Market Update & Important Indicators
Stocks were poised to end a turbulent stretch with their worst monthly losses in years, driven by concerns over China and the timing of a U.S. interest rate rise. China's unexpected devaluation of its currency earlier in August amplified worries about a slowdown in the world's second-largest economy, which pummelled global stocks, commodities and emerging-market currencies. Investors also grappled with the prospect of the U.S. Federal Reserve pushing ahead with raising rates from rock-bottom levels, which have provided support for financial markets across the globe in recent years. The Dow fell 0.7% to 16,528 and the S&P 500 lost 0.8% to 1,972.
Australian shares failed to carry last week's momentum into Monday, with a fresh fall closing out the weakest month for the market since the global financial crisis. After rising over the last four sessions, the S&P/ASX 200 dropped 1.1% on Monday to 5207.0, with all industry subindexes in the red for the day. That left it with an 8.6% drop for the month, the sharpest fall since October 2008.
Asian stock markets closed their worst monthly performance in more than three years in August, as shares struggled to recover from a global selloff sparked by worries about China. The Shanghai Composite Index ended down 12.5% this month, its third straight month of declines, and a close runner-up to July's 14% loss, which was the index's biggest monthly drop since August 2009.
The pan-European Stoxx Europe 600 index closed 0.1% lower and fell 8.5% in August, its worst monthly loss in four years. It was a bank holiday in the UK.
The LME was shut overnight. Gold rose marginally, up 0.1% to US$1134/oz overnight, while brent rose 8.2% to US$54.15/bbl. This brings the three day rise to 27% as the OPEC said it was looking to achieve “fair and reasonable prices”.
In This Issue
Orbital (OEC) | SPEC BUY
OEC enters FY16 as a rebranded and reorganised business that is keenly focused on commercialising its significant IP. Propulsion system supply into the small unmanned aircraft market and the sale of remote power isolation systems are the two growth options most advanced, however we expect the rebranded Accelerator segment will incubate additional growth options for the future. Speculative buy call maintained.
Perseus (PRU) | HOLD
Perseus (PRU) reported FY15 financial results, including NPAT of A$92.2m and FCF of A$46.6m. Foreign exchange movement of A$20.2m further contributed to a strong cash balance of A$103.7m (cash and bullion A$127.3m, nil debt) by FY15 end. These results are largely in-line with Argonaut’s expectation (see Table 1 below) and positioned the Company for Sissingue development (Board decision scheduled for December 2015). With a scalable production base and sizable inventory, the stock offers significant leverage to the gold price. Near term, the Company’s hedgebook (balance of 149.5koz @ US$1,239/oz as at 27th August) and cash balance offer downside protection. Argonaut downgrades the stock to a HOLD (was BUY) given recent share price performance, which is approaching our target price of A$0.40.
Troy (TRY) | BUY
Troy Resources (TRY) reported FY15 financial results including NPAT of –A$100m (including non-cash impairments of A$92m net of income tax) and FCF of –A$71m (including ~A$76m spending in Guayana). These figures highlight the ongoing challenges at Casposo in Argentina including rampant inflation (at ~38%), lack of matching currency depreciation and a weak silver price. Argonaut’s valuation on Casposo remains nominal at ~A$5m, and we anticipate the Company to examine all options (including divestment and care and maintenance) for the project. The high grade Karouni Project in Guyana remains the key valuation driver. The project has commenced dry commissioning and is expected to deliver first production late September / early October. An A$12m regional exploration program is scheduled to commence at the same time. Argonaut maintains a BUY recommendation and A$0.60 target price.
Doray (DRM) | BUY
Doray (DRM) announced a funding package for its Deflector gold / copper project, consisting of ~A$60-65m of debt and ~A$26m equity. Combined with the existing cash and anticipated cash flow from Andy Well, this amount should be sufficient to cover the Deflector pre-development capex of A$88.2m. First production from Deflector is expected mid-CY16. The project will double DRM’s production profile to ~160kozpa and lower group AISC. The anticipated equity raising removes a key overhang on the stock, and a reinvigorated exploration effort should be well received by the market. BUY recommendation maintained with an A$0.70 (was A$0.71) target price.
Recent Contacts & Presentations
Resolute (RSG), Rift Valley (RVY), Pacifico (PMY), Kingsgate (KCN), Troy (TRY), Tox Free Solutions (TOX), GR Engineering (GNG), Austal (ASB), Northern Star (NST), Sandfire (SFR), Regis (RRL), Saracen (SAR), Sino Gas & Energy (SEH), Dacian (DCN), Buru Energy (BRU), Carnarvon Petroleum (CVN), Otto Energy (OEL), Empire Oil & Gas (EGO), Pura Vida Energy NL (PVD), High Peak Royalties (HPR), Karoon Gas (KAR), Austex Oil (AOK), UIL Energy (UIL), Tlou Energy (TOU), FAR Limited (FAR), Cooper Energy (COE), Central Petroleum (CTP), Senex Energy (SXY)