Market Update & Important Indicators
A surge in Apple shares sent the Dow Jones Industrial Average past 22000 for the first time, but declines in other large U.S. technology companies pressured major indexes. The tug of war meant the milestone remained elusive: the index hopped above and below the mark multiple times during the session. The Dow industrials were recently up 37 points, or 0.2%, at 22001, after rising as high as 22036 earlier in the session. The blue-chip index was on track for its seventh straight session of gains. The S&P 500 was recently down 0.1% and the Nasdaq Composite fell 0.2%. Technology firms have powered U.S. indexes to new highs this year, attracting investors with their ability to grow earnings during a period of tepid economic expansion. The S&P 500 technology sector is up 22% this year — the index's best performer. Nearly three-quarters of the S&P 500 had reported results as of Wednesday morning, with more than 70% of the companies beating earnings estimates, according to FactSet. Companies that have reported so far have posted around 11% growth in earnings per share from the same quarter a year earlier, a higher figure than Wall Street anticipated entering reporting season. The U.S. gold price faltered again overnight, dropping 0.2% to finish at 1,266.20 US$/oz.
European equity benchmarks ended lower Wednesday, as bank shares slumped after France's Société Générale posted a fall in profit and metal's related stocks declined after an update from Rio Tinto. The Stoxx Europe 600 dropped 0.4% to 378.63, partly erasing a 0.6% gain from Tuesday.
Apple's latest results pushed Asian technology shares higher Wednesday. Taiwan is home to a number of Apple suppliers, and its Taiex stock benchmark was the region's best performer, recently up 0.8%. Technology firms also aided Hong Kong's stock benchmark, closing up 0.2%. Japanese equities pushed to session highs as early earnings-fueled gains were amplified in afternoon trading by a pullback in the yen. The Nikkei closed up 0.5% as the dollar jumped 0.4% against the yen to Yen110.741. Earnings also helped, with Honda Motor climbing 2.8% after its late-Tuesday quarterly report.
After five gains in six sessions, Australian stocks paused Wednesday along with commodities prices, both of which have been climbing in tandem of late. The S&P/ASX 200 fell 0.5% to 5744.20 amid signs of profit-taking. Australia's major banks, which also carry a heavy weight in the stock index, fell while consumer discretionary and industrial stocks were among the few pockets of strength today.
The London Metal Exchange's three-month copper contract closed 0.1% higher overnight to finish at $6,352/t. The other base metals also finished higher. Nickel prices rose 0.6% to 10,305/t, and Lead prices finished 0.7% higher at 2,329/t. Aluminium prices added 1.0% for the day to 1,903/t, whilst tin prices gained 0.4% to 20,735/t. Zinc prices also lifted, closing 0.7% higher at 2,789/t.
In this issue
Gold Sector – Diggers & Dealers preview – June Q production update
The ASX gold sector finished the June Q with a strong performance thanks to continued gains in AUD gold prices. In the June Q, the weighted average AISC was $1,077/oz ( $1,029/oz in March Q, +5%) versus a gold price of $1,675/oz ($1,608/oz in Mar Q +4% Q-o-Q). The gold price reached a high of $1,727/oz (US$1,295) in June, its highest since November 2016. Argonaut’s gold coverage universe trades at ~0.9x P/NAV (vs 1.2x in early Sep Q) and ~6x EV/FCF. Production and costs bounced back following rain related impacts in the March Q. The Diggers and Dealers (D&D) conference is just around the corner and we highlight our key picks in the sector and we identify key themes and likely newsflow.
New Energy Minerals | Charging Ahead | Cobalt, Graphite, Lithium and REOs
As Tesla rolls out the first of its highly anticipated Model 3’s from the production floor, Argonaut explores the growth of key commodities required for the growing electric vehicle (EV) and renewable energy markets. We have termed the raw materials which make up the key ingredients for Lithium Ion Batteries (LIB) and high strength magnets used in electric motors and turbine generators (i.e. wind turbines) as “New Energy Minerals” (NEM). Our core basket of NEMs contains Lithium (Li), Graphite, Cobalt (Co) and Rare Earth Oxides (REOs). Demand for these minerals will be driven foremost by the proliferation of EVs, which Argonaut forecasts to grow at a cumulative average growth rate (CAGR) of 22% to 38% out to 2025. A number of ASX listed companies stand to benefit from growing NEM demand. Our stock preference is based on companies who have scale, low cost and first mover advantages or those with a strategic mineral/quality advantage.
Saracen Minerals | Underground Thunder | HOLD
Market Cap $1,094 | Current Price $1.35 | Target Price $1.35
Saracen Mineral Holdings (SAR) released updated Reserves and Resources with an impressive 40% increase in Reserves to 2.1Moz. As expected, the largest increase came from Resource to Reserve conversion at Karari, which increased by 264koz to 465koz (vs Argonaut’s upside prediction of +400koz). The mine life of the Thunderbox mine has been pushed out to seven years thanks to the proposed development of a bulk underground operation. However, due to the low grade of the underground Reserve (2g/t), Argonaut calculates a modest NPV of ~$30m, well below the pre-production capex of $71m. HOLD maintained with a revised target price of $1.35 (from $1.22).
Recent Contacts & Presentations
Auris Minerals Ltd (AUR), Gage Roads Brewing Co Ltd (GRB), Stavely Minerals Ltd (SVY), Orbital Corporation Ltd (OEC), 4Ds Memory Ltd (4DS), Kin Mining NL (KIN), Pharmaust Limited (PAA), Botanix Pharmaceuticals Ltd (BOT), Dimerix Ltd (DXB), Metro Mining Ltd (MMI), Paringa Resources Ltd (PNL), Independence Group NL (IGO), MZI Resources Ltd (MZI), Transerv Energy Ltd (TSV), Emmerson Resources Ltd (ERM), Antipa Minerals Ltd (AZY), Echo Resources Ltd (EAR), Sovereign Metals Ltd (SVM), Calidus Resources Ltd (CAI), Great Boulder Resources Ltd (GBR), Finders Resources Ltd (FND), Bionomics Ltd (BNO), Threat Protect Australia Ltd (TPS), Ramelius Resources Ltd (RMS)