Market Update & Important Indicators
U.S. stocks wobbled between slight gains and losses Thursday, as a rebound in technology shares helped the broad market reverse early declines. The Dow Jones Industrial Average rose two points to 17721 in afternoon trading, bouncing back from a slide of as much as 139 points early in the session. The S&P 500 index gained two points, or 0.1%, while the Nasdaq Composite rose a point to 4879.
European shares fell for a second straight session Thursday, taking their cue from bearish sentiment on U.S. and Asian markets, and weighed down by an escalating conflict in Yemen. The Stoxx Europe 600 closed 0.9% lower, while Germany's DAX index lost 0.2%, France's CAC 40 fell 0.3%, and the U.K.'s FTSE 100 ended 1.4% lower.
Stocks in Japan suffered their steepest selloff since mid-January on Thursday and most Asian markets were lower amid jitters about the pace of the U.S. economic recovery. But energy stocks in Australia bucked the trend after oil prices jumped in Asian trade.
Metals on the LME were up with the exception of tin while fell 1.4% to US$17,098/t. Copper gained 0.8% to US$6196 and nickel rose 0.1% to US$13,647/t. Gold was up 0.8% to US$1204/oz while the AUD/USD is trading at 0.782.
Thought for the day – Counter cyclical development
Sirius off to a flying start
Argonaut recently visited Sirius Resources (SIR) Nova project in Western Australia noting the benefit of countercyclical development. Despite being just a few months since development commenced, the project was off to a flying start and already ahead of schedule. In addition, the original capex estimate of $473m has been downscaled $30m to $443m during a competitive predominantly fixed price EPC tendering process. Nova is one of a handful of projects being developed in 2015 amidst a down-cycle in the resources sector. The benefits of developing a project at the bottom of the cycle were further evidence by a high calibre project development team, high levels of engagement from employees and contractors, large equipment for the cost of small equipment and visible highly skilled operatorship.
MZI set for accelerated development
Another project currently under construction is MZI Resources (MZI) Keysbrook mineral sands project. Similar to Nova, the project has just broken ground, and is on schedule with long lead time items procured and earthworks underway. EPC contractor GR Engineering (GNG) mobilised to site earlier than forecast and Argonaut believes that MZI will complete construction within CY15. The company is currently recruiting key operational roles and reportedly receiving hundreds of applicants, meaning the company is in a position to hand pick a highly skilled workforce.
Key benefits of countercyclical development
The key benefits of counter cyclical development include:
• Competitive contract tendering on EPC, prestrip and lease contracts
• Availability of highly skilled project development teams
• Competitive labour procurement
• Ability to negotiate favourable employment contacts (rosters and remuneration)
• Lower risk of labour, contract or consumable cost inflation
• Higher engagement from employees and contracts
• Lower risk of mobilisation delays
• Lower risk of delayed procurement on long lead items
• Availability of mining equipment from suppliers – short procurement lead time
• Opportunistic acquisition of second hand plant and mining plant
All of the benefits above improve the prospects of projects coming in under budget and ahead of schedule. Other Australian domiciled projects under ASX listed resource companies slated from CY15 include Doray Mineral’s (DRM) Deflector project, and refurbishments of Saracen Mineral’s (SAR) Thunderbox and ABM Resource’s Old Pirate projects.
Key picks
MZI Resources (MZI), SPEC BUY, Target price: $0.70: Keysbrook represents a low risk high margin project with free dig, no strip mining, no chemical processing, toll processing from an experienced partner (Doral), proximity to labour markets and industrial centres with 85% of off-take under contract.
Sirius Resources (SIR), BUY, target price: $3.62: Nova on-track or slightly ahead of schedule, destined to be Australia’s lowest cost nickel producer, exploration upside from both base metals in the Fraser Range and gold from the Polar Bear project. Nearly discovered Baloo gold prospect will be at a minimum a toll oxide operation in Argonaut’s view.
GR Engineering (GNG), BUY, target price $1.10: Strong order book for CY15 with the company’s name on most of the key ASX resource development projects underway including, Wolf Resource’s Hemerdon Tungsten project and MZI Resource’s Keysbrook project. The construction contract on Doray’s Deflector is also likely to survive the change of ownership (previous owner Mutiny Gold) and Argonaut believes it likely that GNG would be in the running for the EPC contract for SIR’s Nova project.
In This Issue
Atrum Coal (ATU) | SPEC BUY
Just like the old Castrol slogan “oils ain’t oils”, the same can be said for anthracite coal. Anthracite is a high carbon, low impurity coal that is bucking the trend with growing demand and rising prices. Anthracite prices have increased ~30% in the past six months compared to hard coking coal (HCC) prices which are down ~7% over the same period. Endorsing the demand for this product is the high level of interest Atrum Coal (ATU) has received for offtake on its ultra-high grade Groundhog anthracite project in British Columbia (BC), Canada. Over the past month, the Company has signed four non-binding Memorandums of Understanding (MOUs) with key Japanese parties. Argonaut maintains a SPEC BUY recommendation with a $2.10 target price.
Recent Contacts & Presentations
Saracen (SAR), Beadell (BDR), Pacifico (PMY), Fertoz (FTZ), Atrum (ATU), Doray (DRM), Helix Resources (HLX), Rift Valley Resources (RVY), West African Resources (WAF), Matrix (MCE), Austal (ASB), Ausdrill (ASL), TFS Corporation (TFC), Gage Roads (GRB), Austin Engineering (ANG), Buru Energy (BRU), OBJ Limited (OBJ), Strandline Resources (STA), Carnarvon Energy (CVN), Otto Energy (OEL), Empire Oil & Gas (EGO), Pura Vida Energy NL (PVD), MMA Offshore (MRM), Migme (MIG), Vmoto (VMT), ROX Resources (RXL)
Please read Argonaut's Important Disclaimers & disclosures
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