Market Update & Important Indicators
U.S. stocks extended losses, pushing the Dow Jones Industrial Average to its lowest level since mid-April. Stocks have pulled back in recent sessions after a rally propelled the Dow within striking distance of its all-time high. A rebound in oil prices and economic data showing the U.S. wasn't in immediate danger of falling into a recession helped spark the advance in stocks since February.
But sentiment around economic growth both in the U.S. and overseas has proved fickle this year, leading to sudden shifts in sectors like banking and transportation stocks. The Nasdaq Biotechnology index dropped 3%, underscoring a retreat from risk. Meanwhile, shares of utility companies in the S&P 500 rose 1.3%, notching the biggest sector advance. Those stocks tend to pay high dividends, which investors seek out in periods of uncertainty.
Bank stocks dropped. Goldman Sachs Group shares fell 1.9%. The KBW Nasdaq Bank index of large U.S. commercial lenders lost 2.5% and has dropped 5.6% over the past week. The declines in banking stocks were sparked in part by recent disappointing economic reports, such as private payrolls on Wednesday, new orders for durable goods and new-home sales. Banking shares, which are sensitive to changes in the economic outlook, have swung this year. Falling Treasury yields and little conviction that the Federal Reserve will raise rates any time soon have also dragged on bank stocks in the past few sessions. The CBOE Volatility Index, which is based on prices of S&P 500 options that investors tend to rush to when they're fearful of stock declines, rose 6.1% to 16.55. The index last closed around that level in mid-March. The Stoxx Europe 600 fell 1.1% for its fourth straight day of losses.
Most shares in Asia were back in the red Wednesday. Losses included a 0.7% decline in the Hang Seng Index, and a 0.5% decline in South Korea's Kospi. The Shanghai Composite Index slipped 0.1%. The weakness reflects how shaky the region's rally has been since mid-February, as global growth fears simmer in the background. Meanwhile, Japan's stock market, which tumbled for two sessions before closing for a three-day holiday, reopens Friday. That market has been especially volatile, as investors try to gauge the next steps of the Bank of Japan, which last Thursday left monetary policy unchanged.
Renewed concerns about global growth and drops in commodities prices weighed heavily on Australia's share market Wednesday, paring a large chunk of the previous session's rally following a cut in interest rates. In the sharpest fall in a month, the S&P/ASX 200 dropped 82.7 points, or 1.5%, to finish at the day's low of 5271.1. That eroded the 2.1% jump on Tuesday that saw the Index finish in positive territory for the first time this year.
The London Metal Exchange's three-month copper contract was down 1.1% at $4,867 a metric ton at the PM kerb close, having a 10-day low earlier in the session at $4,856.50 a ton. Among the other base metals, zinc was down 2.6% at $1,881 a ton, nickel was down 0.8% at $9,403 a ton, lead was down 0.1% at $1,761 a ton and tin was up 0.8% at $17,455 a ton.
Thought of the Day
Red 5 Limited
Introduction
Argonaut recently attended a site visit to Red 5’s (ASX:RED) high grade Siana open pit Mine in Northern Mindanao, Philippines. The asset features an open pit with a Reserve of 181koz @ 3.5g/t (at 30th June 2015), a 1.1Mtpa CIL plant and associated infrastructure, and a highly prospective regional tenement package.
Open pit in harvest mode
During the past few Qs the Siana open pit has undergone cut-backs on the western and eastern walls to provide access to the high grade ore at the bottom of the pit. Our site visit confirmed the cut-backs are near completion (see Figure 1 below). A rapidly diminishing strip ratio (Argonaut estimate at <3:1 at end of June 2016) coupled with increasing grades (3.5g/t Reserve grade) will result in significantly increased production, margins and FCF. On Argonaut’s initial estimate, harvesting the open pit will generate FCF in excess of the stock’s current market capitalisation.
Figure 1: Siana Open Pit western cutback (April 2016)
Source: Argonaut
The future is in an underground operation
Whilst challenges including geotechnical and water management are acknowledged, the recently delivered high grade underground Resource (704koz @ 5.8g/t) bodes well for a long life underground operation. Key highlights of the Resource include the width of the orebody (~40m for the upper section of the main zone) and a vertical endowment in excess of 1.4koz per vertical metre. In addition, the Resource has not factored in the positive reconciliation recorded to date, leaving further upside.
An Underground Feasibility Study, managed by Mining One, is expected in mid-CY16. A cut and fill method incorporating cemented fill is likely implemented to enhancing ground conditions. An additional benefit of this method is the potential disposal of tailings and waste rocks underground, reducing the requirement for surface infrastructure.
Experienced Underground Project Manager Steve Tombs recently joined the Company. His extensive underground experience includes water management, mining around historic workings and effective paste-fill management. Steve was previously the Underground Project Manager at AngloGold’s Sunrise Dam.
Figure 2: The Siana Underground 1.0 g/t gold mineralised envelopes looking north-east
Source: RED
Further Upside
Further upside includes extending the underground orebody along strike and at depth, defining additional hangwall lodes, incorporating regional deposits into the mill feed and regional exploration success.
In this Issue
Gold Road (GOR) | The Road to Milestone |BUY
Gold Road (GOR) announced the signing of a Native Title Agreement with the Yilka People and the Cosmo Newberry Aboriginal Corporation. This is the first native title agreement entered into by the Yilka People, and paves way for Mining Leases for Gruyere and Central Bore. Last week, the Company announced a A$74m @ 44c capital raising and entitlement offer, which will see its cash balance increasing to ~A$100m. This places GOR in an enviable financial position and enhances future funding flexibilities on the Gruyere project. Recent technical work completed, including an in-fill drilling program which saw the ore from the first ~two years upgraded to Measured Category, continue to demonstrate the technical rigour of the in-house evaluation and development team. Our TP is unchanged at A$0.84 as we had factored in equity dilutions near the raising price.
Recent Contacts & Presentations
Red 5 (RED), Medusa Mining (MML), Saracen Mineral Holdings (SAR), Paradigm BioPharmaceuticals (PAR), Pilbara Minerals (PLS), Energia Minerals (EMX), Deep Yellow (DYL), Paladin Energy (PDN), Kidman Resources (KDR), Dakota Minerals (DKO), West Africa Resources (WAF), Finders (FND), Credo Resources (CRQ) , Orthocell (OCC), Capricorn Metals (CMM), Gold Road Resources (GOR), Otto Energy (OEL), Dakota Minerals (DKO), Cradle Resources (CXX), Kidman Resources (KDR)
