Market Update & Important Indicators:
U.S. stocks drifted lower Thursday, with market attention focused on the Federal Reserve's annual meeting at Jackson Hole, Wyo. Chairwoman Janet Yellen is set to give a speech at the central bankers' conference on Friday. While little guidance on interest rates is expected, investors will be watching for any clues on the course of monetary policy or her assessment of the U.S. economy. Stocks and the dollar have been locked in a narrow range ahead of the conference, with little else on the earnings or economic calendar to steer direction. Investors are roughly evenly divided on whether the Fed will raise rates in December, but few are expecting a move at the bank's September meeting.
European stocks slumped as German shares extended losses after a key survey showed an unexpected drop in business sentiment in the country. The Stoxx Europe 600 shed 0.8% to close at 342.02, logging its first losing session in four. The health care group was putting in the worst sector performance. The pan-European index extended its losses as a selloff in German equities accelerated after the release of the Ifo index for August. The closely watched survey of the business climate in Europe's largest economy came in at 106.2, compared with 108.3 in July. Economists polled by The Wall Street Journal had expected a print of 108.5. Germany's DAX 30 fell by as much as 1.4% after the report, but since pared the loss to 0.9% at 10,529.59.
Shares in Asia lacked direction on Thursday, with investors largely on the sidelines ahead of the U.S. Federal Reserve's annual Jackson Hole meeting, set to start later in the trading day. The Nikkei Stock Average closed down 0.3%, while the Shanghai Composite Index ended 0.6% lower. Hong Kong's Hang Seng Index was recently flat, and the South Korean Kospi ended largely unchanged. Traders remain fixated on what U.S. Fed chair Janet Yellen will say at her speech on Friday at the Jackson Hole meeting of central bankers, where many hope for some guidance as to when and at what pace the world's biggest economy will raise interest rates. Energy and mining stocks fell as oil prices stumbled after weekly inventory data showed U.S. stockpiles of crude and petroleum products at a record high. Brent crude, the global oil benchmark, was down 22 cents at $48.94 a barrel in Asian trade.
Australian shares closed lower on Thursday, as broad weakness in resources stocks offset a positive response from investors to earnings reports from the nation's supermarket operators and packaging companies. The S&P/ASX 200 index closed 0.4%, or 19.8 points lower, at 5541.9 ahead of a closely followed speech by U.S. Fed chair Janet Yellen at the Jackson Hole meeting on Friday, which could shed light on when the world's biggest economy will next raise interest rates. Energy stocks mostly fell in the wake of a surprise build of 2.5 million barrels in U.S. crude inventories last week, which weighed on oil prices in U.S. trading. In Asia, Brent crude, the global oil benchmark, was unchanged at US$49.04 a barrel.
Copper futures have fallen more than 3% this week while LME warehouse stocks have ballooned by nearly 21%. The LME's three-month copper contract fell 0.1, to $4,626/t. Other base metals were mixed on Thursday. Aluminium fell 0.1%, to $1,631/t, zinc rose 0.9% to $2,303/t, tin fell 0.5% to $18,759/t, nickel fell 1.5% to $9,792/t, and lead rose 0.5%, to $1,852/t.
In this Issue:
Western Areas (WSA) | FY16 Financial results – Lower FY17 guidance | HOLD
Market Cap $732m | Current Price $2.69 | Valuation $2.60
Western Areas (WSA) released FY16 full year results with a net loss after tax of $29.8m largely inline Argonaut’s forecast loss of $24.9m. This was a turnaround from a $35.0m net profit in FY16. The key driver for the loss was a $103.6m year-on-year decline in sales revenue on the back of lower nickel prices. Cash at June 30 was $75.7m with negligible debt. WSA has opted not to pay a final dividend based on the FY16 net loss and prevailing low nickel prices. Argonaut downgrades to HOLD, from BUY.
Paladin Energy (PDN) | FY16 Financials – Production curtailed in FY17 | SPEC BUY
Market Cap $283m | Current Price $0.17 | Valuation $0.23
Paladin Energy (PDN) released FY16 financial results with a net loss of US$144m after US$173m in impairments and write-downs versus Argonauts forecast loss of $47m. PDN’s key operational achievement for the year was stripping US$12/lb out of its cash breakeven price which now sits at US$39/lb. The Company aims to reduce this amount by a further US$5-9/lb in FY17, primarily by curtailing Langer Heinrich (LHM) mining and supplying the mill with stockpiled ore. PDN is finalising approvals and documentation for the divestment of a 24% stake in LHM to China National Nuclear Corp. (CNNC) for US$175m. Completion of this transaction is expected in Q4 CY16 and proceeds will be used to repay the US$212m 2017 Convertible Bonds (CBs).
Ausdrill (ASL) | Going for gold | HOLD
Market Cap $514m | Current Price $1.645 | Valuation $1.50
ASL has delivered an impressive result, with rationalisations and business improvement initiatives leading to margin growth on relatively stable revenues. Strategy execution has been impressive, and a willingness to put a number to earnings growth in FY17 is indicative of a sector that’s slowly beginning to turn. A recovery will take time however, and in our view earnings growth needs to catch up with multiple expansion. On valuation grounds we downgrade to a hold (prior buy).
Recent Contacts & Presentations:
Regis Resources (RRL), Xanadu Mines (XAM), Mincor Resources NL (MCR), Carbine Resources Ltd (CRB), Antipa Minerals (AZY), Energia Minerals Ltd (EMX), Pantoro Limited (PNR), Boss Resources Ltd (BOE), Metro Mining Ltd (MMI), Metal Bank Ltd (MBK), Actinogen Medical (ACW), St. George Mining Ltd (SGQ), Resapp Health Ltd (RAP), Orecorp Limited (ORR), Dimerix Limited (DXB), Genesis Minerals Ltd (GMD), Dakota Minerals Ltd (DKO), Breaker Resources NL (BRB), Bard1 Life Sciences Ltd (BD1), Alto Metals Ltd (AME), Birimian Limited (BGS), Antipa Minerals Ltd (AZY), Vault Intelligence Ltd (VLT), Noxopharm Ltd (NOX), Gage Roads Brewing Co. (GRB)