Customers turn to Secure Trust Bank for budgeting aid – Loans to the hard-pressed rise by 60%

The cost of living is rising, incomes are static or falling and it is becoming increasingly hard to manage the bills.

Customers of High Street banks spent at least £2billion on unauthorised overdrafts last year, while about a million people took out expensive short-term ‘payday’ loans to tide them over from one month to the next.

The figures highlight the problems caused by a period of prolonged economic weakness, but they also provide a stark reminder that growing numbers of people simply cannot cope with budgeting for their monthly expenses.

Secure Trust Bank was founded 60 years ago in the Midlands and made its name providing families with accounts to help them to budget.

When factory workers were handed their wages on a Friday, they would immediately give a proportion of their cash to the bank, which would take over responsibility for paying bills, such as gas, electricity and water, as well as local taxes and other utility-type expenses.

Some money would go to the wife to feed and clothe the family. The rest of the wage would stay in the worker’s pocket.

The system worked and it still does. Customers know essential bills will be paid when they fall due and they also benefit because the bank uses its superior buying power to negotiate cheaper prices with the utility companies.

About 30,000 people use Secure Trust’s budget accounts to help them with a range of household expenses. The bank has no branches of its own so customers have traditionally used Post Offices, designated retailers or Barclays, with whom Secure Trust has a formal arrangement. In recent years, however, Secure Trust has made the budget account available online, an option that has become increasingly popular.

Chief executive Paul Lynam is keen to improve the bank’s internet offer and expects to deliver an upgraded account towards the end of 2012.

The account is not cheap – costing £16.50 a month – but customers seem happy to pay it in exchange for peace of mind and discounted utility bills.

Secure Trust charges for its current account too – £12.50 a month. However, the number of customers with this account doubled in 2011 and the bank is taking on 1,000 more every month.

Many of these people are being turned away by the High Street banks, which are increasingly picky about who they will accept as customers. Some people also choose Secure Trust because, even though it charges for current accounts, there are no hidden costs and it will not let customers go overdrawn, so they are never hit by bank fees for unauthorised overdrafts.

The bank is unusual in other ways, too. Unlike most High Street lenders, it does not rely on funding from the international financial markets and lends its customers less than it takes in through deposits, making it an extremely safe institution.

Although Secure Trust has been around since the Fifties, it was a division of private bank Arbuthnot for many years. It floated on the Alternative Investment Market last November as an independent entity, largely because it is keen to expand.

This seems logical.

High Street banks are reluctant to take on all but the choicest customers, while payday loan businesses charge high interest rates.

Customers turned away by the clearers used to have a range of other options, including overseas banks, but many of these are in financially constrained circumstances so they are effectively closed for new business. This leaves a clear opportunity for Secure Trust. The bank increased its lending by more than 60 per cent to £145million last year and substantial growth is forecast over the next three years as people who need to borrow money seek alternatives to the High Street or unscrupulous lenders.

Lynam is ambitious, but not recklessly so. He is determined to retain Secure’s reputation for caution and late last year he walked away from an acquisition at the last minute because the risks appeared to be too high.

That said, he is keen to build the bank through acquisitions, particularly at a time when many banks are keen to offload non-core businesses at reasonable prices.

Growth should deliver a steady increase in profits over the next three years and the bank is also expected to be reasonably generous with its dividends. It is forecast to pay at least 40p for the year ending December 31, 2012 and more than 60p the year after.

Midas verdict: Secure Trust shares made a strong debut on Aim and are trading at 935p. They should rise substantially as Lynam develops the business. Buy and be patient.

Traded on: Aim   Ticker: STB   Contact: 0121 693 9100 or securetrustbank.com

MIDAS UPDATE – It might be time to sell as Afren shares double

MIDAS recommended Afren in January 2007 when it was an oil and gas minnow trading at 56p. The business has since been transformed into a FTSE 250 stock producing more than 50,000 barrels of oil a day.

Chief executive Osman Shahenshah announced this month a significant new discovery in Nigeria, close to where it is already in production. The news was welcomed by the company’s followers and the shares rose more than ten per cent to 131p.

Just a few days later, it admitted that production in 2012 was likely to range between 46,000 and 52,000 barrels of oil a day, lower than many had expected.

This combination of good and bad news is nothing new for Afren.

The price rose to 173p last spring, only to fall below 100p later after disappointing half-year figures.

The company operates principally out of Nigeria but has operations across Africa and last year spent £380 million expanding into the Kurdistan region of northern Iraq.

Shahenshah said this neatly complements the company’s existing portfolio of assets. However, some analysts believe that it was an unnecessary diversification.

Surge in building poised to bolster Galliford Try divi – Group’s calculated risk in tough times reaps rewards for shareholders

Some of the most successful entrepreneurs in the world started out in property. The sector boasts numerous multi-millionaires who have made money from buying low, developing well and selling high.

The strategy sounds almost simplistic on paper. In practice, it relies on a shrewd understanding of the market, strong financial support, a good sprinkling of gut instinct and, of course, an element of luck.

Without this combination property businesses can go badly awry, as indeed many do whenever the economic cycle turns against them. Over the past three years individual operators, private firms and even large, listed companies have come close to ruin in the sector as banks have cut lending and property prices have fallen.

Clever businesses have done rather better, including housebuilder and construction group Galliford Try.

