Morning Notes

20/10/2017 Argonaut Morning Note

Market Update & Important Indicators
U.S. stock indexes retreated from records Thursday, weighed down by a stream of downbeat earnings. The day's moves marked a pause for stock indexes after they rose to fresh highs Wednesday. The Dow Jones Industrial Average was off less than 0.1% in the last half-hour of trading, dragging down by index heavyweights like Apple, Boeing and Goldman Sachs Group. Apple fell 2.6% following reports that a new cellular feature on the Apple Watch was disabled in China. The S&P 500 fell 0.1% and the Nasdaq Composite lost 0.4%, pressured by declines in technology stocks. The U.S. gold price traded higher overnight, rebounding 0.7% to finish at 1,289.70 US$/oz.

An escalation of political tensions in Spain, a clutch of disappointing corporate updates and concerns about growth in China prompted investors to yank European stocks to their lowest close in nearly three weeks. The Stoxx Europe 600 index fell 0.6% to 389.11, its lowest close since Sept. 29, according to FactSet data. Consumer goods and services shares lost the most, but the technology and utility sectors swung higher. In Madrid, the IBEX 35 dropped 0.7% as the Spanish government said it will move to suspend autonomous rule in the Catalonia region, after Catalan leaders failed to renounce their push for independence. Germany's DAX 30 index declined 0.4%, pulling back from Wednesday's all-time closing high. France's CAC 40 moved 0.3% lower to 5,368.29, but pared a deeper decline. In London, the FTSE 100 shed 0.3%.

Asian shares ended lower with several markets that had recently run up suffering from bouts of profit-taking. The Hang Seng Index finished down 1.9% after having fallen to a 16-day low, with Geely Auto and property, banking and tech shares witnessing selling. In mainland China, the Shanghai and Shenzhen Composites ended down 0.3% and 0.8%, respectively, after early bearishness extended on China's GDP growth slowing. The Kospi closed down 0.4% with index major Samsung Electronics off by 3.3%. Exceptions were the Nikkei and the Taiex, which both rose 0.4%.

Mining stocks lost the day's tug of war against banks and other sectors, leaving the market up just modestly to extend the run higher to a ninth session in the last 10. With a late recovery, the S&P/ASX 200 settled 0.1% higher at 5896.1, its highest in more than five months. Several of the big banks did much of the heavy lifting, with ANZ climbing 0.8% after it added to recent disposals with an agreement to sell out of a credit-card venture in the Philippines. Meanwhile, miners pulled back as iron-ore futures fell sharply on worries over Chinese demand, with BHP Billiton, Rio Tinto and South32 each down more than 2%.

The London Metal Exchange’s 3-month copper contract traded lower overnight, falling 0.5% to finish at $6,990/t. The other base metals finished mixed. Aluminium prices lost 0.7% to close at 2,102/t, whilst tin prices dropped 1.3% to 20,160/t. Zinc prices rebounded 2.2% to 3,179/t, while Lead prices added 1.3% to 2,507/t. Nickel prices slipped overnight, closing 1% lower at 11,586/t.

In this issue
Sandfire Resources (SFR) | September Q Results | HOLD
Market Cap $943m | Current Price $5.97 | Target Price $6.10

Sandfire Resources (SFR) released September Q results with 15.3kt copper and 10.7koz gold in concentrate, down 11% and up 10% respectively QoQ. Production was impacted by planned outages and elevated talc in ore which affected copper recoveries. C1 cash costs remained low at US$0.95/lb. During the Q, development commenced on the Monty underground with the first cut into the decline and first ore from this mine is expected in ~12 months. Cash declined $10m to $117m after a ~$20m dividend payment during the Q. While SFR has strong tailwinds from rising copper prices, negligible debt and low capital commitments, we remain concerned with the lack of exploration success in the Doolgunna region and the limited mine life. Due to share price gain we downgrade to HOLD (from BUY) with a $6.10 target.

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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