Market Update & Important Indicators:
U.S. stocks rose Wednesday as shares of energy companies climbed with the price of oil and earnings offered fresh signs of profitability at banks. Stocks have struggled to hold a rally in recent sessions as earnings reports have provided a unclear picture of corporate health amid ongoing concerns about the slow pace of economic growth and stretched valuations. On Wednesday, better-than-expected results from Morgan Stanley and Halliburton helped put the S&P 500 on track for a second-consecutive day of gains for the first time in nearly two weeks. Energy stocks gained the most in the S&P 500, rising 2% as the price of oil climbed 2.6% after data showed a surprise reduction in U.S. crude inventories last week.
The Stoxx Europe 600 rose 0.3%, following a mixed session in Asia. The retail sector led gains, while the telecom sector was the worst performer. European Central Bank officials hold a policy meeting in Frankfurt on Thursday. Many investors are expecting ECB President Mario Draghi to reassure the market about the bank's expansive bond-purchase program after a report of a possible abrupt end to quantitative easing unsettled markets earlier this month.
Asian shares were mixed Wednesday despite the release of largely positive China economic data. The world's second-biggest economy expanded 6.7% in the third quarter from a year earlier, matching growth in the previous quarter, official data showed. The figure was also in line with a forecast by economists polled by The Wall Street Journal. China's September retail sales data jumped 10.7% from a year earlier, also matching expectations. However, industrial output came in below forecasts, even as it rose 6.1% from a year earlier. The numbers showed that Chinese government measures to cut industrial capacity were working, helping to boost prices charged by manufacturers, said Alex Wong, director of asset management at Ample Capital. China equities traders, however, were not impressed. The Shanghai Composite Index closed flat while the Shenzhen Composite Index fell 0.1%. Hong Kong's Hang Seng Index was down 0.5% as well, retreating after Tuesday's 1.6% gain. Japan's Nikkei Stock Average edged up 0.2%, as investors there waited for more corporate earnings to assess trends.
Takeover activity and an improvement in commodity prices helped lift Australian shares Wednesday. Rising for a second straight day, the S&P/ASX 200 gained 24.6 points, or 0.5%, to finish at 5435.4. Investors appeared to brush aside a raft of data out of China, Australia's biggest export market, that included an as-expected 6.7% expansion in the world's second-largest economy in the third quarter from a year earlier. Most sectors of the local market were higher, although the basket of consumer staples stocks and information technology shares were modestly weaker.
The London Metal Exchange's three-month copper contract closed down 0.2% at $4,671/t. Aluminium fell 0.6% to $1,623/t and nickel fell 1.0% to $10,266/t. Zinc rose 1.0% to $2,294/t, tin rose 1.7% to $20,017/t and lead rose 1.4% to $1,986/t.
In this Issue:
St Barbara (SBM) | Transitioning to net cash | BUY
Market Cap $1,343m | Current Price $2.68 | Valuation $2.91
St Barbara (SBM) delivered another better than expected Q, producing 93koz at A$935/oz (-2% vs Argonaut 90koz @ A$997/oz) and record cash flow of A$83m. The better performance came from a 12% rise in mined grades at Gwalia to 10.4g/t (vs 9.3g/t Jun Q) which translated to a 3% gain in mined ounces. Resource extension continues to highlight the persistence of the Gwalia structure and grades at >2000mbs through deep drilling. Newly identified extensions to existing lodes at the Gwalia 1600-1700 level could potentially add low cost incremental production adjacent to existing development. Debt was reduced to US$128m and will fall to US$73m, following scheduled debt repayments which will see SBM transition to being net cash positive in the Dec Q (from A$311m net debt y-o-y). We upgrade our recommendation to BUY and target price of A$2.91ps.
Western Areas (WSA) | Cash increases despite lower production | HOLD
Market Cap $693m | Current Price $2.55 | Target Price $2.60
Western Areas (WSA) released September Q results with 5.8kt Ni in concentrate @ C1 costs of A$2.53/lb (before payability), versus Argonaut’s forecast of 5.5kt @ A$2.40/lb. Production fell Q-on-Q as the mill head grade (4.1% Ni) tracked lower towards the residual Reserve grade of the Spotted Quoll (SQ) and Flying Fox (FF) mines (4.0% Ni). A reduction in total mining costs coupled with a 20% increase in the realised Ni price, resulted in $5.4m free cash generation. On the development front, WSA increased the New Morning Resource by 165% following a campaign of surface drilling.
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), Minotaur Exploration Ltd (MEP)
Please read Argonaut's Important Disclaimers & disclosures