Oil Search Ltd

OSH Details

Papua New Guinea government selling stake in Oil Search: Recently, Oil Search Ltd (ASX: OSH) gained attention with the news relating to Papua New Guinea government’s exit from Oil Search’s share register in a $210 million block trade, which can pave the path for OSH being considered a potential M&A target by oil majors. With this move, the cash-strapped government is snuffing its $1 billion loan with the sale of its stake in OSH. It has been said that about 31.3 million shares of OSH that are owned by the PNG government will be sold by UBS and JP Morgan with a floor price of A$6.55 a share.

For H1FY17, Oil Search had delivered net profit of US$129.1 million, more than five times of H1FY16 and 21% above 2016 full year core net profit. Sales revenue grew 16% yoy to US$676.2 million, driven by substantially higher average realised oil/condensate and LNG/gas prices, which increased by 28% and 26%, respectively. On the other hand, 12% reduction in operating costs resulted in a very competitive unit production cost at US$8.52 per boe and an increase in operating margin to 74%. Further, 13% reduction in depreciation and amortisation expense, was driven by lower depreciation and amortisation rates for the PNG LNG Project due to a material increase in project reserves following the recertification. Notably, full year production guidance has been upgraded to be between 29.0 and 30.5 mmboe. In turn, unit production cost guidance has been reduced from US$8.0 - 10.0/boe to US$8.0 - 9.50/boe, while unit depreciation and amortisation guidance has also been revised down, from US$12.0 - 13.0/boe to US$11.5 - 12.5 per boe. Given the improved guidance and anticipated cash flows from its Papua New Guinea (PNG) liquified natural gas (LNG) projects, while any development on acquisition front is awaited, we maintain a “Buy” recommendation on the stock at current market price of $ 6.84
 

OSH Daily Chart (Source: Thomson Reuters)

Mustang Resources Ltd

MUS Details

Inventory exceeds auction target due to successful production ramp-up: Mustang Resources Ltd.’s (ASX: MUS) stock surged 7.4% on September 22, 2017 on positive sentiments. The group’s ruby inventory has soared to 277,852 carats compared with its initial goal of accumulating a 200,000-carat inventory in time for the auction. Notably, it is set to comfortably exceed 300,000 carats by the time of its maiden tender, which will be held over four days from Friday, 27 October to Monday, 30 October in Port Louis, Mauritius.The substantial growth in the inventory stems from record production rates at Mustang’s Montepuez Ruby Project in Mozambique and strong results from the Company’s artisanal miner development program (AMDP) following the implementation of “bushman jigs” and sorting tables.
 

Montepuez Ruby Project’s Milestones; (Source: Company reports)

The planets are aligning perfectly for its maiden tender and the group has exceeded its most optimistic inventory targets and all the feedback company is getting points to strong demand for rubies among global customers. Importantly, its tender inventory will be significantly higher than expected, opening the door to increased sales and revenue for the company. The increased inventory will also help attract leading ruby buyers from around the world, who are looking for critical mass as they seek to meet the strong demand for these stones. The stock has surged up 62% in the past four weeks while it is up 125% in the past one-year (as of September 21, 2017) owing to substantial mining progress; and is moving towards its 52-week high levels. We give a "Hold" recommendation on the stock at the current market price of $ 0.087


MUS Daily Chart (Source: Thomson Reuters) 

Galaxy Resources Ltd

GXY Details

James Bay’s assays are expected to be finalized by the end of September 2017: Recently, Galaxy Resources Ltd (ASX: GXY) has announced further assays from its 2017 drilling campaign at the James Bay Project in Quebec, Canada. Assays have been received for a further 49 diamond holes for 10,111m of NQ drilling with both resource infill and resource extensional in type. Pegmatites outcrop at surface and the drill program has targeted approximately 1,850m of pegmatite outcrop westward of the James Bay Highway. The first three drill holes east of the highway returned economic grades in pegmatite, and the resource remains open and largely untested east of the James Bay Highway. Thicker pegmatites at the western extremity of the known mineralization remain open and untested below the limits of the current drilling. The now-completed drilling program will be used for a mineral resource re-estimate and upgrade, which is expected to be finalised by the end of October 2017.