The company was not immune to the savage downturn that followed the financial crisis, slumping from a £60million profit in 2008 to a £27million loss the following year. But since then, it has bounced back, making profits of £19 million in 2010 and £35million last year. In the year to June 2012 brokers expect profits of £60 million, a return to pre-crisis levels. Even more encouragingly, they forecast that results will improve substantially next year and the one after that.

Importantly, too, Galliford never stopped paying dividends, even when times were particularly tough. Now it is one of the most generous providers in the sector, paying 16p last year, and is expected to dole out 22p in 2012.

Chief executive Greg Fitzgerald has been involved in property for 20 years and joined the Galliford board in 2003. Having experienced the sector’s full cycle, he has learnt some valuable lessons from history.

Many operators in this industry believe the key to success is constant expansion. They buy enough land for 100 homes, build and sell them, buy land to build 120 homes, sell them, buy enough for 140 homes and so on, until the market dives and they are forced to run for cover. Galliford appears to be different.

Back in 2009, when many other housebuilders were reining back, Fitzgerald took a calculated risk. Land prices were low and the market was full of highly qualified people – from builders to surveyors – who had been made redundant and were looking for work.

Fitzgerald took full advantage. Shifting Galliford’s focus from construction to housebuilding, he raised £125 million through a rights issue and went on a buying spree, a move that is paying off handsomely today. The company has doubled the size of its housebuilding division and earlier this month unveiled a 59 per cent surge in the number of new homes sold to 1,352 for the six months to December 31.

This may seem surprising, given the subdued nature of the housing market nationwide, but Galliford’s homes are principally in the South-East, where demand has been consistently more robust than elsewhere in the country.

The company’s annual house sales are expected to reach 3,000 by the end of its financial year this June.

Even the construction division is holding up well, and it recently restored London’s St Pancras Chambers.

The value of future contracts has slipped from £1.75billion to £1.6billion, but that is at least in part because Fitzgerald refuses to take on business at any price, focusing instead on projects that will deliver genuine profits.

Looking ahead, this seems to be the philosophy in the housebuilding division, too.

While Fitzgerald amassed plenty of land when prices were low, he is less interested in growing bigger just for the sake of it. Over the next two to three years, attention is more likely to focus on selective expansion, profitability and cash generation. This could well mean increased dividends or large special payments for shareholders.

Midas verdict: Galliford Try has done remarkably well during an exceptionally tough period for the housing industry. The shares are 4761/2p and should move higher, especially if there is good news on trading and dividends when the half-year figures are released next month. Fitzgerald and his team are worth following. Buy.

Traded on: Main market    Ticker: GFRD    Contact: 01895 855001 or gallifordtry.co.uk

Midas Update – Goldplat should gain pace as production starts

Goldplat is a rather unusual business. It combines traditional mining with gold recovery, taking wood chippings, carbon and even waste grease from other miners and extracting gold from them.

The company is one of the few in the world that can perform this sort of work and it does so in South Africa and Ghana, producing more than 20,000 ounces of gold a year.

But chief executive Demetri Manolis is determined to build Goldplat into a recognised mining business and has now moved an important stage closer to fulfilling his ambitions.

The company owns the Kilimapesa mine in Kenya and late last year was finally given permission by the government to sell gold from there. Gaining this licence was a major step forward for the firm and last week it produced its first gold bars, making it the first foreign company to produce gold in Kenya.

Manolis expects to deliver 5,000 ounces of gold in the year to June 2012, and brokers believe this will double next year and again in the following year or two.

Goldplat has other exploration assets in Ghana and Burkina Faso, which should boost production over time and, unlike other small mining businesses, the gold recovery operations provide a steady cash flow de to finance growth and development.

In the year to June 2011, the company delivered a 48 per cent increase in profits to £3 million and there should be a further good increase this year on the back of the combination of gold recovery and fully-fledged production.

Midas verdict: Midas recommended Goldplat in September 2010 when the price was 101/2p. Today it is 111/2p.

The performance is hardly glittering but, now that production has actually started, the shares should gain momentum. Existing investors should hold. New investors might consider a punt.

Traded on: Aim    Ticker: GDP    Contact: 01932 918070 or goldplat.com 

Exclusive rights give miner edge on rivals – Jubilee Platinum uses new technology to process metal ore for others

PLATINUM is one of the most valuable metals. Highly prized in jewellery, it is also an essential component of catalytic converters, which remove toxic exhaust emissions from cars and other vehicles.

About 80 per cent of the world’s platinum comes from South Africa, where production is dominated by three major companies – Anglo American Platinum, Impala Platinum and Lonmin. These giants of the industry mine their platinum and process it in massive smelters. They also perform this service for smaller miners for a sizeable fee.

Platinum is found in two main seams in South Africa – Merensky and Upper Group 2 (UG2). Until relatively recently, most came from the Merensky seam, for which the traditional smelters are ideally suited.

But Merensky’s supplies are dwindling, so increasing amounts of platinum are being sourced from UG2.

The raw material from this seam is rather different, containing large amounts of chromium that the old smelters find difficult to handle.

At present, about 55 per cent of South African platinum comes from UG2 and this is expected to increase steadily over the next 20 years, presenting a serious challenge for the large mining groups.

But the trend should be excellent news for Jubilee Platinum, a small company with exclusive rights to a new smelting process that is particularly effective for platinum ore from UG2. The new smelters cost less than £15 million to build – about a tenth of the price of a traditional smelter. They are smaller, cheaper to run and produce far less harmful waste gas.

Jubilee has already started to build one and intends to have two facilities up and running by the end of this year. The group owns a chrome producer itself and will use the first smelter to produce platinum from chrome production residues, but it is also in talks with several other companies with a view to processing platinum on their behalf.

