Ausdrill Limited

Looking to Expand Market Presence: Ausdrill Limited (ASX: ASL) offers services which include drill and blast, grade control, water well drilling, exploration drilling, mineral analytics, and load, haul & crusher feed services.

The company recently announced that its subsidiary Barminco has been awarded an underground mining services contract at Zone 5 Mine in Botswana for 5 years. The contract has been provided by Khoemacau Copper Mining (Pty) Limited and offers significant opportunities to do business in Botswana, Africa. Barminco will commence mining services in December 2019 after the closing of the Khoemacau Project funding.

The company is under the process of reviewing its working capital and balance sheet and anticipates a resultant non-cash impairment in the range of $75 million - $95 million for the year ended 30 June 2019, representing 2.8% to 3.6% of Ausdrill’s total assets.

Key Highlights of H1FY19: The company delivered strong results for H1FY19 with revenue from operations amounting to $640.2 million, up 45.6% on the prior corresponding period. Underlying EBITDA from continuing operations grew at the rate of 27.6% to $67.1 million. Underlying NPAT from the continuing operations stood at $39.8 million, up 32.7% on pcp. For the period, the company declared a fully franked interim dividend of 3.5 cents per share which was paid on 27 March 2019. Ausdrill became the second largest mining services company in Australia post-acquisition of Barminco. The expanded group received over $2 billion in new work since 1 July 2018. H1FY19 was also characterised by a strong balance sheet position with cash reserves amounting to $198.9 million and undrawn debt facilities of $176.5 million.


H1FY19 results (Source: Company Reports)

Outlook and FY19 Guidance: The company is now looking for expansion into new markets and adjacent services to compliment its existing portfolio. Over the medium term, it expects the outlook for the resources industry to improve in both the key markets of Australian and Africa. Ausdrill has provided FY19 NPAT guidance of $98 million.

Stock Recommendation: The stock of the company generated returns of -4.55% and 47.89% over a period of 3 months and 6 months, respectively. For H1FY19, the company had a net margin of 33.8%, which is much higher than H1FY18 net margin of 8%. EBITDA margin for the period was also higher at 17.5% in H1FY19 as compared to 16% in H1FY18.Although the company performed well as exhibited in its financials in 1HFY19, excellent margins along with ongoing developments in its subsidiary Barminco. We presume that the current stock price has already discounted the positive catalyst to reach closer to its 52-week high level of $1.988. Therefore, we put our wait & watch stance on the stock at the current market price of $1.740 (up 10.476% on 24 June 2019).  
 

Mount Gibson Iron Limited

Commencement of High Grade Ore Production at Koolan Island: Mount Gibson Iron Limited (ASX: MGX) is primarily engaged in the mining and export of hematite Iron ore in the Mid-West region of Western Australia, reconstruction of the Koolan Island Main Pit seawall, treasury management and the pursuit of mineral resources acquisitions and investments.

The company recently approved the novation of interests of Shougang Concord International Enterprises Company Limited (that holds an indirect 14.5% shareholding in Mount Gibson) and SCIT Trading Limited as guarantor and buyer for the Koolan Island agreement to Newton Resources Ltd and its subsidiary Ace Profit Investment Limited. SCIT and Shougang Concord hold a life-of-mine offtake agreement for the purchase of 80% of Koolan Island’s iron ore produce under the arrangement.

Highlights of Quarter Ending 31 March 2019: During the period, the company reported Mid-West direct shipping ore sales of 0.4 million wet metric tonnes with quarterly sales revenue amounting to $29 million Free on Board. Mid-West cash costs were well below the guidance of $33/wmt FOB. As at 31 March 2019, cash and liquid investment amounted to $394 million. The company began ore production at Koolan Island at the end of the quarter and made the first high grade 65% Fe shipment in April. On 8 March 2019, S&P Dow Jones Indices announced about the March 2019 Quarterly Rebalance of the S&P/ASX Indices wherein, it added Mount Gibson Iron Limited to S&P/ASX 300 Index, effective from 18 March 2019. 


Sales Data (Source: Company Reports)

Sales Guidance: The company expects the total sales for FY19 for DSO iron ore to be 2.7-3.3 Mwmt at an average all-in group cash cost of $52-57 per wmt FOB. The cost guidance excludes Koolan Island seawall construction and restart expenditure.

