Friday, 19 January 2018


So whats coming up to drive the price? Plenty!

The initial 2 weeks of the Utah Plant

As im sure you all know, the first commercial CoalSwitch plant is now operational in Utah. It is undergoing 2 weeks of commissioning and production tests. The CoalSwitch produced will be sold to  Rocky Mountain Power (part of the huge utility Pacificorp). They will be testing a mix of CoalSwitch to Coal around 20/80 or 10/90. Richard Spinks tweeted such a preparation

If RMP find it burns as expected and drastically reduces emissions as expected they could use the 10/90 mix to comply with emission standards.

If we look at their Hunter Power Station. It uses 4.5mill tonnes of coal a year. If they changed to 10/90 Coalswitch that would be around 450k tonnes of CoalSwitch a year. If AEG sell CS for $180/tonne then that would be revs of $81mill from that one plant alone. If its 20/80 then $162mill revs a year. This is just one of thousands of Coal fired power stations in the developed world that are trying to change to biomass. The key advantage of CS is it can be used as a like for like replacement for coal with no retrofit costing hundreds of millions. It can be ground as fine as coal and burns with the same characteristics, unlike all other pellets. 

Next up for the plant

Again RS tweeted...
 "Visiting our CoalSwitch Plant in SLC this morning, meeting the Utah team making it happen & preparing for our international Government and Investor reveal/demo in 2 weeks time. So much interest in this amazing technology around the world!"

If we take both parts
1) Government - We already know the government of Utah are all over this. California has stopped buying their "dirty" power and they are at pains to clean it up. The government of Canada are fully on board. The Newfoundland and Labrador gov are keen for CS plants to be used in canada to create clean energy and create jobs. Across the world government want coal fired power stations decommissioned or switched to biomass. Look up recent announcements from the EU, Poland and Holland especially
2) Investors - Benefit Street Partners (a $20+bill fund) have been working very closely with AEG for quite some time. They have been touring Canada with them in the DD and i would expect them to play a big role in the coming months financing the global roll out.

After the reveal, the plant will be transported to Newfoundland to continue to produce CS.

Canadian Crown Timber License 

See my previous blog on what this means to AEG and why its worth hundreds of millions to them. RS stated on a podcast that the CTL will be granted after the Utah plant is shown to work and ready for transport. I would imagine the Newfoundland gov will be at this "unveiling". Some excellent twitter DD has shown that the CTL is now free of any environmental committees, having been released by them as the final set to ministerial sign off.
As a stand alone venture, managing a huge forest is worth hundreds of millions in saw logs etc. But if we read another RS tweet... "CoalSwitch can double timberland asset values whilst providing cutting edge, relevant Biomass product hugely enhancing harvesting yields at fraction of white pellet capex & opex cost. Forest waste can generate sawlog returns from pulp and residue quality materials! Revolutionary!"

So by using the off cuts of the saw logs to create CS pellets the value of the timberlands is doubled. From hundreds of millions to, er, double hundreds of millions!!

Metis deal in Alberta

The Metis deal from a couple of years ago (for 1/10th the area of the crown timber license) was valued at $300mill and now seems to be close to finalised! RS has hinted this in podcasts and the gov of Alberta are working more closely than ever with the Metis, they got them elected after all!


Ive already commented on the asian CS plants about to be commissioned...
The company announced that the initial 8 plants in Asia will produce 1.5mill tonnes of product = $240mill in revenues. 

The exact details of the JV with Lumino Capital aren’t known but I assume there will be a 50% split (again as was suggested in the broker note). = $120mill


I know there are surprises coming. RS has said this publicly. Im guessing European CS plants are coming sooner rather than later and more in North America. Perhaps supplying Drax 4th power station??


1) Government and billion dollar fund investor reveal in Utah in a week or less
2) Crown timber license granted worth hundreds of millions
3) Metis deal worth $300mill coming off
4) Asia plants about to start getting built
5) If one utility or power station change to coal switch its worth tens to hundreds of millions to AEG in revs and will snowball the rest of the world into using it.

All in all i cant see this string at £20mill Mcap for much longer. Id guess a rapid re rate to £100mill mcap or more in the coming weeks as the plan is laid before us.
Don't forget RS has went "all in" with £500k of his own money not very long ago

Thursday, 30 November 2017

AEG Forestry Update


I thought id do a follow up blog on the crown timber license AEG are currently awaiting from Newfoundland and Labrador.

They entered into an agreement in principle on 22nd May
and handed in all their paperwork on 12th October

So what does this mean in monetary terms to AEG. Investors cant see the wood for the trees!

