Market Update & Important Indicators
U.S. stocks rose Thursday afternoon, as corporate earnings reports supported consumer stocks and also extended their gains late in trading as crude-oil prices turned higher, and energy stocks pared their losses. The S&P rose 1.3% to 17,417 and the down increased 1.0% to 2,021.
European stocks slipped Thursday, weighed down by a selloff in oil and gas shares, while Greek bonds continued to suffer in the aftermath of the weekend's election. The Stoxx Europe 600 was 0.7% lower midmorning.Asia shares were mostly lower Thursday with China suffering the most, in response to fresh worries over Beijing's restrictions on lending by local brokerages. Hong Kong's Hang Seng Index fell 1.1% and Japan's Nikkei Stock Average was down 1.1%, as investors factored in a statement by the U.S. that it would remain patient in raising interest rates.
All metals traded on the LME fell overnight with copper losing 1.6% to US$2.46/lb and nickel falling 1.0% to US$6.73/lb. Gold also fell sharply, down 2.0% to US$1257/oz, while WTI crude clawed back early declines after a brief downward venture to its lowest level in six years. WTI crude is trading at US$44.53/bbl. The AUD is buying 0.776 USD.
In This Issue
Fortescue Metals (FMG)
Fortescue Metals (FMG) released December Q results with shipping of 41Mwmt, largely in line with the previous Q, but below Argonaut’s forecast of 43Mwmt. Cost improvements continued with C1 costs decreasing to US$28/wmt, down 11% Q-on-Q. Prices continued to decline through January, and at US$63/dmt (62% Platts index), FMG’s margin against our revised breakeven price of US$57/dmt (H2 FY15) is narrowing. Debt was reduced by a further US$500m, but net debt increased US$600m to US$7.5b.
Northern Star (NST)
Northern Star (NST) reported December Q production of 141koz @ AISC A$1,073/oz. The Company continued to deliver impressive FCF this Q (~A$52.5m) and boost balance sheet. Cash and bullion increased to A$116m (from A$99m) and debt was reduced to A$35m (from A$50m). An A$14.5m dividend was paid this Q. The near to medium term outlook for the stock remains bright with stronger production and better cash flow anticipated for the remainder of FY15. The Company’s A$50m exploration program will keep delivering tangible results and Reserve upgrades are anticipated. Whilst acknowledging the strong share price appreciation in recent weeks, NST is the go-to name in the ASX gold space given scale, cash flow, liquidity and exploration momentum.
Sino Gas Energy (SEH)
Sino released its Q4 2014 report capping off a significant year in the Company’s history. Through 2014 SEH has achieved: 2P Reserves increase to 291 bcf, major board and management changes, submission of Chinese Reserves Report (CRR) for Linxing West, admission into the S&P/ASX 300 Index, received CRR approval on Linxing (LX) East, signed a binding US$50m Macquarie debt facility term sheet, significantly improved its single well productivity, drilled 36 wells and tested 40 (including 2 horizontals), had a significant gas price increase to US$9.5mcf, increased its institutional investor base from 37.6% to 50.6%, successfully demonstrated proof of concept; being production of gas at Sanjiaobei (SJB) at an average of 4.1mmscf/d from pilot production in December and achieved first gas sales net to SGE of US$1.15m.
Troy Resources (TRY) delivered 33.2koz Au Eq @ AISC US$1,229/oz, v Argonaut anticipation of 35koz @ AISC US$1,026/oz, affected by the inability to timely deal with a misfire in a 25g/t Au, 1,656g/t Ag stope in December. The Company’s balance sheet was better than anticipated with cash increasing to A$29.2m (v September Q A$22.8m) and debt increasing to A$71.1m (September Q A$61.3m). Significant expenditures included A$18.8m on Karouni capex and an additional A$3.3m in exploration in Guyana. With improving grade and production from Casposo and the coming online of Karouni (~US$602/oz), the stock is in an enviable position given decreasing costs and expanding margins. Post FY15, capex is anticipated to rapidly diminish (to ~A$30m in FY16 and ~A$20m in FY17), and a return to dividend could be as early as FY16.
Recent Contacts & Presentations
Northern Star (NST), Doray Minerals (DRM), Troy Resources (TRY), Gold Road Resources (GOR), Saracen Mineral Holdings Limited (SAR), Beadell Resources Limited (BDR), Resolute Mining Limited (RSG), RTG Mining (RTG), Alexium International Group Limited (AJX), Pacific Energy Limited (PEA), Otto Energy Limited (OEL), Peninsula Energy Limited (PEN), Sandfire Resources NL (SFR), Atrum Coal (ATU), Empired (EPD), DTI Group (DTI), Austal (ASB), TFS Corporation (TFC), Pioneer Credit (PNC)