Morning Notes

12/03/2018 Argonaut Morning Note

Market Update & Important Indicators
U.S. stocks jumped Friday, extending major indexes' gains for the week, after an upbeat February jobs report eased investors' concerns that inflation is accelerating too quickly. Those inflation fears, which had gripped markets in recent weeks and contributed to a surge in volatility, diminished after data from the Labor Department released Friday showed that wage growth slowed in February. Meanwhile, the annual wage gain in January - which initially came in stronger than expected and sparked the jitters that led to the market's worst selloff in more than two years - was revised down. The data helped push stock futures up before the opening bell and sent indexes hurtling higher throughout the session to notch their third week of gains out of the past four. For investors, the slower wage growth signals that inflation is progressing at a pace that more closely aligns with the Federal Reserve's thinking and likely won't require the central bank to hasten its pace of interest-rate increases. The Dow Jones Industrial Average jumped 440.53 points, or 1.8%, to 25335.74, while the S&P 500 added 47.60 points, or 1.7%, to 2786.57. The Nasdaq Composite rose 132.86 points, or 1.8%, to 7560.81. Friday also marked the ninth anniversary of the bull market. The S&P 500 has more than quadrupled since stocks hit their lowest point during the financial crisis on March 9, 2009, making it the second-longest rally in U.S. history. The Dow is up 287% since then, while the Nasdaq has risen 496%. The U.S. gold price traded higher to end the week, adding 0.1% to finish at 1323.10 US$/oz.

European shares rose Friday after an upbeat U.S. job report, though lacklustre wage growth took the shine off the numbers. The Stoxx Europe 600 closed 0.4% at 378.24 as U.S. jobs rose by 313,000 in February, with January's figure revised up to 239,000. Germany's DAX fell 0.1% and France's CAC-40 rose 0.4%. The U.K.'s FTSE 100 ended up 0.3%.

Asian equity benchmarks ended Friday higher after news of a surprise meeting between North Korean leader Kim Jong Un and President Donald Trump eased some investors' worries about geopolitical tensions. Japan's Nikkei Stock Average rose as much as 2.4% in morning trading and finished up 0.5%, while Hong Kong's benchmark rose 1.1%. South Korea's Kospi closed 1.1% higher.

Australian stocks, like others in the region, pulled back from morning strength as initial enthusiasm about a possible North Korea peace deal ebbed. Rising for a 2nd day running after Trump suggested Australia could also be exempted from metals tariffs, the S&P/ASX 200 rose 0.3% to 5963.2. It gained 0.6% for the week, reversing half of last week's drop. CBA again led a rebound by the major banks, picking up 0.9% today and 1.5% for the week. Still, a fresh overnight fall in oil weighed on energy stocks and a drop in Chinese metals futures after the White House affirmed its steel and aluminium tariffs left BHP Billiton down 1.7% and Rio Tinto 2.7% lower today.

The London Metal Exchange’s 3-month copper contract traded higher overnight, rebounding 1.9% to close at $6,962/t. The other base metals finished mostly higher. Tin prices closed down 0.7% to 21,477/t, whilst Zinc prices jumped by 1.5% to close at 3,276/t. Aluminium prices gained 0.7% to close at 2,100/t. Lead prices recovered 1.7% to 2,375/t, whilst Nickel prices were strongest, gaining 4.5% to finish at 13,814/t.

In this issue
Northern Star Resources (NST) | Going down south to drive production north | HOLD
Market Cap $4bn| Current Price $6.72 | Target Price $6.12

Northern Star Resources (NST) has announced it’s agreed to acquire the South Kalgoorlie Operations (SKO) from Westgold (ASX: WGX). This is a value accretive deal which lifts the constraint on processing that has until now capped production in the Kalgoorlie assets. The acquisition comprises the 1.2Mtpa SKO processing plant and associated resources (4Moz) and reserves (250koz) within the tenement package. Under the agreement NST will pay WGX a consideration of $80m comprising 9.5m NST shares at A$6.30ps for $60m and a further $20m in cash. Settlement of the deal is expected on 1 April 2018. NST has flagged production growth in the 100% owned Kundana assets and we see the increased output being re-directed into the South Kal plant. We see strong potential for NST to lift group production by >100kozpa in FY19. Despite the positives the stock continues to trade ahead of our valuation and this transaction back fills value. We maintain our HOLD recommendation and revise our target price upwards to $6.12ps (from $5.70ps).

Recent Contacts & Presentations
Salt Lake Potash Ltd (SO4), Golden Mile Resources Ltd (G88), NTM Gold Ltd (NTM), Ausmex Mining Group Ltd (AMG), Matrix C&E Ltd (MCE), Austal Ltd (ASB), Decmil Group Ltd (DCG), Ventnor Resources Ltd, Ausdrill Ltd (ASL), Alice Queen Ltd (AQX), PNX Metals Ltd (PNX), Alliance Resources Ltd (AGS), Myanmar Metals Ltd (MYL), Primary Gold Ltd (PGO), Sino Gas & Energy Holdings Ltd (SEH), Australis Oil & Gas Ltd (ATS), Explaurum Ltd (EXU), Whitebark Energy Ltd (WBE), Atrum Coal Ltd (ATU), Melbana Energy Ltd (MAY), Genesis Minerals Ltd (GMD), Proteomics International Laboratories Ltd (PIQ), Ramelius Resources Ltd (RMS), MOD Resources Ltd (MOD)

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