PROACTIVE NEWS SUMMARY: ExxonMobil, Advanced Computer Software, Alliance Boots, iBio, Vatukoula Gold MinesReported by Proactive Investors on Tuesday, 19 June 2012 (on June 19, 2012)
One of today’s in-depth stories by Proactive Investors studied the impact of supermajor* ExxonMobil’s (NYSE:XOM)* decision to exit the Polish shale gas play, which analysts say means its future will rest with smaller, more innovative firms.
Exxon was among the first to chase Poland’s shale assets, but it has now decided to exit the country after two of its wells failed to yield commercial gas flow rates.
While Exxon’s decision to abandon its Polish venture is a blow to the industry, Westhouse Securities today urged investors to take a longer term view on European shale plays.
Poland is believed to host over 5 trillion cubic feet of gas, enough to potentially deliver ‘energy independence’ from Russia, but as yet the technical blueprint for commercialising this potential remains elusive.
Andrew Matharu, an analyst at Westhouse, points to the fact that in America it was the innovative juniors that unlocked the shale gas industry. And he believes this may be replicated in Europe.
“The US shale gas boom did not occur due to the efforts of the oil majors, such as Exxon and Chevron, but rather smaller E&P companies such as Continental Resources, Devon Energy and Chesapeake,” he said in a note.
“The smaller companies active in the embryonic US shale gas market were innovators of technology that they were then able to scale-up and sell on to the oil majors.”
Matharu suggests that Exxon’s decision may also be influenced by its other, higher priority, commitments to North American shale assets – following its US$41 billion acquisition of XTO, which came before US gas prices crashed.
He says the firm needs to demonstrate the validity of that deal in the current US gas price environment and as such believes Exxon already has enough on its plate.
In the meantime, Matharu says patience and investment is required to unlock the potential of Poland’s shale resources.
“The interpretation of Poland’s unconventional gas geology will take time, resources and many wells to understand its nuances and behaviour under fracture stimulation conditions.
“The transfer and implementation of technology from the US shale gas industry to Poland in a “one size fits all” mode has been demonstrated not to work and each unconventional basin has its specific technical challenges.”
Companies focused on share in Poland include* 3Legs Resources (LON:3LEG)*, *Aurelian Oil & Gas (LON:AUL)* and *San Leon Energy (LON:SLE)*.
Today’s research reports also included a note on *Advanced Computer Software (LON:ASW)* from broker finnCap, which said the company should see its share price climb further if it gets back on the acquisition trail this year.
Andrew Darley, analyst at the broker, reckons that 2012 was a quiet year financially for the company but the lack of material acquisitions “confirmed the underlying growth within the model”.
“FY12 was unusually and deliberately quiet for ASW in order to establish a clean set of financials to display the underlying performance of the business,” he added.
Open Logistix was a small acquisition (£1.2 million) in March 2011 and the company also bought Fabric Technologies four months ago for £4.6 million.
But since then things have settled down.
This is not for want of opportunities however, as the company has been holding back so it could pay down its debts; and now it has done so.
With the £14.8 million sale of Cedar HR and two years of strong cash generation, the slate has now been wiped clean.
Chief executive Vin Murria sees this as an important step for the company as it grows further.
The firm reduced the net debt from £31 million to £1.1 million last year and has cleared £50 million of debt in the last two years.
“This, combined with around £25 million EBITDA last year, puts the company in a great position to make further acquisitions,” she told Proactive.
“The opportunities are organic and cash-rich,” she added.
Proactive also covered the acquisition of a 45 percent stake in Switzerland-headquartered drug store chain Alliance Boots for US$6.7 billion by US peer *Walgreen Co (NYSE:WAG, NASDAQ:WAG)*, which also has the option to buy the remaining interest within the next three years.
It will pay US$4 billion in cash and 83.4 million Walgreens shares for the initial stake.
At the current Walgreens share price and at a US$1.55=£1 exchange rate, the US group would have to pay a further approximately US$9.5 billion in cash and shares to take full control.
