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16/05/19
       
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Black Cat Syndicate Limited (BC8) Research Report
Maiden Resource provides platform for resource growth

Recommendation: Speculative Buy
Last Price: $0.26


Black Cat (BC8) is a junior gold explorer controlling 100% of the ~87km2 Bulong Gold Project, situated just 25km east of Kalgoorlie in Western Australia. A maiden resource of 109,000 ounces grading 2.5g/t Au, announced in February 2019, now sets the stage for continued resource growth. With significant power, road and milling infrastructure close by, an available workforce at its doorstep and a proven board and management team, future resource growth is likely to result in a value re-set by the market, in our view. Substantial exploration upside exists with the strike length of the current resource comprising only 14% of the 17km interpreted extent of the three mineralised corridors. Strong news flow is expected to continue as BC8’s proven board and management team focusses on rapidly progressing the development of its gold assets.


Key Points

• Maiden Resource: In February 2019, BC8 announced an initial resource of 1.4mt at 2.5 g/t for 109,000 ounces of contained gold following 10 months of drilling which had been managed cost effectively. The resources are all located on mining leases with 88% of them potentially being open pit mineable. BC8 plans to release two resource updates over the coming year, with the first one due in July. With the promising Myhree deposit not part of the Independent Geologists initial JORC Exploration Target of 219kozs to 450kozs, it is possible this figure will be exceeded.

• Bulong – one of the Goldfields highest grade producers: The Bulong Gold Project was one of the highest-grade gold occurrences in the region, but its history is one of unconsolidated ownership with small scale production from a number of high-grade mines. Records show historic mine production of ~152koz @ >1oz per tonne plus alluvial nugget gold recoveries.

• Previous exploration has been inadequate: This is the first time one company has held such a large consolidated group of tenements over the field. Previous companies working at this location didn’t have the benefit of a contiguous land package. Ownership was fragmented with exploration being undertaken on disparate tenement holdings which hindered access and prevented deeper follow-up drilling of encouraging shallow results.

• Fully funded to complete next phase of exploration: BC8 recently completed a $2.5m equity raise, bringing the cash balance to ~$3.5m, allowing the advancement of their planned exploration programs. The extensional and infill drilling program designed to increase the resource along the Myhree-Boundary corridor will be fast-tracked to mid-May 2019 to follow up on the significant thick high grade gold hits announced last month which included 28m @ 5.06 g/t Au from 4m, 10m @ 4.24m g/t Au from 77m, 6m @ 4.67g/t Au from 82m, 3m @ 4.13 g/t Au from 121m and 1m @ 13.9 g/t Au from 213m.


Recommendation

With only 14% of the prospective corridors drilled, strong news flow is expected to continue as BC8 looks to rapidly build up its resource base. With a proven management team and in a prime location with nearby infrastructure, we place a Speculative Buy recommendation on BC8 as we expect to see a higher market cap on additional resources being added through the year.

To read the full research report click on the below image:
 
Michael Ron
Research Analyst
Markets Summary
Markets Review
Local Market

The Australian share market bounced back on Wednesday, recouping some of the losses from the previous day amid hopes that a deal was still within reach amid the US-China trade war.

The benchmark S&P/ASX200 index closed up 44.3 points, or 0.71 per cent, to 6,284.2 points, while the broader All Ordinaries was up 43.7 points, or 0.69 per cent, to 6,370.9.

The energy sector led gains, collectively up 1.56 per cent, with Santos up 2.4 per cent to $7.13, Woodside Petroleum up 1.5 per cent to $36.21 and Origin Energy up 2.5 per cent to $7.44.

The miners, health care, and tech sectors were also all up more than one per cent and every sector was in the black.

BHP gained 1.9 per cent to $37.20 and Rio Tinto was up 2.2 per cent to $98.31.

Among the big banks, ANZ was up 19 cents, or 0.73 per cent, to $26.29 while the other three didn't move much.

NAB was up four cents, Westpac was down one cent and Commonwealth was down three cents.

Shares of gold miner St Barbara were placed in a trading halt at $3.32 after it announced plans to buy Canada's Atlantic Gold Corporation for $C802 million ($A854 million).

Coca-Coca Amatil shares were up 1.7 per cent to $8.99 after chairwoman Ilana Atlas told investors at the company's general meeting that executives planned for the business to return to mid-single-digit growth in earnings per share from 2020.

Dulux Group said it would pay a special dividend despite a 14 per cent first-half profit slide, but with investors focused on its possible acquisition by Nippon Paint, its shares didn't budge much. They were up a penny to $9.74.

CSL gained 1.5 per cent to $200.84.

Trading volumes were light, with $5.71 billion in value traded, which Ms Lee said did show a lack of conviction in the rally.

But that was understandable given the volatility of recent days and the looming federal election on Saturday.

The market had also seemed to shrug off the news that growth in China's industrial output had slowed more than expected.

In Australia, the Australian Bureau of Statistics reported that wage growth had remained flat, with a 0.5 per cent lift for the March quarter, undershooting expectations and adding further weight to the case for a rate cut.