Stock Recommendation: The stock of the company generated returns of 21.81% and 129% over a period of 3 months and 6 months, respectively. Currently, the stock is priced at $1.075, down 6.114% on 24 June 2019 after a total gain of 17.154% since 19 June 2019. The company had an EBITDA margin of 27.4% in H1FY19, which is higher than H1FY18 EBITDA margin of 15.4%. As per records, the company has recently begun production at its flagship Koolan Island and the impact of this aspect is still to be seen. With the mentioned developments along with the whopping gain of 129% on the past six months lead us to have watch stance on the stock at the current market price of $1.075 (down 6.114% on 24 June 2019) and suggesting that the investors should wait for a better entry level.
 

Resolute Mining Limited

Low Cost Mines to Augment Growth: Resolute Mining Limited (ASX: RSG) operates in the Metals and Mining sector. The company involved in the exploration and development of Gold properties, primarily in Africa, and Australia. The company recently commenced trading on the Main Market of the London Stock Exchange. The dual listing has helped to increase the company’s profile in global investment markets.
 
To secure price certainty for revenues from its Ravenswood Gold Mine in Queensland, Australia, the company forward sold 30,000 ounces of gold at an average price of A$1,943 per ounce. The delivery is scheduled on a monthly basis between January 2020 and June 2020. The company’s current hedge book consists of 190,000 ounces in monthly deliveries to be completed by June 2020. The above step helped the company to take advantage of current record Australian dollar gold price strength which in turn will extend its Australian dollar gold hedge position.
 
Highlights of Quarter Ended 31 March 2019: During the quarter, the gold production was reported at 98,105oz at an AISC of A$1,039/oz. The company received an average gold price of A$1,791/oz from total sales of 108,024oz. Syama site reported record production of 84,552oz, up 50% on the prior quarter. Cash, bullion and listed investments as at 31 March 2019 were reported at A$86 million.
The period also saw the signing of New Syama Mining Convention and grant of extension for 10 years to the Syama Mining Permit. Recent optimisation work at Ravenswood confirmed the possibility of delivering higher rates of throughput and gold production, lower costs and a longer mine life for the Ravenswood Expansion Project.


Production and Cost Summary (Source: Company Reports)
 
FY19 Guidance: The company provided FY19 production guidance of 300,000 ounces of gold at an All-In Sustaining Cost of A$1,280/oz.
 
Stock Recommendation:The stock of the company generated returns of 7.08% and -0.82% over a period of 1 month and 3 months, respectively. The company reported a strong balance sheet even during a period of significant investments. The management is satisfied with the company’s operational performance and is optimistic on delivering its ambitious growth agenda in 2019. Expansion of gold hedged position further protects and supports the company’s revenues and cash flows. With large gold inventories, long mine lives and a leading production growth profile, the company remains strongly leveraged to further increase in gold prices. Hence, we give a “Buy” recommendation to the stock at a current market price of $1.210, reporting no change on the previous closing price.

Disclaimer
 
The advice given by Kalkine Pty Ltd and provided on this website is general information only and it does not take into account your investment objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. Kalkine.com.au and associated pages are published by Kalkine Pty Ltd ABN 34 154 808 312 (Australian Financial Services License Number 425376). The information on this website has been prepared from a wide variety of sources, which Kalkine Pty Ltd, to the best of its knowledge and belief, considers accurate. You should make your own enquiries about any investments and we strongly suggest you seek advice before acting upon any recommendation. Kalkine Pty Ltd has made every effort to ensure the reliability of information contained in its newsletters and websites. All information represents our views at the date of publication and may change without notice. To the extent permitted by law, Kalkine Pty Ltd excludes all liability for any loss or damage arising from the use of this website and any information published (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine Pty Ltd hereby limits its liability, to the extent permitted by law to the resupply of services. There may be a product disclosure statement or other offer document for the securities and financial products we write about in Kalkine Reports. You should obtain a copy of the product disclosure statement or offer document before making any decision about whether to acquire the security or product. The link to our Terms & Conditions has been provided please go through them and also have a read of the Financial Services Guide. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine Pty Ltd do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations.