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Are we about to see a profit and dividend bonanza?

We are about to enter reporting season, when most of our listed companies report their results for the prior financial year. With stock market indices…

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This article was originally published by Roger Montgomery

We are about to enter reporting season, when most of our listed companies report their results for the prior financial year. With stock market indices at all-time highs, it looks like the market is expecting many of our larger companies to come out with solid earnings and dividend announcements. Perhaps more interesting will be their forecasts for the year ahead.

To see what the market’s earnings and dividend expectations are, let’s have a look at Bloomberg data for consensus earnings and dividends. As the first half of fiscal 2021 (second half of calendar 2020) was still impacted by COVID-19 lockdowns, I think it is more interesting to compare the calendar year-end forecasts as this gives a cleaner comparison as CY19 was not impacted by COVID-19.

If we first look at the chart below, which shows consensus earnings per share (eps) and dividend per share (dps) number for the full ASX 300 index, we can note some interesting points:

Source: Bloomberg 

  • CY21 eps are forecast to significantly exceed both CY18 and CY19 showing that the expectations are that the economy will come out in a stronger state post COVID-19 than it went in. This is probably not that surprising given the amount of stimulus money that has been created during the last 18 months which has to find its way to somewhere.
  • We can also see that consensus is anticipating that companies will retain a higher portion of their profits than was the case in CY18 and CY19, which indicates that they want to continue to strengthen their balance sheets.

If we break down the data a bit further, we can draw some further insights from this next chart which shows the eps for the major sectors that make up the overall index:

Screen Shot 2021-07-29 at 12.31.58 pm

Source: Bloomberg

  • We can see that there is a widespread between the different sectors and, out of the eight sectors, only two are expected to generate higher profits per share in CY21 than in CY18.
  • The Materials sector is the clear standout with CY21 eps expected to be more than 2x higher than in each of the preceding three years, which is a clear function of the record iron ore prices we are currently seeing.
  • The Healthcare sector is also expected to grow its eps, which can be explained with company specific growth for CSL and Resmed and Cochlear seeing a return of activity after a steep drop during 2020.
  • All other sectors are expected to see declining profitability vs. 2018.

If we look at the market P/E and how it has developed we can see that even though we have seen a contraction recently from the absolute peak, we are still trading at quite elevated levels compared to the past and we should remember that the materials sector constitutes a larger part of the index than historically, and that the sector is trading at a significant discount to the other sectors, meaning that the other sectors are trading at even more elevated levels compared to history as the chart below shows:

Screen Shot 2021-07-29 at 12.33.40 pm

Screen Shot 2021-07-29 at 12.33.28 pm

Source: Bloomberg

Given what is happening in Australia at the moment with lockdowns affecting the major cities, it will be interesting to see how resilient the forecasts are for the full year and what direction revisions to forecasts we will see in the upcoming results.

Base Metals

Nevada Copper Starts Trading On Post-Consolidation Basis

Nevada Copper Corp. (TSX: NCU) announced this morning a series of company updates including the recent completion of the previously
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Nevada Copper Corp. (TSX: NCU) announced this morning a series of company updates including the recent completion of the previously announced consolidation of its common shares. The copper producer is expected to begin trading today on a post-consolidation basis.

Through the share consolidation ratio of one post-consolidation share for every 10 pre-consolidation shares, the company’s outstanding common shares are reduced to 185,063,560 from approximately 1,850,635,602 shares. Outstanding share purchase warrants will also be consolidated at the same ratio of 10 warrants for one post-consolidation share.

The copper firm also relayed the updates that it has completed mining from the second stope at its Pumpkin Hollow project and has started blasting of the third stope. Further, ore from stope mining averaging approximately 1.5% copper grade is being delivered to the company’s mill with recoveries as planned.

The Nevada-focused mining company reported its Q2 2021 financials in August 2021, highlighting a quarterly revenue of US$14.1 million.

Nevada Copper last traded at $0.07 on the TSX.


Information for this briefing was found via Sedar and the companies mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.

The post Nevada Copper Starts Trading On Post-Consolidation Basis appeared first on the deep dive.

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Monsters of Rock: New Hope turns to profit as coal miners remain buoyant

Timing is, as they say, everything. Coal miner New Hope Corporation’s financial reporting period is one example of that. While … Read More
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Timing is, as they say, everything.

Coal miner New Hope Corporation’s financial reporting period is one example of that. While most companies go by calendar or financial year, New Hope (ASX:NHC) reports from August to July.

