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The New Criterion - IIR ASX Weekly Small/ Micro Cap Stock News Ideas

Egaming (or esports) is big business globally and four ASX minnows are jostling for their turn at the console For those who have never heard of Fortnite and are thus showing their advanced age, video gaming (egaming) has become a multi-billion dollar industry sector which in its organised professional form is attracting serious sponsorship and advertising from mainstream consumer brands The New Criterion has evolved from "The Criterion" column which was a weekly run by the NewsCorp owned "The Australian" Newspaper (Business Section) for over a decade until recently when it decided that its audience did not really gravitate to the coverage in the Small/ Micro Caps space despite the strong following from its readership. IIR since then essentially took over the column and its ethos, whereby, analysis is put to companies where these companies have no nexus to the core research offering other than discussing those stocks that deserve perhaps more of a journalistic approach rather than the typical financial research thesis or precise. For example analyst frequently disregard the "sentiment" and the qualitative factors in the market that are "fashionable" and drive the price of all stocks in the sector that has a emotional wave of value - this is often later included in the equity research thesis, however these attributes can be observed and commented on from a non-equity analysis perspective in terms of attributing other factors that drive a valuation for a company which has little or no nexus to the fundamentals of that same stock. However these qualitative attributes cannot be ignored by a Broker and must be taken into account when dealing in stock. So at IIR we attempt to marry the thesis observed by both arms of research one is based on the reasonable expectations of an Financial Analyst as we know and the other is the liberal arts approach which looks at matters like for example the CEO's tone every quarter when making his announcements - change in tone should be a warning and a trigger for further review - of course some analyst cover both disciplines and more very competently in the industry - and as such make great Sell Side Analysts. At IIR we do not deal or promote any stocks so we one step removed from what a Sell Side Analyst does which closer to the market than research. Our research simply assists the broker to form a view to prepare a statement of advice for his or her client. Under no circumstances have there been any inducements or like made by the company mentioned to either IIR or the author. The views here are independent and have no nexus to IIR’s core research offering. The views here are not recommendations and should not be considered as general advice in terms of stock recommendations in the ordinary sense. These are stocks that interest our research team on other qualitative metrics rather than the usual accepted methods of equities research screening tools.

  • 18 Jul 19
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AMTRUST FINANCIAL SERVICES Bollore

ASX Listed Managed Investments Monthly Report

Capital Continues to Flow Into LMIs Through April and May we have seen three more listed managed investment vehicles (LMIs) start trading on the ASX including two fixed income focused listed investment trusts (LITs), Perpetual Credit Income Trust (ASX:PCI) and MCP Wholesale Income Opportunities Trust (ASX:MOT). Refer to our LMI Monthly Update of 18 March 2019 for more details on these LITs. Pengana Private Equity Trust (ASX:PE1) units listed in April after it raised $205m, at the lower end of its $100m to $600m target range. PE1 is a unique offering in that it is the only LMI that will provide exposure to a well-diversified portfolio of global private equity investments. Although the PE1 raising was towards the lower end of expectations we remain comfortable that it will still be able to achieve its objective of building a well-diversified portfolio and maintain our Recommended Plus rating. The listing of PCI and MOT continues the recent trend of fixed income managers tapping the LMI sector for funds. Given the domestic and global low interest rate environment and the potential for further interest rate cuts, it is not hard to see why these offerings are attracting strong demand. These fixed income trusts are offering investors higher yields than available on bank deposits, which are the traditional avenue for retail investors looking for a reliable income stream. However, with rates now so low and even negative factoring in inflation, yield hungry investors have gone in search of yield in alternative fixed income products which were once on the periphery of the retail market and only generally accessed by institutional investors. These products are now being increasingly accessed by retail investors through LMI products and unlisted unit trust structures. However, investors need to be aware that while the underlying assets can produce a higher yield and pay regular, stable income, the risks are higher than traditional bank deposits. Investors should always ensure that they understand the risks associated with any new fixed income offerings and are comfortable including these in their portfolios. These products don’t come with any guarantees, unlike bank deposits, and a significant deterioration in global credit conditions could have an impact on returns. The addition of PCI and MOT takes the total number of fixed income LMIs to six and we are aware of two more offerings in the pipeline, including one from Partners Group, a global private markets investment manager which is planning to launch a listed investment trust later this year. The Partners Group LMI will invest in a portfolio of global debt instruments in a segment of the market that is not generally accessible to retail investors. We will provide more information on the proposed LMIs as it comes to hand. In addition to funds flowing into new LMIs, there have also been a number of secondary market raisings in recent months. In May/ June VGI Partners Global Investments (ASX:VG1) successfully raised $300m via a placement and entitlements offer. VG1 shareholders also stumped up $75m for shares in the Manager as part of an IPO offer for VGI Partners (ASX:VGI). There have also been a number of secondary market raisings by fixed income LMIs with NBI Global Corporate Income Trust (ASX:NBI) raising $476m via entitlement and shortfall offers. This was the maximum under the offer and funds will be invested in accordance with NBI’s strategy to invest in global, high yield, liquid corporate bonds. In June, Qualitas Real Estate Income Fund (ASX:QRI) raised $34.7m via a placement to wholesale investors and in July Gryphon Capital Income Trust (ASX:GCI) announced entitlement and shortfall offers to raise up to $108m. These offers show that the fixed income LMIs are having no trouble finding new assets for their investment portfolios and there is no shortage of investors willing to provide the funds. This sector had a market cap of $3bn at the end of May and with the new offerings yet to come to market and secondary market raisings we expect this to be well over $4bn by the end of 2019. Spotlight on DUI and Rating Upgrade Diversified United Investment (ASX:DUI) is one of the older style internally managed LICs. Listed on the ASX in 1991, the company invests in a portfolio of ASX-listed securities to generate income and capital appreciation over the long-term. Whilst the portfolio is predominantly invested in Australian large caps, up to 5% can be held in small-caps via an allocation to small cap fund managers and up to 20% (currently 15%) can be held in international shares via ETFs and international fund managers. The portfolio has performed well with DUI at the top of our performance table (see above) for LICs with an Australian shares focus. It has outperformed the S&P/ASX 200 Accumulation Index over 1, 3, 5 & 10-year periods. The outperformance can perhaps partly be attributable to the small international holding, but individual Australian stocks, such as an overweight position in CSL, have played a large part. The portfolio is managed by the Board which meets on a monthly basis to review the portfolio. All four directors have significant market experience. Like the other internally managed LICs, DUI is low cost with a management expense ratio of just 0.12% p.a. The fully franked dividend yield of around 3.5% is a little lower than some other Australian share focused LICs. Given the strong and consistent portfolio performance we are upgrading our rating for DUI from Recommended to Recommended Plus. At the time of writing the shares are trading at a 6.5% discount to pre-tax NTA. We believe this is a good entry point for long-term investors seeking exposure to a well-managed portfolio of Australian shares with some modest international exposure. Bailador has a Good Year Technology focused LIC, Bailador Technology Investments (ASX:BTI) had a good FY2019 with pre-tax NTA per share at 30 June 2019 up 18.2% for the 12 months. The increase in NTA was driven by sizable upwards revaluations in a number of its key portfolio companies including SiteMinder (+30.4%), DocsCorp (+19.3%) and Straker Translations (+25.7%). We shone the spotlight on BTI 12 months ago in our June 2018 Monthly LMI Update when the shares were trading at $0.74. This was after write-downs in a couple of its portfolio companies, including iPRO which was completely written off in 2017. At the time we wrote “Overall, the portfolio now appears to be in relatively good shape and with the underlying portfolio of businesses growing revenue at an annual rate of 35% there appears to be good valuation upside. At current prices we think BTI probably offers good value given the large discount to pre-tax NTA and the potential for valuation uplifts over coming months.” We did remind investors that “private equity style investing is more suited to higher risk, patient investors and that it should form only a relatively small portion of a well-diversified portfolio.” We note that returns from this style of investment can be lumpy and take time to emerge. Investors who acquired BTI at the time have done well with the shares now trading at $1.07. Despite the strong share price performance the shares are still at a discount to the June 2019 pre-tax NTA of $1.31 per share and also the post-tax NTA of $1.21 per share. We will take a closer look at BTI and its prospects in our next Monthly LMI Update. Our rating for BTI is Recommended Plus.

