Market Update & Important Indicators
The Dow Jones Industrial Average posted a gain for the day and the week, while a fall in technology shares contributed to declines in the S&P 500 and Nasdaq Composite. Upbeat quarterly results from large U.S. companies including Boeing, Caterpillar, Chevron and Verizon Communications helped the Dow industrials outperform its peers in recent days. Together, those stocks' weekly gains contributed roughly 310 points to the index, which rose 250.24 points, or 1.2%, for the week. On Friday, the Dow industrials rose 33.76 points, or 0.2%, to 21830.31 — a fresh record. The S&P 500 fell 3.32 points, or 0.1%, to 2472.10 Friday and was little changed on the week, while the tech-heavy Nasdaq Composite shed 7.51 points, or 0.1%, to 6374.68 Friday and lost 0.2% during the week. The tech sector of the S&P 500 slipped 0.1% Friday, extending declines from the prior session, and posted a weekly fall of 0.6%. Nonetheless, the sector remains up 22% year-to-date. The U.S. gold price gained on Friday night, adding 0.8% to 1,269.10 US$/oz.
European stocks on Friday logged their lowest close in three months, flattened partially by a decline in shares of UBS following the Swiss bank's earnings. The Stoxx Europe 600 dropped 1% to end at 378.34, the weakest close since April 21, FactSet data showed, and only the oil-and-gas sector finished higher. The pullback cemented the index's 0.5% weekly loss, extending last week's fall of 1.7%. European markets on Friday ended on a softer note after a weak Asia session and some late profit-taking in the tech sector heading into the U.S. close, which saw both the S&P500 and Nasdaq close lower on Thursday. European technology shares slid a collective 1.3% on Friday, in sympathy with the broader pressure in the sector.
Japan's Nikkei Stock Average and Hong Kong's Hang Seng Index each fell around 0.6% Friday amid pressure on technology companies, while a 4% drop in index heavyweight Samsung Electronics sent Korea's Kospi down 1.7%. Adding to pressure on overseas bourses, the WSJ Dollar Index edged down 0.1% Friday after the Republican effort to dismantle the Affordable Care Act collapsed when a slimmed-down Senate measure to pare back selected pieces of the 2010 health-care law failed.
Australian shares were hit with a fresh wave of selling Friday, wiping out gains for the week. Investors took profits after gains the last three days as caution took hold across the Asia-Pacific and as the local market braced for the start of corporate earnings season, which unofficially begins Tuesday. In the sharpest single-day drop in a month, the S&P/ASX 200 lost 82.2 points, or 1.4%, to settle at 5702.8. Losses were notched up across the board, with the major banks pulling back on their recent recovery and utilities, health-care and industrial companies particularly weak. Australian trading has been volatile the last few sessions, in part as the local currency has perked up against a softer U.S. dollar that hasn't been helped by uncertainty around the Trump administration and somewhat dovish comments from the Federal Reserve.
The London Metal Exchange's three-month copper contract closed flat overnight to finish at $6,296/t. The other base metals finished mixed. Nickel prices rose 0.7% to 10,156/t, whilst tin prices lost 0.4% to 20,730/t. Aluminium prices fell 1.7% to 1,885/t, lead prices gained 0.5% to 2,298/t whilst zinc prices shed 1.0% to 2,767/t.
In this issue
Resolute Mining Ltd (RSG) | A transitional year | BUY
Resolute Mining (RSG) delivered an in-line June Q, producing 71koz (-18% Q-o-Q) at an all-in sustaining cost (AISC) of A$1,502/oz (-45% Q-o-Q). The higher cost June Q was driven largely by Syama sulphide production coming largely from stockpiles at lower grades and recoveries than the March Q and lower milling of open pit sulphide ores from satellite deposits. Syama Q4 gold production declined by 32% to 47koz at an AISC of $1,558/oz. At Ravenswood, production improved to 24koz (+22% vs Q3) and costs fell to A$1,300/oz (-20% vs Q3) after higher proportions of Mt Wright saw head grades lift by 7% vs Q3. FY17 gold production finished the year with 330koz (vs Argonaut 309koz) at an AISC of A$1,130/oz (vs guidance of $1150/oz and Argonaut forecasts of A$1,028/oz). Underground ores continue to ramp up as mining pushes ahead with the Syama sub level cave development now feeding development ore into the production profile. After incorporating FY18 guidance into our model we revise our target price to $1.40ps (prior $1.53) and we maintain our BUY recommendation.
MZI Resources (MZI) | Production improving, debt looming | HOLD
MZI Resources (MZI) released June Q production with a significant improvement in ore mined and processed (+13% and +14% respectively QoQ). The Company also achieved record sales 23.4kt of mineral sands products generating proceeds of $14.8m. Operations at the Keysbrook mine appear to be stabilising following the installation of the Mining Field Unit (MFU). Balance sheet risk remains our key concern with a US$21m debt repayment to Resource Capital Fund (RCF) due in the first week of December. MZI is currently exploring options to achieve a simpler and more efficient capital structure. Argonaut maintains a HOLD recommendation with a revised target price of $0.38/sh.
Sandfire Resource (SFR) | Clock is ticking | HOLD
Market Cap $960m | Current Price $5.95 | Target Price | $6.10
Sandfire Resources (SFR) produced a solid final Q for FY17 with 17.1kt Cu and 9.7koz gold in concentrate (+5% and +8% QoQ) beating Argonaut’s forecast of 16.8kt Cu and 9.5koz gold. SFR finished FY17 with 67.1kt Cu and 38.6koz gold, within guidance of 65-68kt Cu and 35-40koz gold. Annual C1 costs of US$0.93/lb were below the guidance range of US$0.95-1.05/lb. The Company has broken ground on the Monty deposit (70% SFR: 30% Talisman Mining [TLM]) with the commencement of the underground boxcut. Argonaut maintains a HOLD recommendation with a $6.10 target price (previously $6.05).
Gage Roads (GRB) | Turning on the taps | BUY
Market Cap $40m | Current Price $0.047 | Valuation $0.066
One year into its 5-year strategy, GRB has comfortably delivered against expectations. The latest quarterly showed strong operating cash inflow and unaudited earnings ahead of our forecasts. Marketing efforts and growing brand awareness has shifted the sales mix towards proprietary products, boosting the FY17 GP margin to an impressive 58%. Sales growth through independent retailers and the on-premise market validates GRB’s “return to craft” strategy. Upgrades to earnings on the back of the latest results improves our blended valuation to $0.066 (prior $0.061). We maintain a positive view and buy call.
Recent Contacts & Presentations
Gage Roads Brewing Co Ltd (GRB), Stavely Minerals Ltd (SVY), Orbital Corporation Ltd (OEC), 4Ds Memory Ltd (4DS), Kin Mining NL (KIN), Pharmaust Limited (PAA), Botanix Pharmaceuticals Ltd (BOT), Dimerix Ltd (DXB), Metro Mining Ltd (MMI), Paringa Resources Ltd (PNL), Independence Group NL (IGO), MZI Resources Ltd (MZI), Transerv Energy Ltd (TSV), Emmerson Resources Ltd (ERM), Antipa Minerals Ltd (AZY), Echo Resources Ltd (EAR), Sovereign Metals Ltd (SVM), Calidus Resources Ltd (CAI), Great Boulder Resources Ltd (GBR), Finders Resources Ltd (FND), Bionomics Ltd (BNO), Threat Protect Australia Ltd (TPS), Ramelius Resources Ltd (RMS), Zenith Energy Ltd (ZEN)