Antofagasta PLC

Chile-based Antofagasta PLC (ANTO) is a copper mining company. The operations are differentiated in seven segments: Centinela, Zaldívar, Los Pelambres, Antucoya, Exploration and evaluation, Corporate and other items, and Transport division.

Q3 FY2019 Production Report (as on 23^rd October 2019)
In the third quarter of 2019, the company’s copper production decreased by 0.8% to 197,000 tonnes from the previous quarter. For the first nine months of 2019, the group’s copper production stood at 584,200 tonnes, an increase of 15.6% against the same period in 2018. For the year to date, the gold production increased by 88.7% to 226,600 ounces as compared with the corresponding period of the last year. The gold production reduced by 10.7% to 77,600 ounces in Q3 FY19 against the previous quarter. In Q3 FY19, the molybdenum production stood at 2,900 tonnes. Cash costs before by-product credits in Q3 FY19 stood at $1.60/lb and for the first nine months of 2019 it was $1.64/lb. In Q3 FY19, the net cash costs were $1.12/lb, while for the year to date it was $1.17/lb.

Share Price Performance

Daily Chart as at October-24-19, before the market closed (Source: Thomson Reuters)

On 24th October 2019, Antofagasta PLC shares were trading at GBX 878 at the time of writing before the market close (at 11:28 AM GMT), up by 1.479% against the previous day closing price.

Conclusion
The company noted the uncertainty caused by the continuing trade dispute between the USA and China, which has affected copper prices as it is widely used in electrical components and renewable energy. For 2019, the net cash cost guidance for the year has been reduced by $1.25/lb. The company’s production is anticipated to be in the range of 725-755 thousand tonnes of copper in 2020. The company provided another quarter of robust production. For the full year 2019, the company expects to provide production growth in line with the full-year guidance.

Based on the above rationale, we have given a “Hold” recommendation at the closing price of GBX 865.20 (as on 23rd October 2019).
 

Hurricane Energy PLC

Hurricane Energy Plc (HUR) is an oil and gas exploration and development company that discovers, appraises and develops hydrocarbon resources from fractured basement reservoirs.

Financial Highlights (for the six months ended 30 June 2019, US$’000)

(Source: Interim Report, Company Website)

For the first half of the financial year 2019, the company has recorded a revenue of US$22,462 thousand for the first time relating to a single cargo of crude oil that was sold in the H1 FY19. As a result, the group reported an operating profit of $1,180 thousand in the first half of the financial year 2019 against the operating loss of $4,714 thousand reported in H1 FY2018. The Group’s loss after tax recorded for the first half of 2019 was at $21,246 thousand against the loss of $75,083 thousand in H1 FY2018. Basic and diluted loss per share during the H1 FY19 stood at 1.08 cents per share against the loss per share of 3.83 cents recorded in the H1 FY18.

Share Price Performance

Daily Chart as at October-24-19, before the market closed (Source: Thomson Reuters)

On 24th October 2019, Hurricane Energy PLC shares were trading at GBX 44.90 at the time of writing before the market close (at 8:30 AM GMT), up by 0.67% against the previous day closing price.

Conclusion
The company recognised revenue for the first time during the first half of the financial year 2019, relating to a single crude oil cargo that was sold for the period.  The company has generated profits from its operational performance for the period. The company is looking forward to increasing its production and reserves throughout. The company is aiming to fully utilise Aoka Mizu's capacity to sustain production. The company is actively looking ahead to begin the next phase of the company’s growth by increasing reserves to 100 million barrels with gross production of 40,000 bopd. However, the company stay cognizant that it will take off at least six months of stable state production before they are competent to assess the validity of the reservoir model.

Based on the above rationale, we have given a "Speculative Buy" recommendation at the closing price of GBX 44.60 (as on October 23, 2019).
 

Gem Diamonds Ltd

Gem Diamonds Ltd (GEMD) is a UK based mining company. The company owns Ghaghoo mine in Botswana and Letšeng diamond mine in Lesotho. The company undertake all its activities related to manufacturing, sales and marketing in Belgium.

Recent News
On 4^th October 2019, the company declared that the mining lease for the Letšeng mine had been revived by the Government of the Kingdom of Lesotho.

