18/04/2018 Argonaut Morning Note

By admin | Morning Notes | 0 comment | 17 April, 2018 | 0

Market Update & Important Indicators:

U.S. stocks rose intraday, driven by strong corporate results, sending the Dow industrials back into positive territory for 2018. The gains extended Monday's rally and put major indexes on track for their eighth day of gains in the past 11 trading sessions. Volumes, however, have been light, suggesting some investors are remaining on the sidelines as geopolitical tensions simmer. The Dow Jones Industrial Average climbed 214 points, or 0.9%, to 24787. The S&P 500 added 1.1%, and the tech-heavy Nasdaq rose 1.7%. Helping boost sentiment, Netflix shares jumped 9.8% after Netflix reported subscriber growth that beat its own forecast. The stock is by far the best performer in the S&P 500 this year, up 76%. The U.S. gold price rose overnight, jumping 1.7% to 1,347.20 US$/oz.

European stocks logged the best close in about seven weeks, taking the lead from an upbeat session the prior day in the U.S., as attention shifted from geopolitical concerns to the earnings season. U.K. stocks erased an earlier loss and swung higher, after a mixed reading on the country's labour market sent the pound lower. The Stoxx Europe 600 index rose 0.8% to 380.77, recovering from a 0.4% loss on Monday, which came as traders digested a U.S.-led missile attack on Syria over the weekend. according to WSJ Market Data Group. Germany's DAX 30 index surged 1.6% to 12,585.57. Meanwhile, France's CAC 40 index added 0.8% to 5,353.54, representing its highest close since Feb. 2. The U.K.'s FTSE 100 index erased an earlier loss and ended positive, up 0.4% at 7,226.05. That reversal came as the pound fell after U.K. wage data failed to show the solid growth some had hoped for.

Asia-Pacific equity markets struggled for direction, with Chinese equities lagging despite better-than-expected economic growth to start 2018. China's gross domestic product increased 6.8% from a year earlier in the first quarter, beating expectations slightly and equalling 2017's growth. March retail sales also rose slightly more than analysts expected, though industrial-production growth fell short. While Chinese stock indexes rose after the data, the rebound proved to be fleeting. The Shanghai Composite Index was down 0.8% in early-afternoon action while the startup-heavy ChiNext Price Index in Shenzhen skidded 2.3%. Hong Kong stocks saw an even bigger rebound after the data, with the Hang Seng Index up a half percent at one point, though it finished the morning session flat and was down slightly during the afternoon. The Hang Seng Index and the Shanghai Composite Index entered the trading on three-day losing streaks, lagging other stock markets in Asia. Stocks were generally quiet elsewhere in Asia, with most indexes within 0.3% of Monday's closing levels.

Capped by an end-of-session adjustment lower, Australian stocks finished flat after steadily shedding early strength during the afternoon. Drops in financials and utilities weighed, leaving the S&P/ASX 200 up 0.2 point at 5841.5 — still a third-straight gain. Though CBA recovered modestly from Monday's decline, Australia's other big banks dropped and regional player Bank of Queensland shed 2.4% after a first-half miss.

The London Metal Exchange’s 3-month copper contract declined 0.5% to 6,877/t. The other base metals were mixed overnight. Zinc prices rose 0.4% to 3,138/t, whilst tin prices jumped 2.4% to 21,595/t. Losing ground overnight, aluminium prices shed 0.2% to 2,407/t, whilst nickel prices lost 0.9% to 14,174/t. The biggest base metal loser overnight was the lead price which declined 1.1% to 2,349/t.

In this issue:

Metro Mining (MMI) | First shipment amidst strong alumina macro | BUY
Market Cap $368m | Current Price $0.29 | Target Price $0.43

Metro Mining (MMI) is on the cusp of its first shipment from the Bauxite Hills Project in Northern Queensland. Product is currently being stockpiled with barging and ship loading to commence from the 18th April. MMI’s first sales are fortuitously timed amidst positive macro factors, such as US Sanctions on Russian global major Rusal and Chinese refinery restarts, which are pushing up alumina and aluminium prices. MMI will ship at an initial 2Mtpa rate then ramp up to 6Mtpa over four years, making it the largest Australian bauxite exporter after RIO.

OZ Minerals (OZL) | March Q Results| BUY
Market Cap $2,664m | Current Price $8.92 | Target Price $9.50

OZ Minerals (OZL) released March Q results with 27.5kt copper and 30.8koz gold in concentrate at an all-in sustaining cost (AISC) of US$1.36/lb versus Argonaut’s forecast of 23.0kt and 33.0koz at US$1.30/lb. Open pit operations at Prominent Hill are now complete and mining will now transition to 100% underground ore with the mill being topped up with stockpile feed. Carrapateena development remains on track with $65m spent during the Q, leaving $~743m to completion. In March, OZL announced the acquisition of Avanco Resources (AVB) for ~$418m comprising 50:50 cash and scrip. Argonaut values AVB at $400m making the acquisition roughly value neutral, however we acknowledge the high strategic value as OZL gains a foothold in the proven IOCG district of Carajás, in Brazil.

Saracen (SAR) reported March Q results with group gold production of 79.7koz at an all-in sustaining cost (AISC) of $1,181/oz versus Argonaut’s forecast of 78koz at $980/oz. The Company’s cash and bullion increased $16.2m Q-on-Q to $91.5m with both Carosue Dam and Thunderbox generating strong free cash flow. Looking forward, SAR is focussed on defining a 7-year production outlook growing to 350-400kozpa. Organic growth through exploration is the key driver for this target and we believe higher production rates will be largely driven by successful Reserve expansion and an uplift in the average milled head grade.

Triton Minerals (TON) has a portfolio of quality graphite assets in Mozambique, including the flagship, premium large flake, high purity Ancuabe Project located just 45km from the port of Pemba. In December 2017, TON released a Definitive Feasibility Study (DFS) for Ancuabe outlining a 1Mtpa operation producing 60ktpa graphite concentrate with pre-production capex of US$99.4m. The pipeline Nicanda Hill Project contains the largest graphite and vanadium resource globally with 1.44Mt at 11.1% Total Graphitic Carbon (TGC) and 0.29% V2O5. TON has signed offtake term sheets for 50% of the planned Ancuabe production and is progressing an EPC and financing agreements with Chinese partners. Argonaut believes TON is differentiated from other graphite developers by its large flake quality product and one of the few graphite development projects with a clear line of site to production.

Recent Contacts & Presentations:

Advanced braking technology (ABV), Fortescue Metals Group (FMG), Helix Resources (HLX), Pantoro Limited (PNR), Alt Resources Ltd (ARS), Coziron Resources Ltd (CZR), 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)

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