Weekly review: market keeps rising despite coronavirus fears

Coronavirus virus stock market Australia ASX 2020
WEEKLY MARKET REPORT

It seems not even a serious coronavirus outbreak in China can halt Australia’s rampaging share market which has now risen every week this year.

Since the New Year started there have only been four days when the market has not risen and Thursday was one of them so it should not have been a surprise when shares enjoyed a relief rally on Friday – despite the highly uncertain outlook for China in the wake of a rising death toll from the worrying virus.

By the end of trade on Friday the ASX 200 had added 2.5 points, a little under 0.1%, to close at 7090.5 points.

Bull run so far this year with weekly gains

However, over the week the performance was more robust, with the index up 0.4% – a very creditable effort given Thursday’s slide in the wake of December job figures which were better than expected, reducing the chances of a Reserve Bank rate cut in February.

Perhaps unsurprisingly the gains were once again led by healthcare stocks with international blood products and vaccines group CSL (ASX: CSL) once again rising 1.1% to a record close of $310.70 – not bad going for a stock that was trading at just under $200 a share a year ago.

CSL and financials up as Westpac gets a new leader

Financials stocks were also higher following the announcement that highly experienced former ANZ chief executive officer John McFarlane would step into the job as Westpac (ASX: WBC) chairman and help in the search for a new chief executive officer in the wake of the messy AUSTRAC debacle.

The financial index added 0.3% after all four banks rose and the effect would have been stronger except Insurance Australia Group slid 5.4% to $7.30 after the recent hail storms caused a foreshadowed dent in its profits.

Miners a drag on the index

The market’s overall rise was even more impressive because the big miners were acting as an anchor in the wake of the Chinese virus troubles which have coincided with New Year celebrations and weaker commodity prices for oil and iron ore.

Rio Tinto (ASX: RIO) was down 2.8% to $103.18, BHP (ASX: BHP) fell 1.5% to $40.45 and Fortescue Metals (ASX: FMG) lost 0.4% to $12.48.

One notable bounce back from Thursday was contractor Downer EDI (ASX: DOW), which recorded a 6% rise to $7.60, recovering about a third of the previous day’s big decline.

Small cap stock action

The Small Ords index moved in the opposite direction of the larger market index, down 0.36% to 3052.2 points.

ASX 200 Coronavirus
ASX 200 vs Small Ords

Small cap companies making headlines this week were:

XCD Energy (ASX: XCD)

XCD Energy debuted its much anticipated maiden prospective oil resource for its flagship Project Peregrine on Alaska’s North Slope.

The maiden resource (net of government and other royalties) totals 1.6 billion barrels and is much higher than the company’s previously announced internal estimate of 255 million barrels of oil.

XCD managing director Dougal Ferguson told Small Caps he was confident the “substantial” resource would attract “a variety of mid-to-large scale companies” in its upcoming farm-out campaign.

The initial internal estimate comprised one horizon from the Merlin lead and smaller acreage.

At Merlin alone, this has been revised to 622Mbbl of oil due to the ability to intersect multiple horizons from one Merlin location.

Jervois Mining (ASX: JRV)

Cobalt explorer Jervois Mining has revealed a 22% increase to the measured resource at its advanced Idaho Cobalt Operations in the US.

The updated measure resource now totals 2.92Mt at 0.45% cobalt for 26.2Mlb of contained metal, using a 0.15% cut-off.

A combined measured and indicated resource estimate now sits at 5.77Mt at 0.44% cobalt for 50.1Mlb of the metal, with 80.1Mlb of copper and 89,000oz of gold credits.

The results will be included in a bankable feasibility study, which is due to wind up later this quarter.

Over in Uganda, Jervois has had success exploring for copper and gold at the Kilembe property, with partial result from a phase one drilling program returning 9.9m at 1.37g/t gold from 29m, including 0.45m at 9.98g/t gold and 0.1% copper from 34.05m.

Additional groundwork across the property also uncovered up to 41g/t gold, 20.5g/t gold, 10.3g/t gold and 9.85g/t gold in surface rock chip samples.

Vulcan Energy Resources (ASX: VUL)

With a goal of becoming a zero carbon lithium producer, Vulcan Energy Resources unveiled a maiden indicated lithium brine resource for its Insheim licence, within Germany’s Upper Rhine Valley.

