Boom moves to the boardroom as gold and iron ore prices continue rising

A flood of cash and a hotly contested takeover were the highlights of a week which saw a significant shift in market action with more happening in boardrooms than in the field
17th July 2020
Tim Treadgold

A flood of cash and a hotly contested takeover were the highlights of a week which saw a significant shift in market action with more happening in boardrooms than in the field as prices for gold and iron ore headed for the ceiling, and beyond.

Cardinal Resources, an Australian company operating in West Africa, has emerged as a target of competing bids from Chinese and Russian goldmining companies.

In what could be a pointer to the next phase of the gold rush, Cardinal shares rose to a three-year high of 70c and seem likely to keep moving up as Shandong Gold and Nordgold fight for control of a stock which four months ago was trading at 25c.

Both Shandong, which is China’s second biggest gold producer and Nordgold, which has operations in Russia and Kazakhstan, have been busy this year adding to their stakes in Cardinal, which is developing the 5.1 million-ounce Namdini goldmine in Ghana.

Last month Nordgold launched a bid for Cardinal price at 46c a share. Shandong replied with an offer at 60c – only to be topped on Wednesday with a revised Nordgold offer of 66c.

With gold continuing to edge higher after clearing the $US1800 an ounce mark last week, and seemingly on track to pass its all-time high set in 2011 of $US1921/oz what’s happening at Cardinal could be a pointer to the next phase of the market – a feeding frenzy.

SolGold, the Australia-based, London-listed copper and gold explorer with its best assets in South America, is also emerging as a takeover play with one of its major shareholders moving to “spill” the board over disputed corporate issues. In London, SolGold shares added 2 pence this week to trade around 22.3p.

Investors are certainly keen to buy a seat at the table, scrambling for a slice of multiple share issues, attracted by the appeal of exploration and development success, and now the new game in town: takeover action.

This week’s successful capital raisings included:

  • Genesis Minerals getting $9.5 million in an oversubscribed one-for-six rights issue to pay for the fast-tracking of exploration projects.
  • Ardiden attracting $4.5 million for work on its Pickle Lake gold project in Canada.
  • Marmota receiving $6.5 million for work on its Aurora Tank discovery in South Australia’s Gawler Craton.
  • Black Cat Syndicate issuing $10 million in new shares to fund work on its Bulong gold project east of Kalgoorlie in WA.
  • Caravel Minerals raising $1.65 million for exploration work on its WA tenements.
  • Navarre Minerals receiving binding commitments from investors for $8 million to fund work on its Victorian gold projects.
  • Venturex closed its share-purchase plan oversubscribed after raising $2 million.
  • Gateway raising $7 million to accelerate work on its Gidgee project in WA, and
  • Duke Exploration reportedly seeking $10 million ahead of an August listing on the ASX.

These latest share issues follow a trend which has been emerging for several weeks with some of the bigger injections of fresh capital, including Bellevue’s $120 million raising to fund mine development work and Bardoc’s $24 million for front-end engineering work at its namesake gold project.

Optimism about the outlook for gold reached a high mid-week when a portfolio manager from Canada’s leading gold investment house, Sprott Asset Management, told a webcast conference that gold stocks where only just edging up from record lows that did not reflect an underlying “unbelievably health sector”.

Macquarie Bank was more cautious, telling clients that the gold price had been capped at around $US1813 an ounce thanks to stronger-than-expected Chinese trade data which pointed to increased demand for industrial metals.

By the close of trading on Thursday, it was Macquarie’s view which won the debate with most gold stocks easing a few cents or closing where they had started the week.

Newcrest lost 50c as it eased back to $32.79. Northern Star was steady at $14.77, but down 23c on its Wednesday high of $15, and Saracen slipped 43c lower to $5.83.

Iron ore followed Macquarie’s assessment, rising to a high for the year of $US112.50 tonne, and driving up the share prices of leading producers such as BHP and Rio Tinto but with Fortescue Metals getting the biggest boost with a rise over the week of 8.23% to $16.16 – down slightly on the 12-month high of $16.20 reached in early Thursday trade.

The continued strength of the iron ore market is making life difficult for investment bank analysts who are struggling to keep up with the market, as a Tuesday research note from J.P. Morgan illustrates because while the bank likes the sector, the latest prices “have pushed through our net present value estimates”.

Fortescue, for example has an NPV of $15 according to J.P. Morgan, $1.16 below latest sales, and Mineral Securities has an NPV of $19, a whopping $4.51 below last sales at $23.51.

Fear of inflation and long-term ultra-low interest rates are driving gold whereas the industrial metals are winning from a combination of Chinese growth and continued Covid-19 outages events, especially in South America.

S&P Global markets estimated during the week that pandemic disruptions have eliminated $US8.8 billion in mineral and metal production with 275 mines in 36 countries effected by the disease.

J.P. Morgan said iron ore was continuing to benefit from disruptions in Brazil while copper had risen to around $US2.90 a pound thanks to mine slowdowns in Chile. Four months ago, copper was trading at $US2.05/lb.

Lithium, a long-overlooked metal, was also starting to show signs of a sustainable recovery and the benefits of Tesla’s success in the electric vehicle sector. “No-one really doubts the demand picture (for lithium), it’s just taking time,” said J.P. Morgan.

Among the local lithium leaders, Pilbara Minerals added 2c to 31.5c. Galaxy rose by 7c to 88c, and Orocobre gained 15c to $2.72.

Other noteworthy events during the week, and market moves (which were generally modest), included:

  • DGO Gold added 45c to $3.34 after reporting a new way to explore by striking a deal to invest $4 million for a 40% stake in nine gold targets in WA’s Yilgarn region which it said had been identified using a computerised artificial intelligence system developed by SensOre called Discriminant Predictive Targeting.
  • Stavely added 1c to 68c after reporting encouraging copper and gold assays from the latest drilling at the Cayley Lode in its Thursday’s Gossan project in Victoria, including 30m at 1.98% copper from 212m, 19.9m at 2.4% copper from 214, and 11.8m at 1.54% copper from 87m.
  • Bardoc Gold added 1.2c to 9.8c after reporting an exceptional intersection of 37m assaying 6.21 grams of gold a tonne from a depth of 90m at its Aphrodite project in WA.
  • Whitehaven Coal added 11c to $1.60 in a sign that the coal sell-off might be coming to an end. Credit Suisse reckons the stock is heading for $2.25.
  • Talisman added 3c to 17c after it reported the return of Kerry Harmanis as non-executive chairman.
  • Toro Energy continues to move up as it accelerates a shift away from uranium to nickel exploration, adding 0.4c to 1.3c after reporting encouraging drill results from its dusty project in WA’s Yilgarn region, and
  • Pantoro reported a solid quarter of gold production, delivering 9586 ounces at an all-in sustaining cost of $A1578/oz, only to slip 2c lower on the market to 24c.

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