Latest Research

MOD Resources (MOD) - In Play, But Eyes Still On The Ball

MOD Resources LogoMOD Resources (MOD) recently received an unsolicited, non-binding indicative offer from Sandfire Resources (SFR, BUY, $7.80/sh TP) of ~$0.38/sh. While this is yet to materialise in a formal offer, we believe the Company is in-play and one of the few acquirable quality copper development plays globally. Despite this corporate interest, the Company is maintaining its course on the Botswana Copper Project and is due to release a Bankable Feasibility Study (BFS) on its 100% owned T3 deposit in the coming weeks. Argonaut is expecting throughput to remain at the revised 3Mtpa rate and pre-production capital intensity to be roughly in-line with the PFS Base Case equating to ~US$230m. The Company is also working on financing options which may include a mix of debt and equity capital with a potential project or TopCo minority investment. BUY maintained.

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Paringa Resources (PNL) - Debt Restructure De-Risks Ramp-Up

Paringa Resources LogoParinga Resources (PNL) has executed a term sheet with Tribeca Global Resources Credit Pty Ltd (Tribeca) for a US$56m Term Loan Facility. This loan will be used to refinance the US$21.7m Macquarie debt facility, fund accelerated expansion and provide working capital. PNL will now bring on a third mining unit at its Poplar Grove mine in the Wk No. 9 seam to generate 2.8Mtpa clean thermal coal. We see this as a significant de-risking event as the delayed construction of the mine was placing the balance sheet under stress in H1 2019. Construction of the mine is now complete and mining is ramping up. The first barged sale is now expected the week beginning 25 March 2019. Argonaut maintains a BUY recommendation with a revised target price of $0.58 (previously $0.80).

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Argonaut Research - Commodity Price, FX and Discount Rate Revisions

Argonaut Limited LogoArgonaut has revised its commodity prices with changes to base metals, gold, uranium, iron ore, bauxite, Brent oil and spodumene concentrate. We have also adjusted our CNY/USD FX rate and lowered the discount rate applied to Australian domiciled copper producers. Macro factors such as ongoing trade tensions between the US and China, stagnating global growth and escalating Chinese debt/bond defaults pose significant risk to commodity prices and are driving high price volatility. However, China, the largest single consumer of mineral commodities, continues to pull levers to stimulate growth. Most recently this has incorporated fiscal expansion & monetary easing, tax cuts and power cost reductions for manufacturers. Improving supply demand thematics and growing demand for electrification and battery minerals should provide positive price movements for copper and nickel in the short to medium term. We take a view that the proliferation of electric vehicles will continue to drive battery mineral demand deep into the next decade, however some sectors are moving into market balance or surplus such as lithium and cobalt. Gold as a defensive investment remains a key theme with the ongoing US-China trade dispute. Argonaut’s preferred metals over the medium-term include gold, copper and nickel. Our preferred stocks include; Dacian Gold (DCN), OZ Minerals (OZL), Otto Energy (OEL), Gold Road (GOR), Myanmar Metals (MYL) and Yanzhou Coal (1171:HK). Changes to commodity prices, FX and stock recommendation are detailed in the attached document in Tables 1-3.

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OZ Minerals (OZL) - Low Risk Block Cave Strategy

OZ Minerals LogoOZ Minerals (OZL) has released a high-level Scoping Study to transition the Carrapateena mine from sub-level cave (SLC) to block cave (BC) mining from ~2025. This enables OZL to extract a larger portion of the overall resource, increase annual production and lower all-in sustaining costs (AISC). The BC operation will increase mine output to 10-12Mtpa producing 105-125Kt Cu (plus Au and Ag) at an AISC of US$0.90-0.95/lb, versus the current SLC model of 4.25Mtpa producing ~65ktpa Cu at ~US$1.05/lb (LOM average). While block cave mining enables greater extraction rates at low costs, it is a high-risk mining method due to the complexities of scale and the dependence on orebody geomechanics for cavability. OZL will significantly reduce risks by gaining an understanding of the geology and geomechanics from the initial SLC operation. Incorporating the BC mine into Argonaut’s model is largely value neutral due to the long datedness of increased cashflows and the nearer term $1.0-1.3b additional capex. However, we still regard this as a positive initiative given the increased production and higher free cash generation longer term.

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Stealth Global (SGI) - Interim Results

Stealth Global LogoIt’s been a busy 6 months for SGI, with the acquisition and subsequent integration of the well-established Heatleys business setting the group up for a strong 2H19. After proforma interim EBIT of $1.0m in 1H19, this is needed to meet the $3.4m FY19 prospectus forecast. We are positive on the longer term growth prospects and believe the Company’s wide footprint, broad product lines, distribution networks, and diverse customer base provides growth opportunities. Revenue and margin growth is key in coming reporting periods, which if achieved, will underpin our view the stock offers value. SPEC BUY maintained.

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