Top Gainer: Sundance Resources (SDL)
If you’re looking for take advantage of the recent price decline in commodities, Sundance Resources Limited (SDL) is an interesting pure play on iron ore. SDL shares have increased more than 180 per cent over the last year and are currently trading about 40 per cent below the 52 week high it made at the beginning of January. SDL was the day’s biggest gainer, up 7.5% to beat Mirabela Nickel into top spot.
After hitting a multi-year high of 59.5 cents in the first week of this year, SDL has been on a steady slide down to its current level of 36 cents. Still, many investors have done well, as the junior miner is up 180% for the year to date and has climbed 18% in the past two weeks.
SDL is an interesting play for several reasons: firstly, it’s one of the few iron ore pure-plays with a large scale, low cost project. Global diversified miners such as Xstrata, Rio Tinto, Vale and BHP Billiton have recently shown interest in West Africa for iron ore developments, and steel companies are seeking projects to secure long-term supply.
Many investors are wondering if we have we seen the top in commodity prices for the time being, or if this is buying opportunity. As evidenced by SDL’s share price growth, share prices on commodity pure plays have enjoyed a tremendous run since September last year – as markets assumed that China economic growth would continue running at the same rapid pace as before the financial crisis hit.
And with expectations that China growth could well continue at the 8 per cent mark, its appetite for raw materials and energy will most likely continue. Bell Potter Securities senior client adviser Stuart Smith believes that commodity price falls on the back of China’s December GDP and inflation figures were overdone. “The market has been quite aware that the growth was over 10 per cent. All they’re (China) is trying to do is stifle speculation without denting the momentum that they’ve built up in the last 30 years.”
Argonaut Securities says that SDL shapes as a pivotal player in unlocking the iron ore potential of Central-West Africa. “Mbalam could ultimately become part of a ~100Mtpa regional development encompassing Core Mining’s Avima project, African Aura’s Nkout deposit and Equatorial Resources’ Badondo project,” notes Argonaut, saying that a significant milestone would be if SDL secured a strategic partnership or project financing with the big Russian and Chinese companies operating in the area. “Given the level of interest, SDL may seek multiple partners to maintain corporate appeal whilst still underpinning development of Mbalam,” says Argonaut. You can read the full report here.
Renaissance Capital has a buy on the iron ore miner, with a price target of 76 cents – more than double the current share price. It refers to SDL as a “high-quality, iron ore project” with funding as the key catalyst. “The company is likely to sell up half od its interest in the project in return for the required equity to fund the project.” it says. You can read the full report here.
According to Thomson Retuers broker consensus data those brokers covering the stock are bullish, 3 brokers hold Buys on SDL, with no Holds or Sells.
Chart: Share price over the year to 13/07/2011 versus ASX200 (XJO)
Stock code: SDL
Charts: Sundance Resources Limited
More news: Sundance Resources Limited
Investor Centre: Sundance Resources Limited
Biggest Loser: Beach Energy (BPT)
On Tuesday, Beach Energy (BPT) – an Australian-based oil and gas exploration and production company with key assets in the Cooper Basin oil and gas fields in South Australia – gained almost six per cent after it said flow rates from a shale gas well in the Cooper Basin had exceeded expectations. Today most of those gains evaporated as investors took profits, sending the share price tumbling 5.1% to be the day’s biggest loser.
The company had reported that initial gas flow rates from BPT’s Holdfast-1 shale gas well were as high as two million standard cubic feet per day and exceeded expectations. Holdfast-1 had been averaging 1.8 million standard cubic feet per day and as a result the well is considered a strong result, sending the share price higher on Tuesday.
Though well off the high of $1.75 hit in July 2006, Beach Energy has had a solid year, up 40% despite today’s 5% tumble. In fact, it is up 10.5% since June 28th and is trading near three-year highs.
Macquarie has an Outperform on the stock, with a 12-month price target of $1.35 and a valuation of $1.40. The investment bank notes that although rain dampened the March quarter production result, revenue is supported by storage and higher realisations. “Despite the production miss, revenue of A$122m was only 4% below our estimate due to stronger than expected Cooper Basin gas sales as storage continues to be utilised,” it notes in its report. “While Cooper Basin production continues to be impacted by adverse weather, storage and higher crude realisations have mitigated the impact on sales volume and revenue.” You can read the full Macquarie report here.
John Young, Senior Resources Analyst, Wilson HTM expects the proposed oil-indexed formula to lead to higher gas prices to support the development of unconventional resources – including tight gas and shale gas – with the GLNG project providing a large and expandable outlet within a relatively short time frame, with first sales from around 2015.
Meanwhile Morgan Stanley has a price target of $1.05, with a Bull case of $1.37 and a Bear case of $0.74. In its report Morgan Stanley states that BPT has assembled a balanced portfolio with strategic appeal. “It now has an ability to sustain and add incrementally to current production over the medium term, as well as leverage to key opportunities emerging in Australia and African Rift Oil plays, particularly in Tanzania,” it says. “The upside is large if Shale and African opportunities can be derisked.” Morgan Stanley says that the company has leverage to oil price, and is in strong financial position, with no debt and a large cash balance. “But we expect cash to decline as exploration and development activity ramps up,” it notes. You can read the full Morgan Stanley report here.
According to Thomson Reuters broker consensus data, 3 brokers hold Buys on BPT, 6 have Holds, with one Sell.
Chart: Share price over the year to 13/07/2011 versus ASX200 (XJO)
Stock code: BPT
Charts: Beach Energy Limited
More news: Beach Energy Limited
Investor Centre: Beach Energy Limited
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