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Maximizing the trader’s state of mind is the key to achieving successful results.

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By Janene Murdoch
Educated Investor Bookshop

Overseas markets generally traded higher this week after the successful completion of the ECB Bank “stress tests”. Banks benefited, trading higher this week. Markets are generally trading above their 200 day moving average, with the exception of China and Japan, and Copper has again been a highlight, rising to a 10-week high.

US Markets

The positive sentiment resulting from the earnings season has been tempered this week, as economic data in the U.S. pointed towards a slowing economy. Consumer confidence has slumped and durable goods orders dropped last month, raising concerns that the economic rebound is slowing as the government unwinds stimulus programs. This may be confirmed if the U.S. gross domestic product data, due out tonight, shows growth has slowed (the forecast is for a GDP of 2.6 percent in the second quarter). Overnight the Dow closed down -0.3% at 10,467, while in the broader market the S&P 500 index was down -0.4% at 1,102 and the tech-heavy Nasdaq ended down -0.6% at 2,252.

European Markets

European stocks advanced this week on the back of the successful completion of the ECB Bank “stress tests”. The results showed only 7 out of 91 banks failed the test which was fewer than expected, but analysts questioned whether the tests were tough enough, as they only showed $US3.5 billion needed to be raised to prop up capital adequacy (previous estimates had ranged from $75 to $85 billion). The UK economic data was also positive showing the economy grew at the fastest pace in four years in the second quarter as rebounding services, manufacturing and construction, supported more bullish sentiment. The Swiss banking giant UBS, upgraded its weighting on European equities to neutral from underweight. There appears to be a rotation to more positive sentiment in Europe as shown by the Euro being up above $US1.31, its highest since May. Overnight in London the FTSE 100 index closed down marginally, -0.1% at 5,314, the German DAX was down 0.7% at 6,135, while in France the CAC was down -0.5% at 3652.

Asian Markets

Asian markets had a solid week. Chinese equities continued to rise as the Central Bank said China’s economic fundamentals are “good”. The Chinese index is up 11 percent from its yearly lows, as the jump in industrial profits and the prospects for increased spending and tourism boosted the domestic economic outlook. Japan is also in focus this week with the reporting season starting off well, sending the index to its biggest gains in 3 weeks. The Yen reached its lowest level against the Euro since May. This helped exporters rise, and overnight in China the SSE Composite closed up 0.6% at 2,648, while in Hong Kong the Hang Seng Index was flat at 21,094 and in Japan the Nikkei 225 Index was down -0.6% at 9,696.

Commodities

Copper continued to shine this week, rising to an 11-week high on signs that growth is sufficient in China and the U.S. to spur demand. Copper prices rose to new monthly highs, above the key $US3.00 a pound, up 1.4% (or 4.4 cents) at $US3.2850 a pound. Oil prices held up this week with the benchmark crude NYMEX for September delivery rising 1.7% (or $US1.37) to settle at $US78.36 a barrel. Gold broke below key support. Overnight August gold was up $US8.80 at $US1,171.20 an ounce.

ASX News

The election dominated the news this week, but there were few surprises. Overseas market movements have dictated Aussie investor sentiment. Improvements in China have seen commodities prices continue to rise, while in Europe sentiment in improving.

Our View

Markets have again drifted higher as trading volumes continued to pick up this week. There does not appear to be a catalyst that will push markets through current key levels. China and Japan have been positive for Asian markets. The U.S. economic data is disappointing while Europe appears to be improving.

Overseas markets are keenly anticipating the U.S. GDP report and the European unemployment and consumer price index due out tonight. China also report their PMI data on Sunday.  The outcome of these reports will set the tone for next week.

The S&P ASX200 is currently trading around 4485. The key support level on the ASX is still around 4,200 and the key levels for our index next week are 4600 and 4350, with pivot at 4450.  The pending elections will have a dampener on the markets near term.

By Michael Hevern
Head of Research

This is the second installment of a three-part special on the leading indicators for mining stocks, brought to you by our research department.

As mentioned in our first installment, the stock markets have been difficult in recent times as the bulls and the bears have been wrestling for control. We have identified some leading indicators that will give investors an edge in identifying the potential direction of the specific share price movements.

Mining Stocks

The materials sector has continued to underpin the performance of the broader Australian market. It lead the recovery back in early 2009, but has weighed on the markets as a result of the uncertainties from the proposed Resources Super Profits tax.

Commodity prices can be used as a leading indicator for share price movements. We have reviewed key mining stocks that are highly liquid and respond well to movements in commodities. Please note that the commodity prices are recorded in Aussie dollar terms.

