Northern Star Resources Ltd
NST Details
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Lack of Exploration Success impacting asset prices: Northern Star Resources Ltd (ASX: NST) stock fell 5.9% on August 08, 2016 due to fall in commodity prices. On the other hand, NST reported that their production is expected to reach 600kozpa in 2018. Moreover, in FY 16 NST’s total Reserves increased by 33% to 2Moz. Measured and indicated resources increased from 520koz to 4.9Moz and the reserve discovery cost of A$50/oz is achieved in FY16. In addition, NST in FY 16 has reported NPAT growth of 65% to A$151.4M and the dividends increase of 40% to 7 cents per share. However, NST commented that lack of exploration success has led to rise in cost of exploration. Moreover, the stock has risen 62.04% in the last six months as on August 05, 2016, placing them at unreasonable levels.
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Recommendation: We believe that the stock is “Expensive” at the current price of $4.94
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Cost of Exploration (Source: Company Reports)
Saracen Mineral Holdings Limited
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SAR Details
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Higher valuations: Saracen Mineral Holdings Limited (ASX: SAR) stock fell 6.3% on August 08, 2016 impacted by the volatile commodity prices. On the other side, Minetec, a wholly owned subsidiary of Codan Limited, has entered into a $1.8 million contract with RUC Cementation Mining (Subsidiary of the group) for offering high precision tracking, visualisation, task management and proximity detection solutions in a Western Australian mine. The revenue of this would be released in FY 17. In addition, SAR’s production is expected to reach ~300kozpa by the June Quarter 2017 and AISC is forecasted to be declining to A$950/oz in FY20. SAR has tripled FY17 exploration budget to A$42m to grow the production and their mine life. As per consensus the forecasted cash flow for FY 17 is expected to be A$180m. The stock has risen 126.71% (as on August 05, 2016) in the last six months placing the stock at unreasonable P/E.
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Recommendation: Based on the foregoing, we give an “Expensive” recommendation on the stock at the current price of $1.71
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