Economic fundamentals sees markets soar higher

Fundamentals.

Even the word has some negative connotations these days but when it comes to the performance of the share market, fundamentals are vitally important.

While excitement and hype can carry an individual stock and even a whole market a long way, it is those old-fashioned fundamentals such as rising revenue, profits, dividends and forward guidance that really justify valuations – particularly in a rising market.

And despite the odd disappointment here and there, on the whole earnings both here and offshore have beaten estimates, helping to justify elevated current market levels and also boost share prices a bit further still.

Market getting set for 6000

Here in Australia the local and offshore good news has carried our market above 6000 points on the all ordinaries and close to that level on the ASX 200, which closed on Friday at 5959.9 points.

From here it won’t take a lot to see the Australian market finally straddle the 6000 mark, although our pre-GFC peak of 6828.7 set way back in November 2007 I still a fairly distant marker.

A synchronised expansion

The whole world seems to be in the middle of a synchronised expansion at the moment, with positive economic indicators making a mockery of cautious warnings that this share market rise is getting fairly long in the tooth, particularly in the world’s largest share market, the United States.

However, the global expansion and a weaker US dollar are helping to boost the profits of US multinationals.

Weaker US dollar driving returns

Some research from Bank of America said that this quarter is the first since 2011 when the level of the US dollar will help boost US earnings, rather than depress them.

That’s a fairly significant adjustment, which could continue to boost the earnings of US companies for some time to come, depending in part on the interest rate policies of Jerome Powell, who is now set to replace Janet Yellen as chair of the US Federal Reserve from February.

Weaker housing could see more money go to shares

Here in Australia, there are some equally strong trends, with early evidence that the housing market may have turned down potentially sending more investment cash into the share market instead.

Export numbers look robust, outstripping imports by $1.75 billion in the September quarter and the trend for oil and mining companies has turned more positive.

Nickel leads the way

One example of that is nickel, which has been going through a price and investment renaissance as demand is driven by new uses for the alloying metal in the lithium batteries of electric vehicles, consumer electronics and sustainable energy markets.

Nickel provides fire resistance, higher stability, more power, longer life and more recharges per batdue to its lower price.

That has certainly helped along the share price of one of the companies we have been covering here, Poseidon Nickel (ASX: POS).

Big week for cannabis stocks

There has been a lot of activity on small cap stocks, with the so called “pot stocks’’ that are finding new ways to use cannabis getting a lot of investor attention.

The Hydroponics Company (ASX: THC)

The Hydroponics Company was awarded its medicinal cannabis licence this week, meaning it just needs a manufacturing licence now to legally operate its planned research and development and growing facility in Australia.

It brought the company an important step closer to supplying medicinal cannabis in Australia and expanding from its Canadian operation.

The company is aiming to supply a high purity cannabidiol (CBD) to be used in people suffering from dementia, epilepsy and other neurological disorders.

MGC Pharmaceuticals (ASX: MXC)

MGC Pharmaceuticals signed its first binding sales agreement worth $8 million to supply Korean cosmetics manufacturer Varm Cosmo with cannabidiol (CBD) products.

Another two agreements with Varm Cosmo are due to be implemented over the next few weeks, with the combined three agreements worth $40 million.

Half owned subsidiary MGC Derma is anticipating its first $1 million payment next month as Varm Cosmo gears up to sell the CBD cosmetics under a new brand which will be launched soon.

MGC Pharmaceuticals followed that deal with a heads of agreement with Australian distributor HL Pharma Pty Ltd to distribute its CannEpil product to Australian epilepsy patients from early 2018.

The companies will work collaboratively to import and distribute CannEpil to Australian hospitals and pharmacies.

HL Pharma will be looking to get approvals from the Therapeutic Goods Agency and Australia’s Office of Drug Control for importation, supply and marketing of the product.

The first batch of CannEpil to meet HL Pharma’s first order of 170 bottles should be shipped in the next four months.

CannPal Animal Therapeutics (ASX: CP1)

Even the animals are getting in on the act with CannPal Animal Therapeutics’ successfully applying to possess and supply cannabidiol and tetrahydrocannabinol to use in upcoming clinical trials to develop its CPAT-01 drug for treating pain in dogs.

The animal health company hasn’t wasted much time since debuting on the ASX two weeks ago The New South Wales Department of Health has approved CannPal Animal Therapeutics’ application to possess and supply cannabidiol and tetrahydrocannabinol to use in its upcoming clinical trials which aim to develop its CPAT-01 drug for treating pain in dogs.

Debuting on the ASX less than two weeks ago, the animal focussed health company wants to start clinical trials on 48 dogs in the first quarter of 2018.

CannPal can also apply for further approvals to import cannabis for research into the use of cannabis in other companion animals.

