Chile unrest warms up copper as gold edges higher on more political uncertainty

Gold recovered a little lost ground this week but the more important development was a double-dose of “outage” events in South America
25th October 2019
Tim Treadgold

Gold recovered a little lost ground this week but the more important development was a double-dose of “outage” events in South America which reinforced the investment case for copper and iron ore.

Industrial and civil unrest in Chile and Peru, two of the world’s major copper producing countries, lifted the copper price by US8 cents a pound to $US2.64/lb, its highest for six weeks – even as underlying demand remained flat thanks to the US v China trade war.

The effect of the South American troubles could be seen in the share prices of local copper stocks, led by OZ Minerals, which added 58c to $10.06, followed by Sandfire, which was up 18c at $6.28 in early trade before fading to close steady at $6.04,

Iron ore’s South American free kick came in the form of fresh tailings dam trouble for Brazil’s biggest miner, Vale, which looks likely to incur more production cutbacks that are helping Australian iron ore producers such as Fortescue, which rose by 50c to $8.73.

The copper and iron ore boost from production cuts in South America was complemented by solid quarterly news from Australian mines.

Sandfire reported the production of 16,730 tonnes of copper in the September quarter, plus 8647 ounces of gold at a copper equivalent cash cost of US87c. OZ said it produced 24,600t of copper and 30,400oz of gold at a copper equivalent of US83c/lb.

The outlook for copper stocks is brighter than expected thanks to the South American outage events and rather than heading into the New Year with an overhanging surplus of metal, the copper market looks balanced.

Morgan Stanley, an investment bank, said in a copper report released this week that up to 3.5% of global copper supply was currently being effected by strike action and protests which, with other mining issues such as declining overall ore grade, should see copper hang on to a price of $US2.60/lb rather than fall as previously forecast because of a potential 350,000-tonne copper surplus.

Gold, thanks to ongoing political uncertainty in the US and Europe, where the Brexit saga drags on, managed a rise of $US10/oz, putting it back in sight of the $US1500/oz, helping local gold stocks out of the doldrums in which they have been floating for the past month.

A fresh, and astonishingly bullish gold forecast added to interest in the metal when a Swiss gold vault manager, Egon von Greyerz, told a seminar in Sydney that the gold price would reach $US10,000/oz, and perhaps higher thanks to the world’s debt addiction.

The key to his optimistic prediction is a rise in total global debt from $US125 trillion during the global financial crisis of 2008 to $US260 trillion today, an amount which will never be repaid, he said, leaving governments with no option than to print more paper money to “inflate away” the problem.

Solid production and exploration news almost helped put a spring back into gold stocks with notable moves including:

  • Saracen added 43c over the week to $3.77 after reporting strong September quarter production of 96,300oz of gold at an all-in sustaining cost of $A1130/oz - $A1049/oz below the latest Australian gold price of $A2179/oz.
  • Breaker Resources reported the discovery of a large gold anomaly 1.3km south-east of its one million-ounce Bombora deposit in WA. On the market, Breaker rose by 3c to 35c.
  • Independence added 30c to $6.16 after reporting strong September quarter gold production from its part-owned Tropicana mine and its Nova nickel mine.
  • DGO Gold reported encouraging assays from its Black Flag prospect near Kalgoorlie with a best hit of 7.5g/t over 4m. On the market, DGO added 3c to 98c.
  • OreCorp said it had finalised a deal to boost its stake in the promising Nyanzaga gold project in Tanzania, a development which lifted the stock by 3.5c to 40.5c, and
  • Tietto Minerals released fresh assay results from drilling at its Abujar-Gludehi prospect in Ivory Coast with a best hit of 13.02 grams a tonne over 21 metres from a depth of 215m. On the market, Tietto added 3c to 32.5c.

Battery metal stocks, which were looking better a week ago, slipped back into negative territory thanks to sluggish demand, over-production and concern about the potential for one of the world’s mining majors, Rio Tinto, to enter the lithium business by re-treating waste rock at its Boron mine in California.

Galaxy Resources was hit by the tougher outlook, shedding 9c to 83c, a 12-month low, with the bad news compounded by a decision to make a 40% cut in production at its Mt Cattlin lithium mine in WA.

Other lithium stocks were caught in the sell-down with Pilbara Minerals slipping 1.5c to 27.5c while Orocobre lost 7c to $2.30.

The graphite sector was caught up in the negative battery news, led by Syrah Resources, which is scaling back its ambitious Balama project in Mozambique, raising concern about the company’s cash reserves. On the market, Syrah fell by 5c to 39.5c.

Other news and market moves of interest during the week included:

  • Aurelia Metals added 5c to 47c after announcing the appointment of a new chief executive though the real interest could be in ongoing exploration at the Kairos prospect (formerly Peak Deeps) in NSW where assays of up to 3% copper over 25m were reported last month.
  • PolarX said the first hole at its Mars prospect in the Alaska Range project in the US had encountered 400m of mineralised, porphyry-style veining with visual estimates of copper grading between 0.5% and 2.5% over the last 100m. On the market, the stock added half-a-cent to 8.1c.
  • Sipa Resources drifted up by 0.1c to 9.1c after reporting that drilling had expanded the footprint of its Obelisk discovery in WA’s Paterson province with three new copper zones encountered and a hand-held assay reading of 0.9% copper 200m north of previous drilling.
  • Orion Minerals raised $5.5 million through a share issue priced at 2.5c. The funds will be used to push ahead with the bankable feasibility study into its Prieska copper and zinc project in South Africa. On the market, the stock slipped by 0.1c to 2.6c.
  • St George Mining raised $5.7 million through a placement at 15c a share to accelerate work on its Mt Alexander nickel project in WA. The stock slipped 1c lower to 17c, and
  • Vimy Resources said expects to raise $6.9 million through a placement and share purchase plan with the funds earmarked for the Mulga Rock and Alligator River uranium projects. The stock lost 0.7c to 5.2c.

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