The last forestry deal AEG tired was to help the native american Metis people monetise their forestry assets. They have about 110,000 hectares of viable forest and AEG had offers of $300mill for this in Jan 2015. That RNS caused a massive spike

Valuation based on previous deal

The current crown timber license is for 1.2mill hectares!
So the first finger in the air valuation could be $3bill based on the last deal.

Valuation based on other forestry management companies

Another way to value it is to look at other forestry management companies and how much forest they manage and what Mcap they command.
Our 1.2mill hectares equates to around 3mill acres for comparison.

Catchmark - CatchMark owns interests in approximately 502,400 acres of high quality commercial timberland located in Alabama, Florida, Georgia, Louisiana, North Carolina, South Carolina, Tennessee and Texas. The portfolio is well diversified by species and product mix (74% pine/26% hardwood by acreage and 50% sawtimber/50% pulpwood by volume).
Market cap $500mill

Potlatch Corporation - a verified leader in sustainable forestry. With approximately 1.4 million acres third-party certified to independent forest management standards, we grow trees, sell timber, and manufacture solid wood products. Since 1903, we have sought the common ground that enables us to unlock the value of our lands while conserving our forests for generations to come.
$2.1bill mcap

Rayonier  -Our 2.7 million acres of working forests, located in eleven U.S. states - focused in the U.S. South and U.S. Pacific Northwest - and New Zealand, provide wood for use in a variety of markets, from pulp to lumber, paper, oriented strand board (OSB) and other wood-based products
$4bill mcap

The list is long. Now these companies have a high value due to higher real estate values as well as a few other things. Im not suggesting AEG should be valued the same as Rayonier due to similar forestry area under management but you get the drift. There is considerable upside to managing a large forest!!

Valuation based on wood

AEG can "utilise up to 140,000 solid cubic metres of wood annually". That is 59328639.8 board feet. That is 59, 328 thousand board feet. tells me a thousand board foot is about $500. So 500 x 60000 = $30mill a year from the wood. The off cuts get turned into coalswitch pellets and sold for $180/tonne. The overall base revenue for x20 years is in excess of $600mill it seems. Add in all the free off cuts to make Coalswitch and you can see its a bit exciting. Im sure there are other monetary value chains other than selling the raw wood.

This broker note
suggests the feed stock for Coalswitch will cost around $15/tonne and you need 2:1 feed stock to Coalswitch pellet. So potentially they can use the forest to take off $30/tonne costs from the Coalswitch product and massively increase margins 

All in all the Crown Timber License is company making when it arrives and if/when understood, AEG is going to massively re-rate.

Monday, 2 October 2017



Some decent background reading from a slightly out of date broker note…

The current business model consists of 2 divisions – Advanced Biomass Solutions (ABS) which consists of the CoalSwitch product and Timberlands which aims at becoming a Timberland Management Company targeting Newfoundland
For the purposes of my investment case I will focus on the ABS arm as it is easier to value however the Timberlands is true blue sky potential and very exciting!

Advanced Biomass Solutions ABS

This is the main reason I’m investing. What they have developed is the only “drop-in” direct replacement for coal in coal fired power stations. Coal is ground to a fine powder and then blasted into the furnace of these power stations. All other biomass pellets cannot be ground to a fine enough powder to enable this to be done as they are too fibrous. For all other pellets to be used in an existing coal fired power station, a very expensive retrofit must be carried out. You may be familiar with the DRAX power station in the UK providing 4% of our power. They have spent upwards of £100mill on the retrofit. The DRAX pellet journey can be read here

Some more reading on CoalSwitch

The business model needs various advantages to be in place for the CoalSwitch product to be used…
1      Easily made and sourced
2      Easily transported to end use
3      Can be ground and blasted by the same machinery already existing
4      Produces a high calorific value like coal and greater than other pellets.
5      A large market need for biomass power

Lets look at each of them in turn.

1.     Easily made and sourced
Part of the process that makes these pellets explodes the wood/plant matter, hence being less fibrous. This part of the process also has the added advantage of working on just about any old off cut of wood or plant matter. They can utilise previously discarded wood offcuts from forestry and palm oil husks. This means they have a plentiful supply of extremely low cost source material compared to competitors. They are currently planning production plants of 20-30 tonnes/hour with a yearly production of 1.5mill tonnes from the initial 8 plants in asia.

2.     Easily transported to end use
CoalSwitch pellets are significantly denser than all other competitors meaning shipping and transport costs are reduced. They are also hydrophobic, meaning they don’t pick up moisture that adds to transport costs and then needs to be dried out before they can be used.

