Market Update & Important Indicators
U.S. stocks wobbled between slight gains and losses intraday, weighed down by declines in shares of energy companies. The day's moves were muted, a departure from the previous week, when a string of disappointing corporate earnings reports and flaring geopolitical tensions swung major indexes, government bonds and gold. With the earnings season winding down and little on the economic calendar this week, some say the rally could remain on pause. Valuations look lofty, economic growth has been steady but uninspiring, and the fate of the White House's policy agenda looks increasingly uncertain. Still, the U.S. economy appears supportive for stocks, analysts say, since growth is fast enough to fuel corporate earnings but slow enough to keep the Federal Reserve from raising interest rates quickly. That should help stocks keep chugging higher, even with investors expressing doubts about the rally. The U.S. gold price finished higher overnight, adding 0.6% for the day to finish at 1,291.30 US$/oz.
European stocks closed lower as investors grappled with renewed U.S.-North Korea tensions, but deal news helped lift shares. The Stoxx Europe 600 index fell 0.4% to finish at 372.72, falling for a third session in a row and adding to Friday's loss of 0.7% that came after terrorist attacks in Spain. Monday's slump came as the U.S. and South Korea kicked off annual military exercises, bringing tensions between the U.S. and North Korea back into focus. Pyongyang warned on Sunday that the manoeuvres are "reckless behaviour, driving the situation into the uncontrollable phase of a nuclear war." France's CAC 40 index fell 0.5% to close at 5,087.59, and Germany's DAX 30 index lost 0.8% to finish at 12,065.99. The U.K.'s FTSE 100 index dropped 0.1% to end at 7,318.88.
Asian stocks had a split personality, with some benchmarks higher, more lower and others little changed amid a lack of trading catalysts and generally low volume. Amid a light earnings and economics calendar, as well as the Federal Reserve's Jackson Hole gathering looming later this week, there wasn't much for investors to broadly trade on. Lagging were Asia Pacific's two big underperformers of the year — Australia and Japan. Their benchmarks fell 0.4% to extend recent declines. India's Sensex is also down about that much. But Hong Kong and China shined, the former perhaps no surprise considering the gains it's seen this year.
Strong gains by iron-ore miners and energy stocks weren't enough to pull Australia's equity market out of the red, although a late recovery did manage to narrow the day's fall. The S&P/ASX 200 dropped 0.4% to 5725.9, its third-straight decline. Friday's bounce in oil prices buoyed Woodside Petroleum and Santos while Beach Energy popped 10% following its fiscal year report. Meanwhile, an enriched dividend policy fuelled Fortescue's 6.4% gain and gains in Chinese iron-ore futures helped lift larger miners BHP Billiton and Rio Tinto by more than 1%. But steel firm BlueScope plunged 22% on weak guidance and the unveiling of succession plans.
The London Metal Exchange's three-month copper contract traded higher overnight, gaining 1.5% to $6,586/t. The other base metals finished mostly higher. Aluminium prices added 0.9% to 2,089/t, whilst lead prices fell 0.6% to 2,320/t. Tin prices added 1.3% to 20,638/t, and zinc prices traded slightly higher, up 0.1% to 3,119/t. Nickel prices were the strongest overnight, jumping another 3.1% to finish at 11,264/t.
In this issue
Fortescue Metals Group (FMG) | Bumper FY17, but winter is coming| HOLD
Mkt Cap $18bn | Current Price $5.85 | Target Price $5.68
Fortescue Metals (FMG) reported a strong set of FY17 results with underlying EBITDA of US$4.7bn (vs Argonaut $4.8bn) and NPAT of US$2.1bn (vs Argonaut US$1.8bn, +15%). Full year FY17 production came in at 170.4Mt (vs 165-170Mt guidance) at a C1 cost of US$12.82/wmt (-17% yoy). A final dividend of 25cps was announced increasing total FY17 dividends to 45cps, representing a 52% payout ratio. Looking forward to FY18, FMG sees production of 170Mtpa at a C1 cost of US$11-12/wmt and an increase in the dividend payout ratio to 50-80% of net profits. We continue to believe prices will moderate in FY18 as Chinese de-capacity programs and high stockpile levels cap the upside. We also expect FMG’s capacity to maintain high level dividends will be short lived as the proposed US$1.5bn capex for the Firetail replacement options come into play in FY19. HOLD.
Metro Mining (MMI) | Barging Ahead | BUY
Market Cap $201m | Current Price $0.16 | Target Price $0.42
Metro Mining (MMI) is progressing rapidly on its Bauxite Hills project in the Cape York Peninsula in Queensland. Earth moving equipment and construction steel for the barge loadout facility are being delivered to site via barges. Due to the simple nature of the operation, construction is expected to take just 4-5 months. MMI is fully funded after securing $40m in debt facilities with Sprott Private Resource Lending and Ingatatus AG Pty and raising $38m via an equity issuance at $13.5¢. The Company is poised to benefit from the rapidly expanding seaborn bauxite market into China by ramping up to ~6Mtpa of DSO product within four years. At current prices, the project would achieve >$25/t margins, facilitating rapid payback of development capex (pre-production capex ~$36m). Argonaut maintains a BUY recommendation with a $0.42 target price.
Recent Contacts & Presentations
Northern Minerals Ltd (NTU), New Century Zinc Ltd (NCZ), Metal Bank Ltd (MBK), Rift Valley Resources Ltd (RVY), Panoramic Resources Ltd (PAN), Doray Minerals Ltd (DRM), Wellard Limited (WLD), Bryah Resources Ltd (BYH), Auris Minerals Ltd (AUR), Gage Roads Brewing Co Ltd (GRB), Stavely Minerals Ltd (SVY), Orbital Corporation Ltd (OEC), 4DS Memory Ltd (4DS), Kin Mining NL (KIN), Pharmaust Limited (PAA), Botanix Pharmaceuticals Ltd (BOT), Dimerix Ltd (DXB), Metro Mining Ltd (MMI), Paringa Resources Ltd (PNL), Independence Group NL (IGO), MZI Resources Ltd (MZI), Transerv Energy Ltd (TSV), Emmerson Resources Ltd (ERM), Antipa Minerals Ltd (AZY), Echo Resources Ltd (EAR)