Weekly review: Market clings to 6000 mark as Reserve Bank casts a less bullish outlook

Market ASX 6000 points RBA stocks trade
WEEKLY MARKET REPORT

The Australian share market just managed to cling to the 6000-point mark on the ASX 200 as a tug of war continued between weak offshore leads and some solid local profit results.

It was a solid four days of gains before Friday’s 0.3% or 21 point slide to a close of 6071.5 points, pushing the market close to four-month highs and producing the best weekly performance since November 2016.

Offshore leads were weak due to renewed pessimism on US-China trade negotiations and continuing fears of a global slowdown as the European Commission and the Bank of England both downgraded growth expectations.

Trade talks faltering

US President Donald Trump now says he is unlikely to meet with Chinese President Xi before 1 March, which is his deadline for a trade deal before more tariffs are brought in.

It was oil and resource stocks that dragged the most on the ASX 200 following a slump in the oil price, with Oil Search (ASX: OSH), Santos (ASX: STO) and Beach Energy (ASX: BPT) all suffering hefty falls.

Oil down but iron ore going well

Even the big diversified miners such as BHP (ASX: BHP) and Rio Tinto (ASX: RIO) were pulled down.

Other than Friday though, the big miners have been on an upwards tear as the iron ore price continues to rise on fears that Brazilian exports will be constrained following the deadly tailings dam collapse two weeks ago.

Iron ore price rising 2019 chart Vale Dam Brazil
Iron ore prices have rallied since December last year.

Fortescue (ASX: FMG) has had the best time, rising almost 25% over two weeks while Rio has added 12% and BHP 7.5%.

REA Group (ASX: REA) posted an impressive 20% rise in half year profit to $176.6 million and bumped up its dividend by 17% but still the shares took a 5% hit due to a company forecast that fewer properties will be listed in the lead up to the NSW and Federal elections.

Reserve Bank casts a pall

Also casting a bit of a gloomy pall on the market was the Reserve Bank’s quarterly statement on monetary policy which as expected cut the central bank’s forecast for economic growth.

The prediction GDP will grow by 3% (previously 3.25%) while inflation will be 1.75% over the year to December 2019 rather than 2.25% spooked the markets a little and led to a renewed fall in the Australian dollar.

The RBA statements suggested it was in no rush to move in either direction on interest rates although the further fall in the dollar suggests there is no shortage of traders awaiting an interest rate cut rather than steady policy or a rise.

Small cap stock action

The Small Ords index was tugged along with the rest of the market, up 2.09%, with the ASX 200 rallying 3.06% for the week.

ASX 200 vs Small Ords chart Feb 2019 above 6000 points
ASX 200 vs Small Ords index

There were plenty of companies making headlines this week, including:

Otto Energy (ASX: OEL)

Oil and gas explorer Otto Energy has discovered hydrocarbons at a recently drilled exploration well at its Lightning prospect on the US Gulf Coast.

Evaluation of logging data confirmed the discovery with a minimum of 180 feet of net pay.

Meanwhile, the company reported it had mobilised a rig to the Winx-1 well site in Alaska’s North Slope.

The Commonwealth Bank of Australia revealed its faith in Otto’s operations after upping its stake in the company to 5.48% – giving it substantial holder status on Monday.

Bellevue Gold (ASX: BGL)

Bellevue Gold has posted a 47% increase in contained gold at its namesake project in WA.

The project’s resource now totals 4Mt at 11.8g/t gold for 1.53Moz of contained gold – up from the October estimate of 2.6Mt at 12.3g/t gold for 1.04Moz.

Bellevue managing director Steve Parsons said the high-grade Viago Lode within the resource was one of the highest-grade gold discoveries globally.

The Viago Lode resource totals 800,000t at 22g/t gold for 550,000oz, with drilling ongoing at the Lode and the Western Corridor.

TYMLEZ (ASX: TYM)

Blockchain technology company TYMLEZ Group is another step closer to realising its commercialisation plans after securing Google as a partner.

TYMLEZ announced on Tuesday that Google had granted it official partner status through the Google Cloud Technology Partner Program.

As a result, TYMLEZ will be able to list its blockchain platform on the Google Cloud Marketplace – paving the way for its technology to be promoted and sold.

Peak Asset Management head of Equity Capital Markets Richard Rouse told Small Caps the deal shows TYMLEZ’s technology is “increasingly on the radar of the world’s tech titans”.

