The week in Small Caps: Wattle Health grows sales, American Patriot buys US oil, Tando granted mining rights
WEEKLY MARKET REPORT
This has been one of the biggest weeks for corporate news on the Australian share market with a range of big announcements lifting the Friday close to another ten year record of 6300.2 points.
At the start of the week Wesfarmers (ASX: WES) announced the details of the spinoff of Coles which will hopefully produce two good listed companies – a cash generating and dividend producing supermarket chain in Coles and a much more entrepreneurial and faster growing Wesfarmers conglomerate.
Wesfarmers is effectively giving Coles to its shareholders and is keeping 15 per cent of the group and half ownership of the Flybuys loyalty program.
Investors were fairly lukewarm on the deal but the fact that Coles was not saddled with too much debt is seen as a positive for its future ability to keep investing in store fitouts.
Media mergers in the news
As if that was not enough corporate reshuffling there was the $4.2 billion merger between Nine Entertainment (ASX: NEC) and Fairfax Media (ASX: FXJ)
Given the fact that the Fairfax name is disappearing and public interest in the media is always intense, there was always going to be blanket coverage of what is effectively a takeover by Nine of Fairfax.
Fairfax shares closed the week flat at 80.5c while Domain shares were up 8.1 per cent to $3.35 and Nine Entertainment shares fell 13.1 per cent to $2.19.
AMP shares cut further
To close off the week, beleaguered fund manager and insurer AMP (ASX: AMP) announced that the cost of its governance scandal would be about A$500 million over the next few years and that its first half underlying profits would fall by up to A$63 million.
Not surprisingly, AMP shares fell 9.1 per cent to $3.30 over the week.
Finally, an up week for commodities
There was plenty of other news around too with commodities prices finally rising after a couple of awful months, helping to push the ASX 200 to 6300.2 points.
Shares in BHP Billiton (ASX: BHP) lifted 4.5 per cent to $34.40 after announcing the sale of its US shale oil assets for US$10.5 billion.
Rio Tinto (ASX: RIO) and South32 (ASX: S32) also ended the week higher, while big gold miner Newcrest Mining (ASX: NCM) added 5.9 per cent to $21.28 on news that its big Lihir mine in Papua New Guinea achieved record gold production.
Rare earth miner Lynas Corp (ASX: LYC) also had a great week, with its shares up 15.4 per cent to $2.33 after positive broker reports extended price target to above $3 a share.
On the agricultural front, Nufarm (ASX: NUF) had a really tough week with shares down 13.6 per cent to $7.27 after it warned that dry weather was slashing demand from farmers for herbicides.
Nufarm cut its earnings forecasts to between A$255 million and A$277 million from the original A$317.4 million.
Small cap stock action
It was another positive week for the Small Cap index, which gained 0.28% to end Friday at 2,866.3 points.
The index marginally outpaced the larger ASX 200, which finished the week at 6,300.2 – up 0.23% on the previous week, and the All Ords which lifted 0.22% to conclude Friday at 6,391.5.
Small cap stocks that drove the news flow this week included:
American Patriot Oil & Gas (ASX: AOW)
American Patriot Oil & Gas flowed onto the scene this week with news it had collared two deals that will transform it into a prominent US oil and gas producer, including its biggest transaction since incorporation.
The company executed a deal to acquire a 300 barrel-per-day conventional oil producing asset in the US-based Gulf Coast for US$15 million.
A second deal comprised acquiring an interest in two South Texas assets for US$3.2 million was also announced.
Including the Peak Energy acquisition in February, these deals are estimated to deliver total net production of 550 barrels of oil equivalent per day to American Patriot.
For 2019, American Patriot is now targeting net production of 750boepd, up from 570boepd in 2018. Forecast EBITDA is also predicted to increase to US$12 million on the expanded production in 2019.
Bryah Resources (ASX: BYH)
It was a big news week for Bryah Resources, which reported it will proceed with the Horseshoe South manganese mine acquisition after it completed due diligence.
The historic mine makes up part of Bryah’s Bryah Basin project where it is exploring for manganese and other minerals.
“The Horseshoe South manganese mine has been the largest manganese mine in the Bryah Basin, producing about 1 million tonnes of manganese ore, and we believe there is potential to breathe life back into the old mine,” Bryah managing director Neil Marston said.
Bryah now has an exclusive one-year option to purchase Horseshoe South and its mining lease.
The company plans to evaluate existing manganese stockpiles and undertake further exploration.
Gage Roads Brewing Co (ASX: GRB)
Gage Roads Brewing was popular with investors this week after it reported a “remarkable” June quarter.
Sales for the period were up 4% on the previous corresponding quarter, with Gage stating the increase was driven by a 173% rise in independent retail channel sales and a 145% lift in draught keg sales.
The company is attributing part of its sales increase to its “brand-in-hand” strategy, which aims to enhance awareness of the company’s brands and expand their markets.
“The 2018 financial year was a fantastic year for the business and I’m pleased to see that all the key targets we have set as part of the five-year proprietary brand strategy are being delivered,” Gage Roads managing director John Hoedemaker said.
“Awareness for our brands has grown significantly and we look to build on that even further,” he added.
Tando Resources (ASX: TNO)
Vanadium explorer Tando Resources had a positive week, with the South African Department of Mineral Resources granting the company the mining right to its SPD vanadium project.
The granted mining right was the last step in Tando’s formal due diligence to secure a 73.95% stake in the South African asset.
Tando has engaged drilling contractors with rigs to be shortly mobilised to site to begin a two-pronged drilling campaign.
Under the phase one campaign, Tando aims to convert the existing SAMREC resource of 513 million tonnes grading 0.78% vanadium to JORC code 2012.
The company will also drill across the high-grade vanadium pipes found at the project to evaluate a low cost, direct shipping ore operation.
