Santos Ltd

STO Details
Reduction in costs: Santos Ltd (ASX: STO) has released its first quarter activities report for the period ending 31 March 2017, and the key highlight has been a further reduction in costs and debt. 2017 forecast free cash flow breakeven was lowered to US$34/bbl from US$36.50/bbl in 2016. The group’s net debt reduced to US$3.1 billion from US$3.5 billion at the end of 2016 (target of $US1.5 billion by the end of 2019). STO has already made an early repayment of US$250 million in 2019 Export Credit Agency (ECA) debt and its US$860 million of undrawn bilateral bank loan facilities due to mature in 2018 have been extended to 2022.GLNG LNG production has been reported to be up to 1.4 million tonnes at the back of strong production from Fairview and improved Roma field performance. STO’s quarterly revenue has increased by 14% on a year-to-date basis.
 

Quarterly and Year-to-date Performance (Source: Company Reports)
 
However, the group reported for a lower output and sales in the quarter owing to some asset sales (fields in Victoria, the Northern Territory and Western Australia). Further, STO now expects to break even this year on cash flows at $US34 a barrel which is a huge slip from $US47 at the beginning of 2016. The group has maintained guidance for full-year production of between 55 million and 60 million boe, but has signalled for maintenance shutdowns at GLNG and the Papua New Guinea LNG venture in near term. This might have some impact on the output. STO stock has fallen 10.9% in last three months (as at April 19, 2017) owing to sector-driven volatility and commodity price movements, with a further slip of about 3% on April 20, 2017 at the back of result update. However, given the efforts being made on the turnaround strategy and ability to reduce costs while managing challenging situations and maintaining guidance, we give a “Buy” recommendation at the current price of $ 3.57
 

STO Daily Chart (Source: Thomson Reuters) 

Red Mountain Mining Ltd

RMX Details
Drilling starts at Red Valley Lithium Brines Project: Red Mountain Mining Ltd (ASX: RMX), having core focus on new energy metals and gold, recently announced about commencement of drilling at its Red Valley Lithium Brines Project in Utah, USA. The group is also conducting a 3 x 1,000 feet-well program at Red Valley. This will help the group test for commercial levels of Lithium enrichment in local brines across the 6,000-acre Project area. However, the group has remained muted on the schedule as the same has been said to be subject to weather conditions, and quality of access to the other two drill locations. Recent high rainfall experienced at Utah had already affected the accessibility to heavy equipment.
 

Drilling at Red Valley (Source: Company Reports)
 
RMX had earlier inked a binding exclusivity and earn-in agreement (Agreement) with CoCu Metals Ltd (CoCu) controlling 100% of the Mokabe-Kasiri Cobalt-Copper project in the Katanga Province of the Democratic Republic of Congo (DRC), Africa. Through this move, RMX has obtained an exclusivity period of 6 weeks to conduct initial due diligence on the Mokabe Cobalt-Copper Project and has got the option to proceed to earn-in into the project by incurring expenditure. Although the group’s mettle in terms of progress on its development projects is yet to be witnessed, the exposure to metals other than gold seems to be on a positive side. On the other hand, RMX had reported for an operating loss of $26.4M for the half year ended 31 December 2016 (2015: $1.08M loss) impacted by the impairment of the exploration assets by $24.6M in anticipation of the completion of the sale of the Batangas Gold Project, while the cash balances of $1.7M (30 June 2016: $0.76M) as at 31 December 2016 was reported. There have been stock price fluctuations owing to gold price movements, however, the stock moved up 3.2% on April 20, 2017. Considering RMX to be a growing company with other risks in mind, we give a “Speculative Buy” recommendation at the current price of $ 0.032
 

RMX Daily Chart (Source: Thomson Reuters)

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