Santos Limited (ASX: STO)

Optimistic Outlook for 2018: Santos new operating model has set a disciplined framework to drive its shareholder value as it seeks to further reduce the costs, build the production and maximise the operating cash flow. In 2018, it will increase its focus on the Build and Grow phases of its strategy as it progresses with its growth opportunities in Northern Australia, PNG and Narrabri and it will also ramp-up its drilling in the Cooper Basin and GLNG.  It expects that the sales volume for FY 18 will be in the range of 72-78 mmboe and production will be in the range of 55-60 mmboe. Moreover, it is anticipated that the capital expenditure for 2018 will be in the range of US$825-875 million and also an upstream unit production cost is expected to be between US$8.20 and US$8.80/boe produced. It is primarily due to a number of maintenance shutdowns which are planned in 2018 at PNG LNG, Moomba and Darwin LNG.  In 2017, LNG sales volume were up by 10% as compared to prior year and recorded at 3.1 million, which was followed by a strong performance from PNG. LNG sales revenues were up by 33% on prior year and amounted to US$1.2 billion for FY 17. It was observed that it reduced its net debt in FY 17 by 23% to $2.7 million and lowered its free cash flow breakeven oil price by 12% to $32 per barrel. In all, STO delivered Australia’s lowest-cost onshore operations. It will announce its results for the year ending 31 December 2017 on 21, February 2018. Meanwhile, STO entered into an agreement to partially fund and to operate a 3D seismic survey over the undrilled Beehive prospect and this has led the group secure a farm-in option for WA-488-P in Bonaparte Basin Offshore Western Australia. The group’s latest fourth quarter result has been in line with expectations and led to a rise in stock price of about 1.2% on January 24, 2018. We give a “Hold” recommendation on the stock at the current price of $5.24
 
  
Comparative Analysis Summary (Source: Company Reports)
 

Rio Tinto Limited (ASX: RIO)

Business Performed well in fourth quarter: Lately, Government of Mongolia had a meeting with Rio’s chief executives to discuss about some partnership engagement and any reductions to the funding costs to improve the benefits from the Oyu Tolgoi project for all the shareholders. It plans to set a joint working group to explore an accelerated path of development for a power solution in Mongolia and also to explore an acceleration of Oyu Tolgoi’s strategy of investing publicly and privately towards a sustainable community development in Khanbogd. It is looking forward to work with the Government of Mongolia to create a long-term sustainable solution that will benefit all the stakeholders and the country while staying true to the established investment frameworks. The business performed really well in the fourth quarter 2017. It shipped 90 million tonnes of iron ore from its world-class Pilbara assets. RIO also announced over $8 billion of cash returns to its shareholders and continued to reshape the portfolio. Its focus on creating a value over the volume and over the productivity along with the disciplined allocation of cash is expected to deliver a superior shareholder returns in the short, medium and the long term. Meanwhile, RIO has received a binding offer for the sale of the Aluminium Dunkerque smelter in France for $500 million.  But it is subject to some final adjustments. It is expected that the sale will be completed in the second quarter of 2018. Given the iron ore price forecasts, RIO’s trading scenario and growth projects’ scenario compared to peers, we put an “Expensive” recommendation on the stock at the current price of $78.20
 

Comparative Analysis for different quarters (Source: Company Reports)

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