Copyright 2026 First Samuel Limited
Read the previous Investment Matters here:
Bond yields, budget fallout, two companies that had a very bad Monday (that are not portfolio companies) and updates from two portfolio companies.
- Bond markets push back on the optimists
- Federal Budget: the fallout deepens
- Brambles and Elders: two very different disasters
- Worley: 2026 investor day
- Ora Banda: DRIVE to 300
Global Bond Market
Whatever optimism the prospect of Middle East de-escalation has managed to generate, global bond markets have been methodical about limiting it. [para]
The 30-year US Treasury yield touched 5.2% this week. Its highest level since 2007 — as rising oil prices stoked inflation concerns and drove expectations of tighter monetary policy. Money markets are now pricing an 81% chance of a further US Federal Reserve rate rise before year end. The message from fixed income is not subtle: the war may be moving toward a ceasefire, but the inflation it has generated is not.
Figure #1 US 30-Year Government Bond Yield
Source: Macquarie Research
Closer to home, the Federal budget continues to generate the kind of uncertainty that tends to freeze activity before it redirects it. The decision to scrap negative gearing on residential investment properties and introduce a minimum 30% capital gains tax rate is reshaping expectations across several sectors. The major banks are navigating a deteriorating outlook that Morgan Stanley described this week as among the most rapid shifts in operating conditions seen in the past 25 years, outside of COVID — a combination of three RBA rate hikes, the budget’s property-related changes, and the ongoing energy shock creating a materially different environment for credit demand and earnings.
Two other companies (not owned in client portfolios) provided a reminder this week that stock-specific risk is never far away, regardless of the macro backdrop.
Brambles fell 20% — its worst single day in nearly 25 years — after revealing an unexpected US$60 million earnings hit caused by a shortage of pallet repair workers in Texas and the north-eastern United States. The exit of two subcontractors mid-contract, attributed in part to the flow-on effects of reduced US immigration, exposed just how concentrated Brambles’ US repair capacity had become: 85% outsourced, in a region that accounts for 40% of volumes. The irony is not difficult to appreciate — a company whose business is the smooth movement of goods through global supply chains, caught out by the very labour shortages its own pallets help others absorb.
Elders fell 22% on the same day, for entirely different reasons. The first-half result missed expectations not on revenue — which rose 32%, partly reflecting the Delta Agribusiness acquisition — but on costs. Corporate expenses were up 41% on the prior half, driven by an IT systems modernisation program that is running longer and costing more than planned. The result landed into a market already priced for simplicity, with the budget’s property tax changes adding another layer of uncertainty to Elders’ real estate business. These two company examples are included as illustrations of an environment where execution risk is high, cost pressures are broad, and the market’s patience with complexity is thin.
And we look at two portfolio company updates that delivered significantly better news than Brambles and Elders.
Portfolio company updates
Worley: owning the physical complexity behind the next capex cycle
Worley is not a fashionable company. It does not make chips, own data centres, mine critical minerals, generate electricity or sell software. It does something less glamorous but often more valuable: it helps large industrial customers work out what needs to be built, how to build it, how to manage the risk, and increasingly how to deliver the whole project.
That sounds prosaic. It is also why we own it.
The world is entering a long period of complicated capital spending. Energy systems need to be rebuilt. LNG still needs to be developed. Power grids need to be expanded. Data centres need electricity, cooling, water, permitting and physical engineering. Critical minerals need mines, processing plants, ports and infrastructure. Nuclear is re-emerging. Industrial customers are trying to decarbonise existing assets without breaking them. Governments want energy security, lower emissions, domestic supply chains and more resilient infrastructure.
The first chart below captures this point well. It shows that Worley is not relying on one narrow end market or one heroic forecast. The company sits across several large capital pools: energy security, energy transition, AI infrastructure, electrification, critical minerals and infrastructure resilience. That breadth is important. It means Worley does not need every theme to work at once. It simply needs the world to keep spending on difficult physical assets.
Figure 2#: Worley: Megatrend opportunities
Source: Worley Investor Day presentation 2026
This is exactly the kind of world in which Worley should matter more, not less.
The company’s May 2026 Investor Day made the case that Worley is shifting from being viewed as an engineering services business to something closer to a full-cycle project delivery partner. That distinction matters. Early-stage engineering and design work is useful, but it captures only a small portion of a project’s total spend. The much larger pool of money sits in execution: procurement, construction management, sequencing, project control and delivery.
This is where the second image is useful. It shows the scale of the opportunity beyond Worley’s traditional energy, chemicals and resources base. Complex Critical Infrastructure — data centres, power, nuclear, industrial water and ports — more than doubles the company’s addressable market. Just as importantly, these are markets where customers are not mainly buying cheap labour. They are buying certainty, experience and the ability to manage difficult interfaces.
Figure 3#: Worley: Market Drivers
Source: Worley Investor Day presentation 2026
That is the centre of the investment case. Worley can participate in a much larger share of customer capital expenditure without becoming a balance-sheet-heavy contractor. It wants more of the project lifecycle, but not the dumbest form of project risk.
