Market Update & Important Indicators
U.S. stocks fell slightly Wednesday. Fed officials are weighing the slowdown in economic growth at the start of the year as they debate when to raise short-term rates for the first time since June 2006. High-yielding stocks, such as those in the utilities and telecom sectors, were among the biggest gainers in the S&P 500 Wednesday. Stocks of financial companies like banks, which benefit from higher rates because they are able to charge more on loans, fell the most.
European stocks finished higher Wednesday, with shares of some financial institutions climbing after long-awaited penalties were leveled against U.S. and European banks for manipulating foreign currency markets. The Stoxx Europe 600 rose 0.4% to 406.42, helped by gains in the telecom and financials sectors. Germany's DAX 30 settled about 5 points lower at 11,802.00, while France's CAC 40 turned up 0.3% to 5,133.30.
Tokyo stocks finished at a 15-year high Wednesday after data showed Japan's economy grew at its fastest pace in a year during the first quarter. The Nikkei Stock Average finished up 0.9% at 20196.56, its highest closing mark since April 2000. The gains came after data showed Japan's gross domestic product expanded an annualized 2.4% during the first quarter, higher than a 1.5% gain forecast by economists. That followed on the heels of upbeat U.S. housing data overnight. The Shanghai Composite Index was up 0.9%, with the prospect of further stimulus and investment from Beijing still on investors' minds.
Nickel and Copper closed higher on the LME on Wednesday. Oil prices snapped a five-session losing streak Wednesday after weekly government data showed unexpectedly large drops in U.S. crude-oil and petroleum-product supplies. Gold prices whipsawed after minutes from the Federal Reserve's April meeting showed officials doubted the economy was ready for a June interest-rate increase. Gold is steady at US$1,209/oz.
In This Issue
Gold Road (GOR) |SPEC BUY
Argonaut’s site visit to Gold Road’s (GOR) Gruyere Project confirmed the Company is on track to deliver an enhanced Pre-Feasibility (PFS, Phase I). As highlighted in the Scoping Study, the project has the potential to support a >7.5Mtpa operation. With significant drilling completed at Gruyere and deposit remaining open, the upcoming Resource update is likely supportive of an upsized operation, resulting in enhanced overall project economics. Recent corporate activity in the gold sector reinforces Argonaut’s view that quality Australian assets are highly sought after. Gruyere’s scale, geometry, long life, and favourable metallurgical properties combined with a low sovereign risk jurisdiction, will ensure the asset attracts market and corporate attention. The asset would suit a number of gold producers, including Independence Group (IGO, SELL, Valuation $4.65) or Regis (RRL, HOLD, valuation A$1.40). Our scenario analysis demonstrates a potential acquisition appears accretive on several fronts (see Page 4). Argonaut’s valuation increases to A$0.70 (was A$0.60) after factoring in a ~270koz pa operation. SPECULATIVE BUY recommendation maintained.
Matrix (MCE) | HOLD
Recent orders have helped build the order book to a decent US$97.7m, but because they will be delivered over a longer period MCE has had to reduce output to match timing. The impact will be partly offset by further cost reductions, but this is not enough to prevent us reducing earnings forecasts over the next two years. Longer term, given the murky outlook for offshore drilling rigs and associated equipment, we note that recovery will require further product and market diversification. Our hold call remains appropriate.
Recent Contacts & Presentations
Gold Road (GOR), Saracen (SAR), Kibaran (KNL), Sino Gas & Energy (SEH), Rewardle (RXH), Alexium (AJX), Ausdrill (ASL), Tox Free (TOX), OBJ Limited (OBJ), Cash Converters (CCV), Decmil (DCG), TFS Corporation (TFC), Mobile Embrace (MBE), Dacian (DCN), Fertoz (FTZ), Atrum (ATU), Doray (DRM), Buru Energy (BRU), Carnarvon Energy (CVN), Otto Energy (OEL), Empire Oil & Gas (EGO), Pura Vida Energy NL (PVD), MZI Resources (MZI), High Peak Royalties (HPR), Spookfish (SFI), Mungana (MUX), Image Resources (IMA)