Trader’s Café with Zak Mir: A Week In Small Caps, Saturday 22nd October 2022

This week we were reminded that in politics there are certain rules to follow: never do what you said you would do – especially when it would help the electorate.

Author @ZaksTradersCafe

Never do it when you said you would, and of course, never change your mind. In more colloquial terms, “treat ‘em mean, keep ‘em keen, and perhaps, always leave them wanting more. The result of all the excitement so far from the exit of Liz Truss is that we have lost the bulk of the tax cuts and there will be an energy price horror, deferred to the spring. The people/media, decided that it was better to be out of pocket than have Truss in power, an interesting call in the current cost of living crisis.

Baron on the Boil

As far as the small-cap end of the stock market was concerned, the highlight of the week had to be regarded as the rise of Baron Oil (BOIL), especially on Thursday. In fact, you could say that the stock was partying like it is 1999. So much so I was more interested in its rise, than the political news of the day. This was important as the first sign of a lasting turnaround in the small-cap space will be the return of the half-bagger, bagger stocks on a daily basis. In the case of Baron Oil, it is to be hoped that the basis of the rise, of North Sea oil and gas production, and the reverse of the disastrous move to Green, will cause the stock to be a sustained riser. Technically, at least while above the 0.2p, it may not be too much to expect the stock to retest the 0.4p zone from a couple of years back. Three-year resistance is at 0.6p – maybe by the end of the year?

The North Sea / Orcadian

As a side note to the Baron Oil rise, it may be worth being mindful of another North Sea oil and gas play, whose market cap was this week overtaken by Baron. Indeed, with recent board changes, funding news, and August’s farm-out agreement, one would have thought the stage is set for recovery at Orcadian (ORCA). This would be the case even without the latest moves by the North Sea Transition Authority pushing for more production, obviously in a green way. Of course, the draconian rules regarding green / clean production, are part of the reason that production has fallen and we have a crisis.

Shanta / Chaarat

While Baron Oil may have given some of us the feeling that the good times are back, it is the case that the real fireworks one associates with a bull market is M&A. This was provided rather well with regard to Shanta Gold (SHG), with the appearance of not just one, but three bidders. The feeding frenzy was enabled by Shandong, Yintai and AIM-listed Chaarat Gold (CGH). In the case of the latter it is to be hoped that its potential involvement in the deal could shine a positive light on the general merits of the company, both an exploration and production company, as far as mining investors are concerned.

Mast Energy

Just as Baron Oil (BOIL) illustrates the benefit of a company being at the right place / right time, Mast Energy (MAST), was one of the week’s best risers, for similar reasons. One would think that given that we are probably heading for blackouts this winter, either for a lack of energy supply, and /or because a good bunch of us will not be able to afford the cost, a reserve energy play should be right on the money. Last year shares of Mast were 12p before the horror of Ukraine / Nord Stream et al. Revisiting that zone, even as soon as the end of this year does not seem to be hyping things up too much.

Alkemy / Oracle

One of the aspects that are noteworthy in current depressed markets is how much stocks respond to good news, or not as the case may be. In the case of lithium play Alkemy Capital (ALK) we have thankfully seen a 30% jump in the share price since the recent announcement of a tie up with a subsidiary of BP (BP.). The same kind of punching above weight story was delivered this week by Oracle Power (ORCP), as the international natural resources project developer, announced the appointment of thyssenkrupp Uhde, part of a €3bn conglomerate. Oracle Energy is targeting a 400MW capacity green hydrogen production facility, with annual production of 55,000 tonnes of hydrogen – quite a lot of gas. So far, ORCP’s shares are mysteriously unchanged since the news.

Reabold

Those who enjoy intrigue, had not only the world of politics to look at, but also the latest from Reabold Resources (RBD). Here the board received a requisition of a General Meeting to remove all of them. This was noteworthy as one of the potential new directors was set to be Cathal Friel. Given his record with creating Open Orphan (ORPH), soon to be hVIVO (HVO) as a flourishing business over the past couple of years, one would be watching closely to see whether the value in RBD is truly realised going forward, however things pan out.

Short Squeeze Overdue?