3.     Can be ground and blasted by existing machinery
As previously explained, a hugely expensive retrofit is usually needed to use all the other pellets as they can’t be ground to a fine enough pellet. CoalSwitch avoids this saving many many £millions. What it also enables is the pellets to be mixed with the coal at various % mixes. All countries want to reduce their carbon emissions. 20% of the coal for example in a large power station can be replaced with CoalSwitch, dramatically reducing the emissions and bringing them under the countries standard. The USA is very keen on this mixed approach. Again, no other product can be mixed like this.

4.     Produces a high calorific value like coal and greater than other pellets.
Coal contains 25Gj/tonne, CoalSwitch 23, Torrefied 22, black 19.5, white pellets 17.5

5.     A large market need for biomass.
Well there is! Have a read of that broker note at the top for the specifics. Single power plants that want to change to pellets from coal need 1.5mill tonnes a year. The forecast need for biomass pellets is forecast to grow from 22.5mill tonnes in 2017 to 43.5mill tonnes in 2025. These estimates are likely to be conservative. The nuclear disaster in Japan for instance has greatly increased to likely demand for biomass power in Asia. Europe is the largest demand currently due to clear air policies but increasing legislation in the USA and Canada is again going to drastically increase biomass demand. - On the potential of Coalswitch

Economics of CoalSwitch

There are a couple of similar revenue estimations that can be made for the CoalSwitch product. In this RNS
the company state that the pilot production plant will produce 35,000 tonnes a year and that will create $6.3mill in revenues. This equates to $180/tonne.
In the broker report at the top, they suggest a sale price of $160/tonne. To be conservative I will use this lower value.

The company announced that the initial 8 plants in Asia will produce 1.5mill tonnes of product = $240mill in revenues.

The exact details of the JV with Lumino Capital aren’t known but I assume there will be a 50% split (again as was suggested in the broker note). = $120mill

Again to use the broker note calculations they come out with an end Net profit post tax of 16-20%. Using the lower 16% figure gives us a profit after tax of $19.2mill a year on these initial 8 power plants.

On a PE of 12 = an MCap of $230.4mll. x10 from the current MCap

Brian Evans-Jones CFO of Active Energy Group #AEG & CEO of Advance Biomass Solutions

Future growth

The company stress these are just the initial deals with more plants planned in Asia, Europe and North America. They have had a large amount of interest from across the globe in the CoalSwitch tech. Rocky Mountain Power (a Buffett Utility in the USA) is about to start trials mixing CoalSwitch with coal

Every 1.5mill tonnes of production they achieve is a x10 to the current MCap and if they continue to do these deals via debt then there won’t be any undue shareholder dilution.

My 5-year forecast

If they have the initial 8 plants up and running and similar in Europe and North America then I would be looking at a post-tax profit of $60mill a year, an MCap of $700mill+ and an SP of 60p+

Additional reading
Enviva Biomass are a $700mill MCap USA Biomass wood pellet company. Have a look at their presentation for more market size info. Also you can see how CoalSwitch and easily eat into their and everyone elses business.


As previously stated, I’m investing primarily for the ABS/CoalSwitch but that’s not to say the Timberlands part of the business is crap. Its in fact, potentially brilliant. I first invested in AEG in 2014/2015 when they were going to commercialise 108,000 hectares of Native American owned forestry for $300mill That created a nice big spike and was my first intraday bagger! That deal has stalled for various political reasons.

Their latest forestry venture is to manage 1,211,000 hectares of forest in Newfoundland and Labrador. It is a Crown timber licence and proposed 20-year forestry management agreement (the "Agreement") to harvest and utilise up to 140,000 solid cubic metres of wood annually. CEO tells us about the deal

Having worked closely with the Canadian government they have now submitted the final application for the Crown Timber License
Michael Rowan, Active Energy Non-Executive Chairman said, "This marks the next milestone for the development of commercial activities for TIL in Newfoundland.  TIL and Active Energy are extremely excited about the prospect of revitalising the forestry activities on the Northern Peninsular, facilitating new investment into the Province and continuing to grow positive working relationships between the Province, its relevant ministries and TIL for the benefit of all. I look forward to providing shareholders with further updates regarding the applications for the CTL and the FMAs in due course."

If that deal comes off with x10 the hectares of forest you can imagine the value. They would instantly become one of the top 10 Forestry Management Companies in the world. The rest are MCaped in the $hundreds of millions.


1) Crown Timber license - probably worth a few hundred million!!
2) More Coalswitch plants in Europe and North America with funding in place
3) Pilot plant constructed and shipped to Utah to start production
4) Start of trial with Rocky Mountain Power (Buffet company)

Tuesday, 18 April 2017

MTFB - What happens next


What has happened?

So the long awaited Phase 3 "REVIVE 1" results came out comparing the drug Iclaprim vs the standard of care drug Vancomycin. It proved it was non-inferior. In fact it did everything the FDA wanted and they had a major hand in designing the trial. There were also no safety concerns at all.

