COVID breathes new life into iron ore price as lithium stocks charge up

Brazil’s descent this week into a full-blown Covid-19 crisis should ensure ongoing super profits for Australia’s iron ore miners as the price of the steel-making material rises back above $US170 a tonne.
9th April 2021
Tim Treadgold

Brazil’s descent this week into a full-blown Covid-19 crisis should ensure ongoing super profits for Australia’s iron ore miners as the price of the steel-making material rises back above $US170 a tonne.

The potential for continuing Brazilian supply shortfall, when combined with strong worldwide demand for steel, could easily see iron ore challenge last month’s near-record high of almost $US180/t.

What’s happening in iron ore was not expected. Most investment banks had been forecasting a price fall as supply rose and Chinese steel demand peaked.

That might still happen later this year, though the latest forecasts, which include a number of significant price upgrades, are based on a stronger-than-expected recovery in non-Chinese steel demand and ongoing supply tightness as Brazil struggles with a national health disaster.

Rounding off a perfect storm for iron ore is the potential for shipments from WA to be delayed as a pair of tropical lows morph into late season cyclones which could restrict ship movements in northern waters.

RBC Capital Markets is the latest bank to report on the iron ore price surge, with credit for the increase largely assigned to rising steel prices in China.

Macquarie Bank had earlier told clients that the iron ore market was likely to remain in deficit even if supply from Brazil recovers.

Capping off the latest round of iron ore market comments was an upgrade in price forecasts from the ratings agency, Standard & Poor’s, which lifted this year’s price tip from $US100 a tonne to $US130/t and next year’s prediction from $US80/t to $US100/t.

None of the latest bank projections appear to take into consideration the sharp increase in Covid-19 infections and deaths in Brazil, or the political upheaval which has seen Ministers sacked by controversial Brazilian President, Jair Bolsonaro.

The impact of the sudden change in iron ore dynamics could be measured in local share prices, with Mt Gibson up 8c to 85c in the shortened post-Easter trading period. Champion Iron added an eye-catching 42c to $6.03, and Fortescue rose by 61c to $20.83.

Iron ore was not alone in staging a strong rebound. Lithium and other battery metal stocks reacted positively to the latest electric vehicle sales data and encouraging exploration news put a spring under the small end of mining.

Oil and gas, a sometimes-overlooked sector, continues to recover with Canaccord Genuity singling out five local stocks for buy recommendations as the global economic recovery lifts fuel demand.

Beach, according to Canaccord, is heading for a target price of $1.91, up 13c on last sales at $1.73. Senex could add a mouth-watering $1.90 from its current $3.01 as it heads for a target of $4.90. Carnarvon could rise from 26c to 42c. Galilee could rise from 74c to 83c, and Warrego could rise from 25c to 40c.

Pilbara Minerals led the way among lithium stocks with a rise of 8c to $1.15 but the more important development was a fresh upgrade of the lithium market by the leading investment bank, Goldman Sachs.

According to Goldman Sachs the price of spodumene concentrate will rise from its current $US449 a tonne to $US516 by June and then up to $US594 in the September quarter, ending the year at $US644/t – before powering ahead to $US707/t by 2023.

Lithium hydroxide, one of the part-processed forms of the key ingredient in EV batteries, should rise from its latest price of $US9700/t to $US12,274/t by the end of the year, a forecast rise which caused Goldman Sachs to make Mineral Securities its pick of the lithium stocks with a target price of $45, up more than $4 on last sales at $40.82.

In a separate lithium development, Rio Tinto became the first of the major miners to declare its interest in becoming a producer of the lightweight metal by re-processing waste rock at its Californian borates mine, which has the best part of 100 years of stockpiled material to treat.

Gold stocks, which have struggled to gain ground after last month’s price plunge below $US1700 an ounce, had a solid week as the price moved up to around $US1736/oz and interest returned to precious metals as hedges against inflation.

Macquarie Bank reminded investors last week of the potential effect of inflation on gold and the latest comments from U.S. investment banks is that inflation pressure is building as the U.S. government unleashes a whopping economic stimulus program.

Gold winners this week included Silver Lake which rose by 19c to $1.68. Evolution, up 35c to $4.35 and Northern Star, up $1.27 to $10.77, a rise which comfortably outstrips the underlying gold price and might point to an international gold major building a stake in the stock.

Nickel producers continued to shake off the effects of an 18% fall in the price of the metal after a Chinese stainless-steel maker said it had found a new way to upgrade nickel ore into battery grade material.

Independence Group, which is plunging deep into battery metals, added 30c this week to trade at $6.55. Western Areas put on 18c to $2.24 and Mincor crept up by 1c to 98c.

Greenland Minerals was the star of the rare earth sector, for the wrong reason. It plunged by 50.5% from 18c to 8.9c after reports that a left-learning, anti-mining party had won a general election in Greenland, a political development which could kill plans to mine the Kvanefjeld rare earth and uranium project.

Lynas, the local rare earth leader, was a winner from the Greenland election, rising by 34c to $6.40. Other rare earth stocks were largely unmoved.

Exploration news was a highlight of the week with strong reports received from:

  • Antipa Minerals came close to doubling with a rise from 2.7c to 5.1c after reporting encouraging assays from drilling at its 100% owned Minyari and Waca projects in WA’s Paterson Province with a best hit of 12.35 grams of gold a tonne (plus 0.06% copper) over 5.35 metres from a depth of 311.65m – with a 1m core assaying 65.4g/t of gold.
  • New World Resources added 2.2c (29%) to 9.8c after reporting high grade drill results from the latest work at its Antler project in the U.S. with a best assay of 5.2% copper equivalent over 25.4m from a depth of 271m.
  • Chalice Mining surged to new a new all-time share price high of $6.26 in early trade yesterday as international interest builds in its Julimar palladium and nickel discovery close to Perth. At the close, Chalice was back down to $6.23 for a week’s gain of 88c.
  • Ionic Rare Earths rose by 0.6c to 5.7c after signing a development deal for the Makutu project in Uganda with China’s Chinalco.
  • Aurelia Metas said it had shifted its Federation Gold project in NSW to the feasibility stage, a move which helped lift the stock by 2c to 40c.
  • Los Cerros added 5c (33%) to 20c after reporting a shopping 582m drill intersection assaying 0.94g/t of gold at its Tesorito project in Colombia in what it calls a globally significant discovery.
  • Perseus reported a series of encouraging assays from exploration work near its Yaoure gold mine in Ivory Coast, including 93m at 2.74g/t and 65m at 2.73g/t. On the market, the stock added 9c to $1.19.
  • Canadian listed Karora rose by C30c to $C3.82 on the Toronto stock exchange after reporting a high-grade nickel assay from drilling at its Beta Hunt project in WA with a best assay of 4.6m at 11.6% nickel.
  • Capricorn Metals added 20c to $1.60 after Macquarie Bank told clients that construction of the Karlawinda gold project was nearing completion, and
  • Liontown reported that a definitive feasibility study into its Kathleen Valley lithium project in WA is on track for completion in the final quarter of the year. On the market, the stock added 4c to 46c.

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