Latest Research

Dacian Gold (DCN) - Production Accelerating Into The 2HFY 19

Dacian Gold LogoDacian Gold (DCN) reported Dec Q production of 38koz (+29% vs 29.3koz in the Sept Q, previously reported). Metrics on all fronts showed double digit growth, reflecting maturity of the operations coincident with commercial production which was declared earlier this month. Milled ore tonnes exceeded our expectations at 630kt @ 2g/t (vs Argonaut 700kt at 1.7-1.9g/t Au), largely as a result of increased underground mined grades of 4.2gt (+27% QoQ) which fed into a 43% gain in the milled head grade to 2g/t Au vs the Sept Q. Mining rates improved by 18% QoQ, removing the mine-to-mill constraints in the ramp up period. The March Q will show further gains as higher-grade zones in the Cornwall Shear Zone (CSZ) are mined at Jupiter, and first development ores from the Allanson underground are accessed. Cash increased to $85.6m (+$3.5m QoQ) and debt remained at $133.5m (unch). Operations are improving in line with expectations and the stock trades on undemanding forward multiples of 5x FY19 EV/EBITDA. BUY maintained with a target price of $3.50ps.

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Sandfire Resources (SFR) - Monty Coming On Line

Sandfire Resources LogoSandfire Resources (SFR) reported December Q production of 16.9kt Cu and 10.4koz Au at a US$0.85/lb C1 cost (down 6% on Cu and Au production and down 2% on cost QoQ). Production was impacted by a lower Cu head grade and lower recoveries. DeGrussa production is still tracking at the upper end of production guidance and below cost guidance for FY19. Group cash at 31 December was $179m (vs Argonaut forecast of $225), following a ~$72m payment for the Springfield acquisition from Talisman Mining (TLM) and equity investments in Sandfire Resources America (previously Tintina Resource) and Adriatic Metals (ASX:ADT). Post-quarter, the Company confirmed media speculation that it had approached MOD Resources (MOD, BUY, TP $0.83) regarding a potential combination of the two companies (See report: Sandfire confirms takeover approach to MOD). We see MOD’s large tenement holding in the Botswana Copper Belt as a good fit for SFR, however we believe the touted offer price of $0.38/sh will need to be raised in order to complete the acquisition. We downgrade SFR to a HOLD (from BUY) due to uncertainty around the potential MOD acquisition and as the stock is trading within ~5% of our revised $7.70 target price (previously $8.10).

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Metro Mining (MMI) - Set Up For A Strong 2019

Metro Mining LogoMetro Mining (MMI) released December Q results with bauxite sales of 743k wet metric tonnes (WMT), bringing the total for CY18 of 2.037Mt within the guidance range of 1.95-2.075Mt (previously announced). MMI recently committed to an expansion to 3.5Mt in CY19, following a solid operational performance in the first year of production and strong market demand. A Definitive Feasibility Study (DFS) is underway to further increase production to 6Mtpa by 2021. Declining reserves and environmentally motivated mine closures in China has led to increasing demand for bauxite imports. Chinese imports increased by an average 25% pa over the past two years reaching ~80Mt in 2018 and are expected to grow to 130-150Mt by 2025. We see MMI as the best positioned ASX listed stock to capitalise on this growing demand. The Company has production growth, an accepted product with established customers and is located in a low sovereign risk jurisdiction, close to China. BUY maintained with a $0.40 target price.

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Evolution Mining - A softer December Q, but still on track

Evolution Mining LogoEvolution Mining (EVN) delivered Dec Q production of 182koz (-9% vs Sept Q) which was below Company forecasts of 185-195koz and below Argonauts estimates of 196koz. All-in sustaining costs (AISC) of $973/oz (+9% QoQ) were above stated FY19 guidance. Overall, it was a weaker quarter of higher costs and lower production at all key assets, largely as a result of unplanned shutdowns and mine sequencing. Despite the weaker production, operating mine cashflow of $191.1m was only -3% lower QoQ thanks to a 4% uptick in the received gold price vs the Sept Q. 1HFY19 production came in at 382koz at AISC $928/oz which should see EVN reach the upper end of FY19 production guidance but at the higher end of cost guidance. We revise our target price upwards to $3.24ps and maintain our HOLD recommendation after recent share price strength.

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OZ Minerals - Growth, optionality and a strong balance sheet

OZ Minerals (OZL) delivered a strong December Q to round off its fourth consecutive year meeting annual guidance. Group production for the Q was 29.5kt and 40.1koz Au at a US$1.18/lb all-in sustaining cost (AISC). Prominent Hill (PH) Cu and Au production of 116.0kt and 135.6koz was at the upper end of CY18 guidance and the AISC of US$1.14/lb was below guidance. Carrapateena development remains on track for first production in Q4 CY19. OZL added $51m to the balance sheet following $99m capex for Carrapateena and $14m exploration expenditure. OZL is our preferred base metal stock under coverage with long life assets, near term production growth, a strong balance sheet and future optionality from a pipeline of globally diversified assets. BUY maintained.

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