8 Mining and Resource Sector ASX Stocks – BHP, RIO, S32, WOR, KDR, RSG, COE, WPL
 

Stocks’ Details

BHP Billiton Limited (ASX: BHP)

Further Opportunities that will offer upside - BHP has a simple, unique portfolio of the very best assets that are diversified across attractive commoditiesand the group experiencedsome significant increase in return on capital employed and delivered a 30 per cent increase in BHP’s base value over the past two years driven by successful delivery of the Company’s roadmap to grow long-term shareholder value, together with stronger commodity prices. The Group has maximised operating cash flow as it lowered its cost through productivity. It has a disciplined and transparent capital allocation and it has identified new options to increase value and returns. Through its six value drivers, it achieved a reduction in unit cost by more than 15 per cent, accelerated its technology and innovation program, progressed five high-return, latent capacity projects and sanctioned two major projects in copper and oil.Moreover, it reduced net debt by over US$10 billion and returned US$8 billion to shareholders. It has a strong pipeline that will add a further 40 per cent to the value of BHP but will be subject to its strict capital allocation processes. It received bids for US$9 billion for its shale assets and expects to receive offers or more in the second round and up to US$13 billion if it sells the assets individually.  The stock prices have been moving upwards in the past six months and was up by 22.76 per cent and by 4.51 per cent in last one month. Despite the threat of the strike from the workers of Escondida project (a project operated by BHP with a controlling stake of 57.5%), the share prices climbed up by 2.06 per cent as on 7 June 2018 with boost to copper prices. We give a “Hold” recommendation at the market price of $34.08.


Return on Capital Employed (Source: Company Reports)
 

Rio Tinto Limited (ASX: RIO)

Under strategic discussions with many companies - Rio, being the first company in the world to receive certification under the Aluminium Stewardship Initiative, voluntarily notified the Australian Securities Exchange (ASX) of material dealings in Rio Tinto plc shares by PDMR/KMP. Whitehaven Coal Limited (ASX: WHC) completed the acquisition of Rio Tinto’s 75% interest in the Winchester South Project. Rio reported about PT Indonesia Asahan Aluminium’s purchasing Rio’s entire interest in the Grasberg mine in Indonesia for $3.5 billion and the Group confirmed that the plan was still under discussions and parties involved in this acquisition were considering the price but have not been able to reach to any conclusion and there is no certainty that binding agreements will be signed. Meanwhile, it got an approval of the autonomous operation of trains at the group’s iron ore business in Western Australia. It focuses on fatality elimination in part through the Critical Risk Management programme which continues across the Group.


EBITDA Margins Trend (Source: Company Reports)

Rio has an active portfolio management and plans to spend ~$11 billion in divestments and has a disciplined acquisition strategy. Rio holds 30 per cent interest in Escondida Project and a risk due to the union strike can cause a trade war. Meanwhile, RIO remains focused on delivering value to shareholders and pioneering progress in collaboration with its multiple partners in over 35 countries around the world. Further, it has been noted that an Indonesian company, Inalum has obtained financing to snap up Rio’s stake in Grasberg Copper. On the other hand, Rio has divested more than $US11 billion worth of non-core assets over the past five years to manage its debt. The stock was up by 36.67 per cent in one year and by 22.05 per cent in the past six months. With higher copper prices, RIO also moved up 2.33% on June 07, 2018. Given the trading conditions, RIO looks “Expensive” at the current market price of $ 85.97.
 

South32 Limited (ASX: S32)

