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Gryphon Minerals (GRY)

 Closing price  $1.995
 Weekly change  $-0.015
 % change  -1.7%


Broker Calls

Credit Suisse – BUY

Deutsche – BUY


RBS Morgans – BUY

Argonaut – BUY

Eagle Research – BUY

Alpha Broking – BUY


Chart: Share price over the year to 15/07/2011 versus ASX200 (XJO)

Gryphon Minerals (GRY), a West African focussed Gold exploration company with projects in Burkina Faso and Mauritania was up a healthy 13.1% last week. This week saw it drift 1.7% lower in a falling market.

The announcement last week of ‘exceptional drill results’ at the Banfora project in Burkina Faso obviously struck a chord 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, which gave Gryphon exposure to a number of highly prospective gold and copper projects in Mauritania. But with a depressed share price and a record gold price, GRY could now be a takeover target itself.

In ‘Takeover Targets: Watch These Stocks For M&A Activity‘ featured last week, James Wilson senior resources analyst at RBS Morgans picks iron ore, copper and gold as the big three sectors for M&A activity. “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. Wilson says that the premium applied to gold stocks has come off by 20-25% and the sector has been brought back into buying territory. Gryphon Minerals (GRY) – now trading at a 50 per cent discount to its former highs – looks attractively positioned for acquirers, he says. What’s more, the company is only 18-24 months away from production.

Les Szancer from Alpha Broking, who has a buy on the gold miner, says that there’s a lot to like about Gryphon Minerals. The West African gold explorer recently announced a 520,000 ounce increase of its inferred resource estimate at the company’s flagship Banfora Gold Project in Burkina Faso for a total of 2 million ounces. GRY 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 with most of the resource within 100 metres of the surface, which 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. “I see the share price rising to around $3 in the next 18 months.”

According to Credit Suisse, the gold miner is looking like a good growth bet and with no less than seven brokers lining up to place a buy on Gryphon Minerals, there are plenty of other analysts bullish on GRY’s prospects. You can download research reports from Deutsche Bank, RBC, Argonaut and Eagle Research here. Eagle Research has a $2.20 target price and RBC has a $2.30 target price.

Based on Thomson Reuters data, five analysts have a buy on GRY, three have an outperform and three have a hold. 

Stock code: GRY

Charts: Gryphon Minerals Limited

More news: Gryphon Minerals Limited


Orica (ORI)

 Closing price  $26.25
 Weekly change  $-0.93
 % change  -3.4%


Broker Calls

Perpetual – BUY

Deutsche Bank – BUY

Shadforth Financial Group – BUY

Morningstar – BUY

RBS Morgans – HOLD


Chart: Share price over the year to 15/07/2011 versus ASX200 (XJO)

Orica started as a supplier of explosives to the Victorian gold fields way back in the 1800s and is now a multi-billion dollar company that operates in 50 countries around the world and is one of the top 30 companies listed on the ASX.

It operates three divisions – Orica Mining Services, Minova and Orica Chemicals. Orica Mining Services sells explosives to the mining, quarrying and construction industries in Australia, Asia, Europe, Russia, Africa, the Middle East, North America and Latin America. According to Orica, the recently-completed acquisition of parts of Dyno Nobel’s commercial explosives business ‘is highly complementary to Orica’s Mining Services operations and provides significant opportunities for synergy and growth.’

Orica Chemicals manufactures chemicals for a broad range of customers from mining to agriculture, and Minova is a leading manufacturer and supplier of chemical-based consumables and drilling equipment in the underground mining, tunneling and civil engineering industries.

Andrew Doherty of Morningstar has a buy on the explosives manufacturer, saying that it is well positioned to benefit from the massive uplift in resources exploration and production activity in the next few years. ‘Recent expansion into underground mining and tunnelling products, via the Minova acquisition, extends growth possibilities…Orica is generally well managed with sound financial disciplines,’ says Doherty.

Andrew Inglis, Shadforth Financial Group also has a buy on Orica, which he points out is the world’s largest explosives company and provides quality exposure to the resources boom. Inglis believes that future growth will be underpinned by expansion in China, Africa and Russia. ‘Global mine development, building more explosives plants and construction of new infrastructure in emerging economies will also enhance growth,’ says Inglis.

