Small Talk: Cupid leads the way after a rocky quarter on the AIM 50 index

 

The summer months are often marked by volatility on the markets. Ordinarily, the spikes and slumps are the result of dwindling volumes, as traders decamp to the beach. There tends to be little in the way of hard news, and the swings are often pinned on flimsy premises.

But the past couple of months were anything but quiet. There was no shortage of market-moving news, with the US debt ceiling negotiations going right down to the wire and the eurozone debt crisis flaring up like a mid-summer barbecue. We also saw several days when the sharp market movements were matched by heavy volumes, as nervous traders shuffled their investments.

The convulsions have left their mark, with the AIM 50 index down by nearly 11 per cent over the third quarter. But there were winners amid the turmoil, with Cupid, which gained around 41 per cent in the three months to the end of August, leading the way.

The company, which operates dating websites, has had a busy quarter, announcing the acquisition of no less than two online dating business – first a deal in Germany in June, and then of one in Brazil at the end of July. Along the way, Cupid also benefited from some supportive broker comment, with both Numis and Canaccord Genuity beginning coverage in the quarter. Both said "buy".

Further down the AIM 50 leader board, at number four, regular readers of this column will recognise Avocet Mining, the gold miner we featured back in February.

It notched up an impressive quarter, gaining just over 35 per cent over the period. On the face of it, there seems to be an obvious reason for the surge. Avocet mines gold, the one commodity that has stood out amid all the market stress. The safe-haven metal booked record high upon record high as investors sought cover from the unfolding crises.

But there are other, company-specific reasons, too. The quarter saw resource upgrades at Avocet's flagship Inata mine in west Africa. Investors also had the chance to scrutinise its second quarter results, which revealed that the miner had bought back 20 per cent of its gold hedge book.

The hedge has long been seen as a drag on the share price, as it limited the company's exposure to the surging gold price by tying it to selling a certain proportion of its production at a fixed price. By buying back part of the book, Avocet thus increased its gearing to the metal's gains.

Still, Avocet was outdone by sector peer Patagonia Gold, which came second. Other risers include Monitise, the mobile banking and payments specialist that was at the number three spot, and the pawnbroker Albemarle & Bond, which was the ninth strongest AIM 50 stock in the quarter.

Of the losers, Bowleven stands out, taking the wooden spoon with a decline of more than 57 per cent between June and August. The oil prospector appears to have been caught in the market sell-off, although there was an early August update on the company's Sapele-2 offshore well in Cameroon that disappointed some analysts. Much of the slump over the quarter came in August, with Bowleven falling by nearly 50 per cent over the month.

Another notable loser was Gulfsands Petroleum, which was number four on the loser board. August was particularly bad for the oil company, with its shares falling by nearly 27 per cent as its Syrian operations came under the microscope. With President Bashar al-Assad's violent crackdown on protesters, Gulfsands was forced to defend itself amid criticism of its links with Mr Assad's cousin, Rami Makhlouf, a major player in the Syrian economy.

In a market update, Gulfsands said it was fully compliant with sanctions on Syria, and that while it had had "constructive commercial relationships with various Makhlouf interests", all such dealings had been "conducted on arms-length commercial terms, have been properly documented and have been disclosed as required by the pertinent laws and regulations".

Gulfsands added that, following UK sanctions in May, it had suspended payments to the Makhlouf interests under its agreements, along with voting, dividend and transfer rights connected to the Gulfsands shares held by a Makhlouf investment company. Still, the fall over the course of August meant that its stock was down more than 40 per cent over the third quarter.



Anglo sidesteps inflation headache

The London-listed mining sector is vast and varied. Investors can take their pick from big, diversified conglomerates that deal in every metal under the sun – or rather, the earth – to specialists that are focused on just one or two commodities.

Anglo Pacific, however, is an outlier in that it deals in mining royalties. These royalties give Anglo a percentage of a project's sales revenues, without it having to worry about things like production costs.

The most straightforward part of the business is where it buys existing royalty agreements such as those retained by the initial explorers. But it also takes on new agreements that come about when it provides financing for mining projects. This is usually done to help the mine progress to production, where Anglo helps with the money in return for royalties. Its interests are spread around the world, and across various commodities, including iron ore, uranium, coal and gold.

If the business sounds like an unusual one, it is. A recent circular from Bank of America Merrill Lynch, for example, highlighted the lack of comparable companies as one of the challenges in valuing Anglo Pacific.

