Australia

• We currently see 1 change for the ASX20 Index, 2 changes for the ASX100 Index, 4 changes for the ASX200 Index, 10 adds/7 deletes for the ASX300 Index in March.
• On average, the potential adds to each of the indices have outperformed the potential deletes with the largest outperformance for the ASX300 Index.
• Shorts have continued to increase positions on the potential deletes while covering their positions on the potential adds. We expect there are large pre-positions on some of the stocks now.

• In its earnings update, troubled Aussie casino operator Star Entertainment (SGR AU) said revenue was down 1% on pre-COVID levels, and expects FY23 EBITDA of $330mn-$360mn vs A$525mn in FY19.
• But the big news was the possible $400mn to $1.6bn non-cash impairment charge in relation to disciplinary fines from regulators and new casino duties. 
• Shares tanked and are currently trading around a lifetime low. One for the brave or one to ignore?

• Star Entertainment Group (SGR AU) scored an own goal by failing to provide an update on the balance sheet in the update on 13 February. The results are next week.   
• There is a whirlwind of uncertainty surrounding potential fines and Star is in desperate need to recapitalise its balance sheet to avoid breaching covenants. 
• Our leverage scenarios suggest an equity raise of A$250-500 million is required. Despite the share price fall, we would steer clear until the details of its equity raise are disclosed.

Since our last note on the company, Lepidico has successfully completed extensive further pilot plant trials at larger scale, raised over A$19m in equity, updated and improved the economics of its Phase 1 Plant project and updated and upgraded its mineral resources (and reserves) at Helikon 4 and on surface (in the form of dumps etc) at both Rubicon and Helikon. This note updates our valuation of the company for all of these developments plus new lithium price assumptions (below).

• We summarise the latest spreads and newsflow of merger arb situations covered by us across Hong Kong, Australia, New Zealand, Singapore, Japan, Indonesia, Malaysia, Philippines, Thailand and Chinese ADRs.
• Highest spreads – Alliance Aviation Services (AQZ AU), 21Vianet Group (VNET US), Origin Energy (ORG AU), 111 Inc (YI US), Golden Energy & Resources (GER SP), Toyo Construction (1890 JP). 
• Lowest spreads – Tyro Payments (TYR AU), Boustead Projects (BOCJ SP), Essential Metals (ESS AU), Nitro Software Ltd (NTO AU), Ihara Science (5999 JP), Nissin Electric (6641 JP).        

• There are 41 – mostly firm, mostly Asia-Pac – transactions currently being discussed and analysed on Smartkarma. Inside is a timetable of upcoming key events for each deal.
• Five new deal was discussed on Smartkarma this past week: Newmont/Newcrest; First Abu Dhabi Bank/Standard Chartered,  Boustead Projects (BOCJ SP); Ihara Science (5999 JP), and Iwasaki Electric (6924 JP).
• Key updates took place for: Nitro Software Ltd (NTO AU), Toshiba Corp (6502 JP), and Halcyon Agri (HACL SP).

• Nitro Software Ltd (NTO AU) has finally granted Potentia due diligence access until 22 February. Subject to satisfactory due diligence, Potentia could increase its offer from A$2.00 to A$2.20-2.30 per share.
• Alludo’s A$2.15 off-market takeover offer is its best and final offer. Alludo’s offer is subject to a 50.1% minimum acceptance condition (currently at 12.53%) and closes on 3 March.
• Potentia’s dogged pursuit despite the Board’s stonewalling suggests a desire to get a deal done. At the last close, the gross spread to Potentia’s potential offer is 2.3% to 7.0%.

We have raised our near-term lithium price expectations to reflect the current supply/demand cycle and upgraded our long-run (post 2031) price forecasts (from US$17,000/t to US$22,500/t LCE) to reflect lithium’s high demand growth and highly concentrated supply fundamentals. On the back of this, our valuation of Lithium Power International (LPI) has increased from A$1.24/share to A$1.42/share assuming the full project equity dilution. We have also updated our model to reflect 100% consolidation of the Maricunga project as well as LPI’s (now somewhat more dilutive) lower share price.

In a positive development for its US commercial strategy, Respiri has announced receipt of its first reimbursement claims from the Centers for Medicare and Medicaid Services (CMS) for its wheezo remote patient monitoring (RPM) programme (through one of its partners, Access Telehealth), making it the first Australian company to receive RPM reimbursement. As a reminder, a key component of Respiri’s revenue model is a monthly annuity (US$10–20/patient) derived from the CMS reimbursement to prescribing physicians and this announcement marks the first recurring revenue inflows, on top of the revenue from device sales. There are 20 patients on the RPM programme and with onboarding ongoing at multiple locations (500 prospective patients have been identified), we expect the claims quantum to rise in the near term, supporting top-line growth. We await further visibility on commercial progress before revisiting our estimates and for now keep our valuation unchanged at A$0.24/share.

Vection Technologies (VR1) reported A$4.6m in Q223 receipts, up A$0.2m q-o-q. Recent announcements of the company’s selection to develop virtual reality (VR) and metaverse technologies to promote space travel underpin the vital role partnerships play in the company’s strategy. VR1 also reported progress in commercial opportunities in defence, aerospace and service agencies, among others, all expected to bear fruit in the latter half of the current fiscal year. As such, management reiterated its FY23 revenue guidance of A$24–26m. We are encouraged by the Q223 results and maintain our FY23 forecasts.

