Sino Gold – Hold SGX

The company’s flagship Jinfeng project delivered 35,412 ounces of gold through the three months to 30 June 2008, representing 14% production growth on the March quarter. The higher production contributed to a decrease in per ounce production costs, which fell 6% to US$405 per ounce.

Jinfeng’s production guidance for the year to 31 December 2008 remains unchanged at around 155,000 ounces of gold. As one might expect though, increased energy costs and general industry wide inflation have impacted Sino. As a result, Jinfeng’s full year costs are likely to be US$390, compared to previous guidance of US$370 per ounce.

As Members may recall, Sino’s strategy is to become a mid tier gold producer with annual production of around 500,000 ounces. Rather than attempt production at these levels from a single operation, Sino will eventually operate a number of smaller projects. We believe this is a sound strategy for mining operations in China, given that the country doesn’t have the infrastructure to support major projects.

The company’s next production asset, White Mountain, is due to come on line towards the end of this year. The project is on schedule to achieve commercial production early next year. Although the project is on time, the US$55 million expenditure looks likely to increase by around 15%, due primarily to higher costs for steel and land.

Sino Gold’s stock price has not been spared from the latest period of volatility. However, this is not reflective of the company’s operational performance, which will ultimately determine the share price over the longer term.

Australian Worldwide Exploration – Hold AWE

Australian Worldwide Exploration benefited from the recent run of record oil prices to achieve a record of their own. Sales for the year to 30 June 2008 of $821 million, compared to $254 million for the same period last year.

AWE’s share of production from the Tui Fields offshore New Zealand came in at 1.62 million barrels for the three months to 30 June 2008. The Tui fields have produced a total of 14.2 million barrels of oil for the year to June, which exceeds original expectations.

As we have discussed in the past, the Tui fields are set to enter natural decline next year. Indeed, management expect total production from the Tui fields to fall by around 5 million barrels through to 30 June 2009. That said, Tui’s production expectations were upgraded several times last year and management’s forecast is therefore likely to be conservative.

In respect of the company’s declining production profile, AWE is still reliant on exploration success despite the ARC Energy acquisition (see FAT373 for details). However, this is reflected in a consensus 2009 price to earnings ratio of less than 5 times.

In terms of the ARC Energy acquisition, ARC shareholders approved the deal today and it will complete during the month, subject to court approval. Australian Worldwide Exploration will remain held in the Fat Prophets Portfolio.

Australian Worldwide Exploration will remain held in the Fat Prophets Portfolio.

Indophil Resources – Sell half around $1.34

As Members are aware, there are currently two offers for Indophil Resources at $1.28 per share - one from Xstrata and one from a consortium including Indophil CEO Richard Laufman and Hong Kong based Crosby Capital.

Today, Indophil announced that the consortium had formed a new company, Stanhill Resources, as the vehicle to make the formal offer. It was also announced that Stanhill was in discussions with Indophil to enhance the bid proposal.

Contrary to what’s happening out there in the market, this indicates that there is still demand to develop quality projects.

While there is no guarantee that Stanhill will come up with a higher bid, the market believes that another bid will be forthcoming. The current price of Indophil is around $1.33. With the price being slightly above the current takeover, we recommend taking some profits with a sell half recommendation.

There are some very attractive opportunities emerging in the resources sector and while there may be some more upside in relation to IRN, we believe greater upside lies elsewhere.

Therefore, a sell-half allows us to redeploy capital into heavily oversold situations while we’re retaining some exposure to capture further upside from any higher bid that emerges.