Last week we reviewed BHP and now continue by examining a premium gold stock, Newcrest.

Newcrest Mining Limited (NCM)

Newcrest (NCM) is the highest quality, low cost gold producer in the Australian market, with positive growth and strong exploration upside.

Until the recent proposed merger with Lihir Gold, almost all its value has come organically through exploration. Newcrest is predominantly Australian based, offering low sovereign risk and its trades have much lower multiples than its overseas peers. Newcest is reported to be a perennial takeover target, though the strong performance of current management should deter any would-be acquirers.

The Gold price has pulled back nine percent from its recent all-time highs and is continuing to show weakness, trading below its 50 and 100 day moving averages, last trading at $US1,160.40 an ounce. This week Gold has broken key support levels.

The chart below illustrates how closely correlated Gold and NCM are. The chart shows that back in late 2008 the gold price foreshadowed a recovery in the NCM share price by about six weeks, while in early 2009 the gold price gave a confirmation of turnaround in NCM’s share price, as it did again in late 2009.

Gold is as a leading indicator for Newbrest (NCM) share price movements

The correlation has held tight throughout 2009 to 2010, however in the past quarter the gold price surged ahead, but NCM share price did not follow. This may be because of the volatile Aussie dollar moves and the proposed merger between Newcrest and Lihir. The Gold price is currently under pressure as investors are looking to liquidate their gold positions in order to add risk to their portfolio. This will be a negative for our gold stocks near term. Once the merger with Lihir is bedded down, we would expect the strong correlation between the gold price and Newcrest to resume.

The Trade

Commodity prices can be used as a leading indicator for share price movements, however you need to convert the pricing to Aussie dollar equivalents for the best results. We have reviewed key mining stock(s) that are highly liquid and respond well to movements in commodities. Note that it is important to check the US ADRs for overnight share price movements as well.

Look out for the third installment of this three part special next week, when we take a look at Newcrest Mining Limited (NCM). To make sure you don’t miss out, sign up to receive our weekly newsletter.

By Michael Hevern
Head of Research

You can receive more fundamental information on Newcrest Mining on our website.

The information provided within this blog is general advice only and you should consult the services of a financial professional in order to ascertain whether the information is applicable to your investment strategies and risk profile.

US GDP Report Gives Pause; ASX to Trade Lower

U.S. stocks finished lower overnight for a second day, as disappointing revenue from utilities and consumer companies weighed. European markets continued lower.  Asian markets bucked the trend to the positive.  A weaker US dollar also helped commodity prices, however our markets will likely see further profit-taking today.

The SPI Futures is above the key level of 4400 the ASX is set to open lower as the SPI Futures closed down -0.5% (or -21 pts) at 4,473.   Key levels today are 4500 and 4400, with pivot around 4450. Mining and Energy stocks may offer support with improving commodities prices overnight.  M&A activity continues to drive specific stocks.

US Markets

The S&P 500 remains only just above the key 1100 level. The Dow clawed back from an initial 100 point selloff.  U.S. stocks still finished lower overnight for a second day, as disappointing revenue from utilities and consumer companies overshadowed some other strong earnings reports.  The market sentiment was under pressure after disappointing second-quarter revenue and guidance reports hit the utilities, consumer staples and technology sectors. Companies like Akamai Technologies, Nvidia, Symantec, and Colgate disappointed either on their profit margins, earnings or earnings forecasts.  However the market is on track to close out the best month since July 2009, with the Dow currently up 7 percent for the month.  Oil prices rose overnight on better-than-expected earnings from Exxon Mobil Corp and Southwest Airlines. The Dow closed down -0.3% (or -31 points) at 10,467, while in the broader market the S&P 500 index down -0.4% (or -5 points) at 1,102 and the tech-heavy Nasdaq ended down -0.6% (or -13 points) at 2,252.  The sectors weighing most on the indices were utilities and consumer staples sectors, while financials and materials sectors provided some support.  The key news out tonight is the U.S.gross domestic product data release.

European Markets

Asian Markets

Commodities

US GDP Report Gives Pause; ASX to Trade Lower

ASX News Today

The production acreage and operating wells of the Project cover the Morne Diablo, Beach Marcelle and South Quarry oilfields, with the total acreage covering 13,253 gross acres on the southern coast onshore Trinidad. Current production from the fields is approximately 700 bopd, however Monitor considers that a minimal work program could lift production to more than 3500 bopd within 36 months based on known reserves. The production increase excludes exploration upside with independently identified possible recoverable resource from the Herrera formation which is producing on adjacent blocks.

