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25 September 2018 07:33 AM
Overseas Market ReportCurrent
Level
PreviousChangeDaily %
Change
Monthly %
Change
Dow Jones Industrial Average26,56226,744-181.00-0.682.99
S&P 5002,9192,930-10.00-0.351.55
NASDAQ7,9937,9876.000.080.59
FTSE 100 Index7,4587,490-32.00-0.42-1.57
DAX 3012,35112,431-80.00-0.64-0.35
CAC 40 Index5,4765,494-18.00-0.330.80
Nikkei 225 (Japan)23,87023,675195.000.825.61
HKSE27,49927,954-454.00-1.62-0.62
SSE Composite Index2,7972,72968.002.502.49
S&P/TSX Composite Index16,20716,224-17.00-0.10-0.91
NZ 509,3329,338-6.00-0.061.88
US Volatility (Vix)12
Overseas Market Report

US sharemarkets were mixed on Monday after the US applied tariffs of around 10% on US$200 billion of Chinese goods. The energy sector was firmer on a higher oil price. The technology sector was flat. Shares in fashion group Michael Kors fell by 8.2% on news that it had agreed to take over Italy's Versace for around US$2billion. The Dow Jones index ended lower by 181 points or 0.6%.The S&P 500 index fell by 0.4% but the Nasdaq rose by 6 points or 0.1%.

Global oil prices rose solidly on Monday to 4-year highs. A meeting of OPEC and its allies in Algeria on Sunday ended without any decision to further increase oil output. Worries persist about the loss of Iranian supply from the market due to US sanctions. Also crude output from Venezuela is constrained. Brent crude rose by US$2.40 or 3.0% to US$81.20 a barrel and the US Nymex price rose by US$1.29 or 1.8% to US$72.08 a barrel.

Base metal prices fell by up to 2.3% on the London Metals Exchange (LME) on Monday with nickel falling the most. But zinc rose by 2.5% and lead was flat.

The gold futures price rose by US$3.10 an ounce or 0.3% to $1,204.40 an ounce. The spot gold price was trading near US$1,199 an ounce in late US trade. Iron ore fell by US30 cents or 0.4% to US$68.90 a tonne.

CommoditiesCurrent
Level
PreviousChangeDaily %
Change
Monthly %
Change
Oil Brent81.3978.802.593.297.35
Oil - West Texas crude72.2372.080.150.215.11
Gold Spot $/OZ1,199.001,199.00-0.10-0.01-0.57
Silver Spot $/OZ14.3014.300.000.15-3.64
Iron Ore64.6064.80-0.30-0.421.73
Thermal Coal Newcastle113.80113.500.300.26-3.52
Coking Coal FOB ECP AUS0.000.000.000.000.00
Aluminium ($US/t)2,0282,064-35.00-1.70-2.13
Copper Mar-18 ($US/lb)2.822.82-2.00-0.724.28
Lead ($US/t)2,0352,036-1.00-0.05-1.64
Nickel ($US/t)12,86413,166-303.00-2.30-3.55
Zinc ($US/t)2,5622,49963.002.530.83
Tin ($US/t)18,98919,062-73.00-0.38-0.27
Uranium ($US/lb)27.0028.000.00-0.364.18
Australian Market ReportCurrent
Level
PreviousChangeDaily %
Change
Monthly %
Change
ASX All Ords6,2996,305-6.00-0.09-0.92
S&P/ASX 2006,1876,195-8.00-0.12-0.97
ASX 24 Futures6,182
Australian Market Report

Monday 24 September - close. The Australian share market has closed slightly lower with a lack of direction from overseas markets with major Asian exchanges closed for holidays. With an underwhelming lead from Wall Street and holidays in China and Japan, moves in the local share market were modest on Monday. The benchmark S&P/ASX200 index which rose about 0.5 per cent last, was down 7.7 points, or 0.12 per cent, at 6,186.9 points at 1615 AEST on Monday, while the broader All Ordinaries index was 5.9 points, or 0.09 per cent, lower at 6,299.5 points.