This has now completely derisked the entire enterprise. This was the last big "what if?" in the pathway to a new drug.

What still has to happen?

There is currently a carbon copy of REVIVE 1 running, REVIVE2. This is how the FDA wanted it. Given how good the REVIVE 1 results are the chance of success of REVIVE 2 is 95%+
They do need around $10mill further funds to complete REVIVE 2 but this will come at a big premium to the current SP mark my words.
Once REVIVE 2 is out in early Half 2 2017 then they can submit a New Drug Application to the FDA. This is a given. It will be passed. The FDA want this drug in use ASAP.

Current valuation 

So as i type the SP is 33.5p with an MCap of £67mill

Cempra Inc. Nasdaq CEMP - got to an MCap of £700mill at the same stage Motif is now. Its had a string of bad news but still valued at £196mill!
Paratek. Nasdaq PRTK - had phase 3 read out of an antibiotic recently and is now valued at £600mill! This is probably the best comparison. Factor in a little discount for REVIVE 2 to finish but you'd still think MTFB is x5 undervalued.

How much money will Iclaprim make?

The ASSSI - skin infections market in the USA alone is around 4mill people a year. Around 25% of these people have good going kidney failure which Vancomycin is a TERRIBLE drug for. The obvious switch is to Iclapim. At $3500 a course the low hanging fruit is 3500 x 1000000 = $3.5billion revenues a year in the USA alone for ASSSI with kidney disease. Add in the rest of the world and creeping into non kidney disease patients...

Any other uses?

Yes there is! Iclaprim concentrates in the lungs and is very potent against a nasty hospital acquired chest infection, strep pneumoniae. Its about to undergo Phase 3 trials for this too and potentially double its revenue stream!


1) Completely derisked. Likelihood of becoming a drug now over 95%
2) To achieve parity to US peers it needs to rise 500-1000%
3) Peak year revenue for skin infections alone will be over $1billion
4) This may double with use in Hospital Acquired Pneumonia.

Target price remains norther of the FinnCap report of 125p

Sunday, 16 April 2017

Motif made simple


Hi all,

Im back in blog form for Motif Bio. It strikes me as a lot will have heard of Motif and know its meant to have a high "chance of success" but get put off by the science and numbers. Not understanding it how can you invest in it? So here is the layman's blog to MTFB and why i think it represents incredible value.

A new drugs journey
Generally a new drug undergoes an increasingly complex set of trials. Phase 1-3. Phase 3 is in humans and usually against the current best drug for the condition. Once Phase 3 is passed then you can submit your drug for a license to say the US FDA (Food and Drug Administration) for them to give all your evidence the once over and pass it.

Iclaprim's journey
Iclaprim is the drug in question here. It is a new antibiotic for ASSSI = basically nasty skin infections caused by MRSA etc.
It went through Phase 1 and 2 well then onto the final phase around 10 years ago. The company who owned Iclaprim at the time set out to show it had cure rates at day 14 similar to that of one of the 2 "Standard of care" antibiotics for this condition, Linezolid. They wanted to show it was non-inferior, within 12.5% cure rates at 14 days. So if Linezolid cured 80%, Iclaprim could cure 67.5% or better. They did this. They got within 3-4% of Linezolid! Happy days then. They submitted this to the FDA. The FDA weren't impressed however. They had decided that cure rates at day 14 wasn't the best measure for the infections. They were more interested in how much the redness and fever had been reduced within 48-72 hours. The company looked over the data and pulled out this info the FDA wanted and even better! Iclaprim was 1-2% better than Linezolid at this new end point. But...
As this wasn't the reason the trial was set up, they didn't have enough patients in the study to prove this with a tight enough confidence, they needed more patients. The FDA suggested a new phase 3 trial to prove it up but the company was now skint.
The FDA did this to 4 antibiotics over a couple of years. 3 are now drugs. Iclaprim is the last one to go thought the additional tests.

Motif Bio's journey
Motif acquired Iclaprim and worked closely with the FDA to design a Phase 3 study they wanted and would prove any end point they were interested in. The FDA invited Motif to please complete the studies! They want this antibiotic developed as much as anyone.
In July 2015, the U.S. Food and Drug Administration, or FDA, designated the IV formulation of iclaprim as a Qualified Infectious Disease Product (QIDP) for ABSSSI and HABP. QIDP status grants iclaprim regulatory Fast Track designation, Priority Review and, if approved, a five-year extension to the statutory market exclusivity period in the United States, resulting in 10 years of market exclusivity from the date of approval
MTFB decided to compare Iclaprim to the second "Standard of Care" antibiotic called Vancomycin. Their primary goal is to see how much the redness reduces in 48-72hrs vs Vanc. They need to be within 10% to show its non-inferior. So if Vanc makes 84% reduce in size then for the trial to be successful, Iclaprim needs 74%+ to reduce in size.

