Director Deeds: Oil, iron ore, and a taste of orange juice

As April would demonstrate, there are several ways to get stocks rolling – beyond just hitting the obvious decade-high – and this iteration of Director Deeds may count some of the less-obvious ways. 

It’s quarter-time for the resources sector, that time of year when miners post their quarterlies. After a company posts its result to the ASX, the pennies drop, and its directors are free to buy or sell what they please. We saw plenty of buying among directors deep into explorer stocks, but what's most interesting are the catalysts behind all this activity. 

Carnarvon Petroleum’s Bill Foster spent over $50,000 on April 15. Not a single insider has sold shares in Carnarvon since November 2015, and even then, that was a rare sight on the register. Carnarvon Petroleum touts its partnership with Santos at Dorado-1, where Santos owns the lion’s share at 80 per cent (after in August taking over the former owner, privately owned Quadrant) and the much smaller Carnarvon holds a 20 per cent stake. Santos hasn’t so much as mentioned Carnarvon in its reports, but Dorado-1 is said to be the third-biggest oil find made on the north west shelf in Australia, according to data from Wood Mackenzie. Carnarvon embarked on a capital raise at 33c per share in February with a goal of $50 million.

Hey there, big spender. Elsewhere in energy, just a couple of days earlier, Kevin Small spent more than $300,000 altogether at Otto Energy. He also bought shares in February. Otto is also currently embarking on a capital raise, which isn’t unique, particularly in this sector at this period of time, but what is unique is the size of Small’s purchase considering the context of energy small caps.

Another spender in the periphery of this particular sector was Murray Bleach over at Energy Action, whose scattered purchases received much less fanfare, even though he spent around $200,000 all up. Bleach is a director of the energy consultancy company which saw its share price collapse by half in December when it issued a profit warning. Energy Action then forecasted a profit slide of 50 per cent on the prior corresponding period for the first half, but February delivered even worse news, when the company reported a slide of 63 per cent. Having already been rattled, the market didn’t flinch. The market observed Bleach’s buys this month, but didn’t deliver an overwhelming response, with the share price still languishing around all-time lows. Bleach is the second director to purchase shares in Energy Action this year.

Over the hill and off the shore, we’ve seen mostly all buys across resources companies too, with one (major) exception. The saga continues at Mount Gibson Iron, a revival story we’ve kept a keen eye on at Eureka Report, which this month was pierced by a hefty director sale. Alan Jones let go of more than $120,000 of Mount Gibson shares on April 15. But can anyone blame him? Those watching at home would know that Mount Gibson has been a ripper stock year to date, but they would also know director patience has probably still outweighed company performance. Jones last bought in October last year, then spending about half the amount he received from the recent sale. In fact, Jones has been a buyer since at least 2008, to finally, only now, take some profits – albeit at 12-month highs. That’s micro though, and there’s far more macro at play here. On April 17, mining stocks dropped in unison upon Brazilian courts ruling that Vale could reopen its iron ore operation that formerly collapsed, leading to a burst dam, mass flooding and hundreds of deaths (and an iron ore supply shortage). That ruling came to light two days after Jones’ sale at Mount Gibson, which operates on a much smaller scale to the likes of giants like Vale, being a 1-mine operation out of Koolan Island. However, at the same time, Chinese industrial production is said to be hitting a 4.5-year high, feeding into last week’s patchy public holiday rally. Can the good times continue to roll?

Other six-figure transactions in the sector took place around Capricorn Metals and FYI Resources. Capricorn’s Timothy Kestell spent up big in the small cap gold miner which has been busy knocking back potential suitors left, right and centre. Regis Resources was among these, flashing an $85 million offer at a 93 per cent premium, met with overwhelming response and then a solid hurdle, and then to start April, a keen consortium cropped up comprising Emerald Resources and major shareholder and offshore-listed asset manager Hawke’s Point and. Here an offer of 11c per share was made, a price at which Capricorn claimed undervalued its assets. However, despite the knockbacks, Capricorn is keen for other takeover offers, or joint venture proposals to aid its Karlawinda project which it acquired from Independence Group in 2016.

Of course, more to this than meets the eye. Regis didn’t get over the line because Hawke’s Point, a controlling vehicle holding 18.9 per cent at the time, wouldn’t back the deal (now we know why). Kestell controls the vehicles that spilt the board at Capricorn, which prompted Capricorn’s former managing director and chief financial officer to quit. With a fresh board that’s hungry for cash (at the right price), raising capital has been a priority for Capricorn this month, as it works towards paying off $1.4 million for an accommodation village it bought off Fortescue among other items by the end of the month. Kestell has been fervently topping up his stake to hold his own against Hawke’s Point. After a choppy April in Australian dollar terms, Capricorn, among others, would be hoping the gold price continues its upswing.

FYI Resources also saw a buy, via Roland Hill spending more than $120,000. Hill has been the most active on the register in recent years (but as an FYI, management across the board controls most of FYI Resources). Even more interestingly, Hill’s recent transaction marked an off-market purchase, at prices higher than where trades were then taking place, and, he bought the shares off Empire Resources. FYI is exploring and developing potash and high-purity alumina projects, with its most recent announcement in March confirming it had received an initial R&D advance payment for its pilot alumina project to the tune of $300,000 and was expecting one in June for $800,000.

Seems be a bit of a thing, paying more than you need to for shares this month. That is the kind of behaviour that gets the market going. Blackmores’ Christine Holman spent a little under $150,000 on shares trading at an average price of $89.18 on April 17. She’s new to the Blackmores scene, having only been a director there since the start of April. The AFR did this one more than justice, which is a curly one worthy of a closer look.

Chiau Thuan Teh dumped nearly $60,000 worth of his Eneco Refresh stock. A seller for a while now, Teh is an active early stage investor with 25 years of experience in construction and finance. Eneco Refresh is a producer and distributor of bottled water, coolers and filtration systems. Eneco has recently become a victim of supermarket wars, but at the smaller end of town, away from Coles and Woolworths, and instead between Aldi and IGA. Considering we hear a lot more about the former than the latter these days, Eneco may not sound familiar, as its main supplier keeps losing market share. As such, Eneco is coming off a half-year loss of $274 million, and a 6.2 per cent drop in revenue.

When life gives you oranges, what do you do? Take it as a sign to trade orange juice shares, naturally. Hongwei Cai did just that, purchasing five million shares in Dongfang Modern Agriculture at 91c a pop. This was an off-market transaction. The executive chairman's voting power now totals 66.8 per cent.

Elsewhere in consumer land, Michael Butler spent close to $60,000 at Adairs, as a company with crossovers on the register, Pacific Smiles Group, saw Hilton Brett spend around $75,000. Trent Peterson, a Pacific Smiles Group director, also bought more shares in Adairs, spending around $120,000 a few days later, and then over $160,000 another couple of days after that. Peterson and Butler have both been frequent buyers at Adairs these last six months. Both work for TDM Growth Partners.

Lastly, we come to the age-old dilemma of knowing when’s the time to cut ties. If you held a company that went up nearly 1000 per cent in 12 months, would you sell or continue to hold? Geoff Acton sold over $90,000 worth of Advance NanoTek, a biotech producing new UV protection solutions.

For a full run-down on what directors behind ASX-listed companies are doing behind the register, click here.

For extended research on the companies behind Director Deeds, click here.