Increase in Production with control on costs - South32, a globally diversified mining and metals company with high-quality operations in Australia, Southern Africa and South Americabought back 424,351 shares for a consideration of $ 1,629,168 and till date (07 June 2018) it has bought back 198,157,334 shares. A major diamond drilling program commenced at Chololo Porphyry Copper Project in southern Peru. All holes are planned to be drilled to at least 500m depth and will take approximately two weeks each to complete. The Chololo Project is subject to an agreement with global miner South32 whereby South32 can earn a 70 per cent interest in the project by spending US$4.0 million, with the right to earn an additional 10 per cent interest by completing a Pre-Feasibility Study. Santos announced that it has entered an agreement with its joint venture partners for the front-end engineering and design (FEED) phase for the development of the Barossa project to backfill Darwin LNG (DLNG). Santos is also a joint venture partner in Darwin LNG with an 11.5 per cent interest. On the other hand, S32 is embracing new technologies, and is preparing for the future, that will minimise its environmental impact, and will improve safety and productivity across the business. It optimises the performance of its existing operations and has controlled costs by ~US$700 million over two years. It signed Trilogy Metals (TSX: TMQ) Option Agreement supporting the exploration at Bornite deposit, Alaska. The stock price has been rising since the start of the year that is by 10.38 per cent. We give a “Hold” recommendation at the current market price of $3.88 by looking at the commodity price scenario.


Production Guidance (Source: Company Reports)
 

WorleyParsons Limited (ASX: WOR)

Growth from Contracts - WorleyParsons, a Group that delivers projects, provides expertise in engineering, procurement and construction and offers a wide range of consulting and advisory services was awarded a contract by Tullow Oil to provide services for the foundation phase of the South Lokichar onshore oil field development (Project) in Kenya. Under the contract, WorleyParsons will provide front end engineering design for the central processing facilities and will support Tullow Oil in the Project that will be delivering as part of an integrated project management team. The project includes the development of the Ngamia and Amosing fields to produce projected 60,000 barrels of oil per day with transport via a 900km export pipeline.Its resources and energy are focused on responding to and meeting the needs of its customers over the long term and thereby creating value for shareholders. It was also awarded a project management consultancy (PMC) contract by Kuwait Oil Company (KOC) for the Kuwait Environmental Remediation Program (KERP) and under this contract WOR will provide the services from its Kuwait office and the estimated revenue to the Company has been slated to be US$98 million over a five-year period. Given the expansion of WOR’s contracts’ base and one-year stock price surge of about 39.88 percent, we have a “Hold” on the stock at the current price of $16.86.
 

Strategic Priorities for FY19 (Source: Company Reports)
 

Kidman Resources Limited (ASX: KDR)

Executing strategy to cater to EV thematic scenario - Kidman Resources Limited explores and develops precious and base metals deposits in New South Wales (NSW), Western Australia and Northern Territory and executes a strategy to address EV thematic scenario as an integrated 1^st quartile producer of refined battery-grade lithium. It will achieve its objective by delivering Mt Holland Lithium Project safely, on time and on budget and by seeking offtake agreements with selected, blue-chip counterparties. Lately, it entered into a binding agreement to supply lithium hydroxide to electric car maker Tesla Inc. It is anticipated that Tesla might buy 5,000 tonnes of lithium hydroxide from Kidman each year. The agreement is for three-year and for fixed price take-or-pay which will protect both Kidman and Tesla from falls or rises in lithium prices.


Catalyst for Future Growth (Source: Company Reports)

On the other hand, and in addition to agreement with Tesla, Kidman is in discussions with other strategic, globally significant parties to mark key milestones of its long-term strategy. Tesla’s interest in Kidman, led the Group to enter into discussions with other parties for the balance of its refinery offtake that may allow Kidman to enter into new such agreements that could prove lucrative for Kidman. In March 2018, the group updated its Mineral Resource Estimate (MRE) for the Earl Grey Lithium Deposit to 189 million tonnes at 1.50% Li2O, containing 7.03Mt of Lithium Carbonate Equivalent (LCE). EDM Nominees Pty Ltd changed its substantial holding from 9.93 per cent to 8.15 per cent. KDR’s return on invested capital has also improved slightly. The share price has been increasing in the past few months but fell by 2.15 per cent on 7 June 2018 while most other lithium miners also slumped (Orocobre Ltd was down by 6.9%). We recommend to “Buy” KDR at the current market price of $2.27 by looking at the catalysts that will help the Group to grow in future.
 

