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Broker Spotlight brings some of the more intriguing and topical analyst coverage to centre-stage. The daily column aims to illuminate thoughts and opinions behind the big stories. London is one of the financial capitals of world. The influential and closely followed views of its analysts regularly move markets and split opinion. The Broker Spotlight column arms Proactive readers with the added insight from the often colourful thoughts and headline-grabbing valuations from the City’s analyst community.
Broker Round-up part 2, including Bullabulling Gold, Nyota Minerals, Anglesey Mining, Atlantic CoalJanuary 21 2013, 4:02pm
Bullabulling Gold (LON:BGL, ASX:BAB) could potentially extend the mine life and boost the economics of its gold project.
That’s according to Shore Capital’s Yuen Low, who notes that two of the pits in the north of the Bullabulling project are separated from the main pit by the Great Eastern Highway and power transition lines respectively.
“Mining exclusion corridors stretching 100m and 200m either side of highway and transmission lines were modelled; the full feasibility study is to evaluate relocation of the infrastructure to extract resources within the exclusion zones,” he said.
It comes as the company confirmed it remains on track to deliver the first full draft of the pre-feasibility study (PFS) report for its gold project by the end of this month.
Nyota Minerals (LON:NYO) has assigned what it calls an ‘in-house’ inferred resource estimate of 1.1mln ounces of gold to the feeder zone to its Tulu Kapi project in Ethiopia.
The company estimates the additional resource has the capacity to add between 15,000 and 45,000 ounces a year to production.
Ocean Equities said this could be a “game changer” for the proposed mine, because it would allow Nyota to significantly improve the head grade, from 1.85 grams per tonne gold, by supplementing open pit ore with higher grade ore from the feeder zone.
“Increasing gold production capacity would make Tulu Kapi a low cost gold producer,” said analyst Christopher Welch.
Elsewhere, fellow City broker Investec said that although the initial underground resource is relatively small, it is a significant positive as it is likely to improve the economics of the overall project.
Elsewhere on a quiet day from the snow-covered capital, RFC Ambrian cast its eye over Anglesey Mining (LON:AYM) when its associate Labrador Iron Mines (TSE:LIR) confirmed its C$25.2mln equity offering announced last week.
As reported last week, LIM will issue the units at C$1.05 each. Each unit consists of one common Labrador share and half of a common share purchase warrant; a full warrant will entitle the holder to buy a Labrador common share at a price of C$1.35 any time up to 36 months after the share offer closes.
Anglesey has also agreed to buy up to 3mln units for C$3,195,000 subject to certain conditions, one of which being that Anglesey secures financing to fund the subscription price.
RFC Ambrian praised the move as Anglesey’s participation “maximises share value through its significant, and strategic, shareholding in LIM”.
“Given the current value we see in LIM — assuming an iron ore price above US$120/t in FY13 — we believe this is a value-accretive investment by Anglesey,” the broker said.
It kept its ‘speculative buy’ rating and 15p target price on Anglesey given its contingent start-up plans and its vulnerability to iron ore prices due to its high production costs.
Anglesey holds 19.7% of LIM, which is producing high grade hematite from its James pit, one of LIM's twenty direct shipping iron ore deposits in western Labrador and north-eastern Quebec.
Small cap broker Fox-Davies liked Atlantic Coal’s (LON:ATC) news that it has exercised its lease option over the Pott & Bannon coal mine in Pennsylvania – a deal described by managing director (MD) Steve Best as “potentially transformational”.
He believes the addition of the property, which is just 25 miles from the firm’s Stockton colliery, could treble the company’s existing reserves.
The 410-acre site, near New Castle Township, Schuylkill County, is estimated to contain up to 13.6mln tonnes of coal, equating to around 4.1mln tonnes of washed, saleable anthracite.
The broker stuck to its ‘buy’ recommendation and 1p target price today.
“Given the close location to its existing operation and the fact that the product is the same anthracite, there should be synergistic benefits,” it said.
“Further, the stripping ratio is significantly lower than Stockton, so saleable anthracite should be cheaper to produce.”
Shares rose 6.3% to 0.298p.
As the snow continues to fall in London, City analysts are forecasting a slippery slope for mining giant Anglo American’s (LON:AAL) shares.
The last two weeks have seen two key strategic challenges answered by the company. Firstly, it has found a chief executive in the form of Mark Cutifani, while troubled platinum arm Amplats unveiled its long-awaited review in which it said it was axing 14,000 jobs.
Broker JPMorgan Cazenove says Cutifani is the standout candidate to replace Cynthia Carroll and to tackle Anglo’s key strategic challenges, which include cutting down Amplats’ workforce to a reasonable size, finding a solution at Minas Rio – where capital spending has ballooned to more than US$8bn – and turning around recent operational declines at its copper and nickel mines.
Cutifani, it seems, may be the right candidate, but he has a tough task ahead of him following Carroll’s decision to quit in the wake of shareholder unrest.
“We consider Mr Cutifani the stand out candidate for addressing AAL’s long term underperformance to peers (AAL has lagged BHP 413% and RIO 134% in the last 10 years) but we expect the shares to be weighed down in 2013 by the difficulty and fall out of implementing essential operational change in South Africa, from where 54% of AAL’s FY’13E earnings are source,” said mining analyst Fraser Jamieson.
The broker keeps his ‘underweight’ advice and lowers his target price by 40p to 1,630p.
Analyst Julien Garran reckons we are in the midst of a sweet spot for earnings momentum in the mining sector.
He sees strong earnings momentum continuing through the second quarter of 2013, something that is a “powerful driver” of share price performance.
Garran tips lagged cost inflation and a loss of revenue momentum to kick in around July, warning investors to stop playing the earnings momentum story by May.
Investors looking for a sector to get their teeth into should eye up the airline industry, according to Credit Suisse.
It sees execution on turnaround plans coming into view after a number of carriers were forced to restructure.
“In our view, 2013 will prove a crucial year for investors to judge the likelihood of success of respective flag carrier restructuring efforts,” said Neil Glynn at Credit Suisse.
He lifts British Airways and Iberia owner IAG (LON:IAG) to ‘outperform’ as he expects progress to made on the troubled Spanish airline, which the market is already beginning to take note of.
Iberia was bracing itself for strikes in the run up to Christmas, protesting at planned job cuts, but unions called it off.
While no deal has been struck between the two parties, the broker’s target price soars 75p higher at 259p, factoring in negotiating “a satisfactory deal with labour”.
Investec waded into the debate on the sector when it cut budget carrier easyJet (LON:EZJ) to ‘hold’ from ‘buy’.
“The stock was our key 2012 airlines pick, but the shares have outpaced the market and we now project a period of share price stability rather than material growth, coupled with uncertainty over the outcome of a major new aircraft order in 2013,” it said.
Investors in alcoholic drinks giant Diageo (LON:DGE) will have done very well for themselves over the past year, with shares up over 30%.
However, shares lost 1.6% today on the back of a downgrade from UBS.
The Swiss broker now believes the Smirnoff and Guinness maker’s stock will not climb much higher, dropping it to ‘neutral’ as a result.
Small cap specialist Numis believes WH Smith (LON:SMWH) could provide investors with a late Christmas present when it reveals how it fared over the festive season.
The broker says the trading update will provide yet more evidence of the stationer’s famed trading discipline and keen margin focus as it moves its recommendation to ‘add’ from ‘hold.