Stocks’ Details

Newcrest Mining Limited

Drilling Updates of Newcrest Tanami Joint Venture: Newcrest Mining Limited (ASX: NCM) is engaged in the activities of exploration, development, mining, and sale of gold. The market capitalisation of the company stood at $24.73 billion as on 29^th October 2019.

The Directors of Encounter Resources Ltd has provided an update on RC drilling programs at the Hutch’s Find and Afghan prospects in the Tanami region of Western Australia (WA), held in joint venture with Newcrest. The Newcrest operated RC drill program in the Tanami has started well with the first phase of drilling successfully completed at Hutch’s Find. The rig has now moved to the Afghan prospect to complete a planned 12-hole program of 300-metre-deep RC holes. The program is targeting down-dip and plunge extensions of known mineralisation within a broad anomalous gold halo defined in the previous shallow drilling. A total of 17 RC drill holes for 4,930m of drilling was completed at Hutch’s Find with assay results expected in November 2019.
 

Afghan Prospects including proposed 12-hole RC drilling program (Source: Company Reports)

Stock Recommendation: As per the ASX, the company’s stock is trading above the average of its 52-week high and low of $38.870 - $20.180. The stock has given returns of -5.63% and 25.48% in the last three months and six months, respectively. On YTD basis, the stock has gained 48.13%. At the current market price of $31.810, the stock is quoting at a price to earnings multiple of 30.90x. Currently, the stock is trading at a price to book value multiple of 2.3x on TTM basis, which is higher than the industry median of 1.6x. Therefore, considering the decent price movement on YTD and 6-months basis, valuation parameters, and above-stated facts, we are of the view that most of the positives are priced in at the current juncture. Hence, we give an “Expensive” rating on the stock at the current market price of $31.810 per share, down 1.088% on 29^th October 2019.
 

Rio Tinto Limited

Strategic Review of NZ Aluminium Smelter Located in New Zealand: Rio Tinto Limited (ASX: RIO) is engaged in the production of copper, gold, iron ore, coal, aluminium, borates, titanium dioxide and other minerals and metals. The market capitalisation of the company stood at $33.87 billion on 29^th October 2019.

To determine the operation’s ongoing viability and competitive position, the company is going to conduct a strategic review of its interest in the New Zealand’s Aluminium Smelter (NZAS) at Tawai Point.Due to the historically low aluminium prices and high energy cost, the company expects that the aluminium industry is going to be challenging in the short to medium term and this asset will continue to be unprofitable. Rio Tinto is trying to have a discussion with the energy providers, and the government of New Zealand to discover options and to recognise economically viable solutions to find a pathway to profitability for the smelter.Significant headwinds are faced by the aluminium industry due to an over-supplied market, which means that many aluminium providers are reviewing their positions.

Third Quarter Production up by 6%: With respect to the operational update, Pilbara iron ore shipments stood at 86.1 million tonnes (100% basis) in the third quarter, which was 5% higher than third quarter of 2018. Pilbara iron ore production stood at 87.3 million tonnes (100% basis), 6% higher than the third quarter of 2018 and 10% higher as compared to the previous quarter, reflecting a decent recovery from operational and weather challenges witnessed earlier in the year.

The aluminium production came in at 3% lower than the third quarter of 2018 at 0.8 million tonnes, mainly due to earlier than planned pot relining at Kitimat in British Columbia, Canada and preventive safety shutdown at one of the three pot-lines at ISAL in Iceland.


Quarterly Production (Source: Company Reports)

Stock Recommendation:The company’s net margin stood at 14.1% at the end of June 2019 while its EBITDA margin stood at 47.7%. RIO’s RoE stood at 9.9% at the end of June 2019, which is higher than the higher industry median of 6.2% and, therefore, it can be said that the company has delivered better returns to its shareholders as compared to the broader industry. The company has a price to book value multiple of 2.3x on TTM basis which is higher than the industry median of 1.6x. The stock has generated returns of -6.70% and -5.72% in the three months and six months, respectively. The stock has gained 27.86% in the last one year. Currently, the stock is trading above the average of its 52-week high and low of $106.922 and $68.169. The company will conduct a strategic review of NZAS to evaluate the viability of operations and its competitive position, and we would like to see how things pan out in this regard. Considering the aforesaid facts and current trading levels, we have a watch stance on the stock at the current market price of $92.200 per share, up 1.041% on 29^th October 2019.

Fortescue Metals Group Limited

Quarterly Production Results for Q1FY20:Fortescue Metals Group Limited (ASX: FMG) is engaged in mining, processing and transporting of iron ore for export from the company’s deposits within the Pilbara region of WA. The market capitalisation of the company stood at $27.74 billion on 29^th October 2019.

FMG reported a strong performance in Q1FY20 and delivered shipments of 42.2mt, an improvement of 5% on Q1 FY19, at a C1 cost of US$12.95/wmt.The company received average revenue of US$85 per dry metric tonne (dmt), which was 89% higher than Q1FY19. Company’s net debt stood at US$0.5 billion on 30^th September 2019, which reduced from the levels of US$2.1 billion as on 30^th June 2019. Also, the company renewed its $500 million share buy-back program for further 12 months till October 2020.

FMG Signs a Solar Power Agreement with Alinta:In a landmark agreement with Alinta Energy, up to 100% of daytime stationary energy requirements at FMG’s Chichester Hub iron ore operations will be powered by renewable energy.A 60MW solar photovoltaic generation facility will be constructed at the Chichester Solar Gas Hybrid project at the Chichester Hub, which comprises of FMG’s Cloudbreak and Christmas Creek mining operations.

35MW battery facility and about 60-kilometre transmission line, which links Alinta’s Energy’s Newman gas-fired power station with Christmas Creek and Cloudbreak mining operations will be constructed, with completion due mid-2021.The new solar plant project will displace about 100 million litres diesel annually, which used in the existing facility of Cloudbreak and Christmas Creek power stations.

Extension of On-Market Share Buy-Back Program: FMG announced an extension of its on-market share buy-back program as part of its ongoing capital management.The buy-back will continue for a further 12 months, until October 2020, and re-establishes the total amount of the buy-back program at A$500 million and can now buy-back up to $500 million of shares during the period, subject to the non-trading periods or cessation of program at Fortescue’s discretion. 

Successful Refinancing and Repayment of its Syndicate Term Loan Facility: FMG announced the successful refinancing and repayment of its US$1.4 billion 2022 syndicated term loan facility through repayment of US$800 million using proceeds from the issue of US$600 million senior secured note and US$200 million from available cash; and extension of US$600 million term loan balance to 2025 on the same terms and conditions.


Debt Maturity Profile (Source: Company Reports)

Stock Recommendation: As per the ASX, the company’s stock is trading close to the 52-week high of $9.550 per share. The company has a price to book value multiple of 1.8x on TTM basis which is broadly in-line with the industry median of 1.6x. The stock has given returns of 10.55% and 33.15% in the time period of three months and six months, respectively. Hence, in view of aforesaid facts and current trading levels, we give a “Hold” recommendation on the stock at the current market price of $8.960 per share, down 0.555% as on 29^th October 2019.

 
 Daily Comparative Price Chart (Source: Thomson Reuters)

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