Market Update & Important Indicators:
U.S. stocks tumbled Monday, sending the Dow Jones Industrial Average down more than 150 points in what was shaping up to be its worst day since the election. All 11 major sectors of the S&P 500 fell — broad declines that contrasted with a stock market that has been generally buoyant since Election Day. After the Dow crossed 20,000 and major indexes hit records last week, President Donald Trump's move to restrict immigration from seven majority-Muslim countries deflated some of the market's optimism, some analysts and investors said. Airlines and technology firms were among Monday's biggest decliners. Financial shares, which have helped lead the rally since Election Day, also slumped. Stocks pared some of their earlier declines, but the Dow Jones Industrial Average was still on track for its biggest drop since Oct. 11. Expectations for stock swings increased, following a relatively tranquil stretch. The CBOE Volatility Index, or VIX, rose 16% to 12.22. On Friday, Wall Street's "fear gauge" closed at 10.58, its lowest level since 2014. Mr. Trump's executive order on immigration Friday spawned legal challenges, congressional criticism and widespread protests. The prospect of protectionist measures and conflict in Washington could cloud the path for pro-business initiatives like corporate tax reform and fiscal spending, which investors have been betting on since Election Day.
European stocks finished with their biggest drop in two months Monday, with airlines and other leisure shares taking a hit after the Trump administration suspended entry by citizens of seven Muslim-majority countries into the U.S. The Stoxx Europe 600 index fell 1.1% to end at 362.55, suffering its biggest daily percentage drop since November. U.S. stocks sold off as well on Monday, pushing the Dow Jones Industrial Average by more than 200 points intraday.
In Asian markets, Japan's Nikkei fell 0.5%. Insurers led declines in Japan after the disappointing U.S. growth figures on Friday sent yields lower for Treasury’s and super-long Japanese government bonds. Still, "The market's greater focus is on [Trump's] budget message," said Hideyuki Ishiguro, senior strategist at Daiwa Securities. "So long as he can deliver on that front, it'll be fine." Markets in China, Hong Kong and South Korea were closed for the Lunar New Year holiday.
Australian shares wiped out most of last week's gains with broad selling Monday as the appetite for risk that followed the U.S. election faded. Uncertainty over the U.S. economy after it expanded just 1.9% in the fourth quarter, a fall in crude-oil futures, and President Donald Trump's order Friday on immigration combined for a nervous start to the week. After rising 1.1% last week as banks and other stocks resumed their post-election march higher, the S&P/ASX 200 dropped 52.5 points, or 0.9%, to end the day at 5661.5. Each of the industry subindexes finished in the red, with the technology basket sharply lower. The U.S. dollar pulled back and perceived safe havens, including gold, rose in Asian trade following Friday's U.S. gross domestic product data and President Trump's order to tighten immigration rules.
The London Metal Exchange's three-month copper contract fell 1.3% to $5,820/t. Other base metals closed mixed on Monday. Aluminium prices fell 1.0% to $1,797/t and tin prices fell 1.5% to $19,607/t. Zinc prices rose 1.0% to $2,770/t, nickel prices rose 2.1% to $9,623/t and lead prices rose 2.0% to $2,360/t.
In this Issue:
OZ Minerals (OZL) | Piling on the cash | SELL
Market Cap $2,756m | Current Price $9.08 | Target Price $8.25
OZ Minerals (OZL) finished CY17 strongly with 30kt copper and 32koz gold produced in the December Q at total cash costs of US$0.96/lb. This was a beat on Argonaut’s forecast of 28kt copper and 29koz gold at US$0.98/lb. Subsequently, The Company achieved full year guidance with 117kt copper and 118koz gold at C1 costs of US$0.74/lb (vs guidance of 115-120kt copper and 115-120koz gold at US$0.70-0.80/lb). OZL ended the year with $656m cash, up from $509m at the end of September. Prominent Hill is in a cash harvesting phase with declining waste stripping as the final levels of the open pit are mined. The Carrapateena project is on schedule with the Tjati Decline developed to 450m (of 4,700m) and the final Feasibility due early Q2 2017. Argonaut’s valuation increases to $8.25/sh (from $6.60) as we align our model with the Company’s extended Prominent Hill mine life, out to 2028. Despite this valuation increase, the stock is trading well above our revised target price so we downgrade to SELL (from HOLD).
Recent Contacts & Presentations:
Resolute Mining Ltd (RSG), Capricorn Metals Ltd (CMM), Eve Investments Ltd (EVE), Australian Mines Ltd (AUZ), Heron Resources Ltd (HRR), St George Mining Ltd (SGQ), Threat Protect Australia Ltd (TPS), Paringa Resources Ltd (PNL), The Gruden Group Ltd (GGL), Primary Gold Ltd (PGO), Vault Intelligence Ltd (VLT), Botanix Pharmaceuticals Ltd (BOT) Orthocell Ltd (OCC), Strandline Resources Ltd (STA) Dragontail Systems Ltd (DTS), ABM Resources Ltd (ABU), Acacia Coal Ltd (AJC), Troy Resources Ltd (TRY), Hazer Group Ltd (HZR), Berkeley Energia Ltd (BKY), Sino Gas & Energy Holdings Ltd (SEH), Sovereign Metals Ltd (SVM), Kin Mining (KIN), Vital Metals Ltd (VML)
Please read Argonaut's Important Disclaimers & disclosures