Market Update & Important Indicators
Declines in commodity-sensitive shares dragged U.S. stocks lower Monday. Traders said volumes were lighter than average, ahead of a slew of corporate earnings this week from companies including Apple, Facebook, Procter & Gamble and Exxon Mobil, as well as two major central bank meetings. The Dow Jones Industrial Average has advanced more than 14% since its low for the year in February, propelling the blue-chip index near its all-time high. But the pace of gains has moderated in recent sessions. The Dow's 0.6% increase last week marked its smallest weekly rise this year.
European stocks dropped Monday, with German shares falling on the back of downbeat data from the region's largest economy. The Stoxx Europe 600 fell 0.5% to close at 346.68, led by losses among oil and gas, basic materials and financial shares. The Ifo Institute reported an unexpected fall in its German business sentiment reading. The Ifo business climate index fell to 106.6 in April, compared with a forecast of 107.0.
Most Asian stock markets fell on Monday, as investors stayed cautious ahead of monetary decisions from both the U.S. Federal Reserve and the Bank of Japan later in the week. Both Hong Kong's Hang Seng Index and Japan's Nikkei Stock Average fell 0.8%, while the Shanghai Composite Index shed 0.4%. Shares in Japan fell as the Japanese yen strengthened by 0.4% against the U.S. dollar during the Asian trading day.
Copper prices closed down in London, largely tracking oil prices lower. The London Metal Exchange's three-month copper contract was down 1% at $4,982.50 a metric ton at the PM kerb close, below the key $5,000 a ton level. Brent for June delivery was lower throughout the session. Copper and oil are frequently bought together as part of a basket of commodities, so large moves in the oil price tend to have a knock-on effect in copper. Among the other base metals, aluminum was up 0.1% at $1,645 a ton, zinc was down 1.6% at $1,871 a ton, nickel was up 0.4% at $9,096 a ton, lead was down 2.0% at $1,752 a ton and tin was flat at $17,507 a ton.
In This Issue
Western Areas (WSA) | Cashed-up for countercyclical pursuits| BUY
Western Areas (WSA) reported March Q results with 6.2kt nickel in concentrate produced at C1 costs of $3.15/lb (assuming 72% payability) in line with Argonaut’s forecast of 6.1kt at $3.10/lb. Cash outflow of ~$9m, before $25m debt drawdown and quotational price (QP) adjustments, was higher than anticipated. Argonaut had forecast cash breakeven at US$4.00/lb nickel price and 0.72 AUD/USD. Post quarter, WSA raised $60m via a share placement at $2.00/sh and a share purchase plan (SPP) capped at $10m is ongoing (closing 27 April 2016). Argonaut maintains a BUY recommendation with a revised target price of $2.90.
Energia Minerals (EMX) | Gorno progresses to DFS | SPEC BUY
Energia Minerals (EMX) announced a positive Scoping Study on the Gorno zinc/lead project in Italy. Subsequently, the Company has decided to progress to a Definitive Feasibility Study (DFS) which is expected to be completed late-2016. With $10m in cash and liquid assets, EMX is funded to complete the required drilling, environmental permitting and metallurgical test work. Key to the BFS is the drill out of the lower Colonna Zorzone deposit to improve Resource confidence and enable detailed mine scheduling. Gorno benefits from extensive underground development with established access to unmined mineralisation in the high grade Zorzone and Fortuna mines. The project has near-term development potential with first production slated for H1 CY18. SPEC BUY maintained with a revised target price of $0.10 (previously $0.08).
Resolute (RSG) | March Q| HOLD
Resolute Mining (RSG) delivered 79koz @ AISC A$1,205/oz during the March Q, in-line with Argonaut’s estimate of 81koz @ A$1,206/oz. The balance sheet improved during the quarter from net debt of A$22m to a net cash position of A$19m. Underpinning the strong financial performance was the high grades of 3.7g/t (3.1g/t December Q) milled at Syama. The June Q will be newsflow rich with studies on the Syama Underground and Ravenswood expansion both expected. Delivering on these projects could transform RSG into a low cost, long life, sizable gold producer. Encouragingly, recently results from the Syama underground were amongst the best delivered by ASX gold producers. Despite upgrading our TP to A$0.80 (was A$0.55), we downgrade from Spec Buy to Hold due to share price appreciation.
Gold Road (GOR) | Above and beyond| BUY
Gold Road (GOR) completed a Resource update at its 100% owned Gruyere Project in WA, increasing the Resource to 6.2Moz @ 1.30g/t (was 5.6Moz @ 1.36g/t), following an in-fill drilling program and revised economic parameters (see below). The update saw 13.9Mt reporting into the Measured category (was 1.6Mt), enhancing the confidence on the first 2 years of production. Converting a significant percentage of ore into the Measured Category is not considered standard practice and above and beyond the requirements for ore reserves and a Definitive Feasibility Study. BUY maintained. The stock remains a key pick in the gold developer space.
Recent Contacts & Presentations
Red 5 (RED), Medusa Mining (MML), Saracen Mineral Holdings (SAR), Paradigm BioPharmaceuticals (PAR), Pilbara Minerals (PLS), Energia Minerals (EMX), Deep Yellow (DYL), Paladin Energy (PDN), Kidman Resources (KDR), Dakota Minerals (DKO), West Africa Resources (WAF), Finders (FND), Credo Resources (CRQ) , Orthocell (OCC), Capricorn Metals (CMM), Gold Road Resources (GOR), SRG (STS), Reward (RWD), Agrimin (AMN), Decimal (DSX), SRG Limited (STS), Peet (PPC)