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22/11/17
       
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Australian equities ended higher on Tuesday, with the ASX200 closing up 0.3% as all sectors finshed in the black. Utilities was the best performing sector following Infigen Energy's (IFN) 7% rise as bargain hunters look to buy the stock after it hit April 2016 lows on Monday. 

A2 Milk (A2M) rallied by 5.5% after reporting a trading update which saw net profits more than doubling to $52m over 1Q18 compared to a year ago, with its branded fresh milk performing well and infant formula continuing to be a significant contributor to sales in Australia & New Zealand. Sales and earnings momentum is continuing to be seen out of China with revenue up over 130% for the year.
 
Engineering and construction contractor Mondadelphous Group (MND) hit its highest level since 2013, rising by 6.8% following a positive guidance at its AGM. MND is seeing increasing levels of work in brownfields and sustaining capex across the resouces sector and expect that the surge in activity will deliver revenue growth of more than 30% in 1H18 over the pcp, before moderating in 2H18. 


International Markets

 

U.S. stocks jumped and indexes hit record highs on Tuesday, led by gains in this year's top-performing technology sector. Healthcare shares were also boosted by bullish results from medical device maker Medtronic, whose shares rose 5.2% after the company reported better-than-expected results and backed its full-year forecast. With the third-quarter earnings season winding down and no major economic data in sight, trading activity is expected to slow ahead of Thursday's Thanksgiving holiday.

To Read the Full Morning Report Please CLICK HERE
Avanco Resources Ltd. (AVB) - Initiation of Coverage Report

Avanco Resources Limited (ASX:AVB) is an ASX-listed junior copper and gold producer and developer focused on projects in northern Brazil. Two projects, the operating Antas copper-gold mine and the Pedra Branca copper-gold development project, are within the Carajás Region in Pará State, famous for its world-class IOCG copper and iron ore deposits. The third project, CentroGold, is in the neighbouring state of Maranhão. AVB successfully developed the Antas mine under-budget and within schedule, displaying considerable in-country project development expertise. Development of the CentroGold project and Pedra Branca would provide a first-phase production profile of 40,000 tonnes of copper and 140,000 ounces of gold. We believe AVB has one of the strongest production growth profiles of any junior copper producer on the ASX, is currently generating positive operational cash flow and is significantly undervalued. We place a Buy recommendation on AVB with a price target of $0.23 per share.

KEY POINTS

• Capable Management: DJC attended a site visit at AVB’s operations in Brazil mid-year. One of the key learnings that came out of our site visit was AVB’s demonstrated capability to successfully operate in Brazil, a jurisdiction where some other ASX-listed juniors have struggled. We are confident that AVB will bring the same level of expertise to the development of its other opportunities in Brazil.

• Antas production: Antas is AVB’s producing asset. We envisage continued copper production at circa 14,000 payable tonnes as the pit deepens with cash costs of $1.06/lb after gold credits and an AISC down to $1.56/lb resulting in EBITDA margins of up to 51%.

• CentroGold before Pedra Branca: AVB embarked on an accelerated acquisition and development program for its CentroGold Project. We believe the considerable value proposition provided by CentroGold will elevate CentroGold over Pedra Branca to be the second project brought into production. We estimate production of circa 100Kozs per annum at an AISC of approximately US$850 per oz.

• Upside from exploration and acquisition: AVB has ample opportunity to expand production at Antas. Recent exploration success proximal to the mine could materially lift production in our view. AVB has already estimated that production capacity could double by expending circa US$20m in capex on the Antas plant. Exploration success is also expected at Pedra Branca where the ore body is open along strike and down dip.

• Strong growth profile: We believe AVB has one of the strongest production growth profiles of any junior copper producer on the ASX by virtue of the projects it already has in its portfolio. A scoping study on CentroGold is expected in the coming months and an optimised DFS on Pedra Branca is expected in 2018.

• Recommendation: We place a Buy recommendation on AVB and a valuation of $0.23 per share, assuming development of CentroGold and Pedra Branca.
 

To read the full research report, please click on the following link:

Head of Research
Paul Adams

Kalamazoo Resources Ltd. (KZR) - Company Update

Materials, Precious Metals

Update on Mixy Lode resource expansion and Pilbara tenement exploration
 
17/11/17
Current Price: $0.165

 
Key Points
 
Mixy Lode resources increase

  • KZR has reported a significant increase in resources at its Mixy Prospect, located in the Snake Well Project area in the Murchison Region of W.A.
  • Total in-situ gold ounces has climbed 63% from a tonnage increase of 13% combined with a grade increase of 85%.
  • The original resource and interpretation included mineralisation from a central lode only. The new interpretation from a greater understanding of the geology has resulted in three lodes being modelled – the Main Lode plus an additional Footwall and Hanging Wall Lodes.
  • As a result, the overall combined JORC 2012 resource inventory for the Snake Well Project has increased by 32% to 141,000 ozs
  • The increase in mineralisation now opens up options for pursuing a larger open pit development in the first instance.

