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Local Markets

Australian equities were higher on Monday, with the ASX200 rising by 0.4% following strong leads from the US after a number of positive earnings results. Gains were broad based across most sectors on the ASX with telecommunications and healthcare the best performers. 

A number of mining names outperformed with lithium miner, Orocobre (ORE) up 5.7% to hit a record all time high of $7.28 following the recent announcement that its planning to expand its operations at its project in Argentina.

South32 (S32) rose by 3.7% following some profit taking last week and is only a few cents off its record all time highs of $4.025. S32 has been in a strong uptrend since breaking out above the $3.00 resistance level in August which had been previously holding back the stock which now looks likely to test the next major psychological resistance level of $5.00.

Iluka Resources (ILU) rose by 4.9% after they announced in their quarterly report that they expect conditions in minerals sands to continue to be positive in 2018 following robust trading conditions being seen in the fourth quarter of 2017, with full year zircon and rutile sales up 27%. The strengthening AUD and strong cash flow seen through 2017 allowed ILU to reduce its net debt by $183m from $506m recorded in 2016.

Shares in oil & gas producer AWE, hit its highest level since 2015 following a $0.95 all cash bid by Japanese firm Mitsui & Co. for $600m which is better than the $0.80 offered by Mineral Resources (MIN) via a Scheme of Arrangement. 


International Markets

US stocks pulled back sharply from record levels last week, with the Dow falling more than 100 points, weighed down by Apple after a media report added to concerns about demand for the iPhone X. Apple shares fell as much as 2.6% after the Nikkei reported the company will halve the production target for its flagship iPhone X this quarter. Apple is due to report results on Thursday.

Beside a host of earnings reports, this week includes US President Donald Trump's State of the Union address, the Federal Reserve's monetary policy meeting and the US jobs report.

Strong corporate results have pushed up analysts estimates for S&P 500 fourth-quarter earnings growth to 13.2%, from 12% at the start of the year, according to Thomson Reuters data, and help send Wall Street on its best four-week run since 2016.

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Research Report - Hammer Metals Ltd (HMX)
Hitting the right stuff in Mt Isa

Summary Key Points

High grade copper at Jubilee: HMX has reported the first drilling results from the first phase of drilling on the new Mt frosty Joint Venture with MIM. The best intersection from across the 9 holes of the Phase 1 program was 5 metres at 7.34% copper (Cu) and 3.75g/t gold (Au) from 35 metres in HJRC009 within an envelope of 8 metres of 4.72% Cu and 2.37g/t Au from 33 metres. Intersections of this tenure are not unheard of in the Mt Isa Region, with high grade copper known from the original Mt Isa deposits but also from Rocklands and Millennium.

Only a small area tested so far: The recent drilling program followed up on previously identified copper and gold mineralisation from a JV between Glencore and Chinalco. Mineralisation now extends over a 400m strike length and is generally close to surface at this location. The drilling at Jubilee represents only a small portion of the Mary Kathleen Shear Zone and no drilling exists beyond the boundaries of the known mineralisation.

HMX back drilling already: HMX has recently announced the recommencement of drilling at Jubilee following up on the encouraging results from the Phase 1 drilling program. A program of 13 holes has been devised for an additional 1,500m to better define and extend the high-grade copper-gold mineralisation. This should lead to news flow on the results around mid to late February for the first batch of results.

Our View

Opportunity to expand known mineralisation envelope

HMX’s modelling of the mineralisation suggests a shallowly- dipping or plunging shoot with potential for further shoots to the north. The proposed drilling extends to the north but we also note the long section that indicates that mineralisation extends south into HMX’s 100% owned tenement, at depth.

Early days, but a useful partner in Glencore

It’s early days in the exploration of Jubilee and the Mary Kathleen Shear Zone but with Glencore as a partner in the JV, with their extensive processing infrastructure nearby, HMX has a potential ready-made monetisation route should a high-grade zone be mineable at Jubilee, or elsewhere on the Mary Kathleen Shear.

