Market Update & Important Indicators
The S&P 500 inched toward an all-time high following a batch of better-than-expected earnings reports, even as a selloff in the gold market battered shares of mining companies. Receding fears about Greece's financial situation and a handful of stronger-than-expected earnings reports have bolstered stocks in recent sessions. Both the Dow Jones and S&P 500 rose 0.1% to 18,100 and 2,128 respectively.
Australia's equities market managed a modest gain Monday, rising for a fifth straight session as a continuing recovery for banking shares offset weakness in resources. The ASX 200 lifted 0.3% to 5,687.
European stocks clocked a ninth consecutive session of gains Monday, fuelled by investors' growing confidence that Greece has avoided a costly exit from the Eurozone and will receive a fresh package of long-term financial support from international creditors. The Euro Stoxx 50 index gained 0.4% to 3,687.
China shares recovered to finish up for the third straight day Monday as the market continued to stabilise after its recent rout. On Saturday, the central bank issued guidelines on its website to regulate fast-growing Internet finance as part of efforts to address risks exposed by the recent stock market turmoil. Informal lending channels such as peer-to-peer lending, which directly connects borrowers and lenders, have played a major role pumping up the market, but also exacerbating its declines. The Shanghai Comp was up 0.8%.
Metals on the LME were down with the exception of nickel which rose 1.71% to US$5.29/lb. Copper was largely flat, while zinc dropped 0.5% to US$0.93/lb. Gold fell sharpy, losing 3.1% to US$1098/oz and Brent fell 0.8% to US$56.65/bbl. The AUD/USD is trading at 0.737.
In This Issue
GR Engineering (GNG) | BUY
GNG has entered into an EPC contract with Western Areas for the Forrestania Mill Recovery Enhancement Project. Detailed engineering and procurement will commence immediately, with revenue of ~$7m falling into 1H16. Subject to a decision to proceed (which we assume likely), GNG will earn another ~$15m over the six month construction period, most of which we expect to fall in 2H16. We reiterate – 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. Buy call maintained.
Perseus Mining (PRU) | BUY
Perseus Mining (PRU) delivered a record Q, producing 65koz @ all-in site cost of US$685/oz (v Argonaut forecast 60koz @ US$1,052/oz). Cash build was A$43.6m, also significantly above our estimate. This result puts the Company in a solid financial position (cash and bullion of A$127m, nil debt) to commence development at Sissingué (expected H2 CY15) and fund capex associated with eastern pits at Edikan. With the relocation and pre-stripping activities commenced during the June Q following environmental approval, PRU’s per ounce costs will increase in FY16 (guidance 190-210koz @ US$1,100-1,200/oz). Argonaut revises its valuation to A$0.50 (was A$0.47) due to stronger than anticipated cash build. BUY maintained.
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 Petroleum (CVN), Otto Energy (OEL), Empire Oil & Gas (EGO), Pura Vida Energy NL (PVD), High Peak Royalties (HPR), Karoon Gas (KAR), Austex Oil (AOK), UIL Energy (UIL), Tlou Energy (TOU), FAR Limited (FAR), Cooper Energy (COE), Central Petroleum (CTP), Senex Enrgy (SXY)