The market appears unconvinced. Some of that caution is understandable. Worley has exposure to energy markets, customer delays, geopolitical disruption and large industrial projects that can move slowly. FY26 is also not a clean earnings year, with Middle East disruption likely to hold back EBITA growth. But that is also the opportunity. The share price appears to be pricing Worley as a cyclical engineering business at the very moment the company is trying to become a more valuable, more embedded and more technology-enabled delivery platform.
There are three reasons this matters for us.
The first is that Worley’s end markets are not narrow. The company has historically been associated with energy, chemicals and resources. That remains important, but the addressable market is expanding. Complex Critical Infrastructure is becoming a much larger part of the story. These markets are growing faster than traditional energy and resources work, and they play directly into Worley’s skill set: large projects, difficult interfaces, engineering complexity and customer need for certainty.
The data centre opportunity is a good example. The popular imagination sees data centres as servers and GPUs. In practice, the bottlenecks are often physical: power availability, grid connection, backup generation, water, cooling, land, construction sequencing and delivery risk. These are not pure technology problems. They are industrial infrastructure problems.
That is why Worley’s partnership with Nvidia is more than marketing. It links Worley to one of the central investment themes of the moment, but in a grounded way. Worley is not trying to become an AI company. It is trying to become one of the companies that helps AI infrastructure get built. That is a very different, and potentially more durable, role.
The second reason is AI. We are wary of companies that mention AI as a slogan. Worley’s case is more practical. AI is being used in vendor selection, procurement, planning, construction sequencing, digital rehearsal and back-office processes. The point is not simply to remove people. The better prize is to deliver projects with more certainty, fewer errors, better sequencing and better margins.
Embedding AI into Worley helps explain why the business may be able to move deeper into EPC and EPCM work without accepting the margin dilution or execution risk that investors usually fear. In a business where delay and rework can destroy value, better project control is not cosmetic. It is a source of competitive advantage.
Figure 4#: Worley: Integrated digital solutions and AI – Across the asset lifecycle
Source: Worley Investor Day presentation 2026
The third reason is capital discipline. Worley is not asking investors to fund a heroic acquisition strategy or a large balance-sheet build-out. The company is targeting cash conversion above 85%, keeping leverage at or below 2.0x, maintaining investment-grade credit metrics and returning surplus capital. The cost-out program is also running ahead of the original target, with $95 million already actioned and a further $25 million underway. The new $300 million buyback, following the earlier $500 million program, is a useful signal. Management can see what we can see: the market is not giving full value for the quality of the platform or the durability of the opportunity.
The final picture, showing valuation or market discount, should be placed close to this point rather than left as a stand-alone exhibit. It makes the investment case sharper. We are not being asked to pay a premium multiple for a flawless story. We are buying a company exposed to several long-duration capital cycles, with a stronger delivery model, improving cost discipline and a growing role in complex infrastructure, while the market still values it as a more ordinary engineering business.
The backlog also gives comfort. At March 2026, Worley’s backlog was $16.9 billion. The project pipeline includes more than 150 EPC/EPCM opportunities, with more than 80 classified as major projects. Recent wins across LNG, gas and infrastructure show the strategy is not theoretical. The business already has the customer relationships, technical base and global footprint required to compete for this work.
The investment case does not require everything to go right. Worley does not need every energy transition project to proceed on time. It does not need data centre capex to be valued like software. It does not need nuclear to become the dominant energy source. It simply needs large industrial customers to keep spending on complicated assets — and to keep preferring experienced partners who can help them reduce execution risk.
That seems a reasonable assumption.
The risks are clear. Large projects can be delayed. Energy markets can pause. Customers can defer decisions. Margins need to be protected as Worley moves deeper into delivery. Management must remain disciplined and avoid the temptation to chase revenue at the wrong price. The company’s insistence on avoiding competitively bid lump-sum turnkey work is therefore not a footnote. It is central to whether this strategy creates value.
For us, Worley is attractive because it combines three features that rarely sit together comfortably: structural growth, capital-light delivery and a discounted valuation. The pictures in this report help tell that story. The first shows the breadth of the capex cycle. The second shows the expansion of the addressable market. The third shows how AI can improve delivery, not just reduce cost. The final valuation image shows why the opportunity is still available.
Figure 5#: Worley historical trading multiples: Significant discount to long run average
Source: UBS Research
Worley is not the most exciting company we own. It may be better than that. It is a practical way to own the physical complexity behind many of the world’s most important investment themes — at a price that still appears to assume a much more ordinary business.
Ora Banda Mining (ASX: OBM) – Update Note, May 2026
When we flew into Davyhurst in February, the dominant impression was of scale and optionality — a district-scale gold system still working through its ramp-up, led by a management team with the right instincts and a growing body of exploration success to work with. The investment question we posed then was how effectively Ora Banda could convert its geological endowment into profitable ounces. Three months on, the company has answered that question with some conviction.
