Market Update & Important Indicators:
U.S. stocks were little changed Monday, but major indexes were on track for monthly declines. The Dow Jones Industrial Average was on pace to fall for a third consecutive month, which would be its longest stretch of declines since 2011. The Nasdaq Composite was poised to snap a three-month winning streak. On Monday, investors appeared cautious at the start of a busy week that includes earnings results, central-bank meetings and the monthly U.S. jobs report Friday, and ahead of next week's U.S. election. Around 300 companies in the S&P 500 have reported their quarterly earnings so far, according to FactSet, with more than 100 due this week. Financial shares in the S&P 500 have risen nearly 3% in October, putting the sector on track to be the best performer of the month. Telecom, one of the leaders in the first half of the year, is on pace for the biggest fall. In European markets the Stoxx Europe 600 fell 0.5% Monday, with the oil and gas sector leading declines. The index lost 1.2% for the month.
Asian shares were mixed on Monday, weighed down by U.S. losses amid expectations of a tightening gap between the U.S. presidential candidates in the run-up to the election next week. The Nikkei Stock Average closed down 0.1%, having hit a two-day low. The Shanghai Composite Index was last down 0.1% and Korea's Kospi ended down 0.6%. In Japan, equity markets came under additional pressure on Monday as industrial-production and retail-sales data missed economists' forecasts. Among individual stocks, shares of Japanese industrial conglomerate Hitachi closed up 5.1%, after the company said its net profit grew for the half-year ended in September. In Korea, the won strengthened slightly, pressuring exporters. Political unrest also added to the uncertainty for equity investors, with thousands of Koreans protesting in Seoul last weekend, calling for President Park Geun-hye to resign following revelations that she had shared classified government documents with her adviser Choi Sun-sil.
Australian shares snapped a run lower in recent sessions with broad gains Monday, ending a weak month on a high note. The major banks all lent weight to the day's advance, recovering from weakness last week, and mining stocks were buoyed by a rebound in gold and recent gains in other commodities. However, a fall in oil prices weighed on energy stocks. After falling three sessions running, the S&P/ASX 200 gained 33.9 points, or 0.6%, to hit 5317.7. Still, it closed out the month with a drop of 2.2%, after edging higher in September, and is now just 0.4% higher so far in 2016.
On the London Metal Exchange, copper for delivery in three months was recently up 0.5%at $4,863/t. In the other base metals, aluminium rose 0.9% to $1,734/t, nickel rose 0.4% to $10,437/t, zinc rose 2.6% to $2,454/t, tin rose 0.2% to $20,885/t whilst lead was down 0.1% at $2,049/t.
In this Issue:
Doray Minerals (DRM) | Capital raise | HOLD
Market Cap $196m | Current Price $0.55 | Target Price $0.65
DRM announced a capital raising for $24.9m at a placement price of $0.54cps. The proceeds will be applied towards debt repayments, exploration and working capital as Deflector ramps up. This comes as no surprise to Argonaut as the high cost of production at Andy Well and delayed ramp up to full scale production at Deflector has taken its toll on free cash flow. Argonaut sees conditions improving, but in the meantime, we argue DRM has a balancing act between debt repayments, project ramp up at Deflector and capital development costs at Andy Well. We believe DRM’s production story will turn a corner in 2HFY17, but in meantime the elevated costs and production delays will continue to suppress value in the stock. Maintain HOLD.
Finders Resources (FND) | Nameplate after just four months | BUY
Mkt Cap $116m | Current Price $0.17 | Target Price $0.23
Finders Resources (FND) released September Q results with 4.0kt copper cathode production from its Wetar project (72% FND), slightly below Argonaut’s forecast of 4.2kt. The newly constructed 25ktpa cathode plant ran at nameplate capacity for the month of October and, along with the 3ktpa plant, should see the project operate at the designed 28ktpa rate in the December Q. Argonaut is impressed by the rapid ramp-up of Wetar following first cathode production in June 2016. At 30 September, FND had A$8m cash and ~US$101m debt in the Company’s Indonesian subsidiary PT Batutua Tembaga Raya (BTR: 76% FND, 24% Daewoo). During the Q, BTR restructured its hedge book releasing US$42.5m which was used to repay debt. BUY recommendation maintained.
Sino Gas and Energy (SEH) | On track for 2016 production target | BUY
Mkt Cap $203m |Current Price $0.10 | Price Target $0.25
Sino Gas and Energy (SEH) released its September Q activities and cashflow reports. The uptime production rate at Linxing (LX) was 6.4MMscf/d, in line with the previous Q, however the gross production rate was down 22% to 3.3MMscf/d, impacted by extraordinary high rainfall. Sanjiaobei (SJB) remained off-line while PCF partner pilot revenue agreements with PetroChina were finalised. With these agreements in hand, the restart is imminent. SEH is on-track to meet its forecast combined 25MMscf/d rate in Q4 2016 with ~20MMscf/d currently tied-in and up to nine wells ready for fraccing and tie-in by year-end. At 30 September, the Company had US$51m cash and US$10m debt.
Recent Contacts & Presentations:
Austal Limited (ASB), Agrimin Ltd (AMN), Stavely Minerals Ltd (SVY), MGC Pharmaceuticals Ltd (MXC), Vital Metals Ltd (VML), Tox Free Solutions Ltd (TOX), Swick Mining Services Ltd (SWK), Davenport Resources Ltd (DAV), Orthocell Ltd (OCC), BC Iron Limited (BCI), ALT Resources Ltd (ARS), Gascoyne Resources Ltd (GCY), Dacian Gold (DCN), Orocobre Ltd (ORE), Alchemy Resources Ltd (ALY), Acacia Coal Ltd (AJC), Minotaur Exploration Ltd (MEP), Northern Minerals Ltd (NTU), Walkabout Resources Ltd (WKT), Antipa Minerals Ltd (AZY), Noxopharm Limited (NOX), Botanix Pharmaceuticals Ltd (BOT), Emerald Resources NL (EMR)
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