Table 1. New JORC Resource for Mixy Lode 

Note: OP resources with COG of 0.5g/t gold estimated to 90m below surface. Between 90m and 200m, resource estimated using 2.0g/t gold COG.


Table 2. Comparison table between previous and current JORC 2012 resource estimates for Mixy
 

  • The 15-hole, 2,069m drilling program confirmed that the Mixy Vein extends approximately 150m east of the edge of the previously mined Mixy Pit. Deeper drilling intersected the mineralisation 200m below surface to the east of the main mineralised shoo, indicating that the controlling structure persists well beyond the shoot.
  • The separation of the Main Zone from the Hanging Wall and Footwall lodes has resulted in a grade increase for the Main Zone as the HW and FW lodes are lower grade, are geologically, not as persistent.
  • A new interpretation has emerged which infers that the plunge of the higher grade shoot is less steep than previously modelled (Figure 1)
  • KZR will continue to undertake more RC and diamond drilling at Mixy with the aim of increasing the confidence in the resource and to test for further extensions
  • In parallel, KZR will continue to assess the potential for an Open Pit development and continue investigations on the potential for a later underground development.

Source: KZR

Exploration update from the Pilbara

  • KZR has also been undertaking due diligence at its recently optioned ground in the Pilbara Region in W.A.
  • Early field investigations at its Dom’s Hill Gold Project have discovered a second zone of gold nuggets 4.5km SE of the Singers Prospect where KZR state that recent prospecting has yielded 300 ozs of gold nuggets.
  • The new area is largely unexplored. The project consists of 2 granted tenements and one exploration license application located 110km SE of Port Hedland and covers a number of main bounding shear zones and several second order structures.
  • Gold mineralisation is associated with a major NE trending shear zone, striking through felsic, mafic and ultramafic sequences.
  • A contracted local prospector, together with KZR geology staff were successful in finding 6 gold nuggets from three localities within a 2km x 1km area, together with another nugget from the Singers Prospect.
  • The shape of the nuggets infers a local origin.
  • KZR are nearing the completion of their DD and are currently undertaking a similar early field investigation at The Sisters Prospect.
Source: KZR
In Conclusion
 
KZR are making progress at both the Snake Well Project and on the newly optioned Pilbara tenements. An expanded Mixy Resource, with a more detailed interpretation, is a good development. Although there is plenty more work to do at Mixy, we take the view that KZR are on the right track and the increase in confidence in the geological interpretation will make for a more robust development study and inform further drilling to target resource expansion. An expanded open pit at Mixy, with the opportunity to generate modest cashflows that will support ongoing exploration programs, is still the main aim from the Mixy deposit.
 
Although at an early stage, the recent developments in the Pilbara have highlighted the prospectivity of the whole region, which has largely been forgotten by gold exploration companies. The discovery of nuggets at Dom’s Hill is an interesting development and shows that the locality is prospective for the discovery of further gold mineralisation. We await the results of a similar field program currently underway at The Sisters Project to the SW, which lies directly adjacent to tenements held by De Grey Mining (DEG) and is close to others that are involved in the Pilbara conglomerate gold phenomenon.
 
We maintain our Speculative Buy recommendation on KZR and note that even after the latest increase in the share price, KZR still only has an EV of less than $10m.

Head of Research
Paul Adams
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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.
 
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.

The Author does not hold any securities in Avanco Resources Limited.

DJ Carmichael Pty Limited acted as Lead Manager in a pre-IPO round of funding and the IPO and was paid a fee for that service. Kalamazoo Resources Limited has engaged DJ Carmichael Pty Limited to act as corporate adviser and is paid a fee for that service. DJ Carmichael Pty Limited holds 697,500 restricted securities in Kalamazoo Resources Limited and 7.025m options in Kalamazoo Resources Limited. Kalamazoo Resources Limited paid the cost of a visit to the Snake Well project by representatives of DJ Carmichael Pty Limited in October 2016 valued at approximately $10,000.

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 representing up to 1.2% of the issued capital of Triangle Energy (Global) Pty Limited and/or earn brokerage and other benefits or advantages, either directly or indirectly from client transactions in stocks mentioned in this report.
 
The Author of this Research Report made contact with Avanco Resources Limited and  Triangle Energy (Global) Pty 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 companies.

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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