The resource comprises 722,000t of contained lithium carbonate equivalent with an average grade of 181 milligrams per litre of lithium.

Vulcan managing director Dr Francis Wedin said the resource adds to the company’s existing resource for the wider Vulcan project, which is “easily the largest in Europe” and totals 13.95Mt of lithium carbonate equivalent.

He added it “increasingly highlights the potential for [the project] to be the primary source for the European battery industry’s lithium hydroxide needs, via a low-impact Zero Carbon Lithium process powered by and sourced from geothermal wells”.

A scoping study is on track for completion before the end of March.

Metalicity (ASX: MCT)

After agreeing to earn a 75% stake in Kookynie in May last year, Metalicity has intercepted high-grade gold during drilling at three of the project’s prospects.

At McTavish, drilling uncovered 5m at 17.9g/t gold from 48m, including 1m at 80.17g/t gold from 51m.

Over at the Leipold prospect, drilling returned 6m at 9.4g/t gold from 26m, including 2m at 19g/t gold from 26m.

Then at Champion, Metalicity unearthed 2m at 25.2g/t gold from 28m to end of hole, including 1m at 42g/t gold from 28m.

Metalicity’s managing director Jason Livingstone said he was “extremely pleased” to start the year with these “spectacular” results.

Additionally, Metalicity has expanded the project’s ground from an initial 2,400ha to more than 7,000ha in the region.

THC Global (ASX: THC)

With the Australian TGA granting THC Global’s bio-floral extraction facility in Queensland a manufacturing licence, the company is now poised to begin commercial medicinal cannabis production.

The latest internationally recognised licence is the final permit required to begin commercial manufacturing, with THC now possessing the authority to manufacture, package and clinically test medicinal cannabis products at its Southport facility.

THC noted the Australian licence is recognised for the development and supply of pharmaceutical products across 29 countries in Europe, Asia and North America.

THC chief executive officer Ken Charteris said the company anticipates it will complete commercial negotiations with multiple parties in the “near-term”.

Dragontail Systems (ASX: DTS)

Software and technology provider to the quick service restaurant and food service industries Dragontail Systems will have an extra $20 million in cash to fund its growth plans after Eldridge Industries, Goudy Park Capital and Alceon Liquid Strategies agreed to participate in a convertible preference share subscription.

Under the deal, Eldridge will lead the round by cornerstoning $10.5 million, while Goudy Park will invest $5.5 million.

Dragontail’s largest Australian-based shareholder Alceon will contribute $4 million.

Proceeds will be used to fund Dragontail’s planned expansion into the US and other international markets.

Eldridge and Goudy Park’s US connections and networks are expected to be advantageous for Dragontail as it rolls-out its technology throughout the country.

Chesser Resources (ASX: CHZ)

Chesser Resources has hit a zone of high-grade gold during the phase three drilling program at its flagship Diamba Sud project in eastern Senegal.

First assays from the program have returned notable results of 4m at 9.36g/t gold from 14m; 2m at 18.20g/t gold from 14m; and 16m at 8.51g/t gold from 86m, including 10m at 13.11g/t gold.

The holes were drilled at Area A within the Northern Arc target, with Chesser managing director Mike Brown likening the mineralisation to Barrick Gold Corporation’s 18Moz Gounkoto-Loulo mining operation.

He added the style and thickness of the mineralisation pointed to a potentially large gold system at the target.

Blackstone Minerals (ASX: BSX)

Vietnam-focused explorer Blackstone Minerals has uncovered high-grade nickel during drilling at the King Cobra target within the Ta Khoa nickel project in the country’s north.

Highlight results were 60m at 1.3% nickel from 32m, 13.9m at 2.25% nickel from the King Cobra zone and 142m at 0.41%, including 11.9m at 1.09% from the underlying Ban Duoi zone.

Blackstone discovered King Cobra in December, which is part of the Ban Phuc regional intrusion.

“The discovery is shaping up to be a high-grade, near-surface, large-scale disseminated nickel-platinum group elements zone which has potential to deliver a highly economic starter pit at Ta Khoa,” Blackstone managing director Scott Williamson said.

