Latest Research

Otto Energy (OEL) - Initiation Of Research - Pumping Out The Cash In The Gulf Of Mexico

Otto Energy LogoOtto Energy (OEL) has a producing conventional oil field and two exploration prospects in the Gulf of Mexico as well as an upcoming exploration well one mile from the Armstrong/Repsol discovery on the North Slope in Alaska. We believe OEL is undervalued in that it is trading at circa 3x operating cash flow before any reinvestment into new projects. OEL offers an attractive combination of newly commissioned production and confirmed drill ready exploration prospects. OEL plans to use its forecast substantial free cash flow from operations to invest in new projects to replace produced reserves and potentially materially uplift production and reserves. We initiate coverage on Otto Energy (OEL) with a BUY recommendation and a price target of $0.10.

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June Quarter Production And Diggers Preview

Argonaut LogoThe ASX Resources indexes have recorded double digit gains in FY18 reflecting positive moves in commodities across the board. Gold stocks continued to perform well with the XGD gold index up 18%. Mid-tier gold miners have run hard and we now see them trading on metrics similar to North American Peers. As such, there is better value in the smaller producers. The real strength however came from sectors exposed to base and battery materials with the S&P 300 Resources Index (XKR) up 34% and the Small Resources Index (XSR) up 45%. In base metals, M&A is intensifying as the number of quality developers dwindles after a series of acquisitions in FY18. We argue that for further inorganic growth, companies must start looking offshore due to the high price and lack of Australian domiciled assets. The Diggers and Dealers (D&D) conference is just around the corner and we highlight our key picks in the sector and identify key themes and expected newsflow.

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West African Resrouces (WAF) - Sanbrado Updated Feasibility

West African Resources LogoWest African Resources (WAF) has released the optimised Feasibility Study for the Sanbrado Project in West Africa. The study has built on the 2017 open pit Feasibility Study and now includes a substantial underground component following the discovery of the high grade M1 South Lode. The study assumes capital costs of US$185m with average annual production of 211koz over the first 5 years and all-in sustaining costs (AISC) of A$853/oz over the Life of Mine (LOM). The project is robust on a number of gold price sensitivities with an NPV5% (vs Argonaut NPV9%) of $540m at US$1,300/oz gold prices (100% basis, vs Argonaut NPV $355m at 80%), an after-tax IRR of 49%, a projected payback of 16 months and an initial 11-year mine life. The company is advancing towards a number of milestones in the coming months including the Formal Investment Decision (FID), commencement of early works and project financing. BUY recommendation maintained with a revised target price of $0.52ps (prior $0.66ps).

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Dacian Gold (DCN) - Joining The Ranks Of The Mid-Tier

Dacian Gold LogoDacian Gold (DCN) commenced gold production at the Mt Morgans Gold Mine in Western Australia on 29th March in line with the feasibility forecasts for a completion in the March Q CY18. Guidance has been updated with production in the June Q CY18 of 30-40koz and FY19 production of 180-210koz. Exploration continues aggressively at Beresford and Cameron Well with updated Resource and Reserves expected in the 1HFY19. DCN trades on undemanding EV/Production metrics of $3,000/oz vs the peer group averaging $6,000/oz. We now expect that DCN’s discount to our NAV and its peer group valuation will unwind as the production commissioning is completed. BUY, TP $3.66ps

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Decmil (DCG) - Update And Contract Win

Decmil LogoDCG has pared back FY18 guidance, confirmed FY19 revenue expectations, announced a NZ$125m contract extension in New Zealand, and provided a general update across its businesses. While our FY18 numbers have been pulled back, we remain upbeat on DCG’s medium-term prospects across east coast infrastructure and WA resource projects, as well as the increasing exposure to New Zealand. We have reduced longer term margins slightly and our blended valuation is now $1.35 (prior $1.40). Our positive macro view and the valuation upside continues to support a BUY recommendation.

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