Nicholas Brooks, RBS Morgans
PanAust Limited (PNA)
Recent takeover activity has sparked investor interest in copper stocks for the short and long term. PNA is a top S&P/200 ASX stock with strong earnings and exciting short term catalysts in the next six- to-12 months. Some of these include upgrades to key plants, expected reserve upgrades due to higher copper and gold prices and South American exploration. This paints a bright outlook.
Hot Chili (HCH)
This South American copper, gold and uranium explorer is showing strong drilling results early. It’s certainly not a stock without risk, but Hot Chili has a string of value drivers in coming months. Some of these include producing its maiden resource by mid-2011, which is expected to range between 50-to-80 million tonnes of copper at a grading of 0.9 per cent.
Fortescue Metals Group (FMG)
After Libyan and Japanese crisis fears last month, FMG has returned to more normalised levels which better reflect the group’s sizeable growth potential in coming years. FMG has been working with authorities to increase its port capacity at Port Hedland, a small, but significant catalyst for the company. Still a key hold for exposure to rising iron ore markets.
QBE Insurance (QBE)
QBE has recently updated the market, subduing fears about recent disasters and forecasting profits to grow by 30 per cent. It’s still paying a handsome dividend. Increasing insurance premiums tend to follow natural disasters sooner rather than later.
Leighton Holdings (LEI)
The share price is under pressure as the company struggles with major project issues, including Airport Link and Victoria’s desalination plant. In our view, the sizeable capital raising will do little to sooth investor fears regarding Leighton’s operations. We expect ongoing downgrades, so investors should consider looking for better value elsewhere.
Riversdale Mining (RIV)
Rio Tinto sweetened its takeover offer for coal company Riversdale Mining by 50 cents to $16.50 a share. The time looks right to shift money elsewhere for value and growth in the coal sector.
Warwick Grigor, BGF Equities
ABM Resources NL (ABU)
ABU is the most promising gold exploration stock on mainland Australia, focusing on the Tanami gold field in the Northern Territory. The Buccaneer deposit is up to 1.7 million ounces with potential for 3-to-5 million ounces in a big, low grade porphyry. Economies of scale and leverage to the gold price offer appeal. There’s high grade potential at the Old Pirate prospect, which has similarities to the 6 million ounce Callie project nearby.
Australian Pacific Coal (AQC)
A speculative company with a chequered history. But recent acquisitions of coal licences in the Surat and Bowen Basins may mean the company now has several coal deposits, potentially driving up the share price. It’s announced 107 million tonnes of inferred resources on one licence and it’s coming to grips with others. It’s another option in the coal sector.
McMillan Shakespeare (MMS)
This salary packaging business has been a strong sharemarket performer in recent times. It has low debt, a reasonable dividend and attractive growth prospects. McMillan Shakespeare is well placed to benefit from the increasing trend towards outsourcing of “logistics” involved with employee salary and financial benefits.
Perseus has up to 7 million ounces of gold in Ghana and the Ivory Coast, with expectations of reaching 10 million ounces soon. The first mine is due to be commissioned in June for about 300,000 ounces a year. Continue holding in anticipation of imminent cash flows and the possibility of a takeover bid.
Greenland Minerals and Energy (GGG)
The share price has been pushed to unrealistic levels amid claims it has one of the biggest rare earth deposits in the world. But if it was to produce at the scale described in the scoping study, it would boost the world supply of rare earth carbonates by 40 per cent and potentially kill the market. We remain sceptical.
Millennium Minerals (MOY)
MOY has been trying to get its gold project off the ground for almost 10 years. Initially it failed because it lacked critical mass and grade. The company changed its name and the name of the project, but hasn’t gained traction. While the fundamentals look attractive, there’s more to picking a winner than quantitative analysis. This company disappoints us on qualitative considerations. There’s better gold companies to play.
James Samson, Lincoln Indicators
The company sells products to combat sleep apnoea. The adverse effects of the high Australian dollar and a delayed rollout of its new product line have seen RMD trading below $3. Despite the recent down trend, RMD is in strong financial health. Should currency headwinds subside, RMD offers investors a substantial amount of potential upside. On April 28, 2011, it was trading at $3.11.
Focus Minerals (FML)
Focus Minerals is an expanding gold producer on the cusp of several exciting stgelopments. It’s one of our preferred gold exposures, with the Tindals open pit mine due to come on stream. Focus Minerals offers strong short term growth prospects. Given the company’s high historical cost per ounce, this isn’t one for the faint hearted, and investors should be aware that FML offers leveraged exposure to movements in the gold price. Longer term, prospects for the Treasure Island tenement look promising once the company can overcome certain geographical hurdles.
Thorn Group (TGA)
Operates Radio Rentals, this company recently acquired National Credit Management Limited, a debt-collection operation. The acquisition should boost company cash flows and is likely to be earnings accretive. We see TGA as a strong company with good growth prospects going forward. But, for now, it’s fully valued.
Monadelphous Group (MND)
Provides engineering project management, construction and associated services to the resources, energy and infrastructure sectors. Given the long term share price rise, Monadelphous may find it difficult to grow at the same speed. While the work pipeline is increasingly strong amid significant demand for capital works, we believe MND is fully priced above $20.
QR National (QRN)
The company has delivered strong gains for those who participated in the initial public offering. Despite cost cutting measures, recent bad weather and rising labour costs draw us to conclude that QRN is over priced above $3, let alone at the recent price of $3.41 on April 28, 2011.
Caltex Australia (CTX)
Margins from the refining business concern us, with rising oil costs causing a profitability squeeze in February and March 2011, with expectations this will continue. While sales volumes have been able to offset this in past months, there’s higher levels of risk involved given that West Texas crude has exceeded US$110 a barrel.
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