Santos Limited (ASX: STO)

STO Details

Development of Barossa Project: Santos announced that it has entered in an agreement with its joint venture partners to enter the front-end engineering and design (FEED) phase for the development of the Barossa project to backfill Darwin LNG (DLNG). The Barossa FEED decision will consolidate its position as the leading candidate for DLNG backfill when Bayu-Undan production will cease in the early 2020s. It’s a great step forward for Santos because its higher equity position means that a successful Barossa development would be able to produce more than double of its current production out of Northern Australia. FEED activities will involve engineering and commercial work which will aim on the finalisation of the project’s technical detail, costs, LNG sales agreements and negotiation of access arrangements with the owners of DLNG and the Bayu-Undan to Darwin gas pipeline.


Allocation of Sales Revenue (Asset-wise) for 2017 (Source: Company Reports)

A final investment decision (FID) is targeted towards the end of 2019. Contracts for field surveys and engineering for the floating production, storage and offloading facility (FPSO), subsea facilities and export pipeline will be awarded shortly. Santos will remain committed and will continue to work with its joint venture partners in Northern Australia to commercialise the company’s significant discovered resource base in the region through a range of ullage opportunities and expansion of existing projects. Santos holds a 25% interest in the Barossa Caldita joint venture along with partners ConocoPhillips (37.5% and operator) and SK E&S (37.5%). Santos is also a joint venture partner in Darwin LNG with an 11.5% interest. The stock price has been rising since the start of the year that is by 10 per cent and after this update on Barossa, the stock price increased by 1.9 per cent on 24 April 2018. We recommend to “Hold” the stock at the current market price of $6.13.
 

STO Daily Chart (Source: Thomson Reuters)
 

Resolute Mining Limited (ASX: RSG)

RSG Details

Transformational GrowthProjects: Resolute Mining released its Quarterly Activities Report for the period ending 31 March 2018. Resolute is delivering a series of transformational growth projects. There was an increase in the gold production that is 66,685 ounces of gold were produced as compared to 66,581 ounces in December 17 quarter. The Syama Underground mine is making steady progress towards the final goal of a world class sublevel cave operation. Completion of the Syama Underground mine will take total site production from Syama to levels above 250,000 ounces of gold annually. During the quarter, the Group received the final approvals that were required to proceed with the Ravenswood Expansion Project. This project will take annual site production from Ravenswood to beyond 120,000 ounces of gold over a 13 year mine-life. During the March quarter, the Syama sulphide operation has processed a greater quantity of lower quality stockpiled material than what was expected. This has resulted in a lower than forecast grade and associated recoveries from the sulphide circuit which has flowed through into the quarterly results. Full year guidance has been adjusted accordingly that is from 300,000oz to 280,000oz for the year to date.


Syama Underground Development (Source: Company Reports)

It is expected that a few important milestones will be delivered during the current quarter and RSG is expecting to receive Environmental Approvals at Bibiani and will soon publish an updated feasibility study based on the recently upgraded resource. Resolute maintains a strong balance sheet with substantial unencumbered cash reserves and its mines continue to generate strong operating cash flows. The Syama Underground mine and the Ravenswood Expansion Project will provide Resolute with a base to build a portfolio of long life, low cost, growing gold mines. The Syama Underground mine development remains on schedule for first sublevel cave ore production to commence in December 2018. During the March 2018 quarter, underground development commenced on the fourth production level (the 1055 level) and underground development ore production continued from the first and second production levels (the 1130 and 1105 levels). TheCompany’s nextstage of development in Queensland is the return to large scale open pit mining at the Ravenswood Expansion Project, which will extend the Company’s local operations for a further 13 years to at least 2029.The stock has performed decently on ASX and was up by 27.5 per cent in the past six months but after this update on March Quarterly report, the stock tumbled by almost 7.2 per cent on 24 April 2018. We give a “Buy” recommendation at the current market price of $1.225 by looking at the overall performance.
 

RSG Daily Chart (Source: Thomson Reuters)
 

South32 Limited (ASX: S32)

S32 Details

Upgraded the Guidance on the back of strong market demand: The Group recently released its quarterly report ending on March 2018 and reported an increase in net cash that is from US$477 million to US$1.9 billion as commodity prices remained elevated. As a result of lower volumes, operating unit costs at Illawarra Metallurgical Coal are expected to remain elevated in FY18 at US$150/t (prior guidance US$135/t) before benefitting from stronger production as its ramp-up plan gains momentum. It upgraded the production guidance at Australia Manganese by 6% and by 5% for South Africa Manganese on the back of strong market demand and record operating performance at Australia Manganese. At 31 March 2018, the Group had completed US$390 million of its approved US$1 billion capital management program, having bought back 176 million shares at an average price of A$2.89 per share. After the end of the quarter, it returned an additional US$154 million in the form of a special dividend, bringing total returns under its approved US$1 billion capital management program to US$544 million and paid a fully franked interim dividend of US$221 million on 5 April 2018.


Operating Performance (Source: Company Reports)

While FY18 Operating unit cost guidance at all other operations remains unchanged, the potential for a greater proportion of higher margin export tonnes at South Africa Energy Coal may increase Operating unit costs by approximately 5%. Stronger alumina prices, of which the Group is a net beneficiary, will also impact the cost base of its aluminium smelters over the remainder of FY18. It advanced its plans to manage South Africa Energy Coal as a stand-alone business from the June 2018 quarter, which will allow it to simplify its business, lower overhead costs and fundamentally change the way it works. The share price was up by 23.75 per cent in the past one month but after the dip in the aluminium prices, the stock tumbled by nearly 9.6 per cent on 24 April 2018.  We maintain a “Hold” recommendation at the current market price of $3.58.
 

S32 Daily Chart (Source: Thomson Reuters)
 

Fortescue Metals Groups Limited (ASX: FMG)

FMG Details

Lower volume of output shipped:  Fortescue released its March 2018 quarterly production results and reported iron ore shipments of 38.7 million tonnes (mt) and cash production costs (C1) of US$13.14 per wet metric tonne (wmt). This was lower than the previous quarter due to cyclone activity that impacted port operations together with planned extended maintenance, equipment downtime and wet weather at the mines. Year to date C1 costs were US$12.43/wmt, equivalent to a C1 cost of US$11.90/wmt after normalising for an assumed exchange rate of US$0.75 and fuel costs of US$53 per barrel (WTI). Fortescue refinanced its 9.75% Senior Secured Notes during the quarter which transitioned the balance sheet to an investment grade structure and reduced the annual borrowing costs by US$130 million.


Debt Maturity Profile (Source: Company Reports)
 
Cash on hand at 31 March 2018 was US$2.6 billion inclusive of amounts committed to the repayment of debt and the interim dividend in April 2018. The adjusted cash balance at 31 March 2018 amounted to US$0.6 billion. Net debt at 31 March 2018 reduced to US$3.1 billion from US$3.3 billion on 31 December 2017. The average strip ratio was 1.5 for the quarter with the Chichester Hub at 1.9 and Solomon Hub at 0.9. Share price was down by 5 per cent in the past six months and declined by 2.3 per cent on 24 April 2018. The stock looks “Expensive” at the current market price of $4.57.
 

FMG Daily Chart (Source: Thomson Reuters)

 
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