Market Update & Important Indicators
U.S. stocks rose Wednesday, a continuation of back-and-forth action amid mixed first-quarter earnings. The Dow Jones Index climbed 89 points, or 0.5%, to 18,038 and the S&P 500 Index rose a similar amount to 2,108. Including results from 113 companies in the S&P 500, earnings are on track to fall 3.9% from a year earlier, according to FactSet. About 76% of those companies have beaten profit expectations that were slashed heading into the reporting season.
European stocks finished largely flat Wednesday, as investors weighed a slight easing of tensions in Greek markets against some mixed corporate earnings. The Stoxx Europe 600 ended little-changed, having swung between small gains and losses during the session. France's CAC 40 index rose 0.4%, Germany's DAX lost 0.6%, while the U.K.'s FTSE 100 closed 0.5% lower.
Japan's Nikkei Stock Average closed above 20000 Wednesday for the first time in 15 years, while China shares also rose, encouraged by Beijing's latest rhetoric. The Nikkei was up 225 points, or 1.1%, to 20,134, the first close above the 20,000 mark since April 14, 2000. The Shanghai Composite Index finished up 2.4% at 4,398, lifted by local buying, while in Hong Kong, the Hang Seng Index closed up 0.3% to 27,934.
Gold dropped 1.2% overnight to $1,187/oz, while Brent crude gained 1.0% to $62.73/bbl. Base metals were mixed, with copper declining 0.7%.
In This Issue
Ausdrill (ASL) | BUY
ASL has been awarded a ~US$223m 3+2 year mining contract by Perseus (PRU) at the Edikan Gold Mine in Ghana. This is welcome news as it removes a key African risk and provides reasonable visibility for all ASL’s key contracts in Africa. We expect there was considerable pricing pressure on this competitive tender, however our little changed forecasts already anticipated lower medium term margins. We are not expecting a near term turnaround, but maintain that ASL is undervalued on a longer term view.
Saracen (SAR) | BUY
Saracen (SAR) delivered 41.6koz (previously released) @ AISC A$1,112/oz, well on track to beat its 145-155koz guidance. Normalised FCF generation is estimated at ~$18m (~A$433/oz), after adjusting for the Karari exploration decline and project spending, including Thunderbox (TB). Strong grades from Red October (RO) and Whirling Dervish (WD), and a ~2.4Mt stockpile (by FY end) will ensure competitive costs, high margins in the near to medium term. Exploration is continuing with 7 rigs active and first results from the highly anticipated Karari underground drilling program are expected in the coming weeks. A successful extensional drilling campaign at Karari will support boosted production at Carosue Dam (to potentially >200koz pa) and lower LOM costs, which should translate to significant share price appreciation. Following retirement of the A$12m debt this Q, the Company’s balance sheet is sound with A$30.2m cash and nil debt. BUY recommendation maintained with a $0.56 target price.
Perseus (PRU) | BUY
Argonaut upgrades Perseus Mining (PRU) to a BUY with a $0.42 valuation (was $0.34) incorporating the updated LOMP and Sissingué Feasibility Study. The Company produced 47.5koz @ “All-in” site cost US$903/oz in March Q, v Argonaut forecast 48koz @ AISC US$1,220/oz. Whilst Argonaut recognises the strip ratio this Q is unsustainable (0.97:1 v LOM 4.0:1), PRU delivered a cash build of A$25.9m. With a cash balance of A$83.7m, one of the best hedgebooks on the ASX (69.5koz @ US$1,514/oz), and a scalable production profile, the stock offers ‘clean’ leverage to gold price.
Recent Contacts & Presentations
Dacian (DCN), MZI Resources (MZI), Mobile Embrace (MBE), Saracen (SAR), Fertoz (FTZ), Atrum (ATU), Doray (DRM), Buru Energy (BRU), Carnarvon Energy (CVN), Otto Energy (OEL), Empire Oil & Gas (EGO), Pura Vida Energy NL (PVD), Migme (MIG), Vmoto (VMT), Pioneer Credit (PNC), Minemakers (MAK), High Peak Royalties (HPR), Leaf Resources (LER), Austin Engineering (ANG), Ausdrill (ASL), Matrix (MCE), Austal (ASB), MMA Offshore (MRM), CTI Logistics (CLX), 99 Wuxian (NNW)