Origin Energy Limited (ASX: ORG)

ORG Details

Boost from Energy Markets: ORG recently announced that it will redeem 500 Euros million of Capital Securities due in 2071 that are listed on the London Stock Exchange. After this Standard & Poor’s Rating Services will no longer assign intermediate (50 per cent) equity content to both the 2071 Capital Securities and to the Euro 100 million Capital Securities that are due in 2074, listed on the Luxembourg Stock Exchange. Origin does not consider this expected change in equity to be a Rating Event under the terms and conditions of the 2071 Capital Securities or an Equity Credit Rating Event under the 2074 Capital Securities. Meanwhile, sale of Lattice Energy got completed on 31 January 2018 and group’s debt was reduced while it is moving towards the target capital structure of 2.5-3.0x/EBITDA.
 
 
Trend of Underlying Profit (Source: Company Reports)
 
The Company recorded a statutory loss of $207 million for first half of 2018 that was driven by impairment charges after tax of $533 million. Operating cash flow increased by 43 per cent on pcp basis. Energy Markets FY2018 EBITDA is expected to be in the range of $1.78-$1.85 billion (increased from $1.7-$1.8 billion), provided the market conditions and the regulatory environment do not materially change. This change was driven by an improvement in natural gas volumes and margins which was partially offset by increased pressure on operating cost in a highly competitive market. Adjusted Net Debt is expected to be below $7 billion. Energy Markets EBITDA for 1HY18 was otherwise up by 21 per cent as compared to 1HY17. The stock price was up by 13.4 per cent in the past six months but down by 1.34 per cent in the past one week. Given the long-term potential that ORG has, there is a possibility that energy players might consider this group for a buy-out/ merger. We give a “Hold” recommendation on ORG at the current market price of $8.82
 

ORG Daily Chart (Source: Thomson Reuters)
 

Syrah Resources Limited (ASX: SYR)

SYR Details

Continuous focus on value and fast-growing markets: Recently, Syrah Resources announced that the Mining agreement has been signed by his Excellency Ernesto Max Elias Tonela, the Minister of Mineral Resources and Energy (on behalf of the Government of the Republic of Mozambique) and Syrah’s wholly owned subsidiary, Twigg Exploration and Mining, Limitada. Only the final step of presenting the Agreement in Administration Court in Mozambique for sanctioning is left. This will provide the Company with more clarity around the governing laws and contractualises the mining rights and other obligations for the Balama Project in Mozambique. Meanwhile, Syrah is continuing to ramp up the production of flake and fines graphite at Balama.
 

Anode Supply Chain (Source: Company Reports)
 
The Group reported an issue regarding the dryer of the fines graphite circuit at the Balama Operations which caused a damage to the Fines Dryer refractory bricks and flame tube. The Company is investigating the cause of the issue and is planning to repair to mitigate the production impact. The stock price was down by 7.6 per cent in the past six months but managed to rise by 6.7 per cent in the last one month. On the other hand, the group is targeting production to supply traditional industrial graphite markets and is developing downstream battery anode material plant in USA linking the use of graphite in the anode of lithium ion batteries. We maintain a “Hold” recommendation at the current market price of $3.28
 

SYR Daily Chart (Source: Thomson Reuters)
 

Fortescue Metals Group Ltd (ASX: FMG)

FMG Details

Working on Cost approach: FMG Resources Pty Ltd, a direct wholly-owned subsidiary of Fortescue Metals Group Ltd, pursuant to its offer to purchase for cash up to US$1.4 billion of aggregate principal amount of 9.750% Senior Secured Notes due in 2022, has received tenders and accepted the purchase of aggregate principal amount for Notes of US$446,912,000. The tender offer will be funded through borrowings that is by a syndicate term loan facility of US$1.4 billion. The Company’s acceptance for purchase of additional Notes is subject to the Tender Cap. The Company priced an offering of US$500 million of 5.125% Senior Unsecured Notes that were due in 2023 and the offering is expected to settle on or about 15 March 2018 and is subject to customary closing conditions. The existing US$2,160 million of Senior Secured Notes will be redeemed through a combination of proceeds from the recently announced US$1,400 million of Term Loan, from the Senior Unsecured Notes of US$500 million and balance from cash and this will reduce the annual borrowing cost by approximately US$130 million. Its recent refinancing transactions resulted in a flexible low-cost capital structure. It will continue to work on its approach of capital management, debt repayment, reinvestment of its iron ore business, identification of low cost growth opportunities and will deliver returns to its shareholders.
 

Debt Maturity Profile after the redemption (Source: Company Reports)
 
However, group’s net debt rose for the first time in three years and amounted to $US3.3 billion as on 31 December 2017, whereas net debt as on 30 June 2017 was $US2.63 billion, at the back of factors such as dividend payments, and purchase of a power station.As a result, the stock price dropped by 6.6% in the past one month. Looking at the scenario, it is less likely that the group catches attention in terms of any takeover soon until there are efforts put in place in parallel for debt reduction and improved financial metrics performance while FMG aims to manage its capital. We recommend to “Sell” the stock at the current price of $4.67 by looking at the overall scenario.
 

FMG Daily Chart (Source: Thomson Reuters)
 

Western Areas Limited (ASX: WSA)

WSA Details

Improved financial metrics: WSA recently released its first half results for 2018 and EBITDA for 1HFY18 substantially improved with a 26 per cent growth over the underlying EBITDA for 1HFY17 and was 59 per cent higher than 2HFY17, despite a planned reduction in sales volume in 1HFY18. In addition, EBITDA margin improved and was 31.4 per cent which is a reflection of absolute cost reduction, the impact of successful new offtake contracts and due to the marginal increase in nickel prices. The Company generated a positive cashflow of $31.6 million from operations for the first half. 1HFY18 was projected to be more of capital intensive than usual as the Company completed the construction of the MREP and the Spotted Quoll ventilation shaft. 2HFY18 will be an exciting period for the Company, as exploration activities for base metals and gold prospects have been ramped up at Forrestania, Cosmos and at Western Gawler.
 

Guidance Update (Source: Company Reports)
 
The Company expects to complete commissioning of the MREP at the end of March, which will allow the Company to bring a new style of nickel concentrate to the market with a grade of 45-50 per cent of nickel that is already attracting global attention. Going Forward, the success of the MREP will open-up new opportunities for the Company to exploit the growth projects like New Morning. The share prices were up by 13.6 per cent in the past six months, and we recommend to “Hold” the stock at the current market price of $3.01
 

WSA Daily Chart (Source: Thomson Reuters)

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