“This is truly a company making transaction, we are acquiring a controlling interest in a company that has not only a pure crude play in an established oil environment, but also one of five onshore drilling companies in Trinidad,” said Monitor Energy Managing Director, Jon Roestenburg.  “There is significant potential for value enhancement, as we move from 1P to 2P and 3P, plus this is a relatively low risk exploration, drilling and production operation.”

“Onshore Trinidad is a low operating cost, high profit margin environment with oil production sold at the wellhead and transported to the Pointe-a-Pierre Refinery, which has capacity for all additional planned production,” he added.  In addition to the onshore acreage the proposed acquisition also includes an interest in the parent of a wholly owned drilling company located in Trinidad, which owns five onshore drill rigs, three production rigs, one swab rig, full workshop and pipe yard and storage tanks and facilities – representing substantial current and replacement value.

Fellow ASX listed oil and gas company Range Resources Ltd (RRS) is joining Monitor in this venture and is progressing agreements to acquire the other 10 percent equity share of SOCA, as announced by Range on 12 July 2010.

Monitor will use a combination of scrip and cash to purchase up to 90 per cent interest in SOCA Petroleum whose wholly owned subsidiary companies own the Project and all associated assets. Under the terms of the HOA, the Company will (in the event it takes up its full 90% option interest) issue two billion Monitor shares and raise AUD$90 Million with these proceeds being used to fund as follows:

a) The acquisition (production licences and drilling company);

b) Operational expenditure for the 3 year – 3,500 bopd production target;

c) The drilling of the Herrera formation; and

d) Capital raising costs

In addition there are two milestone performance payments of 500 million shares, as the company achieves future production targets. The proposed equity issues and cash payments will be reduced proportionately in the event that Monitor takes up an interest less than 90%.

www.monitorenergy.com.au

http://www.traderdealer.com.au/Fundamentals/mhl

This recent contract win extends the long standing relationship between Ergon Energy and Thiess Services.  David Saxelby, Thiess’ Managing Director, said that Ergon Energy was a key strategic client and the company was excited about the opportunity to expand its service offering to these growth regions.

“I am delighted we have the opportunity to build on our solid, six year relationship with Ergon Energy and are keen to work more closely with them to deliver their vision of providing increased services to these regional communities” he said.  Thiess Services, has a national electricity distribution capability and is leading the way in areas of safety, technical training, project management and resource flexibility.  The company is ready for the new challenge, according to Thiess Services Executive General Manager,  Michael Wright.

“This contract will enable us to expand our presence in regional Queensland, and extend our current service offering. We will continue to provide the high standards of safety and service delivery that we have been able to achieve and sustain,” “Overall, we’re excited about this opportunity with Ergon Energy to help make a difference for regional people and their communities in Queensland, during this period of regional growth and development.”

www.leighton.com.au

http://www.traderdealer.com.au/Fundamentals/LEI

Jan du Plessis, chairman, Rio Tinto and Xiong Weiping, president, Chinalco, and chairman and chief executive officer, Chalco today attended a signing ceremony in the Great Hall of the People in Beijing. Government officials from China, Guinea, the United Kingdom and Australia were represented at the event.

Mr du Plessis said: “Developing our relationship and business links with China is a key priority for Rio Tinto. This agreement takes our relationship with China and our largest shareholder Chinalco to a new level, building on a line of successful partnerships between Rio Tinto and China dating back to the start of the Channar iron ore joint venture in the Pilbara a generation ago. The formation of partnerships is integral to our business engagement with China. We are confident that the knowledge and experience gained from these other ventures will help make this joint venture our most successful yet undertaken with a Chinese partner.”

Mr Xiong said: “The establishment of a joint venture will make use of Chinalco’s advantages in the infrastructure field and its profound understanding of the Chinese market as well as Rio Tinto’s technologies and experience in the operation of large mining projects, so as to form a complementary and powerful union. We believe the successful development of the Simandou project will greatly quicken the pace of local infrastructure construction and economic development. This project can also efficiently balance China’s need for security of supply on the global iron ore market. We expect the two sides will regard cooperation on the Simandou project to be the foundation for further pushing forward the cooperation of these two companies in other resource projects.”

Tom Albanese, chief executive, Rio Tinto said: “We are excited about formalising our partnership with Chinalco through its subsidiary Chalco. Rio Tinto, Chinalco and the IFC together form an extremely strong development team. We expect to realise great economic and social benefits for the people of Guinea from the development of the Simandou project. This is a world-class iron ore project. We firmly believe this agreement will deliver great value for our shareholders. We remain committed to continued engagement with the Guinean Government and other key stakeholders. We continue to invest funds to keep this important project moving forward and anticipate mining operations would start within five years.”

