Morning Notes

09/03/2015 Argonaut Morning Note

Market Update & Important Indicators


Wall Street stocks finished sharply lower after a strong US jobs report raising expectations the Federal Reserve will soon lift interest rates. The Dow Jones Industrial Average sank 278.94 points (1.54 per cent) on Friday to 17,856.78. The broad-based S&P 500 fell 29.78 (1.42 per cent) to 2,071.26, while the tech-rich Nasdaq Composite Index lost 55.44 (1.11 per cent) at 4,927.37. The Labor Department said the US economy added 295,000 jobs in February, pushing the unemployment rate down two tenths to 5.5 per cent, the lowest level since May 2008.

The euro tumbled through the $US1.09 level to strike a fresh 11.5-year low as the ECB nears the launch of its massive stimulus package and strong US jobs data raises the possibility of a US rate hike soon. Frankfurt's benchmark DAX 30 index of top companies closed up 0.41 per cent to 11,550.97 points after reaching an intra-day record high of 11,600, while in Paris the CAC 40 rose 0.02 per cent to 4,964.35 points. On the downside, London's FTSE 100 index ended the day down 0.71 per cent to 6,911.80 points, having posted a record closing high on Thursday after the ECB announced its bond purchases will start next week. The euro tanked against the US dollar after the US Labor Department said the US economy pumped out a stronger-than-expected 295,000 net new jobs in February.

Tokyo climbed 1.17 per cent thanks to a weaker yen. The Nikkei 225 index rose 219.16 points to close at 18,971.00 while Seoul closed 0.73 per cent, or 14.56 points, higher at 2,012.9. Hong Kong gave up 0.12 per cent, or 29.04 points, to 24,164.00 and Shanghai slid 0.22 per cent, or 7.29 points, to 3,241.19, with investors subdued a day after China lowered its economic growth target for 2015.

The Australian market looks set to open markedly lower following sharp falls on Wall Street. At 0812 AEDT on Monday, the March share price index futures contract was down 64 points at 5,826. The Labor Department said the US economy added 295,000 jobs in February, pushing the unemployment rate down two tenths to 5.5 per cent, the lowest level since May 2008. In local economic news on Monday, the ANZ job advertisements series for February is due out.

In Australia, the market on Friday closed lower with a drop in iron prices prompting another retreat. The benchmark S&P/ASX200 index fell 5.3 points, or 0.09 per cent, to 5,898.9 points while the broader All Ordinaries index lost 5.1 points, or 0.09 per cent, to
5,868.6 points.

Metals on the LME were mixed with Copper & Zinc falling 0.1% to US$5,857/t and 0.5% to US1,999/t respectively. Tin, Nickel and Lead rose strongly with Aluminium flat. Gold was down 2.4% to US$1168/oz, while Iron ore fell below US$60/dmt.

In This Issue

Perseus Mining (PRU)
Despite management’s recent efforts, successfully delivering improved production and costs, Perseus (PRU) faces headwinds in the near to medium term resulting from uncertain policy from the Ghanaian government regarding grid power supply. In addition, the commencement of a population relocation program adds further risk. The near term all-in costs are expected to increase as a result, although the tendering of eastern pit contracts should result in cheaper mining rates and absorb some of the cost inflation. The existing cash and bullion balance (A$58m at 31st December) and hedging of 71koz @ USD$1,595/oz should see the Company through this high cost period. 

Regis (RRL)
Regis (RRL) has updated its Resource and Reserve at its Duketon operation. Although the overall inventory only decreased marginally (post mine depletion), grades at Garden Well, Moolart Well and Rosemont have all deteriorated significantly (see Table 1). The market was anticipating a downgrade, particularly at Garden Well. However the grades are lower than Argonaut’s forecast (~1.05g/t at Garden Well, ~1.45g/t at Rosemont). RRL have sufficient operational flexibility to ‘high grade’ a significant portion of Garden Welland Rosemont, thereby maintaining a steady ~A$750-800/oz cash cost profile at these operations for the next ~5 years. 

Recent Contacts & Presentations

Dacian (DCN), West African Resources (WAF), Northern Star (NST), Saracen (SAR), Doray (DRM), Rewardle (RXH), Doray (DRM), Alexium (AJX), Orbital (OEC), IMF Bentham (IMF), Metals X (MLX), Pura Vida (PVD), Tangiers (TPT), ABM Resources (ABU), Pacific Energy (PEA), MMA Offshore (MRM), Tox Free (TOX), Commodities Group (COZ), Pioneer Credit (PNC), Rift Valley (RVY), Austal (ASB), Ausdrill (ASL), Gage Roads (GRB), Atrum Coal (ATU)

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