The Speculator

PORTFOLIO POINT: Local biotech Viralytics secures a fourth prestigious American hospital to partner its Phase II trials, while UCL's biggest shareholder rejects Minemakers’ bid.

The well-funded Viralytics (VLA) now has a fourth partnering hospital in the USA to participate in its planned 54-patient, Phase II intratumoural late stage melanoma trials.

The company last week announced the recruitment of Oncology Systems of Chicago, which runs cancer research centres on the campuses of the Lutheran General Hospital and Rush North Shore Medical Centre, both in Illinois.

Viralytics earlier announced (The Speculator, December 21) an initial three trial partners: the Mt Sinai Comprehensive Cancer Research Centre in Miami, Florida; the Huntsman Cancer Institute at the University of Utah; and the Mary Crowley Cancer Centre in Dallas, Texas.

The USA clinical trials are the first to be reviewed and allowed by America’s Food and Drug Administration for Viralytics’ trademarked CAVATAK virus derivative. After two successful initial Stage 1 trials in Australia, further trials were approved late last year in America for the Stage II CALM (Cavatak in Late Stage Melanoma), comprising up to 63 patients (54 evaluable) for the injection of CAVATAK into multiple tumours on up to 10 separate occasions over an 18-week period. The primary end-point of the trial will measure immune-related, progression-free survival after six months.

The first four patients in the American trials began treatments by December 31, with others being screened for recruitment. The company expects another three or four medical centres will join the trials in the next few months.

In this nervous sharemarket, Viralytics’ potential for a substantial re-rating in the next few months has been grossly underrated. The shares have traded down from a high last year of $1.10 (adjusted for a 10-to-one share consolidation in mid-2011) to a low in late December of 30c, and yesterday traded at 33c. At that price Viralytics, with 75 million issued shares, carries a market capitalisation of $24.75 million.

At December 31, Viralytics had net cash of $8 million, sufficient to fund its financial needs through to mid-2013, following a strongly-supported share purchase plan (SPP) that brought in $4.7 million late last year.

As a pointer to the company’s prospects, readers might be reminded of the appointment to Viralytics’ board of a new non-executive director, leading American virologist Dr Leonard Post, announced on November 21 last year. Dr Post is a former director of rival Biovex Ltd, a company taken over by Amgen Inc for more than $US1 billion earlier in 2011.

I understand that late last week, two influential Australian stockbroking firms – Bell Potter and Patersons Securities – interviewed two of Viralytics’ key players: managing director Bryan Dulhunty and chief science officer Dr Darren Shafren, Professor of Virology at the University of Newcastle, which holds close to 5% of the company.

Patersons Securities was underwriter to last year’s SPP at $0.3084 a share, but the underwriter picked up no shares to place to clients, such was the support of shareholders. I have no way of knowing, but if last week’s broker interviews lead to research reports, I can see no chance of a negative viewpoint.

Minemakers’ target plays an ace

Shareholders in both our portfolio stocks Minemakers (MAK) and its target UCL Resources (UCL) may take some comfort from the fact that both companies believe their phosphates joint venture is worth more than the market’s valuation.

As reported in this column (The Speculator, February 22), both Minemakers and UCL each hold equal 42.5% interests in a joint venture on the Sandpiper Marine Phosphate project in offshore Namibia, on the west coast of Africa.

Minemakers, which already owns 13.1% of UCL, announced a planned bid of nine of its shares for every 10 UCL shares two weeks ago, which UCL directors promptly branded as “opportunistic and inadequate”.

They trumped that rejection late last week with the announcement that UCL’s biggest shareholder – billionaire investor John Kahlbetzer, with a 31.69% holding – would not accept Minemakers’ unsolicited takeover offer.

Kahlbetzer’s interest is held through his two private companies – Twynam Agricultural Group Pty Ltd and Donwillow Pty Ltd, which between them hold 25,606,782 UCL shares.

UCL Resources managing director Chris Jordison later confirmed that the Kahlbetzer interests had also informed the company that they would not accept any revised or superior scrip offer from Minemakers.

Both Minemakers and UCL describe their joint venture Sandpiper project as “believed to be the largest individual marine phosphate resource in the world”.

On February 29, the companies announced an increase in the total (dry) measured resource to 220.13 million tonnes of 20.13% phosphorus pentoxide, an initial measured resource of 4.1 million tonnes of 20.45% grade and a remaining inferred resource (dry) of 1.607 billion tonnes of 18.9% phosphorus pentoxide.

We await the bidder’s statement or withdrawal (or otherwise). Ahead of the planned bid announcement, UCL shares traded at 19c; today they traded at 26c.

-The Speculator portfolio, as at March 7
Company	ASX	No of shares	Bought	Purchase price	Current price	Current value
Image Resources	IMA*	15,000	31/12/2010* *	0.362 av	$0.410	$6,150
Viralytics	VLA	19,995	20/12/2011	$0.308	$0.355	$7,098
Robust Resources	ROL	6,000	31/12/2010*	$1.49 av	$1.220	$7,320
Scotgold Resources	SGZ	25,000	31/12/2010*	$0.053	$0.078	$1,950
Scotgold Resources Options ex30/4/12 @ 8c	SGZO	2,500		$0.000	$0.008	$20
Coalworks	CWK	10,000	31/12/2010*	$0.830	$0.730	$7,300
GoConnect Ltd	GCN	120,000	31/12/2010*	$0.038	$0.025	$3,000
Minemakers	MAK	20,000	25/01/2011*	0.425 av	$0.260	$5,200
Platsearch	PTS	20,000	8/02/2011	$0.130	$0.090	$1,800
Broken Hill Prospecting	BPL	20,000	22/02/2011	$0.160	$0.100	$2,000
Austpac Resources	APG	40,000	2/03/2011	$0.060	$0.040	$1,600
Potash West	PWN	11,050	30/03/2011***	$0.200	$0.265	$2,928
Cortona Resources	CRC	20,000	13/04/2011	0.146 av	$0.145	$2,900
Golden Gate Petroleum	GGP	270,000	20/04/2011	0.013 av	$0.021	$5,670
TNT Mines	TNT	4,440	22/07/2011	$0.000	$0.250	$1,110
Quickstep Holdings	QHL	20,000	23/11/2011	$0.185	$0.175	$3,500
Orpheus Energy	OEG	19,250	17/08/2011	0.164 av	$0.130	$2,503
Total value of portfolio						$62,049
Cash at bank						-$9,554
Total						$52,495
Portfolio change since January 3, 2012 (started with $50,000)	4.99%
All Ordinaries change since January 3 2012 (then 4155.22)	3.38%
*Shares held from previous year, carried at their December 30, 2011 closing price.

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