Market Update & Important Indicators:
Global stocks started the week in retreat as long-dated government bonds plumbed their lowest levels since the U.K. referendum. Falling oil prices weighed on energy shares in the U.S. as crude oil slipped below $50 a barrel. Energy shares were among the biggest decliners in the S&P 500, losing 0.7% as U.S. crude fell 0.8% to $49.94 a barrel. Upbeat earnings reports helped cushion the U.S. market from broader global declines. Investors also focused on comments Friday from Federal Reserve Chairwoman Janet Yellen, who offered an argument for running the U.S. economy hot for a period to boost consumer spending and business investment.
In European markets, the Stoxx Europe 600 fell 0.7%. On Monday, Eurostat left its estimate of the Eurozone's annual rate of inflation for September unchanged at 0.4%. Rising inflation expectations had chipped away at the value of bonds in recent sessions. Outside the U.K., investors had also grown concerned in recent weeks about the European Central Bank's plans for the future of its bond-buying program. The bank holds a meeting Thursday, with many investors expecting confirmation that it doesn't plan to swiftly end its asset purchase program
Asian shares were mixed on Monday, with casino-related stocks in Hong Kong falling sharply on news that Chinese authorities detained employees at casino operator Crown Resorts for suspected gambling crimes. Hong Kong's Hang Seng Index was down 0.8%, while Korea's Kospi ended 0.2% higher. Meanwhile, the Nikkei Stock Average finished up 0.3% after rising as much as 0.5% earlier and the Shanghai Composite Index closed down 0.7%. In Hong Kong, nervous investors jettisoned their holdings in Macau-based casino stocks. Elsewhere, the Nikkei finished up in the wake of rising banking stocks, boosted by gains in U.S. financial companies on Friday. The U.S. gains came as lenders J.P. Morgan, Citigroup and Wells Fargo reported earnings that beat analysts' estimates. Stocks in Japan were briefly in the red earlier in the session, led by electric-utility stocks, after an antinuclear power candidate won the gubernatorial election in the Niigata prefecture. Investors in Japan were also digesting comments Monday morning by Bank of Japan Gov. Haruhiko Kuroda, who showed a softening in tone on further easing. In China, a weakening yuan prompted investors to mark down the valuations of companies whose assets and earnings remain denominated in the Chinese currency.
Australian shares fell for a fourth-straight session Monday, with fresh selling late in the day taking the market to its lowest in more than three weeks. Consumer stocks were among the hardest hit for the day, after Chinese authorities said they had detained a number of the casino operator's employees for suspected gambling crimes. After a choppy session, the S&P/ASX 200 finished at its low of the day, 45.3 points, or 0.8%, weaker at 5388.7–the lowest close since Sept. 22. On the calendar for Tuesday, Reserve Bank of Australia Gov. Philip Lowe is scheduled to deliver a speech on inflation and monetary policy before the central bank releases the minutes from its October policy meeting.
The London Metal Exchange's three-month copper contract closed flat at 4,675/t. Most base metals ended the day lower, with tin down 0.2% at $19,455/t, nickel down 1.9% at $10,251/t, lead down 0.5% at $1,974/t and aluminium down 0.9% at 1,656/t. Zinc bucked the trend rising 0.7% at 2,262/t.
In this Issue:
Global Construction (GCS) | Sale of Smartscaff interest | BUY
Market Cap $94m | Current Price $0.47 | Valuation $0.65
Although GCS has sold its 50% interest in Smartscaff, we still expect an increasingly meaningful contribution from the east coast as the expansion strategy unfolds. A strong balance sheet supports this focus, with GCS in a net cash position post the sale (for $10.5m cash). Current trading multiples are undemanding and a valuation of $0.65 (unchanged) continues to underpin a buy call.
Paringa Resources (PNL) | Bonus Coal | SPEC BUY
Market Cap $67m | Current Price $0.34 | Target Price $0.90
Paringa Resources (PNL) has announced the discovery of an additional coal seam at the Poplar Creek mine, part of its 100% owned Buck Creek complex. Recent drilling has defined a contiguous zone of the Western Kentucky No.11 seam (WK No.11) 20-24m above the WK No. 9 seam (currently the only seam in the mine plan). The region’s coal producing major, Alliance Resource Partners (ARLP:NASDAQ), mines both seams at its River View mine, which has the status of the most productive underground room and pillar mine in the US. We expect strong newsflow in the coming Qs with the release of the Poplar Grove Bankable Feasibility Study (BFS) in early-November, completion of project financing in the current Q and permit approvals in Q1/Q2 2017.
Saracen Mineral Holdings (SAR) | Anglo farming-in to Butcher Well and Lake Carey | HOLD
Market Cap $967m | Current Price $1.15 | Target Price $1.12
Saracen Mineral Holding (SAR) has signed a farm-in agreement with AngloGold Ashanti Australia Ltd (ASX:AGG, AU:NYSE), whereby AGG can earn up to 70% of the Butcher Well and Lake Carey tenements by spending up to $25m. Butcher Well has a current resource of 270koz @ 1.7g/t. The tenements are located alongside AGG’s Sunrise Dam project, which is currently processing ~3.8Mtpa from underground ore and stockpiles following the transition from open pit mining in 2014. While the mines throughput is above design levels, declining grades have recently impacted production. AGG is currently undertaking an enhancement project at Sunrise Dam aiming to add Reserves (currently at 5-6 years), increase recoveries and lower costs (due for completion early 2017). Globally, AGG is spending US$130-150m on exploration.
Evolution Mining (EVN) | Steady as she goes | BUY
Market Cap: $3,552m |Current price $2.12 | Valuation $2.52
Evolution Mining (EVN) delivered Sept Q group production of 205koz which was in line with Argonauts 204koz forecast. All-in sustaining costs (AISC) of A$1,060/oz were -5% lower than the previous quarter thanks to a significant drop in sustaining capex across the group. EVN repaid a further $90m in debt ($115m in Jun Q) with $30m of debt repayment obligations remaining in FY17. EVN’s FY17 exploration budget of $25-$30m continues to deliver with new zones discovered at Mungari and in the Stage H cutback at Cowal. The Sept Q marked the transition of assets with the sale of Pajingo in Queensland and the acquisition of Ernest Henry in NSW. Sustaining capex represented 38% of overall FY17 forecast spending in Q1, going forward we believe this will translate into higher production and lower costs going forward. BUY, PT $2.52.
Recent Contacts & Presentations:
Antipa Minerals Ltd (AZY), Vault Intelligence Ltd (VLT), Noxopharm Ltd (NOX), Gage Roads Brewing Co. (GRB), West African Resources (WAF), Cedar Woods Properties Ltd (CWP), Sino Gas & Energy Holdings Ltd (SEH), Salt Lake Potash Ltd (SO4), Kalina Power Ltd (KPO), Austal Limited (ASB), Agrimin Ltd (AMN), Stavely Minerals Ltd (SVY), MGC Pharmaceuticals Ltd (MXC), Vital Metals Ltd (VML), Tox Free Solutions Ltd (TOX), Swick Mining Services Ltd (SWK), Davenport Resources Ltd (DAV), Orthocell Ltd (OCC), BC Iron Limited (BCI), ALT Resources Ltd (ARS), Gascoyne Resources Ltd (GCY), Dacian Gold (DCN), Orocobre Ltd (ORE), Alchemy Resources Ltd (ALY), Acacia Coal Ltd (AJC)