Top Gainer: Gryphon Minerals (GRY)
A day after being the biggest loser – falling 6.6% on Thursday – Gryphon Minerals (GRY), a West African focussed Gold exploration company with projects in Burkina Faso and Mauritania was the day’s top gainer, soaring 10.3% on Friday. Perhaps its announcement earlier in the week of “exceptional drill results” at the Banfora project in Burkina Faso started to sink in for investors. According to GRY “the Project has numerous regional exploration targets with real potential for Gryphon Minerals to uncover a multi-million ounce gold district.”
Late last year GRY acquired ASX-listed Shield Mining (ASX:SHX) which gave Gryphon exposure to a number of highly prospective gold and copper projects in Mauritania. But with a depressed share price and a healthy gold price, GRY could be a takeover target itself.
According to Peter O’Connor resources analyst with Merrill Lynch, mid-tier and third-tier miners with strategically important assets – which saw their share prices fall further than underlying commodity prices -are likely to attract big-end mining stocks that have exceptionally deep pockets.
The momentum of M&A activity that started within the resources sector two years ago is expected to continue. But James Wilson senior resources analyst with RBS Morgans expects three M&A sweet-spots for the sector in 2011 to include iron ore, copper and gold. “The domino effect of big fish being eaten by even bigger rivals means the M&A deals are likely to increase on both frequency and magnitude,” says Wilson.
He says with the premium applied to gold explorers having come off by between 20-25 percent, the sector has been brought back into buying territory. Courtesy of perceived sovereign risk attributed gold explorers operating in West Africa, Wilson says Gryphon Minerals (GRY) – now trading at a 50 per cent discount toits former highs – look attractively positioned for acquirers. Adding to the attraction, the company is 18-24 months away from production.
Les Szancer, of Alpha Broking, maintains that what drove gold up in 2010 will push the precious metal higher this year and beyond. Essentially, the positive drivers are gold is a safe haven, it’s a hedge against inflation, it’s an alternative currency, the US dollar is weak and demand, particularly from India and China, is strong. “We consume more gold each year than is produced,” Szancer says. He says the gold price, like almost anything that’s traded, will go up and down, but $US2,000 an ounce within 18 months is “certainly achievable, before it really goes through the roof”.
And there’s a lot to like about Gryphon Minerals, according to Szancer. The West African gold explorer recently announced a 520,000 ounce increase of its JORC (Joint Ore Reserves Committee) inferred resource estimate at the company’s flagship Banfora Gold Project in Burkina Faso for a total of 2 million ounces. The company is planning about 600,000 metres of drilling in the next 12 months as part of an aggressive $30 million exploration program. Szancer says the Banfora Gold Project benefits from a shallow depth – most of the resource is within 100 metres of the surface. That keeps extraction costs down. “Investors like positive news flow, particularly from explorers,” he says. “Gryphon is a company that keeps hitting targets.” However, Szancer says potential investors must pay close attention, as any good news tends to be rapidly factored into the share price. “In actual fact, buying now is buying on potentially more good news,” he says. “However I see the share price rising to around $3 in the next 18 months.”
There are plenty of other analysts bullish on GRY’s prospects and you can download research reports from Deutsche Bank, RBC, Argonaut and Eagle Research here. Eagle Research has a $2.20 target price, RBC has a $2.30 target price, and Deustche Bank has a $1.90 target price.
Based on Thomson Reuters data, five analysts have a buy on GRY, three have an outperform and three have a hold.
Chart: Share price over the year to 08/07/2011 versus ASX200 (XJO)
Stock code: GRY
Charts: Gryphon Minerals Limited
More news: Gryphon Minerals Limited
Investor Centre: Gryphon Minerals Limited
Biggest Loser: Bluescope Steel (BSL)
BlueScope Steel was formerly a business group of BHP Billiton which was separated at the time of the merger between BHP Limited and Billiton in 2001. BSL was subsequently listed on ASX on Monday, 15 July 2002, at a float price of $2.80 and opened at a healthy $2.90 on day 1. However almost 9 years later early investors have been hammered, with the share price languishing at a 50% discount to the listing price. Shares in BSL closed at just $1.35 on Friday 8th June 2011, after having bounced off its post-float lows of $1.11 experienced less than two weeks ago.