Imugene (ASX: IMU)
Cancer vaccine developer Imugene reported it had achieved “superior cancer growth inhibition” during pre-clinical trials of its checkpoint inhibitor vaccine KEY-Vaxx.
Imugene acquired the KEY-Vaxx vaccine from the Ohio State University in the US and recent pre-clinical trials targeted CT26 colon carcinoma (colon cancer), which is a highly immunogenic tumour.
During the trials, KEY-Vaxx inhibited cancer cell growth and showed synergistic activity with Imugene’s Her-2 cancer vaccine.
KEY-Vaxx aims to help the body to generate its own antibodies against PD-1-expressing cells.
According to Imugene, this is the first report of treating cancer via this method.
Australian Vanadium (ASX: AVL)
Australian Vanadium has been advancing its flagship Gabanintha project and has a base-case prefeasibility study due shortly.
The base-case PFS is focused on a “high quality” and realistic evaluation of Gabanintha that can shore up future investment decisions to develop a “world class” long-term vanadium operation that produces material for the steel and battery markets.
According to Australian Vanadium, its seeks to derisk the project to ensure the “most viable, lowest cost mining and processing operation is pursued”.
Once the PFS has been released, Australian Vanadium will kick-off drilling to firm up geotechnical and hydrology data at the project.
Meanwhile, the company’s wholly-owned subsidiary VSUN Energy recently submitted an expression of interest with Western Power to undertake the organisation’s Stand-Alone Power Systems project.
Six Sigma Metals (ASX: SI6)
Six Sigma Metals derisked its Shamva lithium acquisition this week after reporting its five-hole due diligence drilling program had struck pegmatite with visible spodumene and lepidolite in every hole.
The shallow drilling program intersected pegmatite from surface to 60m depths, with deeper drilling needed to determine the mineralisation’s true depth.
During the due diligence campaign 50m of strike had been tested, with Six Sigma identifying kilometres of strike for evaluation across the Zimbabwe-based project.
Assays from the program are anticipated next month, along with results from 75 rock chips that were collected from the project’s Loch Ness pegmatites.
The Shamva and Chuatsa vanadium-titanium acquisitions are part of Six Sigma’s “first mover” strategy into Zimbabwe, to take advantage of the new politically stable, mining friendly regime in a country with substantial mineral wealth.
Altura Mining (ASX: AJM)
Altura Mining announced its much anticipated first lithium concentrate from its wholly-owned namesake project this week.
The milestone comes 16 months after Altura began construction at the Pilbara-based project in March last year.
Crushing operations began at the project in May this year, with Altura steadily ramping up the commissioning process to achieve this latest milestone.
The company will now focus on ramping production up to the full 220,000 tonne per annum capacity over the next six months.
Northern Cobalt (ASX: N27)
Northern Cobalt has intersected cobalt mineralisation in 53 out of 320 holes during its expansive shallow drilling campaign at its Wollogorang cobalt project in the Northern Territory.
The anomalous cobalt intersected was in excess of 100 parts per million and, according to the company, is comparable to the 147ppm average grade from samples extracted from the primary Stanton deposit.
The results are part of the company’s strategy to “rapidly” test the cobalt potential across the project, with drilling to average 5m depths to access mineralisation below the overlying sands and clays.
“Given the shallow nature of the drilling program, we would expect that assay results of 100ppm and above are a good indicator of cobalt mineralisation at depth,” Northern Cobalt managing director Michael Schwarz said.
Deeper follow-up drilling will start next month at all targets where mineralisation has shown the potential to host more cobalt and boost the project’s resources.
Antilles Oil & Gas (ASX: AVD)
Antilles Oil & Gas has moved in a new direction to focus its activities on aged care technology.
Under the new direction, Antilles has acquired 100% of HomeStay Care Pty Ltd, which is a group of companies that offers technology to the aged care sector.
According to Antilles, the technologies help seniors live independently in their homes for longer.
As a result, the company plans to change its name to HomeStay Care Ltd to reflect its new direction.
The company will also reshuffle its board and raise up to A$4 million via a capital raising.
NeuroScientific Biopharmaceuticals (ASX: NSB)
NeuroScientific Biopharmaceuticals landed on investors’ radars this week when its shares began trading on the ASX on Friday.
The company’s share price opened at A$0.28, which was a 40% premium to its A$0.20 offer price.
NeuroScientific raised A$6 million which will fund ongoing research and development into advancing its treatments for stroke-related brain injury and dementia as well as diagnostics for determining early-stage Alzehimer’s.
With lead optimisation completed, NeuroScientific plans to begin animal efficacy studies by the end of the current quarter.
The studies will evaluate the safety and toxicology of the company’s EmtinB therapeutic peptide.
NeuroScientific hopes to progress the drug to clinical trials before the end of 2019.
Wattle Health (ASX: WHA)
Wattle Health Australia has received approval to sell its Australian grass-fed powdered milk into China’s booming powdered milk market.
The company is also looking to sell its infant formula range into the huge market once Chinese authorities grant approval.
This latest move into China’s market follows Wattle’s agreement earlier his year to supply its cow infant formula range to Shandong Weihai.
Wattle was also showcasing its products at Shanghai’s International Children Baby and Maternity Products Expo this week.
The company continued the week’s positive news flow with its June quarterly released on Friday and revealing gross sales were up 71% in 2018 compared to the previous financial year.
The week ahead
The week begins with the release of the CommSec State of the States report on Monday. The report looks at how each state or territory is performing eight economic indicators.
It is a fairly skinny week for data releases otherwise with some building approvals and car sales the main highlights.
Internationally the US Federal Reserve is unlikely to announce a hike in interest rates and there are some US property and consumer confidence numbers out.
Chinese purchasing figures round out the main economic data.