market moving information.

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