Market Update & Important Indicators
U.S. stocks rose Friday, sending the technology-heavy Nasdaq Composite to its largest weekly gain since February. The Dow Jones Industrial Average climbed 0.25% to 17873.22 and the S&P 500 rose 0.4%. The indexes rose 2.1% and 2.3% for the week, respectively. The Nasdaq Composite Index rose 0.65% Friday and 3.4% for the week. That marked its biggest weekly rise since the week ended Feb. 19. Friday's moves came ahead of a holiday weekend in the U.S., with the stock market closed Monday for Memorial Day. The Nasdaq Composite, which has rallied in recent years, has yet to push into positive territory in 2016. The Dow industrials and S&P 500, meanwhile, have both advanced more than 2% so far this year.
European stocks inched cautiously higher on Friday, as investors waited for a speech by U.S. Federal Reserve Chairwoman Janet Yellen that could indicate whether an interest-rate rise is imminent. The Stoxx Europe 600 rose 0.2% to close at 349.64, sending it 3.4% higher for the week and marking its strongest weekly performance since Feb. 19, FactSet data show.
Financial stocks rose across Asia on Friday ahead of expected comments from U.S. Federal Reserve Chairwoman Janet Yellen. In Japan, banking shares in the benchmark Topix jumped 1.2%. The same sector gained 0.9% in Hong Kong. However, gains were mostly muted across the region's major stock benchmarks. The Hang Seng Index was up 0.9%, while Japanese stocks rose marginally. The Shanghai Composite Index ended the session flat.
Australian shares ended higher for the seventh-straight week helped by gains in financial and energy stocks. The S&P/ASX 200 closed up 17.8 points, or 0.3%, at 5405.9 points, on Friday, as consumer-facing stocks such as retailers and gaming companies also made headway. Among the major banks, Australia & New Zealand Banking Group was the biggest gainer, rising 1.2%, followed by Westpac Banking, up 0.75%. The gains came after Fitch affirmed its ratings on the country's big banks and said the lenders can manage growing macroeconomic risks associated with rising household debt and strong housing price growth.
Copper futures closed higher in London on Friday, amid stock draw-downs and market optimism. The London Metal exchange's three-month copper contract was up 0.7% at $4,695 a ton at the PM kerb close, having hit a two-week high earlier in the session at $4,727 a ton. Among the other base metals, aluminium closed up 0.03% at $1,556 a ton, zinc was up 1.2% at $1,899 a ton, nickel was up 0.2% at $8,420 a ton, and lead was up 1.3% at $1,698 a ton.
Thought of the Day:
Argonaut Metals and Mining – Scorecard: Best Undeveloped Projects 2015
Best Undeveloped Projects
Each year Argonaut generates a list of what we consider to be the best undeveloped projects controlled by ASX listed companies (See Report: 2015 Best Undeveloped Projects). An extensive list of projects is reviewed and filtered on the following four criteria:
1. Development stage between scoping study and pre-commercial production
2. An Internal Rate of Return (IRR) exceeding 25%
3. Profitable through all market/commodity price cycles
4. A high likelihood of achieving >$100m valuation within 24 months
2014's Best Undeveloped performance
The average return from stocks featured in the 2014 edition was +10% (up to the time when the 2015 edition was released) versus the S&P ASX 200 Index of -7% and S&P Small Resources Index of -23%. Out of the list of 11 stocks, three were subsequently acquired and two secured funding or strategic partnerships for their projects.
2015's Best Undeveloped performance
Six months on, we have reviewed the performance of the 10 projects/stocks selected in the 2015 edition. The stocks have generated a healthy return of 35%, well above the ASX 200 at 5%. Interestingly, the ASX Small Resources is up 44% over the same period. This is attributed largely to exceptional performance by gold and lithium stocks, which each increased their share of the index by 4% on the back of strong underlying commodity performance and a retreat to gold as a defensive investment. The S&P ASX Gold index is up 82% over the corresponding period and the price of lithium carbonate is up over 300% financial-year-to date. At the time of publishing this report, no lithium stocks met Argonaut’s criteria listed above.
