Diggers 2020: Gold stocks looking like hard work as attention swings to base metals

A lot was said this week, mainly at the delayed Diggers & Dealers mining forum in Kalgoorlie, but not much changed, except for a smattering of encouraging discovery and project development news.
16th October 2020
Tim Treadgold

A lot was said this week, mainly at the delayed Diggers & Dealers mining forum in Kalgoorlie, but not much changed, except for a smattering of encouraging discovery and project development news.

The hothouse atmosphere of the conference (in a 37-degree hothouse environment of Kalgoorlie at the start of summer) smothered the reality of nervous financial markets praying for an end to the Covid-19 pandemic and that other confidence sapping event, the U.S. Presidential election.

Gold served yet again as a useful proxy for the mood of the broader investment community, essentially marking time with a price which sagged as the week dragged on, opening at $US1928 an ounce before sliding to $US1894/oz – exactly where it was four months ago.

The flat-to-falling gold price took its toll of gold miners despite investor demands for more value-creating corporate deals such as that found in the marriage of Northern Star Resources and Saracen Mineral Holdings. Both stocks have been surging higher all year – but did nothing this week.

Northern Star opened what was essentially a WA-only Diggers & Dealers conference thanks to the State’s hard border at $16.30, fading with the gold price to $16.03. Saracen delivered a similar performance, opening at $6.16 and closing yesterday at $6.01.

Macquarie Bank summed up the gold market in its latest comment on the metal saying that gold would be “stuck in a holding pattern until after the U.S. election”.

The image of markets marking time could also be seen in the share prices of most companies which presented at Diggers & Dealers.

Most lost a little ground with a handful managing to rise a few cents, with a blast from the past leading the way -- Poseidon, a left-over from the 1969 nickel-boom added 1.1c (18%) to 7.1c on solid exploration news from its Golden Swan nickel target inside the broader Black Swan project.

Away from the conference, which was marked by an over-supply of service providers and an under-supply of investors, the big news of the week was a return of trade-war concerns with China reportedly cutting imports of Australian coal, a move which sent a collective shudder through iron ore producers fearful that they will be next for a Chinese burn.

Investment banks doubt that iron ore will become a target because China needs Australian iron ore far more than it needs Australian coal, which is why iron ore company share prices largely shrugged off the speculation.

Fortescue Metals slipped 10c lower over the week but was recovering lost ground late on Thursday, to be almost back to where it started at $16.66. Mount Gibson, which is hoping to extend the life of its high-grade Koolan Island mine, was steady at 72c.

But the most interesting news in iron ore was in the way investors embraced Fenix Resources, a new player in the game with its Iron Ridge project in the Mid-West region of WA.

Fenix has signed a sales deal with China’s Sinosteel group and negotiated port access at Geraldton. On the market, Fenix added 2c to 14c to be exactly double where it was at the end of July.

The other new stock to catch the eye of speculators was Castile Resources, which reported encouraging assays from drilling at its Rover prospect near Tennant Creek in the Northern Territory with a best hit of 13.2 metres at 76.27 grams a of gold from a depth of 519m. On the market, Castile added 6c to 42c, but did trade up to an all-time high of 46c on Wednesday.

It was harder going for pre-Diggers favourites, even the winner of the best emerging company award at the conference, De Grey Mining, lost 11c over the week to $1.28 – a fall of little significance for a stock which was trading at 5c in February before announcing its high-grade Hemi discovery near Port Hedland.

As interesting as gold might be, the commodities which did best this week were copper and nickel, driven by a growing confidence in a global economic recovery next year as the rest of the world follows China’s lead.

Copper, which looks to be catching up to gold as the most closely-followed commodity, moved back above $US3 a pound for the first time in a month, taking local copper miners with it. OZ added 22c to $14.84. Sandfire put on 5c to $4.45 but did reach $4.56 after a well-received presentation at Diggers from chief executive Karl Simich.

Nickel also moved higher, briefly touching $US7/lb, before easing to around $US6.90/lb, to still be US40c/lb up on the price of two weeks ago. Mincor and Western Areas both enjoyed a modest share price bump with rises of 1c and 3c, respectively.

Battery metal stocks continued to build on the base established by Tesla boss, Elon Musk, who said he wants lots more nickel and lithium to power his range of electric vehicles (EVs).

Nickel miners continue to benefit from the EV story but the Diggers winner with battery exposure was Pilbara Minerals which added 2c to 38c after chief executive, Ken Brinsden, talked up his company’s improving production profile and the financial benefits of recent refinancing.

As an event, Diggers & Dealers is undoubtedly over-promoted thanks to its location in an historic mining town and the forced interaction between miners, bankers, investors and the media in a relatively small city on the edge of a desert.

It’s the remote location and the concentrated effects of three days of bragging and boozing which drive the exaggerated claims made by some company promoters, eagerly swallowed by the gullible, which can give the event a bad name.

But there is some good in dumping hundreds of players in the mining game into the same out-of-the-way place at the same time, including the generation of a collective view on what really matters in mining and mineral investment today.

Top of the list of important issues is the need for miners (especially explorers) to continue delivering discoveries because when they’re being made at a time of high commodity prices, magic happens and more money is easily raised, funding more exploration in a self-fulfilling process.

On the flipside there is a need for “dealers” to continue to deliver value creating transactions like the Northern Star/Saracen merger, perhaps through a move by Newcrest on companies with assets near its declining Telfer gold processing plant, with London-listed Greatland Gold a prime target.

What kills this virtuous cycle of wealth creation (* Spoiler Alert) is when the “money miners” enter the game, promoting worthless patches of desert as a way of raising cash from late-comers to the party – a point which will probably be reached sometime in the New Year, with the turn likely to be first noted by a decline in prospectus quality.

 

 

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