Luo Jianchuan, president, Chalco, said: “This transaction is consistent with the company’s development strategy to seek development opportunities in the mining industry and to seek high-quality overseas mineral projects. We hope Chalco and Rio Tinto can join efforts to enable the Simandou project to be put into production according to the development schedule reached by the two sides, so as to bring huge value to all related parties.”

Under the terms of the agreement, Rio Tinto’s 95 per cent interest in the Simandou project will be held in the new JV. Chalco will acquire a 47 per cent interest in the new JV by providing US$1.35 billion on an earn-in basis through sole funding of ongoing development work over the next two to three years. Once Chalco has paid its US$1.35 billion, the effective interests of Rio Tinto and Chalco in the Simandou project will be 50.35 per cent and 44.65 per cent respectively. The remaining five per cent will be owned by the International Finance Corporation (IFC), the financing arm of the World Bank.

Both Rio Tinto and Chalco are keen to progress the project as soon as possible and are working with all stakeholders to expedite the process. The formation of the JV will be finalised in consultation with the Guinean Government and following satisfaction of various regulatory requirements.

www.riotinto.com

http://www.traderdealer.com.au/Fundamentals/rio

US and Europe Give Negative Lead for ASX

U.S. stocks traded lower, while European markets halted a six-day rally.  The U.S. market was lower across the board.  Asian markets buck the trend to the positive. Our markets will likely see further profit-taking today.

The SPI Futures is above the key level of 4400, the ASX is set to open lower as the SPI Futures closed down -0.5% (or -23 pts) at 4,485. Home buyers are likely to be spared an interest rate rise from next Tuesday’s Reserve Bank board meeting. Key levels today are 4550 and 4450, with pivot around 4500. M&A activity continues to drive specific stocks.

US Markets

The S&P 500 remains above the key 1100 level, but traded lower, weighed by Fed’s Beige Book reporting economic conditions though still improving in most of its 12 regional districts, advances were modest, with retail sales posting only small gains, housing and construction still weak; sentiment also weighed by data showing demand for durable goods slid for second month in June. The U.S. Commerce Department’s durable-goods report showed that orders and shipments for nonmilitary capital goods excluding aircraft climbed 0.6 percent in June. Nine of 10 industries sectors in the S&P 500 fell after orders for U.S. durable goods dropped 1 percent in June, due to a falling demand for aircraft, government data showed. The Fed also added to the negative sentiment saying that U.S. economic growth slowed in some areas over the past two months, dragged down by commercial real estate and the expiration of a tax credit for home buyers.

The Dow closed down -0.4% (or -40 points) at 10,498, while in the broader market the S&P 500 index down -0.7% (or -8 points) at 1,106 and the tech-heavy Nasdaq ended down -1.0% (or -24 points) at 2,265.

European Markets

European stocks traded lower.  In the U.K. stocks declined the most in more than a week after some disappointing earnings reports.  In London the FTSE 100 index closed down -0.9% (or -46 points) at 5,320, the German DAX down -0.5% (or -28 points) at 6,179.

Asian Markets

Asian markets rose again.  In China the Shanghai Composite Index of equities jumped to a two-month high as the central bank said China’s economic fundamentals are “good”.  Economic data reported by the statistics bureau showed profits of Chinese industrial companies in 24 regions jumped 72 percent to 1.61 trillion yuan ($237.5 billion) in the first half of 2010 from a year earlier.  Industrial metals prices rose on the back of this.   The Chinese index is up 11 percent from its yearly lows, as the jump in industrial profits and the prospects for increased spending and tourism boosted the domestic economic outlook. Japan is also in focus this week with the reporting season starting off well, sending the index to its biggest gains in 3-weeks.  The Yen reached its lowest level against the Euro since May, this helped exporters rise around 5 percent, Banks rise around 3.5 percent after  Basel Committee eases capital assessment stance and Property developers rose.  In China the SSE Composite closed up 2.3% (or 58 points) at 2,634, while in Hong Kong the Hang Seng Index was up 0.6% (or 118 points) at 21,091 and in Japan the Nikkei 225 Index was up 2.7% (or 256 points) at 9,753.

Commodities

The Dollar Index down marginally -0.1% at 82.13 on higher Euro, while the Australian Dollar last traded lower at 89.08. Commodities were generally higher.  The US dollar slipped versus the yen on the back of an unexpected drop in American durable-goods orders further added to evidence the economic recovery is slowing.

