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03 July 2018 07:35 AM
Overseas Market ReportCurrent
Level
PreviousChangeDaily %
Change
Monthly %
Change
Dow Jones Industrial Average24,30724,27136.000.15-1.33
S&P 5002,7272,7188.000.31-0.29
NASDAQ7,5687,51057.000.760.18
FTSE 100 Index7,5487,637-89.00-1.17-2.00
DAX 3012,23812,306-68.00-0.55-3.82
CAC 40 Index5,2775,324-47.00-0.88-3.45
Nikkei 225 (Japan)21,81222,305-493.00-2.21-1.62
HKSE28,95528,497458.001.61-5.04
SSE Composite Index2,7762,847-72.00-2.52-9.74
S&P/TSX Composite Index16,27816,18098.000.601.46
NZ 508,9828,94240.000.454.01
US Volatility (Vix)16
Overseas Market Report

US sharemarkets finished higher on Monday despite trade concerns. There is a July 6 deadline for US tariffs on US$34 billion of Chinese goods with uncertainty about the response from China. Technology led the gains while the energy sector eased in response to lower oil prices. After being down by 193 points, the Dow Jones ended higher by 36 points or 0.2%. The S&P 500 index rose by 0.3% and the Nasdaq lifted 57 points or 0.8%.

Global oil prices fell on Monday after data showed a lift in global oil production. "Production from the Organization of the Petroleum Exporting Countries increased by 320,000 barrels per day (bpd) in June, according to a Reuters survey published Monday. The 12 OPEC members with supply reduction targets increased output by 680,000 bpd compared to May." Output from Saudi Arabia was up by 700,000 bpd with Russian output up 160,000 bpd. Brent crude fell by US$1.93 or 2.4% to US$77.30 a barrel, and the US Nymex fell by US21 cents or 1.0% to US$74.15 a barrel.

Base metal prices were lower by up to 2.4% on the London Metal Exchange (LME) on Monday with nickel leading the declines. Both copper and aluminium fell by 1.5% and tin was flat.

The gold futures price fell by US$12.80 an ounce or 1.0% to $1,241.70 an ounce. The spot gold price was trading near US$1,242 an ounce in late US trade. Iron ore fell by 65 cents or 1.0% to US$63.80 a tonne.

CommoditiesCurrent
Level
PreviousChangeDaily %
Change
Monthly %
Change
Oil Brent77.3079.23-1.93-2.440.66
Oil - West Texas crude73.9373.94-0.01-0.0112.34
Gold Spot $/OZ1,243.001,242.000.500.04-3.96
Silver Spot $/OZ15.9015.900.000.09-3.32
Iron Ore60.4059.800.701.10-1.34
Thermal Coal Newcastle115.00113.901.100.973.56
Coking Coal FOB ECP AUS196.20196.60-0.40-0.203.92
Aluminium ($US/t)2,1212,154-33.00-1.51-8.18
Copper Mar-18 ($US/lb)2.932.930.200.07-5.33
Lead ($US/t)2,3802,405-25.00-1.04-2.16
Nickel ($US/t)14,46414,823-359.00-2.42-5.96
Zinc ($US/t)2,8782,906-29.00-0.98-7.21
Tin ($US/t)19,82519,830-5.00-0.03-4.66
Uranium ($US/lb)23.0023.000.000.44-0.87
Australian Market ReportCurrent
Level
PreviousChangeDaily %
Change
Monthly %
Change
ASX All Ords6,2736,290-16.00-0.262.77
S&P/ASX 2006,1786,195-17.00-0.273.13
ASX 24 Futures6,158
Australian Market Report

Monday 2 July - close. Australian shares have lost ground on the first day of the new financial year as weakness in Asian markets, courtesy of weaker-than-expected Chinese manufacturing data, flowed into local sentiment. The benchmark S&P/ASX200 index closed 16.8 points, or 0.27 per cent, lower at 6,177.8 points, while the broader All Ordinaries index ended down 16.4 points, or 0.26 per cent, at 6,273.3 points.

