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18 July 2018 07:52 AM
Overseas Market ReportCurrent
Level
PreviousChangeDaily %
Change
Monthly %
Change
Dow Jones Industrial Average25,12025,06456.000.220.53
S&P 5002,8102,79811.000.401.29
NASDAQ7,8557,80649.000.631.40
FTSE 100 Index7,6267,60026.000.34-0.07
DAX 3012,66212,561101.000.80-1.34
CAC 40 Index5,4235,40913.000.24-0.51
Nikkei 225 (Japan)22,69722,597100.000.440.08
HKSE28,18228,540-358.00-1.25-7.02
SSE Composite Index2,7982,814-16.00-0.57-7.41
S&P/TSX Composite Index16,51916,49525.000.150.83
NZ 508,9728,979-7.00-0.08-0.03
US Volatility (Vix)12
Overseas Market Report

US sharemarkets lifted on Tuesday following Fed Chair Powell's optimistic comments about the US economy and supportive earnings results. Johnson & Johnson shares rose by 3.5% after its earnings beat analyst expectations. But Goldman Sachs shares fell 0.2%, despite topping earnings expectations. New CEO David Solomon was announced. Amazon (+0.9%) shares rose following a strong start to Prime Day, while Netflix (-5.2%) shares recovered a little after announcing weak subscriber growth. The Dow Jones index rose by 55 points or 0.2%, the S&P 500 index rose by 0.4% and the Nasdaq index rose by 49 points or 0.6%, lifting to fresh record highs.

Global oil prices stabilised on Tuesday after a period of volatility. US crude inventories are expected to fall by 3.5 million barrels, when released on Wednesday. Libya declared force majeure on crude oil loadings at its Zawiya port on Monday. And Venezuela is expected to shutdown two upgraders for repairs. Brent crude rose by US32 cents or 0.4% to US$72.16 a barrel; US Nymex rose by US2 cents or 0.03% to US$68.08 a barrel.

Base metal prices mostly declined on the London Metal Exchange on Tuesday due to US dollar strength. Aluminium was the worst performer (-1.9%), but zinc rebounded by 1.3%.

The gold futures price fell by US$12.40 an ounce or 1.0% to $1,227.30 an ounce. The spot gold price was trading near US$1,227 an ounce in late US trade. Iron ore rose by US70 cents to US$63.70 a tonne.

CommoditiesCurrent
Level
PreviousChangeDaily %
Change
Monthly %
Change
Oil Brent72.1671.840.320.45-1.74
Oil - West Texas crude67.7568.08-0.33-0.482.89
Gold Spot $/OZ1,227.001,228.00-0.40-0.03-4.00
Silver Spot $/OZ15.6015.600.000.04-5.45
Iron Ore58.0058.30-0.30-0.50-6.59
Thermal Coal Newcastle118.70118.200.500.383.22
Coking Coal FOB ECP AUS174.90175.30-0.40-0.23-12.90
Aluminium ($US/t)2,0662,106-41.00-1.95-6.34
Copper Mar-18 ($US/lb)2.742.74-1.80-0.63-12.88
Lead ($US/t)2,1472,156-9.00-0.43-10.20
Nickel ($US/t)13,39313,572-179.00-1.32-11.35
Zinc ($US/t)2,5342,50232.001.28-18.78
Tin ($US/t)19,58519,56025.000.13-6.21
Uranium ($US/lb)24.0023.000.001.282.16
Australian Market ReportCurrent
Level
PreviousChangeDaily %
Change
Monthly %
Change
ASX All Ords6,2886,327-38.00-0.601.22
S&P/ASX 2006,2046,242-38.00-0.611.63
ASX 24 Futures6,180
Australian Market Report

Tuesday 18 July - close. Australian shares have closed lower on Tuesday, with a sharp decline in global oil prices sending energy stocks down and weak commodities prices putting pressure on the broader market. The benchmark S&P/ASX200 index closed down 37.9 points, or 0.61 per cent, at 6,203.6 points, while the broader All Ordinaries fell 38.3 points, or 0.61 per cent, to 6,288.4 points.

Ashanti Headlines

MOD to consolidate 100% of T3 Project including rights to acquire all JV exploration assets

MOD has announced this morning it has executed binging agreements with Metal Tiger PLC (LN.MTR) to acquire:

  1. MTR’s 30% stake in the T3 Project such that at completion MOD will own 100% of the T3 Project (the Acquisition); and
  2. Rights to purchase, at MOD’s election, MTR’s 30% interest in all other joint venture exploration assets (JV Exploration Assets) up to 3 years from completion.