So why is this such a good bet on the science side of things.
1) Iclaprim has already shown it is superior to Linezolid at this test, in Phase 3.
2) Linezolid is better at fighting these type of infections than Vanc, in all comparisons it is better
3) In the last 10 years Vanc is having increasing resistance worries so its not as effective as it was 10 years ago
4) Iclaprim kills these bugs twice as fast as Vanc in the lab
5) Safety is important. There have been no Serious Adverse Events that could make it too dangerous. Vanc dosing is difficult in sick people with kidney disease whereas Iclaprim is safe.
6) Here is the kicker folks...
Since the Phase 3 trial vs Linezolid, Motif have gone over all the data and adjusted the dose of Iclaprim given. This has resulted in a 30% increase in efficacy (potency)!
7) All this means you can be 85-90%+ happy that the results will be good. I rate it 90%+

Why is it such a good bet vs Peers
Motif is listen on the Nasdaq. The closest peers to Motif, who have antibiotics in late phase 3, are x5 or more the Mcap. Companies who have just had good Phase 3 readouts are over x10 the mcap. There is a massive value disconnect anyway just at the current SP pre results. FINNCAP target is 125p

If this was a purely Nasdaq listed stock it would be over 100p right now and go to 200p+ on results. Alas they cocked up the Nasdaq IPO slightly so i'll settle for 50p pre results and 150p after.

When is it all happening?
The usual timescale for results is 2-3 months from "Last person out". This happened in late Jan 2017 so we are right in the window now. Motif have officially said Q2 2017 but it will be in the first half of Q2 so within the next 4 weeks and any time from tuesday onwards!

Clearly if something has happened in the trial, if somehow it fails the trail then you are looking at loosing 50% or more. I think there is a 10% chance of this.

Sunday, 10 January 2016

Mountfield Group #MOGP

Mountfield Group Plc

What does it do?

Basically they are two businesses currently. Connaught Access Flooring Limited and Mountfield Building Group Limited.

The groups combined activities comprise the following:

  • Design and installation of environmentally controlled Data Centres.
  • Builderswork packages on commercial IT facility buildings.
  • Installation of specialist Access Flooring to Data Centres, disaster recovery centres and commercial office buildings.
  • Fitting out and refurbishment of commercial office buildings, hospitals and education facilities.
  • Design & Build projects
  • Specialist bespoke hard flooring finishes including timber, stone and ceramics.
  • Principal Contracting
  • Site assembly for residential and commercial developments.

Background reading from El1te again (must read folks)

This was from Aug 14 when the SP was 2.6p. El1te felt at that stage it wasn't a BUY and shockingly the man was right again as the SP is half that now. However it gives an extremely good synopsis of the MOGP up to that point. I'll just take the story forward.

Year Ending 2014 Results

Revenue 2014 = £11.8mill (2013 £12.3mill)
Operating Profit 2014 = £74k (2013 £844k)
Pretty terrible performance

"2014 was a year during which the Group's results disappointed, primarily due to the poor results from Mountfield Building Group Limited ("MBG") which lost £587,211 in that year" - not exactly great

"In summary, as a result of the Review MBG will now concentrate primarily on construction contracts where its contractual relationship is made directly with the client and the Board is satisfied that the risk profile and margins are satisfactorily robust. The Board is satisfied that it was the collapse of margins on three particular subcontract contracts that were undertaken in 2014 coupled with the high level of overhead costs that MBG had taken on in order to service them that caused the substantial decline in MBG's profitability in that year" - The launched a strategic review and the first thing to go was any subcontracting for smaller margins that may turn into losses if cost spiral.

"The Strategic Review (which was led by Adrian Sainsbury and on which he worked with Conor O'Mahony, the Group's CFO) highlighted the areas in which MBG had performed most successfully,  the excessive overhead it had carried and the impact it had had on its operating margins. As a result of the Review the types of contracts that MBG now takes on has been changed and its annual overhead costs are being reduced by approximately 40%" - Nice cost cutting, makes you wonder why it wasn't done before.

"The performance of Connaught Access Flooring Limited ("Connaught") has remained strong and its business continues to expand with the highlight of 2014 being the winning of a £5m contract to supply and install flooring for a major new office HQ in the City of London. The greater part of the work for that contract will be undertaken in 2015. The Review concluded that little change was needed to Connaught's overhead structure and its manner of business. However, the wider debate as to the range of services that the Group should be able to offer has resulted in Chief Executive, Andy Collins, (now Group Chief Executive) beginning the approaches and discussions that, it is hoped will lead to Connaught being awarded contracts in new areas of business in 2015" - the shite performance does seem limited to MBG which is reassuring.