Meanwhile RBS Morgans’ Simon Bond has a hold on the stock, even though Orica’s first half 2011 NPAT of A$264 million was 5 per cent ahead of his expectations and he concedes it was a strong performance in a difficult period. ‘Maintaining guidance for profit growth in full-year 2011 was positive and alleviates one of the risks surrounding the stock…despite this strong result, we view this explosives and chemical company as fairly priced and retain our hold rating.’

It’s also worth noting that Perpetual has it as its thrid largest holding and Deutsche Bank has maintained a buy rating in the wake of the Gillard Government’s proposed carbon tax, saying that the earnings impact for from the tax will be minimal.

According to Thomson Reuters broker consensus data, 9 brokers have Buys on ORI, 5 have Holds, with 1 Sell.

Stock code: ORI

Charts: Orica Limited

More news: Orica Limited


Bradken (BKN)

 Closing price  $8.45
 Weekly change  $-0.19
 % change  -2.2%


Broker Calls

Credit Suisse – OUTPERFORM

Intersuisse – BUY

Patersons – BUY


Chart: Share price over the year to 15/07/2011 versus ASX200 (XJO)

Founded 85 years ago, Bradken (BKN) develops products for the mining, freight rail, steel making, smelting, transport, cement, oil & gas, power generation and sugar industries. Today Bradken employs over 5,000 people globally, has sales over $1 billion and and operates 30 manufacturing and service facilities throughout Australia, NZ, the US, Canada, China and the UK.

According to its website, its five divisions are as follows:

Mining Products
Design and manufacture specialised wear parts and crawler systems for earth moving equipment, and provide maintenance and refurbishment services to the resources industry.

Engineered Products
Provides design assistance and manufactures capital products for the rail, transit, mining, industrial, military, energy and power generation industries.

Design and manufacture freight wagons, bogies, drawgear componentry as well as cast and general spares parts for freight, passenger and locomotive rollingstock

Manufacture consumable parts for process plants and manufacturing processes, and develop new market opportunities for future growth.

Power & Cement
Design and manufacture consumable parts for power generation and cement industries globally.

Brokers have been upgrading the mining equipment supplier after it bought two other supply companies for $222 million, which will boost earnings in the vicinity of $28 million.

Mark Goulopoulos, associate director of Patersons Securities says that Bradken has been savaged by investors because it failed to meet expectations with its disappointing half year profit of $26 million, with the share price proceeding to tumble 20% from its peak in late January. In Goulopoulos’ view, the stock has been way oversold as nervous investors scurried for the exit. “The medium term growth profile for Bradken remains unchanged, with earnings being driven by mining volumes which are expected to experience strong growth over coming years,” he says. “The current share price offers clear value for medium to long term investors. It should provide strong capital growth supplemented by an attractive dividend yield.”

The mining equipment company is expected to grow by 15 to 20 per cent over last financial year on the back of the group’s US Engineering division and domestic mining products business and trades at around a 15% discount to Paterson’s $9.85 target.

Peter Russell from Intersuisse also has a buy on the leading supplier of engineering consumables and rail wagons to the mining, energy and rail industries. ‘A recurring and expanding business, Bradken has modern plants in Australia, China, the US and the UK, with advantages in technology and flexibility,’ says Russell. ‘The past half disappointed some, but it saw strong growth and there’s more to come,’ he adds.

Credit Suisse has an outperform on the stock and according to Thomson Reuters broker consensus data, 14 brokers have Buys on BKN, 1 have Holds, with 1 Sell.

Stock code: BKN

Charts: Bradken Limited

More news: Bradken Limited


Nexus Energy (NXS)

 Closing price  $0.295
 Weekly change  $-0.015
 % change -4.8%


Broker Calls



Southern Cross Equities – BUY


Chart: Share price over the year to 15/07/2011 versus ASX200 (XJO)

Nexus Energy Limited (NXS) is a Melbourne-based oil and gas company.  In 2009 Nexus transitioned from explorer to producer with the start up of the Longtom gas project. The company has a portfolio of high quality assets in two key regions, including the Gippsland Basin in Victoria and the Browse Basin in WA.

Since becoming an explorer the oil company hasn’t gone unnoticed amongst brokers. In the last 12 months CBA and RBS have initiated coverage on the stock, both with buys and price targets of more than double the current share price. At the UBS Resources & Energy Conference on 16th June this year, Nexus MD Richard Cottee said that the current share price does not reflect much of the upside for Nexus and a substantial removal of downside risk for the company. You can read the presentation here.

