Market Update & Important Indicators:
U.S. stocks closed higher on Tuesday with the S&P 500 and the Nasdaq setting record highs, while Treasuries tumbled as investors resumed bets that growth in the world’s largest economy is set to accelerate. Commodities rallied, as the Dow Jones, the S&P 500 and the Nasdaq were up 0.6%, 0.7% and 0.9% respectively. In other news, U.S. President Donald Trump has announced plans to "embrace shale oil and gas," end the defense sequester, grow the military, develop "offensive cyber capabilities" and roll back regulation which the White House says cost the economy US$2T in 2015 alone. ANZ says that's equivalent to 11% of nominal GDP which may draw the attention of the Federal Reserve. In commodity news, steel may be the big winner from President Trump's executive orders to restart progress on two major oil pipelines in the U.S. Optimism over the state of the domestic steel industry has risen on Trump's focus on manufacturing jobs and US production.
In European markets, equities closed mostly higher on Tuesday. The French CAC 40 and Germany’s DAX added 0.2% and 0.4% respectively, whilst the FTSE 100 remained flat.
Asian share markets ended mixed on Tuesday after U.S. President Trump’s decision to withdraw from the Trans-Pacific Partnership led to a decline for many Asian exporters. At the close, the Nikkei 225 was down 0.6%, whilst the Hang Seng and Shanghai Composite both added 0.2%. At the close, India’s Sensex rose 1.0%.
In Australia, the local market opened higher on Tuesday and continued to gather momentum on the back of rising commodity prices. However, investors remained cautious following Trump’s decision to withdraw the U.S. from the Trans-Pacific Partnership deal. There were mixed results from sectors with healthcare and materials gaining the most significantly, whilst utilities were the worst performer for the session. The Australian dollar was down amongst all other major currencies. The All Ordinaries rose 38.30 points to 5,706 whilst the S&P/ASX 200 rose 39.10 points to 5,650. Investors will also be looking to the release of 4Q consumer inflation numbers later in the morning. Futures point to an opening gain of 38 points for the ASX 200, adding to Tuesday's rise of 39.1 points to 5650.1. In other commodity news, Iron-ore gained 2.5% to US$82.80 overnight.
The London Metal Exchange's three-month copper contract closed up 0.8% at $5,795/t. All other base metals finished up on Tuesday. Aluminium prices rose 0.9% to $1,871/t, zinc prices rose 1.3% to $2,812/t, nickel prices rose 0.9% to $9,741/t, lead prices rose 2.6% to $2,438/t and tin prices rose 1.3% to $20,373/t.
In this Issue:
Sandfire Resources (SFR) | Debt free, cash generation increasing | HOLD
Market cap $995 | Current Price $6.31 | Target Price $6.25
Sandfire Resources (SFR) released a strong December Q with 18.1kt copper and 10.2koz gold in concentrate, beating Argonaut’s forecast of 16.0kt copper and 9.0koz gold. Low costs (US$0.81/lb C1), high sales volumes, rising copper prices and positive Quotational Pricing (QP) adjustments resulted in strong cashflow, with group cash increasing ~$53m Q-on-Q. Subsequently, SFR announced it will repay the $50m outstanding debt at the end of January 2017. Argonaut’s target price increases to $6.25, however we downgrade to a HOLD recommendation due to recent share price accretion (previously BUY at $5.80).
Saracen Mineral Holdings (SAR) | Time to deliver | HOLD
Market cap $941 | Current Price $1.16 | Target Price $1.22
Saracen Holdings (SAR) released record December Q production of 66.2koz (previously released) at all-in sustaining costs (AISC) of $1,416/oz (in line with Argonaut’s forecast of 65koz at $1,350/oz. The cash balance increased by just $1.4m to $43.9m as Thunderbox stripping and exploration expenditure remained high. H2 FY17 will be a defining period for the Company as the market expects delivery on forecast higher production and lower costs. After becoming debt free in March Q 2015, SAR has added very little cash to its balance sheet, consistently ranging between $30-45m. Argonaut maintains a HOLD recommendation with a revised target price of $1.22.
Western Areas (WSA) | Solid December Q | BUY
Market cap $659 | Current Price $2.42 | Target Price $2.70
Western Areas (WSA) generated a strong December Q producing 5.8kt nickel in concentrate at C1 costs of $2.35/lb (before payability), beating Argonaut’s forecast of 5.4kt at $2.50/lb. WSA’s cash balance increased to $104m from $81m in the previous Q, benefiting from higher nickel prices, lower costs, higher sales and several positive one-off items. The Company is maintaining growth and development projects including the Odysseus Project Feasibility Study (due in The Mach Q 2017) and regional exploration at both Cosmos and Forrestania. We believe the development of Cosmos as a second production facility and the ongoing group Resource development puts WSA in a strong position to benefit from a nickel price recovery. In light of the recent share price weakness, Argonaut upgrades WSA to a BUY (from HOLD).
Recent Contacts & Presentations:
Syntonic Ltd (SYT), MZI Resources Ltd (MZI), Resolute Mining Ltd (RSG), Capricorn Metals Ltd (CMM), Eve Investments Ltd (EVE), Australian Mines Ltd (AUZ), Heron Resources Ltd (HRR), St George Mining Ltd (SGQ), Threat Protect Australia Ltd (TPS), Paringa Resources Ltd (PNL), The Gruden Group Ltd (GGL), Primary Gold Ltd (PGO), Vault Intelligence Ltd (VLT), Botanix Pharmaceuticals Ltd (BOT) Orthocell Ltd (OCC), Strandline Resources Ltd (STA) Dragontail Systems Ltd (DTS), ABM Resources Ltd (ABU), Acacia Coal Ltd (AJC), Troy Resources Ltd (TRY), Hazer Group Ltd (HZR), Berkeley Energia Ltd (BKY), Sino Gas & Energy Holdings Ltd (SEH), Sovereign Metals Ltd (SVM)