Discoverers and developers deliver in droves for shareholders

Discovery and development news, which has been largely drowned out by the Ukraine war, made a welcome return this week on multiple fronts with a pair of oil and gas strikes joined by positive moves in gold, iron ore and titanium minerals.
25th March 2022
Tim Treadgold

Small oil and gas explorers led the way with Carnarvon Energy up 4c to 36c over the week, taking its increase over the past month to 14c (63%), followed by Buru Energy, up 6c (31%) this week to 25c.

Oil, up $US17 a barrel to $US120/bbl was a factor in both stocks rising, but the more important elements were Carnarvon’s 30% stake in what looks to be a significant oil discovery off the north-west coast of WA, and Buru hitting what could be a company-changing onshore WA gas discovery.

The Pavo discovery of Santos and Carnarvon will underwrite the financial success of the nearby Dorado project which the two companies are currently developing. Euroz, a stockbroking firm, described Pavo liquids as “super profit oil” while also upgrading its price forecast for Carnarvon to 80c (up 120% on last sales).

Buru, which has been beavering away in the remote desert country south of Derby for more than a decade, said testing of the Rafael strike had revealed high quality (low carbon dioxide) gas with a contingent resource expected to be released next month.

Other small oil and gas stocks have also started to move higher as the global squeeze on supplies of liquid fuels (oil and gas) tightens. Bounty Oil & Gas played the “nearology” card by pointing to its Cerberus drill target close to Pavo, while Vintage Energy said it was preparing to drill the Cervantes onshore well north of Perth. Bounty shares were steady at 1.2c, Vintage added 2c to 12c.

Oil sector leaders Woodside, Santos and Beach all gained ground. Woodside added $1.55 to $33.31. Santos rose by 39c to $7.94 and Beach gained 3.5c to $1.63.

Investors can expect to hear a lot more about oil, gas, and coal over the rest of the year as supplies of Russian material are squeezed out of the global market.

Goldman Sachs, an investment bank, reckons oil is heading for an all-time high of $US175/bbl and the International Energy Agency has warned that the world faces an oil supply (and price) shock similar to that of the 1970s when Middle East producers embargoed exports to the western world.

Other discovery and development news included:

  • Strandline Resources, up 8.5c (24%) to 43c after announcing receipt of environmental approvals for its Tajiri mineral sands project in Tanzania and after concluding a successful site visit by bankers to its Coburn development in WA.
  • Kingfisher Mining, up 1.5c to 27c after reporting high-grade rare earth assays from the first hole in its Mick Well project in WA’s Gascoyne region.
  • Riversgold, up 2.8c to 6.5c after reporting high-grade lithium assays of up to 2% from its Tambourah project in WA’s Pilbara region.
  • Black Canyon, up 6c to 33c after reporting shallow manganese intersections at its Flanagan Bore project in WA.
  • Panther Metals, up 1.5c to 25c after reporting high grade nickel and cobalt assays from drilling at its Coglia prospect in WA’s Pilbara region with a best hit of 21 metres at 1.34% nickel from a depth of 72m.
  • Los Cerros, up 2c to 13c after reporting a 1.3-million-ounce maiden gold resource in the Tesorito deposit which is part of the 2.6Moz Quinchia project in Colombia, and
  • Grange Resources, up 10c to $1.10 after announcing a revised prefeasibility study into its long-delayed Southdown magnetite iron ore project on WA’s south coast.

Events in Ukraine which dominated news flow during the week, were largely ignored by investors, for now, despite the prospect of a future global shortage of liquid fuels especially diesel.

Australian miners are heavily dependent on diesel which is one of their biggest costs and as the price rises it is possible that gains made from higher metal prices will be consumed by higher fuel prices, especially if a diesel drought develops.

Vitol, a Swiss energy trader, warned during the week that a systematic diesel shortfall was developing as Russian oil is squeezed out of the market.

Despite the warning signs, the overall strength of the commodity sector is being aided by China’s economy starting a fresh growth spurt and by the rush to replace Russian material, points highlighted during the week in a study by Citi, and investment bank.

According to Citi, the overall commodities complex has delivered a return to investors of 25% since the start of 2022, significantly outperforming U.S. equities, which are down 7% and U.S. credit which is down 8%.

Oil was the top sector with a 48% return in the first three months of the year, followed by industrial metals and grains, which are up 30%.

Gold, which has retreated from its early-March high of $US2039 an ounce to around $US1941/oz could push up to $US2100 over the next few months, according to Citi, given its appeal as a safe haven at times of rising inflation.

Australian gold stocks were mixed with Bellevue one of the best performers with a rise of 7c to 98c, offset by falls from De Grey, down 5.8c $1.25 and Evolution, down 2c to $4.46.

Nickel, which was in the news for the wrong reason earlier this month thanks to a massive short squeeze on the London Metal Exchange, continued to trade at elevated levels but nowhere near the $US100,000 a tonne at the height of the crisis.

The latest nickel price of $32,300/t is still hugely profitable for most nickel producers with the top local performer this week being Ardea Resources, which has received Australian Government support for its delayed Kalgoorlie Nickel Project, news which saw the stock add 66c (67%) to $1.62.

Other nickel moves included Western Areas, up 6.5c to $3.60, while Mincor put on 19c to $2.18 after announcing the production of first ore from its new Cassini mine – followed by Euroz tipping a future price for Mincor of $2.50.

Other news and market moving events this week included:

  • A fresh burst of fund raising to capitalise on strong commodity markets. Ora Banda completed a $20 million raising. Bannerman raised $40.7 million with another $5 million to come from a share purchase plan. Eagle Mountain raise $16 million, and Piedmont topped them all with a $US113 million raising for its lithium projects.
  • New Hope led a stronger group of coal miners with a rise of 48c to $3.41 but one broker, Morgans, reckons it can’t rise any further while MacQuarrie has $4.50 has the target price.
  • Battery metal stocks rode intensifying interest in electric vehicles as the price of oil heads higher. Pilbara Minerals was the pick of the lithium producers, up 41c to $3.12 while Liontown put on 31c to $1.88.
  • Iron ore stocks benefited from a modest uptick in the price of the material to $US142 a tonne with Fortescue up 44c to $18.94 and Champion Iron up 30c to $7.06, and
  • Hillgrove added 1.4c to 6.7c after reporting thick and high-grade copper intersections from the latest drilling its Kavanagh prospect with a best hit of 36.5m at 1.76% copper, plus 0.29 grams of gold per tonne.

 

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