HMX strategy in Mt Isa still playing out

We have long held the view that HMX’s strategic holding would be recognised by the major mining houses. This has proven to be correct with Glencore now, through its MIM subsidiary, but also by Newmont previously over a number of chosen project areas. The difficulties for HMX over the past few years lay in the prioritisation of their exploration spend, given their vast land holding in the district and the sheer number of opportunities presenting themselves.

Entering into exploration JV’s with major mining houses was an obvious solution, but this has taken time to unfold. HMX now need to seize the opportunity at Jubilee, maintain momentum and quickly build on the early success. The quick recommencement of drilling at Jubilee in Phase 2 should assist and will provide on-going newsflow during Q1 2018.
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Head of Research

Paul Adams

Research Report - Raven Energy Ltd (REL)
Initial Tulainyo-2 Results Are Encouraging

Summary Key Points
Initial results from Tulainyo-2 show that there is potentially up to 56m of net gas pay in the target sandstones with good porosity: The JV has completed some initial testing on the well, and the results indicate there are multiple potential gas pay zones in the Tulainyo-2 well. This positive result, therefore, meets the expectations of the JV as well as being consistent with the results of the Tulainyo-1 well which was drilled in 2017 and confirmed the presence of gas saturated sands in the Tulainyo structure.

The successful drilling and completion of the Tulainyo-2 well is an achievement in itself: The successful drilling and completion of the Tulainyo-2 well to planned terminal depth is an important achievement. Reviewing the well reports from the Tulainyo-1 drilling program reveals the challenges of drilling a successful well into the Tulainyo structure. The subsurface conditions are challenging from both a geo-mechanical and geology perspective.

The Next Steps: The next step in the program is the flow testing of the well to determine if gas can be recovered to surface in a consistent flow. The flow rate that is achieved in the testing will indicate the potential commerciality of the play. The JV is in the process of planning this portion of the evaluation program, and it is expected that it will commence with the test in the next several weeks. The test will provide critical data points that can be used to develop the next steps and ultimately determine the path towards a commercial development.

Our View

The Porosity is good but what about permeability?

The fact that the sands are gas saturated and display a reasonable level of porosity is in our opinion an outstanding result. While the well shows encouraging levels of porosity, the level of permeability is uncertain because the JV did not recover drill core from the well for laboratory testing. In the absence of drill core, the result from the flow testing program will give a good indication of the permeability of the sandstone in the reservoir.

The project has access to markets

Considering the results that have been achieved to this point and if the flow testing is successful, there is a strong possibility that Tulainyo could result in commercial development. There is a market for the gas as California imports a large amount of its domestic gas needs and the project is situated in an infrastructure-rich area. The demand for gas and the access to markets will help the JV move onto the development stage if the play is deemed to be commercial.

Could there be more gas in the structure lower down?

The original Tulainyo well was meant to intersect areas of interest down to 11,000 ft. Due to the technical difficulties encountered in the drilling of the well, the well TD at 5,700 ft. Tulainyo-2 was successfully drilled to 5,700 feet, and therefore, a large portion of the structure remains untested. Thanks to the confirmation of gas in the upper part of the structure it is more than likely additional gas will be present in the lower part of the structure. If so, this could be a very large accumulation indeed.
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Research Analyst
Michael Eidne

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This report accurately expresses the personal view of the Authors.

DJ Carmichael and or its staff hold 1,428,571 ordinary shares in Hammer Metals Limited and hold an interest in 2,412,798 unlisted options.

DJ Carmichael Pty Limited and its directors advise that at the time of publication they hold or may become entitled to securities in Raven Energy Ltd representing up to 3.96% 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. DJC and or its advisers hold an interest of 411,561,675 Raven Energy Ltd listed options expiring 31 October 2020, 225,000,000 unlisted REL options exercisable at $0.002 expiring 31 October 2020, and 200,000,000 unlisted REL options exercisable at $0.0025 expiring 31 August 2019.

DJ Carmichael Pty Limited acts as Corporate Adviser to Hammer Metals Ltd & Raven Energy Ltd and is paid a fee for that service.

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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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