RBS has a ‘buy’ rating and a 12-month target price of 62 cents, while CBA has a target price of 65 cents. Southern Cross Equities has a slightly lower price target of 58 cents.

CBA’s Global Markets Research division tends to agree with NXS’s managing director, writing that Nexus offers ‘upside potential from the development of the Crux liquids project which has been significantly derisked as a result of the extension of the permit transfer date.’ And that’s not all, CBA also sees a 22-46% upside potential to its Nexus valuation as the company resolves issues at the Crux Liquids development.

The key risks from CBA’s standpoint are:

1. Government development timetable for Crux

2. Funding issues and requirement for Crux BOO FPSO partner and/or Crux farm in partners

3. Crux development risk

4. Longtom resource downgrade

5. Commodity prices

6. Rising capital costs

You can read CBA’s extensive 26-page report here.

While Southern Cross Equities price target is slightly lower at 58 cents, this is still a 100% premium to the current price. It points to Shell’s sell-down of its WPL stake as an indication that it will be looking at its own LNG developments in Australia. ‘Their Prelude FLNG project is set to be approved in 1Q 2011 but needs certainty of access to Crux gas reserves. NXS has indicated that an agreement with Shell is imminent, which will clarify the upside,’ it says. ‘Our base case value for NXS has increased to $0.58 following currency and oil price revisions…buy.’ It goes on to say that its upside case is $0.91 and it believes that a catalyst for the next leg up is getting very close. You can read Southern Cross Equities research report here.

One bit of news stands out at a potential risk to NXS – it’s never a good situation when a company gets sued, even if it isn’t in the wrong. In an ASX release NXS announced that Sedco Forex International had issued Federal Court proceedings against it, seeking damages for a repudiated contract. ‘Nexus and NEWA strenuously denies all liabilities to Sedco,’ it said in its statement. ‘Nexus and NEWA consider that Sedco unlawfully terminated the contract so it could use the Transocean Legend to fulfil another contract…Nexus will be vigorously defending Sedco’s claim.’

According to Thomson Reuters broker consensus data, 6 brokers have Buys on NXS, 2 have Holds, with 1 Sell.

Stock code: NXS

Charts: Nexus Energy Limited

More news: Nexus Energy Limited


APA Group (APA)

 Closing price  $4.14
 Weekly change  $+0.01
 % change  +0.2%


Broker Calls


Patersons – BUY


Chart: Share price over the year to 15/07/2011 versus ASX200 (XJO) 

APA seemed to have been in the news for all the right reasons last month, with its $171m purchase of the 80 megawatt Emu Downs wind farm in WA, and a $300m equity raising to fund the purchase and further capital expenditure until the end of next year. However investors weren’t impressed and punished the stock as it came out of a trading halt. It has steadily made up ground over the past few weeks and is back on the radar for some brokers, including RBS which just upgraded it to a buy after the Emu Downs Wind Farm acquisition.

APA is made up of the Australian Pipeline Trust and APT Investment Trust, which together own Australia’s largest natural gas distribution and storage infrastructure network. APA Group’s natural gas pipelines extend across Australia, delivering more than 50 per cent of the nation’s usage. It has interests in 12,700 kilometres of natural gas pipelines and minority interests in gas distribution company Envestra and the Ethane Pipeline Income Fund.

James Georges, of Patersons Securities, has APA in his list of stocks he believes can withstand sharp volatility and present good value on signs of an improving global economic outlook. Georges describes APA Group as a “classic defensive earnings story offering an attractive distribution stream”. In February 2011, it announced a 10.4 per cent increase in interim NPAT to $70 million and a 6.4 per cent increase in operating cash flow to $170 million. Distributions for the half-year were up 4.8 per cent to 16.5 cents. On June 20, 2011, it anticipated a final distribution of 17.9 cents. “Together with cash and committed undrawn facilities of $650 million, APA is well placed,” Georges says. “We see few downside risks to the company’s earnings forecasts.”

Based on Thomson Reuters data, 7 of analysts have a buy on APA, 3 have a hold, 3 have a sell.  

Stock code: APA

Charts: APA Group Limited

More news: APA Group Limited


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