Sandfire Resources NL

Exploration Update at Doolgunna Project: Sandfire Resources’ (ASX: SFR) stock climbed up 3.812 per cent on June 06, 2018 following the exploration update on its Doolgunna Project wherein the group has received assay results for the recently reported Aircore (AC) drill holes which intersected narrow zones of sulphide and supergene copper mineralization at the Morck’s Well Project in Western Australia. This project is a part of its Farm-in with Auris Minerals Limited and Fe Limited. The results included 11m at 3.5% Cu from 73 m including 3 m at 9.5% Cu from 81 m for MWAC0109; 6m at 1.3% Cu from 112 m including 1 m at 4.5% Cu from 113 m for MWAC0111; 9 m at 2.3% Cu from 146 m including 3 m at 5.7% Cu from 149 m for MWAC0112. According to the release, the high-grade intersections returned from these AC holes are narrow, the overall tenor and grade of the mineralization encountered is encouraging and supports continued exploration program along with this corridor. Further, Sandfire may earn a 70% interest in the Morck’s Well Project from the definition of at least 50 000 tonnes of copper contained in a declared JORC Mineral Resource on which it completes a Feasibility Study. This Project forms part of Sandfire’s Greater Doolgunna Project, comprising a package of 6,276 square kilometers of contiguous tenements surrounding the DeGrussa Copper Mine.


Drill-hole Information Summary, Morck’s Well Project (Source: Company Reports)

For the full year, the group guidance for copper production remains unchanged and expected to be within the range of 63-66 thousand tonnes of contained copper metal. Additionally, the guidance for gold production has been increased in the range of 38-40 thousand ounces. Furthermore, Sandfire Project’s cash on hand as at 31 March 2018 is $181 million (unaudited) while the group cash on hand as at 31 March 2018 is $188 million (unaudited). Besides this, Mitsubishi UFJ Financial Group, Inc became the substantial holder of the Group since May 17, 2018 by holding 5.16 per cent of the voting power. The stock price surged up by 41.81 per cent in the past six months as on June 05, 2018 and is currently trading near its 52-week high level ($9.310). Given the trading levels, we maintain an “Expensive” recommendation at the current market price of $ 9.260.
 

Western Areas Limited

Tracking on FY18 Guidance: With the release of data on growth in Australia’s GDP (up 1 per cent) for the March quarter, driven by exports in mining commodities and overall mining industry gross value, many mining stocks moved up. Western Areas Limited’s (ASX: WSA) stock also surged up 3.09 per cent on June 06, 2018 at the back of the news and positive movement in commodity prices. Recently, the group has reported another quarter of free cash flow generation with cash at bank increasing to $135.7 Mn, after capital expenditure, feasibility study and exploration costs of $13.6 Mn. During the quarter, total nickel mined was 6,236 tonnes and this was the highest production volume in twelve months and led to total nickel component in stockpiles to 4,311 tonnes which were the highest level since March 2015. Based on quarterly results, the group has reviewed its guidance metrics for FY18 and expects mine production to be marginally lower by ~0.5k nickel tonnes (i.e., approximately 2 per cent of production guidance) to around 21,000 nickel tonnes for the year. This will be impacted by lower feed grade and mill throughput volume during the same period. Currently, the Board remains focused on the core business of low cost, long-life nickel production, new nickel discoveries and generating return to shareholders. We believe that the company may recover the nickel shortfall (i.e., 0.5kt) from other sources over the next year. Therefore, we continue to believe that the group will benefit from its balance sheet position which will assist the upcoming organic growth plans, and demand of nickel sulphides due to increasing demand of electric vehicle around the world which is projected to grow substantially over coming years.


FY18 Guidance (Source: Company Reports)

On the other hand, London Metal Exchange (LME) and Shanghai Futures Exchange (SHFE) nickel stockpiles had recently fallen dramatically to their lowest levels in many years, which is another indicator of the decent outlook for the nickel market. Meanwhile, WSA stock has risen 64.04 per cent in the past one year and 9.88 per cent in past five days as at June 05, 2018. Currently, the stock is trading close to 52-week high level, thus we maintain our “Hold” recommendation on the stock at the current price of $ 3.670.

 
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