Market Update & Important Indicators
U.S. stocks pulled back from 2016 highs after a recent rally spurred by a weakening dollar and stabilizing oil prices. Commodities prices slipped, a negative for several energy and materials shares. Mining company Freeport-McMoRan fell 4.4%, while aluminium producer Alcoa dropped 2.5%. In commodities, U.S. crude oil prices fell 3% to $35.71 a barrel. Investors remain sceptical that a global agreement on oil output levels will be reached in Doha on April 17, after Saudi Arabia on Friday said it would only freeze production if Iran did too. Investors are now gearing up for first-quarter earnings season. Analysts have lowered their forecasts for S&P 500 earnings, which some say could be a damper on the recent rally.
Asian stocks were mixed after solid U.S. jobs data underscored a steady economic recovery in the world's largest economy and kept in play the prospect of gradual rate increases there. Japan's Nikkei Stock Average ended down 0.3%. South Korea's Kopi rose 0.3%. In South Korea, Hyundai Motor Co. fell 3.7% and its affiliate Kia Motors Corp. lost 2.7% amid market concerns about weak earnings.
Copper prices closed much lower in London, as fears about manufacturing in China continued to weigh on the metal. The London Metal Exchange's three-month copper contract was down 1.8% at $4,760.50a metric ton at the PM kerb close, having hit a one-month low earlier in the session at $4,757.50 a ton. The absence of top copper consumer China in the market due to a national holiday allowed fears around its slowing economy to creep back into market sentiment, despite the release of stronger-than-expected manufacturing PMI data on Friday. Among the other base metals, aluminium closed flat at $1,536 a ton, zinc was down 1% at $1,854 a ton, nickel was up 0.6% at $8,370 a ton, lead was down 1.7% at $1,718 a ton and tin was down 0.5% at $16,625 a ton.
In this Issue
Sino Gas and Energy (SEH) | Turning the tide in 2016
Market Cap $164m | Current Price $0.08 | Valuation $0.25
Argonaut forecast Sino Gas and Energy (SEH) to deliver a strong turnaround in 2016 following a challenging 2015, wherein development and payment delays from SOEs and concerns of partner MIE Holdings’ balance sheet saw a sharp decline in SEH’s share price. The Company recently resolved pilot plant gas sale terms with Lining (LX) partner CUCBM and announced a 22% increase to 2P Reserves based on drilling to the end of 2015. Positive newsflow is expected to in the coming 18 months including; resolution of Sanjiaobei (SJB) payment terms with PetroChina and Chinese Reserve Reports (CRR) mid to late 2016 leading into Overall Development Plan (ODP) approval in mid to late-2017. With net cash of ~ US$53m and pilot plant gas sales to start contributing, SEH is a self-funded development proposition with significant value to unlock. Argonaut maintains a BUY recommendation with a revised target price of $0.25 (previously $0.19), incorporating increased 2P Reserves. SEH has the lowest EV/2P Resource amongst its peer group (see Figure 9, over) and liquid assets valued at ~$0.03/sh.
TFS Corporation (TFC) | Steadily lowering risk | BUY
Market Cap $625m | Current Price $1.64 | Valuation $3.05
Strong operational momentum and reducing risk appeals. The execution of the vertical integration strategy allows the Company to extract value along the supply chain, while the just-concluded $60.5m placement enables TFC to offer to buy up to 221ha of 3rd party owned plantations for up to $53m. If offers are successful, TFC will have greater control over harvests and supply and shareholder returns will be boosted. Our valuation increases to $3.05 (prior $2.85) and we maintain a buy call.
Recent Contacts & Presentations
Evolution Mining (EVN), St Barbara (SBM), Troy Resources (TRY), Explaurum (EXU), Sino Gas & Energy (SEH), Western Areas (WSA), Finders Resources (FND), Carnarvon Petroleum (CVN), Threat Protect Australia (TPS), Austal (ASB), Paragon Care (PGC), Salt Lake Potash (SO4), Peet (PPC), Department 13 (D13), Actinogen Medical (ACW)