Morning Notes

08/01/2018 Argonaut Morning Note

Market Update & Important Indicators
The Dow Jones Industrial Average notched its best start to a year since 2003 as further signs of a solid economic backdrop helped push stocks to new highs this week. The strong start to 2018 builds on last year's remarkable gains, which were powered by investor optimism over the global economy and a belief that central banks won't hurt markets and economic growth by withdrawing stimulus too quickly. The S&P 500 posted four fresh records in four consecutive trading sessions in the past week, rising 2.6%, its biggest weekly gain since December 2016 and its best start to the year since 2006. The Dow, which catapulted above 25000 for the first time Thursday, ended the week up 2.3%, its best four-day start to the year since 2003. The Dow industrials rose 220.74 points, or 0.9%, to 25295.87. The S&P 500 gained 19.16 points, or 0.7%, to 2743.15 and the Nasdaq Composite added 58.64 points, or 0.8%, to 7136.56 as technology stocks continued to rise sharply. Technology companies in the S&P 500 ended the week 4.2% higher, making the sector one of the best-performing groups in the index. The U.S. gold price traded higher overnight, closing at 1,318.80 US$/oz.

European shares closed higher, with the STOXX Europe 600 index ending up 0.9% at 397.35, as U.K. and U.S. stocks reached records, with equities in favour among investors as 2018 gets under way. Helped by euro falls versus the dollar, pharmaceuticals and auto stocks rose. Germany's DAX closed up 1.1%, France's CAC 40 was up 1% and the FTSE 100 rose 0.4%. Spain's IBEX 35 closed up 0.9%, Italy's FTSE MIB up 1.1%.

The global stock rally pushed higher Friday, a day after the Dow Jones Industrial Average closed above 25000 for the first time and as several other indexes notched multiyear highs. Benchmarks across Japan, South Korea and China hung on to gains in afternoon trade. Japan's Nikkei index closed 0.9% higher at another fresh 26-year high. A fall in the yen helped boost the index, with many major Japanese companies reliant on exports. Taiwan's tech-heavy Taiex benchmark recovered from early-day weakness to finish the day 0.3% higher, hitting its highest closing level in 28 years. South Korea's Kospi gained 1.3% after falling Thursday. In China, the Shanghai Composite was up 0.2% and the Shenzhen Composite inched 0.04% higher. Hong Kong's Hang Seng index, however, was down 0.1% after hitting a 10-year high Thursday.

Australian stocks kicked into gear in the final session of an otherwise lacklustre week for the market there, catching up to some of the gains seen elsewhere in the region this week. Helping today were bank stocks rallying after the sector's gains Thursday on Wall Street. The S&P/ASX 200 settled 0.7% higher at 6122.3, near the day's peak and a fresh 10-year closing high. CBA led the big banks with a 1.5% gain; Westpac rose 1.2%. Miners also continued to climb, with rise of 1.5 and Westpac climbed 1.2%. Major miners also added to recent gains, with BHP up 0.8% to notch another multiyear high and Fortescue jumping 3.5%.

The London Metal Exchange’s 3-month copper contract traded lower overnight, losing 0.9% to finish at $7,121/t. The other base metals also finished mostly lower. Aluminium prices slipped 2.1% to close at 2,188/t, whilst Lead prices pulled back 1.8% to close at 2,547/t. Zinc prices fell 0.1% to close at 3,380/t, whilst Nickel prices fell 0.9% to 12,488/t. Tin prices bucked the trend, gaining 0.5% to close at 20,015/t.

In this issue
St Barbara Limited (SBM) | Priced to Perfection | SELL
Market Cap $1,922m | Current Price $3.76 | Target Price $3.14

St Barbara’s (SBM) share price has performed strongly rising by 50% since 3rd October. Higher than expected September Q production of 64koz was ahead of our estimates as high grade shoots at Gwalia continued to benefit enhanced production versus previous Company guidance. Mined grades in the September Q were 37% higher than reserve grades and 16% higher than the June Q, and in-line with the FY17 average grade of 10.7g/t (FY17 grades were 29% ahead of reserves). SBM now trades broadly in-line with its peer group on an EV/Production vs FCF basis (See Figure 1). Whilst we view SBM as a high-quality gold miner with significant free cash generation, the stock now trades 20% higher than our risk-weighted DCF valuation. We retain our preference for Regis Resources (RRL) for near term upside due to its lower risk open pit assets, low production costs and expansion potential via the McPhillamys asset in NSW.

Recent Contacts & Presentations
Greenland Energy Ltd (GGG), Walkabout Resources Ltd (WKT), Marindi Metals Ltd (MZN), Volt Power Group Ltd (VPR), PharmAust Ltd (PAA), Alice Queen Ltd (AQX), Jervois Mining Ltd (JRV), St George Mining Ltd (SGQ), Overland Resources Ltd (OVR), Metro Mining Ltd (MMI), Botanix Pharmaceuticals Ltd (BOT), Xanadu Mines Ltd (XAM), Orthocell Ltd (OCC), Whitebark Energy Ltd (WBE), Atrum Coal Ltd (ATU), Minotaur Exploration Ltd (MEP), Panoramic Resources Ltd (PAN), Sino Gas & Energy Holdings Ltd (SEH), Great Boulder Resources Ltd (GBR), Metallum Ltd (MNE), Gold Road Resources Ltd (GOR), Apollo Consolidated Ltd (AOP), De Grey Mining Ltd (DEG), Triton Minerals Ltd (TON), Evolution Mining Ltd (EVN), Silver Mines Ltd (SVL), NTM Gold Ltd (NTM)

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