Two producers have already signed up and others are expected to follow. Over time, Jubilee chairman Colin Bird aims to work with smaller companies across South Africa, constructing and operating smelters on site for them.

This should be considerably cheaper than sending raw platinum ores to the big mining groups to process and it will give smaller miners more control over their production.

Jubilee also owns a 63 per cent stake in the Tjate mine, one of the largest undeveloped platinum projects in the world. The mine is several years from production but it is a prestigious asset, particularly as the metal is predicted to be in short supply over the coming decade.

Tjate is expected to produce 2.4 million tons of ore a year once it is up and running. Platinum is currently $1,500 (£970) an ounce, but the price is expected to rise once global economic conditions improve.

Small miners fell out of favour last year as the financing environment deteriorated. But Jubilee is making money from smelting ferroalloys for steel and Bird recently sold a small stake in part of Tjate for £5.6 million. Looking ahead, the group might also sell an Australian nickel mine as this is not a core business.

Midas verdict: Jubilee’s shares were 124p in June 2007. Today they are 121/4p. Five years ago, Jubilee did not own the licence for the new smelters and exploration of the Tjate mine was far less developed. In other words, the firm’s situation is much improved but the shares have tumbled. At 121/4p, they are a bargain.

Small miners are never risk-free, but even if Jubilee hit trouble, it would almost certainly be snapped up by a big rival. Buy.

Traded on: Aim   Ticker: JLP   Contact: 020 7584 2155 or jubileeplatinum.com

Takeover puts a spring in step of engineer Senior – Production of Boeing Dreamliner to boost maker of plane and car parts

RUNNING an airline can be a tricky business. Traditional carriers such as British Airways have to contend with belligerent unions clamouring for the kinds of pay and conditions that staff on lowcost rivals can only dream of.

Budget carriers such as Ryanair are constantly battling to squeeze more turnover out of every flight, making passengers pay extra for everything from booking their tickets to stowing luggage.

For cheap and traditional airlines, however, one of the biggest single costs is fuel, which accounts for about 40 per cent of total spending. And today, with oil at well over $100 (£65) a barrel and green campaigners fuming at the impact of air travel on the environment, aircraft makers are under more pressure than ever to make their planes more fuel-efficient.

So perhaps it is not surprising that Boeing’s new 787, or ‘Dreamliner’, is so popular. Launched with much fanfare in September, it uses between 25 and 40 per cent less fuel than older, similar sized jets and airlines are eager to snap it up. Boeing’s order book is full of requests for the Dreamliner from established carriers replacing old planes and from emerging market airlines that are expanding their operations.

This is good news not just for Boeing, but also for suppliers such as Senior, the British engineer that makes aeroplane parts.

Senior makes ducting, flexible metal components and even engine widgets for Boeing and the Dreamliner is its biggest money-spinner. The group is supplying £560,000 worth of parts for each one made and expects to boost turnover by £100 million from this plane alone over the next three to four years.

However, Senior is not reliant on the Dreamliner. Based in Hertfordshire, it operates worldwide, supplying specialised, high-quality equipment for planes, cars, lorries and even industrial sites, such as power plants and oil rigs.

Founded in the Thirties, the company used to work almost exclusively with the automotive sector. Over the past decade, however, the balance has shifted. Now 60 per cent of sales come from the aircraft sector, primarily commercial planes. This business is growing fast, driven particularly by increased air travel in Asia.

A number of companies in that region prefer to deal with businesses that offer work to locals. With this in mind, Senior chief executive Mark Rollins acquired aircraft parts specialist Weston for £54 million six weeks ago.

Based in Lancashire, this former family firm has manufacturing facilities in Thailand, offering Senior the opportunity to expand production in Asia for regional carriers. Weston works primarily with European planemaker Airbus, while Senior’s biggest customer is Boeing, so the acquisition is expected to prove highly complementary.

Last year, the commercial aerospace market was worth £60 billion and more than 70 per cent of all the planes built were made by Airbus and Boeing. Their dominance is forecast to continue for the next five years at least, putting Senior in a strong position as the market continues to expand.

The group’s vehicle division, Flexonics, meanwhile, is the largest maker of automotive parts in the world, even though it accounts for just 40 per cent of group revenues, as opposed to 90 per cent at the turn of the century.

Flexonics focuses on diesel engines and its parts help to reduce harmful emissions. As such it is working with a number of car and lorry makers in Europe and America to help them meet new carbon emission regulations.

The European business has been hit by the economic slowdown but business in the US is brisk and growing. Senior’s involvement in industrial plants has proved beneficial too, as the company makes flexible joints for a broad range of sectors including the nuclear, solar power and steel industries.

Full-year figures for 2011 are due next month and brokers expect profits to increase 17 per cent to £76.5 million while the dividend is forecast to rise from 3.1p to 3.6p.

Strong growth is expected in 2012 as well, as the Weston acquisition is bedded in and demand for commercial planes persists.

Midas verdict: Rollins has been on the board since 2000, working his way up from finance director to chief executive. An unassuming figure, he is quietly confident about Senior’s prospects, and so he should be. The group has grown steadily over the past five years and was barely dented by the financial crisis of 2008-09. Its future looks bright and, at 1771/4p, the shares offer solid long-term potential. Buy.

