Latest Research

Otto Energy (OEL) - Quarterly Report - Q1FY19

Otto Energy LogoOEL achieved revenue of US$12.m and EBITDAX of US$7.5m this quarter. After development and exploration costs, OEL recorded a negative movement in net cash of US$5.2m. OEL’s sales totalled 166,298 bbl of oil and 177,802 Mcf of gas. Oil production was stable compared the previous quarter with only a negative 2% change. The recent share price weakness is a buying opportunity as OEL is trading on an EV/EBITDAX multiple of 3.1 based on our forecasts. If we annualise this quarterly result and assume oil prices and production remain at these levels this drops to 1.66x for the FY which is extremely cheap. We maintain our Buy recommendation with a price target of $0.10.

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Independence Group (IGO) - Mixed September Quarter

Independence Group LogoIndependence Group (IGO) released September Q results with Nova Ni and Cu production both down 7% QoQ to 6.9kt and 3.2kt respectively, while Tropicana recorded strong production up 9% to 125koz gold (100% basis). Cash increased 27% to $176m and debt decreased 20% to $114m. IGO is moving into a strong cashflow period over the next 12-24 months with Nova hitting full production and mine development abating and Tropicana hitting peak production as grade streaming continues. Argonaut forecasts >$300m free cashflow (FCF) in FY19 before debt repayments. After divesting the Jaguar mine and placing Long on Care and Maintenance, IGO has a much leaner portfolio with a focus of core, high margin assets. Upgrade to BUY from HOLD due share price weakness.

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Northern Star Resources (NST) - Asset Integration Sets Up For A Big FY19

Northern Star LogoNorthern Star (NST) delivered a positive Sept Q with production of 208koz, albeit at an elevated AISC of $1,226/oz (+13% on production, +25% on costs). The result was broadly in line with our expectations following the integration of the higher cost SKO asset into the Kalgoorlie Op’s and the newly acquired Pogo asset into the portfolio. Net cash increased to $277m (+5% post Pogo acquisition). For the remainder of FY19 NST is setting up for strong performance. Mined and milled tonnes rose by 41%/13% respectively. We see improvement as Pogo utilisation rates lift to 90-100% over the remainder of FY19 as mining is optimised to synchronise with mill availability. We see NST reaching the mid-point of 850-900koz FY19 guidance.

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Sandfire Resources Strong September Q

Sandfire Resources LogoSandfire Resources (SFR) reported strong September Q results with copper production maintaining levels above 17kt for two quarters in a row on the back of high grades and improving recoveries. Gold production was up 17% to 11.1koz. C1 cash costs of US$0.89/lb we well below FY19 guidance of US$1.00-1.05/lb. The Monty decline development is running 18% behind schedule, however first ore will still be intercepted in the current Q with stoping to commence in the March Q. Post quarter, SFR completed the acquisition of Talisman Mining’s (TLM) 30% stake in the Springfield Exploration and Mining Joint Ventures for $72m cash and a 1% Net Smelter Return (NSR) royalty. A total of 64,987m were drilled in the greater Doolgunna region during the Q, but no significant intercepts were reported. At 30 September, the Company had $218m cash and negligible debt.

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Fortescue Metals (FMG) - The New Force In 60% Fe Ores

Fortescue Metals LogoFortescue Metals (FMG) reported Sept Q results with 40.2Mt shipped at a C1 cost of US$13.19/wmt (-14% on production, +8% on costs QoQ). Strip ratio’s increased to 1.6:1 (from 1.5:1) as overburden removal increased with planned access to higher-grade areas, with shipping of 60.1% Fe ores due in the late December Q. Gross debt remained at US$4.0bn (unch) and cash was higher at US$972m. The average received price of US$45/dmt implied a price realisation gap to the Platts 62 CFR of 33% (from 37% QoQ), a marginal improvement on the June Q. The advent of higher-grade ores is a net positive, as is the investment in automation, which is improving costs, but FMG continues to face weak macro headwinds for low grade ores which will continue to impact earnings until Eliwana comes on-line. HOLD recommendation maintained and we revise our target price to $4.31ps (prior $4.75ps).

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