Stocks’ Details

Whitehaven Coal Limited

Higher Coal Sales Numbers:Whitehaven Coal Limited (ASX: WHC) is engaged in the business of development and operation of coal mines. The company today released its production report for the March quarter. Equity coal sales including purchased coal for the March quarter came in at 4.893Mt posting a growth of 16% (pcp). Managed coal sales (inc. purchased coal sales) stood at 6.042Mt with a pcp growth of 12%. Total sales for the March quarter was higher than production because ROM stocks built up before December quarter was processed and sold in the March quarter.

The “gC Newc” thermal coal price came down to an average of US$95.88/t which was ~8% down than the average of December quarter. Lower prices can largely be attributed to slower global growth in late 2018 and China implying new import restriction policies in November 2018. Themanagement expressed that the company’s coal sales is not exposed into China and confirmed that 4 key markets of the business- Japan, Korea, India and Taiwan remains strong and continues to underpin a high proportion of the company’s thermal coal sales.

The March Quarter benchmark prices for hard coking coal were at US$210/t, for SSCC at US$132/t and for Low Vol PCI coal were ~US$140/t.Settled benchmark prices for the same quarter was a bit moderated than December quarter. Average price outcome for benchmark linked and spot prices of metallurgical coal were seen strong at US$120.42/t in the quarter under consideration. An improvement was witnessed in the relative price differentials between gC Newc thermal coal and semi soft coking coal spot prices which encouraged a continuation of spot sales of metallurgical coal from Maules Creek.

Looking at the safety point of view TRIFR for the company was 8.3 at the end of March, marginally up from 7.57 in December end, well below the NSW coal mining average of 14.67.

Financial Performance:The company reported a good set of numbers in 1H FY19 with NPAT growth at 19% to $305.8 million and operating EBITDA growth at 12% to $550.8 million. Higher growth in profits was on account of higher per tonne EBITDA margin which rose to $73/t. Growth in Top-line came in 11% and stood at $1270.1 million. Higher revenue growth was mainly due to A$ realised prices to an average of A$155/t in 1H FY 2019 up from A$124/t in 1H FY 2018. 


Sales and Margins (Source: Company Reports)

What to expect: Management expects saleable coal production in the range of 21.5Mt to 22.5Mt and updates the cost guidance for FY2019 at A$67/t.

Stock Recommendation:Comparing the key ratio with the industry median, 1H FY19 net margins at 24.1% against 19.1% of industry median and RoE at 8.8% as compared to 7.1% of industry median augur well for the stock. At CMP of $3.990, the stock is trading at P/E multiple of 6.850x with the market capitalization of ~$4.08 billion and annual dividend yield at 7.29%.

Considering the strong performance in 1HFY19, growth outlook and valuations above industry median we give a “Buy” recommendation on the stock at the current market price of $3.990 per share (up 0.251% on 11 April 2019).
 

Western Areas Limited

Two Drill Holes Completed:Western Areas Limited (ASX: WSA) recently updated about the progress of Mt Alexander Project which has 5 granted exploration licenses– E29/638, E29/548, E29/962, E29/954 and E29/972. St George Mining Limited (75%) and Western Areas Limited (25%) jointly own the Cathedrals, Stricklands and Investigators nickel-copper-cobalt-PGE discoveries, situated on E29/638. MARC093 and MARC094, two drill holes have been completed at the eastern margin of Fairbridge Prospect to test a large chargeable anomaly that is interpreted to be the western extension of mineralised ultramafic at Cathedrals Prospect.

Performance in 1H FY19: Forrestania operations saw a consistent production in 1HFY19.  As compared to the prior corresponding period, nickel production as well as sales volumes remained relatively consistent with sales revenue increasing by 7% due to higher realised nickel price.  Combined mine production came in at 281,095 ore tonnes with an average nickel grade of 4.2% for 25.8M lbs nickel tonnes.
 
 

Key Takeaways – 1H FY19 vs 1H FY18 (Source: Company Reports)

Stock Recommendation: At CMP of $2.370, the stock is available at P/E multiple of 78.390x, higher than its peer groups like Aurelia Metals Limited (5.620x), Silver Lake Resources Limited (23.250x) and Jupiter Mines Limited (5.760x). The market capitalization for the stock stands at ~$664.72 million with an annual dividend yield at 0.82%.Looking at the price performance of the company, the stock declined 24.30% on an annual basis whereas stock gained 27.89% and 16.83% on YTD and 3-month basis, respectively.

WSA is trading at the similar Price to Book multiple as industry median at 1.4x. Hence, we retain our “Hold” recommendation on the stock at the current market price of $2.370 per share (down 2.469% on 11 April 2019).
 

Resolute Mining Limited

Record Quarterly Gold Production from Syama:Resolute Mining Limited’s (ASX: RSG) principal activity is gold mining and prospecting and exploration of minerals.  The company, on 8 April 2019, announced that total gold production for March quarter stood at 98,105oz, significantly higher than 24,414oz in December quarter. The increment in gold production was largely backed by Syama reporting more than 50% growth to 84,552oz in the same quarter. Syama oxide operations produced a record 71,186oz.

Investment in growth activities was continued without further debt drawdown due to strong operating performance and cash flow generation.The Syama Sulphide operations produced 13,336oz for the March 2019 quarter. The Syama Underground Mine ramp-up is continuing with commercial production now targeted for September quarter.
 

Syama Porfolio (Source: Company Reports)

Financial Performance in 1H FY19: RSG recorded gross profit from operations at A$24 million. The revenues stood at A$223 million, up 10% (pcp). The total gold production during the period stood at 129,199 ounces with an All-In Sustaining Cost of A$1,449/oz.

What to Expect From RSG: The company plans to seek admission on the London Stock Exchange (LSE) during first half of 2019. RSG is determined to achieve its full production rate of 2.4 million tonnes per annum by June 2019.
 
Stock Recommendation: At CMP of $1.210, the stock is available at price-to-earnings multiple of 31.190 times with the market capitalisation at ~$936.25 million and annual dividend yield at 1.62%. On the YTD basis and on 6-months basis, the stock has risen 7.86% and 24.12%, respectively. The price-to-book ratio for the company stood at 1.3x which is marginally below from the industry median of 1.4x which leads one to consider the stock for portfolio.

High gold production, sound fundamentals and attractive valuations drive us to remain with “Buy” recommendation on the stock at the current price of $1.210 per share (down 2.024% on April 11, 2019).


 
Comparative Price Chart (Source: Thomson Reuters)  
 

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