Traded on: Main market   Ticker: SNR   Contact: 01923 775547 or seniorplc.com

Midas Extra Update- Sirius doubles as investors’ confidence grows

Potash POTASH is a key ingredient in fertiliser and demand has soared in recent years as the world’s population rises and farmers come under intense pressure to increase crop yields.

Sirius Minerals should be a major beneficiary of this trend. A potash exploration and development company, Sirius has mines in America and Australia and in 2010 bought York Potash in North Yorkshire.

York Potash is huge and has substantial deposits of prime potash, which contains sulphur rather than chlorine, making it useful for a wider range of crops in a wider range of conditions. This and its relative scarcity makes it more profitable than the basic variety.

The mine is at an early stage of development, but Sirius chief executive Chris Fraser, a determined Australian, is making good progress. Drilling began last year and will continue through 2012, giving the company and investors a better idea of the extent of potash available and the likely production costs.

Planning permission to develop the mine is being sought too, but local support is strong as it should create jobs locally.

Midas verdict: Midas Extra, the subscriptiononly online midweek service, recommended Sirius last May when the price was 101/2p. Today they are 251/2p, as investors have become increasingly confident about the company’s prospects.

Shareholders who bought last year should sell 40 per cent to 60 per cent to bank profits, but this company has real potential, so adventurous investors might fancy a punt at current levels.

Traded on: Aim   Ticker: SXX   Contact: 0061 404 073288 or visit  siriusminerals.com

BUYING – Boss makes £8.7m vote of confidence in insurer Admiral, share trades provide insight into firm’s health

For seven years, Admiral could not put a foot wrong. The motor insurer floated in August 2004 at 275p and by August 2011, the shares were more than 1500p. The company, which owns brands such as confused.com and elephant, was doing well and investors were sitting pretty.

Then early last month, chief executive Henry Engelhardt was forced to admit that profits for 2011 would be lower than expected, thanks to a surge in bodily injury claims. The warning shocked the market, prompting concern about Admiral’s results not just in 2011 but beyond. The share price reaction was brutal. The stock, which had already slipped back over the summer, slumped from 1193p to 820p over the next two days.

Admiral was an early advocate of internet-based insurance and has also won admiration for smart underwriting. But the profits warning sparked worries that the company’s peers are snapping at its heels, improving their own underwriting skills and competing more aggressively online.

Times like these can be difficult for directors, particularly those who have been with a company from the start, such as Engelhardt and chief operating officer David Stevens. However, both have used hard cash to underline their confidence in the firm.

Engelhardt spent £8.74 million buying one million Admiral shares at 874p last month while Stevens spent £1.9 million buying 225,000 shares at 826p. Chairman Alistair Lyons bought 10,000 shares and four other directors bought a further 55,000 shares between them at prices between 800p and 890p.

These findings emerge from our analysis of significant trades listed on directorsdeals.com. While insider dealing is illegal, seeing what directors do with their own cash can be a revealing indication of their confidence, or lack of it, in the future.

Today, Admiral shares stand at 8541/2p, barely changed since Midas first looked at the company in January 2009. We recommended selling 30 per cent a year later, when the price was 1156p. Now, existing investors should stay put, enjoying the generous dividends paid by this company and taking comfort from the directors’ own behaviour. New investors might pick up a few shares, too, at current depressed levels.

Gleeson Group is a far smaller business than Admiral and has suffered for a lot longer. The company builds low-cost houses in the North of England and trades large plots of land in the South.

In May 2007, the shares were 350p. Today, they are 109p, thanks to a widespread and prolonged downturn in the property industry. But directors have not lost faith. Christopher Mills has been a shareholder since 2004 and joined the board two years ago.

Mills, who is chief investment officer of boutique fund management firm JO Hambro, has honed his stockpicking skills over many years, so his decision to spend £3.4 million buying 3.3 million Gleeson shares is noteworthy.

He already owned 11 million shares and this purchase at 102p a share takes his stake in the company to 27.4 per cent. Last month, Gleeson said trading had improved in 2011 and the company was optimistic about long-term prospects. Demand for housing in the North is acute and Gleeson’s focus on affordable homes is sensible.

Encouragingly too, the firm has £17 million in the bank so, unlike many property companies, it is not reliant on loans for development.

The property market is unlikely to recover for several years, but patient investors might choose to put their faith in Mills and tuck away a few Gleeson shares.

SELLING – Reckitt chairman raises £22.7m cash for venture

When directors sell shares, investors deserve to know why, especially if the sums are big.

Over the past quarter, several directors have come into this category, pocketing millions of pounds in the process. Top of the list is Reckitt Benckiser chairman Peter Harf, who realised nearly £22.7 million by selling 707,000 shares last month.

Harf, 64, does not just own Reckitt stock on a personal basis – he also represents the interests of the Benckiser family, which own 15 per cent of the shares through a trust.

Last month’s sale prompted fears that the Benckisers might be about to ship out, but apparently this is unlikely any time soon. wants business his He 3207p soon. Harf, however, wants to use the cash for a business venture – hence his personal sale.

He sold the shares at 3207p and they are now 3242p, having traded around these levels all year. Reckitt’s stable of brands includes some of the best-known products in the world, including Dettol, Vanish and Harpic. The group even added Durex and Scholl to the list this year.

But analysts are worried Reckitt’s margins could come under pressure next year. Perhaps investors should follow Harf’s lead and sell some stock while the going is good.

Matthew Peacock, chairman of chain maker Renold, was also in disposal mode this autumn, selling nearly 25 million shares for £6.7 million.