Unusual isn't a bad thing, though, particularly in light of the cost inflation currently troubling miners around the world. As Bank of America's analysts noted, Anglo Pacific is not exposed to surging inflation, as its royalties are derived from revenue rather than profit, and the company is not responsible for the miners' capital expenditure.

This is not to say that there aren't risks. An obvious one is that it is the operators, not Anglo, who make decisions about the mining projects. Another, related one flagged by Bank of America is that it is "reliant on mining companies to bring projects into production and operate them effectively".

But there are always risks. And as Liberum Capital highlighted in a separate note, not only does Anglo offer protection against cost inflation, it also represents exposure to a range of key commodities.

Suggested Topics
Start your day with The Independent, sign up for daily news emails
PROMOTED VIDEO
ebooks
ebooksA year of political gossip, levity and intrigue from the sharpest pen in Westminster
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Tax Assistant

Negotiable: Recruitment Genius: A Tax Assistant is required to join a leading ...

Recruitment Genius: Outbound Sales Executive - OTE £25,000

£16000 - £25000 per annum: Recruitment Genius: This is an exciting opportunity...

Ashdown Group: Java Developer / J2EE Developer - Watford - £45,000 - £47,000

£45000 - £47000 per annum + bonus + benefits: Ashdown Group: Java Developer / ...

Ashdown Group: Marketing Product Manager - (Financial Services) - SW London

£35000 - £38000 per annum + Benefits: Ashdown Group: Marketing Manager - Marke...

Day In a Page

Iraq invasion 2003: The bloody warnings six wise men gave to Tony Blair as he prepared to launch poorly planned campaign

What the six wise men told Tony Blair

Months before the invasion of Iraq in 2003, experts sought to warn the PM about his plans. Here, four of them recall that day
25 years of The Independent on Sunday: The stories, the writers and the changes over the last quarter of a century

25 years of The Independent on Sunday

The stories, the writers and the changes over the last quarter of a century
Homeless Veterans appeal: 'Really caring is a dangerous emotion in this kind of work'

Homeless Veterans appeal

As head of The Soldiers' Charity, Martin Rutledge has to temper compassion with realism. He tells Chris Green how his Army career prepared him
Wu-Tang Clan and The Sexual Objects offer fans a chance to own the only copies of their latest albums

Smash hit go under the hammer

It's nice to pick up a new record once in a while, but the purchasers of two latest releases can go a step further - by buying the only copy
Geeks who rocked the world: Documentary looks back at origins of the computer-games industry

The geeks who rocked the world

A new documentary looks back at origins of the computer-games industry
Belle & Sebastian interview: Stuart Murdoch reveals how the band is taking a new direction

Belle & Sebastian is taking a new direction

Twenty years ago, Belle & Sebastian was a fey indie band from Glasgow. It still is – except today, as prime mover Stuart Murdoch admits, it has a global cult following, from Hollywood to South Korea
America: Land of the free, home of the political dynasty

America: Land of the free, home of the political dynasty

These days in the US things are pretty much stuck where they are, both in politics and society at large, says Rupert Cornwell
A graphic history of US civil rights – in comic book form

A graphic history of US civil rights – in comic book form

A veteran of the Fifties campaigns is inspiring a new generation of activists
Winston Churchill: the enigma of a British hero

Winston Churchill: the enigma of a British hero

A C Benson called him 'a horrid little fellow', George Orwell would have shot him, but what a giant he seems now, says DJ Taylor
Growing mussels: Precious freshwater shellfish are thriving in a unique green project

Growing mussels

Precious freshwater shellfish are thriving in a unique green project
Diana Krall: The jazz singer on being friends with Elton John, outer space and skiing in Dubai

Diana Krall interview

The jazz singer on being friends with Elton John, outer space and skiing in Dubai
Pinstriped for action: A glimpse of what the very rich man will be wearing this winter

Pinstriped for action

A glimpse of what the very rich man will be wearing this winter
Russell T Davies & Ben Cook: 'Our friendship flourished online. You can share some very revelatory moments at four in the morning…'

Russell T Davies & Ben Cook: How we met

'Our friendship flourished online. You can share some very revelatory moments at four in the morning…'
Bill Granger recipes: Our chef serves up his favourite Japanese dishes

Bill Granger's Japanese recipes

Stock up on mirin, soy and miso and you have the makings of everyday Japanese cuisine
Michael Calvin: How we need more Eric Cantonas to knock some sense into us

Michael Calvin's Last Word

How we need more Eric Cantonas to knock some sense into us