Morning Notes

31/10/2017 Argonaut Morning Note

Market Update & Important Indicators
U.S. stocks inched lower at the start of a busy week set to include another round of earnings results, the monthly U.S. jobs report and policy decisions from central banks around the world. Major indexes hovered between small gains and losses at the start of the session, then extended declines throughout the trading day. The Dow Jones Industrial Average lost 0.3%. The S&P 500 fell 0.3% and the Nasdaq Composite edged down 0.1%. Analyst downgrades weighed on shares of retailers, which have come under pressure this year as foot traffic has declined at many brick-and-mortar stores. J.C. Penney slid 9.5% and Macy's lost 4.2% after Citigroup analysts changed their rating for both stocks to sell from neutral. Technology stocks climbed 0.2% in the S&P 500, extending gains from Friday that helped lift Alphabet and Microsoft to fresh highs. The day's moves put the S&P 500 technology sector's gain for the year at 35%, more than double the broader S&P 500's advance. The U.S. gold price traded higher overnight, gaining 0.2% to finish at 1,276.00 US$/oz.

European stocks scored the highest close in five months Monday, with much of the action centred around Spanish equities after the central government in Madrid took control of the Catalonia region following its push for independence. The Spanish stock gauge achieved its biggest daily percentage gain since Oct. 5, or more than three weeks ago, according to FactSet data. Meanwhile, the Stoxx Europe 600 index rose 0.1% to close at 393.91, ending at its highest level since May 16. Monday's session also saw Germany's DAX 30 index rise 0.1% to end at 13,229.57 for another all-time closing high. In Paris, the CAC 40 closed fractionally lower at 5,493.63, and in London, the FTSE 100 fell 0.2% to finish at 7,487.81.

Asian stocks pared early gains Monday amid declines in Chinese markets. Benchmark government bond prices fell to a three-year low amid concerns that Beijing will intensify efforts to cut back high levels of leverage during President Xi Jinping's second five-year term as party leader. Concerns about the bond market and a greater-than-expected number of initial public offering approvals over the weekend helped send the Shanghai Composite Index down 0.8% in its biggest daily drop since August, the Shenzhen Composite down 1.2% and Hong Kong's Hang Seng 0.4% lower. Japan's Nikkei Stock Average ended flat after seven straight weeks of gains.

Australian stocks resumed their march higher after Friday’s hit caused by the government losing its 1-seat majority following a judicial ruling. Settling in the middle of the day's range, the S&P/ASX 200 rose 0.3% to 5919.1, another near-6-month high. That leaves the index ahead 4.2% for October with a day left after having declined the prior 5 months. It's getting closer to 2017's peak, which itself was almost the index's highest level in a decade. Energy companies led broad gains today, benefiting from Friday's crude gains. Meanwhile, Macquarie hit another record in continued buying following last week's well-received F1H results.

The London Metal Exchange’s 3-month copper contract traded higher overnight, adding 0.5% to finish at $6,867/t. The other base metals finished mixed. Aluminium prices fell 0.3% to close at 2,143/t, whilst tin prices slipped 2.3% to 19,557/t. Zinc prices rebounded 1.3% to 3,271/t, while Lead prices shed 0.5% to 2,398/t. Nickel prices were stronger, closing 0.7% higher at 11,631/t.

In this issue
West African Resources (WAF) | High grade updates at M1 South and M5 | BUY
Market Cap $219m | Current Price $0.38 | Target Price $0.62

West African Resources (WAF) released a resource upgrade for its Sanbrado Project in Burkina Faso. The update included a material upgrade to the M1 South and M5 deposits which has seen total contained ounces increase by 25% to ~2.7Moz Au. Deep drilling at M1 South has extended mineralisation beyond 500m below surface and has resulted in a 150% increase in contained ounces to 747koz (vs 298koz prior) with average grades almost doubling to 14.4g/t (from 7.5g/t prior). The update to the M5 deposit saw a 6% increase in gold and a 40% increase in Indicated ores which will see a significantly higher proportion of resources into reserves. Argonaut believes this result will have a significant positive impact the project economics in the updated Feasibility due in Q2CY18. We now model larger production in our forecasts to account for the higher grade underground ores. As a result, our valuation increases to $0.62ps (prior $0.44ps) and we maintain our BUY Recommendation.

Recent Contacts & Presentations
De Grey Mining Ltd (DEG), Triton Minerals Ltd (TON), Evolution Mining Ltd (EVN), Silver Mines Ltd (SVL), NTM Gold Ltd (NTM), 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)

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