Initially a substantial investor, Peacock sold half his shares earlier this year and has now holds none.

As we reported in our online subscription service, Midas Extra, Peacock is also boss at outsourcing company Regenersis, where he has been buying shares lately.

Renold has been hit hard by the recession but is trying to bounce back. A gaggle of respectable investment institutions bought Peacock’s shares at 27p and the price is now 28p. Even so, this is not one for cautious investors.

Domino’s Pizza chairman Stephen Hemsley has been destocking too. He and non-executive director Nigel Wray made £4.5 million and £7.6 million respectively by selling 2.7 million shares between them at 450p a share.

Today, the price is 420p, but investors should take heart from the fact that the pair still hold 12.5 per cent of the business.

And finally, it is said there are two ways to make real money – developing property and selling your own business. Tanti Tulsi, chairman of Hansen Transmissions, certainly proves the point.

The company was sold to German wind energy group ZF last month. Tulsi sold all his shares and is now £115 million richer. What a lovely way to end the year.

Every quarter, Midas looks at significant trades made by directors.

Midas Extra, the online subscription column, focuses on Aim, while Financial Mail focuses on fully-listed companies.

>> Sign up for a small monthly fee of just £10 and access Midas Extra here

With just a few weeks to go until the year-end, gold has emerged as a winning investment for 2011. In January it cost $1,308 (£832) an ounce. Today the price is $1,747, an increase of almost 34 per cent.

This strong performance has done wonders for the share prices of some gold companies, particularly Randgold Resources, whose shares were recommended by Financial Mail’s online subscription service, Midas Extra, at 2390p in September 2008 and are now trading at 6700p.

Others, however, have fared less well, especially smaller companies with big exploration projects on the go. Minera IRL, for example, was trading at 94p in January, since when it has fallen to 731/2p.

Minera is based in Peru, a country whose association with gold dates back thousands of years to the Inca empire. Investors who favour Peru point to this long history as evidence of its positive attitude towards gold.

Sceptics say the country is politically risky and that foreign companies, such as Minera, could be affected by calls to nationalise all mines or impose punitive taxes on non-domestic operators.

Minera chairman Courtney Chamberlain is unperturbed by this type of speculation. A metallurgist, Chamberlain has been in mining all his working life and has spent more than 15 years in the Peruvian gold industry.

Having established good relationships with the political authorities, Chamberlain believes the biggest threat to foreign companies comes at a local level from small, poor communities that might seek to stir up trouble if they feel their rights are being ignored.

To circumvent this problem, Minera has provided jobs and other benefits to local communities and offered them a five per cent stake in its gold mines so they can share in its success. This strategy is working well and community relations are strong.

Minera has one mine in Peru – Corihuarmi – that is already in production and making decent money. In 2010, Minera made pre-tax profits of $9.4 million and this should rise to $10.3 million in the current year.

But its flagship asset is the Ollachea project, described by gold authorities as one of the top discoveries in the world over the past two years. Early studies have proved extremely promising and the mine is expected to produce more than 110,000 ounces of gold a year from 2015.

Minera also has a valuable mine in Argentinian Patagonia called Don Nicolas, which is expected to produce about 50,000 ounces of gold a year. Though smaller than Ollachea, it should come on stream a year or two earlier.

Chamberlain and his team have a history of delivering projects on time and on budget and that should stand them in good stead over the next few years.

Corihuarmi is a mature mine and production is set to decline between now and 2016. This may mean profits dwindle in 2012 and possibly 2013, but by 2014 Don Nicolas will be generating serious amounts of cash.

And by 2015, Minera should be producing 180,000 ounces of gold a year. In the meantime, the company is actively looking for fresh deposits near its current sites in Peru and Patagonia.

Midas verdict: Gold mining is complex and expensive. Processing equipment needs to be bought, transportation needs to be organised and licences are required to mine and sell the precious metal. But Chamberlain has experience on his side and a strong portfolio of mining assets. The shares may wobble in the short term but the stock should prove highly rewarding over the next five years.

Traded on: Aim    Ticker: MIRL    Contact: 0051 1418 1230 or minera-irl.com

…while Chaarat finds a huge resource in Kyrgyzstan

Mining often takes place in far-flung parts of the world and Chaarat Gold’s projects are no exception. Its mines are in Kyrgyzstan, formerly part of the Soviet Union.

Kyrgyzstan has experienced bouts of considerable political turmoil since gaining independence in 1991, but in October it held democratic presidential elections, and Almazbek Atambayev, a businessman who is determined to bring stability to the country, was sworn in last week.

Chaarat’s chief executive is Israeli-born commodities entrepreneur Dekel Golan and the chairman is socialite Tara Palmer-Tomkinson’s uncle, Christopher Palmer-Tomkinson, a long-standing former partner at blueblood stockbroking firm Cazenove.

Golan has operated in Kyrgyzstan since the turn of the century but the potential of the Chaarat mining assets has soared in the past four years.

In 2007, the company thought it had access to 1.9 million ounces of gold, but years of extensive tests suggest the figure is nearer 4.7 million ounces. In March, Chaarat generated £50 million in a 50p-a-share fundraising designed to take it through to production late next year. By 2013, it should be producing about 35,000 ounces of gold annually and by 2016 this should have risen to more than 180,000 ounces a year.

Midas verdict: Chaarat’s shares have been even less inspiring than Minera’s, starting the year at 76p and stuck at 251/2p today. The decline reflects general market aversion to risk, concerns about gold companies that are not yet in production and worries about political stability in Kyrgyzstan.

