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13/02/18
       
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Australian equities finished slightly lower on Monday with the utilities, telecommunications and financial sectors weighing the most on the market. The ASX200 closed down 0.3% which was despite a late attempt to push higher towards the end of day. All sectors were down apart from materials and IT.

The financial sector closed lower as the Banking Royal Commission commenced its first day of hearings which created some investors to feel nervous. All banks closed lower, but Bendigo & Adelaide Bank (BEN) was by far the day's worst performer, slumping by 2% which was despite lifting its cash earnings by 11% to $225.3m for 1H18 as the result missed market expectations of a profit of $236m.

JB Hi-Fi (JBH) posted a solid 37% lift in earnings to $151.7m for the 1H18 as revenue increased by 41% with strong sales recorded over the Christmas trading period. JBH finished the day 8% lower as investors weren't impressed with management's earnings guidance for NPAT to be between $235m to $240m, which was short of consensus expectations for $242m. JBH will be focused on investing in prices (discounting) to ensure that it remains competitive with Amazon which will result in lower margins. We expect further near term weakness in the share price, with strong support likely to be seen between $22-$23. JBH closed at $25.86. 

 

International Markets

Technology and financial shares have led Wall Street's main indexes higher for a second straight session, with steady bond yields and volatility also helping the stock market bounce back from its worst week in two years.

Also aiding the market were gains of 1.5% in both the S&P materials and industrials sectors after President Donald Trump unveiled his second budget. The proposal for fiscal 2019 includes $200 billion for infrastructure spending, more than $23 billion for border security and immigration enforcement, as well as $716 billion for military programs, including the US nuclear arsenal.

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Research Report - White Rock Minerals Ltd. (WRM)

Aggressive exploration at Red Mountain for 2018

12 February 2018 

Last Price: $0.012
Price Target: $0.04
Recommendation: Speculative Buy

 

White Rock Minerals Limited (WRM) is a mineral explorer and developer with two major, 100% owned, projects - the advanced, epithermal Mt Carrington gold-silver project in northern NSW, Australia and the Red Mountain VMS polymetallic project in Alaska. Alaska will be the focus for WRM during 2018 as it starts to ramp up an aggressive exploration program for the upcoming Alaskan field season. We believe there is potential for WRM to increase resources and possibly to establish a new, 100% owned, VMS camp just 100km south of Fairbanks.


Key Points

 
• Red Mountain is an advanced project with plenty of upside: The Red Mountain Polymetallic Project in Alaska, is an advanced, zinc-dominated VMS (volcanogenic massive sulphide) exploration project located within 100km of Alaska’s second largest city, Fairbanks (pop. 32,000).

• Significant maiden resource: In 2017 WRM completed a maiden resource estimate for Red Mountain of 16.7Mt at 8.9% Zn equivalent (ZnEq), placing it on a par with projects such as Red River Resources’ Thalanga Project in QLD, now in production, and Heron’s Woodlawn Project in NSW. We believe a resource double that size would place WRM on a development footing.

• Aggressive exploration program: WRM has now defined its exploration program for the forthcoming 2018 Alaskan field season. Beginning in March/April, WRM intend to undertake up to 6,000m of a diamond drilling campaign to expand resources and identify additional areas of mineralisation; undertake high-powered geophysics to refine drill targets on the best of over 30 existing geophysical and geochemical anomalies; undertake further surface mapping sampling to assist in target definition; and, evaluate the potential for gold mineralisation, common in zoned metal systems, but as yet, untested.

• PFS completed on Mt Carrington: In December 2017, WRM completed a pre-feasibility Study (PFS) on a gold-only, Stage 1 development. A silver dominated, Stage 2 development is still under consideration, but more work needs to be done to establish its viability.

• Stage 1 technically and financially viable: WRM established the viability of the Stage 1 development, with total cashflow of A$36.7m (undiscounted, pre-tax) over a 4.3 year mine life, at an average annual production rate of 35,000 ozs at an AISC of A$1,236/oz.

• Valuation: We maintain our valuation estimates of $52.7m for Red Mountain based on previous M&A transaction history in the VMS space and $17.3m for Mt Carrington, as the increased gold output and longer mine life associated with the Stage 1 of the PFS study is balanced by more uncertainty around the value of the Stage 2, silver-dominant mineralisation.

• Recommendation: We place a Speculative Buy recommendation on WRM with a 12-month price target of $0.04 per share based on a successful exploration program and high associated newsflow from the Red Mountain Polymetallic Project over the course of 2018.
 