GXY stock dropped about 2.6% on September 22, 2017, which appears to be at the back of profit booking. The stock has otherwise moved up 42% in the last one month, while it is up 57.6% in the past one year (as of September 21, 2017). Given the latest drilling developments and expected results from James Bay’s assays, we give a “Hold” at the current price of $ 2.52


GXY Daily Chart (Source: Thomson Reuters)

88 Energy Ltd

88E Details

Lack of improved flows at project Icewine operations: 88 Energy Ltd.’s (ASX: 88E) stock price plummeted 16.7% on September 22, 2017 at the back of the recent operations update at its Icewine project. Primarily, the group has shut-in the Icewine 2 well on September 18, 2017, and now aims to carry out a new programme in the spring when favourable conditions are witnessed. 

The group (via its wholly owned subsidiary, Accumulate Energy Alaska, Inc) has a 77.55% working interest in the well. The well was shut-in on 10^th July to allow for imbibition and pressure build up to occur within the HRZ shale. Consequently, flow testing re-commenced on 31^st August and is ongoing. The well was stimulated in two stages over a gross 128-foot vertical interval in the HRZ shale formation, from 10,957-11,085ft TVD, using a slickwater treatment comprising 27,837 barrels of fluid and 1,034,838 pounds of proppant. The well was initially flowed back on a 6/64-inch choke and was reduced to a 4/64-inch choke after 26 hours to maintain pressure. Approximately 370 barrels of frac fluid had been recovered as on 3^rd September (AK time) at an average rate of 100 barrels per day. The choke was subsequently stepped up to 8/64 inch as at 10^th September (AK time) as the overall declining pressure gradient versus time improved, indicating potential pressure support. As of 12 September, the cumulative amount of stimulation fluid produced from both testing periods is 5,277 barrels, 19.0% of fluids injected. The gas observed so far is not considered representative of the potential rate or composition of hydrocarbon in the reservoir. Additionally, it is interpreted that additional frac fluid needs to be removed to achieve a representative result and a decision will be made on the most appropriate strategy to accomplish this within the next couple of weeks. On the other hand, the group said that the increasing levels of heavy components in the flow compared to the preceding project update, still look encouraging.

The stock has declined over 63% in the last three months, while it is down 38.5% in the past one year (as of September 21, 2017) and currently trading at 52-week low levels. We give a “Hold” recommendation at the current price of $ 0.02


88E Daily Chart (Source: Thomson Reuters) 

Alumina Ltd

AWC Details

Increase in dividends: For H1FY17, Alumina Ltd (ASX: AWC) reported a statutory net profit after tax of US$136.6 million compared to US$7.8 million in the corresponding period. Excluding the significant items, net profit would have been US$148.7 million. AWC’s joint venture, AWAC’s EBITDA increased by US$402 million to US$682.4 million due to higher alumina prices. Accordingly, cash flow from operations increased by US$665 million over the previous corresponding period to US$424.8 million. AWAC is Aloca World Alumina & Chemicals, which is 60% owned by Aloca Inc and 40% owned by Alumina Ltd. Since 30 June 2017, Alumina has received US$83.6 million of distributions from AWAC entities and the proceeds of which have been included in the interim dividend. Moreover, AWAC’s lowest quartile cost of operations in mining and refining combined with a recovery in alumina prices have resulted in a strong performance by AWAC during the period. Further, higher net cash distributions from AWAC have enabled the company to increase its dividend to 4.2 US cents from 2.9 US cents in the corresponding period.


Consolidated income statement; (Source: Company reports)

For FY17, the company expects aluminium demand growth of over 5% and will feed through alumina and bauxite demand. The bauxite market is expected to remain well supplied for the remainder of 2017 and, as a result, third party bauxite prices are expected to not change significantly in the H2FY17. AWC stock has moved up 23% in the past six months while it is up 58.7% in the past one year as on September 21, 2017. Given the increasing pricing outlook and demand for Alumina products, we maintain a “Hold” recommendation on this 4.25% dividend yield stock at the current price of $ 2.17


AWC Daily Chart (Source: Thomson Reuters)

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