Morning Notes

01/11/2017 Argonaut Morning Note

Market Update & Important Indicators
Shares of Mondelez International, Kellogg and other food companies helped the S&P 500 edge higher intraday, putting the index on track for its best month since February. Corporate earnings continued to dictate the market's biggest moves, with companies generally being rewarded by investors when they beat expectations for the most recent quarter. More than half of S&P 500 companies already have released results and another big batch is scheduled to report this week, including Facebook on Wednesday and Apple on Thursday. The S&P 500 was recently up 0.2% and has risen 2.3% for the month so far. The Dow Jones Industrial Average added 51 points, or 0.2%, to 23399, while the Nasdaq Composite rose 0.5% and was on pace to tie its 1980 record of notching 62 record closes in one year. The U.S. gold price traded lower overnight, pulling back 0.4% to finish at 1,270.40 US$/oz.

Europe's benchmark stock index scored a more-than-five-month closing high, capping off October with a monthly gain as traders welcomed earnings reports from the likes of airline Ryanair Holdings and oil major BP. The Stoxx Europe 600 index picked up 0.3% to end at 395.22, to close at its highest level since mid-May. For October, the regional benchmark logged a 1.8% rise, marking its second monthly gain in a row. In Paris, the CAC 40 edged up 0.2% to 5,503.29, and in London, the FTSE 100 rose 0.1% to 7,493.08. Those indexes gained 3.3% and 1.6%, respectively, in October.

Buying in a tepid Asian market picked up pace in afternoon trade, with South Korean stocks accelerating gains, and China reversing losses, as the two countries sought to ease tensions by re-establishing key economic relations. The Kospi closed at its 11th closing record this month, gaining 0.9%. Helping it was index major Samsung, which reported another quarter of record profit. The Shanghai Composite Index ended up 0.1%, while the Shenzhen board rose 0.7%. Meanwhile, Apple's record high overnight boosted vendor stocks in Taiwan, sending the Taiex to a 27-year high and making this month its best since February 2016. In Japan, the Nikkei pared losses end the session flat, but was up 8.1% this month, the best monthly performance in two years. Hong Kong, though, underperformed, with the HIS down 0.3%.

Australian shares pulled back from five-month highs, letting go of early gains as miners and banks weighed. Despite the soft finish to October, it was the first monthly advance in the last six thanks to broad buying as the market played catch-up from months of underperformance. Finishing near the session low, the S&P/ASX 200 fell 0.2% to 5909 as the 2017 peak hit in early May remains elusive. The index climbed 4% for the month, and now sits 4.3% higher in 2017. For the day, Bendigo & Adelaide Bank was a drag, losing 4.8% after warning regulatory limits on lending had put the brakes on growth momentum. The big iron-ore miners retreated with a fall in the commodity price, with Fortescue losing 2.1%.

The London Metal Exchange’s 3-month copper contract traded lower overnight, losing 0.4% to finish at $6,839/t. The other base metals finished mixed. Aluminium prices fell 0.1% to close at 2,142/t, whilst tin prices slipped 0.3% to 19,505/t. Zinc prices gained 1.6% to 3,322/t, while Lead prices jumped 0.2% to 2,403/t. Nickel prices were by far strongest, closing 5.4% higher at a 2-year high of 12,257/t, as Commodities group Trafigura said they see the demand of Nickel surging for use in electric vehicles.

In this issue
MZI Resources (MZI) | Operations lifting, debt pushed back | HOLD
Market Cap $32m | Current Price $0.13 | Target price $0.38

MZI Resources (MZI) released September Q results with 22.0kt of mineral sands production, up 77% QoQ. Total cash costs were $728/dmt, down 25% on FY17, vs the realised basket price of $735/dmt. Importantly, costs are trending down while mineral sands prices have shown a consistent QoQ increase from mid-2016. While the Company’s balance sheet remains stretched, repayment of the US$21m bridging facility to Resource Capital Fund (RCF) has been pushed out to April 2018 (previously due December 2017). At September 30, MZI had $4.8m cash. Hold recommendation maintained.

Sino Gas and Energy (SEH) | On the cusp of full-scale development | BUY
Market Cap $209m | Current Price $0.10 | Target Price $0.24

Sino Gas and Energy (SEH) has provided detail on the proposed development plan for its Ordos Basin gas assets outlining staged development with Phase 1 production of 350-550MMscf/d (60-90mboe/d). This release coincides with the submission of the first Linxing (LX) ODP (Overall Development Plan) to PSC Partner CUCBM. SEH has secured up to US$100m of debt funding with Macquarie which should fund development through to positive cashflow, expected in 2020. The Company also released September Q results. Downstream issues impacted gas offtake nominations from the Sanjiaobei (SJB) Central Gathering Station (CGS), resulting is a 14% QoQ drop in production to 13MMscf/d rate. Cash and debt at 30 September were US$30.5m and US$10.0m respectively.

Vault Intelligence (VLT) | Funding the momentum / ceasing coverage | HOLD
Market Cap $26m | Current Price $0.031 | Valuation $0.033

The last two quarters has seen VLT successfully execute on its new sales and business development strategy. Further, the recent $4.5m capital raise ensures these efforts can continue. Our forecasts are based on steady growth in SaaS revenue (as per Company targets), however it will be some time in FY19 before inflows exceed outflows in our view. This, together with a blended valuation of $0.033 (prior $0.035) that is close to the current share price, means a hold call remains appropriate.
We are ceasing coverage on issue of this note, as part of an industrial research re-focus.

Recent Contacts & Presentations
Gold Road Resources Ltd (GOR), Apollo Consolidated Ltd (AOP), 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)

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