Market Update & Important Indicators
Disappointing earnings and political turbulence put renewed pressure on U.S. stocks intraday. The Dow Jones Industrial Average fell 79 points, or 0.4%, to 21821 after its largest one-day advance since April, and the S&P 500 shed 0.4%. The Nasdaq Composite also declined 0.4%, following the tech-heavy index's best session since late June. Company reports drove some of the day's biggest moves in individual stocks. Mr. Trump's threat to shut down the government to secure funding for a wall on the southwest border with Mexico was also said to contribute to the declines. Last week, some weak earnings and fallout from Mr. Trump's comments about the protests in Charlottesville, Virginia, weighed on stocks as several business leaders distanced themselves from the president. The U.S. gold price gained ground overnight, adding 0.5% to close at 1,290.30 US$/oz.
European stocks slumped, with investors assessing fresh data on the health of the eurozone economy, as market participants counted down to a key meeting of central bankers. The Stoxx Europe 600 index lost 0.5% to close at 373.92, partly erasing a 0.8% jump from Tuesday, when the benchmark ended a three-session losing streak. Equity investors appeared to be in a risk-off mood early after U.S. President Donald Trump said late Tuesday that he's ready to shut down the government to win funding for a border wall with Mexico. Trump, during a rally with his supporters in Arizona, also warned of the possible termination of the North American Free Trade Agreement. Traders are in wait and see mode ahead of the Jackson Hole symposium starting tomorrow. Germany's DAX 30 index shed 0.5% to 12,174.30 and France's CAC 40 index lost 0.3% to 5,115.39. The U.K.'s FTSE 100 index ended marginally higher at 7,382.65, buoyed by a slide in the pound that fell to an almost eight-month low against the euro at EUR1.0832.
Asian stocks started well but generally faded by day's end as investors paused ahead of Thursday's start of a meeting of Federal Reserve officials. The softness, though, didn't prevent the Nikkei from ending its five-session losing streak. The Nikkei Stock Average rose as much as 0.9% from a four-month closing low but pared gains to 0.3% as the yen rebounded against the dollar. The Shanghai Composite Index was down 0.2%, with steel and precious-metals stocks the biggest decliners amid a 5% pullback in iron-ore and steel-rebar futures, both of which have rallied in recent weeks.
Australia stocks stood out for their midday slide, coming as other Asia Pacific markets shed early strength as the session progressed. Some weak earnings reports and another drop by Commonwealth Bank put pressure on the market. Up as much as 0.5% early to add to Tuesday's gain, the S&P/ASX 200 ended down 0.2% at 5737.2, the fourth decline in five sessions. CBA fell 0.6% as a law firm said it's trying to rally shareholders for a possible class-action lawsuit in the wake of the compliance allegations facing the big bank. Meanwhile, Insurance Australia slumped 8% on margin concerns. Woolworths, Coca-Cola Amatil and Healthscope also dropped following their reports.
The London Metal Exchange's three-month copper contract traded lower overnight, losing 0.2% to $6,565/t. The other base metals finished mixed. Aluminium prices gained 0.7% to 2,101/t, whilst lead prices pared back 1.7% to 2,350/t. Tin prices rose 0.9% to 20,670/t, whilst zinc prices closed lower, down 0.7% to 3,090/t. Nickel prices were higher again overnight, adding another 2.1% to finish at 11,607/t.
In this issue
Saracen Mineral Holdings (SAR) | FY17 results – Karari growing in FY18 | HOLD
Market Cap $813m | Current Price $1.40 | Target Price $1.35
Saracen Mineral Holdings (SAR) hit its strides in FY17 with gold production rising 45% to 273koz YoY and revenue rising 53% to $423m on similar realised prices (A$1,642/oz vs $1,629/oz in FY16). EBITDA of $113m and underlying NPAT of $34m rose 54% and 25% respectively YoY. Operations hit the target 300kozpa run rate in the final Q of FY17, setting the Company up for higher production in FY18. Guidance is yet to be supplied, but Argonaut forecasts >10% production growth to 305koz in the current financial year. All-in sustaining costs (AISC) are set to decline substantially into FY20, falling to A$950/oz. This will boost margins and free cashflow (Argonaut forecast $120m in FY18).
St Barbara Ltd (SBM) | FY17 results – The comeback kid | HOLD
Market Cap $1432m | Current Price $2.88 | Target Price $2.85
St Barbara Ltd (SBM) reported double digit growth for their FY17 results with underlying NPAT of $160m (+26% y-o-y), operating cashflow of $303m (+25% y-o-y) and EBITDA of $321m (+13% Y-o-Y). Consolidated gold production for FY17 came in at 381koz at an AISC of $907/oz, at a realised gold price of A$1,685/oz generating EBITDA margins of 50%. FY18 guidance of 350-375koz @ AISC $970-1,035/oz was announced, with production back-weighted to 2HFY18 to incorporate mine sequencing from Gwalia as the extension project is implemented. SBM announced its maiden dividend of 6cps (2% dividend yield), but remains cautious on a consistent policy pending balance sheet strength. FY17 was a standout year with over $228m of debt repaid. SBM has made a stellar comeback, and is appealing longer term. However, with capex expected to double and lower forecast FY18 production and higher costs at Gwalia we see limited upside versus our valuation at this juncture. HOLD maintained.
Recent Contacts & Presentations
Neometals Ltd (NMT), PNX Metals Ltd (PNX), Northern Minerals Ltd (NTU), New Century Zinc Ltd (NCZ), Metal Bank Ltd (MBK), Rift Valley Resources Ltd (RVY), Panoramic Resources Ltd (PAN), Doray Minerals Ltd (DRM), Wellard Limited (WLD), Bryah Resources Ltd (BYH), Auris Minerals Ltd (AUR), Gage Roads Brewing Co Ltd (GRB), Stavely Minerals Ltd (SVY), Orbital Corporation Ltd (OEC), 4DS Memory Ltd (4DS), Kin Mining NL (KIN), Pharmaust Limited (PAA), Botanix Pharmaceuticals Ltd (BOT), Dimerix Ltd (DXB), Metro Mining Ltd (MMI), Paringa Resources Ltd (PNL), Independence Group NL (IGO), MZI Resources Ltd (MZI), Transerv Energy Ltd (TSV), Emmerson Resources Ltd (ERM)
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