The FTSE 100 fell 3.8% over the week and down- 1.7% during October. On Friday both the UK and US fell back, partly on reflection of the ‘money- tightening’ implication of the USA’s 0.9% 3rd Qtr GDP growth implying an annual 3.5% growth. The AIM–All share improved 0.6% over the week and increased by around 2.6% on the month. This week the BOE are likely to report on Thursday that they will be extending the Quantitative Easing policy to £25b – £50bn and keep interest rates at 0.5%. In the US unemployment is likely to hit 9.9%, while interest rates stay at 0.25% but for how much longer? UK Small Caps with signs of consumer optimism are to continue to out-perform.


Scotty (SCO) – £8.7m@ 43p – Video, telecoms and technology focused on government, defence and aviation
Due to a change in accounting year-end the 2nd interims were reported which showed a 4.5% increase in turnover to £2.8m. On a 12 month basis, turnover was 20% lower at £5.4m (£6.8m), and profit fell 27% to £239k against £328k. Delays in the timing of projects, which are a reoccurring Scotty theme was the reason for the decline.

Scotty is looking to broaden its customer base as there is relatively weak bargaining leverage in the Government, defence and aviation sectors but contract are being won. A reseller agreement with Stevens Aviation Inc of South Carolina, to install aero-certified beyond-line-of-sight communications and surveillance systems. An initial purchase order from Stevens has been received with a value of US$ 300k, for engineering and installation of video surveillance equipment on one aircraft. Also a purchase order worth approximately Euro 700k for video-conferencing equipment for the German Armed Forces. Last month a contract worth Euro 1.0m was won from Eurocopter, for key positioning and communication equipment. There is a further increase in the portfolio of projects advancing through the planning and negotiation phases, prior to being eventually converted into firm orders.

The gross profit margin is 60% but falls to 8.8% at the operating level. Administration costs for the 12 months reduced by 16.4% to £3.5m, compared with £4.2m but some development costs were capitalized and the cash position has shrunk from to £76k from £620k. Delays in contacts are expensive and so is further broadening of the customer base.

Starvest (SVE) – £3.67m@10.5p – Junior Mining Investors
The finals show a moderate improvement in NAV of £44.6k to £4.02m, which as a hard won achievement. A stark contract with last year’s £3.4m write off that mainly reflected the profit forgone on MyHome, a non-junior mining investment that went into administration.

Starvest’s star fund manager is Bruce Rowan who has related interests (Sunvest, an Australian version). Starvest is fully invested with a portfolio of over 10 junior miners. Although some valuations have improved, conditions for small mineral exploration companies remain tough; some require additional funds to continue and many potentially profitable exploration projects remain unfunded. The shares are currently at an 8% discount to NAV making equity fund raising a likely dilutive exercise.

Running costs are low at around £190k a year. There are no cash balances and the fund made a very firm point during the bull market that it is a longer term investor. Buy and hold. It would seem very unlikely that realisations will be made at depressed prices so the strategy ought to be to raise more funds and or look for strategic partners/ mergers.

Chariot Oil & Gas (CHAR) – £37.4m@24.5p – Oil and gas
Chariot is focused on oil and gas exploration in Africa. It has eight offshore blocks in Namibia. Paul Welch, who previously worked at Shell and Hunt Oil, has joined as chief executive. One of the licences in the south attracted the interest of Petrobras, which believes that the geology of the area is similar to South America. Petrobras has taken a 50% for an investment of $16m. Further farm-in agreements are likely to be made on other licences.

Estimates suggest that there are potentially 5.2bn barrels of oil in the northern and southern blocks – but this does not include the central blocks. It will take three or four years to reach production even if things go to plan.

Chariot hopes to reserver two slots on rigs and Petrobras has a spare slot on one rig.

The interim figures will be published on 2 November.

There is $19.2m in the bank and $8m more to come from Petrobras. The oil is in deepwater so it will cost $16m-$18m per exploration well. Partners are likely to finance drilling so Chariot won’t have to start paying until any find is developed.

Chariot would like to diversify into other areas of Africa. North Africa is most likely. The interests should be producing or near to production.

Hightex Group (HTIG) – £10.9m@7.25p – Polymer membrane structures
Hightex designs and manufactures membrane roofs and facades. They are used for shopping centres, stadiums and transport terminals. Projects include the retractable roof at Wimbledon, the roof of the Grandstand at Ascot and the Dolce Vita shopping centre in Lisbon.

The membrane is 2.5% of the weight of a glass roof and can support a person’s weight. The structures last for decades. The roof is energy efficient and a photovoltaic layer can be added in order to generate power for the building. A Japanese company is the only truly international competitor.

Hightex’s chief executive was replaced in May 2008 and the company decided to focus on larger contracts.

Hightex is involved in two stadia for the FIFA world cup in South Africa. There is scope to supply 14 stadia in Brazil for the 2014 world cup.

Interim revenues fell from €8.27m to €7.26m in the six months to June 2009. A reduction in costs meant that Hightex produced a small interim profit, compared with a €1.4m loss in the comparative period. Full year revenues are expected to be around €20m, against €16.2m in 2008.

There was €1.45m in the bank at the end of June 2009. Hightex tries to obtain payments in advance for contracts.

Hightex has developed solar cooling technology. This was costing €1.5m and has been mothballed. Hightex would like an industrial partner. This could be through joint venture, the sale of a majority stake or in return for a royalty stream. (

Ram Investment (RAM) – £5.4m@9.5p – Investment company
Ram owns 49.9% of TrainFX, following a £2m investment in 2008, and it intends to buy the rest. TrainFX, develops passenger information,communications and security systems. The company either sells its systems to train operators or installs them and makes money from advertising. Digicom will sell advertising for TrainFX. Operating costs are around £600,000 a year.

All train rolling stock has to be upgraded by 2016 so this provides an opportunity. TrainFX has already started to negotiate contracts with train operating companies.

There was net debt of £137,000 at the end of June 2009. There were also £1.39m of available for sale assets. Ram has a number of residual investments from the past including Gaming Technology Solutions, which is likely to be sold. Other investments include Plus-quoted Alpha Prospects, formerly Aim-quoted CECUNET and the rights to salvage treasure off the cost of Scotland. These could provide further cash for reinvestment in TrainFX. Ram is also hopeful of getting some cash from the administrator of its football awards business – the Greek authorities were successfully sued for not going ahead with the awards.

Pangea DiamondFields (PDF) – £28.1m@1.58p – Diamonds miner
Operations manager Boris Kamstra is taking over from Brett Thompson as chief executive. This will help to reduce overhead costs. Overheads are running at less than $200,000 a year.

The 58.5%-owned Cassanguidi alluvial diamonds project in Angola should reach full production by the end of this year.

The next project will be Bakerville in South Africa. This will cost $8m to bring into production.

Longatshimo in the DRC will be the next project to be developed.

The diamond supply chain ran on credit so the world financial problems hit the diamond price which halved at the end of 2008. Pangea says that diamond prices started to recover in April. Pangea hopes that diamond prices will be back to 80% of their previous peak in the first half of 2010.

Longer-term, there will be mines closing and supply is expected to be flat. Demand is expected to rise – mainly from India and China.

Pangea has lent the Cassanguidi project $13m and this has to be paid back before any payments to shareholders in the project. Cassanguidi should produce annual operating profits of $8.6m. Bakerville could add a further $8.1m in annual operating profits and Longatshimo could make $7.7m a year.

Pangea would like to be a consolidator in diamonds in Africa but it realises it could be part of a consolidation.

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