Four stocks that you may hold or avoid in resource and industrial sectors

South32 Ltd

S32 Details
Softness in coal production guidance: South32 Ltd (ASX: S32) recently issued a guidance of 7.9Mt saleable coal production in FY17 at Illawarra Metallurgical Coal operation as compared to 8.366 Mt in prior corresponding year. Moreover, operating costs for Illawarra Metallurgical Coal is forecasted to rise to over US$83/t in FY17 as compared to US$80/t in FY16. For first half of 2017, the group’s operating unit cost is forecasted to be US$86/t, while for second half of 2017 it is forecasted to be US$80/t. On the other hand, S32 generated over 206.08% in last one year (as of January 09, 2017) driven by their strong performance, expanding assets and recovery in commodity prices.
 

Diversified portfolio (Source: Company Reports)
 
Earlier, the group announced about acquiring Metropolitan Colliery and related 16.67% interest in the Port Kembla Coal Terminal (PKCT) (1) from an Australian subsidiary of Peabody Energy Corporation (Peabody). We give a “Hold” recommendation on the stock at the current price of – $ 2.82
 

S32 Daily Chart (Source: Thomson Reuters) 

BlueScope Steel Limited

BSL Details
Delivered solid performance despite tough steel industry: BlueScope Steel Limited (ASX: BSL) stock rallied over 142.4% in last one year (as of January 09, 2017) given the group’s ability to deliver solid performance despite the challenging steel market conditions. Moreover, BSL enhanced their earnings before interest and tax (EBIT) to minimum $510 million for first half of 2017.  Improving dispatch volumes and productivity enhancements led to this upgrade. The group forecasts that their North Star and BlueScope joint venture with Nippon Steel & Sumitomo Metal Corporation would deliver better earnings during the period. BSL had cut their net debt by $595 million as of June 2016, contributed from Australian business and North Star. Trading at close to its 52-week high price, we give a “Hold” recommendation on the stock at the current price of – $ 9.68
 

BSL Daily Chart (Source: Thomson Reuters) 

Monadelphous Group Limited

MND Details
Ongoing tough conditions impacted performance: Monadelphous Group Limited (ASX: MND) had reported about building a solid pipeline of $1.1 billion of new work, as per FY16 updates. Moreover, Australian Wind Technology, a consortium of Zenviron Pty Ltd (MND being a shareholder in this joint venture) and Vesta got a 430 million contract to deliver a wind farm project in New South Wales. Zenviron would do over 20% of the works under this contract. Despite this contract, MND also got Shell Australia Prelude FLNG services while growing presence in the US. MND stock generated over 68.15% in last one year (as of January 09, 2017). Recently, AnaeCo reported about completion of XEPT (Xiaoqing Environmental Protection Technology Co Ltd) transaction wherein transaction relates to purchase of a major portion of a loan owed by AnaeCo to Monadelphous Group and the conversion of that loan, and the residual loan owed to Monadelphous, into equity. On the other hand, MND continued to face pressure given the decreasing investment in new production from Australian resources and energy sector. MND top line lost over 26.8% year on year (yoy) to $1,364.7 million in fiscal year of 2016 while NPAT lost over 36.7% yoy to $67.0 million. We believe that the stock is “Expensive” at the current price of – $ 11.13
 

MND Daily Chart (Source: Thomson Reuters) 

Galaxy Resources Limited

GXY Details
Agreements with Chinese customers: Galaxy Resources Limited (ASX: GXY) recently appointed Mark Pensabene as its Chief Operating Officer. The group has also made some changes to its Board of Directors. GXY stock generated over 340.74% in last one year (as of January 09, 2017) driven by the booming demand for Lithium. Lately, GXY said that they are selling 120,000 tonnes of lithium concentrate to their present Chinese customers from the Mt Cattlin Project in Ravensthorpe, Western Australia in 2017 for US$830 per tonne. For every 0.1% improvement in grade of Li₂O delivered, customers would pay more US$15/t leading to a total price up to US$905/t for a 6% lithium concentrate. Galaxy forecasted 160,000 tonnes of lithium concentrate production for 2017, based on over 50% recovery. The group is further focusing on their Mt Cattlin project for 2017, to further enhance their production recovery against their earlier target of 50% level.
 

Mining activities at the Mt Cattlin Project (Source: Company Reports)
 
The group also clarified that it is considering various development options for its assets including the Sal de Vida project. GXY rallied over 17.8% in the last four weeks and still trading at a reasonable P/E. We maintain a “Hold” recommendation on the stock at the current price of – $ 0.59
 

GXY Daily Chart (Source: Thomson Reuters)

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