But the company has discovered a huge gold resource, Golan is an experienced operator and the presence of Christopher P-T should not be underestimated. He has a four per cent stake and bought 100,000 shares at 27p only six weeks ago.

At worst, this company could find it hard to raise the funds it needs to move into full production. At best, it could be taken over at a large premium by a major gold producer.

Cautious investors should not touch this share but the adventurous may find it appealing.

Traded on: Aim    Ticker: CGH   Contact: 020 7499 2612 or chaarat.com

Dogs slide further as fears hit shares – Eurozone debt crisis compounds losses in Midas’ experimental portfolio for Midas

The ast three months have been among the most dramatic of the past decade. No fewer than three European prime ministers have been replaced (in Greece, Spain and Italy), yet there still seems no sign of light at the end of the eurozone tunnel.The Continent is Britain’s biggest trading partner, so an economic slowdown across the Channel weighs heavily on investor sentiment on these shores.

Our banks and insurers also have significant exposure to the eurozone, partly because they do business across Europe and partly because they have lent billions of pounds to eurozone governments in the form of bonds.

If these governments are unable to repay their debts, insurers and banks will be forced to make huge provisions for these losses. This is a massive worry for the stock market and has seriously affected shares across the financial sector.

It has also had a major impact on the Midas Dogs of the Footsie portfolio, which consists of the ten FTSE 100 shares with the highest prospective yields.

This autumn, seven of them are financial stocks and some of their yields have rocketed. Shares in hedge fund manager Man Group, for example, are yielding nearly 11 per cent while insurers Aviva, Resolution and RSA all offer more than 8.5 per cent.

The yields have risen to such high levels because these companies’ share prices have fallen sharply in the past few months. If the shares fall but the prospective dividend remains static, the yield rises. Normally, however, yields of more than 7.5 per cent are considered unsustainable. In other words, brokers believe that sooner or later firms with extremely high yields are likely to cut their dividends.

Looking down the list, Man Group has said it intends to maintain the dividend at last year’s level, even though the shares have more than halved in the past 12 months as investors have become increasingly mistrustful of hedge funds.

Aviva warned this month that it has been hit hard by the eurozone debt crisis because bond prices have fallen heavily, affecting their value in Aviva’s balance sheet.

The news was compounded when chief executive Andrew Moss also said life insurance sales had fallen in the third quarter of this year, particularly on the Continent.

RSA, meanwhile, delivered a robust third-quarter trading statement, but there are still concerns about the amount it will have to pay out over flooding in Bangkok and Dublin and the impact of weak financial markets on its investment portfolio.

Both businesses would hate to disappoint investors by cutting their dividends, but they are yielding more than nine per cent.

In August, our ten portfolio members were Aviva, Astra-Zeneca, BAE Systems, Man Group, National Grid, Resolution, RSA, Scottish & Southern Energy, Standard Life and Vodafone.

AstraZeneca, National Grid and Vodafone have since slipped out of the portfolio as sentiment towards them has become more favourable and their share prices have risen. In their place come broker and dealer Icap, satellite group Inmarsat and Admiral.

Icap acts as a broker between professional investors in areas such as commodities, foreign exchange and futures, and when investors become less keen on risky products it tends to suffer.

The stock has fallen by a third since August and the price was not helped by the recent collapse of MF Global in the US, which runs a similar business. Icap shares are yielding more than 6.5 per cent, while Inmarsat’s are close behind.

This company has been badly affected by concerns about its largest customer, an American broadband technology company called LightSquared, and the shares have fallen by about a third in the past ten weeks.

Shares in Admiral have almost halved since the summer and fell off a cliff at the start of this month when the company warned that it had been hit by far more large claims than expected.

Admiral owns a string of brands, including elephant.co.uk and confused.com, but it has sought to reassure investors of its financial strength and brokers now seem convinced it will pay a dividend of at least 75p this year, resulting in a yield of almost nine per cent.

Overall, our Dogs are a sorry bunch and their performance since August has been decidedly unimpressive. Back then, our experimental portfolio was worth £5,196. Today, it has fallen to £4,961, so it has more than halved in value since we relaunched it in April 2007 with a notional £10,000.

The Footsie’s performance has been anaemic too, but it has at least risen since August, by 2.4 per cent. The £10,000 notionally invested in 2007 is now worth £8,053 – hardly earth-shattering, but much better than our struggling mutts have achieved.

The yields provide some consolation, but these Dogs really need to start racing in the New Year if they are to have any hope of catching up with the blue-chip index.

How we pick our ten FTSE tips

THE Midas Dogs of the Footsie portfolio tracks the performance of the ten highest-yielding stocks in the FTSE 100 index. It looks at prospective yields, which are calculated with reference to the next forecast annual dividend.

We simply divide those dividends by the current share price to find the prospective yield. Midas reassesses the portfolio every quarter, ditching stocks that are no longer top yielders and replacing them with those that are, to the same value.

Our calculations are based purely on the share price, so we do not reinvest the dividends received.

The idea has its roots in a similar experiment conducted in America on high-yielding stocks in the Dow Jones Industrial Average index and called The Dogs of the Dow.

Anglo Pacific Group has only ten employees, but is valued at more than £300 million and last year made £66 million. Profits per employee are among the highest on the London Stock Exchange, yet the company is relatively unknown and its line of business is highly unusual in this country.

