BHP Group (BHP)

Analyst: Hayden Bairstow, Macquarie

Recommendation: Outperform

Price target: A$38

Thursday's close: $35.69

Reason: New CFO appointed

Comments: BHP has announced that David Lamont will succeed Peter Beaven as group chief financial officer (CFO) effective 1 December 2020. David Lamont is currently the CFO of CSL, a position he has held since January 2016. Prior to this David Lamont worked in the mining industry as CFO and executive director of MMG from 2010-2015. He also held the position of CFO at OZ Minerals, PaperlinX and Incitec Pivot during his career and worked at BHP from 2001-2006. David Lamont will join BHP on 1 December, with Peter Beaven retaining the CFO role until 30 November. Peter Beaven will remain with BHP into early 2021 for a transition phase before leaving the company. Peter Beaven has been the CFO of BHP since October 2014 and joined BHP in 2003. Buoyant iron-ore prices continue to drive strong earnings upgrade momentum for BHP, more than offsetting weakness in coking coal and energy prices. A spot price scenario generates 20% and 40% higher earnings for FY21 and FY22 than our forecasts, respectively. Free cashflow yields are an attractive 10% and 12% for FY21 and FY22 under a spot price scenario. A potential change of CFO had been anticipated following the appointment of Mike Henry as CEO on 14 November as Peter Beaven had been reported as one of the front runners for the position before withdrawing from the process. BHP's earnings upgrade momentum remains strong with a spot price scenario generating free cash flow yields of 10% and 12% for FY21 and FY22, respectively.

Oklo Resources (OKU)

Analyst: Reg Spencer, Canaccord Genuity

Recommendation: Speculative buy (initiation)

Price target: 50c

Thursday's close: 26.5c

Reason: On the hunt in elephant country

Comments: Oklo Resources (OKU) is a gold exploration company whose main assets are a number of exploration properties located in western and southern Mali, covering circa 1400sq.km. OKU's most advanced opportunity is the 100%-owned Dandoko Project, covering 134sq.km of granted tenure in a highly prospective region of western Mali. OKU is led by an experienced and accomplished management/exploration team with a notable track record in the West African gold space. The Dandoko project is located at the southern extent of the Senegal-Mali Shear Zone (SMSZ), a major north-south trending structural corridor that hosts a number of large gold deposits and mining operations including Loulo (12Moz), Gounkoto (+5Moz), Sadiola (13Moz), and Fekola (8Moz). Major gold deposits in the region tend to be associated with NE trending splays/faults off the main SMSZ, with Dandoko covering a series of these interpreted splay structures within a 12km long, N-S trending corridor of extensive gold anomalism. Within the Dandoko project area, OKU has had considerable success at the Seko prospect, a series of NE trending parallel gold anomalies over a combined strike length of 7km. RC/DD drilling has demonstrated numerous zones of near-surface, high-grade gold mineralisation over broad widths, with significant intersections including 65m at 7.11gpt from 4m, 29m at 12.27gpt from 1m (SK2), 11m at 9.64gpt and 37m at 2.62gpt (SK3). More recently, OKU has identified high-grade gold mineralisation at SK1 North with highlights including 47m at 10.95gpt from 48m, 55m at 7.65gpt from 54m and 32m at 10.57gpt from 52m. Resource drilling commenced at Seko in late 2019, with OKU expected to release a maiden resource estimate in 2H20. Our initial Resource target range amounts to 730,000oz-1Moz at circa 2.5gpt, with additional opportunities at Seko including down-dip extents of known mineralisation, high-grade feeder structures at depth, as well as strike extensions at SK1. Our initial Resource target at Seko should present as a minimum "base case", with significant potential remaining for further discoveries along the underexplored Dandoko corridor. Targets include potential for additional mineralisation along the Seko trend 2km south to the Koko prospect, the Disse and Dabia prospects, plus regional targets at Kandiole and the large-scale Kouroufing prospect. Overall, we see the extensive gold anomalism and prospective regional setting as providing the basis for multimillion ounce resource potential across OKU's landholdings. In our view, Dandoko's prospectivity and proximity to two production centres at Fekola and Tabakoto highlight potential M&A appeal. We note no less than 13 asset/company transactions in West African gold since 2019 and expect to see ongoing M&A in the region as a recurring theme during this current cycle. Moreover, we note that Resolute Mining is a current 8% shareholder. With Dandoko considered an emerging discovery, our valuation is predicated on our estimated initial resource target and uses a weighted blend of an NPV12% for a standalone development scenario, NPV12% of a production case based on toll treating, and average implied resource multiples from recent West African gold asset transactions. We derive a project valuation of $214 million, with our sum-of-the-parts valuation including a nominal regional exploration credit and current cash, leading to an initial target price (rounded) of 50c.

Sovereign Metals (SVM)

Analyst: Brock Salier, Sprott

Recommendation: Buy (initiation)

Price target: 35c

Thursday's close: 19c

Reason: Discovering Malawi's rutile riches

Comments: Sovereign's graphite exploration in Malawi, SE Africa, serendipitously identified large at-surface zones enriched in premium high-titanium mineral sand rutile. Simple drilling has progressed this from concept to prospect to resource drilling on the flagship Kasiya project in just 18M. Drill highlights of 11m at 1.4% rutile from surface enabled us to estimate a potential resource of circa 200Mt at 0.96% rutile, with likely circa 1.5% in early years. Being a new deposit style, Sovereign's 3713sq.km landholding could hold not just a discovery, but a new province. Kasiya's premium qualities, high-grade, at surface and premium product, relate to its unique formation. Mineral sands deposits start, and mostly end, with placer (beach or river) enrichment. Kasiya though was metamorphosed, simplistically recrystallising low-value minerals into high-value rutile. Further weathering enrichment occurred as mobile non-Ti elements depleted, hence high near-surface grades. This leaves a soft easily mineable ore, producing a high-quality low-deleterious product. Our estimated tonnes and grade would put the asset in line with African producers, a demonstration that this tonnage and grade ‘works'. Rutile contains twice the Ti of ilmenite, for 30% less ore and 6x less waste per tonne of pigment. We cannot understate the importance of ESG, as miners and pigment producers come under pressure to address this, resulting in premiums for those that can. Kasiya can address the global lack of rutile, and more broadly we think ESG will drive the same increased demand / premium for rutile as seen with high-grade iron ore recently. The project benefits from the ability to mine-and-rehabilitate on a short-cycle, with Malawi benefitting given its low GDP per capita, as well as from tariff exemptions offered to lesser developed countries. Being saprolite ore, mining should be straightforward and cheap. Similarly, grades are reported ‘as recovered', providing positive support for simple one-product beneficiation. A recently built multi-user, existing rail-to-port link lies just 15km from Kasiya, connecting to a deep-water port for excellent logistics. Ahead of a DCF valuation, we use a simple value in-situ. We work on the proviso that 1xNAV for miners of any commodity equates to circa 20% of the in-situ value, the remainder being opex, tax, amortised capex and time value. Given its pre- JORC status, we conservatively discount this to just 4% of the in-situ US$2.25 billion value implied by our 200Mt tonnes and grade estimate. Adding cash and dilutive options drives our A$149 million NAV. As such, we initiate with a BUY rating and 35c/sh price target. Discovery is the greatest risk - from here the value upside should continue, reflected as an increasing premium, from lower-risk engineering, permitting and build. With province-scale discovery upside also.