Market Update & Important Indicators
The big news overnight was the European Central Bank’s (ECB) decision to buy 60 billion euros (US$69 billion) a month of public and private debt until September 2016 in an attempt to ward off a deflation spiral in the region, causing global stocks to rally. In the US stocks rose for the fourth consecutive day with the S&P 500 gaining 1.5% to 2,063.1, the highest since Dec. 30. The Dow Jones Industrial Average climbed 259.7 points, or 1.5%, to 17,814.0.U.K. stocks marked a sixth consecutive advance Thursday, riding higher, along with other European markets, following the ECB’s statement. Gains in European markets included the FTSE 100 climbing 1% to 6,796.6 and the Stoxx Europe 600 finishing, its highest close in more than seven years. Asian stocks also benefitted yesterday ahead of the news with Hong Kong's Hang Seng up 0.7% to 24522.6 and Australia’s S&P ASX 200 up 0.5% at 5419.9.
Metals on the LME were mostly down, with copper losing 1.8% to US$2.58/lb and nickel falling 1.2% to US$6.71/lb. Gold was stronger at US$1302/oz (up 0.7%), while WTI fell further, losing 2.7% to US$45.99/bbl. The AUD/USD declined further to 0.802. It is worth noting that gold in AUD terms is now trading at $1623/oz.
Thought for the Day
Altona Mining – Cash backing
Altona Resources (AOH) will hold a General Meeting with shareholders next Wednesday 28th January to approve a 15c/sh capital return on the completed sale of the Company’s finish assets. Following this special dividend the Company is expected to have between $45-50m remaining cash (~8.5c/sh). With a share price of 22.5c/sh, the stock is trading below cash backing (before dividend tax consideration). AOH has interpreted the Australian Tax Office (ATO) ruling and has determined the dividend will comprise:
• 12 cents as a capital return, and
• if shareholders approve the Capital Return, the Board intends to determine and announce that an additional 3c per share will be returned to shareholders as an unfranked special dividend
Therefore 80% of the dividend will be franked.
At cash backing there is no value for the Company’s Queensland assets including the Little Eva deposit (within the Roseby project). We highlighted this theme back in July 2015, at which time we derived an NPV valuation for the Little Eva deposit of ~$185m (35c/sh). This valuation is derived using the revised project BFS metrics (applying a lower recover of 85% Cu to reflect metallurgical complexity) and a 12% discount rate. Applying a developer average EV/Resource CuEq of $40/t implies a minimum valuation of ~$60m (11c/sh) for Little Eva.
Argonaut notes that AOH has an ongoing process to divest/partially divest its Queensland assets which would realise project value. We believe that AOH is set for a valuation rerate following distribution of the special dividend.
In This Issue
Empire Oil & Gas (EGO)
Empire Oil & Gas (EGO) has released a 1P, 2P & 3P reserves update for its flagship Red Gully asset. The reserve increases are significant with 1P Gas & Condensate up 35.4% & 18.6% and 2P Gas & Condensate up 46% & 21.2% respectively. This increases our 2P development valuation to 0.43cps and is a clear demonstration of EGO’s new management putting the Company on the right track with its turnaround strategy. Our base case evaluation is premised on 2C volumes which we understand will be updated with the quarterly next week.
Recent Contacts & Presentations
Northern Star (NST), Doray Minerals (DRM), Troy Resources (TRY), Gold Road Resources (GOR), Saracen Mineral Holdings Limited (SAR), Beadell Resources Limited (BDR), Resolute Mining Limited (RSG), RTG Mining (RTG), Alexium International Group Limited (AJX), Pacific Energy Limited (PEA), Otto Energy Limited (OEL), Peninsula Energy Limited (PEN), Sandfire Resources NL (SFR), Atrum Coal (ATU), Empired (EPD), DTI Group (DTI)