Market Update & Important Indicators
The Dow industrials climbed to session highs after the Federal Reserve signalled no hurry to raise interest rates in the weeks ahead. Fed officials held interest rates steady as was widely expected. The bank's policy statement was still highly anticipated for any hint of improving financial conditions that could increase expectations for a rate rise later this year. Earlier, Apple's disappointing corporate earnings dragged the Nasdaq Composite lower, another sign of weakness for the technology sector. Shares of the world's most valuable company tumbled 5.9%, leading technology companies in the S&P 500 lower. The group fell 1.2% in recent trading, making it the worst-performing sector of both the day and the year. Trading centered around a slew of corporate earnings reports, many of which were lackluster.
The declines among Apple and Twitter exacerbated the recent struggles among the tech sector. Weaker-than-expected earnings from U.S. tech giants have sent the Nasdaq Composite Index down for four consecutive days, and the tech-heavy index is lagging the broader market year-to-date, down 3.2% in 2016 compared to the Dow's 3.3% gain. It's a sharp reversal from recent years. In 2015 the Nasdaq ended the year up 5.7%, while it rose 13% in 2014, both years outperforming the S&P 500. The Stoxx Europe 600 alternated between small gains and losses and was last up 0.3%, following a downbeat session in Asia.
Most stock markets in Asia Pacific fell as investors braced for an update on monetary policy from the U.S. Federal Reserve. The Shanghai Composite and Japan's Nikkei Stock Average fell by 0.4%. The Hang Seng Index finished down 0.2% and South Korea's Kospi lost 0.2%. The Fed's announcement will be followed around midday Thursday by the Bank of Japan's policy decision, though views are split on whether the BOJ will bolster its easing program.
Australian shares were led lower in late trading by banks amid heightened uncertainty over interest rates. The market opened modestly higher in the wake of an overnight recovery in oil prices, then built on gains to peak about midday following the release of data showing the first quarter of domestic deflation since the global financial crisis. That turned to selling as analysts reflected on the increased likelihood the Reserve Bank of Australia would next week lower interest rates, faced with the risk that inflation will undershoot its 2%-3% target for a sustained period. Falling for a third straight session, the S&P/ASX 200 lost 32.9 points, or 0.6%, to end at 5187.7.
Copper prices closed lower in London, on a stronger dollar and receding optimism over demand from top consumer China. The London Metal Exchange's three-month contract was down 1.2% at $4,904 a metric ton, having hit a six-day low earlier in the session at $4,873 a ton. Among the other base metals, aluminum closed down 0.0% at $1,642 a ton, zinc was down 0.5% at $1,879 a ton, nickel was flat at $9,166 a ton, lead was down 0.9% at $1,731 a ton and tin was down 2.0% at $17,122 a ton.
In This Issue
Sino Gas and Energy (SEH) | Positive read-through from partner sell-out, | BUY
Market Cap $151.4m | Current Price $0.07 | Target price $0.25
Sino Gas and Energy’s (SEH) joint venture (JV) partner MIE Holdings (HK:1555) announced the sale of its entire interest in Sino Gas & Energy Limited (SGE: 51% MIE, 49% SEH) for US$220m. The see through value for SEH’s 49% stake in SGE is US$211m (A$273m) or $0.13/sh. Incorporating US$10m debt and US$59m cash at March 31, the implied SEH valuation is $0.16/sh. Additional positives relating to this transaction include the expected confidence of the incoming party that a payment resolution with PetroChina regarding Sanjiaobei (SJB) sales is likely and the alleviation of concerns regarding MIE’s ability to fund its contribution, given the ex-partner’s poor balance sheet. BUY recommendation maintained with a $0.25 target price.
Saracen (SAR) | March Q|HOLD
Market Cap $808.8m | Current Price $1.01 | Target price $0.90
Saracen (SAR) produced 43koz (previously announced) @ AISC A$1,183/oz during the March Q, v Argonaut estimate of 42koz @ AISC A$1,093/oz. Normalised FCF from Carosue Dam (ex-Deep South) is estimated at ~A$9m, or ~A$290/oz (adjusted for Deep South), lower than the ~A$450/oz achieved in the December Q. Production at Carosue Dam was softer than expected, impacted by lower grades from Red October and Karari. On the positive side, the commissioning at Thunderbox is near completion with commercial production expected in the current Q. The performance during the March Q highlighted potential benefits of having diversified assets. The stock is one of the few offering imminent production growth (to ~300koz). A smooth ramp up at Thunderbox and achieving guidance could see SAR continue its upward trajectory. HOLD maintained with an unchanged valuation of A$0.90.
Recent Contacts & Presentations
Red 5 (RED), Medusa Mining (MML), Saracen Mineral Holdings (SAR), Paradigm BioPharmaceuticals (PAR), Pilbara Minerals (PLS), Energia Minerals (EMX), Deep Yellow (DYL), Paladin Energy (PDN), Kidman Resources (KDR), Dakota Minerals (DKO), West Africa Resources (WAF), Finders (FND), Credo Resources (CRQ) , Orthocell (OCC), Capricorn Metals (CMM), Gold Road Resources (GOR), SRG (STS), Reward (RWD), Agrimin (AMN), Decimal (DSX), SRG Limited (STS), Peet (PPC)