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Head of Research
Paul Adams

Research Report - Triangle Energy Ltd. (TEG)

Company Update

12 February 2018 

Last Price $0.097
Price Target $0.31
Recommendation: Buy


Key Points

 

Cliff Head production at 75,327 bbls at an average production rate of 819 bopd: Cliff Head production fell due to field downtime as a result of the program to replace a section of the onshore water injection and crude oil pipeline. The average received oil price for the quarter was US$60.26 per barrel and lifting costs increased to US$38.21 from US$30.56 compared to the previous quarter which was mainly due to the lower production number.
 


Xanadu program is finally moving forward: We have been disappointed with the progress that has been made in appraising the Xanadu discovery considering the material value uplift that Xanadu represents for each of the JV partners. The planned shallow water seismic program is close to being finalised, and the operator has announced that they intend to re-enter the well in the fourth quarter of this calendar year.

Recommendation and Valuation

We value TEG on our base case assumptions at $0.31 a share and maintain our Buy recommendation. This assumes a low case outcome for Xanadu but does assume an upgrade to current the Cliff Head infield reserves of 3m bbls of oil. It is clear from the accompanying chart that the market is undervaluing TEG and in effect ignoring the value of State Gas, the current Cliff Head upgrade program and any value for the Xanadu discovery. The current market pricing seems to assume that these programs will not deliver any value to the business which in our view is an unlikely outcome given the state of the oil market and the quality of the underlying assets.

The value of TEG assets and project relative to the current share price using the DJC mid case valuation excluding current cash and corporate costs.                                                                          Source: DJC
 

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Research Analyst

Michael Eidne

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DJ Carmichael Pty Limited ACN 003 058 857 is a wholly owned subsidiary of DJ Carmichael Group Pty Limited ACN 114 921 247. DJ Carmichael Pty Limited is the holder of (Australian Financial Service Licence Number 232571). In accordance with Section 949A of the Corporations Act 2001 DJ Carmichael Pty Limited advises this email contains general financial advice only. In preparing this document DJ Carmichael Pty Limited did not take into account the investment objectives, financial situation and particular needs (‘financial circumstances’) of any particular person. Accordingly, before acting on any advice contained in this document, you should assess whether the advice is appropriate in light of your own financial circumstances or contact your DJ Carmichael Pty Limited adviser. DJ Carmichael Pty Limited, its Directors, employees and advisers may earn brokerage or commission from any transactions undertaken on your behalf as a result of acting upon this information. DJ Carmichael Pty Limited, its Directors and employees advise that they may hold securities, may have an interest in and/or earn brokerage and other benefits or advantages, either directly or indirectly, from client transactions. DJ Carmichael Pty Limited believes that the advice herein is accurate however no warranty of accuracy or reliability is given in relation to any advice or information contained in this publication and no responsibility for any loss or damage whatsoever arising in any way for any representation, act or omission, whether express or implied (including responsibility to any persons by reason of negligence), is accepted by DJ Carmichael Pty Limited or any officer, agent or employee of DJ Carmichael Pty Limited. This message is intended only for the use of the individual or entity to which it is addressed and may contain information that is privileged, confidential and exempt from disclosure under applicable law. If you are not the intended recipient or employee or agent responsible for delivering the message to the intended recipient, you are hereby notified that any dissemination, distribution or copying of this communication and its attachments is strictly prohibited.
 
This report accurately expresses the personal view of the Authors.

 DJ Carmichael Pty Limited and or its employees hold an immaterial holding in unlisted options in White Rock Resources Limited. The author of this report does not own shares in White Rock Resources Limited. DJ Carmichael Pty Ltd acts as Corporate Adviser to White Rock Minerals Limited and is paid a fee for that service.

DJ Carmichael Pty Limited and or its employees hold an immaterial holding in Triangle Energy Limited. DJ Carmichael Pty Ltd acts as Corporate Adviser to Triangle Energy Limited.

The Analyst owns shares in Triangle Energy Limited.

The Authors of this report made contact with White Rock Minerals Limited & Triangle Energy Limited for assistance with verification of facts, admittance to business sites, access to industry/company information. No inducements have been offered or accepted by the company.

The recommendation made in this report is valid for four weeks from the stated date of issue. If in the event another report has been constructed and released on the company which is the subject of this report, the new recommendation supersedes this and therefore the recommendation in this report will become null and void.
Recommendation Definitions

SPECULATIVE BUY – Potential 10% or more outperformance, high risk
BUY – Potential 10% or more outperformance
HOLD – Potential 10% underperformance to 10% over performance
SELL – Potential 10% or more underperformance
Period: During the forthcoming 12 months, at any time during that period and not necessarily just at the end of those 12 months.

Stocks included in this report have their expected performance measured relative to the ASX All Ordinaries index. DJ Carmichael Pty Limited’s recommendation is made on the basis of absolute performance. Recommendations are adjusted accordingly as and when the index changes.

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