Total value of the consideration for the Transaction equates to approximately A$26.6m, comprising the following securities to be issued to MTR upon completion:

  • 17.2m ordinary MOD shares which, including MTR’s current holding in MOD, will result in MTR’s shareholding in MOD increasing to 12.5%; and
  • ~40.6m options with zero exercise price (Options) able to be converted to MOD ordinary shares within 3 years, provided that such conversion will not result in MTR's shareholding in MOD increasing to more than 12.5% (post conversion).

Significant restriction apply to MTR including a 12 month escrow on all shares issued to MTR as consideration pursuant to the Transaction, or issued as a result of the conversion of Options. Other key terms include: 

  1. Options have no voting or dividend rights until they are converted into ordinary shares;
  2. MTR will have a right to nominate a board representative provided MTR holds at least 10% of MOD’s issued share capital (including unconverted Options); and
  3. MTR has agreed to support all MOD Board recommendations put to shareholders, including in respect of change of control transactions.

The Transaction is approximately 14% accretive on a fully diluted basis for MOD shareholders in terms of their respective ownership of the T3 Project.

Importantly, MOD shareholders will receive additional value through several rights (Rights) which provide MOD flexibility to acquire:

  1. 100% of any JV Exploration Asset that progresses to a completed scoping study level within 3 years from completion of the Transaction; and
  2. MTR’s 30% interest in the remaining JV Exploration Assets 3 years after completion of the Transaction, or alternatively, following an announcement of a change of control transaction recommended by the MOD board.

The Rights may be exercised at MOD’s election and MOD may choose to pay for the exercise through any combination of cash or scrip. This allows MOD to determine, prior to exercise, whether acquisition of any JV Exploration Assets will be accretive, and what form of consideration maximises value for its shareholders. The Rights enable MOD to acquire MTR’s 30% interest in the JV Exploration Assets only when these assets have been proven to have development potential. The valuation methodology is based on the relative proportion of MOD’s enterprise value attributed to the value of the asset at the time of exercise and calculated using average broker valuations.

Key benefits to MOD shareholders:

T3 Project

  • 100% ownership of a substantial long life, financially robust copper project
  • Simplifies ownership of the T3 Project and streamlines decision making
  • Enables accelerated financing and development of the T3 Project
  • ~14% accretive for MOD shareholders in terms of per share ownership of the T3 Project
  • Full ownership of the T3 Project processing plant will provide other strategic opportunities in the Botswana Copper belt

Exploration JV

  • MOD and MTR share all exploration spend pro-rata on JV Exploration Assets
  • Enables the JV to maintain the current high level of exploration activity
  • Flexibility for MOD to consolidate remaining JV Exploration Assets

MOD directors recommend MOD shareholders vote in favour of the Transaction at the upcoming shareholder meeting.

MOD’s Managing Director, Julian Hanna commented: “The MOD Board believes this binding agreement with Metal Tiger has the potential to add significant value for MOD shareholders. Firstly, it will consolidate ownership of the very substantial T3 Copper Project which, assuming a decision to mine is made in early 2019, should underpin the future of this company for many years. Secondly, it provides a very flexible structure for MOD, with options to acquire MTR’s interests in any new discoveries that reach the scoping study level within 3 years, and an option to consolidate the remaining exploration assets 3 years after completion. This Transaction also lays the foundation for the financing and development of the T3 Project and positions MOD as a dominant player in the Botswana copper belt.”

Please click on the link for a full overview of the announcement and transaction.

Our take:

We view this mornings announcement as very positive for shareholders and a significant step forward for the Company as it accelerates ahead with the development of the T3 project. Importantly, the transaction is value accretive as exposure to T3 increases by 14% whilst providing significant option value for MOD shareholders. We expect the Company's valuation to re-rate on the back of this transaction for the reasons outlined above and presents an opportune time to increase exposure to our preferred ASX listed copper explorer / developer. Please call the desk on +61 8 6169 2668 should you wish to discuss today's announcement further.

Investor Information Session

An information session outlining the transaction will be led by MOD's Managing Director, Julian Hanna, today at 4.15pm. Investors are encouraged to participate by submitting questions via email, prior to the call. Details are as follows:

Time/Date: 4.15pm (EST) on Wednesday 18 July

Australia Dial in: 1800 280 741

International Dial in: +61 3 8687 0650

Email questions: administrator@modresources.com.au


Have a question? admin@ashanticapital.com.au

ERA Communications