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OZ Minerals (OZL) reported June Q production results of 27.1kt Cu and 28.1kt Au below Argonaut’s forecast of 30kt Cu and 38kt Au. During the period, Prominent Hill made the transition from open pit mining to stockpile reclamation resulting in a significant decrease in AISC from US$1.36/lb to US$1.17/lb. OZL’s balance sheet remains strong with $454m cash (vs $646m at March 30) after $78m investment into Carrapateena development, $201m cash payment for the Avanco Resources (AVB) acquisition and a $100m tax expense. The AVB takeover is all-but complete with OZL controlling 97.7% of outstanding shares at June 30. BUY recommendation maintained.

Mod Resources (MOD) has signed a binding agreement to acquire Metal Tiger’s (LON:MTR) 30% stake in the T3 deposit, the key asset in the greater Kalahari Copper Project in Botswana. The all scrip deal, comprising 17.2m MOD shares and 40.6m options (at zero exercise price), values the transaction at $26.6m based on MOD’s 20 day VWAP of $0.46/sh. This implies a see-through value of $87m for the T3 deposit. The transaction incorporates mechanisms to maintain MTR ‘s shareholding in MOD at <=12.5% and gives MOD the option to acquire 100% of joint venture (JV) exploration tenements within the project area. MTR has agreed to support MOD’s Board in any change of control recommendations. We see this transaction as a positive for MOD as it gains 100% of T3, increasing the Company’s control in the project and raising takeover appeal. We highlight MOD’s strategic value as one of the few listed companies globally with an economically feasible copper project and a belt scale land holding. Few acquirable copper plays remain listed on the ASX following the recent acquisitions of Avanco Resources (AVB) and Finders Resources (FND). BUY recommendation with revised target price of $0.83.

Northern Star (NST) delivered a standout June Q, producing 184koz at an all-in sustaining cost (AISC) of A$982/oz (+48% on production, -8% on costs vs the March Q), well above our expectations and guidance. Underlying free cashflow from operations was $93m (+191% from $32m in March Q). Net cash increased to $512m (+16% Q-o-Q). Group milled tonnes rose by 34%, largely as a result of the integration of South Kal (SKO) production capacity. FY19 production guidance is forecast at 600-640koz at an AISC of A$1,025-$1,125/oz, which we see as conservative. Argonaut believes NST has strong potential to flex milling capacity and move >700kozpa in the short term via existing capacity and toll treatment or potential M&A. NST continues to trade on premium metrics including ~22x EV/FCF and >$6,000oz EV/production. We maintain our HOLD recommendation and we look for additional detail at the Strategy Day on August 4th

WA has stabilised, although there is little evidence to suggest growth yet. But given upcoming Pilbara capex spend (see Contracting – pumping iron, 26 June) we believe it’s only a matter of time. In our view the economic pickup will start in 2019, increase into 2020, and be more sustained thereafter

Saracen (SAR) produced a strong June Q to close out the year with 316koz gold production at an AISC of A$1,139, ahead of revised guidance 310-315koz @ A$1,100-1,150/oz. Production for the June Q was 78.9koz at an AISC of A$1,196. The results were in-line with Argonaut’s forecasts of 316koz for the full year and 78.5koz for the June Q. Production is set to rise in FY19 with guidance set at 325-345koz at A$1,050-1,100/oz AISC, below our prior prediction of 352koz @ A$950/oz. The Company added $29.3m net mine cash flow, increasing cash and liquid assets to $118.3m at June 30 (vs Argonaut forecast of $112.7m and March 31 at $101.5m). Maintain SELL recommendation with a $1.85 target price.

Myanmar Metals (MYL) recently conducted an $35m equity raising (at $0.06/sh) to fund the exercise of the Bawdwin mine option ($14.9m) and to complete feasibility studies. MYL has hit the ground running releasing an updated resource with a 23% increase in Indicated Resources to 25Mt @ 4.3oz/t Ag, 7.9% Zn+Pb and 0.2% Cu. Argonaut regards Arizona Mining’s (TSX:AZ) Taylor deposit as the closest analogy to Bawdwin. AZ was recently acquired by South 32 (ASX:S32) for a total consideration of ~US$$1.4b. We calculate a see-through valuation for MYL of $0.38/sh based on an EV/Resource multiple (contained Zn equivalent). A comparison of the Bawdwin and Taylor deposits is provided in the linked report.

Otto 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.

The 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.

West 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).

Dacian 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