Yovich & Co. Weekly Update - 4 February 2013

Feb 4, 2013 | Commentary

This Week's Themes

  • Positive sentiment continues to push markets up with the NZX, Dow Jones and FTSE all making post GFC highs.
  • The New Zealand market broke through 4200 this week with the OCR kept at 2.5% and better than expected trade numbers keep confidence high.
  • Higher commodity prices spurred investors in Australia, with the ASX 200 closing above 4900 for the first time since early 2011.
  • 5 weeks of consecutive gains has led the Dow to close above 14,000 and knocking on the door of the all-time high in 2007 of 14,198. The Fed announced that they will continue to purchase $85 billion a month in mortgage bonds and Treasury’s fuelling the market further.
  • With positive sentiment still rising, risk appetite grew and the Kiwi rallied over 84 cents U.S.

Investment News

Zenith Minerals Limited (ZNC.asx) – Quarterly Activity Report:

Test drilling continued at the Earaheedy Manganese project, confirming the continuity of manganese mineralisation as a near-surface flat-lying sheet. Preliminary dry screening test work on percussion drill chips has demonstrated the potential for upgrading manganese mineralisation to DSO (Direct Shipping Ore) grade. Test drilling also continued at the Mt Alexander Iron Ore project in the West Pilbara. Currently only about 40% of the Company's Exploration Target has been drill confirmed. Heritage and governmental approvals are in place for drilling aimed at capturing the eastern portion of the Mt Alexander. This work is now in progress and scheduled for completion in February.

Refining New Zealand (NZR.nz) – Margin Report

NZR released the report on Throughput and Margins for November and December with an increased margin of US$7.88 per barrel, throughput of 6.9 million barrels and an average exchange rate of USD/NZD 0.83. The margin was by NZR’s account, “exceptional” and well ahead of their forecasts of US$3-4 per barrel. The Processing fee for the past 6 months has been $132 million compared to the first half of 2012 which was only $77 million. First NZ Capital has a target price of $3.27 based on a 20% discount to the Discounted Cash Flow valuation of $4.22, due to margin uncertainties.

Bathurst Resources (BTU.asx/BTU.nz) – Quarterly Activity Report:

December sales were 20% above forecasts with sales of 78,031 tonnes in the quarter and driven by a recovery in Takitimu thermal sales.

The Escarpment Appeals court hearing case concluded on 18 December and the Judge’s decision is expected by the end of the first quarter of 2013. The view of Credit Suisse is that on balance, after considering the economic and employment benefits of the Escarpment project, offset by modest environmental impacts, the Environment Court Judge will rule in favour of BTU. Note that an appeal can only be made under a substantive point of law, i.e. if there is an error in the legal proceedings. They believe that the market is currently pricing in a 50% possibility that the project will proceed and assign a price target of AUD $0.60/NZD $0.75.

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Jarrod Goodall

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Weekly Update Investment Shares Bonds Market Commentary Zenith Minerals Limited ZNC Zenith Minerals ZNC.asx Refining New Zealand NZR NZR.nz Bathurst Resources BTU.asx BTU.nz


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