2015's best performers
Dacian Gold (DCN: SPEC BUY, target price under review) has been the standout performer up 146%. Ongoing exploration at Mt Morgans has increased Resource confidence and should translate into significant additional ounces. Resource definition drilling is ongoing and a number of assays are still outstanding. DCN will also test a number of highly prospective region targets in the near term. Syrah Resources (SYR: not rated) has performed well (up 57%) as an increased interest in battery commodities provides a tailwind for the Balama graphite project. Gold Road Resources (GOR: BUY, $0.84 target price) is up 55%, having released a positive PFS during the period. Berkeley Energia (BKY: BUY, $2.10 target price) has bucked the trend falling uranium prices, rising 39%. The Salamanca project boasts low capex and potential for strong operating margins even at the bottom of the uranium market.
2015's laggards
Paringa Resource (PNL: SPEC BUY, $0.98 target price) and Peak Resources (PEK, SPEC BUY, no target price) are the only stocks to generate negative returns over the period. PNL delayed first production after a strategic decision to develop the lower capex shallower No. 2 Mine ahead of the larger higher capex No. 1 Mine at the Buck Creek thermal coal complex. Negative investor sentiment towards rare earth elements continues to weigh on PEK, despite having one of the largest and lowest cost magnet mineral rich (neodymium and praseodymium) projects globally. Argonaut considers both PEK and PNL to be deep value stocks.
Corporate appeal
We believe a number of the stocks/projects amongst our list of 2015 Best Undeveloped have high corporate/takeover appeal. By the time we publish our updated 2016 report, it is likely a number of projects will reside under new owners. Recent history has shown that gold projects with the capability to produce >200kozpa become takeover targets as they near production, citing Papillion Resources (PIR) and Orbis Gold (OBS) as notable examples. The latter featured in Argonaut’s 2014 Best Undeveloped Projects. Both GOR and DCN have potential for >200kozpa production and, being Australian domiciled, offer low sovereign risk. Finders Resources (FND: BUY, $0.22 target price) offers significant copper production (28ktpa) from its 72% owned Wetar project. Low costs (AISC <US$1.50/lb) and exploration upside are enticing in a market that is starved of quality acquirable copper assets. BKY’s Salamanca is one of the few near term uranium development projects in the hands of a junior. Significant production, low sovereign risk and the potential for high margins will make it attractive to strategic investors and SOEs looking to secure supply ahead of a pending uranium supply deficit.
Important disclosure
BKY: Argonaut currently owns and/or controls 150,000 BKY shares.
CXX: Argonaut acts as Corporate Adviser to CXX and will receive fees commensurate with these services. Argonaut holds or controls 1,750,000 CXX shares and 1M CXX Options exercisable at $0.25 on or before 30 April 2018.
DCN: Argonaut acted as Joint Lead Manager to the Placement to raise $25M in November 2015 and received fees commensurate with this service.
GOR: Argonaut acted as Joint Lead Manager to the Placement to raise up to $40M in June 2015 and received fees commensurate with this service. Argonaut acted as Joint Lead Manager to the Placement that raised $74M in April 2016 and will receive fees commensurate with this service.
PNL: Argonaut acts as Corporate Adviser to PNL and will receive fees commensurate with these services. Argonaut participated in the Placement to raise $5M in July 2015 and received fees commensurate with this service.
PEK: Argonaut currently holds or controls 2.5M PEK Options exercisable at $0.15 on or before 5 June 2017.
Recent Contacts & Presentations
Cradle Resources (CXX), Saracen (SAR), Gold Road Resources(GOR), Regis Resources (RRL), Gascoyne Resources (GCY), Botanix (BNE), Sino Gas & Energy (SEH), Altura Mining (AJM), Navitas (NVT), Gage Roads (GRB), Bionomics (BNO), Invigor Group (IVO)
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