The Speculator

PORTFOLIO POINT: Despite this jumpy sharemarket, investors in Viralytics have overwhelmingly supported the company’s share purchase plan as its Phase 2 cancer cure trials get under way in the US.

Directors of Viralytics (VLA) have shored up the company’s future financial needs through to mid-2013 following a strongly supported share purchase plan (SPP) that will bring in $4.7 million.

That should boost Viralytics’ cash resources come December 31, 2011, to more than $8 million – more than enough to complete its present trial and to continue its other research programs through to at least mid-2013.

As we reminded readers in this column last week, Viralytics announced on November 30 a generous share purchase plan to support the accelerated clinical development of the company’s promising lead oncolytic drug Cavatak.

Eligible Australian and New Zealand shareholders (registered at November 29) were invited to subscribe for up to $15,000 worth of Viralytics shares with no brokerage or transaction costs.

Stockbroker Patersons Securities was appointed lead manager and underwriter for up to $1 million, with the issue price based on a 15% discount to the volume-weighted average share price for the five trading days up to the December 14 closing date of the offer.

Yesterday Viralytics managing director Bryan Dulhunty confirmed the issue price would be $0.3084 a share – and due to shareholder support no shares will be issued to the underwriter. New shares will be dispatched to shareholders before the end of the year.

As reported last week, the Speculator sold 12,000 Viralytics shares at 40¢ with the announcement of the planned offer and applied to take up $6000 worth of new shares. That should come in at 19,455 new shares, plus 500 shares retained, for a total of 19,995 shares in the new year’s portfolio. The accounting for that will be recorded in our opening 2012 portfolio, to be published in Eureka Report on January 18.

Viralytics shares were trading this morning at 34¢, a premium to the offer price. At 34¢, the company carries a market capitalisation of about $25.5 million.

In common with much of the overall market, the shares have traded down from a year’s high of $1.10 (adjusted for a 10-to-one share consolidation some months ago) to a recent low of 30¢ as existing shareholders sold down to take advantage of the discounted offer.

I expect the shares will advance further in coming weeks as the company’s excluded foreign shareholders (it is traded on America’s over-the-counter market) seek to participate in the potential of the current trials being launched at prestigious American teaching hospitals. They include the Mt Sinai Comprehensive Cancer Research Centre in Miami, Florida; the Huntsman Cancer Institute at the University of Utah; and more recently, the Mary Crowley Cancer Centre in Dallas, Texas. It’s worth mentioning that all three approached the company and not the other way around.

On November 21, Viralytics announced the appointment of a new non-executive director – leading American virologist Dr Leonard Post and a former director of rival Biovex Ltd, a company taken over by Amgen Inc for more than $US 1 billion earlier this year.

-The Speculator portfolio, as at November 21, 2011
Company	ASX	No of shares	Bought	Purchase price	Current price	Current value
Image Resources	IMA*	15,000	31/12/2010* *	0.362 av	$0.240	$3,600
Viralytics	VLA	500	11/06/2010*	$0.690	$0.340	$170
Robust Resources	ROL	6,000	31/12/2010*	$1.49 av	$1.200	$7,200
Scotgold Resources	SGZ	25,000	31/12/2010*	$0.053	$0.062	$1,550
Scotgold Resources Options ex30/4/12 @ 8c	SGZO	2,500		$0.000	$0.010	$25
Coalworks	CWK	10,000	31/12/2010*	$0.830	$0.615	$6,150
GoConnect Ltd	GCN	120,000	31/12/2010*	$0.038	$0.044	$5,280
Minemakers	MAK	20,000	25/01/2011*	0.425 av	$0.240	$4,800
Platsearch	PTS	20,000	8/02/2011	$0.130	$0.090	$1,800
Broken Hill Prospecting	BPL	20,000	22/02/2011	$0.160	$0.085	$1,700
Austpac Resources	APG	40,000	2/03/2011	$0.060	$0.044	$1,760
Potash West	PWN	11,050	30/03/2011***	$0.200	$0.180	$1,989
Cortona Resources	CRC	20,000	13/04/2011	0.146 av	$0.115	$2,300
Golden Gate Petroleum	GGP	270,000	20/04/2011	0.013 av	$0.020	$5,400
TNT Mines	TNT	4,440	22/07/2011	$0.000	$0.250	$1,110
Quickstep Holdings	QHL	20,000	23/11/2011	$0.185	$0.155	$3,100
Orpheus Energy	OEG	19,250	17/08/2011	0.164 av	$0.150	$2,888
Total value of portfolio						$50,822
Cash at bank						-$8,777
Total						$42,045
Portfolio change since January 5, 2011 (started with $50,000)						-15.91%
All Ordinaries change since January 5 2011 (then 4846.9)						-15.26%
* Shares held from previous year, carried at their December 31, 2010 closing price. * * Bought extra 4000 Image March 15, 2011, at 42.5¢. Bought extra 5000 Minemaker, March 16 at 36.5¢. *** subscribed for 10,000 shares at 20¢ each - plus free 1050 entitilement from Image Resources. April 13: Bought 5000 CRC @ $0.165; sold 25,000 CRC options @ $0.05. April 20: Bought 60,000 Golden Gate Perro GGP @0.017 $20 brokerage = $3,120. May 11: Bought extra 50,000 Viralytics @ 6.2¢ = 0.046 av price. May 18: Sold 25,000 at $0.10; $2500 (less brokerage) = $2480. May 25: Bought 20,000 MAU @ $0.15 $20 brokerage = $3020. June 1: Sold 8,000 MAU at $0.25.5; $2020 (less brokerage). Will buy 50,000 VLA @ .069 plus brokerage ($20) = $3,470. July 13: Bought 100,000 GCN @ 0.08 plus brokerage ($20) = $820. July 20: Bought 15,000 CRC @ 0.14 plus brokerage ($20) = $2,120. July 22: Free TNT Mines allotted = $1,100. August 10: Bought 3,000 Robust Resources @ $1.25 plus brokerage = $3,770. August 17: Subscribed for 8,000 Orpheus Energy @ .25 (no brokerage) = $2,000. August 31: Bought 7000 IMA @ 0.31 $20 brokerage = $2,190. September 21: Bought 120,000 GGP @ 0.009 $1080 brokerage = $1,100. September 28: OEG 1250 from free 1 for 8 distribution from parent Coalworks (Sep 23) plus on-market purchase Sep 25 10,000 at 11.5 ($1150 brokerage) = $1,170. October 26: Consolidated VLA holding, 12,500 shares @ average 55.2c. NOTE: TNT not listed yet (deferred); but issue was "shares worth 25c). November 23: Sold TRF (net $2580) and MAU (net $1660). Bought 20,000 QHL @ .185 $20 brokerage = $3720. November 30: Sold 80,000 GoConnect @ 7¢ = $5580 after brokerage. December 6: Bought 90,000 GGP at 1.8¢ =$1640 (inc brokerage). Sold 12,000 Viralytics (VLA) @ 40¢ = $4780.