  • 17 Jul 19
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Lake Resources NL (ASX: LKE) - Lithium - Argentina

Full Report can be accessed on www.independentresearch.com.au Lake has defined a large Mineral Resource Estimate (“MRE”) of 4.4 Mt lithium carbonate equivalent (“LCE”) at a grade of 211 mg/L Li, and is now working towards a Pre-Feasibility Study, due for completion in late 2019. The key to the possible technical and commercial viability is the utilisation of ion exchange technology for the direct extraction of lithium from the brines. An Engineering Study, undertaken in conjunction with US-based and Silicon Valley backed Lilac Solutions, and using ion exchange technology developed by the same, has been successful and has shown the potential for the extraction of lithium from Kachi brines at a cost of US$2,600/ tonne (+-30%), comparable with the lower quartile of operating costs of current evaporative brine operations in South America. Recoveries of up to 90% have resulted, significantly higher than that for evaporation operations, as well as production of lithium within a few hours of commencement of processing, as compared with up to 24 months for traditional operations. The viability of the process given the altitude and arid conditions at Kachi will be further tested through a pilot plant, due to start operating on site in late 2019. Ion exchange is a well understood and widely used separation, purification and decontamination process (the orange juice you drink has probably been through an ion exchange filter), however has only recently been looked at for treating lithium brines. It has the potential to be a disruptive technology should it prove viable. Other brine projects include Cauchari and Olaroz, where the Company has pegged ground on the margins of the salars and adjacent to the world class resources of Orocobre (ASX: ORE), Lithium Americas Corporation (TSX: LAC), Advantage Lithium (TSX: AAL) and Ganfeng - these two salars host Resources totalling ~36 Mt LCE at a grade of ~580 mg/L Li. The strategy here is to test, through drilling, an interpretation that the aquifers hosting the Resources extend under the alluvial fans and that basin margins are sub-vertical. Initial assay results from a recently completed hole at Cauchari have supported the concept, with these returning values of between 340 to 538 mg/L li (comparable with grades from the neighbouring properties) from a 144 m thick zone from 172 to 316 m. This zone also has low Mg/Li ratios of 2.7 to 3.0 and high brine flows, with detailed sampling now underway. Ongoing drilling success could lead to the estimation of significant Resources at Cauchari and Olaroz, with the drilling rig now to move to Olaroz. Finally, Lake holds ~80,000 ha over ground with known pegmatite hosted spodumene mineralisation near the capital of the Province of Catamarca. This is early stage, has seen no modern exploration and provides blue sky potential. KEY POINTS �� Large MRE and control of the salar at Kachi: Work by Lake has defined a major brine Resource at Kachi, with significant upside potential - a key point is that Lake controls the salar. �� Disruptive technology: Successful commercial implementation of the Lilac Solutions ion exchange technology could be a game changer in the lithium brine business. �� Transport infrastructure: Areas are all well served by transport infrastructure. �� In the right commodity: Although there are differing demand forecasts for lithium, the fundamentals look strong over the medium to long term with the expected +20% CAGR growth largely in electric vehicle (“EV”) battery markets, with Lake ideally situated to take advantage of this. �� Strong management and committed personnel: Company personnel, including consultants, have extensive industry experience in varied regions (including Argentina) and commodities. In addition directors hold significant share holdings, and thus will be motivated to producing strong returns for shareholders. �� Steady activities and news flow: Ongoing activities including drilling (four holes planned at Olaroz, with the current Cauchari hole recently completed), and the PFS and ion exchange pilot plant at Kachi should provide steady news flow over the next six to 12 months. �� Value uplift with success: We see significant upside in the value of Lake, with this to be driven by a positive PFS, successful ion exchange pilot plant and drilling success - the Company has an EV/tonne LCE value significantly lower than peers.

