Latest Research

Sovereign Metals (SVM) - PFS Confirms Strong Margins

Sovereign Metals LogoSovereign Metals (SVM) released a Pre-Feasibility Study (PFS) for its 100% owned Malingunde graphite project in Malawi. Malingunde is a rare high grade saprolite deposit, with low strip ratios, free digging and minimal crushing resulting in low operating and capital costs. SVM forecast’s FOB cash costs delivered to Nacala Port in Mozambique average US$323/t (per tonne concentrate) life of mine (LOM). Capital costs are also low, estimated at US$49m. While Malawi is a land locked country, the project has access to port via a recently refurbished rail line with excess capacity. Argonaut maintains a SPEC BUY recommendation with a target price of $0.16.

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Gascoyne Resources (GCY) - Company Update - Target Price Updated

Gascoyne Resources LogoGascoyne Resources (GCY) recently announced Board changes which saw the departure of the Managing Director and the newly appointed Chairman. The stock was severely sold off as a result of this and the disappointing Sept Q production report. We recently met with the new management to flesh out the recent developments and how these might be rectified going forward. A number of issues have arisen which have caused a cascading effect to lower production and cashflow which is critical in the early stages of any mining project. We do see many of these issues as being mitigated over coming months which is a key positive. Argonaut views the share price at current levels presents a significant, albeit risky opportunity. Our modelling reflects a heavy discount to account for production risk going forward, but still implies a ~70% upside to the current share price. Speculative Buy.

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Ausdrill Limited (ASL) - Edikan Clouds The Bigger Picture

Ausdrill Limited LogoThe Barminco acquisition has completed, although the loss of the Edikan contract caught us by surprise. But focussing solely on this loss risks missing the bigger picture in our view. With at least 30 other mining and production drilling contracts across the group, ASL is bigger than one mine site. Other contracts have been extended and pipeline opportunities remain. We like the Barminco acquisition and maintain a BUY call on a revised blended valuation of $2.25 (prior $2.40).

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Western Areas (WSA) - Reserves Required

Western Areas LogoWestern Areas (WSA) released September Q results with 5.4kt Ni in concentrate and C1 cash costs of A$2.99/lb (before payability), broadly in line with Argonaut’s forecast of 5.4kt @ A$2.80/lb. Cash and receivables declined $7.7m to $164.3m after a ~$13m increase in capital works and exploration, including $4.4m on the Odysseus project. WSA recently released a DFS on Odysseus and formalised its decision to mine. Argonaut derives an uncompelling post-tax IRR of 12% applying a long-term nickel price of US$6.50/lb and 0.72 AUD/USD FX. At current milling rates Forrestania has ~4.5 years remaining mine life based on reserves. We believe the share price will come under increasing pressure if reserves are not replenished at Forrestania. Maintain BUY recommendation with a revised target price of $2.75 (from $3.40).

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Gage Roads (GRB) - 1Q19 Update

Gage Roads LogoGRB’s strategic shift towards higher margin proprietary products in the sales mix will be accelerated post the acquisition of Matso’s in the September quarter. Sales growth in Gage Roads branded products in 1Q19 showed strong growth on the prior corresponding period, confirming positive momentum. Quarterly operating cash flow was negative, reflecting business seasonality and marketing spend, and we expect this to turn around in the December quarter. The share price has fallen in recent weeks, and with little change to our forecasts and valuation / target price, we upgrade to BUY (prior HOLD).

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