Jobs data is set to be released on Thursday, and economists expect the unemployment rate to tick up to 5.1 per cent for April, with about 15,000 new jobs created in the month.

The Aussie dollar is buying 69.30 US cents, from 69.76 US cents on Tuesday.

International Markets

All three major US indexes saw their second straight day of gains following Monday's steep sell-off, but the S&P 500 remained more than 3 per cent below its all-time high reached just over two weeks ago.

The prospect of a six-month postponement of tariffs on imported autos and auto parts, along with Treasury Secretary Steven Mnuchin's remarks that he expects trade talks to resume soon in China, was welcome news to investors, who started the session in a selling mood after the underwhelming economic reports.

Retail sales posted a surprise drop in April as consumers pulled back on their spending, according to the US Commerce Department. A separate report from the Labor Department showed US industrial production also unexpectedly dipped in April.

The Dow Jones Industrial Average rose 115.97 points, or 0.45 per cent, to 25,648.02, the S&P 500 gained 16.55 points, or 0.58 per cent, to 2,850.96 and the Nasdaq Composite added 87.65 points, or 1.13 per cent, to 7,822.15.

Of the 11 major sectors in the S&P 500, eight ended the session in positive territory, with communications services enjoying the largest percentage gain, led by Alphabet Inc and Facebook.

With 455 of S&P 500 companies having posted results, first-quarter earnings season is winding down. Of those who have reported, 75.2 per cent have bested expectations.

Analysts now see first-quarter earnings growth of 1.2 per cent, a significant turnaround from the 2 per cent loss seen on 1 April.

Macy's dipped 0.5 per cent after the department store beat quarterly expectations but said the recent tariff hikes on Chinese goods will hurt its furniture business.

Agilent Technologies was the worst performer of the S&P 500, falling 11 per cent after the medical equipment maker reported quarterly profit that fell short of consensus estimates.

Ride-hailing rivals Uber Technologies and Lyft saw their second straight day of gains following their underwhelming post-debut performances. Their shares advanced 3.3 per cent and 7 per cent, respectively.

Cisco Systems shares rose more than 3 per cent in after-market trading following the company's earnings release.

Source: Morningstar

Lycopodium Limited (LYL) Research Report
Reduced FY19 guidance & Mondium contract win

Recommendation: Accumulate
Price Target: $5.08
Last Price: $4.70
Capital Return: 8.1%
Dividend Return: 6.2% 
Total Potential Return: 14.3%


Key Points

• Project decision delays pushes FY19 NPAT guidance down ~10%: LYL recently provided an update to the market with FY19 NPAT now expected to be $16.3m (DJC $17.4m) vs prior expectations that earnings would generally be in line with last year (FY18 $18.2m). LYL was awarded the EP contract for Perseus’s (ASX:PRU) Yaoure gold project in January which was subject to an exploitation permit approval with the Ivorian government which experienced minor delays, but has now been received along with formal PRU board approval on the decision to mine. We previously noted that any delays in the start-up would likely impact FY19 earnings. LYL reiterated that project delays are a feature of the markets in which they operate.

While it’s disappointing that FY19 earnings will be impacted, this was outside of the control of LYL and will see earnings flow through to FY20. We have taken the conservative approach and haven’t increased our earnings expectations for FY20.

• Mondium JV wins Talison Lithium EPC contract: LYL announced that Mondium (Monadelphous 60%/LYL 40%) was awarded the $100m contract to design and construct the new tailings retreatment processing plant at the Greenbushes mine site in WA, making it the JV’s largest contract win to date. Mondium has previously completed work for Talison as well as Galaxy Resources at its Mt Cattlin lithium mine and is making a name for itself in the battery metals space. We expect further EPC contract wins to be achieved over the next few years, providing potential earnings upside over the longer term.

• Healthy FY20 pipeline: LYL highlighted that they retain a healthy pipeline of committed and prospective projects and expect a high level of activity through FY20. We assume further material EPC/EPCM contract wins will be achieved with LYL recently completing a number of late stage studies for clients across a range of different commodities that are moving towards FID over the next year.


Valuation and Recommendation

We retain an Accumulate (buy on weakness) recommendation on LYL but reduce our 12-month price target to $5.08 per share from $5.38 as a result of the reduced profit guidance and as a number of peers have seen some PE reduction over last few months. We base our price target on a 50/50 blended valuation of our 12x PE (down from 13x) and 6x EBITDA FY19/20 target multiples. We believe that LYL is a very well-managed business, has a strong balance sheet ($60.2m net cash) and is well diversified across a range of commodities. We expect LYL to provide positive returns to investors in the form of both capital gains and income with its attractive fully franked dividend yield of 6.2% (DJC estimate) over the next year.

To read the full research report click on the below image:
Michael Ron
Research Analyst
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This Research Report expresses the personal view of the Author. DJ Carmichael Pty Limited, including authors of this report, its directors and employees advise that at the time of publication they hold or may become entitled to securities of the issued capital of the company and/or earn brokerage and other benefits or advantages, either directly or indirectly from client transactions in stocks mentioned in this report.


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
ACCUMULATE - 10% or more out-performance, buy on share price weakness
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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