• Newmont Mining (NEM US), the world’s largest gold miner, has pitched a non-binding, all-scrip proposal for Newcrest Mining (NCM AU), Australia’s largest listed gold company.  
• The proposal offers 0.38 Newmont shares for every Newcrest share, or an indicative Offer price of A$27.16/share, a 21% premium to last close. An earlier proposal from Newmont was rejected.
• The proposal is subject to a raft of conditions, including granting of exclusivity to Newmont, due diligence, Newmont shareholder approval, and regulatory approvals, including FIRB.

• In this insight, we take a look at the potential index changes for S&P ASX 20, 50, 100, 200, 300 in the run up to the March 2023 Rebalance.
• There could be one change for ASX 20 and one change for ASX 100 while ASX 200 could see four ADDs/DELs.
• For ASX 300, there could be 15 ADDs and 12 DELs in the March 2023 Rebalance including some high impact names based on days-to-trade.

• Newcrest Mining (NCM AU) confirmed a non-binding indicative privatisation proposal from Newmont Mining (NEM US) at 0.380 Newmont shares per Newcrest share. 
• The offer values Newcrest at a discount to Tier 1 gold producer EV/Resource multiples. Also, the offer carries the volatility risk around Newmont shares and FX rates.
• The offer underscores Newcrest’s value and helps the Board seek better terms. There is a possibility of a counterbid from other Tier 1 producers such as Barrick Gold (GOLD US).

Actinogen’s recent quarterly update confirmed that the company remains on track to start US recruitment in H1 CY23 for its six-month, placebo-controlled Phase IIb portion of the XanaMIA study. The study is designed to assess the safety and efficacy of Xanamem in a population of patients with mild cognitive impairment (CI) and mild Alzheimer’s disease (AD), who at baseline will have been confirmed as biomarker-positive for AD (as determined through elevated blood phosphorylated Tau, or pTau). The company also started enrolment in Q4 CY22 for its XanaCIDD Phase IIa study assessing Xanamem in patients with CI relating to persistent depression despite ongoing treatment with standard-of-care medications. We expect the next material clinical data milestone for the company will be the XanaCIDD results, due in late CY23 or early CY24.

• Newmont Mining (NEM US) has made an indicative, non-binding and conditional proposal to acquire Newcrest Mining (NCM AU). The exchange ratio is 0.38 Newmont shares for each Newcrest share.
• At Newmont Mining (NEM US)‘s last close, this values Newcrest Mining (NCM AU) at A$27.4/share and at an equity value of A$17.3bn, a 22% premium to the last close.
• Newmont Mining (NEM US) intends to list CDIs on the ASX following the acquisition and that will have implications for changes in the S&P/ASX family of indices.

• The Aussie local press is discussing renewed merger talks for Bendigo And Adelaide Bank (BEN AU) and Bank Of Queensland (BOQ AU).
• Talks of a merger are not new. And we have been here before when BOQ twice made overtures to Bendigo in 2007, but was rejected. 
• The swift removal of BOQ’s CEO, a lifetime high ratio – BEN/BOQ – and ANZ (ANZ AU)‘s tilt for Suncorp Bank – suggests a merger makes a lot of sense.

• Oh Baby Games said it’s working on an arcade racer that features recognizable figures. Called What The Kart, the company’s first blockchain-powered game will feature personalities from Crypto Twitter
• The startup said What The Kart will also feature streamers and different communities across the Crypto Twitter sphere.
• The game aims to mix recognizable characters with the tried-and-tested Mario Kart racing formula

AFT Pharmaceuticals continues to strengthen its R&D pipeline with the announced in-licensing agreement with Latitude Pharmaceuticals (a US-based contract research organisation) to develop antibiotic eye drops to treat serious eye infections. The formulation is already approved to treat bacterial infections, including those caused by the antibiotic-resistant MRSA bacteria. The IP relates to an aqueous stable formulation of this treatment. Eye care is a key focus for AFT (contributing over 20% of the group’s revenue, per our estimate) and we expect this new asset to complement the existing portfolio. AFT plans to launch around 65 new products in Australasia before 2025 and a robust R&D pipeline will be key to delivering this. The development programme will be covered by AFT’s budgeted R&D expenditure of c NZ$12m per year for FY23 and FY24.

Cash flow figures from Paradigm Biopharmaceuticals’ latest update show that it remains funded past key near-term inflection points. In Q223, management reported a net cash outflow from operating activities of A$7.8m (A$17.8m for the first six months of FY23), including an A$7.4m R&D tax incentive rebate, and no capital expenditure. R&D expenditure increased 54% q-o-q to A$13.2m, corresponding with ongoing recruitment and site identification for the pivotal PARA_OA_002 Phase III trial of iPPS in knee osteoarthritis and an increase in other clinical activities. With cash of A$83.9m at end Q223 and at the current quarterly burn rate (adjusted for the non-recurring R&D tax incentive, A$15.2m), management estimates that operations are funded into 2024 (5.5 quarters), past important clinical milestones in Paradigm’s osteoarthritis programme in 2023.

Kazia Therapeutics has released its Q223 activity report and provided a business update for the quarter. Q2 was marked by increased preclinical efforts towards exploring the applicability and efficacy of paxalisib in non-central nervous system (CNS) oncology indications such as melanoma and other solid tumors, including breast cancer. Post-period, Kazia announced a A$4.5m fund-raise through a two-stage private placement of 40.9m new shares (25.4m unconditional shares and 15.5m conditional shares) at A$0.11 per share. Management intends to use the proceeds to support its development programs (including the paxalisib GBM AGILE study due to readout in H2 CY23) and working capital requirements. The period-end net cash balance stood at A$4.4m and this, along with the A$4.5m fund-raise, should provide headroom into H2 CY23, based on current burn rates.