Gold and oil stocks hitch a ride on rising market volatility

13th April 2018
Tim Treadgold

Oil at a three-year high and gold not far behind were the best indicators this week that financial markets are becoming more volatile and while it might seem hard to pick winners at times like these, they are actually quite obvious – they’re stocks exposed to gold and oil.

Fortunately for Australian investors, there is a smorgasbord of choice in those two commodities – and other sectors likely to benefit from what’s agitating the rest of the world.

Most gold stocks moved higher this week, including Evolution which hit a 12-month high of $3.34 in early Thursday trade along with St Barbara, which traded up to a high of $4.32, while Regis reached its 12-month high of $4.78 on Tuesday.

Beach was one of the stronger oil stocks with a rise of 12c over the week to $1.38. Woodside put on 63c to $30.45, and takeover target Santos was 16c higher at $5.98.

Among the base metals it was aluminium which made the most news as it became a global commodity flashpoint after the U.S. banned any business dealings with the giant Russian aluminium maker, Rusal – a move which has hammered Russian financial markets.

Bad news for some companies, the aluminium issue – and problems with an alumina refinery in Brazil – has produced one significant Australian beneficiary, the ASX-listed Alcoa associate, Alumina Ltd, which added 17c (6%) to $2.52 this week, taking its gain over the past 12-months to 80c (48%).

Rio Tinto is also riding the aluminium wave as its once deeply unloved Alcan subsidiary in Canada emerges as safe way for car makers and other aluminium users to buy the metal without inviting a visit from U.S. Government officials.

Russian problems, which appear to heading towards boiling point, could tip financial markets into a slump, but if the country becomes more isolated from the rest of the world (as seems likely) it could be to the benefit of Australian resource companies.

The question which is generating debate in the commodity trading world is essentially one of “what’s next” in the Russia v U.S. dispute – with one company having the potential to do to nickel what the U.S. ban on Rusal has done to aluminium.

Norilsk, a business with very deep connections Moscow, is one of the world’s biggest suppliers of nickel and palladium, the former used in stainless steel (and batteries) and the latter in conventional vehicle exhaust systems.

If Norilsk is added to the list of companies banned by the U.S. then Australian nickel stocks could be significantly re-rated.

Signs of a significant upward movement in nickel emerged two weeks ago with the latest price of $US6.26 a pound close to the four-year peak reached in January, with rub-off benefits starting to be seen in local nickel stocks.

Western Areas, for example, added 10c to $3.35 this week, taking its one-month gain to 34c – a move which has had the effect of removing the company from the list of the most heavily short-sold stocks on the ASX.

Mincor has also been in recovery mode, rising by 4c this week to 38c.

Independence Group, which has both nickel and gold production, rose by 3c to $5.11, but is now up 41c over the past four weeks.

Away from global events (which have the potential to take a turn for the worse if the Syrian crisis worsens), it was a mixed bag of good and bad news among resource stocks.

The worst news came from emerging gold producer Kin Mining, which slumped by 11c (42%) to 15c after stopping work on its Leonora Gold Project because of rising costs.

Other stocks to catch the eye of investors during the week included:

  • Mineral Resources, which slipped 16c lower to $16.42 after announcing an all-share takeover bid for Atlas Iron. The deal, if consummated, will provide MinRes with more port access for its iron ore and lithium exports and provide an incentive to develop its light rail system, which has the potential to re-awaken the small iron ore sector. Atlas also moved lower, shedding 0.4c to 2.6c.
  • Fortescue Metals climbed out of its price slump after last week’s report of heavy discounting of iron ore starting to ease. The stock added 22c to $4.48 and earned a fresh buy tip from the stockbroking firm Ord Minnett, which is tipping a price target of $5 a share.
  • Orocobre went for a wild ride after confirming that rain and thick cloud cover had hurt the production of lithium from its South American brine lake. The stock has lost $1.47 over the past two weeks, but it stabilised this week to end square at $4.76 and remained on the buy list of Citi, which sees $7.80 as the price target, and Macquarie, which is forecasting a future price of $6.76.
  • Stavely Minerals continued to enjoy exploration success at its Thursday Gossan base metal project in Victoria, with the latest drilling encountering a 124m intercept of the M-veins in the structure. On the market Stavely rose by 3c to 32c.
  • Salt Lake Potash added 4c to 60c after announcing an off-take deal with Japan’s Mitsubishi for potash to be produced from its Goldfields Salt Lakes Project in WA.
  • Pantoro put on 2c to 34c after releasing an optimistic preview of its March quarter report scheduled for later in the month, with gold production totalling 13,285 ounces – down slightly on the 13,841oz produced in the December quarter.
  • Vital Metals reported a promising gold assay from drilling at its Bella Tondo project in the African country of Niger with a best hit of 2 metres at 48.4 grams a tonne. Investor wanted more, marking the stock down by 0.1c to 0.9c.
  • POZ Minerals suffered a similar fate, reporting a significant development at its Ellendale diamond project in WA with the acquisition of equipment for a bulk sampling plant. The stock eased back by 0.3c to 8.7c.
  • Cygnus Gold said it was getting ready to drill its high priority Stanley target in its WA wheatbelt gold search, only to shed 3c to 19c; and
  • Vimy Resources said it was poised to get the benefit of battery-metal by-products such as copper, zinc, nickel and cobalt from its Mulga Rock uranium project in WA, a report which failed to shift the stock from its starting point for the week of 14c.

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