Market Update & Important Indicators
U.S. stocks fell in afternoon trading Thursday, as Greece's bailout talks with creditors appeared set to stretch into the weekend. The Dow opened higher and gave up gains during the day, turning lower in afternoon trade. The Dow Jones Industrial Average was down 76 points, or 0.3%, to 17890. The S&P 500 index fell 6 points, or 0.2%, to 2102, and the Nasdaq Composite Index lost 13 points, or 0.2%, to 5112.
European stocks closed flat. Germany's DAX inched up 0.02% and France's CAC-40 slipped 0.07%. Eurozone finance ministers on Thursday concluded a meeting to give Athens and the institutions overseeing its bailout more time to agree on conditions for desperately needed aid. Negotiations are expected to stretch into the weekend, as significant differences remain over pension cuts and other aid conditions. Without a deal, Greece is set to default on a June 30 payment to the International Monetary Fund.
Small Chinese startup stocks fell briefly into bear territory before regaining some ground Thursday, as a second week of bumpy trading continued to unsettle the Chinese stock market. The Shenzhen Composite Index finished down 3.8% while the Shanghai benchmark, the largest on the mainland, closed off 3.5%.
Broad selling pushed Australian shares lower Thursday, breaking a four-day rising streak as optimism Greece is close to securing a debt deal with its creditors faded. Shares in the big banks, which had been recovering in recent days after falling steadily from March highs, were mostly lower. Westpac fell 1.1%, Australia & New Zealand Banking lost 0.6% and National Australia Bank shed 0.2%. Commonwealth Bank bucked the trend, nudging up 0.1%. BHP Billiton and Rio Tinto resisted the worst of the selling among mining stocks, with both drifting 0.1% lower, while fellow iron-ore producer Fortescue Metals Group lost 3.6%. The energy sector also lost ground, with Woodside Petroleum down 1%, Oil Search losing 0.7% and Santos 2% weaker.
Metals on the LME were mixed with copper gaining 0.6% to US$2.61/lb, while zinc lost 0.3% to US$0.92/lb. Gold was down slightly to US$1,173/oz and brent also lost ground falling 0.2% to US$63.36/bbl.
In This Issue
WA gas deal highlights Perth Basin importance
The recent agreement between the Premier of Western Australia (WA) and the Woodside (WPL) led Browse LNG project JV (Browse) regarding the source of supply to satisfy the WA domestic gas (Domgas) reservation policy has far reaching ramifications for onshore gas assets. The Browse project, which in the past has been mired by numerous issues such as the politically unpalatable development site at the remote James Price Point location, the exceedingly large cost for onshore development and the prohibitive WA Domgas requirement, is effectively the last mega LNG project left to develop in WA once Gorgon, Wheatstone, Prelude and Ichthys (downstream) complete.
The agreement reached still requires the Browse JV to supply domestic gas (~800 PJ) however a variation allows the supply to be from other sources and not directly from the offshore Browse fields (Brecknock, Calliance & Torosa). This allows the consortium to tap other gas sources to satisfy the Western Australian 15% domestic gas reservation policy.
The Perth Basin is optimally located to fulfil the Domgas requirement for the Browse project. Whilst all companies in the Perth Basin could potentially benefit from the increased attention we view, AWE Limited (AWE), Origin Energy (ORG), Empire Oil & Gas (EGO) and Transerv Limited (TSV) as best placed to supply the required 60TJ/d gas and thus the most likely targets.
Whilst the development of the Browse project appears far away (we would anticipate final investment decision (FID) in late 2017 / early 2018) it is important to note that the WPL led consortium is looking to begin front end engineering design (FEED) work shortly which will need to incorporate the domestic gas component of the full development case.
Sandfire Resources (SFR)
Sandfire Resources (SFR) released assay results from the massive sulphide intercept in hole TLDD004A (4A) at the Monty prospect with an outstanding 16.5m at 18.9% copper and 2.1g/t gold (downhole width). This announcement follows the report of the massive sulphide hit on 17 June. This is the first massive sulphide intercept in the Doolgunna Project by SFR since the discovery of the C5, the final orebody discovered at the DeGrussa mine. A second drill hole along strike of the discovery has been planned and will commence following completion of hole 4A. Argonaut maintains a BUY recommendation with a $6.50 target price (previously $6.10). Our price revision follows adjustments to operating costs, higher Q4 FY15 production and reduced capex from FY18 following recent conversations with management. We currently attribute $80m or $0.51/sh for exploration upside for the Doolgunna Project and each additional year’s production adds ~12% to our valuation.
Argonaut’s Stock Coverage & Recommendations
Recent Contacts & Presentations
Northern Star (NST), Sandfire (SFR), Western Areas (WSA), Panoramic Resources (PAN), Regis (RRL), Kingsrose (KRM), Medusa (MML), Pacific Energy (PEA), Orbital (OEC), Peet (PPC), Alexium (AJX), Austal (ASB), Empired (EPD), Rewardle (RXH), Saracen (SAR), Sino Gas & Energy (SEH), Dacian (DCN), Buru Energy (BRU), Carnarvon Energy (CVN), Otto Energy (OEL), Empire Oil & Gas (EGO), Pura Vida Energy NL (PVD), High Peak Royalties (HPR), Carnarvon Petroleum (CVR)