Market Update & Important Indicators:
U.S. stocks rose intraday amid signals from the Federal Reserve that the economy is accelerating and as investors parsed another wave of U.S. earnings reports. The blue-chip index added 0.3% in recent trading. The S&P 500 edged up 0.2%, and the technology-heavy Nasdaq Composite was little changed. Companies in the S&P 500 have so far grown their earnings by 22% in the second quarter, surpassing analysts' estimates of around 19%, according to FactSet. About 8% of firms in the index have reported so far. Morgan Stanley shares rose 2.4% after the bank said second-quarter earnings rose 39% from last year, beating analysts' expectations. The announcement caps off second-quarter earnings season for the six largest U.S. banks. Gains in financial and industrial companies in the S&P 500 helped offset losses in the real-estate and utilities sectors, which are considered bond like due to their hefty dividend payments. The US gold price was steady at 1227.1 US$/oz.
The Stoxx Europe 600 index closed up 0.5% at 387.04, led by rises in technology stocks after better-than-expected second quarter results from Swedish telecom company Ericsson. Ericsson shares ended up 8.5%, while Swedish peer Tele2 ended up 13.4% and Dutch semiconductor company ASML closes 8.1% higher. A 4.2% rise in Lufthansa shares helped Germany's DAX index rise 0.8%, after upgraded guidance from UK airline easyJet, whose shares rose 2.2%. The U.K.'s FTSE 100 ended up 0.7%, after below-forecast inflation data marginally reduced chances of a U.K. rate rise in August and pushed the sterling lower. France's CAC 40 ended up 0.5%, Spain's Ibex 35 was up 0.4% and Italy's FTSE MIB ended flat.
In Asia, Hong Kong's Hang Seng was down 0.2% and the Shanghai Composite Index fell 0.4%. The two indexes are still reacting to uncertainty over U.S.-China trade relations, though not the direct impact of recent tariffs, according to research firm Morningstar. Japan's export-heavy Nikkei, meanwhile, gained 0.4% on the back of a declining yen.
Australia's stock benchmark bounced after four drops in the past six days, helped by one of the country's biggest companies by market cap. The S&P/ASX 200 rose 0.7% to 6245.1 as BHP Billiton jumped 3.3% following an upbeat production update. Meanwhile, Macquarie saw its strongest rise in 3 weeks, picking up 2.3% to reverse this week's decline and lead gains for Australia's big banks. The energy sector was the only significant drag as oil prices have fallen anew in Asian trading.
Base metal prices were mixed on the London Metal Exchange. Declines were seen in aluminium that fell 0.6% to 2,054/t, and tin that was down 0.1% at 19,561/t. The price of nickel gained 0.9% to close at 13,519/t. Zinc was the biggest mover and appreciated 3.8% to finish at 2,631/t.
In this issue:
Industrials | WA Economy – are we there yet?
WA has stabilised, although there is little evidence to suggest growth yet. But given upcoming Pilbara capex spend (see Contracting – pumping iron, 26 June) we believe it’s only a matter of time. In our view the economic pickup will start in 2019, increase into 2020, and be more sustained thereafter.
Northern Star Resources | It’s all about what comes next | HOLD TP $6.34
Northern Star (NST) delivered a standout June Q, producing 184koz at an all-in sustaining cost (AISC) of A$982/oz (+48% on production, -8% on costs vs the March Q), well above our expectations and guidance. Underlying free cashflow from operations was $93m (+191% from $32m in March Q). Net cash increased to $512m (+16% Q-o-Q). Group milled tonnes rose by 34%, largely as a result of the integration of South Kal (SKO) production capacity. FY19 production guidance is forecast at 600-640koz at an AISC of A$1,025-$1,125/oz, which we see as conservative. Argonaut believes NST has strong potential to flex milling capacity and move >700kozpa in the short term via existing capacity and toll treatment or potential M&A. NST continues to trade on premium metrics including ~22x EV/FCF and >$6,000oz EV/production. We maintain our HOLD recommendation and we look for additional detail at the Strategy Day on August 4th
MOD Resources (MOD) | Consolidating T3 | BUY
Market Cap $109m | Current Price $0.47 | Target Price $0.83
Mod Resources (MOD) has signed a binding agreement to acquire Metal Tiger’s (LON:MTR) 30% stake in the T3 deposit, the key asset in the greater Kalahari Copper Project in Botswana. The all scrip deal, comprising 17.2m MOD shares and 40.6m options (at zero exercise price), values the transaction at $26.6m based on MOD’s 20 day VWAP of $0.46/sh. This implies a see-through value of $87m for the T3 deposit. The transaction incorporates mechanisms to maintain MTR ‘s shareholding in MOD at <=12.5% and gives MOD the option to acquire 100% of joint venture (JV) exploration tenements within the project area. MTR has agreed to support MOD’s Board in any change of control recommendations. We see this transaction as a positive for MOD as it gains 100% of T3, increasing the Company’s control in the project and raising takeover appeal. We highlight MOD’s strategic value as one of the few listed companies globally with an economically feasible copper project and a belt scale land holding. Few acquirable copper plays remain listed on the ASX following the recent acquisitions of Avanco Resources (AVB) and Finders Resources (FND). BUY recommendation with revised target price of $0.83
Recent Contacts & Presentations:
Birimian (BGS), Breaker Resources (BRB), Galena Mining (G1A), Valmec (VMX),Bryah Resources (BYH), Calima Energy (CE1) Genesis Minerals (GMD), Agrimin (AMN), Magnetic Resources (MAU), Core Exploration (CXO), Marindi Metals (MZN), MOD Resources (MOD), Santos (STO), Adriatic Metals (ADT) Bio–Gene Technology (BGT), Walkabout Resources (WKT), Triton Minerals (TON), Calima Energy (CE1), Peel Mining (PEX), Catalyst Metals (CYL), Vault Intelligence (VLT), Doray Minerals (DRM), Nzuri Coppoer (NZC), Bowen Coking Coal (BCB), Phosphagenics Limited (POH) Great Boulder Resources (GBR), Orthocell (OCC), Northern Minerals (NTU), ABM Resources Ltd (ABU), Vital Metals Ltd (VML), Todd River Resources Ltd (TRT), Pacific Energy Ltd (PEA), Carnarvon Petroleum Ltd (CVN), Australian Mines Ltd (AUZ), Australian Finance Group (AFG), Paladin Energy Ltd (PDN), Cooper Energy Ltd (COE), Medibio Ltd (MEB), Botanix Pharmaceuticals Ltd (BOT), Salt Lake Potash Ltd (SO4), Golden Mile Resources Ltd (G88), NTM Gold Ltd (NTM), Ausmex Mining Group Ltd (AMG), Matrix C&E Ltd (MCE), Austal Ltd (ASB), Decmil Group Ltd (DCG), Ventnor Resources Ltd, Ausdrill Ltd (ASL), Alice Queen Ltd (AQX), PNX Metals Ltd (PNX), Alliance Resources Ltd (AGS), Myanmar Metals Ltd (MYL), Primary Gold Ltd (PGO), Sino Gas & Energy Holdings Ltd (SHE)