Market Update & Important Indicators
U.S. stocks were mostly higher Tuesday, as oil prices rose and investors eyed first-quarter earnings reports from J.P. Morgan Chase & Co. and others. Trading volumes were relatively subdued, as they have been for much of April, even as investors turned their focus to first-quarter earnings. Broadly, money managers are bracing for a weak earnings period, with companies pinched by the stronger dollar and lower oil prices. The Dow gained 60 points, or 0.3%, to 18,037 and the S&P 500 index added 3 points, or 0.2%, to 2,096.
Stocks in Hong Kong fell Tuesday for the first time in eight days, with investment from the mainland quickly cooling from record-high levels. The Hang Seng Index led Asian markets lower, falling 1.6% to 27561.49 as buying via a trading link with the Shanghai stock market plunged. Chinese firms trading in Hong Kong fell 2.2%. Net buying of Hong Kong stocks by mainland investors this week reached about a fourth of the 10.5 billion yuan daily quota set by the Shanghai-Hong Kong Stock Connect. By comparison, buyers bought 5.4 billion last Friday, and hit the maximum daily limit on both Wednesday and Thursday. The plunge underscores a newly volatile trading environment for global investors who now face the prospect of mainland investors coming into the market with a different strategy, often more speculative and momentum driven.
On the LME overnight base metals were mixed, with copper declining 0.8% and nickel gaining 1.5% respectively. Gold is trading 0.4% lower at US$1,193/oz, however Brent crude gained 0.9% to US$58.43/bbl.
In This Issue
Who moved my cheese?
The announced Alamos and AuRico merger and Agnico Eagle’s recent bid for Soltoro reinforces Argonaut’s view that M&A in the gold space is likely to step up in the near future. Key supporting themes include Reserve depletion across the majors / mid-tier space, a general lack of exploration success and funding, relatively modest asset pricing, scarce risk capital and mediocre balance sheets.
On the ASX, the Australian domiciled producers, including NST, IGO, EVN and MLX are in a strong position for further inorganic growth. They are benefiting from a softening AUD cost base and increasingly competitive contractor / wage rates. With multiple assets understood to be up for sale, near term M&A activities are inevitable.
Considering these themes, genuine green-fields discoveries should be rewarded (PIR, OBS, etc), particularly for assets that offer geographic synergy (e.g. Soltoro). Given size, favourable geometry, safe sovereign jurisdiction and multi-million ounce discovery potential, Gold Road Resources (GOR, SPEC BUY, $0.60 Target Price) remains a key pick in this space. Other Australian domiciled juniors with the potential to deliver on this front include ABM Resources (ABU, SPEC BUY) and Dacian (DCN, SPEC BUY).
ABU | SPEC BUY
ABM Resources (ABU) continues development activities at its 100% owned high grade Old Pirate mine with mill commissioning expected on schedule in May. The Company will commence a regional exploration program in the coming weeks, which will test several high grade targets. A successful program will likely deliver upside to the Company’s production guidance (50-60koz @ AISC A$750-870/oz), given spare capacity (~90ktpa) in the Coyote processing facility. A successful JV on Tanami Gold’s (TAM) Central Tanami Project (CTP) is expected to benefit ABU by enabling the Company to unlock value for its earlier stage projects including Hyperion. The Tanami region remains one of the final frontiers in Australia where the discovery of shallow, multi-million ounce gold deposits is still possible. Speculative Buy recommendation maintained.
Recent Contacts & Presentations
Saracen (SAR), Beadell (BDR), Fertoz (FTZ), Atrum (ATU), Doray (DRM), Austal (ASB), TFS Corporation (TFC), Buru Energy (BRU), Carnarvon Energy (CVN), Otto Energy (OEL), Empire Oil & Gas (EGO), Pura Vida Energy NL (PVD), Migme (MIG), Vmoto (VMT), Pioneer Credit (PNC), Minemakers (MAK)