Latest Research

Fortescue Metals Group (FMG) - Stellar Result But How Long Can The Iron Ore Party Last?

Fortescue Metals LogoFortescue Metals (FMG) released a stellar 1HFY17 result with revenue of US$4,492m (+34% on 1H16). Underlying EBITDA of US$2.65bn was 103% higher than the previous period driven largely by productivity improvements contributing to lower operating costs and sustained higher product pricing and price realization. NPAT of US$1.22bn was 283% higher than the previous period which was enhanced by a strong uptick in iron ore prices and a 20% reduction in C1 costs from 1H16. Cash on hand at Dec 31 was US$1.16bn with net debt of US$3.97bn. We maintain our view that iron ore prices will moderate in the short term. SELL recommendation and upgrade our price target to $6.04ps ($5.18 prior).

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Independence Group (IGO) - Nova Loses Some Fizz

Independence Group LogoIndependence Group (IGO) released H1 FY17 statutory financial results with revenue of $223.1m, underlying EBITDA of $81.8m and NPAT of $20.2m (pre-released in the December Q results). Respectively, these results were up 13%, 18% and 6% H-on-H. Operating cashflow was down 48% H-on-H to $26m, however this was impacted by a $58m stamp duty fee relating to the Nova acquisition. IGO has flagged a ~50% FY17 production downgrade to Nova production resulting from lower than anticipated underground development. Development is 1.8km or six weeks behind schedule. While this delay does not have a substantial impact on our valuation (Ni guidance was only 9-10kt in FY17), the sentiment impact is significant as all Company commentary to date has focussed on the successful and timely ramp up of the project. Argonaut’s price target declines to $4.12 and we downgrade to a HOLD (previously BUY at a $4.15 target price).

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Saracen Mineral Holdings (SAR) - Longer Wait For Higher Cashflow

Saracen Mineral Holdings LogoSaracen Mineral Holdings (SAR) released H1 FY17 financial results with $186.6m revenue, $15.4m PBT and $14.9m NPAT, versus with Argonaut’s forecasts of $200.2m revenue (before $14m of capitalised King of the Hills revenue), $22.3m PBT and $12.5m NPAT. Cash and bullion at December 31 was $43.9m. SAR had previously forecast increasing production and declining costs in H2 FY17, however while production is on track to exit the year at the target 300kzpa rate, further development capital will see higher costs sustained for longer. An additional ~$22.5m on new projects will see AISC increase by A$150/oz. This will see higher cashflows being offset for at least another 6 months. SAR also released further exploration results highlighting thick grade continuity at Thunderbox Zone A and depth extensions to Karari. HOLD maintained with a $1.18 target price.

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Dakota Minerals (DKO) - Maiden Resources or Sepeda

Dakota Minerals LogoDakota Minerals (DKO) released a Maiden Resource for its 100% owned Sepeda Lithium Project in Portugal with 10.3Mt @ 1.00% Li2O and 0.05% Tin. Whilst the project is modest in scale compared to some of its Australia domiciled peers, it is one of the largest JORC lithium pegmatite resources in Europe. DKO is pursuing a strategy to supply lithium into the European market and targeting first concentrate production in late 2018. The project benefits from its proximity to market and strong infrastructure. Potential access to cheap power should improve the viability of downstream processing to produce either lithium carbonate or lithium hydroxide for the growing battery market. With estimated cash of $20m, DKO is cash backed at 5.5¢ implying little value is attributed to physical assets.

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Matrix Composites & Engineering (MCE) - Pause for Results

Matrixs Composites & Engineering LogoMCE’s share price has climbed nearly 50% since late December. The gain reflects a balance sheet which should see the Company through a very tough period, while providing management the breathing space to diversify into new products and markets. However, this takes time and we believe evidence of strategy execution is needed to drive further share price gains from here. We recommend pausing for release of the financials and an operational update with the interims later this month. We make no changes to our forecasts or valuation, but downgrade our recommendation from Spec Buy to Hold.

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