3 Resource Sector Stocks - Origin Energy Ltd, Santos Ltd and Metals X Ltd

Origin Energy Ltd

ORG Details

Improving ROCE:Origin Energy Ltd (ASX: ORG) doubled their underlying Return on Capital Employed (ROCE) to 6% during 2017 and the group is focusing to improve this further. Being a major player in Energy Markets business, the group is improving the focus on energy supply from renewables, gas and coal, and smarter customer solutions. ORG is also trying to leverage opportunities in unconventional gas development and is improving productivity while reducing costs at Australia Pacific LNG. The group has also reduced its debt by $1 billion to $8.1 billion.

At the group’s Cooper Basin JV Project for South Australian Oil (with Beach 20.21%, Santos 66.6% and operator, Origin 13.19%), Merrimelia?65 was reported to be drilled to further develop Birkhead Formation reserves on the southwest flank of the field. Merrimelia?66 is a lateral well, which was spudded on 30 September 2017 on the southeast flank of the field targeting the Murta Formation. The Queensland Gas – Cooper Basin JV Project (Southwest Queensland JV: Beach 23.2%, Santos 60.06% and operator, Origin 16.74%) showed positive drilling in the Roti South and Windigo fields in 2016 followed by subsequent mapping using updated depth conversions. Judga?4 well was cased and suspended as a potential producer. Output at Eraring is also expected to rise by 5-10% in FY18. Given the developments, ORG stock has risen about 34.5% in last one year, as at October 19, 2017.We maintain a “Hold” recommendation on the stock at the current price of $ 7.55

FY18 Guidance (Source: Company Reports)

Santos Ltd

STO Details

Strong third quarter of 2017 performance:Santos Ltd (ASX: STO) edged slightly lower on October 20, 2017 owing to some weakening sentiments in the market, post the latest release of its third quarter activities’ update. However, the group had controlled their net debt to US$2.8 billion as at the end of the September quarter, against US$3.5 billion as at the end of 2016. They also redeemed Euro 1 billion Subordinated Notes and replaced the same by US$800 million 10-year Reg-S bond, leading to a major annual interest cost savings of over US$40 million per annum from 2017 levels. The group upgraded its 2017 production guidance to 58-60 mmboe while sales guidance has been enhanced to 79-82 mmboe, at the back of decent operating performance. STO has delivered an annualized rate of 8.6 mtpa for PNG LNG operations during the third quarter of 2017, which is the highest quarterly rate since start-up. The group has also made new arrangements for the supply of more than 125 petajoules of gas into the south-east domestic market over 2017-20. STO rallied over 41.7% in the last three months (as of October 19, 2017) and we believe there is more room for the momentum. We give a “Buy” recommendation on the stock at the current price of $ 4.26


Third quarter of 2017 performance (Source: Company reports)

Metals X Ltd

MLX Details

Improvement in production: Metals X Ltd (ASX: MLX) has enhanced its Nifty Copper production during the September quarter of 2017 driven by the refurbishment of the secondary mine escapeway and subsequent production drilling delays. The group delivered a production of 3,195 tonnes of copper during the September quarter, and is on track to achieve 40,000tpa copper production rate in the first half of 2018. MLX also enhanced the contained copper in Ore Reserves by 55% in addition to a 59% rise in June quarter. Drill stocks in the copper division enhanced from 80,000 tonnes as at the start of the quarter to 240,000 tonnes as at the end of the quarter. As per their tin division performance, the production reached 1,811 tonnes of tin contained in concentrates at an all-in-cost of $18,056 per tonne of contained tin. The construction of ore sorting circuit for a 15-20% expansion of tin production is on track for practical completion in April 2018. MLX surged over 6.3% on October 20, 2017 and is still trading at a reasonable level. We give a “Buy” recommendation on the stock at the current price of $ 0.92

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