Market Update Time

A long time ago I set myself a goal of summing up weekly market movements and events. As with all things secondary, real life takes precedence. New job, family commitments and a lack of spare time didn't help matters. Now I'm keen to pick up blogging where I left off. I should add I've not been completely absent from the market during this time, you can view my posting history on the LSE bulletin board and continue to track daily posts if you're interested. There are some great characters and knowledgeable investors over there. From today I will be pouring more effort into maintaining this blog, first lets' assess the stock picks suggested last year.


Advanced Computer Software (ASW)
In December 2013 I wrote a piece explaining the merits of tech-play Advanced Computer Software, another consultant and provider of efficient business software. Advanced Computer Software poised for further gains - that turned out to be a conservative statement. In the year to date (since publishing the article) shares are up 27% trading at 120p. There have been opportunities to trade in and out during the period, in particular the dip in mid April before shares surged to their 52 week high in late May.

ASW Share Price Movements
Dec 2013 - Sep 14

The surge was buying in anticipation of excellent Final Results which were issued a few days later. Since then shares have bounced around the 116-120 range. ASW now command a market capitalisation of £567.68m today little changed from earlier this year. So why are shares continuing to perform around this level?

Well growth has been impressive to date, but concerns over continued similar performance are weighing on shares. Over the past five years ASW have averaged compound annual growth of 46% revenue, 45% adjusted EBITDA and 53% cash generation.

Since then we have received the Half Year update this week. The figures are less impressive this time around but consistently positive nonetheless, with forecasts suggesting continued growth but at a reduced rate. As Vin Murria, Chief Executive puts it they now have "a very strong platform for long term sustainable growth".

As the figures and Murria's comment suggest the initial buzz surrounding the CSH takeover is over and they now have a platform from which to continue growth. The initial exciting period is over but that does not mean the company have peaked.
 
Needless to say ASW continues to impress in its operations and the reducing net debt position will only increase confidence in the stock. My view here is a continued hold. A lack of contract wins this quarter won't impact recurring revenue streams but limits growth potential so beware of overzealous broker targets. If you are able to pick up shares below 116p take the opportunity and likewise reduce some of your holdings above 124p. This will be a slow burner but one which will appreciate over the coming years.

 Amara Mining (AMA)
I first tipped Amara back on 8th November 2013 following the announcement of a cash for stock swap with Amlib in a piece titled Amara Mining - Speculative Deal Increases Cash Reserves - that didn't prove to be the cheapest time to buy however as shares fell from 14.25p to 11.5p just one month later. The Q3 update threw in a few surprises that the market didn't appreciate which had people selling shares for below 12p! But early in the December, the trend reversed, pushing the stock up in anticipation of the Yaoure Resource Update. Incredibly this provided little upside on the day of announcement.

Shares rose to 16.5p by early January before falling again in the lead up to Q4 results. There was a little movement during February but the important events occurred in the following month, with the Preliminary Economic Assessment (PEA) released on the 12th March shares jumped back to 16.5p on the day and continued to rise for the next 4 trading sessions peaking at 19.13p! Following this breakout the shares have traded above 15.5p ever since.

Amara Mining Share Price Movements
Nov 2013 - Sep 2014

The share price continued to rise in May and as expected Amara's operational results were much improved in the Q114 update. This was the first time I can remember Amara actually retaining share value in the lead up to quarterly results. On the day of the AGM the share price rose sharply and by the 12th June the asking price was over 20p per share. This may have been due to the decision made to cancel the reporting issuer status in Canada. Ingalls & Snyder LLC purchased a cool 1.3m shares on the 20th June which no doubt sparked new interest in the share sending it higher in the days after.

July was a superb month with the share price climbing to 23.88 before briefly falling on fears the Ebola Virus might impact Amara's operations. On the 6th August the company issued a statement concerning the Ebola risk alongside general drilling results.

"The Company's operations in West Africa remain unaffected by the Ebola virus.  There have been no confirmed cases in Côte d'Ivoire and Burkina Faso and John McGloin visited Yaoure last week along with other senior management.  There are travel restrictions and enhanced hygiene requirements in place in Sierra Leone, however at present this does not affect the Company's strategy for Baomahun as the project is in an evaluative phase."