Oil prices eased to a 1-week low as  government data showed an unexpected gain in U.S. inventories.  The benchmark crude NYMEX for September delivery was down -0.7% (or $US-0.51) to settle at $US76.99. Copper continued to shine rising to an 11-week high on signs growth is sufficient in China and the U.S. to spur demand. Copper prices are trading well above the key $US3.00 a pound, Copper for September delivery delivery  was up 1.2% (or 4.0 cents) at $US3.2455 a pound, the highest settlement price since mid-May.  Gold rose, with August gold up marginally 0.2% at $US1,160.40 0 an ounce.

Key News International Drivers Today

US –  S&P 500 companies continue to report earnings this week.

US and Europe Give Negative Lead for ASX

ASX News Today

The SPI Futures is above the key level of 4400 the ASX is set to open lower as the SPI Futures closed down -0.5% (or -23 pts) at 4,485. Home buyers are likely to be spared an interest rate rise from next Tuesday’s Reserve Bank board meeting. Key levels today are 4550 and 4450, with pivot around 4500. M&A activity continues to drive specific stocks.  Investors will digest the impact of the surprise CPI report from yesterday. The RBA are due to decide on interest rates on Tuesday, and are now expected to leave interest rates on hold, after the closely watched underlying rate of inflation slid to 2.7 per cent, the first time it has been below 3 per cent and within the Reserve’s target band for three years.  Also on the jobs front Australia created 45,900 jobs in June, the 11th successive month in which employment has climbed, however almost all of the jobs created in June were in the mining dominated states of Western Australia and Queensland.

ALS- Alesco dissapoints again with another annual net loss of $123.4 million and says it remains cautious about the next 12 months.

ARD- Argent Minerals will undertake a capital raising to fund its $5.3 million purchase of the Bullant underground gold mine in WA.

BSL- BlueScope Steel and Japan’s Nippon Steel Corporation have signed a long-term joint technical collaboration agreement to develop next-generation coated steel products.

CFU- Ceramic Fuels Cells reported that Canberra Institute of Technology (CIT) is to install its gas-to-electricity BlueGen power generating unit.

DOW- Downer the engineering firm said it secured contracts worth $2 billion with a coal mining venture of BHP and Mitsubishi Development. Shares rose 5.9%.

LGL- Lihir the gold producer says June quarterly production is in line with guidance and up six percent on the previous quarter.

MCC- Macarthur Coal says it has achieved a sales record for fiscal 2010 up 15.3 percent, form increased production, improved economic conditions and a sell down of coal stocks, however there was a lagging performance in the June quarter.

NCM- Newcrest planned $9.5 billion Lihir merger is on track.

QR  – Queensland Rail the coal and freight rail operator QR National is on track for fourth quarter this year, the biggest float since Telstra’s T1 in 2007.

RIV- Riversdale Mining the Mozambique-focused coal miner says sales have increased by 51 percent, although production dropped in the June quarter due to excessive water and gas in the main mine shaft.

RXM- Rex Minerals says its Hillside project in South Australia could become one of Australia’s largest copper mines. Ongoing drilling success at Hillside could see with drilling has the potential for the project rank behind BHP’s Olympic Dam mine in SA and Xstrata’s Mount Isa operations in Qld. Shares were up 8.7%.

SIP- Sigma the beleaguered drugs maker and distributor has appointed Jeff Sells as CFO.

TLS- Telstra has been fined $18.5 million for illegally blocking broadband competitors from using its local exchanges.

WDC- Westfield the world’s largest shopping center owner will pay a distribution of 32 cents/share for the six months to June 30.

WPL-Woodside workers are being prosecuted over a strike at the Pluto gas project in WA and face fines totaling more than $40 million. Woodside has taken the action over an eight-day strike in January at the $12 billion Pilbara project.

Economic Reports :

Market Summary

US ADRs –  Broadly Lower!!!…

Discount : 7.1% Liquidity : Poor Profitability : Ok  Stability : Poor

* Note: Discount is based on the closing price on the 28 July 2010.

The contracts provide better utilisation of equipment and resources across both mine sites and will result in substantially improved productivity and returns for Downer.  New equipment for the contracts totalling approximately A$190 million will be deployed progressively over the coming 12 months and funded primarily through operating cash flow and new finance and operating leases.  Downer has ample funding capacity for the BMA contracts and also the Fortescue Metals Group contract at Christmas Creek for which Downer is preferred bidder. Downer will remain well inside its target leverage range of 25% – 35%. Downer is rated investment grade BBB- (stable outlook) by Fitch Ratings.

www.downeredi.com

http://www.traderdealer.com.au/Fundamentals/dow