Northland Capital Partners View on the City Ariana Resources, Eckoh and Churchill Mining


Churchill Mining (LON:CHL) – SPECULATIVE BUY*: FY15 results
Market Cap: £23m; Current Price: 17p
From yesterday: LBT widens

  • LBT of US$2.8m in FY15 compared with US$2.5m in FY14.
  • Nest cash of US$1.2m in FY15 compared with net debt of US$0.2m in FY14.

NORTHLAND CAPITAL PARTNERS VIEW: Churchill Mining has continued to progress its claim against the Republic of Indonesia regarding the East Kutai Coal Project. Following the hearing on document authenticity, both parties had to file "Post-Hearing Briefs" answering certain questions. Churchill filed the first of two Post-Hearing Briefs on 20/10/2015 and expects to file the second-round Post-Hearing Briefs on 20/11/2015 in which it will reply to the points made in the State's first-round Post-Hearing Brief. Once its second-round Post-Hearing Brief is filed, Churchill is expected to issue a summary of the points made in each of the two briefs filed by the Company.

Eckoh (LON:ECK): Interims and acquisition
Market Cap: £103.6m; Current Price: 46.4p
Interims and acquisition

  • Revenue +10% to £8.6m with recurring revenue representing 78% of total (H1 FY15: 76%), gross margin increased 1000bps to 82% and gross profit increased 26% to £7.1m. Adj. EBIT +44% to £1.5m and adj. EBITDA +30% to £2.0m. Cash fell £0.7m to £3.7m reflecting movement in working capital – net debt of £1.3m.
  • US division gaining momentum with four contracts signed since June (total now ten), eight in the UK and 13 renewals – 100% of those that expired in the period. Also getting interest from other international markets resulting in sales in South Africa, Morocco and Canada.
  • Outlook – market demand remains strong and management is reports H2 trading in line with expectations.
  • Acquisition of Product Support Services (PSS), a provider of management of contact centre and customer experience technology, for $7.6m ($5.6m net; $5.6m in cash plus 3m shares) to increase its presence in the US as well as the UK and Australia to support sales and marketing. It also brings products and services. It is expected to be immediately earnings’ enhancing. Will look at other acquisitions. PSS acquisition funded through a new five year £5m facility replacing the existing £2.4m loan.
  • PSS had FY14 revenue of $17.4m and a PBT $1.2m though c. $4.0m would be classified as agency fees.

NORTHLAND CAPITAL PARTNERS VIEW: Demand for Eckoh’s products and services remains buoyant with the ongoing flurry of high profile data breaches and the theft of customer details. Companies need to protect their customer data and the threat of fines is now also looming. The acquisition of PSS looks a logical bolt on and enables Eckoh to move faster in the US and into Australia for the first time. The sales cycles encountered by West Corporation, Eckoh’s main US partner, for larger deployments have been longer than originally anticipated and Eckoh has had success in smaller direct sales. The current rating requires near flawless execution of its growth strategy at 36.9x FY16 and 29.8x FY17 EPS pre upgrades around PSS.

Ariana Resources (LON:AAU): Kizilcukur update
Market Cap: £6.8m; Current Price: 0.85p
Mining permit received

  • Ariana Resources has received the mining permit for the Kizilcukur Gold-Silver Project that is located 22km northeast of the Kiziltepe Mine, where construction is underway.
  • Kizilcukur is not currently included in the Red Rabbit joint venture with Proccea and is 100%-owned by Ariana.
  • The mining licence is valid until 24/09/2022, though it can be extended. Land access and forestry permits are already in place for exploration.
  • Drilling at the project has been completed and sampling is ongoing.

NORTHLAND CAPITAL PARTNERS VIEW: A positive development for Ariana Resources as the Kizilcukur Project could potentially become a satellite pit for the Kiziltepe Mine extending its life and improving the economics of the Red Rabbit Project. This is positive for Ariana for another reason in that if the project is brought into the joint venture Ariana will receive three times the exploration cost spent on the project. Kizilcukur currently has a Inferred JORC compliant mineral resource estimate of 12,500oz Au at a grade of 2.39g/t Au and 250,000oz Ag at a grade of 48.5g/t Ag making it relatively small compared to the two principle pits at Arzu South and Arzu North but potentially similar in scale to the two subsidiary Banu and Derya Vein pits at the project. The recently completed 1,598m drill programme could add additional upside to the current resource increasing its significance to the Red Rabbit Project.

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