Gavin Wendt, MineLife
BUY RECOMMENDATIONS
Vital Metals (VML)
The company’s advanced Watershed project in Queensland is one of the world’s largest undeveloped tungsten deposits. The company has been persistent in terms of its project appraisal activity and, after many false starts, it now appears that Watershed could become a production reality. Recent changes to key currency and operating cost inputs for Watershed have led to a significant improvement in key financial metrics.
Anova Metals (AWV)
An emerging gold producer focused on its Big Springs Gold Project in northern Nevada in the US. Since acquiring the historical operation during 2012, Anova has progressed steadily towards production. With permitting for the initial stages expected late in the second quarter of 2015, open pit mining will follow shortly after. Anova is a low risk play at a time when gold prices have stabilised. Investors should be looking for cheap sector entry points.
HOLD RECOMMENDATIONS
Kibaran Resources (KNL)
One of our favourite graphite sector exposures, Kibaran maintains aggressive exploration and appraisal activity on several advanced graphite projects in Tanzania, with Epanko as its focus. It has an achievable growth strategy at Epanko, based on an initial 40,000 tonnes per annum operation, with upside potential to 100,000 tonnes per annum over coming years. We now await completion of full feasibility and project evaluation studies during 2015.
Gold Road Resources (GOR)
One of our long standing emerging gold exposures, the company has announced the completion of a scoping study for its Gruyere gold project, situated within its Yamarna Project in WA. It demonstrates robust economics over an 11-year period. Gold mineralisation has been identified to depths of almost 750 vertical metres, reinforcing the scope for Yamarna to host a global gold resource in excess of 5 million ounces.
SELL RECOMMENDATIONS
Hillgrove Resources (HGO)
December quarter production costs and operating costs at the Kanmantoo operation were above consensus, as a direct result of lower milled copper grades. Net debt of $9.2 million was more than double consensus estimates, which is a concern. Calendar year 2015 production guidance is in line with consensus. However, we see little upside for copper prices during 2015.
Newcrest Mining (NCM)
The company remains a problem child, largely due to the perennially underperforming Lihir Island gold operation in Papua New Guinea. The latest quarterly report highlights on-going production issues related to unplanned maintenance. Without clarity on the mine plan, it’s impossible to make a considered decision on the company. We believe a capital raising is almost a certainty.
Peter Day, Macquarie Private Wealth
BUY RECOMMENDATIONS
oOH! Media (OML)
We initiate coverage on oOh!media, with an outperform recommendation and a $2.65 share price target. oOh!Media is an established leader in the domestic out-of-home advertising sector, with a market share of about 34 per cent. We forecast earnings to outperform on the back of digital investment. The shares were trading at $2.28 on February 5.
James Hardie Industries (JHX)
We revisit our JHX investment case, incorporating increasing US housing start forecasts and some lower oil based costs. This building products maker remains a favoured exposure for its US focus, cyclical and structural growth potential and longer term earnings per share visibility. We retain our outperform recommendation and upgrade our target price to $14.23 a share. The stock closed at $13.64 on February 4.
HOLD RECOMMENDATIONS
Newcrest Mining (NCM)
The gold miner’s December quarter production was marginally better than expected, with a strong result from Cadia Valley partially offset by ongoing issues at Lihir. NCM has upgraded its full year 2015 production guidance by about 5 per cent for gold and 20 per cent for copper. The Cadia Valley asset continues to deliver impressive results.
Sydney Airport (SYD)
We retain a neutral stance. On the investment side, SYD is interesting, with near term gains from the terminal 1 retail redevelopment and terminals 2 and 3 car park and hotel redvelopment.
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SELL RECOMMENDATIONS
Orica (ORI)
We expect the company to complete the sale of its chemicals business in the first quarter. We remain cautious as potential exists for first half weakness on declining Eastern Australia coal volumes. We expect a clearer picture in March regarding operational performance. Our price target is $18.20. The shares were trading at $19.39 on February 5.
Flinders Mines (FMS)
For the quarter ending December 31, 2014, the company raised $5.4 million through a placement and share purchase plan. The raising lifted the company’s cash balance to $7.4 million at the end of December. Work on the bankable feasibility study for the Pilbara Iron Ore Project continued during the quarter and is due for completion in June. We struggle to see how FMS secures funding for its mine and port development in the current iron ore price environment.
Andrew Arvanitopoulos, Alpha Securities
BUY RECOMMENDATIONS
Transurban Group (TCL)
A toll road operator, traffic numbers were up solidly in the second quarter across NSW and Victoria, while Queensland trailed. Overall growth is strong amid investment opportunities. Transurban has a stake in the $2.6 billion NorthConnex motorway in Sydney. TCL will operate the road. Construction on the 9km road is expected to start soon and completion is due in 2019.
Ziptel (ZIP)
Ziptel is an Australian owned and operated telecommunications business focused on providing international roaming and calling solutions. The Ziptel software allows for app-to-app calling and text. We expect company offerings to appeal on the back of competitive pricing. A speculative buy.
HOLD RECOMMENDATIONS
OZ Minerals (OZL)
Delivered a solid final quarter, consolidating on a good year, with better than expected production guidance and operating costs. The company will relocate head office from Melbourne to Adelaide as part of a strategic review to reduce operating costs.
ResMed (RMD)
Makes medical devices to treat sleep disordered breathing. The second quarter revealed strong underlying sales growth, market share gains and price stabilisation, which we believe helped to limit margin declines. We remain confident in the outlook and envisage improving earnings momentum and upside as new production gains traction.
SELL RECOMMENDATIONS
GrainCorp (GNC)
It was suggested at its AGM that 2015 is shaping up to be a tough year for the company given a well below average crop and intense competition. In our view, GNC’s price is trading on hopes for a future takeover and isn’t reflecting a weak crop.
The Reject Shop (TRS)
The company has announced it expects a fall in half year net profit of 25 per cent to between $12.7 million to $13 million. We observe cash flows appear to have been reasonable and sales were noted to have stabilised in January. The tough decisions on store closures are still to come and we also believe the weakening Australian dollar looks ominous.
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