What the Brokers Say
WHAT THE BROKERS SAY: Interesting news and views from across the Resource Analyst universe.
NRW Holdings Ltd (ASX: NWH)
NWH has won a new contract for RIO Tinto (ASX: RIO) to provide earthworks on the Nammuldi project worth $180 million over 37 weeks and a $67 million contract (subject to FID) on the Roy Hill project.
These contracts help revive a depleted order book. The RIO work, whilst welcome, is later than we were anticipating (refer research March 25) and we are pulling back our 2013 forecasts to the lower end of guidance or $80.5 million.
2014 continues to be difficult to forecast and is very much leveraged to Roy Hill proceeding, which will not be news to anyone.
On balance we see 2014 earnings in the range of $70 million to $80 million provided Roy Hill proceeds and closer to $50 million if it doesn’t.
Nevertheless, NWH is now trading approx. at NTA, on a PE of 4.3x (low end) 2013 guidance.
Consequently, in our view, all but a catastrophic downgrade (refer below) is well priced.
Key Points:
• NWH has recently won a $180 million contract for RIO on its Nammuldi project, commencing May 2013 and lasting for 37 weeks.
• In addition, NWH won a $67 million contract to provide various earthworks around the Roy Hill mine (subject to FID).
• The market has responded consistent with its general lack of enthusiasm towards the mining services sector, and based on all but the most severe of sensitivities, NWH offers significant value.
• That said, delays in the award of the RIO work, together with possible further delays on a Roy Hill green light have resulted in us pulling back both 2013 and 2014 NPAT forecasts by approx. 7 per cent to $80.5 million in 2013 (from $86.7 million) and $73 million in 2014 (from $79.3 million).
• 2014 continues to be difficult to forecast, and without Roy Hill 2014 will prove a scramble, but the idea there is nothing to do seems overly pessimistic, particularly as by our estimation there is circa $600 million locked away as is (excluding Roy Hill entirely).
• Based on the current overhead structure, $600 million revenue wouldn’t generate much 2014 NPAT profit, however with depreciation running at circa $50 million per annum, still generates plenty of cash.
• That said, NWH, even in a challenging environment, will win further work in the normal course.
• In the meantime NWH trades around NTA and if it pays another 8 cents at the full year, will yield 13 per cent during 2013.
Recommendation: Buy
Consolidated Tin Mines (ASX: CSD)
Consolidated Tin’s major shareholder Snow Peak Mining has now completed the acquisition of the ‘Kagara Central Region project’, which includes a one million tonnes per annum (Mtpa) processing plant and a highly prospective land package.
CSD is well advanced with a PFS assessing the economics of modifying the plant to process tin ore (sourced from the CSD’s flagship Mt Garnet tin project) at the plant.
Consolidated Tin (ASX: CSD) continues to make steady progress in its ambition of becoming the next Australasian tin producer, boosted by a strong relationship with Snow Peak Mining.
Snow Peak Mining recently paid $40 Million for the Kagara Central Region project, which includes a 1Mtpa processing plant and a highly prospective land package.
CSD has agreed to manage the re-commissioning of the 1Mtpa Mt Garnet processing facility (scheduled to re-open Sept. 2013) with ore to be initially sourced from the existing Baal Gammon and Balcooma/Surveyor mines, in return for a 10 per cent free carried interest in any short term profit made.
A pre-feasibility study is well underway (due for completion in Sept. 2013) assessing the economics of processing ore from Consolidated Tin’s Mt Garnet tin project at the Mt Garnet concentrator.
In its current configuration, the plant is not set up to process tin ore and as such, modifications to at least one of the existing 0.5Mtpa circuits will be required (at a fraction of the cost of constructing a stand-alone plant).
On the basis of a positive PFS, a JV company will likely be formed with Snow Peak and CSD each contributing their relative assets.
Each company will then contribute to funding on a pro-rata basis for any plant modifications and upgrades.
Recommendation: Speculative BUY
Disclaimer: The above is intended as a guide only. The Roadhouse accepts no responsibility for investments made from this advice, successful or otherwise.