Morning Notes

14/03/2018 Argonaut Morning Note

Market Update & Important Indicators
Stocks turned lower midday as technology and financial shares declined. The Dow Jones Industrial Average fell 172 points, or 0.7%, to 25,007. The S&P 500 declined 0.6%, and the tech-heavy Nasdaq Composite dropped 0.9%. Tech stocks in the S&P 500 fell by 1%, led by a 4.8% drop in shares of Qualcomm after President Donald Trump on Monday blocked Broadcom's $117 billion hostile takeover bid on national security grounds. Financial stocks fell 0.7%, alongside a decline in bond yields. The indexes had opened higher and the Dow climbed as much as 197 points earlier in the session after the latest round of inflation data showed consumer prices increased more modestly in February than in the previous month. The U.S. dollar sold off intraday, following consumer-price inflation data that was in line with expectations, dampening more-aggressive rate-hike forecasts, and after President Donald Trump said he would replace Secretary of State Rex Tillerson. The U.S. gold price traded higher overnight, finishing 0.2% stronger at 1325.90 US$/oz.

European shares closed lower after U.S. President Donald Trump's decision to fire his secretary of state Rex Tillerson added to U.S. political uncertainty. The Stoxx Europe 600 ended down 1% at 375.49. Germany's DAX underperformed, ending down 1.6%. The FTSE 100 index was down 1% while France's CAC 40 finished down 0.6%. Spanish and Italian stocks fared slightly less badly, with the IBEX 35 closing down 0.4% and the FTSE MIB down 0.3%.

In Asia, Japanese stocks closed up 0.7%, paring earlier losses. Gains in the yen softened, with investors largely unperturbed by calls for the resignation of Finance Minister Taro Aso. The Nikkei finished at session highs and logged all its gains within the last two hours of trading in rising to 21968.10, a fourth-straight advance. Samsung Electronics was up 3.9% in South Korea, with the country's main benchmark up 0.4%. Taiwan's Taiex gained 0.9%, buoyed by gains for Apple suppliers Largan Precision and Taiwan Semiconductor. For stocks in Hong Kong and China, Shanghai's composite index was down 0.5% after news the country plans to merge its banking and insurance regulators, while the Shenzhen composite index was down 0.7%.

Despite an afternoon uptick from session lows, Australian stocks still underperformed most Asia Pacific markets as resource names slid following overnight commodities weakness. The S&P/ASX 200 dropped 0.4% to 5974.7 after three straight gains. Following declines in iron ore and industrial metals, BHP Billiton and Rio Tinto were down 0.8% and 2%, respectively, while Woodside fell 0.3% after Monday's fresh drop in oil prices. Australia's major banks declined as well as the first round of public hearings in the sector's year-long judicial inquiry kicked off.

The London Metal Exchange’s 3-month copper contract traded higher overnight, gaining 0.4% to close at $6,945/t. The other base metals finished mostly higher. Tin prices closed down 1.0% to 21,215/t, whilst Zinc prices rebounded 1.7% to close at 3,292/t. Aluminium prices rose 0.6% to close at 2,082/t. Lead prices were strongest, jumping 2.1% to 2,392/t, whilst Nickel prices advanced 1.5% to finish at 13,828/t.

In this issue
Gascoyne Resources (GCY) | On the road to first gold | BUY
Market Cap $210m| Current Price $0.51 | Target Price $0.84

Gascoyne Resources’ (GCY) Dalgaranga project remains on time and budget for completion in May 2018. The majority of the critical path items have been delivered to site or are currently being installed. Mining has commenced at Sly Fox with first ores delivered to the ROM pad. At Golden Wings, dewatering and grade control is underway. Power infrastructure is being installed with first gas delivery expected in the coming weeks and gas generator installation expected in early April. First gold is expected around mid-May 2018. Exploration is ongoing with RC drilling at Greencock and aircore drilling at Seagram’s and other regional targets. GCY trades at an undemanding EV/production (forecast FY19) of $2,100/oz versus its producer peer group of ~$4,500/oz and other emerging developers at ~$3,000/oz. GCY also trades on a forward-looking EV/EBITDA of 4.5x versus the peer group average of ~7.0x. GCY trades at 40% discount to our NAV, and as construction is completed and production commences, the discount to our target price should unwind. We maintain our BUY recommendation and target price of $0.84ps ($0.88 prior) after making minor revisions to our model.

Recent Contacts & Presentations
Botanix Pharmaceuticals Ltd (BOT), 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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