Latest Research

Otto Energy Limited (OEL) - Company Update: Loading The Gun

Otto Energy Limited LogoOEL released its full-year results which show the strong free cash flow potential of the SM71 field which is producing about US$2m to US$2.5m of free cash flow per month. OEL recently upgraded the SM71 reserves to 6.5mmboe which by our estimates will more than double field life. OEL is currently participating in the drilling of 2 wells and has another 9 planned over the next 12 to 18 months. This program is fully funded on a dry hole basis from free cash flow and cash on hand from the recent capital raising. We maintain our BUY recommendation with an increased valuation of AU$0.13.

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Paladin Energy (PDN) - Poised For The Uranium Recover

Paladin Energy LogoPaladin Energy (PDN) is best positioned for a uranium price recovery, with significant installed production capacity (>8Mlbpa U3O8), an established product and a pipeline of quality assets. The Company’s flagship Langer Heinrich Mine (LHM) is currently on care and maintenance (C&M), but retains a large resource base able to sustain over 20 years mine life with nameplate capacity of up to 5.2Mlbpa U3O8. PDN will look to optimise and enhance the LHM plant whilst on C&M, with potential to process lower grade resources, improve plant efficiencies and reduce costs. Upon restart, we expect LHM to emerge as the most efficient low-grade uranium processing plant globally with one of the lowest all-in cost profiles. Argonaut is predicting a substantial increase in uranium prices in the next 6-12 months as the market absorbs significant production curtailments over the past two years and increased spot purchasing. BUY recommendation.

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Stanmore Coal (SMR AU) - Growth And Margin Expansion

Stanmore Coal LogoStanmore’s FY18 underlying EBITDA rose more than 70% yoy to A$45.5m, vs Argonaut’s forecast of AS$48m, driven by 14% yoy increase in underlying margin. The Company announced a final dividend of 2c/sh, which we regard as a sign of balance sheet strength ($20m cash and no debt) and confidence to fund growth projects from expanding free cashflow. SMR’s FY19 ROM production is expected to increase >50% with the commissioning of the Isaac Plains East mine (IPE). This mine will have lower strip ratios, higher yields and a higher ratio of coking to thermal coal, resulting in lower FOB costs (A$100/t) and higher realised prices. SMR has growth options including the recently acquired Wotonga South (Isaac Downs) project immediately south of Isaac Plains and the Isaac Plains Underground (IPUG). A BFS on the underground is due for completion in the second half of CY18. The stock is currently trading at a very attractive EV/EBITDA of 2.1x, based on FY19 earnings. We reiterate our BUY recommendation on Stanmore and upgrade our target price to A$1.40 (prior A$1.10).

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Gage Roads (GRB) - Finalises Matso

Gage Roads LogoGRB has finalised the acquisition of Matso’s and announced a rebranding of its marketing framework. Both will help maintain the strongly positive strategic momentum, and accelerate the move towards a targeted $1 EBITDA per litre. We have reviewed our forecasts post this update and with the additional detail in the FY18 results. Changes are relatively minor, and we still assume this target is achievable by FY21. Our target price, which reflects a ~12.3x FY20 EBITDA multiple, of $0.128 (prior $0.123), is close to the current share price. It does not take into account potential corporate interest, which should be considered a possibility. Our HOLD call (prior BUY) is based on valuation grounds, and we remain impressed with GRB’s ongoing craft beer strategy execution.

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Orient Express - Nickel - Inventory Decline Supports Price Recovery

Argonaut Limited LogoNickel prices have recently undergone some downward pressure due to concern about demand a slow-down from stainless steel producers. We highlighted this price weakness in our Asia Morning Note on 4 September. However, the recent stainless-steel inventory drawdown should support an increase in the nickel price in the short-term. Meanwhile, the nickel sulphate premium to the nickel price has started to increase, reflecting growing demand from the battery sector.

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