Shares rallied, although it is worth noting that the company announced its production operations would cease the same day. The closing of Kalsaka was not due to take effect until later this year so came as some surprise. Given the risks associated with neighbouring states and the volatility in the gold price, the market seemed pleased that Amara brought forward the cessation, opting to instead retain cash. Little wonder as we later heard that Kalsaka total cash costs, including royalties, in Q2 2014 were US$1,455 per ounce, a loss of US$2.4 million over the period.

Focus is now being directed to Yaoure, the largest gold deposit in Côte d'Ivoire, with a 6.3 million ounce Mineral Resource. However production is still some way off and that's not accounting for any delays. Already we've heard that International cocoa exporters have restricted staff movements in the country, such is the growing fear of Ebola. This follows the closing of its borders with Guinea and Liberia. In the meantime cash depletion should be at a lower rate but may still cause a headache for shareholders.

It should be noted that following the deal with Amlib we are now after all disposing of exploration licences and the Drilling Contractors. Cash conservation and little desire to invest in new projects seems to be common right now amongst many of AIM's junior miners and who can blame them with gold being manipulated down to current levels.

"Amara has taken the decision to enter into an agreement to dispose of its assets in Liberia, which include three exploration licences (Cestos, Kle Kle and Zwedru), and Amlib Drilling Services Liberia. Exploration activity at Yaoure and Baomahun is expected to generate stronger value for shareholders and thus Amara is focusing its cash and management attention on these projects."

Amara is up 44% since my initial buy in of 14.25 and my plan now is to sell into any support above 23-24p. I expect we will retest 15-16p at some point next year as our cash position falls - this is a buying opportunity if you're in it for the long haul. The second mineral resource update is due in December 2014 and shares will likely rise in anticipation. After that Yaoure won't be producing until late 2015, the market knows it... even then cash-burn will continue until operations can be optimised. Baomahun is on hold but remains a viable future mine. The gold price is less of a concern right now. There is time to trade the swings before this becomes a producer once more.

The company has published the following results and slides on their website today:

Yaoure Drilling Results
Yaoure Central Zone Section
Yaoure CMA Zone Sections
Yaoure borehole plan
 

Disclosure: I hold shares in ASW and AMA. My blog posts are a means of tracking performance and not a recommendation to buy/sell. Please always do your own research.

have no business relationship with any company whose stock is mentioned in this article. - See more at: http://www.shareprophets.advfn.com/views/7846/vin-murria-delivers-with-another-strong-showing-by-advanced-computer-software#sthash.Mas4O7u0.dpuf

Weekly Market Summary 17/11/13

I am going to set a goal of writing a short market summary at the end of the week, focusing on certain events, notable market changes and significant stock or commodity movements in the past seven days.

Junior Mine Report 

I recommend reading PwC's latest Junior Mine October 2013 report in which John Gravelle highlights that it’s the junior mining sector that is suffering the most despite majors taking costly write-downs, suffering from weak commodity prices and a sector-wide confidence issue. 

Anyone trading AIM will notice the comparable to this ASX focused report in which PwC suggest junior markets have been plummeting since 2011 following a brief period of recovery after 2008 lows. The market valuations of the top 100 TSX listed mining companies has fallen over 40% annually for the second consecutive year. This is an accurate reflection of what has happened to valuations across AIM. 

The report makes for bleak reading with reports of cash, short-term investments and capital expenditures all down by hundreds of millions, with "explorers making up the largest share". But despite warnings from certain industry commentators such as John Kaiser, there have only been a handful of companies going under, with many able to reduce operating costs and conserve capital, 7 reportedly de-listed for adverse reasons. 

Margin Squeeze

The Footsie miners shed 2.4% to 16,131.09 in line with gold, platinum, copper and aluminium all falling. The only notable riser was iron ore. Margins are being squeezed across the board with Antofagasta suffering on its earnings update despite an increase in production. The same story was true of Vedanta Resources as revenue fell despite increased output. This is becoming a common theme amongst producers, those highly leveraged falling hardest.

One stock I like to follow, Avocet Mining (AIM:AVM) a West African gold miner completed the buy-back of a gold hedge from McQuarie Bank. They have a highly leveraged gold project at the Inata Mine in Burkina Faso which is struggling to turn a profit despite targetting 130,000 ounces this year. If they are able to survive in this climate then the chances are much improved for the likes of Amara Mining (AIM:AMA), another gold producer located in Burkina Faso. Avocet's total cash costs amounted to $1,195/oz in the third quarter whilst Amara are targetting reduced cash costs as it brings the Sega mine into production. It's total cash costs are expected to fall from $1,357/oz in the first half to below $800/oz in the second half. 