One of the more unfortunate aspects of the small-cap area since the summer is the way that a painful chunk of them have fallen by half and even more. This of course has reflected economic fundamentals, as well as the drying up of liquidity, as people sell stocks so that they can pay for school fees, holidays, and perhaps even just everyday staples such as energy, food, and alcohol! However, there is just the first hint that perhaps market makers and bears have got a little bit overloaded on the short side. The first indication of this is that the leaderboard of the stock market has started to become populated by more 50% intraday risers than of late.

Audioboom

The implication is that people are getting caught short, and there are exaggerated moves to the upside, albeit still getting sold into. Recent hights have been Wildcat Petroleum (WCAT) and Powerhouse Energy (PHE). But towards the end of this week it was noticeable that there were more positive rumblings at vicious bear target Audioboom (BOOM), and even a trendline break on the chart. The real issue is perhaps how well the podcast business is doing, over and above its strategic value to others in the space? The trendline break was at 500p, above that we may be waiting on the 50 day moving average at 600p breaking to signal the end of the bear run – something which could yet catch some out painfully.

DeepVerge

Speaking of pain, the breakdown in life sciences group DeepVerge (DVRG) has been one of the talking points of October to date. This is perhaps over and above the mechanism of how news regarding funding of small-cap companies emerges. Certainly, it maybe useful to read a RNS acknowledging a fundraise if you are short of stock. However, what happens if a rumour of a fundraise is incorrect, or if rumours of a fundraise prevent a company raising cash, when it otherwise would have? The losers in such difficult situations are ordinary shareholders, the winners those who have shorted the stock via murky tip offs, with even murkier motives.

Indeed, if you work in or around the small-cap space, you inevitably hear of rumours of distressed sellers, fundraises, failed placings, and negative news of all kinds on a regular basis with regard to stocks. It would be easy to write such gossip ad infinitum. Indeed, this week there were rumours of a potential distressed seller, and/or sales to come at a very popular private investor stock. However, I would not want to publish such information, even if correct, as it would potentially lose investors in that company money. Others are obviously not quite so squeamish.

What will be interesting to see with regard to DeepVerge is whether the current share price back at 2018 levels remains so low in the event of a successful fundraise? The stock under 3p looks not to be pricing such a scenario correctly.

Bezant / Galileo

Management of listed companies have not only to cope with those who like to leak information, they also have to deliver their strategy in the public domain. It was noticeable this week that Colin Bird, Chairman of Bezant Resources (BZT), took the tough decision to call time on the ‘copper-gold exploration and development company’s JV with Caerus (CMRS). The merits of this difficult, but brave decision were underlined by the turnaround in the Bezant share price, which is up by more than a third since the beginning of the month. On the other side of the coin, one of Bird’s other vehicles Galileo Resources (GLR) cashed in £5.2m after Afrimat Ltd exercised its option to acquire shares in Glenover Phosphate. Shares of GLR were up 10% on the week.

Sticking with the mining space, it may be worth taking a look at Marula Mining (MARU), which has been one of the more stable contenders on Aquis. Here we see CEO Jason Brewer maintaining his force of nature via Caracal Gold (GCAT) last year, and now with the battery metals group. We have seen companies in this space start to talk off, and it looks like Marula may follow in their footsteps given the focus here, especially with regard to copper and lithium, the latter of which has been capturing the imagination of investors.

Author @ZaksTradersCafe

Disclaimer & Declaration of Interest
The information, investment views and recommendations in this article are provided for general information purposes only. Nothing in this article should be construed as a solicitation to buy or sell any financial product relating to any companies under discussion or to engage in or refrain from doing so or engaging in any other transaction. Any opinions or comments are made to the best of the knowledge and belief of the writer but no responsibility is accepted for actions based on such opinions or comments. Vox Markets may receive payment from companies mentioned for enhanced profiling or publication presence. The writer may or may not hold investments in the companies under discussion.


Linking Shareholders and Executives :Share Talk

If anyone reads this article found it useful, helpful? Then please subscribe www.share-talk.com or follow SHARE TALK on our Twitter page for future updates. Terms of Website Use All information is provided on an as-is basis. Where we allow Bloggers to publish articles on our platform please note these are not our opinions or views and we have no affiliation with the companies mentioned

Weekly Newsletter

Sign up to receive exclusive stock market content in your inbox, once a week.

We don’t spam! Read our privacy policy for more info.

Tweet
WhatsApp
Email
Pocket
Share
Share