Market Update & Important Indicators
U.S. stocks were little changed Tuesday, as technology shares continued to fall, offsetting a gain in energy companies. Information technology companies in the S&P 500 dropped 0.4% in early trading. The losses partially offset gains among energy companies, which were lifted by a rally in price of oil. Crude-oil futures rallied 2.9% to $59.84 a barrel. The S&P 500 is trading at roughly 18 times the last 12 months of earnings. That is higher than its 10-year average of 15.8, according to FactSet.
European stocks slipped Tuesday, dragged down by a 0.6% fall in Germany's DAX index. The slide in global stocks largely started last week, when the president of the European Central Bank, Mario Draghi, warned that the market should be prepared for more volatility. In Greece, the main stock index rose 0.6% after people familiar with the talks between Greece and its creditors said that the two sides were discussing an extension of the country's bailout program through to March 2016.
Stocks across Asia fell Tuesday, with Indonesia bearing the brunt of investors' focus on U.S. interest rates and China shares falling ahead of a decision by MSCI Inc. on whether it will include Chinese domestic stocks in its benchmarks. Indonesia's JSX benchmark was off 2.3% at 4899.88, its lowest level since last July, while stocks in the Philippines were down 2.1% and Taiwan was off 1.9%. It's expected that higher rates in the U.S. will send investors toward assets there, away from the emerging markets of Asia. Indonesia's JSX has been the year's worst-performing stock benchmark in Asia, down 6.3% in 2015. In China, investors await MSCI Inc.'s decision late Tuesday in New York on whether to add mainland stocks to its emerging-markets index, widely tracked by global investors. Losses in Hong Kong came after data showed China's consumer price inflation at an annualized 1.2% rate in May, below the expected 1.3%. The Hang Seng Index finished off 1.2% at 26989.52, the lowest level since early April.
Copper futures closed higher on the LME on Tuesday, as continued market speculation over further monetary easing by the Chinese government boosted prices. Oil prices rose on Tuesday after U.S. government forecasters called for shale-oil production to decline this summer. Gold prices rose on Tuesday, as investors sought out the safe-haven metal while European stock markets slipped.
In This Issue
AWE Limited | Perth Site Visit, A fresh look at an old Basin | BUY
We recently attended the AWE WA field trip and came away very bullish about the Perth Basin development and exploration potential. The trip consisted of a tour of the Senecio- 3 well (which recorded an unprecedented 12.3 mmscf/d flow rate from the never before targeted Kingia section), the currently coring Waitsia-1 drill site which utilised the Enerdrill Rig-3 and the mothballed, but likely to be re-commissioned, Xyris gas plant.
So far the Perth Basin exploration program for AWE has gone from strength to strength with the Waitsia discovery in the Senecio-3 well, the success of the Dongara section in the Irwin-1 well, the confirmation of the charged Dongara gas interval in the Waitsia-1 well and the much anticipated announcement on the Kingia section in the currently coring Waitisia-1. During the field trip AWE confirmed that the Xyris plant would be the likely choice for early development gas production/testing early next year.
It is important to remember that the Perth Basin is no stranger to Oil & Gas development and exploration with over 200 wells drilled since the 1950’s. Interestingly up to 80 of those wells were drilled by AWE or its direct predecessors with AWE drilling 7 wells in the last 3 years (some included fracking).
Sino Gas & Energy |Capital raising finalises, buying opportunity | BUY
On 23 April 2015 SEH announced a $80m capital raising at $0.16/ps comprising an unconditional $32.3m placement, a conditional A$47.7m placement (approved at the GM on 4 June) and a Share Purchase Plan (SPP) raising A$4.1m. As highlighted in our previous note, the placement was conducted to fund the company towards Overall Development Plan (ODP) approval, exploration activity and working capital. In addition, the capital raise provides flexibility for debt repayment, strengthens the balance sheet and bolsters SEH’s financial strength for commercial dealings and general corporate purposes.
Upon the completion of Tranche 1 (29 April), 202m shares were issued resulting in a diluted valuation of A$0.35/ps (from A$0.38/ps). Subsequently the closure of the SPP (21 May, ~26m shares) and Tranche 2 the total shares on issue is 2.07b. This results in a final fully diluted valuation of A$0.30/ps. Due to the dilutive nature of the SEH raising (price and quantum) we view there will be temporary weakness in the SEH share price on market providing an attractive buying opportunity. We remain attracted to SEH for its underlying assets, technical execution of its projects and cash position. BUY maintained.
Resolute (RSG) | HOLD
A revised Syama Underground Pre-Feasibility Study (PFS) delivered boosted Reserves, improved grade, and reduced pre-production capex, thereby enhancing project economics. The study incorporated additional drilling and was independently completed by Snowden Mining Industry Consultants (Snowden). With the cessation of Syama open pit and the processing of high grade ore from stockpiles, cash flow generation is expected to be robust in the subsequent Qs. However, given RSG’s balance sheet, the Company will likely pursue additional funding strategies to service its debt repayment requirements and to cover Syama underground start-up capex. Argonaut increases its Valuation to A$0.40 (was A$0.36) following the revised PFS. HOLD maintained.
Recent Contacts & Presentations
Gold Road (GOR), Troy Resources (TRY), Geopacific (GPR), Orbital (OEC), Site Group (SIT), Saracen (SAR), Kibaran (KNL), Sino Gas & Energy (SEH), Rewardle (RXH), Alexium (AJX), Ausdrill (ASL), Tox Free (TOX), OBJ Limited (OBJ), Dacian (DCN), Saracen (SAR), Fertoz (FTZ), Atrum (ATU), , Buru Energy (BRU), Carnarvon Energy (CVN), Otto Energy (OEL), Empire Oil & Gas (EGO), Pura Vida Energy NL (PVD), MZI Resources (MZI), High Peak Royalties (HPR), Spookfish (SFI)
Please read Argonaut's Important Disclaimers & disclosures
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