Anglo Pacific specialises in buying mining royalties, which means it receives a percentage of revenue from a range of mining projects worldwide. Mining royalty companies are more common in other parts of the Commonwealth and offer distinct advantages over conventional mining groups, particularly for conservative investors.

Royalty companies are paid by mine operators monthly or quarterly and the figure depends on the revenue generated by the mine, so they are not affected by production or infrastructure costs, or any other kind of capital expenditure.

The income is long term, reasonably predictable and, once a royalty is acquired, Anglo Pacific rarely incurs further costs. As a result, the company has a progressive dividend policy and is one of the most generous dividend payers in the mining sector.

Founded in 1989, Anglo Pacific was part owned by South African miner Anglovaal and specialised in the acquisition of mining assets in Britain. Anglovaal sold out in the late 1990s and Anglo Pacific was restructured. For the past four years the company, chaired by Peter Boycott, has focused increasingly on royalties.

Royalties are not easy to come by. They are not sold on exchanges or financial markets, they are not advertised and sometimes even mine owners have not thought about using them. Finding them requires extensive contacts in the mining industry and a nose for potential investment opportunities. Anglo Pacific has both.

Essentially, royalties offer mining companies an alternative form of financing. When projects are at an early stage, they invariably require vast sums of money. So miners are always seeking ways to finance their development.

New shareholders cannot always be found to provide capital, particularly if equity markets are jittery, like now. Banks are not always willing to lend, particularly when economic conditions are tough. But royalties provide a third way.

Anglo Pacific will pay an upfront sum to gain access to royalties for the duration of a project. Once royalty agreements are in place, they are hard to dislodge so they often exist even on mature projects where cash is no longer an issue.

Anglo Pacific’s main royalty agreement is on the Kestrel coal mine in Australia, owned by Rio Tinto. The mining giant has no need for Anglo’s cash but the royalty was in place when Rio acquired Kestrel back in 1999 and so it remains to this day.

Rio is spending £600 million to expand the mine and production will increase next year. Anglo has not paid a penny for the expansion, but will clearly benefit when revenue from the mine increases.

Overall, Anglo has 17 royalty agreements. Five are secured against projects that are in production – coal in Australia, iron ore and gold in Brazil, copper and gold in Spain. A further 12 involve socalled development royalties – where Anglo has made an upfront payment to projects that will produce metal in future. These include platinum in Canada, uranium in Australia and chromium (used in stainless steel) in Albania.

Boycott and his chief executive John Theobald aim to acquire three or four new royalties a year, but they focus on safe parts of the world and well-known partners such as Rio Tinto. In recent months, Anglo has had more approaches than usual, as it becomes better known and as alternative sources of funding become harder to find.

Over the past few years, Anglo Pacific has proved an astute investor, as a result of which it sometimes receives one-off payments from past investments. The company provided finance to Canadian firm First Coal Corporation, for instance, to secure royalties once the business moved into production. In August, however, Londonlisted miner Xstrata acquired First Coal so Anglo received a lump sum of more than £12 million.

These one-off payments are unpredictable, but provide a welcome boost to cash flow and fund further royalty agreements.

Midas verdict: Anglo Pacific is focused on commodities that will fuel growth in Asia, particularly coal, iron and uranium. The shares have fallen from 338p to 277p since July, reflecting global economic uncertainty and concern over commodity prices in the next 12 months. At the current price, the shares are cheap. Even if commodity prices stagnate in the short term, longterm prospects are sound. Buy.

Traded on: Main market    Ticker: APF    Contact: 020 3435 7400 or anglopacificgroup.com

MIDAS UPDATE – Kenmare reckons on enduring strength of titanium

Data storage arm opens up a new frontier at Aveva - Software firm simplifies record retrieval for big engineering projects

Not so long ago, before computers were common, engineers would not have dreamt of starting a project without first constructing a model. Whole rooms would be devoted to the creation of a scaled-down prototype, be it an oil rig, a power plant, even a large ship.

The models allowed contractors physically to see what they were doing, but each time the specification was modified, even slightly, the models would have to be altered, often absorbing considerable time and expense.

These days, computers can do the same job, faster, cheaper and more effectively. Cambridge-based Aveva makes software that creates lifelike, 3D designs of complex projects that do not just show what the end-product will look like, but offers advice to users as well.

If, for example, an engineer puts a pump in a particular slot, Aveva’s technology will advise what else is required around it and where else on the project such a pump might be needed. It can even order certain components and advise whether they are in stock and when they can be delivered.

The company was spun out of Cambridge University in 1967 and originally focused on providing technical advice to shipbuilding firms. These customers still contribute between ten and 20 per cent of revenues, but the bulk of Aveva’s business now comes from the oil, gas and power industries.

Most of the world’s easily accessible oil has already been found, so explorers and producers must work harder to extract it.

Floating production, storage and offloading (FPSO) units are massive structures, almost like minicities, that sit far out to sea and enable companies to bring the oil on board, process it and store it until it can be taken ashore by tanker.

An FPSO costs about £650 million to build, so contractors do not want to make mistakes. Aveva’s technology helps them to be as accurate as possible and it is widely used by large contractors supplying equipment to companies such as Shell.

The company is particularly good at helping with the construction of complex projects such as nuclear power stations, renewable energy facilities and big chemical factories.

Highly respected in its field, it is renowned for the quality and reliability of its technology.

Aveva is not immune to the economic headwinds, but many of the projects in which it is involved have long lead times, offering some protection.

As for shipbuilding, projects have been scarce in the West, but countries such as China and India are busy developing their naval presence, so military shipbuilding is booming in Asia and Aveva is reaping the benefits.

