Battery metals provide new proof of all that glitters is not gold

The past and the future collided at this week’s Diggers & Dealers mining forum in the outback WA city of Kalgoorlie with of iron ore and gold challenged for top dog status by the fast-growing crop of “green” metals
5th August 2021
Tim Treadgold

Three speakers highlighted the story of yesterday’s investment winners, and tomorrow’s likely winners.

Bill Beament, a flag-carrier for gold over the past decade, turned critic when he unveiled the new name for his copper and battery metals focused business, Develop, saying that “gold is not green, sorry but it’s not”.

Ken Brinsden, who first made his name in iron ore, cemented his lithium leadership role, explaining how demand for the battery metal was starting to over-power supply which is why the company he runs, Pilbara Minerals, was able to sell a spot cargo of spodumene for an eye-watering $US1250 a tonne, close to double the price of 12-months ago.

Jake Klein, long-term executive chairman of Evolution Mining, pushed the case for gold while finding time to criticise “new” metals linked to the theme of decarbonisation, saying they were being priced like internet companies, without seeming to appreciate that there’s a reason for the high prices: it’s all about future earnings growth.

To understand the power of future earnings over historic earnings, an investor need only look at Amazon, which was trading at $US8 in 2001 and last sold in New York at $US3354, or Tesla, a $US42 stock two years ago, now trading at $US710.

Beament, Brinsden and other converts to metals with green credentials have made their moves because of the growth potential, whereas gold and iron ore have reached a peak, or seem to be close to it.

Klein, and another big-name speaker at the conference, the chief executive of Fortescue Metals, Elizabeth Gaines, were in the unusual position of playing second fiddle to the speakers representing battery and technology metals.

Gold and iron ore had their supporters, but a simple share-price test showed who was on top this week. Pilbara Minerals added 14c to $2.05 and Venturex (to be renamed Develop) was up 2c to 81c. Evolution, on the other hand, slipped 4c lower to $4.22 and Fortescue slumped by $2.96 to $23.36.

Most other iron ore stocks were also sold down as the reality of a well-supplied market became more evident, with inventories reported by UBS to be rising at Chinese ports and steel demand slowing.

Iron ore’s biggest producers were buffeted by the overdue turn in the market. Rio Tinto lost $3.24 to $132.97. BHP was down 91c to $53.19. Mt Gibson fell by 8.5c to 79c and Fenex shed 8c to 34c.

Warning bells have been ringing for the past few months that the iron ore party is wrapping up after a stellar two years, but the outlook is not for a crash, more a gentle slide back to realistic prices.

Morgan Stanley described the iron ore situation as a “return to earth”. The bank expects the price to average $US200 a tonne in the current quarter before a fall to $US160/t in the December quarter – a price which will still leave all Australian producers handsomely in profit.

J.P. Morgan is more cautious, saying that its analysts expect prices to consolidate around the current level of $US180/t before heading for $US172 towards the end of the year and $US150/t next year.

Mineral Resources made iron ore news for three reasons during the week, with a $400 million investment in the promising but dormant West Pilbara iron ore project, followed by a thumping share price fall of $4.47 to $59.43, and another enthusiastic buy tip from Macquarie, which is sticking to its ambitious $75 price target for the stock.

Copper stocks had a mixed week as the price of the metal struggled to regain support despite optimistic analysis by Citi, which reckons the fall to $US4.33 a pound could be the low point, with a return to $US5/lb expected in the next three months.

Sandfire, which topped copper interest at Diggers & Dealers thanks to a well-received presentation from chief executive Karl Simich, added 9c to $7.12 whereas OZ Minerals lost $1.45 to $22.63.

Citi based its forecast of a rising copper price on an end to the flood of negative events such as speculative selling, State-sanctioned Chinese selling, supply-chain de-stocking and Chinese Government policy tightening.

“Copper is on track to retrace its February highs and we forecast another 10%-to-12% rally in prices to $US5/lb over the next three months,” Citi said.

Rare earth stocks continued their run, led by Lynas, which rose by 14c to $7.52, and a newcomer, Australian Rare Earths, which added 3c to 77c, more than double its 30c float price of just five weeks ago, thanks to interest in a potentially low-cost, clay-based, discovery near the South Australian/Victoria border.

Most lithium stocks followed the lead set by Pilbara as the market continued to digest the remarkable price achieved for a cargo of spodumene with a newcomer, Essential Metals, adding 1c to 14c even as its raised $5 million in fresh capital at a price of 12.5c a share.

Gold stocks, overall, were mixed as the price of the metal bounced between $US1810 an ounce and $US1830/oz with the peak appearing to be linked to fresh Iranian attacks on oil tankers in the Persian Gulf.

Solid upward moves were made by Bellevue, which added 6c to $1.07. Capricorn, up 6c to $2.17, and Gold Road, which rose by 4.5c to $1.38.

Macquarie Bank analysts are uncertain about the outlook for gold which, in theory should be rising as U.S. interest rates continue to fall with the 10-year Treasury Inflation Protected Securities (TIPS) rate sliding to an all-time low this week of minus 1.2%.

“The commodity strategy team believes that gold’s problem remains the lack of a compelling narrative,” Macquarie said. “For gold to move up towards $US2000/oz, it probably requires either a repricing of sustained inflation risk, or significant deterioration in the outlook for growth and, hence, nominal interest rates.”

 

Other news and market events this week, mainly capital raisings, included:

  • Resolute Mining added 5c to 58c after reporting the sale of the Bibiani gold mine in Ghana for $US90 million.
  • Mincor reported a third high-grade nickel intersection from drilling at its Golden Mile project near Kambalda with a best hit of half a metre at 6.3% nickel. The stock traded up to a 12-month high of $1.36 before profit takers took it back down to $1.24, off 2c over the week but still up 23c over the past month.
  • Hot Chili welcomed mining and commodities giant Glencore as a strategic investor with a 9.99% stake acquired for $14.4 million. The stock is suspended pending a broader capital raising but last traded at 3.6c
  • Peak Resources raised $29 million for its Tanzanian rare earth project. It was down 0.7c at 11c before trading was suspended ahead of the capital raising announcement.
  • Rex Minerals slipped half-a-cent lower to 36c ahead of a $50 million capital raising to fund pre-development work at its long-delayed Hillside copper project in South Australia.
  • Poseidon raised $22 million for work on its Black Swan nickel project. On the market the stock slipped 1c lower to 11c, the same price as the fund-raising.
  • Alicanto reported high-grade silver and zinc assays from the first hole drilled at its Sala project in Sweden with assays as high as 7.7% zinc, plus 9 grams of silver a tonne over 3.8m from a depth of 572. On the market, the stock slipped half-a-cent to 14c, and
  • Deep Yellow lost 4.5c to 67c despite reporting reported thick intersections of uranium rich material from drilling at its Barking Gecko project in Namibia, including 8m at 561 parts per million of uranium from a depth of 90m, and 21m at 901ppm from 199m.

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