Results to half year 30th June 2015

    Gross profit of £1.1m (2014: £0.8m) on revenue of £7.3m (£5.6m)
·     Mountfield Building Group Limited ("Mountfield") revenues increased by 55% to £3.4m.
·     Connaught Access Flooring Limited ("Connaught") revenues increased by 15% to £3.9m
·     Cash generated in operations was £113k against cash used in operations of £430k in the corresponding period of 2014.
·     Administrative expenses decreased to £0.80m (£0.82m) with those for Mountfield having been halved.
·     Group's secured order book for 2015 currently £13.5m with additional contracts being negotiated.

I think its worth reading the CEO statement from these results carefully...

The first half of the year saw an increase in the unaudited pre-tax profits of the Group from £4k to £245k represents a pleasing recovery for the Group from its performance in 2014. The Board believes that  the recovery in the first half of the year demonstrates the continued strength of the business of Connaught Access Flooring Limited ("CAF") and also an indication that the substantial strategic changes and cost reduction exercise put in place by the Board in that period are bearing fruit and will produce increasing profitability in future periods.

That CAF's operating profit has reduced from £546k (2014) to £321k, is indicative only of the drawdown times for its current substantial contract in the City of London and the Board expects that at the year-end its performance will exceed that achieved in 2014. Its secured pipeline for 2015 currently stands at £7.5m with further contracts awaiting negotiation.

The Board is pleased with the manner in which CAF has adopted one of the key conclusions of the recent Strategic Review - that it should extend its business strategy beyond seeking substantial contracts for the supply and installation of raised access flooring.  It has already developed a sustainable new income stream for its business and there are strong indications that it will succeed in developing another that will have even greater significance for the Group.

The first was CAF's decision to open a new division that will concentrate on the lower value but strong margin flooring contracts that it had previously not pursued. The results have already been impressive and the Company is forecasting that in 2015, its first year, the division is likely to contribute around £1.6m to the Company's turnover.

The Board is particularly excited by the potential for the Group of CAF's other new strategy - that of seeking to replicate its position as an industry lead player in the raised access flooring sector in another key sector of the fit-out market - the supply and installation of specialist partitioning for commercial buildings, including data centres. After a series of discussions with lead suppliers, it has begun negotiations with main contractors with whom it already has strong links and is optimistic that these will result in increased turnover for CAF.

We have referred previously to the need for substantial strategic changes that were highlighted by the problems encountered last year by the Group's construction arm Mountfield Building Group Limited ("MBG") on its contracts for the provision of builders work packages. At the beginning of this year the Board decided that the benefits from undertaking such contracts were outweighed by the commercial risks and the high level of operating costs.

By concentrating on those contracts where it is the main contractor and being more selective in its approach to potential business MBG has over the last six months been able to almost halve its operating costs and thereby make a suitable contribution to the Group's profitability.

The improvement in the performance of MBG during the half-year (an operating profit of £46k against a loss of £413k in the same period of 2014) does not fully reflect the benefits that will flow in a full year from the cost reductions. In addition the Company's profit during the period would have been greater had not resources been utilised in completing two legacy builders work type contracts.

Whilst applying its new criteria to work selection MBG has been able to secure contracts with a value of approximately £6m for 2015 and is currently negotiating others that would (in whole or in part) accrue for the benefit of the Group in 2015. The contracts won include four where it has acted in its preferred role as main contractor.

Comms with the Company (Nov 2015)

"I can tell you that the the Group's board of directors are satisfied with the progress the Group is making following the Strategic Review (referred to earlier this year) and that it believes that the benefits of that review will be are already being seen"

"The board acknowledges that it has not been particularly active in keeping its shareholders and the market updated on the development of its business and I hope you will notice an improvement in this area shortly"

"We do plan to issue a trading statement for 2015, probably in January and we expect to publish our results for the year next May/June"

"I am able to tell you that our brokers (WH Ireland) last commented that the Group should look to make a NPBT in the region of £500k in the current year but I cannot of course comment further on that"

Reason why I'm buying

1) Big fall in SP and oversold
2) A fairly safe swing to profit with broker modestly hoping for £500k pre tax profit. I would be disappointed if it was only that.
3) Large contracts that need to play out to be realised on the balance sheet and weren't quite in half one 2015 results
4) Trading update in Jan that should be very bullish


So im not looking to fall in love with this share. I think a 100% rise could happen but am fairly sure a 50% rise will happen this Jan in and around the update. Its my El1te Trader Jan Buy call and I hope to finish up the table!!