Chief executive Richard Longdon has recently developed a new string to Aveva’s bow – helping firms store and manage the data they have on any given project. Oil rigs, power plants and similar sites will be made up of thousands, if not millions, of components, each of which needs to be maintained and replaced if it goes wrong. All too often the information pertaining to these projects is filed in hundreds of boxes.

Even if it is computerised, there is no logic to the way it is stored, so engineers can waste hours searching for what they need. Aveva Net compartmentalises every detail in a straightforward way and lets customers know when parts may need to be serviced or replaced.

The division has only been up and running for three years, but it is growing fast and there are hopes it will account for half of Aveva’s revenues in five years compared with about ten per cent today.

Midas verdict: Engineering projects are increasingly complex and Aveva’s technology helps to make construction and maintenance more accurate and less risky. Profits are expected to rise steadily over the next few years and interim figures in mid-November should be encouraging.

The shares at 1625p may seem expensive, but Aveva’s long-term prospects are good. Buy.

Traded on: Main market    Ticker: AVV     Contact: 01223 556655 or aveva.com

Sit tight after G4S suffers humiliation

On

Friday, October 14, shares in security group G4S closed at 282p. By Monday evening, they were 219p after chief executive Nick Buckles announced the £5.2 billion takeover of Danish cleaning business ISS, financed by a £2 billion rights issue.

Buckles thought the combination of G4S and ISS made sense, allowing him to offer customers around the world a comprehensive range of cleaning and security services.

Investors thought otherwise and last week Buckles was forced to scrap the deal. The about-turn has been humiliating but the shares have responded by climbing to 254p.

Midas verdict: Midas recommended G4S exactly three years ago when the stock was 193p. By last May, the price had risen to 280p and we suggested investors sold a third of their holdings.

The past few weeks have been unsettling but now is not the time to ship out. Hold.

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Thin goods make fat profits – AZ’s material in demand as gadgets get ever smaller

The economic situation remains depressing, but thirst for gadgetry continues almost unabated.

More than 450 million smart phones (such as the iPhone and the BlackBerry) will be sold worldwide this year as well as nearly 60 million tablets (such as iPads).

The makers of these gadgets compete fiercely, but their products share a number of characteristics.

They are light, carry a mass of information, glow when they are used and respond to the touch. None of this would be possible without highly sophisticated products, many of which are provided by AZ Electronic Materials.

Some of AZ’s materials are 300 times thinner than a strand of hair and each product makes up a tiny proportion of the cost of production, yet it is critical to making a wide range of electronic items, including flatscreen televisions, in-car entertainment systems and ultra-light laptops such as the MacBook Air.

The company was part of German industrial group Hoechst before it was taken private in 2004. AZ floated on the London Stock Exchange at 240p on November 3 last year and is trading at 251½p today.

This may seem unimpressive, but compared with other flotations in the past year, AZ has done well. It operates in markets that are expected to grow considerably over coming years as manufacturers strive to make gadgets smaller, lighter and smarter. The more efficient these items are, the more they need AZ’s materials.

Quality is of the essence so it takes years to qualify as a supplier to big electronic manufacturers such as Samsung, Toshiba, LG or Motorola.

Once a relationship is established it tends to be long-lasting, so most of AZ’s customers have been using the company for several years.

Chief executive Geoff Wild has been in the electronics industry all his career, holding positions at Johnson Matthey, Nikon and Honeywell before taking up his current job a few months before the float.

Brokers expect underlying profits to rise 15 per cent to $260 million (£160 million) this year, accompanied by a maiden dividend of 7.8p.

A trading statement on November 8 may say current conditions have been affected by the economic slowdown, but AZ is better placed than most to withstand the headwinds.

Midas verdict: Wild is ambitious for AZ, and rightly so. It benefits from demand for all things electronic and the quality of its products means customers are loyal. The shares represent good value. Buy.

Traded on: Main market    Ticker: AZEM     Contact: 020 8622 3825 or az-em.com

MIDAS EXTRA UPDATE

Oil company Ithaca Energy has pulled off a coup. The group has several assets in the North Sea and focuses on fields that are either in production or close to it.

But bringing oilfields to production is a costly business, so smaller producers face an almost constant financial strain.

Chief executive Iain McKendrick is no stranger to such challenges. Brought into the company in 2008, when its very survival was in question, McKendrick has steered Ithaca back to health, thanks in part to a number of innovative finance deals.

Ten days ago, he did it again, buying a £26 million oil platform from FTSE 100 oil services group Petrofac in return for a 20 per cent share of the field where the platform will be stationed.

A sophisticated barter, the deal gives Petrofac access to oil, while Ithaca can use costly kit without having to hand over ready cash.

McKendrick also made a small acquisition in the North Sea and sold an interest in another field.

The effect should be that Ithaca goes from producing between 5,000 and 10,000 barrels of oil a day to more than 25,000 by the end of 2013, making it one of the biggest independent producers in the North Sea.

Midas verdict: Midas Extra, the subscription column for Mail on Sunday readers at thisismoney.co.uk/midas-extra, recommended Ithaca in May 2009 when the shares were 38p. A year later, they were 190p so we suggested selling at least half. Today the stock is 138p, having suffered from the general market malaise and concern about small oil stocks. The current price is a bargain so existing investors should hold and new investors should consider a punt.

Traded on: Aim   Ticker: IAE    Contact: 01224 650267 or ithacaenergy.com