The latest from the Pilbara

As Small Caps has covered before, the gold rush in the Pilbara has led to some really impressive share price movements on the back of a new understanding of potentially large conglomerate hosted gold nuggets.

Artemis Resources (ASX: ARV)

Two of the companies that sparked the boom – explorer Artemis Resources and Canadian joint venture partner Novo Resources (TSX: NVO) this week announced they had discovered fine gold within conglomerate layers, as well as coarser gold, during trenching activities at Purdy’s Reward in Western Australia.

Novo has now opened seven trenches to a three metre depth, with conglomerate units discovered in all but one, which encountered older basement rocks.

Artemis executive chairman David Lenigas said the discovery of fine grained gold within the conglomerate layers along with the large watermelon seed shaped nuggets that put Purdy’s Reward on the map could become very important in evaluating the economics of the deposit.

De Grey Mining (ASX: DEG)

Similarly De Grey Mining has reported two more conglomerate gold discoveries across its 1,800-square kilometre landholding.

The discoveries could potentially dwarf Dr Grey’s renowned Loudens Patch deposit, with gold mineralisation at Jarret Well and Steel Well similar in style to those recorded at Purdy’s Reward.

Three gold nuggets were found at Jarret Well and a further three at Steel Well within a conglomerate structure that remains open and is still very lightly explored by metal detection and mapping.

Primary Gold (ASX: PGO)

While not in the Pilbara, Primary Gold boosted its gold resource at Rustlers Roost in the Northern Territory by 72 per cent to 1.3 million ounces of contained gold.

The Rustlers Roost resource now sits at 49.6 million tonnes grading 0.84 grams per tonne gold for 1.3 million ounces at 0.5 grams per tonne cut-off.

Rustlers Roost is part of the company’s Mount Bundy gold project, taking the total Mount Bundy gold resource to 1.78 million ounces of contained gold.

Three deposits have been identified at the project including Rustler Roost and Quest 29 which are amenable to an open pit operation.

Millennium Minerals (ASX: MOY)

Moving back to the east Pilbara, Millennium Minerals has uncovered gold grading up to 62.17 grams per tonne at its Bartons deposit, part of the Nullagine gold project.

Exploration at Bartons aims to develop the current open pit into an underground mine, which would make it the Nullagine project’s first underground operation.

The company claims the latest drilling results have revealed “exceptionally high-grades” with multiple intercepts returning over 10 grams per tonne gold.

An initial underground resource estimate of 475,900 tonnes grading 5.3 grams per tonne gold for 80,400 gold ounces for Bartons was announced in August.

Elsewhere in the small cap space

There was plenty of market action elsewhere.

Australian Mines (ASX: AUZ)

Australian Mines announced its maiden resource for the Flemington cobalt-scandium project in central New South Wales but it still thinks there is a lot of upside in the project.

With the maiden resource covering only one per cent of the identified prospective area, Australian Mines believes it doesn’t have to look too far for growth options with a resource expansion campaign due to kick-off in November and a pre-feasibility study to be completed in mid-2018.

The maiden resource for Flemington sits at 2.7 million tonnes grading 0.1% cobalt, 403 parts per million scandium for 2,744 contained tonnes of cobalt and 1,090 contained tonnes of scandium metal.

Australian Mines claims the cobalt-scandium-nickel mineralisation is a continuation of Clean TeQ Holdings‘ (ASX: CLQ) Syerston ore body, which is adjacent to Flemington.

Mustang Resources (ASX: MUS)

Market darling Mustang Resources gave investors an unpleasant crash course in the vagaries of the ruby market this week, after it announced that less than eight per cent of its inventory sold at a recent tender auction.

That produced cash of just $713,456 at its inaugural tender, with only eight of the 21 schedules on offer sold and the rest not reaching reserve prices.

Investors will be hoping for better results at the next rough ruby tender.

Sky and Space Global (ASX: SAS)

Sky and Space Global expanded an existing partnership with Denmark-based GomSpace which will improve the capabilities of the Sky and Space Global nanosatellites it is developing.

The duo contracted earlier this year for GomSpace to develop and deliver Sky and Space Global’s full equatorial nanosatellite constellation, with first delivery due in 2018 and deployment of the full constellation of 200 nano-satellites by 2020.

Now the capability of the satellites will be enhanced, increasing the order’s value up to about $22 million.

In the last three months, Sky and Space Global has built momentum for its nanosatellite technology including achieving a “world first” with phone calls, instant messaging, voice recording, and image transfers made via its 3 Diamonds nano-satellites which were launched to trial the technology.

The week ahead

The biggest local input for the market will be the Reserve Bank board meeting on Tuesday which will decide on the direction for official interest rates.

While no change in rates from the current 1.5 per cent is expected, there is always the possibility that the language within the statement released after the meeting could change, which is why the precise wording is examined so closely.