Market Update & Important Indicators
U.S. stocks eased Thursday, though the Nasdaq Composite resumed its march toward record territory, as investors looked to another muted reading on inflation. Trading activity was muted, as the fourth-quarter earnings season drew to a close and fears over Greece's bailout continued to recede. The Dow Jones and S&P 500 both fell 0.1%, to 18,214 and 2,111 respectively.
European stocks dipped from seven-year highs Wednesday and U.S. equity markets opened with small losses, after U.S. Federal Reserve Chairwoman Janet Yellen on Tuesday laid the groundwork for interest rate rises later this year. The Stoxx Europe 600 index was 0.3% lower in early afternoon trading, having climbed to its highest close since late 2007 on Tuesday after an agreement on a four-month extension to Greece's bailout.
Chinese stocks jumped on Thursday as hopes for more measures by the government to stimulate the economy gave financial and construction stocks a boost, while Japan's stocks rose to a fresh 15-year high, following a relatively benign testimony from Federal
Reserve Chairwoman Janet Yellen. The Shanghai Composite ended up 2.2% at 3298.4, while Japan's Nikkei Stock Average gained 1.1% to 18785.8.
Metals on the LME were mixed with copper rising 2.0% to US$2.69/lb and nickel remaining flat at US$6.50/lb. Gold was up marginally, rising 0.4% to US$1209/oz.
In This Issue
Atrum Coal (ATU)
Atrum Coal (ATU) has secured the interest of off-take partners for its Groundhog North (GH) anthracite project, signing three non-binding memorandums of understandings (MoUs) with major Japanese conglomerates. Several other tier one Asian and Brazilian parties are also negotiating similar agreements. This level of competition from major trading and strategic parties is rarely witnessed and reflects the demand for high grade / ultra-high grade Anthracite products.
An underlying before tax loss of $3.1m and a reported net loss of $177.4m after $197.3m impairments do not make attractive headlines. However, the key takeaway for us is that in tough conditions ASL has for the last 4 quarters consistently generated positive free cash flow and reduced debt. We believe this evidence can provide investors with a level of comfort to look beyond near term earnings (which will no doubt remain weak) and ask what the Company is really worth.
ASB has delivered a solid underlying profit performance with good margins in key ship construction activities in both Australia and the US. The sale of the stock boat boosted revenue and cash flow, putting the Company in a net cash position for the first time in years and allowing the declaration of the first dividend since 2011. Our themes remain valid; an exposure to the US$, a solid order book, and a potential pipeline that could see work for ASB’s US operations well into the next decade provide good reasons to remain positive.
Global Construction (GCS)
GCS delivered a 1H15 result above our numbers and 2H14. We expect this positive trend in earnings to continue on the back of recent and anticipated commercial contract awards on large scale Perth CBD projects.
Northern Star (NST)
Northern Star (NST) has entered into a binding joint venture Heads of Agreement with Tanami Gold (TAM) to acquire 60% interest in the Central Tanami Project (CTP). TAM has the option to sell the remainder of the project to NST for an additional A$52m (cash or scrip). The deal proposed by NST is superior to Metals X’s (MLX) and likely to be value accretive to NST. The crown jewel of the deposit, Groundrush, is likely to become a high grade, underground mine which fits well with NST’s expertise. This deal signals NST’s ambition to continue growing by undertaking value accretive acquisitions.
Paringa Resources (PNL)
Paringa Resources (PNL) announced an impressive 54% Resource upgrade to the Buck Creek thermal coal project in Kentucky, US. This follows further drilling and consolidation of mineral leases within the area of interest. After a relatively quiet period, PNL is heading into a catalyst rich phase with a PFS due next month, project optimisation and anticipated announcement of sales agreements in H1 2015.
Sandfire Resources (SFR)
Sandfire Resources (SFR) released December financial results with revenue of $255m and profit after tax of $31m, down 9% and 31% respectively H-on-H (vs Argonaut NPAT est. $43m). The Company declared an unfranked 3¢/sh interim dividend. SFR is set for a strong H2 FY15 with plant process and recovery improvements installed resulting in increased copper production of ~4kt on H1. Argonaut remains our key pick amongst the ASX copper sector.
Argonaut’s site visit to Saracen’s (SAR) Carosue Dam mine confirms the Company is on track to beat its FY15 guidance of 145-155koz (Argonaut forecast 170koz). A successful extensional drilling campaign at Karari will highlight boosted production potential at Carosue Dam (to >200koz pa) and lower LOM costs, which should translate to significant share price appreciation. With substantial capital works completed and lower cost ounces being delivered, SAR’s balance sheet will be significantly strengthened in the near term.
Argonaut’s Stock Coverage & Recommendations
Recent Contacts & Presentations
Northern Star (NST), Saracen (SAR), Doray (DRM), Troy (TRY), Resolute (RSG), Gold Road (GOR), Regis (RRL), Independence Group (IGO), Energia Minerals (EMX), Rewardle (RXH), Doray (DRM), Alexium (AJX), Orbital (OEC), IMF Bentham (IMF), Metals X (MLX), Pura Vida (PVD), Image Resources (IMA), Tangiers (TPT), ABM Resources (ABU), Centaurus (CTM), Imdex (IMD), Rox (RXL), Pacific Energy (PEA), MMA Offshore (MRM), Tox Free (TOX)