Market Update & Important Indicators
The Dow industrials were on track for their biggest percentage drop since February as blue-chip technology shares slumped anew. Stocks whipsawed throughout the day, but a turnaround in technology shares pushed major indexes lower. The Dow Jones Industrial Average was led lower by declines in Apple. Shares of the iPhone-maker were off 2.6%, shaving close to 18 points off the Dow. Microsoft and International Business Machines each fell 2%. Investors were focused on individual company reports, rewarding those whose results beat expectations.
Facebook Inc. shares were up nearly 8% after the social network's results topped expectations, bucking a recent trend of disappointing earnings from tech companies. Ford Motor Co. jumped 3.7% after the auto maker reported a surge in quarterly earnings. ConocoPhillips shares rose 0.8% after the energy company reported a loss but cut its spending budget. The moves came as a reading of the U.S. economy showed the country's already tepid economic expansion slowed in the first three months of the year, and a day after the Federal Reserve held interest rates steady amid a mixed economic picture. The Commerce Department reported the U.S. economy grew at a seasonally adjusted annualized 0.5% in the first quarter, the slowest rate in two years and below analyst expectations. The Stoxx Europe 600 ended 0.2% higher. Deutsche Bank shares gained nearly 4% in Frankfurt after the bank's net income beat analyst expectations.
Japanese stocks tumbled Thursday after the Bank of Japan surprised many market watchers by holding back from further stimulus. Japan's Nikkei Stock Average ended down 3.6%–the largest daily percentage loss since Feb. 12. Trading elsewhere in Asia was choppy. Korea's Kospi lost 0.7%. In China, the Shanghai Composite Index closed down 0.3%. Hong Kong's Hang Seng Index closed 0.1% higher. The Bank of Japan left its easing program alone, keeping the deposit rate at minus 0.1% and its asset purchases at 80 trillion yen each year. It also pushed back the forecast date for hitting its 2% inflation target. Expectations had been growing for further easing.
Australian shares retraced some of their losses the past three sessions as equity markets welcomed suggestions by the U.S. Federal Reserve that it wasn't in a rush to raise interest rates and as crude-oil prices rallied. After a choppy trading day, the S&P/ASX 200 finished 37.7 points, or 0.7%, higher at 5225.4. Gains were led by energy and mining stocks after oil prices and iron-ore futures rose. Among energy stocks, Woodside Petroleum rose 1% while Santos and Origin Energy advanced 3.5% and 3.2%, respectively after U.S. crude prices rose 2.9% to US$45.33 a barrel, rising above the US$45 mark for the first time since November.
The London Metal Exchange's three-month contract closed up 0.77% at $4,942 a metric ton at the afternoon kerb close. Among the other base metals, aluminum closed down 1.34% at $1,664 a ton, zinc was up 1.38% at $1,912 a ton, nickel was up 1.09% at $9,290 a ton, lead was up 0.92% at $1,751 a ton, and tin was down 0.49% at $17,090 a ton.
In This Issue
Independence Group (IGO) |Tide goes out at Tropicana |BUY
Market Cap $1531.5m | Current Price $2.94| Target price $3.40
Independence Group (IGO) released March Q production with a negative step change at Tropicana (Anglogold 70%: IGO 30%) with 101koz produced (100% basis) at $1,067/oz all-in sustaining cost (AISC). This was a substantial change from 134koz at $796/oz in the December Q. The drop in production marks the end of mine high grading, a strategy employed to expedite payback of development capex. Long produced 1.9kt nickel at $3.29/lb and Jaguar reported 9.7kt zinc and 1.3kt copper at $0.70/lb (payable zinc). Nova was at 81% project completion, on track for first production in December 2016. At 31 March the Company had $41m cash and bullion with $240m debt (vs $60m cash and $200m debt at December 31). Argonaut maintains BUY recommendation with a revised target price of $3.40 (previously $3.70). Our decreased valuation results from higher medium term AISC at Tropicana.
Northern Star (NST) | March Q |SELL
Market Cap $2220.8m | Current Price $3.70 | Target price $3.25
Northern Star (NST) delivered a solid March Q, producing 142.6koz @ AISC A$985/oz (previously announced), beating Argonaut’s expectation of 139koz @ AISC A$1,070/oz. Normalised FCF is estimated at A$66m, or ~A$460/oz. This performance saw cash and bullion rising ~A$60m to A$280m. Based on YTD production, NST is likely to achieve the upper end or beat its FY16 guidance. The Company’s exploration campaign continues to yield results across its asset bases. Successful drilling will underpin the Company’s organic growth to 700koz pa. NST offers proven management, strong cash flow, a quality, diversified asset base, size, liquidity and solid balance sheet. However, the stock continues to trade above our target price of A$3.25 (unchanged). SELL maintained.
Troy Resources| Out of the Woods |BUY
Market Cap $187.4m | Current Price $0.55 | Target price $0.70
Troy Resources (TRY) delivered a solid maiden Q of production at Karouni, producing 20koz @ AISC US$638/oz, v Argonaut’s estimate of 19koz @ US$774/oz. The outlook for the mine is bright, with Q-on-Q production increases expected for the remainder of CY16 and a first quartile AISC. To date, mined grade, tonnages and overall ounces at Karouni outperformed the Reserve model by 8%, 25% and 35% respectively, providing Reserve upside. Cash and bullion balance was at A$10m following a A$15m Investec repayment and creditor payments associated with construction and ramp-up of Karouni. The Company recently announced the divestment of Casposo for up to US$11m, allowing TRY to focus on the high margin Karouni mine. TRY has reached an agreement with Investec to restructure its Revolving Facility (A$60m), reducing quarterly repayments starting 30th June. Argonaut increases its valuation to A$0.70 (was A$0.58) by factoring an additional ~90koz open pit production at Karouni. BUY maintained.
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)