Market Update & Important Indicators
U.S. stocks erased intraday gains heading into the close, dashing hopes for lasting relief from the weeklong rout. The People’s Bank of China said it had cut interest rate by one-quarter of a percentage point and reduced bank reserve requirements by one-half of a percentage point. The move was an effort to boost liquidity in the face of a meltdown in the Chinese stock market. Stocks got further support as the Confidence Board said consumers' view of the economy this month rose to the highest level since January. The survey was conducted this month through Aug. 13, meaning responses don't reflect sentiment in the wake of the recent plunge in financial markets.
European shares rebounded sharply from the previous session's slump. The Stoxx Europe 600 index closed 4.2% higher, its biggest one-day gain since September 2011. Germany's DAX rose 5.0%, France's CAC 40 climbed 4.1% and the U.K.'s FTSE 100 closed 3.1% higher.
China's stock-market crash has wiped out more than $1 trillion in value from equities and sent its main stock index down 22% over the past four days. Markets elsewhere in Asia, meanwhile, started to move past China's troubles, with shares in Australia, South Korea and Taiwan logging gains. While Japan's shares ended 4% lower its main index rose as much as 1.6% earlier in the day. Analysts had been calling for Beijing to take bolder steps to address its stalling economy, and some attribute the latest bout of losses to disappointment that officials hadn't done more sooner. This rate cut is China's fifth since late last year. On Tuesday, the Shanghai Composite Index closed down 7.6% to 2964.97, below the 3000 level for the first time since December 2014. The steep losses follow a drop of 8.5% on Monday, the worst single-day loss in more than eight years. The index is down 8.3% for the year and has fallen 43% since its June peak. The smaller Shenzhen market, down 7.1% Tuesday, is now off 44% from its June peak, although it is still holding on to gains of nearly 24% for the year.
LME metals closed higher, as the surprise rate cut by China's central bank bolstered hopes for stable demand from the world's second largest economy after months of price falls in this metal and others. Oil prices staged a comeback, amid gains from bargain hunting and short covering spurred on by an interest-rate cut from China's central bank. Gold dropped to $1,140/oz.
In This Issue
Kibaran Resources (KNL) | SPEC BUY
After a long time in-process, Kibaran Resources (KNL) has finally converted the Letter of Intent (LOI) with leading commodity trading group ThyssenKrupp Metallurgical Products GmbH into a formal off-take agreement. The agreement is for a minimum 20kt of natural flake graphite from KNL’s Epanko graphite project in Tanzania to be sold into Europe, Turkey, Russia, Ukraine and Korea. This is a long term, 10 year agreement with a five year extension option.
Sandfire Resources (SFR) | BUY
Sandfire Resources (SFR) released a drilling update from the Monty Prospect, part of the greater Doolgunna Project. Two up-dip holes TLDD0009 and TLDD0010 intercepted massive sulphides with down-hole widths of 7.5m and 10.5m respectively. Down-dip drill holes TLDD0008 and TLDD0011 intercepted blebby sulphides and uneconomic sulphides. The dip extent of Monty is starting to take shape, while the strike length remains open. Argonaut estimates the net current value in ground of Monty to be ~$75m.
Pacific Energy (PEA) | BUY
There were no surprises in PEA’s FY15 result, with the underlying EBITDA of $31.5m and operating cash inflow of $25.2m both within 2% of our expectations. Combined contracted capacity is now 234MW and we expect KPS’s credentials in dual- and gas-fuelled power generation to help deliver opportunities to grow this number. With visibility from additional contracted revenue in FY16 underpinning earnings growth, we maintain our blended $0.60 valuation and buy recommendation.
Recent Contacts & Presentations
Tox Free Solutions (TOX), Matrix (MCE), Dacian (DCN), Austal (ASB), Resolute (RSG), Troy (TRY), Sandfire (SFR), Saracen (SAR), Sino Gas & Energy (SEH), Buru Energy (BRU), Carnarvon Petroleum (CVN), Otto Energy (OEL), Empire Oil & Gas (EGO), Pura Vida Energy NL (PVD), High Peak Royalties (HPR), Karoon Gas (KAR), Austex Oil (AOK), Central Petroleum (CTP), Senex Energy (SXY), Newmont, Coventry (CYY), Energia (EMX), Minemakers Limited (MAK)