Market Update & Important Indicators
U.S. stocks rose slightly Tuesday as a number of positive quarterly earnings reports helped offset a continued decline in the biotechnology sector. The Dow rose 72 points, or 0.4%, to 18110, and the S&P 500 gained 6 points, or 0.3%, to 2115. Earnings reports were the focus for investors. On Tuesday, 41 companies in the S&P 500, more than 8% of the index, report quarterly results. Including results from 233 companies in the S&P 500, first-quarter earnings are on track to fall 1.8% from a year earlier. Earnings had been expected to decline 4.6% going into the reporting season, pressured by a strong dollar and weak oil prices.
European stocks fell Tuesday, as some patchy corporate earnings encouraged investors to pull back from a market that has rallied sharply this year. The Stoxx Europe 600 closed 1.5% lower. Health-care stocks on the index led declines, falling 2.5%, as Monday's steep decline in highflying U.S. biotechnology stocks weighed on the sector in Europe. Elsewhere, investors looked to earnings. Stocks in Europe have enjoyed a strong run so far in 2015, with the Stoxx Europe 600 up 18.6% even after Tuesday's fall. The launch of the European Central Bank's massive bond-buying program, along with a tentative improvement in the region's economy, have fueled the move.
China shares fell sharply Tuesday after the country's securities regulator issued a fresh, albeit mild, warning to investors on the market's risks. The benchmark Shanghai Composite index closed 1.1% lower at 4476.22. Selling pressure intensified after the China securities watchdog urged caution among retail investors. After markets closed, The Wall Street Journal reported that China's central bank plans to ease credit by supporting commercial lenders' efforts to purchase local-government bonds. Hong Kong's Hang Seng Index finished flat at 28422.75.
Gold advanced to $1,212/oz. Brent oil dipped 0.3% to US$64.6/bbl. Base metals were mixed. The AUD is buying US$0.80.
In This Issue
Regis (RRL) | HOLD
Regis Resources (RRL) produced 66koz @ pre-royalty cash cost of A$936/oz, v Argonaut forecast 64koz @ AISC A$1,274/oz. Cash and bullion was A$45.8m, compared to A$29.7m at 31st December, implying a FCF generation of ~A$240/oz (assuming no significant working capital movements). This performance was better than Argonaut anticipated. Production and cost performances in the June Q are expected to improve (guidance ~75koz), driven by anticipated better grades of 1.0g/t and recoveries +90%. Given deteriorating asset quality, relatively healthy market cap and management’s expertise at building mines cheaply, RRL could consider M&A. HOLD and A$1.40 valuation (was $1.39) maintained.
MZI Resources (MZI) | SPEC BUY
Argonaut visited MZI Resources’ (MZI) Keysbrook mineral sands project. Following mobilisation of EPC contractor GR Engineering (GNG) in February, the project is almost 50% complete. First mining is due in August, with plant commissioning in Q4 then first sales in Q1 CY16. The site tour reconfirmed the simplicity of the project and potential to generate high margins even during a cyclical low in the mineral sands market. In addition, ongoing test work indicates that product recoveries may be optimised to significantly lift production. There may also be opportunities to double production via higher utilisation or potential acquisition of Doral’s mineral separation plant (MSP).
Recent Contacts & Presentations
Saracen (SAR), Gold Road (GOR), Dacian (DCN), MZI Resources (MZI), Mobile Embrace (MBE), Fertoz (FTZ), Atrum (ATU), Buru Energy (BRU), Carnarvon Energy (CVN), Otto Energy (OEL), Empire Oil & Gas (EGO), Pura Vida Energy NL (PVD), Migme (MIG), Vmoto (VMT), Pioneer Credit (PNC), Minemakers (MAK), High Peak Royalties (HPR), Leaf Resources (LER), Austin Engineering (ANG), Ausdrill (ASL), Matrix (MCE), Austal (ASB), MMA Offshore (MRM), CTI Logistics (CLX), 99 Wuxian (NNW)