Albemarle's fat cheque re-charges lithium sector but ongoing trade worries hit most other resource stock

23rd November 2018
Tim Treadgold

Lithium stocks woke with a jolt yesterday after the big American chemical maker Albemarle Corporation agreed to pay whopping $1.58 billion for a half-share in the Wodgina project of Mineral Resources, potentially leading to a significant re-rating of the broader new-energy sector.

Until Albemarle and MinRes announced their deal, the overall tone of the resource sector of the ASX was flat, at best.

Gold stocks were holding up as a sell-off in tech-stocks rattled the US market but everything else was coloured red by the deep uncertainties surrounding the China v US trade war.

Good news, apart from what happened early yesterday with MinRes and Albemarle, was hard to find locally. But for an investor with global scope, there was something interesting happening to three companies listed in London with close Australian connections.

SolGold, a Brisbane-based but London-listed copper explorer, added 3-pence (8.5%) to 38p after reporting a doubling in the resource at its already world-class Alpala project in Ecuador. BHP and Newcrest are big shareholders in SolGold.

Greatland, which is active in the red-hot Paterson Range area of WA, added 0.5p (46%) to 1.58p on the London market after reporting encouraging drill results from its Havieron prospect near Newman. The best intersection included an eye-catching 275 metres at 4.77 grams of gold a tonne plus 0.61% copper.

Sirius, a potash-project developer, was the third Aussie-connected London mining stock to move higher this week, though only with a modest 1p rise to 23p. What maintains interest in Sirius is a heavy financial commitment to the stock by Australia’s richest person, Gina Rinehart.

Closer to home, the ASX was largely a graveyard for much of the week, until the Wodgina deal was announced, with MinRes the major beneficiary as its shares jumped by 28% to $15.93.

Investors in other lithium-exposed stocks are yet to react fully to the importance of Albemarle’s investment in the Pilbara lithium sector, with the big American company preferring until now to focus on its Greenbushes lithium mine in the south of WA.

Putting a foot on Wodgina and striking a deal with MinRes could mean that Albemarle will eventually emerge as the king of Pilbara lithium thanks to its technical knowledge of the complex chemical processing required to maximise value in lithium.

The deal could turn out to be the first move by the US company to stitch-up effective control of a large portion of Australia’s lithium industry, beating off Chinese involvement and the proposed entry of Chile’s lithium leader, SQM.

The value placed by Albemarle on a half-share of Wodgina is remarkable because all of MinRes, before the deal was announced, was worth $2.34 billion, which means its stake in Wodgina represents more than half the value of the parent, which also has a big engineering and construction business, along with iron ore mines.

Pilbara Minerals and Altura Mining, which has lithium mines close to Wodgina, saw an immediate beneficial flow-on from Albemarle’s entry into their backyard. Pilbara added 5c (6.8%) yesterday to 84c – though over the week the stock was only 1c ahead. Altura also crept up by 1c to 22c.

Other lithium stocks posted equally modest moves after a deal which might reasonably have been expected to be an industry-wide event. Kidman, which is close to SQM, added 4c to $1.30. Orocobre fell 20c to $4.50 and Galaxy put on 8c to $2.69.

Among the gold stocks, the best performers were Saracen and Bellevue, which both touched 12-month share-price highs during the week. Saracen traded up to $2.67 early yesterday before easing to close at $2.62 for a gain of 18c. Bellevue reached its high of 53c on Tuesday before easing to 46c to be exactly where it started the week.

Other newsworthy events which moved the market, up or down, included:

  • Stanmore Coal earned the dubious distinction of being the first Australian coal miner for a long time to cop a takeover bid with a 95c cash offer for the stock, which had been trading at 87c. There are interesting aspects to the bid. Firstly, it came from an Asian group which believes in coal even if Australian investors do not. Secondly, it will have to be topped up because Stanmore has risen to $1.02, and thirdly, Bell Potter, a stockbroking firm reckons the company is worth at least $1.20.
  • Todd River Resources secured a strategic shareholder to help with its Mt Hardy zinc and copper project in the Northern Territory. S2 Resources, a well-connected and well-managed explorer, took a 19.99% stake in Todd River at a price of 9c a share. On the market, Todd River added 1.3c to 9.3c while S2 slipped half-a-cent lower to 9.5c.
  • OZ Minerals earned plenty of media and investment bank attention with a site visit for analysts to its Carrapateena and Prominent Hill assets in South Australia. Investors were less enthusiastic, rubbing 16c off OZ’s share price to $8.84 despite Credit Suisse tipping a future share price of $9.50.
  • Evolution announced the expansion of its Cowal goldmine in NSW and a number of promising nearby exploration discoveries, only to be greeted with a modest 7c share price rise to $3.18.
  • Aeon Metals reported additional discovery news from its Marley prospect within the Walford Creek copper project in Queensland with a best hit of 53 metres at 1.21% copper and 0.13% cobalt starting at a depth of 226m. On the market, Aeon was steady at 26c.
  • Danakali, the emerging potash producer, announced that United Nations sanctions on its host country of Eritrea had been lifted, which should help clear the way for the development of the Colluli project. The market was unimpressed, with the stock shedding 3c to 79c.
  • PolarX had fun with a report announcing high-grade copper and gold assays from its Mars prospect within the greater Alaska Range project, telling the market that it had discovered copper and gold “on Mars.” The joke fell flat as did PolarX’s share price which remain stuck at 7c.

Image via The West Australian

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