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Top Gainer: Eastern Star Gas (ESG)

 Closing price  $0.64
 Change  +0.035
 % change  +5.8%

 

After months of a sliding share price, Eastern Star Gas’s shares have jumped this week, up a hefty 13.3% since Monday after Friday’s solid gain. With a depressed share price, perhaps there’s something in the air in respect to a possible takeover by Santos.

According to the ESG website, ESG “was formed in August 2000 to explore, develop and produce both conventional natural gas and coal seam gas in eastern Australia”. When it listed in February 2001, ESG had interests in six exploration licences in Victoria and NSW and was focused on brown-coal gas plays in Victoria’s eastern Otway Basins. The company went on to shift its focus to exploration and development in NSW, acquiring numerous exploration licenses.

In July 2009, Santos (STO) acquired Gastar Exploration’s 35% interest in its Narrabri CSG project and the Wilga Park Power Station, as well as buying Hillgrove’s 19.99% interest in ESG. Total upfront consideration for the transaction was $476 million, but it’s the 20% interest in ESG that makes STO a potential buyer.

Paterson’s have a buy on the stock with a 1.02 valuation, noting that it is a potential takeover target for Santos. You can see a previous broker report from Paterson’s by clicking here.

Roger Leaning, Head of Research with RBS Morgans also has a buy on ESG. “Ideally placed to feed gas into NSW and LNG export markets, Eastern announced plans to evaluate the feasibility of LNG exports from the Port of Newcastle,” says Leaning. Leaning sees Eastern’s uncontracted gas resource as a logical bolt-on acquisition for numerous companies looking for more gas, the most obvious being major shareholder, Santos. The stock is trading on a 50 per cent discount to Leaning’s $1.24 price target.

Many other analysts are also very bullish on ESG’s prospects. Based on Thomson Reuters data, 89% of analysts have a buy on MBN, 11% have a hold, 0% have a sell. 

 

Chart: Share price over the year to 01/07/2011 versus ASX200 (XJO)

Stock code: ESG

Charts: Eastern Star Gas Limited

More news: Eastern Star Gas Limited

Investor Centre: Eastern Star Gas Limited

 

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Biggest Loser: Lynas Rare Earths (LYC)

 Closing price  $1.75
 Change  -0.23
 % change  -11.6%

 

When it comes to commodity investing, most of us are familiar with the different types of commodities that we can invest in. Popular choices are energy commodities, such as oil and natural gas, or the agricultural or “soft” commodities like corn, wheat and cotton. Metals are also popular investments, and many people use gold as a type of currency in times of economic uncertainty. Another group of less recognisable metals has also joined the investment conversation – the rare earth metals (REM).

The rare earths story embraces potentially big windfalls laced with plenty of risk. Listed Australian rare earths companies aren’t for conservative investors, as explorers without earnings dominate the landscape. Nevertheless, that doesn’t stop share prices rockting as the market looks forward, factoring in what tomorrow can potentially bring in an industry dominated by China.

The share price of Lynas Corporation, which is among the best known Australian rare earths companies, soared from 37.5 cents in early May last year to a 12-month high of $2.70 on April 12, 2011. However shares plunged by more than 11 per cent on Friday – making it the day’s biggest loser by some margin – as the company denied reports that a planned Malaysian plant could be delayed by one to two years.

The denials followed a favourable report from the International Atomic Energy Agency (IAEA) about the company’s controversial proposed rare earth refinery in Kuantan after public protests had been growing about the risk of radioactive waste from the planned plant in eastern Malaysia. The IAEA report found that the plant was safe and fully compliant with international standards, however it said that Lynas should provide a long-term waste management plan and improve its communication about the plant with the Malaysian community before a pre-operational licence was granted.

Lynas released two statements on Friday, denying media reports that the project would be delayed and that engineers were worried about construction problems at the Lynas Advanced Materials Plant. “We have received confirmation from the Malaysian government that no spokesperson for the government stated a one to two-year delay as quoted by some media articles,” Lynas said in a statement on Friday. “Neither Lynas, nor our construction team, are facing any unusual construction difficulties. We acknowledge that not enough has been done to engage with the community and we will correct that now.”

Despite Lynas’s statement, the media reports spooked investors, which sent the company’s share price down by 23 cents, or 11.62 per cent, at $1.75.

Mine Life senior resources analyst Gavin Wendt resources consultant said the market was surprised and concerned about the prospect of delays in Malaysia. “When you’re talking about environmental considerations and local populations, these things can drag on,” Mr Wendt said. “The market wasn’t expecting this delay, that’s why the market is right to be concerned about the timing.”

Patersons Securities analyst James Georges had a buy on the rare earths supplier just last month, although this may be downgraded following today’s news. “Lynas will be the next rare earths oxide supplier outside China..record rare earths prices add to this company’s appeal,” says Georges. He notest that the company is fully funded to achieve forthcoming milestones and it has $220 million in cash plus further funds raised through a combination of issuing equity and debt. “Our valuation has risen and we have a price target of $2.95 a share.”

Goldman Sachs recently sold its LYC holdings from its Resources Fund, saying that LYC was sold out of the portfolio after a period of strong performance driven by the significant rise in the price of rare earth elements.

You can read the latest half-year report by clicking here.

 

Chart: Share price over the year to 01/07/2011 versus ASX200 (XJO)

Stock code: LYC

Charts: Lynas Rare Earths Limited

More news: Lynas Rare Earths Limited

Investor Centre: Lynas Rare Earths Limited

 

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