Morning Notes

11/05/2018 Argonaut Morning Note

Market Update & Important Indicators:

U.S. stocks rose intraday, as fears of runaway inflation abated to help send the Dow Jones Industrial Average higher for a sixth consecutive session. The Dow rose 197 points to near its longest winning streak since February, as investors got another sign that inflation may be rising, but not so rapidly that the Federal Reserve would have to take aggressive actions to keep the economy from overheating. New Labor Department data indicated U.S. consumer prices rose less than expected in April and followed last Friday's unemployment report that showed wage growth remains sluggish, alleviating some recent worries and removing a major hurdle for the Dow and other indexes to move higher. The volatility that rocked the stock market this year and sent major indexes into correction territory has gradually faded, giving some money managers hope that stocks are gaining some upward momentum. A key measure of expected market swings, the Cboe Volatility Index, or VIX, has fallen six straight trading sessions, settling near levels that were last seen in early January, when stocks were in so-called melt-up mode following the passage of Republicans' tax overhaul. The U.S gold price rose 0.7% to 1,321.2 US$/Oz.

The Stoxx Europe 600 index closed down 0.1% at 391.97 in a mixed day for European stocks, with U.K. stocks outperforming due to falls in the pound after the Bank of England left rates unchanged, but Italian stocks sliding due to political concerns. The FTSE 100 index ended up 0.5% and reached a three-month high as the pound fell to its lowest in four months. German and French stocks also performed well, with the DAX ending up 0.6% and the CAC 40 up 0.2%. Concern over the possibility of Italy's 5 Star Movement and League forming a government pushed Italy's FTSE MIB down 1%. Spain's Ibex 35 was up 0.25%.

Asia stocks again closed broadly higher, following overnight gains in the U.S. and Europe, while oil hit fresh 3 1/2-year highs. But perhaps the biggest news is the market that was closed, Malaysia, after the opposition scored a major upset in Wednesday's election. Knee-jerk selling is anticipated across assets there on Monday, but some doubt the weakness will last long. There were wide gains of about 0.5% in Asia, though benchmarks in South Korea and Hong Kong were closer to 1% after recent weakness. Lagging was Singapore, whose main index has been in negative territory most of the day.

The continued rise in oil prices again helped send Australia's stock benchmark to fresh three-month highs. Though just four sectors advanced amid a slow fade after early strength, the S&P/ASX 200 finished up 0.2% at 6118.7. Woodside and Oil Search surged some 5% while BHP Billiton gained 1.7%.

Overnight, base metals were mixed on the London Metal Exchange. The 3-month copper contract gained 1.6% to 6,884/t. Smaller gains were seen in the price of zinc which appreciated 0.4% to 3,073/t, and lead that finished 0.3% higher at 2,293/t. Nickel lost 0.3% to close at 13,820/t, while tin fell 1.6% to finish at 20,865/t. Aluminium recorded the largest fall of 1.9% to close at 2,330/t.

In this issue:

Sino Gas and Energy (SEH) | PSC Cost Allocation Principles | BUY
Market Cap $381m | Current Price $0.18 | Valuation $0.24 (Under Review)

SEH announced that it had finalised the Linxing development phase PSC cost allocation principles with its PSC partner CUCBM. The parties are still deciding on the allocation of costs between development and exploration which may affect whether SEH can recover some of its sunk costs from 100% of the project revenue or from its own share of revenue. The SGE JV (SEH 49%) will have to carry all the development costs until the CUCBM receives full project investment committee approval from its parent CNOOC. Argonaut maintains a BUY recommendation but due to timing uncertainty, our $0.24/share target price is under review.

Recent Contacts & Presentations:

Nexus Minerals (NXM), Great Boulder Resources (GBR), Orthocell (OCC), Northern Minerals (NTU), ABM Resources Ltd (ABU), Vital Metals Ltd (VML), Todd River Resources Ltd (TRT), Pacific Energy Ltd (PEA), Carnarvon Petroleum Ltd (CVN), Australian Mines Ltd (AUZ), Australian Finance Group (AFG), Paladin Energy Ltd (PDN), Cooper Energy Ltd (COE), Medibio Ltd (MEB), 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)

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