African miner is set for a strong 2011
Last week the clients and management of Optiva Securities, the company I work for, were staggered by the scaling back of their application to buy shares in little known African copper and manganese exploration stock, Weatherly International (WTI), listed on AIM.
The company raised £4.45 million via a placing at five pence, of which Optiva's clients only received 13.245 per cent of what they applied for.
This was one of the poorest allocations we had ever received on applying to participate in company fund raising, but at the same time, it gave us an idea of how much the stock was in demand with institutional and wealthy investors alike.
The chart below gives you an illustration of the pick-up in interest over recent weeks:
Why is this so popular with certain investors?
Weatherly is on schedule to re-start mining operations at its Otjihase and Matchless copper mines in Namibia for the first quarter of 2011 i.e. less than four months away.
While the cost of re-opening these mines are being met by a different funding source, the proceeds from the recent placing will be used, among other requirements, to conclude the Mine Feasibility Study at Tschudi (Namibia), which is expected to be completed by the end of the first half of 2011.
The company also wants to conduct an accelerated exploration programme at Tschudi aimed at increasing the existing JORC resource of 43.4 million tonnes (at 0.83 per cent copper and 10.5 grams per ton of gold) while testing for new ore-bodies adjacent to existing projects.
On top of this, Weatherly expects to receive $3 million (£1.92 million) shortly from the sale of one of its mines plus a further $2.3 million (£1.477 million) from property sales by the end of 2011, which will help with working capital requirements for operating the Otjihase and Matchless copper mines.
Some of the directors of Weatherly participated in the placing, subscribing for £260,000 worth of shares, which should be seen as a good act of faith in the company's projects.
Production should start from 5,000 tons of copper in 2011 to 7,000 tons in 2012 with plans to build it to 20,000 tons in the longer term.
This alone equates to profits, by our calculations of £12.5 million in 2011 and £28 million in 2012, without taking into account other by-products and projects.
Even if you put this on a miserly price to earnings ratio of six for 2012, this equates to a price target of 31p.
Investing with anything associated with mining exploration, especially in Africa, it is fraught with risk, but the upside is far more appealing if the management can bring the business plan together.
Update
Chaarat Gold (CGH) – suggested to buy at 51.5p, the shares closed yesterday at 51p. Hold for now as we await further drilling results from its two main prospects.
Geiger Counter (GCL) – suggested to buy at 85p, the shares closed yesterday at 104.25p. I am very pleased with the way this stock is performing as investors wake up to this excellent way to trade uranium equities.
Avanti Communications (AVN) – suggested to buy at 655p, the shares closed yesterday at 725.5p, after the Hylas 1 satellite had a successful launch. Raise the stop to 665p.
Avon Rubber (AVON)– tipped as a buy at 161.5p, the stock closed yesterday at 196p. Excellent preliminary results with improved revenues, profits and reduced debt. Keep holding, this should have further to go with 10 times consensus projected 2012 earnings: it could quite feasibly be trading at 260p in due course. Raise the stop to 180p.
Toumaz Holdings (TMZ) – tipped as a buy at 8.625p, the stock has slipped to 7.88p. The company announced yesterday that it has started to produce XENIF System-on-Chip (SoC) which is a key component used in the latest ONE Flow product from PURE (owned by Imagination Technologies), the leading supplier of digital and connected radios. This will allow users to use a colour touch screen radio and use USB connectors among other features. Keep holding for now.
Renewable Energy Holdings (REH)– tipped as a buy idea at 16.25p, it closed yesterday at 15.5p. Yesterday's net asset value equated to 34.7p a share, still too big a gap to ignore.
Bowleven – tipped as a buy at 177.25p, the stock closed at 323.75p yesterday, an 82.79 per cent gain. The company raised £72 million in a matter of hours last week at 327p, which should hopefully underpin the share price in due course. Raise the stop to 299p.
IQE – tipped at 24.25p, the stock closed yesterday at 47.25p, a 94.8 per cent gain. Keep holding for now but raise the stop to 43.5p.
Tissue Regenix – suggested as a buy at 16p, the stock has slumped to 10.5p. Very disappointing but I would hope the company will start realising soon that in order to get the share price moving in the right direction, it will have to generate newsworthy statements to get investors flocking back to the stock again.
The material for this report comes from Alpha Terminal. The writer does not hold any shares or derivatives in the above mentioned companies except Renewable Energy Holdings, Bowleven and Weatherly International.
Some clients of Optiva Securities hold shares in the above mentioned companies.
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