Imricor Medical Systems (ASX: IMR)

Imricor Medical Systems has collared CE Mark approval for its Vision-MR Ablation Catheter and Vision-MR Dispersive Electrode.

The approval enables Imricor to now market and sell its products to clinics throughout the European Union.

“We are absolutely thrilled to bring to market our products for performing cardiac catheter ablations guided by real-time MRI,” Imricor chairman and chief executive officer Steve Wedan said.

The company already has inventory in its European warehouse and has developed a well-established roll-out plan.

“We will now move swiftly to the execution of a controlled commercial launch to ensure smooth adoption and good clinical outcomes,” Mr Wedan said.

ASX floats this week

Small Caps readers who want to view upcoming IPOs or see the performance of stocks that have listed in 2020 can now do so.

The latest companies to make their way onto the ASX this week were:

Happy Valley Nutrition COSOL ASX IPO

Happy Valley Nutrition (ASX: HVM)

NZ-incorporated dairy company Happy Valley Nutrition’s securities began trading on Thursday after it raised $12.5 million in its IPO via the issue of 62.5 million shares at $0.20 each.

The company’s plan is to become a business-to-business supplier of consumer ready infant milk formula and other nutritional products based on A2 and organic milk.

As part of this strategy, Happy Valley will build a $328 million facility in Waikato within 12 months of listing.

Happy Valley will also seek to lock-in strategic partners, with discussions with potential partners and customers already underway.

The company closed out its first week on the ASX at $0.165 – down 17.5%.

COSOL (ASX: COS)

Digital services company COSOL joined the ASX this week, with its securities beginning official quotation on Friday after the company raise $12 million via the issue of 60 million shares at $0.20 each.

The company was founded in mid-2019 with the goal of acquiring COSOL Australia, which was established in 2020.

COSOL offers its clients a range of IT and business solutions with its proprietary software and its capabilities in Enterprise Asset Management software and systems.

Offer proceeds will be used to fund the cash component payable to the vendors of COSOL Australia and growth aspirations.

COSOL closed out its first day on the ASX at $0.38 – a 90% premium to its $0.20 offer price.

The week ahead

We are heading into a different sort of week with no trade on Monday due to the Australia Day holiday and plenty of uncertainty on the global scene.

The coronavirus scare has put the wind up a number of sectors including airports, oil stocks and airlines while there is so much uncertainty and the effects could linger given it has disrupted the Chinese New Year celebrations across many Asian countries.

Inflation and interest rates driving markets

There are two really big events to watch out for – the meeting of the US Federal Reserve on Tuesday and Wednesday to decide on interest rates and the release of the quarterly inflation data to December in Australia.

While no change in interest rate levels is expected from the US Fed meeting, the commentary could really move world share markets given that the US economy has been the driving force for higher share prices – a situation that could alter in a heartbeat should interest rates trend upwards again.

While some of the more recent Australian data has been a bit stronger than expected, inflation has been well under the RBA target for a long time so any signs that inflation is ticking upwards would be welcome.

After a 0.5% rise in the September quarter, the CPI is expected to have risen by 0.6% in the December period, with higher petrol prices and imported good price rises due to a weaker dollar helping to boost inflation a little.

That would see annual inflation still low at around 1.7%-1.8%, with any further rises good news for the Reserve Bank, which could delay pulling the trigger on lower interest rates.

It may not be such good news for the share market though, which is hooked on low interest rates.

Big international names reporting profits

There are other things to look out for in a holiday shortened week.

The US profit reporting season continues and this week there are a range of well-known companies reporting including 3M, Harley Davidson, Lockheed Martin, Phillips, Pfizer, Apple, eBay, Alibaba, AT&T, Boeing, Dow, General Electric, McDonalds, MasterCard, Facebook, Microsoft, Tesla, Coca Cola, DuPont, Eli Lilly, Amazon, UPS, ResMed, Visa, Caterpillar, Chevron, Exxon Mobil, Colgate Palmolive and Honeywell, to name a few.

Locally, CommSec releases its quarterly State of the States report that tracks the economic performance of state and territory economies and NAB’s business survey will also be released.

On Thursday, the Australian Bureau of Statistics releases some detailed labour force estimates and also data on import and export prices for the December quarter.

Then on Friday, the Reserve Bank releases financial aggregates that include details on lending and money supply.

This week’s top stocks