Market Update & Important Indicators
U.S. stocks climbed as Greece's Parliament passed austerity measures needed to secure a fresh bailout and Draghi pledged further bank funding. Also buoying stocks were a stream of stronger-than-expected second-quarter earnings reports from large firms, including Citigroup Inc. and Intel Corp. The Dow climbed 70 points, or 0.4%, to 18,120 and the S&P 500 gained 0.8% to 2,124. Investors have been bracing for a lacklustre earnings season, curbed by the firm dollar, low oil prices and signs of uneven economic growth. Analysts predict profits for companies in the S&P 500 fell 3.6% in the second quarter.
A rally in European stocks extended into its seventh session Thursday as investors grew more optimistic that Greece would be able to avoid tumbling out of the eurozone. Some pressure was taken off the cash-strapped country Thursday as the European Central Bank said it was raising its emergency lending to the country's banks. Eurozone finance ministers granted "in principle" a bailout from the bloc's fund after Greece's Parliament approved austerity measures. The London FTSE, German DAX and French CAC climbed 0.6%, 1.5% and 1.5% respectively.
Chinese shares managed to hold on to gains Thursday, as trading resumed for hundreds of firms this week, while markets elsewhere in Asia rose. The Shanghai Composite added 0.5%, while Japan’s Nikkei and Hong Kong’s Hang Seng indices climbed 0.7% and 0.4% respectively.
Copper added 0.5% and nickel gained 1.3% amongst the base metals on the LME overnight, although other metals posted mixed results. Crude oil dipped further, with Brent off 0.4% to $56.92/bbl and WTI down 1.0% to $50.91/bbl. Gold dipped 0.4% to $1,145/oz and iron ore 62% fines inched up 0.2% to $50.66/t.
In This Issue
GR Engineering (GNG) | BUY
GNG has entered into an EPC contract for the design and construction of non-process infrastructure (NPI) at Sirius Resource’s Nova Nickel Project. The contract is valued at ~$12m and will be completed concurrently with the $114m EPC contract for the design and construction of the mineral processing and paste fill plant. Having significant work in hand, a reputation in EPC project delivery, a sound balance sheet and an attractive dividend yield sets GNG apart from mining service peers. We maintain a buy call on a $1.20 valuation (prior $1.15).
Kingsrose (KRM) | SPEC BUY
Kingsrose Mining (KRM) reported production of 5.8koz Au and 10.4koz Ag @ AISC US$1,116/oz Au during the June Q. Cash and bullion improved to A$12.7m, (was A$8.8m at 31st March), following a tax return of A$3.6m. Softer than anticipated production and cash flow were the result of higher than expected water inflow (see below), which is being addressed by the Company. Grade outperformance continued this Q with the head grade maintained above 12g/t. With prospective geology and an under-utilised mill (@ ~50% capacity), the stock offers genuine organic growth, with exploration success being the key share price driver. KRM has commenced a regional sampling program which should ensure a pipeline of near-mine targets to be drill tested in the near future. Given coincident host lithologies, alteration, a geophysical anomaly and high grade surface samples, Argonaut anticipates Mitra Jaya to be tested as a priority target. SPECULATIVE BUY recommendation maintained.
Paladin Energy (PDN) | SPEC BUY
Paladin Energy (PDN) released June Q results producing 1.3Mlb U3O8 from the Langer Heinrich mine (LHM: 75% PDN, 25% CNNC) up 8% Q-on-Q and in line with Argonaut’s forecast of 1.3Mlb. Revenue increased significantly to US$73.3m (from US$16.7m in the March Q, 100% basis) as a result of higher sales at a higher average realised price. Total sales revenue for FY15 was ~US$199m down 39% Y-on-Y, driven by 37% lower production as the Kayelekera mine was placed on care and maintenance. Cash and cash equivalents were ~US$184m, with face value debt estimated at US$485m. Argonaut maintains a SPEC BUY recommendation with a reduced target price of $0.45 (previously $0.50). Our price reduction results from lower production in the medium term resulting from lower feed grades.
Recent Contacts & Presentations
Resolute (RSG), Rift Valley (RVY), Pacifico (PMY), Kingsgate (KCN), Troy (TRY), Tox Free Solutions (TOX), GR Engineering (GNG), Austal (ASB), Northern Star (NST), Sandfire (SFR), Regis (RRL), Saracen (SAR), Sino Gas & Energy (SEH), Dacian (DCN), Buru Energy (BRU), Carnarvon Energy (CVN), Otto Energy (OEL), Empire Oil & Gas (EGO), Pura Vida Energy NL (PVD), High Peak Royalties (HPR), Carnarvon Petroleum (CVR)