Market Update & Important Indicators
U.S. stocks rose Thursday, a day after they fell in the wake of the Federal Reserve chief's warning over high equity valuations. Stocks bounced around the flat line in early trading before drifting higher through the afternoon. Traders said many investors were sitting on the sidelines, looking ahead to Friday's employment report. Investors are waiting to see if the weak first quarter extended past winter. The Dow rose 0.5% to 17,924 and the S&P rose 0.4% to 2,088.
European stocks finished modestly higher Thursday, but not before diving sharply lower, with uncertainty around the U.K. general election adding to an already thick mix of worries surrounding rebounds in the euro, oil prices and bond yields. The Stoxx Europe 600 ended 0.1% higher at 388.98.
Stocks across Asia fell Thursday on concerns about the sluggish U.S. economy and overvalued equity markets, with Shanghai dropping the most and extending a deep two- day correction. The Shanghai Composite Index fell 2.7% at 4,112.86 after losing 5.6% in the past two sessions.
Metals on the LME were mixed with nickel rising 1.2% and aluminium falling 2.3%. Gold was down 0.65% to US$1184/oz while Brent fell 3.3% to US$65.54/bbl.
Thought for the day – Gold acquisitions heating up
Hong Kong listed Zijin Mining Group (2899 HK), has made its intentions clear that it is on the acquisition trail. The company is currently suspended from trading, preparing for a share issue to raise capital for “material acquisitions”. The AUD/USD FX and the resilient US gold price working in favour of Australian domiciled gold mines with the AUD gold price hovering around the A$1,600/oz mark. Against sector average all in sustaining costs of ~A$1,100/oz, the current gold price makes Australian gold assets attractive acquisition targets.
Recent activity in the space has seen Evolution Mining (EVN) agree to acquire La Mancha’s Australian operations (including the Frogs Leg gold mine) in a deal valued at ~A$300m (scrip deal) and make a strategic investment (19.9%) in Phoenix Gold (PXG). Norton Gold Fields (NGF) is also taking a position in Phoenix with a ~10% stake. In addition, Norton’s major shareholder (Zijin: 82.4%) is taking action to acquire remaining issued shares in NGF for $0.20/sh.
The targets
In light of recent activity we look at the asset targets. Many assets regarded ripe for divestment are in the hands of major producers such as Barrack and Anglo Gold Ashanti. Figure 1 below list potentially divestible assets.
Most recently, Newcrest’s Telfer mine and Barrick’s Lake Cowal mine have been touted as near term M&A targets. Speculation has Lake Cowel’s asking price between $650-800m, with low ball offers below $400m being knocked back. Telfer, which produces ~535ozs pa is likely to be valued between $300-600m, but some analysts have valuations well north of this mark. Expectations for Anglo to divest its Australasian assets, including the Tier 1 Tropicana mine (70% Anglo, 30% Independent Group), were rife in late 2014, but have since cooled with the sale of US (Cripple Creek & Victor mines) and African assets (e.g. Navachab mine).
The acquirers
ASX listed companies that have publically stated their acquisition appetite or are speculated to be on the hunt include:
Northern Star (NST): Following successful acquisitions through 2014, including the Jundee, Kundana, Plutonic and Kanowna operations, NST is expected to maintain is aggressive growth strategy. With $87m net cash at March 31 and strong FCF (Argonaut Est. ~$200m in FY16), the company is capable of more acquisitions.
Independence Group (IGO): IGO has rapidly repaid debt relating to the Tropicana mine development and now has $109m net cash and forecast FCF >$150mpa (Argonaut est.). It is believed to be in the running for Barrick’s Lake Cowal.
Evolution Mining (EVN): EVN has shown its hand with recent acquisitions, but make be looking for further growth.
Metals X (MLX): MLX is currently in an arm wrestle with NST for Tanami Gold (TAM). The Company’s acquisition strategy to date has been the acquisition of assets with established infrastructure, best typified by the purchase of Alacer Gold (AQG) South Kalgoorlie and Higginsville operations in 2013.
OZ Minerals (OZL): OZ minerals has restated its acquisition strategy, willing to consider assets other than just copper/gold, now incorporating other base metals and gold projects. With $219m cash and strong FCF (Argonaut est. FCF $280m in FY16) the company has the ability to make significant M&A investment.
Recent Contacts & Presentations
Rewardle (RXH), Alexium (AJX), Ausdrill (ASL), Tox Free (TOX), OBJ Limited (OBJ), Cash Converters (CCV), Decmil (DCG), TFS Corporation (TFC), Imdex (IMD), Mobile Embrace (MBE), Dacian (DCN), Saracen (SAR), Fertoz (FTZ), Atrum (ATU), Doray (DRM), Buru Energy (BRU), Carnarvon Energy (CVN), Otto Energy (OEL), Empire Oil & Gas (EGO), Pura Vida Energy NL (PVD), MZI Resources (MZI), High Peak Royalties (HPR)
Please read Argonaut's Important Disclaimers & disclosures
Log in to the client area below to download the full Morning Note PDF