Ashanti Headlines

Independence Group NL: (IGO.ASX, 454cps, m.cap A$2,680.7m with 590.5m SOI, Cash $139m, Diversified / Base Metals Producer)

Ashanti Capital was pleased to host Independence Group (ASX.IGO) on a non-deal roadshow in Singapore and Hong Kong last week. The company was extremely well received by investors with several institutions keen to make the most of the ‘Trade War’ induced share price weakness. 

Our key takeaways from the roadshow are summarised below;

Tier 1  Portfolio;

  • With Nova at nameplate production levels, IGO is approaching an inflection point for cash-flow generation. Consensus estimates have IGO doing A$450M of EBITDA in FY19, with Free Cash of A$300m. Further to this, IGO is expected to do close to A$1b in FCF over the next 3 years.
  • Both assets sit within the lowest industry quartile with healthy operating margins - Tropicana has EBITDA margins in the mid-50’s% and Nova is anticipated to be in the high 50’s% to low 60‘s% for FY19.
  • Nova (predominantly nickel with copper and cobalt credits) will contribute 70% of earnings with Tropicana accounting for the remaining 30%.
  • Nova has very low capital requirements beyond 2020 with all U/G development complete and all grade control drilling completed on close space intervals.
  • With the LOM plan now refined, IGO are looking to extend Nova’s current 7 to 8 year mine life.
  • Tropicana continues to be one of the standout gold projects in WA with ~550Koz @ AISC of
  • Tropicana underground studies are due in Mar-Q of CY19 with Boston Shaker the first cab off the rank. It is anticipated that the increased grade from the U/G’s will off-set a declining grade in the open pits and maintain current production rate beyond 2021.

Strengthening Balance Sheet;

  • Recognising the strength of the balance sheet, Investors were keen to know how the growing cash balance would be spent;
    • Potential revision of the dividend policy from % of NPAT to a potential FCF metric.
    • Aggressive A$50M exploration program near-mine at Nova, regional exploration in the Fraser Range and green fields exploration in the NT. 
    • If it is value accretive, M&A will be looked at but it must meet IGO’s stringent investment criteria. 
    • IGO is keen to further consolidate the Fraser Range.
    • IGO will continue to look to increase exposure to the Battery Metals.

Exploration Upside

  • IGO is spending A$50M on exploration in FY19 and the drilling activities in the Fraser Range have company changing potential. As one investor concluded - “How many ASX200 stocks have the potential to go up by 50% overnight?”. 
  • Recent success by explorer Mark Creasy just 30km from Nova is an extremely important proof-of-concept that Nova is not an orphan in the Fraser Range. There are obvious synergies between Silver Knight and IGO’s existing infrastructure, and we feel these discussion will be made easier by Creasy’s substantial holding in IGO (22%): ( http://www.resourcesrisingstars.com.au/news-article/official-figures-show-creasy%E2%80%99s-wa-nickel-copper-find-could-provide-needed-feed-hungry)
  • Early stage exploration completed in FY18 have laid the foundations for IGO to drill a series of exciting exploration targets in the Fraser Range, commencing in October.

Nickel Exposure with improving market dynamics

  • LME Nickel Stockpiles have been diminishing rapidly over the last 4 months, and despite this, Ni price has remained weak. 
  • Most of the investors we visited were optimistic on the outlook for Nickel. Investors expect demand to be underpinned by a strong stainless steel market and supplemented by growing battery storage and electric vehicle production.
  • Interestingly, some investors believe the Battery Home Storage thematic is not being adequately forecast by market analysts. A recent piece by one investment bank, highlighted the huge upside risk in battery home storage. 
  • On the supply side, the diminishing grade and lack of quality, development ready sulphide only enhances the appeal of Nova.

In summary, IGO offers outstanding exposure to Tier-1 Nickel and Gold assets that are set to generate significant cash-flow over the coming years (IGO currently trading on ~ 6x EBITDA). These producing assets are complimented by a quality exploration portfolio in WA and the NT. The aggressive exploration campaign planned for FY19 (particularly in the Fraser Range) has the potential to be a game-changing catalyst for the company.

Please contact the desk (+61 6169 2668) if you would lie to discuss the IGO story further or you would like to organise a call with IGO’s impressive management team.


Have a question? admin@ashanticapital.com.au

ERA Communications