Latest Research

Valmec Limited (VMX) - Initiation

Valmec Limited LogoWe initiate with a BUY call and a $0.48 valuation. We expect companies servicing gas and related infrastructure sectors to experience an improving operating environment. VMX, already demonstrating this thesis via its order book and top line performance, provides an attractive investment option from a limited ASX-listed opportunity set.

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Australian Gold Sector - March Q Wrap - Going Down The Curve

Argonaut Limited LogoGold prices have risen by 10% in AUD terms and 7% in USD terms in FY18YTD. Funds flow has been predominantly into mid-tier producers with the ASX Gold Index (XGD) up +17% FY18YTD. Emerging plays have fared well, evident from the surge of the ASX Small Resources (XSR) index which has risen by 48% FY18 YTD. Equity valuations of the mid-tier producers now look stretched and we struggle to identify significant value upside. We speculate this is due to increased North American investment in the ASX Golds versus the US gold producers which have largely underperformed in FY18. Emerging developers have recorded only incremental gains and we argue that in the near-term, investors will look come down the curve into the emerging developer space for value. Our key picks include Dacian Gold (DCN), Gascoyne Resources (GCY) and Gold Road (GOR). We now also identify the next tier of potential development plays including Explaurum (EXU) and Genesis Minerals (GMD) with advanced studies looking to make the transition into production.

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Independence Group (IGO) - March Q - Mixed Results

Independence Group LogoIndependence Group (IGO) released its March quarterly report with mixed results from the group’s assets. Nova achieved nameplate throughput of 1.5Mt and generated $52m free cashflow (FCF), however it is trending below the lower end of production guidance. Tropicana production was down 23% on planned lower milled grades and lower recoveries. Mining at Jaguar materially impacted mill feed resulting in 28% and 59% respective decreases in Zn and Cu production. Long Ni production was steady Q-on-Q at 1.4kt Ni in ore. Overall group underlying FCF was $56.5m (vs 11.6m in the December Q) and net debt decreased by $47.5m to $72.6m. SELL maintained with a $4.25 target price.

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Gage Roads (GRB) - Momentum

Gage Roads LogoSummer has been good to GRB, with a solid March quarter following the strong lead into Christmas. Own brand growth across all channels (independent bottle shops, national retailers and on-premise) demonstrates growing awareness of Gage Roads’ products. The events-based marketing strategy is working well, boosting confidence in the “return to craft” strategy. Our blended valuation climbs to $0.090 (prior $0.080) and we maintain a BUY call (upgraded yesterday) based on the expectation of margin and earnings growth in coming years, and the attractiveness of the craft beer segment of the liquor market.

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Sandfire Resources NL (SFR) - Life Out To 2022

Sandfire Resources LogoSandfire Resources (SFR) released March Q results with 15.5kt copper and 10.9koz gold production at C1 costs of US$0.97/lb versus Argonaut’s forecast of 16.0kt and 8.5koz at US$0.95/lb. SFR’s cash balance continues to increase, up $24m to $188m at 31 March. The mine life at DeGrussa has been extended by ~6 month out to CY22 with the incorporation of orebody extremities. Each additional year’s production has a significant impact on Argonaut’s model, adding ~17% to our NAV10. We downgrade to SELL based on recent share price performance.

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