Stocks’ Details

Iluka Resources Limited

Zircon & Rutile Production increasedin June ’19 Quarter: Iluka Resources Limited (ASX: ILU) recently announced an updated Mineral Resource estimate for the Mineral Separation Plant (MSP) By-Product Resource which supports the Eneabba Mineral Sands Recovery Project, reported in accordance with the guidelines of the JORC Code (2012 edition).The Mineral Resource is located within the historical Eneabba mine void and represents a long-term accumulation of by-product material from processing at Iluka’s Narngulu MSP. The Mineral Resource consists of Measured Resource of 0.84Mt grading 83.7% HM and Indicated Resource of 0.16Mt grading 77.5% HM.

June ’19 Quarter Key Highlights: During the period, zircon/rutile/synthetic rutile (Z/R/SR) production increased by 10% to 169kt, as compared to 154kt in Q1FY19. In the period, ILU formally entered into the strategic partnership with IFC in June 2019. At the end of the period, net debt was reported at $142 million as compared to $2 million net cash as on December 31, 2018. The net debt reflects payment of 2018 final dividend of $79 million.

The first half 2019 revenue per tonne increased by 30% as compared to the previous corresponding period, majorly due to 19% and 22% higher achieved zircon price and rutile price, respectively.


June ’19 Quarter Production and Sales data (Source: Company Reports)

What to expect: In China, the strict implementation of environmental regulations has maintained pressure on the manufacturing sector, affecting production and costs.As a result, zircon demand has declined, particularly in ceramics markets. Iluka expects its sales to be second half weighted and may include more standard product. Due to the slower start to the year, the company expects sales volumes may be lower than production for the full-year. In the Titanium Dioxide Feedstock Markets, the pigment industry has shown further signs of strengthening in the second quarter with inventories moving back to seasonal norms and higher capacity utilisation rates. In China, demand for imported high grade ore (HGO) feedstocks is increasing as new domestic chloride production comes on line and ramps up.

Stock Recommendation: Its gross margin, EBITDA margin and net margin for H1FY19 stood at 52.9%, 43.1% and 22.5%, better than the industry median of 40.7%, 30.2% and 14.8%, respectively, which implies decent fundamentals of the company. Its ROE for H1FY19 stood at 30.5%, better than the industry median of 12.3%. Hence, considering the aforesaid facts and current trading level, we recommend a “Hold” rating on the stock at the current market price of $8.520 down 0.699% on August 7, 2019.
 

Mineral Resources Limited

MIN Inks Agreement With Albermarle For Stake Transactions: Mineral Resources Limited (ASX: MIN) recently announced that its directors Xi Xi, Kelvin Flynn, James McClements and Peter Wade, acquired 4,569 shares, 4,569 shares, 4,569 shares and 2,063 shares, respectively. In another update, MIN announced revised arrangements with Albemarle Corporation for the sale of 60% of Wodgina and acquisition of 40% interest in two modules at Albemarle’s Kemerton hydroxide facility. The revised structure reduces the overall funding requirement for both parties. It provides an opportunity for MIN to participate in the development of the Kemerton lithium hydroxide plant, which will provide MIN with interest in an operational lithium hydroxide facility sooner than previously planned through the Wodgina development.


Q4FY19 Production and Commodity Shipments Data (Source: Company Reports)

What to expect: Construction of the Wodgina Lithium Project’s three-stage 750,000 dry tonne per annum spodumene concentrate plant and associated non-process infrastructure progressed during the June quarter. Its train one is complete with the current focus on optimising lithium recoveries, train two commissioning is underway, and construction of train three is progressing. First ore is expected in Q1 FY20. The Wodgina aerodrome runway is complete with the first charter flight planned for Q2 FY20.

Stock Recommendation: Its gross margin for H1FY19 stood at 95.9%, better than the industry median of 42.6%. On the stock performance front, it provided returns of -5.02% and -10.27% in the time period of one month and six months, respectively.  As per ASX, the stock is trading closer towards its 52-week low price of $12.390, indicating a decent opportunity for accumulation. Hence, considering the aforesaid facts and current trading levels, we recommend a “Buy” rating on the stock at the current market price of $14.460 per share (down 2.033% on August 7, 2019).
 

Santos Limited

First Half Sales Revenue increased by 18% on pcp: Santos Limited (ASX: STO) recently provided drilling update on Project Range and Dukas 1. Project Range is a 50:50 Joint Venture with a wholly-owned subsidiary of Incitec Pivot Limited in ATP 2031. The progress over this project demonstrates the Joint Venture’s ability to successfully and safely execute the exploration programme in this tenure. The Dukas 1 well had successfully completed wireline logging from 2604m measured depth (MD) to 3515m MD.

June ’19 Quarter Key Highlights: STO reported record production of 37 mmboe in the first half, which is 32% more than the corresponding period. The sales volume and sales revenue in the first half were reported at 45.2 mmboe and $2 billion, which were an increase of 19% and 18%, respectively. The company generated $300 million in free cash flow in the second quarter, bringing total free cash flow for the first half to over $600 million. Strong free cash flows reduced net debt by $0.3 billion in the second quarter to $3.1 billion.


STO’s Key Performance Metrics (Source: Company Reports)

What to expect:As per the report, new production guidance has been narrowed to 73-77 mmboe, and sales volume guidance is 90-97 mmboe. The unit production cost guidance has been lowered to $7.25-7.75/boe.


2019 Guidance Upgrade (Source: Company Reports)

Stock Recommendation: Its EBITDA margin and net margin for FY19 stood at 52.7% and 17.2%, better than the industry median of 37.4% and 15.9%, respectively, which implies decent fundamentals of the company. Coming to the stock’s past performance, it had provided returns of -3.91% and -3.63% in the time period of one month and three months, respectively. As per ASX, the stock of STO is trading closer to 52-week higher levels of $7.490 with PE multiple of 15.49x. Hence, considering the aforesaid facts and current trading levels, we recommend a “Hold” rating on the stock at the current market price of $6.580, down 0.754% on August 7, 2019.
 

Cooper Energy Limited

A Look at The Recent Updates: Cooper Energy Limited (ASX: COE) recently announced that Carol Australia Holdings Pty Limited and its related bodies corporatehave become initial substantial holder of the company with the voting power of 5.99%. In another update, COE announced that the Diamond Offshore Ocean Monarch drill rig has spudded the Annie-1 gas exploration well. Annie-1 will be the first gas exploration well drilled offshore in the Otway Basin in seven years. The well is the first in a two-well exploration program by the joint venture to identify new sources of gas supply for south-east Australia. The joint venture expects to develop any commercial gas discoveries through utilisation of its existing offshore infrastructure and process gas at the Minerva Gas Plant.


Eastern Australian Gas Consumption Detail (Source: Company Reports)

What to expect: South-East Australia is reliant on Queensland gas to meet the shortfall between local production and local demand.This is a good market opportunity for gas from south-east Australian resources.


Demand Forecast for gas (Source: Company Reports)

Stock Recommendation: Its EBITDA margin for H1FY19 stood at 50.2%, better than the industry median of 35.9%. Its current ratio for H1FY19 stood at 6.34x, better than the industry median of 1.28x. The stock has gained 16.67% in the last 6-months and is presently trading near to its 52-week high price of $0.595 with a market capitalization of ~$908.07 million. Hence, considering the aforesaid facts and current trading levels, we recommend a “Hold” rating on the stock at the current market price of $0.545 (down 2.679% on August 7, 2019).


Comparative Chart (Source: Thomson Reuters)

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