In a statement to the London Stock Exchange, Walgreens said the deal is expected to complete by 1 September 2012.
Walgreens expects the deal to be net earnings enhancing in the first year following completion by approximately US$0.23 to US$0.27 per share.
The partnership deal creates a pharmacy-led health and wellbeing retailer with over 11,000 stores in 12 countries.
It also creates the largest global pharmaceutical wholesale and distribution network, with over 370 distribution centers delivering to more than 170,000 pharmacies, doctors, health centers and hospitals in 21 countries.
The combined business will also be the world's largest buyer of prescription drugs and many other health and wellbeing products.
Walgreens expects combined synergies across both companies to be between US$100 and and US$150 million in the first year and US$1 billion by the end of 2016.
Given the complementary geographic footprints of Walgreens and Alliance Boots, there are no plans for job reductions at either company as a result of the transaction, the US group said.
In the meantime, we interviewed David Paxton, chief executive of Fiji operating gold miner *Vatukoula Gold Mines (LON:VGM)*, which is currently working towards an important tipping point.
At the Vatukoula site in Fiji, the company’s emphasis has been on re-establishing the infrastructure and access to the high grade ore that will be the mainstay of future production.
This work is very important but it is not in itself the most rewarding activity. That is because VGM has to mine a great deal of below-par ore in order to reach the best parts of the mine.
In just over a year’s time the critical parts of this development work will be complete, Paxton told Proactive.
At this point, VGM will have access to over 1,000 metres of the face of the gold orebody. And this is expected to tip the scales firmly in the company’s favour.
Not only will the grades, and therefore production, be higher but importantly the straight mining operation will be much less expensive.
“Right now we have higher costs because we are doing more development,” he said.
“But once we've caught up with development, we'll be able to spend a larger portion of our time actually mining (it is expected to be around 70 per cent, compared with about 50 per cent currently).
“We'll have lower costs, and higher grades. So we would be producing more gold at higher margins. It is long term process.”
Proactive also took a closer look at plant-focused drug developer* iBio (NYSE:IBIO)*, which claims its new proprietary technology is quicker, cheaper, safer and more efficient at developing potential vaccines and biologics.
It has attracted strong support from heavyweight partners such as The Bill and Melinda Gates Foundation and America’s Defense Advanced Research Projects Agency (DARPA).
So far this year iBio has been steadily increasing its IP portfolio, having received patents for its technology, while also progressing products in clinical trials and revenues from early licensees of iBio technology.
Most recently it had a new US patent granted in May for its iBioModulator platform.
The platform can significantly enhance the value of a vaccine in two ways.
It increases the strength of the initial immune response to a vaccine antigen and extends the duration of the immune response, decreasing or eliminating the need for multiple inoculations.
iBio has also produced an antibody that it says could rival palivizumab in the treatment of respiratory syncytial virus, or RSV, a condition found in children under a year old and that is commonly associated with sudden infant death syndrome.
The iBioModulator is a separate platform from iBio’s protein expression platform, iBioLaunch. Although iBio recommends the use of both together, the iBioModulator can be used with any other vaccine production system.
At the same time iBio has completed first-stage of clinical trials for its HAC1 flu vaccine and has added two other patents to its portfolio this year.
iBio’s expression platform, iBioLaunch, uses unmodified green plants to develop and produce biologics by growing genes in plant cells.
The process uses green plants because they carry out many of the same biochemical functions as human cells during protein synthesis and processing.
Notably, the host (plant) cell’s DNA does not need to be altered before protein production, saving time and money.
The plants are grown in soil-free conditions but strict climatic and lighting controls are needed to enable the most efficient growth rates.
Non-integrating foreign DNA is introduced into a plant cell nucleus by agrobacterium plasmids, temporarily altering the plant’s genetic makeup.
Large amounts of a protein can be accumulated within four to seven days and then purification can begin.
The whole process can take as little as a month.
The technology is safer when compared with other methods of harvesting proteins, such as from rodent cells or insect cells, because the cross-contamination risks are far lower.
Links: Full news story
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