I've previously stated my position in Amara and still believe quarterly results (Q3) due this quarter will be considerably better than earlier in the year. To recap in Q1 2013 gross revenue of almost $14m, cash costs of $10.5m for a margin of approx $400/oz resulted in EBITDA of $3m. Amara expect costs will reduce to around $700-800/oz and with gold trading at around $1300/oz margins should be higher at $500-600/oz in Q3 results, potentially rising to $600-700/oz in Q4 results should gold bounce off the current support level.

"If we assume 15,000 ounces are produced at costs of $700/oz and a conservative gold price of $1300/oz, EBITDA of $8m is achieved per quarter. This increases to $12m if production reaches 20,000 ounces."

It seems I'm not alone in recognising Amara's potential as RDV Corporation, a majority owned private company run on behalf of the DeVos family who co-founded Amway, one of the largest U.S. private firms has taken a 21% stake through a share swap. Assets from their exploration company Amlib, including $10 million cash and a profitable drill operator are included in the deal. RDV have been actively investing in West African gold for over a decade but Amara is one of the first to bring in a major U.S. family fund. If Amara fall short of production targets only achieving 15,000 ounces and costs are reduced at a slower pace in Q3 realising a $500/oz margin they should still turn EBITDA of $6.7m

There is a concern that the gold price will fall further. Such a move would impact marginal producers and indeed is deterring investors now as gold toys with the $1,270 support level. What will cause gold to break out/down? This is a much debated topic and one that I would like to discuss another term. In the short term US jobless figures are likely to support the bearish case, the US continues to show signs of recovery. The strengthening of the US dollar alongside the monthly QE figure of $85bn has helped push US stocks to new highs. Is this the reason for gold falling? Perhaps not, but it goes some way to explaining why ETFs are being sold down on a huge scale.

What will cause a shift in sentiment? For one thing, we know the US debt ceiling is due to peak again in January so expect some market volatility. Many commentators also expect tapering of QE to begin early next year. There is an argument to be made for the physical demand which has increased yet again and is up year on year. This won't be a surprise to many, the East are buying physical. The West are still reducing according to the World Gold Councils Q3 Report, ETFs sold significantly higher than any increase in physical demand. Is there manipulation going on? Probably, and it stands to reason those selling will begin to reduce at a lower rate. US economic growth is expected to plateau at around 2% of GDP once QE draws to a close whilst their deficit reduction programme will actually begin to rise again in 2016 according to the Congressional Budget Office. This year’s lower deficit can be largely attributed to short-term economic factors rather than systemic reforms in the federal budget, for never has the deficit fallen from such a high level. The sign to look for will be an improvement in ETF positions in the next quarterly WGC report. 

Tips

- Amara (AIM:AMA)
I'm expecting a significant improvement in quarterly earnings as well as a more robust balance sheets thanks to the deal with Amlib for $10m additional cash. Any weakness in the price of gold is unlikely to reduce the impact reduced costs and increased production will bring. 
Target 18-20p before January 2014.

- W Resources (AIM:WRES)
Exciting quarter for W Resources as it nears completion in constructing its tailings processing facilities. The pre-concentration plant was expected to be complete in October and according to the company things are progressing on time and on budget. They will begin producing tailings from next month for a period of approximately 3 years at which point they should be in a positive to bring their flagship La Parilla Mine into production. 
Target 1.2-1.3p before January 2014.

- Tertiary Minerals (AIM:TYM)
Volumes have been increasing in recent weeks and the share price peaked at around 8p in anticipation of drilling results and resource classification due early next year. They recently completed a financing deal with YAGM. The MB Nevada project is expected to weigh in larger than the Storuman project which is currently Tertiary's most advanced deposit as historical drill data and two phases of drill-work is compiled into a JORC resource. Now I am no chartist but even I can tell the stock is in an uptrend so I would suggest interest will continue to grow as we approach the second set of drill results, followed by a brief period of consolidation as we await the JORC resource early next year before further gains as value is recognised.
Target 11-12p before March 2014.

Hopefully anyone following will be able to see how accurate these targets are. My strategy is threefold in this current climate - analysis of trends, volumes and catalysts. Ignore the 'company potential' if any of these factors change for the worse and take profits.