Product price hikes boost Image’s feasibility study

Shares in heavy minerals prospector Image Resources (IMA) slumped to a new year’s low of 24.5¢ this week (down from a year’s high of 82.5¢) on comparatively tiny turnover of 148,388 shares.

This hardly makes sense against a background of strongly rising forward prices for both titanium dioxide and zircon mineral sands products.

Price rises announced on December 8 by major producer and Image shareholder Iluka Resources (ILU) have significantly improved the expected return from Image’s North Perth Basin Minerals Sands Project.

Iluka’s December 8 announcement to the ASX said it had reached agreement with its major high-grade titanium dioxide customers on rutile and synthetic rutile prices and volumes for delivery under contract in the first half of 2012.

“As a result of those agreements and assuming the planned product sales mix is delivered, Iluka expects to achieve an increase in the first half of 2012 of between 80–85%, relative to the forecast weighted average second-half 2011 price of approximately $US1340 a tonne, and for synthetic rutile a price increase of between 85–90% relative to the forecast weighted average second-half 2011 price of approximately $US1075 a tonne.”

Iluka added: “The price increases achieved reflect Iluka’s preferred product pricing approach, current market dynamics and competitive conditions, all of which may vary from period to period.”

In this column on August 31, the Speculator added to our Image holding after the company announced a feasibility study was under way for an initial 12-year production program on the North Perth Basin following a robust scoping study completed in August.

That study envisaged a life-of-mine cash flow after capital costs of $170–259 million based on exchange rates of $A1.00 and $A0.90 to the $US, with an internal rate of return of 32.1–42.9% and a capital payback within the first 18–22 months of operation.

Using the same parameters but based on Iluka’s product price projections, Image Resources on Monday, December 19, announced to the ASX net life of mine cash flow after capital costs of $280–381 million, an internal rate of return of 47.7–58.6% and a capital payback within 13–16 months of operation.

The fuller detail of this potential upgrade can be read on Image’s website.

I’m not quite so gloomy as Eureka Report’s learned publisher Alan Kohler on the outlook for the sharemarket in 2012 – for so many promising stocks have been heavily discounted already.

In our August 21 report on Image, the company’s 92.6 million shares were priced at 40¢, giving it a market capitalisation of $37 million. This week, at a near low of 25¢, its market capitalisation is just $23.2 million.

Image – in which Iluka has a small shareholding – has potential for both recovery and even takeover. I’ll be holding into the new year.

In case I’m wrong, potential tax-loss sellers will have plenty of time to consider their positions before June 30, 2012.

New Year portfolio review

We review the Speculator’s portfolio, winners and losers and what we’ll keep, in our opening column in Eureka report on January 18. Merry Christmas and Happy New year.

David Haselhurst writes a monthly column for Money magazine. Please note that he is not able to provide personal replies to emails.