Latest Research

Myanmar Metals (MYL) - Compelling Starter Pit

Myanmar Metals logoMyanmar Metals (MYL) released a Scoping Study for a starter pit in the China Lode of the Bawdwin Project (51% MYL). This 13 year, 250m deep starter pit provides compelling economics and would be the envy of most base metal projects globally. We estimate the 1.8Mtpa plant will produce 158ktpa Zn equivalent at minus ~US$0.45/lb payable Zn all-in sustaining costs (after credits) and generate average Revenue and EBITDA of US$395m and US$165m respectively (100% basis). It is important to note that the China Lode open pit consumes only 26% of the current resource. We believe the PFS (due Q1 2019) will incorporate additional open pits and underground mines from the neighbouring Shan and Meingtha lodes to produce a +25-year mine life. In addition, there is a high likelihood of further discoveries along the 8-10km of largely unexplored prospective strike in the Bawdwin Region. We maintain a SPEC BUY recommendation with a revised target price of $0.20/sh (from $0.22/sh).

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Explorum Ltd (EXU) - Cheap As Chips

Explorum Ltd LogoExplaurum (EXU) has received an off-market takeover offer from Ramelius Resources (RMS) with a bid of one RMS share for every four EXU shares. This values EXU at A$59.2m (12.3cps or EV/Reserve of $122/oz) and represents a 66.2% premium to the last traded price of 7.4cps. Whilst the deal appears opportunist, taking advantage of share price weakness, we think it does make sense for RMS with its existing infrastructure synergies in the region at Edna May. Our EXU target price of $0.21ps considers the potential for EXU to develop the project as a standalone operation and applies considerable exploration upside at Tampia. The value upside for RMS is substantial in our view, and provides significant flexibility in ore sources at the Edna May operation which could transform and de-risk the project with higher production and a longer mine life. RMS’ bid price however lacks value for the exploration and production upside which we view as considerable given EXU’s recent near mine success at The Mace and Anomaly 8 Prospects. We see value in the proposal, we think RMS will have to come back to the table to sweeten the deal to win over EXU shareholders. Spec Buy maintained and target price of $0.21ps.

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Australian Mines Ltd (AUZ) - Initiation: Advanced Cobalt

Australian Mines Ltd LogoAustralian Mines Ltd (AUZ) is developing the Sconi nickel-cobalt-scandium project in Queensland, Australia. Sconi is an oxide limonite deposit with mineralisation from surface. The deposit has a resource of 89Mt at 0.58% Ni and 0.06% Co and is currently subject to a Definitive Feasibility Study (BFS), due for release in the current quarter. We expect the BFS to outline a 2.0-2.4Mtpa operation producing 15ktpa Ni and 3ktpa Co in battery grade sulphate products. AUZ has 100% of Ni/Co sulphate products committed to a binding offtake agreement with Korean based battery producer SK Innovation. Sconi benefits from free-dig low strip mining, proximity to an established town and the port city of Townsville. The Project is on a granted Mining Lease (ML) and has sealed roads and power to site. We regard Sconi as the most advanced laterite Ni/Co project in Australia. SPEC BUY recommendation.

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Swick Mining Services (SWK) - Momentum

Swick Mining Services LogoDrilling segment EBITDA of $19.1m was in line with the update in July. Key though, was the steady improvement in EBITDA margin through FY18 (from ~10% in Q1 to ~18% in Q4). This is moving toward the 20%+ margin we believe SWK needs to generate appropriate returns on assets and equity. It reflects a strategy to roll over contracts at higher prices and the discipline to walk away from clients unprepared to accept higher rates. We believe the Drilling business (blended valuation $0.32) more than supports the current price. We add another $0.06 for Orexplore to get a valuation of $0.38 (prior $0.37). BUY.

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Orient Express - China Metallurgical Coal

Argonaut Limited LogoCoking coal prices started to pick up after a month-long weakness. Both Chinese and Australia FOB hard coking coal prices increased by ~3% since early August. The shut-down of some coal processing plants in Lvliang city of Shanxi Province to meet environmental protection standards worsened the supply of coking coal (particularly premium coking coal). Meanwhile, coke plants need to replenish their stockpile as downstream steel production remains strong. We expect domestic demand will trigger more coking coal imports and prices will rise further. Stocks under Argonaut coverage which should benefit from this event include Fushan (HL:639, Under Review) and Stanmore (ASX: SMR, BUY).

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