Resolute Mining, Saracen Mineral Holdings, Mineral Resources and Whitehaven Coal

With the latest provocation from North Korea, markets at the global level (including South Korea and Japan) have witnessed a blow. Investors are again latching on to the safe-haven assets as the ASX also trended lower. Below are four ASX stocks from the material and mining sectors that seem to have benefitted from the present situation:

Resolute Mining Limited

RSG Details

Taking advantage of gold price volatility by booking forward sale of 96,000 ounces of gold: Resolute Mining Limited (ASX: RSG), up 2.8% on September 04, 2017, recently announced that it has forward sold 96,000 ounces of gold at an average price of US$1,330 per ounce with scheduled monthly deliveries of 6,000 ounces out to December 2018. Notably, the Company has taken advantage of recent gold price volatility to establish a gold hedge position to support the Syama Underground Mine development program. The objective of the hedge is to secure US$ revenues from Resolute’s Syama Gold mine during the development phase of the Mine. The hedged position of 96,000 ounces represents approximately 25% of expected gold production to December 2018. Importantly, the average gold price received in the forward sales contracts of US$1,330 per ounce represents a significant premium above Resolute’s budgeted gold price for the period of US$1,200 per ounce and provides additional strength to the Company’s future cashflows and project returns. The new hedging is in addition to the remaining forward sales program of 6,000 ounces at an average price of A$1,800 per ounce which was established to support the recommencement of open pit mining at Ravenswood. The development plans at Syama provide exposure to US$ capital and operational expenditure over the period of the forward sales contracts. We maintain a “Speculative Buy” recommendation on the stock at the current market price of $ 1.26

Saracen Mineral Holdings Limited

SAR Details

Anticipating improved AISC: For FY17, Saracen Mineral Holdings Limited’s (ASX: SAR) gold production increased by 45% to 272,807 oz (2016: 188,656 oz). Subsequently, revenue was up by 53% to A$423.1m (2016: A$276.5m) and SAR delivered 54% yoy growth in EBITDA at A$113.4 million while NPAT increased 10% yoy to A$28.4 million. Further, the group aims to achieve all-in sustaining cost (AISC) of A$950/oz in FY20 (FY17 AISC of A$1,348/oz) following AISC of A$1,381 for FY17 resulting from substantial investment in organic growth.


Saracen Group 5 Year Plan; (Source: Company reports)

Mining at the King of the Hills and Red October underground mines ceased during FY2017, with production ramp-ups at both Karari and Deep South providing increased replacement mill feed. The underground portal at Karari’s sister mine, Whirling Dervish, was cut late in the year, with exploration drilling platforms to be established in FY2018. Given the geopolitical situation, the stock was up 2.5% on September 04, 2017. We maintain a “Buy” recommendation on the stock at the current price of $ 1.43

Mineral Resources Limited

MIN Details

Result boosted by commodity prices: For FY17, Mineral Resources Limited (ASX: MIN) reported revenue growth of 24% at $1.46 billion on the prior corresponding period (pcp), while posting EBITDA of $463.6m (up 62%) and Net Profit After Tax of $201.0m (up 83%). The results were driven by 18% increase in iron ore revenue due to a higher iron ore price, sale of 0.7Mt of lithium DSO and 116Kt of spodumene, increased crushing and processing production with equivalent crushing capacity up 34% and conversion of Pilbara Minerals (PLS) offtake / royalty rights to 104 million PLS shares.On the other hand, depreciation of $160.2m was up 20% on prior corresponding period (pcp) due to higher mining production (all products) and the larger mining fleet implemented in iron ore operations to improve mining efficiency. Net cash from operations increased to $381.5m despite witnessing $42.0m working capital outflow as a result of inventory build at Mount Marion and Wodgina mining operations.

The stock has moved up 51% over the past three months, while it is up 36.1% for the last one year as on September 01, 2017, and is trading at elevated levels. We maintain an “Expensive” recommendation at the current market price of $ 15.41

Whitehaven Coal Limited

WHC Details

Decline in Coal Resources and Coal Reserves due to mining depletion: Whitehaven Coal Limited (ASX: WHC) had recently highlighted the impact from mining depletion on its coal resources and reserves that witnessed a decline from previous year. Coal Resources have decreased by 45Mt from 4027Mt in August 2016 to 3982Mt in August 2017. Coal Reserves have decreased by 8Mt to 974Mt and Marketable Reserves for the Whitehaven Group decreased by 22Mt to 862Mt from the August 2016 Coal Resources and Reserves Statement. Most of the decrease in Reserves was due to mining depletion during the year. Key changes include the decrease in Open cut Coal Reserves at Maules Creek by 10Mt to 500Mt, due to mining depletion. Marketable Reserves at the mine decreased by 20Mt to 440Mt due to mining depletion and some minor adjustments to yield calculations. However, Coal Reserves at Narrabri increased by 2Mt to 218Mt despite mining depletion of 7Mt during the year. Coal Reserves at Tarrawonga increased by 2Mt and Coal Reserves declined by a combined 2Mt at Rocglen and Werris Creek due to mining depletion since August 2016. On the other hand, the stock surged 90.3% in the past one year (as on September 01, 2017) at the back of rebounding coal prices, and was up over 4% on September 04, 2017. However, the stock is already trading at higher levels and on volatility. Further, WHC’s net debt position and risk from commodity prices can pose challenges going forward. We thus believe that WHC is “Expensive” at the current price of $ 3.69

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