The news released on 18 May is the most significant capital decision in the company’s history. OBM’s board has approved construction of a new standalone 3.0 Mtpa processing plant at Davyhurst for A$375 million, with works commencing in early FY27 and commissioning targeted for the March quarter 2028. Paired with the existing 1.2 Mtpa mill, this lifts combined nameplate milling capacity to 4.2 Mtpa — a 250% increase from where the business sits today — and is the structural enabler of the company’s aspirational “Drive to 300” target of approximately 300,000 oz per year. A third underground mine at Waihi has also been approved for A$90 million, with portal development scheduled for 2Q FY27 and steady-state production targeted from 1Q FY28, which came in slightly ahead of our prior estimates.
The timing of these decisions matters more than it might first appear. One of the central concerns we raised in February was the cost structure during the transition period. AISC(All In Sustaining Costs) of A$3,505/oz in the most recent quarter was uncomfortably elevated, driven by heavy reliance on high-cost third-party milling while OBM’s own processing capacity remained constrained. Management framed this as transitional, and the approval of the new mill is precisely the mechanism by which that problem gets resolved. Third-party milling is expected to cease in early 2Q FY27. The removal of toll treatment costs, combined with the economies of scale a 4.2 Mtpa operation delivers, should produce a meaningful step-down in AISC from FY28 onwards. The market has been willing to look through current costs; the task now is to execute.
Figure 6#: Ora Banda 3-year production pathway (koz Au)
A = Actual | G = Guidance (FY26 low-end) | O = Aspirational growth outlook. Drive to 300 is an aspirational target; the Company does not yet have reasonable grounds to believe this can be achieved. Source: Ora Banda Mining, May 2026.
Funding the program is a genuine point of strength. OBM held A$232 million in cash at 31 March 2026, carries no debt, and has upsized its revolving credit facility to A$200 million — all undrawn — for total available liquidity of approximately A$432 million. The capital commitments are substantial: A$375 million for the new mill, A$180 million in infrastructure upgrades over three years, A$90 million for Waihi Underground, and A$75 million per annum in exploration. That is a large concurrent workload for a company of this size. But the cash generation has been materially ahead of where it stood twelve months ago — A$147.5 million added in the first nine months of FY26 after reinvesting A$160 million into growth — and management’s stated intention is to fund the program without recourse to equity.
On the resource and reserve side, the momentum that was building during our February visit has continued without interruption. Total Mineral Resources now stand at 3.57 Moz, up 69% year-to-date in FY26, driven primarily by the rapid development of the Round Dam system — which has grown from a modest prospect to a 1.33 Moz resource in the space of a single drilling campaign — and meaningful additions at Waihi. Ore Reserves have grown 247% since FY23 to 555 koz, with 319 koz of net additions after depletion in the most recent update alone. The pace of reserve conversion is impressive and provides genuine confidence that the feed required to justify the new mill actually exists in the ground.
Round Dam itself has moved from exploration target to a project with a completed pre-feasibility study. The PFS outlines an initial eight-year open pit operation centred on the Walhalla–Federal Flag corridor, mining 13.5 Mt at 1.7 g/t for 724 koz at 95% metallurgical recovery. A final investment decision is expected in the second half of FY27. If it proceeds on that timeline, Round Dam becomes the baseload open pit feed that underpins the new mill’s capacity utilisation through FY28 and FY29 — the missing piece that transforms the expansion from ambitious to executable.
Figure 7#: Indicative ore contribution by source (kt)
*Round Dam pending final investment decision | **Historical LG stockpiles. Aspirational ore contribution, pending final outstanding Board approvals. Not production targets or forecasts. Source: Ora Banda Mining, May 2026.
Elsewhere across the district, Sand King continues to perform ahead of its original development case. Commercial production was declared in early March quarter 2026, and output grew 25% quarter on quarter. Recent drilling in the northern corridor has returned strong high-grade intercepts, and the system remains open in all directions, suggesting the current reserve of 84 koz substantially understates the asset’s longer-term potential. Riverina continues to extend at depth, with mineralisation now confirmed beyond 1,000 metres below surface. And Little Gem — the greenfields discovery the geologists were clearly excited about when we walked the tenements in February — has now expanded to over 1,500 metres of strike and 750 metres of vertical extent, with a maiden resource estimate targeted for 2Q FY27.
The picture that emerges is of a company that has moved decisively from studying its options to committing to them. In February, the investment case rested on the conversion of geological optionality into production and earnings at some future point. The decisions announced in May represent that conversion beginning in earnest. The capital is committed, the timeline is defined, and the exploration pipeline that underpinned our original optimism has continued to deliver.
The risks, of course, remain real. A large concurrent capital program in a remote location carries meaningful execution risk. Costs need to prove their transitional nature as third-party milling unwinds. And the “Drive to 300” aspiration is precisely that — OBM is explicit that it does not yet have reasonable grounds to treat it as a production target. But the direction of travel is clear, the balance sheet is sound, and the leadership team under Luke Creagh has now demonstrated it can make decisions at the right time and at the right scale.
We maintain our positive view. The bar for delivery is higher today than it was in February. But the company is stronger and appears more capable than ever.
Figure 8#: Ora Banda Mining Ltd. Share price chart
Source: IRESS / ASX
The information in this article is of a general nature and does not take into consideration your personal objectives, financial situation or needs. Before acting on any of this information, you should consider whether it is appropriate for your personal circumstances and seek personal financial advice.