Sorry this was a bit shite. Next one will be better, promise.

Wednesday, 6 January 2016




Written on 9/12/15 so all values as per that day.    
MCAP - £16.9mill
EV - £25.7mill
Target = 45-60p


What do it do?

Well surprisingly enough, this is a gold miner! It does what it says on the tin. Please note it actually mines, it is a producer. Silver is also produced and makes a smaller contribution to the bottom line.

Where does it do it?

Well surprisingly enough again, Siberia!

Main project - Asacha
  • VNIPI Feasibility Study - 2003
  • Additional Metallurgical Testwork - 2005-2007
  • Environmental Impact Assessment - 2005
  • Environmental Management Plan - 2006
  • New Mineral Resource/Ore Reserve Estimate - 2006
  • Development mining commenced - 2007
  • Business Plan and Capital Cost Update - May 2008
  • Gold production commenced - September 2011

JORC RESOURCES - as of 31 December 2014
Au Grade
Ag Grade
Au oz. (000)*
Ag oz. (000)*
Total M & I

Total Inferred


Mining and production at Asacha in the first nine months of 2015 is shown in the following table.

Q1 2015

Q2 2015

July 2015

August 2015

Sept 2015

Q3 2015
Year to date
Year to date 2014
Mine development (m)
Ore extracted (mt)
Ore processed (mt)
Average gold grade (g/t)
Average silver grade (g/t)
Gold recovery rate (%)
Silver recovery rate (%)
Gold in dore (oz.) 
Silver in dore (oz.)                
Gold refined (oz.)
Silver refined (oz.)


So there are a number of reasons why TSB has gotten a lot more interesting recently.
1) Rouble devaluation
2) Oil crash
3) Mining sector unloved
4) Russia unloved

Here are the numbers up to the end of last year. Hardly inspiring and if the cut off was half year 30th June 2014 when the rouble started to weaken, the numbers would look pretty dire...

$ Millions
$ Millions
$ Millions
$ Millions
$ Millions
Income Statement
31 Dec '14
31 Dec '13
31 Dec '12
31 Dec '11
31 Dec '10
Operating Profit / Loss
Net Interest
Pre-tax Profit
Post tax Profit
Profit for the Period
Equity Holders of Parent Company

The first half of this year to 30th June 2015 have again improved...

6 months to
30 June 2015
6 months to
30 June 2014
12 months to
31 December 2014
Cost of sales
Ore stock inventory impairment

Gross profit


So what has happened to produce the dramatic and continuing fall in cost of sales?

      1)    Rouble Devaluation
From mid-2014, the rouble/$ has fallen off a cliff and is falling further

As most costs are in Russia, wages etc then clearly this is an advantage. When we look at the current year only it looks very good for the second half and going forward. Into the new year and the rouble is still tanking vs the $

The average rouble/dollar price is clearly lower in the second half of the year than the first and falling away again.

          2) Price of Oil
Similarly to a lot of the costs being in roubles, the price of oil is a significant cost in running a mine. It has been as obliging as the rouble in helping out TSG
The second half of 2014 benefited from the falling oil price, the first half of 2015 was better and the second half is even better.

   3)    Spot Gold

The caveat is clearly that the price of gold is lower. In % terms it’s not down too much this half compared with the first and the rouble/price of oil more than makes up for this fall

So what does all this mean going forward for profits?

Please note that "cost of sales" differs from the much quoted "cash cost".  Cost of sales includes everything and is akin to AISC. Most gold producers give you cash cost which will look more impressive and publish a profit per ounce figure that is a bit misleading. I will post the equivalent cash cost in red for comparison to other stocks.

2013 Cost of sales net silver = $1,471/oz gold
2013 Average price sold = $1,402/oz gold
2013 P/L per ounce = -$69

2014 Cost of sales net silver = $853/oz gold
2013 Average price sold = $1256/oz gold
2013 P/L per ounce = $403

2015 (1st half) Cost of sales net silver = $712/oz gold (cash cost $489)
2015 (1st half) Average price sold = $1,192
2015 (1st half) P/L per ounce = $480

I would say its nailed on the 2nd half profit per ounce will be over $450 comfortably, likely much more.

