Monsters of Rock: What to look out for in September quarterlies

Reporting season gets going in earnest with Rio and Evolution rolling out their results
But it can be hard to know what to look out for in a manic period for ASX large cap miners
RBC has rolled out a string of recommendations and things to look out for as miners drop their September quarter numbers

Rio Tinto (ASX:RIO) got September quarterly reporting season off to a sour note today, flagging inflationary pressure and a review of its iron ore sales strategy as the mining super beast wrestles with an uncertain timeline to revitalise its higher quality Pilbara assets.

But Evolution Mining (ASX:EVN) delivered some comfort food with a strong September quarter which set the already hot gold and copper producer up for an on spec FY25.

That came largely without surprises, at least on the EVN side. Don’t want to be caught out? We’ve checked out the latest numbers from RBC to see how large cap miners are expected to fair as October plays out.

Bulks, copper and lithium

For those expecting much more from BHP (ASX:BHP) than Rio, analysts are flagging a mild September quarter, with RBC flagging maintenance impacts that will keep WA Iron Ore shipments around 72Mt and other commodities muted.

RBC doesn’t see impacts from a derailment but thinks copper volumes will be weighted to the second half, the Samarco project in Brazil to increase volumes and met coal exports down around 9% QoQ based on export data. Iron ore price realisation against the 62% Fe benchmark will be a focus, RBC said.

Fortescue (ASX:FMG) meanwhile is expected to see improved realisations with lower volumes of lower grade super special fines shipped, though hematite shipments were forecast to fall QoQ because of maintenance and against a strong June quarter.

Across the lithium names, RBC expects to see Pilbara Minerals (ASX:PLS) drop as it ties in its new Pilgangoora ore sorter but still thinks shipments will run to the top end of annual guidance on a 12-month extrapolation, but thinks price realisation for its lower grade SC5.2 spodumene concentrate and capex spend could bite when it comes to cash out the door.

Mineral Resources (ASX:MIN) is set to deliver lower lithium volumes after responding to price crunches by moderating Wodgina and Mt Marion, but higher iron ore shipments and mining services volumes with the ramp up of its 35Mtpa Onslow Iron project. Lithium grade discounts and production plans will come into focus here, especially after Chris Ellison’s doomsday chatter on the company’s full year results on the state of the lithium market.

READ: ‘No one is making money in lithium’ says big dog Ellison as MinRes cuts back

Meanwhile IGO (ASX:IGO) is expected to deliver higher spodumene production from the Greenbushes mine in WA but weaker EBITDA on pricing, while RBC sees grades and nickel/copper output at the Nova mine lifting also, with RIO takeover target Arcadium Lithium’s (ASX:LTM) ramp up of the Olaroz project the most pertinent focus point with its share price effectively set by the merger offer of US$5.85/sh.

RBC is watching for lower costs at Sandfire Resources (ASX:SFR) as its Motheo mine in Botswana expands, while insurance, approvals and remediation updates on the flooded Capricorn mine in Queensland as well as cash burn will be placed under the microscope in the 29Metals (ASX:29M) report.

Diversified producer South32 (ASX:S32) is also expected to deliver a first quarter impacted by maintenance, but RBC sees higher alumina and aluminium output in the quarter.

RBC’s analyst team of Kaan Peker, Paul Wiggers de Vries and Alex Barkley say the first quarter presents limited risks on guidance, though most miners outside the gold universe are expected to report weaker production with maintenance overlays, with an average decline tipped of 4% QoQ.

“The recent rally in commodity prices should help realised pricing in the DecQ, although for the SeptQ we forecast low QoQ price realisation and low FCF before improving in sequentially and into CY25, which is a tailwind,” they added.

“Also to note, we expect miners have passed the point of cost inflation and now have costs under control, which are also supportive of FCF generation.

“After the recent rally, valuations appeal has diminished across the sector, however we still see value across select equities.

“We have Outperform ratings on SFR, MIN, PLS, IGO, ALTM, FMG and S32, Sector Perform ratings on BHP and RIO, but have a relative preference for BHP in Aus, and maintain our preference for base and battery metals over bulks.”

And now for gold

RBC meanwhile sees value broadly across the gold sector, with a rising Aussie dollar gold price (close to $4000/oz) meaning there remains plenty of slack for miners to pull on as investors cotton onto the arbitrage.

“In 2024, our gold coverage (+7% ex-SBM) has underperformed AUD gold (+30%). This has presented broad-based value. Producers in our coverage have FY25e EV/EBITDAs ~20% below historical three-year averages, and multiple stocks have FY25e FCF yields >10%,” Barkley, Peker, Wiggers de Vries and Keven Potisomporn said.

“We expect YTD equity underperformance is largely driven by scepticism in company forecasts.

“However, we maintain our view that FY25 guidance should prove more achievable than prior years, which could warrant a catch-up in equity performance.

“Ahead of Q1 results, some more gold-leveraged mid-caps have relatively strong opportunities. We rate at Outperform: NST, RRL, WGX, DEG and BGL. Our Underperforms are EVN and GOR.”

Evolution delivered a solid set of numbers today as first cab off the rank, beating consensus by 3% despite falling 9% shy of its unusually strong June quarter output of 212,000oz.

RBC thinks the fact copper has underperformed gold and makes up 30% of EVN’s valuation puts it at a disadvantage to other gold names.

Northern Star Resources (ASX:NST), which regularly backloads its production to the latter part of the financial year, could be a disappointment, with RBC predicting a 4% production miss against consensus after a series of mill shuts including a five week outage at Pogo in Alaska.

Regis Resources (ASX:RRL) and Westgold Resources (ASX:WGX) have pre-released the important numbers, while the former Red 5/Silver Lake Vault Minerals (ASX:VAU) has set modest guidance, with RBC looking out for a reserve upgrade that could show how the Deflector mine will fare in the years ahead.

RBC is expecting a recovery of sorts from Gold Road Resources (ASX:GOR) at its half-owned Gruyere mine, predicting a 17% QoQ lift in output to 73,000oz (consensus 78,000oz) and rise again in Q4 to 91,000oz, giving it and operator Gold Fields a shot of hitting revised CY24 guidance of 290,000-305,000oz.

Among the smaller or earlier stage mid-tier gold stocks, RBC says De Grey Mining (ASX:DEG) could provide updates on studies at its proposed Hemi gold mine, including underground potential, while Bellevue Gold (ASX:BGL) is expected to see gold production fall 16% QoQ as it enters a lower grade area of its eponymous gold mine.

St Barbara (ASX:SBM) is predicted by RBC to up its gold production 10% at the Simberi mine in PNG but still have elevated costs, with Simberi’s sulphide expansion a key focus.

In general, RBC thinks tepid guidance expectations and lower inflation will help miners perform against forecasts, with mid-tiers potentially in a position to claw back valuations against runaway large caps.

“QTD, large caps NST and EVN have outperformed midcaps by ~20%. However, we expect they could have relatively softer Q1 results,” RBC said.

“Additionally, mid-caps are typically more levered to gold given slimmer margins and lower perceived asset quality. This could offer more catch-up potential to the rising gold price. Among our Outperform recommendations, RRL, WGX and DEG all offer un-hedged gold exposure.”

Gold prices closed in on $4000/oz in the afternoon, with the sector rising 2.59% as the broader materials sector lost 0.44%.