Market Update & Important Indicators:
Technology stocks marked a sudden drop on Thursday, dragging down the broader benchmarks in the latest instance of the high-flying sector changing course. The tech-heavy Nasdaq Composite was down more than 1% in recent trading, on pace its worst performance of the month, after earlier falling as much as 1.6%. The Dow Jones Industrial Index rose 86 points overnight to finish at 21,797, whilst the S&P 500 finished slightly lower by 0.1%. Thursday's declines follow another abrupt selloff last month that similarly confounded traders. The drop came in the middle of earnings season for the biggest tech giants. The surge in volatility affected Wall Street's "fear gauge," the CBOE Volatility Index, or VIX. The index, which uses S&P 500 options prices to project expected stock market swings over the next 30 days, has closed under 10 in 10 straight sessions, by far its longest streak ever, but was recently up 17.4% at 11.3 after earlier dipping 2.8% to 9.33. The nearly 20% increase would be its largest one-day advance in more than two months. The U.S. gold price fell slightly overnight, shedding 0.1% to 1,258.60 US$/oz.
European stocks ended modestly lower Thursday as investors sent shares of German lender Deutsche Bank down and those for Anheuser-Busch InBev's and Diageo higher amid a barrage of corporate quarterly results. The Stoxx Europe 600 closed down 0.1% at 382.32, but spent the session searching for firm direction, as did major national indexes. Basic material, industrial and consumer services shares led the way lower, but telecom, tech and utility stocks advanced.
Equity markets in Asia rose as traders took an optimistic view of the Federal Reserve's latest policy statement, which was broadly supportive of risk assets. "The Federal Reserve didn't offer many surprises to the market," said Margaret Yang at CMC Markets. As a result, "Asian markets are generally following the U.S. into rally mode." The Nikkei Stock Average gained 0.2% while Hong Kong's Hang Seng Index was up 0.8% at a 2-year high.
Australian shares edged higher Thursday for a third straight day of gains that took the market to its highest close in a month. Although it faded in the final hour of trade, the S&P/ASX 200 managed to pick up 8.4 points, or 0.2%, to 5785.0. Gains by mining heavyweight BHP Billiton helped drive the materials sector and the wider market, aided by further increases overnight in prices for a number of commodities, including base metals and iron ore. Property trusts and consumer staples also were on the positive side of the ledger, offsetting weakness by energy companies and utilities. Most of the major banks continued to push higher.
The London Metal Exchange's three-month copper contract gained 0.02% overnight to close at $6,330/t. The other base metals finished mixed. Nickel prices rose 0.9% to 10,088/t, whilst tin prices rose 1.6% to 20,820/t. Aluminium prices fell 0.2% to 1,917/t, lead prices fell 0.1% to 2,287/t whilst zinc prices shed 0.3% to 2,796/t.
In this Issue:
Fortescue Metals Group (FMG) | Stripping for profits| HOLD
Mkt Cap $16bn | Current Price $5.30 | Target Price $5.23
Fortescue Metals (FMG) reported June Q results with 44.7Mt shipped at US$12.16/wmt C1 vs March Q 39.6Mt @ US$13.05/wmt (-7% cost decrease, +13% shipped Q-o-Q). Operations ran at an annualised rate of ~180Mtpa during the Q. Gross debt increased to US$4.5bn (from US$4.3bn in Q3) after an increase in finance lease liabilities and cash increased to US$1.8bn (from US$1.5bn in Q3). June Q contract prices were US$37.82/dmt (-42% on Q3) with the price realisation to the Platts 62 CFR index widening to 73% (from 76% in Q3). Full year FY17 production came in at 170.4Mt (vs 165-170Mt guidance) at a C1 cost of US$12.82/wmt. Average FY17 realised prices of US$53.27/dmt were 77% of the Platts 62 CFR price of US$69.53/dmt. Solomon strip ratios fell to 0.7:1 (-30% from Sep Q, 1.0:1) which continues to benefit the decreasing cost profile. We retain our target price of $5.23ps (unch.) and move our recommendation to HOLD (prior BUY) after recent share price appreciation.
St Barbara (SBM) | Journey to the center of the earth| HOLD
Mkt Cap $1,360 | Current Price $2.72 | Target Price $2.85
St Barbara (SBM) delivered a solid June Q, producing 94koz at an all in sustaining cost (AISC) of A$862/oz (vs March Q 95koz @ A$862/oz) generating record operational cash flow of A$73m ($91m in Q3) and net mine cashflow of $62m (vs $68m in Q3). Gwalia produced 62koz at an AISC $872/oz (-4% on production, +11% on costs vs Q3) as mined grades fell to 9.2g/t (vs 11.3g/t in Q3) in line with expectations. Simberi generated record production of 32.1koz at an AISC of A$1,125/oz (vs March Q 30.4koz @ A$1,025/oz) benefitting from an 18% higher head grade, lower stripping and higher recoveries. FY18 guidance of 350-375koz @ AISC $970-1,035/oz was announced, with production back-weighted to 2HFY18 to incorporate mine sequencing from Gwalia. Exploration programs at Gwalia are now focussed on deep seismic and drilling down to 2,600mbs which could materially alter the perception of mine life beyond 2024 if successful. After making revisions to our model to incorporate FY18 guidance our target price falls to $2.85ps ($2.94 prior). We maintain our HOLD recommendation.
Recent Contacts & Presentations:
Stavely Minerals Ltd (SVY), Orbital Corporation Ltd (OEC), 4Ds Memory Ltd (4DS), Kin Mining NL (KIN), Pharmaust Limited (PAA), Botanix Pharmaceuticals Ltd (BOT), Dimerix Ltd (DXB), Metro Mining Ltd (MMI), Paringa Resources Ltd (PNL), Independence Group NL (IGO), MZI Resources Ltd (MZI), Transerv Energy Ltd (TSV), Emmerson Resources Ltd (ERM), Antipa Minerals Ltd (AZY), Echo Resources Ltd (EAR), Sovereign Metals Ltd (SVM), Calidus Resources Ltd (CAI), Great Boulder Resources Ltd (GBR), Finders Resources Ltd (FND), Bionomics Ltd (BNO), Threat Protect Australia Ltd (TPS), Ramelius Resources Ltd (RMS), Zenith Energy Ltd (ZEN)
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