Fag packet 2nd half numbers (completely my musings)
Q3 Refined Au 9,548 oz so double that up for easiness sake (although they producing more every month seemingly) = 19,096oz produced in H2.
Finger in air average oz sold = $1,130
Finger in air cost of sales = $650 (cash cost of around $410)
P/L oz = $480
Gross Profit = $9,166,080

Fag packet 2015
Gross profit H1 + ?H2 = $16,367,080
Oher expenses from H1 x2 = $8,122,000 (2nd half expenses likely to be lower due to rouble)
Profit before Tax = $8,245,080

Broker Forecast

The current broker forecast is…
2015 Net profit > $10mill
2015 EPS = $0.09 (6p)
My working above are probably too cautious but good to see its in the same ball park

2016 Net profit > $18mill
2016 EPS = $0.16 (10.54p)
The rouble continues to fall away dramatically

Valuation Models (stockopedia)

Discounted cashflow = 97.1p
Graham Formula = 129.76p
Relative to Sector = 46.72p
Tangible book value = 47.06p

Metrics (stockopedia)

PE Ratio (f) – 1.48 (industry median 9.02)
PEG ratio (f) – 0.034 (IM 0.49)
EPS growth (f) – 81.1% (IM 11.5%)
Price to book value – 0.33 (IM 0.69)
Price to tang. Book – 0.33 (IM 1.07)
Price to FCF – 2.37 (IM 6.26)
Price to sales – 0.54 (IM 1.16)
EV to EBITDA – 1.92 (IM 5.06)
ROC – 9.23% (IM -9.23%)
Return on Equity – 5.56% (IM -13.3%)
Operating Margin – 19.5% (IM -5%)
A pretty spectacular, sector beating set of metrics!


UFG Asset Management – 55.03%
AngloGold Ashanti Ltd – 31.17%
Firebird Funds – 2.52%
Directors – 0.4% (not great)
FF is less than 13%

Negatives (trying to stop the conformation bias)

Clearly as the macro economic factors have helped TSG they could equally swing and shaft them. If the Rouble and oil does a phoenix from the flames their cost of sales would be screwed again. If spot gold does a nose dive their revenue will get hit.
It is a mine so anything could happen. China could invade, it could collapse, flood etc. Russia could do something dodgy with the price of electricity or the availability of it or water to the mine. The gov could change the vat/tax rules or steal it. Key management or workers could leave, the BoD don’t own too many shares after all.
There is significant dilution of the gold from mining to the processor. The actual gold grade from the JORC is about 20g/tonne but currently they only get about 7-8g/tonne to the processor. Something they state they are working on. Clearly any meaningful increase in this would be nice. But why is it so poor?
There is net debt on the balance sheet. From the last interims “borrowings reduced from $26.1 million at 31 December 2014 to $20.8 million, reflecting further repayments of the project finance facilities provided by Sberbank to the Company's subsidiary ZAO Trevozhnoye Zarevo (TZ) for the development of Asacha and the Company's repayment of loan facilities provided by its major shareholders. On 20 March 2015, in addition to the $300,000 repayment due to Sberbank on that date, TZ prepaid $2.2 million, which had been scheduled to be repaid in 2018. On 25 March 2015 and 27 March 2015 TZ made further prepayments of $800,000 and $900,000, respectively due on 20 June 2015 and 20 December 2015. No further repayments of the facilities are due in 2015, but, as discussed below, TZ made a further prepayment of $1.0 million in August 2015”
They are paying down the debt and will be able to accelerate it if the cash flow turns out as planned.
The sector is unloved so just because value exists that doesn’t mean it will be realised any time soon.
Russia is similarly unloved so just because value exists that doesn’t mean it will be realised any time soon.

Comms with the company

Q – Why the low SP?
A - We think that many AIM share prices can be affected by low liquidity (TSG’s theoretical free float is 13.4%, in practice we consider it to be significantly less than that). In TSG’s case, our sole operating asset is in Russia. There appears to be general negative sentiment towards both Russia-related and gold mine stocks. As reported in our regulatory announcements, for several years we have been seeking to increase the grade of ore delivered to the plant and have not, so far, achieved the sustained improvement (through reduced mining dilution) which we believe the mine should be able to deliver. On a more positive note, since the second half of 2014, our operating results have benefited from the weaker Russian rouble, which has more than offset the impact of a lower (in US$ terms) gold price.


Despite this being a miner and in Russia, it does offer incredible value compared to most gold producers. If the current set of global FX and commodity prices stay in the same ball park for the foreseeable future, TSG will be a cash cow. It simply must re-rate at some point and probably make early investors a fantastic return. The fact is the rouble is tanking badly and the trend is most certainly down. Currently the cash cost per ounce must be sitting around $400. The broker forecast for this year looks nailed on and for next year conservative. I think this has at least a bag in it.

Clearly dont just buy based on my recommendation or anyone elses. Do your own reseach. Pick an entry you are happy with, pick a target exit you think is achiveable. This share may go up and down quite a bit before the target catalyst. The target catalyst may not be as good as hope resulting in an AIM sell off with decent losses if your entry is wrong