  • 17 Jul 19
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PolarX Limited (ASX: PXX) - Copper/ Gold - Alaska

Full Report can be Accessed on www.independentresearch.com.au CASHED UP & SET FOR AN ACTIVE 2019 FIELD SEASON PolarX Limited (“PolarX” or “the Company”) is set for an active 2019 field season over the Alaska Range Project (“the Project”), and is well cashed up with ~A$8 million in the tin. A$4.28 million of this came from a share subscription by the C$5.3 billion TSX listed Lundin Mining Corporation (“Lundin Mining”, TSX:LUN) as part of an exclusive option agreement to enter into an earn-in over the porphyry targets within the Stellar claim package, and will be used to fund the 2019 exploration over these targets. Planned work includes 5,000 m of core drilling over the high priority Saturn (formerly Zackly SE) and possibly Mars targets. Ongoing data interpretation has confirmed the strong potential of these targets for porphyry-style mineralisation, with Saturn interpreted as being the source of mineralising fluids for the Zackly skarn. The results of the 2019 field work on the porphyry targets will then be used by Lundin Mining in a decision whether to proceed with the earn-in. Should they elect to do so Lundin Mining will have the right to earn 51% of the claims through the staged expenditure of US$24 million on direct exploration and staged cash payments of US$20 million to PolarX over three years. Lundin Mining will earn no equity with an early withdrawal, however may choose to accelerate the programmes. Our view is that this is an excellent structure for an earn-in agreement, and will ensure, by virtue of annual expenditure commitments, that work will be ongoing. We will not see, as is often the case in similar agreements, the larger partner making slow progress, and thus frustrating the junior partner and shareholders. The Zackly claims have been excised from the Lundin Mining agreement, with much of the work in 2018 involved in extensional drilling of the Zackly skarn, which has an initial Inferred Mineral Resource Estimate (“MRE”) of 3.4 Mt @ 1.2% Cu, 2.0 g/t Au and 14 g/t Ag. The 2018 drilling extended the 1,050 m strike of the initial MRE by at least 850 m, with the Resource open along strike and at depth. This is part of a global MRE for the Project (including Caribou Dome) of 6.2 Mt @ 2.0% Cu and 2.0 g/t Au, for 127,000 tonnes of contained copper and 217,000 oz of Au. The 2018 drilling intersected thick, shallowly dipping and shallow mineralisation in a separate skarn zone at the eastern end of Zackly (850 m east of the MRE), showing the potential for open pit mining and a significant MRE extension. PolarX will concentrate the 2019 Zackly drilling over this zone, with results to be incorporated into an updated MRE. It is also planned to commence a PEA/PFS for Zackly by the end of 2019, with the results of current and upcoming metallurgical testwork also to be incorporated into the study. KEY POINTS Lundin Mining agreement: This is a key breakthrough for the Company, and has brought a quality partner into the Project as well as onto the register - this has also ensured funding for 2019, and should the option be exercised, for the foreseeable future. Porphyry potential enhanced: The results of work to date have further enhanced the potential of the Project to host porphyry copper-gold mineralisation, which will be amongst the next drill targets for the Company. Upside and open pit potential at Zackly: The 2018 drilling has added significant size to the Zackly Cu-Au skarn mineralisation, and also highlights the potential for appreciable open cut mineralisation. Attractive mining destination: Alaska is an attractive and well regarded mining destination, ranking 5th globally and 2nd in the United States in the 2018 Fraser Institute survey – the state is home to a number of metal mines, as well as coal and a large oil and gas industry, with the attractiveness of Alaska being highlighted by the 2018 purchase of the high grade (14.7 g/t Au), 4.15 Moz Pogo gold mine by ASX-listed Northern Star Minerals (ASX: NST). Close to infrastructure: The Project is situated close to transport infrastructure, allowing for ready vehicular access, negating the need for all activities to be helicopter supported. Strong management and technical team: The Company has management, technical personnel and partners with extensive experience in the junior resources sector (and in the case of Millrock Resources, extensive Alaskan experience) and a proven history of technical success and delivering value to shareholders; in addition key personnel and related partners hold ~12% of the Company, thus aligning their interests with those of other shareholders. Active exploration programmes and news flow: Given the results of the 2018 work programme, we expect another concerted effort in 2019 (including expected drilling at Zackly, Saturn and Mars), with all indications that this will again bring very positive news. Leveraged to exploration success: With an EV of ~A$30 million, the Company is well leveraged to positive exploration news with the potential to return significant value to shareholders.