That allowed it to soak up some of the coal bull market which has driven domestic price in China up by the hour to as high as US$670/t.

Australian producers are locked out of China at the moment due to the less-than-friendly relationship between our governments and their ability to (painstakingly) source supply from elsewhere.

Premium hard coking coal out of Australia is still up at historic highs of US$385/t though, with thermal and lower quality coking coal also generating consistently good gross margins.

While many Aussie coal miners still booked losses for FY21 while using their commentary to celebrate bullish market conditions of the 2022 financial year, New Hope gets the best of both worlds.

Thermal coal prices have risen sharply as well. Pic: New Hope Corporation

 

Production down, profits up for New Hope

New Hope’s production fell at its east coast coal assets from 11.3Mt in 2020 to just 9.6Mt in 2021, but saw its underlying EBITDA soar by 78% from $290 million to $367 million.

It swung from a $157 million loss to a net profit after tax of $79 million, backing a final dividend payment of 7c and a full year dividend total of 11c a share.

CEO Reinhold Schmidt said both improved prices for thermal coal and cost discipline underpinned the final result.

“The Newcastle 6000 Index hit 10 year highs by financial year end rapidly recovering from the depressed market conditions experienced at the start of the financial year. The Company achieved an average realised price of $101.36/t in 2021. At 31 July 2021, the Newcastle 6000 Index had almost doubled from January 2021 levels, to USD$150 per tonne, and has continued to trend upwards,” he said.

“The Company also benefited from reduced underlying Free on Board cash costs of $63.70 as a result of cost savings implemented at both Bengalla and New Acland, and the rationalisation of the Brisbane corporate office.”

New Hope’s realised prices doubled from the first quarter to the final quarter of the year, when it sold coal at an average of ~US$120/t, prices that would be mild by today’s standards, even for thermal coal.

 

New Hope Corporation share price today:

 

 

Is a correction coming in coal prices?

It is a largely accepted narrative that China’s ban on Australian coal has played a big role in the meltdown of its supply chain.

The trade between the nations was the sun around which the solar system of the met coal trade revolved, as BHP famously says, and the removal of 24mt of imports from Australia left China 16Mt short year on year.

The redirection of Australian rock elsewhere has seen China lean on its decrepit domestic mines, production from across the inland border in Mongolia and the US, Russia and Canada.

US, Russian and Canadian mines don’t export enough to satisfy China’s hungry steel and energy sectors, and Mongolian product has been hamstrung by Covid restrictions.

According to UBS, China’s imports are down around 16Mt year on year, leaving it well short of requirements and fuelling a squeeze on supplies.

But as we’ve seen in iron ore, what goes up must come down at some point.

“We expect met-coal prices in China to turn down before end-2021 with demand weakening and supply lifting; average met-coal prices are however set to remain elevated in 2022, averaging ~US$190/t (broadly flat y/y) as inventories are low and trade tensions between Australia & China are unlikely to ease near-term,” UBS analysts led by Myles Allsop said.

 

Will steel cuts come for coal too?

Steel production cuts and concerns around China’s struggling and debt-laden property sector that have hit iron ore could strike the end market for coal as well.

“We expect China steel output (and pig iron production) to slow into 2022 against a less favourable economic backdrop; there are also increasing signs that major China steel mills plan to cut output in 2H21 to achieve the central government’s directive of keeping annual production unchanged vs 2020,” UBS said.

“To this extent we have noted a sharp slowdown in crude steel and pig iron output so far in 3Q21.”

Higher prices could also bring supply on in China despite efforts to curb production due to safety concerns and pollution crackdowns.

“Given how elevated prices are, we expect met-coal supply to lift in China domestically over the coming months. This, combined with weaker pig iron production / met-coal demand and some alleviation in the power shortage, is likely to trigger a correction in China domestic prices from current record levels,” the analysts noted.

“The magnitude of the supply response in China may however be capped by 1) government control and 2) geological resource.

“Further, low coal inventories and the decline in the iron ore price may allow for increased tolerance of higher coal prices over the next 6 months.

“Outside China, we expect supply to lift in Australia with BHP able to lift production if prices stay high and Anglo to normalise supply/ debottleneck the Moranbah & Grosvenor complex.”

 

What happened on the markets?

The iron ore price feel even further overnight in the direction of US$90/t, but investors laid off the selling after yesterday’s $50 billion bloodbath.

Singapore iron ore futures were also largely unchanged.