Financial Highlights (for the six months ended 30 June 2019, US$ million)

(Source: Interim Report, Company Website)

In H1 FY19, the company’s reported revenue stood at $91.3 million, a decrease from the corresponding period of the last year. Underlying EBITDA from continuing operations in H1 FY19 was $25.3 million versus $70.7 million in H1 FY18. Basic earnings per share from continuing operations stood at 4.8 US cents in H1 FY19 against the 19.4 US cents in H1 FY18. On 30^th June 2019, the cash in hand was $25.8 million.

Share Price Performance

Daily Chart as at October-24-19, before the market closed (Source: Thomson Reuters)

On 24th October 2019, Gem Diamonds Ltd shares were trading at GBX 65.60 at the time of writing before the market close (at 10:44 AM GMT), down by 0.46% against the previous day closing price.

Conclusion
In the medium to long term horizon, rough diamond prices are anticipated to be endorsed by the favourable demand or supply fundamentals, which are underpinned by a sustained development in demand from emerging markets coupled with restricted progress in supply. In the short-term scenario, the supply is anticipated to decline with the depletion of current mines.

During the second half of 2019, the mining will be transitioning into a new cut back in the Satellite pipe which will accommodate the surge in planned Satellite pipe ore contribution.The construction work to extend the tailings storage facility progressed well during the Period. The company will implement its mine plan in the FY2019 to reduce the cost and increase productivity. The company will also optimise its operations for business transformation to repay the debt taken by the company.

Over the course of 5 years (FY13 - FY18), the company’s revenue surged from $212.80 million in FY13 to $267.30 million in FY18. Compounded annual growth rate (CAGR) stood at 4.67 per cent.

Based on the above rationale and valuation done using the above methodology, we have given a "Speculative Buy" recommendation at the current price of GBX 65.60 (as on October 24, 2019, before the market close).
 

Victoria Oil & Gas PLC

Victoria Oil & Gas Plc (VOG) is a domestic energy supplier. The group is engaged in the gas distribution, exploration, and production business in Cameroon.

Financial Highlights (for the six months period ended 30 June 2019, US$’000)

(Source: Interim Reports, Company Website)

In the first half of 2019, the company’s reported revenue increased to $10.68 million as compared with the corresponding period of the last year driven by the renewal of the ENEO (ENEO Cameroon S.A.) gas sale agreement in December 2018. For the reporting period, the underlying EBITDA rose to $3.7 million against the $0.03 million in the prior period, due to an increase in revenues. Cash generated from operating activities prior to movements in working capital stood at $4.2 million in H1 FY19. On 30th June 2019, the net debt stood at $5.9 million, a decrease from the previous year data (31 December 2018: $17.4 million). Average daily Logbaba field gross production rate surged by 190% to 9.9mmscfd in H1 FY19.

Share Price Performance

Daily Chart as at October-24-19, before the market closed (Source: Thomson Reuters)

On 24th October 2019, Victoria Oil & Gas PLC shares were trading at GBX 8.068 at the time of writing before the market close (at 9:21 AM GMT), down by 0.88% against the previous day closing price.

Valuation Methodology


Conclusion
Some of the risks which can impact business operations are capital constraints, global economic volatility, commodity price risk, legal compliance regulatory or litigation risk, adverse market sentiment, political and country risk. In H1 FY19, the company’s top-line performance has improved, and the profitability remained in the negative zone.Though the company has reduced its net debt which resulted in some improvement in the financial performance. The company expects to finalise a new agreement with ENEO related to payment guarantee security in the coming few days. The focus is now back on growing sales and signing new grid power contracts. In the current period, the company also increased industrial customer gas consumption for thermal use and industrial customer gas for power usage. International Organization for Standardization compliance ("ISO") 9001, 14001 & 45001 audits successfully completed, emphasising the group's commitment to global standards in its management systems.

Based on the above rationale and supported by the valuation as done above, we have given a “Speculative Buy” recommendation at the current price of GBX 8.00 (as on 24th October 2019, before the market close) with a lower double-digit upside potential based on 3x Industry Average NTM Price/Cash Flow (approx.) on FY19E cash flow per share (approx.).
 
*All forecasted figures and Peer information have been taken from Thomson Reuters. Currency exchange rate taken for 1 USD = 0.774199 GBP.
* The “Speculative Buy” recommendation is valid for the current price as covered in the report as on October-24-2019.

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