Morning Notes

18/10/2017 Argonaut Morning Note

Market Update & Important Indicators
The Dow Jones Industrial Average briefly crept above 23000 for the first time Tuesday, buoyed by gains in shares of health-care companies. The blue-chip index crossed the milestone in intraday trading before paring gains. The index was 0.1% higher in the last half-hour of trading, just below the 23000 mark, while the S&P 500 edged up less than 0.1% and Nasdaq Composite slipped less than 0.1%. Corporate earnings have helped boost major stock indexes to fresh highs in 2017, and the third quarter is on track to provide more fuel to the market's rise, analysts say. At the end of last month, analysts expected earnings at S&P 500 companies to rise 4.2%, according to FactSet. Earnings aren't the only driver of major indexes in 2017. Market optimism also is pushing stocks higher, thanks to solid economic growth across the globe, analysts say. Though some investors worry stocks are trading at prices that are high compared with the earnings generated by companies, others are willing to brush off these valuation concerns because of this positive global growth. The U.S. gold price traded lower overnight, falling 0.7% to finish at 1,284.80 US$/oz.

European stocks ended a bouncy day in negative territory, as traders digested a mixed bag of earnings reports, with health-care stocks and Merlin Entertainments the hardest hit after results. Shares of Credit Suisse Group gained on reports an activist investor is seeking a breakup of the Swiss bank after acquiring a stake. The Stoxx Europe 600 lost 0.3% to end at 390.44, after swinging between gains and losses for most of the session. The U.K. FTSE Index closed down 0.1%, at 7,516.

Caution prevailed in some Asian markets Tuesday after this month's noted gains, though others still continued to rise. Chinese stocks moved little ahead of Wednesday's start to the Party Congress. Japan's Nikkei rose 0.4%, notching an 11th-straight day of gains. Gains in South Korea and the Philippines were enough for record closing highs in those locales. Taiwan dropped 0.5%.

Big banks and commodity companies again led broad gains by Australian stocks, pushing the market to fresh five-month highs. The S&P/ASX 200 rose 0.7% to 5889.6, with only utilities in the red as AGL Energy retreated. The index is up 4.2% in rising seven of the past eight sessions, putting it within reach of 2017's closing high set in early May. Rio Tinto rose 1.3%, hitting another 3 1/2-year high, following the release of largely-as-expected quarterly production numbers while Oil Search added 0.4% amid record quarterly output. Commonwealth Bank led the major lenders with a 1.4% gain, while ANZ advanced 0.6% following its deal to sell a large chunk of its wealth-management business.

The London Metal Exchange’s 3-month copper contract pulled back overnight, sliding 1.5% to finish at $7,027/t. The other base metals finished mostly lower. Aluminium prices gained 0.2% to close at 2,115/t, whilst tin prices dropped 1.2% to 20,429/t. Zinc prices lost 3.7% to 3,110/t, with Lead prices slipping 2.1% to 2475/t. Nickel prices paused overnight, closing 0.9% lower at 11,703/t.

In this issue
Kidman Resource (KDR) | Integrated Lithium Developer – Snapshot | SPEC BUY
Market Cap $482m | Current Price $1.31 | Target Price $1.90

Kidman Resources (KDR) only discovered lithium on its Mt Holland Project in 2016, however the quality of the Earl Grey deposit has warranted expedited development and attracted investment from SQM, the largest lithium producer globally. The maiden resource of 128Mt @ 1.44% Li2O unveiled Earl Grey as one of the largest and highest grade hard rock lithium deposits globally. It benefits from thick, high-grade, shallow dipping mineralisation situated on a granted Mining Lease (ML). SQM has agreed to a US$110m investment for a 50:50 joint venture (JV) with the aim of producing an integrated spodumene concentrator and lithium hydroxide/carbonate (LiOH/Li2CO3) operation.

OZ Minerals (OZL) | Making cash while the sun shines | BUY
Market Cap $2,440m | Current Price $8.52 | Target Price $8.75

OZ Minerals (OZL) released September Q results with 28.9kt Cu and 29.2koz gold at total cash costs of US$1.10/lb, versus Argonaut’s forecast of 27.0kt Cu and 31.1koz gold at US$1.05/lb. Operations performed strongly with underground output up 15% and open pit strip ratios decreasing from 0.5:1 to 0.4:1. Cash generation was strong with $14m added to the balance sheet after ~$100m in dividend payments, Carrapateena capital and significant changes in working capital. Carrapateena development is progressing according to plan with total decline development reaching 3,017m and long lead plant items ordered in October. Upgrade to BUY recommendation with a revised $8.75 target price.

Recent Contacts & Presentations
Gascoyne Resources Ltd (GCY), Southern Cross Electrical Ltd (SXE), MOD Resources Ltd (MOD), Meteoric Resources NL (MEI), Emmerson Resources Ltd (ERM), Gage Roads Brewing Ltd (GRB), Otto Energy Ltd (OEL), Whitebark Energy Ltd (WBE), MZI Resources Ltd (MZI), Gascoyne Resources ltd (GCY), NTM Gold Ltd (NTM), Novo Resources Ltd (NVO:TSX), Alice Queen Ltd (AQX), Melbana Energy Ltd (MAY), TOX Free Solutions Ltd (TOX), Artemis Resources Ltd (ARV), Apollo Consolidated Ltd (AOP), Vault Intelligence Ltd (VLT), Fleetwood Corp Ltd (FWD), DTI Group Ltd (DTI), Calima Energy Ltd (CE1), Austal Ltd (ASB), Indoor Skydive Australia (IDZ), OZ Minerals Ltd (OZL), NorWest Energy Ltd (NEW), Berkut Minerals Ltd (BMT), Draig Resources Ltd (DRG)

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