Market Update & Important Indicators
U.S. stocks were little changed Monday, as investors took the victory of an anti-austerity party in Greece's weekend election in stride. U.S. stocks were nearly flat, which investors and traders attribute to the belief that financial stress in Greece is unlikely to spread the effect to other countries in the European Union. Others said that the European Central Bank's bond-buying program, announced last week, leaves markets less vulnerable to fears of a eurozone breakup than they were during past crises.The euro traded higher against its main rivals Monday as the initial shock from Syriza's electoral victory in Greece faded and a gauge of German business activity was more upbeat than expected. The shared currency fell to an 11-year low of $1.1098 late Sunday as the anti-austerity, far-left Syriza party appeared poised to win nearly half the seats in the Greek Parliament. The euro similarly recovered from a six-year low of GBP0.7405 to trade at GBP0.7472 Monday. It traded at Yen133.4595 Monday morning, after falling to a low of Yen130.15. It traded at Yen132.14 Friday
Treasury bonds pulled back on Monday, giving back an earlier price rally, as investors believe the fallout from Sunday's national elections in Greece will be contained. Looming fresh new U.S. government bond sales also weigh down bond prices. Trading was thinner than usual as investors and traders brace for a potentially historic blizzard across the Northeast. Investors had piled into ultra safe U.S. government bonds, sending the 10-year yield down to 1.75% during earlier global trade, following the victory of the leftist Syriza party in Greece's elections.
In national elections on Sunday, Greek voters handed power to a radical left party, which has spoken out against the fiscal austerity imposed on Greece in exchange for an international bailout for its economy. Greek stocks fell Monday, but the effect on other European markets appeared limited. Germany's DAX rose 1.3% and the Stoxx Europe 600 gained 0.6%.
The win on Sunday by Syriza puts the future of the country's bailout terms in question, as Syriza has said it will end austerity measures and that it will seek to renegotiate its financial support from the troika of lenders — the International Monetary Fund, the European Central Bank and the European Commission. ECB's executive board member Benot Coeur said Monday that the new Greek administration will have to repay the country's debt even though discussions about a debt-maturity extension are possible.
Losses in Asia were muted with Australia's market closed for a national holiday. Stocks in New Zealand were up 0.3% while Malaysia was down 0.2%.
Base metals were higher on the LME, with copper and nickel climbing 1.4% and 2.8% respectively. Gold dropped 1.0% to $1,281/oz, while Brent crude dipped 1.3% to $48.15/bb.
Thought for the day
TFS Corporation (TFC)
TFC is an owner and manager of Indian sandalwood plantations in northern Australia. With a vision to be a vertically integrated producer of sandalwood products, TFC owns a significant proportion of the plantations in its own right and operates sandalwood processing and oil distribution facilities in Albany, WA. TFC has an Indian Sandalwood Oil (ISO) supply agreement with Galderma, a leading global dermatology company.
Why do we like it?
Biggest Indian sandalwood plantation manager in the world: TFC now manages ~9,000ha, of which the Company owns directly and indirectly nearly 3,200ha. Plantations are managed on behalf of institutional, high net worth and MIS investors, and >1,500ha were planted in FY14.
Transformational year: In 2014 TFC completed its first commercial harvest of its Indian sandalwood plantations, produced its first ISO, and via its 50% subsidiary Santalis entered into a supply agreement for pharmaceutical grade oil with Nestlé subsidiary Galderma, a leading global dermatology company.
Robust model established: Having proved the soil to oil concept and having established a potentially very significant additional market for pharma grade oil at a price of US$4,500/kg, TFC has demonstrated a credible outlook for demand and pricing. This has led to significant investor interest.
Significant potential: This interest boosts the fee income and cash flow we can expect near term, and we also expect further revaluation of TFC’s biological assets (helped by a stronger US$). Looking further out, TFC’s strategy to invest in its own plantations leads us to project significant longer-term earnings.
Argonaut acts as Corporate Adviser to TFC and may receive fees commensurate with this service. Argonaut has been engaged on normal commercial terms to assist TFC in relation to its Beyond Carbon business
In This Issue
Tox Free (TOX)
We have upgraded our 1H15 and full year FY15 forecasts for TOX to reflect the upgrade to guidance following strong operating performance in November and December 2014. We have made little change to our forecasts for 2H15 and beyond at this stage but will review again when the Company provides more detail with the 1H result.
DRM delivered of 21koz (previously reported) @ AISC A$1,110/oz (in-line with expectation) in the December Q. The Company’s near to medium term outlook remains bright with better operational and cost performances anticipated in the subsequent Qs. A successful acquisition of Mutiny’s (MYG) deflector project will boost scale and inventory, increasing the stock’s appeal to a wider investment community. At 22nd January, DRM had achieved 87% acceptance on its bid.
In the December Q, Beadell Resources (BDR) produced 59.2koz at an “all-in” sustaining cost (AISC) of US$638/oz (excluding A$9.1m non-sustaining items). Cash position improved from A$13m at 30th September to A$73m, following a A$40m payment from Maca (MLD). The BDR’s recently released CY15 sales guidance of ~170-190koz appears ambitious (excluding Duckhead extension). The potential recovery of additional ounces at Duckhead was received positively by the market, although a percentage of the 35-45koz appears to be residual Reserve not mined according to the original schedule. Focusing on regional exploration and delineating additional high grade material (e.g. another Duckhead) is the best way for BDR to quell market queries over potential operating performances.
Argonaut’s Stock Coverage & Recommendations
Recent Contacts & Presentations
Northern Star (NST), Doray Minerals (DRM), Troy Resources (TRY), Gold Road Resources (GOR), Saracen Mineral Holdings Limited (SAR), Beadell Resources Limited (BDR), Resolute Mining Limited (RSG), RTG Mining (RTG), Alexium International Group Limited (AJX), Pacific Energy Limited (PEA), Otto Energy Limited (OEL), Peninsula Energy Limited (PEN), Sandfire Resources NL (SFR), Atrum Coal (ATU), Empired (EPD), DTI Group (DTI), Austal (ASB), TFS Corporation (TFC), Pioneer Credit (PNC)