Morning Notes

18/05/2017 Argonaut Morning Note

Market Update & Important Indicators:

Turbulence in Washington jolted markets out of an extended period of calm Wednesday. Stocks slid as investors pulled back from bets on the swift passage of President Donald Trump's agenda. In one of the clearest signs of waning investor confidence, a closely watched measure of the dollar's value was on track to give back its postelection gains. Stocks fell around the world, with major U.S. stock indexes heading for their biggest declines in months. U.S. stocks remain close to record highs and few investors said they expect a major pullback, but many said they were increasingly worried about the implementation of proposed policies such as tax cuts, deregulation and infrastructure spending following a series of developments in Washington. Some traders said Wednesday's selling was sparked by reports that President Donald Trump had allegedly asked then-FBI Director James Comey to back off the investigation of former national security adviser Michael Flynn. Wednesday's moves upended weeks of stability. Among market sectors, bank stocks were hit hardest: Financials in the S&P 500 were down about 2.8%. On the contrary, the U.S. gold price rose strongly overnight, rising 2.0% to 1,260.90 US$/oz.

European stocks moved sharply lower on Wednesday, with investors rattled by the latest political turmoil in the U.S. that is feared to put President Donald Trump's pro-growth agenda at risk. The Stoxx Europe 600 index ended Wednesday 1.2% lower at 391.14, marking the biggest one-day percentage loss since Sept. 26, according to FactSet data.

The falling dollar and Treasury yields pressured stocks in Japan. The Nikkei Stock Average was down 0.5% amid declines in shares of life insurers, who are large investors in bonds and need higher yields to help cover claims. Hong Kong's Hang Seng Index edged down 0.2%.

A broad sell-off led by another drop in the banks dragged Australian shares to their lowest finish in seven weeks Wednesday. Equities across the region faltered as concerns continue to build over the ability of the White House to make progress on economic policy. Local sentiment was further dampened by weak wage data, which casts doubt on forecasts included in the federal government's budget of last week. Ending near its weakest levels of the day, the S&P/ASX 200 lost 64.5 points, or 1.1%, to close at 5786.0. It was the sharpest one-day drop since March 22. While stocks fell, the local currency firmed against the U.S. dollar as investors weigh the latest in a series of controversies to hit the Trump administration, adding to worries that the president's agenda will be derailed. Meanwhile, data on the day showed wage growth remained at record-low levels in the first quarter, adding to concerns around high levels of underemployment in the economy. The five largest banks collectively knocked almost 29 points off the ASX 200 whilst energy stocks also weakened. The materials sector bucked the trend as miners were buoyed by a rally in Chinese iron-ore futures.

The London Metal Exchange's three-month copper contract closed down 0.02% at $5,610/t. The other base metals finished mainly higher on Wednesday. Rising for the day, lead prices rose 1.0% at 2,095/t, nickel prices rose 1.1% at 9,166/t, zinc prices rose 0.6% at 2,546/t, aluminium prices jumped 0.1% to 1,922/t whilst tin prices finished 2.4% higher at 20,540/t.

In this Issue:

Paladin Energy (PDN) | Plan B – Risks remain high | SELL
Market Cap $127m | Current Price $0.07 | Target Price $0.06

Paladin Energy (PDN) announced an alternate balance sheet restructure which includes selling its remaining 75% interest in the Langer Heinrich Mine (LHM) to China National Nuclear Corporation (CNNC). The key differentiators to the previous restructure are; no debt for equity to repay CB holders and the repayment of Électricité de France’s (EdF) ~US$273m security held over PDN’s assets. As a result, the Company would emerge as a uranium developer with a long tern sales contract (LTSC) with EdF valued anywhere between US$140-210m and ~US$188m in Convertible Bonds (maturing 2022). PDN aims to negotiate the LTSC “to remain on foot on terms acceptable to EDF”. If successful, we believe the LTSC could be monetised to repay the majority of the residual CBs. PDN also announced financials for the nine months to March 31 2017 with revenue of US$69m, underlying EBITDA of US$5m and a net attributable loss of US$84m (vs US$122m, US$16m and US$39m respectively for the corresponding period in 2016). Cash at March 31 was US$22m. Sell maintained with a $0.06 target price.

Recent Contacts & Presentations:

Pilbara Minerals Ltd (PLS), Laconia Resources Ltd (LCR), Hazer Group Ltd (HZR), Transerv Energy Ltd (TSV), Ausquest Ltd (AQD), Quintis Ltd (QIN), Paradigm Biopharma Ltd (PAR), Pharmaust Ltd (PAA), Strandline Resources Ltd (STA), PharmaNet Group (PNO), Emerald Resources NL (EMR), Echo Resources (EAR), Investigator Resources Ltd (IVR), Beadell Resources Ltd (BDR), Pantoro Ltd (PNR), Botanix Pharmaceuticals Ltd (BOT), Resolute Mining Ltd (RSG), Hotcopper Holdings Ltd (HOT), Prairie Mining Ltd (PDZ) Vital Metals Ltd (VML), Red River Resources Ltd (RVR), Saracen Mineral Holdings Ltd (SAR), AWE Limited (AWE), Paringa Resources Ltd (PNL)

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