Gold is dead, long live gold. But grab some lithium on the way past

A whiff of inflation, and the promise of low interest rates for longer, boosted gold this week, while the rush into battery metals picked up pace which makes it more essential than ever for investors to have exposure to “new energy” metals such as lithium
19th March 2021
Tim Treadgold

A whiff of inflation, and the promise of low interest rates for longer, boosted gold this week, while the rush into battery metals picked up pace which makes it more essential than ever for investors to have exposure to “new energy” metals such as lithium.

Gold, which had been fading for much of the past six months, got a kick from news that the U.S. central bank will sit on official interest rates for another two years, even as its forecast for economic growth in 2021 rises from an already strong 4.2% to a Chinese-style 6.5%

Good news as the growth might be for commodities demand, especially industrial basics such as copper and iron ore, it will require a delicate balancing act to achieve the growth target while also keeping a lid on inflation and that can be quite tricky as the preferred control mechanism of central banks is the cost of money, i.e.: interest rates.

On the market, gold kicked up to $US1754 an ounce before easing to $1748/oz, a gain of $US20oz for the week and up $US61/oz on the low of $US1687/oz reached earlier this month.

Local goldminers reacted positively to the rebound with the ASX gold index adding 3.5% yesterday (Thursday) to 6471 points, back to where it was in late February.

Sector leaders moved up strongly, led by Northern Star which rose by 34c (3%) yesterday to $9.35. Evolution, which announced a significant Canadian acquisition did much the same, up 14c (3.5%) yesterday to $4.21, a gain of 10c for the week.

Interesting as the share prices of gold stocks might be it is the underlying drivers which are more significant because the recovery phase from the Covid19 pandemic promises to be quite exciting.

The $1.9 trillion stimulus package from the U.S. Government will almost certainly be the trigger to allow the inflation genie to escape from her bottle though perhaps not for another 12-to-24 months.

Mid-week comments from the head of the U.S. central bank, Jay Powell, about keeping a lid on interest rates as means of ensuring a strong recovery from the Covid-19 slowdown sent stocks sharply higher on Wall Street, but also caused concern among investors with a longer horizon than the end of next year.

Battery metals, as mentioned earlier, saw a number of significant developments as vehicle makers appear to have suddenly woken to the fact that they might not have secured sufficient supplies to meet demand.

Volkswagen, for example, excited investors early in the week when it unveiled plans to build six big battery factories which will require an estimated 200,000 tonnes of lithium a year, roughly 60% of the world market, without explaining where the lithium will come from.

Simon Moores, chief of the commodity research house Benchmark Mineral Intelligence said the VW announcement showed that car makers ought to be worried about lithium supply. “They’ve spoken about nickel, but they should be worried about lithium right now,” he said.

Other battery metal events during the week included:

  • Confirmation that former Xstrata boss, Mick Davis, is planning to be a major player in the battery space through his new investment vehicle Vision Blue Resources which is raising $US300 million and is targeting graphite, vanadium and lithium.
  • A “prepayment” deal between local lithium producer, Pilbara Minerals and a Chinese battery chemicals maker to help fund an expansion of the Pilgangoora project in WA. On the market, Pilbara added 6c to $1.10.
  • Syrah Resources said it has restarted graphite production at its Balama project in Mozambique, lifting stock by 3c to $1.19 it has now risen by 72c (160%) since November, and
  • The unit price of New York-based Global Lithium and Battery, an exchange traded fund, added $US1.03 to $US61.06, to be up $US41.64 or 217% on this time last year.

 

Iron ore stocks held their ground despite a fresh wave of investment bank reports about an inevitable fall in the price as Chinese demand for steel peaks and rolls over.

Goldman Sachs was the latest doomsayer, but in a cautious way, with what it called a “long road down” which would take iron ore from its current $US165 a tonne to $US135/t over the course of the year, a price which is actually an increase on the bank’s last tip for 2021 of $US120/t.

But, once the slide starts Goldman Sachs reckons it will not stop for quite a while, weighed down by the full-scale return of Brazilian shipments which will drive the iron ore price down to $US95/t in 2022 and then to a long-term price of $US65/t between 2025 and 2030.

Australian iron ore miners were largely unmoved by the Goldman Sachs caution. Fortescue Metals slipped 4c to $20.35. Champion Iron was steady at $6.05. Fenix was up 1c at 23c and emerging producer, Strike Resources moved up an eye-catching 6c to 24c.

Away from the better-known minerals and metals there were interesting “stirrings” in some of the less widely traded materials, including an interesting recovery in tungsten and increasing optimism that uranium is poised for an upward price breakout.

The problem, which investors should note, is that minor metals can stage rapid price moves, either way, a warning that the underlying market for material such as tungsten, despite its appealing chemical and physical properties (think filaments in those now defunct incandescent light bulbs), can be very thin and quickly filled.

Two tungsten deals stood out this week. King Island Scheelite (scheelite is an ore of tungsten, as is wolfram) raised $5.6 million through a share issues priced at 20c with funds earmarked for further work on its Dolphin project on King Island off the coast Tasmania. On the market, the stock added 5c to 30c. It was 3c at this time last year.

The other tungsten deal involved EQR Resources which raise $6.5 million through a share issue priced at 3.2c with funds destined for work on the Mt Carbine project in Queensland. On the market, EQR added 0.4c to 3.9c.

Paladin led the way among uranium stocks with a $218 million capital raising designed to retire debt and restart the Langer Heinrich mine in Namibia. The stock was up 3c at 47c before a trading halt was called.

Other U-stocks moved up thanks to increasing activity in the uranium trading sector. Boss Resources rose by 2c to 17c and Vimy was up 3c at 15c, with interest growing after a reported $12 million purchase of uranium metal by London listed Yellow Cake which buys and holds the fuel.

Copper, which doubles as an industrial and new energy metal, had a mixed week, rising to $US4.16 a pound and then retreating to $US4.11/lb, a yo-yo moves which produced varied results among copper stocks. OZ Minerals added $1.10 to $23.35 while Sandfire was 39c lower to $5.71.

Among the copper explorers there was little market action despite several excellent drilling results.

Hot Chili rose 0.2c to 4.8c after reporting a whopping 813m intercept assaying 0.4% copper and 0.1g/t of gold at its Cortadera project in Chile. Auris was steady at 9.4c after Westgold Resources, its partner in the Forrest prospect near Meekatharra in WA, reported a hit of 1.8% copper over 32m from 111m with a core grading 4.63% coper over 4m.

Other news events and market moves during the week included:

  • Venturex continuing its strong upward run, adding another 8c to 45c as interest builds in its new ownership structure and management team.
  • Sheffield Resources slipped 3c lower to 41c after finalising its joint venture deal with China’s Yansteel over the Thunderbird titanium minerals project in WA.
  • Strandline, which is finalising funding for its Coburn titanium minerals project suffered a similar 3c share price slide to 26c.
  • Strike Energy put oil exploration back in the picture with a strong result from the latest drilling at its West Erregulla gas project near Dongara in WA, including a gross gas column of 206m. Wireline logs are being run soon. On the market, Strike added 2c to 32c.
  • Try hard nickel and gold explorer Rox Resources added 0.6c to 4.2c after attracting an $11 million investment from New York fund manager Tetragon which has also invested in Ora Banda Mining and Capricorn Metals, and
  • Predictive Discovery put on 0.3c to 7c after reporting encouraging assays results from the latest drilling at its Bankan project in the west African country of Guinea with a best hit of 45m at 5.4g/t from a depth of 65m with a 1m core grading 187.5g/t.

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