BHP (ASX:BHP), Rio (ASX:RIO) and FMG (ASX:FMG) all held around yesterday’s trading levels and the ASX 200 Materials sector was up slightly.

Champion Iron (ASX:CIA), a pick from Tribeca Investment Partners head of research Todd Warren for when the iron ore price bottoms out, was one of the most productive mid caps.

$2.3 billion-capped Champion, which runs the Bloom Lake mine in Canada, was up more than 4% at 3.50AEST.

$2.8b rated Whitehaven Coal (ASX:WHC) also returned to winning ways with a similar gain.

 

Champion Iron and Whitehaven Coal share prices today:

 

The post Monsters of Rock: New Hope turns to profit as coal miners remain buoyant appeared first on Stockhead.

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Sultan Resources ready for 1000m drill program at Razorback Ridge

Special Report: Sultan Resources will get stuck into drilling at its high quality Razorback Ridge target in the East Lachlan … Read More
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Sultan Resources will get stuck into drilling at its high quality Razorback Ridge target in the East Lachlan Fold Belt in New South Wales.

The skarn-like gold copper target has returned a series of intriguing rock chip samples for Sultan (ASX:SLZ) across a 1km long structure, with a 1000m diamond drill program consisting of nine holes at three drill sites planned to test beneath the surface.

Soil sampling has defined a large gold and copper anomaly covering some 1500m by 200m abutting its Big Hill porphyry target.

Previous results from rock chips include:

  • 0.98g/t Au & 2.65% Cu
  • 0.55g/t Au & 2.24% Cu
  • 0.62g/t Au & 2.42% Cu
  • 0.64g/t Au & 2.00% Cu
  • 0.99g/t Au & 2.09% Cu
  • 1.12g/t Au & 0.1% Cu
  • 1.69g/t Au & 0.09% Cu
  • 1.14g/t Au & 0.1% Cu, and;
  • 2.25g/t Au & 0.07% Cu.

Razorback Ridge outcrops missed by old timers

While Razorback Ridge is marked by a north-northeast striking zone of outcropping skarn-style mineralisation that is exposed for over 1km in a copper rich district hosting some major mines, it was unrecognised by previous explorers.

Hosted in quartz sulphide vein breccias showing quartz – Fe carbonate – chlorite – sulphide – hematite +/- magnetite altered limestone and chlorite altered mafic volcanics, the mineralised outcrop is strongly coincident with a prominent north-south striking linear magnetic feature.

Sultan is especially excited about rock chip results of up to 2.25g/t Au and up to 2.65% Cu that have been returned from outcrops.

Drilling at Razorback Ridge will be relatively shallow at first and is designed to provide structural orientation, before follow-up holes target the structure at depth.

Sultan says it will use an environmentally friendly track-mounted drill rig and comply with all COVIDSafe requirements during the drilling program, which is due to start in mid-October with all regulatory approvals, landowner compensation agreements and drill contracts finalised.

It adds to the prospectivity of the Big Hill porphyry prospect, where Sultan says three recently drilled holes returned elevated copper and pathfinder elements in zones of porphyry-style alteration.

Those results strengthened the prospectivity of the area to host a porphyry system similar in geological style to Newcrest’s nearby Cadia gold mine, the largest in Australia.

Sultan’s projects are in the vicinity of some absolute monsters. Pic: Sultan Resources

Big Hill drilling picks up positive pathfinders

Drilling is yet to hit the mother lode at Big Hill, but assays from the first three drill holes put into the porphyry target have given confidence it bears similar pathfinders to the 50Moz Cadia-Ridgway mine.

“The results show elevated responses in a number of important elements at levels that are consistent with the interpretation that the drilling has intersected the distal alteration halo of a potential alkalic porphyry system,” Sultan said.

“The average copper throughout the altered volcaniclastic units across all three holes is approximately 100ppm Cu and up to 385ppm Cu locally.”

At Cadia, about 50km south of Big Hill, Sultan says those pathfinders and copper rich anomalies are found a couple hundred metres from high grade gold and copper mineralisation.

“Future step out drilling at Big Hill will aim to map an increase in distribution and intensity of the characteristic ‘reddened’ inner propylitic alteration zones to allow vectoring to the potential high grade Au-Cu porphyry core. Current drilling is likely to be >200m from an intrusive centre based on the Ridgeway model,” the company said.

 


 

 

This article was developed in collaboration with Sultan Resources, a Stockhead advertiser at the time of publishing.

 

This article does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.

The post Sultan Resources ready for 1000m drill program at Razorback Ridge appeared first on Stockhead.

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