Alliance Resources Limited

AGS Share Surges Over 27% Post Takeover Bid Announcement: Alliance Resources Limited (ASX: AGS) is involved in the exploration under its projects in South Australia (Wilcherry Project Joint Venture) and Western Australia. Recently, AGS via a release dated 20^th August 2019 announced that Gandel Metals Pty Ltd became a substantial holder in the company with the voting power of 32.3% since 31 January 2003. On the same day release, the company acknowledges receipt of the Bidder’s statement from Gandel Metals Pty Ltd for an offer to acquire shares in alliance and advice to its shareholders that no need to take any action at this time. The Directors of Alliance who are not associated with the bidder are commissioning an independent expert’s report about whether the offer is fair and reasonable.

On 19 August 2019, Gandel Metals Pty Ltd announced a takeover bid to acquire all ordinary Alliance Resources Ltd shares at a price of 14 cents per share, valuing the takeover target of around $21.3 Mn which is based on market capitalisation under the offer price.

In another update, the company announced that Mr Stephen Johnston has advised the Board of Directors that he intends to step down as Managing Director (MD) in order to pursue personal interests. Mr Johnston will continue as MD until the new MD commences; anticipated to be sometime in November 2019.

June ’19 Quarter Key Highlights: The Scoping Study for the Weednanna Gold Deposit confirmed a positive and robust gold project, including the construction of a new 250,000 tpa gold processing plant and tailings storage facility for a total capital cost of approximately $44 million.

As per the corporate update, the company currently has 153,038,332 shares on issue. AGS holds 71,393,843 ordinary shares in Tyranna Resources Limited and 11,000,000 ordinary shares in Centennial Mining Limited.The following picture provides an idea of the company’s net cash used in operating activities:


June ’19 Quarter Operating Cash Flow Statement (Source: Company Reports)

What to expect: In the Weednanna Gold exploration, work forInfill and extend known mineralisation and Test 3DIP survey targets have commenced. The revised mineral resource estimate is expected in H2FY19. AGS is expected to commence pre-feasibility study works with metallurgical testwork in Q2FY19. The company is also expected to continue regional gold exploration from 2020.

Stock Recommendation: Its current ratio for H1FY19 stood at 8.60x, better than the industry median of 1.88x, which implies the company is in a better position to address its short-term obligations. It is presently trading close to its 52 weeks high level of $0.150, and therefore, probability for short-term correction increases. Hence, considering the aforesaid facts and current trading level, we give an “Expensive” rating on the stock at the current market price of $0.140 per share (up 27.273% on August 20, 2019, due to the announcement of a takeover bid).
 

Hampton Hill Mining NL

Trading at Higher Levels: Hampton Hill Mining NL (ASX: HHM) is involved in the base metal exploration. The company recently published its June Quarterly report where it highlighted that in Millennium Zinc Project (HHM’s interest of 25%), a Magnetotellurics (MT) geophysical line was completed during the period, to provide initial data on the structure of the deep seated basin and the Tabletop Fault that bounds its eastern margin. This line was subsequently extended eastward to improve the interpretation of a conductive response to the east of the fault. The joint venture will evaluate the next results and determine whether to extend the MT work to cover the basin more extensively. Magnetotellurics is an advanced, relatively low-cost electromagnetic geophysics tool with deep penetration and high sensitivity to conductive targets which is ideal for imaging sandstone/crystalline basement interface conductive shale horizons and potentially mineralisation.

The company holds investments of 10.35 million shares in Peel Mining Limited (Peel) and 1.25 million shares in Saturn, with a total market value of approximately $3.7 million as at July 31, 2019. During the quarter, Peel continued to report significant exploration success from its base metal projects in the Cobar district of NSW which include the Southern Nights-Wagga Tank, Mallee Bull and Wirlong projects. Subsequent to the quarter’s end, Peel reported a maiden Mineral Resource estimate for its Southern Nights-Wagga Tank deposit. Peel also holds an approximate 31% interest in Saturn.


June ’19 Quarter Operating Cash Flow (Source: Company Reports)

What to expect: The Company retains an active program seeking new exploration opportunities. It is, however, restricting funding of new endeavours while it awaits Millennium Joint Venture exploration expenditure decisions and, more particularly, further information on the rapidly evolving resource picture at the Apollo Hill Gold Project where Hampton Hill holds a significant royalty interest. Hampton Hill holds a 5% gross overriding royalty over all gold production in excess of 1 million ounces from the Central Leases of the Apollo Hill Project.

Stock Recommendation: Its current ratio for H1FY19 stood at 19.09x, better than the industry median of 1.88x, which implies the company is in a better position to address its short-term obligations. However, its ROE for H1FY19 stood at -1.7% as compared to the industry median of 6.8%. It is presently trading above the average of 52 weeks high and low level of $0.028 and $0.012, respectively. Hence, considering the aforesaid facts and current trading level, we suggest investors to closely watch the stock at the current market price of $0.025 per share (up 56.25% on August 20, 2019) and wait for better entry levels.

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