Market Update & Important Indicators
A selloff in the technology sector deepened Friday, but the Dow Jones Industrial Average and the S&P 500 closed April with monthly gains. Still, the tech-driven declines sent stocks to their worst weekly loss since February, leading some analysts and traders to question whether sentiment for the overall market could be shifting. On the one hand, the price of oil has climbed above $45 for the first time since November, buoying shares of energy companies. On the other, the tech sector, which has the largest sector weighting in the S&P 500, posted its second consecutive week of sharp losses with little sign of relief. A string of disappointing quarterly results from high-profile tech companies—including Microsoft and Apple–has led to persistent selling in the group in recent sessions, making it the worst-performing sector year to date.
The tech-heavy Nasdaq Composite lost 0.6%. The S&P 500 slumped 0.5%, weighed down by tech companies. Friday's decline left the tech sector with a weekly loss of 3.6%. Biotechnology stocks also posted big declines. Gilead Sciences, one of the index's worst performers, fell 9.1% after the company said late Thursday that revenue from its hepatitis C drugs fell in the first quarter. Amazon.com was a rare bright spot Friday, as shares gained 9.6% after it reported its most profitable quarter ever late Thursday. In economic data, the personal-consumption expenditures price index, the Federal Reserve's preferred inflation measure, rose 0.1% in March from the prior month, data showed Friday, after Thursday's GDP report missed expectations.
European stocks suffered their worst session in two months Friday, as investors tackled a raft of economic data and a fresh batch of corporate results as the week and month drew to a close. The Stoxx Europe 600 tumbled 2.1% to 341.51, the lowest close since April 14, according to FactSet. All sectors were in the red. National indexes printed sharp losses, with Germany's DAX 30 sliding 2.7% and France's CAC 40 falling 2.8%, their worst losses since mid-February.
Shares in most Asia stock markets edged lower Friday, with gains capped by disappointment over the Bank of Japan holding back on additional stimulus and worries about global economic growth. China's Shanghai Composite Index closed down 0.3%, while Hong Kong's Hang Seng Index ended down 1.5%. Elsewhere in Asia, Korea's Kospi fell 0.3%. Japan's stock market was closed in observance of a public holiday.
Further gains by resources stocks on the back of increased commodity prices helped Australian shares to a positive close Friday. The rebound in global crude-oil prices and the spot-market price for iron ore in recent weeks has bolstered mining and energy stocks. For the past two sessions, this has allowed the local market to shake off worries about global economic growth and disappointment over the Bank of Japan's holding back on additional stimulus, which has weighed on many equities markets in the region.
The London Metal Exchange's three-month contract closed up 2.21% at $5,051 a metric ton at the PM kerb close. Among the other base metals, aluminum closed up 0.4% at $1,670 a ton, zinc was up 1.5% at $1,933 a ton, nickel was up 1.67% at $9,409 a ton, lead was up 3.08% at $1,806 a ton, and tin was up 0.76% at $17,260 a ton.
In This Issue
Doray Minerals (DRM) |March Q |SELL
Market Cap $303.7m | Current Price $0.99 | Target price $0.80
Doray Minerals (DRM) delivered 20koz @ AISC A$1,285/oz, largely in-line with Argonaut’s estimate of 19koz @ AISC A$1,237/oz. Andy Well site level FCF was A$6.9m, before increased exploration (A$3.6m) and corporate costs (A$1.7m). Deflector remains on track for first production in June, and Argonaut’s site visit in February confirmed solid progress on project construction. The stock remains one of the few offering imminent production growth. Whilst challenges at Deflector including more complex processing are acknowledged, they are mitigated by experienced management and contractors (GR Engineering, Maca). Despite its size relative to other Australia domiciled producers, the Company is one of the few offering genuine, greenfield fields discovery opportunities. Argonaut downgrades the stock to a SELL (was HOLD) as the stock is now trading >20% higher than our target price. Our TP remains unchanged at A$0.80.
Cradle Resources (CXX) |Anglo transaction highlights demand for niobium |BUY
Market Cap $39.46m | Current Price $0.27 | Target price $0.48
Globally, there are three producing niobium operations, with no new project brought on line in the past ~40 years. In the past two years two of these operations have been acquired for considerable compensation. The latest of these occurred yesterday with Anglo American selling its niobium/phosphate business in Brazil for US$1.5b to China Molybdenum. Earnings from the Catalão mine, which this business unit is centred upon, is proportioned roughly two thirds to niobium and a third phosphate. In late 2014, the Niobec mine in Canada was divested by IANGOLD Corp. to a consortium led by Magris Resources for US$500m. Niobec has delivered consistent EBITDA of US$68-88m since 2008. The 2014 acquisition translated to a ~6.8x EBITDA valuation. Catalão generated US$146m EBITDA in 2015 which translates to a transaction value of ~10x EBITDA. The see through value for Panda Hill is US$760m to US$1.1b (unfunded basis). CXX, who has a 50% share in the deposit, has a current enterprise value (EV) of just A$37m. Argonaut maintains a SPEC BUY recommendation with a $0.48 target price.
Recent Contacts & Presentations
Red 5 (RED), Medusa Mining (MML), Saracen Mineral Holdings (SAR), Paradigm BioPharmaceuticals (PAR), Pilbara Minerals (PLS), Energia Minerals (EMX), Deep Yellow (DYL), Paladin Energy (PDN), Kidman Resources (KDR), Dakota Minerals (DKO), West Africa Resources (WAF), Finders (FND), Credo Resources (CRQ) , Orthocell (OCC), Capricorn Metals (CMM), Gold Road Resources (GOR), Otto Energy (OEL), Dakota Minerals (DKO), Cradle Resources (CXX), Kidman Resources (KDR)