  • 16 Jul 19
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Imugene

Imugene Limited (ASX: IMU) - IMMUNOTHERAPY PLATFORM

Full Report can be accessed on www.independentresearch.com.au IMU BOOSTS IMMUNOTHERAPY PLATFORM WITH THE ACQUISITION OF ONCOLYTIC VIRUS CF33 Imugene Limited (ASX: IMU) is a clinical stage biotechnology company seeking to develop a range of novel immunotherapies to enhance the efficacy of cancer treatments. The company has announced its intention to acquire the exclusive licence to the oncolytic virus CF33 to add to the existing platform which targets the development of B cell peptide vaccines. KEY POINTS Acquisition of Oncolytic Virus CF33: IMU has annonunced the acquisition of Vaxinia Pty Ltd (Vaxinia) and the exclusive licence to the oncolytic virus CF33 from the City of Hope Cancer Centre (COH) in Los Angeles, subject to shareholder approval. CF33 is currently in the pre-clinical phase of development with IMU seeking to commence Phase I trials in 1H’2020. Under the terms of the licence agreement, IMU will acquire the exclusive rights to develop and commercialise CF33, for which it has agreed to pay COH licence fees comprising an upfront fee, annual maintenance fees which are creditable against future royalty payments, performance based consideration linked to the achievement of certain milestones and commercial outcomes, net sales based royalty payments, and sublicencing fees. IMU will also acquire 100% of the shares of Vaxinia. IMU will pay Vaxinia shareholders an upfront cash payment of $462,500 and $1.619m fully paid ordinary IMU shares based on the 7-day VWAP of the share price prior to announcing the deal. The shareholders of Vaxinia will also be eligible for additional share based payments based on the achievement of performance related milestones. The acquisition of CF33 has the potential to add significant value to the company with interest from big pharma being driven by research that highlights the therapeutic benefit of oncolytic viruses when combined with other immunotherapies. HER-Vaxx Commences Phase II Clinical Trials: The company has commenced a Phase II study of HER-Vaxx targeting patients with HER2-positive metastatic gastric cancer. The study will measure the response of 68 participants who will be randomised into two groups: 1) HER-Vaxx in combination with standard chemotherapy, and; 2) standard chemotherapy alone. The results from the Phase II study are due to be complete in 2020 and will provide a greater insight as to the efficacy of HER-Vaxx in cancer treatments. In early July, the company presented the 266 day results of the continued treatment of subjects from the Phase Ib that were given the highest dose of treatment at the European Society of Medical Oncology (ESMO) conference. Whilst only a small sample, the results presented were positive and provide a level of optimism for the Phase II trials. PD1-Vaxx to Commence Phase I Clinical Trial: The company is seeking to commence a Phase I clinical trial for PD1-Vaxx in 2020 after encouraging results from the pre-clinical studies. PD1-Vaxx seeks to produce an alternative to the existing commercialised monoclonal antibody immune checkpoint inhibitors. The trial will focus on patients with lung cancer. The company will seek to progress to a Phase II trial in the event the results from the Phase I trial are favourable. Partnering Opportunities: The immunotherapy market is currently experiencing significant growth with the use of immunotherapies becoming an important addition to the standard of care in oncology. The successful trials of IMU’s therapies will provide significant potential partnering opportunities. The opportunities are increased through the potential use of IMU’s treatments in combination with existing commercialised immunotherapies to potentially improve response rates without increasing toxicity. Investment View: IMU is a speculative investment with the ability to generate value for shareholders primarily dependent on the success of the clinical trials and the ability of the company to sell/licence its products to big pharma. The company will be seeking to generate interest from big pharma for its three leading candidates - HER-Vaxx, PD1-Vaxx and CF33 (if the acquisition is approved by shareholders). The company has suffiicient capital for the upfront acquisition costs and announced clinical trials, however, in the event the company does not generate interest in a timely fashion the company will likely have to raise capital which may dilute existing shareholder positions. The acquisition of CF33 would provide the potential for significant value add with a number of deals being done at the early stage of clinical development of oncolytic viruses. One notable deal was the acquisition of Viralytics Limited (ASX: VLA) by Merck & Co. Inc., for a total consideration of AUD$502m ($1.75 per share). This represented a 160% premium to the one month weighted average share price of VLA. This deal is of particular note given the Executive Chairman Paul Hopper was the Chairman of VLA. While we believe there to be significant upside potential from an investment in IMU, there remains significant risks.

  • 16 Jul 19
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