Latest Research

Western Areas (WSA) - An Odyssey To Odysseus

Western Areas LogoWestern Areas (WSA) released the Pre-feasibility Study (PFS) for the Odysseus deposit, part of the greater Cosmos project. The study highlighted a pre-tax NPV7 of $292m with $190-210m total pre-production capex generating a 28% IRR and a 3.5-year payback (applying US$7.50/lb nickel and 0.75AUD/USD FX). The project could generate 87ktpa nickel in concentrate over a 7.5-year mine life at C1 costs of A$4.34/lb (assuming 74% payability) with a cash breakeven price of A$6.09/lb (US$4.57/lb). At the LME current spot price of US$4.52/lb the project is not viable, however we believe it offers optionality to expected higher future prices (Argonaut forecast US$6.50/lb long term). We see upside for the project from the inclusion of remnant ore at the AM5 and AM6 lodes as well as potential exploration discoveries. We regard Neptune as an attractive prospect where a recent RC collar intercepted 3m from 184m of massive sulphides grading 2.76%Ni.

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Tox Free Solutions (TOX) - Bundled Off Barrow

Tox Free Solutions LogoTOX has lost out on a longer-term waste services contract on Barrow Island (despite being the incumbent). The $1-2m earnings impact is not material in our view, however our FY18 EBITDA forecast falls by more than this as we build in further conservatism. TOX has done well to diversify the business over the last few years, however we believe investors would welcome an acquisition holiday so as to see a clean run-rate and evidence of organic growth. Our valuation falls to $2.50 (prior $2.60), however we maintain a buy call on a longer term view of the growth potential in an attractive industry.

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Paringa Resources (PNL) - Seams Sublime

Paringa Resources LogoParinga Resources (PNL) released an Expanded Bankable Feasibility Study (BFS) incorporating the WK No. 11 seam into the production profile for the Poplar Grove Mine. Mining both the WK No. 9 and WK No. 11 seams has significantly improved the economics of Poplar Grove which now boasts 2.8Mtpa clean coal production generating US$67mpa EBITDA, a NPV8 of US$310m and a 42% IRR (PNL estimates). Combined with the Cypress Mine, the Buck Creek Complex will generate 6.6Mtpa clean coal, US$163mpa EBITDA and a NPV8 of US$655m (A$850m) over a 25-year mine life. Both mines are fully permitted to start construction with sales contracts in place for 4.8Mt over the first 5 years of production. BUY recommendation with a $1.55 target price.

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West African Resources (WAF) - Mini To M-Class

West African Resources LogoWest African Resources (WAF) is a well-funded emerging gold producer progressing the development of wholly owned 2Moz Sanbrado Gold Project in Burkina Faso. WAF acquired the project in 2014 and completed an open pit feasibility study in February 2017. The Company is advancing towards a number of milestones over the coming months including the completion of an optimisation study aimed at enhancing project economics. Sanbrado’s strategic proximity to a number of advanced projects increases potential for regional consolidation. Argonaut initiates coverage of WAF with a BUY recommendation and a $0.40ps target price.

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Independence Group (IGO) - Value Now, Great 2019 Vintage

Independence Group LogoThe ramp-up of Independence Group’s (IGO) flagship Nova nickel/copper mine was recently set back ~3 months following underground contract mining issues. Argonaut believes management have taken sufficient action to get the mine back on track and limit further project delays. We see the subsequent 10% drop in the stock’s price as a buying opportunity and take the view that upcoming positive newsflow and significant EBITDA growth out to 2019 will support strong share price performance. The Company is set to release results of the Long Island Study for Tropicana (IGO: 30% Anglo Gold 70%) mid-year which should see the life of this asset extended out to 2027-2030. Nova is due to be fully ramped-up in Q3 CY17 and the majority of life-of-mine (LOM) underground development will be installed by mid-CY18, at which time, project cashflow will expand considerably. This is set to coincide with the highest production and lowest cost year of the Tropicana mine life. This will lead to considerable EBITDA growth out to FY19. Upgrade to BUY (from HOLD) with a $4.12 target price.

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