Resolute Mining Limited (ASX: RSG)

Striving for good returns to shareholders – Resolute, which has more than 25 years of continuous gold production, subscribed for approximately 32.4 million new shares in Orca Gold Inc (Orca) through a share placement priced at C$0.675 per share. Orca is a Canadian public company engaged in the acquisition, exploration, and development of mineral properties in North and West Africa. Investment in Orca was opportunistic and part of Resolute’s ambitious growth strategy. This combination of the mutual exploration and development expertise and resources will materially advance the existing asset position and will advance regional exploration and development opportunities. Its main aim is to participate in the development of a major new gold mining district that will be consistent with Resolute’s Golden Pride legacy as a successful pioneer of the gold mining industry in East Africa. A Mineral Resource has been estimated in compliance with the Canadian NI 43-101 standard and was updated in January 2018 to include an Indicated Resource of 3.05Moz of gold (72.7Mt at 1.30 g/t Au) and an Inferred Resource of 752,000oz of gold (19.8Mt at 1.2 g/t Au). Resolute has established a portfolio of investments in emerging gold explorers to expand its project pipeline and provide a source of medium-term potential growth opportunities. Despite the fact that the Group has amended the guidance to recognise reduced production from the sulphide operations and now expects full year production for FY18 to be 280,000oz of gold from earlier level of 300,000 oz of gold, the long-term potential looks intact. Hence, we continue to maintain our “Buy” recommendation on the stock at the current market price of $1.29by looking at its growth, mine longevity and margins.
 

Cooper Energy Limited (ASX: COE)

Focus on Value Building - COE alisted exploration and production company which generates revenue from the gas supply to south-east Australia and low-cost Cooper Basin oil production, has provided an update on the drilling of the Sole-3 and Sole-4 production wells. Sole-3 has been drilled to a total depth (TD) of 1,215 mMDRT (metres measured depth below rotary table) and the current operation is completion of the reservoir section. The well was successfully drilled on its planned trajectory and the Top Latrobe Group sandstone reservoir was intersected at the same depth as Sole-2 at 1,113 mMDRT (745.8 metres true vertical depth subsea). Sole-4 has been drilled to a depth of 532 mMDRT in the Gippsland Limestone, with 13 3/8” casing installed and cemented in place. Cooper Energy announced that it, together with AWE Limited and Mitsui E&P Australia Pty Ltd, has signed an agreement with BHP Billiton Petroleum (Victoria) Pty Ltd (“BHP”) for the acquisition of BHP’s 90 per cent interest in the Minerva Gas Plant. It is in the midst of a 6-year growth profile sourced from existing assets and it is leveraged to the south-east Australian gas market. It is focusing on 4 key areas that will lift its value in 2018 and in 2019. These include safe execution of the Sole gas project, Casino Henry and on the marketing of uncontracted Sole and Casino Henry gas. In the past six months, the stock climbed up by 25.42 per cent; and in the past five days, the stock dipped marginally by 1.33 per cent due to drop in oil prices. We recommend to “Buy” the stock at the current market price of $0.37 by looking at the development projects.
 

Woodside Petroleum Limited (ASX: WPL)

Changing LNG Demand - Woodside is executing the growth plans that it laid out last year. Recently, the Grouplaunched a local jobs portal, so all Karratha residents know where to register their interest to work on Woodside-related projects. Its growth projects are built on the significant amount of infrastructure it has locally. Woodside is again entering a growth and construction phase on the Burrup Hub, with Scarborough to Pluto and Browse to the North West Shelf on the horizon, both of which will support thousands of jobs as it invests billions of dollars in developing gas for domestic and export markets. Its strategy is underpinned by its ongoing strong base business, world-class asset performance and execution of committed projects. Market conditions are also supporting its strategy, LNG demand growth has been higher than most forecasters expected, development costs are at a low point in the cycle, and there has been a lack of investment in new production. Meanwhile, WPL is targeting to achieve 100MMboe annual production in 2020. It is expected that Global LNG demand growth will be at 4 per cent of CAGR till 2035. It has a strong balance sheet to strengthen its growth and have achieved a stable global credit rating. The stock was up by 5.85 per cent in the past six months and rose up by 1.11 per cent in the past one month. We give a “Hold” recommendation at the current market price of $33.24 by looking at the current oil price landscape.

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