Silex Systems (ASX: SLX)

Silex Systems has teamed up with global uranium major Cameco Corporation to purchase GE Hitachi Nuclear Energy’s 76% interest in Global Laser Enrichment.

Cameco and Silex inked a term sheet which opens the door for Silex to acquire 51% of Global Laser Enrichment and Cameco to boost its stake from 24% to 49%.

Currently, Global Laser Enrichment is the licensee for Silex’s SILEX laser-based uranium enrichment technology.

“Should the binding purchase agreement be successfully completed, this will provide a viable path for the commercialisation of the SILEX technology through the Paducah project,” Silex chief executive officer Dr Michael Goldsworthy said of the purchase. 

De.mem (ASX: DEM)

De.mem has had another good news week after reporting it had secured a contract with Rio Tinto.

Under the agreement, De.mem will manage Rio’s potable and waste water treatment plants at the Amrun bauxite mine in Queensland.

“This new purchase order is another great success for De.mem as it underlines our well-established customer base in the mining and resources sector, and our strong, recurring operations and maintenance business,” De.mem chief executive officer Andreas Kroell said.

De.mem has operated Rio’s water treatment plant since 2016 and the new 12-month contract is valued at $780,000.

Hot Chili (ASX: HCH)

Copper explorer Hot Chili has agreed to snap up the Purisima landholding from mining group SCM Carola’s Vallenar in Chile.

The landholding hosts part of the Cortadera deposit and adjoins Hot Chili’s existing flagship Productora and El Fuego projects in the region.

According to Hot Chili, the deposit remains largely open and has potential to host copper-gold mineralisation that is amenable to open pit mining.

Under the acquisition terms, Hot Chili can acquire 100% of the tenements for US$30 million, which is payable in three instalments over 30 months.

Calidus Resources (ASX: CAI)

Another explorer to grow its resource inventory this week was Calidus Resources, which boosted contained gold at its Warrawoona project by 75%.

Total resources at the WA-based Warrawoona project now stand at 21.2Mt at 1.83g/t gold for 1.25Moz of contained gold.

“To effectively triple our high-grade resource base to 1.25 million ounces within 18-months of listing highlights the unique attributes of the major gold system at Warrawoona,” Calidus managing director David Reeves said of the achievement.

Infill and extensional drilling will be carried out to add confidence and increase the resource, with reconnaissance drilling also plant at high-priority targets during 2019.

Mareterram (ASX: MTM)

South Africa-based Sea Harvest Group has made a bid to acquire Mareterram via an all-cash off-market takeover.

Sea Harvest Group owns 56.28% of Mareterram and has offered to purchase the remaining equity in the company for $0.25 per share.

The offer values Mareterram at $38.6 million and represents a 22% premium to Mareterram’s previous closing price of $0.205.

Mareterram’s board stated its was “unanimously of the view that the offer is in the best interests of Mareterram shareholders” and has recommended shareholders accept Sea Harvest’s bid in the absence of a superior offer.

FBR Ltd (ASX: FBR) and Brickworks (ASX: BKW)

FBR and Brickworks have signed a MoU with a view to establishing a 50:50 joint venture to advance the robotic building capabilities within the residential building and construction sector.

The joint venture allows Brickworks to retain exclusive rights to manufacture and supply customised blocks to be used by FBR’s Hadrian X building robot.

According to FBR, the joint venture will kick-off with a pilot program in WA with an initial focus on residential construction.

FBR’s Hadrian X will build the walls of a building company’s home using Brickwork blocks with construction adhesive.

The week ahead

There is a new kid on the block this week with the Australian Bureau of Statistics (ABS) unveiling a gauge of lending to households and businesses but it is likely to be a bleak start given how weak housing loan demand is.

There is an array of other statistics during the week including consumer sentiment, the NAB business survey, credit card lending and consumer confidence.

Internationally there is still some uncertainty about when the logjam of US statistics will be released following the government shutdown but there will be no such problem with the Chinese data which always comes out like clockwork – suspiciously so.

The Chinese data on trade and inflation along with the smattering of US data should make life interesting as the trade talks continue between the two biggest economies.

This week’s top stocks

John is a highly experienced business journalist and formerly chief business writer for the Herald Sun. He has covered Federal politics in Canberra, was Los Angeles Bureau chief for News Limited and was also chief of staff for the Herald Sun. He has covered a wide range of small and large cap ASX stocks and has a special interest in mining, technology and biotech.