Market Update & Important Indicators
The Nasdaq Composite Index breached its all-time closing high for the first time in 15 years on Thursday. The S&P and Dow were both up marginally, rising 0.2% and 0.1% respectively.
Australia's equities market drifted broadly sideways Thursday as a jump in mining shares on the back of a rally in the iron-ore price was offset by weakness in banks and higher-yielding shares as doubts grow interest rates will be cut in May. The S&P/ASX 200 ended the day up 7.3 points, or 0.1%, at 5,844.8.
European stocks slipped Thursday in response to figures showing that the region's economy slowed in April, coupled with lasting concerns over the future of Greece. The Stoxx Europe 600 index closed 0.4% lower, after quickly surrendering early gains. Germany's DAX led declines, falling 1.2%, while France's CAC 40 lost 0.6%.
Shares in Hong Kong also slipped Thursday, after a reading showing manufacturing activity in China fell to a one-year low, indicating continued weakness in the economy. The Hang Seng Index lost 0.4% to 27,827.7, failing to close above 28,000 after climbing above that level intraday for a second day in a row.
Metals on the LME were mixed with copper gaining 0.7% to US$2.70/lb and zinc falling 0.6% to US$1.01/lb. Gold was up 0.6% to US$1,194/oz, while Brent displayed strong gains, rising 3.4% to US$64.85/bbl.
In This Issue
Northern Star (NST) | HOLD
Northern Star (NST) delivered 131koz @ AISC $1,172/oz (v Argonaut forecast 142koz @ AISC A$1,121/oz). Normalised FCF was ~A$33m, adjusting for A$17m tax, $6m M&A costs and $17m debt repayment. The Company’s A$50m exploration budget remains a key differentiator, and given conducive geology, Argonaut is anticipating high grade results in the near term. Given strong cash flow, solid balance sheet (A$106.5m cash and bullion) and modest asset pricings, the Company will likely contemplate additional acquisitions. This could further enhance its broader metrics, as the Company will now be compared against a North America dominated peer group in the GDX. The Company has been prudent with its acquisition targets, evident from the lack of participation in the recent ~A$414m La Mancha Frog’s Leg deal. HOLD recommendation maintained with a revised valuation of $1.85 (was $1.88).
Sandfire Resources (SFR) | BUY
Sandfire Resources (SFR) released March Q results producing 17.1kt copper and 10.2koz gold in concentrate, up 11% and 12% Q-on-Q respectively. This was broadly in line with Argonaut’s forecast of 17.4kt copper and 10.0koz gold. As expected, plant upgrades improved recoveries, which rose 2%. C1 cash costs fell from US$1.18/lb to US$0.97/lb. At March 31, the Company had $58m cash and $125m outstanding debt following $5m debt repayment and a ~$5m interim dividend payment (vs $46m cash and $130m debt at December 31). Argonaut maintains a BUY recommendation and $6.10 target price.
Sino Gas & Energy (SEH) | BUY
On 23 April 2015 SEH announced a $80m capital raising at $0.16/ps comprising an unconditional $32.3m placement, a conditional A$47.7m placement (subject to shareholder approval) and a Share Purchase Plan. According to SEH the placement will fund the company towards Overall Development Plan (ODP) approval, exploration activity and provide working capital. In addition the capital raise will provide flexibility for debt repayment, strengthen the balance sheet and bolster SEH’s financial strength for commercial dealings and general corporate purposes.
The 202m shares issued under Tranche 1 has increased the amount of shares on issue to ~1.75b and we have subsequently adjusted our valuation down to A$0.35/ps. Assuming shareholder approval for the Tranche 2 placement, SEH will have 2.04b shares on issue. The additional 0.5b shares issued further dilutes our valuation from A$0.35/ps to A$0.31/ps. While we view this capital raising as significantly dilutive due to price and quantum we are still attracted to the underlying assets and technical execution of the project. We remain positive on SEH. BUY maintained.
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)
Please read Argonaut's Important Disclaimers & disclosures
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