Stocks’ Details

Sandfire Resources Limited

Tshukudu Exploration Update: Sandfire Resources Limited (ASX: SFR) is engaged in gold and base metal exploration. As on 24 January 2020, the market capitalisation of the company stood at ~$1.06 billion. The company has recently announced that the initial exploration program at Tshukudu Exploration Project has delivered strong results, with significant new zone of copper mineralisation intersected at the A4 Dome, 8km west of the T3 Copper-Silver Project. The initial focus of the company is within the ~1,000 km² T3 Expansion Project. The company is ramping up the drilling with two additional rigs. Drilling is currently focused at the A4 Dome and has returned significant wide intercepts of copper at shallow depth over the 250m strike length. 

For the quarter ended 30 September 2019, the company produced 16,730t of copper and 8,647oz of gold with C1 cash operating costs of US$0.87/lb. On the financial front, the company’s net profit attributable to members stood at $106.5 million in FY19, on total sales revenue of $592.2 million.


Production & Operations (Source: Company Reports)

What to Expect: The company recently gave the production guidance for copper and expects it to be in the range of 70,000t to 72,000t. It also expects to produce gold of 38,000 – 40,000 oz in FY20.  Headline C1 cash operating costs are expected to be within the range of US$0.90 to 0.95/lb. 

Valuation Methodology: Price/Earnings Based Multiple

Price/Earnings Based Multiple (Source: Thomson Reuters)

Note: All the forecasted Figures are taken from Thomson Reuters, NTM: Next Twelve Months
 
Stock Recommendation: As per ASX, the stock of SFR gave a return of 1.02% in the past one month and is trading close to its 52-weeks low level of $5.350, offering a decent opportunity for accumulation. During FY19, gross margin of the company stood at 67.1%, higher than the industry median of 38.9%. This indicates that the company is managing its costs well and is capable of converting its revenue into profits. In the same time span, ROE of the company was 18.8% as compared to the industry median of 12%. This indicates that the company is well deploying the capital of the shareholders and is able to generate profits internally. Considering the trading levels, higher gross margin and ROE and decent guidance, we valued the stock using relative valuation method, i.e., Price/Earnings multiple and have arrived at a target upside of lower double-digit (in percentage terms). For the said purposes, we have considered Western Areas Ltd (ASX: WSA), Evolution Mining Ltd (ASX: EVN), Regis Resources Ltd (ASX: RRL) and Newcrest Mining Ltd (ASX: NCM) as peers. Hence, we recommend a “Buy” rating on the stock at the current market price of $5.940, down by 0.168% on 24 January 2020. 
 

Mineral Resources Limited

Quarterly Update on Production and Shipment: Mineral Resources Limited (ASX: MIN) is engaged in integrated supply of goods and services to the resources sector. As on 24 January 2020, the market capitalization of the company stood at ~$3.28 billion. The company has recently released its quarterly report for December 2019 quarter wherein it stated that it shipped 3.3 million wmt of iron ore, up 40% on the prior corresponding period in FY19. In the same time span, Mt Marion Lithium Project shipped 99,000 wmt of spodumene concentrate and produced 124,000 wmt of lithium spodumene, up by 8% than the previous quarter. The company has also announced that it will release its FY20 half year results on 12 February 2020.


Production and Commodity Shipments (Source: Company Reports)

Growth Opportunities: The company is aiming to double its production & revenue over the next 3 years. It also expects Mt Marion production to range in between 360Kt and 380Kt in FY20 and is targeting a range of cost saving measures. MIN also anticipates the mining Services EBITDA to be in between $280 million to $300 million. The company expects to spend up to $20 million in stages on drilling and feasibility work on iron ore in the Pilbara.

Valuation Methodology: EV/Sales Multiple Approach

EV/Sales Multiple Approach (Source: Company Reports)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: As per ASX, the stock of MIN gave a return of 31.62% in the past 3 months and a return of 4.50% in the last one month. The stock is trading close to its 52-weeks high level of $18.12. During FY19, gross margin of the company stood at 93%, higher than the industry median of 38.9%. In the same time span, net margin and ROE was in line with the industry median and stood at 10.9% and 12.4%, respectively. Considering the returns, trading levels, higher gross margin and decent growth opportunities, we valued the stock using EV/Sales based relative valuation method and have arrived at a target upside of higher single-digit (in percentage terms). Hence, we recommend a “Hold” rating on the stock at the current market price of $17.380, down by 0.115% on 24 January 2020. 

Senex Energy Limited

Significant Increase in Gas Production: Senex Energy Limited (ASX: SXY) is engaged in production, exploration and development of petroleum. As on 24 January 2020, the market capitalization of the company stood at ~$509.62 million. The company has recently released its quarterly report for the period ending 31 December 2019 wherein it stated sales volume went up by 25% and stood at 400 kboe. In the same time span, sales revenue was $29.4 million, representing an increase of 23% on the prior quarter and included a 64% increase in gas revenue to $9.7 million.


Key performance metrics (Source: Company Reports)

What to Expect from SXY: The company expects to complete its drilling campaign across both Surat Basin projects in FY20 and expects to bring new wells online and ramp up production towards its initial target of 18 petajoules a year. 

Stock Recommendation: As per ASX, the stock of SXY gave a return of 7.69% in the past one month. During FY19, gross margin of the company stood at 56.1%, higher than the industry median of 44.3%. This indicates that the company is managing its costs well and is capable of converting its top-line into bottom-line. In the same time span, current ratio of the company was 3.61x as compared to the industry median of 1.21x. This indicates that the company is liquid enough to pay off its current liabilities using its current assets. On the TTM basis, the stock is trading at an EV/Sales multiple of 4.3x, lower than the industry median (energy) of 26.3x. Considering the returns, high gross margin and current ratio, and decent opportunities for future, we recommend a “Speculative Buy” rating on the stock at the current market price of $0.340, down by 2.857% on 24 January 2020. 
 
 
Comparative Price Chart (Source: Thomson Reuters)

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