Latest Research

Evolution Mining (EVN) - Strong Finish But Capex Headwinds Await

Evolution Mining LogoEvolution Mining (EVN) delivered March Q production of 202koz (+6% vs March Q 191koz) above Argonaut’s estimates of 193koz. All-in sustaining costs (AISC) of A$846/oz were 10% higher QoQ (A$768/oz in March Q). Standout performance came from the Ernest Henry (EH) asset with 24koz at a record low AISC of negative -$823/oz (including by-product credits) and generating net mine cash-flow of A$59.4m for the Q. Group operating mine cash-flow of $221m (+26% vs Mar Q $175m) and net mine cash flow of $136m (+22% vs March Q $111.4m) were higher than Argonauts forecasts as a combination of record-low costs at EH and improved production. FY18 production of 801koz came in at the upper end of 790-805koz guidance (vs Argonaut 794koz), however operating mine cash flow came in at $812m, well above our forecast as a result of significantly lower AISC which saw the full year come in at A$797/oz, -6% lower than Argonaut forecasts and well below the FY18 A$820-870/oz guidance. The stock remains in line with our valuation. HOLD recommendation maintained.

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OZ Minerals (OZL) - June Q Results

OZ Minerals LogoOZ Minerals (OZL) reported June Q production results of 27.1kt Cu and 28.1kt Au below Argonaut’s forecast of 30kt Cu and 38kt Au. During the period, Prominent Hill made the transition from open pit mining to stockpile reclamation resulting in a significant decrease in AISC from US$1.36/lb to US$1.17/lb. OZL’s balance sheet remains strong with $454m cash (vs $646m at March 30) after $78m investment into Carrapateena development, $201m cash payment for the Avanco Resources (AVB) acquisition and a $100m tax expense. The AVB takeover is all-but complete with OZL controlling 97.7% of outstanding shares at June 30. BUY recommendation maintained.

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MOD Resources (MOD) - Consolidating T3

MOD Resources LogoMod Resources (MOD) has signed a binding agreement to acquire Metal Tiger’s (LON:MTR) 30% stake in the T3 deposit, the key asset in the greater Kalahari Copper Project in Botswana. The all scrip deal, comprising 17.2m MOD shares and 40.6m options (at zero exercise price), values the transaction at $26.6m based on MOD’s 20 day VWAP of $0.46/sh. This implies a see-through value of $87m for the T3 deposit. The transaction incorporates mechanisms to maintain MTR ‘s shareholding in MOD at <=12.5% and gives MOD the option to acquire 100% of joint venture (JV) exploration tenements within the project area. MTR has agreed to support MOD’s Board in any change of control recommendations. We see this transaction as a positive for MOD as it gains 100% of T3, increasing the Company’s control in the project and raising takeover appeal. We highlight MOD’s strategic value as one of the few listed companies globally with an economically feasible copper project and a belt scale land holding. Few acquirable copper plays remain listed on the ASX following the recent acquisitions of Avanco Resources (AVB) and Finders Resources (FND). BUY recommendation with revised target price of $0.83.

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Northern Star Resources (NST) - Its All About What Comes Next

Northern Star Resources LogoNorthern Star (NST) delivered a standout June Q, producing 184koz at an all-in sustaining cost (AISC) of A$982/oz (+48% on production, -8% on costs vs the March Q), well above our expectations and guidance. Underlying free cashflow from operations was $93m (+191% from $32m in March Q). Net cash increased to $512m (+16% Q-o-Q). Group milled tonnes rose by 34%, largely as a result of the integration of South Kal (SKO) production capacity. FY19 production guidance is forecast at 600-640koz at an AISC of A$1,025-$1,125/oz, which we see as conservative. Argonaut believes NST has strong potential to flex milling capacity and move >700kozpa in the short term via existing capacity and toll treatment or potential M&A. NST continues to trade on premium metrics including ~22x EV/FCF and >$6,000oz EV/production. We maintain our HOLD recommendation and we look for additional detail at the Strategy Day on August 4th

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Industrials/WA Economy - Are We There Yet?

Argonaut LogoWA has stabilised, although there is little evidence to suggest growth yet. But given upcoming Pilbara capex spend (see Contracting – pumping iron, 26 June) we believe it’s only a matter of time. In our view the economic pickup will start in 2019, increase into 2020, and be more sustained thereafter

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