Management at the newly merged behemoth that was BHP Billiton were spot on in deciding to spin off (read: rid themselves of) the business – in the time that BSL shares have halved, the BHP Billiton stock price has more than quadrupled. While things looked rosy for the first few years post-listing and even hit a post-float high of $10 in mid-2007, the share price has been decimated since mid-2008, losing more than 80% of its value.
Many analysts pinpoint this as a stock to avoid at all costs, with a soft outlook and risk around earnings. No less than nine brokers on TheBull’s broking panel have a sell on BSL.
John Rawicki of State One Stockbroking has a sell on BSL given the company expects to post a net loss for the second half of 2011. “The company operates a capital intensive business with volatile margins,” says Rawicki. “The strong Australian dollar makes steel imports an attractive alternative, placing further pressure on domestic steel producers, such as BlueScope.”
Macquarie Private Wealth’s Sean Conlan sees a challenging outlook for BSL in the medium term. “While many longer-term valuation metrics appear compelling at current levels, there’s likely to be significant volatility and, hence, risk around earnings,” he says.
Mike Bigwood, Patersons Securities says that the stronger Australian dollar has increased competition from cheaper imports and he believest that high raw material costs will continue to impact margins. “I calculate the return on equity for BSL of between 2 and 5 per cent over the next two years, with a resulting valuation well below $2,” says Bigwood. James Georges, also of Patersons, says that steelmakers face strong headwinds in terms of excess capacity, the strong Australian dollar and hostile government policy. “We’re not sure how these headwinds will ease, or why they will,” says Georges. “In February, BSL expected breakeven NPAT (net profit after tax) in the 2011 second half after a first half loss. It now forecasts another loss, citing weak steel prices, high raw materials costs and a rising Australian dollar.”
Shawn Uldridge of William Shaw Securities says that BSL is caught between a rock and a hard place. “Higher commodity prices have left it out of pocket on the input-cost side of the ledger, while a higher Australian dollar is hurting sales. Its already high debt is mounting and we believe BSL will conduct another capital raising.”
Les Szancer, Alpha Broking is yet another broker that has a firm sell on the steelmaker, saying that it has been a misery to be hold BSL lately. “So they produce steel, but no one seems to care much.”
Austock’s Michael Heffernan agrees with the other brokers, saying that Australia’s major steel stocks are continuing to face heavy weather through heightened import competition, a difficult export market due to a stronger Australian dollar and problems associated with the prospect of a carbon tax. “While the share price has fallen significantly, any sustained recovery still looks some time off,” says Heffernan.
Given BSL is affected by a strong Australian dollar, cheap imports and the prospect of a carbon tax, Cleo Nanni of Novus Capital believes that investors should run for the door on any rallies. “Investors have deserted this company and, in this environment, we expect this trend to continue.”
In the half-year results announced in February earnings came in below expectations and to make matters worse the outlook for BSL was also downgraded. As is to be expected, investors left in droves, sending BSL shares tumbling further. Today it sits at a paltry $1.35, despite rallying off a post-float low of $1.11 hit at the end of June. Whether BSL can pull itself out of the current dire sitution is anyone’s guess, however no investor wants to be the last one off a sinking ship.
Chart: Share price over the year to 08/07/2011 versus ASX200 (XJO)
Stock code: BSL
Charts: Bluescope Steel Limited
More news: Bluescope Steel Limited
Investor Centre: Bluescope Steel Limited
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Each trading day we will look at the top gainer and biggest loser for the day. Note that these are not recommendations to buy or sell, although we do include broker views on these stocks in the article.
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