Market Update & Important Indicators
Weakness in petroleum-linked equities have weighed on US stocks following poor earnings from ExxonMobil and Chevron and a drop in oil prices. The Dow Jones Industrial Average fell 55.52 points (0.31 per cent) to 17,690.46. The broad-based S&P 500 dropped 4.71 (0.22 per cent) to 2,103.92, while the tech-rich Nasdaq Composite Index slipped 0.50 (0.01 per cent) to 5,128.28. Dow component ExxonMobil shed 4.6 per cent after reporting net income fell by 52.3 per cent year-over-year to $US4.2 billion ($A5.8 billion) in the second quarter. Chevron lost 4.9 per cent as it reported about a 90 per cent drop in profits to just $US571 million.
Europe's main stock markets ended higher, as investors digested economic data from around the world alongside more earnings updates. London's benchmark FTSE 100 index gained 0.41 per cent to finish at 6,696.28 points. In the eurozone, the CAC 40 in Paris climbed 0.72 per cent to end the day at 5,082.61 points, while Frankfurt's DAX 30 won 0.46 per cent to close at 11,308.99 points. The euro advanced to $US1.1036 from $US1.0931 late in New York on Thursday. Analysts were disappointed in the eurozone data on Friday. Inflation in the 19-nation eurozone was unchanged in July while the jobless rate for June was also flat, suggesting the economy maintained only modest growth, official data showed.
Most Asian markets advanced on a healthy batch of economic growth data out of the United States, but Shanghai sank again, extending the previous day's sell-off. Tokyo reversed morning losses to end 0.30 per cent higher, adding 62.41 points to 20,585.24, while Sydney was up 0.52 per cent, or 29.68 points, at 5,699.2 and Seoul gained 0.55 per cent, or 11.13 points, to 2,030.16. Hong Kong was 0.56 per cent higher, adding 138.30 points to 24,636.28, while Shanghai ended down 1.13 per cent, or 42.04 points, at 3,663.73 as it struggles to recover from a recent plunge.
In Australia, the market on Friday overcame weakness in the mining sector to post its third straight day of gains. The benchmark S&P/ASX200 index was up 29.7 points, or 0.52 per cent, at 5,699.2. The broader All Ordinaries index added 28.6 points, or 0.51 per cent, to 5,681.7. At 0820 AEST on Monday, the September share price index futures contract was down 12 points at 5,639. In local economic news on Monday, the ANZ's job advertisements series and the TD Securities-Melbourne Institute inflation gauge, both for July, are due out. The Australian Industry Group performance of manufacturing (PMI) index, the RP Data Core Logic Home Value Index and the HIA New home sales for June, are also due out.
Oil prices have plummeted as traders digested the latest OPEC signal that crude production would not be cut despite global oversupply and falling prices. US benchmark West Texas Intermediate (WTI) for September delivery dived almost 3.0 per cent, shedding $US1.40 to close at $US47.52 a barrel on the New York Mercantile Exchange. Brent North Sea crude for September dropped $US1.10 (2.1 per cent) to settle at $US52.21 a barrel in London trade. Both contracts had tumbled on Thursday, snapping two consecutive days of gains. On Friday, the WTI futures contract clocked a fifth straight week of decline and was heading closer to its lowest level in six years, following an attempt at stabilisation around $US60 a barrel in the spring.
Metals were mixed on the LME. Zinc and Aluminium fell 2.3% & 1.5% to US$1,913/t and US$1,582/t whilst Tin & Nickel rose 0.8% & 0.1% to US$16,390/t & 10,994/t respectively. Gold was up slightly, rising 0.6% to US$1,095/oz.
Kalgoorlie Diggers and Dealers 3rd to 5th August
Argonaut will be attending eight site visits through the course of the week.
In This Issue
Beadell (BDR) | HOLD
Beadell (BDR) reported production of 21.4koz @ reported AISC US$1,042/oz, missing its previous guidance of 36-40koz. Cash and bullion position was A$22.4m at 30th June (A$57m at 31st March), after a dividend payment of A$8m and debt / interest repayment of A$10m. Given operational performance during H1 CY15, the Company’s dividend appears pre-mature, and production slippages have put pressure on working capital. Argonaut revises its valuation to A$0.22 (was A$0.38) and downgrade the stock to a HOLD (was SPECULATIVE BUY), reflecting softer production / higher costs anticipated during the wet seasons, deteriorated balance sheet and a reduction in exploration valuation.
MZI Resources (MZI) | BUY
Construction of MZI Resources’ (MZI) Keysbrook mineral sands project in southwest Western Australia is nearing completion. The project is on schedule, currently at 74% completion, with commissioning to commence in Q4 CY15. Mining is due to start in August ahead of processing. Keysbrook benefits from a high value leucoxene and zircon product mix, differentiated from most deposits held by junior ASX listed producers/developers which comprise majority low value ilmenite. Importantly, MZI has the capability of sustaining healthy margins even at current low prices. Applying current FX and mineral sand prices we estimate steady state free cash flow (FCF) of ~$25mpa.
Troy (TRY) | BUY
Troy Resources (TRY) reported group production of 25.7koz @ AISC US$1,334/oz, v Argonaut forecast of 25koz @ AISC US$1,225/oz. As anticipated, production and costs at Casposo were impacted by the mine transitioning to the INCA 2 vein. Although the AISC was higher than anticipated, the cash balance of A$60m was above Argonaut’s estimate of A$53-57m. The Company recently provided an update on the commissioning of its high grade Karouni Project in Guyana, with a ~4-5 weeks delay expected. During this period, the Company will continue to build up the Smarts (~5g/t) and Hicks stockpiles (to >150kt by end of August), which will benefit future production and lower operational risks. The Company’s cash position (A$60m) and bullion (~A$8m) provides a comfortable buffer for this delay. High margins from Karouni, a hedgebook (~80koz @ ~US$1,200/oz) and the Company’s AUD denominated debt alleviates some pressure from the recent adverse USD gold price movement. Amid low gold and silver prices, Argonaut anticipates TRY to examine further cost saving initiatives at Casposo. BUY and A$0.68 valuation maintained.
Recent Contacts & Presentations
Resolute (RSG), Pacifico (PMY), Kingsgate (KCN), Troy (TRY), 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), Central Petroleum (CTP), Senex Energy