Ashanti Headlines

Rift Valley Resources Limited: (RVY.ASX, 1.8cps, m.cap A$20.8m with 1,158.5m SOI (post shareholder approval), Cash $6.34m, Rare Earths explorer)

  • RVY has received firm commitments from sophisticated and institutional investors for the private placement of 366,666,667 FPO's at $0.015 to raise $5.5m. The placement will be completed in 2 tranches:
  • 126,549,809 shares will be issued under the Company's placement capacity in accordance with ASX Listing Rule 7.1 (56,660,459 shares) and 7.1A (69,889,350) with the remaining 240,116,858 to be issued subject to shareholder approval at a General Meeting to be held in August 2018.
  • The funds will be used towards:
    • Exploration drilling and associated surveys and testworks at the Longonjo NdPr Project;
    • Personnel and support costs for the Longonjo programs; and
    • General Working Capital
  • Ashanti Capital acted as Lead Manager to the Placement
  • Rift's NdPr Longonjo Project is located in the infrastructure rich country of Angola. Following a short exploration programme in 2017 a substantial Mineral Resource estimate was reported
  • Located adjacent to a recently constructed US$1.8 billion rail line the project is linked to the major port of Lobito on the Atlantic coast which has recently undergone a US$2 billion refurbishment
  • Low cost power will come from a connection to the Gove 65 MW hydroelectric dam 38 kilometres away
  • Chairman Paul Atherley commented: "Dave Hammond and his team will commence a 9,000 metre drill programme later next month and we expect to be reporting results soon afterwards. We are targeting an increase in the size of the resources that will rank Longonjo as one of the largest NdPr projects in the world, linked by world class infrastructure to a major Atlantic port.
  • Please don't hesitate to contact the desk on +61 6169 2668 should you wish to discuss further

Western Areas Ltd: (WSA.ASX, 358cps, m.cap A$975.2m with 272.8m SOI, Cash $135.7m, Nickel producer and base metal explorer)

We have been fielding an increasing number of inquiries from clients seeking quality Nickel exposure on the ASX (particularly from the Asian Institutions). Yesterday, we caught up with the mgmt of Western Areas Ltd (WSA.ASX) and received an update on all things Nickel. 

Please see below for our key takeaways and pls call the desk if you’d like to discuss further;

 

Nickel Macro

  • Whilst the outlook for Nickel varies from analyst to analyst, consensus forecasts point to a significant improvement in market conditions from 2020. As is usually the case, we expect the equities to run in advance of the physical metal price. 
  • EV thematic is obviously creating a lot of noise but the strong growth of stainless steel sector cannot be ignored. Stainless Steel accounts for +70% of Ni consumption and was growing at ~6% in 2017.
  • Potential end-users in the EV space are starting to look for supply in the Nickel space and we expect to see more activity on this front. Potential suitors are looking for off-take financing, pre-payments and asset level investment and ownership (all potential catalysts for Ni)
  • Early signs are there with off-take terms improving (see recent PAN.ASX ann) and payabilities increasing (we expect this to continue to favour current and potential Ni sulphide producers).
  • Whilst there are plenty of positive signs, we think Nickel may take 12 to 18 months to play out. 

 

WSA Company Highlights

  • Operationally things remain steady and in line with FY18 guidance of 24kt of Ni at C1 cost of A$2.55-2.65/lb.
  • WSA offers outstanding leverage to the Nickel price with every $1/lb increase equating A$30M/ann EBITDA increase. WSA currently trades on ~10x FY18 EV/EBITDA and 6x FY 19V/EBITDA based on a consensus Ni price of US7.42/lb and US7.89/lb respectively. Given the current outlook and recent upgrades to analyst numbers, we believe earnings will surprise to the upside. 
  • WSA are pushing ahead with early A$30M worth of site works at Odysseus (DFS due in Sep and prod not slated until 2021). This demonstrates the coy’s internal view of Ni price as the project has a breakeven Ni price of ~US$7.50/lb!
  • Early indications are that Odysseus may have a large mine life/production profile than previously considered. 
  • WSA offers pure-play Ni exposure, a strong mgmt. team, quality sulphide resources in a Tier 1 jurisdictions, strategic partners, organic growth options and leverage to an improving nickel market. 

Have a question? admin@ashanticapital.com.au

ERA Communications